What changed in this filing

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Item 1A. Risk Factors

2021-03-31 compared with 2020-03-13 · 153 added, 71 removed, 91 unchanged (71% of the section changed)

Ownership of the Company’s securities involves a number of risks and uncertainties.

Potential investors should carefully consider the risks and uncertainties described below and the other information in this Annual Report on Form 10-K before deciding whether to invest in the Company’s securities.

The Company’s business, financial condition or results of operations could be materially adversely affected by any of these risks.

The risks described below are not the only ones facing the Company.

Additional risks that are currently unknown to the Company or that the Company currently considers immaterial may also impair its business or adversely affect its financial condition or results of operations.

Industry and Operational Risks

The Company is subject to a number of significant operational risks that might cause the Company’s actual results to vary materially from its forecasts, targets or projections, including:

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Orders from the Company’s principal customers are ultimately based on demand from end-users and end-user demand can be difficult to predict.

During the prior year, as a result of the COVID pandemic, the Company had difficulty in forecasting demand for its products.

Low end-user demand would negatively affect orders the Company receives from distributors and other principal customers which could, in turn adversely affect the Company’s revenues in any fiscal period.

If the Company’s estimates of sales are not accurate and the Company experiences unforeseen variability in its revenues and operating results, the Company may be unable to adjust its expense lev els accordingly and its profit margins could be adversely affected.

If the Company’s estimates of sales are not accurate and the Company experiences unforeseen variability in its revenues and operating results, the Company may be unable to adjust its expense levels accordingly and its profit margins could be adversely affected.

We have identified a material weakness in our internal control over financial reporting which could, if not remediated, result in material misstatements in our financial statements.

We have identified a material weakness in our internal control over financial reporting, as described below.

A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

In connection with the preparation of our annual report for the year ended December 31, 2020, we identified a deficiency related to the Company’s inventory cycle count program at our Rocky Mount, NC warehouse (the Warehouse).

Specifically, the Company’s controls related to the existence of inventory at the Warehouse were not effective as the cycle count program used did not demonstrate inventory quantities were sufficiently counted.

We have evaluated the processes, procedures and controls related to the Warehouse cycle count program and have commenced making changes as considered appropriate to address the control deficiency.

We are in the process of implementing a new inventory management system and are allocating additional resources to the implementation of our inventory cycle count program.

The actions deemed taken are subject to continued review, supported by monitoring and testing by management as well as audit committee oversight.

If our remedial measures are insufficient to address the material weakness, or if additional material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, our ability to report our financial condition and results of operations in a timely and accurate manner may be materially adversely affected and investor confidence in the Company may be negatively impacted.

Because our products are primarily sold by third parties, our financial results depend in part on the financial health of these parties and any loss of a third-party distributor could adversely affect the Company’s revenues.

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Distributors and other significant retail customers cannot easily be replaced and the loss of revenues and the Company’s inability to reduce expenses to compensate for the loss of revenues could adversely affect the Company’s net revenues and profit margins.

The ability to deliver products to our customers in a timely manner and to satisfy our customers’ fulfillment standards are subject to several factors, some of which are beyond our control.

The ability to deliver products to our customers in a timely manner and to satisfy our customers’ fulfillment standards are subject to many factors, some of which are beyond our control.

These factors presently include the impact of the COVID-19 pandemic on the Company.

Customers place great emphasis on timely delivery of our products for specific selling seasons, especially during our second and third fiscal quarters, and on the fulfillment of consumer demand throughout the year.

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Accordingly, we are subject to risks, including labor disputes, inclement weather, natural disasters, cybersecurity attacks, possible acts of terrorism, availability of shipping containers, and increased security restrictions associated with such carriers’ ability to provide delivery services to meet our shipping needs.

In 2020, the COVID-19 pandemic caused disruptions in our supply chain as a result of shortages of factory workers, travel restrictions, barriers to the movement of goods, and temporary closures of production facilities and distribution centers.

Failure to deliver products to our customers in a timely and effective manner, often under special vendor requirements to use specific carriers and delivery schedules, could damage our reputation and brands and result in loss of customers or reduced orders.

Reliance on foreign suppliers could adversely affect the Company’s business.

The Company sources its products from suppliers located in Asia, Europe and the United States.

