UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: SeptemberJune 30, 20212022
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from: to
Commission file number: 01-07698
ACME UNITED CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Connecticut |
| 06-0236700 |
State or Other Jurisdiction of |
| I.R.S. Employer Identification No. |
Incorporation or Organization |
|
|
|
|
|
1 Waterview Drive, Shelton, Connecticut |
| 06484 |
Address of Principal Executive Offices |
| Zip Code |
Registrant's telephone number, including area code: (203) 254-6060
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
$2.50 par value Common Stock | ACU | NYSE American |
Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (Check one).
Large accelerated filer | ☐ |
| Accelerated filer | ☒ |
|
|
|
|
|
Non-accelerated filer | ☐ |
| Smaller Reporting Company | ☒ |
|
|
|
|
|
Emerging growth company | ☐ |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(s) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 USC. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☒ No ☐
Registrant had 3,559,6873,525,002 shares of its $2.50 par value Common Stock outstanding as of NovemberAugust 5, 2021.2022.
1
ACME UNITED CORPORATION
INDEX
|
| Page Number |
|
|
|
3 | ||
Item 1: | 3 | |
| Condensed Consolidated Balance Sheets at | 3 |
| 5 | |
| 6 | |
| 7 | |
| 9 | |
| 10 | |
Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 3: |
| |
Item 4: |
| |
|
|
|
22 | ||
Item 1: |
| |
Item 1A: |
| |
Item 2: |
| |
Item 3: |
| |
Item 4: |
| |
Item 5: |
| |
Item 6: |
| |
|
Part I - FINANCIAL INFORMATION
Item 1: Financial Statements
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(all amounts in thousands)
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (unaudited) |
|
| (Note 1) |
|
| (unaudited) |
|
| (Note 1) |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 5,306 |
|
| $ | 4,167 |
|
| $ | 1,760 |
|
| $ | 4,843 |
|
Accounts receivable, less allowance of $1,079 in 2021 and $1,152 in 2020 |
|
| 36,088 |
|
|
| 27,173 |
| ||||||||
Accounts receivable, less allowance of $922 in 2022 and $1,007 in 2021 |
|
| 46,991 |
|
|
| 34,221 |
| ||||||||
Inventories |
|
| 48,795 |
|
|
| 50,704 |
|
|
| 65,039 |
|
|
| 53,552 |
|
Prepaid expenses and other current assets |
|
| 2,458 |
|
|
| 1,642 |
|
|
| 3,647 |
|
|
| 2,635 |
|
Total current assets |
|
| 92,647 |
|
|
| 83,686 |
|
|
| 117,437 |
|
|
| 95,251 |
|
Property, plant and equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
|
| 1,764 |
|
|
| 1,770 |
|
|
| 1,977 |
|
|
| 1,761 |
|
Buildings |
|
| 12,800 |
|
|
| 12,899 |
|
|
| 16,088 |
|
|
| 13,456 |
|
Machinery and equipment |
|
| 29,532 |
|
|
| 24,524 |
|
|
| 30,493 |
|
|
| 29,760 |
|
|
|
| 44,096 |
|
|
| 39,193 |
|
|
| 48,558 |
|
|
| 44,977 |
|
Less: accumulated depreciation |
|
| 20,914 |
|
|
| 18,954 |
|
|
| 22,281 |
|
|
| 20,950 |
|
Net property, plant and equipment |
|
| 23,182 |
|
|
| 20,239 |
|
|
| 26,277 |
|
|
| 24,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease right-of-use asset, net |
|
| 3,187 |
|
|
| 2,422 |
|
|
| 2,787 |
|
|
| 3,130 |
|
Goodwill |
|
| 4,800 |
|
|
| 4,800 |
|
|
| 8,189 |
|
|
| 4,800 |
|
Intangible assets, less accumulated amortization |
|
| 17,615 |
|
|
| 18,721 |
|
|
| 21,625 |
|
|
| 17,231 |
|
Other assets - restricted cash |
|
| 1,500 |
|
|
| - |
| ||||||||
Total assets |
| $ | 141,431 |
|
| $ | 129,868 |
|
| $ | 177,815 |
|
| $ | 144,439 |
|
See Notes to Condensed Consolidated Financial StatementsStatements.
3
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(all amounts in thousands, except share amounts)
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
|
| (unaudited) |
|
| (Note 1) |
|
| (unaudited) |
|
| (Note 1) |
| ||||
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 6,695 |
|
| $ | 7,601 |
|
| $ | 21,421 |
|
| $ | 8,977 |
|
Operating lease liability - current portion |
|
| 945 |
|
|
| 873 |
|
|
| 1,080 |
|
|
| 1,000 |
|
Current portion of mortgage payable |
|
| 267 |
|
|
| 267 |
|
|
| 389 |
|
|
| 389 |
|
Other accrued liabilities |
|
| 11,215 |
|
|
| 11,460 |
|
|
| 10,129 |
|
|
| 9,909 |
|
Total current liabilities |
|
| 19,122 |
|
|
| 20,201 |
|
|
| 33,019 |
|
|
| 20,275 |
|
Non-current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
| 40,454 |
|
|
| 38,767 |
|
|
| 50,263 |
|
|
| 33,037 |
|
Long-term debt - PPP Loan |
|
| - |
|
|
| 3,508 |
| ||||||||
Mortgage payable, net of current portion |
|
| 2,711 |
|
|
| 2,911 |
|
|
| 10,897 |
|
|
| 11,081 |
|
Operating lease liability - non-current portion |
|
| 2,485 |
|
|
| 1,654 |
|
|
| 1,944 |
|
|
| 2,365 |
|
Other non-current liabilities |
|
| 111 |
|
|
| 110 |
|
|
| 1,869 |
|
|
| 599 |
|
Total liabilities |
|
| 64,883 |
|
|
| 67,151 |
|
|
| 97,992 |
|
|
| 67,357 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (see note 2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value $2.50: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
authorized 8,000,000 shares; |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,061,345 shares issued and 3,559,687 shares outstanding in 2021 and |
|
|
|
|
|
|
|
| ||||||||
4,840,571 shares issued and 3,338,913 shares outstanding in 2020 |
|
| 12,653 |
|
|
| 12,101 |
| ||||||||
5,066,245 shares issued and 3,521,373 shares outstanding in 2022 and |
|
|
|
|
|
|
|
| ||||||||
5,065,518 shares issued and 3,520,646 shares outstanding in 2022 and 2021 |
|
| 12,657 |
|
|
| 12,655 |
| ||||||||
Additional paid-in capital |
|
| 11,575 |
|
|
| 7,931 |
|
|
| 12,598 |
|
|
| 11,930 |
|
Retained earnings |
|
| 67,998 |
|
|
| 58,033 |
|
|
| 72,491 |
|
|
| 69,873 |
|
Treasury stock, at cost - 1,501,658 shares in 2021 and 2020 |
|
| (14,522 | ) |
|
| (14,522 | ) | ||||||||
Treasury stock, at cost - 1,544,872 shares in 2022 and 2021 |
|
| (15,996 | ) |
|
| (15,996 | ) | ||||||||
Accumulated other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment |
|
| (1,156 | ) |
|
| (826 | ) |
|
| (1,927 | ) |
|
| (1,380 | ) |
Total stockholders’ equity |
|
| 76,548 |
|
|
| 62,717 |
|
|
| 79,823 |
|
|
| 77,082 |
|
Total liabilities and stockholders’ equity |
| $ | 141,431 |
|
| $ | 129,868 |
|
| $ | 177,815 |
|
| $ | 144,439 |
|
See Notes to Condensed Consolidated Financial StatementsStatements.
