# Stran & Company, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Stran & Company, Inc.](/companies/swagw.md) (CIK 1872525)
- Form: 10-Q
- Filed: 2023-11-06
- Accepted by EDGAR: Nov 6, 2023, 16:15 ET
- Period: 2023-09-30
- Accession: 0001213900-23-083884
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1872525/000121390023083884/f10q0923_stranandco.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1872525/000121390023083884/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $19.3m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $52.5m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $12.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $36.4m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $6.4m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $16.1m | us-gaap:GrossProfit |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $431.7k | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$2.2m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $208.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | −$464.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $684.6k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$848.3k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.04 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.05 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.04 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.05 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 18,515,206 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 18,515,206 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$3.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $794.5k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $24.3k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Current assets | at 2023-09-30 | $48.2m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $61.3m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $16.9m | us-gaap:LiabilitiesCurrent |
| Shareholders' equity | at 2023-09-30 | $38.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 77,491 characters.

*The following management’s discussion and analysis of financial condition and results of operations provides information that management believes is relevant to an assessment and understanding of our plans and financial condition. The following financial information is derived from our financial statements and should be read in conjunction with such financial statements and notes thereto set forth elsewhere herein.*

### 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,” “Stran,” and the “Company” are to Stran & Company, Inc., a Nevada corporation.

### Special 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 expected timing, availability and effects on our stock price and financial condition of our stock repurchase program;
- our goals and strategies;
- our business development, financial condition and results of operations;
- expected changes in our revenue, costs or expenditures;
- growth and competition trends in our industry;
- our expectations regarding demand for, and market acceptance of, our products or services;
- our expectations regarding our relationships with investors, institutional funding partners and other parties with whom we collaborate;
- our expectations regarding the availability and use of financing from our revolving line of bank credit, other credit facilities, or sales of equity or debt securities;
- future fluctuations in general economic and business conditions in the markets in which we operate; and
- future 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”* included in our Annual Reports on Form 10-K filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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.

### Overview

We are an outsourced marketing solutions provider that sells branded products to customers. We purchase products and branding through various third-party manufacturers and decorators and resell the finished goods to customers.

In addition to selling branded products, we offer clients custom sourcing capabilities; a flexible and customizable e-commerce solution for promoting branded merchandise and other promotional products, managing promotional loyalty and incentives, print collateral, and event assets, order and inventory management, and designing and hosting online retail popup shops, fixed public retail online stores, and online business-to-business service offerings; creative and merchandising services; warehousing/fulfillment and distribution; print-on-demand; kitting; point of sale displays; and loyalty and incentive programs.

We earn the majority of our revenue from the sale of unique, quality promotional products for a wide variety of industries primarily to support marketing efforts. We also derive revenues from service fees from loyalty programs, event management, print services, fulfillment services, and technology services.

The majority of our revenue is derived from program business, although only a small percentage of our customers are considered programmatic. For the years 2022 and 2021, program clients accounted for 82.2% and 75.7% of total revenue, respectively. For the three months ended September 30, 2023 and 2022, program clients accounted for 79.8% and 81.4% of total revenue, respectively, and for the nine months ended September 30, 2023 and 2022, program clients accounted for 80.7% and 82.1% of total revenue, respectively. Fewer than 350 of our more than 2,000 active customers are considered to be program clients. Our active customers are any organizations, businesses, or divisions of a parent organization which have purchased directly or indirectly from us within the last two years, and include organizations that have bought from other organizations for which Stran acts as an established sub-contractor. We define transactional customers as customers that place an order with us and do not have an agreement with us covering ongoing branding requirements. We define program clients as clients that have a contractual obligation for specific ongoing branding needs. Program offerings include ongoing inventory, use of technology platform, warehousing, creative services, and additional client support. Those program customers are geared towards longer-lasting relationships that helps secure recurring revenue well into the future.

Our sales increased 42.2% year-over-year in the third quarter of 2023 compared to the third quarter of 2022, and increased 29.3% year-over-year in the first nine months of 2023 compared to the first nine months of 2022, due to higher spending from existing customers as well as business from new customers. Additionally, we benefited from the acquisition of the assets of each of G.A.P. Promotions, LLC, or G.A.P. Promotions, in January 2022, Trend Promotional Marketing Corporation (d/b/a Trend Brand Solutions), or Trend Brand Solutions, in August 2022, Premier Business Services, or Premier NYC, in December 2022, and T R Miller Co., Inc., or T R Miller, in June 2023, respectively.

As of September 30, 2023, we had approximately $61.3 million of total assets with approximately $38.6 million of total stockholders’ equity.

### Emerging Growth Company

We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:

- have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
- comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);
- submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and
- disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of our initial public offering, (ii) the last day of the first fiscal year in which our total annual gross revenues are $1,235,000,000 or more, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iv) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

### Principal Factors Affecting Our Financial Performance

Our operating results are primarily affected by the following factors:

- our ability to acquire new customers or retain existing customers;
- our ability to offer competitive product pricing;
- our ability to broaden product offerings;
- industry demand and competition;
- our ability to leverage technology and use and develop efficient processes;
- our ability to attract and retain talented employees; and
- market conditions and our market position.

### Results of Operations

### Comparison of Three Months Ended September 30, 2023 and 2022

| Consolidated Operations Data | Three Months Ended September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: |
| SALES | $19,303,335 | $13,576,072 |
| COST OF SALES: |  |  |
| Purchases | 11,603,364 | 8,388,856 |
| Freight | 1,328,603 | 939,865 |
|  | 12,931,967 | 9,328,721 |
| GROSS PROFIT | 6,371,368 | 4,247,351 |
| OPERATING EXPENSES: |  |  |
| General and Administrative Expenses | 5,939,694 | 4,896,386 |
|  | 5,939,694 | 4,896,386 |
| EARNINGS (LOSS) FROM OPERATIONS | 431,674 | (649,035) |
| OTHER INCOME AND (EXPENSE): |  |  |
| Other Income (Expense) | 242,009 | 20,471 |
| Interest Income (Expense) | 183,156 | (2,881) |
| Unrealized Gain (Loss) on Investments | 35,770 | (231,214) |
|  | 460,935 | (213,624) |
| EARNINGS (LOSS) BEFORE INCOME TAXES | 892,609 | (862,659) |
| PROVISION FOR INCOME TAXES | 208,000 | (174,507) |
| NET EARNINGS (LOSS) | 684,609 | (688,152) |

25

#### Sales

Sales consist primarily of the selling price of the merchandise, service or outbound shipping and handling charges, less discounts, coupons redeemed, returns and credits.

Our sales increased 42.2% to approximately $19.3 million for the three months ended September 30, 2023 from approximately $13.6 million for the three months ended September 30, 2022. The increase was primarily due to higher spending from existing customers as well as business from new customers. Additionally, the acquisitions of each of G.A.P. Promotions in January 2022, Trend Brand Solutions in August 2022, Premier NYC in December 2022, and T R Miller in June 2023, respectively, accounted for an aggregate of approximately $3.9 million, or 20.4%, of sales, for the third quarter of 2023, compared to approximately $1.7 million, or 12.6%, of sales, for the third quarter of 2022 from the acquisition of the G.A.P. Promotions assets in January 2022 and the acquisition of the Trend Brand Solutions assets in August 2022, as described in more detail immediately below.

