Stran Company Inc
For the period ended Dec 31, 2024. Filed Apr 14, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Apr 14, 2025
SWAG$1.28-2.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-03-28.
0001213900-24-027282
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-04-14.
0001213900-25-031596
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 135 previous paragraphs and 85 current paragraphs.
25 unchanged; 27 reworded; 33 added; 82 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 31 previous and 25 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (33)
Current report
Lease Agreement
Current report
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.
Current report
Comparison of Years Ended December 31, 2024 and 2023
Current report
Our total sales increased 8.8%to approximately$82.7 millionfor the year ended December 31, 2024, from approximately$76.0 millionfor the year ended December 31, 2023. Sales by our Stran segment decreasedto approximately$72.7 million for the year ended December 31, 2024 from approximately $76.0 million for the year ended December 31, 2023. Sales by our SLS segment (which consists of the former Gander Group business) increased to approximately $9.9 million for the year ended December 31, 2024 from $0 for the year ended December 31, 2023. For the Stran segment, the decrease in sales was primarily due to lower spending from new and existing clients. For the SLS segment, the increase in sales was due to the acquisition of the Gander Group Assets in August 2024.
Current report
Cost of sales by segment and in total were as follows (in thousands):
Current report
Our total cost of sales increased 11.1%to approximately$56.8 millionfor the year ended December 31, 2024, from approximately$51.1 millionfor the year ended December 31, 2023. As a percentage of sales, total cost of sales increased to 68.8% for the year ended December 31, 2024 from 67.3% for the year ended December 31, 2023. Cost of sales by our Stran segment decreased to approximately $49.0 million for the year ended December 31, 2024 from approximately $51.1 million for the year ended December 31, 2023. Cost of sales by our SLS segment increased to approximately $7.9 million for the year ended December 31, 2024 from $0 for the year ended December 31, 2023. The increase in the dollar amount of total cost of sales was primarily due to the increase in sales of 8.8% from period to period. For the Stran segment, the decrease was primarily dueto a decrease in sales of approximately$3.3 million for the reasons described above. For the SLS segment, the increase was due to the acquisition of the Gander Group Assets in August 2024.
Current report
Gross profit and gross margin percentages by segment and in total were as follows (in thousands):
Current report
Gross profit consists of sales less total cost of sales. Our total gross profit increased 3.9%to approximately$25.8 million, or 31.2%of sales, for the year ended December 31, 2024, from approximately$24.9 million, or 32.7%of sales, for the year ended December 31, 2023. Gross profit of our Stran segment decreased to approximately $23.7 million for the year ended December 31, 2024 from approximately $24.9 million for the year ended December 31, 2023. Gross profit of our SLS segment increased to approximately$2.1 million for the year ended December 31, 2024 from $0 for the year ended December 31, 2023. The increase in the dollar amount of total gross profitwas primarily due to the acquisition of the Gander Group Assets in August 2024. For the Stran segment, the decrease in the dollar amount of gross profit was due to a decrease in sales of approximately$3.3 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 amountof gross profitwas due to the acquisition of the Gander Group Assets in August 2024. The decrease in total gross profit margin to 31.2% for the year ended December 31, 2024 compared to 32.7% for the 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.
Current report
Operating expenses by segment and in total were as follows (in thousands):
Current report
Operating expenses consist of general and administrative expenses. Our total operating expenses increased 17.6%to approximately$30.7 millionfor the year ended December 31, 2024, from approximately$26.1 millionfor the year ended December 31, 2023. Operating expenses of our Stran segment increased to approximately $27.6 million for the year ended December 31, 2024 from approximately $26.1 million for the year ended December 31, 2023. Operating expenses of our SLS segment increased to approximately $3.1 million for the year ended December 31, 2024 from $0 for the year ended December 31, 2023. As a percentage of sales, operating expenses increased to 37.2% for the year ended December 31, 2024, from 34.4% for the year ended December 31, 2023. As a percentage of sales, operating expenses of our Stran segment increased to 37.9% for the year ended December 31, 2024 from 34.4% for the year ended December 31, 2023. As a percentage of sales, operating expenses of our SLS segment were 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, and legal and accounting expenses related to the re-audit of historical financial statements. For the SLS segment, the increase in the dollar amount of operating expenses was due to the acquisition of the Gander Group Assets in August 2024.
