Item 1A. Risk Factors. 19
Item 1B Unresolved Staff Comments. 33
Item 2. Properties. 33
Item 3. Legal Proceedings. 33
Item 4. Mine Safety Disclosures. 33
PART II
Item 6. [Reserved] 35
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 53
Item 8. Financial Statements and Supplementary Data. 53
Item 9A. Controls and Procedures. 54
Item 9B. Other Information. 54
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. 54
PART III
Item 10. Directors, Executive Officers and Corporate Governance. 55
Item 11. Executive Compensation. 62
Item 14. Principal Accounting Fees and Services. 78
PART IV
Item 15. Exhibit and Financial Statement Schedules. 79
i
INTRODUCTORY NOTES
Use of Terms
Except as otherwise indicated by the context
and for the purposes of this report only, references in this report to “we,” “us,” “our,” the “Company,”
“Stran,” and “our company” are to Stran & Company, Inc., a Nevada corporation.
Note Regarding Forward Stock Split
Except as otherwise specifically indicated, all
information in this Annual Report on Form 10-K has been retroactively adjusted to give effect to a 100,000-for-1 forward stock split
of our outstanding common stock through our reincorporation merger in Nevada that was effective as of May 24, 2021. References to number
of shares of our common stock after May 24, 2021 have given effect to this split.
Note Regarding Trademarks,
Trade Names and Service Marks
We use various trademarks, trade names and service
marks in our business, including “STRÄN,” “STRÄN promotional solutions” and “Stran Promotional
Solutions”. For convenience, we may not include the SM, ® or TM symbols, but such omission is not
meant to indicate that we would not protect our intellectual property rights to the fullest extent allowed by law. Any other trademarks,
trade names or service marks referred to in this report are the property of their respective owners.
Note Regarding Industry and Market Data
This report includes industry data and forecasts
that we obtained from industry publications and surveys including but not limited to certain publications of the promotional products
member groups Advertising Specialty Institute (ASI) and the Promotional Products Association International (PPAI), as well as public
filings and internal company sources. Industry publications, surveys and forecasts generally state that the information contained therein
has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of the included
information. Statements as to our ranking, market position and market estimates are based on third-party forecasts, management’s
estimates and assumptions about our markets and our internal research. We have not independently verified such third-party information,
nor have we ascertained the underlying economic assumptions relied upon in those sources, and we cannot assure you of the accuracy or
completeness of such information contained in this report. Such data involve risks and uncertainties and is subject to change based on
various factors, including those discussed under “Risk Factors” and “Note Regarding Forward-Looking Statements.”
Note Regarding Forward-Looking Statements
This report contains forward-looking statements
that are based on our management’s beliefs and assumptions and on information currently available to us. All statements other than
statements of historical facts are forward-looking statements. These statements relate to future events or to our future financial performance
and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance
or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied
by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:
● the impact of the COVID-19 pandemic on our operations and financial condition;
● our goals and strategies;
● expected changes in our revenue, costs or expenditures;
● growth of and competition trends in our industry;
● our expectations regarding demand for, and market acceptance of, our products;
ii
● relevant government policies and regulations relating to our industry.
In some cases, you can identify forward-looking
statements by terms such as “may,” “could,” “will,” “should,” “would,” “expect,”
“plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,”
“potential,” “project” or “continue” or the negative of these terms or other comparable terminology.
These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and
unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results.
Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under
Item 1A “Risk Factors” and elsewhere in this report. If one or more of these risks or uncertainties occur, or if our
underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the
forward-looking statements. No forward-looking statement is a guarantee of future performance.
In addition, statements that “we believe”
and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available
to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information
may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or
review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not
to unduly rely upon these statements.
The forward-looking statements made in this report
relate only to events or information as of the date on which the statements are made in this report. Except as expressly required by
the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result
of new information, future events, changed circumstances or any other reason.
iii
PART I
ITEM 1. BUSINESS.
Overview
We are an outsourced marketing
solutions provider, working closely with our customers to develop sophisticated marketing programs that leverage our promotional products
and loyalty incentive expertise. We develop long-term relationships with our customers, enabling them to connect with both their customers
and employees in order to build lasting brand loyalty. It is our mission to drive brand awareness and affect behavior through visual,
creative, and technology solutions.
We purchase products and
branding through various third-party manufacturers and decorators and resell the finished goods to customers. In addition to selling
branded products, we offer our clients:
● custom sourcing capabilities;
● a flexible and customizable e-commerce solution for
● promoting branded merchandise and other promotional products;
● order and inventory management; and
● creative and merchandising services;
● warehousing/fulfillment and distribution;
● print-on-demand, kitting, and point of sale displays; and
● loyalty and incentive programs.
These valuable services, as well as the deep
level of commitment we have to the business operations of our customers, have resulted in a strong and stable position within the industry.
We specialize in managing complex promotional
marketing programs to help recognize the value of promotional products and branded merchandise as a tool to drive awareness, build brands
and impact sales. This form of advertising is very powerful and impactful and particularly effective at building brand loyalty because
it typically uses products that are considered useful and appreciated by recipients and are retained and used or seen repeatedly, repeating
the imprinted message many times without adding cost to the advertiser. We have built the tools, processes, relationships and the blueprint
to maximize the potential of these products and deliver the most value to our customers.
