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).

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 ~~3,525,002~~3,534,729 shares of its $2.50 par value Common Stock outstanding as of ~~August 5,~~November 4, 2022.

	June 30,		December 31,		September 30,		December 31,
	2022		2021		2022		2021
	(unaudited)		(Note 1)		(unaudited)		(Note 1)
ASSETS
Current assets:
Cash and cash equivalents	$	1,760	$	4,843	$	4,218	$	4,843
Accounts receivable, less allowance of $922 in 2022 and $1,007 in 2021		46,991		34,221
Accounts receivable, less allowance of $938 in 2022 and $1,007 in 2021						40,149		34,221
Inventories		65,039		53,552		66,210		53,552
Prepaid expenses and other current assets		3,647		2,635		3,989		2,635
Restricted cash						750		-
Total current assets		117,437		95,251		115,316		95,251
Property, plant and equipment:
Land		1,977		1,761		1,969		1,761
Buildings		16,088		13,456		16,282		13,456
Machinery and equipment		30,493		29,760		30,514		29,760
		48,558		44,977		48,765		44,977
Less: accumulated depreciation		22,281		20,950		22,723		20,950
Net property, plant and equipment		26,277		24,027		26,042		24,027

Operating lease right-of-use asset, net		2,787		3,130		2,891		3,130
Goodwill		8,189		4,800		8,189		4,800
Intangible assets, less accumulated amortization		21,625		17,231		21,296		17,231
Other assets - restricted cash		1,500		-		750		-
Total assets	$	177,815	$	144,439	$	174,484	$	144,439

	June 30,			December 31,			September 30,			December 31,
	2022			2021			2022			2021
	(unaudited)			(Note 1)			(unaudited)			(Note 1)
LIABILITIES
Current liabilities:
Accounts payable	$	21,421		$	8,977		$	11,771		$	8,977
Operating lease liability - current portion		1,080			1,000			1,142			1,000
Current portion of mortgage payable		389			389			389			389
Other accrued liabilities		10,129			9,909
Other current liabilities								11,138			9,909
Total current liabilities		33,019			20,275			24,440			20,275
Non-current liabilities:
Long-term debt		50,263			33,037			57,131			33,037
Mortgage payable, net of current portion		10,897			11,081			10,803			11,081
Operating lease liability - non-current portion		1,944			2,365			1,949			2,365
Other non-current liabilities		1,869			599			1,180			599
Total liabilities		97,992			67,357			95,503			67,357

Commitments and Contingencies (see note 2)

STOCKHOLDERS' EQUITY
Common stock, par value $2.50:
authorized 8,000,000 shares;
5,066,245 shares issued and 3,521,373 shares outstanding in 2022 and
5,065,518 shares issued and 3,520,646 shares outstanding in 2022 and 2021		12,657			12,655
5,079,601 shares issued and 3,534,729 shares outstanding in 2022 and
5,065,518 shares issued and 3,520,646 shares outstanding in 2021								12,690			12,655
Additional paid-in capital		12,598			11,930			13,058			11,930
Retained earnings		72,491			69,873			72,060			69,873
Treasury stock, at cost - 1,544,872 shares in 2022 and 2021		(15,996	)		(15,996	)		(15,996	)		(15,996	)
Accumulated other comprehensive loss:
Translation adjustment		(1,927	)		(1,380	)		(2,831	)		(1,380	)
Total stockholders’ equity		79,823			77,082			78,981			77,082
Total liabilities and stockholders’ equity	$	177,815		$	144,439		$	174,484		$	144,439


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021			2022			2021			2022			2021
Net sales	$	56,773		$	44,847		$	100,106		$	88,372		$	49,744		$	47,923		$	149,849		$	136,295
Cost of goods sold		38,225			28,694			66,590			56,632			33,819			30,918			100,374			87,550

Gross profit		18,548			16,153			33,516			31,740			15,925			17,005			49,475			48,745

Selling, general and administrative expenses		14,572			12,364			28,169			24,983			14,972			14,044			43,176			39,028

Operating income		3,976			3,789			5,347			6,757			953			2,961			6,299			9,717

Non-operating items:
Interest:
Interest expense		428			226			737			452			722			230			1,459			682
Interest income		(5	)		(3	)		(8	)		(9	)		(8	)		(2	)		(16	)		(11	)
Interest expense, net		423			223			729			443			714			228			1,443			671
PPP loan forgiveness		-			(3,508	)		-			(3,508	)		-			-			-			(3,508	)
Other expense (income), net		148			68			147			145
Other expense, net														209			68			354			213
Total other expense (income), net		148			(3,440	)		147			(3,363	)		209			68			354			(3,295	)
Income before income tax expense		3,405			7,006			4,471			9,677			30			2,665			4,502			12,341
Income tax expense (benefit)		667			(224	)		903			400
Income tax (benefit) expense														(34	)		619			870			1,019
Net income	$	2,738		$	7,230		$	3,568		$	9,277		$	64		$	2,046		$	3,632		$	11,322

Basic earnings per share	$	0.78		$	2.16		$	1.01		$	2.72		$	0.02		$	0.58		$	1.03		$	3.28

Diluted earnings per share	$	0.71		$	1.82		$	0.93		$	2.34		$	0.02		$	0.50		$	0.96		$	2.85

