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 ~~3,534,729~~3,585,070 shares of its $2.50 par value Common Stock outstanding as of November ~~4, 2022.~~3, 2023.


	September 30,			December 31,			September 30,			December 31,
	2022			2021			2023			2022
	(unaudited)			(Note 1)			(unaudited)			(Note 1)
LIABILITIES
Current liabilities:
Accounts payable	$	11,771		$	8,977		$	9,976		$	10,514
Operating lease liability - current portion		1,142			1,000			1,165			1,130
Current portion of mortgage payable		389			389			415			405
Other current liabilities		11,138			9,909			13,873			10,078
Total current liabilities		24,440			20,275			25,429			22,127
Non-current liabilities:
Long-term debt		57,131			33,037			32,934			49,916
Mortgage payable, net of current portion		10,803			11,081			10,393			10,694
Operating lease liability - non-current portion		1,949			2,365			1,279			1,683
Deferred income taxes								305			305
Other non-current liabilities		1,180			599			23			622
Total liabilities		95,503			67,357			70,363			85,347

Commitments and Contingencies (see note 2)
Commitments and contingencies (see note 2)

STOCKHOLDERS' EQUITY
Common stock, par value $2.50:
Common stock, par value $2.50:
authorized 8,000,000 shares;
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
5,129,942 shares issued and 3,585,070 shares outstanding in 2023 and
5,083,051 shares issued and 3,538,179 shares outstanding in 2022								12,816			12,699
Additional paid-in capital		13,058			11,930			15,201			13,448
Retained earnings		72,060			69,873			76,055			70,967
Treasury stock, at cost - 1,544,872 shares in 2022 and 2021		(15,996	)		(15,996	)
Treasury stock, at cost - 1,544,872 shares in 2023 and 2022								(15,996	)		(15,996	)
Accumulated other comprehensive loss:
Translation adjustment		(2,831	)		(1,380	)		(2,170	)		(2,088	)
Total stockholders’ equity		78,981			77,082			85,906			79,030
Total liabilities and stockholders’ equity	$	174,484		$	144,439		$	156,269		$	164,377



	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021			2023			2022			2023			2022
Net sales	$	49,744		$	47,923		$	149,849		$	136,295		$	50,384		$	49,744		$	149,559		$	149,849
Cost of goods sold		33,819			30,918			100,374			87,550			30,881			33,819			93,752			100,374

Gross profit		15,925			17,005			49,475			48,745			19,503			15,925			55,807			49,475

Selling, general and administrative expenses		14,972			14,044			43,176			39,028			15,846			14,972			44,711			43,176

Operating income		953			2,961			6,299			9,717			3,657			953			11,096			6,299

Non-operating items:
Interest:
Interest expense		722			230			1,459			682			816			722			2,595			1,459
Interest income		(8	)		(2	)		(16	)		(11	)		(32	)		(8	)		(78	)		(16	)
Interest expense, net		714			228			1,443			671			784			714			2,517			1,443
PPP loan forgiveness		-			-			-			(3,508	)
Other expense, net		209			68			354			213			55			209			9			354
Total other expense (income), net		209			68			354			(3,295	)
Income before income tax expense		30			2,665			4,502			12,341			2,818			30			8,570			4,502
Income tax (benefit) expense		(34	)		619			870			1,019
Income tax expense (benefit)														666			(34	)		1,984			870
Net income	$	64		$	2,046		$	3,632		$	11,322		$	2,152		$	64		$	6,586		$	3,632

Basic earnings per share	$	0.02		$	0.58		$	1.03		$	3.28		$	0.60		$	0.02		$	1.85		$	1.03

Diluted earnings per share	$	0.02		$	0.50		$	0.96		$	2.85		$	0.58		$	0.02		$	1.83		$	0.96

Weighted average number of common shares outstanding-denominator used for basic per share computations		3,530			3,542			3,525			3,449			3,578			3,530			3,558			3,525
Weighted average number of dilutive stock options outstanding		162			516			256			520			143			162			38			256
Denominator used for diluted per share computations		3,692			4,058			3,781			3,969			3,721			3,692			3,596			3,781

Dividends declared per share	$	0.14		$	0.13		$	0.41		$	0.39		$	0.14		$	0.14		$	0.42		$	0.41


	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, June 30, 2022		3,521,373	$	12,657	$	(15,996	)	$	12,598		$	(1,927	)	$	72,491		$	79,823			3,521,373	$	12,657	$	(15,996	)	$	12,598		$	(1,927	)	$	72,491		$	79,823
Net income															64			64																64			64
Other comprehensive loss												(904	)					(904	)												(904	)					(904	)
Stock compensation expense									637									637										637									637
Distributions to shareholders															(495	)		(495	)															(495	)		(495	)
Issuance of common stock		5,239		13					55									68			5,239		13					55									68
Net share settlement of stock options		8,117		20					(232	)								(212	)
Cash 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			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
Balances, January 1, 2021		3,338,913	$	12,101	$	(14,522	)	$	7,931		$	(826	)	$	58,033		$	62,717
																				Outstanding Shares of Common Stock		Common Stock		Treasury Stock			Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Retained Earnings			Total
Balances, June 30, 2023																					3,568,006	$	12,773	$	(15,996	)	$	14,333		$	(1,865	)	$	74,406		$	83,651
Net income															11,322			11,322																2,152			2,152
Other comprehensive loss												(330	)					(330	)												(305	)					(305	)
Stock compensation expense									1,341									1,341										674									674
Distributions to shareholders															(1,357	)		(1,357	)															(503	)		(503	)
Issuance of common stock		220,774		552					2,514									3,066			14,875		37					200									237
Cash settlement of stock options									(211	)								(211	)
Balances September 30, 2021		3,559,687	$	12,653	$	(14,522	)	$	11,575		$	(1,156	)	$	67,998		$	76,548
Net share settlement of stock options																					2,189		6					(6	)								(0	)
Balances September 30, 2023																					3,585,070	$	12,816	$	(15,996	)	$	15,201		$	(2,170	)	$	76,055		$	85,906


