| ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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A. |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: |
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1. |
Organization - Stran & Company, Inc., (the “Company”) was incorporated under the laws
of the Commonwealth of Massachusetts and commenced operations on November 17, 1995. The Company re-incorporated under the laws of the
State of Nevada on May 24, 2021. |
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2. |
Operations - The Company is an outsourced marketing solutions provider that sells branded products to
customers. The Company purchases products and branding through various third-party manufacturers and decorators and resells the finished
goods to customers. |
In addition to selling branded products,
the Company offers 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.
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Method of Accounting - The Company’s financial statements are prepared using the accrual basis of
accounting in accordance with accounting principles generally accepted in the United States of America. (“U.S. GAAP”). |
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4. |
Emerging Growth Company - The Company is an “emerging growth company,” as defined in Section
2(a) of the Securities Act, of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups
Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are
applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply
with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive
compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote
on executive compensation and approval of any golden parachute payments not previously approved. Further, Section 102(b)(1) of the JOBS
Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies
(that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered
under the Securities Exchange Act of 1934 (the “Exchange Act”)) are required to comply with the new or revised financial accounting
standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of
such extended transition period which means that when a standard is issued or revised and it has different application dates for public
or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies
adopt the new or revised standard. This may make comparison of the Company’s consolidated financial statements with another public
company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition
period difficult or impossible because of the potential differences in accounting standards used. |
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5. |
Cash and Cash Equivalents - For purposes of the statement of cash flows, the Company considers all highly
liquid investments with an initial maturity of three months or less to be cash equivalents. |
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Fair Value Measurements and Fair Value of Financial Instruments - The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. |
The fair value of the Company’s
financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with
the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants
at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the
use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions
about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and
liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
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Level 1: |
Quoted prices in active markets for identical
assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur
with sufficient frequency and volume to provide pricing information on an ongoing basis. |
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Level 2: |
Observable inputs other than Level 1 inputs. Examples of Level 2
inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities
in markets that are not active. |
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Level 3: |
Unobservable inputs based on our assessment of the assumptions that
market participants would use in pricing the asset or liability. |
The carrying value of certain financial
instruments, including cash and cash equivalents, accounts receivable, accounts payable and note payable - Wildman are carried at historical
cost basis, which approximates their fair values because of the short-term nature of these instruments.
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Investments - The Company’s investments consist of U.S. treasury bills, corporate bonds, mutual funds, and money market funds. Investments are classified as available-for-sale, recorded at fair value and considered current on the balance sheet. |
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Concentration of Credit Risk - Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of accounts receivable and deposits in excess of federally insured limits. These risks are managed by
performing ongoing credit evaluations of customers’ financial condition and by maintaining all deposits in high quality financial
institutions. |
During the years ended December
31, 2023 and 2022, the Company maintained deposits in three banks that exceeded the federal insured deposit limit of the Federal Deposit
Insurance Corporation (FDIC).
For the year ended December 31,
2023, the Company had one major customer to which sales accounted for approximately 14.4% of the Company’s revenues. The Company
had accounts receivable from this customer amounting to 0.8% of the total accounts receivable balance.
For the year ended December 31,
2022, the Company had no major customers.
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9. |
Inventory – 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 net realizable value. |
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10. |
Property and Equipment, Net - Property and equipment are recorded at cost. Maintenance and repairs are charged to expense as incurred whereas major betterments are capitalized. Depreciation is provided using straight-line and accelerated methods over five years. |
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Goodwill and Intangible Assets - Goodwill represents the excess purchase price of the acquired companies over the fair value of identifiable net assets acquired. Goodwill is not amortized; rather, it is subject to a periodic assessment for impairment. The Company reviews goodwill for possible impairment annually on October 1 every year or whenever events or circumstances indicate that the carrying amount may not be recoverable. |
To determine whether goodwill is
impaired, annually or more frequently if needed, the Company performs a multi-step impairment test. Impairment testing is conducted at
the reporting unit level. The Company first has the option to assess qualitative factors to determine if it is more likely than not that
the carrying value of a reporting unit exceeds its estimated fair value. Under ASC 350, Intangibles - Goodwill and Other, the qualitative
assessment requires the consideration of factors such as recent market transactions, macroeconomic conditions, and changes in projected
future cash flows or planned revenue or earnings of the reporting unit as potential indicators when determining the need for a quantitative
assessment of impairment. The Company may also elect to skip the qualitative testing and proceed directly to the quantitative testing.