Weighted average number of common shares outstanding-denominator used for basic per share computations		3,521			3,347			3,521			3,410			3,530			3,542			3,525			3,449
Weighted average number of dilutive stock options outstanding		320			617			323			551			162			516			256			520
Denominator used for diluted per share computations		3,841			3,964			3,844			3,961			3,692			4,058			3,781			3,969

Dividends declared per share	$	0.14		$	0.13		$	0.27		$	0.26		$	0.14		$	0.13		$	0.41		$	0.39

	Three Months Ended					Six Months Ended						Three Months Ended						Nine Months Ended
	June 30,					June 30,						September 30,						September 30,
	2022			2021		2022			2021			2022			2021			2022			2021
Net income	$	2,738		$	7,230	$	3,568		$	9,277		$	64		$	2,046		$	3,632		$	11,322
Other comprehensive (loss) income :
Other comprehensive loss:
Foreign currency translation adjustment		(574	)		168		(547	)		(20	)		(904	)		(310	)		(1,451	)		(330	)
Comprehensive income	$	2,164		$	7,398	$	3,021		$	9,257
Comprehensive (loss) income												$	(840	)	$	1,736		$	2,181		$	10,992

	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, March 31, 2021		3,356,614	$	12,145	$	(14,522	)	$	8,375		$	(1,014	)	$	59,643			64,627
Balances, June 30, 2021																					3,529,208	$	12,576	$	(14,522	)	$	10,829	$	(846	)	$	66,415			74,452
Net income															7,230			7,230															2,046			2,046
Other comprehensive income												168						168
Other comprehensive loss																														(310	)					(310	)
Stock compensation expense									580									580										455								455
Distributions to shareholders															(458	)		(458	)														(463	)		(463	)
Issuance of common stock		172,594		431					2,085									2,516			30,479		77					291								368
Cash settlement of stock options									(211	)								(211	)
Balances June 30, 2021		3,529,208	$	12,576	$	(14,522	)	$	10,829		$	(846	)	$	66,415		$	74,452
Balances September 30, 2021																					3,559,687	$	12,653	$	(14,522	)	$	11,575	$	(1,156	)	$	67,998		$	76,548

	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, March 31, 2022		3,520,646	$	12,655	$	(15,996	)	$	12,222	$	(1,353	)	$	70,245		$	77,773
Balances, June 30, 2022																				3,521,373	$	12,657	$	(15,996	)	$	12,598		$	(1,927	)	$	72,491		$	79,823
Net income														2,738			2,738																64			64
Other comprehensive loss											(574	)					(574	)												(904	)					(904	)
Stock compensation expense									368								368										637									637
Distributions to shareholders														(492	)		(492	)															(495	)		(495	)
Issuance of common stock		727		2					8								10			5,239		13					55									68
Balances June 30, 2022		3,521,373	$	12,657	$	(15,996	)	$	12,598	$	(1,927	)	$	72,491		$	79,823
Net share settlement of stock options																				8,117		20					(232	)								(212	)
Balances September 30, 2022																				3,534,729	$	12,690	$	(15,996	)	$	13,058		$	(2,831	)	$	72,060		$	78,981

	Outstanding Shares of Common Stock		Common Stock		Treasury Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Loss			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, January 1, 2021																					3,338,913	$	12,101	$	(14,522	)	$	7,931		$	(826	)	$	58,033		$	62,717
Net income															9,277			9,277																11,322			11,322
Other comprehensive income												(20	)					(20	)
Other comprehensive loss																															(330	)					(330	)
Stock compensation expense									886									886										1,341									1,341
Distributions to shareholders															(895	)		(895	)															(1,357	)		(1,357	)
Issuance of common stock		190,295		475					2,223									2,698			220,774		552					2,514									3,066
Cash settlement of stock options									(211	)								(211	)									(211	)								(211	)
Balances June 30, 2021		3,529,208	$	12,576	$	(14,522	)	$	10,829		$	(846	)	$	66,415		$	74,452
Balances September 30, 2021																					3,559,687	$	12,653	$	(14,522	)	$	11,575		$	(1,156	)	$	67,998		$	76,548

	Outstanding Shares of Common Stock		Common Stock		Treasury Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Loss			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, 2021		3,520,646	$	12,655	$	(15,996	)	$	11,930		$	(1,380	)	$	69,873		$	77,082			3,520,646	$	12,655	$	(15,996	)	$	11,930		$	(1,380	)	$	69,873		$	77,082
Net income															3,568			3,568																3,632			3,632
Other comprehensive loss												(547	)					(547	)												(1,451	)					(1,451	)
Stock compensation expense									768									768										1,405									1,405
Distributions to shareholders															(950	)		(950	)															(1,445	)		(1,445	)
Issuance of common stock		727		2					8									10			5,966		15					63									78
Cash settlement of stock options									(108	)								(108	)									(108	)								(108	)
Balances June 30, 2022		3,521,373	$	12,657	$	(15,996	)	$	12,598		$	(1,927	)	$	72,491		$	79,823
Net share settlement of stock options																					8,117		20					(232	)								(212	)
Balances September 30, 2022																					3,534,729	$	12,690	$	(15,996	)	$	13,058		$	(2,831	)	$	72,060		$	78,981

