What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-31 compared with 2020-03-13 · 151 added, 105 removed, 553 unchanged (32% of the section changed)

19 unchanged sentences

For the Years Ended

Other comprehensive gain (loss) -

Other comprehensive gain

Foreign currency translation

17 unchanged sentences

Operating lease right-of-use asset, net

Deferred income taxes

Current liabilities:

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Long-term debt

Long-term debt-PPP Loan

Mortgage payable, net of current portion

7 unchanged sentences

4,840,571 shares in 2020 and 4,838,071 in 2019, including treasury stock

Treasury stock, at cost, 1,487,238 shares in 2019 and 2018

Treasury stock, at cost, 1,501,658 in 2020 and 1,487,238 shares in 2019

Additional paid-in capital

9 unchanged sentences

Balances, December 31, 2018

Other comprehensive loss

Other comprehensive Income

Adoption of ASU 2018-02

Stock compensation expense

1 unchanged sentence

Cash settlement of stock options

Purchase of treasury stock

Balances, December 31, 2019

Other comprehensive income

Adoption of ASU 2018-02

Stock compensation expense

Distribution to shareholders

Issuance of common stock

Cash settlement of stock options

Purchase of treasury stock

Balances, December 31, 2020

9 unchanged sentences

Provision for doubtful accounts

Pension settlement

Changes in operating assets and liabilities

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Purchase of property, plant and equipment

Purchase of intellectual property

Acquisition of Med-Nap

Acquisition of First Aid Central

Net cash used by investing activities

Financing activities:

Net repayments of long-term debt

Net borrowings (repayments) of long-term debt

Proceeds from PPP Loan

Repayments on mortgage

Distributions to shareholders

Distributions to stockholders

Cash settlement of stock options

Purchase of treasury stock

Net cash used by financing activities

Issuance of common stock

Net cash provided by (used in) financing activities

Effect of exchange rate changes

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

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Estimates – The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The most sensitive and significant accounting estimates relate to customer rebates, valuation allowances for deferred income tax assets, obsolete and slow-moving inventories, potentially uncollectible accounts receivable, pension liability and accruals for income taxes.

Actual results could differ from those estimates.

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Foreign currency transaction gains and losses are recognized in operating results.

Included in other expense were foreign currency transaction losses of $38,988 in 2019 and foreign currency transaction gains of $7,458 in 2018.

Included in other expense were foreign currency transaction gains of $ 96,372 in 2020 and foreign currency transaction losses of $ 38,988 in 2019 .

Cash Equivalents – Investments with an original maturity of three months or less, as well as time deposits and certificates of deposit that are readily redeemable at the date of purchase, are considered cash equivalents.

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Property, Plant and Equipment, and Depreciation – Property, plant and equipment is recorded at cost.

Depreciation is computed by the straight-line method over the estimated useful lives of the assets, which range from 3 to 30 years.

Intangible Assets – Intangible assets with finite useful lives are recorded at cost upon acquisition and amortized over the term of the related contract or useful life, as applicable.

Depreciation is computed by the straight-line method over the estimated useful lives of the assets.

The range of estimated useful lives of these assets are as follows:

buildings useful lives range from 10 to 39 years ;

machinery and equipment useful lives range from 3 to 10 years .

Intangible Assets and Goodwill – Intangible assets with finite useful lives are recorded at cost upon acquisition and amortized over the term of the related contract, if any, or useful life, as applicable.

Intangible assets held by the Company with finite useful lives include patents and trademarks.

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The weighted average amortization period for intangible assets at December 31, 2020 was 9 years.

The Company periodically reviews the values recorded for intangible assets to assess recoverability from future operations whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.

At December 31, 2019 and 2018, the Company assessed the recoverability of its long-lived assets and believed that there were no events or circumstances present that would require a test of recoverability on those assets.

The Company periodically reviews the values recorded for intangible assets and goodwill to assess recoverability from future operations whenever events or changes in circumstances indicate that its carrying amounts may not be recoverable.

At December 31, 2020 and 2019, the Company assessed the recoverability of its long-lived assets and goodwill and believed that there were no events or circumstances present that would require a test of recoverability on those assets.

As a result, there was no impairment of the carrying amounts of such assets and no reduction in their estimated useful lives.

Deferred Income Taxes – Deferred income taxes are provided for the differences between the financial statement and tax bases of assets and liabilities, and on operating loss carryovers, using tax rates in effect in years in which the differences are expected to reverse.

