SWAGW 10-K & 10-Q changes, risk factors and insider trading
Stran & Company, Inc. (also SWAG) · Nasdaq · Services-Advertising Agencies · CIK 1872525 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
Removed heading “We have restated our financial statements. The restatement has consumed a significant amount of management time and resources and may continue to do so. In addition, the restatement may subject us to a number of additional risks and uncertainties, including the increased possibility of legal proceedings and could adversely impact our operations.”
Largest changes
“We have restated our financial statements. The restatement has consumed a significant amount of management time and resources and may continue to do so. In addition, the restatement may subject us to a number of additional risks and uncertainties, including the increased possibility of legal proceedings and could adversely impact our operations.”see in full comparison
“Further, as a result of the restatement, we face the potential for litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the restatement and the preparation of our financial statements. As of the date of this filing, we have no knowledge of any such litigation or dispute resulting from the restatement. However, we can provide no assurance that litigation or disputes will not arise in the future. …”see in full comparison
A number of petitions have been filed in federal courts seeking to challenge the SEC’ssee in full comparisonclimateclimate-related disclosure rules. The outcome of this litigation cannot be determined as of the date of this report. On April 4, 2024, the SEC issued an order staying the rules. The SEC’s administrative stay will remain in place until the completion of litigation filed in the federal courts that challenges the agency’s authority to adopt the rules. On March 25, 2025, the SEC ended its defense of the rules. On April 4, 2025, state intervenors in the litigation filed a motion to hold the case in abeyance until the SEC determines what action it will take on the rules, and on April 24, 2025, the U.S. Court of Appeals for the Eighth Circuit granted the intervenors’ motion to hold the litigation in abeyance. On July 23, 2025, the SEC filed a report with the court stating that it “does not intend to review or reconsider the climate-related disclosure rules at this time” and indicating that the SEC could not determine what actions it would take in the event the rulemaking petitions are denied. The outcome of this litigation cannot be determined.
“We have restated certain financial information in our previously issued financial statements as of and for the fiscal years ended December 31, 2023 and 2022 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 that was filed by the Company with the SEC on March 28, 2024, and filed the restated financial statements with an amended Annual Report on Form 10-K/A for the year ended December 31, 2023 on January 22, 2025. …”see in full comparison
Our operations are subject to various international trade agreements and regulations. 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. For example, during the prior Trump administration, increased tariffs were implemented on goods imported into the U.S., particularly from China, Canada, and Mexico. The current Trump administration has implemented additional tariffs, some of which apply to goods imported from China and other countries from which we import goods. While not the primary reason for the increase in our costs during the past year, increased tariff rates contributed to a marginal degree to the increase in our cost of sales. 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 away from Chinese or other foreign manufacturers of some of our products and may seek to increase this shift due to U.S. tariffs or other aspects of U.S. trade policy, which may result in additional costs and disruption to our operations.see in full comparison
In accordance with the Company’s presentation at the hearing, on February 11, 2025, the Company filed its Quarterly Reports on Forms 10-Q for the periods ended March 31, 2024 and June 30, 2024. On March 7, 2025, the Company filed its Quarterly Report on Form 10-Q for the period ended September 30, 2024. As a result, the Company has regained compliance with the Filing Rule. On February 20, 2025, the Company received a written notification from the Staff notifying the Company that for the last 11 consecutive business days, from February 4, 2025 to February 19, 2025, the closing bid price of the Company’s common stock has been at $1.00 per share or greater. Accordingly, the Company regained compliance with the Bid Pricesee in full comparisonRule.Rule, as confirmed in a written notification from the Staff dated April 8, 2025. In addition, the Companywill scheduleheld its annual meeting for 2024 and 2025toontakeJulyplace in the second quarter of25, 2025.Upon theOnconclusionAugustof1,such annual meeting,2025, the Companywillreceivedregaina written notification from the Hearings Advisor of the Office of the General Counsel of Nasdaq, which confirmed that the Company regained compliance with the Annual Meeting Rule, and is therefore in compliance with theAnnualNasdaqMeetingCapitalRule.Market’s continued listing requirements. The written notification noted that the Company remained under a Mandatory Panel Monitor pursuant to Nasdaq Listing Rule 5815(d)(4)(B).
Full comparison: every changed paragraph (11)
Our operations are subject to various international trade agreements and regulations. 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. For example, during the prior Trump administration, increased tariffs were implemented on goods imported into the U.S., particularly from China, Canada, and Mexico. The current Trump administration has implemented additional tariffs, some of which apply to goods imported from China and other countries from which we import goods. While not the primary reason for the increase in our costs during the past year, increased tariff rates contributed to a marginal degree to the increase in our cost of sales. 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 away from Chinese or other foreign manufacturers of some of our products and may seek to increase this shift due to U.S. tariffs or other aspects of U.S. trade policy, which may result in additional costs and disruption to our operations.
Outside
of the U.S., data protection laws, including
the GDPR, also might apply to some of our operations or business collaborators. Legal requirements
in the European Union and United Kingdom
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/£17.5 Eurosmillion 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.
Our
success is largely dependent on the skills,
experience and efforts of our senior management and other key personnel, including Andrew
Shape, our Chief Executive Officer and President,
Andrew Stranberg, our Executive Chairman, David Browner, our Chief Financial Officer,
Ian Wall, our Chief Information Officer, and John
Audibert, our ViceChief PresidentStrategy of GrowthOfficer and StrategicChief Initiatives.Compliance Officer. 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.
Customers
in the
promotional products, 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
include companies such as 4Imprint Group plc (LSE: FOUR.L), Brand Addition Limited (The Pebble Group plc) (LSE:
PEBB), BAMKO LLC (Superior
Group of Companies, Inc.) (Nasdaq: SGC), Staples Promotional Products (Staples, Inc.), Boundless Network, Inc. (Zazzle Inc.),
Inc., Custom Ink,
Cimpress plc (Nasdaq: CMPR), HALO Branded Solutions, Inc., Imagine This (Shye West, Inc.), Power Promotions, Inc. and
Global Promotional
Sourcing, LLC. 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.
A
number of petitions have been filed in federal
courts seeking to challenge the SEC’s climateclimate-related disclosure rules. The outcome
of this litigation cannot be determined as of the date of this report. On April 4, 2024, the SEC issued an order staying the rules. The
SEC’s administrative stay will remain in place until the completion of litigation filed in the federal courts that challenges the
agency’s authority to adopt the rules. On March 25, 2025, the SEC ended its defense of the rules. On April 4, 2025, state intervenors
in the litigation filed a motion to hold the case in abeyance until the SEC determines what action it will take on the rules, and on
April 24, 2025, the U.S. Court of Appeals for the Eighth Circuit granted the intervenors’ motion to hold the litigation in abeyance.
On July 23, 2025, the SEC filed a report with the court stating that it “does not intend to review or reconsider the climate-related
disclosure rules at this time” and indicating that the SEC could not determine what actions it would take in the event the rulemaking
petitions are denied. The outcome of this litigation cannot be determined.
We have restated our financial statements.
The restatement has consumed a significant amount of management time and resources and may continue to do so. In addition, the restatement
may subject us to a number of additional risks and uncertainties, including the increased possibility of legal proceedings and could adversely
impact our operations.
We have restated certain financial information
in our previously issued financial statements as of and for the fiscal years ended December 31, 2023 and 2022 included in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2023 that was filed by the Company with the SEC on March 28, 2024, and filed
the restated financial statements with an amended Annual Report on Form 10-K/A for the year ended December 31, 2023 on January 22, 2025.
The restatement has resulted in substantial costs in the form of accounting, legal fees, and similar professional fees, in addition to
the substantial diversion of time and attention of our senior management and members of our accounting team in preparing the restatement.
Further, as a result of the restatement, we face
the potential for litigation or other disputes which may include, among others, claims invoking the federal and state securities laws,
contractual claims or other claims arising from the restatement and the preparation of our financial statements. As of the date of this
filing, we have no knowledge of any such litigation or dispute resulting from the restatement. However, we can provide no assurance that
litigation or disputes will not arise in the future. Any such litigation or dispute, whether successful or not, could have a material
adverse effect on our business, results of operations and financial condition.
In
accordance with the Company’s presentation
at the hearing, on February 11, 2025, the Company filed its Quarterly Reports on Forms
10-Q for the periods ended March 31, 2024 and June
30, 2024. On March 7, 2025, the Company filed its Quarterly Report on Form 10-Q for
the period ended September 30, 2024. As a result,
the Company has regained compliance with the Filing Rule. On February 20, 2025, the
Company received a written notification from the Staff
notifying the Company that for the last 11 consecutive business days, from February
4, 2025 to February 19, 2025, the closing bid price
of the Company’s common stock has been at $1.00 per share or greater. Accordingly,
the Company regained compliance with the Bid
Price Rule.Rule, as confirmed in a written notification from the Staff dated April 8, 2025. In
addition, the Company will scheduleheld its annual meeting for 2024 and 2025 toon takeJuly place in the second quarter of25, 2025. Upon
theOn conclusionAugust of1, such annual meeting,2025, the Company willreceived regaina written notification
from the Hearings Advisor of the Office of the General Counsel of Nasdaq, which confirmed that the Company regained compliance with the
Annual Meeting Rule, and is therefore in compliance with the AnnualNasdaq MeetingCapital Rule.Market’s continued listing requirements. The written notification
noted that the Company remained under a Mandatory Panel Monitor pursuant to Nasdaq Listing Rule 5815(d)(4)(B).