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(all amounts in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Net sales |
| $ | 47,923 |
|
| $ | 43,316 |
|
| $ | 136,295 |
|
| $ | 123,133 |
|
| $ | 56,773 |
|
| $ | 44,847 |
|
| $ | 100,106 |
|
| $ | 88,372 |
|
Cost of goods sold |
|
| 30,918 |
|
|
| 28,360 |
|
|
| 87,550 |
|
|
| 78,594 |
|
|
| 38,225 |
|
|
| 28,694 |
|
|
| 66,590 |
|
|
| 56,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
| 17,005 |
|
|
| 14,956 |
|
|
| 48,745 |
|
|
| 44,539 |
|
|
| 18,548 |
|
|
| 16,153 |
|
|
| 33,516 |
|
|
| 31,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| 14,044 |
|
|
| 12,832 |
|
|
| 39,028 |
|
|
| 36,023 |
|
|
| 14,572 |
|
|
| 12,364 |
|
|
| 28,169 |
|
|
| 24,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
| 2,961 |
|
|
| 2,124 |
|
|
| 9,717 |
|
|
| 8,516 |
|
|
| 3,976 |
|
|
| 3,789 |
|
|
| 5,347 |
|
|
| 6,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (230 | ) |
|
| (173 | ) |
|
| (682 | ) |
|
| (742 | ) |
|
| 428 |
|
|
| 226 |
|
|
| 737 |
|
|
| 452 |
|
Interest income |
|
| 2 |
|
|
| 5 |
|
|
| 11 |
|
|
| 20 |
|
|
| (5 | ) |
|
| (3 | ) |
|
| (8 | ) |
|
| (9 | ) |
Interest expense, net |
|
| (228 | ) |
|
| (168 | ) |
|
| (671 | ) |
|
| (722 | ) |
|
| 423 |
|
|
| 223 |
|
|
| 729 |
|
|
| 443 |
|
PPP loan forgiveness |
|
|
|
|
|
| - |
|
|
| 3,508 |
|
|
| - |
|
|
| - |
|
|
| (3,508 | ) |
|
| - |
|
|
| (3,508 | ) |
Other (expense) income, net |
|
| (68 | ) |
|
| 35 |
|
|
| (213 | ) |
|
| (2 | ) | ||||||||||||||||
Total other (expense) income, net |
|
| (68 | ) |
|
| 35 |
|
|
| 3,295 |
|
|
| (2 | ) | ||||||||||||||||
Other expense (income), net |
|
| 148 |
|
|
| 68 |
|
|
| 147 |
|
|
| 145 |
| ||||||||||||||||
Total other expense (income), net |
|
| 148 |
|
|
| (3,440 | ) |
|
| 147 |
|
|
| (3,363 | ) | ||||||||||||||||
Income before income tax expense |
|
| 2,665 |
|
|
| 1,991 |
|
|
| 12,341 |
|
|
| 7,792 |
|
|
| 3,405 |
|
|
| 7,006 |
|
|
| 4,471 |
|
|
| 9,677 |
|
Income tax expense |
|
| 619 |
|
|
| 412 |
|
|
| 1,019 |
|
|
| 1,737 |
| ||||||||||||||||
Income tax expense (benefit) |
|
| 667 |
|
|
| (224 | ) |
|
| 903 |
|
|
| 400 |
| ||||||||||||||||
Net income |
| $ | 2,046 |
|
| $ | 1,579 |
|
| $ | 11,322 |
|
| $ | 6,055 |
|
| $ | 2,738 |
|
| $ | 7,230 |
|
| $ | 3,568 |
|
| $ | 9,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
| $ | 0.58 |
|
| $ | 0.47 |
|
| $ | 3.28 |
|
| $ | 1.81 |
|
| $ | 0.78 |
|
| $ | 2.16 |
|
| $ | 1.01 |
|
| $ | 2.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
| $ | 0.50 |
|
| $ | 0.46 |
|
| $ | 2.85 |
|
| $ | 1.75 |
|
| $ | 0.71 |
|
| $ | 1.82 |
|
| $ | 0.93 |
|
| $ | 2.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding-denominator used for basic per share computations |
|
| 3,542 |
|
|
| 3,340 |
|
|
| 3,449 |
|
|
| 3,343 |
|
|
| 3,521 |
|
|
| 3,347 |
|
|
| 3,521 |
|
|
| 3,410 |
|
Weighted average number of dilutive stock options outstanding |
|
| 516 |
|
|
| 122 |
|
|
| 520 |
|
|
| 111 |
|
|
| 320 |
|
|
| 617 |
|
|
| 323 |
|
|
| 551 |
|
Denominator used for diluted per share computations |
|
| 4,058 |
|
|
| 3,462 |
|
|
| 3,969 |
|
|
| 3,454 |
|
|
| 3,841 |
|
|
| 3,964 |
|
|
| 3,844 |
|
|
| 3,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share |
| $ | 0.13 |
|
| $ | 0.12 |
|
| $ | 0.39 |
|
| $ | 0.36 |
|
| $ | 0.14 |
|
| $ | 0.13 |
|
| $ | 0.27 |
|
| $ | 0.26 |
|
See Notes to Condensed Consolidated Financial StatementsStatements.
5
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(all amounts in thousands)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Net income |
| $ | 2,046 |
|
| $ | 1,579 |
|
| $ | 11,322 |
|
| $ | 6,055 |
|
| $ | 2,738 |
|
| $ | 7,230 |
|
| $ | 3,568 |
|
| $ | 9,277 |
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Other comprehensive (loss) income : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Foreign currency translation adjustment |
|
| (310 | ) |
|
| 270 |
|
|
| (330 | ) |
|
| 142 |
|
|
| (574 | ) |
|
| 168 |
|
|
| (547 | ) |
|
| (20 | ) |
Comprehensive income |
| $ | 1,736 |
|
| $ | 1,849 |
|
| $ | 10,993 |
|
| $ | 6,197 |
|
| $ | 2,164 |
|
| $ | 7,398 |
|
| $ | 3,021 |
|
| $ | 9,257 |
|
See Notes to Condensed Consolidated Financial StatementsStatements.
6
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(all amounts in thousands, except share amounts)
For the three months ended September 30, 2020
| Outstanding Shares of Common Stock |
|
| Common Stock |
|
| Treasury Stock |
|
| Additional Paid-In Capital |
|
| Accumulated Other Comprehensive (Loss) Gain |
|
| Retained Earnings |
|
| Total |
| |||||||
Balances, June 30, 2020 |
| 3,336,413 |
|
| $ | 12,094 |
|
| $ | (14,522 | ) |
| $ | 8,304 |
|
| $ | (2,116 | ) |
| $ | 55,247 |
|
| $ | 59,007 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,579 |
|
|
| 1,579 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 270 |
|
|
|
|
|
|
| 270 |
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
| 327 |
|
|
|
|
|
|
|
|
|
|
| 327 |
|
Distributions to shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (401 | ) |
|
| (401 | ) |
Issuance of common stock |
| 2,500 |
|
|
| 7 |
|
|
|
|
|
|
| 52 |
|
|
|
|
|
|
|
|
|
|
| 59 |
|
Cash settlement of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
| (245 | ) |
|
|
|
|
|
|
|
|
|
| (245 | ) |
Balances September 30, 2020 |
| 3,338,913 |
|
| $ | 12,101 |
|
| $ | (14,522 | ) |
| $ | 8,438 |
|
| $ | (1,846 | ) |
| $ | 56,425 |
|
| $ | 60,596 |
|
For the three months ended SeptemberJune 30, 2021
| 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, 2021 |
| 3,529,208 |
|
| $ | 12,576 |
|
| $ | (14,522 | ) |
| $ | 10,829 |
|
| $ | (846 | ) |
| $ | 66,415 |
|
| $ | 74,452 |
| |||||||||||||||||||||||||||
Balances, March 31, 2021 |
| 3,356,614 |
|
| $ | 12,145 |
|
| $ | (14,522 | ) |
| $ | 8,375 |
|
| $ | (1,014 | ) |
| $ | 59,643 |
|
|
| 64,627 |
| |||||||||||||||||||||||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,046 |
|
|
| 2,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 7,230 |
|
|
| 7,230 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (310 | ) |
|
|
|
|
|
| (310 | ) | |||||||||||||||||||||||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 168 |
|
|
|
|
|
|
| 168 |
| |||||||||||||||||||||||||||
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
| 455 |
|
|
|
|
|
|
|
|
|
|
| 455 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 580 |
|
|
|
|
|
|
|
|
|
|
| 580 |
|
Distributions to shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (463 | ) |
|
| (463 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (458 | ) |
|
| (458 | ) |
Issuance of common stock |
| 30,479 |
|
|
| 77 |
|
|
|
|
|
|
| 291 |
|
|
|
|
|
|
|
|
|
|
| 368 |
|
| 172,594 |
|
|
| 431 |
|
|
|
|
|
|
| 2,085 |
|
|
|
|
|
|
|
|
|
|
| 2,516 |
|
Balances September 30, 2021 |
| 3,559,687 |
|
| $ | 12,653 |
|
| $ | (14,522 | ) |
| $ | 11,575 |
|
| $ | (1,156 | ) |
| $ | 67,998 |
|
| $ | 76,548 |
| |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
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 |
|
For the three months ended June 30, 2022
| Outstanding Shares of Common Stock |
|
| Common Stock |
|
| Treasury Stock |
|
| Additional Paid-In Capital |
|
| Accumulated Other Comprehensive (Loss) Gain |
|
| Retained Earnings |
|
| Total |
| |||||||
Balances, March 31, 2022 |
| 3,520,646 |
|
| $ | 12,655 |
|
| $ | (15,996 | ) |
| $ | 12,222 |
|
| $ | (1,353 | ) |
| $ | 70,245 |
|
| $ | 77,773 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,738 |
|
|
| 2,738 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (574 | ) |
|
|
|
|
|
| (574 | ) |
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
| 368 |
|
|
|
|
|
|
|
|
|
|
| 368 |
|
Distributions to shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (492 | ) |
|
| (492 | ) |
Issuance of common stock |
| 727 |
|
|
| 2 |
|
|
|
|
|
|
| 8 |
|
|
|
|
|
|
|
|
|
|
| 10 |
|
Balances June 30, 2022 |
| 3,521,373 |
|
| $ | 12,657 |
|
| $ | (15,996 | ) |
| $ | 12,598 |
|
| $ | (1,927 | ) |
| $ | 72,491 |
|
| $ | 79,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the ninesix months ended SeptemberJune 30, 20202021
|
| Outstanding Shares of Common Stock |
|
| Common Stock |
|
| Treasury Stock |
|
| Additional Paid-In Capital |
