UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2022
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to
_____________
Commission File No. 001-41038
STRAN & COMPANY, INC.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b)
of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.0001 par value per share SWAG The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g)
of the Act: None
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☒
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the
registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or
issued its audit report. ☐
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error
corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether registrant is
a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2022 (the last business day of
the registrant’s most recently completed second fiscal quarter), the aggregate market value of the registrant’s shares of
common stock held by non-affiliates (based upon the closing price of such shares as reported on The Nasdaq Stock Market LLC) was approximately
$17,500,160. Shares held by each executive officer and director and by each person who owns 10% or more of the outstanding shares of common
stock have been excluded from the calculation in that such persons may be deemed to be affiliates of the registrant. This determination
of affiliate status is not necessarily a conclusive determination for other purposes.
As of March 27, 2023, there were a total of 18,316,253
shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Stran & Company, Inc.
Annual Report on Form 10-K
Year Ended December 31, 2022
TABLE OF CONTENTS
PART I
Item 1. Business. 1
Item 1A. Risk Factors. 20
Item 2. Properties. 39
Item 3. Legal Proceedings. 39
Item 4. Mine Safety Disclosures. 39
PART II
Item 6. [Reserved] 43
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 62
Item 8. Financial Statements and Supplementary Data. 62
Item 9A. Controls and Procedures. 62
Item 9B. Other Information. 63
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. 63
PART III
Item 10. Directors, Executive Officers and Corporate Governance. 64
Item 11. Executive Compensation. 67
Item 14. Principal Accounting Fees and Services. 86
PART IV
Item 15. Exhibit and Financial Statement Schedules. 88
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 (this “Annual Report”) 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 “Item 1A. Risk Factors” and “—Note Regarding Forward-Looking Statements”
below.
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;
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.
Summary of Risk Factors
The following is a summary of material risks that
could affect our business. This summary may not contain all of our material risks, and it is qualified in its entirety by the more detailed
risk factors set forth under “Item 1A. Risk Factors”.
iii
iv
● Volatility in the global financial markets could adversely affect results.
● Environmental regulations may impact our future operating results.
v
PART I
ITEM 1. BUSINESS.
Overview
We are an outsourced marketing
solutions provider, working closely with our customers to develop sophisticated marketing programs that leverage our promotional products
and loyalty incentive expertise. We develop long-term relationships with our customers, enabling them to connect with both their customers
and employees in order to build lasting brand loyalty. It is our mission to drive brand awareness and affect behavior through visual,
creative, and technology solutions.
We purchase products
and branding through various third-party manufacturers and decorators and resell the finished goods to customers. In addition to selling
branded products, we offer our clients custom sourcing capabilities; a flexible and customizable e-commerce solution for promoting branded
merchandise and other promotional products, managing promotional loyalty and incentives, print collateral, and event assets, order and
inventory management, and designing and hosting online retail popup shops, fixed public retail online stores, and online business-to-business
service offerings; creative and merchandising services; warehousing/fulfillment and distribution; print-on-demand; kitting; 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 27 years we have
grown into a leader in the promotional products industry, ranking 36th in 2021 revenues in the United States on Print+Promo Marketing’s
2022 Top Distributors list, and 34th on ASI’s Top 40 Distributors 2022 list. Our co-founder and Chief Executive Officer,
Andrew Shape, was also recently ranked 45th on ASI’s 2022 Power 50 list of influential people in our industry. Since our first
year of operations in 1995, our annual revenues have gradually grown from approximately $240,000 to $59.0 million in 2022, a compound
annual growth rate of approximately 22.6%, and between 2017 and 2022, our revenues grew at a compound annual growth rate of approximately
24.4%. During 2017 through 2022, we had consistent gross margins of approximately 30%, and processed more than 50,000 customer orders
per year.