For over 25 years we have
grown into a leader in the promotional products industry, ranking 30th overall and 22nd fastest-growing in the United States on Print+Promo
Marketing’s 2021 Top Distributors list, and 32nd based on ASI’s Counselor magazine 2021 Top 40 Distributors
list, from over 40,000 promotional products businesses. Since our first year of operations in 1995, our annual revenues have gradually
grown from approximately $240,000 to over $39.7 million in 2021, a compound annual growth rate of approximately 22%, and between 2017
and 2021, our revenues grew at a compound annual growth rate of approximately 19%. During 2017 through 2021, we had consistent gross
margins of approximately 30%, and processed over 25,000 customer orders per year.
Our 2020 revenues and gross
margins include nonrecurring revenues representing 27.1% of our overall revenues for 2020, as a subcontractor for the 2020 U.S. Census.
The customer that engaged us in this regard will not renew their engagement with us due to the U.S. Census only occurring once every
ten years. As a result, these nonrecurring revenue increases have not recurred and are not expected to recur and do not represent our
long-term growth expectations.
1
As of December 31, 2021,
we had total assets of $51.2 million with total shareholder equity of $41.6 million.
We serve a highly diversified
customer base across many industry verticals including pharmaceutical and healthcare, manufacturing, technology, finance, construction
and consumer goods. Many of our customers are household names and include some of the largest corporations in the world.
Our sales increased 5.2% year-over-year in 2021
compared to 2020, which we believe was primarily due to higher spending from existing clients as well as business from new customers.
Additionally, we benefited from the acquisition of the Wildman Imprints assets in September 2020. However, these increases in sales were
partially offset by the completion of the U.S. Census program in 2020, market saturation of personal protective equipment in 2021, a
lack of in-person events, businesses still not being fully reopened throughout 2021 as a result of the COVID-19 pandemic, and continuing
supply chain problems. For further discussion, see “COVID-19 Pandemic”
below.
Our headquarters are located
at Quincy, Massachusetts, with additional offices located in Gloucester, Massachusetts; Warsaw, Indiana; Fairfield, Connecticut; and
Mt. Pleasant, South Carolina. We also have sales representatives in twelve additional locations across the United States and a network
of service providers in the U.S. and abroad, including factories, decorators, printers, logistics firms, and warehouses.
Our Industry
Overview of Promotional Products Market
The promotional products industry is large yet
highly-fragmented, with thousands of smaller participants and indications of a lack of market power in any one firm or group of firms.
The industry has generally experienced growth as businesses continuously invest in sophisticated marketing campaigns involving multiple
types of advertising. Promotional products are items used to promote a product, service or company program including advertising specialties,
premiums, incentives, business gifts, awards, prizes, commemoratives and other imprinted or decorated items. They are usually given away
by companies to consumers or employees. The largest promotional products trade organizations are the Advertising Specialty Institute
(ASI) and Promotional Products Association International (PPAI).
U.S. Promotional Products is a Large and Growing Market
According to the ASI, the U.S. market for promotional
products exceeded $23 billion in 2021 and includes over 40,000 businesses. Moreover, the promotional products market is only one segment
of a total addressable market of possibly up to $384 billion based on the size of the product packaging market ($180 billion as of 2019,
according to Statista, a leading provider of market and consumer data); the loyalty incentive programs market ($90 billion annually according
to the Incentive Marketing Association, the umbrella organization for suppliers in the incentive marketplace); the printing market ($75
billion as of 2021, according to IBISWorld, an industry research provider); and the tradeshow market ($17 billion projected for 2021,
according to MarketingCharts.com, a provider of marketing data, graphics, and analyses).
We believe that U.S. promotional products spending
has been severely impacted by the COVID-19 pandemic. According to ASI, promotional product distributor sales decreased nearly 20% from
$25.8 billion in 2019 to $20.7 billion in 2020. Although promotional product distributor sales increased approximately 12% from $20.7
billion in 2020 to $23.2 billion in 2021, they were still below the $25.8 billion industry record set in the last full pre-pandemic year
of 2019.
The Promotional
Products Industry Is Resilient To Other Forms of Advertising
The promotional products
industry is relatively insulated from other forms of advertising such as television and digital advertising. Although promotional products
compete for space within an advertising budget with other forms of advertising, particularly online advertising, they offer distinct
benefits, particularly due to their physical nature, which may help distributors and suppliers continue to sell these products and related
services despite these budgetary pressures. Data shows that promotional products are more effective in generating brand recognition and
sales than other forms of advertising, including television and online advertisements. These factors help shield established industry
firms like ours from the technological and competitive disruption experienced by other types of media advertisers.
