Part I — FINANCIAL INFORMATION [Item 1: Financial Statements (Unaudited)](index=3&type=section&id=Item%201%3A%20Financial%20Statements%20(Unaudited)) This section presents the company's unaudited condensed consolidated financial statements for the reporting period [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Details the company's assets, liabilities, and stockholders' equity at the end of the reporting period ASSETS (in thousands) | ASSETS | March 31, 2022 (unaudited) | December 31, 2021 (Note 1) | | :--- | :--- | :--- | | Cash and cash equivalents | $5,307 | $4,843 | | Accounts receivable, net | 34,605 | 34,221 | | Inventories | 60,716 | 53,552 | | Total current assets | 104,438 | 95,251 | | Net property, plant and equipment | 23,887 | 24,027 | | Goodwill | 4,800 | 4,800 | | Intangible assets, net | 16,888 | 17,231 | | Total assets | $153,077 | $144,439 | LIABILITIES & EQUITY (in thousands) | LIABILITIES & EQUITY | March 31, 2022 (unaudited) | December 31, 2021 (Note 1) | | :--- | :--- | :--- | | Accounts payable | $10,939 | $8,977 | | Other accrued liabilities | 8,937 | 9,909 | | Total current liabilities | 21,377 | 20,275 | | Long-term debt | 40,151 | 33,037 | | Total liabilities | 75,304 | 67,357 | | Total stockholders' equity | 77,773 | 77,082 | | Total liabilities and stockholders' equity | $153,077 | $144,439 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Summarizes revenues, costs, and expenses to report the company's net income over the period Metric (in thousands, except per share) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net sales | $43,333 | $43,525 | | Cost of goods sold | 28,365 | 27,938 | | Gross profit | 14,968 | 15,587 | | Selling, general and administrative expenses | 13,597 | 12,619 | | Operating income | 1,371 | 2,968 | | Interest expense, net | 305 | 221 | | Income before income tax expense | 1,068 | 2,670 | | Income tax expense | 238 | 624 | | Net income | $830 | $2,046 | | Basic earnings per share | $0.24 | $0.61 | | Diluted earnings per share | $0.22 | $0.52 | | Dividends declared per share | $0.13 | $0.13 | [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Reports net income and other comprehensive income, including foreign currency translation adjustments Metric (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net income | $830 | $2,046 | | Foreign currency translation adjustment | 27 | (188) | | Comprehensive income | $857 | $1,858 | [Condensed Consolidated Statement of Changes in Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Stockholders'%20Equity) Details the changes in the company's equity accounts during the first quarter of 2022 Stockholders' Equity (in thousands) | Stockholders' Equity | Balances, Dec 31, 2021 | Net Income | Other Comprehensive Loss | Stock Compensation Expense | Distributions to Shareholders | Cash Settlement of Stock Options | Balances, Mar 31, 2022 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Common Stock | $12,655 | - | - | - | - | - | $12,655 | | Treasury Stock | $(15,996) | - | - | - | - | - | $(15,996) | | Additional Paid-In Capital | $11,930 | - | - | 400 | - | (108) | $12,222 | | Accumulated Other Comprehensive Loss | $(1,380) | - | 27 | - | - | - | $(1,353) | | Retained Earnings | $69,873 | 830 | - | - | (458) | - | $70,245 | | Total | $77,082 | 830 | 27 | 400 | (458) | (108) | $77,773 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Summarizes cash inflows and outflows from operating, investing, and financing activities Cash Flow Activity (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(5,479) | $(336) | | Net cash used in investing activities | $(518) | $(1,480) | | Net cash provided by financing activities | 6,450 | 1,538 | | Effect of exchange rate changes on cash and cash equivalents | 11 | (32) | | Net change in cash and cash equivalents | 464 | (310) | | Cash and cash equivalents at beginning of period | 4,843 | 4,167 | | Cash and cash equivalents at end of period | $5,307 | $3,857 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides supplementary details on accounting policies and specific financial statement items [1. Basis of Presentation](index=9&type=section&id=1.%20Basis%20of%20Presentation) The financial statements are unaudited and should be read with the 2021 Annual Report on Form 10-K - The accompanying condensed consolidated financial statements are unaudited and include all necessary normal, recurring adjustments[28](index=28&type=chunk) - The financial statements do not include all disclosures normally required by GAAP and should be read in conjunction with the Company's 2021 Annual Report on Form 10-K[28](index=28&type=chunk) - The Company evaluated events and transactions subsequent to **March 31, 2022**, through the issuance date of these financial statements[29](index=29&type=chunk) [2. Commitment and Contingencies](index=9&type=section&id=2.%20Commitment%20and%20Contingencies) There are no pending material legal proceedings involving the Company or contemplated by governmental authorities - There are **no pending material legal proceedings** to which the Company is a party or contemplated by any governmental authority[30](index=30&type=chunk) [3. Revenue from Contracts with Customers](index=9&type=section&id=3.%20Revenue%20from%20Contracts%20with%20Customers) Details revenue recognition policies and disaggregates net sales by product category and geography - Revenue is recognized from sales of two main product categories: (a) **first aid and medical**; and (b) **cutting, sharpening and measuring**[31](index=31&type=chunk) - Revenue is generally recognized at a point in time, with **shipment or delivery**, depending on contract terms[32](index=32&type=chunk) Net Sales by Product Category and Segment (in thousands) | Net Sales by Product Category and Segment | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | **Cutting, Sharpening and Measuring** | | | | United States | $15,333 | $15,564 | | Canada | 1,593 | 1,549 | | Europe | 3,558 | 3,743 | | Total | $20,484 | $20,856 | | **First Aid and Medical** | | | | United States | 20,408 | 20,484 | | Canada | 2,022 | 1,784 | | Europe | 419 | 401 | | Total | $22,849 | $22,669 | | **Total Net Sales** | $43,333 | $43,525 | [4. Debt and Shareholders' Equity](index=10&type=section&id=4.%20Debt%20and%20Shareholders'%20Equity) Outlines the composition of long-term debt, key credit facilities, and compliance with loan covenants - Long-term debt includes borrowings under a revolving loan agreement with HSBC Bank, N.A. (up to **$50 million**, expiring May 24, 2023) and a fixed-rate mortgage (**3.8% interest**, maturing December 1, 2031)[39](index=39&type=chunk)[40](index=40&type=chunk) - The Company was in **compliance with all covenants** under the revolving loan agreement as of March 31, 2022[39](index=39&type=chunk) Debt (in thousands) | Debt | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Revolving loan outstanding | $40,151 | $33,037 | | Mortgage Payable - HSBC Bank N.A. | 11,522 | 11,620 | | Long-term mortgage payable less current maturities | 10,989 | 11,081 | [5. Segment Information](index=12&type=section&id=5.%20Segment%20Information) Presents financial performance data for the company's three reportable geographic segments - The Company's reportable business segments are **United States** (including aggregated Asian operations), **Canada**, and **Europe**[43](index=43&type=chunk) Financial Data by Segment (in thousands) | Financial Data by Segment | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | **Sales to external customers:** | | | | United States | $35,741 | $36,048 | | Canada | 3,615 | 3,333 | | Europe | 3,977 | 4,144 | | Consolidated | $43,333 | $43,525 | | **Operating income:** | | | | United States | $811 | $2,133 | | Canada | 386 | 370 | | Europe | 174 | 465 | | Consolidated | $1,371 | $2,968 | Assets by Segment (in thousands) | Assets by Segment | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | United States | $134,291 | $125,521 | | Canada | 9,327 | 9,100 | | Europe | 9,459 | 9,818 | | Consolidated | $153,077 | $144,439 | [6. Stock Based Compensation](index=14&type=section&id=6.