The January 2022 acquisition of the G.A.P. Promotions assets generated approximately $0.6 million of sales for the three months ended September 30, 2023, compared to approximately $1.5 million for the three months ended September 30, 2022. The August 2022 acquisition of the Trend Brand Solutions assets generated approximately $0.5 million of sales for the three months ended September 30, 2023, compared to $0.2 million of sales for the three months ended September 30, 2022. The December 2022 acquisition of the Premier NYC assets generated approximately $0.2 million of sales for the three months ended September 30, 2023, compared to no sales from such assets for the three months ended September 30, 2022. The June 2023 acquisition of the T R Miller assets generated approximately $2.6 million of sales for the three months ended September 30, 2023, compared to no sales from such assets for the three months ended September 30, 2022. Our recurring organic sales, defined as sales excluding revenue from the acquisitions of the assets of each of G.A.P. Promotions, Trend Brand Solutions, Premier NYC, and T R Miller, increased 29.5%, or approximately $3.5 million, to approximately $15.4 million for the three months ended September 30, 2023, compared to approximately $11.9 million for the three months ended September 30, 2022.

#### Cost of Sales

Cost of sales consists of the costs of purchasing merchandise and freight charges. Our total cost of sales increased 38.6% to approximately $12.9 million for the three months ended September 30, 2023, from approximately $9.3 million for the three months ended September 30, 2022. As a percentage of sales, cost of sales decreased to 67.0% for the three months ended September 30, 2023 from 68.7% for the three months ended September 30, 2022. More specifically, cost of purchases increased to approximately $11.6 million for the three months ended September 30, 2023, or 38.3%, from approximately $8.4 million for the three months ended September 30, 2022. As a percentage of sales, cost of purchases decreased to 60.1% for the three months ended September 30, 2023, from 61.8% for the three months ended September 30, 2022. In addition, freight costs increased to approximately $1.3 million for the three months ended September 30, 2023, or 41.4%, from approximately $0.9 million for the three months ended September 30, 2022. As a percentage of sales, freight costs remained the same at 6.9% for the three months ended September 30, 2023 and 2022. The increase in the dollar amount of cost of purchases and freight was primarily due to an increase in sales of 42.2% from period to period.

#### Gross Profit

Gross profit consists of sales less total costs of sales. Our gross profit increased 50.0% to approximately $6.4 million, or 33.0% of sales, for the three months ended September 30, 2023, from approximately $4.2 million, or 31.3% of sales, for the three months ended September 30, 2022. The increase in the dollar amount of gross profit was due to an increase in sales of approximately $5.7 million for the reasons described above, partially offset by an increase in purchasing and freight costs of approximately $3.6 million in aggregate for the reasons described above.

#### Operating Expenses

Operating expenses consist of general and administrative expenses. Our operating expenses increased 21.3%, or approximately $1.0 million, to approximately $5.9 million for the three months ended September 30, 2023 from approximately $4.9 million for the three months ended September 30, 2022. As a percentage of sales, operating expenses decreased to 30.8% for the three months ended September 30, 2023 from 36.1% for the three months ended September 30, 2022. The increase in the dollar amount of operating expenses was due to an increase in general and administrative expenses of approximately $1.0 million, or 21.3%, which in turn was primarily due to additional expenses related to the acquisition of the assets of G.A.P. Promotions, Trend Brand Solutions, Premier NYC, and T R Miller; closing and integration costs relating to the acquisition of T R Miller’s assets; the implementation of an internal commercial enterprise resource planning (“ERP”) system on NetSuite ERP’s platform; ongoing public company expenses; lead generation initiatives; and organic growth in our business.

#### Other Income and (Expense)

Other income and (expense) consist of other income, interest income (expense), and unrealized gain (loss) on investments. Our other income was $242,009 for the three months ended September 30, 2023, compared to $20,471 for the three months ended September 30, 2022. This change was primarily due to an accrual adjustment to certain earn-out obligations relating to our acquisition of the assets of Wildman Imprints, the former promotional products business division of Wildman Business Group, LLC (“Wildman Imprints”). Our interest income (expense) was $183,156 for the three months ended September 30, 2023, compared to $(2,881) for the three months ended September 30, 2022. This change was primarily due to interest generated from investments. Our unrealized gain (loss) on investments was $35,770 for the three months ended September 30, 2023, compared to $(231,214) for the three months ended September 30, 2022. This change was primarily due to the recording of all investments at estimated fair value.

#### Provision for Income Taxes

Income tax provision reflects statutory tax rates in the jurisdictions in which we operate adjusted for permanent book/tax differences. Income tax provision for the three months ended September 30, 2023 was approximately $0.2 million compared to income tax provision of approximately $(0.2) million for the three months ended September 30, 2022. Income tax provision for the three months ended September 30, 2023 and 2022 accounted for approximately 23.3% and 20.2% of earnings (loss) before income taxes of approximately $0.9 million and approximately $(0.9) million for the three months ended September 30, 2023 and 2022, respectively. For the three months ended September 30, 2023 and 2022, the Company recorded an income tax provision comprised substantially of a deferred tax asset in the form of an operating loss carryforward. No valuation allowance against the deferred tax asset was accounted for due to the indefinite life of the asset.

Our effective tax rate is directly affected by the relative proportions of revenue and income before taxes in the jurisdictions in which we operate. Based on management’s expectations of future earnings, we anticipate that our effective tax rate will remain similar to the federal tax rate of 21%. State income taxes will fluctuate based annually on apportionment of sales by state.

Discrete tax events may cause our effective rate to fluctuate on a quarterly basis. Certain events, including, for example, acquisitions and other business changes, which are difficult to predict, may also cause our effective tax rate to fluctuate. We are subject to changing tax laws, regulations, and interpretations in multiple jurisdictions. Corporate tax reform continues to be a priority in the U.S. and other jurisdictions. Additional changes to the tax system in the U.S. could have significant effects, positive and negative, on our effective tax rate and our deferred tax assets and liabilities. For further discussion of changes in the income tax provision, refer to Notes A and S to our financial statements beginning on page 1 of this Quarterly Report on Form 10-Q.

#### Net Earnings (Loss)

Our net earnings for the three months ended September 30, 2023 were approximately $0.7 million, compared to a net loss of approximately $0.7 million for the three months ended September 30, 2022. This change was primarily due to the increase in sales during the three months ended September 30, 2023 from the acquisition of the assets of each of G.A.P. Promotions, Trend Brand Solutions, Premier NYC, and T R Miller to approximately $3.9 million in aggregate, from approximately $1.7 million from the acquisition of the assets of G.A.P. Promotions and Trend Brand Solutions during the three months ended September 30, 2022, and the increase of approximately $3.5 million from recurring organic sales during the three months ended September 30, 2023 compared to the three months ended September 30, 2022. These factors were partially offset by the reasons described above for the increase in operating expenses and the increase in purchasing costs.