	Nine Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2023			2022
Cash flows from operating activities:
Net income	$	3,632		$	11,322		$	6,586		$	3,632
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		2,006			1,809			2,191			2,006
Amortization of intangible assets		1,298			1,111			1,541			1,298
Non-cash lease expense		-			170
Non-cash lease adjustment								(15	)		-
Stock compensation expense		1,405			1,341			1,487			1,405
Provision for bad debt		75			79			76			75
PPP loan forgiveness		-			(3,508	)
Amortization of deferred financing costs		11			-			29			11
Changes in operating assets and liabilities:
Accounts receivable		(5,836	)		(9,060	)		(1,572	)		(5,836	)
Inventories		(12,807	)		1,678			8,707			(12,807	)
Prepaid expenses and other assets		(1,393	)		(859	)		(221	)		(1,393	)
Accounts payable		3,048			(959	)		(935	)		3,048
Other accrued liabilities		954			(145	)		3,788			954
Total adjustments		(11,239	)		(8,343	)		15,076			(11,239	)
Net cash (used in) provided by operating activities		(7,607	)		2,979
Net cash provided by (used in) operating activities								21,662			(7,607	)

Cash flows from investing activities:
Purchase of property, plant and equipment		(3,299	)		(4,792	)		(3,477	)		(3,299	)
Purchase of intellectual property		(300	)		-
Acquisition of Safety Made		(9,609	)		-
Purchase of intangible assets								(296	)		(300	)
Contingent payment related to the acquisition of Safety Made								(750	)		(9,609	)
Net cash used in investing activities		(13,208	)		(4,792	)		(4,523	)		(13,208	)

Cash flows from financing activities:
Net borrowings of long-term debt		24,094			1,687
Tax paid on net share settlement of stock options		(211	)		-
Net (repayments) borrowings of long-term debt								(17,000	)		24,094
Tax withholding on net share settlement of stock options								(143	)		(211	)
Cash settlement of stock options		(108	)		(211	)		-			(108	)
Repayments on mortgage		(290	)		(200	)		(301	)		(290	)
Proceeds from issuance of common stock		78			3,066			526			78
Distributions to shareholders		(1,408	)		(1,329	)		(1,491	)		(1,408	)
Net cash provided by financing activities		22,155			3,013
Net cash (used in) provided by financing activities								(18,408	)		22,155

Effect of exchange rate changes on cash, cash equivalents and restricted cash		(465	)		(61	)		(15	)		(465	)
Net change in cash, cash equivalents and restricted cash		875			1,139			(1,283	)		875

Cash, cash equivalents and restricted cash at beginning of period		4,843			4,167			7,600			4,843

Cash, cash equivalents and restricted cash at end of period	$	5,718		$	5,306		$	6,317		$	5,718

Supplemental cash flow information:
Cash paid for income taxes	$	242		$	1,070		$	776		$	242
Cash paid for interest	$	1,292		$	660		$	2,592		$	1,292
Non-cash investing activities
Safety Made acquisition contingent consideration	$	1,270		$	-
Non-cash financing activity
Net share settlement of stock options							$	28		$	-
Safety Made acquisitions contingent consideration							$	-		$	1,270

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, ~~2021~~2022 for such disclosures. The condensed consolidated balance sheet as of December 31, ~~2021~~2022 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~~2022 Annual Report on Form 10-K.

The Company has evaluated events and transactions subsequent to September 30, ~~2022~~2023 and through the date these condensed consolidated financial statements were issued.

Recently Adopted Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (“ASU 2016-13”), which provides new authoritative guidance with respect to the measurement of credit losses on financial instruments. This update changes the impairment model for most financial assets and certain other instruments by introducing a current expected credit loss (“CECL”) model. The CECL model is a more forward-looking approach based on expected losses rather than incurred losses, requiring entities to estimate and record losses expected over the remaining contractual life of an asset. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years for smaller reporting companies. The Company adopted ASU 2016-13 on January 1, 2023. The adoption did not have an impact on our condensed consolidated financial statements.

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. 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.

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~~upon 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~~catalog 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.