	Six Months Ended						Nine Months Ended
	June 30,						September 30,
	2022			2021			2022			2021
Cash flows from operating activities:
Net income	$	3,568		$	9,277		$	3,632		$	11,322
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation		1,339			1,176			2,006			1,809
Amortization of intangible assets		744			742			1,298			1,111
Non-cash lease expense		-			43			-			170
Stock compensation expense		768			886			1,405			1,341
Provision for bad debt		50			54			75			79
PPP loan forgiveness		-			(3,508	)		-			(3,508	)
Amortization of deferred financing costs		8			-			11			-
Changes in operating assets and liabilities:
Accounts receivable		(12,468	)		(9,072	)		(5,836	)		(9,060	)
Inventories		(11,021	)		2,007			(12,807	)		1,678
Prepaid expenses and other assets		(991	)		(593	)		(1,393	)		(859	)
Accounts payable		12,651			346			3,048			(959	)
Other accrued liabilities		182			(1,215	)		954			(145	)
Total adjustments		(8,739	)		(9,134	)		(11,239	)		(8,343	)
Net cash (used in) provided by operating activities		(5,171	)		143			(7,607	)		2,979

Cash flows from investing activities:
Purchase of property, plant and equipment		(2,761	)		(3,351	)		(3,299	)		(4,792	)
Purchase of intellectual property								(300	)		-
Acquisition of Safety Made		(9,609	)		-			(9,609	)		-
Net cash used in investing activities		(12,370	)		(3,351	)		(13,208	)		(4,792	)

Cash flows from financing activities:
Net borrowings of long-term debt		17,225			782			24,094			1,687
Tax paid on net share settlement of stock options								(211	)		-
Cash settlement of stock options		(108	)		(211	)		(108	)		(211	)
Repayments on mortgage		(192	)		(133	)		(290	)		(200	)
Proceeds from issuance of common stock		10			2,698			78			3,066
Distributions to shareholders		(915	)		(871	)		(1,408	)		(1,329	)
Net cash provided by financing activities		16,020			2,265			22,155			3,013

Effect of exchange rate changes on cash and cash equivalents		(62	)		16
Net change in cash and cash equivalents		(1,583	)		(927	)
Effect of exchange rate changes on cash, cash equivalents and restricted cash								(465	)		(61	)
Net change in cash, cash equivalents and restricted cash								875			1,139

Cash, cash equivalents and restricted cash at beginning of period		4,843			4,167			4,843			4,167

Cash, cash equivalents and restricted cash at end of period	$	3,260		$	3,240		$	5,718		$	5,306

Supplemental cash flow information:
Cash paid for income taxes	$	242		$	952		$	242		$	1,070
Cash paid for interest	$	661		$	440		$	1,292		$	660
Non-cash investing activities
Safety Made acquisition contingent consideration	$	1,270					$	1,270		$	-

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, 2021 for such disclosures. The condensed consolidated balance sheet as of December 31, 2021 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 2021 Annual Report on Form 10-K.

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

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.

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. The cutting, sharpening and measuring category includes scissors, knives, paper trimmers, pencil sharpeners and other sharpening tools. The first aid and medical category includes first aid kits and refills, over-the-counter medications and a variety of medical 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.

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.

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.

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.

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.

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

	United States		Canada		Europe		Total		United States		Canada		Europe		Total
Cutting, Sharpening and Measuring	$	21,954	$	2,192	$	3,555	$	27,701	$	17,934	$	1,799	$	2,792	$	22,525
First Aid and Medical		26,951		1,684	$	437		29,072		25,009		1,830		380		27,219

Total Net Sales	$	48,905	$	3,876	$	3,992	$	56,773	$	42,943	$	3,629	$	3,172	$	49,744

	United States		Canada		Europe		Total		United States		Canada		Europe		Total
Cutting, Sharpening and Measuring	$	16,162	$	2,091	$	3,677	$	21,930	$	18,769	$	1,932	$	2,863	$	23,564
First Aid and Medical		20,678		1,899		340		22,917		22,291		1,653		415		24,359

Total Net Sales	$	36,840	$	3,990	$	4,017	$	44,847	$	41,060	$	3,585	$	3,278	$	47,923

	U.S.		Canada		Europe		Total		United States		Canada		Europe		Total
Cutting, Sharpening and Measuring	$	37,287	$	3,785	$	7,113	$	48,185	$	55,221	$	5,584	$	9,905	$	70,710
First Aid and Medical		47,359		3,706		856		51,921		72,368		5,536		1,235		79,139

Total Net Sales	$	84,646	$	7,491	$	7,969	$	100,106	$	127,589	$	11,120	$	11,140	$	149,849

	U.S.		Canada		Europe		Total		United States		Canada		Europe		Total
Cutting, Sharpening and Measuring	$	31,726	$	3,640	$	7,420	$	42,786	$	50,507	$	5,571	$	10,271	$	66,349
First Aid and Medical		41,162		3,683		741		45,586		63,441		5,336		1,169		69,946

Total Net Sales	$	72,888	$	7,323	$	8,161	$	88,372	$	113,948	$	10,907	$	11,440	$	136,295