2
The Promotional Products Industry is Highly
Fragmented
The promotional products
industry is also highly fragmented. The industry includes over 40,000 firms. As of 2020 the firm with the greatest percentage of industry
sales generated $766 million in revenue but made up only approximately 3.7% of the $20.7 billion in revenues generated in 2020 by promotional
products distributors, based on information reported by ASI. As a group, the top 40 distributors had approximately 34% market share as
of 2020, based on total sales of approximately $7.0 billion out of total promotional products distributors’ revenues for 2020 of
$20.7 billion, based on ASI’s reports.
Unlike our company, which
provides comprehensive solutions to complex promotional and branding challenges, we view most of our competitors as generally falling
into one of the five categories below:
Promotional Products are a High-impact,
Cost-effective Advertising Medium
Because promotional products are useful and appreciated
by recipients, they are retained and used, repeating the imprinted message many times without added cost to the advertiser. ASI’s
Global Ad Impressions Study, 2020 Edition, reported:
In 2018, PPAI reported that promotional products
are the most impactful form of advertising across all generations. Whereas reportedly less than 55% of consumers read or watch an entire
advertisement online, in an email, on television, in the mail, in a magazine, or on the radio, over 80% of consumers retain promotional
products. Moreover, promotional products have been ranked the most effective form of advertising across all generations, outranking even
television, online, print, and mobile forms. A 2019 PPAI report revealed additional statistics reflecting the significant impact of promotional
products on consumers:
● Eight out of ten consumers enjoy receiving promotional products.
● Seven in ten consumers would like to receive promotional products more often.
3
Nearly all consumers say they would go out of
their way to receive promotional products.
As of 2016, PPAI reported that, overall, buyers
consider promotional products mostly or always effective in achieving marketing goals. They generally consider promotional products more
effective than social media and nearly as effective as all other media. Data indicates that the majority of buyers do have a budget set
aside for promotional products. However, for more than 72% the allocation is less than 20% of their marketing advertising budget. When
asked what their plans were for promotional products spend over the next 12 months, only 3% projected a decrease in product purchases.
This data suggests that the potential for promotional products’ market growth is significant.
The COVID-19 Pandemic’s Effects on
the Promotional Products Industry
As in many other industries, we believe that
the COVID-19 pandemic has weakened many promotional products distributors. According to ASI, the promotional products industry experienced
a nearly 20% sales decline in 2020 to $20.7 billion compared to the $25.8 billion industry record set in the last full pre-pandemic year
of 2019. Print+Promo Marketing’s 2021 Top Distributors report, which ranked the top 75 distributors based on 2020 sales,
found that 42 (56%) experienced sales decreases in 2020 compared to the prior year. According to ASI the promotional products industry
in 2021 experienced a sales increase of approximately 12% to $23.2 billion and nearly three-quarters of distributors (72%) increased
annual revenue as COVID-19 vaccines became widely available and pockets of the U.S. economy began to reopen. In terms of the top five
vertical markets, the most opportunities for Print+Promo Marketing’s 2021 Top Distributors were those in Health Care (listed
37 times), Financial (listed 26 times), Retail (listed 20 times), Technology (listed 20 times), and Manufacturing (listed 18 times).
A recent forecast from global advertising corporation
WPP plc’s ad-buying unit GroupM found that there appears to be a “K-shaped” recovery for the advertising industry as
well as the overall U.S. economy. The “K” shape indicates a quick rebound for some marketers and a continued downward trajectory
for others. For example, e-commerce and advanced digital services such as telehealth and remote learning have exploded during the COVID-19
pandemic. On the other hand, restaurants, bars, travel, entertainment and nonessential businesses have all suffered. Overall, those dependent
on traditional media including radio, newspapers and outdoor advertising, and those whose clients were largely nonessential services
such as restaurants, bars, travel, entertainment have all suffered. On the other hand, demand for e-commerce and advanced digital services
such as telehealth and remote learning, and home refinancings and the banking industry in general, have massively accelerated and saw
record volumes during the COVID-19 pandemic.
The COVID-19 Pandemic’s Effects on Our Business
We believe that the COVID-19 pandemic has impacted
Stran’s operational and financial performance. As was typical for other firms in the promotional products industry, from March
2020 through the end of 2021, we believe that our revenues were adversely affected by decreased demand for promotional products and services
such as ours due to a lack of in-person events, businesses not being fully reopened and staffed, and customers’ decreased marketing
budgets. We also experienced higher costs of supplies of product materials due to continued increases in expenses, especially higher
freight charges and raw material costs, and a more challenging supply chain from issues such as port congestion. We expect these effects
to continue in 2022.
We have responded to the challenges resulting from the COVID-19 pandemic by developing a clear company-wide strategy and sticking to
our hardworking culture and core value of delivering creative merchandise solutions that effectively promote our customers’ brands.
We continue to focus on our core group of customers while providing additional value-added services, including our e-commerce platform
for order processing, warehousing and fulfillment functions, and propose alternative product offerings based on their unique needs. We
also continue to solicit and market ourselves to long-term prospects that have shown interest in Stran. We have remained committed to
being a high-touch customer-focused company that provides our customers with more than just products. Below are some of the specific
ways we have responded to the current pandemic:
4
We believe that we have seen encouraging signs
of recovery from the effects of the COVID-19 pandemic. There has been a significant increase in the amount of requests for proposal and
other customer inquiries since the beginning of 2021, which leads us to believe that companies are preparing to spend at previous or
increased levels. We expect going forward that pent-up demand from more widespread immunity to the COVID-19 virus and societal reopening
will help compensate for lower sales in prior periods.