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~~fulfillment 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, 2023


	United States		Canada		Europe		Total
Cutting, Sharpening and Measuring	$	15,834	$	1,454	$	3,027	$	20,315
First Aid and Medical		27,854		1,851		364		30,069

Total Net Sales	$	43,688	$	3,305	$	3,391	$	50,384

For the three months ended September 30, 2022


	United States		Canada		Europe		Total
Cutting, Sharpening and Measuring	$	17,934	$	1,799	$	2,792	$	22,525
First Aid and Medical		25,009		1,830		380		27,219

Total Net Sales	$	42,943	$	3,629	$	3,172	$	49,744

For the ~~three~~nine months ended September 30, ~~2021~~2023


	United States		Canada		Europe		Total
Cutting, Sharpening and Measuring	$	46,450	$	4,841	$	9,871	$	61,162
First Aid and Medical		81,293		6,097		1,007		88,397

Total Net Sales	$	127,743	$	10,938	$	10,878	$	149,559

United States

Canada

Europe

Total

Cutting, Sharpening and Measuring

$
18,769

$
1,932

$
2,863

$
23,564

First Aid and Medical

22,291

1,653

415

24,359

Total Net Sales

$
41,060

$
3,585

$
3,278

$
47,923

For the nine months ended September 30, 2022


	United States		Canada		Europe		Total
Cutting, Sharpening and Measuring	$	55,221	$	5,584	$	9,905	$	70,710
First Aid and Medical		72,368		5,536		1,235		79,139

Total Net Sales	$	127,589	$	11,120	$	11,140	$	149,849

~~For the nine months ended September 30, 2021~~

United States

Canada

Europe

Total

Cutting, Sharpening and Measuring

$
50,507

$
5,571

$
10,271

$
66,349

First Aid and Medical

63,441

5,336

1,169

69,946

Total Net Sales

$
113,948

$
10,907

$
11,440

$
136,295

4. Debt and Shareholders’ Equity

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~~The revolving loan agreement ~~with HSBC Bank, N.A. The amended agreement increased the amount available~~provides for ~~borrowing from $50 million~~borrowings of up to ~~$65~~$65 million at an interest rate of Secured Overnight Financing Rate (“SOFR”) plus ~~1.75%~~1.75%; interest is payable monthly. ~~In addition, the~~The credit facility has an expiration date of ~~the revolving loan agreement was extended to~~ May 31, ~~2026.~~2026. The Company must pay a facility fee, payable quarterly, in an amount equal to one eighth of one percent ~~(.125%~~(.125%) per annum of the average daily unused portion of the revolving credit line. The facility is intended to provide liquidity for growth, acquisitions, dividends, share repurchases, ~~dividends, acquisitions,~~ and other ~~business~~operating 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.~~year. On November 8, 2022, the revolving loan agreement was amended to increase the ratio of funded debt to EBITDA. The ~~amendment is~~increase was in effect ~~for~~during the four quarters

commencing in the third quarter of 2022 and ~~includes an~~ending with the three months ended June 30, 2023. The increase ~~in the funded debt to EBITDA ratio~~ for ~~the~~those four quarters ~~ranging~~ranged from a low of 4.75 to 1 to a high of 5.75 to 1. The amendment also ~~increases~~modified the interest rate from SOFR +1.75% to range from SOFR +1.60% up to a high of SOFR + 2.35% on a basis that varies ~~on a~~ quarterly ~~basis~~ with the ~~leverage~~funded debt to EBITDA 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 September 30, ~~2022,~~2023, the Company was in compliance with the covenants under the revolving loan agreement as ~~amended.~~then in effect.

As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company had outstanding borrowings of ~~$57,131,000~~$33,000,000 and ~~$33,037,000,~~$49,916,000, 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 at a fixed interest rate of ~~3.8%~~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 September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, long-term debt related to the mortgage consisted of the following (amounts in ‘000’s):

September 30, 2022

December 31, 2021

Mortgage Payable - HSBC

$           11,331

$           11,620

Less debt issuance costs

(139
)

(150
)

11,192

11,470

Less current maturities

389

389

Long-term mortgage payable less current maturities

$           10,803

$           11,081


	September 30, 2023			December 31, 2022

Mortgage payable - HSBC Bank N.A.	$	10,932		$	11,233
Less debt issuance costs		(124	)		(134	)
		10,808			11,099
Less current maturities		415			405
Long-term mortgage payable less current maturities	$	10,393		$	10,694

During the three and nine months ended September 30, ~~2022,~~2023, the Company issued a total of ~~5,239~~14,875 and ~~5,966~~35,577 shares of common stock ~~respectively,~~ and received aggregate proceeds of ~~$67,658~~$237,000 and ~~$77,658~~$526,000 upon exercise of employee stock options, respectively. During the nine months ended 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,~~2023, the Company issued ~~8,117~~2,189 and 11,314 shares of common stock to optionees who had elected a net share settlement of certain of their respective ~~option.~~options.

5. Segment Information

The Company reports financial information based on the organizational structure used by the Company’s chief operating decision ~~makers~~maker 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~~maker reviews the financial results ~~over~~of 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, New Hampshire 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~~products 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 ~~8% and 9%~~7% of the Company’s total net sales for the three and nine months ended September 30, ~~2022, respectively,~~2023 compared to 7%8% and 8%9%, respectively for the ~~comparable~~same periods in ~~2021.~~2022.