Long-term debt consists of (i) borrowings under the Company’s revolving loan agreement with HSBC Bank, N.A.(“HSBC”) and (ii) amounts outstanding under the fixed rate mortgage on the Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA. On May 31, 2022, the Company amended its revolving loan agreement with HSBC Bank, N.A. The amended agreement ~~increases~~increased the amount available for borrowing from $50 million to $65 ~~million from $50~~ million, at an interest rate of ~~SOFR~~Secured Overnight Financing Rate (“SOFR”) plus 1.75%; interest is payable monthly. In addition, the expiration date of the ~~credit facility~~revolving loan agreement was extended to May 31, 2026. The Company must pay a facility fee, payable quarterly, in an amount equal to one eighth of one percent (.125%) per annum of the average daily unused portion of the revolving credit line. The facility is intended to provide liquidity for growth, share repurchases, dividends, acquisitions, and other business activities. Under the revolving loan agreement, the Company is required to maintain specific amounts of funded debt to EBITDA, a fixed charge coverage ratio and must have annual net income greater than $0, measured as of the end of each fiscal year. On November 8, 2022, the revolving loan agreement was amended to increase the ratio of funded debt to EBITDA. The amendment is in effect for the four quarters

commencing in the third quarter of 2022 and includes an increase in the funded debt to EBITDA ratio for the four quarters ranging from a low of 4.75 to 1 to a high of 5.75 to 1. The amendment also increases the interest rate from SOFR +1.75% up to a high of SOFR + 2.35% on a basis that varies on a quarterly basis with the leverage ratio. The increase in the ratio brought the Company into compliance with the covenant as of September 30, 2022, and going forward, provides the Company with flexibility to conduct its business in light of current and anticipated economic conditions. As of ~~June~~September 30, 2022, the Company was in compliance with the covenants ~~then in effect~~ under the revolving loan ~~agreement.~~ agreement, as amended.

As of ~~June~~September 30, 2022 and December 31, 2021, the Company had outstanding borrowings of ~~$50,263,000~~$57,131,000 and $33,037,000, respectively, under the Company’s revolving loan agreement with HSBC.

The Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, 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. Commencing on January 1, 2022, payments of principal and interest are due monthly, with all amounts outstanding due on maturity on December 1, 2031. As of ~~June~~September 30, 2022 and December 31, 2021, long-term debt related to the mortgage consisted of the following (amounts in ‘000’s):

	June 30, 2022			December 31, 2021			September 30, 2022			December 31, 2021

Mortgage Payable - HSBC Bank N.A.		11,428			11,620
Mortgage Payable - HSBC								$ 11,331			$ 11,620
Less debt issuance costs		(142	)		(150	)		(139	)		(150	)
		11,286			11,470			11,192			11,470
Less current maturities		389			389			389			389
Long-term mortgage payable less current maturities		10,897			11,081			$ 10,803			$ 11,081

During the three and ~~six~~nine months ended ~~June~~September 30, 2022, the Company issued a total of ~~727~~5,239 and 5,966 shares of common stock, respectively, and received aggregate proceeds of ~~$10,000~~$67,658 and $77,658 upon exercise of employee stock ~~options.~~options, respectively. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company, at its discretion, paid approximately $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, during the three and nine months ended September 30, 2022, the Company issued 8,117 shares of common stock to optionees who had elected a net share settlement of certain of their respective option.

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 over both, on a consolidated basis, and as such, 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 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 ~~12%~~8% and 9% of the Company’s total net sales for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, compared to ~~10%~~7% and 8% respectively, for the comparable periods in 2021.

The chief 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 ~~six~~nine months ended ~~June~~September 30, 2022 and 2021:

	Three Months Ended June 30,					Six Months Ended June 30,					Three Months Ended September 30,					Nine Months Ended September 30,
Sales to external customers:	2022		2021			2022		2021			2022			2021		2022		2021
United States	$	48,905	$	36,840		$	84,646	$	72,888		$	42,943		$	41,060	$	127,589	$	113,948
Canada		3,876		3,990			7,491		7,322			3,629			3,585		11,120		10,907
Europe		3,992		4,017			7,969		8,162			3,172			3,278		11,140		11,440
Consolidated	$	56,773	$	44,847		$	100,106	$	88,372		$	49,744		$	47,923	$	149,849	$	136,295

Operating income:
United States	$	3,454	$	2,675		$	4,287	$	4,807		$	767		$	2,425	$	5,032	$	7,231
Canada		474		662			830		1,034			354			418		1,214		1,452
Europe		48		452			230		916			(168	)		118		53		1,034
Consolidated	$	3,976	$	3,789		$	5,347	$	6,757		$	953		$	2,961	$	6,299	$	9,717

Interest expense, net		423		223			729		443			714			228		1,443		671
Other expense (income) , net		148		(3,440	)		147		(3,363	)		209			68		354		(3,295	)
Consolidated income before income taxes	$	3,405	$	7,006		$	4,471	$	9,677		$	30		$	2,665	$	4,502	$	12,341

	June 30,		December 31,		September 30,		December 31,
	2022		2021		2022		2021
United States	$	157,623	$	125,521	$	154,980	$	125,521
Canada		10,494		9,100		9,399		9,100
Europe		9,698		9,818		10,105		9,818
Consolidated	$	177,815	$	144,439	$	174,484	$	144,439

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 ~~$368,000~~$637,000 and ~~$768,000~~$1,405,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, compared to approximately ~~$580,000~~$455,000 and ~~$886,000~~$1,341,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively.

As of ~~June~~September 30, 2022, there was a total of ~~$3,237,101~~$3,995,873 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.

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. The Company’s contingent liability related to the acquisition of Safety Made is recorded at ~~it’s~~its acquisition date fair value of approximately $1.3 million, of which $690,000 is recorded in other current liabilities and $580,000 is recorded in other non-current liabilities on the condensed consolidated balance ~~sheet.~~sheet as of September 30, 2022. Changes in the fair value of the liability are recorded in earnings. There is 0no change during the three month period ended ~~June~~September 30, 2022.

