UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2021March 31, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from:                       to                 

Commission file number: 01-07698

ACME UNITED CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

Connecticut

 

06-0236700

State or Other Jurisdiction of

 

I.R.S. Employer Identification No.

Incorporation or Organization

 

 

 

 

 

1 Waterview Drive, Shelton, Connecticut

 

06484

Address of Principal Executive Offices

 

Zip Code

 

Registrant's telephone number, including area code: (203) 254-6060

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of each exchange on which registered

$2.50 par value Common Stock

ACU

NYSE American

Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes       No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes       No  

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one).

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

Smaller Reporting Company

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(s) of the Exchange Act

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes       No  

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 USC. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes       No  

 

Registrant had 3,559,6873,520,646 shares of its $2.50 par value Common Stock outstanding as of NovemberMay 5, 2021.2022.

1


ACME UNITED CORPORATION

INDEX

 

 

 

Page

Number

 

 

 

Part I — FINANCIAL INFORMATION:

3

Item 1:

Financial Statements (Unaudited)

3

 

Condensed Consolidated Balance Sheets at September 30, 2021March 31, 2022 and December 31, 20202021

3

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30,March 31, 2022 and 2021 and 2020

5

 

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30,March 31, 2022 and 2021 and 2020

6

 

Condensed Consolidated Statement of Changes in Stockholders’ Equity for the three and nine months ended September 30,March 31, 2022 and 2021 and 2020

7

 

Condensed Consolidated Statements of Cash Flows for the ninethree months ended September 30,March 31, 2022 and 2021 and 2020

98

 

Notes to Condensed Consolidated Financial Statements

109

Item 2:

Management’s Discussion and Analysis of Financial Condition and Results of Operations

1614

Item 3: 

Quantitative and Qualitative Disclosures about Market Risk

2018

Item 4: 

Controls and Procedures

2018

 

 

 

Part II — OTHER INFORMATION:

19

Item 1:   

Legal Proceedings

2119

Item 1A:

Risk Factors

2119

Item 2:   

Unregistered Sales of Equity Securities and Use of Proceeds

2119

Item 3:   

Defaults Upon Senior Securities

2119

Item 4:   

Mine Safety Disclosures

2119

Item 5:   

Other Information

2119

Item 6:  

Exhibits

2119

Signatures

2220

 


Part I - FINANCIAL INFORMATION

 

Item 1: Financial Statements

 

ACME UNITED CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(all amounts in thousands)

 

 

September 30,

 

 

December 31,

 

 

March 31,

 

 

December 31,

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

 

(unaudited)

 

 

(Note 1)

 

 

(unaudited)

 

 

(Note 1)

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,306

 

 

$

4,167

 

 

$

5,307

 

 

$

4,843

 

Accounts receivable, less allowance of $1,079 in 2021 and $1,152 in 2020

 

 

36,088

 

 

 

27,173

 

Accounts receivable, less allowance of $1,013 in 2022 and $1,007 in 2021

 

 

34,605

 

 

 

34,221

 

Inventories

 

 

48,795

 

 

 

50,704

 

 

 

60,716

 

 

 

53,552

 

Prepaid expenses and other current assets

 

 

2,458

 

 

 

1,642

 

 

 

3,810

 

 

 

2,635

 

Total current assets

 

 

92,647

 

 

 

83,686

 

 

 

104,438

 

 

 

95,251

 

Property, plant and equipment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Land

 

 

1,764

 

 

 

1,770

 

 

 

1,759

 

 

 

1,761

 

Buildings

 

 

12,800

 

 

 

12,899

 

 

 

13,516

 

 

 

13,456

 

Machinery and equipment

 

 

29,532

 

 

 

24,524

 

 

 

30,221

 

 

 

29,760

 

 

 

44,096

 

 

 

39,193

 

 

 

45,496

 

 

 

44,977

 

Less: accumulated depreciation

 

 

20,914

 

 

 

18,954

 

 

 

21,609

 

 

 

20,950

 

Net property, plant and equipment

 

 

23,182

 

 

 

20,239

 

 

 

23,887

 

 

 

24,027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease right-of-use asset, net

 

 

3,187

 

 

 

2,422

 

 

 

3,064

 

 

 

3,130

 

Goodwill

 

 

4,800

 

 

 

4,800

 

 

 

4,800

 

 

 

4,800

 

Intangible assets, less accumulated amortization

 

 

17,615

 

 

 

18,721

 

 

 

16,888

 

 

 

17,231

 

Total assets

 

$

141,431

 

 

$

129,868

 

 

$

153,077

 

 

$

144,439

 

 

 

See Notes to Condensed Consolidated Financial StatementsStatements.


3


ACME UNITED CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (continued)

(all amounts in thousands, except share amounts)

 

 

September 30,

 

 

December 31,

 

 

March 31,

 

 

December 31,

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

 

(unaudited)

 

 

(Note 1)

 

 

(unaudited)

 

 

(Note 1)

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

6,695

 

 

$

7,601

 

 

$

10,939

 

 

$

8,977

 

Operating lease liability - current portion

 

 

945

 

 

 

873

 

 

 

1,112

 

 

 

1,000

 

Current portion of mortgage payable

 

 

267

 

 

 

267

 

 

 

389

 

 

 

389

 

Other accrued liabilities

 

 

11,215

 

 

 

11,460

 

 

 

8,937

 

 

 

9,909

 

Total current liabilities

 

 

19,122

 

 

 

20,201

 

 

 

21,377

 

 

 

20,275

 

Non-current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

40,454

 

 

 

38,767

 

 

 

40,151

 

 

 

33,037

 

Long-term debt - PPP Loan

 

 

-

 

 

 

3,508

 

Mortgage payable, net of current portion

 

 

2,711

 

 

 

2,911

 

 

 

10,989

 

 

 

11,081

 

Operating lease liability - non-current portion

 

 

2,485

 

 

 

1,654

 

 

 

2,187

 

 

 

2,365

 

Other non-current liabilities

 

 

111

 

 

 

110

 

 

 

600

 

 

 

599

 

Total liabilities

 

 

64,883

 

 

 

67,151

 

 

 

75,304

 

 

 

67,357

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (see note 2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, par value $2.50:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

authorized 8,000,000 shares;

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,061,345 shares issued and 3,559,687 shares outstanding in 2021 and

 

 

 

 

 

 

 

 

4,840,571 shares issued and 3,338,913 shares outstanding in 2020

 

 

12,653

 

 

 

12,101

 

5,065,518 shares issued and 3,520,646 shares outstanding in 2022 and 2021

 

 

12,655

 

 

 

12,655

 

Additional paid-in capital

 

 

11,575

 

 

 

7,931

 

 

 

12,222

 

 

 

11,930

 

Retained earnings

 

 

67,998

 

 

 

58,033

 

 

 

70,245

 

 

 

69,873

 

Treasury stock, at cost - 1,501,658 shares in 2021 and 2020

 

 

(14,522

)

 

 

(14,522

)

Treasury stock, at cost - 1,544,872 shares in 2022 and 2021

 

 

(15,996

)

 

 

(15,996

)

Accumulated other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Translation adjustment

 

 

(1,156

)

 

 

(826

)

 

 

(1,353

)

 

 

(1,380

)

Total stockholders’ equity

 

 

76,548

 

 

 

62,717

 

 

 

77,773

 

 

 

77,082

 

Total liabilities and stockholders’ equity

 

$

141,431

 

 

$

129,868

 

 

$

153,077

 

 

$

144,439

 

 

 

 

See Notes to Condensed Consolidated Financial StatementsStatements.