The Company’s Asia vendors are located primarily in China, which subjects the Company to various risks within the region including regulatory, political, economic and foreign currency changes.

The Company’s ability to select and retain reliable vendors and suppliers who provide timely deliveries of quality products efficiently will impact its success in meeting customer demand for timely delivery of quality products.

The Company’s sourcing operations and its vendors are impacted by labor costs in China.

Labor historically has been readily available at low cost relative to labor costs in North America.

However, as China is experiencing rapid social, political and economic changes, labor costs have risen in some regions and there can be no assurance that labor will continue to be available to the Company in China at costs consistent with historical levels or that changes in labor or other laws will not be enacted which would have a material adverse effect on the Company’s operations in China.

Interruption of supplies from any of the Company’s vendors, or the loss of one or more key vendors, could have a negative effect on the Company’s business and operating results.

Changes in currency exchange rates might negatively affect the profitability and business prospects of the Company and its overseas vendors.

In particular, the Chinese Renminbi has recently fluctuated against the U.S.

Dollar, if the Chinese Renminbi continues to fluctuate with respect to the U.S.

Dollar in the future, the Company may experience cost increases on such purchases, and this can adversely impact profitability.

Future interventions by China may result in further currency appreciation and increase our product costs over time.

The Company may not be successful at implementing customer pricing or other actions in an effort to mitigate the related effects of the product cost increases.

Additional factors that could adversely affect the Company’s business include increases in transportation costs, new or increased import duties, transportation delays, work stoppages, capacity constraints and poor quality.

The Company’s operations are increasingly global in nature.

Our business, financial condition and results of operations could be adversely affected by the political and economic conditions in the countries in which we conduct business, by fluctuations in currency exchange rates and other factors related to our international operations.

As our international operations and activities expand, we face increasing exposure to the risks of operating in foreign countries.

These factors include:

Changes generally in political, regulatory or economic conditions in the countries in which we conduct business.

Trade protection measures in favor of local producers of competing products, including government subsidies, tax benefits, changes in local tax rates, trade actions (such as anti-dumping proceedings) and other measures giving local producers a competitive advantage over the Company.

Changes in foreign currency exchange rates which could adversely affect our competitive position, selling prices and manufacturing costs, and therefore the demand for our products in a particular market.

These risks could affect the cost of manufacturing and selling our products, our pricing, sales volum e, and ultimately our financial performance.

The likelihood of such occurrences and their potential effect on the Company vary from country to country and are unpredictable.

The Coronavirus could materially adversely affect our results

If a pandemic, epidemic or outbreak of an infectious disease occurs, our business may be adversely affected.

For example, in December 2019, a new strain of the coronavirus (COVID-19) spread through China as well as other countries including the United States and countries in Europe, bringing the total to at least 100 countries worldwide with confirmed cases of COVID-19.

The impact of the virus varies from region to region and from day to day and any significant additional spreading of the virus could adversely affect the Company’s business.

At the time of this filing, COVID-19 has not caused significant disruption in the Company’s business and the Company currently has sufficient inventory to meet anticipated demands in the near future.

However, the outbreak of the COVID-19 virus is likely to have a further negative impact in 2020 on the global economy and, in the future, might impact the Company’s ability to manufacture, source or distribute its products both domestically and internationally or reduce demand for its products, any of which could have a significant negative impact on the Company’s financial results in 2020 and beyond.

Given the dynamic nature of this outbreak, however, the extent to which the COVID-19 virus impacts the Company’s results will depend on future developments, which remain highly uncertain and cannot be predicted at this time.

Continuing uncertainty in the global economy could negatively impact our business.

Uncertainty in the global economy could adversely affect our customers and our suppliers and businesses such as ours.

In addition, any uncertainty could have a variety of negative effects on the Company, such as reduction in revenues, increased costs, lower gross margin percentages, increased allowances for doubtful accounts and/or write-offs of accounts receivable and could otherwise have material adverse effects on our business, results of operations, financial condition and cash flows.

Changes in trade policies, including the imposition of tariffs and their enforcement, may have a material adverse impact on our business, results of operations, and outlook.

On September 24, 2018, the United States levied a third round of tariffs on the import of some products from China, which is an important source of many of the Company’s products.

The first two rounds targeted $50 billion of Chinese goods and applied a 25% tariff;

these rounds had no impact on the Company.