As of December 31, 2022,
we had total assets of $56.6 million with total stockholder equity of $39.4 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 48.5% year-over-year in 2022
compared to 2021, 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 G.A.P. Promotions, LLC, or G.A.P. Promotions,
assets in January 2022, the assets of Trend Promotional Marketing Corporation (d/b/a Trend Brand Solutions), or Trend Brand Solutions,
in August 2022, and the assets of Premier Business Services, or Premier NYC, in December 2022. We expect going forward that pent-up demand
from more widespread immunity to the COVID-19 virus, the return of many significant in-person tradeshows and other industry-related opportunities,
and societal reopening in general may help compensate for lower sales in prior periods. However, these trends are expected to be partially
offset by continued increases in expenses, especially higher raw material costs and a more challenging supply chain. According to the
U.S. Bureau of Labor Statistics, the Producer Price Index for final demand moved up 4.6% for
the 12 months ended in February, 2023, on an unadjusted basis. In addition, we
believe that the COVID-19 pandemic has had significant adverse effects on our industry and our company, and that it may continue to do
so. For further discussion, see “—The COVID-19 Pandemic’s Effects on the Promotional Products Industry”
and “—The COVID-19 Pandemic’s Effects on Our Business” below.
Our headquarters are located
at Quincy, Massachusetts, with additional offices located in Warsaw, Indiana; Mt. Pleasant, South Carolina; and Tomball, Texas. We also
have sales representatives in 17 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.
1
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 ASI, the U.S. market for promotional
products reached $25.8 billion in 2022, matching the previous high achieved in 2019 and growing 11.2% from 2021. Moreover, the promotional
products market is only one segment of a total addressable market of possibly up to $380 billion based on the size of the product packaging
market ($185 billion as of 2021, according to Mordor Intelligence, a leading market intelligence and advisory firm); 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 ($83 billion projected for 2023, according to IBISWorld, an industry research provider); and
the trade show and conference planning market ($22 billion projected for 2023, according to IBISWorld).
We believe that U.S. promotional products spending
was 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. However, the return of in-person events, businesses aggressively marketing themselves and 40-year-high
inflation resulted in promotional products distributor sales increasing 12.1% in 2021 to $23.2 billion and 11.2% in 2022 to $25.8 billion,
matching the last full year prior to the COVID-19 pandemic.
The Promotional
Products Industry Is Resilient To Other Forms of Advertising
The promotional products
industry is relatively insulated from other forms of advertising such as television and digital advertising. Although promotional products
compete for space within an advertising budget with other forms of advertising, particularly online advertising, they offer distinct benefits,
particularly due to their physical nature, which may help distributors and suppliers continue to sell these products and related services
despite these budgetary pressures. Data shows that promotional products are more effective in generating brand recognition and sales than
other forms of advertising, including television and online advertisements. These factors help shield established industry firms like
ours from the technological and competitive disruption experienced by other types of media advertisers.
The Promotional Products Industry is Highly
Fragmented
The promotional products
industry is also highly fragmented. As of 2018, the industry included over 40,000 firms according to PPAI. As of 2022, the firm with the
greatest percentage of industry sales generated $1.1 billion in revenue but made up only approximately 4.4% of the $25.8 billion in revenues
generated in 2022 by North American promotional products distributors, based on information reported by ASI and the firm itself. There
are only two firms that have reported achieving revenues above $1 billion in 2022. As a group, the top 40 distributors had approximately
32.7% market share as of 2021, based on total sales of approximately $7.6 billion out of total North American promotional products distributors’
revenues for 2021 of $23.2 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:
2
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.
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.
3
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, promotional product distributor sales decreased
nearly 20% from $25.8 billion in 2019 to $20.7 billion in 2020. However, the return of in-person events, businesses aggressively marketing
themselves and 40-year-high inflation resulted in promotional products distributor sales increasing 12.1% in 2021 to $23.2 billion and
11.2% in 2022 to $25.8 billion, matching the last full year prior to the COVID-19 pandemic. At the same time, distributors have 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 trucking shortages and port congestion. Much of the increase
in costs, supply chain disruption, and other continuing disruptions in operations is believed to be due to ongoing outbreaks of COVID-19.
We expect some or all of these effects to continue in 2023.
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 2022, 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 trucking shortages and port congestion. Much of
the increase in costs, supply chain disruption, and other continuing disruptions in operations is believed to be due to ongoing outbreaks
of COVID-19. We expect some or all of these effects to continue in 2023.