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 and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, lease expense in the amount of $0.1 million was included in cost of goods sold and $0.3 million and $0.2 million, respectively, were included in selling, general and administrative expenses in the accompanying condensed consolidated ~~statement~~statements of operations.

	Three Months Ended		Three Months Ended		Three Months Ended		Three Months Ended
Operating cash flow information:	June 30, 2022		June 30, 2021		September 30, 2022		September 30, 2021
Operating lease cost	$	308	$	336	$	308	$	297
Operating lease - cash flow	$	322	$	294	$	319	$	236

Non-cash activity:
ROU assets obtained in exchange for lease liabilities	$	-	$	-	$	334	$	-

	Six Months Ended		Six Months Ended		Nine Months Ended		Nine Months Ended
Operating cash flow information:	June 30, 2022		June 30, 2021		September 30, 2022		September 30, 2021
Operating lease cost	$	618	$	672	$	926	$	994
Operating lease - cash flow	$	645	$	588	$	964	$	796


Non-cash activity:
ROU assets obtained in exchange for lease liabilities	$	211	$	1,575	$	545	$	1,575

	June 30, 2022			June 30, 2021			September 30, 2022			September 30, 2021
Weighted-average remaining lease term	3.0 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 ~~June~~September 30, 2022:

2022 (remaining)	$	629		$	324
2023		1,076			1,234
2024		738			914
2025		649			689
2026		155			155
Thereafter		-			-

Total future minimum lease payments	$	3,247		$	3,316
Less: imputed interest		(223	)		(225	)
Present value of lease liabilities - current		1,080			1,142
Present value of lease liabilities - non-current	$	1,944		$	1,949

On June 1, 2022, the Company purchased the assets of Live Safely Products, LLC (d/b/a “Safety Made”) for approximately $11 million, including $1.5 million which is contingent upon meeting certain financial ~~targets.~~targets over a two-year period. Based in Keene, NH, Safety Made is a leading manufacturer of first aid kits for the promotional products industry.

The acquisition was accounted for as a business combination, pursuant to ASC 805 – Business Combinations. All assets acquired in the acquisition are included in the Company’s United States operating segment. Management’s assessment of the valuation of intangible assets is preliminary and finalization of the Company’s purchase price accounting assessment may result in changes to the valuation of the identified intangible assets. Intangible assets include Customer List, Trade Names, Non-Compete Agreements, and Goodwill. The useful lives of the identified intangible assets range from 5 years to 15 years.

The $1.5 million contingent payment that is being held in escrow is ~~considered~~classified as restricted ~~cash and~~cash. Of this amount, $750,000 is recorded in current assets, with the remaining $750,000 reported in other long-term assets on the condensed consolidated balance sheet.

The Company has not disclosed the amount of revenue and earnings from the sales of Safety Made products since the acquisition on June 1, 2022 because these amounts are not significant to the Company’s financial statements.

	June 30,		December 31,		September 30,		December 31,
	2022		2021		2022		2021
Customer Rebates	$	5,892	$	5,414	$	6,228	$	5,414
Accrued Compensation		603		1,586		1,465		1,586
Dividend Payable		493		458		495		458
Income Tax Payable		1,203		564		801		564
Other		1,938		1,887		2,149		1,887
Total:	$	10,129	$	9,909	$	11,138	$	9,909

	June 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Cash and cash equivalents	$	1,760	$	4,843	$	4,218	$	4,843
Restricted Cash		1,500
Restricted Cash - current						750		-
Restricted Cash - non-current						750		-
Total cash, cash equivalents and restricted cash	$	3,260	$	4,843	$	5,718	$	4,843

Restricted cash, which is reported within other short-term and long term assets in the condensed consolidated balance sheets consists of the contingent payment held in escrow related to the acquisition of Safety Made.

See Note 9 for additional information related to the acquisition of Safety Made.

	June 30		December 31		September 30		December 31
	2022		2021		2022		2021
Customer List	$	18,370,118	$	16,137,118	$	18,670	$	16,137
Tradenames		9,984,698		7,994,698		9,985		7,995
Patents		2,271,980		2,271,980		2,272		2,272
Non-Compete		1,170,111		250,111		1,170		250
License Agreement		379,921		379,921		380		380
Subtotal		32,176,828		27,033,828		32,477		27,034
Less: Accumulated Amortization		10,552,204		9,803,299		11,181		9,803
Intangible Assets	$	21,624,624	$	17,230,529	$	21,296	$	17,231

Goodwill	$	8,188,829	$	4,799,829	$	8,189	$	4,800
Total:	$	29,813,452	$	22,030,358	$	29,485	$	22,031

~~Intangible assets include Customer List, Tradenames, Non-Compete Agreements and Goodwill.~~ The useful lives of the identified intangible assets range from 5 years to 15 years.

Inventories are stated at the lower of cost or net realizable value, determined by the first-in, first-out method.

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

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 and Omicron 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; and the heightened impact the pandemic has on many of the risks described herein, including, without limitation, risks relating to disruptions in our domestic and global supply chains, and labor 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) additional disruptions in the Company’s supply chains, whether caused by COVID-19, the war in Ukraine, or otherwise, including trucker shortages, port closures and delays, and delays with container ships themselves; (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 inflation, including product costs, and transportation costs; (vi) currency fluctuations including, for example, the increasing strength of the dollar against the euro: 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; (viii) the impact of competition; (ix) the impact of technological changes including, specifically, the growth of online marketing and sales activity; (x) the Company’s ability to manage its growth effectively, including its ability to successfully integrate any business it might acquire; (xi) 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 (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 December 31, 2021 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.