|
| Accumulated Other Comprehensive (Loss) Gain |
|
| Retained Earnings |
|
| Total |
|
| Outstanding Shares of Common Stock |
|
| Common Stock |
|
| Treasury Stock |
|
| Additional Paid-In Capital |
|
| Accumulated Other Comprehensive Loss |
|
| Retained Earnings |
|
| Total |
| ||||||||||||||
Balances, December 31, 2019 |
|
| 3,350,833 |
|
| $ | 12,094 |
|
| $ | (14,235 | ) |
| $ | 8,262 |
|
| $ | (1,988 | ) |
| $ | 51,571 |
|
| $ | 55,704 |
| ||||||||||||||||||||||||||||
Balances, December 31, 2020 |
|
| 3,338,913 |
|
| $ | 12,101 |
|
| $ | (14,522 | ) |
| $ | 7,931 |
|
| $ | (826 | ) |
| $ | 58,033 |
|
| $ | 62,717 |
| ||||||||||||||||||||||||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 6,055 |
|
|
| 6,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 9,277 |
|
|
| 9,277 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 142 |
|
|
|
|
|
|
| 142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (20 | ) |
|
|
|
|
|
| (20 | ) |
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 929 |
|
|
|
|
|
|
|
|
|
|
| 929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 886 |
|
|
|
|
|
|
|
|
|
|
| 886 |
|
Distributions to shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,201 | ) |
|
| (1,201 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (895 | ) |
|
| (895 | ) |
Issuance of common stock |
|
| 2,500 |
|
|
| 7 |
|
|
|
|
|
|
| 52 |
|
|
|
|
|
|
|
|
|
|
| 59 |
|
|
| 190,295 |
|
|
| 475 |
|
|
|
|
|
|
| 2,223 |
|
|
|
|
|
|
|
|
|
|
| 2,698 |
|
Cash settlement of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (805 | ) |
|
|
|
|
|
|
|
|
|
| (805 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (211 | ) |
|
|
|
|
|
|
|
|
|
| (211 | ) |
Purchase of treasury stock |
|
| (14,420 | ) |
|
|
|
|
|
| (287 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (287 | ) | ||||||||||||||||||||||||||||
Balances September 30, 2020 |
|
| 3,338,913 |
|
| $ | 12,101 |
|
| $ | (14,522 | ) |
| $ | 8,438 |
|
| $ | (1,846 | ) |
| $ | 56,425 |
|
| $ | 60,596 |
| ||||||||||||||||||||||||||||
Balances June 30, 2021 |
|
| 3,529,208 |
|
| $ | 12,576 |
|
| $ | (14,522 | ) |
| $ | 10,829 |
|
| $ | (846 | ) |
| $ | 66,415 |
|
| $ | 74,452 |
|
For the ninesix months ended SeptemberJune 30, 20212022
|
| Outstanding Shares of Common Stock |
|
| Common Stock |
|
| Treasury Stock |
|
| Additional Paid-In Capital |
|
| Accumulated Other Comprehensive (Loss) Gain |
|
| Retained Earnings |
|
| Total |
|
| Outstanding Shares of Common Stock |
|
| Common Stock |
|
| Treasury Stock |
|
| Additional Paid-In Capital |
|
| Accumulated Other Comprehensive Loss |
|
| Retained Earnings |
|
| Total |
| ||||||||||||||
Balances, December 31, 2020 |
|
| 3,338,913 |
|
| $ | 12,101 |
|
| $ | (14,522 | ) |
| $ | 7,931 |
|
| $ | (826 | ) |
| $ | 58,033 |
|
| $ | 62,717 |
| ||||||||||||||||||||||||||||
Balances, December 31, 2021 |
|
| 3,520,646 |
|
| $ | 12,655 |
|
| $ | (15,996 | ) |
| $ | 11,930 |
|
| $ | (1,380 | ) |
| $ | 69,873 |
|
| $ | 77,082 |
| ||||||||||||||||||||||||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 11,322 |
|
|
| 11,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,568 |
|
|
| 3,568 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (330 | ) |
|
|
|
|
|
| (330 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (547 | ) |
|
|
|
|
|
| (547 | ) |
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,341 |
|
|
|
|
|
|
|
|
|
|
| 1,341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 768 |
|
|
|
|
|
|
|
|
|
|
| 768 |
|
Distributions to shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,357 | ) |
|
| (1,357 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (950 | ) |
|
| (950 | ) |
Issuance of common stock |
|
| 220,774 |
|
|
| 552 |
|
|
|
|
|
|
| 2,514 |
|
|
|
|
|
|
|
|
|
|
| 3,066 |
|
|
| 727 |
|
|
| 2 |
|
|
|
|
|
|
| 8 |
|
|
|
|
|
|
|
|
|
|
| 10 |
|
Cash settlement of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (211 | ) |
|
|
|
|
|
|
|
|
|
| (211 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (108 | ) |
|
|
|
|
|
|
|
|
|
| (108 | ) |
Balances September 30, 2021 |
|
| 3,559,687 |
|
| $ | 12,653 |
|
| $ | (14,522 | ) |
| $ | 11,575 |
|
| $ | (1,156 | ) |
| $ | 67,998 |
|
| $ | 76,548 |
| ||||||||||||||||||||||||||||
Balances June 30, 2022 |
|
| 3,521,373 |
|
| $ | 12,657 |
|
| $ | (15,996 | ) |
| $ | 12,598 |
|
| $ | (1,927 | ) |
| $ | 72,491 |
|
| $ | 79,823 |
|
See Notes to Condensed Consolidated Financial Statements.
8
ACME UNITED CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(all amounts in thousands)
|
| Nine Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| September 30, |
|
| June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 11,322 |
|
| $ | 6,055 |
|
| $ | 3,568 |
|
| $ | 9,277 |
|
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 |
|
| 1,809 |
|
|
| 1,830 |
|
|
| 1,339 |
|
|
| 1,176 |
|
Amortization of intangible assets |
|
| 1,111 |
|
|
| 991 |
|
|
| 744 |
|
|
| 742 |
|
Non-cash lease expense |
|
| 170 |
|
|
| 57 |
|
|
| - |
|
|
| 43 |
|
Stock compensation expense |
|
| 1,341 |
|
|
| 929 |
|
|
| 768 |
|
|
| 886 |
|
Provision for bad debt |
|
| 79 |
|
|
| 910 |
|
|
| 50 |
|
|
| 54 |
|
PPP loan forgiveness |
|
| (3,508 | ) |
|
| - |
|
|
| - |
|
|
| (3,508 | ) |
Amortization of deferred financing costs |
|
| 8 |
|
|
| - |
| ||||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (9,060 | ) |
|
| (7,293 | ) |
|
| (12,468 | ) |
|
| (9,072 | ) |
Inventories |
|
| 1,678 |
|
|
| (8,544 | ) |
|
| (11,021 | ) |
|
| 2,007 |
|
Prepaid expenses and other current assets |
|
| (859 | ) |
|
| 121 |
| ||||||||
Prepaid expenses and other assets |
|
| (991 | ) |
|
| (593 | ) | ||||||||
Accounts payable |
|
| (959 | ) |
|
| 2,040 |
|
|
| 12,651 |
|
|
| 346 |
|
Other accrued liabilities |
|
| (145 | ) |
|
| 4,645 |
|
|
| 182 |
|
|
| (1,215 | ) |
Total adjustments |
|
| (8,343 | ) |
|
| (4,314 | ) |
|
| (8,739 | ) |
|
| (9,134 | ) |
Net cash provided by operating activities |
|
| 2,979 |
|
|
| 1,741 |
| ||||||||
Net cash (used in) provided by operating activities |
|
| (5,171 | ) |
|
| 143 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment |
|
| (4,792 | ) |
|
| (2,081 | ) |
|
| (2,761 | ) |
|
| (3,351 | ) |
Acquisition of First Aid Central |
|
| - |
|
|
| (2,074 | ) | ||||||||
Acquisition of Safety Made |
|
| (9,609 | ) |
|
| - |
| ||||||||
Net cash used in investing activities |
|
| (4,792 | ) |
|
| (4,155 | ) |
|
| (12,370 | ) |
|
| (3,351 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings of long-term debt |
|
| 1,687 |
|
|
| (2,537 | ) |
|
| 17,225 |
|
|
| 782 |
|
Proceeds from PPP Loan |
|
| - |
|
|
| 3,508 |
| ||||||||
Cash settlement of stock options |
|
| (211 | ) |
|
| (805 | ) |
|
| (108 | ) |
|
| (211 | ) |
Repayments on mortgage |
|
| (200 | ) |
|
| (200 | ) |
|
| (192 | ) |
|
| (133 | ) |
Proceeds from issuance of common stock |
|
| 3,066 |
|
|
| 59 |
|
|
| 10 |
|
|
| 2,698 |
|
Distributions to shareholders |
|
| (1,329 | ) |
|
| (1,201 | ) |
|
| (915 | ) |
|
| (871 | ) |
Purchase of treasury shares |
|
| - |
|
|
| (287 | ) | ||||||||
Net cash provided by (used in) financing activities |
|
| 3,013 |
|
|
| (1,463 | ) | ||||||||
Net cash provided by financing activities |
|
| 16,020 |
|
|
| 2,265 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
| (61 | ) |
|
| 86 |
|
|
| (62 | ) |
|
| 16 |
|
Net change in cash and cash equivalents |
|
| 1,139 |
|
|
| (3,791 | ) |
|
| (1,583 | ) |
|
| (927 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
| 4,167 |
|
|
| 6,822 |
| ||||||||
Cash, cash equivalents and restricted cash at beginning of period |
|
| 4,843 |
|
|
| 4,167 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
| $ | 5,306 |
|
| $ | 3,031 |
| ||||||||
Cash, cash equivalents and restricted cash at end of period |
| $ | 3,260 |
|
| $ | 3,240 |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes |
| $ | 1,070 |
|
| $ | 415 |
|
| $ | 242 |
|
| $ | 952 |
|
Cash paid for interest |
| $ | 660 |
|
| $ | 751 |
|
| $ | 661 |
|
| $ | 440 |
|
Non-cash investing activities |
|
|
|
|
|
|
|
| ||||||||
Safety Made acquisition contingent consideration |
| $ | 1,270 |
|
|
|
|
|
See Notes to Condensed Consolidated Financial StatementsStatements.