Current report
Other Income
Current report
Income Tax Provision
Current report
Net Loss
Current report
Our net loss for the year ended December 31, 2024 was approximately $4.1 million, compared to approximately $0.4 million for the year ended December 31, 2023. This change was primarily due to the increase in operating expenses along with the decrease in gross profit for the reasons described above.
Current report
Summary of Cash Flows
Current report
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.
Current report
Net cash used in investing activities was 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. The change was primarily due to increased proceeds from the sale of investments, partially offset by increased purchases of investments.
Current report
Net cash used in financing activities was approximately $0.9 million for the year ended December 31, 2024, as compared to approximately $0.9 million for the year ended December 31, 2023. The increase in net cash used in financing activities was primarily due to reduced payments of contingent earn-out liabilities of approximately $0.6 million and increased payments of installment payment liabilities of approximately $0.6 million.*
Current report
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:
Current report
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.
Current report
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.
Current report
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.
Current report
Acquisition of Gander Group Assets
Current report
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”).
Current report
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”).
Current report
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.
Current report
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.
Current report
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.
Current report
Critical Accounting Estimates
Current report
Valuation of Goodwill and Intangible Assets
Current report
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.
Current report
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.
Current report
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.
Removed paragraphs (82)
Previous report
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Previous report
Modification of Line of Credit Terms
Previous report
Under a Commercial Loan Modification Agreement, dated as of February 12, 2024, between the Lender (as defined in “—Liquidity and Capital Resources – Debt”) and the Company (the “Loan Modification Agreement”), certain obligations and requirements of the Company under the Line of Credit Agreement (as defined in “—Liquidity and Capital Resources – Debt”) were modified, superseding the initial applicable terms, including as follows (as described in “—Liquidity and Capital Resources – Debt”):
Previous report
The foregoing description of the Loan Modification Agreement is qualified in its entirety by reference to the full text of the Loan Modification Agreement, a copy of which is attached as Exhibit 10.42 to this Annual Report, which is incorporated herein by reference.
Previous report
Annual Executive Bonuses
Previous report
On February 15, 2024, the Company awarded annual bonuses for the fiscal year ended December 31, 2023 to Andrew Shape, David Browner, John Audibert, and Sheila Johnshoy. The bonus compensation is described in Item 11. “Executive Compensation”.
Previous report
Chief Information Officer Compensation
Previous report
Effective January 2, 2024, Ian Wall became our Chief Information Officer. Mr. Wall’s compensation package is described in Item 11. “Executive Compensation – Executive Officer Employment and Consulting Agreements – Employment Agreement with Ian Wall”.
Previous report
Results of Operations
Previous report
Our sales increased 28.7% to approximately $75.9 million for the year ended December 31, 2023, from approximately $59.0 million for the year ended December 31, 2022. The increase was primarily due to higher spending from existing clients as well as business from new customers. Additionally, the acquisitions of the G.A.P. Promotions assets in January 2022, the Trend Brand Solutions assets in August 2022, the Premier NYC assets in December 2022, and the T R Miller assets in June 2023 accounted for approximately $14.7 million, or 19.4%, of sales, for 2023, compared to approximately $6.5 million, or 11.0%, of sales for 2022, as described in more detail immediately below.
Previous report
The January 2022 acquisition of the G.A.P. Promotions assets generated approximately $3.5 million of sales for the year ended December 31, 2023, compared to approximately $5.4 million from such assets for the year ended December 31, 2022. The August 2022 acquisition of the Trend Brand Solutions assets generated approximately $3.1 million of sales for the year ended December 31, 2023 compared to approximately $1.1 million from such assets for the year ended December 31, 2022. The December 2022 acquisition of the Premier NYC assets generated approximately $1.1 million of sales for the year ended December 31, 2023, compared to no sales from such assets for the year ended December 31, 2022. The June 2023 acquisition of the T R Miller assets generated approximately $7.0 million of sales for the year ended December 31, 2023, compared to no sales from such assets for the year ended December 31, 2022. Our recurring organic sales, defined as sales excluding revenue from the G.A.P Promotions, Trend Brand Solutions, Premier NYC, and T R Miller asset acquisitions, increased 16.6%, or approximately $8.7 million, to approximately $61.2 million for the year ended December 31, 2023, from approximately $52.5 million for the year ended December 31, 2022.
