Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

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," and the "Company" are to Stran & Company, Inc., a Nevada corporation, and its consolidated subsidiaries; references to "Stran" or "Stran & Company, Inc." are to Stran & Company, Inc., a Nevada corporation; references to "Stran Loyalty Solutions" or "SLS" are to Stran Loyalty Solutions, LLC, a Nevada limited liability company and a wholly-owned subsidiary of Stran & Company, Inc.; and references to "Gander Group Louisiana" are to Gander Group Louisiana, LLC, a Louisiana limited liability company, a wholly owned subsidiary of Stran Loyalty Solutions. References to "Stran segment" are to the unconsolidated operations of Stran & Company, Inc. References to "SLS segment" are to the operations of Stran Loyalty Solutions consolidated with the operations of Gander Group Louisiana. The Company's reportable segments are further described in Note K to the financial statements accompanying this Quarterly Report on Form 10-Q.

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:

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evolving trade matters, including tariffs on goods that we purchase from manufacturers in other countries, and how they could impact our ability to compete cost-effectively;

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our goals and strategies;

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our business development, financial condition and results of operations;

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expected changes in our revenue, costs or expenditures;

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growth and competition trends in our industry;

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our expectations regarding demand for, and market acceptance of, our products or services;

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our expectations regarding our relationships with investors, institutional funding sources and other parties with whom we collaborate;

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our expectations regarding the availability and use of financing from credit facilities or sales of equity or debt securities;

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future fluctuations in general economic and business conditions in the markets in which we operate; and

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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 three and nine months ended September 30, 2026 program clients accounted for 84% and 85% of total revenue, respectively. For the three and nine months ended September 30, 2025, program clients accounted for 78% and 80% 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, which we believe will help secure recurring revenue well into the future.

We have historically imported many of the goods and components used in our promotional products business from China and, to a lesser extent, other countries. Beginning in February 2025, the United States imposed and repeatedly amended additional country-specific tariffs under the International Emergency Economic Powers Act ("IEEPA"), with significant changes affecting imports from China. The United States also eliminated duty-free de minimis treatment for low-value imports.

On February 20, 2026, the U.S. Supreme Court held in Learning Resources, Inc. v. Trump that IEEPA does not authorize the President to impose tariffs and collection of IEEPA-based duties ended on February 24, 2026. The IEEPA tariffs were replaced first by a temporary 10% global import surcharge under Section 122 of the Trade Act of 1974, which expired on July 24, 2026.

Effective July 24, 2026, they were replaced by tariffs of 10% or 12.5% (including 12.5% on imports from China) under Section 301 of the Trade Act of 1974 on imports from 60 trading partners subject to various product- and country-specific exemptions.

U.S. Customs and Border Protection ("CBP") has established a phased process for refunding IEEPA duties previously paid by importers. Eligibility for later phases remains subject to ongoing litigation. During the three months ended September 30, 2026, SLS received tariff refunds of approximately $248 thousand. Of that amount, approximately $7 thousand was passed through to a customer, and the net refund of approximately $241 thousand was recorded as a reduction of cost of sales.

Tariffs and changes in trade policy have required us to raise prices on certain products, and may require further increases, which could result in the loss of customers, or, if prices cannot be increased, lower gross margins. We have sought to shift sourcing away from Chinese and other foreign suppliers, but our ability to do so cost-effectively is limited. Accordingly, investors should not assume that trends in our past results, including for the nine months ended September 30, 2026, will continue in future periods.

During the three and nine months ended September 30, 2026, global crude oil and refined product markets were impacted by heightened geopolitical tensions in the Middle East, including the ongoing conflict involving Iran, Israel, and the United States. These developments have not had a direct material impact on our results. However, we are exposed to volatility in energy and oil markets, which could impact manufacturing, transportation, and packaging costs. Maritime restrictions in the Strait of Hormuz will continue to influence this risk. Significant increases in fuel, utilities, and petroleum-based inputs may materially increase our cost of goods sold and logistics expenses, and these increases may not be fully offset through pricing actions, which could adversely impact our margins and operating results.

Our sales for the three and nine months ended September 30, 2026 increased 8.2% and 6.3%, respectively, compared to the same periods in 2025, due to higher spending from existing clients as well as business from new customers.

As of September 30, 2026, we had approximately $52.2 million of total assets with approximately $31.3 million of total stockholders' equity.

