Filed Pursuant to Rule 424(b)(3)
Registration Nos. 333-260109 and 333-260880
Prospectus Supplement No. 8 to Prospectus dated
November 8, 2021
Stran & Company, Inc.
4,337,349 Units
Each Unit Consisting of One
Share of Common Stock and One Warrant to Purchase One Share of Common Stock
This Prospectus Supplement No. 8 (“Prospectus
Supplement No. 8”) relates to the Prospectus of Stran & Company, Inc., dated November 8, 2021 (the “Prospectus”),
relating to the initial public offering of 4,337,349 units, each unit consisting of one share of common stock, par value $0.0001 per share,
and a warrant to purchase one share of common stock.
This Prospectus Supplement No. 8 is being filed to
include the information set forth above and in our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission
(the “SEC”) on March 28, 2022.
This Prospectus Supplement No. 8 should be read
in conjunction with the Prospectus and Prospectus Supplement No. 1 filed with the SEC on November 26, 2021, Prospectus Supplement No.
2 filed with the SEC on December 7, 2021, Prospectus Supplement No. 3 filed with the SEC on December 13, 2021, Prospectus Supplement No.
4 filed with the SEC on December 20, 2021, Prospectus Supplement No. 5 filed with the SEC on January 27, 2022, Prospectus Supplement No.
6 filed with the SEC on February 1, 2022, and Prospectus Supplement No. 7 filed with the SEC on March 16, 2022 (the “Prior Supplements”)
and is qualified by reference to the Prospectus and the Prior Supplements, except to the extent that the information in this Prospectus
Supplement No. 8 supersedes the information contained in the Prospectus and the Prior Supplements, and may not be delivered without the
Prospectus and the Prior Supplements.
Our common stock is traded under the symbol “STRN”
and our warrants are traded under the symbol “STRNW,” both on the Nasdaq Capital Market. On March 25, 2022, the closing price
of our common stock and warrants on the NASDAQ Capital Market was $1.67 and $0.3746, respectively.
We are an “emerging growth company” under applicable
federal securities laws and as such, we have elected to comply with certain reduced public company reporting requirements for the Prospectus
and future filings.
INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE
OF RISK. YOU SHOULD CAREFULLY READ AND CONSIDER THE “RISK FACTORS” BEGINNING ON PAGE 15 OF THE PROSPECTUS.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The date of this Prospectus Supplement No. 8 is
March 28, 2022.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended:
December 31, 2021
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from ____________ to _____________
Commission File No. 001-41038
| STRAN
& COMPANY, INC. |
| (Exact name of registrant as specified in its charter) |
| Nevada |
|
04-3297200 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
| |
|
|
| 2
Heritage Drive, Suite 600, Quincy, MA |
|
02171 |
| (Address of principal executive offices) |
|
(Zip Code) |
| 800-833-3309 |
| (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b)
of the Act:
|
Title of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
| Common Stock, par value $0.0001 per share |
|
STRN |
|
The NASDAQ Stock Market LLC |
| |
|
|
|
|
| Warrants, each warrant exercisable for one share of Common Stock at
an exercise price of $4.81375 |
|
STRNW |
|
The NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g)
of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| |
Large accelerated
filer ☐ |
|
Accelerated filer ☐ |
| |
Non-accelerated filer ☒ |
|
Smaller reporting company ☒ |
| |
|
|
Emerging growth company ☒ |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm
that prepared or issued its audit report. ☐
Indicate
by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The
registrant was not a public company as of the last business day of its most recently completed second fiscal quarter and, therefore,
cannot calculate the aggregate market value of its voting and non-voting common equity held by non-affiliates as of such date.
As of March 24, 2022, there were a total of 20,019,333
shares of the registrant’s common stock outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
Stran & Company, Inc.
Annual Report on Form 10-K
Year Ended December 31, 2021
TABLE OF CONTENTS
INTRODUCTORY NOTES
Use of Terms
Except as otherwise indicated by the context
and for the purposes of this report only, references in this report to “we,” “us,” “our,” the “Company,”
“Stran,” and “our company” are to Stran & Company, Inc., a Nevada corporation.
Note Regarding Forward Stock Split
Except as otherwise specifically indicated, all
information in this Annual Report on Form 10-K has been retroactively adjusted to give effect to a 100,000-for-1 forward stock split
of our outstanding common stock through our reincorporation merger in Nevada that was effective as of May 24, 2021. References to number
of shares of our common stock after May 24, 2021 have given effect to this split.
Note Regarding Trademarks,
Trade Names and Service Marks
We use various trademarks, trade names and service
marks in our business, including “STRÄN,” “STRÄN promotional solutions” and “Stran Promotional
Solutions”. For convenience, we may not include the SM, ® or ™ symbols, but such omission is not
meant to indicate that we would not protect our intellectual property rights to the fullest extent allowed by law. Any other trademarks,
trade names or service marks referred to in this report are the property of their respective owners.
Note Regarding Industry and Market Data
This report includes industry data and forecasts
that we obtained from industry publications and surveys including but not limited to certain publications of the promotional products
member groups Advertising Specialty Institute (ASI) and the Promotional Products Association International (PPAI), as well as public
filings and internal company sources. Industry publications, surveys and forecasts generally state that the information contained therein
has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of the included
information. Statements as to our ranking, market position and market estimates are based on third-party forecasts, management’s
estimates and assumptions about our markets and our internal research. We have not independently verified such third-party information,
nor have we ascertained the underlying economic assumptions relied upon in those sources, and we cannot assure you of the accuracy or
completeness of such information contained in this report. Such data involve risks and uncertainties and is subject to change based on
various factors, including those discussed under “Risk Factors” and “Note Regarding Forward-Looking Statements.”
Note Regarding Forward-Looking Statements
This report contains forward-looking statements
that are based on our management’s beliefs and assumptions and on information currently available to us. All statements other than
statements of historical facts are forward-looking statements. These statements relate to future events or to our future financial performance
and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance
or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied
by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
| ● | the
impact of the COVID-19 pandemic on our operations and financial condition; |
| ● | the
timing, availability and effects on our stock price and financial condition of our share
repurchase program; |
| ● | our
goals and strategies; |
| ● | our
future business development, financial condition and results of operations; |
| ● | expected
changes in our revenue, costs or expenditures; |
| ● | growth
of and competition trends in our industry; |
| ● | our
expectations regarding demand for, and market acceptance of, our products; |
| ● | our
expectations regarding our relationships with investors, institutional funding partners and
other parties with whom we collaborate; |
| ● | our
expectation regarding the use of proceeds from our initial public offering; |
| ● | fluctuations
in general economic and business conditions in the markets in which we operate; and |
| ● | relevant
government policies and regulations relating to our industry. |
In some cases, you can identify forward-looking
statements by terms such as “may,” “could,” “will,” “should,” “would,” “expect,”
“plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,”
“potential,” “project” or “continue” or the negative of these terms or other comparable terminology.
These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and
unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results.
Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under
Item 1A “Risk Factors” and elsewhere in this report. If one or more of these risks or uncertainties occur, or if our
underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the
forward-looking statements. No forward-looking statement is a guarantee of future performance.
In addition, statements that “we believe”
and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available
to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information
may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or
review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not
to unduly rely upon these statements.
The forward-looking statements made in this report
relate only to events or information as of the date on which the statements are made in this report. Except as expressly required by
the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result
of new information, future events, changed circumstances or any other reason.
PART I
ITEM 1. BUSINESS.
Overview
We are an outsourced marketing
solutions provider, working closely with our customers to develop sophisticated marketing programs that leverage our promotional products
and loyalty incentive expertise. We develop long-term relationships with our customers, enabling them to connect with both their customers
and employees in order to build lasting brand loyalty. It is our mission to drive brand awareness and affect behavior through visual,
creative, and technology solutions.
We purchase products and
branding through various third-party manufacturers and decorators and resell the finished goods to customers. In addition to selling
branded products, we offer our clients:
| ● | custom
sourcing capabilities; |
| ● | a
flexible and customizable e-commerce solution for |
| ● | promoting
branded merchandise and other promotional products; |
| ● | managing
promotional loyalty and incentives, print collateral, and event assets; |
| ● | order
and inventory management; and |
| ● | designing
and hosting online retail popup shops, fixed public retail online stores, and online business-to
business service offerings; |
| ● | creative
and merchandising services; |
| ● | warehousing/fulfillment
and distribution; |
| ● | print-on-demand,
kitting, and point of sale displays; and |
| ● | loyalty
and incentive programs. |
These valuable services, as well as the deep
level of commitment we have to the business operations of our customers, have resulted in a strong and stable position within the industry.
We specialize in managing complex promotional
marketing programs to help recognize the value of promotional products and branded merchandise as a tool to drive awareness, build brands
and impact sales. This form of advertising is very powerful and impactful and particularly effective at building brand loyalty because
it typically uses products that are considered useful and appreciated by recipients and are retained and used or seen repeatedly, repeating
the imprinted message many times without adding cost to the advertiser. We have built the tools, processes, relationships and the blueprint
to maximize the potential of these products and deliver the most value to our customers.
For over 25 years we have
grown into a leader in the promotional products industry, ranking 30th overall and 22nd fastest-growing in the United States on Print+Promo
Marketing’s 2021 Top Distributors list, and 32nd based on ASI’s Counselor magazine 2021 Top 40 Distributors
list, from over 40,000 promotional products businesses. Since our first year of operations in 1995, our annual revenues have gradually
grown from approximately $240,000 to over $39.7 million in 2021, a compound annual growth rate of approximately 22%, and between 2017
and 2021, our revenues grew at a compound annual growth rate of approximately 19%. During 2017 through 2021, we had consistent gross
margins of approximately 30%, and processed over 25,000 customer orders per year.
Our 2020 revenues and gross
margins include nonrecurring revenues representing 27.1% of our overall revenues for 2020, as a subcontractor for the 2020 U.S. Census.
The customer that engaged us in this regard will not renew their engagement with us due to the U.S. Census only occurring once every
ten years. As a result, these nonrecurring revenue increases have not recurred and are not expected to recur and do not represent our
long-term growth expectations.
As of December 31, 2021,
we had total assets of $51.2 million with total shareholder equity of $41.6 million.
We serve a highly diversified
customer base across many industry verticals including pharmaceutical and healthcare, manufacturing, technology, finance, construction
and consumer goods. Many of our customers are household names and include some of the largest corporations in the world.
Our sales increased 5.2% year-over-year in 2021
compared to 2020, which we believe was primarily due to higher spending from existing clients as well as business from new customers.
Additionally, we benefited from the acquisition of the Wildman Imprints assets in September 2020. However, these increases in sales were
partially offset by the completion of the U.S. Census program in 2020, market saturation of personal protective equipment in 2021, a
lack of in-person events, businesses still not being fully reopened throughout 2021 as a result of the COVID-19 pandemic, and continuing
supply chain problems. For further discussion, see “COVID-19 Pandemic”
below.
Our headquarters are located
at Quincy, Massachusetts, with additional offices located in Gloucester, Massachusetts; Warsaw, Indiana; Fairfield, Connecticut; and
Mt. Pleasant, South Carolina. We also have sales representatives in twelve additional locations across the United States and a network
of service providers in the U.S. and abroad, including factories, decorators, printers, logistics firms, and warehouses.
Our Industry
Overview of Promotional Products Market
The promotional products industry is large yet
highly-fragmented, with thousands of smaller participants and indications of a lack of market power in any one firm or group of firms.
The industry has generally experienced growth as businesses continuously invest in sophisticated marketing campaigns involving multiple
types of advertising. Promotional products are items used to promote a product, service or company program including advertising specialties,
premiums, incentives, business gifts, awards, prizes, commemoratives and other imprinted or decorated items. They are usually given away
by companies to consumers or employees. The largest promotional products trade organizations are the Advertising Specialty Institute
(ASI) and Promotional Products Association International (PPAI).
U.S. Promotional Products is a Large and Growing Market
According to the ASI, the U.S. market for promotional
products exceeded $23 billion in 2021 and includes over 40,000 businesses. Moreover, the promotional products market is only one segment
of a total addressable market of possibly up to $384 billion based on the size of the product packaging market ($180 billion as of 2019,
according to Statista, a leading provider of market and consumer data); the loyalty incentive programs market ($90 billion annually according
to the Incentive Marketing Association, the umbrella organization for suppliers in the incentive marketplace); the printing market ($75
billion as of 2021, according to IBISWorld, an industry research provider); and the tradeshow market ($17 billion projected for 2021,
according to MarketingCharts.com, a provider of marketing data, graphics, and analyses).
We believe that U.S. promotional products spending
has been severely impacted by the COVID-19 pandemic. According to ASI, promotional product distributor sales decreased nearly 20% from
$25.8 billion in 2019 to $20.7 billion in 2020. Although promotional product distributor sales increased approximately 12% from $20.7
billion in 2020 to $23.2 billion in 2021, they were still below the $25.8 billion industry record set in the last full pre-pandemic year
of 2019.
The Promotional
Products Industry Is Resilient To Other Forms of Advertising
The promotional products
industry is relatively insulated from other forms of advertising such as television and digital advertising. Although promotional products
compete for space within an advertising budget with other forms of advertising, particularly online advertising, they offer distinct
benefits, particularly due to their physical nature, which may help distributors and suppliers continue to sell these products and related
services despite these budgetary pressures. Data shows that promotional products are more effective in generating brand recognition and
sales than other forms of advertising, including television and online advertisements. These factors help shield established industry
firms like ours from the technological and competitive disruption experienced by other types of media advertisers.
The Promotional Products Industry is Highly
Fragmented
The promotional products
industry is also highly fragmented. The industry includes over 40,000 firms. As of 2020 the firm with the greatest percentage of industry
sales generated $766 million in revenue but made up only approximately 3.7% of the $20.7 billion in revenues generated in 2020 by promotional
products distributors, based on information reported by ASI. As a group, the top 40 distributors had approximately 34% market share as
of 2020, based on total sales of approximately $7.0 billion out of total promotional products distributors’ revenues for 2020 of
$20.7 billion, based on ASI’s reports.
Unlike our company, which
provides comprehensive solutions to complex promotional and branding challenges, we view most of our competitors as generally falling
into one of the five categories below:
| ● | Online
e-tailer. Heavily rely on marketing and online advertising to sell directly to businesses,
offering little or no strategic support or program infrastructure. |
| ● | Franchise
Model. Consists of many smaller firms or independent representatives without a consistent
strategic vision. They do not offer consistent pricing and have fragmented service capabilities. |
| ● | Large
and Inflexible. Focus on large enterprise customers, struggling to serve the needs of
smaller spend opportunities (less than $3 million annually). They tend to lack in delivering
a high level of service and are limited in their ability to react to changes in the market. |
| ● | Non-Core
Offering. Offer promotional merchandise as an add-on to their core business or have grown
through acquisition without any unification strategy. |
| ● | Small
Mom-and-Pop. Have little or no infrastructure or executive oversight. Do not have the
financial backing, technology, or infrastructure to support growth or ability to execute
comprehensive marketing programs or large opportunities. |
Promotional Products are a High-impact,
Cost-effective Advertising Medium
Because promotional products are useful and appreciated
by recipients, they are retained and used, repeating the imprinted message many times without added cost to the advertiser. ASI’s
Global Ad Impressions Study, 2020 Edition, reported:
| ● | Promotional
products are the most highly regarded form of advertising, more than newspapers, radio, magazine,
television, Internet, or mobile ads. |
| ● | Up
to 85% of promotional products recipients remember the advertiser worldwide. Recall is highest
for apparel items, as 85% recall the advertiser that gave them a shirt or hat. |
| ● | 40%
of consumers who own promotional products report that they have kept some for more than 10
years, suggesting that businesses using promotional products may generate long-term revenues
and other valuable goodwill from them. |
| ● | Nearly
one-quarter (23%) of consumers reported that they purchased a promotional product in the
last year, showing one way that promotional products can be cost-effective advertising tools. |
In 2018, PPAI reported that promotional products
are the most impactful form of advertising across all generations. Whereas reportedly less than 55% of consumers read or watch an entire
advertisement online, in an email, on television, in the mail, in a magazine, or on the radio, over 80% of consumers retain promotional
products. Moreover, promotional products have been ranked the most effective form of advertising across all generations, outranking even
television, online, print, and mobile forms. A 2019 PPAI report revealed additional statistics reflecting the significant impact of promotional
products on consumers:
| ● | 96%
of consumers like to know ahead of time when companies offer promotional products. |
| ● | Eight
out of ten consumers enjoy receiving promotional products. |
| ● | Seven
in ten consumers would like to receive promotional products more often. |
| ● | 79%
of consumers, including over a third of Millennials and 20% of Generation Z consumers, pass
on promotional products that they no longer want, increasing their potential reach and effectiveness. |
Nearly all consumers say they would go out of
their way to receive promotional products.
As of 2016, PPAI reported that, overall, buyers
consider promotional products mostly or always effective in achieving marketing goals. They generally consider promotional products more
effective than social media and nearly as effective as all other media. Data indicates that the majority of buyers do have a budget set
aside for promotional products. However, for more than 72% the allocation is less than 20% of their marketing advertising budget. When
asked what their plans were for promotional products spend over the next 12 months, only 3% projected a decrease in product purchases.
This data suggests that the potential for promotional products’ market growth is significant.
The COVID-19 Pandemic’s Effects on
the Promotional Products Industry
As in many other industries, we believe that
the COVID-19 pandemic has weakened many promotional products distributors. According to ASI, the promotional products industry experienced
a nearly 20% sales decline in 2020 to $20.7 billion compared to the $25.8 billion industry record set in the last full pre-pandemic year
of 2019. Print+Promo Marketing’s 2021 Top Distributors report, which ranked the top 75 distributors based on 2020 sales,
found that 42 (56%) experienced sales decreases in 2020 compared to the prior year. According to ASI the promotional products industry
in 2021 experienced a sales increase of approximately 12% to $23.2 billion and nearly three-quarters of distributors (72%) increased
annual revenue as COVID-19 vaccines became widely available and pockets of the U.S. economy began to reopen. In terms of the top five
vertical markets, the most opportunities for Print+Promo Marketing’s 2021 Top Distributors were those in Health Care (listed
37 times), Financial (listed 26 times), Retail (listed 20 times), Technology (listed 20 times), and Manufacturing (listed 18 times).
A recent forecast from global advertising corporation
WPP plc’s ad-buying unit GroupM found that there appears to be a “K-shaped” recovery for the advertising industry as
well as the overall U.S. economy. The “K” shape indicates a quick rebound for some marketers and a continued downward trajectory
for others. For example, e-commerce and advanced digital services such as telehealth and remote learning have exploded during the COVID-19
pandemic. On the other hand, restaurants, bars, travel, entertainment and nonessential businesses have all suffered. Overall, those dependent
on traditional media including radio, newspapers and outdoor advertising, and those whose clients were largely nonessential services
such as restaurants, bars, travel, entertainment have all suffered. On the other hand, demand for e-commerce and advanced digital services
such as telehealth and remote learning, and home refinancings and the banking industry in general, have massively accelerated and saw
record volumes during the COVID-19 pandemic.
The COVID-19 Pandemic’s Effects on Our Business
We believe that the COVID-19 pandemic has impacted
Stran’s operational and financial performance. As was typical for other firms in the promotional products industry, from March
2020 through the end of 2021, we believe that our revenues were adversely affected by decreased demand for promotional products and services
such as ours due to a lack of in-person events, businesses not being fully reopened and staffed, and customers’ decreased marketing
budgets. We also experienced higher costs of supplies of product materials due to continued increases in expenses, especially higher
freight charges and raw material costs, and a more challenging supply chain from issues such as port congestion. We expect these effects
to continue in 2022.
We have responded to the challenges resulting from the COVID-19 pandemic by developing a clear company-wide strategy and sticking to
our hardworking culture and core value of delivering creative merchandise solutions that effectively promote our customers’ brands.
We continue to focus on our core group of customers while providing additional value-added services, including our e-commerce platform
for order processing, warehousing and fulfillment functions, and propose alternative product offerings based on their unique needs. We
also continue to solicit and market ourselves to long-term prospects that have shown interest in Stran. We have remained committed to
being a high-touch customer-focused company that provides our customers with more than just products. Below are some of the specific
ways we have responded to the current pandemic:
| ● | Adhered
to all state and federal social distancing requirements while prioritizing health and safety
for our employees. We allow team members to work remotely when necessary, allowing us to
continue providing uninterrupted sales and service to our customers throughout the year. |
| ● | Emphasized
and established cost savings initiatives, cost control processes, and cash conservation to
preserve liquidity. |
| ● | Explored
acquisition opportunities and executed the acquisitions of the customer base of Wildman Imprints
with historical revenue exceeding $10 million annually in September 2020 and the promotional
products business of G.A.P. Promotions with 2021 revenue of approximately $7.2 million in
January 2022. |
| ● | Retained
key customers through constant communication, making proactive product or program suggestions,
driving program efficiencies, and delivering value-added solutions to help them market themselves
more effectively. |
| ● | Concentrated
and succeeded in earning business from clients in specific verticals that have spent more
during the pandemic including customers in the entertainment, beverage, retail, consumer
packaged goods, and cannabis industries. |
| ● | Retained
key employees by continuing to provide them with competitive compensation and the tools required
to be successful in their jobs. |
| ● | Successfully
applied for and received Paycheck Protection Program (“PPP”) loans and government
assistance. |
| ● | Refocused
our marketing activities on more client-specific revenue generating activities that reduced
spend while remaining effective. |
We believe that we have seen encouraging signs
of recovery from the effects of the COVID-19 pandemic. There has been a significant increase in the amount of requests for proposal and
other customer inquiries since the beginning of 2021, which leads us to believe that companies are preparing to spend at previous or
increased levels. We expect going forward that pent-up demand from more widespread immunity to the COVID-19 virus and societal reopening
will help compensate for lower sales in prior periods.
For a further discussion of the impact of the
COVID-19 pandemic on our business, please see the discussion in “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and in particular the subsection entitled “Impact of COVID-19 Pandemic”.
Competitive Strengths
We believe our key competitive strengths include:
| ● | Superior
and Distinctive Technology. We have invested in sophisticated, efficient ordering and
logistics technology that provides order processing, warehousing and fulfillment functions.
We continue to invest in our technology infrastructure, including many customized solutions
developed on Adobe Inc.’s open-source e-commerce platform, Magento. We have also
invested in a new Enterprise Resource Planning (ERP) system, Oracle’s NetSuite, which
will consolidate the process of gathering and organizing business data of our company through
an integrated software suite, and is expected to be implemented by
the first half of 2022. |
| ● | Leading
Market Position. Our over 25 years’ history and size make us a leader in the U.S.
promotional products industry. We believe that the key benefits of our scale include an ability
to efficiently implement large and intensive programs; an ability to invest in sales tools
and technologies to support our customers; and operating efficiencies from our scalable infrastructure.
We believe our market position and scale enhances our ability to increase sales to existing
customers, attract new customers and enter into new markets. |
| ● | Extensive
Network. We have developed a deep network of collaborator factories, decorators, printers,
and warehouses around the globe. This network helps us find the right solution to meet our
customers’ needs, whether they are financial, timing, geographic, or brand goals. This
model provides the flexibility to proactively manage our customers’ promotional needs
efficiently. As a result, we believe that we have an excellent reputation with our customers
for providing a high level of prompt customer service. |
| ● | Customer-Centric
Approach. Our customer-centric approach is what has fueled our growth since our inception
and our early adoption of technology to solve challenges for our clients set us apart in
our early growth. We strive to understand the goals and challenges that our customers face,
building unique solutions and seeing each campaign through to completion as an extension
of their team. |
| ● | Diversified
Customer Base. We sell our products to over 2,000 active customers and over 30 Fortune
500 companies, including long-standing programs with recurring revenue coming from well recognized
brands and companies. During 2020, we were engaged by a Washington, D.C.-based advertising
and marketing company leading a nationwide awareness-generating initiative for the 2020 U.S.
Census. During this period, this contract represented approximately 27.1% of our overall
revenues for 2020. This customer will not renew their engagement with us due to the U.S.
Census only occurring once every ten years. As a result, these nonrecurring revenue increases
have not recurred, are not expected to recur, and do not represent our long-term growth expectations.
Excluding the 2020 U.S. Census program customer, our largest customer accounted for 10.1%
and 7.5% of overall revenue during 2020 and 2021, respectively. Our top 10 customers in 2020
and 2021, including the 2020 U.S. Census program customer, contributed 56.9% and 44.8% of
revenue, respectively. Excluding the 2020 U.S. Census program customer, our top 10 customers
in 2020 and 2021 generated 31.20% and 44.8% of revenue, respectively. Our customers span
many industries, including pharmaceutical and healthcare, manufacturing, technology, finance,
construction and consumer goods. |
| ● | Experienced
Senior Management Team. Our senior management team, led by our co-founder and Chief Executive
Officer, Andrew Shape, is comprised of seasoned industry professionals and veterans of our
company. Our senior management has an average of over 20 years of experience in the promotional
products industry. |
| ● | Asset
Acquisition Experience. In September 2020, we acquired all of the customers of the promotional
products business Wildman Imprints in an asset purchase. In 2019, that business recorded
over $10 million in revenue. In January 2022, we purchased the promotional products business
and assets of G.A.P. Promotions, with 2021 revenue of approximately $7.2 million. We continue
to explore and pursue additional acquisition opportunities that are appropriate. Please see
“Growth Strategies – Selectively Pursue Acquisitions” below for
a discussion of our asset acquisition experience and strategy. |
Growth Strategies
The key elements of our strategy to grow our
business include:
| ● | Selectively
Pursue Acquisitions. We believe that we are well-suited to capitalize on opportunities
to acquire businesses with key customer relationships or have other value-added products
or services that complement our current offerings. Our acquisition strategy consists of increasing
our share in existing markets, adding a presence in new or complementary regions, utilizing
our scale to realize cost savings, and acquiring businesses offering synergistic services
such as printing, packaging, point of sale (POS) displays, loyalty and incentive program
management, and decoration, or offering additional differentiators. In September 2020, we
acquired all the customer account managers and customer accounts of the promotional products
business Wildman Imprints in Warsaw, Indiana. As a result, we gained approximately over 1,400
customer accounts, including over 120 customer programs with higher repeat-business potential;
20 additional employees; inventory worth approximately $650,000 with a majority covered by
contractual customer purchase guarantees; and additional revenues of over $10 million as
of 2019. This acquisition allowed us to extend our geographical reach into the Midwest and
further diversify our customer base. In January 2022, we acquired the promotional products
business and assets of G.A.P. Promotions in Gloucester, Massachusetts. From this acquisition,
we expanded our major beverage-specific customer accounts; hired 13 additional employees;
gained inventory worth approximately $90,000 with claw-back guarantees; and additional sales
of approximately $7.2 million as of 2021. |
We believe that this experience will
help us to pursue suitable acquisition opportunities in the future and integrate them successfully. Consistent with this strategy, we
continue to evaluate potential acquisition targets (although no such acquisition target has yet been identified), particularly with the
following attributes:
| ● | Geographic
balance, with a focus on acquiring a company in the branded merchandise space based in the
western United States (including Texas, California, Colorado, Oregon, or Washington state)
in the $5-10 million revenue range; |
| ● | Smaller
promotional companies in the $2-5 million revenue range who lack the programmatic capabilities
but have a minimum of 30% gross margins and comparable or improved profitability; and |
| ● | Businesses
with complimentary offerings to increase Stran’s portfolio of services and depth of
expertise in these additional industries: Packaging; Loyalty & Incentive; Decorators
(for screen printer, embroidery, direct-to-garment, rub-on transfers, etc.); and Event/Tradeshow
Services. |
| ● | Innovate
and Invest in Technology. During 2020-2021, we continued to invest in upgrades to
our platform for customers’ promotional e-commerce objectives, including customizable
and scalable features, developed on Adobe Inc.’s open-source e-commerce platform,
Magento. We have also invested in a new Enterprise Resource Planning (ERP) system on Oracle’s
NetSuite platform which will consolidate the process of gathering and organizing business
data of our company through an integrated software suite, which is expected to be implemented
by the first half of 2022.
We believe that it is necessary to continue focusing on the buildout of our technology offerings
in order to meet the evolving needs of our customers. Additionally, our strong technology
platform will support our acquisition strategy to integrate acquired businesses into our
existing platforms. We intend to continue making significant investments in research and
development and hiring top technical talent. |
| ● | New
Client Development. Our sales teams are tasked with continuously growing their books
of business by nurturing existing business relationships while actively seeking new opportunities
with new customers. We will continue to promote and ask for referrals from satisfied customers
who often refer us to other potential clients. We continuously seek to build our sales forces
through hiring of experienced individuals with established books of business as well as hiring
less-experienced individuals that we hope to develop into productive sales representatives.
As we continue to grow, we are hiring sales representatives in different geographies across
the U.S. that further diversifies our customer base and attracts new customers. Currently
we have employees or sales reps located in offices or remotely in Massachusetts, Indiana,
Ohio, Connecticut, New York, New Jersey, Pennsylvania, Florida, South Carolina, Oklahoma,
Maine, Colorado, and Illinois. In addition to direct sales and marketing efforts, we will
continue to build sales and marketing campaigns to promote Stran, including social media,
search engine optimization (SEO), HubSpot Inbound Marketing, and other alternative platforms.
We also plan to continue to identify and exhibit at appropriate tradeshows, conferences,
and events where we have had success. |
| ● | Develop
and Penetrate Customer Base. We plan to further expand and leverage our sales force
and broad product and service offering to upsell and cross-sell to both develop new clients
and further penetrate our existing customer base. Many of our services work together and
build on each other to offer greater control and consistency of our customers’ brands
as well as improved efficiency and ease of use for their team. Our goal is to become an extension
of our customers’ team and to support their organizations in using physically branded
products in the most effective means possible. For example, we can offer a one-stop solution
for all tradeshow and event asset management objectives. From pre-show mailings to special
event uniforms, we can help design as well as produce and manage all tradeshow materials
and processes from start to finish. With multiple warehouses strategically located throughout
the United States, we offer logistics solutions and expertise to effectively fulfill customers’
events needs across the country. The internal inventory-management version of our e-commerce
platform provides the ability to manage not only a customer’s assets for its booth
or event setup, but also its literature, giveaways, uniforms, and more. We will ship out
all assets with return labels for post-show logistics and establish standard operating procedures
for every asset to be returned back into inventory. |
Other strategies that we plan to implement
to expand our customer base with expanded sales staff and technology resources include:
| ● | Convert
Transactional Customers to Programs. The majority of our revenue is derived from
program business, although only a small percentage of our customers are considered programmatic.
For the years 2020 and 2021, program clients accounted for 77.6% and 75.7% of total revenue,
respectively. Less than 350 of our more than 2,000 active customers are considered to be
program clients. With a larger sales force and other resources, we believe we can convert
more of our customer base from transactional customers into program clients with much greater
revenue potential. We define transactional customers as customers that place an order with
us and do not have an agreement with us covering ongoing branding requirements. We define
program clients as clients that have a contractual obligation for specific ongoing branding
needs. Program offerings include ongoing inventory, use of technology platform, warehousing,
creative services, and additional client support. Program customers are typically geared
towards longer-lasting relationships that help secure recurring revenue well into the future. |
| ● | Strengthen
Marketing and Social Media Outreach. We plan to expand sales and marketing tools
and campaigns to promote the Company, including social media platforms such as Instagram,
and other alternative marketing platforms. |
| ● | SEO
and Inbound Marketing. We plan to enhance our SEO tools to increase web traffic to
our website and use of HubSpot Inbound Marketing and similar tools to deliver content and
data to drive interest in Stran. |
| ● | Tradeshows
and Events. We plan to increase our exhibitor presence at appropriate shows and events
such as ProcureCon, the National Beer Wholesalers Association (NBWA)’s Annual Convention
and Trade Show, and EXHIBITOR LIVE. |
| ● | Extend
Relationships. We plan to identify and approach more print, fulfillment, and agency
collaborators to sell into their customer base. |
| ● | Referrals.
We believe we will generate more customer referrals by offering an enhanced loyalty and customer
incentive program. |
Products and Services
Overview
Since our inception over 25 years ago, we have
provided clients with marketing services that help drive sales, and make an impact using custom-branded merchandise, commercial print,
loyalty and incentive programs, packaging and point of sale solutions while providing a technology solution to deliver these products
and services efficiently via our warehouse and fulfillment system.
Our value to our customers is to be an extension
of their own teams. We work to understand the different business and marketing goals of each customer and provide solutions that incorporate
technology, human capital, and physical branded goods to solve their business challenges. This model of outsourced combined marketing
and program-management services is unique in the promotional products industry, which is dominated by online e-tailers, franchisees,
and mom-and-pop businesses. To achieve this value, we have built the internal resources, knowledge, and processes to support our clients
with more than just commodity items.
We are both program managers and creative marketers,
having developed multiple teams within our organization to specialize and focus our efforts on supporting customers with the specific
support that they need:
| ● | Operations
and e-commerce teams create custom-tailored technology solutions that enable our clients
to view, manage and distribute branded merchandise to their appropriate audience in an efficient
and cost-effective manner. |
| ● | Account
teams work with client stakeholders to understand goals, objectives, marketing and human-resources
initiatives, and the ongoing management of the account. |
| ● | In-house
creative agency and product merchandising teams support the account team to provide unique
and custom product ideas along with additional design services such as billboards, annual
reports, and digital ad assets. |
| ● | Merchandising
team as well as members of our account teams attend trade shows domestically and internationally
across a variety of markets, allowing us to provide a diverse assortment of product offerings
to our clients. |
| ● | Technology
and program teams offer technology solutions to help efficiently manage the order process,
view products and inventory available, distribute products in the most cost-effective manner,
and provide reports and metrics on the activity of the account. |
We work closely with industrial designers of
several of our key collaborators to understand the research and trends that are influencing product development in the six- to 18-month
window ensuring that our team is up-to-date on trends in the industry.
Promotional Product Programs
We run complex corporate promotional marketing
programs for clients across many different industry verticals. Most of our clients take advantage of all the services we provide; however,
at the core of every program are the promotional products themselves. Our team works diligently to stay on point with the current trends
so our clients’ branded products are relevant. We distribute a wide variety of promotional products to our customers, with the
most popular promotional products including wearables, writing utensils, drinkware, technology and events-related products.
Loyalty and Incentives Programs
We build custom solutions for customers looking
to drive either customer or employee behavior. We help our customers build a customer loyalty program or an employee incentive program
that meets each customer’s specific needs. Our solutions can include gamification tools, social media integration, and a points-based
plan that rewards clients’ users with a combination of physical products, digital rewards, gift cards, and experiential rewards
nurturing loyalty to their brand. For example, we worked closely with a global producer of vaccines and medicines for animals, to design
and implement a two-tier incentive program in which, on one tier, veterinarians were incentivized to purchase from our customer through
providing them with promotional branded products, and, on a second tier, a loyalty points program featuring prepaid debit card rewards
for end-user pet owners who buy their products.
In developing our loyalty and incentive offering
Stran has taken a similar approach as we have in other areas of our business. Instead of developing our own internal solutions organically,
we have sought out relationships with businesses with a variety of offerings that meet the very different needs of each of our customers.
In some small cases where a client is looking for a very simple solution, we may make use of our existing e-commerce platform developed
with Adobe Inc.’s open-source, Magento software, and suppliers from within the promotional products industry. In other cases where
the customer is looking for a more well-developed incentive program that incorporates both an incentive structure and a rewards offering,
Stran has contracted with Carlton One Engagement Corporation, or CarltonOne, a large provider of Internet-based employee reward management
platforms. CarltonOne’s technology solutions are robust and constantly evolving to meet the changing needs of incentive users.
Their model is to collaborate with value-added resellers like Stran who bring addition resources, knowledge and skill sets to create
custom solutions.
Under our agreement with CarltonOne, dated as
of January 20, 2021, we are an authorized reseller of CarletonOne’s brands of software-as-a-solution, or SaaS, employee loyalty
and incentive programs to our customers. As an authorized reseller, CarltonOne will offer exclusive rights to any contracted clients
but will not prevent other authorized resellers from calling on any protected customers. We will receive commissions from CarletonOne
for any customers that we successfully sign up for CarletonOne’s SaaS services. The agreement is for two years and renews for consecutive
one-year periods unless terminated in writing by either party. The commission percentage is generally 25%.
Packaging and Point of Sale
Presentation makes all the difference. Clever
and custom packaging point of sale, or POS displays are essentials for elevating brand awareness and critical for driving sales. From
packaging of corporate merchandise and promotional products to developing custom POS displays, clients come to us when they want to stand
out and show the quality that their brands offer. We produce custom packaging and POS projects domestically as well as overseas for larger-run
custom programs for many of our clients.
Commercial and Digital Printing
Printed informational materials used for marketing,
or marketing collateral, such as business cards and brochures, are an essential component to effectively conveying information and marketing
messages, and arguably all businesses use some form of marketing collateral. When a customer needs print collateral, our digital print-on-demand
options route their orders through our technology platform and to our network of commercial printers to ensure that our customers can
print each piece of collateral in the most effective and efficient manner. By offering print management with our promotional branded
merchandise solutions, we help our customers create impactful presentations and mailings through the most efficient processes.
Warehouse and Fulfillment
We offer a global solution for warehousing and
fulfillment through a network of fulfillment providers including a nearly ten-year relationship with industry leader Harte Hanks. These
long-standing, strategic relationships provide our clients with process-driven fulfillment solutions that are scalable to meet client
needs including real-time inventory reporting, climate-controlled facilities, high-value product security, storage, digital print-on-demand,
and direct-mail solutions. Our custom front-end technology solution is directly integrated with the warehouse management software of
our strategic global warehouse collaborators.
Technology
Our custom-developed e-commerce Magento platform
allows our customers to manage all facets of their marketing program, linking branded merchandise, print, event assets, customer relationship
management, or CRM, loyalty and incentives in a single solution. Our platform creates cost savings, increasing market efficiencies and
brand consistency. With real-time accessibility to the necessary data to operate a complex demanding marketing program including hierarchy
user profile groups, multi-lingual, multi-currency, multi-checkout methods and integration into any ERP (SAP, ORACLE, WORKDAY, etc.).
Our on-demand mobile reporting dashboard capabilities allows the ability for self-service access within our systems empowering clients
with raw data to make informative decisions for their program.
Human Capital and Culture
We are more than an efficient distributor or
supplier, and we offer our customers more than just products. We help them achieve their marketing and business goals using branded merchandise
supported with technology, logistics, creative services, and account support. In order to provide all of these value-added services,
we must leverage and cultivate the talent of our employees.
As an organization we encourage our team to engage
with professional development opportunities. These opportunities include online courses, webinars, training sessions, and participation
in various networking and professional development groups. As such we currently have a member of our team who serves on the board of
directors for NEPPA (New England Promotional Products Association), a regional trade association, as well as another employee who is
the current Board President of SAAGNY (Specialty Advertising Association of Greater New York), another regional trade association. Empowering
our team to grow their own careers helps ensure that we are more knowledgeable, experienced, and engaged.
Pricing
As a large and growing firm with over 500 suppliers
and due to our membership in Facilisgroup, Stran has the purchasing power to receive advantageous pricing, helping us with price-sensitive
bids. Facilisgroup is a buying group of fewer than 1% of distributors in the industry and processed over $1 billion of sales in 2020.
Pursuant to our Sublicense Agreement, we may access Facilisgroup’s @ease proprietary software tools for promotional products business
management and analysis and a white labelled, managed, product website which we may use to sell promotional products under our brand.
We may also access its “Signature Collection” website which Facilisgroup promises offers the best products and margins. Under
our agreement we paid Facilisgroup a one-time fee of $11,000 and make monthly payments of $8,000.
In addition to this competitive buying power,
Stran has developed factory direct relationships with multiple factories in the U.S. and overseas. These direct relationships require
additional vetting, longer production times, and larger production runs. However, we work to blend production from factory direct manufacturing
with our other suppliers to continue to drive costs down on commodity-based items. We compete regularly with larger competitors and maintain
healthy margins using this strategy for sourcing and procuring products.
Supplier and Fulfillment Relationships
We have formed strategic relationships with fulfillment
and commercial print providers in the United States in order to effectively warehouse and distribute merchandise from one or more of
our warehouse facilities depending on our customer’s requirements. For over 25 years, we have developed these strategic relationships
in order to offer our clients a powerful solution for their branded merchandise needs. Together, we have experience in developing custom
marketing solutions for our clients and regularly kit together promotional printed items and branded product into a single package. Our
expertise in product development and sourcing, technology development, and program management combined with our various collaborators’
superior warehousing, logistics, fulfillment, distribution and print services are a competitive advantage.
We offer a global solution for warehousing and
fulfillment through a network of fulfillment providers including a nearly ten-year relationship with industry leader Harte Hanks. We
buy products and certain raw materials from a supplier network of factories, both domestic and international, as needed. We also outsource
certain technology services such as web hosting and data backup. We do not believe that we are dependent on any supplier. Should any
of these suppliers terminate their relationship with us or fail to provide the agreed-on services, we believe that there would be sufficient
alternatives to continue to meet customer demand and comply with our contractual obligations without interruption.
Marketing
We have a direct sales team
consisting of over 21 outside sales representatives and 22 in-house sales representatives. We incentivize our representatives with a
commission structure.
We use social media, email
marketing, and traditional networking at trade shows and events. We also rely on referrals to maintain and expand our customer base.
Customers and Markets
Stran’s customer base includes approximately
2,000 active customers and over 30 Fortune 500 companies, servicing a diverse customer base, encompassing pharmaceutical and healthcare,
manufacturing, technology, finance, construction and consumer goods. Our active customers are any organizations, businesses, or divisions
of a parent organization which have purchased directly or indirectly from us within the last two years, and include organizations that
have bought from other organizations for which Stran acts as an established subcontractor. We have long-term contracts with many of our
customers, though most do not have minimum guarantees. We have ongoing contracts with clientele in such industries as financial services,
consumer packaged goods, retail clothing and accessories, pet food and medicine, fitness, child care, retail hardware, fast food franchises,
health care, and environmental services. Contracts are often multi-year and auto-renewing. Our average contract lifespan is approximately
10 years. Alternatively, we do have inventory guarantees where the customer must purchase any inventory held by us that has been purchased
on their behalf within the contractual time periods. Our active customers may be broken into two main categories, transactional clients
and program clients.