We have also noted that some of our customers
have indicated that a greater number of their employees work from home than in past periods. We believe this increase may be partially
a result of the relatively new risk to office work from the COVID-19 pandemic, and that this trend may continue. As a result, we have
been, and expect to continue to, drop-ship more materials directly to people at their homes than in periods before the advent of the COVID-19
pandemic. We expect that this trend will continue to yield increased freight service fees and fulfillment revenue as well as associated
costs.
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
providing 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. However, significant lingering supply chain issues related to the COVID-19 pandemic continued
to adversely affect our business in 2021 and 2022, and may continue to do so in 2023.
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”, and Item
1A. “Risk Factors – Risks Related to Our Business and Industry – Our business has been materially adversely
impacted by the COVID-19 pandemic and could be materially adversely impacted by future COVID-19 pandemic surges, new COVID-19 variants,
or other pandemics.”
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, 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 27 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:
8
We work closely with industrial designers of several
of our key collaborators to understand the research and trends that are influencing product development in the six- to 18-month window
ensuring that our team is up-to-date on trends in the industry.
Promotional Product Programs
We run complex corporate promotional marketing
programs for clients across many different industry verticals. Most of our clients take advantage of all the services we provide; however,
at the core of every program are the promotional products themselves. Our team works diligently to stay on point with the current trends
so our clients’ branded products are relevant. We distribute a wide variety of promotional products to our customers, with the most
popular promotional products including wearables, writing utensils, drinkware, technology and events-related products.
Loyalty and Incentives Programs
We build custom solutions for customers looking
to drive either customer or employee behavior. We help our customers build a customer loyalty program or an employee incentive program
that meets each customer’s specific needs. Our solutions can include gamification tools, social media integration, and a points-based
plan that rewards clients’ users with a combination of physical products, digital rewards, gift cards, and experiential rewards
nurturing loyalty to their brand. For example, we worked closely with a global producer of vaccines and medicines for animals, to design
and implement a two-tier incentive program in which, on one tier, veterinarians were incentivized to purchase from our customer through
providing them with promotional branded products, and, on a second tier, a loyalty points program featuring prepaid debit card rewards
for end-user pet owners who buy their products.
In developing our loyalty and incentive offering,
Stran has taken a similar approach as we have in other areas of our business. Instead of developing our own internal solutions organically,
we have sought out relationships with businesses with a variety of offerings that meet the very different needs of each of our customers.
By using a collection of third party providers, we are able to offer a more robust technology solution that meets the constantly evolving
and changing needs of our incentive users.
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.
In addition to continuing to use our third-party
logistics partners like Harte Hanks, we are expanding our in-house warehouse and fulfillment capabilities, particularly in the southern
United States, as a result of the Trend Brand Solutions acquisition, including its Tomball, TX-based distribution center. We are in the
process of moving this operation into a new 5,500-square-foot warehouse, which we expect to open in May 2023, and where we will offer
our customers specialty fulfillment, kitting, and warehousing. These in-house fulfillment capabilities are expected to give us greater
control and more flexibility to meet the complex demands of our customers.
9
Technology
Our custom-developed e-commerce Magento Open Source
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 many major ERP systems (SAP ERP, NetSuite
ERP, 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.
We have also invested in an internal commercial
ERP software system, NetSuite ERP, which is expected to enhance the process of gathering and organizing the business data of our company
through an integrated software suite, and is expected to be implemented in the first half of 2023. NetSuite combines accounting, order
management, inventory, CRM, and presentation functionality. We believe that this ERP will reduce inefficiencies, expenses and headcount,
automate current manual processes, and potentially contribute to growing net revenues.
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, a buying group of fewer than 1% of distributors in the industry, processed
over $1.15 billion of sales in 2021. 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.
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 27 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.
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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 27 outside sales representatives and 25 in-house sales representatives. We incentivize our representatives with a commission
structure.
Our marketing approach combines
the sales funnel concept of the marketing process with digital and in-person marketing efforts. We market to a large number of prospects
at the top of the sales funnel to make them aware of our business and our products and services by combining lead-generation activities
with digital marketing, including website content, SEO, paid ads, and email list promotions, and in-person activities including tradeshow
and other events. We use targeted emails, social media messages, and other digital and in-person lead-nurturing activities, develop case
studies, and apply other digital and in-person sales tools to market to prospects that demonstrate interest in our business. For prospects
that demonstrate readiness to buy and reach the bottom of the sales funnel, we use tools such as sales presentations, sales proposals,
and sell sheets.