Emerging Growth Company and Smaller Reporting 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:

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have an auditor report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act");

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present three years, and may instead present only two years, of audited financial statements, with correspondingly reduced "Management's Discussion and Analysis of Financial Condition and Results of Operations" disclosure in this report;

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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);

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comply with certain greenhouse gas emissions disclosure and related third-party assurance requirements;

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submit certain executive compensation matters to stockholder advisory votes, such as "say-on-pay" and "say-on-frequency;" and

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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 in which the fifth anniversary of our initial public offering occurs, which will be December 31, 2026, (ii) the last day of the first fiscal year in which our total annual gross revenues are $1.235 billion or more, (iii) 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 (subject to certain exceptional circumstances) if the market value of our common stock that is held by non-affiliates exceeds $700.0 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 $1.0 billion in non-convertible debt during the preceding three year period.

To the extent that we continue to qualify as a "smaller reporting company," as such term is defined in Rule 12b-2 under the Exchange Act, after we cease to qualify as an emerging growth company, certain of the exemptions and accommodations available to us as an emerging growth company may continue to be available to us as a smaller reporting company, including as to: (i) the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; (ii) scaled executive compensation disclosures; (iii) presenting three years of audited financial statements; and (iv) compliance with certain greenhouse gas emissions disclosure and related third-party assurance requirements.

Principal Factors Affecting Our Financial Performance

Our operating results are primarily affected by the following factors:

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our ability to acquire new customers or retain existing customers;

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our ability to offer competitive product pricing;

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our ability to broaden product offerings;

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industry demand and competition;

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our ability to leverage technology and use and develop efficient processes;

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our ability to attract and retain talented employees;

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our ability to identify or to complete acquisitions or to successfully integrate the businesses we acquire; and

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market conditions and our market position.

Results of Operations

Comparison of Three Months Ended September 30, 2026 and 2025

The following table sets forth key components of our results of operations during the three months ended September 30, 2026 and 2025 both in dollars and as a percentage of our revenues.

		Three Months Ended September 30,
		2026								2025
		Amount				% of				Amount				% of
		(in thousands)				Revenues				(in thousands)				Revenues
Sales		$	28,099				100.0	%		$	25,981				100.0	%
Cost of sales			18,738				66.7	%			18,909				72.8	%
GROSS PROFIT			9,361				33.3	%			7,072				27.2	%
OPERATING EXPENSES:
General and administrative expenses			9,514				33.9	%			8,854				34.1	%
Total operating expenses			9,514				33.9	%			8,854				34.1	%
(LOSS) INCOME FROM OPERATIONS			(153	)			(0.5	)%			(1,782	)			(6.9	)%
OTHER INCOME:
Other income, net			126				0.4	%			304				1.2	%
Interest income			99				0.4	%			87				0.3	%
Realized gain on investments			2				-	%			79				0.3	%
Total other income			227				0.8	%			470				1.8	%
INCOME (LOSS) BEFORE INCOME TAXES			74				0.3	%			(1,312	)			(5.0	)%
Provision (Benefit) for income taxes			39				0.1	%			(72	)			(0.3	)%
NET INCOME (LOSS)		$	35				0.1	%		$	(1,240	)			(4.8	)%

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. Sales by segment and in total were as follows (in thousands):

		Three Months Ended September 30,								Three Months Ended September 30,								Increase / (Decrease)
		2026				% of Total				2025				% of Total				$				%
Stran		$	18,481				65.8	%		$	17,643				67.9	%		$	838				4.7	%
SLS			9,618				34.2	%			8,338				32.1	%			1,280				15.4	%
Total sales		$	28,099				100.0	%		$	25,981				100.0	%		$	2,118				8.2	%

Our total sales increased 8.2% to approximately $28.1 million for the three months ended September 30, 2026, from approximately $26.0 million for the three months ended September 30, 2025. Sales by our Stran segment increased to approximately $18.5 million for the three months ended September 30, 2026 from approximately $17.6 million for the three months ended September 30, 2025. Sales by our SLS segment increased to approximately $9.6 million for the three months ended September 30, 2026 from approximately $8.3 million for the three months ended September 30, 2025. For the Stran segment, the increase in sales was primarily due to business from new customers and higher spending from existing clients. For the SLS segment, the increase in sales was primarily attributable to new business from existing clients.