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 the three and nine months ended September 30, ~~2022~~2023 and ~~2021:~~2022:

Financial data by segment:

(in thousands)


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended September 30,					Nine Months Ended September 30,
Sales to external customers:	2022			2021		2022		2021			2023		2022			2023		2022
United States	$	42,943		$	41,060	$	127,589	$	113,948		$	43,688	$	42,943		$	127,743	$	127,589
Canada		3,629			3,585		11,120		10,907			3,305		3,629			10,938		11,120
Europe		3,172			3,278		11,140		11,440			3,391		3,172			10,878		11,140
Consolidated	$	49,744		$	47,923	$	149,849	$	136,295		$	50,384	$	49,744		$	149,559	$	149,849

Operating income:
United States	$	767		$	2,425	$	5,032	$	7,231		$	3,420	$	767		$	9,451	$	5,032
Canada		354			418		1,214		1,452			34		354			995		1,214
Europe		(168	)		118		53		1,034			203		(168	)		650		53
Consolidated	$	953		$	2,961	$	6,299	$	9,717		$	3,657	$	953		$	11,096	$	6,299

Interest expense, net		714			228		1,443		671			784		714			2,517		1,443
Other expense (income) , net		209			68		354		(3,295	)
Other expense, net												55		209			9		354
Consolidated income before income taxes	$	30		$	2,665	$	4,502	$	12,341		$	2,818	$	30		$	8,570	$	4,502

Assets by segment:

(in thousands)


	September 30,		December 31,
	2023		2022
United States	$	136,903	$	144,466
Canada		9,246		9,078
Europe		10,120		10,833
Consolidated	$	156,269	$	164,377

September 30,

December 31,

2022

2021

United States

$
154,980

$
125,521

Canada

9,399

9,100

Europe

10,105

9,818

Consolidated

$
174,484

$
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 ~~$637,000~~$674,000 and ~~$1,405,000~~$1,487,000 for the three and nine months ended September 30, ~~2022, respectively,~~2023 compared to approximately ~~$455,000~~$637,000 and ~~$1,341,000~~$1,405,000 for the three and nine months ended September 30, ~~2021, respectively.~~2022.

As of September 30, ~~2022,~~2023, there was a total of ~~$3,995,873~~$3,992,950 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.~~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. The Company’s contingent liability related to the acquisition of Safety Made is recorded at its ~~acquisition date~~ fair value of ~~approximately $1.3 million, of~~$750,000 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 as of September 30, ~~2022.~~2023. Changes in the fair value of the liability are recorded in earnings. There ~~is no change~~was an increase in the liability of $45,000 and $170,000, respectively, during the three ~~month period~~and nine months ended September 30, ~~2022.~~2023. During the nine months ended September 30, 2023, the Company paid $750,000 of the $1.5 million held in escrow related to the contingent liability.

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~~Operating lease ~~liabilities are recognized at commencement date based on~~cost was $0.3 million for 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 nine~~ months ended September 30, ~~2022 and 2021, lease expense in the amount~~2023, of ~~$0.1~~which $0.1 million was included in cost of goods sold and ~~$0.3~~$0.2 million was included in selling, general and ~~$0.2~~administrative expenses. Operating lease cost was $1.0 million ~~respectively, were~~for the nine months ended September 30, 2023, of which $0.3 million was included in cost of goods sold and $0.7 million was included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

Information related to leases (in thousands):


	Three Months Ended		Three Months Ended
Operating cash flow information:	September 30, 2023		September 30, 2022
Operating lease cost	$	343	$	308
Operating lease - cash flow	$	369	$	319

Non-cash activity:
ROU assets obtained in exchange for lease liabilities	$	240	$	334

	Nine Months Ended		Nine Months Ended
Operating cash flow information:	September 30, 2023		September 30, 2022
Operating lease cost	$	1,020	$	926
Operating lease - cash flow	$	1,062	$	964


Non-cash activity:
ROU assets obtained in exchange for lease liabilities	$	581	$	545


	September 30, 2023			September 30, 2022
Weighted-average remaining lease term	2.0 years			3.0 years
Weighted-average discount rate		5	%		5	%

Three Months Ended

Three Months Ended

Operating cash flow information:

September 30, 2022

September 30, 2021

Operating lease cost

$
308

$
297

Operating lease - cash flow

$
319

$
236

Non-cash activity:

ROU assets obtained in exchange for lease liabilities

$
334

$
-

Nine Months Ended

Nine Months Ended

Operating cash flow information:

September 30, 2022

September 30, 2021

Operating lease cost

$
926

$
994

Operating lease - cash flow

$
964

$
796

Non-cash activity:

ROU assets obtained in exchange for lease liabilities

$
545

$
1,575

September 30, 2022

September 30, 2021

Weighted-average remaining lease term

3.0 years

4.0 years

Weighted-average discount rate

5
%

5
%

Future minimum lease payments under ~~non-cancellable~~non-cancelable leases as of September 30, ~~2022:~~2023:


2023 (remaining)	$	357
2024		1,172
2025		883
2026		165

Total future minimum lease payments	$	2,577
Less: imputed interest		(133	)
Present value of lease liabilities - current		1,165
Present value of lease liabilities - non-current	$	1,279

2022 (remaining)

$
324

2023

1,234

2024

914

2025

689

2026

155

Thereafter

-

Total future minimum lease payments

$
3,316

Less: imputed interest

(225
)
Present value of lease liabilities - current

1,142

Present value of lease liabilities - non-current

$
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 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 purchase price was allocated to assets acquired as follows (in thousands):~~

~~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 classified as restricted 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.

