KTD closed at 23.5 cents on the day of the release of its previously quarterly update and cash flow statement (29/1/21). Today it closed at 16 cents. If you looked at nothing else, you could assume that the report released today was not an impressive one.Indeed, it was not.Receipts from customers was up to 13.7 from 12.7 million last quarter. However, product manufacturing and operating costs were up 3 million, leading to a cash outflow for the quarter of 3 million. That leaves the company just over 4 million left in the bank.What happened?Positive news firstly. Really just one. The NZ dairy business. It contributed 3.4 million (2.6 million previous quarter) to those cash receipts.Negatives.1. Delays in shipping and logistics impacted access to ingredients and packaging. This will result in a shift in sales to some clients into the next quarter.2. Holding higher inventory to avoid further delays in supply of clients.3. Rising ingredient prices. In some instances, up 40%. The company reassures us that this will be passed on in the pricing of the final products (when they are moved from inventory to sales). Who says there is no inflation!4. Securing a new warehouse for inventory storage.5. One off costs in this quarter related to redundancies, employee entitlement payouts and cessation of multiple contractor/advisor relationships.6. Reduced sales in brands division to 923 thousand versus 1.3 million in the previous quarter. Its proprietary brands include Tonik, SuperCubes, KeyDairy and Gran's fudge. The company has associated this with reduced marketing spend. However, the biggest blow was delisting of SuperCubes purees from Woolworths. No matter how its spun (will remain in independent supermarkets and other select retailers), this is not a good outcome for the future of SuperCubes. Not surprising then that the Class G performance shares (2.2 million of them) related to this brand has lapsed. There are still another 3.3 million related to SuprCubes sales, based on FY 22, that will also likely lapse.With respect to the performance shares, it is important to note that because of NZ dairy's performance, 16.5 million shares have been converted to ordinary shares.There are too many issues here, and this is on top of the continuing insider selling. The key proprietary brand for me is Tonik. I would be interested to see the margin on this product compared to some of their others. Its impact however is being diluted.Management are going to have a testing couple of quarters. There is a lot of reassurance in this update that things will be okay in a couple of quarters. Let us see. This is no longer a buy, but a hold.
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