Cost of Sales

Cost of sales by segment and in total were as follows (in thousands):

		Three Months Ended September 30,								Three Months Ended September 30,								Increase / (Decrease)
		2026				% of Total				2025				% of Total				$				%
Stran		$	12,125				64.7	%		$	12,133				64.2	%		$	(8	)			(0.1	)%
SLS			6,613				35.3	%			6,776				35.8	%			(163	)			(2.4	)%
Total cost of sales		$	18,738				100.0	%		$	18,909				100.0	%		$	(171	)			(0.9	)%

Our total cost of sales decreased 0.9% to approximately $18.7 million for the three months ended September 30, 2026, from approximately $18.9 million for the three months ended September 30, 2025. As a percentage of sales, total cost of sales decreased to 66.7% for the three months ended September 30, 2026 from 72.8% for the three months ended September 30, 2025. Cost of sales by our Stran segment remained constant at approximately $12.1 million for the three months ended September 30, 2026 from approximately $12.1 million for three months ended September 30, 2025. Cost of sales by our SLS segment decreased to approximately $6.6 million for the three months ended September 30, 2026 from approximately $6.8 million for the three months ended September 30, 2025. The decrease in the dollar amount of total cost of sales was primarily due to cost management and a tariff refund of approximately $0.2 million received during the three months ended September 30, 2026. For the Stran segment, the decrease was primarily due to effective cost management. For the SLS segment, the decrease was primarily attributable to effective cost management and lower tariffs in addition to the tariff refund described above.

Gross Profit

Gross profit by segment and in total were as follows (in thousands):

		Three Months Ended September 30,								Three Months Ended September 30,								Increase / (Decrease)
		2026				% of Total				2025				% of Total				$				%
Stran		$	6,356				67.9	%		$	5,510				77.9	%		$	846				15.4	%
SLS			3,005				32.1	%			1,562				22.1	%			1,443				92.4	%
Total gross profit		$	9,361				100.0	%		$	7,072				100.0	%		$	2,289				32.4	%

Gross profit consists of sales less total cost of sales. Our total gross profit increased 32.4% to approximately $9.4 million, or 33.3% of sales, for the three months ended September 30, 2026, from approximately $7.1 million, or 27.2% of sales, for the three months ended September 30, 2025. Gross profit of our Stran segment increased to $6.4 million approximately for three months ended September 30, 2026 from approximately $5.5 million for the three months ended September 30, 2025. Gross profit of our SLS segment increased to approximately $3.0 million for the three months ended September 30, 2026 from approximately $1.6 million for the three months ended September 30, 2025. The increase in the dollar amount of total gross profit was primarily attributable to customer mix, effective cost management and the tariff refund received during the quarter ending September 30, 2026. For the Stran segment, the increase in the dollar amount of gross profit was due to customer mix. For the SLS segment, the increase in the dollar amount of gross profit was primarily attributable to improved customer mix, effective cost management and lower tariffs in addition to the tariff refund received during the quarter ending September 30, 2026.

Gross profit margin is defined as gross profit as a percentage of sales. The increase in total gross profit margin to 33.3% for the three months ended September 30, 2026 from 27.2% for the three months ended September 30, 2025 was primarily due to a shift in our customer mix and margin contribution. The gross profit margin for the Stran segment increased to 34.4% for the three months ended September 30, 2026 from 31.2% for the three months ended September 30, 2025 due to customer mix. The gross profit margin for the SLS segment increased to 31.2% for the three months ended September 30, 2026 from 18.7% for the three months ended September 30, 2025 due to improved customer mix, effective cost management and the tariff refund received during the quarter ending September 30, 2026.

The gross profit and gross profit margin for the remainder of 2026 will be largely dependent on revenue levels.