When performing quantitative testing, the Company first estimates the fair values of its reporting unit using a combination of an income
and market approach. To determine fair values, the Company is required to make assumptions about a wide variety of internal and external
factors. Significant assumptions used in the impairment analysis include financial projections of free cash flow (including significant
assumptions about operations including the rate of future revenue growth, capital requirements, and income taxes), long-term growth rates
for determining terminal value, and discount rates. Comparative market multiples are used to corroborate the results of the discounted
cash flow test. These assumptions require significant judgement. The single step is to determine the estimated fair value of the reporting
unit and compare it to the carrying value of the reporting unit, including goodwill. If we conclude based on our qualitative assessment
that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we then measure the fair value
of the reporting unit and compare its fair value to its carrying value (Step 1 of the goodwill impairment test). The Company also completes
a reconciliation between the implied equity valuation prepared and the Company’s market capitalization. The majority of the inputs
used in the discounted cash flow model are unobservable and thus are considered to be Level 3 inputs. The inputs for the market capitalization
calculation are considered Level 1 inputs.
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Revenue Recognition - The Company accounts for revenue under ASC 606, Revenue for Contract with Customers (“ASC 606”). Revenue is generated through various types of transactions, including promotional product sales, administering a customer’s rewards program, facilitating redemption code programs, and additional contract add-ons to enhance customer experience. The Company follows the five step model of revenue recognition: |
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i. |
identify the contract(s) with a customer; |
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ii. |
identify the performance obligations
in the contract; |
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iii. |
determine the transaction price; |
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iv. |
allocate the transaction price to
the performance obligations within the contract; and |
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v. |
recognize revenue when (or as) the
entity satisfies a performance obligation. |
The Company’s contract assessment
and approval varies based on whether the customer requests a one time sale or a long-term contract. Customers with long-term contracts
require signed Master Sales Agreements, while one time sales contracts may be approved via email, electronic signature, or verbally.
Once the contract is identified and approved, the Company assesses the goods or services promised within the contract to determine whether
each promised good or service is a performance obligation. The Company identifies each piece of promotional product as an individual
performance obligation based on the following fact pattern. Customers can benefit from each item of promotional product produced on its
own. Each piece of promotional product does not significantly modify or customize other promotional products and are not highly interdependent
or interrelated with each other. The Company can, and frequently does, break portions of contracts into separate shipments to meet Customer
demands. As such, each piece of promotional product is considered a separate and distinct performance obligation.
The transaction price for the majority
of the Company’s sales can be clearly identified in a significant majority of the contracts due to an observable selling price.
The transaction price is then allocated to the performance obligation(s), i.e. promotional product. The agreements include clearly identified
prices.
The Company recognizes revenue when
or as performance obligations are satisfied by transferring control of a promised good or service to a customer. Stran evaluates transfer
of control primarily from the customer’s perspective. Considering the transaction from the customer’s perspective reduces
the risk that revenue is recognized for activities that do not transfer control of a good or service to the customer. Management determines,
at contract inception, whether control of a good or service transfers to a customer over time or at a point in time. The assessment of
whether control transfers over time or at a point in time is critical to the timing of revenue recognition. Revenue is recognized over
time if any of the following three criteria are met:
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i. |
the customer simultaneously receives
and consumes the benefits provided by the entity’s performance as the entity performs;
or |
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ii. |
the entity’s performance creates
or enhances an asset (for example, work in process) that the customer controls as the asset
is created or enhanced; or |
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the entity’s performance does
not create an asset with an alternative use to the entity and the entity has an enforceable
right to payment for performance completed to date. |
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13. |
Accounts Receivable and Allowance for Credit Losses - Accounts receivable as of December 31, 2023 and 2022 includes allowance for credit losses of $317 and $264, respectively. |
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December
31,
2023 |
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December
31,
2022 |
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(Restated) |
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(Restated) |
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| Trade accounts receivable |
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$ |
17,393 |
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$ |
14,014 |
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| Less: allowance for credit losses on accounts receivable |
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(317 |
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(264 |
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| Total accounts receivable, net |
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$ |
17,076 |
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$ |
13,750 |
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The Company evaluates our accounts
receivable through a continuous process of assessing our portfolio on an individual customer and overall basis. This process consists
of a thorough review of historical collection experience, current aging status of the customer accounts and the financial condition of
our customers. The Company also considers the economic environment of our customers, both from a marketplace and geographic perspective,
in evaluating the need for an allowance. Based on our review of these factors, we establish or adjust allowances for specific customers.
Credit losses can vary substantially over time and the process involves judgment and estimation that require a number of assumptions
about matters that are uncertain. Accordingly, our results of operations can be affected by adjustments to the allowance due to actual
write-offs that differ from estimated amounts. See Note R, “Credit Losses,” to our financial statements included in this
report for more information.
