Financial Performance - For the three months ended March 31, 2024, sales increased by 17.9% compared to the same period in 2023, attributed to higher spending from existing clients and new customer acquisitions [138]. - Sales increased by 17.9% to approximately $18.8 million for the three months ended March 31, 2024, compared to approximately $16.0 million for the same period in 2023 [157]. - Total cost of sales rose by 25.1% to approximately $13.2 million for the three months ended March 31, 2024, from approximately $10.6 million for the same period in 2023, with cost of sales as a percentage of sales increasing to 70.2% [158]. - Gross profit increased by 3.8% to approximately $5.6 million, representing 29.8% of sales for the three months ended March 31, 2024, down from 33.9% for the same period in 2023 [159]. - Operating expenses rose by 4.8% to approximately $6.3 million for the three months ended March 31, 2024, while as a percentage of sales, operating expenses decreased to 33.4% [160]. - Net loss for the three months ended March 31, 2024, was approximately $0.5 million, consistent with the net loss of approximately $0.5 million for the same period in 2023 [165]. - Net cash provided by operating activities was approximately $2.1 million for the three months ended March 31, 2024, compared to net cash used of approximately $3.6 million for the same period in 2023 [168]. Revenue Sources - Program clients accounted for 86.0% of total revenue for the three months ended March 31, 2024, up from 81.7% in the same period of 2023 [137]. - The majority of revenue is derived from program business, with fewer than 350 out of over 2,000 active customers classified as program clients [137]. Assets and Equity - As of March 31, 2024, the company reported total assets of approximately $47.9 million and total stockholders' equity of approximately $35.2 million [138]. - Cash and cash equivalents as of March 31, 2024, were approximately $9.5 million, with investments totaling approximately $10.7 million [166]. - The Company had net deposits totaling approximately $2.9 million as of March 31, 2024, under its reward card programs [188]. Financing and Debt - The company has transitioned from a revolving line of credit of up to $7.0 million to a factoring arrangement for accounts receivable financing [141]. - The amount available under the Revolving Line of Credit was capped at $7.0 million, with advances based on Eligible Inventory limited to $2.0 million [176]. - The Company was required to maintain a Minimum Liquidity of $7.5 million at all times, defined as cash and short-term investments, less rewards program liabilities [189]. - The Company must maintain a Minimum Interest Coverage of 1.25:1 for the fiscal year ending December 31, 2024 [183]. - The Debt Service Coverage Ratio was required to be at least 1.20:1, tested annually beginning with the fiscal year ending December 31, 2025 [183]. - The Revolving Line of Credit is subject to interest at the prime rate plus 0.5% per annum, with late payments incurring a 5.0% charge [177]. - The Company must use proceeds from the Revolving Line of Credit solely for general working capital related to accounts receivable and inventory purchases [180]. Lease and Acquisition - The company entered into a seven-year lease agreement for new office space with an initial base rent of approximately $21 thousand per month, subject to annual escalations of 2.2% - 2.5% [140]. - On August 23, 2024, the company acquired assets from Bangarang Enterprises, LLC for approximately $1.1 million in cash and assumed liabilities totaling approximately $5.5 million [145]. - The acquisition of Bangarang is expected to enhance the company's service offerings and market position [146]. - Future minimum lease payments total approximately $1.281 million, with $444,000 due in the remainder of 2024 [187]. Growth and Strategy - The company qualifies as an "emerging growth company," allowing it to rely on certain exemptions from disclosure requirements [149]. - The company aims to leverage technology and efficient processes to enhance its competitive position in the market [154]. - The company anticipates that its current cash levels will be sufficient to meet its anticipated cash needs for operations over the next 12 months and beyond [167]. - The company may seek additional cash resources in the future due to changing business conditions or potential investments and acquisitions [167]. Fair Value Measurements - The company measures contingent earn-out liabilities at fair value using significant unobservable inputs classified within Level 3 of the fair value hierarchy [195]. - The Black-Scholes-Merton Call Option Formula is utilized to determine the fair value of the earn-out liability [195]. - Key inputs for fair value measurements include operating income projections, strike price, and volatility [195]. - Significant changes to any of these inputs can lead to a higher or lower liability, capped by the contractual maximum of the contingent earn-out obligations [195]. - The liability will ultimately equal the amount paid, with differences recorded in earnings [195]. - Cash used in financing activities reflects amounts paid that are less than or equal to the contingent earn-out liability on the acquisition date [195]. - Any excess amount paid over the contingent earn-out liability is recorded as cash used in operating activities [195].
Stran & pany(SWAG) - 2024 Q1 - Quarterly Report