### Comparison of Nine Months Ended September 30, 2023 and 2022

| Consolidated Operations Data | Nine Months Ended September 30, 2023 | September 30, 2022 |
| --- | ---: | ---: |
| SALES | $52,549,688 | $40,642,559 |
| COST OF SALES: |  |  |
| Purchases | 32,437,178 | 25,843,023 |
| Freight | 3,970,268 | 3,573,830 |
|  | 36,407,446 | 29,416,853 |
| GROSS PROFIT | 16,142,242 | 11,225,706 |
| OPERATING EXPENSES: |  |  |
| General and Administrative Expenses | 18,369,963 | 13,152,774 |
|  | 18,369,963 | 13,152,774 |
| EARNINGS (LOSS) FROM OPERATIONS | (2,227,721) | (1,927,068) |
| OTHER INCOME AND (EXPENSE): |  |  |
| Other Income | 313,738 | 92,124 |
| Interest Income (Expense) | 467,415 | (9,023) |
| Unrealized Gain (Loss) on Investments | 134,352 | (231,214) |
|  | 915,505 | (148,113) |
| EARNINGS (LOSS) BEFORE INCOME TAXES | (1,312,216) | (2,075,181) |
| PROVISION FOR INCOME TAXES | (463,957) | (393,772) |
| NET EARNINGS (LOSS) | (848,259) | (1,681,409) |

#### Sales

Sales consist primarily of the selling price of the merchandise, service or outbound shipping and handling charges, less discounts, coupons redeemed, returns and credits.

Our sales increased 29.3% to approximately $52.5 million for the nine months ended September 30, 2023 from approximately $40.6 million for the nine months ended September 30, 2022. The increase was primarily due to higher spending from existing customers as well as business from new customers. Additionally, the acquisitions of each of G.A.P. Promotions in January 2022, Trend Brand Solutions in August 2022, Premier NYC in December 2022, and T R Miller in June 2023, respectively, accounted for an aggregate of approximately $9.4 million, or 17.9%, of sales, for the nine months ended September 30, 2023, compared to approximately $4.5 million, or 11.0%, of sales, for the nine months ended September 30, 2022 from the acquisition of the G.A.P. Promotions assets in January 2022 and the Trend Brand Solutions asset in August 2022, as described in more detail immediately below.

The January 2022 acquisition of the G.A.P. Promotions assets generated approximately $2.8 million of sales for the nine months ended September 30, 2023, compared to approximately $4.3 million for the nine months ended September 30, 2022. The August 2022 acquisition of the Trend Brand Solutions assets generated approximately $2.0 million of sales for the nine months ended September 30, 2023, compared to approximately $0.2 million from such assets for the nine months ended September 30, 2022. The December 2022 acquisition of the Premier NYC assets generated approximately $0.8 million of sales for the nine months ended September 30, 2023, compared to no sales from such assets for the nine months ended September 30, 2022. The June 2023 acquisition of the T R Miller assets generated approximately $3.7 million of sales for the nine months ended September 30, 2023, compared to no sales from such assets for the nine months ended September 30, 2022. Our recurring organic sales, defined as sales excluding revenue from the acquisitions of the assets of each of G.A.P. Promotions, Trend Brand Solutions, Premier NYC, and T R Miller, increased 19.3%, or approximately $7.0 million, to approximately $43.1 million for the nine months ended September 30, 2023, compared to approximately $36.2 million for the nine months ended September 30, 2022.

#### Cost of Sales

Cost of sales consists of the costs of purchasing merchandise and freight charges. Our total cost of sales increased 23.8% to approximately $36.4 million for the nine months ended September 30, 2023, from approximately $29.4 million for the nine months ended September 30, 2022. As a percentage of sales, cost of sales decreased to 69.3% for the nine months ended September 30, 2023 from 72.4% for the nine months ended September 30, 2022. More specifically, cost of purchases increased to approximately $32.4 million for the nine months ended September 30, 2023, or 25.5%, from approximately $25.8 million for the nine months ended September 30, 2022. As a percentage of sales, cost of purchases decreased to 61.7% for the nine months ended September 30, 2023, from 63.6% for the nine months ended September 30, 2022. In addition, freight costs increased to approximately $4.0 million for the nine months ended September 30, 2023, or 11.1%, from approximately $3.6 million for the nine months ended September 30, 2022. As a percentage of sales, freight costs decreased to 7.6% for the nine months ended September 30, 2023, from 8.8% for the nine months ended September 30, 2022. The increase in the dollar amount of cost of purchases and freight was primarily due to an increase in sales of 29.3% from period to period.

#### Gross Profit

Gross profit consists of sales less total costs of sales. Our gross profit increased 43.8% to approximately $16.1 million, or 30.7% of sales, for the nine months ended September 30, 2023, from approximately $11.2 million, or 27.6% of sales, for the nine months ended September 30, 2022. The increase in the dollar amount of gross profit was due to an increase in sales of approximately $11.9 million for the reasons described above, partially offset by an increase in purchasing and freight costs of approximately $7.0 million in aggregate for the reasons described above.

#### Operating Expenses

Operating expenses consist of general and administrative expenses. Our operating expenses increased 39.7%, or approximately $5.2 million, to approximately $18.4 million for the nine months ended September 30, 2023, from approximately $13.2 million for the nine months ended September 30, 2022. As a percentage of sales, operating expenses increased to 35.0% for the nine months ended September 30, 2023 from 32.4% for the nine months ended September 30, 2022. The increase in the dollar amount of operating expenses was due to an increase in general and administrative expenses of approximately $5.2 million, or 39.7%, which in turn was primarily due to additional expenses related to the acquisition of the assets of G.A.P. Promotions, Trend Brand Solutions, Premier NYC, and T R Miller; due diligence, closing and integration costs relating to the acquisition of T R Miller’s assets; the implementation of an internal commercial ERP system on NetSuite ERP’s platform; ongoing public company expenses; lead generation initiatives; and organic growth in our business.

#### Other Income and (Expense)

Other income and (expense) consist of other income, interest income (expense), and unrealized gain (loss) on investments. Our other income was $313,738 for the nine months ended September 30, 2023, compared to $92,124 for the nine months ended September 30, 2022. This change was primarily due to an accrual adjustment to certain earn-out obligations relating to our acquisition of the assets of Wildman Imprints. Our interest income (expense) was $467,415 for the nine months ended September 30, 2023, compared to $(9,023) for the nine months ended September 30, 2022. This change was primarily due to interest generated from investments. Our unrealized gain (loss) on investments was $134,352 for the nine months ended September 30, 2023, compared to $(231,214) for the nine months ended September 30, 2022. This change was primarily due to the recording of all investments at estimated fair value.

#### Provision for Income Taxes

Income tax provision reflects statutory tax rates in the jurisdictions in which we operate adjusted for permanent book/tax differences.

Income tax provision for the nine months ended September 30, 2023 was approximately $(0.5) million compared to income tax provision of approximately $(0.4) million for the nine months ended September 30, 2022. Income tax provision for the nine months ended September 30, 2023 and 2022 accounted for approximately 35.4% and 19.0% of earnings (loss) before income taxes of approximately $(1.3) million and approximately $(2.1) million for the nine months ended September 30, 2023 and 2022, respectively. For the nine months ended September 30, 2023 and 2022, the Company recorded an income tax provision comprised substantially of a deferred tax asset in the form of an operating loss carryforward. No valuation allowance against the deferred tax asset was accounted for due to the indefinite life of the asset.