The third round targeted an additional $200 billion of Chinese goods and applied a 10% tariff that was scheduled to increase to 25% at the start of 2019 but has been delayed.

This latest round affects approximately 10% of the Company’s product purchases and will increase our costs of procurement.

These tariffs affect certain measuring products, folding knives and first aid components.

In response to these tariffs, the Company has implemented a price increase on the affected products in order to offset their impact.

Tariff levels may be further increased and the types of products subject to tariffs may be expanded.

Although the Company intends to pass additional price increases on to our customers, such tariff-related developments could have a negative impact on customer demand and adversely affect our business, financial condition and results of operations.

In addition, we might have to modify our current business practices, including potentially sourcing from alternative vendors.

The Company’s business is subject to risks associated with seasonality which could adversely affect its cash flow, financial condition, or results of operations.

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The Company is a major supplier of products related to the “back-to-school” season, which occurs principally during the months of May through August.

If this typical seasonal increase in sales of certain portions of the Company’s product line does not materialize in any year, the Company could experience a material adverse effect on its business, financial condition and results of operations.

If this typical seasonal increase in sales of certain portions of the Company’s product line does not materialize in any year for any reason, including the impact of the COVID-19 pandemic, the Company could experience a material adverse effect on its business, financial condition and results of operations.

Failure to manage growth and continue to expand our operations successfully could adversely affect our financial results.

Our business has experienced significant historical growth over the years, and we expect our business to continue to grow organically and through strategic acquisitions.

Our business has experienced significant historical growth over the years including through two new strategic acquisitions in 2020.

We expect our business to continue to grow organically and through strategic acquisitions both domestically and internationally.

This growth places significant demands on management and operational systems.

If we cannot effectively manage our growth, it is likely to result in operational inefficiencies and ineffective management of our business thus negatively impacting our operating results.

If we cannot effectively manage our growth, we would likely experience operational inefficiencies and incur unanticipated costs, thus negatively impacting our operating results.

To the extent we grow through strategic acquisitions, our success will depend on selecting the appropriate targets, integrating such acquisitions quickly and effectively and realizing any expected synergies and cost savings related to such acquisitions.

Unfavorable shifts in industry-wide demand for the Company’s products could result in inventory valuation risk.

The Company evaluates its ending inventories for excess quantities, impairment of value, and obsolescence.

This evaluation includes analysis of sales levels by product and projections of future demand based upon input received from our customers, sales team, and management.

If inventories on hand are in excess of demand or slow moving, appropriate write-downs may be recorded.

In addition, the Company might have to write off inventories that are considered obsolete based upon changes in customer demand, product design changes, or new product introductions, which eliminate demand for existing products.

Historically, the Company has not had to write down or write off product inventories.

Loss of a major customer could result in a decrease in the Company’s future sales and earnings.

Sales of our products are primarily concentrated in a few major customers including office product superstores and mass market distributors.

The Company had one customer in 2019 and 2018 that individually exceeded 10% of consolidated net sales.

Net sales to this one customer were approximately 17% and 16% of consolidated net sales in 2019 and 2018, respectively.

The Company had two customers in 2020 and one customer in 2019 that individually exceeded 10% of consolidated net sales.

Net sales to those customers were approximately 18% and 13% in 2020 and 17% in 2019, respectively.

The Company anticipates that a limited number of customers may account for a substantial portion of its total net revenues for the foreseeable future.

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The efficient flow of our products requires that our distribution facilities have adequate capacity to support increases in our e-commerce business.

If we encounter difficulties with forecasting and supply to our distribution facilities, we could face shortages of inventory, resulting in “out of stock” conditions in the e-commerce sites operated by our customers or other third parties, and we could incur significantly higher costs and longer lead times associated with distributing our products to our customers.

If we encounter difficulties with forecasting demand and supply to our distribution facilities, we could face shortages of inventory, resulting in “out of stock” conditions in the e-commerce sites operated by our customers or other third parties, and we could incur significantly higher costs and longer lead times associated with distributing our products to our customers.

Our failure to successfully respond to these risks and uncertainties might adversely affect the sales in our e-commerce business, as well as damage our brands.

Failure to protect the Company’s proprietary rights or the costs of protecting these rights could adversely affect its business.