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14. |
Freight - The Company includes freight charges as a component of cost of goods sold. |
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Leases - The Company’s lease arrangements relate primarily to office space. The Company’s leases may include renewal options and rent escalation clauses. The Company is typically required to make fixed minimum rent payments relating to its right to use an underlying leased asset. |
The Company determines if an arrangement
is a lease at inception and classifies its leases at commencement. Operating leases are presented as right-of-use (“ROU”)
assets and the corresponding lease liabilities are included in operating lease liabilities, current and operating lease liabilities on
the Company’s consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset, and lease
liabilities represent the Company’s obligation for lease payments in exchange for the ability to use the asset for the duration
of the lease term. The Company does not recognize short term leases that have a term of twelve months or less as ROU assets or lease
liabilities.
ROU assets and lease liabilities
are recognized at commencement date and determined using the present value of the future minimum lease payments over the lease term.
The Company uses an incremental borrowing rate based on estimated rate of interest for collateralized borrowing since the Company’s
leases do not include an implicit interest rate. The estimated incremental borrowing rate considers market data, actual lease economic
environment, and actual lease term at commencement date. The lease term may include options to extend when it is reasonably certain that
the Company will exercise that option. The Company recognizes lease expense on a straight-line basis over the lease term.
The Company has lease agreements
which contain both lease and non-lease components, which it has not elected to account for as a single lease component. As such, minimum
lease payments exclude fixed payments for non-lease components within a lease agreement, in addition to excluding variable lease payments
not dependent on an index or rate, such as common area maintenance, operating expenses, utilities, or other costs that are subject to
fluctuation from period to period.
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16. |
Segments - The Company operates as one operating segment with a focus on providing outsourced marketing solutions that also sells branded products to customers. The CEO, as the Company’s chief operating decision maker, manages and allocates resources to the operations of our Company on an aggregated basis. This enables the CEO to assess the Company’s overall level of available resources and determine how best to deploy these resources across functions, product and service lines, and strategic opportunities in line with our long-term Company-wide strategic goals. |
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Uncertainty in Income and Other Taxes - The Company adopted the standards for Accounting for Uncertainty in Income Taxes, which required the Company to report any uncertain tax positions and to adjust its financial statements for the impact thereof. As of December 31, 2023 and 2022, the Company determined it had an uncertain tax position of $2,448 and $2,185. The Company believes the impact will not be material as it will be able to utilize net operating losses to offset a majority of the risk. The Company recorded a nominal amount of interest expense which is included as part of income tax expense. |
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Income Taxes - Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes are provided for differences between the basis of assets and liabilities for financial statements and income tax purposes offset by a valuation allowance for 2023 and 2022. |
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19. |
Earnings/ Loss per Share - Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed based on the weighted average number of shares of common stock plus the effect of dilutive potential shares of common stock outstanding during the period using the treasury stock method. Dilutive potential common shares include the issuance of potential shares of common stock for outstanding stock options and warrants. |
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Stock-Based Compensation - The Company accounts for its stock-based awards in accordance with FASB ASC 718, Compensation - Stock Compensation. ASC 718 requires all stock-based payments to employees to be recognized in the consolidated statements of operations based on their fair values. The Company uses the Black-Scholes option pricing model to determine the fair value of options granted. The Company is recognizing compensation costs only for those stock-based awards expected to vest after considering expected forfeitures. Cumulative compensation expense is at least equal to the compensation expense for vested awards. Stock-based compensation is recognized on a straight-line basis over the service period of each award. The Company records compensation cost as an element of general and administrative expense in the accompanying statements of operations. |
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Stock Option and Warrant Valuation - Stock option and warrant valuation models require the input of highly subjective assumptions. The fair value of stock-based payment awards was estimated using the Black-Scholes option model with a volatility figure derived from an index of historical stock prices for comparable entities. For warrants and stock options issued to non- employees, the Company accounts for the expected life based on the contractual life of the warrants and stock options. For employees, the Company accounts for the expected life of options in accordance with the “simplified” method, which is used for “plain-vanilla” options, as defined in the accounting standards codification. The risk-free interest rate was determined from the implied yields of U.S. Treasury zero-coupon bonds with a remaining life consistent with the expected term of the options. |
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Sales Tax - Sales tax collected from customers is recorded as a liability, pending remittance to the taxing jurisdiction. Consequently, sales taxes have been excluded from revenues and costs. The Company remits sales, use, and GST taxes to Massachusetts, other state jurisdictions, and Canada, respectively. |