ACME UNITED CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying condensed consolidated financial statements include all adjustments necessary to present fairly the financial position, results of operations and cash flows of Acme United Corporation (the “Company”). These adjustments are of a normal, recurring nature. However, the financial statements do not include all the disclosures normally required by accounting principles generally accepted in the United States of America or those normally made in the Company's Annual Report on Form 10-K. Please refer to the Company's Annual Report on Form 10-K for the year ended December 31, 20202021 for such disclosures. The condensed consolidated balance sheet as of December 31, 20202021 was derived from the audited consolidated balance sheet as of that date. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes thereto included in the Company’s 20202021 Annual Report on Form 10-K.
The Company has evaluated events and transactions subsequent to SeptemberJune 30, 20212022 and through the date these condensed consolidated financial statements were issued.
Recently Issued and Adopted Accounting Standards
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The update eliminates, clarifies and modifies certain guidance related to the accounting for income taxes. ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2020, i.e. commencing with our current fiscal year. The adoption of ASU 2019-12 did not have a material effect on the Company’s consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The amendments in this update eliminate Step 2 from the goodwill impairment test. The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. In addition, income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable. The Company adopted this standard on January 1, 2020. The adoption of this standard has not had an impact on the financial statements of the Company.
2. Commitment and Contingencies
There are no pending material legal proceedings to which the Company is a party, or, to the actual knowledge of the Company, contemplated by any governmental authority.
3. Revenue from Contracts with Customers
Nature of Goods and Services
The Company recognizes revenue from the sales of a broad line of products that are grouped into two main categories: (a) first aid and medical; and (b) cutting, sharpening and measuring; and (b) first aid and safety.measuring. The cutting, sharpening and measuring category includes scissors, knives, paper trimmers, pencil sharpeners and other sharpening tools. The first aid and safetymedical category includes first aid kits and refills, over-the-counter medications and a variety of safetymedical products. Revenue recognition is evaluated through the following five steps: (i) identification of the contract or contracts with a customer; (ii) identification of the performance obligations in the contract; (iii) determination of the transaction price; (iv) allocation of the transaction price in the contract; and (v) recognition of revenue when or as a performance obligation is satisfied.
When Performance Obligations Are Satisfied
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Revenue is generated by the sale of the Company’s products to its customers. Sales contracts (purchase orders) generally have a single performance obligation that is satisfied at a point in time, with shipment or delivery, depending on the terms of the underlying contract. Revenue is measured based on the consideration specified in the contract. The amount of consideration we receive and revenue we recognize is impacted by incentives ("customer rebates"), including sales rebates, which are generally tied to sales volume levels, in-store promotional allowances, shared media and customer catalogue allowances and other cooperative advertising arrangements; freight allowance programs offered to our customers; and allowance for returns and discounts. We generally recognize customer rebate costs as a deduction to gross sales at the time that the associated revenue is recognized.
Significant Payment Terms
Payment terms for each customer are dependent on the agreed upon contractual repayment terms. Payment terms typically are between 30 and 90 days and vary depending on the size of the customer and its risk profile to the Company. Some customers receive discounts for early payment.
Product Returns
The Company accepts product returns in the normal course of business. The Company estimates reserves for returns and the related refunds to customers based on historical experience. Reserves for returned merchandise are included as a component of “Accounts receivable” in the condensed consolidated balance sheets.
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.
10
Per ASC 606-10-25-18B, the Company has elected to account for shipping and handling activities that occur after the customer has obtained control as a fulfilment activity instead of a performance obligation. Furthermore, shipping and handling activities performed before transfer of control of the product also do not constitute a separate and distinct performance obligation. The effect of applying this practical expedient election did not have an impact on the Company’s condensed consolidated financial statements.
The Company has elected to exclude from the transaction price those amounts which relate to sales and other taxes that are assessed by governmental authorities and that are imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer.
Applying the practical expedient in ASC 340-40-25-4, Other Assets and Deferred Costs, the Company recognizes the incremental costs of obtaining contracts as an expense when incurred. These costs are included in “Selling, general and administrative expenses.” The effect of applying this practical expedient did not have an impact on the Company’s condensed consolidated financial statements.
Disaggregation of Revenues
The following table represents external net sales disaggregated by product category, by segment (amounts in thousands):
For the three months ended SeptemberJune 30, 20212022
|
| United States |
|
| Canada |
|
| Europe |
|
| Total |
|
| United States |
|
| Canada |
|
| Europe |
|
| Total |
| ||||||||
Cutting, Sharpening and Measuring |
| $ | 18,769 |
|
| $ | 1,932 |
|
| $ | 2,863 |
|
| $ | 23,564 |
|
| $ | 21,954 |
|
| $ | 2,192 |
|
| $ | 3,555 |
|
| $ | 27,701 |
|
First Aid and Safety |
|
| 22,278 |
|
|
| 1,653 |
|
| $ | 428 |
|
|
| 24,359 |
| ||||||||||||||||
First Aid and Medical |
|
| 26,951 |
|
|
| 1,684 |
|
| $ | 437 |
|
|
| 29,072 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales |
| $ | 41,047 |
|
| $ | 3,585 |
|
| $ | 3,291 |
|
| $ | 47,923 |
|
| $ | 48,905 |
|
| $ | 3,876 |
|
| $ | 3,992 |
|
| $ | 56,773 |
|
For the three months ended SeptemberJune 30, 20202021
|
| United States |
|
| 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 |
| ||||||||||||||||
First Aid and Medical |
|
| 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 |
|
For the ninesix months ended SeptemberJune 30, 2021
2022
|
| U.S. |
|
| Canada |
|
| Europe |
|
| Total |
|
| U.S. |
|
| Canada |
|
| Europe |
|
| Total |
| ||||||||
Cutting, Sharpening and Measuring |
| $ | 50,494 |
|
| $ | 5,572 |
|
| $ | 10,283 |
|
| $ | 66,349 |
|
| $ | 37,287 |
|
| $ | 3,785 |
|
| $ | 7,113 |
|
| $ | 48,185 |
|
First Aid and Safety |
|
| 63,441 |
|
|
| 5,336 |
|
|
| 1,169 |
|
|
| 69,946 |
| ||||||||||||||||
First Aid and Medical |
|
| 47,359 |
|
|
| 3,706 |
|
|
| 856 |
|
|
| 51,921 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Sales |
| $ | 113,935 |
|
| $ | 10,908 |
|
| $ | 11,452 |
|
| $ | 136,295 |
|
| $ | 84,646 |
|
| $ | 7,491 |
|
| $ | 7,969 |
|
| $ | 100,106 |
|
For the six months ended June 30, 2021
For the nine months ended September 30, 2020
|
| 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 |
| ||||||||||||||||
First Aid and Medical |
|
| 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 |
|
4. Debt and Shareholders’ Equity
Long-term debt consists of (i) borrowings under the Company’s revolving loan agreement with HSBC Bank, N.A. and (ii) amounts outstanding under the fixed rate mortgage on the Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA. On May 31, 2022, the Company amended its revolving loan agreement with HSBC Bank, N.A. The amended agreement providesincreases the amount available for borrowings of upborrowing to $65 million from $50 million, at Prime Rate less 1.25%. The credit facility has an interest rate of SOFR plus 1.75%; interest is payable monthly. In addition, the expiration date of the credit facility was extended to May 24, 2023.31, 2026. The Company must pay a facility fee, payable quarterly, in an amount equal to two tenthsone eighth of one percent (.20%(.125%) per annum of the average daily unused portion of the revolving credit line. The facility is intended to provide liquidity for working capital, growth, share repurchases, dividends, acquisitions, share repurchases and other business activities. Under the revolving loan agreement, the Company is required to maintain specific amounts of tangible net worth, a specifiedfunded debt to net worth ratio andEBITDA, a fixed charge coverage ratio and must have annual net income greater than zero,$0, measured as of the end of each fiscal year. As of SeptemberJune 30, 2021,2022, the Company was in compliance with the covenants then in effect under the loan agreement.
11
As of SeptemberJune 30, 2021,2022 and December 31, 2020,2021, the Company had outstanding borrowings of $40,454,000$50,263,000 and $38,767,000,$33,037,000, respectively, under the Company’s revolving loan agreement with HSBC.
