What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-03-10 compared with 2022-03-30 · 173 added, 125 removed, 464 unchanged (39% of the section changed)

12 unchanged sentences

Other expense

Total other income (expense), net

Total other (expense) income, net

Income before income tax expense

5 unchanged sentences

For the Years Ended

Other comprehensive gain

Other comprehensive (loss)

Foreign currency translation

Change in net prior service credit and actuarial gains, net of income

Total other comprehensive (loss) income

Comprehensive income

6 unchanged sentences

Prepaid expenses and other current assets

Restricted cash

Total current assets

7 unchanged sentences

Operating lease right-of-use asset, net

Other assets - restricted cash

Current liabilities:

5 unchanged sentences

Long-term debt

Long-term debt-PPP Loan

Mortgage payable, net of current portion

1 unchanged sentence

Deferred income taxes

Other non-current liabilities

Total liabilities

3 unchanged sentences

5,065,518 shares issued and 3,520,646 shares outstanding in 2021

Treasury stock, at cost, 1,544,872 in 2021 and 1,501,658 shares in 2020

Treasury stock, at cost, 1,544,872 shares in 2022 and 2021

Additional paid-in capital

9 unchanged sentences

Balances, December 31, 2020

Other comprehensive Income

Other comprehensive loss

Stock compensation expense

9 unchanged sentences

Cash settlement of stock options

Purchase of treasury stock

Net share settlement of stock options

Balances, December 31, 2022

5 unchanged sentences

Adjustments to reconcile net income to net cash provided by operating activities

Amortization of intangible assets

Stock compensation expense

Deferred income taxes

Non-cash lease expense

Non-cash lease adjustment

Provision for excess and obsolete inventory

Provision for doubtful accounts

Pension settlement

Amortization of deferred financing costs

PPP loan forgiveness

8 unchanged sentences

Purchase of property, plant and equipment

Acquisition of Med-Nap

Acquisition of First Aid Central

Purchase of intellectual property

Acquisition of Safety Made

Net cash used by investing activities

Financing activities:

Net (repayments) borrowings of long-term debt

Proceeds from PPP Loan

Net borrowings (repayments) of long-term debt

Repayments on mortgage

2 unchanged sentences

Cash settlement of stock options

Tax paid on net share settlement of stock options

Purchase of treasury stock

2 unchanged sentences

Effect of exchange rate changes

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Net increase in cash and cash equivalents

Cash, cash equivalents and restricted cash at beginning of year

Cash, cash equivalents and restricted cash at end of year

Supplemental cash flow information:

1 unchanged sentence

Cash paid for interest expense

Non-cash investing activities

Safety Made acquisition contingent consideration

Non-cash financing activities

Dividends accrued not paid

See accompanying Notes to Consolidated Financial Statements.

4 unchanged sentences

The three reportable segments operate in the United States (including Asian operations), Canada and Europe.

Principal products across all segments are scissors, shears, knives, rulers, pencil sharpeners, first aid safety kits, and related products which are sold primarily to wholesale, contract and retail stationery distributors, office supply super stores, mass market retailers, industrial distributors, school supply distributors, drug store retailers, sporting goods stores, hardware chains and wholesale florists.

Principal products across all segments are first aid kits and medical products, scissors, shears, knives, rulers and pencil sharpeners, which are sold primarily to wholesale, contract and retail stationery distributors, office supply super stores, mass market retailers, industrial distributors, school supply distributors, drug store retailers, sporting goods stores, hardware chains and wholesale florists.

Accounting Policies

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, intangibles, accruals for income taxes and stock-based compensation.

Actual results could differ from those estimates.

6 unchanged sentences

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

Included in other expense were foreign currency transaction losses of $ 239,753 in 2021 and foreign currency transaction gains of $ 96,372 in 2020 .

Included in other expense were foreign currency transaction losses of $ 288,191 and $ 239,753 in 2022 and 2021, respectively.

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.

1 unchanged sentence

Inventories – Inventories are stated at the lower of cost, or net realizable value, determined by the first-in, first-out method.

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

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

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

2 unchanged sentences

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

The Company tests its property, plant and equipment whenever events or changes in circumstances (triggering event) indicate that its carrying amount may not be recoverable.

During 2022 and 2021, there were no triggering events that would indicate its carrying amount may not be recoverable.

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

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.

2 unchanged sentences

The weighted average amortization period for intangible assets at December 31, 2022 was 9 years.

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, 2021 and 2020, 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.