Although
we have regained compliance with the
Filings RuleNasdaq andCapital theMarket’s Bidcontinued Pricelisting Rule,requirements, no assurance can be provided that we will regain compliance with the Annual Meeting Rule or otherwise
remain in compliance with the Nasdaq Listing Rules. 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 publicly-traded
warrants from Nasdaq may materially impair our stockholders’ ability to buy and sell our common stock and publicly-traded warrants
and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock and publicly-traded
warrants. The delisting of our common stock and publicly-traded warrants could also significantly impair our ability to raise capital
and the value of your investment.
We are required to publicly report on an ongoing basis as an “emerging growth company” (as defined in the Jumpstart Our Business Startups Act of 2012, or 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:
Management's Discussion & Analysis (MD&A)
Removed heading “Recent Developments”
Removed heading “Lease Agreement”
Removed heading “Valuation of Goodwill and Intangible Assets”
Largest changes
“The amount available under the Revolving Line of Credit was the lesser of $7.0 million or the sum of (x) eighty percent (80.0%) of the then-outstanding amount of Eligible Accounts (as defined below), plus (y) fifty percent (50.0%) of Eligible Inventory (as defined below); minus one hundred (100.0%) percent of the aggregate amount then drawn under the Revolving Line of Credit for the account of the Company. In addition, advances based upon Eligible Inventory were required to be capped at all times at $2.0 million. …”see in full comparison
“We perform an annual impairment review of our goodwill during the fourth fiscal quarter of each year, and more frequently if we believe indicators of impairment exist. The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment. To review for impairment, we first assess qualitative factors to determine whether events or circumstances lead to a determination that it is more likely than not that the fair value of our reporting unit is less than its carrying amount. …”see in full comparison
“Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. Our goodwill impairment test uses both the income approach and the market approach to estimate a reporting unit’s fair value. The income approach is based on the discounted cash flow method that uses the reporting unit estimates for forecasted future financial performance, including revenues, operating expenses, and taxes, as well as working capital and capital asset requirements. …”see in full comparison
“Since February 2025 and as of the date of this report, the United States has implemented and repeatedly amended additional country-specific tariffs on goods imported from other countries, with significant changes affecting imports from China. In May 2025, the United States temporarily reduced previously-imposed additional “reciprocal” and fentanyl-related tariffs at a combined rate of 145% on most goods imported from China to a combined rate of 30%, and in August 2025 extended this temporary combined rate on Chinese imports until November 10, 2025. …”see in full comparison
“We have historically imported many of the goods or components used in our promotional products business from China in particular and to some extent from other countries. As a result, we have had to increase prices for certain products, and may be required to raise those prices further, which may result in the loss of customers. If prices cannot be increased, it may result in a negative impact on our gross margin. We have also attempted to shift away from Chinese suppliers in particular, and other foreign suppliers in general, and may seek to increase this shift due to U.S. …”see in full comparison
Full comparison: every changed paragraph (57)
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; POSpoint of sale displays; and loyalty and incentive
programs.
Since February 2025 and as of the date of this report, the United States has implemented and repeatedly amended additional country-specific tariffs on goods imported from other countries, with significant changes affecting imports from China. In May 2025, the United States temporarily reduced previously-imposed additional “reciprocal” and fentanyl-related tariffs at a combined rate of 145% on most goods imported from China to a combined rate of 30%, and in August 2025 extended this temporary combined rate on Chinese imports until November 10, 2025. In November 2025, these tariffs were further reduced to a combined rate of approximately 20%. For low-value items of Chinese or Hong Kong origin valued at or below $800 and moving via the international postal stream, duty-free treatment ended May 2, 2025. Since May 14, 2025, such postal shipments have generally been subject to either a 54% ad valorem duty or a $100 per-item postal fee. Separately, the United States eliminated duty-free de minimis treatment for imports from all other countries effective August 29, 2025. In addition, the United States has introduced and adjusted reciprocal tariff rates on imports from numerous trading partners. Since August 7, 2025, additional “reciprocal” tariff rates applicable to most goods from covered countries vary by country between approximately 10% and 41%, with many commonly in the 15%-40% range after later adjustments and exemptions. These additional country-specific tariffs were effected alongside a general increase in separate U.S. tariffs against imports based on product type or sector, as well as, in certain cases, country of origin, in some cases modified by exemptions or other adjustments.
On February 20, 2026, the U.S. Supreme Court held in Learning Resources, Inc. v. Trump that the International Emergency Economic Powers Act (“IEEPA”) does not authorize the President to impose tariffs, invalidating both the reciprocal tariffs and the fentanyl-related tariffs on Chinese imports described above as well as all other tariffs imposed under IEEPA. In response, the President immediately revoked the IEEPA tariff orders and, invoking Section 122 of the Trade Act of 1974, imposed a temporary 10% global import surcharge on most imports effective February 24, 2026, for 150 days, which the President subsequently announced would be increased to 15%. As of the date of this report, the Trump Administration has taken no actions to facilitate refunds of its former IEEPA tariffs, and we cannot predict whether we will be able to collect any refunds of our payments of such tariffs.
We have historically imported many of the goods or components used in our promotional products business from China in particular and to some extent from other countries. As a result, we have had to increase prices for certain products, and may be required to raise those prices further, which may result in the loss of customers. If prices cannot be increased, it may result in a negative impact on our gross margin. We have also attempted to shift away from Chinese suppliers in particular, and other foreign suppliers in general, and may seek to increase this shift due to U.S. tariffs or other aspects of U.S. trade policy, in an effort to reduce the effect of tariff increases on our product prices. However, due to the limited availability of competitive pricing from suppliers whose goods are not currently subject to tariffs or that are subject to relatively lower tariffs, and the possibility that some of the current or planned additional U.S. tariffs may increase, decrease, or become subject to exceptions or suspensions, with little or no prior notice, our ability to cost-effectively mitigate some of the effects of current and future scheduled U.S. tariffs may be significantly limited. These trends and uncertainties may result in additional costs and disruption to our operations, which may have a significant negative effect on the Company’s sales and gross margins in future periods. As a result, investors should not assume that any trends reflected in our past results, including those that may be indicated below for the years ended December 31, 2025 and 2024, respectively, may be expected to continue to occur in future periods.
Our
sales sales
increasedfor 8.8% year-overthe year inended 2024December 31, 2025 increased 40.6% compared
to 2023,sales for the year ended December 31, 2024, which we believe was primarily due to higher
spending from existing clients
as well as business from new customers. Additionally,We wealso benefited from the acquisition of the assets of T
R Miller in June 2023, and the Gander Group Assets
in August 2024, respectively.2024.
Recent Developments
Lease Agreement
On January 10, 2025, the Company entered into
a seven-year lease agreement for new office space in North Quincy, Massachusetts. The Company’s existing lease agreement for its office
space expires May 31, 2025. The new lease term begins on June 1, 2025 and expires on May 31, 2032 with an option to extend the lease an
additional five years. The lease contains an initial base rent of approximately $21 thousand per month with 2.2% - 2.5% annual escalations,
plus a percentage of taxes and operating expenses incurred by the lessor in connection with the ownership and management of the property.
We qualify as an “emerging growth company”
under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).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:
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 the Company’s 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,
(iii) 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 $700.0 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 $1.0 billion
in non-convertible debt during the preceding three year period.
Our
total total
sales increased 8.8%40.6% to approximately $82.7$116.2 million
for the year ended December 31, 2024,2025, from approximately $76.0$82.7 million for
the year ended December 31, 2024. Sales by our Stran segment increased to approximately $82.1 million for the year ended December 31,
2025 2023.from Sales by our Stran segment decreased to
approximately $72.7 million for the year ended December 31, 2024 from approximately $76.0 million for the year ended December 31,
2023.2024. Sales by our SLS segment (which consists of the former Gander
Group business) increased to
approximately $9.9$34.1 million for the year ended December 31, 20242025 from $0$9.9 million for the year ended December
31, 2023.2024. For the Stran segment,
the decreaseincrease in sales was primarily due to lowerhigher spending from existing clients as well as business
from new and existing clients.customers. For the SLS segment, the increase in sales was
due primarily attributable to the acquisitioninclusion of a full year of consolidated
operations including the Gander Group AssetsAssets, which were acquired in August 2024.2024 and therefore only partially reflected in our results
of operations for the prior year period.
Our
total total
cost of sales increased 11.1%44.2% to approximately $82.0 million for the year ended December 31, 2025, from approximately $56.8 million
for the year ended December 31, 2024, from approximately $51.1 million
for the year ended December 31, 2023.2024. As a percentage of sales, total cost of sales increased to 70.5% for the year ended December 31,
to2025 from 68.8% for the year ended December 31, 2024 from 67.3% for the year ended December
31, 2023.2024. Cost of sales by our Stran segment decreasedincreased to approximately $49.0$55.1 million for
the year ended December 31, 20242025 from approximately $51.1$49.0 million for the year ended December 31, 2023.2024. Cost of sales
by our SLS segment
increased to approximately $26.9 million for the year ended December 31, 2025 from approximately $7.9 million for the year ended December 31, 2024 from $0 for the year ended December
31, 2023.2024. The increase in the dollar amount of total cost of sales was primarily due to the increase in sales of 8.8%40.6% from period to
period. period.