The Company’s success depends in part on its ability to obtain patents and trademarks and to preserve other intellectual property rights covering its products and processes.

The Company has obtained certain domestic and foreign patents and intends to continue to seek patents on its inventions when appropriate.

The process of seeking patent protection can be time consuming and expensive.

There can be no assurance that pending patents related to any of the Company’s products will be issued, in which case the Company may not be able to legally prevent others from producing similar and/or compatible competing products.

If other companies were to sell similar and/or compatible competing products, the Company’s results of operations could be adversely affected.

Furthermore, there can be no assurance that the Company’s efforts to protect its intellectual property will be successful.

Any infringement of the Company’s intellectual property or legal defence of such action could have a material adverse effect on the Company.

The Company is subject to intense competition in all of the markets in which it competes.

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In addition, in the normal course of business, we gather and retain personal information about our associates and generate and have access to confidential business information.

Although we have taken steps designed to safeguard such information, there can be no assurance that such information will be protected against unauthorized access or disclosure.

Although we have taken steps designed to safeguard such information, there can be no assurance that such information will be

protected against unauthorized access or disclosure.

Computer hackers may attempt to penetrate our or our vendors' network security and, if successful, misappropriate such information.

An Acme United associate, contractor or other third-party with whom we do business may also attempt to circumvent our security measures in order to obtain such information or inadvertently cause a breach involving such information.

An employee of the Company, contractor or other third-party with whom we do business may also attempt to circumvent our security measures in order to obtain such information or inadvertently cause a breach involving such information.

We could be subject to liability for failure to comply with privacy and information security laws, for failing to protect personal information, or for misusing personal information, such as use of such information for an unauthorized marketing purpose.

Any compromise of our systems or data could disrupt our operations, damage our reputation, and expose us to claims from customers, financial institutions, regulators, payment card associations, employees , and other persons, any of which could have an adverse effect on our business, financial condition and results of operations.

The Company may not be able to maintain or to raise prices in response to inflation and increasing costs.

Future market and competitive pressures may prohibit the Company from raising prices to offset increased product costs, freight costs and other inflationary items or to offset currency fluctuations.

The Company may not be able to maintain or to raise prices in response to increasing costs or inflation.

Future market and competitive pressures may prohibit the Company from raising prices to offset increased product costs, shipping costs and other inflationary items, whether due to increases in the costs of raw materials or components or to the COVID-19 pandemic, or to offset currency fluctuations.

The inability to pass these costs through to the Company’s customers could have a negative effect on its results of operations.

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Federal Reserve and other central banking institutions were taken to create and maintain a low interest rate environment.

Increases in interest rates would increase our interest costs on our variable-rate debt as well as any future fixed rate debt, we may incur at higher interest rates, and interest which we pay reduces our cash available for working capital, acquisitions, and other uses.

Increases in interest rates would increase our interest costs on our variable-rate debt as well as any future fixed rate debt.

Any increase in the interest which we pay would reduce our cash available for working capital, acquisitions, and other uses.

Legal and Regulatory Risks

Failure to protect the Company’s proprietary rights or the costs of protecting these rights could adversely affect its business.

The Company’s success depends in part on its ability to obtain patents and trademarks and to preserve other intellectual property rights covering its products and processes.

The Company has obtained certain domestic and foreign patents and intends to continue to seek patents on its inventions when appropriate.

The process of seeking patent protection can be time consuming and expensive.

If other companies were to sell similar and/or compatible competing products, the Company’s results of operations could be adversely affected.

Furthermore, there can be no assurance that the Company’s efforts to protect its intellectual property will be successful.

Any infringement of the Company’s intellectual property could have a material adverse effect on the Company.

If the Company is found to have infringed the intellectual property rights of others or cannot obtain necessary intellectual property rights from others, its competitiveness could be negatively impaired.

If the Company is found to have violated the trademark, trade secret, copyright, patent or other intellectual property rights of others, directly or indirectly, including through the use of third-party marks, ideas, or technologies, such a finding could result in the need to cease use of such mark, trade secret, copyrighted work or patented invention in the Company’s business, as well as the obligation to pay for past infringement.

If rights holders are willing to permit the Company to continue to use such intellectual property rights, they could require a payment of a substantial amount for continued use of those rights.