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 year ended December 31, 2021.

There have been no material changes to the Company’s critical accounting estimates as previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

~~COVID-19 Pandemic~~Macroeconomic, Supply Chain and ~~Macroeconomic~~ Related Considerations

The global macroeconomic environment has continued to be challenging in ~~response~~2022, characterized by global inflation at multi-decade highs, rising interest rates, and significant currency fluctuations. These factors have exacerbated an economy that was struggling to recover from 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 overall impact on the U.S., global economies, and our operating results in future periods. pandemic.

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. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company experienced significant supply chain ~~issues as a result~~issues. In anticipation of 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. Whilepotential supply chain disruptions, the Company had ~~previously~~ purchased and maintained ~~surplus~~additional inventory ~~in the United States~~ to minimize the impact of any 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 certain of these orders in the first quarter of 2022 due to the new COVID outbreak in China and the resulting factory and port shutdowns.chain. However, ~~we were able to fulfil these orders in the second quarter of 2022~~

~~The resurgence of the pandemic in China exacerbated the global supply chain issues that we had already been experiencing in recent quarters. As~~as economies have ~~re-opened,~~become less restricted by the COVID pandemic, 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~~have significantly increased costs. The supply chain issues caused exceptional ocean and inland freight and demurrage costs. The freight and demurrage costs began to ~~ship products in a timely manner. Specifically,~~decrease in the ~~first and second~~third quarter of 2022 and we ~~experienced significant delays~~anticipate that they will continue to decrease in ~~U.S. ports on both~~ the ~~East Coast~~fourth quarter of 2022, while still remaining above historical levels. We recognize those expenses as products are sold and, ~~West Coast. These factors have also contributed~~as a result, the unusually high freight and demurrage costs continued to ~~increased freight, labor~~adversely impact our results for the quarter ended September 30, 2022 and ~~product costs, which in turn~~ had an overall adverse effect on our operating margin in the first ~~six~~nine months of ~~2022, and those disruptions and increased costs are likely to persist~~2022.

In addition, the war in Ukraine is causing a slowdown in the ~~near term and potentially~~European economy. This softness, coupled with a historically low exchange rate for the ~~foreseeable future.~~

~~While~~Euro, has led to challenges in our European markets which we anticipate ~~that the Company and its business partners~~ will continue ~~to experience supply chain disruptions, the Company believes that it has sufficient inventory of its products in the U.S. to~~for at least ~~partially offset near term supply chain disruptions against anticipated demand in~~ the near future. ~~However,~~

Any continuation of supply chain issues, continued high inflation, currency fluctuations, high interest rates, and 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 continue to 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.

~~Both domestic and international economies are experiencing significant inflation. In addition, the war in Ukraine is causing a slowdown in the European economy.~~ The impact of these developments ~~together with the continuing impact of the COVID-19 pandemic~~ is highly uncertain and cannot be predicted.

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.

Consolidated net sales for the three months ended ~~June~~September 30, 2022 were ~~$56,773,000~~$49,744,000 compared with ~~$44,847,000~~$47,923,000 in the same period in 2021, a ~~27%~~4% increase. Consolidated net sales for ~~six~~nine months ended ~~June~~September 30, 2022 were ~~$100,106,000~~$149,849,000 compared with ~~$88,372,000~~$136,295,000 in the same period in 2021, a 13% increase.

Sales in the U.S. for the three and ~~six~~nine months ended ~~June~~September 30, 2022 increased ~~33%~~4% and ~~16%~~12%, respectively, compared to the same periods in 2021. As a precaution against supply chain delays, customers accelerated purchases into the second quarter of 2022 from the third quarter of 2022. This reduced sales in the third quarter of 2022. The increase in sales for the three months compared to the same period in 2021 was due to a combination of higher sales prices, increased volume and the carryover of orders from our first quarter of 2022 which were unfilled because of supply chain disruptions. The increase in sales for the sixnine months was primarily attributable to ~~strong~~increased sales of first aid and medical products and Westcott school and office products.

Net sales in Canada for the three and ~~six~~nine months ended ~~June~~September 30, 2022 ~~decreased 3% (constant~~increased 1% (3% in local currency) and ~~increased~~ 2% ~~(4%~~(5% in local currency), respectively, compared to the same periods last year. The growth in the three and nine months ended September 30, 2022 was mainly due to higher sales of first aid products.

European net sales for the three months ended ~~June~~September 30, 2022 decreased 1%3% in U.S. dollars but increased ~~12%~~13% in local currency compared to the same period in 2021. Net sales for the ~~six~~nine months ended ~~June~~September 30, 2022 decreased 2%3% in U.S. dollars but increased 7%9% in local currency compared to the same period in 2021. The increase in net sales for the three and ~~six~~nine months was mainly due to market share gains in the office channel.