Previous report
Cost of sales consists of the costs of purchasing merchandiseand freight charges. Our total cost of sales increased 20.4% to approximately $51.0 million for the year ended December 31, 2023, from approximately $42.4 million for the year ended December 31, 2022. As a percentage of sales, cost of sales decreased to 67.2% for the year ended December 31, 2023 from 71.9% for the year ended December 31, 2022. More specifically, cost of purchases increased to approximately $45.4 million for the year ended December 31, 2023, or 21.4%, from approximately $37.4 million for the year ended December 31, 2022. As a percentage of sales, cost of purchases decreased to 59.8% for the year ended December 31, 2023, from 63.4% for the year ended December 31, 2022. In addition, freight costs increased to approximately $5.6 million for the year ended December 31, 2023, or 12.4%, from approximately $5.0 million for the year ended December 31, 2022. As a percentage of sales, freight costs decreased to 7.4% for the year ended December 31, 2023, from 8.5% for the year ended December 31, 2022. The increase in the dollar amount of cost of purchases and freight was primarily due to an increase in sales of 28.7% from period to period.
Previous report
Gross profit consists of sales less total costs of sales. Our gross profit increased 50.2% to approximately $24.9 million, or 32.8% of sales, for the year ended December 31, 2023, from approximately $16.6 million, or 28.1% of sales, for the year ended December 31, 2022. The increase in the dollar amount of gross profit was due to an increase in sales of approximately $16.9 million for the reasons described above, partially offset by an increase in purchasing and freight costs of approximately $8.6 million in aggregate for the reasons described above.
Previous report
Operating expenses consist of general and administrative expenses. Our operating expenses increased 44.0%, or approximately $8.0 million, to approximately $26.0 million for the year ended December 31, 2023, from approximately $18.1 million for the year ended December 31, 2022. As a percentage of sales, operating expenses increased to 34.3% for the year ended December 31, 2023, from 30.7% for the year ended December 31, 2022. The increase in the dollar amount of operating expenses was due to an increase in general and administrative expenses of approximately $8.0 million, or 44.0%, which in turn was primarily due to aggregate expenses related to the organic growth in our business.
Previous report
Other Income and Expense
Previous report
Income Taxes Provision
Previous report
Discrete tax events may cause our effective rate to fluctuate on a quarterly basis. Certain events, including, for example, acquisitions and other business changes, which are difficult to predict, may also cause our effective tax rate to fluctuate. We are subject to changing tax laws, regulations, and interpretations in multiple jurisdictions. Corporate tax reform continues to be a priority in the U.S. and other jurisdictions. Additional changes to the tax system in the U.S. could have significant effects, positive and negative, on our effective tax rate and our deferred tax assets and liabilities. For further discussion of changes in the income tax provision, refer to Notes A and S to our financial statements beginning on page F-1 of this Annual Report.
Previous report
Net Earnings and Losses
Previous report
Our net earnings for the year ended December 31, 2023 was approximately $0.04 million, compared to a net loss of approximately $0.8 million for the year ended December 31, 2022. This change was primarily due to the increase in sales during 2023 from the acquisition of the assets of each of G.A.P. Promotions, Trend Brand Solutions, Premier NYC, and T R Miller to approximately $14.7 million in aggregate, from approximately $6.5 million from the acquisition of the assets of G.A.P. Promotions, Trend Brand Solutions, and Premier NYC during 2022, and the increase of approximately $8.7 million from recurring organic sales during 2023 compared to 2022. These factors were partially offset by the reasons described above for the increase in operating expenses and the increase in purchasing costs.
Previous report
Summary of Cash Flow
Previous report
Cash Flow
Previous report
Net cash used in operating activities was approximately $4.4 million for the year ended December 31, 2023, as compared to net cash used in operating activities of approximately $2.9 million for the year ended December 31, 2022. For the year ended December 31, 2023, increases in accounts receivable of approximately $6.0 million, accrued payroll and related of approximately $2.0 million, andunearned revenue of approximately $4.5 million along with a decrease in rewards program liability of approximately $5.1 million were the primary drivers of the net cash used in operating activities. For the year ended December 31, 2022, anincrease in accounts receivable of approximately $5.5 million, inventory of approximately $1.6 million, and rewards program liability of approximately $6.0 million were the primary drivers of net cash used in operating activities. The change in net cash used in operating activities for the year ended December 31, 2023 compared to the year ended December 31, 2022 occurred in the normal course of business due to growth in organic business.