For a further discussion of the impact of the
COVID-19 pandemic on our business, please see the discussion in “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and in particular the subsection entitled “Impact of COVID-19 Pandemic”.
Competitive Strengths
We believe our key competitive strengths include:
5
Growth Strategies
The key elements of our strategy to grow our
business include:
We believe that this experience will
help us to pursue suitable acquisition opportunities in the future and integrate them successfully. Consistent with this strategy, we
continue to evaluate potential acquisition targets (although no such acquisition target has yet been identified), particularly with the
following attributes:
6
Other strategies that we plan to implement
to expand our customer base with expanded sales staff and technology resources include:
7
Products and Services
Overview
Since our inception over 25 years ago, we have
provided clients with marketing services that help drive sales, and make an impact using custom-branded merchandise, commercial print,
loyalty and incentive programs, packaging and point of sale solutions while providing a technology solution to deliver these products
and services efficiently via our warehouse and fulfillment system.
Our value to our customers is to be an extension
of their own teams. We work to understand the different business and marketing goals of each customer and provide solutions that incorporate
technology, human capital, and physical branded goods to solve their business challenges. This model of outsourced combined marketing
and program-management services is unique in the promotional products industry, which is dominated by online e-tailers, franchisees,
and mom-and-pop businesses. To achieve this value, we have built the internal resources, knowledge, and processes to support our clients
with more than just commodity items.
We are both program managers and creative marketers,
having developed multiple teams within our organization to specialize and focus our efforts on supporting customers with the specific
support that they need:
We work closely with industrial designers of
several of our key collaborators to understand the research and trends that are influencing product development in the six- to 18-month
window ensuring that our team is up-to-date on trends in the industry.
Promotional Product Programs
We run complex corporate promotional marketing
programs for clients across many different industry verticals. Most of our clients take advantage of all the services we provide; however,
at the core of every program are the promotional products themselves. Our team works diligently to stay on point with the current trends
so our clients’ branded products are relevant. We distribute a wide variety of promotional products to our customers, with the
most popular promotional products including wearables, writing utensils, drinkware, technology and events-related products.
8
Loyalty and Incentives Programs
We build custom solutions for customers looking
to drive either customer or employee behavior. We help our customers build a customer loyalty program or an employee incentive program
that meets each customer’s specific needs. Our solutions can include gamification tools, social media integration, and a points-based
plan that rewards clients’ users with a combination of physical products, digital rewards, gift cards, and experiential rewards
nurturing loyalty to their brand. For example, we worked closely with a global producer of vaccines and medicines for animals, to design
and implement a two-tier incentive program in which, on one tier, veterinarians were incentivized to purchase from our customer through
providing them with promotional branded products, and, on a second tier, a loyalty points program featuring prepaid debit card rewards
for end-user pet owners who buy their products.
In developing our loyalty and incentive offering
Stran has taken a similar approach as we have in other areas of our business. Instead of developing our own internal solutions organically,
we have sought out relationships with businesses with a variety of offerings that meet the very different needs of each of our customers.
In some small cases where a client is looking for a very simple solution, we may make use of our existing e-commerce platform developed
with Adobe Inc.’s open-source, Magento software, and suppliers from within the promotional products industry. In other cases where
the customer is looking for a more well-developed incentive program that incorporates both an incentive structure and a rewards offering,
Stran has contracted with Carlton One Engagement Corporation, or CarltonOne, a large provider of Internet-based employee reward management
platforms. CarltonOne’s technology solutions are robust and constantly evolving to meet the changing needs of incentive users.
Their model is to collaborate with value-added resellers like Stran who bring addition resources, knowledge and skill sets to create
custom solutions.
Under our agreement with CarltonOne, dated as
of January 20, 2021, we are an authorized reseller of CarletonOne’s brands of software-as-a-solution, or SaaS, employee loyalty
and incentive programs to our customers. As an authorized reseller, CarltonOne will offer exclusive rights to any contracted clients
but will not prevent other authorized resellers from calling on any protected customers. We will receive commissions from CarletonOne
for any customers that we successfully sign up for CarletonOne’s SaaS services. The agreement is for two years and renews for consecutive
one-year periods unless terminated in writing by either party. The commission percentage is generally 25%.
Packaging and Point of Sale
Presentation makes all the difference. Clever
and custom packaging point of sale, or POS displays are essentials for elevating brand awareness and critical for driving sales. From
packaging of corporate merchandise and promotional products to developing custom POS displays, clients come to us when they want to stand
out and show the quality that their brands offer. We produce custom packaging and POS projects domestically as well as overseas for larger-run
custom programs for many of our clients.