Operating Expenses

Operating expenses by segment and in total were as follows (in thousands):

		Three Months Ended September 30,								Three Months Ended September 30,								Increase / (Decrease)
		2026				% of Total				2025				% of Total				$				%
Stran		$	6,358				66.8	%		$	6,161				69.6	%		$	197				3.2	%
SLS			2,318				24.4	%			1,969				22.2	%			349				17.7	%
Other			838				8.8	%			724				8.2	%			114				15.7	%
Total operating expenses		$	9,514				100.0	%		$	8,854				100.0	%		$	660				7.5	%

Operating expenses consist of general and administrative expenses. Our total operating expenses increased 7.5% to approximately $9.5 million for the three months ended September 30, 2026, from approximately $8.9 million for the three months ended September 30, 2025. Operating expenses of our Stran segment increased to approximately $6.4 million for the three months ended September 30, 2026 from approximately $6.2 million for the three months ended September 30, 2025. Operating expenses of our SLS segment increased to approximately $2.3 million for the three months ended September 30, 2026 from approximately $2.0 million for the three months ended September 30, 2025. As a percentage of sales, total operating expenses decreased to 33.9% for the three months ended September 30, 2026, from 34.1% for the three months ended September 30, 2025. As a percentage of sales, operating expenses of our Stran segment decreased to 34.4% for the three months ended September 30, 2026 from 34.9% for the three months ended September 30, 2025. As a percentage of sales, operating expenses of our SLS segment increased to 24.1% for the three months ended September 30, 2026 from 23.6% for the three months ended September 30, 2025. For the Stran segment, the increase in the dollar amount of operating expenses was primarily due to higher employee-related costs, and our investment in STRAN Digital Solutions to provide enhanced functionality and offerings to scale client programs. For the SLS segment, the increase in the dollar amount of operating expenses was primarily attributable to lower sales-related costs. Operating expenses for "Other" consists of unallocated corporate costs, including salaries for our corporate officers, audit-related fees, board of director compensation, and other stock-related charges. Such costs increased by approximately $0.1 million to approximately $0.8 million for the three months ended September 30, 2026, from approximately $0.7 million for the three months ended September 30, 2025. The increase was primarily due to higher legal and accounting expenses.

Other Income

Other income consists of other income, interest income, and realized gain on investments. Our other income, net was approximately $126 thousand for the three months ended September 30, 2026, compared to other income, net of approximately $304 thousand for the three months ended September 30, 2025. This change was primarily related to cost recoveries in 2025 for estimated shipping charges that did not reoccur in 2026. Our interest income was approximately $99 thousand for the three months ended September 30, 2026, compared to approximately $87 thousand for the three months ended September 30, 2025. This increase was primarily attributable to higher investment balances and market rates compared to the same period in the prior year offset by slightly lower average program deposits. Our realized gain on investments was $2 thousand for the three months ended September 30, 2026, compared to $79 thousand for the three months ended September 30, 2025. The decrease in realized gain on investments reflects our utilization of cash to support the Company's operating activities.

Income Tax Provision

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, 2026 was approximately $39 thousand compared to an income tax benefit of approximately $72 thousand for the three months ended September 30, 2025. The effective tax rate for the three months ended September 30, 2026 was 52.2%, based on income before income taxes of approximately $0.1 million. The effective tax rate for the three months ended September 30, 2025 was 5.5%, based on loss before income taxes of approximately $1.3 million.

The change in the effective tax rate from the comparison of 2026 and 2025 as noted above primarily relates to our estimated earnings and the Company's position that its deferred tax assets require a full valuation allowance.

Net Income

Our net income for the three months ended September 30, 2026 was approximately $35 thousand, compared to net loss of approximately $1.2 million for the three months ended September 30, 2025. This change was primarily due to an increase in gross profit for the reasons described above, offset by an increase in operating expenses.

Comparison of the Nine Months Ended September 30, 2026 and 2025

The following table sets forth key components of our results of operations during the nine months ended September 30, 2026 and 2025 both in dollars and as a percentage of our sales.

		Nine Months Ended September 30,
		2026								2025
		Amount				% of				Amount				% of
		(in thousands)				Revenues				(in thousands)				Revenues
Sales		$	92,706				100.0	%		$	87,252				100.0	%
Cost of sales			63,680				68.7	%			61,829				70.9	%
GROSS PROFIT			29,026				31.3	%			25,423				29.1	%
OPERATING EXPENSES:
General and administrative expenses			28,448				30.7	%			27,345				31.3	%
Total operating expenses			28,448				30.7	%			27,345				31.3	%
INCOME (LOSS) FROM OPERATIONS			578				0.6	%			(1,922	)			(2.2	)%
OTHER INCOME:
Other income, net			369				0.4	%			584				0.7	%
Interest income			233				0.3	%			206				0.2	%
Realized gain on investments			12				-%				146				0.2	%
Total other income			614				0.7	%			936				1.1	%
INCOME (LOSS) BEFORE INCOME TAXES			1,192				1.3	%			(986	)			(1.1	)%
Provision (Benefit) for income taxes			104				0.1	%			4				-	%
NET INCOME (LOSS)		$	1,088				1.2	%		$	(990	)			(1.1	)%