On October 26, 2017, the Company exercised its option to purchase its First Aid OnlyThe Company’s manufacturing and distribution centerfacilities in Rocky Mount, NC and Vancouver, WA for $4.0 million. The property consists of 53,000 square feet of office, manufacturing, and warehouse space on 2.86 acres. The purchase waswere financed by a variablefixed rate mortgage with HSBC Bank, N.A. at ana fixed interest rate of LIBOR plus 2.5%3.8%. CommencingThe Company entered into the agreement on December 1, 2017, principal2021. Commencing on January 1, 2022, payments of $22,222principal and interest are due monthly, with all amounts outstanding due on maturity on OctoberDecember 1, 2031. As of June 30, 2022 and December 31, 2024.2021, long-term debt related to the mortgage consisted of the following (amounts in ‘000’s):
| June 30, 2022 |
| December 31, 2021 |
| ||
|
|
|
|
|
|
|
Mortgage Payable - HSBC Bank N.A. |
| 11,428 |
|
| 11,620 |
|
Less debt issuance costs |
| (142 | ) |
| (150 | ) |
|
| 11,286 |
|
| 11,470 |
|
Less current maturities |
| 389 |
|
| 389 |
|
Long-term mortgage payable less current maturities |
| 10,897 |
|
| 11,081 |
|
|
|
|
|
|
|
|
During the three and six months ended SeptemberJune 30, 2021,2022, the Company issued a total of 30,479727 shares of common stock and received aggregate proceeds of approximately $368,000$10,000 upon exercise of employee stock options. During the ninesix months ended SeptemberJune 30, 2021, the Company issued a total of 220,774 shares of common stock and received aggregate proceeds of approximately $3,066,000 upon exercise of employee stock options. Also during the nine months ended September 30, 2021,2022, the Company, at its discretion, paid approximately $211,000$108,000 to optionees who had elected (subject to the approval of the Company) a net cash settlement of certain of their respective options.
Also included in long term debt at December 31, 2020 was the amount then outstanding under a Paycheck Protection Program (PPP) loan; the loan was forgiven in the quarter ended June 30, 2021. See Note 9 – Paycheck Protection Program Loan for additional details.
5. Segment Information
The Company reports financial information based on the organizational structure used by the Company’s chief operating decision makers for making operating and investment decisions and for assessing performance. The Company’s reportable business segments consist of: (1) United States; (2) Canada; and (3) Europe. As described below, the activities of the Company’s Asian operations are closely linked to those of the U.S. operations; accordingly, the Company’s chief operating decision makers review the financial results ofover both on a consolidated basis, and the results of the Asian operations have been aggregated with the results of the United States operations to form one reportable segment called the “United States segment” or “U.S. segment”. Each reportable segment derives its revenue from the sales of first aid and medical products, cutting and sharpening devices and measuring instruments and first aid and safety products for school, office, home, hardware, sporting and industrial use.
Domestic sales orders are filled primarily from the Company’s distribution centers in North Carolina, Washington, Massachusetts, Tennessee, Florida and California. The Company is responsible for the costs of shipping, insurance, customs clearance, duties, storage and distribution related to such products. Orders filled from the Company’s inventory are generally for less than container-sized lots.
Direct import sales are products sold by the Company’s Asian subsidiary, directly to major U.S. retailers, who take ownership of the products in Asia. These sales are completed by delivering product to the customers’ common carriers at the shipping points in Asia. Direct import sales are made in larger quantities than domestic sales, typically full containers. Direct import sales represented approximately 7%12% and 8%9% of the Company’s total net sales for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, compared to 12%10% and 11%8% respectively, for the comparable periodperiods in 2020.2021.
The Chief Operating Decision Makerchief operating decision maker evaluates the performance of each operating segment based on segment revenues and operating income. Segment revenues are defined as total revenues, including both external customer revenue and inter-segment revenue. Segment operating earnings are defined as segment revenues, less cost of goods sold and operating expenses. Identifiable assets by segment are those assets used in the respective reportable segment’s operations. Inter-segment amounts are eliminated to arrive at consolidated financial results.
12
The following table sets forth certain financial data by segment for three and ninesix months ended SeptemberJune 30, 20212022 and 2020:2021:
Financial data by segment:
(in thousands)
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
Sales to external customers: |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
United States |
| $ | 41,060 |
|
| $ | 36,656 |
|
| $ | 113,948 |
|
| $ | 105,576 |
|
| $ | 48,905 |
|
| $ | 36,840 |
|
| $ | 84,646 |
|
| $ | 72,888 |
|
Canada |
|
| 3,585 |
|
|
| 3,373 |
|
|
| 10,907 |
|
|
| 8,175 |
|
|
| 3,876 |
|
|
| 3,990 |
|
|
| 7,491 |
|
|
| 7,322 |
|
Europe |
|
| 3,278 |
|
|
| 3,287 |
|
|
| 11,440 |
|
|
| 9,382 |
|
|
| 3,992 |
|
|
| 4,017 |
|
|
| 7,969 |
|
|
| 8,162 |
|
Consolidated |
| $ | 47,923 |
|
| $ | 43,316 |
|
| $ | 136,295 |
|
| $ | 123,133 |
|
| $ | 56,773 |
|
| $ | 44,847 |
|
| $ | 100,106 |
|
| $ | 88,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
| $ | 2,425 |
|
| $ | 1,189 |
|
| $ | 7,231 |
|
| $ | 6,442 |
|
| $ | 3,454 |
|
| $ | 2,675 |
|
| $ | 4,287 |
|
| $ | 4,807 |
|
Canada |
|
| 418 |
|
|
| 600 |
|
|
| 1,452 |
|
|
| 1,173 |
|
|
| 474 |
|
|
| 662 |
|
|
| 830 |
|
|
| 1,034 |
|
Europe |
|
| 118 |
|
|
| 335 |
|
|
| 1,034 |
|
|
| 901 |
|
|
| 48 |
|
|
| 452 |
|
|
| 230 |
|
|
| 916 |
|
Consolidated |
| $ | 2,961 |
|
| $ | 2,124 |
|
| $ | 9,717 |
|
| $ | 8,516 |
|
| $ | 3,976 |
|
| $ | 3,789 |
|
| $ | 5,347 |
|
| $ | 6,757 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
| (228 | ) |
|
| (168 | ) |
|
| (671 | ) |
|
| (722 | ) |
|
| 423 |
|
|
| 223 |
|
|
| 729 |
|
|
| 443 |
|
Other (expense) income, net |
|
| (68 | ) |
|
| 35 |
|
|
| 3,295 |
|
|
| (2 | ) | ||||||||||||||||
Other expense (income) , net |
|
| 148 |
|
|
| (3,440 | ) |
|
| 147 |
|
|
| (3,363 | ) | ||||||||||||||||
Consolidated income before income taxes |
| $ | 2,665 |
|
| $ | 1,991 |
|
| $ | 12,341 |
|
| $ | 7,792 |
|
| $ | 3,405 |
|
| $ | 7,006 |
|
| $ | 4,471 |
|
| $ | 9,677 |
|
Assets by segment:
(in thousands)
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
United States |
| $ | 122,620 |
|
| $ | 113,831 |
|
| $ | 157,623 |
|
| $ | 125,521 |
|
Canada |
|
| 9,294 |
|
|
| 7,432 |
|
|
| 10,494 |
|
|
| 9,100 |
|
Europe |
|
| 9,517 |
|
|
| 8,605 |
|
|
| 9,698 |
|
|
| 9,818 |
|
Consolidated |
| $ | 141,431 |
|
| $ | 129,868 |
|
| $ | 177,815 |
|
| $ | 144,439 |
|
6. Stock Based Compensation
The Company recognizes share-based compensation at the fair value of the equity instrument on the grant date. Compensation expense is recognized over the required service period, which is generally the vesting period of the equity instrument. Share-based compensation expense was approximately $455,000$368,000 and $1,341,000$768,000 for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, compared to approximately $327,000$580,000 and $929,000$886,000 for the three and ninesix months ended SeptemberJune 30, 2020,2021, respectively.
As of SeptemberJune 30, 2021,2022, there was a total of $4,347,695$3,237,101 of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested share-based payments granted to the Company’s employees. As of that date, the remaining unamortized expense was expected to be recognized over a weighted average period of approximately three years.
7. Fair Value Measurements
The carrying value of the Company’s bank debt is a reasonable estimate of fair value because of the nature of its payment terms and maturity. The Company’s contingent liability related to the acquisition of Safety Made is recorded at it’s acquisition date fair value of approximately $1.3 million and is recorded in other non-current liabilities on the condensed consolidated balance sheet. Changes in the fair value of the liability are recorded in earnings. There is 0 change during the three month period ended June 30, 2022.
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.