We have also been retained for some very large
promotional campaigns. For example, during 2019-2020, we were engaged by a Washington, D.C.-based advertising and marketing company leading
a nationwide awareness-generating initiative for the 2020 U.S. Census. With our nationwide network of collaborator vendors and suppliers,
we delivered a total array of approximately 16 million products printed with various logos in 15 different languages, in all 50 states
and 5 U.S. territories, all aimed at increasing public participation in the U.S. Census. This campaign generated approximately $15 million
in revenues over that time period, as well as an all-time high self-response rate for the U.S. Census. During 2020, this contract represented
approximately 27.1% of our overall revenues. However, we treat these revenues as nonrecurring. The customer that engaged us in this regard
will not renew their engagement with us due to the U.S. Census only occurring once every ten years. As a result, these nonrecurring revenue
increases have not recurred, are not expected to recur, and do not represent our long-term growth expectations.
During 2020, sales to The TJX Companies, Inc.
(NYSE: TJX), or TJX, were 10.1% of total revenue. All other customers generated less than 4% of sales, and the vast majority generated
less than 1% of sales. During 2021, sales to TJX were 7.5% of total revenue. All other customers generated less than 5.5% of sales, and
the vast majority generated less than 1% of sales.
While our customer contracts are typically auto-renewing
and we have many long-term established customer relationships, most of our customer contracts do not have any minimum or exclusive purchase
guarantees, other than as to inventory already ordered by them or their program participants. There is no assurance of recurring revenues.
We are not dependent on any particular customer or group of customers, and our highest-grossing contracts may change from year to year
due to client brand initiatives.
We do business principally with customers based
in the United States, although we also provide e-store, logistical support and other promotional services for client programs in Canada
and Europe.
Online Store
We have been a leader in the use of technology
to offer our clients an online platform to more efficiently manage their promotional marketing programs and to give them the ability
to sell branded merchandise directly to consumers. We launched our first online store for one of our clients in 1999. Today we offer
a custom-built technology platform which offers a B2C (business-to-consumer) retail shopping experience combined with all of the back-end
functionality required of a powerful B2B (business-to-business) marketing services platform. Our technology platform services over 280
online stores for our clients.
Our Online Store Account Managers are responsible
for ensuring that our stores are up to date with all products, images, and descriptions. As new products are approved to be added to
the online store, our account manager will work the appropriate resources to prep the images, write the descriptions and upload the images.
Typically, this process will take 24-48 hours. For inventoried products, we typically do not make the products live on the website until
they have been received into inventory and are ready to be fulfilled.
If there is an issue with an online store order
regarding payment or checkout, the user can contact the appropriate client team who will help troubleshoot the issue or manually place
the order. If there is a back-order situation where an order would not be able to ship complete or on time, our Client Services team
will review the order and advise the customer on the best and timeliest options to fulfill the order.
Competition
Our major competitors for our promotional products
business include larger companies such as 4Imprint Group plc, Brand Addition Limited (The Pebble Group plc), BAMKO LLC (Superior Group
of Companies, Inc.), Staples Promotional Products (Staples, Inc.), Boundless Network, Inc. (Zazzle Inc.) and HALO Branded Solutions,
Inc. We also compete with a multitude of foreign, regional and local competitors that vary by market. If our existing or future competitors
seek to gain or retain market share by reducing prices, we may be required to lower our prices, which would adversely affect our operating
results. Similarly, if customers or potential customers perceive the products or services offered by our existing or future competitors
to be of higher quality than ours or part of a broader product mix, our revenues may decline, which would adversely affect our operating
results.
Our Program Management
We are experienced and industry-leading program
managers who integrate all aspects of a successful program. Our program team works hand in hand with our account teams to drive the processes
and procedures that ensure we are effectively managing our programs. For Stran, program management is built upon six key building blocks:
| ● | Creative
Products. We approach promotion marketing, branded merchandise, and loyalty and incentives
with the structure and vision of an ad agency. We have built a robust creative and merchandising
team that works collaboratively with our account teams to bring fresh ideas and identify
future trends for each of our program clients. We proactively develop merchandising plans,
source products, offer individual personalization, understand trends, and make continuous
improvements to the product offering based on user demand and marketing goals. We also offer
multiple procurement methods within the same platform. These include inventoried products,
made-to-order products, and personalized products. Our approach is to utilize all three procurement
methods within a single program to take advantage of the benefits each method offers. In
addition to these three procurement models, Stran has developed strong factory direct relationships
with factories around the globe. We utilize these relationships to help drive down costs
for our clients. In order to ensure that we can bring products to market quickly and reduce
the possibility of backorders, Stran uses a blended approach to sourcing. We work with our
domestic supply base to bookend our overseas inventory purchases. Stran purchases and owns
inventory for many clients. This benefits our customers by allowing for budget flexibility
and a pay-as-you-go model, resulting in reduced upfront costs and streamlined accounting
and reporting. |
| ● | Robust
Technology. We have developed our own custom technology platform based on
Magento Open Source, an open-sourced software e-commerce platform. Using Magento we have
been able to build a custom solution that meets the very distinctive needs of each of our
clients. Stran is constantly making improvements and enhancements to our technology offerings.
Client stores feature the ability to purchase a combination of inventoried products in addition
to on-demand, and personalized products. The front-end responsive design ensures an impressive
mobile experience. Our platform is user-friendly and easy to use while robust enough to offer
many of the requirements needed in a traditional B2B solution. The requirements can include
allocation to cost centers, departments, or general ledger codes; approval hierarchies; varied
product selection or pricing by user group; and robust reporting. Our custom-built platform
is also tied directly into our fulfilment center system for streamlined flow of data and
we are capable to tying our platform into third party software such as Salesforce as well
as accounting and procurement software. |
| ● | Global
Distribution. We offer a global solution for warehousing and fulfillment through
a network of industry-leading fulfillment providers including a close working relationship
with Harte Hanks, an industry leader in warehousing, fulfillment, print-on-demand, direct
mail, and kitting. The relationship between Stran and Harte Hanks has been fine-tuned over
a nearly ten-year period and allows Stran to do what we do best, which is the creativity,
product procurement, technology and account management while allowing Harte Hanks to do what
they do best, which is process-driven fulfillment. Through our longstanding relationship
with Harte Hanks we have developed integrated account management teams which ensures that
while the customer has a large and diverse account team to support all their program needs,
they also have a single account director responsible for all aspects of their program. |
Under our agreement with Harte Hanks,
as amended and supplemented, we may subcontract to Harte Hanks one or multiple functions as appropriate, such as e-store website setup;
ongoing website inventory management services; monthly account management services; and print-on-demand, warehousing, fulfillment, pick/pack/ship,
and other inventory management services. Costs and fees depend on types of services provided and any special or custom work that we request
on behalf of our customers.
| ● | Proactive
Customer Services. Customer service is a key component of the overall success of
an organization. Each account is assigned a single dedicated account director who is responsible
for all aspects of the customer’s program. This account director is supported by an
online store account manager, a special-order account manager, a fulfillment account manager,
account coordinators, a merchandiser, art team support, operations team support, and accounting
support. The customer’s account director works with program stakeholders on weekly
status calls, quarterly business reviews and an annual review. We also use customer feedback
surveys periodically to gain insight from the power users of the customer’ program
and we have a formal corrective action process to address any issues that are not caught
through our proactive efforts. |
| ● | Compliance.
We take issues of compliance very seriously. We recognize that we are an extension of the
customer’s brand, and our systems are built to ensure full compliance around brand
standards, quality and safety of products and the meeting of industry/firm rules. Stran has
since begun a process to become rated and certified by EcoVadis (https://ecovadis.com/),
which considers itself the world’s largest and most trusted provider of business sustainability
ratings. We expect that the evaluation of our policies, processes, and procedures by EcoVadis
to be completed in 2022. |
We began the process of joining and
submitting documentation to Ecovadis for review in early 2021 to replace our involvement with the Quality Certification Alliance (QCA)
which folded its operations in August of 2020. In 2017, Stran was one of only 13 distributors in the United States (out of over
30,000 according to PPAI) that was voted onto the Distributor Advisory Council (DAC) of the Quality Certification Alliance (QCA). QCA
was a third-party, non-profit organization whose mission was focused solely on accrediting manufacturers’ processes in the areas
of product safety and quality, social responsibility, supply chain security, and environmental impact. Stran has developed a well-defined
vendor management program which is taken from QCA’s protocols developed from dozens of years of best practices across the industry.
Once a supplier has been approved by Stran, we require regular updates to site audits and require testing on products as they are manufactured.
| ● | Integration.
Offering our clients an industry-leading technology platform that stands alone only adds
so much value. We have worked to ensure that our platform can be easily integrated with as
many other technology platforms used by our clients as possible. This helps our clients in
many different ways depending on the specific integrations. We can integrate with various
CRM or marketing automation platforms to help our clients track and measure who is using
the marketing assets that we provide and how they are performing. We can also integrate with
a number of different accounting and procurement systems. This helps our clients better control
their spend as well as account for their spend. By forming a close working relationship with
worldwide logistics leader Harte Hanks as our warehouse collaborator, we offer the most robust
warehousing, fulfillment, kitting, and other logistics capabilities available domestically
and internationally. In addition to their multiple U.S. locations for warehousing and fulfillment,
Harte Hanks is a leader in print-on-demand and direct mail. Harte Hanks completes over 3
million on-time shipments of time-sensitive materials each year. Being able to integrate
print, product, packaging, kitting, and direct mail, we help our client be more impactful
and efficient with their promotional marketing efforts. |
Intellectual Property
We conduct our business using the registered trademark “STRÄN”
and the registered trade name “Stran Promotional Solutions”. We also use the unregistered logo “STRÄN promotional
solutions”.
To protect our intellectual property, we rely
on a combination of laws and regulations, as well as contractual restrictions. Federal trademark law protects our registered trademark
STRÄN and may protect our unregistered logo “STRÄN promotional solutions”. We also rely on the protection of laws
regarding unregistered copyrights for certain content we create and trade secret laws to protect our proprietary technology including
our e-commerce platform and new ERP system currently under development. To further protect our intellectual property, we enter into confidentiality
agreements with our executive officers and directors.
Seasonality and Cyclicality
Our business is generally not subject to seasonal
fluctuations. While certain customers have seasonal businesses, the promotional products industry overall is not. Our net sales and profits
sometimes are impacted by the holiday selling season.
Portions of the promotional products industry
are cyclical in nature. Generally, when economic conditions are favorable, the industry tends to perform well. When the economy is weak
or if there are economic disturbances that create uncertainty with corporate profits, the promotional products industry tends to experience
low or negative growth.
Security
We regularly receive and store information about
our customers, vendors and other third parties. We have programs in place to detect, contain, and respond to data security incidents.
However, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently
and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or implement adequate preventive
measures. In addition, hardware, software, or applications we develop or procure from third parties or through open-source solutions
may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. Unauthorized
parties may also attempt to gain access to our systems or facilities, or those of third parties with whom we do business, through fraud,
trickery, or other forms of deceiving our team members, contractors, and vendors.
Employees
As of December 31, 2021, we employed 66 employees
and had one independent contractor executive officer, all of whom are full-time.
We do not believe any of our employees are represented
by labor unions, and we believe that we have an excellent relationship with our employees.
Regulation
Trade Regulations
As disclosed above, our suppliers generally source
or manufacture finished goods in parts of the world that may be affected by the imposition of duties, tariffs or other import regulations
by the United States. The Company believes that its redundant network of suppliers provide sufficient capacity to mitigate any dependency
risks on a single supplier.
We buy promotional products from suppliers or
factories both domestically and internationally as needed. We do not depend on any single supplier. However, if we are unable to continue
to obtain our finished products from international locations or if our suppliers are unable to source raw materials, it could significantly
disrupt our business. Further, we are affected by economic, political and other conditions in the United States and internationally,
including those resulting in the imposition or increase of import duties, tariffs and other import regulations and widespread health
emergencies, which could have a material adverse effect on our business.
Laws and Regulations Relating to E-Commerce
Our business is subject to a variety of laws
and regulations applicable to companies conducting business on the Internet. Jurisdictions vary as to how, or whether, existing laws
governing areas such as personal privacy and data security, consumer protection or sales and other taxes, among other areas, apply to
the Internet and e-commerce, and these laws are continually evolving. For example, certain applicable privacy laws and regulations require
us to provide customers with our policies on sharing information with third parties, and advance notice of any changes to these policies.
Related laws may govern the manner in which we store or transfer sensitive information or impose obligations on us in the event of a
security breach or inadvertent disclosure of such information. Additionally, tax regulations in jurisdictions where we do not currently
collect state or local taxes may subject us to the obligation to collect and remit such taxes, or to additional taxes, or to requirements
intended to assist jurisdictions with their tax collection efforts.
The production, distribution and sale in the
United States of many of our products are subject to the Federal Food, Drug, and Cosmetic Act, the Federal Trade Commission Act, the
Lanham Act, state consumer protection laws, competition laws, federal, state and local workplace health and safety laws, various federal,
state and local environmental protection laws, various other federal, state and local statutes applicable to the production, transportation,
sale, safety, advertising, labeling and ingredients of such products, and rules and regulations adopted pursuant to these laws. Outside
the United States, the distribution and sale of our many products and related operations are also subject to numerous similar and other
statutes and regulations.
A California law known as Proposition 65 requires
a specific warning to appear on any product containing a component listed by the state as having been found to cause cancer or birth
defects. The state maintains lists of these substances and periodically adds other substances to these lists. Proposition 65 exposes
all food and beverage producers to the possibility of having to provide warnings on their products in California because it does not
provide for any generally applicable quantitative threshold below which the presence of a listed substance is exempt from the warning
requirement. Consequently, the detection of even a trace amount of a listed substance can subject an affected product to the requirement
of a warning label. However, Proposition 65 does not require a warning if the manufacturer of a product can demonstrate
that the use of that product exposes consumers to a daily quantity of a listed substance that is:
| ● | below
a “safe harbor” threshold that may be established; |
| ● | the
result of necessary cooking; or |
| ● | subject
to another applicable exemption. |
In January 2019, New York State’s governor
announced the “Consumer Right to Know Act,” a proposed law that would impose similar and potentially more stringent labeling
requirements than California Proposition 65. The law has not yet been adopted, and to our knowledge California Proposition 65 remains
the most onerous state-level chemical exposure labeling statutory scheme. However, due in part to the large size of California’s
market, promotional products sold or distributed anywhere in the United States may be subject to California Proposition 65.
We are unable to predict whether a component
found in a product that we assisted a client in producing might be added to the California list in the future. Furthermore, we are also
unable to predict when or whether the increasing sensitivity of detection methodology may become applicable under this law and related
regulations as they currently exist, or as they may be amended.
We are subject to various federal, state and
local laws and regulations, including but not limited to, laws and regulations relating to labor and employment, U.S. customs and consumer
product safety, including the Consumer Product Safety Improvement Act, or the “CPSIA.” The CPSIA created more stringent safety
requirements related to lead and phthalates content in children’s products. The CPSIA regulates the future manufacture of these
items and existing inventories and may cause us to incur losses if we offer for sale or sell any non-compliant items. Failure to comply
with the various regulations applicable to us may result in damage to our reputation, civil and criminal liability, fines and penalties
and increased cost of regulatory compliance. These current and any future laws and regulations could harm our business, results of operations
and financial condition.
Legal requirements apply in various jurisdictions
in the United States and overseas requiring deposits or certain taxes or fees be charged for the sale, marketing and use of certain non-refillable
beverage containers. The precise requirements imposed by these measures vary. Other types of beverage container-related deposit, recycling,
tax and/or product stewardship statutes and regulations also apply in various jurisdictions in the United States and overseas. We anticipate
additional, similar legal requirements may be proposed or enacted in the future at local, state and federal levels, both in the United
States and elsewhere.
New legislation or regulation, the application
of laws from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to
the Internet and e-commerce generally could result in significant additional taxes on our business. Further, we could be subject to fines
or other payments for any past failures to comply with these requirements. The continued growth and demand for e-commerce is likely to
result in more laws and regulations that impose additional compliance burdens on e-commerce companies.
Laws and Regulations Relating to Data Privacy
In the ordinary course of our business, we might
collect and store in our internal and external data centers, cloud services and networks sensitive data, including our proprietary business
information and that of our customers, suppliers and business collaborators, as well as personal information of our customers and employees.
The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. The number
and sophistication of attempted attacks and intrusions that companies have experienced from third parties has increased over the past
few years. Despite our security measures, it is impossible for us to eliminate this risk.
A number of U.S. states have enacted data privacy
and security laws and regulations that govern the collection, use, disclosure, transfer, storage, disposal, and protection of personal
information, such as social security numbers, financial information and other sensitive personal information. For example, all 50 states
and several U.S. territories now have data breach laws that require timely notification to affected individuals, and at times regulators,
credit reporting agencies and other bodies, if a company has experienced the unauthorized access or acquisition of certain personal information.
Other state laws, particularly the California Consumer Privacy Act, as amended (“CCPA”), among other things, contain
disclosure obligations for businesses that collect personal information about residents in their state and affords those individuals
new rights relating to their personal information that may affect our ability to collect and/or use personal information. Moreover, on
January 28, 2022, the California Attorney General announced that certain consumer loyalty programs are subject to the CCPA, which may
affect some of our customers who use our loyalty program services if they are found not to comply with the CCPA’s requirements.
The Virginia Consumer Data Protection Act (“CDPA”) also establishes rights for Virginia consumers to control how companies
use individuals’ personal data. The CDPA dictates how companies must protect personal data in their possession and respond to consumers
exercising their rights, as prescribed by the law, regarding such personal data. The CDPA will go into effect on January 1, 2023. Meanwhile,
several other states and the federal government have considered or are considering privacy laws like the CCPA. We will continue to monitor
and assess the impact of these laws, which may impose substantial penalties for violations, impose significant costs for investigations
and compliance, allow private class-action litigation and carry significant potential liability for our business.
Outside of the U.S., data protection laws, including
the EU General Data Protection Regulation (the “GDPR”), also might apply to some of our operations or business collaborators.
Legal requirements in these countries relating to the collection, storage, processing and transfer of personal data/information continue
to evolve. The GDPR imposes, among other things, data protection requirements that include strict obligations and restrictions on the
ability to collect, analyze and transfer EU personal data/information, a requirement for prompt notice of data breaches to data subjects
and supervisory authorities in certain circumstances, and possible substantial fines for any violations (including possible fines for
certain violations of up to the greater of 20 million Euros or 4% of total company revenue). Other governmental authorities around the
world have enacted or are considering similar types of legislative and regulatory proposals concerning data protection.
The interpretation and enforcement of the laws
and regulations described above are uncertain and subject to change, and may require substantial costs to monitor and implement and maintain
adequate compliance programs. Failure to comply with U.S. and international data protection laws and regulations could result in government
enforcement actions (which could include substantial civil and/or criminal penalties), private litigation and/or adverse publicity and
could negatively affect our operating results and business.
Environmental Regulations
We use certain plastic, glass, fabric, metal
and other products in our business which may be harmful if released into the environment. In view of the nature of our business, compliance
with federal, state, and local laws regulating the discharge of materials into the environment, or otherwise relating to the protection
of the environment, has had no material effect upon our operations or earnings, and we do not expect it to have a material impact in
the foreseeable future.
Tax Laws and Regulations
Changes in tax laws or regulations in the jurisdictions
in which we do business, including the United States, or changes in how the tax laws are interpreted, could further impact our effective
tax rate, further restrict our ability to repatriate undistributed offshore earnings, or impose new restrictions, costs or prohibitions
on our current practices and reduce our net income and adversely affect our cash flows.
We are also subject to tax audits in the United
States and other jurisdictions and our tax positions may be challenged by tax authorities. Although we believe that our current tax provisions
are reasonable and appropriate, there can be no assurance that these items will be settled for the amounts accrued, that additional tax
exposures will not be identified in the future or that additional tax reserves will not be necessary for any such exposures. Any increase
in the amount of taxation incurred as a result of challenges to our tax filing positions could result in a material adverse effect on
our business, results of operations and financial condition.
Other Regulations
We are subject to international, federal, national,
regional, state, local and other laws and regulations affecting our business, including those promulgated under the Occupational Safety
and Health Act, the Consumer Product Safety Act, the Flammable Fabrics Act, the Textile Fiber Product Identification Act, the rules and
regulations of the Consumer Products Safety Commission, the Food, Drug, and Cosmetic Act, the Foreign Corrupt Practices Act of 1977 (FCPA),
various securities laws and regulations including but not limited to the Securities Exchange Act of 1934, as amended, or the Exchange
Act, the Securities Act of 1933, as amended, or the Securities Act, and the Nasdaq Stock Market LLC Rules, various labor, workplace and
related laws, and environmental laws and regulations. Failure to comply with such laws and regulations may expose us to potential liability
and have an adverse effect on our results of operations.
Corporate Structure and History
Our company was incorporated in the State of
Massachusetts on November 17, 1995 under the name “Strän & Company, Inc.” We also use the registered trade name
“Stran Promotional Solutions”.
On September 26, 2020, we acquired certain assets
including the customer account managers and customer base of the Wildman Imprints promotional products business division of Wildman Business
Group, LLC, or WBG.
On May 24, 2021, we changed our state of incorporation
to the State of Nevada by merging into Stran & Company, Inc., a Nevada corporation, and changed the spelling of our name to “Stran
& Company, Inc.” On the same date, our authorized capital stock changed from 200,000 shares of common stock, $0.01 par value,
to 350,000,000 shares, consisting of 300,000,000 shares of common stock, par value $0.0001 per share, and 50,000,000 shares of “blank
check” preferred stock, par value $0.0001 per share. At the same time, we also completed a 100,000-for-1 forward stock split
of our outstanding common stock through the merger by issuing 100,000 shares of our common stock for each previously outstanding share
of common stock of our predecessor Massachusetts company. As a result of this stock split, our issued and outstanding common stock increased
from 100 shares to 10,000,000 shares, all of which were then held by our Executive Chairman, Andrew Stranberg.
Following our reincorporation in Nevada, on May
24, 2021, Mr. Stranberg was our sole stockholder then holding a total of 10,000,000 shares of our common stock. On the date of
the reincorporation transaction, Mr. Stranberg transferred 3,400,000 shares of common stock to Andrew Shape, our Chief Executive Officer
and President and one of our directors, and 800,000 shares of common stock to Randolph Birney, our Executive Vice President. The
shares were transferred to each of Mr. Shape and Mr. Birney pursuant to stock purchase agreements. The transfers to Mr. Shape and Mr.
Birney were agreed to be paid at a price per share that is equal to $0.1985 per share, being the price of our shares as of December 31,
2020 determined through an independent valuation of the Company dated April 27, 2021, in accordance with Section 409A of the Internal
Revenue Code of 1986, as amended. Each of Messrs. Shape and Birney paid the purchase price for the shares to Mr. Stranberg through
the delivery to Mr. Stranberg of a promissory note. Each of the promissory notes provides for 2% simple annual interest, and principal
and accrued interest must be repaid by the note’s third anniversary. Each note grants a security interest to Mr. Stranberg in the
transferred stock as to the repayment obligations under the note.
The stock purchase agreements between Mr. Stranberg
and Messrs. Shape and Birney provide that the stock is also subject to a lockup provision providing that one-half of the purchased shares
may not be sold until the second anniversary of the date of the stock purchase agreement; provided, however, that such restriction on
transfer will expire at a rate of 1/48th of the shares subject to the restriction per month over such two-year period.
Following the reincorporation in Nevada, on May
24, 2021, Mr. Stranberg also transferred 700,000 shares of common stock to Theseus Capital Ltd. (“Theseus”), pursuant to
a stock purchase agreement. Pursuant to a different arrangement with Mr. Stranberg from Mr. Shape and Mr. Birney’s, Theseus paid
Mr. Stranberg a nominal cash purchase price of $100 for its stock. Theseus does not have any relationship with the Company other than
as a shareholder after the transfer by Mr. Stranberg, and its payment for Mr. Stranberg’s stock was made to Mr. Stranberg and not
to the Company. Theseus executed an irrevocable proxy providing that Mr. Stranberg may vote and exercise all voting and related rights
with respect to the shares. The irrevocable proxy will automatically terminate with respect to any shares that Theseus sells in a transaction
or series of transactions on any national securities exchange or other trading market on which the shares then trade. Theseus
Capital Ltd. subsequently transferred 200,000 shares to another investor with the consent of the Company, the representative and Mr.
Stranberg. The shares held by each of Messrs. Shape and Birney and Theseus
are subject to certain lockup conditions.
On November 12, 2021, we closed our initial public
offering of 4,987,951 units, each unit consisting of one share of common stock and a warrant to purchase one share of common stock at
the initial public offering price of $4.15 per unit. Each whole share exercisable pursuant to the warrants has an initial exercise price
per share at $5.1875, equal to 125% of the initial public offering price. Due to our subsequent private placement of common stock and
common stock purchase warrants at a purchase price of $4.97 for one share and 1.25 warrants combined, after attributing a warrant value
of $0.125, the exercise price per share of the initial public offering warrants was reduced to $4.81375 as of December 10, 2021. The
warrants are immediately exercisable and will expire on the fifth anniversary of the original issuance date. The units were not certificated.
The shares of common stock and related warrants were immediately separable and were issued separately, though they were issued and purchased
together as a unit in the offering. On November 12, 2021, we also issued warrants to purchase 149,639 shares of common stock to
the designees of the representative of the underwriters in the offering. The representative’s warrants are exercisable at an initial
per share exercise price of $5.1875. The representative’s warrants are exercisable at any time and from time to time, in whole
or in part, during the four-and-a-half-year period commencing six months after their issuance.
On December 10, 2021, we completed a private
placement with several investors, wherein a total of 4,371,926 shares of common stock were issued at a purchase price of $4.97 per share,
with each investor also receiving a warrant to purchase up to a number of shares of common stock equal to 125% of the number of shares
of common stock purchased by such investor in the private placement, or a total of 5,464,903
shares, at an exercise price of $4.97 per share, for a total purchase price of approximately $21.7 million. The warrants are immediately
exercisable on the date of issuance, expire five years from the date of issuance and have certain downward-pricing adjustment mechanisms,
including with respect to any subsequent equity sale that is deemed a dilutive issuance, in which case the warrants will be subject to
a floor price of $4.80 per share before shareholder approval is obtained, and after shareholder approval is obtained, such floor price
will be reduced to $1.00 per share, as set forth in the warrants. On December 10, 2021, the holders of shares of common stock entitled
to vote approximately 65.4% of our outstanding voting stock on December 10, 2021 approved the Company’s entry into the private
placement. We filed preliminary and definitive information statements on Schedule 14C with the SEC on December 29, 2021 and January
11, 2022, and delivered copies of the definitive information statement to shareholders January 12, 2022. On January 31, 2022, the stockholders’
consent became effective pursuant to Rule 14c-2 under the Exchange Act. As a result, the exercise price of the private placement
warrants may be reduced to as low as $1.00 per share if their downward-pricing adjustment mechanisms become applicable. We engaged
the representative as our placement agent for the private placement pursuant to a Placement Agency Agreement, or the PAA, dated as of
December 8, 2021. Pursuant to the PAA, we agreed, among other things, to issue the representative’s designees warrants to purchase
an aggregate of 131,158 shares of common stock, which is equal to 3.0% of the total number of shares issued in the private placement,
at an exercise price of $4.97 per share.
On January 31, 2022, we acquired the branding,
marketing and promotional products and services business assets of G.A.P. Promotions, LLC, or G.A.P. Promotions.
As of the date of this report, we have no subsidiaries.
Our principal executive offices are located at
2 Heritage Drive, Suite 600, Quincy, MA 02171 and our telephone number is 800-833-3309. We maintain a website at https://www.stran.com/.
Information available on our website is not incorporated by reference in and is not deemed a part of this report. Our fiscal year ends
December 31. Neither we nor any of our predecessors have been in bankruptcy, receivership or any similar proceeding.
ITEM 1A. RISK FACTORS.
An investment in our securities involves a
high degree of risk. You should carefully read and consider all of the risks described below, together with all of the other information
contained or referred to in this report, before making an investment decision with respect to our securities. If any of the following
events occur, our financial condition, business and results of operations (including cash flows) may be materially adversely affected.
In that event, the market price of our shares could decline, and you could lose all or part of your investment.
Risks Related to Our Business and Industry
Our business has been materially adversely
impacted by the COVID-19 pandemic and could be materially adversely impacted by future COVID-19 pandemic surges, new COVID-19 variants,
or other pandemics.
COVID-19 was declared a pandemic by the World
Health Organization and the Centers for Disease Control and Prevention in March of 2020. We believe that the global spread of COVID-19
has created significant volatility and uncertainty and economic disruption. We believe the extent to which the COVID-19 pandemic, including
new surges or COVID-19 variants, or any other pandemic ultimately impacts our business, financial condition, results of operations or
cash flows will depend on numerous evolving factors that we may not be able to accurately predict, including, without limitation: The
duration and scope of the pandemic; the success in delivering and efficacy of vaccines; governmental, business and individuals’
actions that have been and will be taken in response to the pandemic (including restrictions on travel and transport and workforce pressures);
the effect on our suppliers and customers and customer demand for our core products and services within certain industries such as the
restaurant, transportation, hospitality and entertainment industries; the effect on our sources of supply; the impact of the pandemic
on economic activity and actions taken in response; closures of our and our suppliers’ and customers’ offices and facilities;
the ability of our customers to pay for our products and services; financial market volatility; commodity prices; and the pace of recovery
when the COVID-19 or other pandemic subsides.
The spreading of COVID-19 that we believe is
impacting global economic activity and market conditions could lead to changes in customer purchasing patterns. We believe we have seen
disruptions in our customers’ businesses, including, but not limited to, our customers’ willingness and ability to spend,
layoffs and furloughs of our customers’ employees, and temporary or permanent closures of businesses that consume our products
and services. Prolonged periods of difficult conditions could have material adverse impacts on our business, financial condition, results
of operations and cash flows.
We believe that U.S. promotional products spending
has already been severely impacted by the COVID-19 pandemic. According to ASI, promotional product distributor sales decreased nearly
20% from $25.8 billion in the last full pre-pandemic year of 2019 to $20.7 billion in 2020. Although promotional product distributor
sales increased approximately 12% from $20.7 billion in 2020 to $23.2 billion in 2021, they were still below the $25.8 billion industry
record set in 2019.
Print+Promo Marketing’s 2021 Top
Distributors report, which ranked the top 75 distributors based on 2020 sales, found that 42 (56%) experienced sales decreases in 2020
compared to the prior year. Lingering supply chain issues and fewer in-person tradeshows and events contributed to lower total revenues
for the industry in 2021 compared to 2019, according to information reported by ASI. Likewise, according to information reported by Print+Promo
Marketing, production issues, shipping delays, pricing increases and staffing shortages continued to reduce the promotional products
industry’s total 2021 revenues compared to pre-pandemic levels.
We believe that the COVID-19 pandemic has impacted
Stran’s operational and financial performance. Although we were able to capitalize on the demand for personal protective equipment
in 2020 such as masks, hand sanitizer, and gowns, these sales did not significantly offset the overall decreased demand for promotional
products in 2021 and are not expected to do so in the foreseeable future. Additionally, as was typical for other firms in the promotional
products industry, from March 2020 through the end of 2021, we believe that our revenues were adversely affected by the economic impact
of the pandemic, including decreased demand for promotional products and services such as ours due to a lack of in-person events, businesses
not being fully reopened and staffed, and customers’ decreased marketing budgets. Likewise, we believe the pandemic’s effects
on the economy caused us to experience higher costs of supplies of product materials due to continued pandemic on expenses, especially
higher freight charges and raw material costs, and a more challenging supply chain from issues such as port congestion. We expect these
effects to continue in 2022.
We believe the potential effects of COVID-19
also could continue to impact us in a number of other ways, including, but not limited to, reductions to our revenue and profitability,
costs associated with complying with new or amended laws and regulations affecting our business, declines in the price of our securities,
reduced availability and less favorable terms of future borrowings, valuation of our pension assets and obligations, reduced credit-worthiness
of our customers, and potential impairment of the carrying value of goodwill or other indefinite-lived intangible assets.
Any of these events could materially adversely
affect our business, financial condition, results of operations and cash flows.
Our customers may cancel or decrease the
quantity of their orders, which could negatively impact our operating results.
Sales to many of our customers are on an order-by-order
basis. If we cannot fill customers’ orders on time, orders may be cancelled and relationships with customers may suffer, which
could have an adverse effect on us, especially if the relationship is with a major customer. Furthermore, if any of our customers experience
a significant downturn in their business, or fail to remain committed to our programs or brands, the customer may reduce or discontinue
purchases from us. The reduction in the amount of our products purchased by customers could have a material adverse effect on our business,
results of operations or financial condition.
In addition, some of our customers have experienced
significant changes and difficulties, including consolidation of ownership, increased centralization of buying decisions, buyer turnover,
restructurings, bankruptcies and liquidations. A significant adverse change in a customer relationship or in a customer’s financial
position could cause us to limit or discontinue business with that customer, require us to assume more credit risk relating to that customer’s
receivables or limit our ability to collect amounts related to previous purchases by that customer, all of which could have a material
adverse effect on our business, results of operations or financial condition.
We may be unable to identify or to complete
acquisitions or to successfully integrate the businesses we acquire.
We have evaluated, and may continue to evaluate,
potential acquisition transactions. We attempt to address the potential risks inherent in assessing the attractiveness of acquisition
candidates, as well as other challenges such as retaining the employees and integrating the operations of the businesses we acquire.
Integrating acquired operations involves significant risks and uncertainties, including maintenance of uniform standards, controls, policies
and procedures; diversion of management’s attention from normal business operations during the integration process; unplanned expenses
associated with integration efforts; and unidentified issues not discovered in due diligence, including legal contingencies. Acquisition
valuations require us to make certain estimates and assumptions to determine the fair value of the acquired entities (including the underlying
assets and liabilities). If our estimates or assumptions to value the acquired assets and liabilities are not accurate, we may be exposed
to losses, and/or unexpected usage of cash flow to fund the operations of the acquired operations that may be material.
Even if we are able to acquire businesses on
favorable terms, managing growth through acquisition is a difficult process that includes integration and training of personnel, combining
facility and operating procedures, and additional matters related to the integration of acquired businesses within our existing organization.
Unanticipated issues related to integration may result in additional expense and disruption to our operations, and may require a disproportionate
amount of our management’s attention, any of which could negatively impact our ability to achieve anticipated benefits, such as
revenue and cost synergies. Growth of our business through acquisition generally increases our operating complexity and the level of
responsibility for both existing and new management personnel. Managing and sustaining our growth and expansion may require substantial
enhancements to our operational and financial systems and controls, as well as additional administrative, operational and financial resources. We
may be required to invest in additional support personnel, facilities and systems to address the increased complexities associated with
business or segment expansion. These investments could result in higher overall operating costs and lower operating profits for the business
as a whole. There can be no assurance that we will be successful in integrating acquired businesses or managing our expanding operations.
In addition, although we conduct due diligence
investigations prior to each acquisition, there can be no assurance that we will discover or adequately protect against all material
liabilities of an acquired business for which we may be responsible as a successor owner or operator. The failure to identify suitable
acquisitions, successfully integrate these acquired businesses, successfully manage our expanding operations, or to discover liabilities
associated with such businesses in the diligence process, could adversely affect our business, results of operations or financial condition.
In order to finance such acquisitions, we may
need to obtain additional funds either through public or private financings, including bank and other secured and unsecured borrowings
and/or the issuance of equity or debt securities. There can be no assurance that such financings would be available to us on reasonable
terms. Any future issuances of equity securities or debt securities with equity features may be dilutive to our shareholders.
If our information technology systems suffer
interruptions or failures, including as a result of cyberattacks, our business operations could be disrupted and our reputation could
suffer.
We rely on information technology systems to
process transactions, communicate with customers, manage our business and process and maintain information. The measures we have in place
to monitor and protect our information technology systems might not provide sufficient protection from catastrophic events, power surges,
viruses, malicious software (including ransomware), attempts to gain unauthorized access to data or other types of cyber-based attacks.
As cyber-attacks become more frequent, sophisticated, damaging and difficult to predict, any such event could negatively impact our business
operations, such as by product disruptions that result in an unexpected delay in operations, interruptions in our ability to deliver
products and services to our customers, loss of confidential or otherwise protected information, corruption of data and expenses related
to the repair or replacement of our information technology systems. Compromising and/or loss of information could result in loss of sales
or legal or regulatory claims which could adversely affect our revenues and profits or damage our reputation.
We rely on software and services from other
parties. Defects in or the loss of access to software or services from third parties could increase our costs and adversely affect the
quality of our products.
We rely on technologies from third parties to operate critical functions of our business, including cloud infrastructure services, payment
processing services, certain aspects of distribution center automation and customer relationship management services. Our business would
be disrupted if any of the third-party software or services we utilize, or functional equivalents thereof, were unavailable due to extended
outages or interruptions or because they are no longer available on commercially reasonable terms or prices. In each case, we would be
required to either seek licenses to software or services from other parties and redesign our business and marketplace to function with
such software or services or develop these components ourselves, which would result in increased costs and could result in delays in
the launch of new offerings on our marketplace until equivalent technology can be identified, licensed or developed, and integrated into
our business and marketplace. Furthermore, we might be forced to limit the features available in our current or future products. These
delays and feature limitations, if they occur, could harm our business, results of operations and financial condition.
Failure to comply with data privacy and
security laws and regulations could adversely affect our operating results and business.
In the ordinary course of our business, we might
collect and store in our internal and external data centers, cloud services and networks sensitive data, including our proprietary business
information and that of our customers, suppliers and business collaborators, as well as personal information of our customers and employees.
The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. The number
and sophistication of attempted attacks and intrusions that companies have experienced from third parties has increased over the past
few years. Despite our security measures, it is impossible for us to eliminate this risk.
A number of U.S. states have enacted data privacy
and security laws and regulations that govern the collection, use, disclosure, transfer, storage, disposal, and protection of personal
information, such as social security numbers, financial information and other sensitive personal information. For example, all 50 states
and several U.S. territories now have data breach laws that require timely notification to affected individuals, and at times regulators,
credit reporting agencies and other bodies, if a company has experienced the unauthorized access or acquisition of certain personal information.
Other state laws, such as the California Consumer Privacy Act, as amended (“CCPA”), among other things, contain disclosure
obligations for businesses that collect personal information about residents in their state and affords those individuals new rights
relating to their personal information that may affect our ability to collect and/or use personal information. Moreover, on January 28,
2022, the California Attorney General announced that certain consumer loyalty programs are subject to the CCPA, which may affect some
of our customers who use our loyalty program services if they are found not to comply with the CCPA’s requirements. Meanwhile,
several other states and the federal government have considered or are considering privacy laws like the CCPA. We will continue to monitor
and assess the impact of these laws, which may impose substantial penalties for violations, impose significant costs for investigations
and compliance, allow private class-action litigation and carry significant potential liability for our business.
Outside of the U.S., data protection laws, including
the EU General Data Protection Regulation (the “GDPR”), also might apply to some of our operations or business collaborators.
Legal requirements in these countries relating to the collection, storage, processing and transfer of personal data/information continue
to evolve. The GDPR imposes, among other things, data protection requirements that include strict obligations and restrictions on the
ability to collect, analyze and transfer EU personal data/information, a requirement for prompt notice of data breaches to data subjects
and supervisory authorities in certain circumstances, and possible substantial fines for any violations (including possible fines for
certain violations of up to the greater of 20 million Euros or 4% of total company revenue). Other governmental authorities around the
world have enacted or are considering similar types of legislative and regulatory proposals concerning data protection.
The interpretation and enforcement of the laws
and regulations described above are uncertain and subject to change, and may require substantial costs to monitor and implement and maintain
adequate compliance programs. Failure to comply with U.S. and international data protection laws and regulations could result in government
enforcement actions (which could include substantial civil and/or criminal penalties), private litigation and/or adverse publicity and
could negatively affect our operating results and business.
The Consumer Product Safety Improvement
Act and other existing or future government regulation could harm our business or may cause us to incur additional costs associated
with compliance.
We are subject to various federal, state and
local laws and regulations, including but not limited to, laws and regulations relating to labor and employment, U.S. customs and consumer
product safety, including the Consumer Product Safety Improvement Act, or the “CPSIA.” The CPSIA created more stringent safety
requirements related to lead and phthalates content in children’s products. The CPSIA regulates the future manufacture of these
items and existing inventories and may cause us to incur losses if we offer for sale or sell any non-compliant items. Failure to comply
with the various regulations applicable to us may result in damage to our reputation, civil and criminal liability, fines and penalties
and increased cost of regulatory compliance. These current and any future laws and regulations could harm our business, results of operations
and financial condition.
We are subject to international, federal,
national, regional, state, local and other laws and regulations, and failure to comply with them may expose us to potential liability.
We are subject to international, federal, national,
regional, state, local and other laws and regulations affecting our business, including those promulgated under the Occupational Safety
and Health Act, the Consumer Product Safety Act, the Flammable Fabrics Act, the Textile Fiber Product Identification Act, the rules and
regulations of the Consumer Products Safety Commission, the Food, Drug, and Cosmetic Act, the rules and regulations of the Food and Drug
Administration (FDA), the Foreign Corrupt Practices Act of 1977 (FCPA), various securities laws and regulations including but not limited
to the Securities Exchange Act of 1934, the Securities Exchange Act of 1933, and the Nasdaq Stock Market LLC Rules, various labor, workplace
and related laws, and environmental laws and regulations. Failure to comply with such laws and regulations may expose us to potential
liability and have an adverse effect on our results of operations.
Shortages of supply of merchandise from
suppliers, interruptions in our manufacturing, and local conditions in the countries in which we operate could adversely affect our results
of operations.
As a distributor, we buy merchandise both from
multiple supply sources and from a network of factories in which we have developed direct relationships around the globe over the past
25 years. However, an unexpected interruption in any of the sources or facilities could temporarily adversely affect our results of operations
until alternate sources or facilities can be secured. We rely on the supply of different types of raw materials as well as textiles,
including plastic, glass, fabric and metal for our promotional products. Further, our suppliers generally source or manufacture finished
goods in parts of the world that may be affected by economic uncertainty, political unrest, labor disputes, health emergencies, or the
imposition of duties, tariffs or other import regulations by the United States.
Implementation of technology initiatives
could disrupt our operations in the near term and fail to provide the anticipated benefits.
As our business grows, we continue to make significant
investments in our technology, including in the areas of warehouse management, enterprise risk management and product design. The costs,
potential problems and interruptions associated with the implementation of technology initiatives could disrupt or reduce the efficiency
of our operations in the near term. They may also require us to divert resources from our core business to ensure that implementation
is successful. In addition, new or upgraded technology might not provide the anticipated benefits, might take longer than expected to
realize the anticipated benefits, might fail or might cost more than anticipated.