 


ACME UNITED CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(all amounts in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

 

Net sales

 

$

47,923

 

 

$

43,316

 

 

$

136,295

 

 

$

123,133

 

 

$

43,333

 

 

$

43,525

 

 

Cost of goods sold

 

 

30,918

 

 

 

28,360

 

 

 

87,550

 

 

 

78,594

 

 

 

28,365

 

 

 

27,938

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

 

17,005

 

 

 

14,956

 

 

 

48,745

 

 

 

44,539

 

 

 

14,968

 

 

 

15,587

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

 

14,044

 

 

 

12,832

 

 

 

39,028

 

 

 

36,023

 

 

 

13,597

 

 

 

12,619

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

2,961

 

 

 

2,124

 

 

 

9,717

 

 

 

8,516

 

 

 

1,371

 

 

 

2,968

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-operating items:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(230

)

 

 

(173

)

 

 

(682

)

 

 

(742

)

 

 

309

 

 

 

226

 

 

Interest income

 

 

2

 

 

 

5

 

 

 

11

 

 

 

20

 

 

 

(4

)

 

 

(5

)

 

Interest expense, net

 

 

(228

)

 

 

(168

)

 

 

(671

)

 

 

(722

)

 

 

305

 

 

 

221

 

 

PPP loan forgiveness

 

 

 

 

 

 

-

 

 

 

3,508

 

 

 

-

 

Other (expense) income, net

 

 

(68

)

 

 

35

 

 

 

(213

)

 

 

(2

)

Total other (expense) income, net

 

 

(68

)

 

 

35

 

 

 

3,295

 

 

 

(2

)

Other (income) expense, net

 

 

(2

)

 

 

77

 

 

Total other expense, net

 

 

303

 

 

 

298

 

 

Income before income tax expense

 

 

2,665

 

 

 

1,991

 

 

 

12,341

 

 

 

7,792

 

 

 

1,068

 

 

 

2,670

 

 

Income tax expense

 

 

619

 

 

 

412

 

 

 

1,019

 

 

 

1,737

 

 

 

238

 

 

 

624

 

 

Net income

 

$

2,046

 

 

$

1,579

 

 

$

11,322

 

 

$

6,055

 

 

$

830

 

 

$

2,046

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.58

 

 

$

0.47

 

 

$

3.28

 

 

$

1.81

 

 

$

0.24

 

 

$

0.61

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share

 

$

0.50

 

 

$

0.46

 

 

$

2.85

 

 

$

1.75

 

 

$

0.22

 

 

$

0.52

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding-denominator used for basic

per share computations

 

 

3,542

 

 

 

3,340

 

 

 

3,449

 

 

 

3,343

 

 

 

3,521

 

 

 

3,347

 

 

Weighted average number of dilutive stock options outstanding

 

 

516

 

 

 

122

 

 

 

520

 

 

 

111

 

 

 

327

 

 

 

564

 

 

Denominator used for diluted per share computations

 

 

4,058

 

 

 

3,462

 

 

 

3,969

 

 

 

3,454

 

 

 

3,848

 

 

 

3,911

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share

 

$

0.13

 

 

$

0.12

 

 

$

0.39

 

 

$

0.36

 

 

$

0.13

 

 

$

0.13

 

 

 

 

 

See Notes to Condensed Consolidated Financial StatementsStatements.


5


ACME UNITED CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(all amounts in thousands)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

September 30,

 

 

September 30,

 

 

March 31,

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

Net income

 

$

2,046

 

 

$

1,579

 

 

$

11,322

 

 

$

6,055

 

 

$

830

 

 

$

2,046

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(310

)

 

 

270

 

 

 

(330

)

 

 

142

 

 

 

27

 

 

 

(188

)

Comprehensive income

 

$

1,736

 

 

$

1,849

 

 

$

10,993

 

 

$

6,197

 

 

$

857

 

 

$

1,858

 

 

See Notes to Condensed Consolidated Financial StatementsStatements.


6


ACME UNITED CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(UNAUDITED)

(all amounts in thousands, except share amounts)

For the three months ended September 30, 2020

 

 

Outstanding Shares of Common Stock

 

 

Common Stock

 

 

Treasury

Stock

 

 

Additional Paid-In Capital

 

 

Accumulated

Other Comprehensive (Loss) Gain

 

 

Retained Earnings

 

 

Total

 

Balances, June 30, 2020

 

3,336,413

 

 

$

12,094

 

 

$

(14,522

)

 

$

8,304

 

 

$

(2,116

)

 

$

55,247

 

 

$

59,007

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,579

 

 

 

1,579

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

270

 

 

 

 

 

 

 

270

 

Stock compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

327

 

 

 

 

 

 

 

 

 

 

 

327

 

Distributions to shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(401

)

 

 

(401

)

Issuance of common stock

 

2,500

 

 

 

7

 

 

 

 

 

 

 

52

 

 

 

 

 

 

 

 

 

 

 

59

 

Cash settlement of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

(245

)

 

 

 

 

 

 

 

 

 

 

(245

)

Balances September 30, 2020

 

3,338,913

 

 

$

12,101

 

 

$

(14,522

)

 

$

8,438

 

 

$

(1,846

)

 

$

56,425

 

 

$

60,596

 

    

For the three months ended September 30,March 31, 2021

     

 

Outstanding Shares of Common Stock

 

 

Common Stock

 

 

Treasury

Stock

 

 

Additional Paid-In Capital

 

 

Accumulated

Other Comprehensive (Loss) Gain

 

 

Retained Earnings

 

 

Total

 

Balances, June 30, 2021

 

3,529,208

 

 

$

12,576

 

 

$

(14,522

)

 

$

10,829

 

 

$

(846

)

 

$

66,415

 

 

$

74,452

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,046

 

 

 

2,046

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(310

)

 

 

 

 

 

 

(310

)

Stock compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

455

 

 

 

 

 

 

 

 

 

 

 

455

 

Distributions to shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(463

)

 

 

(463

)

Issuance of common stock

 

30,479

 

 

 

77

 

 

 

 

 

 

 

291

 

 

 

 

 

 

 

 

 

 

 

368

 

Balances September 30, 2021

 

3,559,687

 

 

$

12,653

 

 

$

(14,522

)

 

$

11,575

 

 

$

(1,156

)

 

$

67,998

 

 

$

76,548

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the nine months ended September 30, 2020  

 

Outstanding

Shares of

Common

Stock

 

 

Common

Stock

 

 

Treasury

Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

(Loss) Gain

 

 

Retained

Earnings

 

 

Total

 

 

Outstanding

Shares of

Common

Stock

 

 

Common

Stock

 

 

Treasury

Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Retained

Earnings

 

 

Total

 

Balances, December 31, 2019

 

 

3,350,833

 

 

$

12,094

 

 

$

(14,235

)

 

$

8,262

 

 

$

(1,988

)

 

$

51,571

 

 

$

55,704

 

Balances, December 31, 2020

 

 

3,338,913

 

 

$

12,101

 

 

$

(14,522

)

 

$

7,931

 

 

$

(826

)

 

$

58,033

 

 

$

62,717

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,055

 

 

 

6,055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,046

 

 

 

2,046

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

142

 

 

 

 

 

 

 

142

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(188

)

 

 

 

 

 

 

(188

)

Stock compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

929

 

 

 

 

 

 

 

 

 

 

 

929

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

306

 

 

 

 

 

 

 

 

 

 

 

306

 

Distributions to shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,201

)

 

 

(1,201

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(436

)

 

 

(436

)

Issuance of common stock

 

 

2,500

 

 

 

7

 

 

 

 

 

 

 

52

 

 

 

 

 

 

 

 

 

 

 

59

 

 

 

17,701

 

 

 

44

 

 

 

 

 

 

 

138

 

 

 

 

 

 

 

 

 

 

 

182

 

Cash settlement of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(805

)

 

 

 

 

 

 

 

 

 

 

(805

)

Purchase of treasury stock

 

 

(14,420

)

 

 

 

 

 

 

(287

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(287

)

Balances September 30, 2020

 

 

3,338,913

 

 

$

12,101

 

 

$

(14,522

)

 

$

8,438

 

 

$

(1,846

)