Either ceasing use or paying such amounts could cause the Company to become less competitive and could have a material adverse effect on the Company’s business, financial condition, and results of operations.

Even if the Company is not found to infringe a third party’s intellectual property rights, claims of infringement could adversely affect the Company’s business.

The Company could incur significant legal costs and related expenses to defend against such claims, and the Company could incur significant costs associated with discontinuing to use, provide, or manufacture certain products, services or trademarks even if it is ultimately found not to have infringed such rights.

Product liability claims or regulatory actions could adversely affect the Company's financial results and reputation.

Claims for losses or injuries allegedly caused by some of the Company’s products arise in the ordinary course of its business.

Claims for losses or injuries allegedly caused by some of the Company’s products could arise in the ordinary course of its business.

In addition to the risk of substantial monetary judgments, product liability claims or regulatory actions could result in negative publicity that could harm the Company’s reputation in the marketplace or the value of its brands.

The Company also could be required to recall possible defective products, which could result in adverse publicity and significant expenses.

Although the Company maintains product liability insurance coverage, potential product liability claims are subject to a deductible or could be excluded under the terms of the policy.

Although the Company maintains product liability insurance

coverage, potential product liability claims are subject to a deductible or could be excluded under the terms of the policy.

Historically, the Company has not experienced product liability claims or regulatory actions.

The Company’s businesses and operations are subject to regulation in the U.S.

Changes in laws, regulations and related interpretations may alter the environment in which the Company does business.

This includes changes in environmental, data privacy, competitive and product-related laws, as well as changes in accounting standards, taxation and other regulations.

Accordingly, regulatory, tax and legal contingencies (including environmental, human resource, product liability, patent and other intellectual property matters), should they exist in the future, could require the Company to record significant reserves or pay significant fines or damages during a reporting period, which could materially impact the Company’s results.

In addition, new regulations may be enacted in the U.S.

or abroad that may require the Company to incur additional personnel-related, environmental or other costs on an ongoing basis, significantly restrict the Company’s ability to sell certain products, or incur fines or penalties for noncompliance, any of which could adversely affect the Company’s results of operations.

As a U.S.-based multinational company, the Company is also subject to tax regulations in the U.S.

and multiple foreign jurisdictions, some of which are interdependent.

For example, certain income that is earned and taxed in countries outside the U.S.

may not be taxed in the U.S.

until those earnings are actually repatriated or deemed repatriated.

If these or other tax regulations should change, the Company’s financial results could be impacted.

Certain or our products and facilities are subject to regulation by the FDA and by analogous foreign regulators.

The FDA requires us to register certain of our products and manufacturing facilities.

The FDA also inspects these facilities and products to confirm compliance with its requirements.

There can be no assurance that we will be able to continue to comply with FDA requirements applicable to our current products and facilities or any product or facility we may establish in the future.

The failure to address any concerns raised by the FDA could also lead to facility shutdown or the delay or withholding of product approval by the FDA, or product recalls, and could have a material adverse effect on our business, results of operations and financial condition

The Company is subject to environmental regulation and environmental risks.

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Capital and operating expenses required to comply with environmental laws and regulations can be significant, and violations may result in substantial fines and penalties.

In addition, environmental laws and regulations, such as the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, in the United States impose liability on several grounds for the investigation and cleanup of contaminated soil, ground water and buildings and for damages to natural resources on a wide range of properties.

In addition, environmental laws and regulations, such as the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, in the United States impose liability on several grounds for the investigation and clean-up of contaminated soil, ground water and buildings and for damages to natural resources on a wide range of properties.

For example, contamination at properties formerly owned or operated by the Company, as well as at properties it will own and operate, and properties to which hazardous substances were sent by the Company, may result in liability for the Company under environmental laws and regulations.

The costs of complying with environmental laws and regulations and any claims concerning noncompliance, or liability with respect to contamination in the future could have a material adverse effect on the Company’s financial condition or results of operations.

We cannot provide assurance that we will continue to pay dividends or purchase shares of our common stock under our stock repurchase program.

Risks Related to Our Overseas Operations

Reliance on foreign suppliers could adversely affect the Company’s business.

The Company sources its products from suppliers located in Asia, Europe and the United States.