For the Stran segment, the decreaseincrease was primarily due to athe decreaseincrease in sales of approximately $3.3
million for the reasons described above. For the SLS segment, the increase
was dueprimarily attributable to the
acquisition inclusion of a full year of consolidated operations including the Gander Group AssetsAssets, which were acquired
in August 2024.2024 and therefore only partially reflected in our results of operations for the prior year period.
Gross
profit and gross margin percentages by segment
and in total were as follows (in thousands):
Gross
profit profit
consists of sales less total cost of sales. Our total gross profit increased 3.9%32.6% to approximately
$25.8 $34.2 million, or 31.2%29.5% of
sales, for
the year ended December 31, 2024,2025, from approximately $24.9$25.8 million,
or 32.7%31.2% of sales, for the year ended December 31, 2023.2024.
Gross profit of our Stran segment decreasedincreased to approximately $23.7$27.0 million for the year ended December 31, 20242025 from approximately $23.7
$24.9 million for the year ended December 31, 2023.2024. Gross profit of our SLS segment increased to approximately $7.2 million for the year ended
December 31, 2025 from approximately $2.1 million for the year ended December 31, 2024 from $0 for the year ended December 31, 2023.2024. The
increase in the dollar amount of total gross
profit was primarily dueattributable to the acquisition
inclusion of a full year of consolidated operations including the Gander Group AssetsAssets, which
were acquired in August 2024.2024 and therefore only partially reflected in our operations for the prior year period. For the Stran segment,
the decreaseincrease in the dollar amount of gross profit was due to aan decrease
increase in sales of approximately $3.3$9.4 million for the reasons described
above, which was partially offset by an increase of cost of sales of approximately $6.1 million for the reasons described above, which was partially
offset by a decrease in cost of sales of approximately $2.2 million for the reasons described
above. For
the SLS segment, the increase in the dollar amount of gross profit was
due primarily attributable to the acquisitioninclusion of a full year of consolidated
operations including the Gander Group AssetsAssets, which were acquired in August 2024.2024 Theand decreasetherefore only partially reflected in totalour grossresults
of profit
margin to 31.2%operations for the year ended December 31, 2024 compared to 32.7% for theprior year ended December 31, 2023 was primarily due to
the acquisition of the Gander Group Assets in August 2024, which operates at a lower gross margin than the Stran segment. The
gross profit margin for the Stran segment remained unchanged at 32.7% for the years ended December 31, 2024 and 2023. The
gross profit margin for the SLS segment was 20.8% for the year ended December 31, 2024.period.
Gross profit margin is defined as gross profit as a percentage of sales. The decrease in total gross profit margin to 29.5% for the year ended December 31, 2025 from 31.2% for the year ended December 31, 2024 was primarily due to the Gander Group Assets, which operate at a lower gross margin than the Stran segment, and which were acquired in August 2024 and therefore only partially reflected in our results of operations for the prior year period. The gross profit margin for the Stran segment increased to 32.9% for the year ended December 31, 2025 from 32.7% for the year ended December 31, 2024. The gross profit margin for the SLS segment increased to 21.1% for the year ended December 31, 2025 from 20.8% for the year ended December 31, 2024.
Operating
expenses consist of general and administrative expenses. Our total operating expenses increased 17.6%17.8% to approximately $36.2 million
for the year ended December 31, 2025, from approximately $30.7 million for the year ended December 31, 2024,2024. Operating expenses of our
fromStran segment increased to approximately $26.1$28.3 million for the year ended December 31, 2023.
Operating2025 expenses of our Stran segment increased tofrom approximately $27.6 million for the
year ended December 31, 2024 from approximately
$26.1 million for the year ended December 31, 2023.2024. Operating expenses of our SLS segment increased to approximately $7.9 million for the year ended December
to31, 2025 from approximately $3.1 million for the year ended December 31, 20242024. fromAs $0a percentage of sales, operating expenses decreased
to 31.1% for the year ended December 31, 2023.2025, As
a percentage of sales, operating expenses increased tofrom 37.2% for the year ended December 31, 2024,
from 34.4% for the year ended December 31, 2023.2024. As a percentage of sales, operating expenses
of our Stran segment increaseddecreased to 34.5% for the year ended December 31, 2025 from 37.9% for the year ended December 31, 2024 from 34.4% for the year ended December 31, 2023.2024. As
a percentage
of sales, operating expenses of our SLS segment weredecreased 31.4%to 23.1% for the year ended December 31, 2025 from 31.4% for the year ended
December 31, 2024. For
the Stran segment, the increase in the dollar amount of operating expenses was primarily due to expenses related to Stran’s NetSuite enterprise
resource planning system implementation, acquisition and integration of the Gander Group Assets, andincreased legal
and accounting expenses related
to the re-audit of historical financial statements.statements, increased headcount, and higher expenses related
to our e-commerce platform, Magento Open Source. For the SLS segment, the increase in the dollar amount of operating expenses
was dueprimarily
attributable to the acquisitioninclusion of a full year of consolidated operations including the Gander Group AssetsAssets, which were acquired in August
2024 2024.and therefore only partially reflected in our results of operations for the prior year period.
Other income
consists of other
income income,(expense), interest income, change in fair value of contingent earn-out liability, and realized gain on investments. Our
other income, netincome was approximately $937 thousand
for the year ended December 31, 2025, compared to other income of approximately $38
thousand for the year ended December 31, 2024,
compared2024. This increase was primarily attributable to the reversal
of a portion of the allowance related to a receivable recorded in 2023, as the underlying balance was subsequently collected and management
determined the allowance was no longer required. Our interest income was approximately $186$296 thousand
for the year ended December 31, 2023.2025, This
change was primarily duecompared to an increase in noncash accretion expense in 2024 relative to 2023, related to certain installment payment
liabilities. Our interest income was approximately $305 thousand
for the year ended December 31, 2024,2024. This decrease was primarily attributable to lower interest
rates earned on program deposit balances, partially offset by slightly higher average program deposit balances compared to approximatelythe $570same thousandperiod
forin the yearprior ended December 31, 2023. This change was primarily due to a decrease in interest
generated from investments.year. Our change in fair value of contingent earn-out liability was approximately $208 thousandzero for the year
ended December 31, 2024, 2025,
compared to approximately $65$208 thousand for the year ended December 31, 2023. 2024.
This change was primarily due to
an update to the estimated fair value of the remaining contingent earn-out liabilities related to businessthe
performance combinations.of the previously acquired businesses. Our realized
gain on investments was $97 thousand for the year ended December
31, 2025, compared to approximately $208 thousand for the year ended December 31, 2024,2024.
The compareddecrease in investments reflects our utilization of cash to
approximately $103 thousand forsupport the yearCompany’s endedoperating December 31, 2023. This change was primarily
due to the sale of investments above their initial value.activities.
Income tax provision for the year ended December 31, 2025 was approximately $120 thousand compared to approximately $5 thousand for the year ended December 31, 2024. The effective tax rate for the year ended December 31, 2025 was 19.2%, based on the loss before income taxes of approximately $0.6 million. The effective tax rate for the year ended December 31, 2024 was 0.1%, based on the loss before income taxes of approximately $4.1 million.
The change in the effective tax rate from the comparison of 2025 and 2024 as noted above primarily relates to our estimated earnings and the Company’s position that its deferred tax assets require a full valuation allowance.
Income tax provision for the year ended December
31, 2024 was approximately $5 thousand compared to income tax provision of approximately $41 thousand for the year ended December 31,
2023. Income tax provision for the year ended December 31, 2024 accounted for 0.1% of loss before income taxes of approximately $4.1 million.
Income tax provision for the year ended December 31, 2023 accounted for 11.9% of income before income taxes of approximately $0.3 million.
As of December 31, 2024 and 2023, the Company recorded an income tax provision comprised of state income taxes and a valuation allowance
against its net deferred tax assets. The Company recorded a valuation allowance due to a cumulative loss over a three-year period.
Based on management’s expectations of future
earnings and recognition of a valuation allowance, we anticipate that our effective tax rate will remain similar to the rate recorded
in 2024.
Our
net loss for the year ended December 31, 2024
2025 was approximately $4.1$0.7 million, compared to net loss of approximately $0.4$4.1 million for
the year ended December 31, 2023.2024. This change was primarily
due to thean increase in gross profit, partially offset by an increase in operating expenses along with the decrease in gross profit
expenses, for the reasons described above.
The
following table provides detailed information
about our net cash flows for the years ended December 31, 20242025 and 2023.2024 (in thousands).
Net cash used in operating activities was approximately $4.7 million for the year ended December 31, 2025, as compared to net cash provided by operating activities of approximately $2.8 million for the year ended December 31, 2024. The change was primarily due to an increase in inventory due to growth in sales, a decrease in accounts payable and accrued expenses, and our rewards program liability, offset by a decrease in accounts receivable.
Net cash provided by operating activities was
approximately $2.8 million for the year ended December 31, 2024, as compared to net cash used in operating activities of approximately
$2.6 million for the year ended December 31, 2023. The change was primarily due to an increase in rewards program liability.