 

$

56,425

 

 

$

60,596

 

Balances March 31, 2021

 

 

3,356,614

 

 

$

12,145

 

 

$

(14,522

)

 

$

8,375

 

 

$

(1,014

)

 

$

59,643

 

 

$

64,627

 

 

 

 

 

 

 


For the ninethree months ended September 30, 2021March 31, 2022

 

 

 

Outstanding

Shares of

Common

Stock

 

 

Common

Stock

 

 

Treasury

Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

(Loss) Gain

 

 

Retained

Earnings

 

 

Total

 

 

Outstanding

Shares of

Common

Stock

 

 

Common

Stock

 

 

Treasury

Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Retained

Earnings

 

 

Total

 

Balances, December 31, 2020

 

 

3,338,913

 

 

$

12,101

 

 

$

(14,522

)

 

$

7,931

 

 

$

(826

)

 

$

58,033

 

 

$

62,717

 

Balances, December 31, 2021

 

 

3,520,646

 

 

$

12,655

 

 

$

(15,996

)

 

$

11,930

 

 

$

(1,380

)

 

$

69,873

 

 

$

77,082

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,322

 

 

 

11,322

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

830

 

 

 

830

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(330

)

 

 

 

 

 

 

(330

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27

 

 

 

 

 

 

 

27

 

Stock compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,341

 

 

 

 

 

 

 

 

 

 

 

1,341

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

400

 

 

 

 

 

 

 

 

 

 

 

400

 

Distributions to shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,357

)

 

 

(1,357

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(458

)

 

 

(458

)

Issuance of common stock

 

 

220,774

 

 

 

552

 

 

 

 

 

 

 

2,514

 

 

 

 

 

 

 

 

 

 

 

3,066

 

Cash settlement of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(211

)

 

 

 

 

 

 

 

 

 

 

(211

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(108

)

 

 

 

 

 

 

 

 

 

 

(108

)

Balances September 30, 2021

 

 

3,559,687

 

 

$

12,653

 

 

$

(14,522

)

 

$

11,575

 

 

$

(1,156

)

 

$

67,998

 

 

$

76,548

 

Balances March 31, 2022

 

 

3,520,646

 

 

$

12,655

 

 

$

(15,996

)

 

$

12,222

 

 

$

(1,353

)

 

$

70,245

 

 

$

77,773

 

 

See Notes to Condensed Consolidated Financial Statements.


7


ACME UNITED CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(all amounts in thousands)

 

 

Nine Months Ended

 

 

Three Months Ended

 

 

September 30,

 

 

March 31,

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

11,322

 

 

$

6,055

 

 

$

830

 

 

$

2,046

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Adjustments to reconcile net income to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

1,809

 

 

 

1,830

 

 

 

652

 

 

 

584

 

Amortization of intangible assets

 

 

1,111

 

 

 

991

 

 

 

374

 

 

 

375

 

Non-cash lease expense

 

 

170

 

 

 

57

 

 

 

-

 

 

 

43

 

Stock compensation expense

 

 

1,341

 

 

 

929

 

 

 

400

 

 

 

306

 

Provision for bad debt

 

 

79

 

 

 

910

 

 

 

-

 

 

 

29

 

PPP loan forgiveness

 

 

(3,508

)

 

 

-

 

Amortization of deferred financing costs

 

 

6

 

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(9,060

)

 

 

(7,293

)

 

 

(389

)

 

 

(4,634

)

Inventories

 

 

1,678

 

 

 

(8,544

)

 

 

(7,139

)

 

 

1,175

 

Prepaid expenses and other current assets

 

 

(859

)

 

 

121

 

 

 

(1,143

)

 

 

(787

)

Accounts payable

 

 

(959

)

 

 

2,040

 

 

 

1,885

 

 

 

774

 

Other accrued liabilities

 

 

(145

)

 

 

4,645

 

 

 

(955

)

 

 

(247

)

Total adjustments

 

 

(8,343

)

 

 

(4,314

)

 

 

(6,309

)

 

 

(2,382

)

Net cash provided by operating activities

 

 

2,979

 

 

 

1,741

 

Net cash used in operating activities

 

 

(5,479

)

 

 

(336

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(4,792

)

 

 

(2,081

)

 

 

(518

)

 

 

(1,480

)

Acquisition of First Aid Central

 

 

-

 

 

 

(2,074

)

Net cash used in investing activities

 

 

(4,792

)

 

 

(4,155

)

 

 

(518

)

 

 

(1,480

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net borrowings of long-term debt

 

 

1,687

 

 

 

(2,537

)

 

 

7,114

 

 

 

1,859

 

Proceeds from PPP Loan

 

 

-

 

 

 

3,508

 

Cash settlement of stock options

 

 

(211

)

 

 

(805

)

 

 

(108

)

 

 

-

 

Repayments on mortgage

 

 

(200

)

 

 

(200

)

 

 

(98

)

 

 

(67

)

Proceeds from issuance of common stock

 

 

3,066

 

 

 

59

 

 

 

-

 

 

 

182

 

Distributions to shareholders

 

 

(1,329

)

 

 

(1,201

)

 

 

(458

)

 

 

(436

)

Purchase of treasury shares

 

 

-

 

 

 

(287

)

Net cash provided by (used in) financing activities

 

 

3,013

 

 

 

(1,463

)

Net cash provided by financing activities

 

 

6,450

 

 

 

1,538

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(61

)

 

 

86

 

 

 

11

 

 

 

(32

)

Net change in cash and cash equivalents

 

 

1,139

 

 

 

(3,791

)

 

 

464

 

 

 

(310

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

 

4,167

 

 

 

6,822

 

 

 

4,843

 

 

 

4,167

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

5,306

 

 

$

3,031

 

 

$

5,307

 

 

$

3,857

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

1,070

 

 

$

415

 

 

$

-

 

 

$

45

 

Cash paid for interest

 

$

660

 

 

$

751

 

 

$

286

 

 

$

218

 

 

See Notes to Condensed Consolidated Financial StatementsStatements.

 


ACME UNITED CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Basis of Presentation

The accompanying condensed consolidated financial statements include all adjustments necessary to present fairly the financial position, results of operations and cash flows of Acme United Corporation (the “Company”). These adjustments are of a normal, recurring nature. However, the financial statements do not include all the disclosures normally required by accounting principles generally accepted in the United States of America or those normally made in the Company's Annual Report on Form 10-K. Please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 20202021 for such disclosures. The condensed consolidated balance sheet as of December 31, 20202021 was derived from the audited consolidated balance sheet as of that date. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in the Company’s 20202021 Annual Report on Form 10-K.

The Company has evaluated events and transactions subsequent to September 30, 2021March 31, 2022 and through the date these condensed consolidated financial statements were issued.

Recently Issued and Adopted Accounting Standards

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The update eliminates, clarifies and modifies certain guidance related to the accounting for income taxes. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2020, i.e. commencing with our current fiscal year.  The adoption of ASU 2019-12 did not have a material effect on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this update eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable.  The Company adopted this standard on January 1, 2020. The adoption of this standard has not had an impact on the financial statements of the Company.

 

2. Commitment and Contingencies

There are no pending material legal proceedings to which the Company is a party, or, to the actual knowledge of the Company, contemplated by any governmental authority.

3. Revenue from Contracts with Customers

Nature of Goods and Services

The Company recognizes revenue from the sales of a broad line of products that are grouped into two main categories: (a) first aid and medical; and (b) cutting, sharpening and measuring; and (b) first aid and safety.measuring. The cutting, sharpening and measuring category includes scissors, knives, paper trimmers, pencil sharpeners and other sharpening tools. The first aid and safetymedical category includes first aid kits and refills, over-the-counter medications and a variety of safetymedical products. Revenue recognition is evaluated through the following five steps: (i) identification of the contract or contracts with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied.