The Company’s Asia vendors are located primarily in China, which subjects the Company to various risks within the region including regulatory, political, economic and foreign currency changes, and, commencing in 2020, the impact of the COVID-19 pandemic.

The Company’s ability to continue to select and retain reliable vendors and suppliers who provide timely deliveries of quality products efficiently will impact its success in meeting customer demand for timely delivery of quality products.

The Company’s sourcing operations and its vendors are impacted by labor costs in China.

Labor historically has been readily available at low cost relative to labor costs in North America.

However, as China is experiencing rapid social, political and economic changes, labor costs have risen in some regions and there can be no assurance that labor will continue to be available to the Company’s suppliers in China at costs consistent with historical levels or that changes in labor or other laws will not be enacted which would have a material adverse effect on the Company’s operations in China.

Interruption of supplies from any of the Company’s vendors, or the loss of one or more key vendors, could have a negative effect on the Company’s business and operating results.

Changes in currency exchange rates might negatively affect the profitability and business prospects of the Company and its overseas vendors.

In particular, the Chinese Renminbi has recently fluctuated against the U.S.

If the Chinese Renminbi continues to fluctuate with respect to the U.S.

Dollar in the future, the Company may experience cost increases on such purchases, and this can adversely impact profitability.

Future interventions by China may result in further currency appreciation and increase our product costs over time.

The Company may not be successful at implementing customer pricing or other actions in an effort to mitigate the related effects of the product cost increases.

the possibility that the Company might experience any of these factors has been increased by the COVID-19 pandemic.

The Company’s operations are increasingly global in nature.

As our international operations and activities expand, we face increasing exposure to the risks of operating in foreign countries.

These factors include:

Changes generally in political, regulatory or economic conditions in the countries in which we conduct business;

The duration, severity, spread and recurrence of the COVID-19 pandemic in foreign countries, including through variant strains of the underlying virus.

These risks could affect the cost of manufacturing and selling our products, our pricing, sales volume, and ultimately our financial performance.

The likelihood of such occurrences and their potential effect on the Company vary from country to country and are unpredictable.

Continuing uncertainty in the global economy could negatively impact our business.

Uncertainty in the global economy could adversely affect our customers and our suppliers and businesses such as ours.

Changes in trade policies, including the imposition of tariffs and their enforcement, may have a material adverse impact on our business, results of operations, and outlook.

In 2018, the United States levied tariffs on the import of some products from China, which is an important source of many of the Company’s products.

To date these tariffs have affected folding and fixed blade knives;

paper trimmers and rotary cutters;

metal cutting shears;

instruments for hand measuring as well as a wide range of components used in first aid kit production.

In order to offset the impact of to these tariffs, the Company has implemented price increases on the affected products.

Tariff levels may be further increased and the types of products subject to tariffs may be expanded.

Although the Company intends to continue to pass additional price increases on to our customers, such tariff-related developments could have a negative impact on customer demand and adversely affect our business, financial condition and results of operations.

In addition, we might have to modify our current business practices, including potentially sourcing from alternative vendors, which could result in inefficiencies and delays in production and cause the Company to incur additional costs.

Pandemic Related Risks

The economic effects of the COVID-19 pandemic and measures taken to arrest its spread, as well as any emergency measures we have taken and continue to take in response to the pandemic, could adversely impact our business, including our operating results, financial condition and liquidity.

The outbreak and global spread of COVID-19, which has been declared a pandemic by the World Health Organization, has adversely impacted economic activity and conditions worldwide and is currently impacting our business operations.

The extent to which COVID-19 will continue to impact our business is highly uncertain and will depend on future developments, including the efficacy and availability of vaccines, the spread of COVID-19 variants and the extent of federal, state, and local government responses affecting the economy.

These impacts include, but are not limited to:

Significant weakness, reductions or volatility in demand for one or more of our products, which have been and may in the future be caused by, among other things:

the temporary inability of consumers to purchase our products store closures, office closures, school closures or delayed opening for schools and other higher education programs, quarantine or other travel restrictions, or financial hardship among customers, retailers and consumers, shifts in demand away from one or more of our more discretionary or higher priced products to lower priced products, or prior stockpiling of goods;

if prolonged, such impacts can further increase the difficulty in planning our operations, which may adversely impact our results, liquidity and financial condition;

Inability to meet our customers’ needs and achieve cost targets due to disruptions in our manufacturing operations, supply arrangements as well as distribution centers caused by the disruption of essential manufacturing and supply elements such as raw materials or other finished product components, transportation, workforce, or other manufacturing and distribution capability;

Failure of third parties on which we rely, including our suppliers, manufacturers, distributors, contractors, commercial banks, external business partners, and customers to meet their obligations to the Company, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties.