%20Stock%20Based%20Compensation) Discloses stock-based compensation expenses and unrecognized costs related to non-vested awards - As of March 31, 2022, there was **$3,600,603 of unrecognized compensation cost** related to non-vested share-based payments, expected to be recognized over approximately three years[50](index=50&type=chunk) Stock Compensation Expense (in thousands) | Stock Compensation Expense | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Stock compensation expense | $400 | $306 | [7. Fair Value Measurements](index=14&type=section&id=7.%20Fair%20Value%20Measurements) The carrying value of the company's bank debt is considered a reasonable estimate of its fair value - The carrying value of the Company's bank debt is a **reasonable estimate of fair value** due to its payment terms and maturity[51](index=51&type=chunk) [8. Leases](index=14&type=section&id=8.%20Leases) Details the company's operating leases, including costs, cash flows, and key assumptions - The Company has operating leases for office and warehouse space and equipment, with **ROU assets and lease liabilities** recognized at commencement date based on the present value of lease payments[52](index=52&type=chunk)[53](index=53&type=chunk) Lease Information (in thousands) | Lease Information | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Operating lease cost | $311 | $336 | | Operating lease - cash flow | $322 | $294 | | ROU assets obtained in exchange for lease liabilities | $211 | $- | | Weighted-average remaining lease term | 3.0 years | 4.0 years | | Weighted-average discount rate | 5% | 5% | [9. Other Accrued Liabilities](index=16&type=section&id=9.%20Other%20Accrued%20Liabilities) Provides a breakdown of other current accrued liabilities, which decreased during the quarter Other Accrued Liabilities (in thousands) | Other Accrued Liabilities | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Customer Rebates | $5,274 | $5,414 | | Accrued Compensation | 1,291 | 1,586 | | Dividend Payable | 458 | 458 | | Income Tax Payable | 813 | 564 | | Other | 1,101 | 1,887 | | Total | $8,937 | $9,909 | [Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Item%202%3A%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Provides management's perspective on financial performance, operational results, and liquidity [Forward-Looking Information](index=17&type=section&id=Forward-Looking%20Information) Contains forward-looking statements subject to risks and uncertainties under "safe harbor" provisions - The report contains forward-looking statements made pursuant to the **'safe harbor' provisions** of the Private Securities Litigation Reform Act of 1995[62](index=62&type=chunk)[63](index=63&type=chunk) - Actual results could differ materially due to risks from the **COVID-19 pandemic**, economic conditions, competition, and trade policies[63](index=63&type=chunk)[64](index=64&type=chunk) [Critical Accounting Policies](index=17&type=section&id=Critical%20Accounting%20Policies) Refers to the company's 2021 Annual Report for a discussion of critical accounting policies - Critical accounting policies and estimates are discussed in **Item 7 of the Company's Annual Report on Form 10-K** for the year ended December 31, 2021[66](index=66&type=chunk) [COVID-19 Pandemic and Macroeconomic Related Considerations](index=17&type=section&id=COVID-19%20Pandemic%20and%20Macroeconomic%20Related%20Considerations) Discusses the adverse impact of supply chain disruptions and labor challenges on operations - During Q1 2022, the Company experienced **significant supply chain issues** due to new Omicron outbreaks in China, leading to factory and port shutdowns[68](index=68&type=chunk)[69](index=69&type=chunk) - These disruptions contributed to **increased freight, labor, and product costs**, adversely affecting operating margins[70](index=70&type=chunk) - The Company also faced labor-related challenges, including **hiring difficulties, increased labor costs, and higher employee turnover**[71](index=71&type=chunk) [Results of Operations](index=19&type=section&id=Results%20of%20Operations) Analyzes the company's operational results for Q1 2022 compared to the prior year period - The Company's sales are traditionally stronger in the **second and third quarters** due to the back-to-school market[73](index=73&type=chunk) Metric (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change (YoY) | | :--- | :--- | :--- | :--- | | Consolidated Net Sales | $43,333 | $43,525 | -0.44% | | U.S. Sales | Declined 1% | | | | Canada Net Sales | Increased 8% (U.S. & local currency) | | | | European Net Sales | Decreased 4% (U.S. dollars), Increased 3% (local currency) | | | | Gross Profit | $14,968 (34.5% of net sales) | $15,587 (35.8% of net sales) | -4.09% | | SG&A Expenses | $13,597 (31.4% of net sales) | $12,619 (29.0% of net sales) | +7.75% | | Operating Income | $1,371 | $2,968 | -53.74% | | U.S. Operating Income | Decreased by $1,322 | | | | Canadian Operating Income | Increased by $16 | | | | European Operating Income | Decreased by $291 | | | | Interest Expense, Net | $305 | $221 | +38.01% | | Income Tax Expense | 22% effective tax rate | 23% effective tax rate | -1.00% | [Financial Condition](index=20&type=section&id=Financial%20Condition) Reviews the company's financial condition, focusing on liquidity and capital resources [Liquidity and Capital Resources](index=20&type=section&id=Liquidity%20and%20Capital%20Resources) Working capital and debt increased to support inventory growth amid supply chain disruptions - Working capital increased by approximately **$8.2 million** during Q1 2022 compared to December 31, 2021[78](index=78&type=chunk) - Inventory increased by approximately **$7.2 million**, primarily to anticipate continued growth and mitigate potential supply chain disruptions[78](index=78&type=chunk) - Total debt outstanding under the revolving credit facility increased by approximately **$7.1 million** in Q1 2022, with **$9,849,000 available** for borrowing as of March 31, 2022[81](index=81&type=chunk) - The Company believes cash from operations and available credit will be **sufficient to finance operations** for the next twelve months[82](index=82&type=chunk) Financial Ratios (in thousands) | Financial Ratios | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Working capital | $83,061 | $74,976 | | Current ratio | 4.89 | 4.70 | | Long term debt to equity ratio | 65.8% | 57.2% | [Item 3: Quantitative and Qualitative Disclosures about Market Risk](index=22&type=section&id=Item%203%3A%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section states that market risk disclosures are not applicable for this reporting period - Quantitative and qualitative disclosures about market risk are **not applicable**[84](index=84&type=chunk) [Item 4: Controls and Procedures](index=22&type=section&id=Item%204%3A%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal controls were effective as of March 31, 2022 [(a) Evaluation of Internal Controls and Procedures](index=22&type=section&id=(a)%20Evaluation%20of%20Internal%20Controls%20and%20Procedures) The CEO and CFO concluded that disclosure controls and procedures were effective - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were **effective as of March 31, 2022**[84](index=84&type=chunk) [(b) Changes in Internal Control over Financial Reporting](index=22&type=section&id=(b)%20Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No material changes in internal control over financial reporting occurred during the quarter - There were **no changes** in internal control over financial reporting during the quarter ended March 31, 2022, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[84](index=84&type=chunk) Part