13
ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised. As most of our leases do not provide an implicit rate, the present value of lease payments is determined primarily using our incremental borrowing rate based on the information available at the lease commencement date. The incremental borrowing rate is the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term on an amount equal to the lease payments in a similar economic environment. Lease agreements with lease and non-lease components are generally accounted for as a single lease component. The Company’s operating lease expense is recognized on a straight-line basis over the lease term. For the three and six months ended SeptemberJune 30, 2022 and 2021, lease expense in the amount of $0.1 million was included in cost of goods sold and $0.3 million was included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations. For the nine months ended September 30, 2021, lease expense in the amount of $0.2 million, was included in cost of goods sold and $0.6 million wasrespectively, were included in selling, general and administrative expenses in the accompanying condensed consolidated statement of operations.
Information related to leases (in thousands):
|
| Three months ended |
|
| Three months ended |
|
| Three Months Ended |
|
| Three Months Ended |
| ||||
Operating cash flow information: |
| September 30, 2021 |
|
| September 30, 2020 |
|
| June 30, 2022 |
|
| June 30, 2021 |
| ||||
Operating lease cost |
| $ | 297 |
|
| $ | 284 |
|
| $ | 308 |
|
| $ | 336 |
|
Operating lease - cash flow |
| $ | 236 |
|
| $ | 272 |
|
| $ | 322 |
|
| $ | 294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROU assets obtained in exchange for lease liabilities |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nine months ended |
|
| Nine months ended |
|
| Six Months Ended |
|
| Six Months Ended |
| ||||
Operating cash flow information: |
| September 30, 2021 |
|
| September 30, 2020 |
|
| June 30, 2022 |
|
| June 30, 2021 |
| ||||
Operating lease cost |
| $ | 994 |
|
| $ | 899 |
|
| $ | 618 |
|
| $ | 672 |
|
Operating lease - cash flow |
| $ | 796 |
|
| $ | 839 |
|
| $ | 645 |
|
| $ | 588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash activity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROU assets obtained in exchange for lease liabilities |
| $ | 1,575 |
|
| $ | - |
|
| $ | 211 |
|
| $ | 1,575 |
|
|
| September 30, 2021 |
|
| September 30, 2020 |
|
| June 30, 2022 |
|
| June 30, 2021 |
| ||||
Weighted-average remaining lease term |
| 4.0 years |
|
| 4.0 years |
|
| 3.0 years |
|
| 4.0 years |
| ||||
Weighted-average discount rate |
|
| 5 | % |
|
| 5 | % |
|
| 5 | % |
|
| 5 | % |
Future minimum lease payments under non-cancellable leases as of SeptemberJune 30, 2021:2022:
2021 (remaining) |
| $ | 270 |
| ||||
2022 |
|
| 1,081 |
| ||||
2022 (remaining) |
| $ | 629 |
| ||||
2023 |
|
| 961 |
|
|
| 1,076 |
|
2024 |
|
| 702 |
|
|
| 738 |
|
2025 |
|
| 613 |
|
|
| 649 |
|
2026 |
|
| 155 |
| ||||
Thereafter |
|
| 140 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Total future minimum lease payments |
| $ | 3,767 |
|
| $ | 3,247 |
|
Less: imputed interest |
|
| (337 | ) |
|
| (223 | ) |
Present value of lease liabilities - current |
|
| 945 |
|
|
| 1,080 |
|
Present value of lease liabilities - non-current |
| $ | 2,485 |
|
| $ | 1,944 |
|
9. Paycheck Protection Program LoanBusiness Combinations
On May 7, 2020,June 1, 2022, the Company received purchased the assets of Live Safely Products, LLC (d/b/a two-year loan (the “PPP Loan”“Safety Made”) for approximately $11 million, including $1.5 million which is contingent upon meeting certain financial targets. 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):
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 |
|
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 HSBC Bank USA, N.A.,5 years to 15 years.
The $1.5 million contingent payment that is being held in escrow is considered restricted cash and is reported in other long-term assets on the lender, inconsolidated balance sheet.
The Company has not disclosed the amount of $3,508,047 underrevenue and earnings from the Paycheck Protection Program established bysales of Safety Made products since the Coronavirus Aid, Relief and Economic Security Act (CARES Act).
Under the CARES Act, all or a portion of the PPP Loan was eligible to be forgiven by the U.S. Small Business Administration (“SBA”) and the lender, upon application by the Company, provided that the Company shall have used the loan proceeds for certain eligible purposes. The PPP Loan was fully forgiven by the SBA andacquisition on June 9, 2021, payment in the amount of $3,508,047 was made by the SBA1, 2022 because these amounts are not significant to the lender. The Company recorded the amount forgiven as income in the quarter ended June 30, 2021.Company’s financial statements.
10. Other Accrued Liabilities
Other current accrued liabilities consisted of (in thousands):
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Customer Rebates |
| $ | 6,321 |
|
| $ | 6,068 |
|
| $ | 5,892 |
|
| $ | 5,414 |
|
Accrued Compensation |
|
| 1,915 |
|
|
| 3,072 |
|
|
| 603 |
|
|
| 1,586 |
|
Dividend Payable |
|
| 463 |
|
|
| 435 |
|
|
| 493 |
|
|
| 458 |
|
Income Tax Payable |
|
| 1,203 |
|
|
| 564 |
| ||||||||
Other |
|
| 2,516 |
|
|
| 1,885 |
|
|
| 1,938 |
|
|
| 1,887 |
|
Total: |
| $ | 11,215 |
|
| $ | 11,460 |
|
| $ | 10,129 |
|
| $ | 9,909 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 11. Cash, Cash Equivalents and Restricted Cash
|
| June 30, 2022 |
| December 31, 2021 |
| ||
Cash and cash equivalents |
| $ | 1,760 |
| $ | 4,843 |
|
Restricted Cash |
|
| 1,500 |
|
|
|
|
Total cash, cash equivalents and restricted cash |
| $ | 3,260 |
| $ | 4,843 |
|
Restricted cash, which is reported within other long term assets in the condensed consolidated balance sheets consists of the contingent payment held in escrow related to the acquisition of Safety Made.
12. Intangible Assets and Goodwill
| June 30 |
|
| December 31 |
| ||
| 2022 |
|
| 2021 |
| ||
Customer List | $ | 18,370,118 |
|
| $ | 16,137,118 |
|
Tradenames |
| 9,984,698 |
|
|
| 7,994,698 |
|
Patents |
| 2,271,980 |
|
|
| 2,271,980 |
|
Non-Compete |
| 1,170,111 |
|
|
| 250,111 |
|
License Agreement |
| 379,921 |
|
|
| 379,921 |
|
Subtotal |
| 32,176,828 |
|
|
| 27,033,828 |
|
Less: Accumulated Amortization |
| 10,552,204 |
|
|
| 9,803,299 |
|
Intangible Assets | $ | 21,624,624 |
|
| $ | 17,230,529 |
|
|
|
|
|
|
|
|
|
Goodwill | $ | 8,188,829 |
|
| $ | 4,799,829 |
|
Total: | $ | 29,813,452 |
|
| $ | 22,030,358 |
|
Intangible assets include Customer List, Tradenames, Non-Compete Agreements and Goodwill. The useful lives of the identified intangible assets range from 5 years to 15 years.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Information
The Company may from time to time make written or oral “forward-looking statements” including statements contained in this report and in other communications by the Company, which are made in good faith pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on our beliefs as well as assumptions made by and information currently available to us. When used in this document, words like “may,” “might,” “will,” “except,” “anticipate,” “believe,” “potential,” and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from our current expectations.
Forward-looking statements in this report, including without limitation, statements related to the Company’s plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties that may impact the Company’s business, operations and financial results, including those risks and uncertainties resulting from the global COVID-19 pandemic, future waves of COVID-19, including through the Delta variantand 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; the strength of economic recovery and accelerating inflation, and the heightened impact the pandemic has on many of the risks described herein, including, without limitation, risks relating to disruptions in our domestic and global supply chainchains, and labor force,shortages, any of which could materially adversely impact the Company’s ability to manufacture, source or distribute its products, both domestically and internationally.
These risks and uncertainties further include, without limitation, the following: (i) changes in the Company’s plans, strategies, objectives, expectations and intentions, which may be made at any time at the discretion of the Company; (ii) the impact of uncertainties in global economic conditions, whether caused by COVID-19 or otherwise, including the impact on the Company’s suppliers and customers; (iii) the potentialadditional disruptions in the Company’s supply chains, whether caused by COVID-19, the war in Ukraine, or otherwise;otherwise, including trucker shortages, port closures and delays, and delays with container ships themselves; (iv) labor shortages and related costs the Company has and may continue to incur, including costs of acquiring and training new employees and rising wages and benefits; (v) the continuing adverse impact of inflation, including product costs, and transportation costs; (vi) currency fluctuations including, for example, the increasing strength of the dollar against the euro: the Company’s ability to effectively manage its inventory in a rapidly changing business environment, including the additional inventory the Company has acquired in anticipation of supply chain disruptions and uncertainties; (vii) changes in client needs and consumer spending habits; (v)(viii) the impact of competition; (vi)(ix) the impact of technological changes including, specifically, the growth of online marketing and sales activity; (vii)(x) the Company’s ability to manage its growth effectively, including its ability to successfully integrate any business it might acquire; (viii) the Company’s ability to effectively manage its inventory in a rapidly changing business environment, including additional inventory acquired to respond to COVID-19 related uncertainties; (ix) rising wages and benefits; (x) labor shortages; (xi) the impact of rising inflation rates; (xii) currency fluctuations; (xiii) international trade policies and their impact on demand for our products and our competitive position, including the imposition of new tariffs or changes in existing tariff rates; and (xiv)(xiii) other risks and uncertainties indicated from time to time in the Company’s filings with the Securities and Exchange Commission.