Commercial and Digital Printing
Printed informational materials used for marketing,
or marketing collateral, such as business cards and brochures, are an essential component to effectively conveying information and marketing
messages, and arguably all businesses use some form of marketing collateral. When a customer needs print collateral, our digital print-on-demand
options route their orders through our technology platform and to our network of commercial printers to ensure that our customers can
print each piece of collateral in the most effective and efficient manner. By offering print management with our promotional branded
merchandise solutions, we help our customers create impactful presentations and mailings through the most efficient processes.
Warehouse and Fulfillment
We offer a global solution for warehousing and
fulfillment through a network of fulfillment providers including a nearly ten-year relationship with industry leader Harte Hanks. These
long-standing, strategic relationships provide our clients with process-driven fulfillment solutions that are scalable to meet client
needs including real-time inventory reporting, climate-controlled facilities, high-value product security, storage, digital print-on-demand,
and direct-mail solutions. Our custom front-end technology solution is directly integrated with the warehouse management software of
our strategic global warehouse collaborators.
Technology
Our custom-developed e-commerce Magento platform
allows our customers to manage all facets of their marketing program, linking branded merchandise, print, event assets, customer relationship
management, or CRM, loyalty and incentives in a single solution. Our platform creates cost savings, increasing market efficiencies and
brand consistency. With real-time accessibility to the necessary data to operate a complex demanding marketing program including hierarchy
user profile groups, multi-lingual, multi-currency, multi-checkout methods and integration into any ERP (SAP, ORACLE, WORKDAY, etc.).
Our on-demand mobile reporting dashboard capabilities allows the ability for self-service access within our systems empowering clients
with raw data to make informative decisions for their program.
9
Human Capital and Culture
We are more than an efficient distributor or
supplier, and we offer our customers more than just products. We help them achieve their marketing and business goals using branded merchandise
supported with technology, logistics, creative services, and account support. In order to provide all of these value-added services,
we must leverage and cultivate the talent of our employees.
As an organization we encourage our team to engage
with professional development opportunities. These opportunities include online courses, webinars, training sessions, and participation
in various networking and professional development groups. As such we currently have a member of our team who serves on the board of
directors for NEPPA (New England Promotional Products Association), a regional trade association, as well as another employee who is
the current Board President of SAAGNY (Specialty Advertising Association of Greater New York), another regional trade association. Empowering
our team to grow their own careers helps ensure that we are more knowledgeable, experienced, and engaged.
Pricing
As a large and growing firm with over 500 suppliers
and due to our membership in Facilisgroup, Stran has the purchasing power to receive advantageous pricing, helping us with price-sensitive
bids. Facilisgroup is a buying group of fewer than 1% of distributors in the industry and processed over $1 billion of sales in 2020.
Pursuant to our Sublicense Agreement, we may access Facilisgroup’s @ease proprietary software tools for promotional products business
management and analysis and a white labelled, managed, product website which we may use to sell promotional products under our brand.
We may also access its “Signature Collection” website which Facilisgroup promises offers the best products and margins. Under
our agreement we paid Facilisgroup a one-time fee of $11,000 and make monthly payments of $8,000.
In addition to this competitive buying power,
Stran has developed factory direct relationships with multiple factories in the U.S. and overseas. These direct relationships require
additional vetting, longer production times, and larger production runs. However, we work to blend production from factory direct manufacturing
with our other suppliers to continue to drive costs down on commodity-based items. We compete regularly with larger competitors and maintain
healthy margins using this strategy for sourcing and procuring products.
Supplier and Fulfillment Relationships
We have formed strategic relationships with fulfillment
and commercial print providers in the United States in order to effectively warehouse and distribute merchandise from one or more of
our warehouse facilities depending on our customer’s requirements. For over 25 years, we have developed these strategic relationships
in order to offer our clients a powerful solution for their branded merchandise needs. Together, we have experience in developing custom
marketing solutions for our clients and regularly kit together promotional printed items and branded product into a single package. Our
expertise in product development and sourcing, technology development, and program management combined with our various collaborators’
superior warehousing, logistics, fulfillment, distribution and print services are a competitive advantage.
We offer a global solution for warehousing and
fulfillment through a network of fulfillment providers including a nearly ten-year relationship with industry leader Harte Hanks. We
buy products and certain raw materials from a supplier network of factories, both domestic and international, as needed. We also outsource
certain technology services such as web hosting and data backup. We do not believe that we are dependent on any supplier. Should any
of these suppliers terminate their relationship with us or fail to provide the agreed-on services, we believe that there would be sufficient
alternatives to continue to meet customer demand and comply with our contractual obligations without interruption.
Marketing
We have a direct sales team
consisting of over 21 outside sales representatives and 22 in-house sales representatives. We incentivize our representatives with a
commission structure.
We use social media, email
marketing, and traditional networking at trade shows and events. We also rely on referrals to maintain and expand our customer base.