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. Sales by segment and in total were as follows (in thousands):

		Nine Months Ended September 30,								Nine Months Ended September 30,								Increase / (Decrease)
		2026				% of Total				2025				% of Total				$				%
Stran		$	65,171				70.3	%		$	60,343				69.2	%		$	4,828				8.0	%
SLS			27,535				29.7	%			26,909				30.8	%			626				2.3	%
Total sales		$	92,706				100.0	%		$	87,252				100.0	%		$	5,454				6.3	%

Our total sales increased 6.3% to approximately $92.7 million for the nine months ended September 30, 2026, from approximately $87.3 million for the nine months ended September 30, 2025. Sales by our Stran segment increased to approximately $65.2 million for the nine months ended September 30, 2026 from approximately $60.3 million for the nine months ended September 30, 2025. Sales by our SLS segment increased to approximately $27.5 million for the nine months ended September 30, 2026 from approximately $26.9 million for the nine months ended September 30, 2025. For the Stran segment, the increase in sales was primarily due to higher spending from existing clients as well as business from new customers. For the SLS segment, the increase in sales was primarily attributable to higher spending from existing clients as well as from new business.

Cost of Sales

Cost of sales by segment and in total were as follows (in thousands):

		Nine Months Ended September 30,								Nine Months Ended September 30,								Increase / (Decrease)
		2026				% of Total				2025				% of Total				$				%
Stran		$	43,848				68.9	%		$	40,448				65.4	%		$	3,400				8.4	%
SLS			19,832				31.1	%			21,381				34.6	%			(1,549	)			(7.2	)%
Total cost of sales		$	63,680				100.0	%		$	61,829				100.0	%		$	1,851				3.0	%

Our total cost of sales increased 3.0% to approximately $63.7 million for the nine months ended September 30, 2026, from approximately $61.8 million for the nine months ended September 30, 2025. As a percentage of sales, total cost of sales decreased to 68.7% for the nine months ended September 30, 2026 from 70.9% for the nine months ended September 30, 2025. Cost of sales by our Stran segment increased to approximately $43.8 million for the nine months ended September 30, 2026 from approximately $40.4 million for the nine months ended September 30, 2025. Cost of sales by our SLS segment decreased to approximately $19.8 million for the nine months ended September 30, 2026 from approximately $21.4 million for the nine months ended September 30, 2025. The increase in the dollar amount of total cost of sales was primarily due to the increase in sales of 6.3% from period to period. For the Stran segment, the increase was primarily due to the increase in sales described above. For the SLS segment, the decrease was primarily attributable to effective cost management and the receipt of approximately $0.2 million tariff refund.

Gross Profit

Gross profit by segment and in total were as follows (in thousands):

		Nine Months Ended September 30,								Nine Months Ended September 30,								Increase / (Decrease)
		2026				% of Total				2025				% of Total				$				%
Stran		$	21,323				73.5	%		$	19,895				78.3	%		$	1,428				7.2	%
SLS			7,703				26.5	%			5,528				21.7	%			2,175				39.3	%
Total gross profit		$	29,026				100.0	%		$	25,423				100.0	%		$	3,603				14.2	%

Gross profit consists of sales less total cost of sales. Our total gross profit increased 14.2% to approximately $29.0 million, or 31.3% of sales, for the nine months ended September 30, 2026, from approximately $25.4 million, or 29.1% of sales, for the nine months ended September 30, 2025. Gross profit of our Stran segment increased to approximately $21.3 million for the nine months ended September 30, 2026 from approximately $19.9 million for the nine months ended September 30, 2025. Gross profit of our SLS segment increased to approximately $7.7 million for the nine months ended September 30, 2026 from approximately $5.5 million for the nine months ended September 30, 2025. The increase in the dollar amount of total gross profit was primarily attributable to an increase in sales volume. For the Stran segment, the increase in the dollar amount of gross profit was due to an increase in sales of approximately $4.8 million, which was partially offset by an increase of cost of sales of approximately $3.4 million for the reasons described above. For the SLS segment, the increase in the dollar amount of gross profit was primarily attributable to improved customer mix, effective cost management and the receipt of approximately $0.2 million tariff refund.