When Performance Obligations Are Satisfied

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer.  A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Revenue is generated by the sale of the Company’s products to its customers.  Sales contracts (purchase orders) generally have a single performance obligation that is satisfied at a point in time, with shipment or delivery, depending on the terms of the underlying contract. Revenue is measured based on the consideration specified in the contract. The amount of consideration we receive and revenue we recognize is impacted by incentives ("customer rebates"), including sales rebates, which are generally tied to sales volume levels, in-store promotional allowances, shared media and customer catalogue allowances and other cooperative advertising arrangements; freight allowance programs offered to our customers; and allowance for returns and discounts. We generally recognize customer rebate costs as a deduction to gross sales at the time that the associated revenue is recognized.


Significant Payment Terms

Payment terms for each customer are dependent on the agreed upon contractual repayment terms. Payment terms typically are between 30 and 90 days and vary depending on the size of the customer and its risk profile to the Company. Some customers receive discounts for early payment.

Product Returns

The Company accepts product returns in the normal course of business. The Company estimates reserves for returns and the related refunds to customers based on historical experience. Reserves for returned merchandise are included as a component of “Accounts receivable” in the condensed consolidated balance sheets.

9


Practical Expedient Usage and Accounting Policy Elections

For the Company’s contracts that have an original duration of one year or less, the Company uses the practical expedient in ASC 606-10-32-18 applicable to such contracts and does not consider the time value of money in relation to significant financing components.  The effect of applying this practical expedient election did not have an impact on the Company’s condensed consolidated financial statements.  

Per ASC 606-10-25-18B, the Company has elected to account for shipping and handling activities that occur after the customer has obtained control as a fulfilment activity instead of a performance obligation. Furthermore, shipping and handling activities performed before transfer of control of the product also do not constitute a separate and distinct performance obligation. The effect of applying this practical expedient election did not have an impact on the Company’s condensed consolidated financial statements.  

The Company has elected to exclude from the transaction price those amounts which relate to sales and other taxes that are assessed by governmental authorities and that are imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer.

Applying the practical expedient in ASC 340-40-25-4, Other Assets and Deferred Costs, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred. These costs are included in “Selling, general and administrative expenses.” The effect of applying this practical expedient did not have an impact on the Company’s condensed consolidated financial statements.

Disaggregation of Revenues

The following table represents external net sales disaggregated by product category, by segment (amounts in thousands):

For the three months ended September 30, 2021March 31, 2022

 

 

United States

 

 

Canada

 

 

Europe

 

 

Total

 

 

United States

 

 

Canada

 

 

Europe

 

 

Total

 

Cutting, Sharpening and Measuring

 

$

18,769

 

 

$

1,932

 

 

$

2,863

 

 

$

23,564

 

 

$

15,333

 

 

$

1,593

 

 

$

3,558

 

 

$

20,484

 

First Aid and Safety

 

 

22,278

 

 

 

1,653

 

 

$

428

 

 

 

24,359

 

First Aid and Medical

 

 

20,408

 

 

 

2,022

 

 

$

419

 

 

 

22,849

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Net Sales

 

$

41,047

 

 

$

3,585

 

 

$

3,291

 

 

$

47,923

 

 

$

35,741

 

 

$

3,615

 

 

$

3,977

 

 

$

43,333

 

 

For the three months ended September 30, 2020March 31, 2021

 

 

 

United States

 

 

Canada

 

 

Europe

 

 

Total

 

Cutting, Sharpening and Measuring

 

$

18,656

 

 

$

2,199

 

 

$

3,013

 

 

$

23,868

 

First Aid and Safety

 

 

18,000

 

 

 

1,174

 

 

 

274

 

 

 

19,448

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Net Sales

 

$

36,656

 

 

$

3,373

 

 

$

3,287

 

 

$

43,316

 

For the nine months ended September 30, 2021

 

U.S.

 

 

Canada

 

 

Europe

 

 

Total

 

 

United States

 

 

Canada

 

 

Europe

 

 

Total

 

Cutting, Sharpening and Measuring

 

$

50,494

 

 

$

5,572

 

 

$

10,283

 

 

$

66,349

 

 

$

15,564

 

 

$

1,549

 

 

$

3,743

 

 

$

20,856

 

First Aid and Safety

 

 

63,441

 

 

 

5,336

 

 

 

1,169

 

 

 

69,946

 

First Aid and Medical

 

 

20,484

 

 

 

1,784

 

 

 

401

 

 

 

22,669

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Net Sales

 

$

113,935

 

 

$

10,908

 

 

$

11,452

 

 

$

136,295

 

 

$

36,048

 

 

$

3,333

 

 

$

4,144

 

 

$

43,525

 

 

 


For the nine months ended September 30, 2020

 

 

U.S.

 

 

Canada

 

 

Europe

 

 

Total

 

Cutting, Sharpening and Measuring

 

$

50,088

 

 

$

4,860

 

 

$

8,505

 

 

$

63,453

 

First Aid and Safety

 

 

55,488

 

 

 

3,315

 

 

 

877

 

 

 

59,680

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Net Sales

 

$

105,576

 

 

$

8,175

 

 

$

9,382

 

 

$

123,133

 

 

 

4. Debt and Shareholders’ Equity

Long-term debt consists of (i) borrowings under the Company’s revolving loan agreement with HSBC Bank, N.A. and (ii) amounts outstanding under the fixed rate mortgage on the Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA. The revolving loan agreement provides for borrowings of up to $50 million at Prime Rate less 1.25%. The credit facility has an expiration date of May 24, 2023. The Company must pay a facility fee, payable quarterly, in an amount equal to two tenths of one percent (.20%) per annum of the average daily unused portion of the revolving credit line.  The facility is intended to provide liquidity for working capital, growth, share repurchases, dividends, acquisitions share repurchases and other business activities.  Under the revolving loan agreement, the Company is required to maintain specific amounts of tangible net worth, a specified debt to net worth ratio and a fixed charge coverage ratio and must have annual net income greater than zero, measured as of the end of each fiscal year. As of September 30, 2021,March 31, 2022, the Company was in compliance with the covenants then in effect under the loan agreement.  

As of September 30, 2021,March 31, 2022 and December 31, 2020,2021, the Company had outstanding borrowings of $40,454,000$40,151,000 and $38,767,000,$33,037,000, respectively, under the Company’s revolving loan agreement with HSBC.

On October 26, 2017, the Company exercised its option to purchase its First Aid OnlyThe Company’s manufacturing and distribution centerfacilities in Rocky Mount, NC and Vancouver, WA for $4.0 million. The property consists of 53,000 square feet of office, manufacturing, and warehouse space on 2.86 acres. The purchase waswere financed by a variablefixed rate mortgage with HSBC Bank, N.A. at ana fixed interest rate of LIBOR plus 2.5%3.8%. CommencingThe Company entered into the agreement on December 1, 2017, principal2021.  Commencing on January 1, 2022, payments of $22,222principal and interest are due monthly, with all amounts outstanding due on maturity on OctoberDecember 1, 2031.As of March 31, 2024.2022 and December 31, 2021, long-term debt related to the mortgage consisted of the following (amounts in ‘000’s):


 

March 31, 2022

 

December 31, 2021

 

 

 

 

 

 

 

 

Mortgage Payable - HSBC Bank N.A.

 

11,522

 

 

11,620

 

Less debt issuance costs

 

(144

)

 

(150

)

 

 

11,378

 

 

11,470

 

Less current maturities

 

389

 

 

389

 

Long-term mortgage payable less current maturities

 

10,989

 

 

11,081

 

 

 

 

 

 

 

 

During the three months ended September 30, 2021, the Company issued a total of 30,479 shares of common stock and received aggregate proceeds of approximately $368,000 upon exercise of employee stock options. During the nine months ended September 30, 2021, the Company issued a total of 220,774 shares of common stock and received aggregate proceeds of approximately $3,066,000 upon exercise of employee stock options. Also during the nine months ended September 30, 2021,March 31, 2022, the Company, at its discretion, paid approximately $211,000$108,000 to optionees who had elected (subject to the approval of the Company) a net cash settlement of certain of their respective options.  