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23. |
Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosure of certain assets, liabilities and expenses. The most significant estimates in the Company’s financial statements relate to the allowance for credit losses, the fair value of assets and liabilities assumed in acquisitions, goodwill, the fair value of the contingent earnout liability, and the fair value of stock options and warrants. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected. |
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24. |
Derivative Financial Instruments - The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. |
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25. |
Contingent Earn-Out Liabilities - The Company measures its contingent earn-out liabilities at fair value on a recurring basis using significant unobservable inputs classified within Level 3 of the fair value hierarchy. The Black-Scholes-Merton Call Option Formula was utilized to determine the fair value of the earn-out liability. The significant unobservable inputs used in the fair value measurements are (i) the operating income projections (projected gross profit amounts within the risk-neutral framework) over the earn-out period (generally three or five years), (ii) the strike price, and (iii) volatility. Significant increases or decreases to any of these inputs in isolation would result in a significantly higher or lower liability, with a higher liability capped by the contractual maximum of the contingent earn-out obligations. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate and amount paid will be recorded in earnings. The amount paid that is less than or equal to the contingent earn-out liability on the acquisition date is reflected as cash used in financing activities in the consolidated statements of cash flows. Any amount paid in excess of the contingent earn-out liability on the acquisition date is reflected as cash used in operating activities in the consolidated statements of cash flows. |
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26. |
Reclassifications - Certain reclassifications have been made to the Company’s previously issued Statements of Operations whereby amounts relating to (i) cost of sales, previously reflected as multiple components, have been aggregated and reclassified as a single line item, cost of sales, and (ii) change in fair value of the earn-out liability, previously reflected in other income in the other income (expense) section, have been reclassified to change in fair value of contingent earn-out liability. Additionally, certain reclassifications have been made to the Company’s previously issued Statements of Cash Flows whereby amounts relating to the payment of contingent earn-out and installment payments, previously aggregated and reflected as a single line item in the cash flows from financing activities, have been shown gross and shown as separate line items, payment of contingent earn-out liabilities and payment of installment payment liabilities. These reclassifications had no impact on previously reported net income, cash flows, or shareholders’ equity. |
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27. |
Recent Accounting Pronouncements - Management has reviewed the following recent accounting pronouncements: |
2023-07 – Segment Reporting
(Topic 280)
In November 2023, the FASB issued
ASU 2023-07, which amends the guidance on segment reporting. This update enhances the disclosure requirements for reportable segments,
primarily by requiring more detailed information about significant segment expenses. The amendments also clarify the circumstances under
which an entity can disclose multiple measures of segment profit or loss and provide new segment disclosure requirements for entities
with a single reportable segment.
The guidance is effective for fiscal
years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption
permitted. The guidance is to be applied retrospectively to all prior periods presented in the financial statements.
The Company is currently evaluating
the timing and impacts of adoption of this ASU, and expects to adopt ASU 2023-07 effective for the fiscal year 2024 as required under
the standard.
2023-09 – Income Taxes
(Topic 740)
In December 2023, the FASB issued
ASU 2023-09, which amends the guidance on income tax disclosures. This update aims to improve the transparency and usefulness of income
tax disclosures by requiring entities to provide more detailed information about the nature and effects of income tax uncertainties,
the components of income tax expense, and the effective tax rate reconciliation. Additionally, the ASU mandates enhanced disclosures
about deferred tax assets and liabilities, including the valuation allowance and the impact of tax law changes.
The Company is currently evaluating
the timing and impacts of adoption of this ASU.
2024-01 – Compensation
– Stock Compensation (Topic 718)
In March 2024, the FASB issued ASU
2024-01, which clarifies the accounting for profits interest awards. This update provides guidance on determining whether a profits interest
or similar award falls within the scope of ASC 718 (Compensation—Stock Compensation) or other guidance. The ASU aims to ensure
consistency and transparency in the accounting for these awards by providing clearer criteria and illustrative examples.
The Company is currently evaluating
the timing and impacts of adoption of this ASU.
2024-03 - Income Statement -
Reporting Comprehensive Income - Expense Disaggregation Disclosure
In November 2024, the FASB issued
ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of
Income Statement Expenses (“ASU 2024-03”), which requires the disaggregation, in the notes to the financial statements, of
certain cost and expense captions presented on the face of the Company’s Statement of Operations, to provide enhanced transparency
to investors. The update may be applied either prospectively or retrospectively. ASU 2024-03 is effective for fiscal years beginning
after December 15, 2026 and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted.
The Company is currently evaluating
the impact ASU 2024-03 will have on its disclosures.
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28. |
Subsequent Events - Management has evaluated events occurring after the balance sheet date through January 22, 2025, the date on which the financial statements were filed. |
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