Failure to preserve positive labor relationships
with our employees could adversely affect our results of operations.
Our operations rely heavily on our employees,
and any labor shortage, disruption or stoppage caused by poor relations with our employees could reduce our operating margins and income.
While we believe that our employee relations are good, have no knowledge of any employees as subject to collective bargaining agreements,
and unions have not traditionally been active in the U.S. marketing industry, unionization of our workforce could increase our operating
costs or constrain our operating flexibility.
We are exposed to the risk of non-payment
by our customers on a significant amount of our sales.
We allow many of our customers to pay us within
30 days of service, also known as net 30 credit terms. Our extension of credit involves considerable judgment and is based on an evaluation
of each customer’s financial condition and payment history. We monitor our credit risk exposure by periodically obtaining credit
reports and updated financials on our customers. We generally see a heightened amount of bankruptcies by our customers during economic
downturns. In particular, we believe that the COVID-19 pandemic, and its impact on our customers, could have a negative impact on our
collection efforts. While we maintain an allowance for doubtful receivables for potential credit losses based upon our historical trends
and other available information, in times of economic turmoil, there is heightened risk that our historical indicators may prove to be
inaccurate. The inability to collect on sales to significant customers or a group of customers could have a material adverse effect on
our results of operations.
There is a risk of dependence on one or
a group of customers or market expectations of unsustainable growth.
During 2020, we were engaged by a Washington,
D.C.-based advertising and marketing contractor as subcontractor on a nationwide awareness-generating initiative for the 2020 U.S. Census.
During this period, this contract represented approximately 27.1% of our overall revenues for 2020. This customer is not expected to
renew its engagement with us due to the U.S. Census only occurring once every ten years. As a result, these nonrecurring revenue increases
have not recurred, are not expected to recur, and do not represent our long-term growth expectations. Although we do not have a concentration
of business in any particular customer or group of customers and do not view the revenues from these contracts to characterize our long-term
steady growth expectations, the additional revenues cannot be excluded from our revenues under United States Generally Accepted Accounting
Principles, and investors that are unsophisticated or otherwise unaware of the likely moderating effect on our future income, may have
an expectation of much faster revenue growth. If we are unable to meet these expectations by finding new major customers or gain major
new engagements from existing customers to replace these nonrecurring contracts, there may be material adverse effects on the price of
our securities due to the reactions of disillusioned investors, negative media coverage, damage to our reputation, and other effects
that may have a material adverse effect on our financial condition or results of operations. If on the other hand we successfully source
major new contracts, the risk that we may become dependent on one or a few customers may increase. This potential dependency could threaten
the sustainability of our growth and have a material adverse effect on our financial condition or results of operations if we are unable
to retain such major contracts or replace them with similarly major contracts on a regular basis.
Our business incurs significant freight
and transportation costs. Any changes in our shipping arrangements or any interruptions in shipping could harm our business, results
of operations and financial condition.
We incur transportation expenses to ship our
products to our customers. Significant increases in the costs of freight and transportation could have a material adverse effect on our
results of operations, as there can be no assurance that we could pass on these increased costs to our customers. Government regulations
can and have impacted the availability of drivers, which will be a significant challenge to the industry. Costs to employ drivers have
increased and transportation shortages have become more prevalent.
If we are not able to negotiate acceptable pricing
and other terms with these vendors or they experience performance problems or other difficulties, such as the increased volume of deliveries
due to shelter-in-place orders associated with the COVID-19 pandemic, it could negatively impact our business and results of operations
and negatively affect the experiences of our customers, which could affect the degree to which they continue to do business with us.
Disruption to delivery services due to inclement weather could result in delays that could adversely affect our reputation, business
and results of operations. If our products are not delivered in a timely fashion or are damaged or lost during the supply or the delivery
process, our customers could become dissatisfied and cease doing business with us, which could adversely affect our business and results
of operations.
Our business may be impacted by unforeseen
or catastrophic events, including the emergence of pandemics or other widespread health emergencies, terrorist attacks, extreme weather
events or other natural disasters and other unpredicted events.
The occurrence of unforeseen or catastrophic
events, such as the emergence of pandemics or other widespread health emergencies (or concerns over the possibility of such pandemics
or emergencies), terrorist attacks, extreme weather events or other natural disasters or other unpredicted events, could create economic
and financial disruptions, and could lead to operational difficulties (including travel limitations) that could impair our ability to
source and supply products and services and manage our businesses, and could negatively impact our customers’ ability or willingness
to purchase our products and services.
For example, our corporate headquarters is located
in Massachusetts, which does have earthquakes and experiences other less frequent natural hazards such as flooding, coastal erosion and
an occasional nuisance landslide; should any of these unforeseen or catastrophic events occur, the possibly resulting infrastructure
damage and disruption to the area could negatively affect our company, such as by damage to or total destruction of our headquarters,
surrounding transportation infrastructure, network communications and other forms of communication. Some of our other locations and those
of our suppliers, such as those located in the U.S. and Central America, also are exposed to hurricanes, earthquakes, floods and other
extreme weather events; the damage that such events could produce could affect the supply of our products and services.
Additionally, while the extent of the impact
on our business and financial condition is unknown at this time, we believe we have been negatively affected by actions taken to
address and limit the spread of COVID-19, such as travel restrictions and limitations affecting the supply of labor and the movement
of raw materials and finished products. Although we have not experienced any significant shortage or delay in obtaining raw materials
or finished product, our shipping costs for importing raw materials from overseas have increased significantly since the emergence of
COVID-19. We believe further reduced manufacturing capacity or increased freight costs as a result of COVID-19 could have an increased
negative affect on the timely supply and pricing of finished products and have a material adverse effect on our results of operations.
We face intense competition within our
industry and our revenue and/or profits may decrease if we are not able to respond to this competition effectively.
Customers in the promotional products, uniforms,
tradeshow and event marketplace, loyalty and program management business process outsourcing industries choose distributors primarily
based upon the quality, price and breadth of products and services offered. We encounter competition from a number of companies in the
geographic areas we serve. The majority of our revenue is derived from the sale of promotional products. Our major competitors for our
promotional products business include companies such as 4Imprint Group plc, Brand Addition Limited (The Pebble Group plc), BAMKO LLC
(Superior Group of Companies, Inc.), Staples Promotional Products (Staples, Inc.), Boundless Network, Inc. (Zazzle Inc.) and HALO Branded
Solutions, Inc. We also compete with a multitude of foreign, regional and local competitors that vary by market. If our existing or future
competitors seek to gain or retain market share by reducing prices, we may be required to lower our prices, which would adversely affect
our operating results. Similarly, if customers or potential customers perceive the products or services offered by our existing
or future competitors to be of higher quality than ours or part of a broader product mix, our revenues may decline, which would adversely
affect our operating results.
We face intense competition to gain market
share, which may lead some competitors to sell substantial amounts of goods at prices against which we cannot profitably compete.
Our marketing strategy is to differentiate ourselves
by providing quality service and quality products to our customers. Even if this strategy is successful, the results may be offset by
reductions in demand or price declines due to competitors’ pricing strategies or other micro or macro-economic factors. We face
the risk of our competition following a strategy of selling its products at or below cost in order to cover some amount of fixed costs,
especially in stressed economic times.
Global, national or regional economic slowdowns,
high unemployment levels, fewer jobs, changes in tax laws or cost increases might have an adverse effect on our operating results.
Our primary products within our promotional products
are used by workers and, as a result, our business prospects are dependent upon levels of employment and overall economic conditions
on a global, national and regional level, among other factors. Our revenues are impacted by our customers’ opening and closing
of locations and reductions and increases in headcount, including from voluntary turnover and increased automation, which affect the
quantity of uniform orders on a per-employee basis. If we are unable to offset these effects, such as through the addition of new customers,
the penetration of existing customers with a broader mix of product and service offerings, or decreased production costs that can be
passed on in the form of lower prices, our revenue growth rates will be negatively impacted. Likewise, increases in tax rates or other
changes in tax laws or other regulations can negatively affect our profitability.
While we do not believe that our exposure is
greater than that of our competitors, we could be adversely affected by increases in the prices of fabric, natural gas, gasoline, wages,
employee benefits, insurance costs and other components of product cost unless we can recover such increases through proportional increases
in the prices for our products and services. Competitive and general economic conditions might limit our ability and that of our competitors
to increase prices to cover any increases in our product cost.
The promotional products, uniforms, trade
show and events marketplace, loyalty and program management business industries are subject to pricing pressures that may cause us to
lower the prices we charge for our products and services that adversely affect our financial performance.
Many of our competitors also source their product
requirements from developing countries to achieve a lower cost operating environment, possibly with lower costs than our offshore facilities,
and those manufacturers may use these cost savings to reduce prices. Some of our competitors have more purchasing power than we do, which
may enable them to obtain products at lower costs. To remain competitive, we may adjust our product and service prices and margins from
time-to-time in response to these industry-wide pricing pressures. Additionally, increased customer demands for allowances, incentives
and other forms of economic support could reduce our margins and affect our profitability. Our financial performance will be negatively
affected by these pricing pressures if we are forced to reduce our prices and we cannot reduce our product costs proportionally or if
our product costs increase and we cannot increase our prices proportionally.
Increases in the price of merchandise and
raw materials used to manufacture our products could materially increase our costs and decrease our profitability.
The principal components in our promotional products
are plastic, glass, fabric and metal. The prices we pay for these fabrics and components and our merchandise are dependent on the market
price for the raw materials used to produce them, primarily cotton and chemical components of synthetic fabrics including raw materials
such as chemicals and dyestuffs. These finished goods and raw materials are subject to price volatility caused by weather, supply conditions,
government regulations, economic and political climate, currency exchange rates, labor costs, and other unpredictable factors. Fluctuations
in petroleum prices also may influence the prices of related items such as chemicals, dyestuffs and polyester yarn.
Although we have not experienced any significant
shortage or delay in obtaining raw materials or finished product, our shipping costs for importing raw materials from overseas have increased
significantly since the emergence of COVID-19. Any increase in raw material prices or shipping costs increases our cost of sales and
can decrease our profitability unless we are able to pass the costs on to our customers in the form of higher prices. In addition, if
one or more of our competitors is able to reduce their production costs by taking advantage of any reductions in raw material prices
or favorable sourcing agreements, we may face pricing pressures from those competitors and may be forced to reduce our prices or
face a decline in revenues, either of which could have a material adverse effect on our business, results of operations and financial
condition.
Changes to trade regulation, quotas, duties,
tariffs or other restrictions caused by the changing U.S. and geopolitical environments or otherwise, such as those with respect to China,
may materially harm our revenue and results of operations, such as by increasing our costs and/or limiting the amount of products that
we can import.
Our operations are subject to various international
trade agreements and regulations, such as the Dominican Republic–Central America Free Trade Agreement (CAFTA-DR), Caribbean Basin
Trade Partnership Act (CBTPA), Haitian Hemispheric Opportunity through Partnership Encouragement Act, as amended (HOPE), the Food Conservation
and Energy Act of 2008 (HOPE II), the Haiti Economic Lift Program of 2010 (HELP), the African Growth and Opportunity Act (AGOA), the
Middle East Free Trade Area Initiative (MEFTA) and the activities and regulations of the World Trade Organization (WTO). Generally, these
trade agreements and regulations benefit our business by reducing or eliminating the quotas, duties and/or tariffs assessed on products
manufactured in a particular country. However, trade agreements and regulations can also impose requirements that have a material adverse
effect on our business, revenue and results of operations, such as limiting the countries from which we can purchase raw materials, limiting
the products that qualify as duty free, and setting quotas, duties and/or tariffs on products that may be imported into the United States
from a particular country. Certain inbound products to the United States are subject to tariffs assessed on the manufactured cost
of goods at the time of import. As a result, we have had to increase prices for certain products and may be required to raise those prices
further, or raise our prices on other products, which may result in the loss of customers and harm our operating performance. In response,
in part, to tariffs levied on products imported from China we have shifted some production out of China and may seek to shift additional
production out of China, which may result in additional costs and disruption to our operations.
The countries in which our products are manufactured
or into which they are imported may from time-to-time impose new quotas, duties, tariffs and requirements as to where raw materials must
be purchased to qualify for free or reduced duty. These countries also may create additional workplace regulations or other restrictions
on our imports or adversely modify existing restrictions. Adverse changes in these costs and restrictions could harm our business. We
cannot assure that future trade agreements or regulations will not provide our competitors an advantage over us or increase our costs,
either of which could have a material adverse effect on our business, results of operations or financial condition. Nor can we assure
that the changing geopolitical and U.S. political environments will not result in a trade agreement or regulation being altered which
adversely affects our company. The U.S. government may decide to impose or alter existing import quotas, duties, tariffs or other
restrictions on products or raw materials sourced from those countries, which include countries from which we import raw materials or
in which we manufacture our products. Any such quotas, duties, tariffs or restrictions could have a material adverse effect on our
business, results of operations or financial condition.
The apparel industry, including uniforms
and corporate identity apparel, is subject to changing fashion trends and if we misjudge consumer preferences, the image of one or more
of our brands may suffer and the demand for our products may decrease.
The apparel industry, including uniforms and
corporate identity apparel for promotional products, is subject to shifting customer demands and evolving fashion trends and our success
is also dependent upon our ability to anticipate and promptly respond to these changes. Failure to anticipate, identify or promptly react
to changing trends or styles may result in decreased demand for our products, as well as excess inventories and markdowns, which could
have a material adverse effect on our business, results of operations and financial condition. In addition, if we misjudge consumer preferences,
our brand image may be impaired. We believe our products are, in general, less subject to fashion trends compared to many other apparel
manufacturers because the majority of what we manufacture and sell are uniforms, scrubs, corporate identity apparel and other accessories.
Our success depends upon the continued
protection of our intellectual property rights and we may be forced to incur substantial costs to maintain, defend, protect and enforce
our intellectual property rights.
Our owned intellectual property and certain of
our licensed intellectual property have significant value and are instrumental to our ability to market our products. We cannot assure
that our owned or licensed intellectual property or the operation of our business does not infringe on or otherwise violate the intellectual
property rights of others. We cannot assure that third parties will not assert claims against us on any such basis or that we will be
able to successfully resolve such claims. In addition, the laws of some foreign countries do not allow us to protect, defend or enforce
our intellectual property rights to the same extent as the laws of the United States. We could also incur substantial costs to defend
legal actions relating to use of our intellectual property or prosecute legal actions against others using our intellectual property,
either of which could have a material adverse effect on our business, results of operations or financial condition. There also can be
no assurance that we will be able to negotiate and conclude extensions of existing license agreements on similar economic terms or at
all.
General Risk Factors
Some of the products
that we design or otherwise assist customers with producing create exposure to potential product liability, warranty liability or
personal injury claims and litigation.
Some of the products
that we design or otherwise assist customers with producing are used in applications and situations that involve risk of personal
injury and death. Our services expose us to potential product liability, warranty liability, and personal injury
claims and litigation relating to the use or misuse of our products including allegations of defects in manufacturing, defects
in design, a failure to warn of dangers inherent in the product or activities associated with the product, negligence
and strict liability. If successful, such claims could have a material adverse effect on our business.
Defects in the products
that we design or otherwise assist customers with producing could reduce demand for our products and result in a decrease
in sales and market acceptance and damage to our reputation.
Although we carry certain standard commercial
insurance, including products-completed operations coverage, we do not currently maintain separate product liability insurance,
and we may not be able to obtain and maintain such insurance on acceptable terms, if at all, in the future. Even if we have
purchased product liability insurance in the future, product liability claims may exceed the amount of our insurance coverage.
In addition, our reputation may be adversely affected by such claims, whether or not successful, including potential negative publicity
about our products.
We are subject to periodic litigation in
both domestic and international jurisdictions that may adversely affect our financial position and results of operations.
From time to time we may be involved in legal
or regulatory actions regarding product liability, employment practices, intellectual property infringement, bankruptcies and other litigation
or enforcement matters. These proceedings may be in jurisdictions with reputations for aggressive application of laws and procedures
against corporate defendants. We are impacted by trends in litigation, including class-action allegations brought under various consumer
protection and employment laws. Due to the inherent uncertainties of litigation in both domestic and foreign jurisdictions, we cannot
accurately predict the ultimate outcome of any such proceedings. These proceedings could cause us to incur costs and may require us to
devote resources to defend against these claims and could ultimately result in a loss or other remedies, such as product recalls, which
could adversely affect our financial position and results of operations.
Volatility in the global financial markets
could adversely affect results.
In the past, global financial markets have experienced
extreme disruption, including, among other things, volatility in securities prices, diminished liquidity and credit availability, rating
downgrades of certain investments and declining valuations of others. There can be no assurance that there will not be further change
or volatility, which could lead to challenges in our business and negatively impact our financial results. Any future tightening of credit
in financial markets could adversely affect the ability of our customers and suppliers to obtain financing for significant purchases
and operations and could result in a decrease in orders and spending for our products and services. We are unable to predict the likely
duration and severity of any disruption in financial markets and adverse economic conditions and the effects they may have on our business
and financial condition.
Inability to attract and retain key management
or other personnel could adversely impact our business.
Our success is largely dependent on the skills,
experience and efforts of our senior management and other key personnel, such as our Chief Executive Officer and President, Andrew Shape,
our Executive Chairman, Andrew Stranberg, our Executive Vice President, Randolph Birney, our Chief Financial Officer, Christopher Rollins,
our Chief of Staff, Stephen Paradiso, our Chief Technology Officer, Jason Nolley, our Chief Operating Officer, Sheila Johnshoy, and our
Vice President of Growth and Strategic Initiatives, John Audibert. If, for any reason, one or more senior executives or key personnel
were not to remain active in our company, or if we were unable to attract and retain senior management or key personnel, our results
of operations could be adversely affected.
Failure to achieve and maintain effective
internal controls could adversely affect our business and price of our securities.
Effective internal controls are necessary for
us to provide reliable financial reports. All internal control systems, no matter how well designed, have inherent limitations. Therefore,
even those systems determined to be effective can provide only reasonable assurance with respect to the consolidated financial statement
preparation and presentation. While we continue to evaluate our internal controls, we cannot be certain that these measures will ensure
that we implement and maintain adequate internal control over financial reporting in the future. If we fail to maintain the
adequacy of our internal controls or if we or our independent registered public accounting firm were to discover material weaknesses
in our internal controls, as such standards are modified, supplemented or amended, we may not be able to ensure that we can conclude
on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley
Act. Failure to achieve and maintain an effective internal control environment could cause us to be unable to produce reliable financial
reports or prevent fraud. This may cause investors to lose confidence in our reported financial information, which could have a material
adverse effect on the price of our securities.
Increases in the cost of employee benefits
could impact our financial results and cash flow.
Our expenses relating to employee health benefits
are significant. Unfavorable changes in the cost of such benefits could impact our financial results and cash flow. Healthcare costs
have risen significantly in recent years, and recent legislative and private sector initiatives regarding healthcare reform could result
in significant changes to the U.S. healthcare system. Additionally, we believe the ongoing COVID-19 pandemic may result in temporary
or permanent healthcare reform measures, would result in significant cost increases and other negative impacts to our business. While
the Company has various cost control measures in place and employs an outside consultant to review on larger claims, employee health
benefits have been and are expected to continue to be a significant cost to the Company. Medical costs will continue to be a significant
expense to the Company and may increase due to factors outside the Company’s control.
We may recognize impairment charges, which
could adversely affect our financial condition and results of operations.
We assess our goodwill, intangible assets and
long-lived assets for impairment when required by generally accepted accounting principles in the United States (GAAP). These accounting
principles require that we record an impairment charge if circumstances indicate that the asset carrying values exceed their estimated
fair values. The estimated fair value of these assets is impacted by general economic conditions in the locations in which we operate.
Deterioration in these general economic conditions may result in: declining revenue, which can lead to excess capacity and declining
operating cash flow; reductions in management’s estimates for future revenue and operating cash flow growth; increases in borrowing
rates and other deterioration in factors that impact our weighted average cost of capital; and deteriorating real estate values. If our
assessment of goodwill, intangible assets or long-lived assets indicates an impairment of the carrying value for which we recognize an
impairment charge, this may adversely affect our financial condition and results of operations.
Environmental regulations may impact our
future operating results.
We are subject to extensive and changing federal,
state and foreign laws and regulations establishing health and environmental quality standards, concerning, among other things, wastewater
discharges, air emissions and solid waste disposal, and may be subject to liability or penalties for violations of those standards. We
are also subject to laws and regulations governing remediation of contamination at facilities currently or formerly owned or operated
by us or to which we have sent hazardous substances or wastes for treatment, recycling or disposal. We may be subject to future liabilities
or obligations as a result of new or more stringent interpretations of existing laws and regulations. In addition, we may have liabilities
or obligations in the future if we discover any environmental contamination or liability at any of our facilities, or at facilities we
may acquire.
If we are unable to accurately predict
our future tax liabilities, become subject to increased levels of taxation or our tax contingencies are unfavorably resolved, our results
of operations and financial condition could be adversely affected.
Changes in tax laws or regulations in the jurisdictions
in which we do business, including the United States, or changes in how the tax laws are interpreted, could further impact our effective
tax rate, further restrict our ability to repatriate undistributed offshore earnings, or impose new restrictions, costs or prohibitions
on our current practices and reduce our net income and adversely affect our cash flows.
We are also subject to tax audits in the United
States and other jurisdictions and our tax positions may be challenged by tax authorities. Although we believe that our current tax provisions
are reasonable and appropriate, there can be no assurance that these items will be settled for the amounts accrued, that additional tax
exposures will not be identified in the future or that additional tax reserves will not be necessary for any such exposures. Any increase
in the amount of taxation incurred as a result of challenges to our tax filing positions could result in a material adverse effect on
our business, results of operations and financial condition.
Early termination of or failure to renew
our secured line of credit could strain our ability to pay other obligations.
We have a secured line of credit for borrowings
of up to $7 million with Salem Five Cents Savings Bank, or the Lender. The line bears interest at the prime rate plus 0.5% per annum.
The line is reviewed annually and is due on demand. This line of credit is secured by substantially all assets of the Company. The Lender
may demand immediate repayment of the full balance of this facility at any time, whether or not we are in default, and may refuse to
extend it beyond the initial expected one-year term. If we are unable to negotiate, extend or refinance this line of credit with an equivalent
line of credit or other financing from another bank, then we may default on the line of credit as well as our other obligations. In that
event, the Lender could enforce its security interest in all of our assets, potentially resulting in a material adverse effect on our
business, results of operations and financial condition.
Risks Related to Ownership of Our Securities
An active market in which investors can
resell their shares of our common stock and warrants may not develop.
Our common stock and warrants were listed and
began trading on the Nasdaq Capital Market on November 9, 2021, under the symbols “STRN” and “STRNW,” respectively.
Prior to the listing, there was no public market for our common stock and warrants. A liquid public market for our common stock and warrants
may not develop notwithstanding the recent listing of our common stock and warrants on the Nasdaq Capital Market. The prices at which
our securities are traded may decline, meaning that you may experience a decrease in the value of your common stock and warrants regardless
of our operating performance or prospects.
The market prices of our securities may
fluctuate, and you could lose all or part of your investment.
The market prices for our securities are likely
to be volatile, in part because our shares and warrants have only been traded publicly since November 9, 2021. In addition, the market
prices of our securities may fluctuate significantly in response to several factors, most of which we cannot control, including:
| ● | actual or anticipated variations
in our periodic operating results; |
| ● | increases in market interest rates
that lead investors of our common stock and warrants to demand a higher investment return; |
| ● | changes in earnings estimates; |
| ● | changes in market valuations of
similar companies; |
| ● | actions or announcements by our
competitors; |
| ● | adverse market reaction to any increased
indebtedness we may incur in the future; |
| ● | additions or departures of key personnel; |
| ● | actions by shareholders; |
| ● | speculation in the media, online
forums, or investment community; and |
| ● | our intentions and ability to maintain
the listing of our common stock and warrants on Nasdaq. |
Volatility in the market prices of our securities
may prevent investors from being able to sell their securities at or above their purchase price. As a result, you may suffer a loss on
your investment.
We may not be able to maintain a listing
of our common stock and warrants on Nasdaq.
Although our common stock and warrants are listed
on Nasdaq, we must meet certain financial and liquidity criteria to maintain such listing. If we violate Nasdaq’s listing requirements,
or if we fail to meet any of Nasdaq’s listing standards, our common stock and warrants may be delisted. In addition, our board
of directors may determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such
listing. A delisting of our common stock and warrants from Nasdaq may materially impair our shareholders’ ability to buy and sell
our common stock and warrants and could have an adverse effect on the market price of, and the efficiency of the trading market for,
our common stock and warrants. The delisting of our common stock and warrants could significantly impair our ability to raise capital
and the value of your investment.
Our warrants may not have any value.
Our warrants are exercisable for five years from
the date of initial issuance and currently have an exercise price of $4.81375
per share. There can be no assurance that the market price of our shares of common stock will equal or exceed the exercise price
of the warrants. In the event that the stock price of our shares of common stock does not exceed the exercise price of the warrants during
the period when the warrants are held and exercisable, the warrants may not have any value to their holders.
Holders of warrants have no rights as shareholders
until such holders exercise their warrants and acquire our shares of common stock.
Until holders of our warrants acquire shares
of common stock upon exercise thereof, such holders will have no rights with respect to the shares of common stock underlying the warrants.
Upon exercise of the warrants, the holders will be entitled to exercise the rights of a shareholder only as to matters for which the
record date occurs after the date they were entered in the register of members of the Company as a shareholder.
The warrant certificate governing our warrants
designates the state and federal courts of the State of New York sitting in the City of New York, Borough of Manhattan, as the exclusive
forum for actions and proceedings with respect to all matters arising out of the warrants, which could limit a warrantholder’s
ability to choose the judicial forum for disputes arising out of the warrants.
The warrant certificate governing our warrants
provides that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by the warrant
certificate (whether brought against a party to the warrant certificate or their respective affiliates, directors, officers, shareholders,
partners, members, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York.
The warrant certificate further provides that we and the warrantholders irrevocably submit to the exclusive jurisdiction of the state
and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute under the warrant certificate
or in connection with it or with any transaction contemplated by it or discussed in it, including under the Securities Act. Furthermore,
we and the warrantholders irrevocably waive, and agree not to assert in any suit, action or proceeding, any claim that we or they are
not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient
venue for such proceeding. With respect to any complaint asserting a cause of action arising under the Securities Act or the
rules and regulations promulgated thereunder, we note, however, that there is uncertainty as to whether a court would enforce this provision
and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Section 22 of the
Securities Act creates concurrent jurisdiction for state and federal courts over all suits brought to enforce any duty or liability created
by the Securities Act or the rules and regulations thereunder.
Notwithstanding the
foregoing, these provisions of the warrant certificate will not apply to suits brought to enforce any liability or duty created by the
Exchange Act or any other claim for which the federal district courts of the United States of America are the sole and exclusive forum.
Any person or entity
purchasing or otherwise acquiring or holding or owning (or continuing to hold or own) any interest in any of our warrants shall be deemed
to have notice of and consented to the foregoing provisions. Although we believe this exclusive forum provision benefits us by providing
increased consistency in the application of the governing law in the types of lawsuits to which it applies, the exclusive forum provision
may limit a warrantholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or any of our directors,
officers, other employees, stockholders, or others which may discourage lawsuits with respect to such claims. Our warrantholders will
not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder as a result of
this exclusive forum provision. Further, in the event a court finds the exclusive forum provision contained in our warrant certificates
to be unenforceable or inapplicable in an action, we may incur additional costs associated with resolving such action in other jurisdictions,
which could harm our results of operations.
Risks Related to our Common Stock and Warrants
Although we expect to adopt a share repurchase program
in the future, we have discretion to not repurchase your shares, to suspend the program, and to cease repurchases.
On February 23, 2022, we announced that our board
of directors had authorized a share repurchase program under which we may repurchase up to $10 million of our outstanding shares of common
stock in the open market, in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Securities
Exchange Act of 1934, as amended. Our decision to repurchase our shares, as well as the timing of such repurchases, will depend on a
variety of factors that include ongoing assessments of our capital needs, market conditions and the price of our common stock, and other
corporate considerations, as determined by management.
Although we expect to adopt the announced share
repurchase program in the future, we may determine not to conduct one, and even if we do commence such a program, we may suspend or terminate
it at any time. Additionally, even if we were to proceed with a share repurchase program, a share repurchase program has
many limitations and will be subject to compliance with applicable contractual and regulatory restrictions, and should not be relied
upon as a method to sell shares promptly, at a desired price, or at a time that would be advantageous to stockholders.
The reduction of total outstanding shares
through the execution of a share repurchase program of common stock may increase the risk that a shareholder or group
of shareholders could control us.
A share repurchase program may
be conducted from time to time under authorization made by our board of directors. Although no single shareholder or group of shareholders
currently owns a majority of our shares, as of March 24, 2022, our Chairman, Andrew Stranberg, held approximately 27.7% shares of our
common stock, our President and Chief Executive Officer, Andrew Shape, held approximately 16.8% shares of our common stock, and our Executive
Vice President, Randolph Birney, held approximately 4.0% shares of our common stock. As such, our officers and directors together hold
almost a majority of our outstanding shares of common stock and therefore may effectively control our operations. The reduction of total
outstanding shares through the execution of a share repurchase program of common stock may increase the risk that Mr.
Stranberg alone or that our officers and directors together will hold a majority of our shares of common stock and be controlling shareholders.
A controlling shareholder or group of shareholders
has significant influence over, and may have the ability to control, matters requiring approval by our shareholders, including the election
of directors and approval of mergers, consolidations, sales of assets, recapitalizations and amendments to our articles of incorporation.
Furthermore, a controlling shareholder or group of shareholders may take actions with which other shareholders do not agree, including
actions that delay, defer or prevent a change of control of the Company and that could cause the price that investors are willing to
pay for the Company’s stock to decline.
We do not expect to declare or pay dividends
in the foreseeable future.
We do not expect to declare or pay dividends
in the foreseeable future, as we anticipate that we will invest future earnings in the development and growth of our business. Therefore,
holders of our common stock will not receive any return on their investment unless they sell their securities, and holders may be unable
to sell their securities on favorable terms or at all.
If securities industry analysts do not
publish research reports on us, or publish unfavorable reports on us, then the market price and market trading volume of our securities
could be negatively affected.
Any trading market for our common stock and warrants
may be influenced in part by any research reports that securities industry analysts publish about us. We currently only have research
coverage by EF Hutton, the underwriter for our initial public offering. We may never obtain additional research coverage by securities
industry analysts. If no additional securities industry analysts commence coverage of us or if we lose coverage from EF Hutton, the market
price and market trading volume of our securities could be negatively affected. In the event we are covered by additional analysts, and
one or more analyst downgrades our securities, or otherwise reports on us unfavorably, or discontinues coverage of us, the market price
and market trading volume of our securities could be negatively affected.
Future issuances of our common stock or
securities convertible into, or exercisable or exchangeable for, our common stock, or the expiration of lock-up agreements that restrict
the issuance of new common stock or the trading of outstanding common stock, could cause the market price of our securities to decline
and would result in the dilution of your holdings.
Future issuances of our common stock or securities
convertible into, or exercisable or exchangeable for, our common stock, or the expiration of lock-up agreements that restrict the issuance
of new common stock or the trading of outstanding common stock, could cause the market price of our common stock to decline. We cannot
predict the effect, if any, of future issuances of our securities, or the future expirations of lock-up agreements, on the price of our
securities. In all events, future issuances of our securities would result in the dilution of your holdings. In addition, the perception
that new issuances of our securities could occur, or the perception that locked-up parties will sell their securities when the lock-ups
expire, could adversely affect the market price of our securities. In connection with our initial public offering, on November 8, 2021,
we and our officers, directors and shareholders before the offering entered into lock-up agreements that prevent, subject to certain
exceptions, selling or transferring any of our shares of capital stock for up to six months. In addition to any adverse effects that
may arise upon the expiration of these lock-up agreements, the lock-up provisions in these agreements may be waived, at any time and
without notice. On or around November 16, 2021, an order to transfer 200,000 of the shares by a shareholder who is subject to these and
other lock-up provisions to another holder was approved by our Executive Chairman Mr. Stranberg, the representative of the underwriters
of our initial public offering, or the representative, and the Company, and processed by its transfer agent. In addition, on December
8, 2021, notwithstanding our lockup agreement, we were permitted by the representative to sell 4,371,926
shares of common stock, warrants to purchase 5,464,903 shares of common stock and placement agent’s warrants to purchase 131,158
shares of common stock. If the restrictions under the lock-up agreements are waived again in the future, and in any event when
the lock-up agreements expire on May 8, 2022, more of our securities will become available for resale, subject to applicable law, including
without notice, which could reduce the market price for our common stock.
Future issuances of debt securities, which
would rank senior to our common stock upon our bankruptcy or liquidation, and future issuances of preferred stock, which could rank senior
to our common stock for the purposes of dividends and liquidating distributions, may adversely affect the level of return you may be
able to achieve from an investment in our securities.
In the future, we may attempt to increase our
capital resources by offering debt securities. Upon bankruptcy or liquidation, holders of our debt securities, and lenders with respect
to other borrowings we may make, would receive distributions of our available assets prior to any distributions being made to holders
of our common stock. Moreover, if we issue preferred stock, the holders of such preferred stock could be entitled to preferences over
holders of common stock in respect of the payment of dividends and the payment of liquidating distributions. Because our decision to
issue debt or preferred stock in any future offering, or borrow money from lenders, will depend in part on market conditions and other
factors beyond our control, we cannot predict or estimate the amount, timing or nature of any such future offerings or borrowings. Holders
of our securities must bear the risk that any future offerings we conduct or borrowings we make may adversely affect the level of return,
if any, they may be able to achieve from an investment in our securities.
We are authorized to issue “blank
check” preferred stock without stockholder approval, which could adversely impact the rights of holders of our securities.
Our articles of incorporation authorize us to
issue up to 50,000,000 shares of blank check preferred stock. Any preferred stock that we issue in the future may rank ahead
of our securities in terms of dividend priority or liquidation premiums and may have greater voting rights than our securities. In addition,
such preferred stock may contain provisions allowing those shares to be converted into shares of common stock, which could dilute the
value of our securities to current stockholders and could adversely affect the market price, if any, of our securities. In addition,
the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control
of our company. Although we have no present intention to issue any shares of authorized preferred stock, there can be no assurance that
we will not do so in the future.
If our securities become subject to the
penny stock rules, it would become more difficult to trade our shares.
The Securities and Exchange Commission, or the
SEC, has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally
equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized
for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions
in such securities is provided by the exchange or system. If we do not retain a listing on Nasdaq or another national securities exchange
and if the price of our securities is less than $5.00, our securities could be deemed a penny stock. The penny stock rules require a
broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure
document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny
stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable
investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement;
(ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our securities, and therefore
shareholders may have difficulty selling their securities.
We are subject to ongoing public reporting
requirements that are less rigorous than Exchange Act rules for companies that are not emerging growth companies and our shareholders
could receive less information than they might expect to receive from more mature public companies.
We are required to publicly report on an ongoing
basis as an “emerging growth company” (as defined in the JOBS Act) under the reporting rules set forth under the Exchange
Act. For so long as we remain an emerging growth company, we may take advantage of certain exemptions from various reporting requirements
that are applicable to other Exchange Act reporting companies that are not emerging growth companies, including but not limited to:
| ● | not being required to comply with
the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act; |
| ● | being permitted to comply with reduced
disclosure obligations regarding executive compensation in our periodic reports and proxy
statements; and |
| ● | being exempt from the requirement
to hold a non-binding advisory vote on executive compensation and shareholder approval of
any golden parachute payments not previously approved. |
In addition, Section 107 of the JOBS Act also
provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities
Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain
accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits
of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such
new or revised accounting standards.
We expect to take advantage of these reporting
exemptions until we are no longer an emerging growth company. We will remain an emerging growth company for up to five years, although
if the market value of our securities that is held by non-affiliates exceeds $700 million as of any June 30 before that time, we would
cease to be an emerging growth company as of the following December 31.
Because we are subject to ongoing public reporting
requirements that are less rigorous than Exchange Act rules for companies that are not emerging growth companies, our shareholders could
receive less information than they might expect to receive from more mature public companies. We cannot predict if investors will find
our securities less attractive if we elect to rely on these exemptions, or if taking advantage of these exemptions would result in less
active trading or more volatility in the price of our securities.
ITEM
1B. UNRESOLVED STAFF COMMENTS.
Not applicable.
ITEM
2. PROPERTIES.
We are headquartered in Quincy, Massachusetts,
where we occupy approximately 10,000 square feet of office space pursuant to a lease that is expected to expire in May 2025. Our management
team, client service team, marketing, operations, and sales team are all primarily based in this office.
We lease satellite office space in Gloucester,
Massachusetts; Warsaw, Indiana; Fairfield, Connecticut; and Mt. Pleasant, South Carolina. Our employees also work remotely from twelve
additional locations around the United States using other facilities.
We believe that all our properties have been
adequately maintained, are generally in good condition, and are suitable and adequate for our businesses.
ITEM
3. LEGAL PROCEEDINGS.
From time to time, we may become involved in
various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties,
and an adverse result in these or other matters may arise from time to time that may harm our business. We are not currently aware of
any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating
results.
ITEM
4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our common stock and warrants were listed and
began trading on the Nasdaq Capital Market on November 9, 2021, under the symbols “STRN” and “STRNW,” respectively.
Prior to the listing, there was no public market for our common stock and warrants.
Number of Holders of Our Common Stock
As of March 24, 2022, there were approximately six holders of record
of our common stock. In computing the number of holders of record of our common stock, each broker-dealer and clearing corporation holding
shares on behalf of its customers is counted as a single holder.
Use of Proceeds from Registered Securities
On November 12, 2021,
we completed our initial public offering (the “IPO”) of 4,337,349 units, at a price to the public of $4.15 per unit, with
each unit consisting of one share of common stock and a warrant to purchase one share of common stock, before underwriting discounts
and commissions. Each whole share of common stock exercisable pursuant to the warrants initially had an exercise price per share of $5.1875,
equal to 125% of the initial public offering price per unit in the IPO. Due
to our subsequent private placement of common stock and common stock purchase warrants at a purchase price of $4.97 for one share and
1.25 warrants combined, after attributing a warrant value of $0.125, the exercise price per share of the IPO warrants was reduced to
$4.81375 as of December 10, 2021. The warrants are immediately exercisable and expire on the fifth anniversary of the original
issuance date. We also granted the underwriters a 45-day option to purchase up to an additional 650,602 shares of common stock and/or
warrants to purchase up to 650,602 shares of common stock at the IPO price less the underwriting discounts, representing fifteen percent
(15%) of the units sold in the IPO.
At the closing of the IPO, the representative
of the underwriters fully exercised its option to purchase an additional 650,602 shares of common stock and 650,602 warrants. Therefore,
we sold 4,987,951 shares of common stock and 4,987,951 warrants for total gross proceeds of $20,699,996.65. After deducting underwriter
commissions, discounts and non-accountable expenses of $1,759,500 and other offering expenses of approximately $995,845, we received
net proceeds of approximately $17,944,652.
The IPO was made pursuant
to our Registration Statement on Form S-1 (File No. 333-260109), which was filed with the SEC, and became effective on November
8, 2021, and our Registration Statement on Form S-1 (File No. 333-260880), which was filed with the SEC pursuant to Rule 462(b)
under the Securities Act of 1933, as amended, which was effective immediately upon filing on November 8, 2021. EF Hutton, division of
Benchmark Investments, LLC, acted as lead book-running manager and the representative of the underwriters, and US Tiger Securities, Inc.
acted as joint book-running manager.
From November 8, 2021 to December 31, 2021, the
following is our reasonable estimate of the uses of the proceeds from the IPO:
| ● | None was used for construction of
plant, building and facilities; |
| ● | None was used for the purchase and
installation of machinery and equipment; |
| ● | None was used for purchases of real
estate; |
| ● | None was used for the acquisition
of other businesses; |
| ● | Approximately
$3.5 million was used for the repayment of indebtedness; |
| ● | Approximately
$4.9 million was used for working capital; and |
| ● | None was used for temporary investments. |
As of December 31, 2021, we had not yet used
approximately $9.5 million of the proceeds of the IPO.
None of the proceeds of the IPO have been used
to make any direct or indirect payments to any of our directors or officers, any of their associates, any persons owning ten percent
or more of any class of our equity securities, or any of our affiliates, or any others.
There has not been, and we do not expect, any
material change in the planned use of proceeds from the IPO as described in the prospectus filed with the SEC pursuant to Rule 424(b)(4)
under the Securities Act on November 10, 2021.
Securities Authorized for Issuance Under Equity
Compensation Plans
See Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
Dividend Policy
We have never declared or paid cash dividends
on our common stock. We currently intend to retain all available funds and any future earnings for use in the operation of our business
and do not anticipate paying any cash dividends on our common stock in the near future. We may also enter into credit agreements or other
borrowing arrangements in the future that will restrict our ability to declare or pay cash dividends on our common stock. Any future
determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition,
operating results, capital requirements, contractual restrictions, general business conditions and other factors that our board of directors
may deem relevant. See also Item 1A. “Risk Factors—Risks Related to Our Common Stock and Warrants—We do not expect
to declare or pay dividends in the foreseeable future.”
Recent Sales of Unregistered Securities
We have not sold any equity securities during
the 2021 fiscal year that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K that was filed
during the 2021 fiscal year.
Purchases of Equity Securities
No repurchases of our common shares were made
during the fourth quarter of 2021.
ITEM
6. [RESERVED]
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The
following discussion and analysis summarizes the significant factors affecting our operating results, financial condition, liquidity
and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our
financial statements and the related notes thereto included elsewhere in this report. The discussion contains forward-looking statements
that are based on the beliefs of management, as well as assumptions made by, and information currently available to, management. Actual
results could differ materially from those discussed in or implied by forward-looking statements as a result of various factors, including
those discussed below and elsewhere in this report, particularly in the sections titled “Risk Factors” and “Special
Note Regarding Forward-Looking Statements.”
Overview
We are an outsourced marketing solutions provider
that sells branded products to customers. We purchase products and branding through various third-party manufacturers and decorators
and resell the finished goods to customers.