Net
cash usedprovided inby investing activities was approximately $3.2 million for the year ended December 31, 2025, as compared to net cash used
in investing activities of approximately $0.5 million for the year ended December 31, 2024, as compared to net cash used in investing activities of approximately $3.7 million
for the year ended December 31, 2023.2024. The change was primarily due to increased proceeds from the sale absence
of investments,business partiallyacquisition offset
by increased purchases of investments.outlays.
Net
cash used in financing activities was approximately $0.9 million
for the year ended December 31, 2024, as compared to approximately $0.9$1.1 million for the year ended December 31, 2023.2025, Theas increasecompared into approximately $0.9
netmillion for the year ended December 31, 2024. Net cash used in financing activities was primarily due to reduceda paymentsdecrease in installment payment
liabilities of approximately $0.3 million, common stock repurchased during the period of approximately $0.5 million and the payment of
contingent earn-out liabilities of approximately $0.6 million
and increased payments of installment payment liabilities of approximately $0.6$0.2 million.
Debt
On November
22, 2021, we entered into the Revolving Demand Line of Credit Loan Agreement, dated as of November 22, 2021 (the “Initial
Loan Agreement”), between the Company and Salem Five Cents Savings Bank, a Massachusetts savings bank (“Salem Five
Cents”), for a revolving line of credit (the “Revolving Line of Credit”), consisting
of aggregate loans of up to $7.0 million, evidenced by the Revolving Demand Line of Credit Note, dated November 22, 2021, by the
Company in favor of Salem Five Cents (the “Demand Note”).
The Revolving Line of Credit and the Demand Note were secured by a first priority security interest in all assets and property of the
Company, as provided in the Security Agreement, dated November 22, 2021, between Salem Five Cents and the Company (the “Security
Agreement”), and as described below. Under a Commercial Loan Modification Agreement, dated as of February 12, 2024, between
Salem Five Cents and the Company (the “Loan Modification Agreement”), certain
terms of the Initial Loan Agreement were modified as of February 12, 2024, as described below
(as amended, the “Loan Agreement” and together with the Security Agreement and the Demand
Note, the “Loan Documents”).
The amount
available under the Revolving Line of Credit was the lesser of $7.0 million or the sum of (x) eighty percent (80.0%) of the then-outstanding
amount of Eligible Accounts (as defined below), plus (y) fifty percent (50.0%) of Eligible Inventory (as defined below); minus one hundred
(100.0%) percent of the aggregate amount then drawn under the Revolving Line of Credit for the account of the Company. In addition, advances
based upon Eligible Inventory were required to be capped at all times at $2.0 million. “Eligible Accounts” was defined as
accounts that meet a number of requirements, including, unless otherwise approved by Salem Five Cents, being less than 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 was outside the United
States, 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 were 90 or more days past invoice date; or otherwise not deemed acceptable by Salem Five Cents in accordance with its
normal credit policies. “Eligible Inventory” was defined as all finished goods, work in progress and raw materials and component
parts of inventory owned by the Company. Eligible Inventory did not include any inventory held on consignment or not otherwise owned by
the Company; any inventory which had been returned by a customer or was damaged or subject to any legal encumbrances other than a first
priority security interest held by the Company; any inventory which was not in the possession of the Company; any inventory which was
held by the Company on property leased by the Company unless Salem Five Cents had received a Landlord’s Waiver and Consent from
the lessor of such property satisfactory to Salem Five Cents; any inventory which was not located within the United States; any inventory
which Salem Five Cents reasonably deemed to be obsolete or non-marketable; and any inventory not subject to a first priority fully perfected
lien held by Salem Five Cents.
The Revolving
Line of Credit was subject to interest at the prime rate plus 0.5% per annum. The Company was required to repay interest on the Revolving
Line of Credit proceeds on a monthly basis. The Revolving Line of Credit continued indefinitely, subject to Salem Five Cents’ demand
rights and the Company’s ongoing affirmative and other obligations under the Loan Documents, as summarized below.
The Company
could freely draw upon the Revolving Line of Credit subject to Salem Five Cents’ right to demand complete repayment of the Revolving
Line of Credit at any time. Late payments were subject to a late payment charge of 5.0%. In the event of failure to repay the loan after
Salem Five Cents made demand for full repayment, the interest rate would increase by 10.0%. The Demand Note could be prepaid at any time
without penalty. Salem Five Cents could assign the Demand Note without the Company’s consent.
Under the
Security Agreement and the other Loan Documents, the Company granted Salem Five Cents a first priority security interest in all of its
assets, including both assets owned as of the date of the Revolving Line of Credit and afterwards, as collateral for full repayment of
the Revolving Line of Credit. Salem Five Cents had the right to 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 Revolving Line of Credit, Salem Five Cents could accelerate repayment of the Revolving Line of Credit, 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 was required to pay for all of Salem Five Cents’s reasonable legal fees and expenses incurred to
enforce its rights under the Loan Documents.
Under the
Initial Loan Agreement, the Company was required to continue its current business of outsourced marketing solutions, and, without the
prior consent of Salem Five Cents, the Company could not acquire in whole or in part any other company or business or engage in any other
business or open any other locations. The Company was required to use the proceeds of the Revolving Line of Credit 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 Revolving
Line of Credit was also subject to ongoing affirmative obligations of the Company, including: Making punctual repayment of the Revolving
Line of Credit amount; maintaining proper accounting books and records in accordance with the opinion of LMHS, P.C. or another Certified
Public Accountant acceptable to Salem Five Cents; allowing Salem Five Cents to inspect its accounting books and records; furnishing audited,
quarterly, monthly and other financial statements to Salem Five Cents; prior to the date of the Loan Modification Agreement, making payment
of Salem Five Cents’ reasonable expenses for a field exam in 2022; and following the date of the Loan Modification Agreement, making
payment of Lender’s reasonable expenses for a field exam in 2024; allowing Salem Five Cents to communicate with its accountants; maintaining
its properties in good repair subject to ordinary wear and tear; obtaining replacement-cost insurance for its property with Salem Five
Cents as Mortgagee/Loss Payee; causing management contracts for the Company’s properties to be subordinated to the rights of Salem
Five Cents; and allowing no change of property management company without the prior written consent of Salem Five Cents.
Prior to
the date of the Loan Modification Agreement, the Revolving Line of Credit was 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; and (b) Minimum Net Worth thresholds: The Company was 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.
Following the date of the Loan Modification Agreement,
the Revolving Line of Credit was no longer subject to the Company’s compliance with the Debt Service Coverage Ratio and the Minimum
Net Worth terms described above. Instead, the Company was required to meet the following financial requirements:
The Company
also could 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; or grant any security interests or mortgages in its properties or assets. After the
date of the Loan Modification Agreement, any future contingent earn-out obligations were required to be subordinated to the Loan Documents.
In connection
with the Initial Loan Agreement, on November 22, 2021, the Company, Salem Five Cents 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 Salem Five Cents (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 Salem Five Cents’ enforcement of its rights in the Collateral. The Warehouse Provider further agreed to provide notice to Salem
Five Cents of any default by the Company of its obligations as to the Warehouse Provider, and to give Salem Five Cents at least 30 days
to exercise its rights, which period could be extended by Salem Five Cents up to 60 days upon its payment of the per-diem rental amount.
After that period, unless the default had been cured by Salem Five Cents, the Warehouse Provider could dispose of such Collateral as it
deemed fit. Upon the receipt of written notice from Salem Five Cents and until such notice was rescinded, the Warehouse Provider was required
to honor only instructions from Salem Five Cents with respect to the Collateral, including, any direction from Salem Five Cents to dispose
of all or any portion of the Collateral at any time, without any further consent or instruction from Company.
On August 23, 2024, Stran Loyalty Solutions entered
into a factoring arrangement to provide accounts receivable financing to Stran Loyalty Solutions. In connection with the factoring arrangement,
the Company provided a secured guarantee of Stran Loyalty Solutions’ obligations under the factoring arrangement. In discussions
with Salem Five Cents prior to the establishment of the factoring arrangement, Salem Five Cents indicated that it would terminate the
Revolving Line of Credit because of a policy which prohibited it from agreeing to subordination of its security interest in the Company’s
assets.
Accordingly, on September 9, 2024, Salem Five
Cents delivered a letter (the “Termination Letter”) to the Company that stated that, effective August 26, 2024 (the “Termination
Date”), Salem Five Cents terminated all obligations under the Loan Agreement and the Demand Note. The Termination Letter further
stated that the Loan Agreement and the Demand Note and the Loan Documents shall no longer be considered in force or effect. The Company
had no funds drawn on the Revolving Line of Credit on the Termination Date.
As of December
31, 2024, the Revolving Line of Credit had been terminated. As of December 31, 2023, we had
not drawn any funds from the Revolving Line of Credit.