Previous report
Net cash used in investing activities was approximately $2.1 million for the year ended December 31, 2023, as compared to net cash used in investing activities of approximately $11.3 million for the year ended December 31, 2022. For the years ended December 31, 2023 and 2022, asset acquisitions for net cash outlays totaling approximately $0.7 million and $0.7 million, respectively, additions to software-related property and equipment totaling approximately $1.0 million and $0.6 million, respectively, and purchases of investments totaling approximately $0.4 million and $10.0 million, respectively, were the primary drivers of the net cash used in investing activities. The decrease in net cash used in investing activities for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily due to reduced purchases of investments.
Previous report
Net cash used in financing activities was approximately $0.8 million for the year ended December 31, 2023, as compared to net cash provided by financing activities of approximately $2.7 million for the year ended December 31, 2022. For the year ended December 31, 2023, net cash used in financing activities consisted primarily of payments related to a contingent earn-out liability of approximately $0.8 million and the repurchase of our common stock under our stock repurchase program for approximately $0.05 million. For the year ended December 31, 2022, net cash used in financing activities consisted primarily of payments related to a contingent earn-out liability of approximately $0.7 million and the repurchase of our common stock under our stock repurchase program for approximately $3.3 million, offset by net proceeds received from the exercise of our publicly-traded warrants of approximately $1.3 million. The decrease in net cash used in financing activities for the year ended December 31, 2023 compared to the year ended December 31, 2022 was primarily due to the non-recurrence of proceeds from the exercise of our publicly-traded warrants, offset by reduced repurchases of our common stock, during the year ended December 31, 2022.
Previous report
Stock Repurchase Program
Previous report
As initially announced on February 23, 2022, under our stock repurchase program, we may repurchase up to $10 million of our outstanding shares of common stock from time to time in the open market, in accordance with all applicable securities laws and regulations, including Rule 10b-18. Our decision to repurchase our shares, as well as the timing of such repurchases, will depend on a variety of factors that include ongoing assessments of our capital needs, market conditions and the price of our common stock, and other corporate considerations, as determined by management. Repurchases will also only be made in accordance with the Company’s insider trading policy as if such purchases were made by a person covered by the policy. Our insider trading policy generally permits insider purchases of our stock only during the period beginning on the second business day following the day of public release of our quarterly or annual earnings and ending on the last day of the then-current quarter. There is no defined number of shares to be repurchased over a specified timeframe through the life of the stock repurchase program. The repurchase authorization has no expiration date but may be suspended or discontinued at any time. Stock repurchases are paid using cash generated by operations.
Previous report
In connection with our stock repurchase program, on May 23, 2022, we announced that we had established a trading plan with B. Riley intended to qualify under Rule 10b-18. In May 2023, we renewed the trading plan. The trading plan instructs B. Riley to repurchase shares of common stock for our account in accordance with Rule 10b-18 and our instructions. Repurchases under the trading plan may continue until the trading plan terminates in June 2024 unless terminated earlier or extended.
Previous report
As of December 31, 2023, we had repurchased a total of 1,815,166 shares of common stock for total payments of $3,382,406, and $6,617,594 remained available under the stock repurchase program for future stock repurchases. During the three months ended December 31, 2023, we repurchased a total of 18,007 shares for aggregate payments of $25,696 under the Trading Plan. See Item 5. “Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. – Purchases of Equity Securities” for further information about repurchases of common stock during the three months ended December 31, 2023.
Previous report
The foregoing description of the Loan Agreement, the Note, and the Security Agreement is qualified in its entirety by reference to the full text of the Loan Agreement, the Note, and the Security Agreement, copies of which are attached as Exhibit 10.19, Exhibit 10.20 and Exhibit 10.21 to this Annual Report, respectively, which are incorporated herein by reference.
Previous report
The foregoing description of the Warehouseman’s Waiver is qualified in its entirety by reference to the full text of the Warehouseman’s Waiver, a copy of which is attached as Exhibit 10.22 to this Annual Report, which is incorporated herein by reference.
Previous report
Wildman Imprints Assets Acquisition
Previous report
On August 24, 2020, we entered into an Asset Purchase Agreement (the “Wildman Imprints Asset Purchase Agreement”), to acquire inventory, fixed assets, and a customer list of Wildman Imprints. The acquisition closed on September 26, 2020. In connection with the asset acquisition, the customer list was purchased in part under the following earn-out payment terms. The required earn-out payments are equal to 15% of the Gross Profit (as defined by the Wildman Imprints Asset Purchase Agreement) earned from the sale of product to the customer list for the first year following the date of the agreement and 30% for the second and third years following the date of the agreement. Earn-out payments are due within 30 days of the anniversary date of the agreement for the first year and within 30 days of each quarter for the second and third year following the date of the agreement. Any additional Wildman Imprints accounts with a strong history that are purchased will have the same earn-out terms. Additional payments are due for certain referred accounts in the amount of 5% of sales for the first year following the referral date, 3% of sales for the second year following the referral date, and 1% of sales for the third year following the referral date. At December 31, 2023 and December 31, 2022, the current portion of the earn-out liability amounted to $0 and $742,874, respectively.