Also included in long term debt at December 31, 2020 was the amount then outstanding under a Paycheck Protection Program (PPP) loan; the loan was forgiven in the quarter ended June 30, 2021. See Note 9 – Paycheck Protection Program Loan for additional details.  

5. Segment Information

The Company reports financial information based on the organizational structure used by the Company’s chief operating decision makers for making operating and investment decisions and for assessing performance. The Company’s reportable business segments consist of: (1) United States; (2) Canada; and (3) Europe. As described below, the activities of the Company’s Asian operations are closely linked to those of the U.S. operations; accordingly, the Company’s chief operating decision makers review the financial results of both on a consolidated basis, and the results of the Asian operations have been aggregated with the results of the United States operations to form one reportable segment called the “United States segment” or “U.S. segment”. Each reportable segment derives its revenue from the sales of first aid and medical products, cutting and sharpening devices and measuring instruments and first aid and safety products for school, office, home, hardware, sporting and industrial use.

Domestic sales orders are filled primarily from the Company’s distribution centers in North Carolina, Washington, Massachusetts, Tennessee, Florida and California. The Company is responsible for the costs of shipping, insurance, customs clearance, duties, storage and distribution related to such products. Orders filled from the Company’s inventory are generally for less than container-sized lots.

Direct import sales are products sold by the Company’s Asian subsidiary, directly to major U.S. retailers, who take ownership of the products in Asia. These sales are completed by delivering product to the customers’ common carriers at the shipping points in Asia. Direct import sales are made in larger quantities than domestic sales, typically full containers. Direct import sales represented approximately 7% and 8%6% of the Company’s total net sales for the three and nine months ended September 30, 2021,March 31, 2022, compared to 12% and 11%7% for the comparable period in 2020.2021. The decrease resulted primarily from COVID-related supply chain disruptions in China.

The Chief Operating Decision Makerchief operating decision maker evaluates the performance of each operating segment based on segment revenues and operating income. Segment revenues are defined as total revenues, including both external customer revenue and inter-segment revenue. Segment operating earnings are defined as segment revenues, less cost of goods sold and operating expenses. Identifiable assets by segment are those assets used in the respective reportable segment’s operations. Inter-segment amounts are eliminated to arrive at consolidated financial results.


The following table sets forth certain financial data by segment for three and nine months ended September 30, 2021March 31, 2022 and 2020:2021:

Financial data by segment:

(in thousands)

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

Three Months Ended March 31,

 

 

Sales to external customers:

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

 

United States

 

$

41,060

 

 

$

36,656

 

 

$

113,948

 

 

$

105,576

 

 

$

35,741

 

 

$

36,048

 

 

Canada

 

 

3,585

 

 

 

3,373

 

 

 

10,907

 

 

 

8,175

 

 

 

3,615

 

 

 

3,333

 

 

Europe

 

 

3,278

 

 

 

3,287

 

 

 

11,440

 

 

 

9,382

 

 

 

3,977

 

 

 

4,144

 

 

Consolidated

 

$

47,923

 

 

$

43,316

 

 

$

136,295

 

 

$

123,133

 

 

$

43,333

 

 

$

43,525

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

$

2,425

 

 

$

1,189

 

 

$

7,231

 

 

$

6,442

 

 

$

811

 

 

$

2,133

 

 

Canada

 

 

418

 

 

 

600

 

 

 

1,452

 

 

 

1,173

 

 

 

386

 

 

 

370

 

 

Europe

 

 

118

 

 

 

335

 

 

 

1,034

 

 

 

901

 

 

 

174

 

 

 

465

 

 

Consolidated

 

$

2,961

 

 

$

2,124

 

 

$

9,717

 

 

$

8,516

 

 

$

1,371

 

 

$

2,968

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(228

)

 

 

(168

)

 

 

(671

)

 

 

(722

)

 

 

305

 

 

 

221

 

 

Other (expense) income, net

 

 

(68

)

 

 

35

 

 

 

3,295

 

 

 

(2

)

Other (income) expense, net

 

 

(2

)

 

 

77

 

 

Consolidated income before income taxes

 

$

2,665

 

 

$

1,991

 

 

$

12,341

 

 

$

7,792

 

 

$

1,068

 

 

$

2,670

 

 

 


Assets by segment:

(in thousands)

 

 

September 30,

 

 

December 31,

 

 

March 31,

 

 

December 31,

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

United States

 

$

122,620

 

 

$

113,831

 

 

$

134,291

 

 

$

125,521

 

Canada

 

 

9,294

 

 

 

7,432

 

 

 

9,327

 

 

 

9,100

 

Europe

 

 

9,517

 

 

 

8,605

 

 

 

9,459

 

 

 

9,818

 

Consolidated

 

$

141,431

 

 

$

129,868

 

 

$

153,077

 

 

$

144,439

 

 

6. Stock Based Compensation

The Company recognizes share-based compensation at the fair value of the equity instrument on the grant date. Compensation expense is recognized over the required service period, which is generally the vesting period of the equity instrument. Share-based compensation expense was approximately $455,000 and $1,341,000$400,000 for the three and nine months ended September 30, 2021, respectively,March 31, 2022, compared to approximately $327,000 and $929,000$306,000 for the three and nine months ended September 30, 2020, respectively.March 31, 2021.

As of September 30, 2021,March 31, 2022, there was a total of $4,347,695$3,600,603 of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested share-based payments granted to the Company’s employees. As of that date, the remaining unamortized expense was expected to be recognized over a weighted average period of approximately three years.

7. Fair Value Measurements

The carrying value of the Company’s bank debt is a reasonable estimate of fair value because of the nature of its payment terms and maturity.

8. Leases

The Company has operating leases for office and warehouse space and equipment under various arrangements which provide the right to use the underlying asset and require lease payments for the lease term. The Company’s lease portfolio consists of operating leases which expire at various dates through 2026.

Certain of the Company’s lease arrangements contain renewal provisions, exercisable at the Company's option. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company determines if an arrangement is an operating lease at inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. All other leases are recorded on the balance sheet with right-of-use (“ROU”) assets representing the right to use the underlying asset for the lease term and lease liabilities representing the obligation to make lease payments arising from the lease.


ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. As most of our leases do not provide an implicit rate, the present value of lease payments is determined primarily using our incremental borrowing rate based on the information available at the lease commencement date. The incremental borrowing rate is the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term on an amount equal to the lease payments in a similar economic environment.  Lease agreements with lease and non-lease components are generally accounted for as a single lease component. The Company’s operating lease expense is recognized on a straight-line basis over the lease term.  For the three months ended September 30,March 31, 2022 and 2021, lease expense in the amount of $0.1 million was included in cost of goods sold and $0.3 million was included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations. For the nine months ended September 30, 2021, lease expense in the amount of $0.2 million, was included in cost of goods sold and $0.6 million wasrespectively, were included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations.                             