Any such failure or disruption may adversely impact our operations, liquidity and financial condition;

Significant changes in the political and labor conditions in markets in which we manufacture, sell or distribute our products, including quarantines, governmental or regulatory actions, safety protocols or restrictions that limit or close our facilities;

restrict our employees’ ability or willingness to travel or perform necessary business functions, or otherwise prevent our facilities or our suppliers or customers from sufficiently staffing operations, including operations necessary for the production, distribution, sale, and support of our products, which could adversely impact our results, liquidity and financial condition.

The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change.

We do not yet know the full extent of the impacts on our business, our operations, or the global economy as a whole.

Despite our efforts to manage and remedy these impacts to the Company, the ultimate impact of the COVID-19 pandemic could materially and adversely impact our business, results of operations, liquidity and financial condition, and depends on factors beyond our knowledge or control.

In this regard, the extent of the impact of the pandemic on our business, operating results, cash flows, liquidity and financial conditions will be primarily driven by the duration and severity of the COVID-19 pandemic, its impact on the U.S.

and global economies and the timing, scope and effectiveness of federal, state and local governmental plans to administer vaccines to the general public, especially in areas where conditions have recently worsened and lockdowns or travel bans have been reinstituted.

The Small Business Association’s review of our forgiveness application is ongoing and it is possible that our PPP Loan may not be forgiven.

On May 7, 2020, the Company received a loan (the “PPP Loan”) from HSBC Bank, N.A.

in the amount of $3,508,047 under the Paycheck Protection Program established by the Coronavirus Aid, Relief and Economic Security Act.

All or a portion of the PPP Loan may be 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 eligible purposes, including the payment of payroll, benefits, rent, mortgage interest and utilities, during the 24-week period beginning on the date of funding of the loan (the “covered period”).

Not more than 40% of the amount forgiven may be for non-payroll costs.

The PPP loan application required us to certify, among other things, that the then current economic uncertainty made the PPP loan request necessary to support our ongoing operations.

While we made this certification in good faith, the required certification is not based on any specific objective criteria and is subject to interpretation.

In early 2020, the SBA provided guidance that it would be unlikely that a public company with substantial market value and access to capital markets would be able to make the required certification in good faith, and such company should be prepared to demonstrate to the SBA, upon request, the basis for its certification.

Further, the Secretary of the Treasury and the SBA Administrator announced that the government will conduct a full audit of all PPP loans of more than $2 million for which the borrower applies for forgiveness.

While we believe that we have satisfied all eligibility requirements for the PPP loan, there is a risk that we may be deemed ineligible to have received the PPP loan or in violation of any of the laws or governmental regulations that apply to us in connection with the PPP loan.

In such event, we may be required to repay the PPP loan in its entirety, and we could be subject to additional penalties.

The SBA reserves the right to audit any PPP loan, regardless of size.

These audits may occur after forgiveness has been granted.

Under the CARES Act, all borrowers are required to maintain their loan documentation for six years after the PPP loan was forgiven or repaid in full and to provide that documentation to the SBA upon request.

Risks Related to Our Common Stock

We cannot provide assurance that we will continue to pay dividends or purchase shares of our common stock under our stock repurchase programs.

We continue to pay and declare dividends on a quarterly basis and we anticipate that we will continue to do so.

However, there can be no assurance that we will have sufficient cash or surplus under the law to be able to continue to pay dividends at our current level or purchase shares of our common stock under our stock repurchase programs.

At December 31, 2019, a total of 217,999 may be purchased in the future under the repurchase programs which the Company announced in 2010 and 2019.

At December 31, 2020, a total of 203,579 shares may be purchased in the future under the repurchase programs which the Company announced in 2010 and 2019.

This may result from extraordinary cash expenses, actual expenses exceeding contemplated costs, funding of capital expenditures, increases in reserves or lack of available capital.

9 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors