ACME UNITED CORP 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures. An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of December 31, 2020. Based on and as of the time of such evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. This conclusion was based on the identification of the deficiency in internal control over financial reporting described below. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Notwithstanding the deficiency that existed as of December 31, 2020, our Chief Executive Officer and Chief Financial Officer have concluded that the financial statements included in this Annual Report on Form 10-K present fairly, in all material respects, the financial position, results of operations and cash flows of the Company in conformity with accounting principles generally accepted in the United States of America. Management's Report on Internal Control over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements in accordance with United States Generally Accepted Accounting Principles (“GAAP”). Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our 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. Our management has identified a deficiency related to the Company’s inventory cycle count program, as described below. The deficiency was concluded to be a “material weakness”, which is 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 would not be prevented or detected on a timely basis. Based on this material weakness identified in the management evaluation of internal controls over financial reporting, management has concluded that our internal control over financial reporting was not effective as of December 31, 2020. The Company’s controls related to the existence of inventory at the Rocky Mount, NC warehouse (the “Warehouse”) were not effective as the cycle count program used did not demonstrate inventory quantities were sufficiently counted. This was the consequence of a number of factors, including the impact of COVID-19 on the Company’s operations, resulting in delays in the counting process. In order to attain the results of a full physical inventory, the C ompany counted $10 million of inventory in February and March of 2021, which resulted in a non-material increase to inventory of $18,000, or less than 0.1%. It should be noted that in the previous three years, inventory adjustments related to cycle counts amounted to approximately 0.2% annually. The non-material adjustment to inventory did not require any change in the results reported by the Company in the earnings release for the Company’s fourth quarter and year end December 31, 2020 (Filed with the Company’s Form 8K on March 3, 2021). Remediation Based on the results of management’s evaluation of the effectiveness of the Company’s internal control over financial reporting, the Company determined to take a number of actions to remediate the control deficiency described above. The remediation actions include: ● The Company has evaluated the processes, procedures and controls related to the Warehouse cycle count program and has commenced making changes as considered appropriate to address the control deficiency. ● The Company is in the process of implementing a new inventory management system at the Warehouse, which is expected to be in place by the end of the second quarter 2021. The new software will allow the Company to conduct its inventory cycle count program more efficiently. ● The Company is allocating additional resources to the implementation of its inventory cycle count program, including the hiring of additional personnel who will participate in the conduct of the program. We believe that these actions will remediate the material weakness. The material weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of fiscal 2021. 41 Our independent registered public accounting firm, Marcum LLP, has issued an adverse attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2020, as stated in their report which is included in the Financial Statements of this Annual Report on Form 10-K. Marcum LLP has also audited our consolidated financial statements at December 31, 2020, and for each of the two years in the period ended December 31, 2020, and its report dated March 31, 2021, expressed an unqualified opinion on our consolidated financial statements. Inherent Limitation on Effectiveness of Controls Internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by the board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP including those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate. Changes in Internal Control over Financial Reporting. Except for factors pertaining to the material weakness identified above, there have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth fiscal quarter ended December 31, 2020, to which this report relates, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information None. 42 PART III Item 10. Directors, Executive Officers and Corporate Governance The following table sets forth certain information with respect to the directors and executive officers of the Company. All directors of the Company hold office until the next annual meeting of the shareholders or until their successors have been elected and qualified. Executive officers are elected by the Board of Directors to hold office until their successors are elected and qualified. Name Age Position Held with Company Walter C. Johnsen 70 Chairman of the Board and Chief Executive Officer Brian S. Olschan 64 President, Chief Operating Officer and Director Paul G. Driscoll 60 Vice President, Chief Financial Officer, Secretary and Treasurer Rex L. Davidson 71 Director Richmond Y. Holden, Jr. 67 Director Susan H. Murphy Brian K. Barker 69 61 Director Director Stevenson E. Ward III 75 Director Walter C. Johnsen has served as Chairman of the Board and Chief Executive Officer of the Company since January 1, 2007; President and Chief Executive Officer of the Company from November 30, 1995 to December 31, 2006. Mr. Johnsen previously served as Vice Chairman and a principal of Marshall Products, Inc., a medical supply distributor. Mr. Johnsen has served on the Board of TOMI Environmental Solutions, Inc., a publicly traded company, since February 1, 2016. Mr. Johnsen’s qualifications to serve on the Board of the Company include the in-depth knowledge of all facets of the Company’s business which he has gained during his more than twenty-five years of service as the Company’s Chief Executive Officer. Brian S. Olschan has served as President and Chief Operating Officer of the Company since January 1, 2007; Executive Vice President and Chief Operating Officer of the Company from January 1999 to December 31, 2006; Senior Vice President - Sales and Marketing of the Company from September 1996 to January 1999. Mr. Olschan previously served as Vice President and General Manager of the Cordset and Assembly Business of General Cable Corporation, an electrical wire and cable manufacturer. Mr. Olschan’s qualifications to serve on the Board include his detailed knowledge of the Company’s operations which he has gained in his capacity as a member of senior management for more than 24 years, including as Chief Operating Officer since January 1999 and President since January 2007. Paul G. Driscoll has served as Vice President and Chief Financial Officer, Secretary and Treasurer since October 2, 2002. Mr. Driscoll joined Acme as Director of International Finance on March 19, 2001. From 1997 to 2001, he was employed by Ernest and Julio Gallo Winery, including as Director of Finance and Operations in Japan. Prior to Gallo he served in several increasingly responsible finance positions in Sterling Drug Inc. in New York City and Sanofi S.A. in France. Rex L. Davidson has served as Director since 2006. Executive Director of the Helms Fund, 2013-2019. The Helms Fund provides "gap financing" to socially responsible business ventures for capital expenditures. Additionally, since 2009, Mr. Davidson has served as President of Rex Davidson Associates, LLC, a management consulting service. From 2009 to 2019, Mr. Davidson served as Executive Director of Las Cumbres Community Services, which provides developmental disability and mental health services to children, adults and families in Northern New Mexico; from 2019 to 2020, he served as the Director of Special Initiatives. From 1982 to 2009, he served as President and Chief Executive Officer of Goodwill Industries of Greater New York and Northern New Jersey, Inc., and President of Goodwill Industries Housing Corporation. Mr. Davidson’s qualifications to serve on the Board include significant management experience at the highest level, having been responsible for the management of Goodwill Industries, an organization with over 2,000 employees and revenues in excess of $100 million. Mr. Davidson’s experience in the areas of compensation of personnel at all levels, his experience relating to retail matters, such as retail trends and pricing, and diversity policies are of significant benefit to the Company. Richmond Y. Holden, Jr. has served as Director since 1998. Mr. Holden served as President and CEO of INgageHub, a cloud based Marketing SaaS platform, from January 2015 through early 2016; he continued to serve as a senior advisor to the company until 2019. From 2007 through 2014, Mr. Holden served in senior executive positions at School Specialty, Inc., a distributor of school supplies, equipment and curriculum products. He last served as Executive Vice President of School Specialty, Inc., and President of the Curriculum Group, a division of School Specialty Inc., from 2013 to December 2014. He was President of Educational Resources, a division of School Specialty, Inc., from 2010 to 2013. He served as Chairman and Chief Executive Officer of J.L. Hammett Co., a reseller of educational curriculum, equipment, furniture and products from 1992 to 2006. Mr. Holden served on the Board of Directors of Software Secure, Incorporated, a privately-held company headquartered in Newton, MA, which focused on secure online educational testing technology, from 2007 until its sale in late 2016. He has served on the Board of Directors of Codman Academy Charter Public School in Boston MA since 2012. The qualifications of Mr. Holden to serve on the Board of the Company include his substantial senior executive management experience of large complex companies in the educational markets. In particular, as a result of his experience with School Specialty Inc., then a $650 million publicly held reseller of educational products, Mr. Holden has broad knowledge of educational markets and operational matters relating to developmental strategy, finance, marketing, sales, technology, sourcing, pricing and distribution. 43 Susan H. Murphy has served as Director since 2003. Vice President Emerita, Cornell University, from which Dr. Murphy retired in 2016 after a 38-year career, commencing in 1978. She served as Dean of Admissions and Financial Aid from 1985 to 1994; Vice President of Student and Academic Services from 1994 to June 2015, and thereafter she worked in Alumni Affairs and Development until her retirement. In 2013, Dr. Murphy became a member of the Board of Trustees of Adelphi University, and, since July 2016, has served as Vice Chair of its Board of Trustees. She also serves on the Board of Directors for Kendal at Ithaca, a not-for-profit continuing care retirement community (since 2014 and Vice Chair since 2019). Dr. Murphy is immediate past President of Tompkins County Community Foundation, and, since 2017, a member of its executive committee; she also served as Chair of the Board of Directors of the Foundation (2017 – 2019). Dr. Murphy received a Ph.D. in Educational Administration from Cornell University. Dr. Murphy has broad senior management level experience in a large, complex organization . In particular, her experience in employee compensation matters and the development and implementation of diversity policies is helpful to the Company. Brian K. Barker has been a founder and CEO of AntelopeAI, LLC an artificial intelligence and machine learning start-up since December 2018. He was a founder, director, and CEO of NorthBay Solutions, LLC, a big data and analytics company from 2010 to 2018, and continues to serve as a director. Mr. Barker was the General Manager of the xDoc business unit for Document Sciences Corporation, a document management and customer communications management solutions company, from 2007 until it was acquired by EMC Corporation, an information infrastructure solutions company, in 2008, and then continued as General Manager of the xDoc Business Unit until 2010. He previously was CEO of Cambridge Technology Vision, LLC, a merger and acquisition support software company, from 1997 to 2001, and was President of ClearSpring Technologies, Inc., an event-driven management software company, from 1989 to 1992. Mr. Barker is the co- inventor of Acquisition Trustee, which Intralinks Holdings, Inc. acquired to incorporate in its platform for secure document sharing. The qualifications of Mr. Barker to serve on the Board include his strong data analysis background, significant entrepreneurial achievements, and executive management experience at rapidly growing information technology companies. Stevenson E. Ward III has served as Director since 2001. Mr. Ward served as Vice President and Chief Financial Officer of Triton Thalassic Technologies, Inc. from 2000 until his retirement in 2014. Triton’s technology controls and inactivates pathogens in the healthcare and industrial industries. From 1998 through 2000, Mr. Ward served as Senior Vice President-Administration of Sanofi-Synthelabo, Inc., a major multinational pharmaceutical company. He served as Executive Vice President (1996-1998), responsible for legal, tax, treasury, employee benefits and other functions, and Chief Financial Officer (1994-1996) of Sanofi, Inc., the North American holding company for Sanofi. He also served as Vice President-Finance and Administration, Pharmaceutical Group, Sterling Winthrop, Inc. (1992-1994). Prior to joining Sterling, he was employed by General Electric Company in management positions in Purchasing, Corporate Audit and Finance. Mr. Ward’s qualifications for service on the Board include his extensive experience in senior executive level positions in finance, corporate audit and administration at two Fortune 100 multinational corporations. He also holds a Masters in Business Administration (MBA) degree. Code of Conduct The Company has adopted a Code of Conduct that is applicable to its employees, including the Chief Executive Officer, Chief Financial Officer and Controller. The Code of Conduct is available in the investor relations section on the Company’s website at www.acmeunited.com. If the Company makes any substantive amendments to the Code of Conduct which apply to its Chief Executive Officer, Chief Financial Officer or Controller, or grants any waiver, including any implicit waiver, from a provision of the Code of Conduct to the Company’s executive officers, the Company will disclose the nature of the amendment or waiver on its website. Information regarding compliance with Section 16(a) beneficial ownership reporting requirements and certain corporate governance matters is incorporated herein by reference to the sections entitled (i) “Compliance with Section 16(a) of the Securities Exchange Act of 1934”, (ii) “Nominations for Directors”, and (iii) “Audit Committee” contained in the Company’s Proxy Statement to be filed with the Securities and Exchange Commission in connection with its 2020 Annual Meeting of Shareholders. Item 11. Executive Compensation Information with respect to executive compensation is incorporated herein by reference to the section entitled “Executive Compensation” contained in the Company’s Proxy Statement to be filed with the SEC in connection with the Company’s 2021 Annual Meeting of Shareholders. Item 12. Security Ownership of Certain Beneficial Owners and Management Information regarding security ownership of certain beneficial owners, directors and executive officers is incorporated herein by reference to the information in the section entitled “Security Ownership of Directors and Officers” contained in the Company’s Proxy Statement to be filed with the SEC in connection with its 2021 Annual Meeting of Shareholders. 44 Item 13. Certain Relationships and Relate d Transactions, and Director Independence Information regarding certain relationships and related transactions is incorporated herein by reference to the information in the section entitled “Certain Relationships and Related Transactions” contained in the Company’s Proxy Statement to be filed with the SEC in connection with its 2021 Annual Meeting of Shareholders. Information regarding director independence is incorporated herein by reference to the section entitled “Independence Determinations” contained in the Company’s Proxy Statement to be filed with the Securities and Exchange Commission in connection with the Company’s 2021 Annual Meeting of Shareholders. Item 14. Principal Accounting Fees and Services Information regarding principal accountant fees and services is incorporated herein by reference to the section entitled “Fees to Auditors” contained in the Company’s Proxy Statement to be filed with the SEC in connection with its 2021 Annual Meeting of Shareholders . 45 PART IV Item 15. Exhibits and Financial Statement Schedules (a)(1) Financial Statements. • Consolidated Balance Sheets • Consolidated Statements of Operations • Consolidated Statements of Changes in Stockholders’ Equity • Consolidated Statements of Cash Flows • Notes to Consolidated Financial Statements • Report of Independent Registered Public Accounting Firm (a)(2) Financial Statement Schedules • Schedules other than those listed above have been omitted because of the absence of conditions under which they are required or because the required information is presented in the financial statements or notes thereto. (a)(3) The exhibits listed under Item 15(b) are filed or incorporated by reference herein. (b) Exhibits. The exhibits listed below are filed as part of this Annual Report on Form 10-K. Certain of the exhibits, as indicated, have been previously filed and are incorporated herein by reference. Exhibit No. Identification of Exhibit 3(i) Re-Stated Certificate of Incorporation July 1, 2005 (2) 3(ii) Bylaws (4) 4 Specimen of Common Stock certificate (18) (p) 4(vi) Description of Common Stock 10.3 2002 Acme United Employee Stock Option Plan as amended (12) 10.4 Severance Pay Plan dated September 28, 2004* (15) 10.5(a) Salary Continuation Plan dated September 28, 2004, as amended (3)* 10.6(a) 2005 Non-Salaried Director Stock Option Plan, amended (6) 10.6(b) Amendment to the 2005 Non-Salaried Director Stock Option Plan (12) 10.7 2017 Non-Salaried Director Stock Option Plan (9) 10.8 Deferred Compensation Plan dated October 2, 2007* (16) 10.9(a) 2012 Acme United Employee Stock Option Plan (11) 10.9(b) Amendment to the 2012 Acme United Employee Stock Option Plan* (12) 10.10(a) Revolving Loan Agreement with HSBC, dated April 5, 2012 (13) 10.10(b) Amendment No. 1 to Revolving Loan Agreement with HSBC Dated (14) 10.10(c) Amended and restated secured revolving note (14) 10.10(d) Amendment No. 2 to Revolving Loan Agreement with HSBC dated October 2013 (15) 10.10(e) Amendment No. 4 to Revolving Loan Agreement with HSBC dated May 6, 2016 (12) 10.10(f) Second amended and restated secured revolving note (12) 10.10(g) Amendment No. 5 to Revolving Loan Agreement with HSBC dated January 2017 (16) 10.10(h) Amendment No. 6 to Revolving Loan Agreement with HSBC dated March 2018 10.11 Change in Control Plan as amended dated February 24, 2011* (17) 21 Subsidiaries of the Registrant 23.1 Consent of Marcum LLP, Independent Registered Public Accounting Firm 46 31.1 Certification of Walter Johnsen pursuant to Rule 13a-14(a) and 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Paul Driscoll pursuant to Rule 13a-14(a) and 15d-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Walter Johnsen pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Paul Driscoll pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 * Indicates a management contract or a compensatory plan or arrangement (1) Previously filed as an Exhibit to the Company’s Form 8-K/A filed on August 19, 2014. (2) Previously filed in the Company’s Form 8-K filed on July 8, 2005. (3) Previously filed in the Company’s Form 8-K filed on February 9, 2005. (4) Previously filed in the Company’s Form 8-K filed on March 3, 2006. (5) Previously filed in the Company’s Proxy Statement for the 2005 Annual Meeting of Shareholders. (6) Previously filed in the Company’s Proxy Statement filed on March 29, 2005. This plan expired in 2015. (7) Previously filed in the Company’s Form 8-K filed on December 21, 2010. (8) Previously filed as an exhibit to the Company’s Form 10-K filed on March 17, 2005. (9) Previously filed as an exhibit to the Company’s Proxy Statement filed on March 22, 2017. (10) Previously filed as an exhibit to the Company’s Form 10-K filed on March 12, 2008. (11) Previously filed as an exhibit to the Company’s Form 10-Q filed on August 14, 2012. (12) Previously filed as an exhibit to the Company’s Form 10-Q filed on May 13, 2016. (13) Previously filed as an exhibit to the Company’s Form 10-Q filed on May 14, 2012. (14) Previously filed as an exhibit to the Company’s Form 10-Q filed on May 10, 2013. (15) Previously filed as an exhibit to the Company’s Form 10-K filed on March 6, 2014. (16) Previously filed as an exhibit to the Company’s Form 10-Q filed on August 4, 2017. (17) Previously filed as an exhibit to the Company’s Form 10-K filed on March 11, 2011. (1 8 ) Previously filed as an exhibit to the Company’s Form 10-K filed in 1971. Item 16. Form 10-K Summary Not applicable. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 31, 2021. 47 ACME UNITED CORPORATION (Registrant) Signatures: Titles: /s/ Walter C. Johnsen Walter C. Johnsen Chairman and Chief Executive Officer /s/ Brian S. Olschan Brian S. Olschan President, Chief Operating Officer and Director /s/ Paul G. Driscoll Paul G. Driscoll Vice President, Chief Financial Officer, Secretary and Treasurer /s/ Rex Davidson Rex Davidson Director /s/ Richmond Y. Holden, Jr. Richmond Y. Holden, Jr. Director /s/ Susan H. Murphy Susan H. Murphy Director /s/ Stevenson E. Ward III Stevenson E. Ward III Director /s/ Brian K. Barker Brian K. Barker Director 48