II — OTHER INFORMATION [Item 1: Legal Proceedings](index=23&type=section&id=Item%201%3A%20Legal%20Proceedings) There are no pending material legal proceedings involving the company or governmental authorities - There are **no pending material legal proceedings** to which the registrant is a party, or contemplated by any governmental authority[86](index=86&type=chunk) [Item 1A: Risk Factors](index=23&type=section&id=Item%201A%3A%20Risk%20Factors) Refers readers to the Risk Factors section in the company's 2021 Annual Report on Form 10-K - Risk Factors are set forth in **Part I, Item 1A of the Company's Annual Report on Form 10-K** for the fiscal year ended December 31, 2021[86](index=86&type=chunk) [Item 2: Unregistered Sales of Equity Securities and Use of Proceeds](index=23&type=section&id=Item%202%3A%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds during the period - **None**[86](index=86&type=chunk) [Item 3: Defaults Upon Senior Securities](index=23&type=section&id=Item%203%3A%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the reporting period - **None**[86](index=86&type=chunk) [Item 4: Mine Safety Disclosures](index=23&type=section&id=Item%204%3A%20Mine%20Safety%20Disclosures) This item is not applicable to the company - **Not applicable**[86](index=86&type=chunk) [Item 5: Other Information](index=23&type=section&id=Item%205%3A%20Other%20Information) There is no other information to report in this section - **None**[86](index=86&type=chunk) [Item 6: Exhibits](index=23&type=section&id=Item%206%3A%20Exhibits) Lists the exhibits filed as part of the Form 10-Q, including certifications and XBRL documents Exhibit Number | Exhibit Number | Description | | :--- | :--- | | Exhibit 31.1 | Certification of Walter C. Johnsen pursuant to 18 U.S.C. Section 1350, as adopted pursuant Section 302 of the Sarbanes-Oxley Act of 2002 | | Exhibit 31.2 | Certification of Paul G. Driscoll pursuant to 18 U.S.C. Section 1350, as adopted pursuant Section 302 of the Sarbanes-Oxley Act of 2002 | | Exhibit 32.1 | Certification of Walter C. Johnsen pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | Exhibit 32.2 | Certification of Paul G. Driscoll pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | 101.INS | Inline XBRL Instance Document. | | 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | | 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | | 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | | 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | | 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | | 104 | The cover page for the Company's Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101 | [Signatures](index=24&type=section&id=Signatures) The report was duly signed by the CEO and CFO in accordance with the Securities Exchange Act of 1934 - The report was signed on **May 9, 2022**, by Walter C. Johnsen, Chairman of the Board and Chief Executive Officer, and Paul G. Driscoll, Vice President and Chief Financial Officer[89](index=89&type=chunk)

[FORM 10-Q Filing Information](index=1&type=section&id=FORM%2010-Q%20Filing%20Information) This section details ACME UNITED CORPORATION's Form 10-Q filing information, including its filer status and outstanding common stock - ACME UNITED CORPORATION filed a Quarterly Report on Form 10-Q for the period ended March 31, 2021[1](index=1&type=chunk) - The registrant is an **Accelerated Filer** and a **Smaller Reporting Company**[2](index=2&type=chunk) - As of May 4, 2021, the company had **3,483,527 shares** of its **$2.50** par value Common Stock outstanding[2](index=2&type=chunk) [Part I - FINANCIAL INFORMATION](index=3&type=section&id=Part%20I%20-%20FINANCIAL%20INFORMATION) This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1: Financial Statements (Unaudited)](index=3&type=section&id=Item%201%3A%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for Acme United Corporation, including balance sheets, statements of operations, comprehensive income, changes in stockholders' equity, and cash flows, along with detailed notes. The statements reflect the company's financial position and performance for the quarter ended March 31, 2021, showing overall growth in sales and net income compared to the prior year, while also detailing accounting policies, debt, segment performance, and the status of the PPP loan [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section covers condensed consolidated balance sheets Condensed Consolidated Balance Sheet Highlights | Metric | March 31, 2021 ($k) | December 31, 2020 ($k) | | :--------------------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $3,857 | $4,167 | | Accounts receivable, net | $31,592 | $27,173 | | Inventories | $49,389 | $50,704 | | Total current assets | $87,315 | $83,685 | | Net property, plant and equipment | $21,138 | $20,239 | | Total assets | $135,314 | $129,868 | | Total current liabilities | $20,673 | $20,201 | | Long-term debt | $40,626 | $38,767 | | Long-term debt - PPP Loan | $3,508 | $3,508 | | Total liabilities | $70,687 | $67,151 | | Total stockholders' equity | $64,627 | $62,717 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section covers condensed consolidated statements of operations Condensed Consolidated Statements of Operations Highlights (Three months ended March 31) | Metric | 2021 ($k) | 2020 ($k) | YoY Change (k$) | YoY Change (%) | | :--------------------------------------------- | :--- | :--- | :-------------- | :------------- | | Net sales | $43,525 | $35,775 | $7,750 | **21.7%** | | Cost of goods sold | $27,938 | $22,244 | $5,694 | **25.6%** | | Gross profit | $15,587 | $13,531 | $2,056 | **15.2%** | | Selling, general and administrative expenses | $12,619 | $11,521 | $1,098 | **9.5%** | | Operating income | $2,968 | $2,010 | $958 | **47.7%** | | Interest expense, net | $221 | $315 | $(94) | **-29.8%** | | Income before income tax expense | $2,670 | $1,652 | $1,018 | **61.6%** | | Income tax expense | $624 | $375 | $249 | **66.4%** | | Net income | $2,046 | $1,277 | $769 | **60.2%** | | Basic earnings per share | $0.61 | $0.38 | $0.23 | **60.5%** | | Diluted earnings per share | $0.52 | $0.36 | $0.16 | **44.4%** | | Dividends declared per share | $0.13 | $0.12 | $0.01 | **8.3%** | [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section covers condensed consolidated statements of comprehensive income Condensed Consolidated Statements of Comprehensive Income (Three months ended March 31) | Metric | 2021 ($k) | 2020 ($k) | | :---------------------------- | :--- | :--- | | Net income | $2,046 | $1,277 | | Foreign currency translation adjustment | $(188) | $(329) | | Comprehensive income | $1,858 | $948 | [Condensed Consolidated Statement of Changes in Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Stockholders'%20Equity) This section covers condensed consolidated statement of changes in stockholders' equity Changes in Stockholders' Equity (Three months ended March 31) | Item | 2021 ($k) | 2020 ($k) | | :---------------------------- | :--- | :--- | | Balances, December 31 | $62,717 | $55,705 | | Net income | $2,046 | $1,277 | | Other comprehensive loss | $(188) | $(329) | | Stock compensation expense | $306 | $243 | | Distributions to shareholders | $(436) | $(401) | | Issuance of common stock | $182 | - | | Purchase of treasury stock | - | $(214) | | Balances, March 31 | $64,627 | $55,824 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section covers condensed consolidated statements of cash flows Condensed Consolidated Statements of Cash Flows (Three months ended March 31) | Cash Flow Activity | 2021 ($k) | 2020 ($k) | | :--------------------------------------------- | :--- | :--- | | Net cash (used in) provided by operating activities | $(336) | $793 | | Net cash used in investing activities | $(1,480) | $(2,671) | | Net cash provided by (used in) financing activities | $1,538 | $(526) | | Effect of exchange rate changes on cash and cash equivalents | $(32) | $(146) | | Net change in cash and cash equivalents | $(310) | $(2,550) | | Cash and cash equivalents at beginning of period | $4,167 | $6,822 | | Cash and cash equivalents at end of period | $3,857 | $4,272 | | Cash paid for income taxes | $45 | $319 | | Cash paid for interest | $218 | $340 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section covers notes to condensed consolidated financial statements [1. Basis of Presentation](index=9&type=section&id=1.