Our effective tax rate is directly affected by the relative proportions of revenue and income before taxes in the jurisdictions in which we operate. Based on management’s expectations of future earnings, we anticipate that our effective tax rate will remain similar to the federal tax rate of 21%. State income taxes will fluctuate based annually on apportionment of sales by state.

Discrete tax events may cause our effective rate to fluctuate on a quarterly basis. Certain events, including, for example, acquisitions and other business changes, which are difficult to predict, may also cause our effective tax rate to fluctuate. We are subject to changing tax laws, regulations, and interpretations in multiple jurisdictions. Corporate tax reform continues to be a priority in the U.S. and other jurisdictions. Additional changes to the tax system in the U.S. could have significant effects, positive and negative, on our effective tax rate and our deferred tax assets and liabilities. For further discussion of changes in the income tax provision, refer to Notes A and S to our financial statements beginning on page 1 of this Quarterly Report on Form 10-Q.

#### Net Earnings (Loss)

Our net loss for the nine months ended September 30, 2023 was approximately $0.8 million, compared to a net loss of approximately $1.7 million for the nine months ended September 30, 2022. This change was primarily due to the reasons described above for the increase in operating expenses and the increase in purchasing costs. These factors were partially offset by the increase in sales during the nine months ended September 30, 2023 from the acquisition of the assets of each of G.A.P. Promotions, Trend Brand Solutions, Premier NYC, and T R Miller to approximately $9.4 million in aggregate, from approximately $4.5 million from the acquisition of the assets of G.A.P. Promotions and Trend Brand Solutions during the nine months ended September 30, 2022, and the increase of approximately $7.0 million from recurring organic sales during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022.

### Liquidity and Capital Resources

As of September 30, 2023, we had cash and cash equivalents of approximately $9.4 million and investments of approximately $10.3 million. We have financed our operations primarily through cash generated from our initial public offering of common stock and warrants to purchase common stock in November 2021, our private placement of common stock and warrants to purchase common stock in December 2021, operations, and bank borrowings, including a secured revolving demand line of credit that was opened with Salem Five Cents Savings Bank in November 2021 for aggregate loans of up to $7.0 million, subject to a number of asset-related and other financial requirements and other covenants, terms and conditions as described in detail below under “– *Debt”.*

We believe that our current levels of cash will be sufficient to meet our anticipated cash needs for our operations and cash payment obligations for both the 12 months ended September 30, 2024 and in the long-term beyond this period, including our anticipated costs associated with being a public reporting company. We may, however, in the future require additional cash resources due to changing business conditions, implementation of our strategy to expand our business, or other investments or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.

### Summary of Cash Flow

The following table provides detailed information about our net cash flow for the nine months ended September 30, 2023 and 2022.

|  | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net cash provided by (used in) operating activities | $(3,383,722) | $(6,536,762) |
| Net cash provided by (used in) investing activities | (1,824,278) | (10,729,582) |
| Net cash provided by (used in) financing activities | (610,666) | (2,663,662) |
| Net increase (decrease) in cash and cash equivalents | (5,818,666) | (19,930,006) |
| Cash and cash equivalents at beginning of period | 15,253,756 | 32,226,668 |
| Cash and cash equivalents at end of period | $9,435,090 | $12,296,662 |

Net cash used in operating activities was approximately $3.4 million for the nine months ended September 30, 2023, as compared to net cash used in operating activities of approximately $6.5 million for the nine months ended September 30, 2022. For the nine months ended September 30, 2023, increases in accounts receivable of approximately $2.1 million, deposits of approximately $2.0 million, and unearned revenue of approximately $3.6 million along with a decrease in rewards program liability of approximately $3.3 million were the primary drivers of the net cash used in operating activities. For the nine months ended September 30, 2022, increases in accounts receivable of approximately $1.3 million and inventory of approximately $1.9 million along with a decrease in accounts payable and accrued expenses of approximately $2.1 million were the primary drivers of the net cash used in operating activities. The change of net cash used in operating activities for the nine months ended September 30, 2023 compared to the net cash used in operating activities for the nine months ended September 30, 2022 occurred in the normal course of business due to growth in organic business.

Net cash used in investing activities was approximately $1.8 million for the nine months ended September 30, 2023, as compared to net cash used in investing activities of approximately $10.7 million for the nine months ended September 30, 2022. For the nine months ended September 30, 2023 and 2022, asset acquisitions for net cash outlays totaling approximately $0.7 million and $0.4 million, respectively, additions to software-related property and equipment totaling approximately $0.8 million and $0.4 million, respectively, and purchases of investments totaling approximately $0.4 million and $9.9 million, respectively, were the primary drivers of the net cash used in investing activities. The decrease in net cash used in investing activities for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 was primarily due to purchases of investments.

Net cash used in financing activities was approximately $0.6 million for the nine months ended September 30, 2023, as compared to net cash used in financing activities of approximately $2.7 million for the nine months ended September 30, 2022. For the nine months ended September 30, 2023, net cash used in financing activities consisted primarily of payments related to a contingent earn-out liability. For the nine months ended September 30, 2022, net cash used in financing activities consisted primarily of payments related to a contingent earn-out liability of approximately $0.5 million and the repurchase of our common stock under our stock repurchase program for approximately $3.2 million, offset by net proceeds received from the exercise of our publicly-traded warrants of approximately $1.0 million. The decrease in net cash used in financing activities was primarily due to the non-recurrence of repurchases of our common stock under our stock repurchase program during the nine months ended September 30, 2023.

### Stock Repurchase Program

As initially announced on February 23, 2022, under our stock repurchase program, we may repurchase up to $10 million of our outstanding shares of common stock from time to time in the open market, in accordance with all applicable securities laws and regulations, including Rule 10b-18. Our decision to repurchase our shares, as well as the timing of such repurchases, will depend on a variety of factors that include ongoing assessments of our capital needs, market conditions and the price of our common stock, and other corporate considerations, as determined by management. Repurchases will also only be made in accordance with the Company’s insider trading policy as if such purchases were made by a person covered by the policy. Our insider trading policy generally permits insider purchases of our stock only during the period beginning on the second business day following the day of public release of our quarterly or annual earnings and ending on the last day of the then-current quarter. There is no defined number of shares to be repurchased over a specified timeframe through the life of the stock repurchase program. The repurchase authorization has no expiration date but may be suspended or discontinued at any time. Stock repurchases are paid using cash generated by operations.

In connection with our stock repurchase program, on May 23, 2022, we announced that we had established a trading plan with B. Riley intended to qualify under Rule 10b-18. In May 2023, we renewed the trading plan. The trading plan instructs B. Riley to repurchase shares of common stock for our account in accordance with Rule 10b-18 and our instructions. Repurchases under the trading plan may continue until the trading plan terminates in June 2024 unless terminated earlier or extended.

As of September 30, 2023, we had repurchased a total of 1,797,159 shares of common stock for total payments of $3,356,711, and $6,643,289 remained available under the stock repurchase program for future stock repurchases. During the three months ended September 30, 2023, we repurchased a total of 19,502 shares for aggregate payments of $24,306 under the Trading Plan.

### Debt

On November 22, 2021, we entered into a Revolving Demand Line of Credit Loan Agreement (the “Line of Credit Agreement”), with Salem Five Cents Savings Bank (the “Lender”), for aggregate loans of up to $7 million (the “Line of Credit”), evidenced by a Revolving Demand Line of Credit Note, also dated November 22, 2021 (the “Note”). The Line of Credit and Note are secured by a first priority security interest in all assets and property of the Company, as provided in the Security Agreement, also dated November 22, 2021, between the Lender and the Borrower (the “Security Agreement” and together with the Line of Credit Agreement and the Note, the “Line of Credit Documents”), and as described below.

The amount available under the Line of Credit is the lesser of $7.0 million or the sum of (x) 80% of the then-outstanding amount of Eligible Accounts (as defined below), plus (y) 50% of Eligible Inventory (as defined below); minus 100% of the aggregate amount then drawn under the Line of Credit for the account of the Company. In addition, advances based upon Eligible Inventory must be capped at all times at $2,000,000. “Eligible Accounts” are defined as accounts that meet a number of requirements, including, unless otherwise approved by the Lender, being less than 90 days from the date of invoice not subject to any prior assignment, claim, lien, or security interest, not subject to set-off, credit, allowance or adjustment by the account debtor, arose in the ordinary course of the Company’s business, not an intercompany obligation, not subject to notice of bankruptcy or insolvency of the account debtor, not owed by an account debtor whose principal place of business is outside the United States, not a government account, not be evidenced by promissory notes, and not one of the accounts owed by an account debtor 25% or more of whose accounts are 90 or more days past invoice date; or otherwise not deemed acceptable by the Lender in accordance with its normal credit policies. “Eligible Inventory” means all finished goods, work in progress and raw materials and component parts of inventory owned by the Company. It does not include any inventory held on consignment or not otherwise owned by the Company; any inventory which has been returned by a customer or is damaged or subject to any legal encumbrances other than a first priority security interest held by the Company; any inventory which is not in the possession of the Company; any inventory which is held by the Company on property leased by the Company unless the Lender has received a landlord lien waiver and collateral access agreement from the lessor of such property satisfactory to the Lender; any inventory which is not located within the United States; any inventory which the Lender reasonably deems to be obsolete or non-marketable; and any inventory not subject to a first priority fully perfected lien held by the Lender.

The Line of Credit is subject to interest at the prime rate plus 0.5% per annum. The Company must repay interest on Line of Credit proceeds on a monthly basis. The Line of Credit will continue indefinitely, subject to the Lender’s demand rights and the Company’s ongoing affirmative and other obligations under the Line of Credit Documents, as summarized below.

The Company may freely draw upon the Line of Credit subject to the Lender’s right to demand complete repayment of the Line of Credit at any time. Late payments are subject to a late payment charge of 5%. In the event of failure to repay the Line of Credit after the Lender makes demand for full repayment, the interest rate will increase by 10%. The Note may be prepaid at any time without penalty. The Lender may assign the Note without the Company’s consent.

Under the Security Agreement and the other Line of Credit Documents, the Company granted the Lender a first priority security interest in all of its assets, including both assets owned as of the date of the Line of Credit and afterwards, as collateral for full repayment of the Line of Credit. The Lender may file Uniform Commercial Code financing statements with any jurisdiction and with sufficient descriptions of the property to perfect its security interest in all of the Company’s current and future assets. Upon default of the Line of Credit, the Lender may accelerate repayment of the Line of Credit, take possession of the Company’s assets, assign a receiver over the Company’s assets, and enforce other rights as to the Company’s assets as secured creditor. The Company must pay for all of the Lender’s reasonable legal fees and expenses incurred to enforce its rights under the Line of Credit Documents.

Under the Line of Credit Agreement, the Company is required to continue its current business of outsourced marketing solutions, and, without the prior consent of the Lender, the Company may not acquire in whole or in part any other company or business and shall not engage in any other business or open any other locations. The Company must use the proceeds of the Line of Credit only in connection with the general and ordinary operations of its business and for the purpose of general working capital for accounts receivable and inventory purchases.

The Line of Credit is also subject to ongoing affirmative obligations of the Company, including: Making punctual repayment of the Line of Credit amount; maintaining proper accounting books and records in accordance with the opinion of LMHS, P.C. or another Certified Public Accountant acceptable to the Lender; allowing the Lender to inspect its accounting books and records; furnishing audited, quarterly, monthly and other financial statements to the Lender; making payment of Lender’s reasonable expenses for a field exam in 2022; allowing the Lender to communicate with its accountants; maintaining its properties in good repair subject to ordinary wear and tear; obtaining replacement-cost insurance for its property with the Lender as Mortgagee/Loss Payee; causing management contracts for the Company’s properties to be subordinated to the rights of the Lender; and allowing no change of property management company without the prior written consent of the Lender.

The Line of Credit is further subject to the Company meeting the following financial requirements: (a) “Debt Service Coverage Ratio” defined as cash flow to be calculated on an annual basis of at least 1.20 times EBITDA less cash taxes, distributions, dividends, shareholder withdrawals in any form, and unfinanced CAPEX divided by all scheduled principal payments on all debt plus cash interest payments made on all debt; and (b) “Minimum Net Worth” defined as minimum net worth of $2,000,000 at December 31, 2021, $2,750,000 at December 31, 2022, and $3,500,000 at December 31, 2023.

The Company also may not incur any additional indebtedness, secured or unsecured, except in the ordinary course of business; make loans or advances to others or guarantee others’ obligations except for certain ordinary advances to employees or ordinary customer credit terms; make investments; acquire any business; make capital expenditures except in the ordinary course of business; sell any material assets except in the ordinary course of business; or grant any security interests or mortgages in its properties or assets.

The foregoing summary of the Line of Credit Agreement, the Note, and the Security Agreement is qualified in its entirety by reference to the full text of the Line of Credit Agreement, the Note, and the Security Agreement, copies of which are attached as Exhibits 10.30, 10.31 and 10.32 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

In connection with the Line of Credit Agreement, on November 22, 2021, the Company, the Lender and Harte Hanks Response Management/ Boston, Inc. (the “Warehouse Provider”), the lessor of certain warehouse facilities to the Company, executed a Warehouseman’s Waiver in favor of the Lender (the “Warehouseman’s Waiver”). Under the Warehouseman’s Waiver, the Warehouse Provider disclaimed any interest in the property of the Company stored on the premises (the “Collateral”), and agreed not to interfere with the Lender’s enforcement of its rights in the Collateral. The Warehouse Provider further agreed to provide notice to the Lender of any default by the Company of its obligations as to the Warehouse Provider, and to give the Lender at least 30 days to exercise its rights, which period may be extended by the Lender up to 60 days upon its payment of the per-diem rental amount. After that period, unless the default has been cured by the Lender, the Warehouse Provider may dispose of such Collateral as it deems fit. Upon the receipt of written notice from the Lender and until such notice is rescinded, the Warehouse Provider shall only honor instructions from the Lender with respect to the Collateral, including any direction from the Lender to dispose of all or any portion of the Collateral at any time, without any further consent or instruction from Company.

The foregoing summary of the Warehouseman’s Waiver is qualified in its entirety by reference to the full text of the Warehouseman’s Waiver, a copy of which is attached as Exhibit 10.33 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

As of September 30, 2023 and December 31, 2022, we had not drawn any funds from the Line of Credit under the Line of Credit Agreement.

### Contractual Obligations

### Wildman Imprints Assets Acquisition

On August 24, 2020, we entered into an Asset Purchase Agreement (the “Wildman Imprints Asset Purchase Agreement”), to acquire inventory, fixed assets, and a customer list of Wildman Imprints. The acquisition closed on September 26, 2020. In connection with the asset acquisition, the customer list was purchased in part under the following earn-out payment terms. The required earn-out payments are equal to 15% of the Gross Profit (as defined by the Wildman Imprints Asset Purchase Agreement) earned from the sale of product to the customer list for the first year following the date of the agreement and 30% for the second and third years following the date of the agreement. Earn-out payments are due within 30 days of the anniversary date of the agreement for the first year and within 30 days of each quarter for the second and third year following the date of the agreement. Any additional Wildman Imprints accounts with a strong history that are purchased will have the same earn-out terms. Additional payments are due for certain referred accounts in the amount of 5% of sales for the first year following the referral date, 3% of sales for the second year following the referral date, and 1% of sales for the third year following the referral date. At September 30, 2023 and December 31, 2022, the current portion of the earn-out liability amounted to $151,441 and $742,874, respectively.

In connection with the asset acquisition, we also had an amount due to the seller under a note in the amount of $162,358 as of December 31, 2022 for the inventory and property and equipment purchased. This amount accrued no interest, and was to be paid “as used” on a quarterly basis through the three-year earn-out period. As of September 30, 2023, the note was forgiven in full. We expect no deficiencies in our ability to make the payments required under the asset purchase agreement. The aggregate purchase price was $2,937,222, as follows:

Fair Value of Identifiable Assets Acquired:

|  |  |
| --- | ---: |
| Inventory | $649,433 |
| Property and Equipment | 34,099 |
| Intangible - Customer List | 2,253,690 |
| **Total** | **$2,937,222** |

Consideration Paid:

|  |  |
| --- | ---: |
| Cash | 521,174 |
| Note Payable - Wildman | 162,358 |
| Contingent Earn-Out Liability | 2,253,690 |
| **Total** | **$2,937,222** |

For further discussion see Notes J, M and N to our financial statements beginning on page 1 of this Quarterly Report. The foregoing description of the Wildman Imprints Asset Purchase Agreement and the related acquired assets is qualified in its entirety by reference to the full text of the Wildman Imprints Asset Purchase Agreement, a copy of which is attached as Exhibit 10.1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

### G.A.P. Promotions Assets Acquisition

On January 31, 2022, the Company closed on an asset purchase agreement, dated as of January 21, 2022, as amended on January 31, 2022, to acquire inventory, working capital, and a customer list from G.A.P. Promotions (the “G.A.P. Promotions Asset Purchase Agreement”).

The purchase price included cash payments as follows: $500,000 in cash, subject to adjustment, plus additional cash for the certain inventory on hand at cost; $180,000 due January 31, 2023; and $300,000 due January 31, 2024. The Company also issued 46,083 shares of restricted common stock to the principal owner of G.A.P. Promotions.

The seller is also entitled to receive the following earn-out payments to the extent that the acquired business achieves the applicable Gross Profit (as defined by the G.A.P. Promotions Asset Purchase Agreement) targets: (1) An earn-out payment equal to 70% of annual Gross Profit of the acquired business to the extent Gross Profit is above $1,500,000 for the trailing 12-month period from the first anniversary of the closing date, subject to deductions for certain inventory and accounts receivables that are not purchased or paid for by customers; and (2) an earn-out payment equal to 70% of annual Gross Profit of the acquired business to the extent Gross Profit is above $1,500,000 for the trailing 12-month period from the second anniversary of the Closing Date. Earn-out payments are due within 30 days from the date on which they are determined to be owed.

In accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 805, “Business Combinations” (“FASB ASC 805”), the acquisition method of accounting has been applied and recognition of the assets acquired has been determined at fair value as of the acquisition date. All acquisition costs have been expensed as incurred. The consideration paid has been allocated to the assets acquired based on their estimated fair values at the acquisition date. The estimate of fair values for tangible assets acquired was agreed to by both buyer and seller. The aggregate purchase price was $3,245,872, as follows:

Fair Value of Identifiable Assets Acquired:

|  |  |
| --- | ---: |
| Inventory | $91,096 |
| Working Capital | 879,486 |
| Intangible - Customer List | 2,275,290 |
| **Total** | **$3,245,872** |

Consideration Paid:

|  |  |
| --- | ---: |
| Cash | 1,510,872 |
| Restricted Stock | 100,000 |
| Contingent Earn-Out Liability | 1,635,000 |
| **Total** | **$3,245,872** |

For further discussion relating to this transaction, see Notes J and N to our financial statements beginning on page 1 of this Quarterly Report on Form 10-Q. The foregoing description of the G.A.P. Promotions Asset Purchase Agreement and assets acquired from G.A.P. Promotions is qualified in its entirety by the full text of the asset purchase agreement and amendment thereto, which are filed as Exhibit 2.1 and Exhibit 2.2 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, respectively.

### Trend Brand Solutions Assets Acquisition

On August 31, 2022, the Company closed on an asset purchase agreement, dated as of July 13, 2022, as amended on August 31, 2022, to acquire cash, accounts receivable, inventory, fixed assets, and a customer list from Trend Brand Solutions (the “Trend Asset Purchase Agreement”).

The purchase price included cash payments as follows: $175,000 in cash, plus additional cash for certain inventory on hand at cost and the depreciated value of certain fixed assets, on the closing date; $37,500 within 45 days of August 31, 2023, (ii) $37,500 within 45 days of August 31, 2024, (iii) $25,000 within 45 days of August 31, 2025, and (iv) $25,000 within 45 days of August 31, 2026. These amounts are subject to deductions for certain outstanding indebtedness and unsold inventory and working capital adjustments. Pursuant to the Trend Asset Purchase Agreement, prior to closing, the Company also made a short-term loan to the seller of $162,174.66 for the repayment of the seller’s existing loan to the U.S. Small Business Administration in the same amount (the “SBA Note”). At the closing, the SBA Note was repaid by deduction from the cash purchase price. The Company also issued 54,642 shares of restricted common stock to the principal stockholder of Trend Brand Solutions.

The seller is also entitled to receive up to four annual earn-out payments in an amount equal to 40% of annual Gross Profit (as defined by the Trend Asset Purchase Agreement) of the acquired business to the extent that Gross Profit is in excess of $800,000, such annual Gross Profit to be determined based on the immediately trailing 12-month period prior to the applicable closing date anniversary. If the seller is determined to be entitled to an earn-out payment, such earn-out payment will be paid on the date that is ten days from the date of such determination.