Previous report
In connection with the asset acquisition, we also had an amount due to the seller under a note in the amount of $162,358 as of December 31, 2022 for the inventory and property and equipment purchased. This amount accrued no interest, and was to be paid “as used” on a quarterly basis through the three-year earn-out period. As of September 30, 2023, the note was forgiven in full. We expect no deficiencies in our ability to make the payments required under the asset purchase agreement. The aggregate purchase price was $2,937,222, as follows:
Previous report
For further discussion see Notes J and M to our financial statements beginning on page F-1 of this Annual Report.
Previous report
G.A.P. Promotions Assets Acquisition
Previous report
On January 31, 2022, the Company closed on an asset purchase agreement, dated as of January 21, 2022, as amended on January 31, 2022, to acquire inventory, working capital, and a customer list from G.A.P. Promotions (the “G.A.P. Promotions Asset Purchase Agreement”).
Previous report
The purchase price included cash payments as follows: $500,000 in cash, subject to adjustment, plus additional cash for the certain inventory on hand at cost; $180,000 due January 31, 2023; and $300,000 due January 31, 2024. The Company also issued 46,083 shares of restricted common stock to the principal owner of G.A.P. Promotions.
Previous report
The seller is also entitled to receive the following earn-out payments to the extent that the acquired business achieves the applicable Gross Profit (as defined by the G.A.P. Promotions Asset Purchase Agreement) targets: (1) An earn-out payment equal to 70% of annual Gross Profit of the acquired business to the extent Gross Profit is above $1,500,000 for the trailing 12-month period from the first anniversary of the closing date, subject to deductions for certain inventory and accounts receivables that are not purchased or paid for by customers; and (2) an earn-out payment equal to 70% of annual Gross Profit of the acquired business to the extent Gross Profit is above $1,500,000 for the trailing 12-month period from the second anniversary of the Closing Date. Earn-out payments are due within 30 days from the date on which they are determined to be owed.
Previous report
In accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 805, “Business Combinations” (“FASB ASC 805”), the acquisition method of accounting has been applied and recognition of the assets acquired has been determined at fair value as of the acquisition date. All acquisition costs have been expensed as incurred. The consideration paid has been allocated to the assets acquired based on their estimated fair values at the acquisition date. The estimate of fair values for tangible assets acquired was agreed to by both buyer and seller. The aggregate purchase price was $3,245,872, as follows:
Previous report
For further discussion relating to this transaction, see Notes J and N to our financial statements beginning on page F-1 of this Annual Report. The foregoing description of the G.A.P. Promotions Asset Purchase Agreement and assets acquired from G.A.P. Promotions is qualified in its entirety by the full text of the asset purchase agreement and amendment thereto, which are filed as Exhibit 2.1 and Exhibit 2.2 to this Annual Report, respectively, and incorporated by reference herein.
Showing the first 40 of 82 passages. Open the source sections for the rest.
Reworded paragraphs (27)
Previous wording
In addition to selling branded products, we offer clients custom sourcing capabilities; a flexible and customizable e-commerce solution for promoting branded merchandise and other promotional products, managing promotional loyalty and incentives, print collateral, and event assets, order and inventory management, and designing and hosting online retail popup shops, fixed public retail online stores, and online business-to-business service offerings; creative and merchandising services; warehousing/fulfillment and distribution; print-on-demand; kitting; point of sale displays; and loyalty and incentive programs.
Current wording
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; POS displays; and loyalty and incentive programs.
Previous wording
The majority of our revenue is derived from program business, although only a small percentage of our customers are considered programmatic. For the years 2023 and 2022, program clients accounted for 77.2% and 82.2% of total revenue, respectively. Fewer than 350 of our more than 2,000 active customers are considered to be program clients. Ouractive 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 that helps secure recurring revenue well into the future.
Current wording
The majority of our revenue is derived from program business, although only a small percentage of our customers are considered programmatic. For the years ended December 31, 2024 and 2023, program clients accounted for 83.3% and 81.4% 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 that helps secure recurring revenue well into the future.