Information related to leases (in thousands):

 

 

Three months ended

 

 

Three months ended

 

 

Three Months Ended

 

 

Three Months Ended

 

Operating cash flow information:

 

September 30, 2021

 

 

September 30, 2020

 

 

March 31, 2022

 

 

March 31, 2021

 

Operating lease cost

 

$

297

 

 

$

284

 

 

$

311

 

 

$

336

 

Operating lease - cash flow

 

$

236

 

 

$

272

 

 

$

322

 

 

$

294

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ROU assets obtained in exchange for lease liabilities

 

$

-

 

 

$

-

 

 

$

211

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended

 

 

Nine months ended

 

Operating cash flow information:

 

September 30, 2021

 

 

September 30, 2020

 

Operating lease cost

 

$

994

 

 

$

899

 

Operating lease - cash flow

 

$

796

 

 

$

839

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash activity:

 

 

 

 

 

 

 

 

ROU assets obtained in exchange for lease liabilities

 

$

1,575

 

 

$

-

 

 

 

September 30, 2021

 

 

September 30, 2020

 

 

March 31, 2022

 

 

March 31, 2021

 

Weighted-average remaining lease term

 

4.0 years

 

 

4.0 years

 

 

3.0 years

 

 

4.0 years

 

Weighted-average discount rate

 

 

5

%

 

 

5

%

 

 

5

%

 

 

5

%

 


Future minimum lease payments under non-cancellable leases as of September 30, 2021:March 31, 2022:

 

2021 (remaining)

 

$

270

 

2022

 

 

1,081

 

2022 (remaining)

 

$

960

 

2023

 

 

961

 

 

 

1,081

 

2024

 

 

702

 

 

 

745

 

2025

 

 

613

 

 

 

650

 

2026

 

 

156

 

Thereafter

 

 

140

 

 

 

-

 

 

 

 

 

 

 

 

 

Total future minimum lease payments

 

$

3,767

 

 

$

3,592

 

Less: imputed interest

 

 

(337

)

 

 

(293

)

Present value of lease liabilities - current

 

 

945

 

 

 

1,112

 

Present value of lease liabilities - non-current

 

$

2,485

 

 

$

2,187

 

 

 

9. Paycheck Protection Program Loan

On May 7, 2020, the Company received a two-year loan (the “PPP Loan”) from HSBC Bank USA, N.A., the lender, in the amount of $3,508,047 under the Paycheck Protection Program established by the Coronavirus Aid, Relief and Economic Security Act (CARES Act).    

Under the CARES Act, all or a portion of the PPP Loan was eligible to be forgiven by the U.S. Small Business Administration (“SBA”) and the lender, upon application by the Company, provided that the Company shall have used the loan proceeds for certain eligible purposes.  The PPP Loan was fully forgiven by the SBA and on June 9, 2021, payment in the amount of $3,508,047 was made by the SBA to the lender.   The Company recorded the amount forgiven as income in the quarter ended June 30, 2021.


10.9. Other Accrued Liabilities

 

Other current accrued liabilities consisted of (in thousands):

 

 

September 30,

 

 

December 31,

 

 

March 31,

 

 

December 31,

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

Customer Rebates

 

$

6,321

 

 

$

6,068

 

 

$

5,274

 

 

$

5,414

 

Accrued Compensation

 

 

1,915

 

 

 

3,072

 

 

 

1,291

 

 

 

1,586

 

Dividend Payable

 

 

463

 

 

 

435

 

 

 

458

 

 

 

458

 

Income Tax Payable

 

 

813

 

 

 

564

 

Other

 

 

2,516

 

 

 

1,885

 

 

 

1,101

 

 

 

1,887

 

Total:

 

$

11,215

 

 

$

11,460

 

 

$

8,937

 

 

$

9,909

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

The Company may from time to time make written or oral “forward-looking statements” including statements contained in this report and in other communications by the Company, which are made in good faith pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on our beliefs as well as assumptions made by and information currently available to us. When used in this document, words like “may,” “might,” “will,” “except,” “anticipate,” “believe,” “potential,” and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from our current expectations.

Forward-looking statements in this report, including without limitation, statements related to the Company’s plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties that may impact the Company’s business, operations and financial results, including those risks and uncertainties resulting from the global COVID-19 pandemic, future waves of COVID-19, including through the Delta variantand Omicrom variants and any new variant strains of the underlying virus; any future pandemics; the continuing effectiveness, global availability, and public acceptance of existing vaccines; the effectiveness, availability, and public acceptance of vaccines against variant strains of potential new viruses; the strength of economic recovery and accelerating inflation, and the heightened impact the pandemic has on many of the risks described herein, including, without limitation, risks relating to disruptions in our supply chain, and labor force,shortages, any of which could materially adversely impact the Company’s ability to manufacture, source or distribute its products, both domestically and internationally.

These risks and uncertainties further include, without limitation, the following: (i) changes in the Company’s plans, strategies, objectives, expectations and intentions, which may be made at any time at the discretion of the Company; (ii) the impact of uncertainties in global economic conditions, whether caused by COVID-19 or otherwise, including the impact on the Company’s suppliers and customers; (iii) the potentialadditional disruptions in the Company’s supply chains, whether caused by COVID-19 or otherwise; (iv) labor shortages and related costs the Company has and may continue to incur, including costs of acquiring and training new employees and rising wages and benefits; (v) the continuing adverse impact of cost inflation; (vi) the Company’s ability to effectively manage its inventory in a rapidly changing business environment, including the additional inventory the Company has acquired in anticipation of supply chain disruptions and uncertainties; (vii) changes in client needs and consumer spending habits; (v)(viii) the impact of competition; (vi)(ix) the impact of technological changes including, specifically, the growth of online marketing and sales activity; (vii)(x) the Company’s ability to manage its growth effectively, including its ability to successfully integrate any business it might acquire; (viii) the Company’s ability to effectively manage its inventory in a rapidly changing business environment, including additional inventory acquired to respond to COVID-19 related uncertainties; (ix) rising wages and benefits; (x) labor shortages; (xi) the impact of rising inflation rates; (xii) currency fluctuations; (xiii)(xii) international trade policies and their impact on demand for our products and our competitive position, including the imposition of new tariffs or changes in existing tariff rates; and (xiv)(xiii) other risks and uncertainties indicated from time to time in the Company’s filings with the Securities and Exchange Commission.

For a more detailed discussion of these and other factors affecting the Company, see the Risk Factors described in Item 1A included in the Company’s Annual Report on Form 10-K for the fiscal year DecemberMarch 31, 20202022 and below under “Financial Condition”. All forward-looking statements in this report are based upon information available to the Company on the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.

 

Critical Accounting Policies

We discuss our critical accounting policies and estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.2021.

 

COVID-19 Pandemic and Macroeconomic Related Considerations

As noted above under “Forward-Looking Statements”, in response to the COVID-19 pandemic U.S. federal, state, local, and foreign governments adopted mitigation measures, creating significant uncertainties in the U.S. and global economies, including the shutdown of large portions of, or imposition of restrictions on, the U.S. and global economies. While there has been a general improvement in conditions and reduction of adverse effects from the pandemic, as of the present there continues to be significant uncertainty around the scope, severity, and duration of the pandemic, as well as the breadth and duration of business disruptions related to it and the various problems directly or indirectly caused or exacerbated by COVID-19 continue to present certain significant risksoverall impact on the U.S., global economies, and uncertainties to the Company and its operations. our operating results in future periods.  

Commencing late in the first quarter of 2020 and continuing through the filing of this report, the COVID-19 pandemic and certain related challenges have affected the Company’s financial results and business operations.  These challenges include: difficulties in hiring employees for its manufacturing and distribution centers due to current domestic labor shortages, increased labor costs, and higher employee turnover compared to pre-pandemic levels.  

In addition,During the first quarter of 2022, the Company has experienced and continues to experience domestic and international disruptions in itssignificant supply chain due to port delays, container shortages, and trucking shortages which have been exacerbated by COVID-19.  Asissues as a result of new Omicron outbreaks which surfaced in China.  These outbreaks occurred in February 2022 and led to factory closures and slowdowns, mass quarantines in certain Chinese cities, and the complete shutdown of two if its largest ports.  While the Company has been acquiringhad previously purchased and subsequently maintaining additionalmaintained surplus inventory in the United States to minimize the impact of any potential disruption in our supply chain, certain of our largest customers take delivery of large shipments directly at ports in China and we were unable to fulfill these orders due to the new COVID outbreak in China and the resulting factory and port shutdowns.  The resurgence in China exacerbated the

14


global supply chain issues that we had already been experiencing in recent quarters. As economies have re-opened, global supply chains have struggled to keep up with increasing demand, and the resulting supply chain disruptions were already, in certain cases, affecting our ability to ship products in a timely manner. These factors have also contributed to increased freight, labor and product costs, which in turn had an adverse effect on our operating margin in the first three months of 2022, and those disruptions and increased costs are likely to persist in the near term and potentially for the foreseeable future.  While we anticipate that the Company and its business partners will continue to experience supply chain. Thechain disruptions, the Company believes that it has sufficient inventory of its products in the U.S. to meetat least partially offset near term supply chain disruptions anticipated demand in the near future. However, any further increase in the duration or severity of the COVID-19 pandemic or a resurgence of the pandemic and the continuation of related supply chain and labor issues, might adversely affect the Company’s ability to manufacture, source or distribute its products both domestically and internationally. The occurrence of any of these factors could have a material adverse effect on the Company’s business, operations and financial condition.