Gross profit margin is defined as gross profit as a percentage of sales. The increase in total gross profit margin to 31.3% for the nine months ended September 30, 2026 from 29.1% for the nine months ended September 30, 2025 was primarily due to a shift in our customer mix and margin contribution. The gross profit margin for the Stran segment decreased to 32.7% for the nine months ended September 30, 2026 from 33.0% for the nine months ended September 30, 2025 due to customer mix. The gross profit margin for the SLS segment increased to 28.0% for the nine months ended September 30, 2026 from 20.5% for the nine months ended September 30, 2025 due to improved customer mix, effective cost management and the receipt of approximately $0.2 million tariff refund.

The gross profit and gross profit margin for the remainder of 2026 will be largely dependent on revenue levels.

Operating Expenses

Operating expenses by segment and in total were as follows (in thousands):

		Nine Months Ended September 30,								Nine Months Ended September 30,								Increase / (Decrease)
		2026				% of Total				2025				% of Total				$				%
Stran		$	19,518				68.6	%		$	18,323				67.0	%		$	1,195				6.5	%
SLS			6,041				21.2	%			6,169				22.6	%			(128	)			(2.1	)%
Other			2,889				10.2	%			2,853				10.4	%			36				1.3	%
Total operating expenses		$	28,448				100.0	%		$	27,345				100.0	%		$	1,103				4.0	%

Operating expenses consist of general and administrative expenses. Our total operating expenses increased 4.0% to approximately $28.4 million for the nine months ended September 30, 2026, from approximately $27.3 million for the nine months ended September 30, 2025. Operating expenses of our Stran segment increased to approximately $19.5 million for the nine months ended September 30, 2026 from approximately $18.3 million for the nine months ended September 30, 2025. Operating expenses of our SLS segment decreased to approximately $6.0 million for the nine months ended September 30, 2026 from approximately $6.2 million for the nine months ended September 30, 2025. As a percentage of sales, total operating expenses decreased to 30.7% for the nine months ended September 30, 2026, from 31.3% for the nine months ended September 30, 2025. As a percentage of sales, operating expenses of our Stran segment decreased to 30.0% for the nine months ended September 30, 2026 from 30.4% for the nine months ended September 30, 2025. As a percentage of sales, operating expenses of our SLS segment decreased to 21.9% for the nine months ended September 30, 2026 from 22.9% for the nine months ended September 30, 2025. For the Stran segment, the increase in the dollar amount of operating expenses was primarily due to increased headcount and employee-related costs, higher sales-related costs, and our investment in STRAN Digital Solutions to provide enhanced functionality and offerings to scale client programs. For the SLS segment, the decrease in the dollar amount of operating expenses was primarily attributable to a small reduction in headcount and lower sales-related costs. Operating expenses for "Other" consists of unallocated corporate costs, including salaries for our corporate officers, audit-related fees, board of director compensation, and other stock-related charges. Such costs increased by approximately $36 thousand to approximately $2.9 million for the nine months ended September 30, 2026, from approximately $2.9 million for the nine months ended September 30, 2025. The increase was primarily due to higher payroll related costs offset by lower legal and accounting expenses.

Other Income

Other income consists of other income, interest income, and realized gain on investments. Our other income, net was approximately $369 thousand for the nine months ended September 30, 2026, compared to other income, net of approximately $584 thousand for the nine months ended September 30, 2025. This change was primarily related to cost recoveries in 2025 for estimated shipping charges that did not reoccur in 2026. Our interest income was approximately $233 thousand for the nine months ended September 30, 2026, compared to approximately $206 thousand for the nine months ended September 30, 2025. This increase was primarily attributable to higher interest rates earned on program deposit balances, partially offset by slightly lower average program deposit balances compared to the same period in the prior year. Our realized gain on investments was $12 for the nine months ended September 30, 2026, compared to approximately $146 thousand for the nine months ended September 30, 2025, due to the reduced amount of investments sold in 2026 when compared to the same period in 2025.