The Company periodically reviews the values recorded for finite lived intangible assets whenever events or changes in circumstances (triggering event) indicate that its carrying amount may not be recoverable.

During 2022 and 2021, there were no triggering event that would indicate its carrying amount may not be recoverable.

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

The Company annually reviews 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, 2022 and 2021, the Company assessed the recoverability of its intangible 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.

Contingent Consideration - As part of the acquisition of Safety Made, a $ 1.5 million payment will be due, contingent on the acquired business meeting certain revenue milestones over a two-year period, commencing on the date of the acquisition.

The fair value of the contingent liability at each reporting date is based on certain estimates and judgements made by management.

Those estimates are made from the most relevant data available at that time and include historical data and future projections.

At December 31, 2022, the fair value of the contingent consideration was $ 1,330,000 .

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.

8 unchanged sentences

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.

ROU assets and lease liabilities are recognized at the 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 the Company’s leases do not provide an implicit rate, the present value of lease payments is determined primarily using our incremental borrowing rate based on the information available at the lease commencement date.

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

7 unchanged sentences

When revenue is recorded, estimates of returns are made and recorded as a reduction of revenue.

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, in the notes to consolidated financial statements in this report for a more detailed discussion.

Shipping Costs – The costs of shipping product to our customers ($ 10,071,710 in 2021 and $ 7,486,600 in 2020) are included in selling, general and administrative expenses.

The increase in shipping costs is primarily related to higher sales volume, increased shipping rates and incremental expedited costs related the installation of the new warehouse management system in our Rocky Mount distribution center.

Customer rebates and incentives are 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, for a more detailed discussion.

Shipping Costs – The costs of shipping product to the Company’s customers ($ 11,328,276 in 2022 and $ 10,071,710 in 2021) are included in selling, general and administrative expenses.

Advertising Costs – The Company expenses the production costs of advertising the first time that the related advertising takes place.

Advertising costs ($ 1,563,477 in 2022 and $ 976,268 in 2021) are included in selling, general and administrative expenses.

Subsequent Events – The Company has evaluated events and transactions subsequent to December 31, 2021 through the date the consolidated financial statements were included in this Form 10-K and filed with the SEC.

Subsequent Events – The Company has evaluated events and transactions subsequent to December 31, 2022 through the date the consolidated financial statements were issued.

Concentration – The Company performs ongoing credit evaluations of its customers and generally does not require collateral for the extension of credit.

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

The Company had two customers in 2021 and 2020, respectively, that individually exceeded 10% of consolidated net sales.

The Company had two customers in 2022 and 2021, that individually exceeded 10% of consolidated net sales.

Net sales to these customers were approximately 15 % and 10 % of consolidated net sales in 2022 and 17 % and 11 % in 2021.

Recently Issued and Adopted Accounting Standards

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

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

The update eliminates, clarifies and modifies certain guidance related to the accounting for income taxes.

ASU 2019-12 is effective for annual reporting periods beginning after December 15, 2020.

The adoption of ASU 2019-12 did not have a material effect on the Company’s consolidated financial statements.

Management does not believe that any recently issued, but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial statements.

Inventories consisted of:

5 unchanged sentences

The Company’s intangible assets and goodwill consisted of:

First Aid Only Tradename

First Aid Only Customer List

DMT Trademarks

DMT Customer List

DMT Non-Compete

Customer List

Slice License Agreement

Pac-Kit Tradename, Customer List

Spill Magic Customer List

Spill Magic Trademarks

Spill Magic Non-Compete

C-Thru Customer List

Accumulated Amortization

Intangible Assets

Amortization expense for patents and trademarks for the years ended December 31, 2021 and 2020 were $ 1,490,894 and $ 1,324,423 , respectively.

The estimated aggregate amortization expense for each of the next five succeeding years, calculated on a similar basis, is as follows:

Amortization expense for intangible assets for the years ended December 31, 2022 and 2021 were $ 1,815,508 and $ 1,490,894 , respectively.

The estimated aggregate amortization expense for each of the next five years, calculated on a similar basis, is as follows:

2023 - $ 2,012,133 ;

6 unchanged sentences

Customer Rebates

Contingent Liability - Safety Made

Accrued Compensation

6 unchanged sentences

Total contribution expense under this 401k plan was $ 426,594 in 2022 and $ 419,298 in 2021.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted, which included provisions, which among others, provide temporary relief for those retirement plan participants affected by the coronavirus disease (COVID-19).