Previous wording
Our sales increased 28.7% year-over-year in 2023 compared to 2022, which we believe was primarily due to higher spending from existing clients as well as business from new customers. Additionally, we benefited from the acquisition of the assets of G.A.P. Promotions in January 2022, the assets of Trend Brand Solutions in August 2022, the assets of Premier NYC in December 2022, and the assets of T R Miller in June 2023.
Current wording
Our sales increased 8.8%year-over year in 2024 compared to 2023, which we believe was primarily due to higher spending from existing clients as well as business from new customers. Additionally, we benefited from the acquisition of the assets of T R Miller in June 2023, and the Gander Group Assets in August 2024, respectively.
Previous wording
As of December 31, 2023, we had $61.6 million of total assets with $39.5 million of total stockholder equity.
Current wording
As of December 31, 2024, we had approximately $55.1 million of total assets with approximately $31.6 million of total stockholders’ equity.
Previous wording
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 IPO, (ii) the last day of the first fiscal year in which our total annual gross revenues are $1.07 billion or more, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iv) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
Current wording
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 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.
Previous wording
Sales consist primarily of the selling price of the merchandise, service or outbound shipping and handling charges, less discounts, coupons redeemed, returns and credits.
Current wording
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):
Previous wording
Other income and (expense) consist of other income, interest income, and unrealized gain (loss) on investments. Our other income was $375,063 for the year ended December 31, 2023, compared to $112,507 for the year ended December 31, 2022. This change was primarily due to an accrual adjustment to certain earn-out obligations relating to our acquisition of the assets of Wildman Imprints, Trend Brand Solutions, and Premier NYC. Our interest income was $570,387 for the year ended December 31, 2023, compared to $94,680 for the year ended December 31, 2022. This change was primarily due to interest generated from investments. Our unrealized gain (loss) on investments was $269,587 for the year ended December 31, 2023, compared to $(179,120) for the year ended December 31, 2022. This change was primarily due to the recording of all investments at estimated fair value.
Current wording
Other income consists of other income, interest income, change in fair value of contingent earn-out liability, and realized gain on investments. Our other income, net was approximately$38 thousandfor the year ended December 31, 2024, compared to approximately$186 thousand for the year ended December 31, 2023. This change was primarily due to an increase in noncash accretion expense in 2024 relative to 2023, related to certain installment payment liabilities. Our interest income was approximately$305 thousandfor the year ended December 31, 2024, compared to approximately$570 thousandfor the year ended December 31, 2023. This change was primarily due to a decrease in interest generated from investments. Our change in fair value of contingent earn-out liability was approximately $208 thousand for the year ended December 31, 2024, compared to approximately $65 thousand for the year ended December 31, 2023. This change was primarily due to an update to the estimated fair value of the remaining contingent earn-out liabilities related to business combinations. Our realized gain on investments was approximately $208 thousand for the year ended December 31, 2024, compared to approximately$103 thousand for the year ended December 31, 2023. This change was primarily due to the sale of investments above their initial value.
Previous wording
Income tax provision for the year ended December 31, 2023 was approximately $0.03 million compared to income tax provision of approximately $(0.7) million for the year ended December 31, 2022. Income tax provision for the years ended December 31, 2023 and 2022 accounted for 47.3% and 47.3% of earnings (loss) before income taxes of approximately $0.1 million and approximately $(1.5) million for the years ended December 31, 2023 and 2022, respectively. For 2023 and 2022, the Company recorded an income tax provision comprised substantially of a deferred tax asset in the form of an operating loss carryforward. No valuation allowance against the deferred tax asset was accounted for due to the indefinite life of the asset.
Current wording
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.
Previous wording
Our effective tax rate is directly affected by the relative proportions of revenue and income before taxes in the jurisdictions in which we operate. Based on management’s expectations of future earnings, we anticipate that our effective tax rate will remain similar to the federal tax rate of 21%. State income taxes will fluctuate based annually on apportionment of sales by state.
Current wording
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.
Previous wording
As of December 31, 2023, we had cash and cash equivalents of approximately $8.0 million and investments of approximately $10.5 million. We have financed our operations primarily through cash generated from the IPO in November 2021, our private placement of common stock and warrants to purchase common stock in December 2021, operations, and bank borrowings, including a secured revolving demand line of credit that was opened with Salem Five Cents Savings Bank in November 2021 for aggregate loans of up to $7.0 million, subject to a number of asset-related and other financial requirements and other covenants, terms and conditions as described in detail below under “– Debt”.
