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 ~~3,338,913~~3,538,708 shares of its $2.50 par value Common Stock outstanding as of ~~November 3, 2020.~~August 2, 2021.

	September 30,		December 31,		June 30,		December 31,
	2020		2019		2021		2020
	(unaudited)		(Note 1)		(unaudited)		(Note 1)
ASSETS
Current assets:
Cash and cash equivalents	$	3,031	$	6,822	$	3,240	$	4,167
Accounts receivable, less allowance of $1,428 in 2020 and $523 in 2019		32,154		25,485
Accounts receivable, less allowance of $1,104 in 2021 and $1,152 in 2020						36,270		27,173
Inventories		48,351		39,261		48,691		50,704
Prepaid expenses and other current assets		2,142		1,578		2,234		1,642
Total current assets		85,678		73,146		90,435		83,686
Property, plant and equipment:
Land		1,426		1,420		1,768		1,770
Buildings		11,142		10,096		13,518		12,899
Machinery and equipment		20,117		19,112		27,455		24,524
		32,685		30,628		42,741		39,193
Less: accumulated depreciation		18,344		16,592		20,332		18,954
		14,341		14,036
Net property, plant and equipment						22,409		20,239

Operating lease right-of-use asset, net		2,190		2,989		3,476		2,422
Goodwill		4,696		4,696		4,800		4,800
Intangible assets, less accumulated amortization		16,072		15,793		18,019		18,721
Other assets		40		89
Total assets	$	123,017	$	110,749	$	139,139	$	129,868

	September 30,			December 31,			June 30,			December 31,
	2020			2019			2021			2020
	(unaudited)			(Note 1)			(unaudited)			(Note 1)
LIABILITIES
Current liabilities:
Accounts payable	$	9,251		$	6,693		$	8,021		$	7,601
Operating lease liability - current portion		847			1,047			919			873
Current portion of mortgage payable		267			267			267			267
Other accrued liabilities		13,376			8,576			10,278			11,460
Total current liabilities		23,741			16,583			19,485			20,201
Non-current liabilities:
Long-term debt		30,703			33,240			39,550			38,767
Long-term debt - PPP Loan		3,508			-			-			3,508
Mortgage payable, net of current portion		2,978			3,178			2,778			2,911
Operating lease liability - non-current portion		1,422			1,961			2,764			1,654
Other non-current liabilities		69			83			110			110
Total liabilities		62,421			55,045			64,687			67,151

Commitments and Contingencies (see note 2)

STOCKHOLDERS' EQUITY
Common stock, par value $2.50:
authorized 8,000,000 shares;
issued - 4,840,571 shares in 2020 and 2019,
issued - 5,030,866 shares in 2021 and 4,840,571 in 2020,
including treasury stock		12,101			12,094			12,576			12,101
Additional paid-in capital		8,438			8,262			10,829			7,931
Retained earnings		56,425			51,571			66,415			58,033
Treasury stock, at cost - 1,501,658 shares in 2020 and 1,487,238 in 2019		(14,522	)		(14,235	)
Treasury stock, at cost - 1,501,658 shares in 2021 and 2020								(14,522	)		(14,522	)
Accumulated other comprehensive loss:
Minimum pension liability		(522	)		(522	)
Translation adjustment		(1,324	)		(1,466	)		(846	)		(826	)
		(1,846	)		(1,988	)
Total stockholders’ equity		60,596			55,704			74,452			62,717
Total liabilities and stockholders’ equity	$	123,017		$	110,749		$	139,139		$	129,868


	Three months ended September 30,						Nine months ended September 30,						Three months ended June 30,						Six months ended June 30,
	2020			2019			2020			2019			2021			2020			2021			2020
Net sales	$	43,316		$	36,995		$	123,133		$	108,585		$	44,847		$	44,042		$	88,372		$	79,817
Cost of goods sold		28,360			23,861			78,594			68,877			28,694			27,989			56,632			50,234

Gross profit		14,956			13,134			44,539			39,708			16,153			16,053			31,740			29,583

Selling, general and administrative expenses		12,832			11,408			36,023			32,679			12,364			11,670			24,983			23,191

Operating income		2,124			1,726			8,516			7,029			3,789			4,383			6,757			6,392

Non-operating items:
Interest:
Interest expense		173			478			742			1,491			(226	)		(245	)		(452	)		(568	)
Interest income		(5	)		(9	)		(20	)		(28	)		3			11			9			14
Interest expense, net		168			469			722			1,463			(223	)		(234	)		(443	)		(554	)
Other (income) expense, net		(35	)		40			2			52
Total other expense, net		133			509			724			1,515
PPP loan forgiveness														3,508			-			3,508			-
Other (expense) income, net														(68	)		1			(145	)		(37	)
Total other income (expense), net														3,440			1			3,363			(37	)
Income before income tax expense		1,991			1,217			7,792			5,514			7,006			4,150			9,677			5,801
Income tax expense		412			158			1,737			977
Income tax (benefit) expense														(224	)		951			400			1,325
Net income	$	1,579		$	1,059		$	6,055		$	4,537		$	7,230		$	3,199		$	9,277		$	4,476

Basic earnings per share	$	0.47		$	0.32		$	1.81		$	1.35		$	2.16		$	0.96		$	2.72		$	1.34

Diluted earnings per share	$	0.46		$	0.30		$	1.75		$	1.32		$	1.82		$	0.92		$	2.34		$	1.28

Weighted average number of common shares outstanding-denominator used for basic per share computations		3,340			3,352			3,343			3,352			3,347			3,349			3,410			3,344
Weighted average number of dilutive stock options outstanding		122			134			111			94			617			132			551			155
Denominator used for diluted per share computations		3,461			3,486			3,455			3,446			3,964			3,481			3,961			3,499

Dividends declared per share	$	0.12		$	0.12		$	0.36		$	0.36		$	0.13		$	0.12		$	0.26		$	0.24

	Three Months Ended					Nine Months Ended					Three Months Ended				Six Months Ended
	September 30,					September 30,					June 30,				June 30,
	2020		2019			2020		2019			2021		2020		2021			2020
Net income	$	1,579	$	1,059		$	6,055	$	4,537		$	7,230	$	3,199	$	9,277		$	4,476
Other comprehensive income (loss):
Foreign currency translation adjustment		270		(254	)		142		(124	)		168		201		(20	)		(128	)
Comprehensive income	$	1,849	$	805		$	6,197	$	4,413		$	7,398	$	3,400	$	9,257		$	4,348