In addition, the Company has continued to experience other challenges related to the COVID-19 pandemic.  These challenges include labor-related issues such as difficulties in hiring employees for its manufacturing and distribution centers due to current domestic labor shortages, increased labor costs, and higher employee turnover compared to pre-pandemic levels.  In addition, a portion of the Company’s workforce in its headquarters and elsewhere continues to work remotely.  As a result, the Company has experienced and continues to experience operating inefficiencies.

Further, the resurgence in the spread of COVID-19 toward the end of 2021 and into 2022 has created greater uncertainty regarding the economic outlook for at least the balance of 2022, even as vaccines have become widely available.  The extent to which the COVID-19 pandemic will continue to affect the Company’s business, financial condition, liquidity and the Company’s operating results will depend on future developments, which are highly uncertain and cannot be predicted.  

Results of Operations

Traditionally, the Company’s sales are stronger in the second and third quarters and weaker in the first and fourth quarters of the fiscal year, due to the seasonal nature of the back-to-school market.

Net sales

Consolidated net sales for the three months ended September 30, 2021March 31, 2022 were $47,923,000$43,333,000 compared with $43,316,000$43,525,000 in the same period in 2020, a 11% increase. Consolidated net sales for nine months ended September 30, 2021 were $136,295,000 compared with $123,133,000 in the same period in 2020, a 11% increase.2021.

Sales in the U.S. for the three and nine months ended September 30, 2021 increased 12% and increased 8%March 31, 2022 declined 1%, respectively, compared to the same periodsperiod in 2020.2021. The increasedecrease in sales for the three and nine months was primarily due to strong salesa lower volume of first aid and medical products.shipments as a result of COVID-19 related supply chain constraints.

Net sales in Canada for the three months ended September 30, 2021,March 31, 2022, increased 6%8% in both U.S. and were constant in local currency compared to the same period in 2020. Higher sales of First Aid Central products were offset by lower sales of school and office products. In 2020, back-to-school shipments were delayed from the second to the third quarter due to the COVID-19 lockdowns in the second quarter of 2020.  Net sales in the nine months ended September 30, 2021, increased 33% in U.S. dollars and 23% in local currency compared to the first nine months of 2020 primarilymainly due to higher sales of First Aid Central products.       products, principally in the e-commerce channel.

European net sales for the thirdfirst quarter of 2021 were constant in both U.S. dollars and local currency compared to the third quarter of 2020 due to the timing of several large orders in 2020.  Net sales for the nine months ended September 30, 2021, increased 22%2022 decreased 4% in U.S. dollars and 15%but increased 3% in local currency compared to the first nine monthsquarter of 2020, mainly due to sales growth in the ecommerce channel across all product lines and market share gains in Westcott school and office products.2021.

 

Gross profit

 

Gross profit for the three months ended September 30, 2021March 31, 2022 was $17,005,000 (35.5%$14,968,000 (34.5% of net sales) compared to $14,956,000 (34.5%$15,587,000 (35.8% of net sales) in the same period in 2020. Gross profit for2021.  The decline in the nine months ended September 30, 2021quarter was $48,745,000 (35.8% of net sales) comparedprimarily due to $44,539,000 (36.2% of net sales) for the same period in 2020.cost inflation pressures as well as higher transportation costs. Price increases partially offset cost increases.

 

Selling, general and administrative expenses

 

Selling, general and administrative ("SG&A") expenses for the three months ended September 30, 2021March 31, 2022 were $14,044,000 (29.3%$13,597,000 (31.4% of net sales) compared with $12,832,000 (29.6%$12,619,000 (29.0% of net sales) in the same period in 2020,2021, an increase of $1,212,000. SG&A expenses for the nine months ended September 30, 2021 were $39,028,000 (28.6% of net sales) compared with $36,023,000 (29.3% of net sales) for the same periods of 2020, an$978,000. The increase of $3,005,000. The increases in SG&A expenses for three and nine months ended September 30, 2021,March 31, 2022, compared to the same period in 20202021 were primarily due to higher personnel related costs, including higher commissionssalaries and shipping costs related to higher sales and personnel and other additional costs resulting from the acquisition of Med Nap.stock option expenses.

 

Operating income

 

Operating income for the three months ended September 30, 2021March 31, 2022 was $2,961,000$1,371,000 compared with $2,124,000$2,968,000 in the same period of 2020. Operating income for the nine months ended September 30, 2021 was $9,717,000 compared with $8,516,000 in the same period of 2020.

2021.

Operating income in the U.S. segment increaseddecreased by $1,236,000 and $789,000$1,322,000 for the three and nine months ended September 30, 2021, respectively,March 31, 2022, compared to the same periodsperiod in 2020.2021.

 

Operating income in the Canadian segment decreased by $182,000 and increased by $279,000 in U.S. dollars$16,000 for the three and nine months ended September 30, 2021, respectively,March 31, 2022, compared to the same periodsperiod in 2020.2021.

 


Operating income in the European segment decreased by $217,000 and increased $133,000 in U.S. dollars$291,000 for the three and nine months ended September 30, 2021, respectively,March 31, 2022, compared to the same period in 2020.2021.

 

Interest expense, net


 

Interest expense, net for the three months ended September 30, 2021March 31, 2022 was $228,000$305,000 compared with $168,000$221,000 in the same period of 2020, a $60,0002021, an $84,000 increase. The increase in interest expense, net is due to higher average debt outstanding.  Interest expense, net for the nine months ended September 30, 2021 was $671,000 compared with $722,000 for the same period of 2020, a $51,000 decrease.

 

Other (expense) income,(income) expense, net

 

Total other (expense)(income), net was $68,000$2,000 in the three months ended September 30, 2021March 31, 2022 compared to other incomeexpense of $35,000$77,000 in the same period of 2020. Total other income, net was $3,295,000 in the nine months ended September 30, 2021 compared to other expense of $2,000 in the same period of 2020.  The increase in other income, net for the nine months ended September 30, 2021, was primarily due to $3,508,047 of income related to the forgiveness of the PPP Loan.  2021.

 

Income taxes

Income tax expense for the nine months ended September 30, 2021, included a $0.9 million tax credit for stock-based compensation.

The Company’s effective tax rates for the three and nine months ended September 30, 2021, excluding the tax credit and the income from the PPP loan forgiveness, were 23% andMarch 31, 2022 was 22%, respectively, compared to 21% and 22%, respectively,23% in the same periodsperiod in 2020.2021.

Financial Condition

Liquidity and Capital Resources

 

During the first ninethree months of 2021,2022, working capital increased approximately $10.0$8.2 million compared to December 31, 2020.2021. Inventory decreasedincreased approximately $2.0$7.2 million at September 30, 2021March 31, 2022 compared to December 31, 2020.2021. We increased inventory during that period to anticipate our continued growth and to be positioned to offset the impact of potential supply chain disruptions related to COVID-19. The increase also reflects higher product costs.  Inventory turnover, calculated using a twelve-month average inventory balance, was 2.42.2 at September 30, 2021March 31, 2022 compared to 2.4 at December 31, 2020.2021.  Receivables increased by approximately $8.9 millionremained constant at September 30, 2021March 31, 2022 compared to December 31, 2020.2021.  The average number of days sales outstanding in accounts receivable was 60 days at each of September 30, 2021March 31, 2022 and December 31, 2020.2021.  Accounts payable and other current liabilities decreasedincreased by approximately $.9$1.1 million at September 30, 2021March 31, 2022 compared to December 31, 2020.2021.