Current wording
As of December 31, 2024, we had cash and cash equivalents of approximately$9.4 million and investments of approximately$8.9 million. We have 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 operations.
Previous wording
The following table provides detailed information about our net cash flow for fiscal years ended December 31, 2023 and December 31, 2022:
Current wording
The following table provides detailed information about our net cash flows for the years ended December 31, 2024 and 2023.
Previous wording
On November 22, 2021, we entered into a Revolving Demand Line of Credit Loan Agreement (the “Line of Credit Agreement”), with Salem Five Cents Savings Bank (the “Lender”), for aggregate loans of up to $7 million (the “Line of Credit”), evidenced by a Revolving Demand Line of Credit Note, also dated November 22, 2021 (the “Note”). The Line of Credit and Note are secured by a first priority security interest in all assets and property of the Company, as provided in the Security Agreement, also dated November 22, 2021, between the Lender and the Borrower (the “Security Agreement” and together with the Line of Credit Agreement and the Note, the “Line of Credit Documents”), and as described below. In addition, see “—Recent Developments – Modification of Line of Credit Terms” as to the recent modification of certain terms of the Line of Credit.
Current wording
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 Centsand 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”).
Previous wording
The amount available under the Line of Credit is the lesser of $7.0 million or the sum of (x) 80% of the then-outstanding amount of Eligible Accounts (as defined below), plus (y) 50% of Eligible Inventory (as defined below); minus 100% of the aggregate amount then drawn under the Line of Credit for the account of the Company. In addition, advances based upon Eligible Inventory must be capped at all times at $2,000,000. “Eligible Accounts” are defined as accounts that meet a number of requirements, including, unless otherwise approved by the Lender, being less than 90 days from the date of invoice not subject to any prior assignment, claim, lien, or security interest, not subject to set-off, credit, allowance or adjustment by the account debtor, arose in the ordinary course of the Company’s business, not an intercompany obligation, not subject to notice of bankruptcy or insolvency of the account debtor, not owed by an account debtor whose principal place of business is outside the United States, not a government account, not be evidenced by promissory notes, and not one of the accounts owed by an account debtor 25% or more of whose accounts are 90 or more days past invoice date; or otherwise not deemed acceptable by the Lender in accordance with its normal credit policies. “Eligible Inventory” means all finished goods, work in progress and raw materials and component parts of inventory owned by the Company. It does not include any inventory held on consignment or not otherwise owned by the Company; any inventory which has been returned by a customer or is damaged or subject to any legal encumbrances other than a first priority security interest held by the Company; any inventory which is not in the possession of the Company; any inventory which is held by the Company on property leased by the Company unless the Lender has received a landlord lien waiver and collateral access agreement from the lessor of such property satisfactory to the Lender; any inventory which is not located within the United States; any inventory which the Lender reasonably deems to be obsolete or non-marketable; and any inventory not subject to a first priority fully perfected lien held by the Lender.
Current wording
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.
Previous wording
The Line of Credit is subject to interest at the prime rate plus 0.5% per annum. The Company must repay interest on Line of Credit proceeds on a monthly basis. The Line of Credit will continue indefinitely, subject to the Lender’s demand rights and the Company’s ongoing affirmative and other obligations under the Line of Credit Documents, as summarized below.
Current wording
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.
Previous wording
The Company may freely draw upon the Line of Credit subject to the Lender’s right to demand complete repayment of the Line of Credit at any time. Late payments are subject to a late payment charge of 5%. In the event of failure to repay the Line of Credit after the Lender makes demand for full repayment, the interest rate will increase by 10%. The Note may be prepaid at any time without penalty. The Lender may assign the Note without the Company’s consent.
Current wording
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.
Previous wording
Under the Security Agreement and the other Line of Credit Documents, the Company granted the Lender a first priority security interest in all of its assets, including both assets owned as of the date of the Line of Credit and afterwards, as collateral for full repayment of the Line of Credit. The Lender may file Uniform Commercial Code financing statements with any jurisdiction and with sufficient descriptions of the property to perfect its security interest in all of the Company’s current and future assets. Upon default of the Line of Credit, the Lender may accelerate repayment of the 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 must pay for all of the Lender’s reasonable legal fees and expenses incurred to enforce its rights under the Line of Credit Documents.
Current wording
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.