	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) Gain			Retained Earnings			Total
Balances, June 30, 2019		3,350,833	$	12,094	$	(14,235	)	$	8,701		$	(2,099	)	$	50,341		$	54,802
Balances, March 31, 2020																					3,340,114		$	12,094	$	(14,449	)	$	8,048		$	(2,317	)	$	52,448		$	55,824
Net income															1,059			1,059																	3,199			3,199
Other comprehensive loss												(205	)					(205	)
Other comprehensive income																																201						201
Stock compensation expense									247									247											359									359
Distributions to shareholders															(404	)		(404	)																(400	)		(400	)
Cash settlement of stock options									(475	)								(475	)										(103	)								(103	)
Balances, September 30, 2019		3,350,833	$	12,094	$	(14,235	)	$	8,473		$	(2,304	)	$	50,996		$	55,024
Purchase of treasury stock																					(3,701	)				(73	)											(73	)
Balances June 30, 2020																					3,336,413		$	12,094	$	(14,522	)	$	8,304		$	(2,116	)	$	55,247		$	59,007

	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) Gain			Retained Earnings			Total
Balances, June 30, 2020		3,336,413	$	12,094	$	(14,522	)	$	8,304		$	(2,116	)	$	55,247		$	59,007
Balances, March 31, 2021																					3,356,614	$	12,145	$	(14,522	)	$	8,375		$	(1,014	)	$	59,643		$	64,627
Net income															1,579			1,579																7,230			7,230
Other comprehensive gain												270						270
Other comprehensive income																															168						168
Stock compensation expense									327									327										580									580
Distributions to shareholders															(401	)		(401	)															(458	)		(458	)
Issuance of common stock		2,500		7					52									59			172,594		431					2,085									2,516
Cash settlement of stock options									(245	)								(245	)									(211	)								(211	)
Balances, September 30, 2020		3,338,913	$	12,101	$	(14,522	)	$	8,438		$	(1,846	)	$	56,425		$	60,596
Balances June 30, 2021																					3,529,208	$	12,576	$	(14,522	)	$	10,829		$	(846	)	$	66,415		$	74,452

	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) Gain			Retained Earnings			Total
Balances, December 31, 2018		3,350,833	$	12,094	$	(14,235	)	$	8,982		$	(2,058	)	$	47,550		$	52,333
Balances, December 31, 2019																					3,350,833		$	12,094	$	(14,235	)	$	8,262		$	(1,988	)	$	51,571		$	55,704
Net income															4,537			4,537																	4,476			4,476
Other comprehensive loss												(124	)					(124	)													(128	)					(128	)
Adoption of ASU 2018-02												(122	)		122			—
Stock compensation expense									745									745											602									602
Distributions to shareholders															(1,213	)		(1,213	)																(800	)		(800	)
Cash settlement of stock options									(1,254	)								(1,254	)										(560	)								(560	)
Balances, September 30, 2019		3,350,833	$	12,094	$	(14,235	)	$	8,473		$	(2,304	)	$	50,996		$	55,024
Purchase of treasury stock																					(14,420	)				(287	)											(287	)
Balances June 30, 2020																					3,336,413		$	12,094	$	(14,522	)	$	8,304		$	(2,116	)	$	55,247		$	59,007

Outstanding
Shares of
Common
Stock

Common
Stock

Treasury
Stock

Additional
Paid-In
Capital

Accumulated
Other
Comprehensive
(Loss) Gain

Retained
Earnings

Total

Balances, December 31, 2019

3,350,833

$
12,094

$
(14,235
)

$
8,262

$
(1,988
)

$
51,571

$
55,704

Net income

6,055

6,055

Other comprehensive gain

142

142

Stock compensation expense

929

929

Distributions to shareholders

(1,201
)

(1,201
)
Issuance of common stock

2,500

7

52

59

Cash settlement of stock options

(805
)

(805
)
Purchase of treasury stock

(14,420
)

(287
)

(287
)
Balances, September 30, 2020

3,338,913

$
12,101

$
(14,522
)

$
8,438

$
(1,846
)

$
56,425

$
60,596

	Outstanding Shares of Common Stock		Common Stock		Treasury Stock			Additional Paid-In Capital			Accumulated Other Comprehensive (Loss) Gain			Retained Earnings			Total
Balances, December 31, 2020		3,338,913	$	12,101	$	(14,522	)	$	7,931		$	(826	)	$	58,033		$	62,717
Net income															9,277			9,277
Other comprehensive loss												(20	)					(20	)
Stock compensation expense									886									886
Distributions to shareholders															(895	)		(895	)
Issuance of common stock		190,295		475					2,223									2,698
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

	Nine Months Ended						Six Months Ended
	September 30,						June 30,
	2020			2019			2021			2020
Cash flows from operating activities:
Net income	$	6,055		$	4,537		$	9,277		$	4,476
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation		1,830			1,640			1,176			1,125
Amortization of intangible assets		991			937			742			659
Non-cash lease expense		57			16			43			47
Stock compensation expense		929			745			886			602
Provision for bad debt		910			55			54			619
PPP loan forgiveness								(3,508	)		-
Changes in operating assets and liabilities:
Accounts receivable		(7,293	)		(5,595	)		(9,072	)		(8,598	)
Inventories		(8,544	)		2,253			2,007			(4,675	)
Prepaid expenses and other current assets		121			450			(593	)		(414	)
Accounts payable		2,040			(1,174	)		346			1,961
Other accrued liabilities		4,645			3,404			(1,215	)		1,845
Total adjustments		(4,314	)		2,731			(9,134	)		(6,829	)
Net cash provided by operating activities		1,741			7,268
Net cash provided by (used in) operating activities								143			(2,353	)

Cash flows from investing activities:
Purchase of property, plant and equipment		(2,081	)		(1,123	)		(3,351	)		(1,323	)
Acquisition of First Aid Central		(2,074	)		-			-			(2,074	)
Net cash used in investing activities		(4,155	)		(1,123	)		(3,351	)		(3,397	)

Cash flows from financing activities:
Net repayments of long-term debt		(2,537	)		(2,158	)
Net borrowings of long-term debt								782			2,502
Proceeds from PPP Loan		3,508			-			-			3,508
Cash settlement of stock options		(805	)		(1,254	)		(211	)		(560	)
Repayments on mortgage		(200	)		(200	)		(133	)		(133	)
Proceeds from issuance of common stock		59			-			2,698			-
Distributions to shareholders		(1,201	)		(1,213	)		(871	)		(800	)
Purchase of treasury shares		(287	)		-			-			(287	)
Net cash used in financing activities		(1,463	)		(4,825	)
Net cash provided by financing activities								2,265			4,230

Effect of exchange rate changes on cash and cash equivalents		86			(31	)		16			(63	)
Net change in cash and cash equivalents		(3,791	)		1,289			(927	)		(1,583	)

Cash and cash equivalents at beginning of period		6,822			4,409			4,167			6,822

Cash and cash equivalents at end of period	$	3,031		$	5,698		$	3,240		$	5,239

Supplemental cash flow information:
Cash paid for income taxes	$	415		$	279		$	952		$	371
Cash paid for interest	$	751		$	1,476		$	440		$	548

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, ~~2019~~2020 for such disclosures. The condensed consolidated balance sheet as of December 31, ~~2019~~2020 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 ~~2019~~2020 Annual Report on Form 10-K.

~~Certain reclassification of prior years’ amounts have been made to conform to the current years’ presentation.~~

The Company has evaluated events and transactions subsequent to ~~September~~June 30, ~~2020~~2021 and through the date these condensed consolidated financial statements were issued.

~~In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-14,~~ Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20), Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans Income Statement - Reporting Comprehensive Income (Topic 220). This ASU removes disclosures that no longer are considered cost beneficial, clarifies the specific requirements of disclosures, and adds disclosure requirements identified as relevant. ASU 2018-14 is effective for fiscal years ending after December 15, 2020. The Company does not expect that the adoption of ASU 2018-14 will have a material impact on its consolidated financial statements.

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

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

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: ~~(i)~~(a) cutting, sharpening and measuring; and ~~(ii)~~(b) first aid and safety. The cutting, sharpening and measuring category includes scissors, knives, paper trimmers, pencil sharpeners and other sharpening tools. The first aid and safety category includes first aid kits and refills, over-the-counter medications and a variety of safety 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):

	U.S.		Canada		Europe		Total		United States		Canada		Europe		Total
Cutting, Sharpening and Measuring	$	18,656	$	2,199	$	3,013	$	23,868	$	16,162	$	2,091	$	3,677	$	21,930
First Aid and Safety		18,000		1,174	$	274		19,448		20,678		1,899	$	340		22,917

Total Net Sales	$	36,656	$	3,373	$	3,287	$	43,316	$	36,840	$	3,990	$	4,017	$	44,847

	U.S.		Canada		Europe		Total		United States		Canada		Europe		Total
Cutting, Sharpening and Measuring	$	16,040	$	1,712	$	2,186	$	19,938	$	19,699	$	1,247	$	2,891	$	23,837
First Aid and Safety		16,793		—		264		17,057		18,773		1,141		291		20,205

Total Net Sales	$	32,833	$	1,712	$	2,450	$	36,995	$	38,472	$	2,388	$	3,182	$	44,042

	U.S.		Canada		Europe		Total		U.S.		Canada		Europe		Total
Cutting, Sharpening and Measuring	$	50,088	$	4,860	$	8,505	$	63,453	$	31,726	$	3,640	$	7,420	$	42,786
First Aid and Safety		55,488		3,315		877		59,680		41,162		3,683		741		45,586

Total Net Sales	$	105,576	$	8,175	$	9,382	$	123,133	$	72,888	$	7,323	$	8,161	$	88,372

	U.S.		Canada		Europe		Total		U.S.		Canada		Europe		Total
Cutting, Sharpening and Measuring	$	48,045	$	5,281	$	7,216	$	60,542	$	31,427	$	2,661	$	5,497	$	39,585
First Aid and Safety		47,285		—		758		48,043		37,488		2,141		603		40,232

Total Net Sales	$	95,330	$	5,281	$	7,974	$	108,585	$	68,915	$	4,802	$	6,100	$	79,817

Long-term debt consists of borrowings under the Company’s revolving loan agreement with HSBC Bank, N.A. The agreement provides for borrowings of up to $50 million at Prime Rate less 1.25%. The credit facility has an expiration date of May 24, 2023. The Company must pay a facility fee, payable quarterly, in an amount equal to two tenths of one percent (.20%) per annum of the average daily unused portion of the revolving credit line. The facility is intended to provide liquidity for working capital, growth, dividends, acquisitions, share repurchases and other business activities. Under the revolving loan agreement, the Company is required to maintain specific amounts of tangible net worth, a specified debt to net worth ratio and a fixed charge coverage ratio and must have annual net income greater than zero, measured as of the end of each fiscal year. ~~At September~~As of June 30, ~~2020,~~2021, the Company was in compliance with the covenants then in effect under the loan agreement.

As of ~~September~~June 30, ~~2020,~~2021, and December 31, ~~2019,~~2020, the Company had outstanding borrowings of ~~$30,703,167~~$39,550,000 and ~~$33,240,407,~~$38,767,000, respectively, under the Company’s revolving loan agreement with HSBC.

On October 26, 2017, the Company exercised its option to purchase its First Aid Only manufacturing and distribution center in Vancouver, WA for $4.0 million. The property consists of 53,000 square feet of office, manufacturing, and warehouse space on 2.86 acres. The purchase was financed by a variable rate mortgage with HSBC Bank, N.A. at an interest rate of LIBOR plus 2.5%. Commencing on December 1, 2017, principal payments of $22,222 are due monthly, with all amounts outstanding due on maturity on October 31, 2024.

During the three months ended June 30, 2021, the Company issued a total of 172,594 shares of common stock and received aggregate proceeds of $2,517,000 upon exercise of employee stock options. During the six months ended June 30, 2021, the Company issued a total of 190,295 shares of common stock and received aggregate proceeds of $2,698,000 upon exercise of employee stock options. Also during the three and six months ended June 30, 2021, the Company, at its discretion, paid approximately $211,000 to optionees who had elected (subject to the approval of the Company) a net cash settlement of their respective options.

Also included in long term debt isat December 31,2020 was the amount then outstanding under ~~the~~a Paycheck Protection Program (PPP). loan; the loan was forgiven in the quarter ended June 30, 2021. See Note 109 – Paycheck Protection Program Loan for additional details.

During the three and nine months ended September 30, 2020, the Company paid approximately $245,000 and $805,000, respectively, to optionees who had elected a net cash settlement of their respective employee stock options.

During the nine months ended September 30, 2020, the Company paid approximately $287,000, to repurchase a total of 14,420 shares of its Common Stock under its 2010 stock repurchase program. As of September 30, 2020, a total of 3,579 and 200,000 additional shares may be purchased in the future under the repurchase programs announced in 2010 and 2019, respectively.