10
Customers and Markets
Stran’s customer base includes approximately
2,000 active customers and over 30 Fortune 500 companies, servicing a diverse customer base, encompassing pharmaceutical and healthcare,
manufacturing, technology, finance, construction and consumer goods. Our active customers are any organizations, businesses, or divisions
of a parent organization which have purchased directly or indirectly from us within the last two years, and include organizations that
have bought from other organizations for which Stran acts as an established subcontractor. We have long-term contracts with many of our
customers, though most do not have minimum guarantees. We have ongoing contracts with clientele in such industries as financial services,
consumer packaged goods, retail clothing and accessories, pet food and medicine, fitness, child care, retail hardware, fast food franchises,
health care, and environmental services. Contracts are often multi-year and auto-renewing. Our average contract lifespan is approximately
10 years. Alternatively, we do have inventory guarantees where the customer must purchase any inventory held by us that has been purchased
on their behalf within the contractual time periods. Our active customers may be broken into two main categories, transactional clients
and program clients.
We have also been retained for some very large
promotional campaigns. For example, during 2019-2020, we were engaged by a Washington, D.C.-based advertising and marketing company leading
a nationwide awareness-generating initiative for the 2020 U.S. Census. With our nationwide network of collaborator vendors and suppliers,
we delivered a total array of approximately 16 million products printed with various logos in 15 different languages, in all 50 states
and 5 U.S. territories, all aimed at increasing public participation in the U.S. Census. This campaign generated approximately $15 million
in revenues over that time period, as well as an all-time high self-response rate for the U.S. Census. During 2020, this contract represented
approximately 27.1% of our overall revenues. However, we treat these revenues as nonrecurring. The customer that engaged us in this regard
will not renew their engagement with us due to the U.S. Census only occurring once every ten years. As a result, these nonrecurring revenue
increases have not recurred, are not expected to recur, and do not represent our long-term growth expectations.
During 2020, sales to The TJX Companies, Inc.
(NYSE: TJX), or TJX, were 10.1% of total revenue. All other customers generated less than 4% of sales, and the vast majority generated
less than 1% of sales. During 2021, sales to TJX were 7.5% of total revenue. All other customers generated less than 5.5% of sales, and
the vast majority generated less than 1% of sales.
While our customer contracts are typically auto-renewing
and we have many long-term established customer relationships, most of our customer contracts do not have any minimum or exclusive purchase
guarantees, other than as to inventory already ordered by them or their program participants. There is no assurance of recurring revenues.
We are not dependent on any particular customer or group of customers, and our highest-grossing contracts may change from year to year
due to client brand initiatives.
We do business principally with customers based
in the United States, although we also provide e-store, logistical support and other promotional services for client programs in Canada
and Europe.
Online Store
We have been a leader in the use of technology
to offer our clients an online platform to more efficiently manage their promotional marketing programs and to give them the ability
to sell branded merchandise directly to consumers. We launched our first online store for one of our clients in 1999. Today we offer
a custom-built technology platform which offers a B2C (business-to-consumer) retail shopping experience combined with all of the back-end
functionality required of a powerful B2B (business-to-business) marketing services platform. Our technology platform services over 280
online stores for our clients.
Our Online Store Account Managers are responsible
for ensuring that our stores are up to date with all products, images, and descriptions. As new products are approved to be added to
the online store, our account manager will work the appropriate resources to prep the images, write the descriptions and upload the images.
Typically, this process will take 24-48 hours. For inventoried products, we typically do not make the products live on the website until
they have been received into inventory and are ready to be fulfilled.
If there is an issue with an online store order
regarding payment or checkout, the user can contact the appropriate client team who will help troubleshoot the issue or manually place
the order. If there is a back-order situation where an order would not be able to ship complete or on time, our Client Services team
will review the order and advise the customer on the best and timeliest options to fulfill the order.
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Competition
Our major competitors for our promotional products
business include larger companies such as 4Imprint Group plc, Brand Addition Limited (The Pebble Group plc), BAMKO LLC (Superior Group
of Companies, Inc.), Staples Promotional Products (Staples, Inc.), Boundless Network, Inc. (Zazzle Inc.) and HALO Branded Solutions,
Inc. We also compete with a multitude of foreign, regional and local competitors that vary by market. If our existing or future competitors
seek to gain or retain market share by reducing prices, we may be required to lower our prices, which would adversely affect our operating
results. Similarly, if customers or potential customers perceive the products or services offered by our existing or future competitors
to be of higher quality than ours or part of a broader product mix, our revenues may decline, which would adversely affect our operating
results.
Our Program Management
We are experienced and industry-leading program
managers who integrate all aspects of a successful program. Our program team works hand in hand with our account teams to drive the processes
and procedures that ensure we are effectively managing our programs. For Stran, program management is built upon six key building blocks:
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Under our agreement with Harte Hanks,
as amended and supplemented, we may subcontract to Harte Hanks one or multiple functions as appropriate, such as e-store website setup;
ongoing website inventory management services; monthly account management services; and print-on-demand, warehousing, fulfillment, pick/pack/ship,
and other inventory management services. Costs and fees depend on types of services provided and any special or custom work that we request
on behalf of our customers.
We began the process of joining and
submitting documentation to Ecovadis for review in early 2021 to replace our involvement with the Quality Certification Alliance (QCA)
which folded its operations in August of 2020. In 2017, Stran was one of only 13 distributors in the United States (out of over
30,000 according to PPAI) that was voted onto the Distributor Advisory Council (DAC) of the Quality Certification Alliance (QCA). QCA
was a third-party, non-profit organization whose mission was focused solely on accrediting manufacturers’ processes in the areas
of product safety and quality, social responsibility, supply chain security, and environmental impact. Stran has developed a well-defined
vendor management program which is taken from QCA’s protocols developed from dozens of years of best practices across the industry.