For a more detailed discussion of these and other factors affecting the Company, see the Risk Factors described in Item 1A included in the Company’s Annual Report on Form 10-K for the fiscal year December 31, 20202021 and below under “Financial Condition”. All forward-looking statements in this report are based upon information available to the Company on the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.
Critical Accounting Policies
We discuss our critical accounting policies and estimates in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.2021.
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.
COVID-19 Pandemic and Macroeconomic Related Considerations
As noted above under “Forward-Looking Statements”, in response to the COVID-19 pandemic U.S. federal, state, local, and foreign governments adopted mitigation measures, creating significant uncertainties in the U.S. and global economies, including the shutdown of large portions of, or imposition of restrictions on, the U.S. and global economies. While there has been a general improvement in conditions and reduction of adverse effects from the pandemic, as of the present there continues to be significant uncertainty around the scope, severity, and duration of the pandemic, as well as the breadth and duration of business disruptions related to it and the various problems directly or indirectly caused or exacerbated by COVID-19 continue to present certain significant risksoverall impact on the U.S., global economies, and uncertainties to the Company and its operations. our operating results in future periods.
Commencing late in the first quarter of 2020 and continuing through the filing of this report, the COVID-19 pandemic and certain related challenges have affected the Company’s financial results and business operations. These challenges include: difficulties in hiring employees for its manufacturing and distribution centers due to current domestic labor shortages, increased labor costs, and higher employee turnover compared to pre-pandemic levels.
In addition,During the six months ended June 30, 2022, the Company has experienced and continues to experience domestic and international disruptions in itssignificant supply chain due to port delays, container shortages, and trucking shortages which have been exacerbated by COVID-19. Asissues as a result of Omicron outbreaks which surfaced in China. These outbreaks occurred in February 2022 and led to factory closures and slowdowns, mass quarantines in certain Chinese cities, and the complete shutdown of two if its largest ports. While the Company has been acquiringhad previously purchased and subsequently maintaining additionalmaintained surplus inventory in the United States to minimize the impact of any potential disruption in our supply chain, certain of our largest customers take delivery of large shipments directly at ports in China and we were unable to fulfill certain of these orders in the first quarter of 2022 due to the new COVID outbreak in China and the resulting factory and port shutdowns. However, we were able to fulfil these orders in the second quarter of 2022
The resurgence of the pandemic in China exacerbated the global supply chain issues that we had already been experiencing in recent quarters. As economies have re-opened, global supply chains have struggled to keep up with increasing demand, and the resulting supply chain disruptions were already, in certain cases, affecting our ability to ship products in a timely manner. Specifically, in the first and second quarter of 2022 we experienced significant delays in U.S. ports on both the East Coast and West Coast. These factors have also contributed to increased freight, labor and product costs, which in turn had an adverse effect on our operating margin in the first six months of 2022, and those disruptions and increased costs are likely to persist in the near term and potentially for the foreseeable future.
While we anticipate that the Company and its business partners will continue to experience supply chain. Thechain disruptions, the Company believes that it has sufficient inventory of its products in the U.S. to meetat least partially offset near term supply chain disruptions against anticipated demand in the near future. However, any further increase in the duration or severity of the COVID-19 pandemic or a resurgence of the pandemic and the continuation of related supply chain and labor issues, might adversely affect the Company’s ability to manufacture, source or distribute its products both domestically and internationally. The occurrence of any of these factors could have a material adverse effect on the Company’s business, operations and financial condition.
Both domestic and international economies are experiencing significant inflation. In addition, the war in Ukraine is causing a slowdown in the European economy. The impact of these developments together with the continuing impact of the COVID-19 pandemic is highly uncertain and cannot be predicted.
Results of Operations
Traditionally, the Company’s sales are stronger in the second and third quarters and weaker in the first and fourth quarters of the fiscal year, due to the seasonal nature of the back-to-school market.
Net sales
Consolidated net sales for the three months ended SeptemberJune 30, 20212022 were $47,923,000$56,773,000 compared with $43,316,000$44,847,000 in the same period in 2020,2021, a 11%27% increase. Consolidated net sales for ninesix months ended SeptemberJune 30, 20212022 were $136,295,000$100,106,000 compared with $123,133,000$88,372,000 in the same period in 2020,2021, a 11%13% increase.
Sales in the U.S. for the three and ninesix months ended SeptemberJune 30, 20212022 increased 12%33% and increased 8%16%, respectively, compared to the same periods in 2020.2021. The increase in sales for the three months compared to the same period in 2021 was due to a combination of higher sales prices, increased volume and ninethe carryover of orders from our first quarter of 2022 which were unfilled because of supply chain disruptions. The increase in sales for the six months was primarily dueattributable to strong sales of first aid products and medicalWestcott school and office products.
Net sales in Canada for the three and six months ended SeptemberJune 30, 2021,2022 decreased 3% (constant in local currency) and increased 6% and were constant2% (4% in local currency), respectively, compared to the same periods last year.
European net sales for the three months ended June 30, 2022 decreased 1% in U.S. dollars but increased 12% in local currency compared to the same period in 2020. Higher sales of First Aid Central products were offset by lower sales of school and office products. In 2020, back-to-school shipments were delayed from the second to the third quarter due to the COVID-19 lockdowns in the second quarter of 2020.2021. Net sales infor the ninesix months ended SeptemberJune 30, 2021, increased 33%2022 decreased 2% in U.S. dollars and 23%but increased 7% in local currency compared to the first nine months of 2020 primarily due to higher sales of First Aid Central products.
Europeansame period in 2021. The increase in net sales for the third quarter of 2021 were constant in both U.S. dollarsthree and local currency compared to the third quarter of 2020 due to the timing of several large orders in 2020. Net sales for the ninesix months ended September 30, 2021, increased 22% in U.S. dollars and 15% in local currency compared to the first nine months of 2020,was mainly due to sales growth in the ecommerce channel across all product lines and market share gains in Westcott school andthe office products.channel.
Gross profit
Gross profit for the three months ended SeptemberJune 30, 20212022 was $17,005,000 (35.5%$18,548,000 (32.7% of net sales) compared to $14,956,000 (34.5%$16,153,000 (36.0% of net sales) in the same period in 2020.2021. Gross profit for the ninesix months ended SeptemberJune 30, 20212022 was $48,745,000 (35.8%$33,516,000 (33.5% of net sales) compared to $44,539,000 (36.2%$31,740,000 (35.9% of net sales) for the same period in 2020.2021. The decline in the gross margin as a percentage of sales for the three and six months was primarily due to product cost inflation pressures as well as higher transportation and labor costs. Price increases partially offset cost increases.
Selling, general and administrative expenses
Selling, general and administrative ("SG&A") expenses for the three months ended SeptemberJune 30, 20212022 were $14,044,000 (29.3%$14,572,000 (25.7% of net sales) compared with $12,832,000 (29.6%$12,364,000 (27.6% of net sales) in the same period in 2020,2021, an increase of $1,212,000.$2,208,000. SG&A expenses for the ninesix months ended SeptemberJune 30, 20212022 were $39,028,000 (28.6%$28,169,000 (28.1% of net sales) compared with $36,023,000 (29.3%$24,983,000 (28.3% of net sales) for the same periods of 2020,2021, an increase of $3,005,000.$3,186,000. The increases in SG&A expenses for three and ninesix months ended SeptemberJune 30, 2021,2022, compared to the same period in 20202021 were primarily due to higher personnel related costs higherand increased commissions and shipping costs related to higher sales and personnel and other additional costs resulting from the acquisition of Med Nap.sales.
Operating income
Operating income for the three months ended SeptemberJune 30, 20212022 was $2,961,000$3,976,000 compared with $2,124,000$3,789,000 in the same period of 2020.2021. Operating income for the ninesix months ended SeptemberJune 30, 20212022 was $9,717,000$5,347,000 compared with $8,516,000$6,757,000 in the same period of 2020.
2021. Operating income in the U.S. segment increased by $1,236,000 and $789,000$779,000 for the three and nine months ended SeptemberJune 30, 2021,2022 and decreased by $520,000 for the six months ended June 30, 2022, respectively, compared to the same periods in 2020.2021.
Operating income in the Canadian segment decreased by $182,000$188,000 and increased by $279,000 in U.S. dollars$204,000 for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, compared to the same periods in 2020.2021.
Operating income in the European segment decreased by $217,000$404,000 and increased $133,000 in U.S. dollars$686,000 for the three and ninesix months ended SeptemberJune 30, 2021,2022, respectively, compared to the same period in 2020.2021.
Interest expense, net
Interest expense, net for the three months ended SeptemberJune 30, 20212022 was $228,000$423,000 compared with $168,000$223,000 in the same period of 2020,2021, a $60,000$200,000 increase. The increase in interest expense is due to higher average debt outstanding. Interest expense, net for the ninesix months ended SeptemberJune 30, 20212022 was $671,000$729,000 compared with $722,000$443,000 for the same period of 2020,2021, a $51,000 decrease.$286,000 increase. The increases in interest expense resulted from a higher average debt outstanding under the Company’s revolving credit facility as well as higher average interest rate on the outstanding debt.