Acquisition
of Assets of Gander Group Assets
On August 23, 2024, Stran Loyalty Solutions entered into a Secured Party Sale Agreement, dated as of August 23, 2024 (the “Sale Agreement”), between Stran Loyalty Solutions and Sallyport Commercial Finance, LLC, a Delaware limited liability company (“Secured Party”), pursuant to which Stran Loyalty Solutions agreed to purchase, on an as-is basis, all of the rights and interests of Gander Group, in and to the Gander Group Assets from Secured Party as a private sale pursuant to Article 9 of the Uniform Commercial Code (the “Gander Group Transaction”). Under the Sale Agreement, the aggregate consideration for the Gander Group Assets consisted of (a) cash payments by Stran Loyalty Solutions to Secured Party of approximately $1.1 million (the “Cash Purchase Price”), and (b) the assumption by Stran Loyalty Solutions of certain liabilities totaling approximately $5.5 million (the “Gander Group Assumed Liabilities”). At the consummation of the transactions contemplated by the Sale Agreement (the “Gander Group Transaction Closing”), Stran Loyalty Solutions paid the Cash Purchase Price, assumed the Gander Group Assumed Liabilities and indirectly acquired the Gander Group Assets, consisting of substantially all of the assets of Gander Group, including all of the equity of Gander Group Louisiana, which became a wholly-owned subsidiary of Stran Loyalty Solutions.
Under the Sale Agreement, the aggregate consideration
for the Gander Group Assets consisted of (a) cash payments by Stran Loyalty Solutions to Secured Party of approximately $1.1 million (the
“Cash Purchase Price”), and (b) the assumption by Stran Loyalty Solutions of certain liabilities totaling approximately $5.5
million (the “Gander Group Assumed Liabilities”), subject to adjustment, at and following the Gander Group Transaction Closing
(as defined below), including the payment at the Gander Group Transaction Closing of $150 thousand to Warson Capital Partners, LLC, an
investment banking firm retained by Gander Group, for its fees and expenses with respect to the Gander Group Transaction, including the
marketing for sale of the Gander Group Assets (the “Transaction Expense Payment”).
At the consummation of the transactions contemplated
by the Sale Agreement (the “Gander Group Transaction Closing”), Stran Loyalty Solutions paid the Cash Purchase Price, including
the payment of the Transaction Expense Payment, and assumed the Gander Group Assumed Liabilities. As a result of the Gander Group Transaction
Closing, the Company indirectly acquired the Gander Group Assets, including all of the equity of Gander Group Louisiana, which became
a wholly-owned subsidiary of Stran Loyalty Solutions.
In addition, Stran Loyalty Solutions entered into
a Release Agreement, dated as of August 23, 2024, between Gander Group and Stran Loyalty Solutions (the “Release Agreement”).
Under the Release Agreement, Gander Group granted a full and complete waiver and release of Stran Loyalty Solutions and its affiliates
of any non-competition, non-solicitation, or similar restrictive covenants of any parties owed to Gander Group or any of its affiliates.
The Sale Agreement and the Release Agreement included
provisions for indemnification, reimbursement for returned items, handling of assets and liabilities during Gander Group’s wind-down,
and certain other matters.
The
Company manages reward card programs for clients.
Under these programs, 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. As of December 31, 20242025 and December
31, 2023,2024, the Company had net depositsreward card program liabilities totaling approximately $6.0
$1.5 million and $0.9$6.0 million, respectively.
Our other principal cash payment obligations have
consisted principally of obligations under the Revolving Line of Credit. As stated above, as of December 31, 2024 and December 31, 2023,
we had not drawn any funds from the Revolving Line of Credit under the Loan Documents.
We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. There are items within our consolidated financial statements that require estimation but are not deemed critical, as defined above.
We believe that the assumptions and estimates
associated with the valuation of goodwill and intangible assets have the greatest potential impact
on our financial statements. Additionally, when we acquire a business, we allocate the purchase price to the identifiable assets acquired
and liabilities assumed at their estimated fair values as of the respective acquisition date. The fair values of acquired intangible assets,
including customer relationships and trade names are determined using various valuation techniques, primarily utilizing various income-based
approaches. Significant assumptions used in these models include projected revenue growth rates, discount rates, customer retention rates
and royalty rates. These estimates require management’s judgment and are considered to be critical accounting estimates. Therefore,
we consider these to be our critical accounting policies and estimates. For further information on all of our significant accounting policies,
see the notes to our financial statements beginning on page F-1 of this Annual Report on Form 10-K.
Valuation of Goodwill and Intangible Assets
We perform an annual impairment review of our
goodwill during the fourth fiscal quarter of each year, and more frequently if we believe indicators of impairment exist. The process
of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment. To review for impairment, we
first assess qualitative factors to determine whether events or circumstances lead to a determination that it is more likely than not
that the fair value of our reporting unit is less than its carrying amount. Our qualitative assessment of the recoverability of goodwill,
whether performed annually or based on specific events or circumstances, considers various macroeconomic, industry-specific and company-specific
factors. These factors include: (i) severe adverse industry or economic trends; (ii) significant company-specific actions; (iii) current,
historical or projected deterioration of our financial performance; or (iv) a sustained decrease in our market capitalization below our
net book value. After assessing the totality of events and circumstances, if we determine that it is more likely than not that the fair
value of our reporting unit to which goodwill is assigned is greater than its carrying amount, no further assessment is performed. If
we determine that it is more likely than not that the fair value of our reporting unit is less than its carrying amount, we calculate
the fair value of that reporting unit and compare the fair value to the reporting unit’s net book value.
Determining the fair value of a reporting unit
involves the use of significant estimates and assumptions. Our goodwill impairment test uses both the income approach and the market approach
to estimate a reporting unit’s fair value. The income approach is based on the discounted cash flow method that uses the reporting unit
estimates for forecasted future financial performance, including revenues, operating expenses, and taxes, as well as working capital and
capital asset requirements. These estimates are developed as part of our long-term planning process based on assumed market segment growth
rates and our assumed market segment share, estimated costs based on historical data and various internal estimates. Projected cash flows
are then discounted to a present value employing a discount rate that properly accounts for the estimated market weighted-average cost
of capital, as well as any risk unique to the subject cash flows. The market approach is based on weighting the financial multiples of
comparable companies and applying a control premium. A reporting unit’s carrying value represents the assignment of various assets and
liabilities, excluding certain corporate assets and liabilities, such as cash and debt.
We assess the impairment of long-lived assets,
including purchased property and equipment, right-of-use assets, and intangible assets, whenever events or changes in circumstances indicate
that the carrying value of such assets may not be recoverable. Factors we consider important which could trigger an impairment review
include: (i) significant underperformance relative to historical or projected future operating results, (ii) significant changes in the
manner of our use of the acquired assets or the strategy for our overall business, or (iii) significant negative industry or economic
trends. The process of evaluating the potential impairment of long-lived assets under the accounting guidance on property and equipment
and intangible assets is also highly subjective and requires significant judgment. In order to estimate the fair value of long-lived assets,
we typically make various assumptions about the future prospects of our business or the part of our business to which the long-lived assets
relate. We also consider market factors specific to the business and estimate future cash flows to be generated by the business, which
requires significant judgment as it is based on assumptions about market demand for our products over a number of future years. Based
on these assumptions and estimates, we determine whether we need to take an impairment charge to reduce the value of the long-lived assets
stated on our consolidated balance sheets to reflect their estimated fair value. Assumptions and estimates about future values and remaining
useful lives are complex and often subjective. They can be affected by a variety of factors, including external factors, such as the real
estate market, industry and economic trends, and internal factors, such as changes in our business strategy and our internal forecasts.
Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, changes in assumptions
and estimates could materially impact our reported financial results.
What changed in the latest 10-Q
Risk Factors
There are no material changes from the risk factors previously disclosed in Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2025.
No wording changes found in this section.
Full comparison: every changed paragraph (0)
Management's Discussion & Analysis (MD&A)
New heading “Comparison of Six Months Ended June 30, 2026 and 2025”
New heading “Operating Expenses”
New heading “Income Tax Provision”
Largest changes
“Effective July 24, 2026, the Section 122 global surcharge described above was replaced by new tariffs of 10% or 12.5% imposed under Section 301 of the Trade Act of 1974 on imports from 60 trading partners representing approximately 99% of U.S. imports. The Office of the U.S. Trade Representative (“USTR”) initiated the underlying Section 301 investigation on March 12, 2026, and determined on June 2, 2026, that the investigated economies had failed to impose, or had failed effectively to enforce, prohibitions on the importation of goods produced with forced labor. …”see in full comparison
“Also on February 20, 2026, invoking Section 122 of the Trade Act of 1974, President Trump imposed a temporary 10% global import surcharge on most imports effective February 24, 2026, for a maximum statutory period of 150 days. The President separately announced via social media an intention to increase this surcharge to 15%; however, no proclamation implementing that increase was ever issued, and the controlling Federal Register notice and CBP’s duty collection remained at 10% throughout the period the surcharge was in effect. On May 7, 2026, the U.S. …”see in full comparison
On February 20, 2026, the U.S. Supreme Court held in Learning Resources, Inc. v. Trump (consolidated with Trump v. V.O.S. Selections, Inc.) that the International Emergency Economic Powers Act (“IEEPA”) does not authorize the President to impose tariffs, invalidating both the reciprocal tariffs and the fentanyl-related tariffs on Chinese imports described above as well as all other tariffs imposed under IEEPA. In response, the President immediatelysee in full comparisonrevokedissued an executive order terminating the IEEPA tariffordersorders,and, invoking Section 122 of the Trade Act of 1974, imposed a temporary 10% global import surcharge on most imports effective February 24, 2026, for 150 days, which the President subsequently announced would be increased to 15%. On April 20, 2026,and U.S. Customs and Border Protectionlaunched an internet portal to allow importers to process IEEPA duty refund requests(the“CBPPortal”).However, we cannot predict whether we will be able to collect any refunds of our payments of any such tariffs. At March 31, 2026, we have not recorded a tariff refund receivable due to the uncertainty of the amounts andhalted collection ofsuchIEEPA-basedtariffdutiesrefunds.effective 12:00 a.m. on February 24, 2026.