Once a supplier has been approved by Stran, we require regular updates to site audits and require testing on products as they are manufactured.
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Intellectual Property
We conduct our business using the registered trademark “STRÄN”
and the registered trade name “Stran Promotional Solutions”. We also use the unregistered logo “STRÄN promotional
solutions”.
To protect our intellectual property, we rely
on a combination of laws and regulations, as well as contractual restrictions. Federal trademark law protects our registered trademark
STRÄN and may protect our unregistered logo “STRÄN promotional solutions”. We also rely on the protection of laws
regarding unregistered copyrights for certain content we create and trade secret laws to protect our proprietary technology including
our e-commerce platform and new ERP system currently under development. To further protect our intellectual property, we enter into confidentiality
agreements with our executive officers and directors.
Seasonality and Cyclicality
Our business is generally not subject to seasonal
fluctuations. While certain customers have seasonal businesses, the promotional products industry overall is not. Our net sales and profits
sometimes are impacted by the holiday selling season.
Portions of the promotional products industry
are cyclical in nature. Generally, when economic conditions are favorable, the industry tends to perform well. When the economy is weak
or if there are economic disturbances that create uncertainty with corporate profits, the promotional products industry tends to experience
low or negative growth.
Security
We regularly receive and store information about
our customers, vendors and other third parties. We have programs in place to detect, contain, and respond to data security incidents.
However, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently
and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or implement adequate preventive
measures. In addition, hardware, software, or applications we develop or procure from third parties or through open-source solutions
may contain defects in design or manufacture or other problems that could unexpectedly compromise information security. Unauthorized
parties may also attempt to gain access to our systems or facilities, or those of third parties with whom we do business, through fraud,
trickery, or other forms of deceiving our team members, contractors, and vendors.
Employees
As of December 31, 2021, we employed 66 employees
and had one independent contractor executive officer, all of whom are full-time.
We do not believe any of our employees are represented
by labor unions, and we believe that we have an excellent relationship with our employees.
Regulation
Trade Regulations
As disclosed above, our suppliers generally source
or manufacture finished goods in parts of the world that may be affected by the imposition of duties, tariffs or other import regulations
by the United States. The Company believes that its redundant network of suppliers provide sufficient capacity to mitigate any dependency
risks on a single supplier.
We buy promotional products from suppliers or
factories both domestically and internationally as needed. We do not depend on any single supplier. However, if we are unable to continue
to obtain our finished products from international locations or if our suppliers are unable to source raw materials, it could significantly
disrupt our business. Further, we are affected by economic, political and other conditions in the United States and internationally,
including those resulting in the imposition or increase of import duties, tariffs and other import regulations and widespread health
emergencies, which could have a material adverse effect on our business.
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Laws and Regulations Relating to E-Commerce
Our business is subject to a variety of laws
and regulations applicable to companies conducting business on the Internet. Jurisdictions vary as to how, or whether, existing laws
governing areas such as personal privacy and data security, consumer protection or sales and other taxes, among other areas, apply to
the Internet and e-commerce, and these laws are continually evolving. For example, certain applicable privacy laws and regulations require
us to provide customers with our policies on sharing information with third parties, and advance notice of any changes to these policies.
Related laws may govern the manner in which we store or transfer sensitive information or impose obligations on us in the event of a
security breach or inadvertent disclosure of such information. Additionally, tax regulations in jurisdictions where we do not currently
collect state or local taxes may subject us to the obligation to collect and remit such taxes, or to additional taxes, or to requirements
intended to assist jurisdictions with their tax collection efforts.
The production, distribution and sale in the
United States of many of our products are subject to the Federal Food, Drug, and Cosmetic Act, the Federal Trade Commission Act, the
Lanham Act, state consumer protection laws, competition laws, federal, state and local workplace health and safety laws, various federal,
state and local environmental protection laws, various other federal, state and local statutes applicable to the production, transportation,
sale, safety, advertising, labeling and ingredients of such products, and rules and regulations adopted pursuant to these laws. Outside
the United States, the distribution and sale of our many products and related operations are also subject to numerous similar and other
statutes and regulations.
A California law known as Proposition 65 requires
a specific warning to appear on any product containing a component listed by the state as having been found to cause cancer or birth
defects. The state maintains lists of these substances and periodically adds other substances to these lists. Proposition 65 exposes
all food and beverage producers to the possibility of having to provide warnings on their products in California because it does not
provide for any generally applicable quantitative threshold below which the presence of a listed substance is exempt from the warning
requirement. Consequently, the detection of even a trace amount of a listed substance can subject an affected product to the requirement
of a warning label. However, Proposition 65 does not require a warning if the manufacturer of a product can demonstrate
that the use of that product exposes consumers to a daily quantity of a listed substance that is:
● below a “safe harbor” threshold that may be established;
● naturally occurring;
● the result of necessary cooking; or
● subject to another applicable exemption.