%20Basis%20of%20Presentation) This section covers basis of presentation - The accompanying condensed consolidated financial statements are unaudited and include all necessary normal, recurring adjustments[26](index=26&type=chunk) - The adoption of ASU No. 2019-12 (Income Taxes) and ASU No. 2017-04 (Goodwill Impairment) did not have a material effect on the Company's consolidated financial statements[28](index=28&type=chunk)[29](index=29&type=chunk) [2. Commitment and Contingencies](index=9&type=section&id=2.%20Commitment%20and%20Contingencies) This section covers commitment and contingencies - There are no pending material legal proceedings or contemplated governmental authority actions against the Company[30](index=30&type=chunk) [3. Revenue from Contracts with Customers](index=9&type=section&id=3.%20Revenue%20from%20Contracts%20with%20Customers) This section covers revenue from contracts with customers - Revenue is recognized from sales of products grouped into two main categories: (i) cutting, sharpening and measuring; and (ii) first aid and safety[31](index=31&type=chunk) - Revenue is recognized when performance obligations are satisfied, typically at shipment or delivery, with consideration for customer rebates, promotional allowances, and freight allowance programs[32](index=32&type=chunk)[33](index=33&type=chunk) External Net Sales Disaggregated by Product Category and Segment (Three months ended March 31) | Category / Segment | 2021 ($k) | 2020 ($k) | YoY Change (k$) | YoY Change (%) | | :--------------------------------------------- | :--- | :--- | :-------------- | :------------- | | **Cutting, Sharpening and Measuring** | | | | | | United States | $15,564 | $11,728 | $3,836 | **32.7%** | | Canada | $1,549 | $1,422 | $127 | **8.9%** | | Europe | $3,743 | $2,598 | $1,145 | **44.1%** | | **First Aid and Safety** | | | | | | United States | $20,484 | $18,715 | $1,769 | **9.4%** | | Canada | $1,784 | $1,000 | $784 | **78.4%** | | Europe | $401 | $312 | $89 | **28.5%** | | **Total Net Sales** | **$43,525** | **$35,775** | **$7,750** | **21.7%** | [4. Debt and Shareholders' Equity](index=11&type=section&id=4.%20Debt%20and%20Shareholders'%20Equity) This section covers debt and shareholders' equity - Long-term debt primarily consists of borrowings under a **$50 million** revolving loan agreement with HSBC Bank, N.A. (expiring May 24, 2023) and a variable rate mortgage for the Vancouver, WA facility[42](index=42&type=chunk)[43](index=43&type=chunk) - The Company was in compliance with all loan covenants as of March 31, 2021[42](index=42&type=chunk) Debt Outstanding | Debt Type | March 31, 2021 ($k) | December 31, 2020 ($k) | | :--------------------------------------------- | :------------- | :---------------- | | Long-term debt (revolving loan) | $40,626 | $38,767 | | Long-term debt - PPP Loan | $3,508 | $3,508 | | Mortgage payable, net of current portion | $2,844 | $2,911 | [5. Segment Information](index=13&type=section&id=5.%20Segment%20Information) This section covers segment information - The Company operates in three reportable business segments: United States (including Asian operations), Canada, and Europe[44](index=44&type=chunk) - Direct import sales (Asia to U.S. retailers) represented approximately **7%** of total net sales for Q1 2021, up from **6%** in Q1 2020[45](index=45&type=chunk) Sales to External Customers by Segment (Three months ended March 31) | Segment | 2021 ($k) | 2020 ($k) | YoY Change (k$) | YoY Change (%) | | :---------------------------- | :--- | :--- | :-------------- | :------------- | | United States | $36,048 | $30,443 | $5,605 | **18.4%** | | Canada | $3,333 | $2,422 | $911 | **37.6%** | | Europe | $4,144 | $2,910 | $1,234 | **42.4%** | | **Consolidated** | **$43,525** | **$35,775** | **$7,750** | **21.7%** | Operating Income by Segment (Three months ended March 31) | Segment | 2021 ($k) | 2020 ($k) | YoY Change (k$) | YoY Change (%) | | :---------------------------- | :--- | :--- | :-------------- | :------------- | | United States | $2,133 | $1,571 | $562 | **35.8%** | | Canada | $370 | $205 | $165 | **80.5%** | | Europe | $465 | $234 | $231 | **98.7%** | | **Consolidated** | **$2,968** | **$2,010** | **$958** | **47.7%** | Assets by Segment | Segment | March 31, 2021 ($k) | December 31, 2020 ($k) | | :---------------------------- | :------------- | :---------------- | | United States | $118,158 | $113,831 | | Canada | $8,340 | $7,432 | | Europe | $8,816 | $8,605 | | **Consolidated** | **$135,314** | **$129,868** | [6. Stock Based Compensation](index=14&type=section&id=6.%20Stock%20Based%20Compensation) This section covers stock based compensation - Share-based compensation expense was **$306,385** for Q1 2021, up from **$243,000** for Q1 2020[49](index=49&type=chunk) - As of March 31, 2021, **$1,974,640** of unrecognized compensation cost remains, expected to be recognized over approximately **three years**[49](index=49&type=chunk) [7. Fair Value Measurements](index=14&type=section&id=7.%20Fair%20Value%20Measurements) This section covers fair value measurements - The carrying value of the Company's bank debt is a reasonable estimate of fair value due to its payment terms and maturity[50](index=50&type=chunk) [8. Leases](index=14&type=section&id=8.%20Leases) This section covers leases - The Company has operating leases for office and warehouse space and equipment, with terms expiring through 2026[51](index=51&type=chunk) Lease Information | Metric | March 31, 2021 ($k) | March 31, 2020 ($k) | | :---------------------------- | :------------- | :------------- | | Operating lease cost | $336 | $307 | | Operating lease - cash flow | $294 | $271 | | Weighted-average remaining lease term | **4.0 years** | **4.0 years** | | Weighted-average discount rate | **5%** | **5%** | [9. Paycheck Protection Program Loan](index=16&type=section&id=9.%20Paycheck%20Protection%20Program%20Loan) This section covers paycheck protection program loan - The Company received a **$3,508,047** PPP Loan on May 7, 2020, maturing on May 8, 2022, with a **1.00%** interest rate[57](index=57&type=chunk) - An application for forgiveness of the entire PPP loan was submitted in August 2020 and is currently pending SBA approval[59](index=59&type=chunk) - No assurance can be given that the Company's application for loan forgiveness will be approved by the SBA, in whole or in part[59](index=59&type=chunk) [10. Other Accrued Liabilities](index=16&type=section&id=10.