In accordance with FASB ASC 805, the acquisition method of accounting has been applied and recognition of the assets acquired has been determined at fair value as of the acquisition date. All acquisition costs have been expensed as incurred. The consideration paid has been allocated to the assets acquired based on their estimated fair values at the acquisition date. The estimate of fair values for tangible assets acquired was agreed to by both buyer and seller. The aggregate purchase price was $2,193,166, as follows:

Fair Value of Identifiable Assets Acquired:

|  |  |
| --- | ---: |
| Cash | $63,624 |
| Accounts Receivable | 346,822 |
| Inventory | 108,445 |
| Fixed Assets | 14,444 |
| Intangible – Customer List | 1,659,831 |
| **Total** | **$2,193,166** |

Consideration Paid:

|  |  |
| --- | ---: |
| Cash | $1,488 |
| Assumption of Liabilities | 721,334 |
| Restricted Stock | 100,000 |
| Contingent Earn-Out Liability | 1,370,344 |
| **Total** | **$2,193,166** |

For further discussion see Notes J and N to our financial statements beginning on page 1 of this Quarterly Report on Form 10-Q, Item 1.01 of our Current Report on Form 8-K filed with the SEC on July 19, 2022, and Items 1.01 and 2.01 of our Current Report on Form 8-K filed with the SEC on September 7, 2022. The foregoing description of the Trend Asset Purchase Agreement and assets acquired from Trend Brand Solutions is qualified in its entirety by the full text of the asset purchase agreement and amendment thereto, which are filed as Exhibit 2.3 and Exhibit 2.4 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, respectively.

### Premier NYC Assets Acquisition

On December 20, 2022, the Company closed on an asset purchase agreement, dated as of November 29, 2022 (the “Premier NYC Asset Purchase Agreement”), to acquire cash, accounts receivable, and a customer list from Premier NYC.

The purchase price included cash payments as follows: $100,000 in cash, subject to working capital adjustments, on the closing date; $60,000 within 30 days of December 20, 2023, (ii) $40,000 within 30 days of December 20, 2024, and (iii) $30,000 within 30 days of December 20, 2025. These amounts are subject to deductions for certain outstanding indebtedness.

The seller is also entitled to receive up to three annual earn-out payments in an amount equal to 45% of annual Gross Profit (as defined by the Premier NYC Asset Purchase Agreement) of the acquired business to the extent that Gross Profit is in excess of $350,000, such annual Gross Profit to be determined based on the immediately trailing 12-month period prior to the applicable closing date anniversary. If the seller is determined to be entitled to an earn-out payment, such earn-out payment will be paid on the date that is ten days from the date of such determination.

In accordance with FASB ASC 805, the acquisition method of accounting has been applied and recognition of the assets acquired has been determined at fair value as of the acquisition date. All acquisition costs have been expensed as incurred. The consideration paid has been allocated to the assets acquired based on their estimated fair values at the acquisition date. The estimate of fair values for tangible assets acquired was agreed to by both buyer and seller. The aggregate purchase price was $1,390,533, as follows:

Fair Value of Identifiable Assets Acquired:

|  |  |
| --- | ---: |
| Cash | $13,855 |
| Restricted Stock | 344,078 |
| Contingent Earn-Out Liability | 1,032,600 |
| **Total** | **$1,390,533** |

Consideration Paid:

|  |  |
| --- | ---: |
| Cash | $440,025 |
| Assumption of Liabilities | 17,908 |
| Restricted Stock | 25,000 |
| Contingent Earn-Out Liability | 907,600 |
| **Total** | **$1,390,533** |

For further discussion see Notes J and N to our financial statements beginning on page 1 of this Quarterly Report on Form 10-Q.

### T R Miller Asset Acquisition Agreement

As previously reported in our Current Report on Form 8-K filed on January 31, 2023 (the “January 2023 Form 8-K”), on January 25, 2023, we entered into an Asset Purchase Agreement (the “T R Miller Purchase Agreement”) with T R Miller and Thomas R. Miller (the “Miller Stockholder”), pursuant to which we agreed to acquire substantially all of the assets of T R Miller used in T R Miller’s branding, marketing and promotional products and services business (the “T R Miller Business”). The T R Miller Business had existing operations and generated revenues. As previously reported, the T R Miller Purchase Agreement provided that the aggregate purchase price for the T R Miller Business would consist of cash payments by the Company to T R Miller at and following the consummation of the transactions contemplated by the T R Miller Purchase Agreement (the “T R Miller Closing”), subject to certain adjustments, as described in the January 2023 Form 8-K.

As previously reported in our Current Report on Form 8-K filed on June 1, 2023 (the “June 2023 Form 8-K”), on June 1, 2023, the T R Miller Closing was completed. Pursuant to the T R Miller Purchase Agreement, the Company paid T R Miller $2,154,230.21 in cash, reflecting the purchase price of $1,000,000 as adjusted by a $1,123,071.82 working capital adjustment; no adjustment for indebtedness as of the date and time of the T R Miller Closing (the “T R Miller Closing Date”) that was not part of the Assumed Liabilities (as defined in the T R Miller Purchase Agreement); no separate amount for any Inventory (as defined in the T R Miller Purchase Agreement) that was on hand and owned by Seller as of the T R Miller Closing Date, as such amount was included in the working capital adjustment; and first and last month’s rent under the Miller Lease Agreement (as defined below) of $14,962.50 and $16,195.89, respectively.

Following the T R Miller Closing, the Company will make (a) installment payments equal to (i) $400,000 on the first anniversary of the T R Miller Closing Date, (ii) $300,000 on the second anniversary of the T R Miller Closing Date, (iii) $200,000 on the third anniversary of the T R Miller Closing Date, and (iv) $200,000 on the fourth anniversary of the T R Miller Closing Date, each such installment payment subject to adjustment for certain uncollected accounts receivable amounts outstanding after the first 12 months following the T R Miller Closing; and (b) four annual earn-out payments, each equal to (i) 45% of the annual Gross Profit (as defined in the T R Miller Purchase Agreement) of T R Miller above $4,000,000 with respect to certain customers of T R Miller or primarily resulting from the efforts of the Miller Stockholder or certain employees or independent contractors of T R Miller, plus (ii) 25% of the annual Gross Profit above $4,000,000 with respect to customers primarily resulting from the past or future efforts of the Company that are assigned to and primary responsibility of any employee or independent contractor of T R Miller as designated by the T R Miller Purchase Agreement, for the trailing 12-month period, as of the first, second, third, and fourth anniversary of the T R Miller Closing Date, each such Earn Out Payment subject to adjustment as set forth in the T R Miller Purchase Agreement.

The timing and manner of the remaining working capital adjustments or payments and the earn-out payments, and the resolution of any disagreements as to such adjustments or payments, will follow the procedures provided by the T R Miller Purchase Agreement.

In addition, as of the T R Miller Closing Date, the Company undertook to perform or otherwise pay, satisfy and discharge as of the T R Miller Closing the Assumed Liabilities (as defined in the T R Miller Purchase Agreement).

The T R Miller Purchase Agreement also contained additional representations, warranties, covenants, indemnification provisions and other terms which are described in the January 2023 Form 8-K.

Pursuant to the T R Miller Purchase Agreement, in connection with the T R Miller Closing, the Company, as tenant, and Miller Family Walpole LLC, as landlord (the “Miller Landlord”), entered into a lease agreement for a warehouse facility used by the T R Miller Business, dated May 31, 2023 (the “Miller Lease Agreement”). The Miller Lease Agreement provides for base rent of $179,550.00 in the first year of the lease and an increase of 2% per annum in each subsequent year. We may extend the term for an additional five years upon the same base rent terms upon 12 months’ notice. We will be responsible for all property and other taxes and expenses related to the facility except for maintenance of certain structural elements. The initial lease term commenced on June 1, 2023 and terminates on May 31, 2028. We may assign our rights to the lease and property at the facility as collateral to a lender. The Miller Landlord is also required to execute a landlord lien waiver and collateral access agreement upon request. The Miller Lease Agreement contains provisions for minimum insurance, mutual indemnification from certain claims relating to the Miller Lease Agreement, and customary default and related termination and remedy provisions. The foregoing description of the Miller Lease Agreement is qualified in its entirety by reference to the full text of the agreement, a copy of which is filed as Exhibit 10.1 to the June 2023 Current Report.