Gross profit for the three months ended ~~June~~September 30, 2022 was ~~$18,548,000 (32.7%~~$15,925,000 (32.0% of net sales) compared to ~~$16,153,000 (36.0%~~$17,005,000 (35.5% of net sales) in the same period in 2021. Gross profit for the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~$33,516,000 (33.5%~~$49,475,000 (33.0% of net sales) compared to ~~$31,740,000 (35.9%~~$48,745,000 (35.8% of net sales) for the same period in 2021. The decline in the gross margin ~~as a percentage of sales~~ for the three and ~~six~~nine months ended September 30, 2022 was primarily due to ~~product cost inflation pressures as well as higher transportation~~exceptionally high ocean container costs and ~~labor costs. Price increases partially offset cost increases.~~demurrage charges. The impact on gross margins due to the aforementioned supply chain expense were 2.3% and 1.5% for the three and nine months ended September 30, 2022. Also contributing to the decline in gross profit were weaker currencies in Europe and Canada, where we purchase most of our inventory in U.S. dollars.

Selling, general and administrative ("SG&A") expenses for the three months ended ~~June~~September 30, 2022 were ~~$14,572,000 (25.7%~~$14,972,000 (30.1% of net sales) compared with ~~$12,364,000 (27.6%~~$14,044,000 (29.3% of net sales) in the same period in 2021, an increase of ~~$2,208,000.~~$928,000. SG&A expenses for the ~~six~~nine months ended ~~June~~September 30, 2022 were ~~$28,169,000 (28.1%~~$43,176,000 (28.8% of net sales) compared with ~~$24,983,000 (28.3%~~$39,028,000 (28.6% of net sales) for the same periods of 2021, an increase of ~~$3,186,000.~~$4,148,000. The increases in SG&A expenses for three and ~~six~~nine months ended ~~June~~September 30, 2022, compared to the same period in 2021 were primarily due to higher personnel related costs and increased commissions and shipping costs related to higher sales. The increased shipping costs included fuel surcharges due to higher gas prices earlier in the year. Also, the Company incurred incremental expenses related to the acquisition and integration of the Safety Made assets.

Operating income for the three months ended ~~June~~September 30, 2022 was ~~$3,976,000~~$953,000 compared with ~~$3,789,000~~$2,961,000 in the same period of 2021. Operating income for the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~$5,347,000~~$6,299,000 compared with ~~$6,757,000~~$9,717,000 in the same period of 2021.

Operating income in the U.S. segment ~~increased~~decreased by ~~$779,000~~$1,658,000 and $2,198,000 for the three and nine months ended ~~June 30, 2022 and decreased by $520,000 for the six months ended June~~September 30, 2022, respectively, compared to the same periods in 2021. The decline in operating income for the three and nine months ended September 30, 2022 was primarily due to increased supply chain costs which include exceptionally high ocean container costs and demurrage charges. $2.4 million of exceptional supply chain costs were recognized through September 30, 2022, of which $.9 million was recorded in the three months ended September 30, 2022.

Operating income in the Canadian segment decreased by ~~$188,000~~$64,000 and ~~$204,000~~$238,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, compared to the same periods in 2021.

Operating income in the European segment decreased by ~~$404,000~~$286,000 and ~~$686,000~~$981,000 for the three and ~~six~~nine months ended ~~June~~September 30, 2022, respectively, compared to the same period in 2021. The decline in operating income for the three and nine months ended September 30, 2022 was primarily due to increased supply chain costs as well as weaker currency in Europe where we purchase most of our inventory in U.S. dollars. $0.6 million of exceptional supply chain costs were recognized through September 30, 2022, of which $0.2 million was recorded in the three months ended September 30, 2022.

Interest expense, net for the three months ended ~~June~~September 30, 2022 was ~~$423,000~~$714,000 compared with ~~$223,000~~$228,000 in the same period of 2021, a ~~$200,000~~$486,000 increase. Interest expense, net for the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~$729,000~~$1,443,000 compared with ~~$443,000~~$671,000 for the same period of 2021, a ~~$286,000~~$772,000 increase. The increases in interest expense resulted from a higher average interest rate on the outstanding debt as well as higher average debt outstanding under the Company’s revolving ~~credit facility as well as higher average interest rate on the outstanding debt.~~loan agreement.

~~Other~~Total other expense, net was ~~$148,000~~$209,000 in the three months ended ~~June~~September 30, 2022 compared to $68,000 in the same period of 2021. ~~Other~~Total other expense, net was ~~$147,000~~$354,000 in the ~~six~~nine months ended ~~June~~September 30, 2022 compared to total other expense, net of ~~$145,000~~$213,000 (excluding income of $3,508,000 from PPP loan forgiveness) in the same period of 2021. The increase in total other expense, net in the three and ~~six~~nine months ended ~~June~~September 30, 2022, was ~~primarily~~ due to losses from foreign currency ~~transactions.~~transactions, primarily due to a declining Euro in our European business.

The effective income tax rate for the ~~three and six~~nine months ended ~~June~~September 30, 2022 was ~~20%~~19%. Income tax expense for the three and ~~six~~nine months ended ~~June~~September 30, 2021 included a $0.9 million tax credit for stock based compensation. The Company’s effective tax rates for the three and ~~six~~nine months ended ~~June~~September 30, 2021, excluding the tax credit and the income from the PPP loan forgiveness, were 19% and 21%.