%20Other%20Accrued%20Liabilities) This section covers other accrued liabilities Other Accrued Liabilities | Category | March 31, 2021 ($k) | December 31, 2020 ($k) | | :---------------------------- | :------------- | :---------------- | | Customer Rebates | $5,526 | $6,068 | | Accrued Compensation | $1,608 | $3,072 | | Dividend Payable | $436 | $435 | | Income Tax Payable | $1,035 | $460 | | Other | $2,718 | $1,425 | | **Total** | **$11,323** | **$11,460** | [Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Item%202%3A%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and results of operations, highlighting the impact of the COVID-19 pandemic on sales and costs, and detailing the performance across segments. It also discusses liquidity, capital resources, and ongoing efforts to manage operational challenges and supply chain disruptions [Forward-Looking Information](index=17&type=section&id=Forward-Looking%20Information) This section covers forward-looking information - Forward-looking statements are subject to risks and uncertainties, including the ongoing impact of the global COVID-19 pandemic on business, operations, and financial results[66](index=66&type=chunk) - Key risks include the duration and severity of COVID-19, economic downturns, supply chain disruptions, changes in client needs and consumer spending habits, competition, and technological changes[66](index=66&type=chunk)[67](index=67&type=chunk) [Critical Accounting Policies](index=17&type=section&id=Critical%20Accounting%20Policies) This section covers critical accounting policies - Critical accounting policies and estimates are discussed in Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2020[69](index=69&type=chunk) [COVID-19 Pandemic Related Considerations](index=17&type=section&id=COVID-19%20Pandemic%20Related%20Considerations) This section covers COVID-19 pandemic related considerations - The COVID-19 pandemic has caused weakness in sales of Westcott office and school supplies due to closures, while Westcott craft products gained market share and first aid/safety products saw strong demand[70](index=70&type=chunk)[74](index=74&type=chunk) - The Company incurred increased costs for product acquisition, additional inventory, labor, and facility cleaning, and maintained elevated reserves for outstanding receivables due to credit risks[73](index=73&type=chunk) - Increased short-term manufacturing and sourcing capacity for first aid and safety products and other key components to minimize supply chain disruptions[74](index=74&type=chunk) [Results of Operations](index=19&type=section&id=Results%20of%20Operations) This section covers results of operations - Consolidated net sales for Q1 2021 increased **22%** to **$43,525,000** compared to **$35,775,000** in Q1 2020[75](index=75&type=chunk) - U.S. sales increased **18%** due to growth in Westcott cutting tools and strong first aid/safety product sales - Canadian net sales increased **38%** (**31%** in local currency) primarily due to higher First Aid Central e-commerce sales - European net sales increased **42%** (**31%** in local currency) due to e-commerce growth across all product lines and DMT sharpening products[75](index=75&type=chunk)[76](index=76&type=chunk) - Gross profit percentage decreased to **35.8%** in Q1 2021 from **37.8%** in Q1 2020, mainly due to product mix and higher ocean freight costs[78](index=78&type=chunk) - Operating income increased to **$2,968,000** in Q1 2021 from **$2,010,000** in Q1 2020, with all segments showing growth[80](index=80&type=chunk) - Interest expense, net, decreased by **$94,000** due to a lower average interest rate, partially offset by higher average debt outstanding[80](index=80&type=chunk) [Financial Condition (Liquidity and Capital Resources)](index=20&type=section&id=Financial%20Condition%20(Liquidity%20and%20Capital%20Resources)) This section covers financial condition (liquidity and capital resources) - Working capital increased approximately **$3.0 million** during Q1 2021 compared to December 31, 2020[82](index=82&type=chunk) Key Financial Ratios | Metric | March 31, 2021 | December 31, 2020 | | :---------------------------- | :------------- | :---------------- | | Working capital | $66,642k | $63,484k | | Current ratio | **4.22** | **4.14** | | Long term debt to equity ratio | **72.7%** | **72.0%** | - Total debt outstanding under the revolving credit facility increased by approximately **$1.8 million** in Q1 2021, with **$40,626,000** outstanding and **$9,374,000** available for borrowing[85](index=85&type=chunk) - The Company believes that cash generated from operating activities, combined with available funds under its revolving credit facility, will be sufficient to finance operations for the next **twelve months**[93](index=93&type=chunk) [Item 3: Quantitative and Qualitative Disclosures about Market Risk](index=24&type=section&id=Item%203%3A%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section states that there are no material quantitative or qualitative disclosures about market risk applicable for this report - This item is marked as 'Not applicable', indicating no material quantitative or qualitative disclosures about market risk are being provided[95](index=95&type=chunk) [Item 4: Controls and Procedures](index=24&type=section&id=Item%204%3A%20Controls%20and%20Procedures) This section addresses the effectiveness of the Company's disclosure controls and procedures, identifying a material weakness related to inventory controls at a warehouse. It also outlines the remediation efforts underway to address this weakness, with expected completion by the end of 2021 [Evaluation of Internal Controls and Procedures](index=24&type=section&id=Evaluation%20of%20Internal%20Controls%20and%20Procedures) This section covers evaluation of internal controls and procedures - Disclosure controls and procedures were not effective as of March 31, 2021, due to a material weakness related to the inventory cycle count program at the Rocky Mount, NC warehouse[95](index=95&type=chunk) - The identified material weakness did not result in any misstatement of the Company's consolidated financial statements[96](index=96&type=chunk) [Changes in Internal Control over Financial Reporting](index=24&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section covers changes in internal control over financial reporting - The Company is evaluating and changing processes, procedures, and controls related to the Warehouse cycle count program - A new inventory management system is being implemented at the Warehouse, expected by the end of Q2 2021, to improve cycle count efficiency and effectiveness - Additional personnel resources are being allocated to the inventory cycle count program[96](index=96&type=chunk)[97](index=97&type=chunk) - Remediation of the material weakness is expected to be completed as of December 31, 2021[98](index=98&type=chunk) [Part II - OTHER INFORMATION](index=25&type=section&id=Part%20II%20-%20OTHER%20INFORMATION) This part provides other required information, including legal proceedings, risk factors, and exhibits [Item 1 — Legal Proceedings](index=25&type=section&id=Item%201%20%E2%80%94%20Legal%20Proceedings) This section confirms the absence of pending material legal proceedings or governmental actions against the Company - There are no pending material legal proceedings or contemplated governmental authority actions against the Company[100](index=100&type=chunk) [Item 1A — Risk Factors](index=25&type=section&id=Item%201A%20%E2%80%94%20Risk%20Factors) This section refers readers to the comprehensive discussion of risk factors in the Company's Annual Report on Form 10-K - Risk Factors are 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[100](index=100&type=chunk) [Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds](index=25&type=section&id=Item%202%20%E2%80%94%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section covers unregistered sales of equity securities and use of proceeds - No unregistered sales of equity securities and use of proceeds to report[100](index=100&type=chunk) [Item 3 — Defaults Upon Senior Securities](index=25&type=section&id=Item%203%20%E2%80%94%20Defaults%20Upon%20Senior%20Securities) This section covers defaults upon senior securities - No defaults upon senior securities to report[100](index=100&type=chunk) [Item 4 — Mine Safety Disclosures](index=25&type=section&id=Item%204%20%E2%80%94%20Mine%20Safety%20Disclosures) This section covers mine safety disclosures - Mine Safety Disclosures are not applicable[100](index=100&type=chunk) [Item 5 — Other Information](index=25&type=section&id=Item%205%20%E2%80%94%20Other%20Information) This section covers other information - No other information to report[100](index=100&type=chunk) [Item 6 — Exhibits](index=25&type=section&id=Item%206%20%E2%80%94%20Exhibits) This section lists the documents filed as exhibits to the Form 10-Q, including certifications and XBRL documents - Exhibits include certifications under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, and Inline XBRL documents[101](index=101&type=chunk) [Signatures](index=26&type=section&id=Signatures) This section contains the signatures of authorized officers certifying the report on behalf of Acme United Corporation - The report was signed by Walter C. Johnsen, Chairman of the Board and Chief Executive Officer, and Paul G. Driscoll, Vice President and Chief Financial Officer, on May 7, 2021[103](index=103&type=chunk)