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

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

Direct import sales are products sold by the Company’s Asian subsidiary, directly to major U.S. retailers, who take ownership of the products in Asia. These sales are completed by delivering product to the customers’ common carriers at the shipping points in Asia. ~~Individual direct~~Direct import sales are made in larger quantities than domestic sales, typically full containers. Direct import sales represented approximately ~~12%~~10% and ~~11%~~8% of the Company’s total net sales for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, respectively,~~2021, compared to 14% and 11% for the comparable ~~periods~~period in ~~2019.~~2020.

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 ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019:~~2020:

	Three months ended September 30,					Nine months ended September 30,				Three months ended June 30,						Six months ended June 30,
Sales to external customers:	2020			2019		2020		2019		2021			2020			2021			2020
United States	$	36,656		$	32,780	$	105,576	$	95,178	$	36,840		$	38,476		$	72,888		$	68,922
Canada		3,373			1,775		8,175		5,402		3,990			2,381			7,322			4,800
Europe		3,287			2,440		9,382		8,005		4,017			3,185			8,162			6,095
Consolidated	$	43,316		$	36,995	$	123,133	$	108,585	$	44,847		$	44,042		$	88,372		$	79,817

Operating income:
United States	$	1,189		$	1,381	$	6,442	$	5,942	$	2,675		$	3,685		$	4,807		$	5,253
Canada		600			280		1,173		746		662			366			1,034			573
Europe		335			65		901		341		452			332			916			566
Consolidated	$	2,124		$	1,726	$	8,516	$	7,029	$	3,789		$	4,383		$	6,757		$	6,392

Interest expense, net		168			469		722		1,463		(223	)		(234	)		(443	)		(554	)
Other (income) expense, net		(35	)		40		2		52
Other income (expense), net											3,440			1			3,363			(37	)
Consolidated income before income taxes	$	1,991		$	1,217	$	7,792	$	5,514	$	7,006		$	4,150		$	9,677		$	5,801

	September 30,		December 31,		June 30,		December 31,
	2020		2019		2021		2020
United States	$	107,396	$	98,578	$	120,848	$	113,831
Canada		7,546		6,168		8,722		7,432
Europe		8,075		6,003		9,569		8,605
Consolidated	$	123,017	$	110,749	$	139,139	$	129,868

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 ~~expenses were $327,000~~expense was $580,000 and ~~$929,000, respectively,~~$886,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, compared to ~~$247,000~~$359,000 and ~~$745,000~~$602,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, respectively.

As of ~~September~~June 30, ~~2020,~~2021, there was a total of ~~$2,100,706~~$1,730,226 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 has operating leases for office and warehouse space and equipment under various arrangements which provide the right to use the underlying asset and require lease payments for the lease term. The Company’s lease portfolio consists of operating leases which expire at various dates through 2026.

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

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

ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. As most of our leases do not provide an implicit rate, the present value of lease payments is determined primarily using our incremental borrowing rate based on the information available at the lease commencement date. The incremental borrowing rate is the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term on an amount equal to the lease payments in a similar economic environment. Lease agreements with lease and non-lease components are generally accounted for as a single lease component. The Company’s operating lease expense is recognized on a straight-line basis over the lease term. For the three months ended ~~September~~June 30, ~~2020,~~2021, lease expense in the amount of $0.1 million was included in cost of goods sold and $0.2 million was included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations. For the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, lease expense in the amount of ~~$0.3~~$0.2 million was included in cost of goods sold and ~~$0.6~~$0.4 million was included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations.

					Three months ended		Three months ended
Operating cash flow information:					June 30, 2021		June 30, 2020
Operating lease cost					$	336	$	308
Operating lease - cash flow					$	294	$	296

Non-cash activity:
ROU assets obtained in exchange for lease liabilities					$	-	$	-
	Three months ended		Three months ended
	September 30, 2020		September 30, 2019		Six months ended		Six months ended
Operating cash flow information:					June 30, 2021		June 30, 2020
Operating lease cost	$	284	$	275	$	672	$	615
Operating lease - cash flow	$	272	$	270	$	588	$	567

	Nine months ended		Nine months ended
	September 30, 2020		September 30, 2019
Operating lease cost	$	899	$	856
Operating lease - cash flow	$	839	$	840
Non-cash activity:
ROU assets obtained in exchange for lease liabilities					$	1,575	$	-

	September 30, 2020			September 30, 2019			June 30, 2021			June 30, 2020
Weighted-average remaining lease term	4.0 years			3.0 years			4.0 years			4.0 years
Weighted-average discount rate		5	%		5	%		5	%		5	%

Future minimum lease payments under non-cancellable leases as of ~~September~~June 30, ~~2020:~~2021:

2020 (remaining)	$	272
2021		735
2021 (remaining)				$	511
2022		467			1,084
2023		462			964
2024		278			703
2025					613
Thereafter		294			140

Total future minimum lease payments	$	2,508		$	4,015
Less: imputed interest		(239	)		(332	)
Present value of lease liabilities - current		847			919
Present value of lease liabilities - non-current	$	1,422		$	2,764

On January 7, 2020, the Company purchased the assets of First Aid Central, a Canadian first aid and safety supplier, based in Laval, Canada for approximately $2.1 million in cash. First Aid Central products consist of a broad line of first aid kits, refills, and safety products that are sold to a wide range of industries and end users. The products meet federal Health Canada and provincial regulatory requirements.

~~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 Canada segment.~~

Net sales for the three and nine months ended September 30, 2020 attributable to the sales of First Aid Central products were approximately $1.2 million and $3.3 million, respectively. Net income for the three and nine months ended September 30, 2020 attributable to First Aid Central products was approximately $0.1 million and $0.3 million, respectively.