In addition, the Company entered into (i) a consulting agreement with the Miller Stockholder providing for certain consulting services to the Company for a period of three years following the T R Miller Closing Date and (ii) an employment agreement with Stacy Miller.

The foregoing references to the terms and conditions of the T R Miller Purchase Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the agreement, a copy of which is attached to the January 2023 Form 8-K as Exhibit 2.1.

There were no material relationships, other than in respect of the transaction, between T R Miller, the Miller Stockholder, and the Company or any of the Company’s affiliates, including any director or officer of the Company, or any associate of any director or officer of the Company.

### Property Leases

The following is a schedule by years of future minimum lease payments:

|  |  |
| --- | ---: |
| 2024 | $504,630 |
| 2025 | 399,245 |
| 2026 | 188,359 |
| 2027 | 192,126 |
| 2028 | 97,176 |
|  | $1,381,536 |

Rent expense for the nine months ended September 30, 2023 and 2022 totaled $383,190 and $333,072, respectively. We anticipate no deficiencies in our ability to make these payments.

### Other Cash Obligations

The Company manages reward card programs for clients. Under these programs, the Company receives cash and simultaneously records a liability for the total amount received. These accounts are adjusted on a periodic basis as reward cards are funded or reduced at the direction of the customers. At September 30, 2023 and December 31, 2022, the Company had net deposits totaling $2,750,000 and $6,000,000, respectively.

Our other principal cash payment obligations have consisted principally of obligations under the Line of Credit described above. As stated above, as of September 30, 2023 and December 31, 2022, we had not drawn any funds from the Line of Credit under the Line of Credit Agreement.

### Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

### Critical Accounting Policies and Estimates

We prepare our financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. To the extent that there are differences between our estimates and actual results, our future financial statements presentation, financial condition, results of operations, and cash flows will be affected.

We believe that the assumptions and estimates associated with investments, inventory valuation, intangible assets, revenue recognition, stock-based compensation expense and income taxes have the greatest potential impact on our financial statements. Therefore, we consider these to be our critical accounting policies and estimates. For further information on all of our significant accounting policies, see Notes A.3. through A.20. to our financial statements beginning on page 1 of this Quarterly Report on Form 10-Q.

### Investments

Our investments consist of U.S. treasury bills, corporate bonds, and money market funds. We classify our investments as available-for-sale and record these investments at fair value. Investments with an original maturity of greater than three months at the date of purchase and less than one year from the date of the balance sheet are classified as current and those with maturities of more than one year from the date of the balance sheet are classified as long-term in the consolidated balance sheet.

### Inventory Valuation

Inventory consists of finished goods (branded products) and goods in process (un-branded products awaiting decoration). All inventory is stated at the lower of cost (first-in, first-out method) or market value.

### Intangible Assets - Customer List

The Company accounts for intangible assets under the provision of ASC 350-20 “Accounting for Goodwill and Other Intangible Assets.” The provision establishes standards for valuation and amortization of unidentifiable assets.

Under ASC 350-20-35-1, the cost of unidentifiable intangible assets is measured by the excess cost over the fair value of net assets acquired. Intangible assets with indefinite useful lives shall not be amortized until its useful life is determined to be no longer infinite. The intangible assets are evaluated when a triggering event occurs, at least annually, for potential impairment.

### Revenue Recognition

In accordance with Accounting Standards Codification (“ASC”) Topic 606, *Revenue from Contracts with Customers (“*ASC 606”), we recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. The guidance defines a five-step process to achieve this core principle and, in doing so, judgment and estimates may be required within the revenue recognition process including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. Generally, we recognize revenue when there is persuasive evidence that an arrangement exists, title and risk of loss have passed, delivery has occurred or the services have been rendered, the sales price is fixed or determinable and collection of the related receivable is reasonably assured. Title and risk of loss generally pass to our customers upon shipment. In limited circumstances where either title or risk of loss pass upon destination or acceptance or when collection is not reasonably assured, we defer revenue recognition until such events occur.

We input orders based upon receipt of a customer purchase order, confirm pricing through the customer purchase order, validate credit worthiness through past payment history or other financial data and record revenue upon shipment of goods and when risk of loss and title transfer.

### Stock-Based Compensation

We account for stock-based compensation under ASC Topic 718, *Compensation-Stock Compensation*, which requires us to record related compensation costs in the statement of operations. Calculating the fair value of stock-based compensation awards requires the input of highly subjective assumptions, including the expected life of the awards and expected volatility of our stock price. Expected volatility is a statistical measure of the amount by which a stock price is expected to fluctuate during a period. Our estimates of expected volatilities are based on weighted historical implied volatility. The expected forfeiture rate applied in calculating stock-based compensation cost is estimated using historical data and is updated annually.

The assumptions used in calculating the fair value of stock-based awards involve estimates that require management judgment. If factors change and we use different assumptions, our stock-based compensation expense could change significantly in the future. In addition, if our actual forfeiture rate is different from our estimate, our stock-based compensation expense could change significantly in the future.

### Income Taxes

We account for income taxes using the asset and liability method in accordance with ASC Topic 740, *Income Taxes*, which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, we must make estimates and judgments in determining the provision for taxes for financial statement purposes. These estimates and judgments occur in the calculation of tax credits, benefits, and deductions, and in the calculation of certain tax assets and liabilities that arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as the interest and penalties related to uncertain tax positions. In addition, the Company operates within multiple tax jurisdictions and is subject to audit in these jurisdictions. Significant changes in these estimates may result in an increase or decrease to our tax provision in a subsequent period. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

We assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not determinable beyond a “more likely than not” standard.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. If we determine that a tax position will more likely than not fail to be sustained on audit, the second step requires us to estimate and measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as we have to determine the probability of various hypothetical outcomes. We re-evaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors such as changes in facts or circumstances, changes in tax law, new audit activity, and effectively settled issues. Determining whether an uncertain tax position is effectively settled requires judgment. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the period in which a change in judgment occurs.

### Recent Accounting Pronouncements

For a discussion of recently adopted accounting pronouncements, see *Recent Accounting Pronouncements* in Note A.21. to our financial statements beginning on page 1 of this Quarterly Report on Form 10-Q.

## Controls and procedures

As filed, 2,338 characters.

### Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As required by Rule 13a-15(e) of the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of September 30, 2023. Based upon, and as of the date of this evaluation, our Chief Executive Officer and Chief Financial Officer determined that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in applicable rules and forms and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

### Changes in Internal Control Over Financial Reporting

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, and migrating processes.

There have been no changes in our internal control over financial reporting during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

#### OTHER INFORMATION

Filed Nov 6, 2023.
Source: SEC EDGAR, the filing index for accession 0001213900-23-083884. Last ingested by Listed: Nov 4, 2026, 17:51 ET. No prices; not investment advice.