Leases - The Company determines whether an arrangement is a lease at inception.

Leases – The Company determines if an arrangement is an operating lease at inception.

Leases with an initial term of 12 months or less are not recorded on the balance sheet.

All other leases are recorded on the balance sheet with right-of-use (“ROU”) assets representing the right to use the underlying asset for the lease term and lease liabilities representing the obligation to make lease payments arising from the lease.

Lessees and lessors may elect to apply a package of practical expedients permitting entities not to reassess:

(i) whether any expired or existing contracts are or contain leases;

(ii) lease classification for any expired or existing leases;

and (iii) whether initial direct costs for any expired or existing leases qualify for capitalization under the amended guidance.

These practical expedients must be elected as a package and consistently applied.

The Company has elected to apply the package of practical expedients upon adoption.

ROU assets and lease liabilities are recognized at commencement date of the lease based on the present value of lease payments over the lease term and include options to extend or terminate the lease when they are reasonably certain to be exercised.

As most of our leases d o not provide an implicit rate, the present value of lease payments is determined primarily using our incremental borrowing rate based on the information available at the lease commencement date.

The incremental borrowing rate is the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term on an amount equal to the lease payments in a similar economic environment.

Lease arrangements with lease and non-lease components are generally accounted for as a single lease component.

Revenue Recognition – Revenue is recognized when the price is fixed, the title and risks and rewards of ownership have passed to the customer, and when collection is reasonably assured.

The Company's operating lease expense is recognized on a straight-line basis over the lease term.

Revenue Recognition – The Company's revenues result from the sale of goods or services and reflect the consideration to which the Company expects to be entitled.

The Company records revenue based on a five-step model in accordance with Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers ("ASC 606").

For its contracts with customers, the Company identifies the performance obligations (goods or services), determines the transaction price, allocates the contract transaction price to the performance obligations, and recognizes the revenue when (or as) the performance obligation is transferred to the customer.

A good or service is transferred when (or as) the customer obtains control of that good or service.

Depending on the contractual terms of each customer, revenue is recognized either at the time of shipment or upon delivery.

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Customer rebates and incentives earned based on promotional programs in place volume of purchases or other factors are also estimated at the time of revenue recognition and recorded as a reduction of that revenue.

Refer to Note 9 – Revenue from Contracts with Customers.

Refer to Note 9 – Revenue from Contracts with Customers, in the notes to consolidated financial statements in this report for a more detailed discussion.

Research and Development – Research and development costs ($ 251,000 in 2020 and $ 596,000 in 2019) are included in selling, general and administrative expenses and expensed as incurred.

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Allowances for credit losses are provided and have been within management's expectations.

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

Net sales to this 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 these customers were approximately 18 % and 13 % of consolidated net sales in 2020 and 17 % in 2019.

Recently Issued and Adopted Accounting Standards

In December 2019, the FASB issued ASU No.

In December 2019, the Financial Accounting Standards Board (FASB) issued ASU No.

2019-12, Income Taxes (Topic 740):

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The Company does not expect the adoption of ASU 2018-14 to have a material impact on its consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718):

In June 2018, the FASB issued ASU No.

2018-07, Compensation-Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting .

1 unchanged sentence

ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, including interim periods within that reporting period.

The Company does not expect the adoption of ASU 2018-07 to have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases , associated with lease accounting.

There have been further amendments, including practical expedients, with the issuance of ASU 2018-01, Leases (Topic 842):

Land Easement Practical Expedient for Transition to Topic 842, in January 2018, ASU 2018-11, Leases (Topic 842):

Targeted Improvements, in July 2018 and ASU 2018-20, Leases (Topic 842):

Narrow-Scope Improvements for Lessors , in December 2018.

The amended guidance requires the recognition of lease assets and lease liabilities on the balance sheet for those leases with terms in excess of 12 months and currently classified as operating leases.

Disclosure of key information about leasing arrangements will also be required.

We elected the optional transition method which allows entities to continue to apply historical accounting guidance in the comparative periods presented in the year of adoption.

At transition, lessees and lessors may elect to apply a package of practical expedients permitting entities not to reassess:

(i) whether any expired or existing contracts are or contain leases;

(ii) lease classification for any expired or existing leases;

and (iii) whether initial direct costs for any expired or existing leases qualify for capitalization under the amended guidance.

These practical expedients must be elected as a package and consistently applied.

The Company has elected to apply the package of practical expedients upon adoption.