Gross profit consists of sales less total cost of sales. Our total gross profit increasedsee in full comparison13.7%1.6 % to approximately$9.6$10.0 million, or30.9%30.0% of sales, for the three months endedMarchJune31,30, 2026, from approximately$8.5$9.9 million, or29.6%30.3% of sales, for the three months endedMarchJune31,30, 2025. Gross profit of our Stran segmentincreasedtowas approximately$7.4$7.6 million for each of the three months endedMarchJune31,30, 2026from approximately $6.8 million forand the three months endedMarchJune31,30, 2025. Gross profit of our SLS segment increased to approximately$2.2$2.5 million for the three months endedMarchJune31,30, 2026 from approximately$1.7$2.3 million for the three months endedMarchJune31,30, 2025. The increase in the dollar amount of total gross profit was primarily attributable to customer mix and effective cost management. For the Stran segment, theincreasedecrease in the dollar amount of gross profit was due toancustomerincrease in sales of approximately $2.5 million for the reasons described above, which was partially offset by an increase of cost of sales of approximately $1.9 million for the reasons described above.mix. For the SLS segment, the increase in the dollar amount of gross profit was primarily attributable to improved customermix andmix, effective costmanagement.management, and lower tariffs.
“Gross profit margin is defined as gross profit as a percentage of sales. The increase in total gross profit margin to 30.4% for the six months ended June 30, 2026 from 30.0% for the six months ended June 30, 2025 was primarily due to a shift in our customer mix and margin contribution. The gross profit margin for the Stran segment decreased to 32.1% for the six months ended June 30, 2026 from 33.7% for the six months ended June 30, 2025 due to customer mix. …”see in full comparison
Full comparison: every changed paragraph (56)
Except as otherwise indicated by the context and for the purposes of this report only, references in this report to “we,” “us,” “our,” and the “Company” are to Stran & Company, Inc., a Nevada corporation, and its consolidated subsidiaries; references to “Stran” or “Stran & Company, Inc.” are to Stran & Company, Inc., a Nevada corporation; references to “Stran Loyalty Solutions” or “SLS” are to Stran Loyalty Solutions, LLC, a Nevada limited liability company and a wholly-owned subsidiary of Stran & Company, Inc.; and references to “Gander Group Louisiana” are to Gander Group Louisiana, LLC, a Louisiana limited liability company, a wholly owned subsidiary of Stran Loyalty Solutions. References to “Stran segment” are to the unconsolidated operations of Stran & Company, Inc. References to “SLS segment” are to the operations of Stran Loyalty Solutions consolidated with the operations of Gander Group Louisiana. The Company’s reportable segments are further described in Note K to the financial statements accompanying this Quarterly Report on Form 10-Q.
The majority of our revenue is derived from program
business, although only a small percentage of our customers are considered programmatic. For the three and six months ended MarchJune 31,30, 2026 program clients accounted for 81.3% and
83.3% of total revenue, respectively. For the three and six months ended June 30, 2025, program clients accounted for 85.3%80.2% and 83.8%81.8% of total revenue, respectively. Fewer 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. 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, which we believe
will help secure recurring revenue well into the future.
On February 20, 2026, the U.S. Supreme Court held
in Learning Resources, Inc. v. Trump (consolidated with Trump v. V.O.S. Selections, Inc.) that the International Emergency Economic Powers Act (“IEEPA”) does not authorize
the President to impose tariffs, invalidating both the reciprocal tariffs and the fentanyl-related tariffs on Chinese imports described
above as well as all other tariffs imposed under IEEPA. In response, the President immediately revokedissued an executive order terminating the IEEPA tariff ordersorders, and, invoking
Section 122 of the Trade Act of 1974, imposed a temporary 10% global import surcharge on most imports effective February 24, 2026, for
150 days, which the President subsequently announced would be increased to 15%. On April 20, 2026,and U.S. Customs and Border Protection
launched an internet portal to allow importers to process IEEPA duty refund requests (the “CBP Portal”). However, we cannot
predict whether we will be able to collect any refunds of our payments of any such tariffs. At March 31, 2026, we have not recorded a
tariff refund receivable due to the uncertainty of the amounts andhalted collection of suchIEEPA-based tariffduties refunds.effective 12:00 a.m. on February 24, 2026.
Also on February 20, 2026, invoking Section 122 of the Trade Act of 1974, President Trump imposed a temporary 10% global import surcharge on most imports effective February 24, 2026, for a maximum statutory period of 150 days. The President separately announced via social media an intention to increase this surcharge to 15%; however, no proclamation implementing that increase was ever issued, and the controlling Federal Register notice and CBP’s duty collection remained at 10% throughout the period the surcharge was in effect. On May 7, 2026, the U.S. Court of International Trade held, in a divided 2–1 decision, that the Section 122 surcharge was unlawful, although relief under that decision was limited to the plaintiffs in that litigation rather than extended to all importers. Separately, because Section 122 authority is capped at 150 days absent an extension by Congress, and no such extension occurred, the surcharge expired by its own terms as of July 24, 2026. Following the Supreme Court’s decision, the administration also indicated it would pursue Section 301 investigations targeting numerous U.S. trading partners as a longer-term replacement for the invalidated IEEPA tariffs.
Effective July 24, 2026, the Section 122 global surcharge described above was replaced by new tariffs of 10% or 12.5% imposed under Section 301 of the Trade Act of 1974 on imports from 60 trading partners representing approximately 99% of U.S. imports. The Office of the U.S. Trade Representative (“USTR”) initiated the underlying Section 301 investigation on March 12, 2026, and determined on June 2, 2026, that the investigated economies had failed to impose, or had failed effectively to enforce, prohibitions on the importation of goods produced with forced labor. Economies that had adopted and were enforcing such prohibitions – or that the USTR determined had made satisfactory commitments to adopt and enforce them – became subject to the 10% rate, while the remaining economies, including China, became subject to the 12.5% rate. These duties took effect immediately upon the expiration of the Section 122 surcharge and remain subject to various product- and country-specific exemptions, including for certain raw materials, products whose coverage would cause economy-wide disruption, goods not producible in sufficient quantities domestically, civil aircraft-related articles, certain pharmaceutical products, and a limited in-transit exception for goods loaded before July 24, 2026, and entered for consumption before July 28, 2026.
As a result of the above tariffs and tariff amendments
and the ongoing uncertainties as to tariff refunds and future tariff rates, we have had to increase prices for certain products, and may
be required to raise those prices further, which may result in the loss of customers. If prices cannot be increased, it may result in
a negative impact on our gross margin. We have also attempted to shift away from Chinese suppliers in particular, and other foreign suppliers
in general, and may seek to increase this shift due to U.S. tariffs or other aspects of U.S. trade policy, in an effort to reduce the
effect of tariff increases on our product prices. However, due to the limited availability of competitive pricing from suppliers whose
goods are not currently subject to tariffs or that are subject to relatively lower tariffs, and the possibility that some of the current
or planned additional U.S. tariffs may increase, decrease, or become subject to exceptions or suspensions, with little or no prior notice,
our ability to cost-effectively mitigate some of the effects of current and future scheduled U.S. tariffs may be significantly limited.
These trends and uncertainties may result in additional costs and disruption to our operations, which may have a significant negative
effect on the Company’s sales and gross margins in future periods. As a result, investors should not assume that any trends reflected
in our past results that relate to periods preceding the increases in applicable U.S. tariffs since February 2025, including those that
may be indicated below for the threesix months ended MarchJune 31,30, 2025,2026, may be expected to continue to occur in future periods.
During the quarterthree and six months ended MarchJune 31,30, 2026, global
crude oil and refined product markets were impacted by heightened geopolitical tensions in the Middle East, including the ongoing conflict
involving Iran, Israel, and the United States. These developments have not had a direct material impact on our results. However, we are
exposed to volatility in energy and oil markets, which could impact manufacturing, transportation, and packaging costs. Maritime restrictions
in the Strait of Hormuz will continue to influence this risk. Significant increases in fuel, utilities, and petroleum-based inputs may
materially increase our cost of goods sold and logistics expenses, and these increases may not be fully offset through pricing actions,
which could adversely impact our margins and operating results.
Our sales for the three and six months ended MarchJune 31,
30, 2026 increased 8.9%2.4% and 5.4%, respectively, compared to sales for the threesame monthsperiods ended March 31,in 2025, which was due to higher spending from existing clients
as well as business from new customers.
As of MarchJune 31,30, 2026, we
had approximately $53.2$56.9 million of total assets with approximately $31.4$31.5 million of total stockholders’ equity.
Comparison of Three Months Ended MarchJune 31,
30, 2026 and 2025
The following table sets forth key components
of our results of operations during the three months ended MarchJune 31,30, 2026 and 2025 both in dollars and as a percentage of our revenues.