The Company's working capital, current ratio and long-term debt to equity ratio are as follows (dollar amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

��

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

December 31,

 

 

March 31,

 

 

December 31,

 

 

2021

 

 

2020

 

 

2022

 

 

2021

 

Working capital

 

$

73,525

 

 

$

63,485

 

 

$

83,061

 

 

$

74,976

 

Current ratio

 

 

4.84

 

 

 

4.14

 

 

 

4.89

 

 

 

4.70

 

Long term debt to equity ratio

 

 

56.4

%

 

 

72.0

%

 

 

65.8

%

 

 

57.2

%

 

Long-term debt consists of (i) borrowings under the Company’s revolving loan agreement with HSBC Bank, N.A. and (ii) amounts outstanding under the fixed rate mortgage related on the Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA. The revolving loan agreement provides for borrowings of up to $50 million at Prime Rate less 1.25%. The credit facility has an expiration date of May 24, 2023. The Company must pay a facility fee, payable quarterly, in an amount equal to two tenths of one percent (.20%) per annum of the average daily unused portion of the revolving credit line. The facility is intended to provide liquidity for working capital, growth, dividends, acquisitions, share repurchases, dividends, acquisition and other business activities. Under the revolving loan agreement, the Company is required to maintain specific amounts of tangible net worth, a specified debt to net worth ratio and a fixed charge coverage ratio and must have annual net income greater than zero, measured as of the end of each fiscal year. At September 30, 2021,March 31, 2022, the Company was in compliance with the covenants then in effect under the loan agreement.  

During the first ninethree months of 2021,2022, total debt outstanding under the Company’s revolving credit facility increased by approximately $1.7$7.1 million, compared to total debt thereunder at December 31, 2020.2021. As of September 30, 2021, $40,454,000March 31, 2022, $40,151,000 was outstanding and $9,546,000$9,849,000 was available for borrowing under the Company’s credit facility.  The increase in debt outstanding was primarily related to the increase in inventory.

Also included in long-term debt are amounts outstanding under the variable rate mortgage related on theThe Company’s manufacturing and distribution facilityfacilities in Rocky Mount, NC and Vancouver, WA.WA were financed by a fixed rate mortgage with HSBC Bank, N.A. at a fixed interest rate of 3.8%. The Company entered into the agreement on December 1, 2021.  Payments of principal and interest are due monthly, with all amounts outstanding due on maturity on December 1, 2031. At September 30, 2021,March 31, 2022, there was approximately $3.0$11.4 million outstanding on the mortgage.

As described above, commencing late in the first quarter of 2020, the Company has encountered challenges as a result of the COVID-19 pandemic that could have material adverse consequences for our liquidity as a result of a number of factors.  Additionally, as noted above, the Company has incurred and continues to incur increased operational and other expenses due to labor shortages and supply chain issues as a result of the COVID-19 pandemic.  In order to address problems that may arise as a result of any such potential disruption, the Company has increased its inventory of its principal products above customary levels.16



On May 7, 2020, the Company received a two-year loan (the “PPP Loan”) from HSBC Bank USA, N.A., the lender, in the amount of $3,508,047 under the Paycheck Protection Program established by the Coronavirus Aid, Relief and Economic Security Act (CARES Act).  

Under the CARES Act, all or a portion of the PPP Loan was eligible to be forgiven by the U.S. Small Business Administration (“SBA”) and the lender, upon application by the Company, provided that the Company shall have used the loan proceeds for certain eligible purposes.  The PPP Loan was fully forgiven by the SBA and on June 9, 2021, payment in the amount of $3,508,047 was made by the SBA to the lender.   The Company recorded the amount forgiven as income in the quarter ended June 30, 2021.

The Company believes that cash generated from operating activities, together with funds available under its revolving credit facility, will, under current conditions, be sufficient to finance the Company’s operations over the next twelve months from the filing of this report.


17


Item 3: Quantitative and Qualitative Disclosure about Market Risk

Not applicable.

Item 4: Controls and Procedures

(a)

Evaluation of Internal Controls and Procedures

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of September 30, 2021.March 31, 2022. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were not effective as of September 30, 2021 as a result of an identified material weakness.  As described in the Company's Form 10-K for the year ended December 31, 2020, the Company’s controls related to the existence of inventory at the Rocky Mount, NC warehouse (the “Warehouse”) were not effective as the cycle count program used did not demonstrate that inventory quantities were sufficiently counted. The Company's remediation efforts related to this material weakness are ongoing. Except as described below, there were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.effective.

 

This material weakness did not result in any misstatement of the Company's consolidated financial statements for any period presented.  Our independent public accounting firm, Marcum LLP, audited our consolidated financial statements at December 31, 2020, and for each of the two years in the period ended December 31, 2020, and their report expressed an unqualified opinion on our consolidated financial statements.

(b)

Changes in Internal Control over Financial Reporting

In response toDuring the material weakness identified above, the Company has implementedquarter ended March 31, 2022, there were no changes to itsin our internal control over financial reporting including:that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

●  The Company has evaluated the processes, procedures and controls related to the Warehouse cycle count program and has commenced making changes as considered appropriate, including those changes described below, to address the control deficiency.

 

●  In the second quarter of 2021, the Company completed the installation of a new inventory management system at the warehouse.  The new software is intended to enable the Company to conduct its inventory cycle count program more efficiently and effectively.

●  The Company continues to allocate additional resources to the implementation of its inventory count program, including the hiring of additional personnel for the program.  The Company will conduct a full physical inventory count at the Warehouse to provide evidence on existence of its inventory for the year ended December 31, 2021.

As stated in the Company’s Form 10-K for the year ended December 31, 2020, we believe that these ongoing actions will remediate the material weakness. However, due to the nature of the material weakness, it will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed as of December 31, 2021.

 


PART II. OTHER INFORMATION

There are no pending material legal proceedings to which the registrant is a party, or, to the actual knowledge of the Company, contemplated by any governmental authority.

Item 1A — Risk Factors

See Risk Factors set forth in Part I, Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020.2021.

Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3 — Defaults upon Senior Securities

None.

Item 4 — Mine Safety Disclosures

Not applicable.

Item 5 — Other Information

None.

Item 6 — Exhibits

Documents filed as part of this report:

 

Exhibit 31.1

 

Certification of Walter C. Johnsen pursuant to 18 U.S.C. Section 1350, as adopted pursuant Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

Exhibit 31.2

 

Certification of Paul G. Driscoll pursuant to 18 U.S.C. Section 1350, as adopted pursuant Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

Exhibit 32.1

 

Certification of Walter C. Johnsen pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

Exhibit 32.2

 

Certification of Paul G. Driscoll pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

  101.INS

 

Inline XBRL Instance Document.

  101.SCH

 

Inline XBRL Taxonomy Extension Schema Document.

  101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

  101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

  101.LAB

 

Inline XBRL Taxonomy Extension Label Linkbase Document.

  101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.

104

 

The cover page for the Company’s Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101

 


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

ACME UNITED CORPORATION

 

 

 

By

/s/ Walter C. Johnsen

 

 

Walter C. Johnsen

 

 

Chairman of the Board and

 

 

Chief Executive Officer

 

 

 

 

Dated: NovemberMay 9, 20212022

 

 

By

/s/ Paul G. Driscoll

 

 

Paul G. Driscoll

 

 

Vice President and

 

 

Chief Financial Officer

 

 

 

 

Dated: NovemberMay 9, 20212022

 

 

2220