Other (expense) income,expense, net
Total other (expense),Other expense, net was $68,000$148,000 in the three months ended SeptemberJune 30, 20212022 compared to other income of $35,000$68,000 in the same period of 2020. Total other income,2021. Other expense, net was $3,295,000$147,000 in the ninesix months ended SeptemberJune 30, 20212022 compared to other expense of $2,000$145,000 in the same period of 2020.2021. The increase in other income,expense, net forin the ninethree and six months ended SeptemberJune 30, 2021,2022, was primarily due to $3,508,047 of income related to the forgiveness of the PPP Loan. losses from foreign currency transactions.
Income taxes
The effective income tax rate for the three and six months ended June 30, 2022 was 20%. Income tax expense for the ninethree and six months ended SeptemberJune 30, 2021 included a $0.9 million tax credit for stock-basedstock based compensation. The Company’s effective tax rates for the three and ninesix months ended SeptemberJune 30, 2021, excluding the tax credit and the income from the PPP loan forgiveness, were 23%19% and 22%, respectively, compared to 21% and 22%, respectively, in the same periods in 2020..
Financial Condition
Liquidity and Capital Resources
During the first ninesix months of 2021,2022, working capital increased approximately $10.0$9.5 million compared to December 31, 2020.2021. Inventory decreasedincreased approximately $2.0$11.4 million at SeptemberJune 30, 20212022 compared to December 31, 2020.2021. We increased inventory during that period to anticipate our continued growth and to be positioned to offset the impact of potential supply chain disruptions related to COVID-19. The increase also reflects higher product costs. Inventory turnover, calculated using a twelve-month average inventory balance, was 2.42.1 at SeptemberJune 30, 20212022 compared to 2.42.3 at December 31, 2020.2021. Receivables increased by approximately $8.9$12.8 million at SeptemberJune 30, 20212022 compared to December 31, 2020.2021. The average number of days sales outstanding in accounts receivable was 60 days at each of SeptemberJune 30, 20212022 and December 31, 2020.2021. Accounts payable and other current liabilities decreasedincreased by approximately $.9$12.7 million at SeptemberJune 30, 20212022 compared to December 31, 2020.2021. The increase in accounts payable is primarily related to the increase in inventory.
The Company's working capital, current ratio and long-term debt to equity ratio are as follows (dollar amounts in thousands):
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Working capital |
| $ | 73,525 |
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| $ | 63,485 |
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| $ | 84,434 |
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| $ | 74,976 |
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| 76.6 | % |
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| 57.2 | % |
Long-term debt consists of (i) borrowings under the Company’s revolving loan agreement with HSBC Bank, N.A. Theand (ii) amounts outstanding under the fixed rate mortgage related on the Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA. On May 31, 2022, the Company amended its revolving loan agreement provideswith HSBC Bank, N.A. The amended agreement increases the amount available for borrowings of upborrowing to $65 million from $50 million, at Prime Rate less 1.25%. The credit facility has an interest rate of SOFR plus 1.75%; interest is payable monthly. In addition, the expiration date of the credit facility was extended to May 24, 2023.31, 2026. The Company must pay a facility fee, payable quarterly, in an amount equal to two tenthsone eight of one percent (.20%(.125%) per annum of the average daily unused portion of the revolving credit line. The facility is intended to provide liquidity for working capital, growth, share repurchases, dividends, acquisitions, share repurchases and other business activities. Under the revolving loan agreement, the Company is required to maintain specific amounts of tangible net worth, a specifiedfunded debt to net worth ratio andEBITDA, a fixed charge coverage ratio and must have annual net income greater than zero,$0, measured as of the end of each fiscal year. At SeptemberJune 30, 2021,2022, the Company was in compliance with the covenants then in effect under the loan agreement.
During the first ninesix months of 2021,2022, total debt outstanding under the Company’s revolving credit facility increased by approximately $1.7$17.2 million, compared to total debt thereunder at December 31, 2020.2021. As of SeptemberJune 30, 2021, $40,454,0002022, $50,263,000 was outstanding and $9,546,000$14,737,000 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.
Also included in long-term debt are amounts outstanding under the variable rate mortgage related on theThe Company’s manufacturing and distribution facilityfacilities in Rocky Mount, NC and Vancouver, WA.WA were financed by a fixed rate mortgage with HSBC Bank, N.A. at a fixed interest rate of 3.8%. The Company entered into the agreement on December 1, 2021. Payments of principal and interest are due monthly, with all amounts outstanding due on maturity on December 1, 2031. At SeptemberJune 30, 2021,2022, there was approximately $3.0$11.4 million outstanding on the mortgage.
As described above, commencing late in the first quarter of 2020,On June 1, 2022, the Company has encountered challenges as purchased the assets of Live Safely Products, LLC (d/b/a result“Safety Made”) for approximately $11 million, including $1.5 million which is contingent upon meeting certain financial targets. Based in Keene, NH, Safety Made is a leading manufacturer of first aid kits for the COVID-19 pandemic that could have material adverse consequences for our liquidity as a result of a number of factors. Additionally, as noted above, the Company has incurred and continues to incur increased operational and other expenses due to labor shortages and supply chain issues as a result of the COVID-19 pandemic. In order to address problems that may arise as a result of any such potential disruption, the Company has increased its inventory of its principalpromotional 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 (CARES Act). industry.
Under the CARES Act, all or a portion of the PPP Loan was eligible to be forgiven by the U.S. Small Business Administration (“SBA”) and the lender, upon application by the Company, provided that the Company shall have used the loan proceeds for certain eligible purposes. The PPP Loan was fully forgiven by the SBA and on June 9, 2021, payment in the amount of $3,508,047 was made by the SBA to the lender. The Company recorded the amount forgiven as income in the quarter ended June 30, 2021.
The Company believes that cash generated from operating activities, together with funds available under its revolving credit facility, will, under current conditions, be sufficient to finance the Company’s operations over the next twelve months from the filing of this report.
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Item 3: Quantitative and Qualitative Disclosure about Market Risk
Not applicable.
Item 4: Controls and Procedures
(a) | Evaluation of Internal Controls and Procedures |
Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of SeptemberJune 30, 2021.2022. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were not effective as of September 30, 2021 as a result of an identified material weakness. As described in the Company's Form 10-K for the year ended December 31, 2020, the Company’s controls related to the existence of inventory at the Rocky Mount, NC warehouse (the “Warehouse”) were not effective as the cycle count program used did not demonstrate that inventory quantities were sufficiently counted. The Company's remediation efforts related to this material weakness are ongoing. Except as described below, there were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.effective.
This material weakness did not result in any misstatement of the Company's consolidated financial statements for any period presented. Our independent public accounting firm, Marcum LLP, audited our consolidated financial statements at December 31, 2020, and for each of the two years in the period ended December 31, 2020, and their report expressed an unqualified opinion on our consolidated financial statements.
(b) | Changes in Internal Control over Financial Reporting |
In response toDuring the material weakness identified above, the Company has implementedquarter ended June 30, 2022, there were no changes to itsin our internal control over financial reporting including:that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
● The Company has evaluated the processes, procedures and controls related to the Warehouse cycle count program and has commenced making changes as considered appropriate, including those changes described below, to address the control deficiency.
● In the second quarter of 2021, the Company completed the installation of a new inventory management system at the warehouse. The new software is intended to enable the Company to conduct its inventory cycle count program more efficiently and effectively.
● The Company continues to allocate additional resources to the implementation of its inventory count program, including the hiring of additional personnel for the program. The Company will conduct a full physical inventory count at the Warehouse to provide evidence on existence of its inventory for the year ended December 31, 2021.
As stated in the Company’s Form 10-K for the year ended December 31, 2020, we believe that these ongoing actions will remediate the material weakness. However, due to the nature of the material weakness, it will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed as of December 31, 2021.
PART II. OTHER INFORMATION
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, 2020.2021.
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3 — Defaults upon Senior Securities
None.
Item 4 — Mine Safety Disclosures
Not applicable.
Item 5 — Other Information
None.
Item 6 — Exhibits
Documents filed as part of this report:
Exhibit 10.10(i) | Amendment No.8 to Revolving Loan Agreement with HSBC dated May 31, 2022 | |
Exhibit 31.1 |
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Exhibit 31.2 |
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Exhibit 32.1 |
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Exhibit 32.2 |
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101.INS |
| Inline XBRL Instance Document. |
101.SCH |
| Inline XBRL Taxonomy Extension Schema Document. |
101.PRE |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
101.CAL |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.LAB |
| Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.DEF |
| Inline XBRL Taxonomy Extension Definition Linkbase Document. |
104 |
| The cover page for the Company’s Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ACME UNITED CORPORATION |
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By | /s/ Walter C. Johnsen |
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| Walter C. Johnsen |
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| Chairman of the Board and |
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| Chief Executive Officer |
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Dated: |
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By | /s/ Paul G. Driscoll |
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| Paul G. Driscoll |
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| Vice President and |
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| Chief Financial Officer |
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Dated: |
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2223