Other current and non-current accrued liabilities consisted of (in thousands):


	September 30,		December 31,
	2023		2022
Customer rebates	$	6,218	$	5,534
Contingent liability - Safety Made		750		1,330
Accrued compensation		2,408		791
Dividend payable		503		495
Income tax payable		1,321		534
Other		2,696		2,016
Total:	$	13,896	$	10,700

September 30,

December 31,

2022

2021

Customer Rebates

$
6,228

$
5,414

Accrued Compensation

1,465

1,586

Dividend Payable

495

458

Income Tax Payable

801

564

Other

2,149

1,887

Total:

$
11,138

$
9,909

(in thousands):


	September 30, 2022		December 31, 2021		September 30, 2023		December 31, 2022
Cash and cash equivalents	$	4,218	$	4,843	$	5,567	$	6,100
Restricted Cash - current		750		-		750		750
Restricted Cash - non-current		750		-		-		750
Total cash, cash equivalents and restricted cash	$	5,718	$	4,843	$	6,317	$	7,600

Restricted cash, which is reported within ~~other short-term and long term~~current 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~~During the ~~acquisition~~nine months ended September 30, 2023, the Company paid $750,000 upon the satisfaction of certain financial targets associated with the Safety ~~Made.~~Made acquisition.

The Company’s intangible assets and goodwill consisted of (in thousands):

September 30

December 31

2022

2021

Customer List
$
18,670

$
16,137

Tradenames

9,985

7,995

Patents

2,272

2,272

Non-Compete

1,170

250

License Agreement

380

380

Subtotal

32,477

27,034

Less: Accumulated Amortization

11,181

9,803

Intangible Assets
$
21,296

$
17,231

Goodwill
$
8,189

$
4,800

Total:
$
29,485

$
22,031



	September 30,		December 31,
	2023		2022
Tradename	$	10,008	$	10,008
Customer list		18,798		18,501
Non-compete		1,248		1,248
Slice license agreement		380		380
Patents		2,272		2,272
Subtotal		32,706		32,409
Less: Accumulated amortization		13,160		11,619
Intangible assets	$	19,546	$	20,790
Goodwill	$	8,189	$	8,189
Total:	$	27,735	$	28,979

The useful lives of the ~~identified~~identifiable intangible assets range from 5 years to 15 years.

~~13.~~12. Inventories

Inventories consisted of (in thousands):



	September 30,		December 31,
	2023		2022
Finished goods	$	38,581	$	45,371
Work in process		285		408
Materials and supplies		15,709		17,546
	$	54,575	$	63,325

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

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

13. Subsequent Event

On November 1, 2023, the Company sold the assets of its Camillus Cutlery and Cuda business lines (the “Business”) to GSM Holdings, Inc., a Delaware corporation (“GSM Holdings”), pursuant to an Asset Purchase Agreement entered into on the same date.

The purchase price for the Business was $19,773,000. At closing, GSM Holdings paid $18,273,000 to the Company; the balance of the purchase price, $1,500,000, is subject to a 12-month holdback as a non-exclusive source of recovery primarily to satisfy indemnification claims under the Asset Purchase Agreement.

The Asset Purchase Agreement contains customary representations, warranties and covenants by the Company and GSM Holdings, including confidentiality, non-solicitation obligations and indemnification obligations. Under the terms of a related License Agreement dated November

1, 2023, the Company has provided a royalty-free, perpetual, non-exclusive license to certain patents held by the Company that are used in the Business.

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 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.results.

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 continuing adverse impact of inflation, including product costs, and interest rates; (iv) potential adverse effects on the Company, its customers, and suppliers resulting from the wars in Ukraine and the Middle East; (v) additional disruptions in the Company’s supply chains, whether caused by ~~COVID-19, the war in Ukraine,~~pandemics, natural disasters, or otherwise, including trucker shortages, port closures and delays, and delays with container ships themselves; ~~(iv)~~(vi) 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)~~(vii) currency fluctuations including, for example, the ~~increasing strength~~fluctuation of the dollar against the ~~euro:~~euro; (viii) 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)~~environment; (ix) changes in client needs and consumer spending habits; ~~(viii)~~(x) the impact of competition; ~~(ix)~~(xi) the impact of technological changes including, specifically, the growth of online marketing and sales activity; ~~(x)~~(xii) the Company’s ability to manage its growth effectively, including its ability to successfully integrate any business it might acquire; ~~(xi)~~(xiii) 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)~~(xiv) 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~~2022 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 year ended December 31, ~~2021.~~2022.

Critical Accounting Estimates

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.~~

~~Macroeconomic, Supply Chain and Related Considerations~~

The global macroeconomic environment has continued to be challenging in 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.