Our total sales increased 8.9%2.4% to approximately
$31.2 $33.4 million for the three months ended MarchJune 31,30, 2026, from approximately $28.7$32.6 million for the three months ended MarchJune 31,30, 2025. Sales
by our Stran segment increased to approximately $23.4$23.3 million for the three months ended MarchJune 31,30, 2026 from approximately $20.9$21.8 million
for the three months ended MarchJune 31,30, 2025. Sales by our SLS segment (whichdecreased consists of the business of Gander Group Louisiana) remained
flat atto approximately $7.8$10.1 million for the three months ended MarchJune 31,30, 2026 asfrom comparedapproximately to$10.8 million for the three months ended MarchJune 31,30, 2025. For
the Stran segment, the increase in sales was primarily due to higher spending from existing clients as well as business from new customers.
For the SLS segment, the increasedecrease in sales was primarily attributable to newa businessdecline in sales from newexisting customers.
Our total cost of sales increased 6.9%2.8% to approximately
$21.6 $23.3 million for the three months ended MarchJune 31,30, 2026, from approximately $20.2$22.7 million for the three months ended MarchJune 31,30, 2025. As
a percentage of sales, total cost of sales decreasedincreased to 69.1%70.0% for the three months ended MarchJune 31,30, 2026 from 70.4%69.7% for the three months
ended MarchJune 31,30, 2025. Cost of sales by our Stran segment increased to approximately $16.0$15.7 million for the three months ended MarchJune 31,
30, 2026 from approximately $14.1$14.2 million for the three months ended MarchJune 31,30, 2025. Cost of sales by our SLS segment decreased to approximately
$5.6 $7.6 million for the three months ended MarchJune 31,30, 2026 from approximately $6.1$8.5 million for the three months ended MarchJune 31,30, 2025. The
increase in the dollar amount of total cost of sales was primarily due to the increase in sales of 8.9%2.4% from period to period. For the
Stran segment, the increase was primarily due to the increase in sales described above. For the SLS segment, the decrease was primarily
attributable to effective cost management.management and lower tariffs.
Gross profit and gross profit margin by segment
and in total were as follows (in thousands):
Gross profit consists of sales less total cost
of sales. Our total gross profit increased 13.7%1.6 % to approximately $9.6$10.0 million, or 30.9%30.0% of sales, for the three months ended MarchJune 31,
30, 2026, from approximately $8.5$9.9 million, or 29.6%30.3% of sales, for the three months ended MarchJune 31,30, 2025. Gross profit of our Stran segment
increased towas approximately $7.4$7.6 million for each of the three months ended MarchJune 31,30, 2026 from approximately $6.8 million forand the three months
ended MarchJune 31,30, 2025. Gross profit of our SLS segment increased to approximately $2.2$2.5 million for the three months ended MarchJune 31,30, 2026
from approximately $1.7$2.3 million for the three months ended MarchJune 31,30, 2025. The increase in the dollar amount of total gross profit was
primarily attributable to customer mix and effective cost management. For the Stran segment, the increasedecrease in the dollar amount of gross
profit was due to ancustomer increase in sales of approximately $2.5 million for the reasons described above, which was partially offset by an
increase of cost of sales of approximately $1.9 million for the reasons described above.mix. For the SLS segment, the increase in the
dollar amount of gross profit was primarily attributable to improved customer mix andmix, effective cost management.management, and lower tariffs.
Gross profit margin is defined as gross profit
as a percentage of sales. The increasedecrease in total gross profit margin to 30.9%30.0% for the three months ended MarchJune 31,30, 2026 from 29.6%30.3% for
the three months ended MarchJune 31,30, 2025 was primarily due to a shift in our customer mix and margin contribution. The gross profit margin
for the Stran segment decreased to 31.6%32.5% for the three months ended MarchJune 31,30, 2026 from 32.4%34.9% for the three months ended MarchJune 31,30, 2025
due to customer mix. The gross profit margin for the SLS segment increased to 28.7%24.3% for the three months ended MarchJune 31,30, 2026 from 21.8%
21.0% for the three months ended MarchJune 31,30, 2025 due to improved customer mix and effective cost management.
Operating expenses consist of general and administrative expenses.
Our total operating expenses decreasedincreased (0.2)%4.9% to approximately $9.0$9.9 million for the three months ended MarchJune 31,30, 2026, from approximately
$9.0 $9.5 million for the three months ended MarchJune 31,30, 2025. Operating expenses of our Stran segment increased to approximately $6.2 million
for the three months ended March 31, 2026 from approximately $5.6$6.9 million for the three months ended MarchJune 31,30, 2026 from approximately $6.5 million for the three months ended June 30, 2025. Operating expenses
of our SLS segment decreased to approximately $1.7$2.0 million for the three months ended MarchJune 31,30, 2026 from approximately $2.2$2.1 million for
the three months ended MarchJune 31,30, 2025. As a percentage of sales, total operating expenses decreasedincreased to 28.8% for the three months ended
March 31, 2026, from 31.4%29.8% for the three months ended MarchJune 31,30, 2026, from 29.1% for the three months ended June 30, 2025. As a percentage of sales, operating expenses of our Stran segment
decreased to 26.6%29.8% for the three months ended MarchJune 31,30, 2026 from 26.9%30.0% for the three months ended MarchJune 31,30, 2025. As a percentage of
sales, operating expenses of our SLS segment decreasedincreased to 21.9%19.9% for the three months ended MarchJune 31,30, 2026 from 27.7%19.0% for the three months
ended MarchJune 31,30, 2025. For the Stran segment, the increase in the dollar amount of operating expenses was primarily due to higher sales-related costs, and our investment in
STRAN Digital Solutions to provide enhanced functionality and offerings to scale client programs,
higher expenses related to our e-commerce platform, Magento Open Source, and higher sales and marketing-related costs.programs. For the SLS segment,
the decrease in the dollar amount of operating expenses was primarily attributable to a small reduction in headcount and lower sales-related
costs. Operating expenses for “Other” consists of unallocated corporate costs, including salaries for our corporate officers,
audit-related fees, board of director compensation, and other stock-related charges. Such costs decreasedincreased by approximately $0.2$0.1 million
to approximately $1.1$1.0 million for the three months ended MarchJune 31,30, 2026, from approximately $1.2$0.9 million for the three months ended March
31,June 30, 2025. The decreaseincrease was primarily due to lowerhigher legal and accounting expenses related to the re-audit of historical financial statements.expenses.
Other Income (Expense)
Other income consists of other income (expense),
interest income, and realized gain on investments. Our other incomeincome, net was approximately $78$165 thousand for the three months ended MarchJune 31,
30, 2026, compared to other expenseincome, net of approximately $(5)$285 thousand for the three months ended MarchJune 31,30, 2025. This change was primarily attributable
related to acost paymentrecoveries receivedin from2025 afor settlementestimated administrator.shipping charges that did not reoccur in 2026. Our interest income was approximately $67 thousand for the three months ended March
31,June 30, 2026, compared to approximately $42$77 thousand for the three months ended MarchJune 31,30, 2025. This increasedecrease was primarily attributable to
higher interest rates earned on program deposit balances, partially offset by slightly lower average program deposit balances compared
to the same period in the prior year.year, offset by slightly higher interest rates. Our realized gain on investments was $0$10 thousand for the three months ended MarchJune 31,30, 2026, compared
to approximately $67 thousand$0 for the three months ended MarchJune 31,30, 2025, since no investments were sold during the three months ended
March 31,June 2026.30, 2025.
Income tax provision for the three months ended
March 31,June 30, 2026 was approximately $46$19 thousand compared to an income tax benefitexpense of approximately $38$114 thousand for the three months ended
March 31,June 30, 2025. The effective tax rate for the three months ended MarchJune 31,30, 2026 was 5.81%,5.9%, based on income before income taxes of approximately
$0.7 $0.3 million. The effective tax rate for the three months ended MarchJune 31,30, 2025 was 8.9%,15.1%, based on the lossincome before income taxes of approximately
$0.4 $0.8 million.
Net Income (Loss)
Our net income for the three months ended March
31,June 30, 2026 was approximately $0.7$0.3 million, compared to net lossincome of approximately $0.4$0.6 million for the three months ended MarchJune 31,30, 2025.
This change was primarily due to an increase in grossoperating profit,expenses andoffset aby decreasean increase in operatinggross expenses,profit for the reasons described above.
Comparison of Six Months Ended June 30, 2026 and 2025
The following table sets forth key components of our results of operations during the six months ended June 30, 2026 and 2025 both in dollars and as a percentage of our sales.
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. Sales by segment and in total were as follows (in thousands):
Our total sales increased 5.4% to approximately $64.6 million for the six months ended June 30, 2026, from approximately $61.3 million for the six months ended June 30, 2025. Sales by our Stran segment increased to approximately $46.7 million for the six months ended June 30, 2026 from approximately $42.7 million for the six months ended June 30, 2025. Sales by our SLS segment decreased to approximately $17.9 million for the six months ended June 30, 2026 from approximately $18.6 million for the six months ended June 30, 2025. For the Stran segment, the increase in sales was primarily due to higher spending from existing clients as well as business from new customers. For the SLS segment, the decrease in sales was primarily attributable to lower spend from existing customers.