Previous wording
Under the Line of Credit Agreement, the Company is required to continue its current business of outsourced marketing solutions, and, without the prior consent of the Lender, the Company may not acquire in whole or in part any other company or business and shall not engage in any other business or open any other locations. The Company must use the proceeds of the Line of Credit only in connection with the general and ordinary operations of its business and for the purpose of general working capital for accounts receivable and inventory purchases.
Current wording
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.
Previous wording
The Line of Credit was also initially subject to the following ongoing affirmative obligations of the Company: Making punctual repayment of the 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 the Lender; allowing the Lender to inspect its accounting books and records; furnishing audited, quarterly, monthly and other financial statements to the Lender; making payment of Lender’s reasonable expenses for a field exam in 2022 (see “—Recent Developments – Modification of Line of Credit Terms” as to the recent modification of this term); allowing the Lender 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 the Lender as Mortgagee/Loss Payee; causing management contracts for the Company’s properties to be subordinated to the rights of the Lender; and allowing no change of property management company without the prior written consent of the Lender..
Current wording
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.
Previous wording
The Line of Credit was also initially subject to the Company meeting the following financial requirements: (a) “Debt Service Coverage Ratio” defined as 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” defined as minimum net worth of $2,000,000 at December 31, 2021, $2,750,000 at December 31, 2022, and $3,500,000 at December 31, 2023. See “——Recent Developments – Modification of Line of Credit Terms” as to the recent modification of these terms.
Current wording
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.
Previous wording
The Company also may not, without the prior approval by the Lender, 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. See “——Recent Developments – Modification of Line of Credit Terms” as to the recent modification of these terms.
Current wording
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.
Previous wording
In connection with the Line of Credit Agreement, on November 22, 2021, the Company, the Lender and Harte Hanks Response Management/Boston, Inc. (the “Warehouse Provider”), the lessor of certain warehouse facilities to the Company, executed a Warehouseman’s Waiver in favor of the Lender (the “Warehouseman’s Waiver”). Under the Warehouseman’s Waiver, the Warehouse Provider disclaimed any interest in the property of the Company stored on the premises (the “Collateral”), and agreed not to interfere with the Lender’s enforcement of its rights in the Collateral. The Warehouse Provider further agreed to provide notice to the Lender of any default by the Company of its obligations as to the Warehouse Provider, and to give the Lender at least 30 days to exercise its rights, which period may be extended by the Lender up to 60 days upon its payment of the per-diem rental amount. After that period, unless the default has been cured by the Lender, the Warehouse Provider may dispose of such Collateral as it deems fit. Upon the receipt of written notice from the Lender and until such notice is rescinded, the Warehouse Provider shall only honor instructions from the Lender with respect to the Collateral, including any direction from the Lender to dispose of all or any portion of the Collateral at any time, without any further consent or instruction from Company.
Current wording
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.
Previous wording
The following is a schedule by years of future minimum lease payments:
Current wording
The following is a schedule by years of future minimum lease payments (in thousands):
Previous wording
Lease cost for the years ended December 31, 2023 and 2022 totaled $557,687 and $466,895, respectively. We anticipate no deficiencies in our ability to make these payments.
Current wording
Lease cost for the years ended December 31, 2024 and 2023 totaled approximately $0.7 million and $0.5 million, respectively. We anticipate no deficiencies in our ability to make these payments.
Previous wording
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. At December 31, 2023 and December 31, 2022, the Company had net deposits totaling $875,000 and $6,000,000, respectively.
Current wording
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, 2024 and December 31, 2023, the Company had net deposits totaling approximately $6.0 million and $0.9 million, respectively.
Previous wording
Our other principal cash payment obligations have consisted principally of obligations under the Line of Credit described above. As stated above, as of December 31, 2023 and December 31, 2022, we had not drawn any funds from the Line of Credit under the Line of Credit Agreement.
Current wording
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.
Previous wording
We believe that the assumptions and estimates associated with investments, inventory valuation, intangible assets, revenue recognition, stock-based compensation expense and income taxes have the greatest potential impact on our financial statements. 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.
Current wording
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.
Previous wording
For a discussion of recently adopted accounting pronouncements, seeRecently Issued Accounting Pronouncements in Note A to our financial statements beginning on page F-1 of this Annual Report.
Current wording
For a discussion of recently adopted accounting pronouncements, seeRecently Issued Accounting Pronouncements in Note A.27 to our financial statements beginning on page F-1 of this Annual Report on Form 10-K.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
As of December 31, 2023 and 2022, we had not drawn any funds from the Loan under the Loan Agreement.