During the nine months ended September 30, 2022, the Company experienced significant supply chain issues. In anticipation of potential supply chain disruptions, the Company had purchased and maintained additional inventory to minimize the impact of any disruption in our

supply chain. However, as economies have become less restricted by the COVID pandemic, global supply chains have struggled to keep up with increasing demand, and the resulting supply chain disruptions have significantly increased costs. The supply chain issues caused exceptional ocean and inland freight and demurrage costs. The freight and demurrage costs began to decrease in the third quarter of 2022 and we anticipate that they will continue to decrease in the fourth quarter of 2022, while still remaining above historical levels. We recognize those expenses as products are sold and, as a result, the unusually high freight and demurrage costs continued to adversely impact our results for the quarter ended September 30, 2022 and had an overall adverse effect on our operating margin in the first nine months of 2022.

In addition, the war in Ukraine is causing a slowdown in the European economy. This softness, coupled with a historically low exchange rate for the Euro, has led to challenges in our European markets which we anticipate will continue for at least the near future.

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 might continue to adversely affect the Company’s business, operations and financial condition. The impact of these developments is highly uncertain and cannot be predicted.

Results of Operations

Traditionally, the Company’s sales of its cutting, sharpening, and measuring products 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, 2023 were $50,384,000 compared to $49,744,000 the same period in 2022, an increase of 1%. Net sales for the nine months ended September 30, 2023 were ~~$49,744,000~~$149,559,000 compared ~~with $47,923,000~~to $149,849,000 in the same period in ~~2021, a 4% increase. Consolidated net~~2022.

Net sales ~~for nine months ended September 30, 2022 were $149,849,000 compared with $136,295,000 in the same period in 2021, a 13% increase.~~

~~Sales~~ in the U.S. for the three ~~and nine~~ months ended September 30, ~~2022~~2023 increased ~~4% and 12%, respectively,~~2% compared to the same ~~periods~~period 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 nine months~~ was primarily ~~attributable~~related to ~~increased~~higher sales of first aid and medical products ~~and Westcott~~partially offset by lower sales of school and office products. Net sales for

the nine months ended September 30, 2023 remained constant compared to the same period in 2022. Net sales of school and office products for the nine months ended September 30, 2023 were negatively impacted by customer reduction of inventory in the first half of 2023.

Net sales in Canada for the three months ended September 30, 2023 decreased 9% (7% in local currency). The decrease in nets sales for the three months ended September 30, 2023 was due to lower sales of cutting, sharpening and measuring products. Net sales for the nine months ended September 30, ~~2022~~2023 decreased 2% in U.S. dollars but increased ~~1% (3%~~3% in local ~~currency) and 2% (5% in local currency), respectively,~~currency, compared to the same ~~periods last year.~~period in 2022. The ~~growth~~increase in net sales in local currency for the ~~three and~~ nine months ended September 30, ~~2022 was~~2023was mainly due to higher sales of first aid products.

European net sales for the three months ended September 30, ~~2022 decreased 3%~~2023 increased 7% in U.S. dollars but ~~increased 13%~~decreased 1% in local currency compared to the same period in ~~2021.~~2022. Net sales for the nine months ended September 30, ~~2022~~2023 decreased 3%2% in U.S. dollars ~~but increased 9%~~(4% in local ~~currency~~currency) compared to the same period in ~~2021.~~2022. The ~~increase~~declines in net sales in local currency for the three and nine months ~~was~~were mainly due to ~~market share gains~~the economic weakness in ~~the office channel.~~Europe.

Gross profit

Gross profit for the three months ended September 30, ~~2022~~2023 was ~~$15,925,000 (32.0%~~$19,503,000 (38.7% of net sales) compared to ~~$17,005,000 (35.5%~~$15,925,000 (32.0% of net sales) in the same period in ~~2021.~~2022. Gross profit for the nine months ended September 30, ~~2022~~2023 was ~~$49,475,000 (33.0%~~$55,807,000 (37.3% of net sales) compared to ~~$48,745,000 (35.8%~~$49,475,000 (32.0% of net sales) ~~for~~in the same period in ~~2021.~~2022. The ~~decline~~increases in ~~the~~ gross ~~margin~~profit for the three and nine months ~~ended September 30, 2022 was~~were primarily due to ~~exceptionally high ocean container costs~~productivity improvements in the Company's manufacturing and 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.distribution facilities, as well as lower in-bound freight costs.

Selling, general and administrative expenses

Selling, general and administrative ("SG&A") expenses for the three months ended September 30, ~~2022~~2023 were ~~$14,972,000 (30.1%~~$15,846,000 (31.4% of net sales) compared with ~~$14,044,000 (29.3%~~$14,972,000 (30.1% of net sales) in the same period in ~~2021,~~2022, an increase of ~~$928,000.~~$874,000. SG&A expenses for the nine months ended September 30, ~~2022~~2023 were $44,711,000 (29.9% of net sales) compared with $43,176,000 (28.8% of net sales) ~~compared with $39,028,000 (28.6% of net sales) for~~in the same ~~periods of 2021,~~period in 2022, an increase of ~~$4,148,000.~~$1,535,000. The increases in SG&A expenses for the three and nine months ended September 30, ~~2022, compared to the same period in 2021~~2023 were primarily ~~due~~related 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.expenses.

Operating income

Operating income for the three months ended September 30, ~~2022~~2023 was ~~$953,000~~$3,657,000 compared with ~~$2,961,000~~$953,000 in the same period of ~~2021.~~2022. Operating income for the nine months ended September 30, ~~2022~~2023 was ~~$6,299,000~~$11,096,000 compared with ~~$9,717,000~~$6,299,000 in the same period of ~~2021.~~2022.