In January 2019, New York State’s governor
announced the “Consumer Right to Know Act,” a proposed law that would impose similar and potentially more stringent labeling
requirements than California Proposition 65. The law has not yet been adopted, and to our knowledge California Proposition 65 remains
the most onerous state-level chemical exposure labeling statutory scheme. However, due in part to the large size of California’s
market, promotional products sold or distributed anywhere in the United States may be subject to California Proposition 65.
We are unable to predict whether a component
found in a product that we assisted a client in producing might be added to the California list in the future. Furthermore, we are also
unable to predict when or whether the increasing sensitivity of detection methodology may become applicable under this law and related
regulations as they currently exist, or as they may be amended.
We are subject to various federal, state and
local laws and regulations, including but not limited to, laws and regulations relating to labor and employment, U.S. customs and consumer
product safety, including the Consumer Product Safety Improvement Act, or the “CPSIA.” The CPSIA created more stringent safety
requirements related to lead and phthalates content in children’s products. The CPSIA regulates the future manufacture of these
items and existing inventories and may cause us to incur losses if we offer for sale or sell any non-compliant items. Failure to comply
with the various regulations applicable to us may result in damage to our reputation, civil and criminal liability, fines and penalties
and increased cost of regulatory compliance. These current and any future laws and regulations could harm our business, results of operations
and financial condition.
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Legal requirements apply in various jurisdictions
in the United States and overseas requiring deposits or certain taxes or fees be charged for the sale, marketing and use of certain non-refillable
beverage containers. The precise requirements imposed by these measures vary. Other types of beverage container-related deposit, recycling,
tax and/or product stewardship statutes and regulations also apply in various jurisdictions in the United States and overseas. We anticipate
additional, similar legal requirements may be proposed or enacted in the future at local, state and federal levels, both in the United
States and elsewhere.
New legislation or regulation, the application
of laws from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to
the Internet and e-commerce generally could result in significant additional taxes on our business. Further, we could be subject to fines
or other payments for any past failures to comply with these requirements. The continued growth and demand for e-commerce is likely to
result in more laws and regulations that impose additional compliance burdens on e-commerce companies.
Laws and Regulations Relating to Data Privacy
In the ordinary course of our business, we might
collect and store in our internal and external data centers, cloud services and networks sensitive data, including our proprietary business
information and that of our customers, suppliers and business collaborators, as well as personal information of our customers and employees.
The secure processing, maintenance and transmission of this information is critical to our operations and business strategy. The number
and sophistication of attempted attacks and intrusions that companies have experienced from third parties has increased over the past
few years. Despite our security measures, it is impossible for us to eliminate this risk.
A number of U.S. states have enacted data privacy
and security laws and regulations that govern the collection, use, disclosure, transfer, storage, disposal, and protection of personal
information, such as social security numbers, financial information and other sensitive personal information. For example, all 50 states
and several U.S. territories now have data breach laws that require timely notification to affected individuals, and at times regulators,
credit reporting agencies and other bodies, if a company has experienced the unauthorized access or acquisition of certain personal information.
Other state laws, particularly the California Consumer Privacy Act, as amended (“CCPA”), among other things, contain
disclosure obligations for businesses that collect personal information about residents in their state and affords those individuals
new rights relating to their personal information that may affect our ability to collect and/or use personal information. Moreover, on
January 28, 2022, the California Attorney General announced that certain consumer loyalty programs are subject to the CCPA, which may
affect some of our customers who use our loyalty program services if they are found not to comply with the CCPA’s requirements.
The Virginia Consumer Data Protection Act (“CDPA”) also establishes rights for Virginia consumers to control how companies
use individuals’ personal data. The CDPA dictates how companies must protect personal data in their possession and respond to consumers
exercising their rights, as prescribed by the law, regarding such personal data. The CDPA will go into effect on January 1, 2023. Meanwhile,
several other states and the federal government have considered or are considering privacy laws like the CCPA. We will continue to monitor
and assess the impact of these laws, which may impose substantial penalties for violations, impose significant costs for investigations
and compliance, allow private class-action litigation and carry significant potential liability for our business.
Outside of the U.S., data protection laws, including
the EU General Data Protection Regulation (the “GDPR”), also might apply to some of our operations or business collaborators.
Legal requirements in these countries relating to the collection, storage, processing and transfer of personal data/information continue
to evolve. The GDPR imposes, among other things, data protection requirements that include strict obligations and restrictions on the
ability to collect, analyze and transfer EU personal data/information, a requirement for prompt notice of data breaches to data subjects
and supervisory authorities in certain circumstances, and possible substantial fines for any violations (including possible fines for
certain violations of up to the greater of 20 million Euros or 4% of total company revenue). Other governmental authorities around the
world have enacted or are considering similar types of legislative and regulatory proposals concerning data protection.
The interpretation and enforcement of the laws
and regulations described above are uncertain and subject to change, and may require substantial costs to monitor and implement and maintain
adequate compliance programs. Failure to comply with U.S. and international data protection laws and regulations could result in government