Upon adoption of the amended guidance, the Company recorded operating lease right-of-use assets and related liabilities of approximately $2.9 million, primarily related to real estate leases.

The Company currently does not expect the amended guidance to have any other material impact on our consolidated financial statements.

The adoption of ASU 2018-07 did not have a material impact on the consolidated financial statements.

In February 2018, the FASB issued ASU No.

2018-02, In come Statement — Reporting Comprehensive Income (Topic 220):

2018-02, Income Statement — Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income .

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federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded.

2018-02 also requires disclosure of a d escription of the accounting policy for releasing income tax effects from AOCI and whether an election was made to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act.

2018-02 is effective for fiscal years beginning after Dece mber 15, 2018, and interim periods within those fiscal years.

2018-02 also requires disclosure of a description of the accounting policy for releasing income tax effects from AOCI and whether an election was made to reclassify the stranded income tax effects from the Tax Cuts and Jobs Act.

2018-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.

Companies can adopt the provisions of ASU No.

2018-02 in either the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S.

federal corpor ate income tax rate in the Tax Cuts and Jobs Act is recognized.

federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.

This ASU was adopted effective January 1, 2019 and result ed in a reclassification between retained earnings and accumulated other comprehensive loss .

The impact from this ASU increase d retaine d earnings by approximately $0.1 million, with an offsetting increase to accumulated other comprehensive loss for the same amount.

The impact from this ASU increase d retained earnings by approximately $0.1 million, with an offsetting increase to accumulated other comprehensive loss for the same amount.

In January 2017 , the FASB issued ASU No.

2017 - 04 , Intangibles – Goodwill and Other (Topic 350 ):

Simplifying the Test for Goodwill Impairment .

The amendments in this update eliminate Step 2 from the goodwill impairment test.

The annual, or interim, goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount.

An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value;

however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

In addition, income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit should be considered when measuring the goodwill impairment loss, if applicable.

The Company adopted this standard on January 1, 2020 .

The adoption of this standard did not have an impact to the financial statements of the Company.

Inventories consisted of:

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Other Accrued Liabilities

The Company’s other current and long-term accrued liabilities consisted of:

The Company’s other current and non-current accrued liabilities consisted of:

Customer Rebates

2 unchanged sentences

Dividend Payable

Income Taxes Payable

Pension and Profit Sharing

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In December 1995, the Company's Board of Directors approved an amendment to the United States pension plan that terminated all future benefit accruals as of February 1, 1996, without terminating the pension plan.

The Company’s funding policy with respect to its qualified plan is to contribute at least the minimum amount required by applicable laws and regulations.

In 2020, the Company entered into agreements with an insurance company to transfer future benefit obligations and annuity administration for retirees (or their beneficiaries) in the Company’s defined benefit pension plan.

As a result of this agreement, the Company recorded pension settlement charges of $ 793,524 .

The Company’s funding policy with respect to its qualified plan was to contribute at least the minimum amount required by applicable laws and regulations.

In 2020, the Company contributed $ 222,857 to the plan.

The plan asset weighted average allocation at December 31, 2019 and December 31, 2018, by asset category, were as follows:

The plan asset weighted average allocation at December 31, 2019, by asset category, were as follows:

Asset Category:

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Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The following tables present the pension plan assets by level within the fair value hierarchy as of December 31, 2019 and 2018:

Money Market Fund

Equity Common and Collected Funds

Fixed Income Common and Collected Funds

The following tables present the pension plan assets by level within the fair value hierarchy as of December 31, 2019:

Money Market Fund

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Interest cost

Actuarial (loss) gain

Actuarial loss

Benefits and plan expenses paid

Curtailments, settlements and special termination benefits

Benefit obligation at end of year:

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Expected return on plan assets

Settlement cost

Amortization of prior service costs

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Net periodic benefit cost:

The Company employs a building block approach in determining the long-term rate of return for plan assets.

The Company employed a building block approach in determining the long-term rate of return for plan assets.

Historical markets are studied and long-term historical relationships between equity securities and fixed income securities are preserved consistent with the widely-accepted capital market principle that assets with higher volatility generate higher returns over the long run.

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Total recognized in other comprehensive income

The Company anticipates that in 2020, net periodic benefit cost will include approximately $74,720 of net actuarial loss and $543 of prior service cost.

The following benefits are expected to be paid:

Years 2025 - 2029

The Company also has a qualified, 401k plan covering substantially all of its United States employees.