Assuming First Aid Central assets were acquired on January 1, 2019, unaudited proforma combined net sales for the three months ended September 30, 2019, for the Company would have been approximately $37.8 million. Unaudited proforma combined net income for the three months ended September 30, 2019 for the Company would have been approximately $1.2 million. Unaudited proforma combined net sales for the nine months ended September 30, 2019 for the Company would have been approximately $111.2. Unaudited proforma combined net income for the nine months ended September 30, 2019 for the Company would have been approximately $4.9 million

On May 7, 2020, the Company received a two-yearloan (the “PPP Loan”) from HSBC Bank USA, N.A., the lender, in the amount of $3,508,047 under the Paycheck Protection Program established by the Coronavirus Aid, Relief and Economic Security Act. Subject to potential forgiveness, as described below, the PPP Loan matures in two years on May 8, 2022, bears interest at a rate of 1.00% per year and is evidenced by a promissory note dated May 7, 2020 (the “Note”)Act (CARES Act). Monthly payments of principal and interest ~~are~~were deferred until ~~after any~~the application for forgiveness submitted by the Company ~~has~~had been acted upon, as described below. The PPP Loan is unsecured and federally guaranteed. The Note contains customary events of default relating to, among other things, failure to make payments of principal and interest and breaches of representations and warranties. The Company may prepay

~~All~~CARES Act, all or a portion of the PPP Loan ~~may be~~was eligible to be forgiven by the U.S. Small Business Administration (“SBA”) and the lender, upon application by the Company, provided that the Company shall have used the loan proceeds for certain eligible purposes, including the payment of payroll, benefits, rent, mortgage interest and utilities, during the 8 week period beginning on the date of funding of the loan (the “covered period”). Not more than 40% of the amount forgiven may be for non-payroll costs.

loan forgiveness. In August 2020, the Company submitted an application for forgiveness of the entire amount of the PPP ~~loan~~Loan to ~~HSBC Bank, N.A.~~the lender. The lender approved the forgiveness application and, on August 26, 2020, submitted the Company’s application to the SBA for its approval. The ~~application is presently pending; the SBA is required to act upon the application within 90 days. No assurance can be given that the Company’s application for loan forgiveness will be approved~~PPP Loan was fully forgiven by the SBA and on June 9, 2021, payment in ~~whole or~~the amount of $3,508,047 was made by the SBA to the lender. The Company recorded the amount forgiven as income in ~~part.~~the quarter ended June 30, 2021.

Other current ~~and long-term~~ accrued liabilities consisted ~~of:~~of (in thousands):

	September 30,		December 31,		June 30,		December 31,
	2020		2019		2021		2020
Customer Rebates	$	5,870	$	4,849	$	5,989	$	6,068
Pension Liability		60		45
Accrued Compensation		2,488		1,695		1,094		3,072
Dividend Payable		400		402		458		435
Income Tax Payable		1,545		262
Other		3,082		1,406		2,737		1,885
Total:	$	13,445	$	8,659	$	10,278	$	11,460

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 ~~including the~~that may impact ~~that the global COVID-19 pandemic has had and will continue to have on~~ the Company’s business, operations and financial ~~results. These include~~results, including the ~~severity~~global COVID-19 pandemic, future waves of COVID-19, including through the Delta variant and ~~duration~~any new variant strains of the ~~pandemic,~~underlying virus; any future pandemics; the ~~effect~~effectiveness and public acceptance of ~~measures taken by~~existing vaccines; the ~~Company to limit the spread~~effectiveness, availability, and public acceptance of the disease at our offices and distribution centers, further actions that may be taken by governmental authorities or by businesses or individuals on their own initiative in response to the pandemic, including retail, office, school and restaurant closures,vaccines against variant strains of potential new viruses; the pace of economic recovery ~~when an effective vaccine is widely available or when the pandemic otherwise subsides~~and accelerating inflation, and the heightened impact the pandemic has on many of the risks described herein, including without limitation risks relating to ~~the on-going world-wide economic downturn and~~ disruptions in our supply chain and labor force, any of which could 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) changes in client needs and consumer spending ~~habits including COVID-19 related changes;~~habits; (iv) the impact of ~~competition,~~competition; (v) the impact of technological changes including, specifically, the growth of online marketing and sales activity; (vi) the Company’s ability to manage its growth effectively, including its ability to successfully integrate any business it might acquire; (vii) the Company’s ability to effectively manage its inventory in a rapidly changing business ~~environment;~~environment, including additional inventory acquired to respond to COVID-19 related uncertainties; (viii) rising wages; (ix) labor shortages; (x) rising inflation rates; (xi) currency fluctuations; ~~(ix)~~(xii) international trade policies and their impact on demand for our products and our competitive position, including the imposition of new tariffs or changes in existing tariff rates; and ~~(x)~~(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, ~~2019~~2020 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 fiscal year ended December 31, ~~2019.~~2020.

As noted above in the “Forward-Looking Statements”, the global spread of the coronavirus (COVID-19) ~~through China, the United States, and other countries globally~~ and the related ~~ongoing~~ economic ~~downturn~~recovery continue to present certain significant risks and uncertainties to the Company and its operations. Commencing late in the first quarter of ~~the current fiscal year~~2020 and continuing through the filing of this report, the COVID-19 pandemic and the ongoing recovery has affected the Company’s financial results and business operations. During this period, we experienced, and continue to experience, a significant increase in demand for many of the Company’s first aid and safety products, as consumers and commercial enterprises stocked up on these products. On the other hand, whileAlthough the Company gained market share in its Westcott craft products, it has experienced and continues to experience weakness in the sales of its Westcott office and school supplies ~~with the result that sales for the first nine months of 2020 were approximately the same as for the first nine months of 2019. The weakness in sales was~~ due, in part, to pandemic-related ~~continued or reimposed~~ closures of ~~retail stores,~~ schools and ~~offices~~offices. The Company has also been impacted by challenges in hiring employees for its distributions centers due to current domestic labor shortages and ~~other COVID-19 related restrictions imposed in~~has incurred increased labor costs. In addition, the Company had to acquire and subsequently maintain additional inventory to minimize the impact of any potential disruption to our ~~domestic and international markets.~~supply chain. The ultimate impact of these effects on the Company will depend on the continued duration, spread, and severity of the COVID-19 pandemic, and any further recurrence including through the ~~length~~Delta variant and any new variant strains of ~~time it takes for normal~~the underlying virus, the effectiveness, and acceptance by the public of vaccines, and the pace of the economic and operating conditions to resume, whether commercial closures and other restrictions that have been imposed to date are extended or reimposed, and additional actions that may be taken by governmental authorities or by businesses or individuals of their own initiative in response to the pandemic.recovery.