Participants who met certain criteria could take a penalty-free hardship withdrawal, borrow from their accounts at higher limits and suspend making payments on their participant loans until 2021.

During the period between March 27, 2020 and September 22, 2020, participants impacted by COVID-19 (as defined in the Plan document) could borrow from their account up to the lesser of $ 100,000 or the vested account balance and could suspend loan repayments due during that period until January 2021.

The CARES Act also removed the 10 % early withdrawal penalty for a coronavirus-related distribution up to $ 100,000 made during 2020.

Participants who took a coronavirus-related distribution could spread the income over a three-year period for income tax purposes or avoid

income taxes if the distribution is repaid with the three-year period following the distribution.

The voluntary adoption of this provision by the Plan was effective March 27, 2020.

As of December 31, 2020, the Plan has not been formally amended, as a formal amendment is not required until the plan year ended December 31, 2022.

The Plan intends to formally adopt the amendment upon a future restatement of the Plan, prior to this date.

The amounts of income tax expense (benefit) reflected in operations is as follows:

The amounts of income tax expense reflected in operations is as follows:

Total Income Tax Expense:

11 unchanged sentences

Provision for income taxes:

Income tax expense in 2021 included a $ 1.4 million tax credit for stock-based compensation.

The following summarizes deferred income tax assets and liabilities:

Deferred income tax liabilities:

Plant, property and equipment

Property, plant and equipment

Deferred income tax assets:

1 unchanged sentence

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.

The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations.

The Company considers any potential GILTI as an expense in the period the tax is incurred.

In 2022, the Company evaluated its tax positions for years which remain subject to examination by major tax jurisdictions, in accordance with the requirements of ASC 740 and as a result, concluded no adjustment was necessary.

3 unchanged sentences

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.

This valuation allowance, all of which is related to deferred tax assets resulting from net operating losses of the Company’s German subsidiary of approximately $ 3.9 million, 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.

Long-Term Debt and Shareholders’ Equity

Long-term debt consists of (i)borrowings under the Company’s revolving loan agreement with HSBC Bank, N.A and (ii) amounts outstanding under the fixed rate mortgage related to the Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA.

The revolving loan agreement provides for borrowings of up to $ 50 million at Prime Rate less 1.25 % .

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.

Long-term debt consists of (i) borrowings under the Company’s revolving loan agreement with HSBC Bank, N.A.

and (ii) amounts outstanding under the fixed rate mortgage related to the Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA.

On May 31, 2022, the Company amended its revolving loan agreement with HSBC Bank N.A.

The amendment increases the amount available for borrowing to $ 65 million from $ 50 million, at an interest rate of the Secured Overnight Financing Rate (SOFR) plus 1.75 % ;

interest is payable monthly.

In addition, the expiration date of the revolving loan agreement was extended to May 31, 2026 .

The Company must pay a facility fee, payable quarterly, in an amount equal to one eighth of one percent ( .125 %) 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.

December 31, 2021, the Company was in compliance with the covenants then in effect under the loan agreement.

Under the revolving loan agreement, the Company is required to maintain specific amounts of funded debt to EBITDA, a fixed charge coverage ratio and must have annual net income greater than $0, measured as of the end of each fiscal year.

On November 8, 2022, the revolving loan agreement was amended to increase the ratio of funded debt to EBITDA.

The amendment is in effect for four quarters commencing in the third quarter of 2022 and includes an increase in the funded debt to EBITDA ratio for the four quarters ranging from a low

of 4.75 to 1 to a high of 5.75 to 1.

The amendment also increases the interest rate from SOFR +1.75 % up to a high of SOFR + 2.35 % on a basis that varies on a quarterly basis with the funded debt to EBITDA ratio.

As of December 31, 20 2 2 , the Company was in compliance with the covenants under the revolving loan agreement , as amended.

As of December 31, 2022, $ 50,000,000 was outstanding and $ 15,000,000 was available for borrowing under the Company’s revolving loan agreement.

3 unchanged sentences

Commencing on January 1, 2022, payments of principal and interest are due monthly, with all amounts outstanding due on maturity on December 1, 2031 .

Long-term debt consisted of the following at December 31, 2021:

Long-term debt consisted of the following at December 31, 2022 and 2021:

December 31, 2022

December 31, 2021

Mortgage payable - HSBC Bank N.A.

11 unchanged sentences

The program does not have an expiration date.

During the twelve months ended December 31, 2021, the Company repurchased 43,214 shares of its Common Stock, 3,579 shares under the repurchase program announced in 2010 and 39,635 shares under the repurchase plan announced in 2019.