[Filing Information](index=1&type=section&id=Filing%20Information) This section provides basic filing details for ACME UNITED CORPORATION's Form 10-Q, including registrant classification and shares outstanding [Form 10-Q Details](index=1&type=section&id=Form%2010-Q%20Details) This section details ACME UNITED CORPORATION's Form 10-Q filing, classifying it as an Accelerated Filer and Smaller Reporting Company with 3,338,913 shares outstanding as of November 3, 2020 - Filing Type: Quarterly Report (Form 10-Q) for the period ended **September 30, 2020**[1](index=1&type=chunk) - Registrant Classification: **Accelerated Filer** and **Smaller Reporting Company**[3](index=3&type=chunk) Shares Outstanding | Metric | Value | | :--- | :--- | | Common Stock Outstanding (as of Nov 3, 2020) | 3,338,913 shares | Part I - FINANCIAL INFORMATION [Item 1: Financial Statements (Unaudited)](index=3&type=section&id=Item%201%3A%20Financial%20Statements%20(Unaudited)) This section presents Acme United Corporation's unaudited condensed consolidated financial statements, including balance sheets, income, comprehensive income, equity, and cash flows, for the period ended September 30, 2020 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Presents key balance sheet figures, showing asset and liability changes from December 2019 to September 2020 Condensed Consolidated Balance Sheets (Selected Data, in thousands) | Metric | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | **ASSETS** | | | | Total current assets | $85,678 | $73,146 | | Total assets | $123,017 | $110,749 | | **LIABILITIES** | | | | Total current liabilities | $23,741 | $16,583 | | Total liabilities | $62,421 | $55,045 | | **STOCKHOLDERS' EQUITY** | | | | Total stockholders' equity | $60,596 | $55,704 | | Total liabilities and stockholders' equity | $123,017 | $110,749 | - Total assets increased by **$12.268 million (11.08%)** from **$110.749 million** at December 31, 2019, to **$123.017 million** at September 30, 2020[5](index=5&type=chunk) - Total current assets increased by **$12.532 million (17.13%)** from **$73.146 million** to **$85.678 million**, primarily due to increases in accounts receivable and inventories[5](index=5&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Summarizes the company's financial performance, including net sales, gross profit, operating income, and net income for the periods ended September 30, 2020 Condensed Consolidated Statements of Operations (Selected Data, in thousands, except per share) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $43,316 | $36,995 | $123,133 | $108,585 | | Gross profit | $14,956 | $13,134 | $44,539 | $39,708 | | Operating income | $2,124 | $1,726 | $8,516 | $7,029 | | Income before income tax expense | $1,991 | $1,217 | $7,792 | $5,514 | | Net income | $1,579 | $1,059 | $6,055 | $4,537 | | Basic earnings per share | $0.47 | $0.32 | $1.81 | $1.35 | | Diluted earnings per share | $0.46 | $0.30 | $1.75 | $1.32 | | Dividends declared per share | $0.12 | $0.12 | $0.36 | $0.36 | - Net sales increased by **17%** for the three months and **13%** for the nine months ended September 30, 2020, compared to the same periods in 2019[9](index=9&type=chunk) - Net income increased by **49.1%** for the three months and **33.4%** for the nine months ended September 30, 2020, compared to the same periods in 2019[9](index=9&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Details comprehensive income, including net income and foreign currency translation adjustments, for the periods ended September 30, 2020 Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Net income | $1,579 | $1,059 | $6,055 | $4,537 | | Foreign currency translation adjustment | $270 | $(254) | $142 | $(124) | | Comprehensive income | $1,849 | $805 | $6,197 | $4,413 | - Comprehensive income significantly increased by **129.7%** for the three months and **40.4%** for the nine months ended September 30, 2020, primarily due to higher net income and a positive foreign currency translation adjustment[10](index=10&type=chunk) [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Outlines changes in stockholders' equity, including net income, stock compensation, and distributions, for the periods ended September 30, 2020 Condensed Consolidated Statements of Changes in Stockholders' Equity (Selected Data, in thousands) | Metric | Sep 30, 2020 | Sep 30, 2019 | | :--- | :--- | :--- | | Total Stockholders' Equity (Nine Months) | $60,596 | $55,024 | | Net Income (Nine Months) | $6,055 | $4,537 | | Stock Compensation Expense (Nine Months) | $929 | $745 | | Distributions to Shareholders (Nine Months) | $(1,201) | $(1,213) | | Purchase of Treasury Stock (Nine Months) | $(287) | $0 | - Total stockholders' equity increased from **$55.704 million** at December 31, 2019, to **$60.596 million** at September 30, 2020, driven by net income and stock compensation expense, partially offset by distributions to shareholders and treasury stock purchases[7](index=7&type=chunk)[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Presents cash flow activities from operations, investing, and financing, showing the net change in cash for the periods ended September 30, 2020 Condensed Consolidated Statements of Cash Flows (Selected Data, in thousands) | Metric | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,741 | $7,268 | | Net cash used in investing activities | $(4,155) | $(1,123) | | Net cash used in financing activities | $(1,463) | $(4,825) | | Net change in cash and cash equivalents | $(3,791) | $1,289 | | Cash and cash equivalents at end of period | $3,031 | $5,698 | - Net cash provided by operating activities decreased significantly from **$7.268 million** in 2019 to **$1.741 million** in 2020, primarily due to changes in accounts receivable and inventories[17](index=17&type=chunk) - Net cash used in investing activities increased to **$4.155 million** in 2020, mainly due to the acquisition of First Aid Central for **$2.074 million**[17](index=17&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes on financial statements, covering presentation, commitments, revenue, debt, equity, segments, compensation, fair value, leases, business combinations, and accrued liabilities [1. Basis of Presentation](index=11&type=section&id=1.%20Basis%20of%20Presentation) Outlines the basis for the condensed, unaudited financial statements and the expected impact of new accounting standards - The financial statements are condensed and unaudited, including normal, recurring adjustments, and should be read in conjunction with the **2019 Annual Report on Form 10-K**[19](index=19&type=chunk) - The Company does not expect new accounting standards **ASU 2018-14** and **ASU 2019-12** to materially impact its consolidated financial statements[21](index=21&type=chunk)[22](index=22&type=chunk) [2. Commitment and Contingencies](index=11&type=section&id=2.%20Commitment%20and%20Contingencies) Addresses the company's commitments and contingencies, specifically noting the absence of material legal proceedings - There are no pending material legal proceedings to which the Company is a party[23](index=23&type=chunk) [3. Revenue from Contracts with Customers](index=11&type=section&id=3.