Operating income in the U.S. segment ~~decreased~~increased by ~~$1,658,000 and $2,198,000~~$2,653,000 for the three ~~and~~months ended September 30, 2023, compared to the same period in 2022. Operating income in the U.S. segment increased by $4,419,000 for the nine months ended September 30, ~~2022, respectively,~~2023 compared to the same ~~periods~~period in ~~2021.~~2022. The ~~decline~~increase in operating income for the three and nine months ended September 30, ~~2022~~2023 was primarily due to ~~increased supply chain costs~~productivity improvements at our manufacturing and distribution facilities, cost savings initiatives 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.included lowering SG&A expenses as well as lower in-bound freight costs.

Operating income in the Canadian segment decreased by ~~$64,000~~$320,000 and ~~$238,000~~$219,000 for the three and nine months ended September 30, ~~2022,~~2023, respectively, compared to the same periods in ~~2021.~~2022. The decreases in operating income were primarily due to lower sales of cutting, sharpening and measuring products.

Operating income in the European segment ~~decreased~~increased by ~~$286,000~~$371,000 and ~~$981,000~~$597,000 for the three and nine months ended September 30, ~~2022,~~2023, respectively, compared to the same ~~period~~periods in ~~2021.~~2022. The ~~decline~~increases in operating income for the three and nine months ended September 30, ~~2022 was~~2023 were primarily due to ~~increased supply chain costs~~higher gross margins as ~~well as weaker currency in Europe where we purchase most~~a result 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.lower in-bound freight costs.

Interest expense, net

Interest expense, net for the three months ended September 30, ~~2022~~2023 was ~~$714,000~~$784,000 compared with ~~$228,000~~$714,000 in the same period of ~~2021,~~2022, a ~~$486,000~~$70,000 increase. Interest expense, net for the nine months ended September 30, ~~2022~~2023 was ~~$1,443,000~~$2,517,000 compared with ~~$671,000 for~~$1,443,000, in the same period of ~~2021,~~2022, a ~~$772,000~~$1,074,000 increase. The increases in interest expense for the three and nine months ended September 30, 2023 resulted from a higher average interest rate on the outstanding debt ~~as well as higher average debt outstanding~~ under the Company’s revolving loan agreement.

~~Total other~~Other expense, ~~(income),~~ net

~~Total other~~Other expense, net was ~~$209,000~~$55,000 in the three months ended September 30, ~~2022~~2023 compared to ~~$68,000~~$209,000 in the same period of ~~2021. Total other~~2022. Other expense, net ~~was $354,000~~ in the nine months ended September 30, ~~2022~~2023 was $9,000 compared to ~~total other expense, net of $213,000 (excluding income of $3,508,000 from PPP loan forgiveness)~~$354,000 in the same period of 2021. The increase in total other expense, net in the three and nine months ended September 30, 2022, was due to losses from foreign currency transactions, primarily due to a declining Euro in our European business.2022.

Income taxes

The effective income tax rate for the nine months ended September 30, ~~2022~~2023 was 23% compared to 19%~~. Income~~ in the same period of 2022. The higher effective income tax ~~expense~~rate for the ~~three and~~ nine months ended September 30, ~~2021 included a $0.9 million~~2023 was primarily due to higher earnings in jurisdictions with higher 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 19% and 21%.rates.

Financial Condition

Liquidity and Capital Resources

During the first nine months of ~~2022,~~2023, working capital ~~increased~~decreased approximately ~~$15.2~~$10.4 million. Inventory decreased approximately $8.8 million ~~compared~~during this nine-month period. The decline in inventory was due to December 31, 2021. Inventory increased approximately $12.6 million at September 30, 2022 compared to December 31, 2021. We increased inventory during that period to anticipate our continued growth and to be positioned to offsetplanned reductions as the ~~impact~~risk of ~~potential~~ supply chain disruptions ~~related to COVID-19. The increase also reflects higher product costs.~~has diminished. Inventory turnover, calculated using a twelve-month average inventory balance, was 2.1 at September 30, ~~2022~~2023 compared to ~~2.3~~2.0 at December 31, ~~2021.~~2022. Receivables increased by approximately ~~$5.9~~$1.3 million at September 30, ~~2022~~2023 compared to December 31, ~~2021.~~2022. The average number of days sales outstanding in accounts receivable was 6257 days at September 30, ~~2022~~2023 compared to 6062 days at December 31, ~~2021.~~2022. Accounts payable and other current liabilities increased by approximately ~~$4.2~~$3.3 million at September 30, ~~2022~~2023 compared to December 31, ~~2021. The increase in accounts payable is primarily related to the increase in inventory.~~2022.