Substantially all of our manufacturing facilities and distribution centers and those of our key suppliers ~~currently remain~~have remained open throughout the pandemic and continue to ~~operate despite temporary closures.~~operate. We monitor information on COVID-19 from the Centers for Disease Control and Prevention (“CDC”) and believe we are adhering to their recommendations regarding the health and safety of our personnel. To address the potential human impact of the virus, most of our administrative staff ~~are telecommuting. For those administrative staff not telecommuting and~~is continuing to telecommute. With respect to our warehouse and domestic manufacturing employees,

we continue to require masks, encourage vaccination, and have implemented ~~social distancing and mask policies, instituted daily temperature checks and have increased facility cleaning at each location. Non-essential domestic~~other safety protocols. Domestic and international travel for our employees has ~~ceased.~~

continued to be restricted. We continue to have higher turnover compared to prepandemic levels. As a result of the COVID-19 pandemic, commencing late in the first quarter of 2020 and continuing through the end of the third quarter, the Company (i) has had to acquire certain of its products at increased costs due to dramatic increases in demand for such products (while, to date, the Company has been successful in passing along such increased costs to its customers, there is no assurance that the Company will be able toforegoing factors, we continue to ~~do so in the future); (ii) had to acquire additional inventory to minimize the impact of any potential disruption to~~operate at a less efficient level as compared with our supply chain; (iii) has incurred increased labor costs as a result of the payment of additional compensation to employees at its warehouse and distribution centers; and (iv) has incurred costs associated with the additional cleaning and maintenance of its facilities including the temporary closures of facilities for those purposes. The Company continued to incur such costs as a result of these conditions in the third quarter and through the date of this report. In addition, the Company has increased reserves relating to outstanding receivables from approximately $400,000 at June 30, 2020, to approximately $800,000 at September 30,2020, as a result of credit risks related to COVID. (The Company continuously evaluates credit risks relating to its customers and may need to increase its reserves relating to its receivables further or even, in the event that one or more significant customers should cease operations or declares bankruptcy, write off a substantial amount of receivables.) prepandemic operations.

The Company has also experienced obstacles and inefficiencies resulting from a number of pandemic-related factors such as travel restrictions imposed by governmental authorities which, e.g., inhibit sales and marketing activities, and inefficiencies resulting from many of the Company’s personnel working remotely. In addition, the Company experienced inefficiencies in its manufacturing and distribution due to social distancing measures imposed in its facilities, COVID related absenteeism, and higher than normal turnover and training of replacements, together with associated costs.

The increases and decreases in the demand for the Company’s products described above have continued to affect the Company’s operations in our third quarter and through the date of this report and are likely to continue to do so in the immediate future. For example, a decrease could occur in the demand for its first aid and safety products as a result of market saturation potentially resulting from customers having stockpiled those products. While there is no certainty that the current high levels of demand for our first aid and safety products will continue, we have increased our short-term manufacturing and sourcing capacity for these products. We also increased manufacturing and sourcing of other key components and finished goods to minimize the impact of any disruption to our supply chain in the event of a resurgence of an outbreak of the coronavirus in any of our key manufacturing or distribution facilities. The Company anticipates that it has sufficient inventory of its products to meet anticipated demand. However, any ~~prolonged~~further increase in the duration or severity of the COVID-19 pandemic or a resurgence of the pandemic in the future and the pace at which the economy recovers, might adversely affect the Company’s ability to manufacture, source or distribute its products both domestically and internationally. The occurrence of any of these factors could have a material adverse effect on the Company’s business, operations and financial condition.

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 ~~September~~June 30, ~~2020~~2021 were ~~$43,316,000~~$44,847,000 compared with ~~$36,995,000~~$44,042,000 in the same period in ~~2019,~~2020, a ~~17%~~2% increase. Consolidated net sales for ~~the nine~~six months ended ~~September~~June 30, ~~2020~~2021 were ~~$123,133,000~~$88,372,000 compared with ~~$108,585,000~~$79,817,000 in the same period in ~~2019, a 13%~~2020, an 11% increase. ~~Net sales for the three and nine months ended September 30, 2020 in the U.S. segment increased 12% and 11%, respectively, compared with the same periods in 2019.~~

Sales in the U.S. for the three and ~~nine month periods~~six months ended June 30, 2021 decreased 4% and increased 6%, respectively, compared to the same periods ~~last year,~~in 2020. The decrease in sales for the three months was due to delays in shipping that resulted from the scheduled closing of the Rocky Mount, NC distribution center as the Company’s new warehouse management system was installed. The increase in sales for the six months was primarily ~~due~~attributable to strong sales of first aid and safety products, continued market share gains in the industrial and safety channels, as well as the home improvement, mass market and ecommerce channels. Also contributing to the growth in first aid products was the continuation of a surge demand related to the COVID-19 pandemic which had commenced late in the first quarter. These sales amounted to approximately $1.5 million in the three months ended September 30, 2020 and $3.0 million in the nine months ended September 30, 2020.products.

Net sales in Canada ~~excluding First Aid Central products,~~ for the three and six months ended ~~September~~June 30, ~~2020,~~2021, increased ~~25%~~68% and 53%, respectively, in ~~both~~ U.S. dollars and 51% and 26% in local currency compared to the same periods last year. The ~~increase is~~increases in sales were primarily due to ~~an easing of COVID-19 lockdown restrictions and a shift of back-to-school~~higher sales from the second quarter to the third quarter. Net sales for the nine months ended September 30, 2020 decreased 10% in both U.S. dollars and local currency compared with the same period in 2019. The decline in sales was primarily due to store and office closings earlier in the year. Sales of First Aid Central products, ~~were approximately $1.2 million and $3.3 million~~principally in the ~~three~~e-commerce channels, as well as increased sales of school and ~~nine months ended September 30,~~office products compared to the sales of such products during the COVID-19 lockdowns in the second quarter 2020.

European net sales for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 increased ~~35%~~26% and ~~17%~~34%, respectively, in U.S. dollars ~~(32%~~(16% and ~~17%~~23% in local currency), compared with the same ~~periods~~period in ~~2019.~~2020. The ~~increases~~increase in net sales for the three ~~and nine~~ months ~~were primarily~~was mainly due to ~~increased sales~~re-opening of ~~Westcott cutting products~~offices and ~~Camillus knives~~growth in the e-commerce channel ~~as well as~~across all product lines. The increase in net sales for the six months was primarily due to growth in the e-commerce channel across all product lines and continued growth of DMT sharpening products.

Gross profit for the three months ended ~~September~~June 30, ~~2020~~2021 was ~~$14,956,000 (34.5%~~$16,153,000 (36.0% of net sales) compared to ~~$13,134,000 (35.5%~~$16,053,000 (36.4% of net sales) in the same period in ~~2019.~~2020. Gross profit for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$44,539,000 (36.2%~~$31,740,000 (35.9% of net sales) compared to ~~$39,708,000 (36.6%~~$29,583,000 (37.1% of net sales) for the same period in ~~2019.~~2020. The lower gross profit percentages were mainly due to ~~incurring COVID-19 related~~product mix and higher ocean freight costs which the Company incurred as a result of scarcity of shipping containers and congestion at global ports as well as higher labor costs.