To that end, we have built
out our digital lead generation team to launch an initial program that is currently being refined to drive higher-quality leads and we
are analyzing our marketing to sales handoff process to improve our close rates. Our efforts in in-person marketing include expanding
the number of tradeshows and conferences that we attend and sponsor across different industry verticals. We have also planned to increase
our attendance and sponsorship from two annual tradeshows in 2022 to eight tradeshows in 2023. At these tradeshows, we plan to target
representatives of specific industry verticals, such as the beverage industry or the cannabis market, and a variety of professionals attending
events focused in the areas of marketing or procurement development.
In addition to efforts to
develop new business opportunities, our marketing team works closely with our sales team and our managers to develop opportunities from
existing customer accounts. With existing customers, we are seeking to cross-sell and expand our services to encompass all employee, customer,
and partner loyalty and engagement programs that are designed to reward loyalty through a combination of premium products, branded merchandise,
and digital and experiential rewards.
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.
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During 2022,
sales to our largest three customers were 8.8%, 7.2% and 5.9% of total revenue, respectively. All other customers generated less than
4% of sales, and the vast majority generated less than 1% of sales. During 2021, sales to our largest three customers were 7.5%, 5.4%
and 5.1% of total revenue, respectively. All other customers generated less than 5% of sales, and the vast majority generated less than
1% of sales.
While our customer contracts are typically auto-renewing
and we have many long-term established customer relationships, most of our customer contracts do not have any minimum or exclusive purchase
guarantees, other than as to inventory already ordered by them or their program participants. There is no assurance of recurring revenues.
We are not dependent on any particular customer or group of customers, and our highest-grossing contracts may change from year to year
due to client brand initiatives.
We do business principally with customers based
in the United States, although we also provide e-store, logistical support and other promotional services for client programs in Canada
and Europe.
Online Store
We have been a leader in the use of technology
to offer our clients an online platform to more efficiently manage their promotional marketing programs and to give them the ability to
sell branded merchandise directly to consumers. We launched our first online store for one of our clients in 1999. Today we offer a custom-built
technology platform which offers a B2C (business-to-consumer) retail shopping experience combined with all of the back-end functionality
required of a powerful B2B (business-to-business) marketing services platform. Our technology platform services over 280 online stores
for our clients.
Our Online Store Account Managers are responsible
for ensuring that our stores are up to date with all products, images, and descriptions. As new products are approved to be added to the
online store, our account manager will work the appropriate resources to prep the images, write the descriptions and upload the images.
Typically, this process will take 24-48 hours. For inventoried products, we typically do not make the products live on the website until
they have been received into inventory and are ready to be fulfilled.
If there is an issue with an online store order
regarding payment or checkout, the user can contact the appropriate client team who will help troubleshoot the issue or manually place
the order. If there is a back-order situation where an order would not be able to ship complete or on time, our Client Services team will
review the order and advise the customer on the best and timeliest options to fulfill the order.
Competition
Our major competitors for our promotional products
business include larger companies such as 4Imprint Group plc, Brand Addition Limited (The Pebble Group plc), BAMKO LLC (Superior Group
of Companies, Inc.), Staples Promotional Products (Staples, Inc.), Boundless Network, Inc. (Zazzle Inc.), Custom Ink, Cimpress plc 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.
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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.
In addition to continuing to use our
third-party logistics partners like Harte Hanks, we are expanding our in-house warehouse and fulfillment capabilities, particularly in
the southern United States, as a result of the Trend Brand Solutions acquisition, including its Tomball, TX-based distribution center.
We are in the process of moving this operation into a new 5,500-square-foot warehouse, which we expect to open in May 2023, and where
we will offer our customers specialty fulfillment, kitting, and warehousing. These in-house fulfillment capabilities are expected to give
us greater control and more flexibility to meet the complex demands of our customers.
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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 March 27, 2023, we employed 98 full-time
employees, two part-time employees and eight independent contractors.
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