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,			September 30,			December 31,
	2022			2021			2023			2022
Working capital	$	90,126		$	74,976		$	73,097		$	83,473
Current ratio		4.69			4.70			3.87			4.77
Long term debt to equity ratio		86.0	%		57.2	%		50.4	%		76.7	%

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~~The revolving loan agreement ~~with HSBC Bank, N.A. The amended agreement increases the amount available~~provides for ~~borrowing~~borrowings of up to $65 ~~million from $50~~ million, at an interest rate of SOFR plus 1.75%; interest is payable monthly. ~~In addition, the~~The loan agreement has an expiration date of ~~the 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~~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~~increase was in effect ~~for~~during the four quarters commencing in the third quarter of 2022 and ~~includes an~~ending with the three months ended June 30, 2023. The increase ~~in the funded debt to EBITDA ratio~~ for ~~the~~those four quarters ~~ranging~~ranged from a low of 4.75 to 1 to a high of 5.75 to 1. The amendment also ~~increases~~modified the interest rate from SOFR +1.75% to range from SOFR +1.60% up to a high of SOFR + 2.35% on a basis that varies ~~on a~~ quarterly ~~basis~~ with the ~~leverage~~funded debt to EBITDA 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,~~2023, the Company was in compliance with the covenants under the revolving loan agreement as ~~amended.~~then in effect.

During the first nine months of ~~2022,~~2023, total debt outstanding under the Company’s revolving credit facility ~~increased~~decreased by approximately ~~$24.1~~$17 million, compared to total debt thereunder at December 31, ~~2021.~~2022. As of September 30, ~~2022, $57,131,000~~2023, $33,000,000 was outstanding and ~~$7,869,000~~$32,000,000 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 September 30, ~~2022,~~2023, there was approximately ~~$11.2~~$10.8 million outstanding on the mortgage.

In response to the supply chain 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~~$6.0 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.~~ facilities as well as a reduction of SG&A expenses.

The Company believes that cash generated from operating activities, together with funds available under its revolving 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.

2019

Item 3: Quantitative and Qualitative Disclosure about Market Risk

Not applicable.

Item 4: Controls and Procedures

(a)Evaluation of Internal 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, ~~2022.~~2023. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective.

(b)Changes in Internal Control over Financial Reporting

~~(b)~~

~~Changes in Internal Control over Financial Reporting~~

During the quarter ended September 30, ~~2022,~~2023, 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.

PART II. OTHER INFORMATION

Item 1 — Legal Proceedings

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, ~~2021.~~2022.

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 10.10(j)~~		~~Amendment No.9 to Revolving Loan Agreement with HSBC dated 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

~~SIGNATURES~~

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: November ~~9, 2022~~8, 2023


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

Dated: November ~~9, 2022~~8, 2023

2322


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 September 30, ~~2022~~2023 and December 31, ~~2021~~2022	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022	5
	Condensed Consolidated Statements of Comprehensive ~~(Loss)~~ Income for the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022	6
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022	7
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2022~~2023 and ~~2021~~2022	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	2120
Item 4:	Controls and Procedures	2120

Part II — OTHER INFORMATION:		2221
Item 1:	Legal Proceedings	2221
Item 1A:	Risk Factors	2221
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	2221
Item 3:	Defaults Upon Senior Securities	2221
Item 4:	Mine Safety Disclosures	2221
Item 5:	Other Information	2221
Item 6:	Exhibits	2221
Signatures		2322


	September 30,		December 31,		September 30,		December 31,
	2022		2021		2023		2022
	(unaudited)		(Note 1)		(unaudited)		(Note 1)
ASSETS
Current assets:
Cash and cash equivalents	$	4,218	$	4,843	$	5,567	$	6,100
Accounts receivable, less allowance of $938 in 2022 and $1,007 in 2021		40,149		34,221
Accounts receivable, less allowance of $885 in 2023 and $1,061 in 2022						33,855		32,604
Inventories		66,210		53,552		54,575		63,325
Prepaid expenses and other current assets		3,989		2,635		3,779		2,821
Restricted cash		750		-		750		750
Total current assets		115,316		95,251		98,526		105,600
Property, plant and equipment:
Land		1,969		1,761		1,978		1,979
Buildings		16,282		13,456		16,378		16,614
Machinery and equipment		30,514		29,760		35,182		31,492
		48,765		44,977		53,538		50,085
Less: accumulated depreciation		22,723		20,950		25,830		23,669
Net property, plant and equipment		26,042		24,027		27,708		26,416

Operating lease right-of-use asset, net		2,891		3,130		2,300		2,632
Goodwill		8,189		4,800		8,189		8,189
Intangible assets, less accumulated amortization		21,296		17,231		19,546		20,790
Other assets - restricted cash		750		-		-		750
Total assets	$	174,484	$	144,439	$	156,269	$	164,377

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


Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller Reporting Company	☒

Emerging growth company	☐

	September 30, 2022			December 31, 2021

Mortgage Payable - HSBC		$ 11,331			$ 11,620
Less debt issuance costs		(139	)		(150	)
		11,192			11,470
Less current maturities		389			389
Long-term mortgage payable less current maturities		$ 10,803			$ 11,081

	September 30, 2022			September 30, 2021
Weighted-average remaining lease term	3.0 years			4.0 years
Weighted-average discount rate		5	%		5	%

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

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

	September 30		December 31
	2022		2021
Customer List	$	18,670	$	16,137
Tradenames		9,985		7,995
Patents		2,272		2,272
Non-Compete		1,170		250
License Agreement		380		380
Subtotal		32,477		27,034
Less: Accumulated Amortization		11,181		9,803
Intangible Assets	$	21,296	$	17,231

Goodwill	$	8,189	$	4,800
Total:	$	29,485	$	22,031