Selling, general and administrative ("SG&A") expenses for the three months ended ~~September~~June 30, ~~2020~~2021 were ~~$12,832,000 (29.6%~~$12,364,000 (27.6% of net sales) compared with ~~$11,408,000 (30.8%~~$11,670,000 (26.5% of net sales) in the same period in ~~2019,~~2020, an increase of ~~$1,424,000.~~$694,000. SG&A expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 were ~~$36,023,000 (29.3%~~$24,983,000 (28.3% of net sales) compared with ~~$32,679,000 (30.1%~~$23,191,000 (29.1% of net sales) for the same periods of ~~2019,~~2020, an increase of ~~$3,344,000.~~$1,792,000. The increases in SG&A expenses for three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, compared to the same ~~periods~~period in ~~2019~~2020 were primarily due to higher personnel related costs, commissions and shipping costs related to higher sales ~~provision for bad debt primarily related to~~(including costs resulting from the ~~impact~~absorption of ~~COVID-19 on our customers, as well as added expenses related to the acquisition of First Aid Central partially offset by lower travel and marketing expenses.~~Med Nap personnel).

Operating income for the three months ended ~~September~~June 30, ~~2020~~2021 was ~~$2,124,000~~$3,789,000 compared with ~~$1,726,000~~$4,383,000 in the same period of ~~2019.~~2020. Operating income for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$8,516,000~~$6,757,000 compared with ~~$7,029,000~~$6,392,000 in the same period of ~~2019.~~2020. Operating income in the U.S. segment decreased by ~~$192,000~~$1,010,000 and ~~increased $500,000~~$446,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, compared to the same periods in ~~2019.~~2020.

Operating income in the Canadian segment increased by ~~$320,000~~$296,000 and ~~$427,000~~$461,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, compared to the same periods in ~~2019.~~2020.

Operating income in the European segment increased by ~~$270,000~~$120,000 and ~~$560,000~~$350,000 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively, compared to the same ~~periods~~period in ~~2019.~~2020.

Interest expense, net for the three months ended ~~September~~June 30, ~~2020~~2021 was ~~$168,000~~$223,000 compared with ~~$469,000~~$234,000 in the same period of ~~2019,~~2020, a ~~$301,000~~$11,000 decrease. Interest expense, net for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 was ~~$722,000~~$443,000 compared with ~~$1,463,000~~$554,000 for the same period of ~~2019,~~2020, a ~~$741,000~~$111,000 decrease. The ~~decrease~~decreases in interest expense resulted from a lower average interest rate ~~as well as lower~~partially offset by higher average debt outstanding under the Company’s revolving credit facility.

Total Other income (expense), net was ~~$35,000~~$3,440,000 in the three months ended ~~September~~June 30, ~~2020~~2021 compared ~~to other expense, net of $40,000~~$1,000 in the same period of ~~2019. The~~2020. Total Other income (expense), net was $3,363,000 in the six months ended June 30, 2021 compared to $37,000 in the same period of 2020.The increase in other income, net for the three and six months ended ~~September~~June 30, ~~2020~~2021, was primarily due to ~~gains from foreign currency transactions. Other expense, net was $2,000 compared~~$3,508,047 of income related to ~~$52,000 in~~ the ~~same period~~forgiveness of ~~2019.~~the PPP Loan.

Income tax expense for the three and six months ended June 30, 2021 included a $0.9 million tax credit for stock based compensation. The Company’s effective tax rates for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021, excluding the tax credit and the income from the PPP loan forgiveness, were ~~21%~~19% and ~~22%~~21%, ~~respectively,~~ compared to ~~13%~~23% and ~~18%~~21% in the same periods in 2019. In the three and nine months ended September 30, 2019, the Company recorded approximately $100,000 in excess tax benefits resulting from the exercise of stock options. No such credits were recorded in the three and nine months ended September 30, 2020.

During the first ~~nine~~six months of ~~2020,~~2021, working capital increased approximately ~~$5.3~~$7.5 million compared to December 31, ~~2019.~~2020. Inventory ~~increased~~decreased approximately ~~$9.1~~$2.0 million at ~~September~~June 30, ~~2020~~2021 compared to December 31, ~~2019. The increase was primarily due to anticipated growth in our business as well as the acquisition of product to offset the impact of potential supply chain interruptions related to COVID-19.~~2020. Inventory turnover, calculated using a twelve-month average inventory balance, was 2.4 at ~~September~~June 30, ~~2020~~2021 compared to ~~2.3~~2.4 at December 31, ~~2019.~~2020. Receivables increased by approximately ~~$6.7~~$9.1 million at ~~September~~June 30, ~~2020~~2021 compared to December 31, ~~2019.~~2020. The average number of days sales outstanding in accounts receivable was 60 days at ~~September~~each of June 30, ~~2020 compared to 64 days at~~2021 and December 31, ~~2019.~~2020. Accounts payable and other current liabilities ~~increased~~decreased by approximately ~~$7.4~~$.7 million at ~~September~~June 30, ~~2020~~2021 compared to December 31, ~~2019.~~2020.

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




							June 30,			December 31,
							2021			2020
Working capital	$	61,937		$	56,563		$	70,950		$	63,484
Current ratio		3.61			4.41			4.64			4.14
Long term debt to equity ratio		61.4	%		65.4	%		57.1	%		72.0	%

During the first ~~nine~~six months of ~~2020,~~2021, total debt outstanding under the Company’s revolving credit facility ~~decreased~~increased by approximately ~~$2.5~~$0.8 million, compared to total debt thereunder at December 31, ~~2019.~~2020. As of ~~September~~June 30, ~~2020, $30,703,167~~2021, $39,550,000 was outstanding and ~~$19,296,833~~$10,450,000 was available for borrowing under the Company’s credit facility.

Long-term debt consists of borrowings under the Company’s revolving loan agreement with HSBC Bank, N.A. as well as amounts outstanding under the variable rate mortgage related on the Company’s manufacturing and distribution facility in Vancouver, WA. At ~~September~~June 30, ~~2020,~~2021, there was approximately $3.2 million outstanding on the mortgage. The revolving loan agreement provides for borrowings of up to $50 million at Prime Rate less 1.25%. The credit facility has an expiration date of May 24, 2023. The Company must pay a facility fee, payable quarterly, in an amount equal to two tenths of one percent (.20%) per annum of the average daily unused portion of the revolving credit line. The facility is intended to provide liquidity for working capital, growth, dividends, acquisitions, share repurchases and other business activities. Under the revolving loan agreement, the Company is required to maintain specific amounts of tangible net worth, a specified debt to net worth ratio and a fixed charge coverage ratio and must have annual net income greater than zero, measured as of the end of each fiscal year. At ~~September~~June 30, ~~2020,~~2021, the Company was in compliance with the covenants then in effect under the loan agreement.