During the first ~~six~~nine months of 2022, working capital increased approximately ~~$9.5~~$15.2 million compared to December 31, 2021. Inventory increased approximately ~~$11.4~~$12.6 million at ~~June~~September 30, 2022 compared to December 31, 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 2.1 at ~~June~~September 30, 2022 compared to 2.3 at December 31, 2021. Receivables increased by approximately ~~$12.8~~$5.9 million at ~~June~~September 30, 2022 compared to December 31, 2021. The average number of days sales outstanding in accounts receivable was 62 days at September 30, 2022 compared to 60 days at ~~each of June 30, 2022 and~~ December 31, 2021. Accounts payable and other current liabilities increased by approximately ~~$12.7~~$4.2 million at ~~June~~September 30, 2022 compared to December 31, 2021. The increase in accounts payable is primarily related to the increase in inventory.

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




	June 30,			December 31,			September 30,			December 31,
	2022			2021			2022			2021
Working capital	$	84,434		$	74,976		$	90,126		$	74,976
Current ratio		3.56			4.70			4.69			4.70
Long term debt to equity ratio		76.6	%		57.2	%		86.0	%		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. On May 31, 2022, the Company amended its revolving loan agreement with HSBC Bank, N.A. The amended agreement increases the amount available for borrowing to $65 million from $50 million, at an interest rate of SOFR plus 1.75%; interest is payable monthly. In addition, the expiration date of the ~~credit facility~~revolving loan agreement was extended to May 31, 2026. The Company must pay a facility fee, payable quarterly, in an amount equal to one eight of one percent (.125%) per annum of the average daily unused portion of the revolving credit line. The facility is intended to provide liquidity for growth, share repurchases, dividends, acquisitions, and other business activities. Under the revolving loan agreement, the Company is required to maintain specific amounts of funded debt to EBITDA, a fixed charge coverage ratio and must have annual net income greater than $0, measured as of the end of each fiscal year. ~~At June~~

On November 8, 2022, the revolving loan agreement was amended to increase the ratio of funded debt to EBITDA. The amendment is in effect for four quarters commencing in third quarter of 2022 and includes an increase in the funded debt to EBITDA ratio for the four quarters ranging from a low of 4.75 to 1 to a high of 5.75 to 1. The amendment also increases the interest rate from SOFR +1.75% up to a high of SOFR + 2.35% on a basis that varies on a quarterly basis with the leverage ratio. The increase in the ratio brought the Company into compliance with the covenant as of September 30, 2022, and going forward, provides the Company with the flexibility it needs to conduct its business in light of current and anticipated economic conditions. As of September 30, 2022, the Company was in compliance with the covenants ~~then in effect~~ under the revolving loan ~~agreement.~~ agreement, as amended.

During the first ~~six~~nine months of 2022, total debt outstanding under the Company’s revolving credit facility increased by approximately ~~$17.2~~$24.1 million, compared to total debt thereunder at December 31, 2021. As of ~~June~~September 30, 2022, ~~$50,263,000~~$57,131,000 was outstanding and ~~$14,737,000~~$7,869,000 was available for borrowing under the Company’s credit facility. The increase in debt outstanding was primarily related to the acquisition of Safety Made and the increase in inventory.

The Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, 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 ~~June~~September 30, 2022, there was approximately ~~$11.4~~$11.2 million outstanding on the mortgage.

In response to the challenges encountered by the Company commencing with the COVID-19 pandemic, the Company has implemented a series of cost reduction initiatives that are expected to generate over $5.0 million in savings in 2023. These initiatives have included a reduction of SG&A expenses and other costs and the implementation of a wide range of productivity improvements in our manufacturing and distribution facilities.

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

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 ~~June~~September 30, 2022. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

During the quarter ended ~~June~~September 30, 2022, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.

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, 2021.

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.

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

Title of each class	Trading Symbol	Name of each exchange on which registered
$2.50 par value Common Stock	ACU	NYSE American

		Page Number

Part I — FINANCIAL INFORMATION:		3
Item 1:	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets at ~~June~~September 30, 2022 and December 31, 2021	3
	Condensed Consolidated Statements of Operations for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021	5
	Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021	6
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021	7
	Condensed Consolidated Statements of Cash Flows for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3:	Quantitative and Qualitative Disclosures about Market Risk	21
Item 4:	Controls and Procedures	21

Part II — OTHER INFORMATION:		22
Item 1:	Legal Proceedings	22
Item 1A:	Risk Factors	22
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3:	Defaults Upon Senior Securities	22
Item 4:	Mine Safety Disclosures	22
Item 5:	Other Information	22
Item 6:	Exhibits	22
Signatures		23

	2022		2021
Finished goods	$	51,189	$	40,412
Work in process		724		89
Materials and supplies		14,297		13,051
Inventories:	$	66,210	$	53,552

Exhibit ~~10.10(i)~~10.10(j)		Amendment ~~No.8~~No.9 to Revolving Loan Agreement with HSBC dated ~~May 31,~~November 8, 2022

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

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller Reporting Company	☒

Emerging growth company	☐

Assets:
Accounts receivable	$	512
Inventory		944
Prepaid Expense		14
Property, plant and equipment		877
Intangible assets		5,143
Goodwill		3,389
Total assets	$	10,879

ACME UNITED CORPORATION

By	/s/ Walter C. Johnsen
	Walter C. Johnsen
	Chairman of the Board and
	Chief Executive Officer

Dated: ~~August 8,~~November 9, 2022

By	/s/ Paul G. Driscoll
	Paul G. Driscoll
	Vice President and
	Chief Financial Officer

Dated: ~~August 8,~~November 9, 2022