%20Revenue%20from%20Contracts%20with%20Customers) Details revenue recognition policies and disaggregated net sales by product category and segment for the periods ended September 30, 2020 - Revenue is recognized from sales of cutting, sharpening, measuring, and first aid/safety products, with performance obligations typically satisfied at shipment or delivery[24](index=24&type=chunk) Net Sales Disaggregated by Product Category and Segment (in thousands) | Category | U.S. (3M 2020) | Canada (3M 2020) | Europe (3M 2020) | Total (3M 2020) | U.S. (9M 2020) | Canada (9M 2020) | Europe (9M 2020) | Total (9M 2020) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Cutting, Sharpening and Measuring | $18,656 | $2,199 | $3,013 | $23,868 | $50,088 | $4,860 | $8,505 | $63,453 | | First Aid and Safety | $18,000 | $1,174 | $274 | $19,448 | $55,488 | $3,315 | $877 | $59,680 | | **Total Net Sales** | **$36,656** | **$3,373** | **$3,287** | **$43,316** | **$105,576** | **$8,175** | **$9,382** | **$123,133** | - Direct import sales, where customers take ownership in Asia, represented approximately **12%** of total net sales for the three months and **11%** for the nine months ended September 30, 2020[42](index=42&type=chunk) [4. Debt and Shareholders' Equity](index=13&type=section&id=4.%20Debt%20and%20Shareholders'%20Equity) Discusses changes in outstanding debt, the Paycheck Protection Program Loan, and common stock repurchases for the periods ended September 30, 2020 - Outstanding borrowings under the revolving loan agreement with HSBC Bank, N.A. decreased from **$33.240 million** at December 31, 2019, to **$30.703 million** at September 30, 2020[36](index=36&type=chunk) - The Company received a **$3.508 million PPP Loan** on May 7, 2020, which is unsecured and federally guaranteed, with an application for forgiveness pending SBA approval[38](index=38&type=chunk)[61](index=61&type=chunk)[63](index=63&type=chunk) - The Company repurchased **14,420 shares** of common stock for approximately **$287,000** during the nine months ended September 30, 2020[39](index=39&type=chunk) [5. Segment Information](index=13&type=section&id=5.%20Segment%20Information) Provides financial data disaggregated by the Company's three reportable segments: United States, Canada, and Europe - The Company operates in three reportable segments: **United States** (including Asian operations), **Canada**, and **Europe**[40](index=40&type=chunk) Sales to External Customers by Segment (in thousands) | Segment | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | United States | $36,656 | $32,780 | $105,576 | $95,178 | | Canada | $3,373 | $1,775 | $8,175 | $5,402 | | Europe | $3,287 | $2,440 | $9,382 | $8,005 | | **Consolidated** | **$43,316** | **$36,995** | **$123,133** | **$108,585** | Operating Income by Segment (in thousands) | Segment | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | United States | $1,189 | $1,381 | $6,442 | $5,942 | | Canada | $600 | $280 | $1,173 | $746 | | Europe | $335 | $65 | $901 | $341 | | **Consolidated** | **$2,124** | **$1,726** | **$8,516** | **$7,029** | [6. Stock Based Compensation](index=15&type=section&id=6.%20Stock%20Based%20Compensation) Reports stock-based compensation expense and unrecognized compensation costs for non-vested share-based payments Stock-Based Compensation Expense (in thousands) | Period | 2020 | 2019 | | :--- | :--- | :--- | | Three Months Ended Sep 30 | $327 | $247 | | Nine Months Ended Sep 30 | $929 | $745 | - Unrecognized compensation cost related to non-vested share-based payments was **$2.101 million** as of September 30, 2020, expected to be recognized over approximately three years[47](index=47&type=chunk) [7. Fair Value Measurements](index=15&type=section&id=7.%20Fair%20Value%20Measurements) Addresses the fair value of the Company's financial instruments, specifically its bank debt - The carrying value of the Company's bank debt is considered a reasonable estimate of fair value due to its payment terms and maturity[48](index=48&type=chunk) [8. Leases](index=15&type=section&id=8.%20Leases) Details the Company's operating lease arrangements for office, warehouse space, and equipment, including costs and cash flows - The Company has operating leases for office, warehouse space, and equipment, with terms expiring through **2026**[49](index=49&type=chunk) Operating Lease Costs and Cash Flows (in thousands) | Metric | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | Operating lease cost | $284 | $275 | $899 | $856 | | Operating lease - cash flow | $272 | $270 | $839 | $840 | - The weighted-average remaining lease term is **4.0 years** with a weighted-average discount rate of **5%** as of September 30, 2020[53](index=53&type=chunk) [9. Business Combinations](index=17&type=section&id=9.%20Business%20Combinations) Describes the acquisition of First Aid Central, including the purchase price allocation and its contribution to net sales and income - On January 7, 2020, the Company acquired **First Aid Central**, a Canadian first aid and safety supplier, for approximately **$2.1 million** in cash[55](index=55&type=chunk) First Aid Central Acquisition - Purchase Price Allocation (in thousands) | Asset | Amount | | :--- | :--- | | Accounts receivable | $232 | | Inventory | $440 | | Prepaid Expense | $47 | | Equipment | $45 | | Intangible assets | $1,310 | | **Total assets acquired** | **$2,074** | - First Aid Central contributed approximately **$1.2 million** in net sales and **$0.1 million** in net income for the three months ended September 30, 2020, and **$3.3 million** in net sales and **$0.3 million** in net income for the nine months ended September 30, 2020[59](index=59&type=chunk) [10. Paycheck Protection Program Loan](index=19&type=section&id=10.%20Paycheck%20Protection%20Program%20Loan) Details the Company's Paycheck Protection Program Loan, including its terms, forgiveness application status, and usage of proceeds - The Company received a **$3.508 million PPP Loan** on May 7, 2020, with an interest rate of **1.00%** and a maturity date of **May 8, 2022**[61](index=61&type=chunk) - An application for forgiveness of the entire PPP Loan was submitted in **August 2020** and is currently pending SBA approval[63](index=63&type=chunk) - The Company used the loan proceeds for eligible purposes, primarily payroll, and believes it satisfied eligibility criteria, though full forgiveness is not assured[62](index=62&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk) [11. Other Accrued Liabilities](index=19&type=section&id=11.%20Other%20Accrued%20Liabilities) Presents a breakdown of other accrued liabilities, highlighting significant increases in customer rebates, compensation, and income tax payable Other Accrued Liabilities (in thousands) | Liability | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Customer Rebates | $5,870 | $4,849 | | Pension Liability | $60 | $45 | | Accrued Compensation | $2,488 | $1,695 | | Dividend Payable | $400 | $402 | | Income Tax Payable | $1,545 | $262 | | Other | $3,082 | $1,406 | | **Total** | **$13,445** | **$8,659** | - Total other accrued liabilities increased by **$4.786 million (55.27%)** from **$8.659 million** at December 31, 2019, to **$13.445 million** at September 30, 2020, primarily due to increases in customer rebates, accrued compensation, and income tax payable[64](index=64&type=chunk) [Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202%3A%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, condition, and COVID-19 impact, noting increased first aid demand, weak office/school sales, and associated operational challenges and costs [Forward-Looking Information](index=20&type=section&id=Forward-Looking%20Information) Highlights forward-looking statements and associated risks, including the ongoing impact of the COVID-19 pandemic and supply chain disruptions - The report contains forward-looking statements subject to risks and uncertainties, including the ongoing impact of the global **COVID-19 pandemic** on business, operations, and