Cost of Sales
Cost of sales by segment and in total were as follows (in thousands):
Our total cost of sales increased 4.7% to approximately $44.9 million for the six months ended June 30, 2026, from approximately $42.9 million for the six months ended June 30, 2025. As a percentage of sales, total cost of sales decreased to 69.6% for the six months ended June 30, 2026 from 70.0% for the six months ended June 30, 2025. Cost of sales by our Stran segment increased to approximately $31.7 million for the six months ended June 30, 2026 from approximately $28.3 million for the six months ended June 30, 2025. Cost of sales by our SLS segment decreased to approximately $13.2 million for the six months ended June 30, 2026 from approximately $14.6 million for the six months ended June 30, 2025. The increase in the dollar amount of total cost of sales was primarily due to the increase in sales of 5.4% from period to period. For the Stran segment, the increase was primarily due to the increase in sales described above. For the SLS segment, the decrease was primarily attributable to lower sales and effective cost management.
Gross Profit
Gross profit by segment and in total were as follows (in thousands):
Gross profit consists of sales less total cost of sales. Our total gross profit increased 7.2% to approximately $19.7 million, or 30.4% of sales, for the six months ended June 30, 2026, from approximately $18.4 million, or 30.0% of sales, for the six months ended June 30, 2025. Gross profit of our Stran segment increased to approximately $15.0 million for the six months ended June 30, 2026 from approximately $14.4 million for the six months ended June 30, 2025. Gross profit of our SLS segment increased to approximately $4.7 million for the six months ended June 30, 2026 from approximately $4.0 million for the six months ended June 30, 2025. The increase in the dollar amount of total gross profit was primarily attributable to customer mix and effective cost management. For the Stran segment, the increase in the dollar amount of gross profit was due to an increase in sales of approximately $4.0 million, which was partially offset by an increase of cost of sales of approximately $3.4 million for the reasons described above. For the SLS segment, the increase in the dollar amount of gross profit was primarily attributable to improved customer mix and effective cost management.
Gross profit margin is defined as gross profit as a percentage of sales. The increase in total gross profit margin to 30.4% for the six months ended June 30, 2026 from 30.0% for the six months ended June 30, 2025 was primarily due to a shift in our customer mix and margin contribution. The gross profit margin for the Stran segment decreased to 32.1% for the six months ended June 30, 2026 from 33.7% for the six months ended June 30, 2025 due to customer mix. The gross profit margin for the SLS segment increased to 26.2% for the six months ended June 30, 2026 from 21.4% for the six months ended June 30, 2025 due to improved customer mix and effective cost management.
The gross profit and gross profit margin for the remainder of 2026 will be largely dependent on revenue levels.
Operating Expenses
Operating expenses by segment and in total were as follows (in thousands):
Operating expenses consist of general and administrative expenses. Our total operating expenses increased 2.4% to approximately $18.9 million for the six months ended June 30, 2026, from approximately $18.5 million for the six months ended June 30, 2025. Operating expenses of our Stran segment increased to approximately $13.2 million for the six months ended June 30, 2026 from approximately $12.2 million for the six months ended June 30, 2025. Operating expenses of our SLS segment decreased to approximately $3.7 million for the six months ended June 30, 2026 from approximately $4.2 million for the six months ended June 30, 2025. As a percentage of sales, total operating expenses decreased to 29.3% for the six months ended June 30, 2026, from 30.2% for the six months ended June 30, 2025. As a percentage of sales, operating expenses of our Stran segment decreased to 28.2% for the six months ended June 30, 2026 from 28.5% for the six months ended June 30, 2025. As a percentage of sales, operating expenses of our SLS segment decreased to 20.8% for the six months ended June 30, 2026 from 22.6% for the six months ended June 30, 2025. For the Stran segment, the increase in the dollar amount of operating expenses was primarily due to increased headcount and employee-related costs, higher sales-related costs, and our investment in STRAN Digital Solutions to provide enhanced functionality and offerings to scale client programs. For the SLS segment, the decrease in the dollar amount of operating expenses was primarily attributable to a small reduction in headcount and lower sales-related costs. Operating expenses for “Other” consists of unallocated corporate costs, including salaries for our corporate officers, audit-related fees, board of director compensation, and other stock-related charges. Such costs decreased by approximately $78 thousand to approximately $2.1 million for the six months ended June 30, 2026, from approximately $2.1 million for the six months ended June 30, 2025. The decrease was primarily due to lower legal and accounting expenses.
Other Income
Other income consists of other income (expense), interest income, and realized gain on investments. Our other income, net was approximately $243 thousand for the six months ended June 30, 2026, compared to other income, net of approximately $280 thousand for the six months ended June 30, 2025. This change was primarily related to cost recoveries from prior periods for estimated shipping charges. Our interest income was approximately $134 thousand for the six months ended June 30, 2026, compared to approximately $119 thousand for the six months ended June 30, 2025. This increase was primarily attributable to higher interest rates earned on program deposit balances, partially offset by slightly lower average program deposit balances compared to the same period in the prior year. Our realized gain on investments was $10 thousand for the six months ended June 30, 2026, compared to approximately $67 thousand for the six months ended June 30, 2025, due to the reduced amount of investments sold in 2026 when compared to the same period in 2025.
Income Tax Provision
Income tax provision reflects statutory tax rates in the jurisdictions in which we operate adjusted for permanent book/tax differences.
Income tax provision for the six months ended June 30, 2026 was approximately $65 thousand compared to an income tax expense of approximately $76 thousand for the six months ended June 30, 2025. The effective tax rate for the six months ended June 30, 2026 was 5.8%, based on income before income taxes of approximately $1.1 million. The effective tax rate for the six months ended June 30, 2025 was 23.3%, based on income before income taxes of approximately $0.3 million.
The change in the effective tax rate from the comparison of 2026 and 2025 as noted above primarily relates to our estimated earnings and the Company’s position that its deferred tax assets require a full valuation allowance.
Net Income
Our net income for the six months ended June 30, 2026 was approximately $1.1 million, compared to net income of approximately $0.3 million for the six months ended June 30, 2025. This change was primarily due to an increase in gross profit for the reasons described above.
As of MarchJune 31,30, 2026, we had cash and cash equivalents
of approximately $7.6$7.4 million and investments of approximately $5.1$5.2 million. We have largely financed our operations primarily through
cash generated from our initial public offering of common stock and warrants to purchase common stock in November 2021, our private placement
of common stock and warrants to purchase common stock in December 2021, and positive cash flow thisduring quarter.the six months ended June 30, 2026.
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 12 months ended MarchJune 31,
30, 2027 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 stockholders. 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.
The following table provides detailed information
about our net cash flows for the threesix months ended MarchJune 31,30, 2026 and 2025 (in thousands).
Net cash provided by operating
activities was approximately $1.2$1.6 million for the threesix months ended MarchJune 31,30, 2026, as compared to net cash usedprovided inby operating activities
of approximately $5.9$0.5 million for the threesix Marchmonths 31,ended June 30, 2025. The change was primarily due to netan income this quarter, a decreaseincrease in cashnet usedincome, froman the
rewardsincrease program,in unearned revenue, and higher accounts payable and accruals as a result of timing. These increases were offset by a decrease in cash provided by the rewards program, higher vendorinventory, and prepaid deposits
for customer orders.orders, as a result of the timing of payments.
Net cash used in investing activities
was approximately $0.3 million for the threesix months ended MarchJune 31,30, 2026, as compared to net cash provided by investing activities of
approximately $0.8$3.7 million for the threesix months ended MarchJune 31,30, 2025. The change was primarily due to non-recurring redemptions of our
investments from 2025.
Net cash used in financing activities
was approximately $43$0.6 thousandmillion for the threesix months ended MarchJune 31,30, 2026, as compared to approximately $40$0.5 thousandmillion for the threesix months
ended MarchJune 31,30, 2025. Net cash used in financing activities was primarily related to higher amounts spent to repurchase our common stock, payments of installment loan liabilities, which remained
consistent from period to period.period, and lower amounts paid on earn-out liabilities.
Lease costs for the three months ended MarchJune 31,
30, 2026 and 2025 totaled approximately $0.2 million and $0.2 million, respectively. Lease costs for the six months ended June 30, 2026 and 2025 totaled approximately $0.4 million and $0.4 million, respectively. We anticipate no deficiencies in our ability to make
these payments.
The Company manages reward card programs for clients.
Under these programs, 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. As of MarchJune 31,30, 2026 and December
31, 2025, the Company had net reward card program liabilities totaling approximately $0.9$3.0 million and $1.5 million, respectively.
We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, and that would have a material impact on our financial condition or results of operations. There are items within our unaudited consolidated financial statements that require estimation but are not deemed critical, as defined above.
For a discussion of recently adopted accounting
pronouncements, see Recently Issued Accounting Pronouncements in Note A to our financial statements beginning on page 11 ofaccompanying this
Quarterly Report on Form 10-Q.
SWAGW insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 0 filings. Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-08-13 | Posner Brian M |
Grant/award | 5,660 | — | — |
| 2026-08-13 | Chippindale Alan |
Grant/award | 6,032 | — | — |
| 2026-08-13 | Cummins Sarah |
Grant/award | 6,032 | — | — |
| 2026-08-13 | Adams Mark Charles |
Grant/award | 6,032 | — | — |
Well-known investors holding SWAGW (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Renaissance Technologies | 2026-06-30 | 194,331 | $433.4K | 0.0% | Reduced 10% |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 102,465 | $228.5K | 0.0% | Reduced 9% |