In addition to selling branded products, we offer
clients custom sourcing capabilities; a flexible and customizable e-commerce solution for promoting branded merchandise and other promotional
products, managing promotional loyalty and incentives, print collateral, and event assets, order and inventory management, and designing
and hosting online retail popup shops, fixed public retail online stores, and online business-to-business service offerings; creative
and merchandising services; warehousing/fulfillment and distribution; print-on-demand; kitting; point of sale displays; and loyalty and
incentive programs.
We earn the majority of our revenue from the
sale of unique, quality promotional products for a wide variety of industries primarily to support marketing efforts. We also derive
revenues from service fees from loyalty programs, event management, print services, fulfillment services, and technology services.
The majority of our revenue is derived from program
business, although only a small percentage of our customers are considered programmatic. For the years 2020 and 2021, program clients
accounted for 77.6% and 75.7% of total revenue, respectively. Less than 350 of our more than 2,000 active customers are considered to
be program clients. Our active customers are any organizations, businesses, or divisions of a parent organization which have purchased
directly or indirectly from us within the last two years, and include organizations that have bought from other organizations for which
Stran acts as an established sub-contractor. With a larger sales force and other resources, we believe we can convert more of our customer
base from transactional customers into program clients with much greater revenue potential. We define transactional customers as customers
that place an order with us and do not have an agreement with us covering ongoing branding requirements. We define program clients as
clients that have a contractual obligation for specific ongoing branding needs. Program offerings include ongoing inventory, use of technology
platform, warehousing, creative services, and additional client support. Those program customers are geared towards longer-lasting relationships
that helps secure recurring revenue well into the future.
Our sales increased 5.2% year-over-year in 2021
compared to 2020 due to higher spending from existing clients as well as business from new customers. Additionally, we benefited from
the acquisition of the Wildman Imprints assets in September 2020. We expect going forward that pent-up demand from more widespread immunity
to the COVID-19 virus, the return of many significant in-person tradeshows and other industry-related opportunities, and societal reopening
in general will help compensate for lower sales in prior periods. However, these trends will be partially offset by continued increases
in expenses, especially higher freight charges, raw material costs and a more challenging supply chain such as port congestion. According
to a global pricing index published by London-based Drewry Shipping Consultants Ltd, the average price worldwide to ship a 40-foot shipping
container reached $9,180 for the week ended March 10, 2022, which is 83% higher than the same week in 2021. According to the U.S. Bureau
of Labor Statistics, the Producer Price Index for final demand moved up 9.7 percent for the 12 months ended in January 2022. For the
12 months ended in January 2022, producer prices for final demand goods increased 13.1 percent while prices for final demand services
increased 7.7 percent.
We have also noted that some of our customers
have indicated that a greater number of their employees work from home than in past periods. We believe this increase may be partially
a result of the relatively new risk to office work from the COVID-19 pandemic, and that this trend may continue due to the more contagious
Omicron variant of the COVID-19 virus. As a result, we have been, and expect to continue to, drop-ship more materials directly to people
at their homes than in periods before the advent of the COVID-19 pandemic. We expect that this trend will continue to yield increased
freight service fees and fulfillment revenue as well as associated costs.
For additional discussion, see “Impact
of COVID-19 Pandemic” below.
As of December 31, 2021, we had $51.2 million
of total assets with $41.6 million of total shareholder equity.
Recent Developments
G.A.P. Promotions
Acquisition
On January 21, 2022,
the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with G.A.P. Promotions, LLC, a Massachusetts
limited liability company (the “Seller”), Gayle Piraino (“Piraino”) and Stephen Piraino (together with Piraino,
the “Members”), pursuant to which the Company agreed to acquire substantially all of the assets of the Seller used in the
Seller’s branding, marketing and promotional products and services business (the “Business”), for an aggregate purchase
price of (a) $500,000 in cash, subject to adjustment as set forth in the Purchase Agreement (the “Closing Cash Payment”);
(b) a certain amount of restricted shares of the Company’s common stock; (c) installment payments equal to (i) $180,000 on the
first anniversary of the date of the consummation of the transactions contemplated by the Purchase Agreement (the “Closing Date”)
and (ii) $300,000 on the second anniversary of the Closing Date; (d) an amount equal to the amount paid by the Seller (at cost) for all
of the Seller’s Inventory (as defined in the Purchase Agreement) that is on hand as of the Closing Date; and (e) the Earn Out Payments,
as defined below.
The Seller is entitled
to receive the following payments (each, an “Earn Out Payment” and together, the “Earn Out Payments”) to the
extent the Business achieves the applicable Gross Profit (as defined below) targets:
1. An Earn
Out Payment equal to 70% of annual Gross Profit of the Business to the extent Gross Profit is above $1,500,000 for the trailing 12-month
period from the first anniversary of the Closing Date (the “Initial Earn Out Period”); and
2. An Earn
Out Payment equal to 70% of annual Gross Profit of the Business to the extent Gross Profit is above $1,500,000 for the trailing 12-month
period from the second anniversary of the Closing Date (the “Second Earn Out Period”).
In the event that any
Inventory included in the Purchased Assets (as defined in the Purchase Agreement) is not purchased during the Initial Earn Out Period,
or any Accounts Receivables (as defined in the Purchase Agreement) included in the Purchased Assets are not paid during the Initial Earn
Out Period (the “Unpurchased/Unpaid Amount”), then such Unpurchased/Unpaid Amount will be deducted from the Earn Out Payment
due following the Initial Earn Out Period, or if such Unpurchased/Unpaid Amount exceeds the Earn Out Payment due following the Initial
Earn Out Period, then such amounts will be deducted from the Earn Out Payment due following the Second Earn Out Period. If any Unpurchased/Unpaid
Amounts are subsequently sold or paid, the Seller will be entitled to receive such amounts in full.
To the extent the Seller
is entitled to all or a portion of an Earn Out Payment, the applicable Earn Out Payment (or portion thereof) will be paid on the date
that is 30 days from the date on which it is determined the Seller is entitled to such Earn Out Payment.
“Gross Profit”
means (i) the amount invoiced to customers less (ii) expenses charged by any third party (except the Company and its affiliates) directly
related to that job or account. Such expenses shall include but not be limited to cost of goods sold, decoration, setup fees, third-party
warehousing and fulfillment charges, inbound and outbound shipping, duties/taxes and credit card fees.
On January 31, 2022,
the Company, the Seller and the Members entered into Amendment No. 1 to the Asset Purchase Agreement (the “Amendment”) to
amend certain terms of the Purchase Agreement. Following entry into the Amendment, closing of the acquisition of the Business was completed
on the same day.
Pursuant to the Amendment,
the number of the Buyer Shares was changed to be the number of restricted shares of the Company’s common stock in an amount equal
to the quotient of $100,000 divided by the closing price of the Company’s common stock at the close of the last trading date prior
to the date of the Amendment. Pursuant to these terms, based on the closing price of the Company’s common stock on January 28,
2022, the last trading date prior to the date of the Amendment, the Company issued 46,083 shares of common stock to Piraino. As previously
agreed under the Purchase Agreement, the Buyer Shares were required to be issued under a separate restricted stock grant agreement and
will vest over a one (1) year period (1/4 per quarter) beginning the first quarter after the Closing Date. The Buyer Shares were issued
and sold as restricted securities (as defined in Rule 144 under the Securities Act of 1933, as amended) pursuant to the exemptions from
registration provided by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D of the Securities Act and in reliance
on similar exemptions under applicable state laws. Piraino represented that she is an accredited investor within the meaning of Rule
501(a) of Regulation D, and was acquiring the securities for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof. The securities were offered without any general solicitation by the Company or its representatives.
The Buyer Shares carry no registration rights that require or permit the filing of any registration statement in connection with their
issuance.
The foregoing summary of the terms and conditions of the Purchase Agreement and the Amendment does not purport to be complete and is
qualified in its entirety by reference to the full text of the agreements attached hereto as Exhibits 2.1 and 2.2, which are incorporated
herein by reference.
Appointment of
Chief Operating Officer
Effective as of March
11, 2022, our Board of Directors appointed Sheila Johnshoy to serve as our Chief Operating Officer. Effective the same date, the Compensation
Committee of the Board approved the terms of Ms. Johnshoy’s compensation under the employment offer letter dated as of the same
date between us and Ms. Johnshoy, as described in further detail below.
In connection with Ms.
Johnshoy’s appointment, we entered into an employment offer letter with Ms. Johnshoy that governs the current terms of Ms. Johnshoy’s
employment with us. The employment offer letter provides that Ms. Johnshoy will receive an annual base salary of $250,000 and potential
salary and annual bonus increases in future years based on the successful achievement of personal and business-related goals. Ms. Johnshoy
is eligible to receive annual performance cash bonuses with a target bonus percentage ranging from 25% to 100% of base salary based on
the occurrence of specified business revenue amounts or the discretionary approval of our Chief Executive Officer, subject in each case
to final approval by the Compensation Committee. Pursuant to the employment letter agreement, we agreed to grant Ms. Johnshoy a signing
bonus of 5,000 restricted shares and an option to purchase 5,000 shares of our common stock, which will be subject to a six-month lockup
provision. In addition, Ms. Johnshoy is eligible to receive up to 35,000 additional shares of common stock and an option to purchase
up to an aggregate of 35,000 additional shares of common stock upon the occurrence of specified business revenue amounts or at the discretionary
approval of our Chief Executive Officer, subject in each case to final approval by the Compensation Committee. Consistent with such obligations,
the Compensation Committee approved the grant of an option to purchase a total of 40,000 shares of common stock to Ms. Johnshoy at an
exercise price per share of $1.60, which was the closing price of our common stock on March 11, 2022, the date that the employment letter
agreement was countersigned by Ms. Johnshoy, and 5,000 shares of restricted common stock, with the transfer restrictions and performance-based
vesting terms described above. Additionally, under the employment letter agreement, if specified trailing twelve-month revenues occur
within 3.5 years of Ms. Johnshoy’s start of employment, she will earn an additional bonus of 100,000 shares of common stock. After
the first year of employment, all bonus compensation terms will be subject to review. In addition, Ms. Johnshoy is entitled to severance
benefits equal to four months’ salary if terminated without Cause (as defined in the employment letter agreement) during the first
year of employment and four months’ salary if terminated during the second year of employment. Ms. Johnshoy will be eligible to
receive certain health care, dental, life insurance, disability, and retirement benefits after three months’ employment. Ms. Johnshoy
will receive unlimited vacation days encompassing vacation, personal and sick days, subject to two weeks’ notice and approval whenever
possible. Under the employment letter agreement, Ms. Johnshoy is required to sign a standard nondisclosure and non-solicitation agreement
that will not restrict Ms. Johnshoy from working within the promotional industry, but will require Ms. Johnshoy to maintain confidentiality
and refrain from soliciting current clients or employees that were existing or obtained during Ms. Johnshoy’s employment with us.
The foregoing summary
of the employment offer letter with Ms. Johnshoy is qualified in its entirety by reference to the full text of the employment offer letter,
a copy of which is filed with this Annual Report on Form 10-K as Exhibit 10.44.
Impact of COVID-19 Pandemic
The current global pandemic of a novel strain
of coronavirus, or COVID-19, and the global measures taken to combat it, have had, and may in the future continue to have, an adverse
effect on our business. Public health authorities and governments at local, national and international levels have announced various
measures to respond to the pandemic. Some measures that directly or indirectly impact our business include voluntary or mandatory quarantines,
restrictions on travel and limiting gatherings of people in public places.
We believe that the COVID-19 pandemic has impacted
Stran’s operational and financial performance and will likely continue to do so. Sales
of personal protective equipment totaled $4.2 million for 2020 compared
to less than $250,000 for 2021. Although we were able to capitalize on pandemic demand for personal protective equipment in 2020
such as masks, hand sanitizer, and gowns, these sales did not significantly offset the overall decreased demand for promotional products
in 2021 and are not expected to do so in the foreseeable future. Additionally, as
was typical for other firms in the promotional products industry, from March 2020 through the end of 2021, we believe that our revenues
were adversely affected by the economic impact of the pandemic, including decreased demand for promotional products and services such
as ours due to a lack of in-person events, businesses not being fully reopened and staffed, and customers’ decreased marketing
budgets. Likewise, we believe the pandemic’s effects on the economy caused us to experience higher costs of supplies of product
materials due to continued pandemic on expenses, especially higher freight charges and raw material costs, and a more challenging supply
chain from issues such as port congestion. We expect these effects to continue in 2022.
We have responded to the challenges resulting
from the COVID-19 pandemic by developing a clear company-wide strategy and sticking to our hardworking culture and core value of delivering
creative merchandise solutions that effectively promote brands. We continue to focus on our core group of customers while providing additional
value-added services, including our e-commerce platform for order processing, warehousing and fulfillment functions, and propose alternative
product offerings based on their unique needs. We also continue to solicit and market ourselves to long-term prospects that have shown
interest in Stran. We have remained committed to being a high-touch customer-focused company that provides our customers with more than
just products. Below are some of the specific ways we have responded to the current pandemic:
| ● | Adhered to all state and federal
social distancing requirements while prioritizing health and safety for our employees. We
allow team members to work remotely, allowing us to continue providing uninterrupted sales
and service to our customers throughout the year. |
| ● | Emphasized and established cost
savings initiatives, cost control processes, and cash conservation to preserve liquidity. |
| ● | Explored acquisition opportunities
and executed the acquisitions of the customer base of Wildman Imprints with historical revenue
exceeding $10 million annually in September 2020 and the promotional products business of
G.A.P. Promotions with 2021 revenue of approximately $7.2 million in January 2022. |
| ● | Retained key customers through constant
communication, making proactive product or program suggestions, driving program efficiencies,
and delivering value-added solutions to help them market themselves more effectively. |
| ● | Concentrated and succeeded in earning
business from clients in specific verticals that have spent more during the pandemic including
customers in the entertainment, beverage, retail, consumer packaged goods, and cannabis industries. |
| ● | Retained key employees by continuing
to provide them with competitive compensation and the tools required to be successful in
their jobs. |
| ● | Successfully applied for and received
PPP loans and government assistance. |
| ● | Refocused our marketing activities
on more client-specific revenue generating activities that reduced spend while remaining
effective. |
We believe that we have seen encouraging signs
of recovery from the effects of the COVID-19 pandemic. There has been a significant increase in the amount of requests for proposal and
other customer inquiries since the beginning of 2021, which leads us to believe that companies are starting to prepare to spend at previous
or increased levels. We expect going forward that pent-up demand from more widespread immunity to the COVID-19 virus and societal reopening
will help compensate for lower sales in prior periods.
We believe that we have fully complied with all
state and local requirements relating to COVID-19. As described above, we have undertaken various measures in an effort to mitigate the
spread of COVID-19, including encouraging employees to work remotely if possible. We also have enacted business continuity plans, which
may make maintaining our normal level of corporate operations, quality controls and internal controls difficult. Moreover, the COVID-19
pandemic may cause temporary or long-term disruptions in our supply chains and/or delays in the delivery of our inventory. Further, the
COVID-19 pandemic and mitigation efforts may also adversely affect our customers’ financial condition, resulting in reduced spending
for the products we sell.
As events are rapidly changing, we do not know
how long the COVID-19 pandemic and the measures that have been introduced to respond to it will disrupt our operations or the full extent
of that disruption. Further, once we are able to restart normal business hours and operations doing so may take time and will involve
costs and uncertainty. We also cannot predict how long the effects of the COVID-19 pandemic and the efforts to contain it could continue
to impact our business after the pandemic is under control. Governments could take additional restrictive measures to combat the pandemic
that could further impact our business or the economy in the geographies in which we operate. We believe it is also possible that the
impact of the pandemic and response on our suppliers, customers and markets will persist for some time after governments ease their restrictions.
These measures have negatively impacted, and may continue to impact, our business and financial condition as the responses to control
COVID-19 continue.
The extent to which the pandemic may
continue to impact our results will depend on future developments, which are highly uncertain and cannot be predicted as of the date
of this report, including new information that may emerge concerning the severity of the pandemic and steps taken to contain
the pandemic or treat its impact, among others. Nevertheless, the pandemic and the current financial, economic and capital
markets environment, and future developments in the global supply chain and other areas present material uncertainty and risk with respect
to our performance, financial condition, results of operations and cash flows.
Emerging Growth Company
We qualify as an “emerging growth company”
under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As a result, we are permitted to, and intend to,
rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
| |
● |
have an auditor report on our internal controls over
financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; |
| |
● |
comply with any requirement that may be adopted by
the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report
providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis); |
| |
● |
submit certain executive compensation matters to stockholder
advisory votes, such as “say-on-pay” and “say-on-frequency;” and |
| |
● |
disclose certain executive compensation related items
such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation
to median employee compensation. |
In addition, Section 107 of the JOBS Act also
provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities
Act of 1933, as amended, for complying with new or revised accounting standards. In other words, an emerging growth company can delay
the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take
advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies
that comply with such new or revised accounting standards.
We will remain an emerging growth company until
the earliest of (i) the last day of the fiscal year following the fifth anniversary of our initial public offering, (ii) the last day
of the first fiscal year in which our total annual gross revenues are $1.07 billion or more, (ii) the date that we become a “large
accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business
day of our most recently completed second fiscal quarter or (iv) the date on which we have issued more than $1 billion in non-convertible
debt during the preceding three year period.
Principal Factors Affecting Our Financial
Performance
Our operating results are primarily affected
by the following factors:
| ● | our ability to acquire new customers
or retain existing customers; |
| ● | our ability to offer competitive
product pricing; |
| ● | our ability to broaden product offerings; |
| ● | industry demand and competition; |
| ● | our ability to leverage technology
and use and develop efficient processes; |
| ● | our ability to attract and retain
talented employees; and |
| ● | market conditions and our market
position. |
Results of Operations
The following table sets forth key components
of our results of operations during the years ended December 31, 2021 and 2020, both in dollars and as a percentage of our revenues.
| |
|
Years Ended December 31, |
|
| |
|
2021 |
|
|
2020 |
|
| |
|
Amount |
|
|
% of
Revenues |
|
|
Amount |
|
|
% of
Revenues |
|
| Sales |
|
$ |
39,702,714 |
|
|
|
100.0 |
% |
|
$ |
37,752,173 |
|
|
|
100.0 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of Sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Purchases |
|
|
23,972,797 |
|
|
|
60.4 |
% |
|
|
24,167,798 |
|
|
|
64.0 |
% |
| Freight |
|
|
3,893,847 |
|
|
|
9.8 |
% |
|
|
2,099,511 |
|
|
|
5.6 |
% |
| Total Cost of Sales |
|
|
27,866,644 |
|
|
|
70.2 |
% |
|
|
26,267,309 |
|
|
|
69.6 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross Profit |
|
$ |
11,836,070 |
|
|
|
29.8 |
% |
|
$ |
11,484,864 |
|
|
|
30.4 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| General and Administrative Expenses |
|
|
12,273,949 |
|
|
|
30.9 |
% |
|
|
9,994,891 |
|
|
|
26.5 |
% |
| Total Operating Expenses |
|
|
12,273,949 |
|
|
|
30.9 |
% |
|
|
9,994,891 |
|
|
|
26.5 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Earnings (Loss) from Operations |
|
$ |
(437,879 |
) |
|
|
(1.1 |
)% |
|
$ |
1,489,973 |
|
|
|
3.9 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other Income and (Expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other Expense |
|
|
(83,148 |
) |
|
|
(0.2 |
)% |
|
|
- |
|
|
|
- |
|
| Other Income |
|
|
15,366 |
|
|
|
0.0 |
% |
|
|
10,000 |
|
|
|
0.0 |
% |
| PPP Loan Forgiveness |
|
|
770,062 |
|
|
|
1.9 |
% |
|
|
- |
|
|
|
- |
|
| Interest Expense |
|
|
(136,661 |
) |
|
|
(0.3 |
)% |
|
|
(49,457 |
) |
|
|
(0.1 |
)% |
| Total Other Income and (Expense) |
|
|
565,619 |
|
|
|
1.4 |
% |
|
|
(39,457 |
) |
|
|
(0.1 |
)% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income Before Income Taxes |
|
$ |
127,740 |
|
|
|
0.3 |
% |
|
$ |
1,450,516 |
|
|
|
3.8 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Provision for Income Taxes |
|
|
(107,500 |
) |
|
|
(0.3 |
)% |
|
|
422,236 |
|
|
|
1.1 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net Earnings |
|
$ |
235,240 |
|
|
|
0.6 |
% |
|
$ |
1,028,280 |
|
|
|
2.7 |
% |
Sales
Sales consist primarily
of the selling price of the merchandise, service or outbound shipping and handling charges, less discounts, coupons redeemed, returns
and credits.
Our 2020 revenues include
nonrecurring revenues representing 27.1% of our overall revenues for 2020, as a subcontractor for the 2020 U.S. Census. The customer
that engaged us in this regard will not renew their engagement with us due to the U.S. Census only occurring once every ten years. As
a result, these nonrecurring revenue increases have not recurred, are not expected to recur, and do not represent our long-term growth
expectations.
Our sales increased
5.2% from $37.8 million for the year ended December 31, 2020 to $39.7 million for the year ended December 31, 2021. The
increase was primarily due to higher spending from existing clients as well as business from new customers. Additionally, we benefited
from the acquisition of the Wildman Imprints assets in September 2020. However, these increases in sales were partially offset by the
completion of the U.S. Census program in 2020, market saturation of personal protective equipment in 2021, a lack of in-person events,
and businesses still not being fully reopened throughout 2021 as a result of the COVID-19 pandemic.
The September 2020 acquisition
of the Wildman Imprints assets generated $8.3 million of sales for the year ended December 31, 2021 compared to $2.2 million of sales
in the year ended December 31, 2020. Our recurring organic sales, defined as those sales excluding the U.S. Census program, revenue from
the Wildman Imprints asset acquisition, and personal protective equipment, increased 49.5%, or $10.3 million, from $20.9 million in the
year ended December 31, 2020 to $31.2 million in the year ended December 31, 2021. However, these increases in recurring organic sales
were entirely offset by the nonrecurrence of our work on the U.S. Census program during the year ended December 31, 2021, which contributed
$10.5 million of sales, or 27.1% of total sales, for the year ended December 31, 2020 compared to less than $2,000 of sales, or 0.0%
of total sales, for the year ended December 31, 2021. Additionally, the increases in recurring organic sales were partially offset by
the nonrecurrence of sales of personal protective equipment totaling $4.2 million for the year ended December 31, 2020 compared to less
than $250,000 for the year ended December 31, 2021.
Cost of Sales
Cost of sales consists
of the costs of purchasing inventory and freight charges. Our total cost of sales increased 6.1% from $26.3 million for the
year ended December 31, 2020 to $27.9 million for the year ended December 31, 2021. As a percentage of sales, cost of sales
increased from 69.6% in 2020 to 70.2% in 2021. More specifically, cost of purchases decreased from $24.2 million in 2020 to $24.0 million
in 2021, or 0.8%. As a percentage of sales, cost of purchases increased from 64.0% in 2020 to 60.4% in 2021. However, freight costs increased
from $2.1 million in 2020 to $3.9 million in 2021, or 85.5%. As a percentage of sales, freight costs increased from 5.6% in 2020 to 9.8%
in 2021. The decrease in cost of purchases was primarily due to improvements in sourcing capabilities and buying power, while the increase
in freight costs was primarily due to a general increase in freight costs, both domestic and international, as well as a shift to shipping
to individual locations (households) we believe as a result of the COVID-19 pandemic.
Operating Expenses
Operating expenses consists
of general and administrative expenses. Our operating expenses increased 22.8%, or $2.3 million, to $12.3 million for the year
ended December 31, 2021 compared to $10.0 million for the year ended December 31, 2020. As a percentage of sales, operating expenses
increased from 26.5% in 2020 to 30.9% in 2021. This increase was due to an increase in general and administrative expenses of $2.3 million,
or 22.8%, which in turn was primarily due to additional expenses related to the acquisition of the Wildman Imprints assets, the implementation
of a new ERP system on Oracle’s NetSuite platform, the recently completed initial public offering and ongoing public company expenses,
and organic growth in our business.
Other Income and
Expense
Other income and expense
consist of interest expense, interest income, other expense, other income and PPP loan forgiveness income. Our interest expense increased
$87,204 from $49,457 in the year ended December 31, 2020 to $136,661 in the year ended December 31, 2021, or 176.3%. This increase was
primarily due to an increase in borrowings on our bank’s line of credit. Our other expense increased $83,148 from none in the year
ended December 31, 2020 to $83,148 in the year ended December 31, 2021. This increase was primarily due to earn-out payments for the
Wildman Imprints asset purchase exceeding gross profit expectations in accordance with the acquisition agreement. Our other income increased
$5,366 from $10,000 in the year ended December 31, 2020 to $15,336 in the year ended December 31, 2021. This increase was primarily due
to interest forgiveness related to our PPP loan. Our PPP loan forgiveness income increased $770,062 from none in the year ended December
31, 2020 to $770,062 in the year ended December 31, 2021. This increase was due to the forgiveness of the Company’s PPP loan.
Income Taxes
Our effective income
tax rate was 4.3% and 29.1% for the years ended December 31, 2021 and 2020, respectively. For the year ended December
31, 2021, our effective income tax rate was 4.3% and (17.2)% for current and deferred taxes, respectively. For the year ended December
31, 2020, our effective tax rate was 29.1% and 0% for current taxes and deferred taxes, respectively. The decrease in the effective tax
rate was driven by a decrease from 20.9% to 0% in our effective federal income tax rate and a decrease from 8.2% to 4.3% in our effective
state income tax rate. For further discussion of changes in the effective tax rate, refer to Notes A.14. and A.15. to our Financial
Statements.
Net Earnings
Our 2020 net earnings
include nonrecurring revenues representing 27.1% of our overall revenues for 2020, as a subcontractor for the 2020 U.S. Census. The customer
that engaged us in this regard will not renew their engagement with us due to the U.S. Census only occurring once every ten years. As
a result, these nonrecurring revenue increases have not recurred, are not expected to recur, and do not represent our long-term growth
expectations.
Our net earnings decreased 77.1% from $1.0 million
for the year ended December 31, 2020 to $0.2 million for the year ended December 31, 2021. This decrease was primarily
due to the nonrecurrence of sales of $10.5 million from our work on the U.S. Census program in 2020 and the nonrecurrence of sales of
$4.0 million from our work on personal protective equipment in 2020; increased expenses in 2021 than in 2020 related to our initial public
offering; and higher freight expenses in 2021 compared to 2020. These factors were only partially offset by the increase in sales from
2020 to 2021 of $6.0 million from our September 2020 Wildman Imprints asset purchase and the increase of $10.3 million from recurring
organic sales from 2020 to 2021.
Liquidity and Capital Resources
As of December 31, 2021, we had cash and cash
equivalents of approximately $32.2 million. Prior to our initial public offering, we financed our operations primarily through revenue
generated from operations and bank borrowings, including a $3.5 million line of credit held with Bank of America during the year ended
December 31, 2019 and the period from January 1, 2020 to November 22, 2021. Our line of credit agreement with Bank of America was terminated
on November 22, 2021 and on the same date was replaced with a secured revolving demand line of credit with Salem Five Cents Savings Bank
for aggregate loans of up to $7.0 million, subject to a number of asset-related and other financial requirements and other covenants,
terms and conditions as described in detail below under “– Debt”.
We believe that our current levels of cash will
be sufficient to meet our anticipated cash needs for our operations and cash payment obligations for both the fiscal year ended December
31, 2022 and in the long-term beyond this period, including our anticipated costs associated with being a public reporting company. We
may, however, in the future require additional cash resources due to changing business conditions, implementation of our strategy to
expand our business, or other investments or acquisitions we may decide to pursue. If our own financial resources are insufficient to
satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The
sale of additional equity securities could result in dilution to our shareholders. The incurrence of indebtedness would result in increased
debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing
may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable
to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.
Summary of Cash Flow
The following table provides detailed information
about our net cash flow for the period indicated:
Cash Flow
| | |
Years Ended December 31, | |
| | |
2021 | | |
2020 | |
| Net cash used in operating activities | |
$ | (5,833,887 | ) | |
$ | (1,990,467 | ) |
| Net cash used in investing activities | |
| (388,948 | ) | |
| (176,465 | ) |
| Net cash provided by financing activities | |
| 37,802,268 | | |
| 375,907 | |
| Net increase
(decrease) in cash and cash equivalents | |
| 31,579,433 | | |
| (1,791,025 | ) |
| Cash and cash equivalents at beginning of year | |
| 647,235 | | |
| 2,438,260 | |
| Cash and cash equivalent at end of year | |
$ | 32,226,668 | | |
$ | 647,235 | |
Net cash used in operating activities was $5,833,887
for the year ended December 31, 2021, as compared to net cash used in operating activities of $1,990,467 for the year ended December
31, 2020. For the year ended December 31, 2021, increases in accounts receivable, inventory, and accounts payable were the primary drivers
of the net cash used in operating activities. For the year ended December 31, 2020, an increase in accounts receivable and decreases
in accounts payable and rewards program liability were the primary drivers of the net cash used in operating activities. The increase
in net cash used in operating activities for the year ended December 31, 2021 compared to the year ended December 31, 2020 occurred in
the normal course of business due to growth in organic business as well as the integration of the Wildman Imprints assets.
Net cash used in investing activities was $388,948
for the year ended December 31, 2021, and $176,465 for the year ended December 31, 2020, primarily for additions to software-related
property and equipment in both years. The increase in net cash used in investing activities for the year ended December 31, 2021 compared
to the year ended December 31, 2020 occurred due to additional required technology investments related to an increase in overall business
as well as additional personnel needed to operate the business.
Net cash provided by financing activities was
$37,802,268 for the year ended December 31, 2021, as compared to net cash provided by financing activities of $375,907 for the year ended
December 31, 2020. For the year ended December 31, 2021, net cash provided by financing activities consisted primarily of net proceeds
received from our initial public offering and private placement, and was partially offset by borrowings and reductions on our bank line
of credit. For the year ended December 31, 2020, net cash provided by financing activities consisted of PPP and EIDL Program loans under
the CARES Act, and was partially offset by borrowings and reductions on our bank line of credit.
On April 15, 2020, we received loan proceeds
from Bank of America in the amount of approximately $770,062 under the PPP. The PPP, established as part of the CARES Act, provides for
loans to qualifying businesses for amounts up to 2.5 times the average qualifying monthly payroll expenses of the qualifying business.
The loans and accrued interest are forgivable as long as the borrower uses the loan proceeds for eligible purposes, including payroll,
benefits, rent and utilities, and maintains its payroll levels.
We received forgiveness by the U.S. Small Business
Administration (“SBA”) of the PPP loan in full, effective June 24, 2021.
As of December 31, 2020, approximately $149,900
was due under our EIDL Program loan. It was due in monthly installments of $731 including interest to April 2051. The amount was fully
repaid during the year ended December 31, 2021.
Initial Public Offering
On November 12, 2021,
we completed our initial public offering (the “IPO”) of 4,337,349 units, at a price to the public of $4.15 per unit, with
each unit consisting of one share of common stock and a warrant to purchase one share of common stock, before underwriting discounts
and commissions. Each whole share of common stock exercisable pursuant to the warrants initially had an exercise price per share of $5.1875,
equal to 125% of the initial public offering price per unit in the IPO. Due
to our subsequent private placement of common stock and common stock purchase warrants at a purchase price of $4.97 for one share and
1.25 warrants combined, after attributing a warrant value of $0.125, the exercise price per share of the IPO warrants was reduced to
$4.81375 as of December 10, 2021. The warrants are immediately exercisable and expire on the fifth anniversary of the original
issuance date. We also granted the underwriters a 45-day option to purchase up to an additional 650,602 shares of common stock
and/or warrants to purchase up to 650,602 shares of common stock at the IPO price less the underwriting discounts, representing fifteen
percent (15%) of the units sold in the IPO.
At the closing of the IPO, the representative
of the underwriters fully exercised its option to purchase an additional 650,602 shares of common stock and 650,602 warrants. Therefore,
we sold 4,987,951 shares of common stock and 4,987,951 warrants for total gross proceeds of $20,699,997. After deducting underwriter
commissions, discounts and non-accountable expenses of $1,759,500 and other offering expenses of approximately $995,845, we received
net proceeds of approximately $17,944,652.
The IPO was made pursuant
to our Registration Statement on Form S-1 (File No. 333-260109), which was filed with the SEC, and became effective on November
8, 2021, and our Registration Statement on Form S-1 (File No. 333-260880), which was filed with the SEC pursuant to Rule 462(b)
under the Securities Act of 1933, as amended, which was effective immediately upon filing on November 8, 2021. EF Hutton, division of
Benchmark Investments, LLC, acted as lead book-running manager and the representative of the underwriters, and US Tiger Securities, Inc.
acted as joint book-running manager.
From November 8, 2021 to December 31, 2021, the
following is our reasonable estimate of the uses of the proceeds from the IPO:
| ● | None was used for construction of
plant, building and facilities; |
| ● | None was used for the purchase and
installation of machinery and equipment; |
| ● | None was used for purchases of real
estate; |
| ● | None was used for the acquisition
of other businesses; |
| ● | $3.5 million was used for the repayment
of indebtedness; |
| ● | $4.9
million was used for working capital; and |
| ● | None was used for temporary investments. |
As of December 31, 2021, we had not yet used
approximately $9.5 million of the proceeds of the IPO.
None of the proceeds of the IPO have been used
to make any direct or indirect payments to any of our directors or officers, any of their associates, any persons owning ten percent
or more of any class of our equity securities, or any of our affiliates, or any others.
There has not been, and we do not expect, any
material change in the planned use of proceeds from the IPO as described in the prospectus filed with the SEC pursuant to Rule 424(b)(4)
under the Securities Act on November 10, 2021.
Private Placement
On December 10, 2021,
the Company completed a private placement with several investors, wherein a total of 4,371,926 shares of the Company’s common stock
were issued at a purchase price of $4.97 per share, with each investor also receiving a warrant to purchase up to a number of shares
of common stock equal to 125% of the number of shares of common stock purchased by such investor in the private placement, at an exercise
price of $4.97 per share, for a total purchase price of approximately $21.7 million. The private placement warrants were immediately
exercisable on the date of issuance, expire five years from the date of issuance and have certain downward pricing adjustment mechanisms,
including with respect to any subsequent equity sale that is deemed a dilutive issuance, in which case the warrants will be subject to
a floor price of $4.80 per share before shareholder approval is obtained, and after shareholder approval is obtained, such floor price
will be reduced to $1.00 per share, as set forth in the private placement warrants. On December 10, 2021, the holders of shares of common
stock entitled to vote approximately 65.4% of our outstanding voting stock on December 10, 2021 approved the Company’s entry into
the private placement. We filed preliminary and definitive information statements on Schedule 14C with the SEC on December 29, 2021
and January 11, 2022, and delivered copies of the definitive information statement to shareholders January 12, 2022. On January 31, 2022,
the stockholders’ consent became effective pursuant to Rule 14c-2 under the Exchange Act. As a result, the exercise price
of the private placement warrants may be reduced to as low as $1.00 per share if their downward-pricing adjustment mechanisms become
applicable.
The private placement
raised net cash proceeds of approximately $19.8 million (after deducting the placement agent fee and expenses of the private placement).
The Company intends to use the net cash proceeds from the private placement for acquisitions and partnerships, investments in technology
and expanding corporate infrastructure, expansion of its sales team and marketing efforts and for general working capital and administrative
purposes.
The Company engaged
EF Hutton, division of Benchmark Investments, LLC (“EF Hutton”) as the Company’s placement agent for the private placement
pursuant to a Placement Agency Agreement (the “PAA”) dated as of December 8, 2021. Pursuant to the PAA, the Company agreed
to pay EF Hutton a cash placement fee equal to 8.0% of the gross proceeds of the Offering, an additional cash fee equal to 0.5% of the
gross proceeds raised by the Company in the offering for non-accountable expenses, and also agreed to reimburse EF Hutton up to $100,000
for accountable expenses. In addition, EF Hutton’s designees received warrants to purchase an aggregate of 131,158 shares of common
stock, which is equal to 3.0% of the total number of shares issued in the private placement, at an exercise price of $4.97 per share
(the “Placement Agent Warrants”).
In connection with the
private placement, the Company entered into a Securities Purchase Agreement (the “Private Placement Purchase Agreement”)
with investors containing customary representations and warranties. The Company and investors also entered into a Registration Rights
Agreement (the “Registration Rights Agreement”), pursuant to which the Company was required to file a resale registration
statement (the “Registration Statement”) with the SEC to register for resale the shares of common stock and the shares of
common stock issuable upon exercise of the private placement warrants and Representative Warrants, promptly following the closing date
but in no event later than 15 calendar days after the effective date of the Registration Rights Agreement, and to have such Registration
Statement declared effective by the Effectiveness Date (as defined in the Registration Rights Agreement). The Company will be obligated
to pay certain liquidated damages to the investors if the Company fails to file the Registration Statement when required, fails to file
or cause the Registration Statement to be declared effective by the SEC when required, or fails to maintain the effectiveness of the
Registration Statement pursuant to the terms of the Registration Rights Agreement. On December 23, 2021, the Company filed the Registration
Statement with the SEC (File No. 333-261883) and it was declared effective on January 5, 2022.
The private placement
was exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) pursuant to
the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) of the Securities Act and Rule
506 of Regulation D of the Securities Act and in reliance on similar exemptions under applicable state laws. Each of the Purchasers represented
that it is an accredited investor within the meaning of Rule 501(a) of Regulation D, and was acquiring the securities for investment
only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. The securities were offered
without any general solicitation by the Company or its representatives.
The foregoing description
of each of the Private Placement Purchase Agreement, PAA, Registration Rights Agreement, form of private placement warrant and form of
Placement Agent Warrant is qualified in its entirety by reference to the forms of such documents which are filed hereto as Exhibits 10.39,
10.40, 10.41, 10.42, and 10.43, respectively.
Debt
On November 22, 2021,
we entered into a Revolving Demand Line of Credit Loan Agreement (the “Loan Agreement”), with Salem Five Cents Savings Bank
(the “Lender”), for aggregate loans of up to $7 million (the “Loan” or “Line of Credit”), evidenced
by a Revolving Demand Line of Credit Note, also dated November 22, 2021 (the “Note”). The Line of Credit and Note are secured
by a first priority security interest in all assets and property of the Company, as more fully described in the Security Agreement, also
dated November 22, 2021, between the Lender and the Borrower (the “Security Agreement” and together with the Loan Agreement
and the Note, the “Loan Documents”).
The amount available
under the Line of Credit is the lesser of $7.0 million or the sum of (x) eighty percent (80%) of the then-outstanding amount of Eligible
Accounts (as defined below), plus (y) fifty percent (50%) of Eligible Inventory (as defined below); minus one hundred (100%) percent
of the aggregate amount then drawn under the Line of Credit for the account of the Company. In addition, advances based upon Eligible
Inventory must be capped at all times at $2,000,000. “Eligible Accounts” are defined as accounts that meet a number of requirements,
including, unless otherwise approved by the Lender, being less than ninety (90) days from the date of invoice not subject to any prior
assignment, claim, lien, or security interest, not subject to set-off, credit, allowance or adjustment by the account debtor, arose in
the ordinary course of the Company’s business, not an intercompany obligation, not subject to notice of bankruptcy or insolvency
of the account debtor, not owed by an account debtor whose principal place of business is outside the United States of America, not a
government account, not be evidenced by promissory notes, and not one of the accounts owed by an account debtor 25% or more of whose
accounts are 90 or more days past invoice date; or otherwise not deemed acceptable by the Lender in accordance with its normal credit
policies. “Eligible Inventory” means all finished goods, work in progress and raw materials and component parts of inventory
owned by the Company. It does not include any inventory held on consignment or not otherwise owned by the Company; any inventory which
has been returned by a customer or is damaged or subject to any legal encumbrances other than a first priority security interest held
by the Company; any inventory which is not in the possession of the Company; any inventory which is held by the Company on property leased
by the Company unless the Lender has received a Landlord’s Waiver and Consent from the lessor of such property satisfactory to
the Lender; any inventory which is not located within the United States; any inventory which the Lender reasonably deems to be obsolete
or non-marketable; and any inventory not subject to a first priority fully perfected lien held by the Lender.
The Loan is subject
to interest at the prime rate plus 0.5% per annum. The Company must repay interest on Loan proceeds on a monthly basis. The Loan is expected
to continue for 12 months, subject to the Lender’s demand rights and the Company’s ongoing affirmative and other obligations
under the Loan Documents, as summarized below.
The Company may freely
drawn upon the Loan subject to the Lender’s right to demand complete repayment of the Loan at any time. Late payments are subject
to a late payment charge of 5%. In the event of failure to repay the loan after the Lender makes demand for full repayment, the interest
rate will increase by 10%. The Note may be prepaid at any time without penalty. The Lender may assign the Note without the Company’s
consent.
Under the Security Agreement
and the other Loan Documents, the Company granted the Lender a first priority security interest in all of its assets, both owned now
and in the future, as collateral for full repayment of the Loan. The Lender may file Uniform Commercial Code financing statements with
any jurisdiction and with sufficient descriptions of the property to perfect its security interest in all of the Company’s current
and future assets. Upon default of the Loan, the Lender may accelerate repayment of the Loan, take possession of the Company’s
assets, assign a receiver over the Company’s assets, and enforce other rights as to the Company’s assets as secured creditor.
The Company must pay for all of the Lender’s reasonable legal fees and expenses incurred to enforce its rights under the Loan Documents.
Under the Loan Agreement,
the Company is required to continue its current business of outsourced marketing solutions and without the prior consent of the Lender
will not acquire in whole or in part any other company or business and shall not engage in any other business or open any other locations,
and will use the proceeds of the Loan only in connection with the general and ordinary operations of its business and for the following
purpose: general working capital for accounts receivable and inventory purchases.
The Loan is also subject
to ongoing affirmative obligations of the Company, including punctual repayment of the Loan amount, maintaining proper accounting books
and records in accordance with the opinion of LMHS, P.C. or another a Certified Public Accountant acceptable to the Lender, allowing
the Lender to inspect its accounting books and records, furnishing audited, quarterly, monthly and other financial statements to the
Lender, payment of Lender’s reasonable expenses for a field exam in 2022, allow the Lender to communicate with its accountants;
maintain its properties in good repair subject to ordinary wear and tear; and obtain replacement-cost insurance for its property with
the Lender as Mortgagee/Loss Payee; and management contracts for the Company’s properties must be subordinated to the rights of
the Lender and there shall be no change of management company without the prior written consent of the Lender.