financial results[66](index=66&type=chunk)[67](index=67&type=chunk) - Key risks include the pandemic's severity and duration, supply chain disruptions, changes in consumer spending, competition, technological changes, and the ability to manage growth and inventory[67](index=67&type=chunk)[68](index=68&type=chunk) [Critical Accounting Policies](index=20&type=section&id=Critical%20Accounting%20Policies) Refers to the critical accounting policies and estimates detailed in the Company's 2019 Annual Report on Form 10-K - Critical accounting policies and estimates are discussed in **Item 7** of the Company's **2019 Annual Report on Form 10-K**[70](index=70&type=chunk) [COVID-19 Pandemic Related Considerations](index=20&type=section&id=COVID-19%20Pandemic%20Related%20Considerations) Examines the COVID-19 pandemic's impact on product demand, increased operational costs, and associated challenges for the Company - The **COVID-19 pandemic** led to a significant increase in demand for first aid and safety products, while sales of Westcott office and school supplies remained weak[71](index=71&type=chunk) - The Company incurred increased costs for product acquisition, inventory, labor, and facility cleaning due to the pandemic, and increased reserves for bad debt related to COVID-19 credit risks[73](index=73&type=chunk) - Operational challenges included travel restrictions, inefficiencies from remote work, social distancing in facilities, and higher turnover/training costs[73](index=73&type=chunk) [Results of Operations](index=21&type=section&id=Results%20of%20Operations) Analyzes consolidated net sales, gross profit, SG&A expenses, operating income, and net interest expense for the periods ended September 30, 2020 Consolidated Net Sales (in thousands) | Period | 2020 | 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Three Months Ended Sep 30 | $43,316 | $36,995 | 17% | | Nine Months Ended Sep 30 | $123,133 | $108,585 | 13% | - U.S. segment sales increased by **12%** (3 months) and **11%** (9 months) due to strong first aid and safety product sales, market share gains, and COVID-19 related surge demand[75](index=75&type=chunk) - Canadian net sales (excluding First Aid Central) increased **25%** (3 months) due to easing lockdowns and back-to-school shift, but decreased **10%** (9 months) due to earlier store/office closings[76](index=76&type=chunk) - European net sales increased **35%** (3 months) and **17%** (9 months) driven by Westcott cutting products, Camillus knives in e-commerce, and DMT sharpening products[77](index=77&type=chunk) Gross Profit and SG&A Expenses (in thousands) | Metric | 3M 2020 | 3M 2019 | 9M 2020 | 9M 2019 | | :--- | :--- | :--- | :--- | :--- | | Gross Profit | $14,956 | $13,134 | $44,539 | $39,708 | | Gross Profit % | 34.5% | 35.5% | 36.2% | 36.6% | | SG&A Expenses | $12,832 | $11,408 | $36,023 | $32,679 | | SG&A % of Net Sales | 29.6% | 30.8% | 29.3% | 30.1% | - Operating income increased by **$398,000 (23.1%)** for the three months and **$1.487 million (21.2%)** for the nine months ended September 30, 2020[80](index=80&type=chunk) - Net interest expense decreased by **$301,000 (64.2%)** for the three months and **$741,000 (50.6%)** for the nine months due to lower average interest rates and debt[82](index=82&type=chunk) [Financial Condition](index=22&type=section&id=Financial%20Condition) Assesses the Company's financial health, including working capital, current ratio, debt levels, and liquidity outlook Key Financial Ratios | Metric | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Working capital | $61,937 | $56,563 | | Current ratio | 3.61 | 4.41 | | Long term debt to equity ratio | 61.4% | 65.4% | - Working capital increased by approximately **$5.3 million**, while the current ratio decreased from **4.41** to **3.61**[85](index=85&type=chunk)[86](index=86&type=chunk) - Total debt outstanding under the revolving credit facility decreased by approximately **$2.5 million**, with **$19.3 million** available for borrowing as of September 30, 2020[86](index=86&type=chunk) - The Company believes cash from operations, PPP Loan proceeds, and available credit will be sufficient to finance operations over the next twelve months[93](index=93&type=chunk) [Item 3: Quantitative and Qualitative Disclosures about Market Risk](index=25&type=section&id=Item%203%3A%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section confirms no quantitative or qualitative disclosures about market risk are applicable for the Company in this report - The Company has no quantitative and qualitative disclosures about market risk to report in this filing[93](index=93&type=chunk) [Item 4: Controls and Procedures](index=25&type=section&id=Item%204%3A%20Controls%20and%20Procedures) Management evaluated disclosure controls and procedures as effective on September 30, 2020, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of **September 30, 2020**[93](index=93&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended **September 30, 2020**[94](index=94&type=chunk) Part II - OTHER INFORMATION [Item 1: Legal Proceedings](index=26&type=section&id=Item%201%3A%20Legal%20Proceedings) The Company reports no pending material legal proceedings or those contemplated by any governmental authority - There are no pending material legal proceedings to which the Company is a party[96](index=96&type=chunk) [Item 1A: Risk Factors](index=26&type=section&id=Item%201A%3A%20Risk%20Factors) The Company refers to its Annual Report on Form 10-K for the fiscal year ended December 31, 2019, for a comprehensive discussion of risk factors - Risk factors are detailed in **Part I, Item 1A** of the Company's **Annual Report on Form 10-K** for the fiscal year ended December 31, 2019[96](index=96&type=chunk) [Item 2: Unregistered Sales of Equity Securities and Use of Proceeds](index=26&type=section&id=Item%202%3A%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company reports no unregistered sales of equity securities or use of proceeds - No unregistered sales of equity securities or use of proceeds to report[96](index=96&type=chunk) [Item 3: Defaults Upon Senior Securities](index=26&type=section&id=Item%203%3A%20Defaults%20Upon%20Senior%20Securities) The Company reports no defaults upon senior securities - No defaults upon senior securities to report[97](index=97&type=chunk) [Item 4: Mine Safety Disclosures](index=26&type=section&id=Item%204%3A%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[97](index=97&type=chunk) [Item 5: Other Information](index=26&type=section&id=Item%205%3A%20Other%20Information) The Company reports no other information in this section - No other information to report[97](index=97&type=chunk) [Item 6: Exhibits](index=26&type=section&id=Item%206%3A%20Exhibits) This section lists filed exhibits, including Sarbanes-Oxley Act certifications and Inline XBRL documents - Exhibits include certifications by **Walter C. Johnsen** and **Paul G. Driscoll** under **Sections 302 and 906** of the Sarbanes-Oxley Act of 2002[97](index=97&type=chunk) - Inline XBRL documents (Instance, Schema, Presentation, Calculation, Label, Definition Linkbase Documents) are filed as part of the exhibits[97](index=97&type=chunk) [Signatures](index=27&type=section&id=Signatures) The report is signed by Walter C. Johnsen (Chairman & CEO) and Paul G. Driscoll (VP & CFO) on November 6, 2020, certifying compliance with the Securities Exchange Act of 1934 [Signatures](index=27&type=section&id=Signatures) The report is signed by Walter C. Johnsen (Chairman & CEO) and Paul G. Driscoll (VP & CFO) on November 6, 2020 - Report signed by **Walter C. Johnsen** (Chairman & CEO) and **Paul G. Driscoll** (VP & CFO) on **November 6, 2020**[99](index=99&type=chunk)

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: June 30, 2020 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) | --- | --- | --- | |----------------------------- ...