Income Tax Provision

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, 2026 was approximately $104 thousand compared to an income tax expense of approximately $4 thousand for the nine months ended September 30, 2025. The effective tax rate for the nine months ended September 30, 2026 was 8.7%, based on income before income taxes of approximately $1.2 million. The effective tax rate for the nine months ended September 30, 2025 was (0.4)%, based on loss before income taxes of approximately $1.0 million.

The change in the effective tax rate from the comparison of 2026 and 2025 as noted above primarily relates to our estimated earnings and the Company's position that its deferred tax assets require a full valuation allowance.

Net Income (Loss)

Our net income for the nine months ended September 30, 2026 was approximately $1.1 million, compared to net loss of approximately $1.0 million for the nine months ended September 30, 2025. This change was primarily due to an increase in gross profit, for the reasons described above.

Liquidity and Capital Resources

As of September 30, 2026, we had cash and cash equivalents of approximately $7.4 million and investments of approximately $5.2 million. We have largely 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, and positive cash flow from operating activities during the nine months ended September 30, 2026.

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 ending September 30, 2027 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 would 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 Flows

The following table provides detailed information about our net cash flows for the nine months ended September 30, 2026 and 2025 (in thousands).

		Nine Months Ended September 30,
		2026				2025
Net cash provided by (used in) operating activities		$	1,798			$	(4,834	)
Net cash (used in) provided by investing activities			(354	)			3,133
Net cash used in financing activities			(814	)			(960	)
Net change in cash and cash equivalents			630				(2,661	)
Cash and cash equivalents - beginning			6,753				9,358
Cash and cash equivalents - ending		$	7,383			$	6,697

Net cash provided by operating activities was approximately $1.8 million for the nine months ended September 30, 2026, as compared to net cash used in operating activities of approximately $4.8 million for the nine months ended September 30, 2025. The change was primarily due to an increase in net income, an increase in unearned revenue, a decrease in accounts receivable, a decrease in cash used from the rewards program, and higher accounts payable and accruals as a result of timing. These increases were offset by higher inventory and prepaid deposits for customer orders, as a result of the timing of payments.

Net cash used in investing activities was approximately $0.4 million for the nine months ended September 30, 2026, as compared to net cash provided by investing activities of approximately $3.1 million for the nine months ended September 30, 2025. The change was primarily due to non-recurring redemptions of our investments from 2025.

Net cash used in financing activities was approximately $0.8 million for the nine months ended September 30, 2026, as compared to approximately $1.0 million for the nine months ended September 30, 2025. The change in net cash used in financing activities was primarily related to lower amounts paid on earn-out liabilities and for stock repurchases.

Contractual Obligations

Property Leases

The Company's prior lease agreement for its office space expired May 31, 2025. On January 10, 2025, the Company entered into a seven-year lease agreement for new office space in North Quincy, Massachusetts. The new lease term commenced on June 1, 2025 and expires on May 31, 2032 with an option to extend the lease an additional five years. The lease contains an initial base rent of approximately $21 thousand per month with 2.2% - 2.5% annual escalations, plus a percentage of taxes and operating expenses incurred by the lessor in connection with the ownership and management of the property.

On November 26, 2024, the Company entered into a lease for a 6,500-square foot office space in Irvine, California. The lease commenced on January 1, 2025 and is for a term of 36 months from the commencement date. The lease contains an initial base rent of approximately $17 thousand per month. The lease included an escalation clause with annual increases of approximately 4% per year.

The following is a schedule by years of future minimum lease payments (in thousands):

Remainder of 2026		$	207
2027			679
2028			335
2029			276
2030			283
Thereafter			411
Total		$	2,191

Lease costs for the three months ended September 30, 2026 and 2025 totaled approximately $0.2 million and $0.2 million, respectively. Lease costs for the nine months ended September 30, 2026 and 2025 totaled approximately $0.5 million and $0.6 million, 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. As of September 30, 2026 and December 31, 2025, the Company had net reward card program liabilities totaling approximately $0.9 million and $1.5 million, respectively.

Critical Accounting Estimates

We prepare our financial statements in accordance with U.S. 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 consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, and that would have a material impact on our financial condition or results of operations. There are items within our unaudited consolidated financial statements that require estimation but are not deemed critical, as defined above.

Recent Accounting Pronouncements

For a discussion of recently adopted accounting pronouncements, see Recently Issued Accounting Pronouncements in Note A to our financial statements accompanying this Quarterly Report on Form 10-Q.