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Permanent items

Effect of federal rate change on deferred taxes

Foreign tax rate difference

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Asset valuations

Net deferred income tax (liability) asset:

Net deferred income tax liability:

On January 22, 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income (“GILTI”) provisions of the Act.

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The Company’s evaluation of uncertain tax positions was performed for the tax years ended December 31, 2017 and forward, the tax years which remain subject to examination by major tax jurisdictions as of December 31, 2020.

Due to the uncertain nature of the realization of the Company's deferred income tax assets based on past performance of its German subsidiary and carry forward expiration dates, the Company has recorded a valuation allowance for the amount of deferred income tax assets which are not expected to be realized.

Due to the uncertain nature of the realization of the Company's deferred income tax assets based on past performance of its German subsidiary and net loss carry forward expiration dates, the Company has recorded a valuation allowance for the amount of deferred income tax assets which are not expected to be realized.

This valuation allowance, all of which is related to deferred tax assets resulting from net operating losses of the Company’s German subsidiary, is subject to periodic review, and, if the allowance is reduced, the tax benefit will be recorded in future operations as a reduction of the Company's tax expense.

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The credit facility has an expiration date of May 24, 2023 .

The Company must pay a facility fee, payable quarterly, in an amount equal to two tenths of one percent (.20%) per annum of the average daily unused portion of the revolving credit line.

The Company must pay a facility fee, payable quarterly, in an amount equal to two tenths of one percent (.

20 %) per annum of the average daily unused portion of the revolving credit line.

The facility is intended to provide liquidity for growth, share repurchases, dividends, acquisition and other business activities.

Under the revolving loan agreement, the Company is required to maintain specific amounts of tangible net worth, a specified debt to net worth ratio and a fixed charge coverage ratio and must have annual net income greater than zero, measured as of the end of each fiscal year.

At December 31, 2019, the Company was in compliance with the covenants then in effect under the loan agreement.

December 31, 2020, the Company was in compliance with the covenants then in effect under the loan agreement.

As of December 31, 2020, $ 38,767,167 was outstanding and $ 11,232,833 was available for borrowing under the Company’s revolving loan agreement.

On October 26, 2017, the Company exercised its option to purchase its First Aid Only manufacturing and distribution center in Vancouver, WA for $4.0 million.

The property consists of 53,000 square feet of office, manufacturing, and warehouse space on 2.86 acres.

The purchase was financed by a variable rate mortgage with HSBC Bank, N.A.

The Company’s First Aid Only manufacturing and distribution center in Vancouver, WA was financed by a variable rate mortgage with HSBC Bank, N.A.

at an interest rate of LIBOR plus 2.5 % .

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The program does not have an expiration date.

During the twelve months ended December 31, 2019, the Company did not repurchase any shares of its Common Stock.

During the twelve months ended December 31, 2020, the Company repurchased 14,420 shares of its Common Stock.

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

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.

Subject to potential forgiveness, as described below, the PPP Loan matures in two years on May 8, 2022 , bears interest at a rate of 1.00 % per year and is evidenced by a promissory note dated May 7, 2020 (the “Note”).

Monthly payments of principal and interest are deferred until after any application for forgiveness submitted by the Company has been acted upon, as described below.

The PPP Loan is unsecured and federally guaranteed.

The Note contains customary events of default relating to, among other things, failure to make payments of principal and interest and breaches of representations and warranties.

The Company may prepay the PPP Loan at any time prior to maturity with no penalty.

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.

Consistent with the requirements of the PPP for loan forgiveness, the Company used the loan proceeds solely for payment of payroll and otherwise in a manner which it believes satisfy the requirements for loan forgiveness.

In August 2020, the Company submitted an application for forgiveness of the entire amount of the PPP loan to HSBC Bank, N.A.

(the Lender).

The lender approved the forgiveness application and, on August 26, 2020, submitted the Company’s application to the SBA for its approval.

The SBA subsequently asked the Company to provide certain additional information and documentation in connection with it review of the Company’s forgiveness application and the Company has done so.

The application is presently pending.

No assurance can be given that the Company’s application for loan forgiveness will be approved by the SBA, in whole or in part.

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

The carrying value of the Company’s bank debt is a reasonable estimate of fair value because of the nature of its payment terms and maturity.

Revenue from Contracts with Customers

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and allowance for returns and discounts.

We generally recognize customer rebate costs as a deduction to gross sales at the time that the associated revenue is recognized.

The Company generally recognizes customer rebate costs as a deduction to gross sales at the time that the associated revenue is recognized.