As described above, commencing late in the first quarter of 2020, the Company has encountered challenges as a result of the COVID-19 pandemic and related economic downturn that could have adverse consequences for our liquidity as a result of a number of factors. Commencing late in the first quarter, the Company experienced a surge in the ordering of its first aid and safety products. It is uncertain whether such increases will continue and, in fact, decreases could occur if the market becomes saturated with unused first aid and safety products. Further, asAs stated

above, the Company continues to experience weakened sales of school and office products. Additionally, as noted above, the Company has incurred and continues to incur increased operational and other expenses as a result of the COVID-19 pandemic. As discussed above, it is possible that the Company’s sourcing of products may be disrupted if the operations of the Company’s suppliers, particularly those located in China, are interrupted by the effects of COVID-19. In order to address problems that may arise as a result of any such potential disruption, the Company ~~is planning to increase~~has increased its inventory of Westcott cutting and other products above customary levels.

On May 7, 2020, the Company received a two-year loan (the “PPP Loan”) from HSBC Bank USA, N.A., the lender, in the amount of $3,508,047 under the Paycheck Protection Program established by the Coronavirus Aid, Relief and Economic Security Act. Subject to potential forgiveness, as described below, the PPP Loan matures in two years on May 8, 2022, bears interest at a rate of 1.00% per year and is evidenced by a promissory note dated May 7, 2020 (the “Note”)Act (CARES Act). Monthly payments of principal and interest ~~are~~were deferred until ~~after any~~the application for forgiveness submitted by the Company ~~has~~had been acted upon, as described below. The PPP Loan is unsecured and federally guaranteed. The Note contains customary events of default relating to, among other things, failure to make payments of principal and interest and breaches of representations and warranties. The Company may prepay

~~All~~CARES Act, all or a portion of the PPP Loan ~~may be~~was eligible to be forgiven by the U.S. Small Business Administration (“SBA”) and the lender, upon application by the Company, provided that the Company shall have used the loan proceeds for certain eligible purposes, including the payment of payroll, benefits, rent, mortgage interest and utilities, during the 24 week period beginning on the date of funding of the loan (the “covered period”). Not more than 40% of the amount forgiven may be for non-payroll costs.

~~Consistent with the requirements of the PPP for loan forgiveness, the~~purposes. The Company used the loan proceeds solely for payment of payroll and otherwise in a manner which it ~~believes~~believed would satisfy the requirements for loan forgiveness. In August 2020, the Company submitted an application for forgiveness of the entire amount of the PPP ~~loan~~Loan to ~~HSBC Bank, N.A. (the Lender).~~the lender. The lender approved the forgiveness application and, on August 26, 2020, submitted the Company’s application to the SBA for its approval. The ~~application is presently pending; the SBA is required to act up the application within 90 days. No assurance can be given that the Company’s application for loan forgiveness will be approved~~PPP Loan was fully forgiven by the SBA and on June 9, 2021, payment in ~~whole or in part.~~

~~On April 28, 2020,~~ the ~~U.S. Department~~amount of ~~the Treasury stated that~~$3,508,047 was made by the SBA ~~will review each PPP loan over $2.0 million. In order~~ to ~~apply for~~ the ~~PPP Loan, we were required to certify, among other things, that~~lender. The Company recorded the ~~then current uncertainty made~~amount forgiven as income in the ~~PPP Loan request necessary to~~

support our ongoing operations. We made this certification in good faith after analyzing, among other things, our financial situation and access to alternative sources of capital. Following this analysis, we believe that we satisfied all eligibility criteria for the PPP Loan, and that our receipt of the PPP Loan is consistent with the objectives of the PPP of the CARES Act. If it is later determined that we were ineligible to receive the PPP Loan, we may be required to repay the PPP Loan in its entirety and/or be subject to additional penalties, which could have a material adverse effect on our business, results of operations and financial condition.quarter ended June 30, 2021.

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

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~~June 30, ~~2020.~~2021. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were not effective as of June 30, 2021 as a result of an identified material weakness. As described in the Company's Form 10-K for the year ended December 31, 2020, the Company’s controls related to the existence of inventory at the Rocky Mount, NC warehouse (the “Warehouse”) were not effective as the cycle count program used did not demonstrate that inventory quantities were sufficiently counted. The Company's remediation efforts related to this material weakness are ~~effective.~~ongoing. Except as described below, there were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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

~~During~~In response to the ~~quarter ended September 30, 2020, there were no~~material weakness identified above, the Company has implemented changes ~~in our~~to its internal control over financial reporting, including:

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

● In the second quarter of 2021, the Company completed the installation of a new inventory management system at the Warehouse, which is expected to be in place by the end of the second quarter 2021. The new software in intended to enable the Company to conduct its inventory cycle count program more efficiently and effectively.

● The Company continues to allocate additional resources to the implementation of its inventory cycle count program, including the hiring of additional personnel who will participate in the conduct of the program.

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

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, ~~2019.~~2020.

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

~~55 Walls~~1 Waterview Drive, ~~Fairfield,~~Shelton, Connecticut		~~06824~~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:
Item 1:	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets at ~~September~~June 30, ~~2020~~2021 and December 31, ~~2019~~2020	3
	Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	5
	Condensed Consolidated Statements of Comprehensive Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	6
	Condensed Consolidated Statement of Changes in Stockholders’ Equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	7
	Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2020~~2021 and ~~2019~~2020	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3:	Quantitative and Qualitative Disclosures about Market Risk	20
Item 4:	Controls and Procedures	20

Part II — OTHER INFORMATION:
Item 1:	Legal Proceedings	21
Item 1A:	Risk Factors	21
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3:	Defaults Upon Senior Securities	21
Item 4:	Mine Safety Disclosures	21
Item 5:	Other Information	21
Item 6:	Exhibits	21
Signatures		22

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

ACME UNITED CORPORATION

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

Dated: ~~November~~August 6, ~~2020~~2021

Large accelerated filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller Reporting Company	☒

Emerging growth company	☐

Assets:
Accounts receivable	$	232
Inventory		440
Prepaid Expense		47
Equipment		45
Intangible assets		1,310
Total assets	$	2,074

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

Dated: ~~November~~August 6, ~~2020~~2021