The Loan is further
subject to the following financial requirements: (a) Debt Service Coverage Ratio: Cash flow to be calculated on an annual basis of at
least 1.20 times EBITDA less cash taxes, distributions, dividends, shareholder withdrawals in any form, and unfinanced CAPEX divided
by all scheduled principal payments on all debt plus cash interest payments made on all debt; (b) Minimum Net Worth: The Company will
be required to meet the following minimum net worth thresholds: $2,000,000 at December 31, 2021; $2,750,000 at December 31, 2022; and
$3,500,000 at December 31, 2023.
The Company may also
not incur any additional indebtedness, secured or unsecured, except in the ordinary course of business; make loans or advances to others
or guarantee others’ obligations except for certain ordinary advances to employees or ordinary customer credit terms; make investments;
acquire any business; make capital expenditures except in the ordinary course of business; sell any material assets except in the ordinary
course of business; grant any security interests or mortgages in its properties or assets.
The foregoing summary
of the Loan Agreement, the Note, and the Security Agreement is qualified in its entirety by reference to the full text of the Loan Agreement,
the Note, and the Security Agreement, copies of which are attached as Exhibits 10.30, 10.31 and 10.32 to this Annual Report on Form 10-K
and are incorporated herein by reference.
In connection with the
Loan Agreement, on November 22, 2021, the Company, the Lender and Harte Hanks Response Management/ Boston, Inc. (the “Warehouse
Provider”), the lessor of certain warehouse facilities to the Company, executed a Warehouseman’s Waiver in favor of the Lender
(the “Warehouseman’s Waiver”). Under the Warehouseman’s Waiver, the Warehouse Provider disclaimed any interest
in the property of the Company stored on the premises (the “Collateral”), and agreed not to interfere with the Lender’s
enforcement of its rights in the Collateral. The Warehouse Provider further agreed to provide notice to the Lender of any default by
the Company of its obligations as to the Warehouse Provider, and to give the Lender at least 30 days to exercise its rights, which period
may be extended by the Lender up to 60 days upon its payment of the per-diem rental amount. After that period, unless the default has
been cured by the Lender, the Warehouse Provider may dispose of such Collateral as it deems fit. Upon the receipt of written notice from
the Lender and until such notice is rescinded, the Warehouse Provider shall only honor instructions from the Lender with respect to the
Collateral, including, any direction from the Lender to dispose of all or any portion of the Collateral at any time, without any further
consent or instruction from Company.
The foregoing summary
of the Warehouseman’s Waiver is qualified in its entirety by reference to the full text of the Warehouseman’s Waiver, a copy
of which is attached as Exhibit 10.33 to this Annual Report on Form 10-K and is incorporated herein by reference.
As of December 31, 2021,
we had not drawn any funds from the Loan under the Loan Agreement.
Executive Chairman Loans
We have also borrowed
funds from our Executive Chairman, Andrew Stranberg, during periods when Mr. Stranberg did not already owe funds to us. The loans are
unsecured, non-interest bearing, and there is no formal repayment plan. In September 2021, Mr. Stranberg loaned us $500,000 on an unsecured
basis, accruing interest at 5% compounding monthly with no formal repayment plan. The total amount owed, including principal of $500,000
and interest of $4,740, was repaid to Mr. Stranberg on November 22, 2021. At December 31, 2021 and 2020, no amounts were due to Mr. Stranberg.
Contractual Obligations
Wildman Imprints Acquisition
On August 24, 2020, we entered into an asset
purchase agreement to acquire the inventory, select fixed assets, and a customer list of the Wildman Imprints division of Wildman Business
Group, LLC, or WBG. In connection with the asset acquisition, the customer list was purchased using a contingent earn-out calculation.
The purchase price is equal to fifteen percent (15%) of the gross profit earned from the sale of product to the customer list for year
1 and thirty percent (30%) for years 2 and 3. Payments are due on the anniversary date of the purchase. At December 31, 2021 and 2020
the current portion of the earn-out liability amounted to $665,855 and $402,730, respectively. At December 31, 2021 and 2020, the long-term
portion of the earn-out liability amounted to $976,078 and $1,850,960, respectively.
In connection with the asset acquisition, we
also had an amount due to the seller under a note in the amount of $162,358 as of December 31, 2021 for the inventory and property and
equipment purchased. This amount accrues no interest, and is to be paid “as used” on a quarterly basis through the three-year
earn-out period. We anticipate that the note will be paid in full in 2022, accordingly the note payable has been classified as current
on the balance sheet as of December 31, 2021. We expect no deficiencies in our ability to make the payments required under the asset
purchase agreements. The aggregate purchase price was $2,937,222, as follows:
Fair Value of Identifiable Assets Acquired:
| Inventory | |
$ | 649,433 | |
| Property and Equipment | |
| 34,099 | |
| Intangible - Customer List | |
| 2,253,690 | |
| Total | |
$ | 2,937,222 | |
Consideration Paid:
| Cash | |
| 521,174 | |
| Note Payable - Wildman | |
| 162,358 | |
| Wildman Contingent Earn-Out Liability | |
| 2,253,690 | |
| Total | |
$ | 2,937,222 | |
For further discussion see Notes J, M and N to
our financial statements for the fiscal years ended December 31, 2021 and 2020.
Property Leases
The following is a schedule by years of future minimum property lease
payments at December 31, 2021:
| Year |
|
|
Lease Rent
Due |
|
| 2022 |
|
|
$ |
310,095 |
|
| 2023 |
|
|
|
323,001 |
|
| 2024 |
|
|
|
311,317 |
|
| 2025 |
|
|
|
150,365 |
|
| 2026 |
|
|
|
- |
|
| Total |
|
|
$ |
1,094,778 |
|
Rent expense for the fiscal years ended December
31, 2021 and 2021 totaled $388,769 and $406,806, respectively. We anticipate no deficiencies in our ability to make these payments.
G.A.P. Promotions Acquisition
On January 21, 2022,
the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with G.A.P. Promotions, LLC, a Massachusetts
limited liability company (the “Seller”), Gayle Piraino (“Piraino”) and Stephen Piraino (together with Piraino,
the “Members”), pursuant to which the Company agreed to acquire substantially all of the assets of the Seller used in the
Seller’s branding, marketing and promotional products and services business (the “Business”), for an aggregate purchase
price of (a) $500,000 in cash, subject to adjustment as set forth in the Purchase Agreement (the “Closing Cash Payment”);
(b) a certain amount of restricted shares of the Company’s common stock; (c) installment payments equal to (i) $180,000 on the
first anniversary of the date of the consummation of the transactions contemplated by the Purchase Agreement (the “Closing Date”)
and (ii) $300,000 on the second anniversary of the Closing Date; (d) an amount equal to the amount paid by the Seller (at cost) for all
of the Seller’s Inventory (as defined in the Purchase Agreement) that is on hand as of the Closing Date; and (e) the Earn Out Payments,
as defined below.
The Seller is entitled
to receive the following payments (each, an “Earn Out Payment” and together, the “Earn Out Payments”) to the
extent the Business achieves the applicable Gross Profit (as defined below) targets:
1. An Earn
Out Payment equal to 70% of annual Gross Profit of the Business to the extent Gross Profit is above $1,500,000 for the trailing 12-month
period from the first anniversary of the Closing Date (the “Initial Earn Out Period”); and
2. An Earn
Out Payment equal to 70% of annual Gross Profit of the Business to the extent Gross Profit is above $1,500,000 for the trailing 12-month
period from the second anniversary of the Closing Date (the “Second Earn Out Period”).
In the event that any
Inventory included in the Purchased Assets (as defined in the Purchase Agreement) is not purchased during the Initial Earn Out Period,
or any Accounts Receivables (as defined in the Purchase Agreement) included in the Purchased Assets are not paid during the Initial Earn
Out Period (the “Unpurchased/Unpaid Amount”), then such Unpurchased/Unpaid Amount will be deducted from the Earn Out Payment
due following the Initial Earn Out Period, or if such Unpurchased/Unpaid Amount exceeds the Earn Out Payment due following the Initial
Earn Out Period, then such amounts will be deducted from the Earn Out Payment due following the Second Earn Out Period. If any Unpurchased/Unpaid
Amounts are subsequently sold or paid, the Seller will be entitled to receive such amounts in full.
To the extent the Seller
is entitled to all or a portion of an Earn Out Payment, the applicable Earn Out Payment (or portion thereof) will be paid on the date
that is 30 days from the date on which it is determined the Seller is entitled to such Earn Out Payment.
“Gross Profit”
means (i) the amount invoiced to customers less (ii) expenses charged by any third party (except the Company and its affiliates) directly
related to that job or account. Such expenses shall include but not be limited to cost of goods sold, decoration, setup fees, third-party
warehousing and fulfillment charges, inbound and outbound shipping, duties/taxes and credit card fees.
On January 31, 2022,
the Company, the Seller and the Members entered into Amendment No. 1 to the Asset Purchase Agreement (the “Amendment”) to
amend certain terms of the Purchase Agreement. Following entry into the Amendment, closing of the acquisition of the Business was completed
on the same day.
Pursuant to the Amendment, the number of the
Buyer Shares was changed to be the number of restricted shares of the Company’s common stock in an amount equal to the quotient
of $100,000 divided by the closing price of the Company’s common stock at the close of the last trading date prior to the date
of the Amendment. Pursuant to these terms, based on the closing price of the Company’s common stock on January 28, 2022, the last
trading date prior to the date of the Amendment, the Company issued 46,083 shares of common stock to Piraino. As previously agreed under
the Purchase Agreement, the Buyer Shares were required to be issued under a separate restricted stock grant agreement and will vest over
a one (1) year period (1/4 per quarter) beginning the first quarter after the Closing Date. The Buyer Shares were issued and sold as
restricted securities (as defined in Rule 144 under the Securities Act of 1933, as amended) pursuant to the exemptions from registration
provided by Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D of the Securities Act and in reliance on similar
exemptions under applicable state laws. Piraino represented that she is an accredited investor within the meaning of Rule 501(a) of Regulation
D, and was acquiring the securities for investment only and not with a view towards, or for resale in connection with, the public sale
or distribution thereof. The securities were offered without any general solicitation by the Company or its representatives. The Buyer
Shares carry no registration rights that require or permit the filing of any registration statement in connection with their issuance.
We did not record a related contingency during
the fiscal years ended December 31, 2020 or 2021 because the acquisition occurred after these periods.
Other Cash Obligations
Our other principal cash payment obligations
have consisted principally of obligations under the loans described above. As stated above, as of December 31, 2021, we had not drawn
any funds from the Loan under the Loan Agreement, and no amount was owed to our Executive Chairman and largest shareholder Andrew Stranberg.
We have no off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies and Estimates
The following discussion relates to critical
accounting policies for our company. The preparation of financial statements in conformity with GAAP requires our management to make
assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments
and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements.
These accounting policies are important for an understanding of our financial condition and results of operation. Critical accounting
policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s
difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently
uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance
to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s
current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in
the preparation of our financial statements:
Method of Accounting
The financial statements are prepared using the
accrual method of accounting whereby revenues are recognized when earned and expenses are recognized when incurred. This method of accounting
conforms to generally accepted accounting principles.
Emerging Growth Company
The Company is an “emerging growth company,”
as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”),
and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that
are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports
and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and approval
of any golden parachute payments not previously approved. Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies
from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not
had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act)
are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt
out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election
to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard
is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company,
can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the
Company’s unaudited consolidated financial statements with another public company which is neither an emerging growth company nor
an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential
differences in accounting standards used.
Cash and Cash Equivalents
For purposes of the statement of cash flows,
the Company considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of accounts receivable and deposits in excess of federally insured limits.
These risks are managed by performing ongoing credit evaluations of customers’ financial condition and by maintaining all deposits
in high quality financial institutions.
Inventory
Inventory consists of finished goods (branded
products) and goods in process (un-branded products awaiting decoration). All inventory is stated at the lower of cost (first-in, first-out
method) or market value.
Property and Equipment
Property and equipment are recorded at cost.
Maintenance and repairs are charged to expense as incurred whereas major betterments are capitalized. Depreciation is provided using
straight-line and accelerated methods over five years.
Fair Value of Financial Instruments
The Company’s financial instruments include
cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and notes payable. The recorded values of cash and
cash equivalents, accounts receivable, accounts payable, accrued expenses, and notes payable approximate their fair values based on their
short-term nature.
Intangible Asset - Customer List
The Company accounts for intangible assets under
the provision of ASC 350-20 “Accounting for Goodwill and Other Intangible Assets.” The provision establishes standards for
valuation and amortization of unidentifiable assets.
Under ASC 350-20-35-1, the cost of unidentifiable
intangible assets is measured by the excess cost over the fair value of net assets acquired. Intangible assets with indefinite useful
lives shall not be amortized until its useful life is determined to be no longer infinite. The intangible assets are evaluated when a
triggering event occurs, at least annually, for potential impairment.
Revenue Recognition
In May 2014, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“ASU
2014-09”), which is aimed at creating common revenue recognition guidance for GAAP and the International Financial Reporting Standards
(“IFRS”). This new guidance provides a comprehensive model for entities to use in accounting for revenue arising from contracts
with customers and supersedes most current revenue guidance issued by the FASB. ASU 2014-09 also requires both qualitative and quantitative
disclosures, including descriptions of performance obligations.
On January 1, 2019, the Company adopted ASU 2014-09
and all related amendments (“ASC 606”) and applied its provisions to all uncompleted contracts using the modified retrospective
basis. The application of this new revenue recognition standard resulted in no adjustment to the opening balance of retained earnings.
Performance Obligations
Revenue from contracts with customers is recognized
when, or as, the Company satisfies its performance obligations by transferring goods or services to customers. A good or service is transferred
to a customer when, or as, the customer obtains control of that good or service. A performance obligation may be satisfied over time
or at a point in time. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that the
Company determines the customer has obtained control over the promised good or service. The amount of revenue recognized reflects the
consideration of which the Company expects to be entitled in exchange for the promised goods or services.
The following provides detailed information on
the recognition of the Company’s revenue from contracts with customers:
Product Sales - The Company is
engaged in the development and sale of promotional programs and products. Revenue on the sale of these products is recognized after orders
are shipped.
Reward Card Program - The Company
facilitates a reward card program for a customer and receives a transaction fee when the customer issues or replenishes a new reward
card. Revenue is recognized when cards are issued or replenished.
All performance obligations are satisfied at
a point in time.
Product Sales
The Company is engaged in the development and
sale of promotional programs and products. Revenue on the sale of these products is recognized after orders are shipped.
The following table disaggregates the Company’s
revenue based on the timing of satisfaction of performance obligations for the twelve months ended December 31, 2021:
| Performance Obligations Satisfied at a Point in
Time | |
$ | 39,702,714 | |
| Performance Obligations Satisfied Over Time | |
| - | |
| Total Revenue | |
$ | 39,702,714 | |
Freight
The Company includes freight charges as a component
of cost of goods sold.
Uncertainty in Income and Other Taxes
The Company adopted the standards for Accounting
for Uncertainty in Income Taxes (income, sales, use, and payroll), which required the Company to report any uncertain tax positions
and to adjust its financial statements for the impact thereof. As of December 31, 2021 and 2020, the Company determined that it had no
tax positions that did not meet the “more likely than not” threshold of being sustained by the applicable tax authority.
The Company files tax and information returns in the United States Federal, Massachusetts, and other state jurisdictions. These returns
are generally subject to examination by tax authorities for the last three years.
Income Taxes
Income taxes are provided for the tax effects
of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes are provided
for differences between the basis of assets and liabilities for financial statements and income tax purposes. The Company has historically
utilized accelerated tax depreciation to minimize federal income taxes.
Sales Tax
Sales tax collected from customers is recorded
as a liability, pending remittance to the taxing jurisdiction. Consequently, sales taxes have been excluded from revenues and costs.
The Company remits sales, use, and goods and services taxes to Massachusetts, other state jurisdictions, and Canada, respectively.
Offering Costs
The Company complies with the requirements of
FASB ASC Topic 340-10-S99-1, “Other Assets and Deferred Costs – SEC Materials” (“ASC 340-10-S99”) and SEC
Staff Accounting Bulletin Topic 5A, “Expenses of Offering”. Offering costs were $2,755,344 consisting principally of underwriting,
legal, accounting and other expenses that are directly related to our initial public offering and charged to shareholders’ equity
upon the completion of our initial public offering.
Earnings/ Loss per Share
Basic earnings per share (“EPS”)
is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based
on the weighted average number of shares of common stock plus the effect of dilutive potential shares of common stock outstanding during
the period using the treasury stock method. Dilutive potential common shares include the issuance of potential shares of common stock
for outstanding stock options and warrants.
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts
and disclosures. Accordingly, actual results could differ from those estimates.
Stock-Based Compensation
The Company accounts for stock-based compensation
costs under the provisions of ASC 718, Compensation—Stock Compensation, which requires the measurement and recognition of compensation
expense related to the fair value of stock-based compensation awards that are ultimately expected to vest. Stock based compensation expense
recognized includes the compensation cost for all stock-based payments granted to employees, officers, and directors based on the grant
date fair value estimated in accordance with the provisions of ASC 718. ASC 718 is also applied to awards modified, repurchased, or cancelled
during the periods reported. Stock-based compensation is recognized as expense over the employee’s requisite vesting period and
over the nonemployee’s period of providing goods or services.
Stock Option and Warrant Valuation
Stock option and warrant valuation models require
the input of highly subjective assumptions. The fair value of stock-based payment awards was estimated using the Black-Scholes option
model with a volatility figure derived from an index of historical stock prices for comparable entities. For warrants and stock options
issued to non- employees, the Company accounts for the expected life based on the contractual life of the warrants and stock options.
For employees, the Company accounts for the expected life of options in accordance with the “simplified” method, which is
used for “plain-vanilla” options, as defined in the accounting standards codification. The risk-free interest rate was determined
from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term of the options.
Recent Accounting Pronouncements
In February 2016, the
Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842) and July 2018, the FASB issued ASU 2018-10,
Codification Improvements to Topic 842, Leases and ASU 2018-11, Targeted Improvements (collectively “Topic 842”). Topic 842
establishes a new lease model, referred to as the right-of-use model that brings substantially all leases onto the balance sheet. This
standard requires lessees to recognize leased assets and lease liabilities on the balance sheet and disclose key information about the
leasing arrangements in their financial statements. Leases are classified as finance or operating, with classification affecting the
pattern and classification of expense recognition in the income statement. The Company adopted Topic 842 effective on January 1, 2019
using the modified retrospective transition approach that allows a reporting entity to use the effective date as its date of initial
application and not restate the comparative periods in the period of adoption when transitioning to the new standard. Consequently, the
requisite financial information and disclosures under the new standard are excluded for dates and periods prior to January 1, 2019. In
addition, the Company elected to use a number of optional simplification and practical expedients (reliefs) permitted under the transition
guidance within the new standard, including allowing the Company to combine fixed lease and non-lease components, apply the short-term
lease exception to all leases of one year or less, and utilize the “package of practical expedients”, which permits the Company
to not reassess prior accounting conclusions with respect to lease identification, lease classification and initial direct costs under
Topic 842. Adoption of this new standard resulted in the recognition of $1,094,778 of operating lease liabilities ($310,095 in current
liabilities and $784,683 in long-term liabilities) which represented the present value of the remaining lease payments of $1,342,275,
discounted using the Company’s lease discount rate of 3% and $1,094,778 of operating lease right-of-use assets. Refer to Note
O to our financial statements for the twelve months ended December 31, 2021 and December 31, 2020 for the impact to our financial statements
as of December 31, 2021.
In January
2017, the FASB issued ASU 2017-04, “Simplifying
the Test for Goodwill Impairment.” ASU 2017-04 eliminates
the two-step process that required identification of potential
impairment and a separate measure of the actual impairment. Goodwill impairment charges, if any, would be determined by the difference
between a reporting unit’s carrying value and its fair value (impairment loss is limited to the carrying value). This standard
is effective for annual or any interim goodwill impairment tests beginning after December
15, 2019. The Company’s adoption of this standard on January
1, 2020 did not have a material impact on
its financial statements.
In August
2018, the FASB issued ASU 2018-15, “Internal-Use
Software (Subtopic 350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The
update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with
the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update also requires
an entity to expense the capitalized implementation costs of a hosting arrangement over the term of the hosting arrangement. This update
is effective for fiscal years beginning after December 15, 2019 and may be
applied prospectively or retrospectively. On January 1, 2020, the
Company adopted this standard on a prospective basis. The Company’s adoption of this standard did not have
a material impact on its financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In December 2019, the FASB issued
ASU 2019-12, “Income
Taxes (Topic 740): Simplifying the Accounting of Income Taxes”,
which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions
to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This
update is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020, with
early adoption permitted. The Company’s adoption of this standard is not expected to have a material impact on its financial
statements.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The full text of our audited consolidated financial
statements begins on page F-1 of this annual report.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM
9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed
to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated
to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding
required disclosure.
As required by Rule 13a-15(e) of the Exchange
Act, our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of December 31,
2021. Based upon, and as of the date of this evaluation, our Chief Executive Officer and Chief Financial Officer determined that our
disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or
submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in applicable rules
and forms and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow
timely decisions regarding required disclosure.
Management’s Annual Report on Internal
Control over Financial Reporting
This annual report does not include a report
of management’s assessment regarding internal control over financial reporting or an attestation report of the Company’s
registered public accounting firm due to a transition period established by rules of the SEC for newly public companies.
Changes in Internal Controls over Financial
Reporting
We regularly review our system of internal control
over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that
we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems,
consolidating activities, and migrating processes.
There have been no changes in our internal control
over financial reporting during the fourth quarter of fiscal year 2021 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
ITEM
9B. OTHER INFORMATION.
We have no information to disclose that was required
to be disclosed in a report on Form 8-K during fourth quarter of fiscal year 2021 but was not reported.
ITEM
9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
PART III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Directors and Executive Officers
The following sets forth information about our
directors and executive officers:
Name | |
| Age | | |
Position |
| Andrew Stranberg | |
| 50 | | |
Executive Chairman, Treasurer, Secretary, and Director |
| Andrew Shape | |
| 48 | | |
President, Chief Executive Officer and Director |
| Christopher Rollins | |
| 57 | | |
Chief Financial Officer |
| Randolph Birney | |
| 46 | | |
Executive Vice President |
| John Audibert | |
| 35 | | |
Vice President of Growth and Strategic Initiatives |
| Stephen Paradiso | |
| 66 | | |
Chief of Staff |
| Jason Nolley | |
| 44 | | |
Chief Technology Officer |
| Sheila Johnshoy | |
| 49 | | |
Chief Operating Officer |
| Travis McCourt | |
| 38 | | |
Director |
| Alan Chippindale | |
| 63 | | |
Director |
| Alejandro Tani | |
| 49 | | |
Director |
| Ashley Marshall | |
| 36 | | |
Director |
Andrew Stranberg co-founded our
Company and has served as our Executive Chairman since 1995. From 1995 to January 2020, Mr. Stranberg was also our Chief Executive Officer.
In 1995, Mr. Stranberg founded Stran Capital LLC, a family office, and has since been its Chief Executive Officer. From 1997 to 2016
he served as Chairman of STRAN Technologies IT Services, LLC, a U.S.-based producer of harsh environment and tactical interconnect products
and services, and which was sold to Corning (NYSE:GLW) in 2016. From 2012 to November 2019, Mr. Stranberg was the founder and manager
of Stran Maritime LLC for a joint venture with Atlas Maritime Ltd., an international shipping company, to conduct a joint purchase of
two ships. Mr. Stranberg is a graduate of the University of New Hampshire Peter T. Paul College of Business and Economics. We believe
that Mr. Stranberg is qualified to serve on our board of directors due to his deep knowledge of Stran and his long executive and board
experience with us since his co-founding of the Company.
Andrew Shape has over 25 years
of merchandising, marketing, branding, licensing, and management experience. He is our co-founder and since 1996 has served as our President,
Chief Executive Officer and director. From July 2018 to February 2021, Mr. Shape also served as the Chief Executive Officer and President
and a director of Long Blockchain Corp., a Delaware corporation, or LBCC, in connection with a business co-managed with LBCC for its
subsidiary Stran Loyalty Group Inc., a Delaware corporation, or SLG, that was focused on co-managing our loyalty and gift card programs.
From June 2018 through January 2022, Mr. Shape served as a Director for Naked Brand Group, a Nasdaq-listed leading intimate apparel and
swimwear company. Prior to forming Stran, from August 1995 to September 1996, Mr. Shape worked at Copithorne & Bellows Public Relations
(a Porter Novelli company) as an Account Executive covering the technology industry. Mr. Shape holds a BA degree from the University
of New Hampshire. We believe that Mr. Shape is qualified to serve on our board of directors due to his deep knowledge of Stran, his industry
expertise, and his experience as a director on other Nasdaq listed companies.
Christopher Rollins has been our
Chief Financial Officer since November 2021. Previously, Mr. Rollins had been our Vice President of Finance and Administration since
February 2016. Prior to joining Stran in January 2015, Mr. Rollins was Director of Accounting for Northeast Region of Toshiba Business
Solutions from January 2011 through October 2014 and VP of Finance of Yardi Systems from April 2007 through December 2010. He held additional
positions as Controller of Powerhouse Technology, Senior Financial Accountant for Saucony, and Portfolio Accountant for Putnam Investments.
Mr. Rollins holds a B.S. in Finance, Accounting and Investments from Babson College.
Randolph Birney has been our Executive
Vice President since 2015, and was one of our Sales Executives from 1999 to 2015. His role is focused on business development and strategic
vision. In addition to these responsibilities, he is instrumental in managing the day-to-day business of multiple large retail and consumer-based
program accounts. Mr. Birney holds a BA from the University of New Hampshire.
John Audibert has been our Vice
President of Strategy and Growth Initiatives since March 2020. Mr. Audibert has over 12 years of investment banking, corporate finance
and strategy consulting experience. He has been the President of Josselin Capital Advisors, Inc., since October 2019, which provides
consulting services to high-growth businesses in the consumer sector. He was formerly President of Woodland Way Advisors, Inc., a consulting
firm, from January 2015 through December 2020. Mr. Audibert previously worked in the investment banking group of Sandler O’Neill
+ Partners, L.P. where he provided merger and acquisition advisory as well as capital raising services to middle-market clients. Prior
to joining Sandler O’Neill, he was a strategic consultant at Putnam Associates where he advised companies in the pharmaceutical,
biotechnology and medical device industries. Mr. Audibert received a bachelor’s degree with a concentration in finance from the
Carroll School of Management at Boston College. Mr. Audibert was an employee of the Company from March 2020 to May 2021, and since then
has continued acting in his current capacity as an independent contractor.
Stephen Paradiso has been our Chief
of Staff since December 2021. From October 2020 to December 2021, Mr. Paradiso acted as a consultant. From December 2012 until he retired
early in October 2020, Mr. Paradiso served as president, and from January 2017 also as chief executive officer, of promotional products
distributor ePromos Promotional Products, LLC, which was listed on ASI’s “Top 40 Distributors 2021”. From January 2008
to November 2012, he was chief operating officer, and from January 2007 to May 2008 was president, at promotional products distributor
Touchstone Merchandise Group, LLC, which was also listed on ASI’s “Top 40 Distributors 2021”. From January 1988 to June
2001, Mr. Paradiso was president of Cyrk Inc., formerly a Nasdaq-listed company. Mr. Paradiso was listed in Counselor magazine’s
“Power 50” from 2016 through 2019, ranking him one of the most influential people in the promotional products industry. Mr.
Paradiso received a bachelor’s degree in Education from Framingham State University.
Jason Nolley has been our Chief
of Staff since November 2021. From September 2021 to November 2021, Mr. Nolley was Senior Software Engineer at Sweetwater Sound, Inc.,
one of the largest online retailers of musical instruments and professional audio equipment in the United States. From October 2018 to
September 2021, Mr. Nolley was Technology Solutions Manager of Warsaw, Indiana-based Wildman Business Group, LLC, and from September
2018 to October 2018 was its Web Marketing Manager. From October 2007 to August 2014, he was Solutions Advisor of Lake Nolley Group,
LLC. From December 2005 to September 2007, he was Technical Sales & Marketing Manager of Goshen, Indiana-based LCI Shooting Sports.
From January 2001 to December 2005, he was Media Developer at South Bend, Indiana-based Force 5 Media. Mr. Nolley earned a B.A. in Telecommunications
with a minor in Japanese from Ball State University in June 2000. Mr. Nolley was granted Jitterbit Foundations and Jitterbit Core certifications
in 2020 by software developer Jitterbit’s Jitterbit University online training program.
Sheila Johnshoy has been our Chief
Operating Officer since March 2022. From June 2021 to February 2022, Ms. Johnshoy was Vice President of Sourcing & Merchandising
at SwagUp, LLC, a promotional products service organization. From June 2020 to June 2021, Ms. Johnshoy was the owner and consultant at
Sheila Johnshoy Consulting LLC. From May 2018 to June 2020, Ms. Johnshoy was Chief Revenue Officer at promotional products distributor
ePromos Promotional Products, LLC (ePromos), one of ASI’s “Top 40 Distributors 2021”. From February 2017 to April 2018,
Ms. Johnshoy was Vice President, Merchandising of Vericast’s Harland Clarke business. From February 2010 to February 2017, Ms.
Johnshoy was Vice President of Marketing at ePromos. Ms. Johnshoy received a Bachelor of Science in Management and Marketing from St.
Cloud State University – Herberger Business School, in 1995. Ms. Johnshoy is a 2009 graduate of the Mini MBA Program of the University
of St. Thomas – Opus School of Business.
Travis McCourt has been a member
of our board of directors since November 2021. Mr. McCourt has over 20 years of experience from the financial industry working with companies
to optimize their operational and financial procedures. In June 2014, he founded Conchoid Capital Fund where he still serves as a principal.
From May 2012 to December 2014, he was a Principal at the investment firm McCourt. From November 2007 to May 2012, he was the Vice President
of Alternative Capital Markets at Goldman Sachs. From November 2004 to December 2007, he served as a Front Office Executive for the Los
Angeles Dodgers. Mr. McCourt graduated from Georgetown University. We believe that Mr. McCourt is qualified to serve on our board of
directors due to his investment management, buyout analysis, capital markets, investor relations and other business experience.
Alan Chippindale has been a member
of our board of directors since November 2021. Mr. Chippindale has been President of Engage & Excel Enterprises Inc., an employee
recruitment and M&A consulting company, since July 2017. From January 2008 to June 2017, Mr. Chippindale was Chief Business Development
Officer of BrandAlliance Inc., a promotional products distributor. Mr. Chippindale graduated from Bowling Green State University with
a bachelor degree in International Business and Marketing. Mr. Chippindale has been listed on the ASI Power 50 five times, was Chief
Executive Officer and a director of BrandAlliance Inc., and was President of Proforma Inc. from September 1987 to December 2004. He is
a leading business development, recruiting and merger and acquisition consultant for the promotional products industry, a strategic think
tank member, and a certified marketing professional. He has managed over 100 business combinations and the recruiting of over 1,000 sales
professionals. We believe that Mr. Chippindale is qualified to serve on our board of directors due to his leading role in the promotional
products industry.
Alejandro Tani became a member of
our board of directors in November 2021. Mr. Tani has vast experience from the technology, oil and gas industry and has several successful
startups behind him. He is the current owner of Clair Trading, an import and export business since January 2007. He has also been
Chief Information Officer and Chief Executive Officer of Innovative Genetics Inc., a packaging and IP company with a biotech arm serving
the cannabis industry, and a Director and Partner of Green Beehive II LLC, a cannabis manufacturing company, since February 2017. Mr.
Tani graduated from University Catolica Andres Bello - the largest and oldest Catholic university in Venezuela. We believe that Mr. Tani
is qualified to serve on our board of directors due to his business experience.
Ashley L. Marshall has been a member
of our board of directors since November 2021. Since November 2021, Ms. Marshall has been a Merchandise Manager at e-commerce furniture
and home goods retailer Wayfair. From January 2015 to August 2020, Ms. Marshall was in the following planner positions with off-price
apparel retailer The TJX Companies, Inc.: Allocation Analyst, January 2015 to December 2015; Senior Analyst, December 2015 to September
2017; Associate Planner, September 2017 to August 2020. From January 2014 to December 2015, Ms. Marshall was an attorney in the United
States Treasury Department. Ms. Marshall earned a Bachelor of Business Administration from the University of Mississippi and a Juris
Doctor from The George Washington University Law School. We believe that Ms. Marshall is qualified to serve on our board of directors
due to her over five years’ experience developing business strategy for TJX, a leading global retailer, and her background in law.
Our directors currently have terms which will
end at our next annual meeting of the shareholders or until their successors are elected and qualify, subject to their prior death, resignation
or removal. Officers serve at the discretion of the board of directors. There is no arrangement or understanding between any director
or executive officer and any other person pursuant to which he was or is to be selected as a director, nominee or officer.
Family Relationships
There are no family relationships among any of
our officers or directors.
Involvement in Certain Legal Proceedings
To the best of our knowledge, except as described
below, none of our directors or executive officers has, during the past ten years:
| ● | been
convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding
traffic violations and other minor offences); |
| ● | had
any bankruptcy petition filed by or against the business or property of the person, or of
any partnership, corporation or business association of which he was a general partner or
executive officer, either at the time of the bankruptcy filing or within two years prior
to that time; |
| ● | been
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated,
of any court of competent jurisdiction or federal or state authority, permanently or temporarily
enjoining, barring, suspending or otherwise limiting, his involvement in any type of business,
securities, futures, commodities, investment, banking, savings and loan, or insurance activities,
or to be associated with persons engaged in any such activity; |
| ● | been
found by a court of competent jurisdiction in a civil action or by the Securities and Exchange
Commission or the Commodity Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been reversed, suspended, or vacated; |
| ● | been
the subject of, or a party to, any federal or state judicial or administrative order, judgment,
decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement
of a civil proceeding among private litigants), relating to an alleged violation of any federal
or state securities or commodities law or regulation, any law or regulation respecting financial
institutions or insurance companies including, but not limited to, a temporary or permanent
injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent
cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting
mail or wire fraud or fraud in connection with any business entity; or |
| ● | been
the subject of, or a party to, any sanction or order, not subsequently reversed, suspended
or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange
Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the
Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity
or organization that has disciplinary authority over its members or persons associated with
a member. |
Management’s Transactions with Long
Blockchain Corp.
We entered into an agreement with Long Blockchain
Corp., or LBCC, and its wholly-owned subsidiary, Stran Loyalty Group Inc., or SLG, dated July 26, 2018. According to a Schedule 13D jointly
filed by the Company and Mr. Stranberg on August 7, 2018, as of July 26, 2018, Mr. Stranberg owned a total of 4,288,799 shares or approximately
23.6% of LBCC, which included 1,788,799 shares of common stock of LBCC that he previously acquired with his personal funds, and 2,500,000
shares that were required to be issued to the Company on July 26, 2018 which were deemed beneficially owned by Mr. Stranberg as a control
person of the Company. According to a proxy statement filed by LBCC on April 19, 2019, as of April 12, 2019, Mr. Stranberg still beneficially
owned 4,233,744 shares or approximately 13.5% of LBCC, including the 2,500,000 shares required to be issued to the Company. This agreement
between us, LBCC and SLG was terminated as of July 31, 2020, and the Company has not received any of the 2,500,000 shares.
Under the agreement, we were required to provide
SLG with certain assets and services for it to operate loyalty and gift card programs for designated program clients. Under the agreement
we were also required to pay SLG all amounts collected by us, other than loyalty card balances, from program clients, and to provide
an option to SLG to purchase the operating assets at cost. As compensation, LBCC was required to issue 2,500,000 shares of common stock
to us upon signing and certain additional amounts of shares of its common stock to us depending on SLG’s net revenue and operating
profit for each of the first two years of the contract.
Pursuant to the agreement, Mr. Stranberg entered
into a subscription agreement with LBCC under which Mr. Stranberg purchased 1,500,000 additional shares of common stock of LBCC at $0.40
per share, or $600,000 in aggregate. According to a Schedule 13D jointly filed by the Company and Mr. Stranberg on August 7, 2018, Mr.
Stranberg used personal funds for this purchase. Mr. Stranberg received a three-year warrant from LBCC to purchase an additional 450,000
shares of common stock of LBCC at $0.50 per share. Pursuant to the terms of the warrant, Mr. Stranberg was not permitted to exercise
any portion of the warrant to the extent that after giving effect to such issuance after exercise, Mr. Stranberg (together with his affiliates,
and any other persons acting as a group together with Mr. Stranberg or any of his affiliates), would beneficially own in excess of 9.99%
of the number of shares outstanding immediately after giving effect to the issuance of shares issuable upon exercise of the warrant. Pursuant
to the subscription agreement, Mr. Stranberg agreed not to sell or transfer the shares and the warrant unless they are subsequently registered
under the Securities Act and under applicable securities laws of certain states, or an exemption from such registration is available.
Mr. Stranberg did not exercise the warrant.
Under the agreement, we and our affiliates, including
Mr. Stranberg, had the option to purchase up to an additional 1,500,000 shares of common stock of LBCC at $0.40 per share prior to July
31, 2019, which if exercised in full would have also entitled us to another warrant to purchase up to an amount of common stock of LBCC
equal to 30% of the amount that had been purchased. We and our affiliates, including Mr. Stranberg, did not exercise this option.
The agreement automatically renewed for additional
one-year terms unless terminated by either party more than 60 days before the end of the term or upon a material breach of contract by
the other party. The agreement did not specify the amount of compensation for additional term years.
Under the agreement, SLG was required to reimburse
us for certain expenses that we incur as a result of providing the required program services. No amounts were due from SLG as of December
31, 2021 and 2020.
As required by the agreement with SLG and LBCC,
we entered into a separate lockup agreement, dated July 26, 2018, in which we agreed not to transfer or sell the LBCC shares received
upon execution and any LBCC shares received as compensation for the first year until July 31, 2019 and January 31, 2020, respectively,
with exceptions for specified permitted transferees.
Other than Mr. Stranberg, as disclosed above,
and our Vice President of Strategy and Growth Initiatives, John Audibert, who received a nominal number of shares of LBCC in exchange
for services provided during 2018, no other officers, directors or shareholders of the Company are shareholders of LBCC.
Overlap in Management with Long Blockchain
Corp.
In addition to the other terms of the agreement
with SLG and LBCC described above, LBCC and our President, Chief Executive Officer and director Andrew Shape entered into an employment
agreement dated as of July 26, 2018, pursuant to which Mr. Shape was appointed chief executive officer and chairman of the board of LBCC
from July 2018 to February 2021. As a result of his position as both chief executive officer and chairman of the board of LBCC and as
our chief executive officer, president and director, our management overlapped with the management of LBCC during that period.
Under Mr. Shape’s employment agreement,
Mr. Shape was entitled to $200,000 annual salary through the equal quarterly issuance of restricted shares of common stock of LBCC at
a price per share equal to 85% of the average closing price for ten trading days prior to the end of the quarter, but in any event not
less than $0.30 per share. According to page 8 of a proxy statement filed by LBCC on April 22, 2019, as of April 12, 2019, “437,251
shares were earned by Mr. Shape under his employment agreement dated July 26, 2018, but not yet issued.” Pursuant to the employment
agreement with LBCC, on May 21, 2019 Mr. Shape was granted a warrant to purchase 2,000,000 shares of common stock of LBCC at a price
per share of $0.25, exercisable from January 18, 2019 to January 17, 2023. Mr. Shape has not exercised the warrant. The employment agreement
contained other standard provisions including as to termination, nondisclosure and noncompetition. Mr. Shape resigned from his positions
with LBCC as of February 2021 and none of our officers, directors or shareholders have any employment or directorship relationship with
LBCC.
Revocation of Registration of Common Stock of Long Blockchain
Corp.
Pursuant to an “Order Instituting Proceedings
Pursuant To Section 12(j) Of The Securities Exchange Act Of 1934, Making Findings, And Revoking Registration Of Securities,” File
No. 3-20228, Administrative Proceeding, Release No. 91174 / February 19, 2021, the SEC found that “[f]rom approximately 2015 to
2017, [LBCC]’s principal business was ready-to-drink beverages. In December 2017, the company changed its name to LBCC and announced
that it was shifting its business operations from soft drink production to activities related to blockchain technology. Its blockchain
business never became operational. LBCC has common stock registered pursuant to Section 12(g). The common stock of LBCC was registered
under Section 12(b) of the Exchange Act and traded on NASDAQ until NASDAQ filed a Form 25 on June 6, 2018 to delist the securities. LBCC
stock is currently quoted and on OTC Link whose parent company is OTC Markets Group, Inc.” In addition, the SEC found that “LBCC
has failed to comply with Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder in that it has not filed an annual
report on Form 10-K since the period ended December 31, 2017. LBCC is also delinquent in filing quarterly reports, having not filed a
Form 10-Q since the period ended September 30, 2018.” Based in part on these findings, effective February 22, 2021, the SEC revoked
the registration of the common stock of LBCC under the Exchange Act, and its stock is no longer listed or quoted on any securities exchange
or trading market.
For further information regarding the matters
relating to LBCC, please refer to Item 13 “Certain Relationships and Related Party Transactions, and Director Independence –
Transactions with Related Persons”.
Corporate Governance
Governance Structure
We chose to appoint a separate Chairman of the
Board who is not our Chief Executive Officer. Our board of directors has made this decision based on their belief that an independent
Chairman of the Board can act as a balance to the Chief Executive Officer, who also serves as a non-independent director.
The Board’s Role in Risk Oversight
The board of directors oversees that the assets
of our company are properly safeguarded, that the appropriate financial and other controls are maintained, and that our business is conducted
wisely and in compliance with applicable laws and regulations and proper governance. Included in these responsibilities is the board’s
oversight of the various risks facing our company. In this regard, our board seeks to understand and oversee critical business risks.
Our board does not view risk in isolation. Risks are considered in virtually every business decision and as part of our business strategy.
Our board recognizes that it is neither possible nor prudent to eliminate all risk. Indeed, purposeful and appropriate risk-taking is
essential for our company to be competitive on a global basis and to achieve its objectives.
While the board oversees risk management, company
management is charged with managing risk. Management communicates routinely with the board and individual directors on the significant
risks identified and how they are being managed. Directors are free to, and indeed often do, communicate directly with senior management.