Significant Payment Terms

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Applying the practical expedient in ASC 340-40-25-4 – Other Assets and Deferred Costs , the Company recognizes the incremental costs of obtaining contracts as an expense when incurred.

These costs are included in “Selling, general and administrative expenses.” The effect of applying this practical expedient did not have a material impact on the Company’s consolidated financial statements.

Disaggregation of Revenues

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Each reportable segment derives its revenue from the sales of cutting devices, measuring instruments and safety products for school, office, home, hardware, sporting and industrial use.

Domestic sales orders are filled primarily from the Company’s distribution centers in North Carolina, Washington, Massachusetts, Tennessee and California.

Domestic sales orders are filled primarily from the Company’s distribution centers and facilities in North Carolina, Washington, Massachusetts, Tennessee, Florida and California.

The Company is responsible for the costs of shipping, insurance, customs clearance, duties, storage and distribution related to such products.

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As provided in the Director Plan, no options may be granted under the 2017 Director Plan after the tenth anniversary of the adoption of the Plan, i.e., after April 24, 2027.

As of December 31, 2019, there were no shares available for grant under the 2017 Director Plan.

As of December 31, 2020, there were 25,000 shares available for grant under the 2017 Director Plan.

The 2005 Director Plan, as amended, provided for the issuance of stock options for up to a total of 180,000 shares of the Company's common stock to non-salaried directors.

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The Company has amended certain of its stock option plans for both employees and directors to permit options to be exercised on a net basis and receive either cash or shares of the Company’s Common Stock.

Specifically, optionees may, at the time of exercise of an option and subject to the consent of the Company, elect either (i) to receive from the Company cash in an amount equal to the number of shares of Common Stock subject to the option (or portion thereof) that is being exercised multiplied by the excess of (a) the fair market value per share over (b) the exercise price per share of the option (a “net cash settlement”);

Common Stock subject to the option (or portion thereof) that is being exercised multiplied by the excess of (a) the fair market value per share over (b) the exercise price per share of the option (a “net cash settlement”);

or (ii) to make payment of the exercise price of the option by reduction in the number of shares of Common Stock otherwise deliverable upon exercise of such option by the number of shares having an aggregate fair market value equal to the total exercise price of the option (or portion thereof).

In 2019, the Company paid a total of approximately $1,687,782 and 160,586 shares to optionees who had elected a net cash settlement of their respective options.

In 20 20 and 2019 , the Company paid a total of approximately $ 1,644,118 and $ 1,687,782 respectively, to optionees who had elected a net cash settlement of their respective share options.

A summary of changes in options issued under the Company’s stock option plans follows:

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At December 31, 2020, there was approximately $ 1,853,873 of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based payments granted to the Company’s employees.

As of December 31, 2019 , the remaining unamortized expense is expected to be recognized over a weighted a verage period of 3 years.

As of December 31, 2020, the remaining unamortized expense is expected to be recognized over a weighted average period of 3 years.

The weighted average fair value at the date of grant for options granted during 2020 and 2019 was $ 6.59 and $ 5.88 per option, respectively.

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Weighted average shares outstanding

Effect of dilutive employee stock options

Effect of diluted employee stock options

Denominator for dilutive earnings per share

Basic earnings per share

Dilutive earnings per share

Diluted earnings per share

For 2020 and 2019, respectively, 309,900 and 705,725 stock options were excluded from diluted earnings per share calculations because they would have been anti-dilutive.

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actuarial losses

Balances, December 31, 2017

Balances, January 1, 2019

Change in net prior service credit and actuarial losses, net of tax

Adoption of ASU 2018-02

Translation adjustment

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Change in net prior service credit and actuarial losses, net of tax

Adoption of ASU 2018-02

Translation adjustment

Balances, December 31, 2020

Financial Instruments

The carrying value of the Company’s bank debt is a reasonable estimate of fair value because of the nature of its payment terms and maturity.

Quarterly Data (unaudited)

Quarters (000’s omitted, except per share data):

Cost of goods sold

Basic earnings per share

Diluted earnings per share

Dividends per share

Cost of goods sold

Basic earnings per share

Diluted earnings per share

Dividends per share

Earnings per share were computed independently for each of the quarters presented.

Therefore, the sum of the four quarterly earnings per share amounts may not necessarily equal the earnings per share for the year.

The Company has operating leases for office and warehouse space and equipment under various arrangements which provide the right to use the underlying asset and require lease payments for the lease term.

3 unchanged sentences

The Company determines if an arrangement is an operating lease at inception.

Leases with an initial term of 12 months or less are not recorded on the Balance Sheet .

1 unchanged sentence

As most of our leases do not provide an implicit rate, the present value of lease payments is determined primarily using our incremental borrowing rate based on the information available at the lease commencement date.

Lease agreements with lease and non-lease components are generally accounted for as a single lease component.

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Present value of lease liabilities - non-current

Subsequent Event

On January 7, 2020, the Company purchased the assets of First Aid Central, located in Laval, Quebec, Canada, including a broad line of first aid kits, refills, and safety products which are sold to a wide range of industries and end users.

Its products meet federal Health Canada and provincial regulatory requirements.

The Company purchased First Aid Central assets for $2.1 million in cash using funds borrowed under its revolving credit facility with HSBC Bank, N.A.

Business Combinations

On December 16, 2020, the Company purchased the assets of Med-Nap LLC., located in Brooksville, Florida for $ 9.3 million.

Med-Nap is a leading manufacturer of alcohol prep pads, alcohol wipes, benzalkonium chloride wipes (BZK), antiseptic wipes, castile soap, and lens cleaning products.

The purchase price was allocated to assets acquired and liabilities assumed as follows (in thousands):

Prepaid expense

Land & buildings

Intangible assets

Accounts payable

Total considerations

The acquisition was accounted for as a business combination, pursuant to ASC 805 – Business Combinations .

All assets acquired in the acquisition are included in the Company’s US segment.

First Aid Central:

On January 7, 2020, the Company purchased the assets of First Aid Central, a Canadian first aid and safety supplier, based in Laval, Canada for approximately $ 2.1 million in cash.

First Aid Central products consist of a broad line of first aid kits, refills, and safety products that are sold to a wide range of industries and end users.

The products meet federal Health Canada and provincial regulatory requirements.

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

Accounts receivable

Prepaid Expense

Intangible assets

The acquisition was accounted for as a business combination, pursuant to ASC 805 – Business Combinations .

All assets acquired in the acquisition are included in the Company’s Canada segment.

Net sales for the year ended December 31, 2020 attributable to the sales of First Aid Central products were approximately $ 4.6 million.

Net income for the year ended December 31, 2020 attributable to First Aid Central products was approximately $ 0.3 million.

Assuming First Aid Central assets were acquired on January 1, 2019, unaudited proforma combined net sales for the year ended December 31, 2019 for the Company would have been approximately $ 145.9 million.

Unaudited proforma combined net income for the year ended December 31, 2019 for the Company would have been approximately $ 5.9 million.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Acme United Corporation and Subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income , changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of December 31, 2019, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and our report dated March 12, 2020 , expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

We have audited the accompanying consolidated balance sheets of Acme United Corporation and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity and cash flows for each of the years in the period ended December 31, 2020 and 2019, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the period ended December 31, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of December 31, 2020, based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and our report dated March 31, 2021, expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting because of the existence of a material weakness.

Basis for Opinion

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Acme United Corporation

Opinion on Internal Control over Financial Reporting

Adverse Opinion on Internal Control over Financial Reporting

We have audited Acme United Corporation and Subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2020 based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets as of December 31, 2019 and 2018 and the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows and the related notes for each of the two years in the period ended December 31, 2019 of the Company, and our report dated March 12, 2020 expressed an unqualified opinion on those financial statements.

In our opinion, because of the effect of the material weakness described in the following paragraph on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2020 based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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

The following material weakness has been identified and included in “Management's Annual Report on Internal Control over Financial Reporting”:

The Company’s controls related to the existence of inventory at the Rocky Mount, NC warehouse were not effective as the cycle count program used did not demonstrate inventory quantities were sufficiently counted.

This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the consolidated financial statements for the year ended December 31, 2020, and this report does not affect our report dated March 31, 2021 on those consolidated financial statements.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets as of December 31, 2020 and 2019 and the related consolidated statements of operations and comprehensive income, changes in stockholders’ equity, and cash flows and the related notes for each of the two years in the period ended December 31, 2020, and our report dated March 31, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management Annual Report on Internal Control over Financial Reporting”.

Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying "Management’s Annual Report on Internal Control over Financial Reporting." Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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March 31, 2021

Changes In and Disagreements with Accou ntants on Accounting and Financial Disclosure

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

There have been no disagreements with accountants related to accounting and financial disclosures in 2020.

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What changed 10-K

Item 8. Financial Statements and Supplementary Data