Our board administers its risk oversight function
as a whole by making risk oversight a matter of collective consideration. Much of this work has been delegated to committees, which will
meet regularly and report back to the full board. The audit committee oversees risks related to our financial statements, the financial
reporting process, accounting and legal matters, the compensation committee evaluates the risks and rewards associated with our compensation
philosophy and programs, and the nominating and corporate governance committee evaluates risk associated with management decisions and
strategic direction.
Independent Directors
Nasdaq’s rules generally require that a
majority of an issuer’s board of directors must consist of independent directors. Prior to November 2021, our board of directors
consisted of two (2) directors: Andrew Shape and Andrew Stranberg, neither of whom are independent within the meaning of Nasdaq’s
rules. Effective November 8, 2021, Ashley Marshall, Travis McCourt, Alan Chippindale and Alejandro Tani were appointed to our board pursuant
to independent director agreements to serve as independent directors.
Under the independent director agreements, each
independent director will receive an annual cash fee and an initial award of restricted common stock and stock options. We will pay the
annual cash compensation fee to each independent director in four equal installments no later than the fifth business day of each calendar
quarter commencing in the quarter ending March 31, 2022. We granted the restricted stock and options to the independent directors on
November 12, 2021. The cash fee paid to each independent director will be $20,000 as to Ms. Marshall, $26,000 as to Mr. McCourt, $26,000
as to Mr. Chippindale, and $20,000 as to Mr. Tani. Under their agreements, 2,892 shares of restricted common stock were awarded to each
independent director. The restricted stock will vest in four (4) equal quarterly installments commencing in the quarter ending March
31, 2022. The options that were awarded to each independent director may be exercised to purchase 5,000 shares of common stock at the
exercise price of $4.15 per share. The options vest and become exercisable in twelve (12) equal monthly installments over the first year
following the date of grant, subject to the respective independent director continuing in service on our board of directors through each
such vesting date. The term of each stock option is ten (10) years from the date of grant. We will also reimburse each independent director
for pre-approved reasonable business-related expenses incurred in good faith in connection with the performance of the independent director’s
duties for us. As also required under the independent director agreements, we have separately entered into a standard indemnification
agreement with each of our independent directors, the term of which began upon November 8, 2021.
As a result of these board changes, our board
of directors consists of six (6) directors, four (4) of whom are independent within the meaning of Nasdaq’s rules except that Mr.
Chippindale will not be determined to meet the independence requirements applicable to our audit committee due to certain fees to which
he is entitled. For a discussion of certain consideration relating to transactions with Mr. Chippindale, see the section entitled Item
13 “Certain Relationships and Related Party Transactions, and Director Independence – Transactions with Related Persons”.
Committees of the Board of Directors
Our board has established an audit committee,
a compensation committee, and a nominating and corporate governance committee, each with its own charter approved by the board. Each
committee’s charter is also available on our website at https://www.stran.com/.
In addition, our board of directors may, from
time to time, designate one or more additional committees, which shall have the duties and powers granted to it by our board of directors.
Audit Committee
Travis McCourt, Alejandro Tani, and Ashley Marshall,
each of whom satisfies the “independence” requirements of Rule 10A-3 under the Exchange Act and Nasdaq’s rules,
serve on our audit committee, with Mr. McCourt serving as the chairman. Our board has determined that Travis McCourt and Alejandro Tani
qualify as “audit committee financial experts.” The audit committee oversees our accounting and financial reporting processes
and the audits of the financial statements of our company.
The audit committee is responsible for, among
other things: (i) retaining and overseeing our independent accountants; (ii) assisting the board in its oversight of the integrity of
our financial statements, the qualifications, independence and performance of our independent auditors and our compliance with legal
and regulatory requirements; (iii) reviewing and approving the plan and scope of the internal and external audit; (iv) pre-approving
any audit and non-audit services provided by our independent auditors; (v) approving the fees to be paid to our independent auditors;
(vi) reviewing with our chief executive officer and principal financial officer and independent auditors the adequacy and effectiveness
of our internal controls; (vii) reviewing hedging transactions; and (viii) reviewing and assessing annually the audit committee’s
performance and the adequacy of its charter.
Compensation Committee
Alan Chippindale, Travis McCourt and Alejandro
Tani, each of whom satisfies the “independence” requirements of Rule 10C-1 under the Exchange Act and Nasdaq’s
rules, serve on our compensation committee, with Mr. Chippindale serving as the chairman. The members of the compensation committee are
also “non-employee directors” within the meaning of Section 16 of the Exchange Act. The compensation committee assists the
board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive
officers.
The compensation committee is responsible for,
among other things: (i) reviewing and approving the remuneration of our executive officers; (ii) making recommendations to the board
regarding the compensation of our independent directors; (iii) making recommendations to the board regarding equity-based and incentive
compensation plans, policies and programs; and (iv) reviewing and assessing annually the compensation committee’s performance and
the adequacy of its charter.
Nominating and Corporate Governance Committee
Alejandro Tani, Ashley Marshall, and Alan Chippindale,
each of whom satisfies the “independence” requirements of Nasdaq’s rules, serve on our nominating and corporate governance
committee, with Mr. Tani serving as the chairman. The nominating and corporate governance committee assists the board of directors in
selecting individuals qualified to become our directors and in determining the composition of the board and its committees.
The nominating and corporate governance committee
is responsible for, among other things: (i) identifying and evaluating individuals qualified to become members of the board by reviewing
nominees for election to the board submitted by shareholders and recommending to the board director nominees for each annual meeting
of shareholders and for election to fill any vacancies on the board; (ii) advising the board with respect to board organization, desired
qualifications of board members, the membership, function, operation, structure and composition of committees (including any committee
authority to delegate to subcommittees), and self-evaluation and policies; (iii) advising on matters relating to corporate governance
and monitoring developments in the law and practice of corporate governance; (iv) overseeing compliance with our code of ethics; and
(v) approving any related-party transactions.
The nominating and corporate governance committee’s
methods for identifying candidates for election to our board of directors (other than those proposed by our shareholders, as discussed
below) will include the solicitation of ideas for possible candidates from a number of sources, including members of our board of directors,
our executives, individuals personally known to the members of our board of directors, and other research. The nominating and corporate
governance committee may also, from time to time, retain one or more third-party search firms to identify suitable candidates.
In making director recommendations, the nominating
and corporate governance committee may consider some or all of the following factors: (i) the candidate’s judgment, skill, experience
with other organizations of comparable purpose, complexity and size, and subject to similar legal restrictions and oversight; (ii) the
interplay of the candidate’s experience with the experience of other board members; (iii) the extent to which the candidate would
be a desirable addition to the board and any committee thereof; (iv) whether or not the person has any relationships that might impair
his or her independence; and (v) the candidate’s ability to contribute to the effective management of our company, taking into
account the needs of our company and such factors as the individual’s experience, perspective, skills and knowledge of the industry
in which we operate.
A shareholder may nominate one or more persons
for election as a director at an annual meeting of shareholders if the shareholder complies with the notice and information provisions
contained in our bylaws. Such notice must be in writing to our Company not later than the close of business on the ninetieth (90th) day
nor earlier than the close of business on the one-hundred-twentieth (120th) day prior to the first anniversary of the preceding year’s
annual meeting; provided, however, that in the event that the date of the annual meeting is advanced more than thirty (30) days prior
to or delayed by more than thirty (30) days after the anniversary of the preceding year’s annual meeting, notice by the stockholder
to be timely must be so delivered not earlier than the close of business on the one hundred twentieth (120th) day prior to such annual
meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th)
day following the day on which public announcement of the date of such meeting is first made or as otherwise required by the Exchange
Act. In addition, shareholders furnishing such notice must be a holder of record on both (i) the date of delivering such notice
and (ii) the record date for the determination of shareholders entitled to vote at such meeting.
Material Changes to Director Nomination Procedures
There have been no material changes to the procedures
by which shareholders may recommend nominees to our board of directors since such procedures were last disclosed.
Code of Ethics
We have adopted a code of ethics that applies
to all of our directors, officers and employees, including our principal executive officer, principal financial officer and principal
accounting officer. Such code of ethics addresses, among other things, honesty and ethical conduct, conflicts of interest, compliance
with laws, regulations and policies, including disclosure requirements under the federal securities laws, and reporting of violations
of the code.
We are required to disclose any amendment to,
or waiver from, a provision of our code of ethics applicable to our principal executive officer, principal financial officer, principal
accounting officer, controller, or persons performing similar functions. To date, there have been no waivers under our code of ethics.
We undertake to use our website as a method of disseminating this disclosure, as permitted by applicable SEC rules. Any such disclosure
will be posted to our website within four (4) business days following the date of any such amendment to, or waiver from, a provision
of our code of ethics.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our
directors and executive officers and beneficial holders of more than 10% of our shares of common stock to file with the SEC initial reports
of ownership and reports of changes in ownership of our equity securities. We believe, based solely on a review of the copies of such
reports furnished to us and representations of these persons, that all reports were timely filed for the year ended December 31, 2021,
except that the Form 3 for each of our Chief Technology Officer Jason Nolley and Chief of Staff Stephen Paradiso were filed late due
to administrative oversight.
ITEM
11. EXECUTIVE COMPENSATION.
Summary Compensation Table - Years Ended December
31, 2021 and 2020
The following table sets forth information concerning
all cash and non-cash compensation awarded to, earned by or paid to the named persons for services rendered in all capacities during
the noted periods. No other executive officers received total annual salary and bonus compensation in excess of $100,000.
Name
and Principal Position | |
Year | | |
Salary
($) | | |
Bonus
($) | | |
Stock
Awards
($) | | |
Option
Awards
($) | | |
All
Other Compensation
($) | | |
Total
($) | |
| Andrew Shape, | |
| 2021 | | |
| 386,154 | | |
| - | | |
| - | | |
| - | | |
| 4,846 | (1) | |
| 391,000 | |
| President, Chief Executive Officer and Director | |
| 2020 | | |
| 335,000 | | |
| 187,746 | | |
| - | | |
| - | | |
| 6,750 | (1) | |
| 529,496 | |
| Andrew Stranberg, | |
| 2021 | | |
| 518,964 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 518,964 | |
| Executive Chairman and Director | |
| 2020 | | |
| 300,000 | | |
| 250,000 | | |
| - | | |
| - | | |
| - | | |
| 550,000 | |
| Randolph Birney, | |
| 2021 | | |
| 289,615 | | |
| - | | |
| - | | |
| - | | |
| 9,000 | (1) | |
| 298,615 | |
| Executive Vice President | |
| 2020 | | |
| 285,000 | | |
| 180,009 | | |
| - | | |
| - | | |
| 6,750 | (1) | |
| 471,759 | |
Christopher Rollins,
| |
| 2021 | | |
| 211,202 | | |
| 32,857 | | |
| 14,854 | | |
| 144,955 | | |
| 3,600 | (2) | |
| 407,468 | |
| Chief Financial Officer | |
| 2020 | | |
| 189,200 | | |
| 22,143 | | |
| - | | |
| - | | |
| - | | |
| 211,343 | |
| (1) | Other compensation consisted of covered automobile
expenses. |
| (2) | Other compensation consisted of $2,769 of
covered automobile expenses and $831 in cellphone expenses. |
Executive Officer Employment and Consulting Agreements
Under our employment agreement with our Chief
Executive Officer, Andrew Shape, dated July 13, 2021 and effective as of November 8, 2021, we agreed that, for a three-year term, unless
terminated earlier in accordance with its terms, we will pay Mr. Shape an annual salary of $400,000 and will be eligible to receive an
annual cash bonus as determined by the board of directors. In addition, the agreement provides that, as soon as practical after the consummation
of the Company’s initial public offering, or the IPO, Mr. Shape shall be awarded stock options for the purchase of 323,810 shares
of the Company’s common stock with an exercise price equal to the price per share paid by investors in the IPO. The stock options
will vest in accordance with the following vesting schedule: the options will vest over a four-year period with 25% of the options vesting
on the first anniversary of the date of grant and the balance of the options (75%) will vest monthly over the following three years after
the first anniversary of the date of grant at a rate of 1/36 per month. The parties acknowledged that Mr. Shape was owed sales commissions
for sales generated for the Company during 2018, 2019 and 2020 in the gross amount of $140,926.69 that were earned and due to Mr. Shape
as of a date prior to the date of the employment agreement and that Mr. Shape did not waive his right to these sales commissions by entering
into the agreement. Beginning on the date of the agreement, and continuing thereafter, interest at the rate of 2% per annum accrues on
unpaid earned sales commissions. Beginning one month after the effective date of the agreement, the Company will pay Mr. Shape the gross
amount of $10,000 per month towards Mr. Shape’s unpaid earned sales commissions, less deductions applicable to wages, or such lesser
amount as the Company can afford, when the Company has “available cash,” defined as sufficient cash to ensure that the Company
is not at material risk of default on any material financial obligation due in the next three months. Whether the Company has “available
cash” shall be determined by the Board in its reasonable discretion, acting in good faith, taking into account any factors it deems
germane, including without limitation the maintenance of reserves for future liabilities, whether certain or uncertain, and the preservation
of funds for capital expenditures. At the earlier of the termination of Mr. Shape’s employment for any reason, regardless of whether
termination is for cause, and thirty (30) months after the date of the employment agreement, Mr. Shape shall have the right to demand
immediate payment of all unpaid earned sales commissions and interest in cash. Mr. Shape will be provided with standard executive benefits.
The Company will also provide standard indemnification and directors’ and officers’ insurance. The Company may terminate
Mr. Shape’s employment by giving at least 30 days written notice. If we terminate Mr. Shape without cause or he resigns for good
reason as provided under the agreement, we must pay at least 24 months’ severance, reimbursement of Mr. Shape for the first 18
months of the premiums associated with Mr. Shape’s continuation of health insurance for him and his family pursuant to COBRA, and
immediate vesting of any outstanding unvested equity granted to Mr. Shape during his employment and immediate lifting of all lockups
and restrictions on sales of such equity, or exercise of stock options. If we do not renew his employment agreement after the initial
three-year term, then we must pay six months’ severance and reimburse the first six months of the premiums associated with Mr.
Shape’s continuation of health insurance for him and his family pursuant to COBRA. Mr. Shape is also subject to standard confidentiality
and noncompetition provisions.
Under our employment agreement with our Executive
Chairman, Andrew Stranberg, dated July 13, 2021 and effective as of November 8, 2021, we agreed that, for a three-year term, unless terminated
earlier in accordance with its terms, we will pay Mr. Stranberg an annual salary of $500,000 and will be eligible to receive an annual
cash bonus as determined by the board of directors. In addition, the agreement provides that, as soon as practical after the consummation
of the Company’s IPO Mr. Stranberg shall be awarded stock options for the purchase of 400,000 shares of the Company’s common
stock with an exercise price equal to the price per share paid by investors in the IPO. The stock options will vest in accordance with
the following vesting schedule: the options will vest over a four-year period with 25% of the options vesting on the first anniversary
of the date of grant and the balance of the options (75%) will vest monthly over the following three years after the first anniversary
of the date of grant at a rate of 1/36 per month. Mr. Stranberg will be provided with standard executive benefits. The Company will also
provide standard indemnification and directors’ and officers’ insurance. The Company may terminate Mr. Stranberg’s
employment by giving at least 30 days written notice. If we terminate Mr. Stranberg without cause or he resigns for good reason as provided
under the agreement, we must pay at least 24 months’ severance, reimbursement of Mr. Stranberg for the first 18 months of the premiums
associated with Mr. Stranberg’s continuation of health insurance for him and his family pursuant to COBRA, and immediate vesting
of any outstanding unvested equity granted to Mr. Stranberg during his employment and immediate lifting of all lockups and restrictions
on sales of such equity, or exercise of stock options. If we do not renew his employment agreement after the initial three-year term,
then we must pay six months’ severance and reimburse the first six months of the premiums associated with Mr. Stranberg’s
continuation of health insurance for him and his family pursuant to COBRA. Mr. Stranberg is also subject to standard confidentiality
and noncompetition provisions.
Under our employment agreement with our Executive
Vice President, Randolph Birney, dated July 13, 2021 and effective as of November 8, 2021, we agreed that, for a three-year term, unless
terminated earlier in accordance with its terms, we will pay Mr. Birney an annual salary of $300,000 and an annual cash bonus as determined
by the board of directors. In addition, the agreement provides that, as soon as practical after the consummation of the Company’s
IPO Mr. Birney shall be awarded stock options for the purchase of 76,190 shares of the Company’s common stock with an exercise
price equal to the price per share paid by investors in the IPO. The stock options will vest in accordance with the following vesting
schedule: the options will vest over a four-year period with 25% of the options vesting on the first anniversary of the date of grant
and the balance of the options (75%) will vest monthly over the following three years after the first anniversary of the date of grant
at a rate of 1/36 per month. The parties acknowledged that Mr. Birney was owed sales commissions for sales generated for the Company
during 2018, 2019 and 2020 in the gross amount of $197,109.95 that were earned and due to Mr. Birney as of a date prior to the date of
the employment agreement and that Mr. Birney did not waive his right to these sales commissions by entering into the agreement. Beginning
on the date of the agreement, and continuing thereafter, interest at the rate of 2% per annum accrues on unpaid earned sales commissions.
Beginning one month after the effective date of the agreement, the Company will pay Mr. Birney the gross amount of $10,000 per month
for unpaid earned sales commissions, less deductions applicable to wages, or such lesser amount as the Company can afford, when the Company
has “available cash,” defined as sufficient cash to ensure that the Company is not at material risk of default on any material
financial obligation due in the next three months. Whether the Company has “available cash” shall be determined by the Board
in its reasonable discretion, acting in good faith, taking into account any factors it deems germane, including without limitation the
maintenance of reserves for future liabilities, whether certain or uncertain, and the preservation of funds for capital expenditures.
At the earlier of the termination of Mr. Birney’s employment for any reason, regardless of whether termination is for cause, and
thirty (30) months after the date of the employment agreement, he shall have the right to demand immediate payment of all unpaid earned
sales commissions and interest in cash. Mr. Birney will be provided with standard executive benefits. The Company will also provide standard
indemnification and directors’ and officers’ insurance. The Company may terminate Mr. Birney’s employment by giving
at least 30 days written notice. If we terminate Mr. Birney without cause or he resigns for good reason as provided under the agreement,
we must pay at least 24 months’ severance, reimbursement of Mr. Birney for the first 18 months of the premiums associated with
Mr. Birney’s continuation of health insurance for him and his family pursuant to COBRA, and immediate vesting of any outstanding
unvested equity granted to Mr. Birney during his employment and immediate lifting of all lockups and restrictions on sales of such equity,
or exercise of stock options. If we do not renew his employment agreement after the initial three-year term, then we must pay six months’
severance and reimburse the first six months of the premiums associated with Mr. Birney’s continuation of health insurance for
him and his family pursuant to COBRA. Mr. Birney is also subject to standard confidentiality and noncompetition provisions.
Under our employment agreement with Christopher
Rollins, our Chief Financial Officer, dated September 7, 2021 and effective as of November 8, 2021, we agreed that, for a two-year term,
unless terminated earlier in accordance with its terms, Mr. Rollins will serve as our Chief Financial Officer. We will pay Mr. Rollins
an annual salary of $250,000. For each fiscal year completed during this term, Mr. Rollins will be eligible to receive a cash bonus determined
by the achievement of specified Company performance metrics. Prior to each fiscal year, a Company net sales target will be set for the
following fiscal year. Mr. Rollins will receive a bonus equal to: (i) 20% of salary if 75% of the net sales target is achieved; (ii)
25% of salary if 100% of the net sales target is achieved; (iii) 50% of salary if 125% of the net sales target is achieved; or (iv) 80%
of salary if 150% of the net sales target is achieved. Actual net sales for the fiscal year will be determined by the Company’s
audited financial statements and according to Generally Accepted Accounting Principles. If actual net sales is between two of the bonus
thresholds, then Mr. Rollins will receive a pro rata performance basis. Mr. Rollins may also be eligible for additional bonus amounts
as determined by the board of directors. In addition, the agreement provides that, as soon as practical after the consummation of the
Company’s IPO Mr. Rollins shall be awarded stock options for the purchase of 81,000 shares of the Company’s common stock
with an exercise price equal to the price per share paid by investors in the IPO. The agreement further provides that we shall also
enter into a restricted stock award agreement with Mr. Rollins granting him 10,000 restricted shares of common stock. Both the restricted
stock and the stock options will vest in accordance with the following vesting schedule: the options will vest over a two-year period
with 33% of the options vesting immediately upon issuance and the balance of the options (67%) vesting monthly over the following two
years at a rate of 1/24 per month. Mr. Rollins will be provided with standard executive benefits. The Company will also provide standard
indemnification and directors’ and officers’ insurance. The Company may terminate Mr. Rollins’s employment by giving
at least 30 days written notice. If we terminate Mr. Rollins without cause or he resigns for good reason as provided under the agreement,
we must pay the lesser of the number of months’ severance remaining under the term of the agreement, or six months, provided that
he will receive at least three months’ severance; reimbursement of Mr. Rollins for the first 18 months of the premiums associated
with Mr. Rollins’s continuation of health insurance for him and his family pursuant to COBRA; and immediate vesting of any outstanding
unvested equity granted to Mr. Rollins during his employment and immediate lifting of all lockups and restrictions on sales of such equity,
or exercise of stock options. If we do not renew his employment agreement after the initial two-year term, then we must pay six months’
severance and reimburse the first six months of the premiums associated with Mr. Rollins’s continuation of health insurance for
him and his family pursuant to COBRA. Mr. Rollins is also subject to standard confidentiality and noncompetition provisions.
Under our consulting agreement with John Audibert,
our Vice President of Strategy and Growth Initiatives, and his wholly-owned company, Josselin Capital Advisors, Inc., or the Consultant,
dated December 2, 2021, we agreed that, for a 27-month term, unless terminated earlier in accordance with its terms, we will receive
the services of the Consultant and pay or grant the Consultant the compensation described below, and Mr. Audibert will continue to serve
as our Vice President of Strategy and Growth Initiatives. We agreed to pay the Consultant a signing fee of $30,000, an annual fee of
$100,000 and a monthly automobile bonus of $750. We agreed to grant the Consultant base restricted stock bonuses as follows: (i) 20,000
restricted shares of common stock, granted as of the agreement date, which vests on the three-month anniversary of the date of grant;
(ii) 20,000 additional fully-vested shares of common stock to be granted on the six-month anniversary of the agreement date; and (iii)
20,000 additional fully-vested shares of Common Stock to be granted on the twelve-month anniversary of the agreement date. We also agreed
to performance-based equity grants to the Consultant consisting of (i) the grant of an option which may be exercised to purchase 65,000
shares of common stock at the exercise price per share of $3.90 which will vest based on the attainment of the option’s performance-based
criteria, and fully-vested restricted stock to be granted upon attainment of the same performance-based criteria, as follows: (i) 10,000
fully-vested restricted shares will be granted and the stock option will vest as to 10,000 shares of common stock if our sales exceed
$21,000,000 combined for any two consecutive quarters or if our market capitalization exceeds $65,000,000 for twenty-five (25) out of
thirty (30) consecutive trading days anytime within the agreement term; (ii) 10,000 additional fully-vested restricted shares will be
granted and the stock option will vest as to 10,000 additional shares of common stock if our sales exceed $25,000,000 combined for any
two consecutive quarters or if our market capitalization exceeds $75,000,000 for twenty-five (25) out of thirty (30) consecutive trading
days anytime within the term; (iii) 15,000 additional fully-vested restricted shares will be granted and the stock option shall vest
as to 20,000 additional shares if our sales exceed $37,500,000 combined for any two consecutive quarters or if our market capitalization
exceeds $90,000,000 for twenty-five (25) out of thirty (30) consecutive trading days anytime within the agreement term; and (iv) 25,000
additional fully-vested restricted shares will be granted and the stock option will vest as to 25,000 additional shares if our sales
exceed $45,000,000 combined for any two consecutive quarters or if our market capitalization exceeds $180,000,000 for twenty-five (25)
out of thirty (30) consecutive trading days anytime within the term. “Sales” will be determined by our audited or reviewed
financial statements and according to Generally Accepted Accounting Principles. Our “market capitalization” will be the closing
stock price of our common stock as reported by The NASDAQ Stock Market LLC multiplied by the total shares of common stock outstanding
as of 4:00 PM E.T. on the date that such closing stock price was determined as reported by our transfer agent. All such grants will be
subject to standard forms of stock option or restricted stock award agreements and the terms and conditions of our Amended and Restated
2021 Equity Incentive Plan. They will also be subject to the lock-up provisions of the Lock-Up Agreement between Mr. Audibert and EF
Hutton, division of Benchmark Investments, LLC, or the representative, dated November 8, 2021, which generally provides that any shares
of our common stock held at any time by Mr. Audibert during the 180 days following our initial public offering may not be transferred
without the consent of the representative. Upon the occurrence of a change in control during the consulting agreement’s term, whether
or not the Consultant’s engagement is terminated, or upon Consultant’s termination without cause, all restricted stock, stock
option, stock appreciation right or similar awards granted to or pending grant to and held by the Consultant will immediately vest and
will no longer be subject to forfeiture, unless expressly provided otherwise in the governing documents for such awards. For each fiscal
year completed during this term, the Consultant will also be eligible to receive additional bonuses as determined by the board of directors.
Both we and the Consultant may terminate the consulting agreement by giving at least 30 days’ written notice. If we or the Consultant
terminate the consulting agreement without cause as provided under the agreement, and the Consultant and Mr. Audibert then deliver their
signatures to the general release and waiver form annexed to the consulting agreement, we must pay a $25,000 fee. The Consultant and
Mr. Audibert are also subject to certain independent contractor, non-solicitation, confidentiality and non-interference provisions under
the consulting agreement and the Consultant’s stock option agreement and restricted stock award agreement.
Under our employment letter agreement with Ms.
Johnshoy, our Chief Operating Officer, Ms. Johnshoy will receive an annual base salary of $250,000 and potential salary and annual bonus
increases in future years based on the successful achievement of personal and business-related goals. Ms. Johnshoy is eligible to receive
annual performance cash bonuses with a target bonus percentage ranging from 25% to 100% of base salary based on the occurrence of specified
business revenue amounts or the discretionary approval of our Chief Executive Officer, subject in each case to final approval by the
Compensation Committee. Pursuant to the employment letter agreement, we agreed to grant Ms. Johnshoy a signing bonus of 5,000 restricted
shares and an option to purchase 5,000 shares of our common stock, which will be subject to a six-month lockup provision. In addition,
Ms. Johnshoy is eligible to receive up to 35,000 additional shares of common stock and an option to purchase up to an aggregate of 35,000
additional shares of common stock upon the occurrence of specified business revenue amounts or at the discretionary approval of our Chief
Executive Officer, subject in each case to final approval by the Compensation Committee. Consistent with such obligations, the Compensation
Committee approved the grant of an option to purchase a total of 40,000 shares of common stock to Ms. Johnshoy at an exercise price per
share of $1.60, which was the closing price of our common stock on March 11, 2022, the date that the employment letter agreement was
countersigned by Ms. Johnshoy, and 5,000 shares of restricted common stock, with the transfer restrictions and performance-based vesting
terms described above. Additionally, under the employment letter agreement, if specified trailing twelve-month revenues occur within
3.5 years of Ms. Johnshoy’s start of employment, she will earn an additional bonus of 100,000 shares of common stock. After the
first year of employment, all bonus compensation terms will be subject to review. In addition, Ms. Johnshoy is entitled to severance
benefits equal to four months’ salary if terminated without Cause (as defined in the employment letter agreement) during the first
year of employment and four months’ salary if terminated during the second year of employment. Ms. Johnshoy will be eligible to
receive certain health care, dental, life insurance, disability, and retirement benefits after three months’ employment. Ms. Johnshoy
will receive unlimited vacation days encompassing vacation, personal and sick days, subject to two weeks’ notice and approval whenever
possible. Under the employment letter agreement, Ms. Johnshoy is required to sign a standard nondisclosure and non-solicitation agreement
that will not restrict Ms. Johnshoy from working within the promotional industry, but will require Ms. Johnshoy to maintain confidentiality
and refrain from soliciting current clients or employees that were existing or obtained during Ms. Johnshoy’s employment with us.
Under our employment letter agreement with Stephen
Paradiso, our Chief of Staff, Mr. Paradiso will receive an annual base salary of $175,000 and potential salary and annual bonus increases
in future years based on the successful achievement of personal and business-related goals. Mr. Paradiso is eligible to receive annual
performance cash bonuses with a target bonus percentage ranging from 25% to 100% of base salary based on the occurrence of specified
business trailing 12-month revenue amounts or the discretionary approval of our Chief Executive Officer, subject in each case to final
approval by the Compensation Committee. Pursuant to the employment letter agreement, we granted Mr. Paradiso a bonus of 65,000 restricted
shares and an option to purchase 65,000 shares of our common stock, which will vest in eight equal installments over two years and be
subject to a six-month lockup provision. In addition, Mr. Paradiso is eligible to receive up to 40,000 shares of common stock and an
option to purchase up to an aggregate of 40,000 additional shares of common stock upon the occurrence of specified business trailing
12-month revenue amounts. Mr. Paradiso may also receive up to an aggregate of 22,500 shares of common stock and an option to purchase
up to an aggregate of 22,500 additional shares of common stock once certain business benchmarks are achieved. Pursuant to the employment
letter agreement, an option to purchase up to 125,000 shares was granted with vesting terms based on the above time-based and performance-based
vesting requirements, at an exercise price per share of $4.72, which was the closing price of our common stock on the date that the employment
letter agreement was countersigned by Mr. Paradiso. Additionally, if a specified additional business trailing 12-month revenue goal is
met within three years of Mr. Paradiso’s start of employment, he will earn an additional bonus of 100,000 shares of common stock.
After the second year of employment, all bonus compensation terms will be subject to review. Mr. Paradiso will be eligible to receive
certain health care, dental, life insurance, disability, and retirement benefits after three months’ employment. Mr. Paradiso will
receive 25 days of paid time off annually, including vacation and sick days, subject to two weeks’ notice and approval whenever
possible. Mr. Paradiso is required to sign a standard nondisclosure and noncompete agreement that will not restrict Mr. Paradiso from
working within the print or promotional industry, except for specific direct competitors that are individually listed in that agreement,
but Mr. Paradiso will be required not to solicit any current or existing clients or customers that were obtained prior to Mr. Paradiso’s
employment or obtained during his employment unless given prior approval by us for the period specified in the noncompete agreement.
Under our employment letter agreement with Jason
Nolley, our Chief Technology Officer, Mr. Nolley will receive an annual base salary of $150,000. As a signing bonus, Mr. Nolley was awarded
an option to purchase 60,000 shares of common stock at $4.36 per share, which the closing price of our common stock the day before the
employment letter agreement was signed. The option vests in three equal amounts at each of the first, second and third anniversaries
of the date of the date of the employment letter agreement. Mr. Nolley is eligible to receive up to $125,000 in the Company’s common
stock upon our achievement of certain amounts of trailing 12-month annual sales amounts. Mr. Nolley is entitled to severance benefits
equal to six months’ salary if terminated without due cause. Mr. Nolley will be eligible to receive certain health care, dental,
life insurance, disability, and retirement benefits after three months’ employment. Mr. Nolley will receive 15 days of paid time
off, subject to two weeks’ notice and approval whenever possible. Mr. Nolley is subject to certain nondisclosure and non-solicitation
provisions under his stock option agreement.
The foregoing summary of these agreements is
qualified in its entirety by reference to the full text of the agreements, copies of which are filed with this Annual Report on Form 10-K as
Exhibits 10.14, 10.15, 10.16, 10.17, 10.38, 10.44, 10.45, and 10.46.
Outstanding Equity Awards at Fiscal Year-End
As of December 31, 2021, the following named
executive officers had the following unexercised options, stock that has not vested, and equity incentive plan awards:
| Name | |
Number of
Securities
Underlying
Unexercised
Options #
Exercisable | | |
#
Unexercisable | | |
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Options | | |
Option
Exercise
Price | | |
Option
Expiration
Date | |
Number of
Shares
or Units
of Stock
not Vested | | |
Market
Value of
Shares
or Units
not
Vested | | |
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights not
Vested | | |
Value of
Unearned
Shares,
Units or
Other
Rights not
Vested | |
| Andrew Shape,
President, Chief Executive Officer and Director | |
| - | | |
| 323,810 | | |
| - | | |
$ | 4.15 | | |
11/11/2031 | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| |
| | | |
| | | |
| | | |
| | |
| Andrew Stranberg, Executive
Chairman and Director | |
| - | | |
| 400,000 | | |
| - | | |
$ | 4.15 | | |
11/11/2031 | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| |
| | | |
| | | |
| | | |
| | |
| Randolph Birney, Executive
Vice President | |
| - | | |
| 76,190 | | |
| - | | |
$ | 4.15 | | |
11/11/2031 | |
| - | | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | | |
| |
| | | |
| | | |
| | | |
| | |
| Christopher Rollins, Chief
Financial Officer | |
| 28,991 | | |
| 52,009 | | |
| - | | |
$ | 4.15 | | |
11/11/2031 | |
| 6,142 | | |
$ | 38,847 | | |
| - | | |
| - | |
Director Compensation
The directors of the Company were compensated
as such during the fiscal year ended December 31, 2021, as follows:
| Name and Principal Position | |
Fees
Earned
or Paid
in Cash | | |
Stock
Awards | | |
Option
Awards | | |
Non-Equity
Incentive Plan
Compensation
Earnings | | |
Nonqualified
Deferred
Compensation
Earnings | | |
All
Other Compen-
sation | | |
Total | |
| Andrew Stranberg | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Andrew Shape | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | - | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Travis McCourt | |
$ | - | | |
$ | - | | |
$ | 2,062 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 2,062 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Alan Chippindale | |
$ | - | | |
$ | - | | |
$ | 2,062 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 2,062 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Alejandro Tan | |
$ | - | | |
$ | - | | |
$ | 2,062 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 2,062 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Ashley Marshall | |
$ | - | | |
$ | - | | |
$ | 2,062 | | |
$ | - | | |
$ | - | | |
$ | - | | |
$ | 2,062 | |
Under their independent director agreements,
each independent director will receive an annual cash fee and an initial award of restricted common stock and stock options. We will
pay the annual cash compensation fee to each independent director in four equal installments no later than the fifth business day of
each calendar quarter commencing in the quarter ending March 31, 2022. We granted the restricted stock and options to the independent
directors on November 12, 2021. The cash fee paid to each independent director will be $20,000 as to Ms. Marshall, $26,000 as to Mr.
McCourt, $26,000 as to Mr. Chippindale, and $20,000 as to Mr. Tani. Under their agreements, 2,892 shares of restricted common stock were
awarded to each independent director. The restricted stock will vest in four (4) equal quarterly installments commencing in the quarter
ending March 31, 2022. The options that were awarded to each independent director may be exercised to purchase 5,000 shares of common
stock at the exercise price $4.15 per share. The options vest and become exercisable in twelve (12) equal monthly installments over the
first year following the date of grant, subject to the respective independent director continuing in service on our board of directors
through each such vesting date. The term of each stock option is ten (10) years from the date of grant. We will also reimburse each independent
director for pre-approved reasonable business-related expenses incurred in good faith in connection with the performance of the independent
director’s duties for us. As also required under the independent director agreements, we have separately entered into a standard
indemnification agreement with each of our independent directors, the term of which began upon November 8, 2021.
2021 Equity Incentive Plan
On September 14, 2021, we established the Stran
& Company, Inc. Amended and Restated 2021 Equity Incentive Plan, or the Equity Incentive Plan, or Plan. The purpose of the Plan is
to grant restricted stock, stock options and other forms of incentive compensation to our officers, employees, directors and consultants.
The maximum number of shares of common stock that may be issued pursuant to awards granted under the Plan is 3,000,000 shares. Cancelled
and forfeited stock options and stock awards may again become available for grant under the Plan. As of December 31, 2021, 1,250,432
shares remained available for issuance under the Plan, including shares not otherwise reserved for outstanding stock options issued under
the Plan.
The following summary briefly describes the principal
features of the Plan and is qualified in its entirety by reference to the full text of the Plan.
Awards that may be granted include: (a) Incentive
Stock Options, (b) Non-qualified Stock Options, (c) Stock Appreciation Rights, (d) Restricted Awards, (e) Performance
Share Awards, and (f) Performance Compensation Awards. These awards offer our officers, employees, consultants and directors the
possibility of future value, depending on the long-term price appreciation of our common stock and the award holder’s continuing
service with our company.
Stock options give the option holder the right
to acquire from us a designated number of shares of common stock at a purchase price that is fixed upon the grant of the option. The
exercise price will not be less than the market price of the common stock on the date of grant. Stock options granted may be either tax-qualified stock
options (so-called “incentive stock options”) or non-qualified stock options.
Stock appreciation rights, or SARs, which may
be granted alone or in tandem with options, have an economic value similar to that of options. When a SAR for a particular number of
shares is exercised, the holder receives a payment equal to the difference between the market price of the shares on the date of exercise
and the exercise price of the shares under the SAR. The exercise price for SARs normally is the market price of the shares on the date
the SAR is granted. Under the Plan, holders of SARs may receive this payment — the appreciation value — either
in cash or shares of common stock valued at the fair market value on the date of exercise. The form of payment will be determined by
us.
Restricted shares are shares of common stock
awarded to participants at no cost. Restricted shares can take the form of awards of restricted stock, which represent issued and outstanding
shares of our common stock subject to vesting criteria, or restricted stock units, which represent the right to receive shares of our
common stock subject to satisfaction of the vesting criteria. Restricted shares are forfeitable and non-transferable until the shares
vest. The vesting date or dates and other conditions for vesting are established when the shares are awarded.
The Plan also provides for performance compensation
awards, representing the right to receive a payment, which may be in the form of cash, shares of common stock, or a combination, based
on the attainment of pre-established goals.
All of the permissible types of awards under
the Plan are described in more detail as follows:
Purposes of Plan: The
purposes of the Plan are to attract and retain officers, employees and directors for our company and its subsidiaries; motivate them
by means of appropriate incentives to achieve long-range goals; provide incentive compensation opportunities; and further align
their interests with those of our stockholders through compensation that is based on our common stock.
Administration of the Plan: The
Plan is currently administered by our board of directors and will be administered by our compensation committee once it is established
(which we refer to as the administrator). Among other things, the administrator has the authority to select persons who will receive
awards, determine the types of awards and the number of shares to be covered by awards, and to establish the terms, conditions, performance
criteria, restrictions and other provisions of awards. The administrator has authority to establish, amend and rescind rules and regulations
relating to the Plan.
Eligible Recipients: Persons
eligible to receive awards under the Plan will be those officers, employees, consultants, and directors of our company and its subsidiaries
who are selected by the administrator.
Shares Available Under the Plan: The
maximum number of shares of our common stock that may be delivered to participants under the Plan is 3,000,000, subject to adjustment
for certain corporate changes affecting the shares, such as stock splits. Shares subject to an award under the Plan for which the award
is canceled, forfeited or expires again become available for grants under the Plan. Shares subject to an award that is settled in cash
will not again be made available for grants under the Plan.
Stock Options:
General. Subject to the provisions
of the Plan, the administrator has the authority to determine all grants of stock options. That determination will include: (i) the
number of shares subject to any option; (ii) the exercise price per share; (iii) the expiration date of the option; (iv) the
manner, time and date of permitted exercise; (v) other restrictions, if any, on the option or the shares underlying the option;
and (vi) any other terms and conditions as the administrator may determine.
Option Price. The exercise price for stock
options will be determined at the time of grant. Normally, the exercise price will not be less than the fair market value on the date
of grant. As a matter of tax law, the exercise price for any incentive stock option awarded may not be less than the fair market value
of the shares on the date of grant. However, incentive stock option grants to any person owning more than 10% of our voting stock must
have an exercise price of not less than 110% of the fair market value on the grant date.
Exercise of Options. An option may be
exercised only in accordance with the terms and conditions for the option agreement as established by the administrator at the time of
the grant. The option must be exercised by notice to us, accompanied by payment of the exercise price. Payments may be made in cash or,
at the option of the administrator, by actual or constructive delivery of shares of common stock to the holder of the option based upon
the fair market value of the shares on the date of exercise.
Expiration or Termination. Options, if
not previously exercised, will expire on the expiration date established by the administrator at the time of grant. In the case of incentive
stock options, such term cannot exceed ten years provided that in the case of holders of more than 10% of our voting stock, such term
cannot exceed five years. Options will terminate before their expiration date if the holder’s service with our company or a subsidiary
terminates before the expiration date. The option may remain exercisable for specified periods after certain terminations of employment,
including terminations as a result of death, disability or retirement, with the precise period during which the option may be exercised
to be established by the administrator and reflected in the grant evidencing the award.
Incentive and Non-Qualified Options. As
described elsewhere in this summary, an incentive stock option is an option that is intended to qualify under certain provisions of the
Code, for more favorable tax treatment than applies to non-qualified stock options. Any option that does not qualify as an incentive
stock option will be a non-qualified stock option. Under the Code, certain restrictions apply to incentive stock options. For example,
the exercise price for incentive stock options may not be less than the fair market value of the shares on the grant date and the term
of the option may not exceed ten years. In addition, an incentive stock option may not be transferred, other than by will or the laws
of descent and distribution, and is exercisable during the holder’s lifetime only by the holder. In addition, no incentive stock
options may be granted to a holder that is first exercisable in a single year if that option, together with all incentive stock options
previously granted to the holder that also first become exercisable in that year, relate to shares having an aggregate market value in
excess of $100,000, measured at the grant date.
Stock Appreciation Rights: Awards
of SARs may be granted alone or in tandem with stock options. SARs provide the holder with the right, upon exercise, to receive a payment,
in cash or shares of stock, having a value equal to the excess of the fair market value on the exercise date of the shares covered by
the award over the exercise price of those shares. Essentially, a holder of a SAR benefits when the market price of the common stock
increases, to the same extent that the holder of an option does, but, unlike an option holder, the SAR holder need not pay an exercise
price upon exercise of the award.
Stock Awards: Stock
awards can also be granted under the Plan. A stock award is a grant of shares of common stock or of a right to receive shares in the
future. These awards will be subject to such conditions, restrictions and contingencies as the administrator shall determine at the date
of grant. Those may include requirements for continuous service and/or the achievement of specified performance goals.
Cash Awards: A
cash award is an award that may be in the form of cash or shares of common stock or a combination, based on the attainment of pre-established performance
goals and other conditions, restrictions and contingencies identified by the administrator.
Section 162(m) of the Code: Section 162(m)
of the Code limits publicly-held companies to an annual deduction for U.S. federal income tax purposes of $1.0 million for
compensation paid to each of their principal executive officer or principal financial officer and their three highest compensated executive
officers (other than the principal executive officer or principal financial officer) determined at the end of each year, referred to
as covered employees.
Performance Criteria: Under
the Plan, one or more performance criteria will be used by the administrator in establishing performance goals. Any one or more of the
performance criteria may be used on an absolute or relative basis to measure the performance of our company, as the administrator may
deem appropriate, or as compared to the performance of a group of comparable companies, or published or special index that the administrator
deems appropriate. In determining the actual size of an individual performance compensation award, the administrator may reduce or eliminate
the amount of the award through the use of negative discretion if, in its sole judgment, such reduction or elimination is appropriate.
The administrator shall not have the discretion to (i) grant or provide payment in respect of performance compensation awards if
the performance goals have not been attained or (ii) increase a performance compensation award above the maximum amount payable
under the Plan.
Other Material Provisions: Awards
will be evidenced by a written agreement, in such form as may be approved by the administrator. In the event of various changes to the
capitalization of our company, such as stock splits, stock dividends and similar re-capitalizations, an appropriate adjustment will be
made by the administrator to the number of shares covered by outstanding awards or to the exercise price of such awards. The administrator
is also permitted to include in the written agreement provisions that provide for certain changes in the award in the event of a change
of control of our company, including acceleration of vesting. Except as otherwise determined by the administrator at the date of grant,
awards will not be transferable, other than by will or the laws of descent and distribution. Prior to any award distribution, we are
permitted to deduct or withhold amounts sufficient to satisfy any employee withholding tax requirements. Our board also has the authority,
at any time, to discontinue the granting of awards. The board also has the authority to alter or amend the Plan or any outstanding award
or may terminate the Plan as to further grants, provided that no amendment will, without the approval of our stockholders, to the extent
that such approval is required by law or the rules of an applicable exchange, increase the number of shares available under the Plan,
change the persons eligible for awards under the Plan, extend the time within which awards may be made, or amend the provisions of the
Plan related to amendments. No amendment that would adversely affect any outstanding award made under the Plan can be made without the
consent of the holder of such award.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth certain information
with respect to the beneficial ownership of our common stock as of March 24, 2022 by (i) each of our named executive officers and directors;
(ii) all of our executive officers and directors as a group; and (iii) each person who is known by us to beneficially own more than 5%
of our common stock. Unless otherwise specified, the address of each of the persons set forth below is c/o Stran & Company, Inc.,
2 Heritage Drive, Suite 600, Quincy, MA 02171, Attn: Chief Financial Officer.
Name
of Beneficial Owner | |
Position
of
Beneficial Owner | |
Title of Class | |
Amount
and
Nature of
Beneficial
Ownership(1) | | |
Percent of
Class(2) | |
| Andrew Stranberg(3) | |
Chairman, Secretary and Treasurer | |
Common Stock | |
| 5,600,000 | | |
| 27.7 | % |
| Andrew Shape(4) | |
President, Chief Executive Officer and Director | |
Common Stock | |
| 3,400,000 | | |
| 16.8 | % |
| Randolph Birney(5) | |
Executive Vice President | |
Common Stock | |
| 800,000 | | |
| 4.0 | % |
| Christopher Rollins(6) | |
Chief Financial Officer | |
Common Stock | |
| 50,298 | | |
| 0.2 | % |
| Travis McCourt(7) | |
Director | |
Common Stock | |
| 5,392 | | |
| * | |
| Alan Chippindale(7) | |
Director | |
Common Stock | |
| 5,392 | | |
| * | |
| Alejandro Tani(7) | |
Director | |
Common Stock | |
| 5,392 | | |
| * | |
| Ashley Marshall(7) | |
Director | |
Common Stock | |
| 5,392 | | |
| * | |
| All executive officers and directors (12 persons)
(8) | |
| |
Common Stock | |
| 10,022,179 | | |
| 49.3 | % |
| (1) | Beneficial Ownership is determined in accordance
with the rules of the SEC and generally includes voting or investment power with respect
to securities. Except as set forth below, each of the beneficial owners listed above has
direct ownership of and sole voting power and investment power with respect to the shares
of our common stock. |
| (2) | A total of 20,251,484 shares of common stock are considered to be outstanding
pursuant to SEC Rule 13d-3(d)(1) as of March 24, 2022. For each beneficial owner above, any options exercisable within 60 days have been
included in the denominator. |
| (3) | Mr.
Stranberg was granted options to purchase 400,000 shares of common stock on November 12,
2021. The options have an exercise price of $4.15 per share and a term of ten years.
They are subject to vesting over a four (4) year period with twenty-five percent (25%)
of the options vesting on the first anniversary of the date of grant and the balance of the
options (seventy-five percent (75%)) vesting monthly over the following three (3) years after
the first anniversary of the date of grant at a rate of 1/36 per month. None of the options
are exercisable within 60 days of March 24, 2022 and
therefore are not considered to be beneficially owned at that time. |
On May 24, 2021, Mr.
Stranberg transferred 700,000 shares of common stock to Theseus Capital Ltd., or Theseus, pursuant to a stock purchase agreement. Pursuant
to a different arrangement with Mr. Stranberg from Mr. Shape and Mr. Birney’s (described below), Theseus paid Mr. Stranberg a nominal
cash purchase price of $100 for the common stock. Theseus does not have any relationship with the Company other than as a stockholder,
and its payment for Mr. Stranberg’s stock was made to Mr. Stranberg and not to the Company. In connection with this agreement,
Theseus executed an irrevocable proxy providing that Mr. Stranberg may vote and exercise all voting and related rights with respect to
the shares. The irrevocable proxy will automatically terminate with respect to any shares that Theseus sells in a transaction or series
of transactions on any national securities exchange or other trading market on which the shares then trade. On or around November 16,
2021, an order to transfer 200,000 of the shares by Theseus to another holder was approved by Mr. Stranberg, the representative of our
initial public offering underwriters, and the Company and processed by its transfer agent. Due to the current or potential shared voting
and investment powers that Mr. Stranberg retained over the shares that Mr. Stranberg transferred to Theseus, the 500,000 shares of common
stock that are still held by Theseus are included in Mr. Stranberg’s beneficial ownership total and the beneficial ownership total
for all executive officers and directors for purposes of complying with the beneficial ownership rules of the SEC. Mr. Stranberg disclaims
beneficial ownership over the shares held by Theseus except to the extent of his pecuniary interest therein.
| (4) | On May
24, 2021, Mr. Stranberg transferred
3,400,000 shares of common stock to Mr. Shape pursuant to a stock purchase agreement at a
price per share that is equal to $0.1985 per share, being the price of our shares as of December
31, 2020 determined through an independent valuation of the Company dated April 27, 2021,
in accordance with Section 409A of the Internal Revenue Code of 1986, as amended. Mr. Shape
paid the purchase price for the shares to Mr. Stranberg through the delivery to Mr.
Stranberg of a promissory note. The promissory note provides for 2% simple annual interest,
and principal and accrued interest must be repaid by the note’s third anniversary.
The note grants a security interest to Mr. Stranberg in the transferred stock as to the repayment
obligations under the note. The stock is subject to a lockup provision providing that one-half
of the purchased shares may not be sold until the second anniversary of the date of the stock
purchase agreement; provided, however, that such restriction on transfer will expire at a
rate of 1/48th of the shares subject to the restriction per month over such two-year
period. |
Mr.
Shape was granted options to purchase 323,810 shares of common stock on November 12, 2021. The options have an exercise price $4.15
per share, a term of ten years and are subject to vesting over a four (4) year period with twenty-five percent (25%) of the options
vesting on the first anniversary of the date of grant and the balance of the options (seventy-five percent (75%)) vesting monthly over
the following three (3) years after the first anniversary of the date of grant at a rate of 1/36 per month. None of the options will
be exercisable within 60 days of March 24, 2022 and therefore are not
considered to be beneficially owned at that time.
| (5) | On May
24, 2021, Mr. Stranberg transferred
800,000 shares of common stock to Mr. Birney pursuant to a stock purchase agreement at a
price per share that is equal to $0.1985 per share, being the price of our shares as of December
31, 2020 determined through an independent valuation of the Company dated April 27, 2021,
in accordance with Section 409A of the Internal Revenue Code of 1986, as amended. Mr. Birney
paid the purchase price for the shares to Mr. Stranberg through the delivery to Mr.
Stranberg of a promissory note. The promissory note provides for 2% simple annual interest,
and principal and accrued interest must be repaid by the note’s third anniversary.
The stock is subject to a lockup provision providing that one-half of the purchased shares
may not be sold until the second anniversary of the date of the stock purchase agreement;
provided, however, that such restriction on transfer will expire at a rate of 1/48th
of the shares subject to the restriction per month over such two-year period. |
Mr.
Birney was granted options to purchase 76,190 shares of common stock on November 12, 2021. The options have an exercise price of
$4.15 per share, a term of ten years and are subject to vesting over a four (4) year period with twenty-five percent (25%) of the
options vesting on the first anniversary of the date of grant and the balance of the options (seventy-five percent (75%)) vesting monthly
over the following three (3) years after the first anniversary of the date of grant at a rate of 1/36 per month. None of the options
will be exercisable within 60 days of March 24, 2022 and therefore are
not considered to be beneficially owned at that time.
| (6) | Mr.
Rollins was granted options to purchase 81,000 shares of common stock and 10,000 restricted
shares of common stock on November 12, 2021. The options have an exercise price of
$4.15 per share and a term of ten years. Both the restricted stock and the stock options
vest in accordance with the following vesting schedule: The restricted stock and options
vest over a two-year period with 33% of the restricted stock and options vesting immediately
upon issuance and the balance of the restricted stock and options (67%) vesting monthly over
the following two years at a rate of 1/24 per month. Mr. Rollins will be provided with standard
executive benefits. 40,702 of the
options will not be exercisable within 60 days of March 24, 2022 and
therefore are not considered to be beneficially owned at that time. |
| (7) | Each of Mr. McCourt, Mr. Chippindale, Mr. Tani,
and Ms. Marshall were granted options to purchase 5,000 shares of common stock and 2,892
restricted shares of common stock on November 12, 2021. The restricted shares vest in four
(4) equal quarterly installments commencing in the quarter ending March 31, 2022. The options
vest in twelve (12) equal monthly installments over the first year following the date of
grant, subject to the recipient continuing in service on the board of directors of the Company
through each such vesting date. 2,500 of
the shares of common stock which may be purchased by exercise of the stock option of each
recipient will not be exercisable within 60 days of March 24, 2022 and
therefore are not considered to be beneficially owned at that time. |
| (8) | In
addition to the shares of common stock beneficially owned by the individuals listed in this
table, includes (1) 62,500 shares of restricted stock and an option which may be exercised
to purchase 7,813 shares of common stock within 60 days of March 24, 2022 held
by our Chief of Staff, Stephen Paradiso; (2) 5,000 shares of restricted stock and
an option which may be exercised
to purchase 5,000 shares of common stock held by our Chief Operating Officer, Sheila
Johnshoy; (3) 10,000 shares of common stock held directly by John Audibert, our Vice President
of Growth and Strategic Initiatives, 40,000 shares of common stock held by Josselin Capital
Advisors, Inc., over which Mr. Audibert has voting and investment control, and an option
which may be exercised to purchase
20,000 shares of common stock
held by Josselin Capital Advisors, Inc. Both option exercise rights and rights to
restricted stock grants that are subject either to vesting conditions that will not be met
within 60 days of March 24, 2022 or performance-based goals not within the holder’s
control, are not included in this total. |
Changes in Control
We do not currently have any arrangements which
if consummated may result in a change of control of our company.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth certain information
about the securities authorized for issuance under our incentive plans as of December 31, 2021.
Plan
Category |
| |
Number
of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights (a) | | |
Weighted-
average
exercise price
of outstanding
options,
warrants and
rights
(b) | | |
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a)) (c) | |
| Equity compensation plans approved by security holders(1) |
| |
| 1,587,000 | (2) | |
$ | 4.19 | | |
| 1,250,432 | (3) |
| Equity compensation plans not approved by security holders |
| |
| - | | |
| - | | |
| - | |
| Total |
| |
| 1,587,000 | | |
$ | 4.19 | | |
| 1,250,432 | |
| (1) | On September 14, 2021,
we established the Stran & Company, Inc. Amended and Restated 2021 Equity Incentive Plan,
or the Equity Incentive Plan, or Plan. The purpose of the Plan is to grant restricted stock,
stock options and other forms of incentive compensation to our officers, employees, directors
and consultants. The maximum number of shares of common stock that may be issued pursuant
to awards granted under the Plan is 3,000,000 shares. Cancelled and forfeited stock options
and stock awards may again become available for grant under the Plan. For a further description
of the Plan, see Item 11. “Executive Compensation – 2021 Equity Incentive
Plan”. |
| (2) | Includes both vested
and unvested options to purchase common stock and unvested stock grants under the Plan. |
| (3) | Represents shares available
for award grant purposes under the Plan. |
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Transactions with Related Persons
The following includes a summary of transactions
since the beginning of our 2020 fiscal year, or any currently proposed transaction, in which we were or are to be a participant and the
amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last
two completed fiscal years, and in which any related person had or will have a direct or indirect material interest (other than compensation
described under Item 11 “Executive Compensation” above). We believe the terms obtained or consideration that we paid
or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that
would be paid or received, as applicable, in arm’s-length transactions.
| ● | Andrew
Stranberg, our Executive Chairman and largest shareholder, has issued notes payable to us
in exchange for Company loans. The amounts due from Mr. Stranberg were unsecured and non-interest
bearing and there was no formal repayment plan under the notes. At December 31, 2021 and
2020, the amounts due from Mr. Stranberg were $0 and $6,748, respectively. The amounts outstanding
under all notes issued by Mr. Stranberg to the Company were repaid as of July 20, 2021. |
| ● | Since
2020 we have also borrowed funds from our Executive Chairman, Andrew Stranberg, during periods
when Mr. Stranberg did not already owe funds to us. The loans are unsecured, non-interest
bearing, and there is no formal repayment plan. At December 31, 2021 and 2020, no amounts
were due to Mr. Stranberg. In September 2021, Mr. Stranberg loaned us $500,000 on an unsecured
basis, accruing interest at 5% compounding monthly with no formal repayment plan. The total
amount owed, including principal of $500,000 and interest of $4,740, was repaid to Mr. Stranberg
on November 22, 2021. |
| ● | From
July 2018 to November 2021, the Company had a secured line of credit with Bank of America
allowing borrowings of as much as $3,500,000. At December 31, 2020 and 2019, borrowings on
this line of credit amounted to $1,650,000 and $2,150,000, respectively. The line bore interest
at the LIBOR Daily Floating Rate plus 2.75%. At December 31, 2020 and 2019, interest rates
were 4.20% and 4.55%, respectively. The line was reviewed annually and was due on demand.
This line of credit was secured by substantially all assets of the Company. Mr. Stranberg
was a guarantor on the line of credit. We fully repaid and terminated this line of credit
on November 22, 2021. |
| ● | We
and Alan Chippindale, one of our independent directors, are parties to a Buyer’s Agreement,
dated June 25, 2020. Under the agreement, Mr. Chippindale agreed to provide certain merger
and acquisition, management and recruitment consulting services in connection with our acquisition
of the Wildman Imprint assets. We agreed to pay Mr. Chippindale a fee of $20,000 upon completion
of a purchase and sale agreement and two annual fees of 1.5% of gross margin less costs attributable
to the acquisition. In November 2021, we paid Mr. Chippindale $9,954 as the first annual
fee under the agreement. The fees paid or that we have agreed to pay to Mr. Chippindale under
the agreement to date have totaled less than $120,000. Our board of directors has determined
that he remains eligible under NASDAQ and SEC rules to serve as an “independent director”
of the Company and as a member and chairman of our compensation committee and a member of
our nominating and corporate governance committee. Due to his compensation under the agreement,
the board has determined that he is currently not eligible to be a member of our audit committee. |
| ● | We
entered into an agreement with Long Blockchain Corp., or LBCC, and its wholly-owned subsidiary,
Stran Loyalty Group Inc., or SLG, dated July 26, 2018. According to a Schedule 13D jointly
filed by the Company and Mr. Stranberg on August 7, 2018, as of July 26, 2018, Mr. Stranberg
owned a total of 4,288,799 shares or approximately 23.6% of LBCC, which included 1,788,799
shares of common stock of LBCC that he previously acquired with his personal funds, and 2,500,000
shares that were required to be issued to the Company on July 26, 2018 which were deemed
beneficially owned by Mr. Stranberg as a control person of the Company. According to a proxy
statement filed by LBCC on April 19, 2019, as of April 12, 2019, Mr. Stranberg still beneficially
owned 4,233,744 shares or approximately 13.5% of LBCC, including the 2,500,000 shares required
to be issued to the Company. This agreement between us, LBCC and SLG was terminated as of
July 31, 2020, and the Company has not received any of the 2,500,000 shares. |
Under the agreement, we were required
to provide SLG with certain assets and services for it to operate loyalty and gift card programs for designated program clients. Under
the agreement we were also required to pay SLG all amounts collected by us, other than loyalty card balances, from program clients, and
to provide an option to SLG to purchase the operating assets at cost. As compensation, LBCC was required to issue 2,500,000 shares of
common stock to us upon signing and certain additional amounts of shares of its common stock to us depending on SLG’s net revenue
and operating profit for each of the first two years of the contract, as follows:
Year One LBCC Share Compensation
| SLG
Net Revenue |
|
SLG
Adjusted EBITDA Margin |
|
Number
of LBCC Shares Earned |
| Less than $1,250,000 |
|
Less than 20% |
|
The number of LBCC shares earned shall be based upon SLG’s
net revenue for year one, divided by the average of the share price of LBCC’s common stock for the last 30 days of the year
one measurement period, but in any event, not more than 1,750,000 shares of LBCC common stock, and if SLG’s year one net revenue
is less than $625,000, then we forfeit any shares that we would otherwise earn |
| Equal to or greater than $1,250,000 |
|
Equal to or greater than 20% |
|
1,750,000 LBCC shares shall be earned |
| Equal to or greater than $1,500,000 |
|
Equal to or greater than 25% |
|
2,250,000 LBCC shares shall be earned, plus additional
shares of LBCC common stock equal to 1.25 multiplied by the amount of SLG’s net revenue for year one that is greater than $1,500,000,
divided by the average of the share price of LBCC’s common stock for the last 30 days of the year one measurement period |
Year Two LBCC Share Compensation
Net
Revenue |
|
Adjusted
EBITDA Margin |
|
Number
of LBCC Shares Earned |
| Less
than $1,750,000 |
|
Less
than 20% |
|
The
number of LBCC shares earned shall be based upon SLG’s net revenue for year two divided by the trailing 30-day share price
of LBCC’s common stock, but in any event, not more than 2,000,000 shares of LBCC common stock |
| Equal
to or greater than $1,750,000 and less than $2,250,000 |
|
Equal
to or greater than 20% |
|
2,000,000
LBCC shares shall be earned |
| Equal to or greater
than $2,250,000 |
|
Equal
to or greater than 25% |
|
2,250,000
LBCC shares shall be earned, plus additional LBCC shares of common stock equal to 1.25 multiplied by the amount of SLG’s Net
Revenue for year one that is greater than $2,250,000, divided by the average of the share price of LBCC common stock for the last
30 days of the year two measurement period. |
Pursuant to the agreement, Mr. Stranberg
entered into a subscription agreement with LBCC under which Mr. Stranberg purchased 1,500,000 additional shares of common stock of LBCC
at $0.40 per share, or $600,000 in aggregate. According to a Schedule 13D jointly filed by the Company and Mr. Stranberg on August 7,
2018, Mr. Stranberg used personal funds for this purchase. Mr. Stranberg received a three-year warrant from LBCC to purchase an additional
450,000 shares of common stock of LBCC at $0.50 per share. Pursuant to the terms of the warrant, Mr. Stranberg was not permitted to exercise
any portion of the warrant to the extent that after giving effect to such issuance after exercise, Mr. Stranberg (together with his affiliates,
and any other persons acting as a group together with Mr. Stranberg or any of his affiliates), would beneficially own in excess of 9.99%
of the number of shares outstanding immediately after giving effect to the issuance of shares issuable upon exercise of the warrant. Pursuant
to the subscription agreement, Mr. Stranberg agreed not to sell or transfer the shares and the warrant unless they are subsequently registered
under the Securities Act and under applicable securities laws of certain states, or an exemption from such registration is available.
Mr. Stranberg did not exercise the warrant.
Under the agreement, we and our affiliates,
including Mr. Stranberg, had the option to purchase up to an additional 1,500,000 shares of common stock of LBCC at $0.40 per share prior
to July 31, 2019, which if exercised in full would have also entitled us to another warrant to purchase up to an amount of common stock
of LBCC equal to 30% of the amount that had been purchased. We and our affiliates, including Mr. Stranberg, did not exercise this option.
The agreement automatically renewed
for additional one-year terms unless terminated by either party more than 60 days before the end of the term or upon a material breach
of contract by the other party. The agreement did not specify the amount of compensation for additional term years.
Under the agreement, SLG was required
to reimburse us for certain expenses that we incur as a result of providing the required program services. The amounts due from SLG at
December 31, 2020 and 2019 were $0 and $138,561, respectively.
As required by the agreement with SLG
and LBCC, we entered into a separate lockup agreement, dated July 26, 2018, in which we agreed not to transfer or sell the LBCC shares
received upon execution and any LBCC shares received as compensation for the first year until July 31, 2019 and January 31, 2020, respectively,
with exceptions for specified permitted transferees.
Other than Mr. Stranberg, as disclosed
above, and our Vice President of Strategy and Growth Initiatives, John Audibert, who received a nominal number of shares of LBCC in exchange
for services provided during 2018, no other officers, directors or shareholders of the Company are shareholders of LBCC.
Overlap in Management
with Long Blockchain Corp.
In addition to the other terms of the
agreement with SLG and LBCC described above, LBCC and our President, Chief Executive Officer and director Andrew Shape entered into an
employment agreement dated as of July 26, 2018, pursuant to which Mr. Shape was appointed chief executive officer and chairman of the
board of LBCC from July 2018 to February 2021. As a result of his position as both chief executive officer and chairman of the board
of LBCC and as our chief executive officer, president and director, our management overlapped with the management of LBCC during that
period.
Under Mr. Shape’s employment
agreement, Mr. Shape was entitled to $200,000 annual salary through the equal quarterly issuance of restricted shares of common stock
of LBCC at a price per share equal to 85% of the average closing price for ten trading days prior to the end of the quarter, but in any
event not less than $0.30 per share. According to page 8 of a proxy statement filed by LBCC on April 22, 2019, as of April 12, 2019,
“437,251 shares were earned by Mr. Shape under his employment agreement dated July 26, 2018, but not yet issued.” Pursuant
to the employment agreement with LBCC, on May 21, 2019 Mr. Shape was granted a warrant to purchase 2,000,000 shares of common stock of
LBCC at a price per share of $0.25, exercisable from January 18, 2019 to January 17, 2023. Mr. Shape has not exercised the warrant. The
employment agreement contained other standard provisions including as to termination, nondisclosure and noncompetition. Mr. Shape resigned
from his positions with LBCC as of February 2021 and none of our officers, directors or shareholders have any employment or directorship
relationship with LBCC.
Revocation of Registration
of Common Stock of Long Blockchain Corp.
Pursuant to an “Order Instituting
Proceedings Pursuant To Section 12(j) Of The Securities Exchange Act Of 1934, Making Findings, And Revoking Registration Of Securities,”
File No. 3-20228, Administrative Proceeding, Release No. 91174 / February 19, 2021, the SEC found that “[f]rom approximately 2015
to 2017, [LBCC]’s principal business was ready-to-drink beverages. In December 2017, the company changed its name to LBCC and announced
that it was shifting its business operations from soft drink production to activities related to blockchain technology. Its blockchain
business never became operational. LBCC has common stock registered pursuant to Section 12(g). The common stock of LBCC was registered
under Section 12(b) of the Exchange Act and traded on NASDAQ until NASDAQ filed a Form 25 on June 6, 2018 to delist the securities. LBCC
stock is currently quoted and on OTC Link whose parent company is OTC Markets Group, Inc.” In addition, the SEC found that “LBCC
has failed to comply with Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder in that it has not filed an annual
report on Form 10-K since the period ended December 31, 2017. LBCC is also delinquent in filing quarterly reports, having not filed a
Form 10-Q since the period ended September 30, 2018.” Based in part on these findings, effective February 22, 2021, the SEC revoked
the registration of the common stock of LBCC under the Exchange Act, and its stock is no longer listed or quoted on any securities exchange
or trading market.
Director Independence
Independent Directors
Nasdaq’s rules generally require that a
majority of an issuer’s board of directors must consist of independent directors. Prior to November 2021, our board of directors
consisted of two (2) directors: Andrew Shape and Andrew Stranberg, neither of whom are independent within the meaning of Nasdaq’s
rules. Effective November 8, 2021, Ashley Marshall, Travis McCourt, Alan Chippindale and Alejandro Tani were appointed to our board pursuant
to independent director agreements to serve as independent directors.
Under the independent director agreements, each
independent director will receive an annual cash fee and an initial award of restricted common stock and stock options. We will pay the
annual cash compensation fee to each independent director in four equal installments no later than the fifth business day of each calendar
quarter commencing in the quarter ending March 31, 2022. We granted the restricted stock and options to the independent directors on
November 12, 2021. The cash fee paid to each independent director will be $20,000 as to Ms. Marshall, $26,000 as to Mr. McCourt, $26,000
as to Mr. Chippindale, and $20,000 as to Mr. Tani. Under their agreements, 2,892 shares of restricted common stock were awarded to each
independent director. The restricted stock will vest in four (4) equal quarterly installments commencing in the quarter ending March
31, 2022. The options that were awarded to each independent director may be exercised to purchase 5,000 shares of common stock at the
exercise price of $4.15 per share. The options vest and become exercisable in twelve (12) equal monthly installments over the first year
following the date of grant, subject to the respective independent director continuing in service on our board of directors through each
such vesting date. The term of each stock option is ten (10) years from the date of grant. We will also reimburse each independent director
for pre-approved reasonable business-related expenses incurred in good faith in connection with the performance of the independent director’s
duties for us. As also required under the independent director agreements, we have separately entered into a standard indemnification
agreement with each of our independent directors, the term of which began upon November 8, 2021.
As a result of these board changes, our board
of directors consists of six (6) directors, four (4) of whom are independent within the meaning of Nasdaq’s rules except that Mr.
Chippindale will not be determined to meet the independence requirements applicable to our audit committee due to certain fees to which
he is entitled. For a discussion of certain consideration relating to transactions with Mr. Chippindale, see the section entitled Item
13 “Certain Relationships and Related Party Transactions, and Director Independence – Transactions with Related Persons”.
Committees of the Board of Directors
Our board has established an audit committee,
a compensation committee, and a nominating and corporate governance committee, each with its own charter approved by the board. Each
committee’s charter is also available on our website at https://www.stran.com/.
In addition, our board of directors may, from
time to time, designate one or more additional committees, which shall have the duties and powers granted to it by our board of directors.
Audit Committee
Travis McCourt, Alejandro Tani, and Ashley Marshall,
each of whom satisfies the “independence” requirements of Rule 10A-3 under the Exchange Act and Nasdaq’s rules,
serve on our audit committee, with Mr. McCourt serving as the chairman.
Compensation Committee
Alan Chippindale, Travis McCourt and Alejandro
Tani, each of whom satisfies the “independence” requirements of Rule 10C-1 under the Exchange Act and Nasdaq’s
rules, serve on our compensation committee, with Mr. Chippindale serving as the chairman. The members of the compensation committee are
also “non-employee directors” within the meaning of Section 16 of the Exchange Act.
Nominating and Corporate Governance Committee
Alejandro Tani, Ashley Marshall, and Alan Chippindale,
each of whom satisfies the “independence” requirements of Nasdaq’s rules, serve on our nominating and corporate governance
committee, with Mr. Tani serving as the chairman. The nominating and corporate governance committee assists the board of directors in
selecting individuals qualified to become our directors and in determining the composition of the board and its committees.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Independent Auditors’ Fees
The following is a summary of the fees billed
to us for professional services rendered for the fiscal years ended December 31, 2021 and 2020:
| | |
Year Ended December 31, | |
| | |
2021 | | |
2020 | |
| Audit Fees | |
$ | 194,400 | | |
$ | - | |
| Audit-Related Fees | |
| - | | |
| - | |
| Tax Fees | |
| - | | |
| - | |
| All Other Fees | |
| - | | |
| - | |
| TOTAL | |
$ | 194,400 | | |
$ | - | |
“Audit Fees” consisted of fees billed
for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial
statements included in our Form 10-K and 10-Q or services that are normally provided by the accountant in connection with statutory and
regulatory filings or engagements.
“Audit-Related Fees” consisted of
fees billed for assurance and related services by the principal accountant that were reasonably related to the performance of the audit
or review of our financial statements and are not reported under the paragraph captioned “Audit Fees” above.
“Tax Fees” consisted of fees billed
for professional services rendered by the principal accountant for tax returns preparation.
“All Other Fees” consisted of fees
billed for products and services provided by the principal accountant, other than the services reported above under other captions of
this Item 14.
Pre-Approval Policies and Procedures
All auditing services and permitted non-audit
services (including the fees and terms thereof) to be performed for the Company by our independent auditor must be approved by the Audit
Committee in advance, except non-audit services (other than review and attestation services) if such services fall within exceptions
established by the SEC. The Audit Committee will pre-approve any permissible non-audit services to be provided by the Company’s
independent auditors on behalf of the Company that do not fall within any exception to the pre-approval requirements established by the
SEC. The Audit Committee may delegate to one or more members the authority to pre-approve permissible non-audit services, but any such
delegate or delegates must present their pre-approval decisions to the Audit Committee at its next meeting. All of our accountants’
services described above were pre-approved by the Audit Committee or by one or more members under the delegate authority described above.
PART IV
ITEM
15. EXHIBIT AND FINANCIAL STATEMENT SCHEDULES.
(a) List of Documents Filed as a Part of This Report:
(1) Index to Financial Statements:
(2) Index to Financial Statement Schedules:
All schedules have been omitted because
the required information is included in the financial statements or the notes thereto, or because it is not required.
(3) Index to Exhibits:
See exhibits listed under Part (b) below.
(b) Exhibits:
| Exhibit
No. |
|
Description |
| 2.1 |
|
Asset
Purchase Agreement, dated as of January 21, 2022, by and among Stran & Company, Inc., G.A.P. Promotions, LLC, and Gayle Piraino
and Stephen Piraino (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed on January 26, 2022) |
| 2.2 |
|
Amendment
No. 1 to Asset Purchase Agreement, dated as of January 31, 2022, by and among Stran & Company, Inc., G.A.P. Promotions, LLC,
and Gayle Piraino and Stephen Piraino (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed on February
1, 2022) |
| 3.1 |
|
Articles
of Incorporation of Stran & Company, Inc. (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1
filed on October 7, 2021) |
| 3.2 |
|
Amended
and Restated Bylaws of Stran & Company, Inc. (incorporated by reference to Exhibit 3.2 to the Amendment No.1 to Registration
Statement on Form S-1 filed on October 22, 2021) |
| 4.1 |
|
Description of Securities of Stran & Company, Inc. |
| 10.1 |
|
Asset
Purchase Agreement between Wildman Business Group, LLC and Stran & Company, Inc., dated as of August 24, 2020 (incorporated by
reference to Exhibit 10.1 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.2 |
|
Buyer’s
Agreement between Engage & Excel Enterprises Inc. and Stran & Company, Inc., dated as of June 25, 2020 (incorporated by reference
to Exhibit 10.2 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.3 |
|
Loan
Agreement between Bank of America, N.A. and Stran & Company, Inc., dated as of July 18, 2018 (incorporated by reference to Exhibit
10.3 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.4 |
|
Amendment
No. 1 Loan Agreement between Bank of America, N.A. and Stran & Company, Inc., dated as of March 18, 2020 (incorporated by reference
to Exhibit 10.4 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.5 |
|
Consent
and Reaffirmation of Guarantors and Pledgors of Andrew Stranberg, dated as of March 18, 2020 (incorporated by reference to Exhibit
10.5 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.6 |
|
Letter
from Bank of America, N.A. to Stran & Company, Inc. to extend line of credit, dated as of June 25, 2021 (incorporated by reference
to Exhibit 10.6 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.7 |
|
Amendment
No. 2 Loan Agreement between Bank of America, N.A. and Stran & Company, Inc., dated as of August 13, 2020 (incorporated by reference
to Exhibit 10.7 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.8 |
|
Consent
and Reaffirmation of Guarantors and Pledgors of Andrew Stranberg, dated as of August 13, 2020 (incorporated by reference to Exhibit
10.8 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.9 |
|
Letter
from Bank of America, N.A. to Stran & Company, Inc., dated as of September 14, 2021 (incorporated by reference to Exhibit 10.9
to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.10 |
|
Continuing
and Unconditional Guaranty between Stran & Company, Inc. and Andrew Stranberg, dated as of July 18, 2018 (incorporated by reference
to Exhibit 10.10 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.11 |
|
Security
Agreement between Bank of America, N.A. and Stran & Company, Inc., dated as of July 18, 2018 (incorporated by reference to Exhibit
10.11 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.12 |
|
Lease
Agreement between Campanelli-Trigate Heritage Quincy, LLC and Stran & Company, Inc., dated as of December 26, 2014 (incorporated
by reference to Exhibit 10.12 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.13 |
|
First
Amendment to Lease Agreement among GCP H2 LLC, GCP H2 A LLC, GCP H2 B LLC, GCP H2 C LLC and Stan & Company, Inc., dated as of
May 31, 2019 (incorporated by reference to Exhibit 10.13 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.14† |
|
Employment
Agreement between Stran & Company, Inc. and Andrew Shape, dated as of July 13, 2021 (incorporated by reference to Exhibit 10.14
to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.15† |
|
Employment
Agreement between Stran & Company, Inc. and Andrew Stranberg, dated as of July 13, 2021 (incorporated by reference to Exhibit
10.15 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.16† |
|
Employment
Agreement between Stran & Company, Inc. and Randolph Birney, dated as of July 13, 2021 (incorporated by reference to Exhibit
10.16 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.17† |
|
Employment
Agreement between Stran & Company, Inc. and Christopher Rollins, dated as of September 7, 2021 (incorporated by reference to
Exhibit 10.17 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.18 |
|
Purchase
Money Promissory Note between Andrew Shape and Andrew Stranberg, effective as of May 24, 2021 (incorporated by reference to Exhibit
10.18 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.19 |
|
Purchase
Money Promissory Note between Randolph Birney and Andrew Stranberg, effective as of May 24, 2021 (incorporated by reference to Exhibit
10.19 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.20 |
|
Stock
Purchase Agreement between Andrew Shape and Andrew Stranberg, dated as of May 24, 2021 (incorporated by reference to Exhibit 10.20
to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.21 |
|
Stock
Purchase Agreement between Randolph Birney and Andrew Stranberg, dated as of May 24, 2021 (incorporated by reference to Exhibit 10.21
to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.22 |
|
Stock
Purchase Agreement between Theseus Capital Ltd. and Andrew Stranberg, dated as of May 24, 2021 (incorporated by reference to Exhibit
10.22 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.23 |
|
Irrevocable
Proxy to Vote Common Stock between Theseus Capital Ltd. and Andrew Stranberg, dated as of May 24, 2021 (incorporated by reference
to Exhibit 10.23 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.24† |
|
Form
of Independent Director Agreement between Stran & Company, Inc. and each independent director (incorporated by reference to Exhibit
10.24 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.25 |
|
Form
of Indemnification Agreement between Stran & Company, Inc. and each independent director (incorporated by reference to Exhibit
10.25 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.26† |
|
Stran
& Company, Inc. Amended and Restated 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.26 to Registration Statement
on Form S-1 filed on October 7, 2021) |
| 10.27† |
|
Form
of Stock Option Agreement for Stran & Company, Inc. Amended and Restated 2021 Equity Incentive Plan (incorporated by reference
to Exhibit 10.27 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.28† |
|
Form
of Restricted Stock Award Agreement for Stran & Company, Inc. Amended and Restated 2021 Equity Incentive Plan (incorporated by
reference to Exhibit 10.28 to Registration Statement on Form S-1 filed on October 7, 2021) |
| 10.29 |
|
Warrant
Agency Agreement, dated November 8, 2021, between Stran & Company, Inc. and Vstock Transfer, LLC and Form of Warrant (incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on November 12, 2021) |
| 10.30 |
|
Revolving
Demand Line of Credit Loan Agreement, dated November 22, 2021, by and between Stran & Company, Inc. and Salem Five Cents Savings
Bank (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on November 26, 2021) |
| 10.31 |
|
Revolving
Demand Line of Credit Note, dated November 22, 2021, by Stran & Company, Inc. in favor of Salem Five Cents Savings Bank (incorporated
by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on November 26, 2021) |
| 10.32 |
|
Security
Agreement, dated November 22, 2021, by and between Stran & Company, Inc. in favor of Salem Five Cents Savings Bank (incorporated
by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on November 26, 2021) |
| 10.33 |
|
Warehouseman’s
Waiver, dated November 4, 2021 and executed November 22, 2021, by and among Harte Hanks Response Management/ Boston, Inc., Stran
& Company, Inc. and Salem Five Cents Savings Bank (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K
filed on November 26, 2021) |
| 10.34 |
|
Representative’s
Warrant Agreement, dated November 12, 2021, between Stran & Company, Inc. and Benchmark Investments, LLC (incorporated by reference
to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed on December 7, 2021) |
| 10.35 |
|
Representative’s
Warrant Agreement, dated November 12, 2021, between Stran & Company, Inc. and David W. Boral (incorporated by reference to Exhibit
10.3 to the Quarterly Report on Form 10-Q filed on December 7, 2021) |
| 10.36 |
|
Representative’s
Warrant Agreement, dated November 12, 2021, between Stran & Company, Inc. and Joseph T. Rallo (incorporated by reference to Exhibit
10.4 to the Quarterly Report on Form 10-Q filed on December 7, 2021) |
| 10.37 |
|
Representative’s
Warrant Agreement, dated November 12, 2021, between Stran & Company, Inc. and U.S. Tiger Securities, Inc. (incorporated by reference
to Exhibit 10.5 to the Quarterly Report on Form 10-Q filed on December 7, 2021) |
| 10.38† |
|
Consulting
Agreement between Stran & Company, Inc., Josselin Capital Advisors, Inc. and John Audibert, dated as of December 2, 2021 (incorporated
by reference to Exhibit 10.11 to the Quarterly Report on Form 10-Q filed on December 7, 2021) |
| 10.39 |
|
Form
of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on December 13,
2021) |
| 10.40 |
|
Placement
Agency Agreement dated December 8, 2021 (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed on December
13, 2021) |
| 10.41 |
|
Form
of Registration Rights Agreement (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed on December 13,
2021) |
| 10.42 |
|
Form
of Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on December 13,
2021) |
| 10.43 |
|
Form
of Placement Agent Warrant (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed on December 13, 2021) |
| 10.44† |
|
Employment
Offer Letter, dated March 11, 2022, by and between Stran & Company, Inc. and Sheila Johnshoy (incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on March 16, 2022) |
| 10.45† |
|
Employment Offer Letter, dated December 6, 2021, by and between Stran & Company, Inc. and Stephen Paradiso |
| 10.46† |
|
Employment Offer Letter, dated November 19, 2021, by and between Stran & Company, Inc. and Jason Nolley |
| 14.1 |
|
Code
of Ethics and Business Conduct (incorporated by reference to Exhibit 14.1 to Registration Statement on Form S-1 filed on October
7, 2021) |
| 31.1* |
|
Certifications of Principal Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2* |
|
Certifications of Principal Financial and Accounting Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1* |
|
Certifications of Principal Executive Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2* |
|
Certifications of Principal Financial and Accounting Officer furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS |
|
Inline XBRL Instance Document. |
| 101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document. |
| 101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase
Document. |
| 101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase
Document. |
| 101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
| 101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase
Document. |
| 104 |
|
Cover Page Interactive Data File (formatted as Inline
XBRL and contained in Exhibit 101). |
| † | Executive compensation plan or arrangement |
ITEM
16. FORM 10-K SUMMARY.
None.
FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting
Firm
To the shareholders and the board of directors
of Stran & Company, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets
of Stran & Company, Inc. as of December 31, 2021 and 2020, the related statements of operations, stockholders’ equity (deficit), and
cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021
and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally
accepted in the United States.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding
of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/S BF Borgers CPA PC
BF Borgers CPA PC
We have served as the Company’s auditor since
2021
Lakewood, CO
March 28, 2022
STRAN
& COMPANY, INC.
BALANCE
SHEETS
| | |
December 31, | | |
December 31, | |
| | |
2021 | | |
2020 | |
| ASSETS |
| CURRENT ASSETS: | |
| | |
| |
| Cash | |
$ | 32,226,668 | | |
$ | 647,235 | |
| Accounts Receivable, Net | |
| 8,982,768 | | |
| 5,679,580 | |
| Deferred Income Taxes | |
| 113,000 | | |
| - | |
| Inventory | |
| 5,230,792 | | |
| 2,499,049 | |
| Prepaid Corporate Taxes | |
| 87,459 | | |
| - | |
| Prepaid Expenses | |
| 623,402 | | |
| 122,516 | |
| Security Deposit | |
| 299,411 | | |
| 324,927 | |
| | |
| 47,563,500 | | |
| 9,273,307 | |
| | |
| | | |
| | |
| PROPERTY AND EQUIPMENT, NET: | |
| 615,837 | | |
| 449,972 | |
| | |
| | | |
| | |
| OTHER ASSETS: | |
| | | |
| | |
| Intangible Asset - Customer List, Net | |
| 1,929,294 | | |
| 2,216,128 | |
| Due From Stockholder | |
| - | | |
| 6,748 | |
| Right of Use Asset - Office Leases | |
| 1,094,778 | | |
| 1,358,517 | |
| | |
| 3,024,072 | | |
| 3,581,393 | |
| | |
$ | 51,203,409 | | |
$ | 13,304,672 | |
| | |
| | | |
| | |
| LIABILITIES AND STOCKHOLDER’S
EQUITY | |
| | | |
| | |
| CURRENT LIABILITIES: | |
| | | |
| | |
| Note Payable - Line of Credit | |
$ | - | | |
$ | 1,650,000 | |
| Current Portion of Long Term Debt | |
| - | | |
| 153,133 | |
| Current Portion of Wildman Contingent Earn-Out Liability | |
| 665,855 | | |
| 402,730 | |
| Current Obligation under Right of Use Asset - Office Leases | |
| 310,095 | | |
| 299,765 | |
| Accounts Payable and Accrued Expenses | |
| 4,983,496 | | |
| 3,267,933 | |
| Accrued Payroll and Related | |
| 836,915 | | |
| 1,021,971 | |
| Corporate Income Taxes Payable | |
| - | | |
| 231,980 | |
| Unearned Revenue | |
| 721,608 | | |
| 564,227 | |
| Rewards Program Liability | |
| 43,878 | | |
| 173,270 | |
| Sales Tax Payable | |
| 106,824 | | |
| 73,010 | |
| Note Payable - Wildman | |
| 162,358 | | |
| 162,358 | |
| | |
| 7,831,029 | | |
| 8,000,377 | |
| | |
| | | |
| | |
| LONG-TERM LIABILITIES: | |
| | | |
| | |
| Long-Term Debt, Net of Current Portion | |
| - | | |
| 766,829 | |
| Long-Term Wildman Contingent Earn-Out Liability | |
| 976,078 | | |
| 1,850,960 | |
| Long-Term Obligation under Right
of Use Asset - Office Leases | |
| 784,683 | | |
| 1,058,752 | |
| | |
| 1,760,761 | | |
| 3,676,541 | |
| | |
| | | |
| | |
| STOCKHOLDER’S EQUITY: | |
| | | |
| | |
| Common Stock, $.0001 Par Value; 300,000,000 Shares Authorized,
19,753,852 and 10,000,000 Shares Issued and Outstanding as of December 31, 2021 and 2020, respectively | |
| 1,976 | | |
| 1,000 | |
| Additional Paid-In Capital | |
| 39,747,649 | | |
| - | |
| Retained Earnings | |
| 1,861,994 | | |
| 1,626,754 | |
| | |
| 41,611,619 | | |
| 1,627,754 | |
| | |
$ | 51,203,409 | | |
$ | 13,304,672 | |
The accompanying notes are an integral part
of these financial statements.
STRAN
& COMPANY, INC.
STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER
31, 2021 AND 2020
| | |
2021 | | |
2020 | |
| | |
| | |
| |
| SALES | |
$ | 39,702,714 | | |
$ | 37,752,173 | |
| | |
| | | |
| | |
| COST OF SALES: | |
| | | |
| | |
| Purchases | |
| 23,972,797 | | |
| 24,167,798 | |
| Freight | |
| 3,893,847 | | |
| 2,099,511 | |
| | |
| 27,866,644 | | |
| 26,267,309 | |
| | |
| | | |
| | |
| GROSS PROFIT | |
| 11,836,070 | | |
| 11,484,864 | |
| | |
| | | |
| | |
| OPERATING EXPENSES: | |
| | | |
| | |
| General and Administrative Expenses | |
| 12,273,949 | | |
| 9,994,891 | |
| | |
| 12,273,949 | | |
| 9,994,891 | |
| | |
| | | |
| | |
| EARNINGS (LOSS) FROM OPERATIONS | |
| (437,879 | ) | |
| 1,489,973 | |
| | |
| | | |
| | |
| OTHER INCOME AND (EXPENSE): | |
| | | |
| | |
| Other Expense | |
| (83,148 | ) | |
| - | |
| Other Income | |
| 15,366 | | |
| 10,000 | |
| PPP Loan Forgiveness | |
| 770,062 | | |
| - | |
| Interest Expense | |
| (136,661 | ) | |
| (49,457 | ) |
| | |
| 565,619 | | |
| (39,457 | ) |
| | |
| | | |
| | |
| INCOME BEFORE INCOME TAXES | |
| 127,740 | | |
| 1,450,516 | |
| | |
| | | |
| | |
| PROVISION FOR INCOME TAXES: | |
| (107,500 | ) | |
| 422,236 | |
| | |
| | | |
| | |
| NET EARNINGS | |
| 235,240 | | |
| 1,028,280 | |
| | |
| | | |
| | |
| NET EARNINGS PER COMMON SHARE | |
| | | |
| | |
| Basic | |
$ | 0.02 | | |
$ | 0.10 | |
| Diluted | |
$ | 0.01 | | |
$ | 0.10 | |
| | |
| | | |
| | |
| WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING | |
| | | |
| | |
| Basic | |
| 10,928,043 | | |
| 10,000,000 | |
| Diluted | |
| 21,023,688 | | |
| 10,000,000 | |
The accompanying notes are an integral part
of these financial statements.
STRAN
& COMPANY, INC.
STATEMENTS OF STOCKHOLDERS’
EQUITY
YEARS ENDED DECEMBER
31, 2021 AND 2020
| | |
Common Stock | | |
Additional Paid in | | |
Retained | | |
Stockholders | |
| | |
Shares | | |
Value | | |
Capital | | |
Earnings | | |
Equity | |
| Balance, January 1, 2020 | |
| 10,000,000 | | |
$ | 1,000 | | |
$ | - | | |
$ | 598,474 | | |
$ | 599,474 | |
| Net Earnings | |
| - | | |
| - | | |
| - | | |
| 1,028,280 | | |
| 1,028,280 | |
| Balance, December 31, 2020 | |
| 10,000,000 | | |
| 1,000 | | |
| - | | |
| 1,626,754 | | |
| 1,627,754 | |
| IPO Stock Issuance, Net of Expenses | |
| 4,987,951 | | |
| 499 | | |
| 17,944,652 | | |
| - | | |
| 17,945,151 | |
| IPO Warrants Exercised | |
| 387,867 | | |
| 39 | | |
| 1,871,179 | | |
| - | | |
| 1,871,218 | |
| PIPE Stock Issuance, Net | |
| 4,371,926 | | |
| 437 | | |
| 19,778,614 | | |
| - | | |
| 19,779,051 | |
| Stock-Based Compensation | |
| 6,108 | | |
| 1 | | |
| 153,204 | | |
| - | | |
| 153,205 | |
| Net Earnings | |
| - | | |
| - | | |
| - | | |
| 235,240 | | |
| 235,240 | |
| Balance, December 31, 2021 | |
| 19,753,852 | | |
$ | 1,976 | | |
$ | 39,747,649 | | |
$ | 1,861,994 | | |
$ | 41,611,619 | |
The accompanying notes
are an integral part of these financial statements.
STRAN
& COMPANY, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER
31, 2021 AND 2020
| | |
2021 | | |
2020 | |
| | |
| | |
| |
| CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | |
| |
| Net Earnings | |
$ | 235,240 | | |
$ | 1,028,280 | |
| Noncash Items Included in Net Earnings: | |
| | | |
| | |
| Deferred Income Taxes (Credit) | |
| (113,000 | ) | |
| - | |
| Depreciation and Amortization | |
| 446,713 | | |
| 222,087 | |
| Gain on Extinguishment of Debt | |
| (770,062 | ) | |
| - | |
| Intangible Asset - Customer List Impairment | |
| 63,204 | | |
| - | |
| Reduction in Wildman Earn-Out Payment | |
| (611,757 | ) | |
| - | |
| Stock-Based Compensation | |
| 153,205 | | |
| - | |
| (Increase) Decrease In: | |
| | | |
| | |
| Accounts Receivable | |
| (3,303,188 | ) | |
| (563,047 | ) |
| Due From Affiliate | |
| - | | |
| 138,561 | |
| Inventory | |
| (2,731,743 | ) | |
| (390,879 | ) |
| Prepaid Corporate Taxes | |
| (87,459 | ) | |
| - | |
| Prepaid Expenses | |
| (500,886 | ) | |
| 260,798 | |
| Security Deposit | |
| 25,516 | | |
| (323,202 | ) |
| Increase (Decrease) In: | |
| | | |
| | |
| Accounts Payable and Accrued Expenses | |
| 1,715,563 | | |
| (934,281 | ) |
| Accrued Payroll and Related | |
| (185,056 | ) | |
| 145,794 | |
| Corporate Income Taxes Payable | |
| (231,980 | ) | |
| 75,164 | |
| Unearned Revenue | |
| 157,381 | | |
| 201,276 | |
| Rewards Program Liability | |
| (129,392 | ) | |
| (1,895,849 | ) |
| Sales Tax Payable | |
| 33,814 | | |
| 44,831 | |
| | |
| (5,833,887 | ) | |
| (1,990,467 | ) |
| | |
| | | |
| | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
| Additions to Property and Equipment | |
| (388,948 | ) | |
| (176,465 | ) |
| | |
| | | |
| | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
| New Borrowings: | |
| | | |
| | |
| Note Payable - Line of Credit | |
| 5,725,000 | | |
| 4,680,000 | |
| Long-Term Debt | |
| - | | |
| 919,962 | |
| Debt Reduction: | |
| | | |
| | |
| Note Payable - Line of Credit | |
| (7,375,000 | ) | |
| (5,180,000 | ) |
| Long-Term Debt | |
| (149,900 | ) | |
| | |
| Change in Due To/From Stockholder | |
| 6,748 | | |
| (44,055 | ) |
| Proceeds from IPO Stock Issuance, Net | |
| 17,945,151 | | |
| - | |
| Proceeds from PIPE Stock Issuance, Net | |
| 19,779,051 | | |
| - | |
| Proceeds from Warrants Exercised | |
| 1,871,218 | | |
| - | |
| | |
| 37,802,268 | | |
| 375,907 | |
| | |
| | | |
| | |
| NET INCREASE (DECREASE) IN CASH | |
| 31,579,433 | | |
| (1,791,025 | ) |
| | |
| | | |
| | |
| CASH - BEGINNING | |
| 647,235 | | |
| 2,438,260 | |
| CASH - ENDING | |
$ | 32,226,668 | | |
$ | 647,235 | |
The accompanying notes are an integral part
of these financial statements.
STRAN & COMPANY,
INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER
31, 2021 AND 2020
(CONTINUED)
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
| | |
2021 | | |
2020 | |
| Cash Paid During The Period For: | |
| | |
| |
| Interest | |
$ | 136,661 | | |
$ | 49,457 | |
| Income Taxes | |
$ | 360,906 | | |
$ | 347,072 | |
| | |
| | | |
| | |
| Schedule of Noncash Investing and Financing Transactions: | |
| | | |
| | |
| Cost of Intangible Asset - Customer List | |
$ | - | | |
$ | 2,253,690 | |
| Wildman Contingent Earn-Out | |
| - | | |
| (2,253,690 | ) |
| Cash Used for Purchase of Intangible Asset - Customer List | |
$ | - | | |
$ | - | |
| | |
| | | |
| | |
| Cost of Wildman Inventory | |
$ | - | | |
$ | 649,433 | |
| Note Payable - Wildman | |
| - | | |
| (162,358 | ) |
| Cash Used for Purchase Wildman Inventory | |
$ | - | | |
$ | 487,075 | |
The accompanying notes are an integral part
of these financial statements.
| A. | ORGANIZATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: |
| 1. | Organization - Stran & Company, Inc.
(the Company) was incorporated under the laws of the Commonwealth of Massachusetts and commenced
operations on November 17, 1995. The Company re-incorporated under the laws of the State
of Nevada on May 19, 2021. |
| 2. | Operations - The Company is an outsourced
marketing solutions provider that sells branded products to customers. The Company purchases
products and branding through various third-party manufacturers and decorators and resells
the finished goods to customers. |
In addition to selling branded products,
the Company offers clients custom sourcing capabilities; a flexible and customizable e-commerce solution for promoting branded merchandise
and other promotional products, managing promotional loyalty and incentives, print collateral, and event assets, order and inventory
management, and designing and hosting online retail popup shops, fixed public retail online stores, and online business-to-business service
offerings; creative and merchandising services; warehousing/fulfillment and distribution; print-on-demand; kitting; point of sale displays;
and loyalty and incentive programs.
| 3. | Method of Accounting - The Company’s
financial statements are prepared using the accrual basis of accounting in accordance with
accounting principles generally accepted in the United States of America. (“U.S. GAAP”). |
| 4. | Emerging Growth Company - The Company
is an “emerging growth company,” as defined in Section 2(a) of the Securities
Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”),
and it may take advantage of certain exemptions from various reporting requirements that
are applicable to other public companies that are not emerging growth companies including,
but not limited to, not being required to comply with the auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding
executive compensation in its periodic reports and proxy statements, and exemptions from
the requirements of holding a nonbinding advisory vote on executive compensation and approval
of any golden parachute payments not previously approved. Further, Section 102(b)(1) of the
JOBS Act exempts emerging growth companies from being required to comply with new or revised
financial accounting standards until private companies (that is, those that have not had
a Securities Act registration statement declared effective or do not have a class of securities
registered under the Exchange Act) are required to comply with the new or revised financial
accounting standards. The JOBS Act provides that a company can elect to opt out of the extended
transition period and comply with the requirements that apply to non-emerging growth companies
but any such election to opt out is irrevocable. The Company has elected not to opt out of
such extended transition period which means that when a standard is issued or revised and
it has different application dates for public or private companies, the Company, as an emerging
growth company, can adopt the new or revised standard at the time private companies adopt
the new or revised standard. This may make comparison of the Company’s unaudited consolidated
financial statements with another public company which is neither an emerging growth company
nor an emerging growth company which has opted out of using the extended transition period
difficult or impossible because of the potential differences in accounting standards used. |
| 5. | Cash and Cash Equivalents - For purposes
of the statement of cash flows, the Company considers all highly liquid investments with
an initial maturity of three months or less to be cash equivalents. |
| 6. | Concentration of Credit Risk - Financial
instruments that potentially subject the Company to concentrations of credit risk consist
primarily of accounts receivable and deposits in excess of federally insured limits. These
risks are managed by performing ongoing credit evaluations of customers’ financial
condition and by maintaining all deposits in high quality financial institutions. |
| 7. | Inventory – Inventory consists
of finished goods (branded products) and goods in process (un-branded products awaiting decoration).
All inventory is stated at the lower of cost (first-in, first-out method) or market value. |
| 8. | Property and Equipment - Property and
equipment are recorded at cost. Maintenance and repairs are charged to expense as incurred
whereas major betterments are capitalized. Depreciation is provided using straight-line and
accelerated methods over five years. |
| 9. | Intangible Asset - Customer List - The
Company accounts for intangible assets under the provision of ASC 350-20 “Accounting
for Goodwill and Other Intangible Assets.” The provision establishes standards for
valuation and amortization of unidentifiable assets. |
Under ASC 350-20-35-1, the cost of
unidentifiable intangible assets is measured by the excess cost over the fair value of net assets acquired. Intangible assets with indefinite
useful lives shall not be amortized until its useful life is determined to be no longer infinite. The intangible assets are evaluated
when a triggering event occurs, at least annually, for potential impairment.
| 10. | Fair Value of Financial Instruments
- The Company’s financial instruments include cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses, earn-out liability, and notes payable. The recorded values
of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, earn-out
liability and notes payable approximate their fair values based on their short-term nature. |
| 11. | Offering Costs - The Company complies
with the requirements of FASB ASC Topic 340-10-S99-1, “Other Assets and Deferred
Costs – SEC Materials” (“ASC 340-10-S99”) and SEC Staff Accounting
Bulletin Topic 5A, “Expenses of Offering”. Offering costs were $2,755,344 consisting
principally of underwriting, legal, accounting and other expenses that are directly related
to the Initial Public Offering and charged to shareholders’ equity upon the completion
of the Initial Public Offering. |
| 12. | Revenue Recognition - In May 2014, the
Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”),
which is aimed at creating common revenue recognition guidance for GAAP and the International
Financial Reporting Standards (“IFRS”). This new guidance provides a comprehensive
model for entities to use in accounting for revenue arising from contracts with customers
and supersedes most current revenue guidance issued by the FASB. ASU 2014-09 also requires
both qualitative and quantitative disclosures, including descriptions of performance obligations. |
On January 1, 2019, the Company adopted
ASU 2014-09 and all related amendments (“ASC 606”) and applied its provisions to all uncompleted contracts using the modified
retrospective basis. The application of this new revenue recognition standard resulted in no adjustment to the opening balance of retained
earnings.
Performance Obligations - Revenue from
contracts with customers is recognized when, or as, the Company satisfies its performance obligations by transferring goods or services
to customers. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service. A performance
obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied at a point in time is recognized
at the point in time that the company determines the customer has obtained control over the promised good or service. The amount of revenue
recognized reflects the consideration of which the Company expects to be entitled in exchange for the promised goods or services.
The following provides detailed information
on the recognition of the Company’s revenue from contracts with customers:
Product Sales - The Company
is engaged in the development and sale of promotional programs and products. Revenue on the sale of these products is recognized after
orders are shipped.
Reward Card Program -
The Company facilitates a reward card program for a customer and receives a transaction fee when the customer issues or replenishes a
new reward card. Revenue is recognized when cards are issued or replenished.
All performance obligations
are satisfied at a point in time.
| 13. | Freight - The Company includes freight
charges as a component of cost of goods sold. |
| 14. | Uncertainty in Income and Other Taxes
- The Company adopted the standards for Accounting for Uncertainty in Income Taxes
(income, sales, use, and payroll), which required the Company to report any uncertain tax
positions and to adjust its financial statements for the impact thereof. As of December 31,
2021 and 2020, the Company determined that it had no tax positions that did not meet the
“more likely than not” threshold of being sustained by the applicable tax authority.
The Company files tax and information returns in the United States Federal, Massachusetts,
and other state jurisdictions. These returns are generally subject to examination by tax
authorities for the last three years. |
| 15. | Income Taxes - Income taxes are provided
for the tax effects of transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes. Deferred taxes are provided for differences between the
basis of assets and liabilities for financial statements and income tax purposes. The Company
has historically utilized accelerated tax depreciation to minimize federal income taxes. |
| 16. | Earnings/ Loss per Share - Basic earnings
per share (“EPS”) is computed based on the weighted average number of shares
of common stock outstanding during the period. Diluted EPS is computed based on the weighted
average number of shares of common stock plus the effect of dilutive potential shares of
common stock outstanding during the period using the treasury stock method. Dilutive potential
common shares include the issuance of potential shares of common stock for outstanding stock
options and warrants. |
| 13. | Stock-Based Compensation - The Company
accounts for its stock-based awards in accordance with FASB ASC 718, Compensation - Stock
Compensation. ASC 718 requires all stock-based payments to employees to be recognized in
the consolidated statements of operations based on their fair values. The Company uses the
Black-Scholes option pricing model to determine the fair value of options granted. The Company
is recognizing compensation costs only for those stock-based awards expected to vest after
considering expected forfeitures. Cumulative compensation expense is at least equal to the
compensation expense for vested awards. Stock-based compensation is recognized on a straight-line
basis over the service period of each award. The Company records compensation cost as an
element of general and administrative expense in the accompanying statements of operations. |
| 14. | Stock Option and Warrant Valuation -
Stock option and warrant valuation models require the input of highly subjective assumptions.
The fair value of stock-based payment awards was estimated using the Black-Scholes option
model with a volatility figure derived from an index of historical stock prices for comparable
entities. For warrants and stock options issued to non- employees, the Company accounts for
the expected life based on the contractual life of the warrants and stock options. For employees,
the Company accounts for the expected life of options in accordance with the “simplified”
method, which is used for “plain-vanilla” options, as defined in the accounting
standards codification. The risk-free interest rate was determined from the implied yields
of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term
of the options |
| 15. | Sales Tax - Sales tax collected from
customers is recorded as a liability, pending remittance to the taxing jurisdiction. Consequently,
sales taxes have been excluded from revenues and costs. The Company remits sales, use, and
GST taxes to Massachusetts, other state jurisdictions, and Canada, respectively. |
| 16. | Use of Estimates - The preparation of
financial statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates. |
| B. | ALLOWANCE FOR DOUBTFUL ACCOUNTS,
NET: |
The Company uses the allowance method
to account for uncollectible accounts receivable balances. Under the allowance method, an estimate of uncollectible customer balances
is made based on the Company’s prior history and other factors such as credit quality of the customer and economic conditions of
the market. Based on these factors, at December 31, 2021 and 2020, there was an allowance for doubtful accounts of $302,929 and $150,847,
respectively.
Inventory consists of the following
as of:
| | |
December 31, | | |
December 31, | |
| | |
2021 | | |
2020 | |
| Finished Goods (branded products) | |
$ | 4,124,738 | | |
$ | 2,271,982 | |
| Goods in Process (un-branded products) | |
| 1,106,054 | | |
| 227,067 | |
| | |
$ | 5,230,792 | | |
$ | 2,499,049 | |
|
D. | PROPERTY
AND EQUIPMENT: |
Property and Equipment consists of
the following as of:
| | |
December 31, | | |
December 31, | |
| | |
2021 | | |
2020 | |
| Leasehold Improvements | |
$ | 5,664 | | |
$ | 5,664 | |
| Office Furniture and Equipment | |
| 410,030 | | |
| 342,692 | |
| Software | |
| 975,952 | | |
| 654,340 | |
| Transportation Equipment | |
| 62,424 | | |
| 62,424 | |
| | |
| 1,454,070 | | |
| 1,065,120 | |
| Accumulated Depreciation | |
| (838,233 | ) | |
| (615,148 | ) |
| | |
$ | 615,837 | | |
$ | 449,972 | |
| E. | INTANGIBLE
ASSET - Customer List: |
The Company has acquired select assets
and the customer list of an entity as discussed in Note J and Note N. The Company, using a Contingent Earn-Out Calculation, made the
determination that the amounts allocated to Intangible Asset - Customer List amounted to $2,253,690. The intangible asset - customer
list is amortized over 10 years. At December 31, 2021 and 2020, the Company’s evaluation of Intangible Asset - Customer List has
resulted in accumulated impairment of $69,583 and zero, respectively.
Amortization expense related to intangible
asset - customer list was $254,812 and $37,562 for the years ended December 31, 2021 and 2020.
Estimated future amortization expense
for the years ended December 31:
| 2022 | |
$ | 225,369 | |
| 2023 | |
| 225,369 | |
| 2024 | |
| 225,369 | |
| 2025 | |
| 225,369 | |
| 2026 | |
| 225,369 | |
| | |
$ | 1,126,845 | |
| F. | Accounts
Payable and Accrued Expenses: |
Accounts payable and accrued expenses
as of December 31, 2021 and 2020 consisted of the following:
| | |
2021 | | |
2020 | |
| Cost of sales - purchases | |
$ | 2,109,427 | | |
$ | 1,672,223 | |
| Other payables and accrued expenses | |
| 2,874,069 | | |
| 1,595,710 | |
| | |
$ | 4,983,496 | | |
$ | 3,267,933 | |
The amount due from stockholder is
unsecured and non-interest bearing. There is no formal repayment plan and, accordingly, this amount has been recorded as long-term. At
December 31, 2021 and 2020, the amounts due from stockholder were $0 and $6,748, respectively.
| H. | NOTE
PAYABLE - LINE OF CREDIT: |
The Company has a $3,500,000 line
of credit with Bank of America. At December 31, 2020, borrowings on this line of credit amounted to $1,650,000. The line bears interest
at the LIBOR Daily Floating Rate plus 2.75%. At December 31, 2020, interest rates were 4.20%. The line is reviewed annually and is due
on demand. This line of credit is secured by substantially all assets of the Company. The line was cancelled in November 2021.
The Company has a $7,000,000 line
of credit with Salem Five Cents Savings Bank at December 31, 2021, borrowings on this line of credit amounted to $0. The line bears interest
at prime rate plus .5% per annum. At December 31, 2021, the interest rate was 3.75%. The line is reviewed annually and is due on demand.
This line of credit is secured by substantially all assets of the Company.
Long-Term Debt consists of the following
at,:
| | |
December 31, | | |
December 31, | |
| | |
2021 | | |
2020 | |
1.00% Loan Payable - PPP Loan - Bank of America:
Due in monthly installments of $1,209
including interest to March 2025. | |
$ | - | | |
$ | 770,062 | |
3.75% Loan Payable - EIDL Loan
- SBA:
Due in monthly installments of $731
including interest to April 2051. | |
| - | | |
| 149,900 | |
| | |
| - | | |
| 919,962 | |
| Current Portion | |
| - | | |
| (153,133 | ) |
| Long-Term Debt | |
$ | - | | |
$ | 766,829 | |
On April 15, 2020, the Company received
loan proceeds from Bank of America in the amount of approximately $770,062 under the Paycheck Protection Program (“PPP”).
The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to
qualifying businesses for amounts up to 2.5 times the average qualifying monthly payroll expenses of the qualifying business. The loans
and accrued interest are forgivable as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits,
rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower is unable to re-hire
to the same employment level on or before December 31, 2020, reduces salaries during the covered period, or uses more than forty percent
of the money spent on non-employment expenses.
The Company received forgiveness by
the U.S. Small Business Administration (SBA) of the PPP loan in full, effective June 24, 2021.
| J. | contingent
earn-out liability: |
In connection with the asset acquisition,
as discussed in Note N, the customer list was purchased using a Contingent Earn-Out Calculation. The purchase price is equal to fifteen
percent (15%) of the gross profit earned from the sale of product to the customer list for year 1 and thirty percent (30%) for years
2 and 3. Payments are due on the first anniversary date of the purchase and then quarterly. At December 31, 2021 and 2020 the current
portion of the earn-out liability amounted to $665,855 and $402,730, respectively. At December 31, 2021 and 2020, the long-term portion
of the earn-out liability amounted to $976,078 and $1,850,960, respectively.
Unearned revenue includes customer
deposits and deferred revenue which represent prepayments from customers. At December 31, 2021 and December 31, 2020, the Company had
unearned revenue totaling $721,608 and $564,227, respectively.
| | |
December 31, | | |
December 31. | |
| | |
2021 | | |
2020 | |
| Balance at January 1, | |
$ | 564,227 | | |
$ | 362,951 | |
| Revenue recognized | |
| (39,702,714 | ) | |
| (37,752,173 | ) |
| Amounts collected or invoiced | |
| 39,860,095 | | |
| 37,953,449 | |
| Balance at December 31, | |
$ | 721,608 | | |
$ | 564,227 | |
| L. | reward
card program liability: |
The Company manages reward card programs
for customers. Under this program, the Company receives cash and simultaneously records a liability for the total amount received. These
accounts are adjusted on a periodic basis as reward cards are funded or reduced at the direction of the customers. At December 31, 2021
and December 31, 2020, the company had deposits totaling $43,878 and $173,270, respectively.
| M. | Note
Payable - wildman: |
In connection with the asset acquisition
as discussed in Note N, the Company had an amount due to the seller of $162,358 for the inventory purchased. This amount accrues no interest,
and is to be paid “as used” on a quarterly basis through the three year earn-out period as discussed in Note J. At December
31, 2021, the note totaled $162,358. The Company anticipates that the note will be paid in full in 2022, accordingly the note payable
has been classified as current on the balance sheet as of December 31, 2021.
On August 24, 2020 the Company entered
into an asset purchase agreement to acquire inventory, select fixed assets, and a customer list from Wildman Business Group, LLC (WBG).
In accordance with Financial Accounting Standards Board (“FASB” ASC 805), “Business Combinations”, the acquisition
method of accounting is used and recognition of the assets acquired is at fair value as of the acquisition dates. All acquisition costs
are expensed as incurred. The consideration paid has been allocated to the assets acquired based on their estimated fair values at the
acquisition date. The estimate of fair values for tangible assets acquired were agreed to by both buyer and seller. The aggregate purchase
price was $2,937,222.
| Fair Value of Identifiable Assets Acquired: | |
| |
| Inventory | |
$ | 649,433 | |
| Property and Equipment | |
| 34,099 | |
| Intangible - Customer List | |
| 2,253,690 | |
| | |
$ | 2,937,222 | |
| | |
| | |
| Consideration Paid: | |
| | |
| Cash | |
$ | 521,174 | |
| Note Payable - Wildman | |
| 162,358 | |
| Wildman Contingent Earn-Out Liability | |
| 2,253,690 | |
| | |
$ | 2,937,222 | |
The following is a summary of the
Company’s right of use assets and lease liabilities:
| | |
December 31, | | |
December 31, | |
| Operating Leases | |
2021 | | |
2020 | |
| Right-Of-Use Assets | |
$ | 1,094,778 | | |
$ | 1,358,517 | |
| | |
| | | |
| | |
| Lease Liability: | |
| | | |
| | |
| Right-Of-Use Asset - Office Leases - Current | |
| 310,095 | | |
| 299,765 | |
| Right-Of-Use Asset - Office Leases - Non-Current | |
| 784,683 | | |
| 1,058,752 | |
| | |
$ | 1,094,778 | | |
$ | 1,358,517 | |
Rent expense for the year ended December
31, 2021 and 2020 totaled $388,769 and $406,806, respectively.
The following is a schedule by years
of future minimum lease payments at December 31, 2021:
| 2022 | |
$ | 310,095 | |
| 2023 | |
| 323,001 | |
| 2024 | |
| 311,317 | |
| 2025 | |
| 150,365 | |
| 2026 | |
| - | |
| | |
$ | 1,094,778 | |
As of December 31, 2021. The Company’s
operating leases had a weighted average remaining lease term of 2.5 years and a weighted average discount rate of 2%.
Common Stock
In accordance with the Company’s Articles
of Incorporation dated May 24, 2021, the Company is authorized to issue 300,000,000 shares of $.0001 par value common stock, of which
19,753,852 and 10,000,000 shares were issued and outstanding at December 31, 2021 and 2020, respectively. Common stock holders are entitled
to one vote per share and are entitled to receive dividends when, as and if declared by the Board of Directors.
Initial Public Offering
On November 12, 2021, the Company
consummated its Initial Public Offering (the IPO) of 4,987,951 Units at a price of $4.15 per Unit, generating gross proceeds of $20,699,996,
with each Unit consisting of one share of common stock, $.0001 par value, and one redeemable Public Warrant. IPO proceeds were recorded
net of offering costs of $2,755,344. Offering costs consisted principally of underwriting, legal, accounting and other expenses
that are directly related to the IPO.
Each redeemable Public Warrant entitles
the holder to purchase one share of common stock, at a price of $4.81375 per share, which will expire five years from issuance.
Simultaneously with the consummation
of the closing of the Initial Public Offering, the Company issued the underwriters a total of 149,639 warrants that are not exercisable
for six months from the date of its Initial Public Offering at an exercise price of $5.1875 with a five-year expiration term.
As of December 31, 2021 and 2020,
warrant holders have exercised 387,867 and zero warrants, respectively. As of December 31, 2021 and 2020, there were 4,749,723 and zero
warrants outstanding, respectively.
Private Placement:
On December 10, 2021, the Company
consummated the sale of 4,371,926 Units at a price of $4.97 per Unit in a private placement (the PIPE), generating gross proceeds of
$21,278,472, with each Unit consisting of one share of common stock, $.0001 par value, and one redeemable warrant. PIPE proceeds were
recorded net of offering costs of $1,499,858. Offering costs consisted principally of underwriting, legal, accounting and other
expenses that are directly related to the PIPE.
Each redeemable Public Warrant entitles
the holder to purchase up to 125% of the number of shares of common stock purchased by such investor in the private placement, or a total
of 5,464,903 shares which will expire five years from issuance. The Warrants have certain downward pricing adjustment mechanisms, including
with respect to any subsequent equity sale that is deemed a dilutive issuance, in which case the warrants will be subject to a floor
price of $4.80 per share before shareholder approval is obtained, and after shareholder approval is obtained, such floor price will be
reduced to $1.00 per share, as set forth in the warrants.
Simultaneously with the consummation
of the closing of the private placement, the Company issued the underwriters a total of 131,158 warrants that are not exercisable for
six months from the date of its PIPE at an exercise price of $4.97 with a five year expiration term.
As of December 31, 2021 and 2020,
warrant holders have exercised zero warrants. As of December 31, 2021 and 2020, there were 5,596,061 and zero warrants outstanding, respectively.
Stock Purchase Warrants:
Stock purchase warrants issued with
the IPO and the PIPE are accounted for as equity in accordance with ASC 480, Accounting for Derivative Financial Instruments Indexed
to, and Potentially Settled in, a Company’s Own Stock, Distinguishing Liabilities from Equity.
The following table reflects all outstanding
and exercisable warrants at December 31, 2021 and 2020. All Warrants are exercisable for a period of five years from the date of issuance:
| | |
Numbers of Warrants | | |
Weighted Average | | |
Weighted Average | |
| | |
Outstanding | | |
Exercise Price | | |
Life (Years) | |
| Balance January 1, 2020 | |
| - | | |
| - | | |
| - | |
| Warrants Issued | |
| - | | |
| - | | |
| - | |
| Warrants Exercised | |
| - | | |
| - | | |
| - | |
| Balance December 31, 2020 | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | |
| Warrants Issued | |
| 10,733,651 | | |
$ | 4.90 | | |
| - | |
| Warrants Exercised | |
| (387,867 | ) | |
| - | | |
| - | |
| Balance December 31, 2021 | |
| 10,345,784 | | |
$ | 4.90 | | |
| 5 | |
| Q. | STOCK-BASED COMPENSATION: |
In November 2021, the Board of Directors
adopted the Amended and Restated 2021 Equity Incentive Plan (the “2021 Plan”) which provides for the granting of stock options
to purchase shares of the Company’s common stock and restricted stock to the Company’s employees, officers, directors, and
outside consultants. The number of shares of common stock available for issuance under the 2021 Plan is 1,250,432 shares of common stock.
Stock-based compensation expense included
the following components:
| | |
2021 | | |
2020 | |
| Stock Options | |
$ | 153,205 | | |
| - | |
| Restricted Stock | |
| 14,852 | | |
| - | |
| | |
| 168,057 | | |
| - | |
All stock-based compensation expense
is recorded in General and Administrative expense in the Statement of Earnings
Stock Options:
The fair value of options is estimated
on the date of grant using the Black-Scholes option pricing model using the assumptions noted in the table below. The fair value is amortized
as compensation cost on a straight-line basis over the requisite service period of the awards, which is generally the vesting period.
The Company uses historical data on employee turnover and terminations to estimate the percentage of options that will ultimately be
exercised. Expected volatility is based on historical volatility from a representative sample of publicly traded companies. The expected
term represents the period of time that the options are expected to be outstanding. The risk-free interest rate is estimated using the
rate of return on U.S. Treasury Notes with a life that approximates the expected life of the option. Forfeitures are estimated at the
time of grant and revised, if necessary, in subsequent periods if actual results differ from the estimates. Stock-based compensation
is based on awards that are ultimately expected to vest.
Option awards are generally granted
with an exercise price equal to the fair value of the Company’s stock at the date of grant; those options generally vest based
on four years of continuous service and have 10-year contractual terms.
The Black-Scholes option pricing model
assumptions are as follows:
| Risk-free interest rate | |
1.335% |
| Expected term | |
5.5-6.25 years |
| Expected volatility | |
102.33% |
| Expected dividends | |
0% |
A summary of option activity under
the 2021 Plan as of December 31, 2021 and 2020 and changes during the years then ended is presented below:
| Options | |
Shares | | |
Weighted
Average
Exercise
Price | | |
Aggregate Intrinsic
Value | |
| Outstanding at January 1, 2020 | |
| - | | |
| - | | |
| - | |
| Granted | |
| - | | |
| - | | |
| - | |
| Forfeited or Expired and Other Adj | |
| - | | |
| - | | |
| - | |
| Outstanding at December 31, 2020 | |
| - | | |
| - | | |
| - | |
| Exercisable at December 31, 2020 | |
| - | | |
| - | | |
| - | |
| | |
| | | |
| | | |
| | |
| Granted | |
| 1,587,000 | | |
$ | 4.19 | | |
$ | 2,947,700 | |
| Forfeited or Expired and Other Adj | |
| - | | |
| - | | |
| - | |
| Outstanding at December 31, 2021 | |
| 1,587,000 | | |
$ | 4.19 | | |
$ | 2,947,700 | |
| Exercisable at December 31, 2021 | |
| 30,658 | | |
$ | 4.15 | | |
$ | 58,250 | |
The weighted-average grant-date fair
value of options granted during the years ended December 31, 2021 and 2020 was $4.19 and zero, respectively. The weighted-average remaining
contractual term for the outstanding options is approximately 10 years and 0 years as of December 31, 2021 and 2020, respectively.
Restricted Stock:
Restricted stock granted under the
2021 Plan generally vest over 10 years, based on continued employment, and are settled upon vesting shares of the Company’s common
stock on a one-for-one basis.
A summary of restricted stock activity
under the 2021 Plan as of December 31, 2021 and 2020 and changes during the years then ended is presented below:
| Restricted Stock |
|
Shares |
|
| Outstanding at January 1, 2020 |
|
|
- |
|
| Granted |
|
|
- |
|
| Vested |
|
|
- |
|
| Forfeited |
|
|
- |
|
| Outstanding at December 31, 2020 |
|
|
- |
|
| |
|
|
|
|
| Granted |
|
|
160,318 |
|
| Vested |
|
|
(6,108 |
) |
| Forfeited |
|
|
- |
|
| Outstanding at December 31, 2021 |
|
|
154,210 |
|
| R. | earnings
(loss) per share: |
The following table presents the computation
of basic and diluted net loss per common share as of December 31,:
| | |
2021 | | |
2020 | |
| Numerator: | |
| | |
| |
| Net Income (Loss) | |
$ | 235,240 | | |
$ | 1,028,280 | |
| Denominator | |
| | | |
| | |
| Basic weighted-average common shares outstanding | |
| 10,928,043 | | |
| 10,000,000 | |
| Diluted weighted-average common shares outstanding | |
| 21,023,688 | | |
| 10,000,000 | |
| | |
| | | |
| | |
| Basic Earnings Per Share | |
$ | 0.02 | | |
$ | 0.10 | |
| Diluted Earnings Per Share | |
$ | 0.01 | | |
$ | 0.10 | |
Dilutive securities that were included
in the calculation are as follows:
| | |
2021 | | |
2020 | |
| Stock Warrants | |
| 10,064,987 | | |
| - | |
| Stock Options | |
| 30,658 | | |
| - | |
| Total | |
| 10,095,645 | | |
| - | |
The Company computes its provision
for income taxes by applying the estimated annual effective tax rate to pretax income and adjust the provision for discrete tax items
recorded in the period.
The provision for income taxes for
2021 and 2020 consisted of the following:
| | |
2021 | | |
2020 | |
| Federal: | |
| | |
| |
| Current | |
$ | - | | |
$ | 303,936 | |
| Deferred | |
| (76,300 | ) | |
| - | |
| Total | |
| (76,300 | ) | |
| 303,936 | |
| | |
| | | |
| | |
| State: | |
| | | |
| | |
| Current | |
| 5,500 | | |
| 118,300 | |
| Deferred | |
| (36,700 | ) | |
| - | |
| Total | |
| (31,200 | ) | |
| 118,300 | |
| Provision for income taxes | |
$ | (107,500 | ) | |
$ | 422,236 | |
The Company has an income tax NOL
carryforward related to continued operations as of December 31, 2021 and 2020 of approximately $113,000 and zero, respectively. As of
December 31, 2021 and 2020, the carryforward is recorded as a deferred tax asset of $113,000 and zero, respectively. Such deferred tax
assets can be carried forward indefinitely.
The Company follows the policy of
charging the costs of advertising to expense as incurred. For the years ended December 31, 2021 and 2020, advertising costs amounted
to $135,436 and $99,241, respectively.
For the year ended December 31, 2021,
the Company had no major customers.
For the year ended December 31, 2020,
the Company had one major customer to which sales accounted for approximately 14% of the Company’s revenues. The Company had no
accounts receivable from this customer.
Management has evaluated events occurring
after the balance sheet date through March 28, 2022, the date in which the financial statements were available to be issued.
On January 21, 2022, the Company entered
into an Asset Purchase Agreement (the “Purchase Agreement”) with G.A.P. Promotions, LLC, a Massachusetts limited liability
company (the “Seller”), pursuant to which the Company agreed to acquire substantially all of the assets of the Seller used
in the Seller’s branding, marketing and promotional products and services business, for an aggregate purchase price of (a) $500,000
in cash, subject to adjustment as set forth in the Purchase Agreement (the “Closing Cash Payment”); (b) a certain amount
of restricted shares of the Company’s common stock; (c) installment payments equal to (i) $180,000 on the first anniversary of
the date of the consummation of the transactions contemplated by the Purchase Agreement (the “Closing Date”) and (ii) $300,000
on the second anniversary of the Closing Date; (d) an amount equal to the amount paid by the Seller (at cost) for all of the Seller’s
Inventory (as defined in the Purchase Agreement) that is on hand as of the Closing Date; and (e) the Earn Out Payments. The Acquisition
closed on January 31, 2022.
SIGNATURES
Pursuant to the requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
| Date: March 28, 2022 |
STRAN & COMPANY, INC. |
| |
|
| |
/s/ Andrew Shape |
| |
Name: Andrew Shape |
| |
Title: Chief Executive Officer and President |
| |
(Principal Executive Officer) |
| |
|
| |
/s/ Christopher
Rollins |
| |
Name: Christopher Rollins |
| |
Title: Chief Financial Officer |
| |
(Principal Financial and Accounting Officer) |
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
| SIGNATURE |
|
TITLE |
|
DATE |
| |
|
|
|
|
| /s/
Andrew Shape |
|
Chief
Executive Officer, President and Director |
|
March 28,
2022 |
| Andrew Shape |
|
(principal
executive officer) |
|
|
| |
|
|
|
|
| /s/ Christopher
Rollins |
|
Chief
Financial Officer |
|
March 28,
2022 |
| Christopher Rollins |
|
(principal
financial and accounting officer) |
|
|
| |
|
|
|
|
| /s/ Andrew
Stranberg |
|
Executive
Chairman |
|
March 28,
2022 |
| Andrew Stranberg |
|
|
|
|
| |
|
|
|
|
| /s/ Travis
McCourt |
|
Director |
|
March 28,
2022 |
Travis McCourt
|
|
|
|
|
| /s/
Alan Chippindale |
|
Director |
|
March 28,
2022 |
Alan Chippindale
|
|
|
|
|
| /s/
Alejandro Tani |
|
Director |
|
March 28,
2022 |
Alejandro
Tani
|
|
|
|
|
| /s/
Ashley Marshall |
|
Director |
|
March 28,
2022 |
| Ashley Marshall |
|
|
|
|
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