As of December 31, 2021, a total of 160,365 shares may be purchased in the future under the repurchase program announced in 2019.

During the year ended December 31, 2022, the Company did no t repurchase any shares of its Common Stock.

As of December 31, 2022, a total of 160,365 shares may be purchased in the future under the repurchase program.

On May 7, 2020, the Company received a two-year loan (the “PPP Loan”) from HSBC Bank, N.A., the lender, in the amount of $ 3,508,047 under the Paycheck Protection Program established by the Coronavirus Aid, Relief and Economic Security Act (CARES Act).

7 unchanged sentences

The Company recognizes revenue from the sales of a broad line of products that are grouped into two main categories:

(i) first aid and safety;

(i) first aid and medical;

and (ii) cutting, sharpening and measuring.

The first aid and safety category includes first aid kits and refills, over-the-counter medications and a variety of safety products.

The first aid and medical category includes first aid kits and refills, over-the-counter medications and a variety of safety products.

The cutting and sharpening category includes scissors, knives, paper trimmers, pencil sharpeners and other sharpening tools.

17 unchanged sentences

Payment terms for each customer are dependent on the agreed upon contractual repayment terms.

Typically between 30 and 90 days, but they vary dependent on the size of the customer and its risk profile to the Company.

The repayment terms are typically between 30 and 90 days, but they vary dependent on the size of the customer and its risk profile to the Company.

Some customers receive discounts for early payment.

10 unchanged sentences

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 in the year ended December 31, 2020.

These costs are included in “Selling, general and administrative expenses.”

Disaggregation of Revenues

The following table represents external net sales disaggregated by product category, by segment:

For the twelve months ended December 31, 2021

For the year ended December 31, 2022

(amounts in 000's)

3 unchanged sentences

Total Net Sales

For the twelve months ended December 31, 2020

For the year ended December 31, 2021

(amounts in 000's)

4 unchanged sentences

Segment Information

The Company reports financial information based on the organizational structure used by the Company’s chief operating decision makers for making operating and investment decisions and for assessing performance.

The Company reports financial information based on the organizational structure used by the Company’s chief operating decision maker for making operating and investment decisions and for assessing performance.

The Company’s reportable business segments consist of:

2 unchanged sentences

As described below, the activities of the Company’s Asian operations are closely linked to those of the U.S.

accordingly, the Company’s chief operating decision makers review the financial results of both on a consolidated basis, and the results of the Asian operations have been aggregated with the results of the United States operations to form one reportable segment called the “United States segment” or “U.S.

accordingly, the Company’s chief operating decision maker reviews the financial results of both on a consolidated basis, and the results of the Asian operations have been aggregated with the results of the United States operations to form one reportable segment called the “United States segment” or “U.S.

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 and facilities in North Carolina, Washington, Massachusetts, Tennessee, Florida and California.

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

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

7 unchanged sentences

Segment revenues are defined as total revenues, including both external customer revenue and inter-segment revenue.

Segment operating earnings are defined as segment revenues, less cost of goods sold and operating expenses.

Segment operating

earnings are defined as segment revenues, less cost of goods sold and operating expenses.

Identifiable assets by segment are those assets used in the respective reportable segment’s operations.

9 unchanged sentences

Year Ended December 31, 2021

(000's omitted)

United States

3 unchanged sentences

The following is a reconciliation of segment operating income to consolidated income before taxes:

(000’s omitted)

Total operating income

Interest expense, net

Other (income) expense

Other expense (income)

Consolidated income before taxes

1 unchanged sentence

Revenues are attributed to countries based on location of the customer.

(000’s omitted)

United States

5 unchanged sentences

The Company also has two plans under which the Company no longer grants options but under which certain options remain outstanding:

the 2005 Non-Salaried Director Stock Option Plan (the “2005 Director Plan”).

the 2005 Non-Salaried Director Stock Option Plan (the “2005 Director Plan”) and the 2012 Employee Stock Option Plan (the “2012 Employee Plan”).

The 2022 Employee Plan, which was approved by the shareholders of the Company at the April 20, 2022, Annual Meeting, provides for the issuance of incentive and nonqualified stock options at an exercise price equal to the fair market value of the Common Stock on the date the option is granted.

The terms of the options granted are subject to the provisions of the 2022 Employee Plan.

Options granted under the 2022 Employee Plan vest 25% one day after the first anniversary of the grant date and 25% one day after each of the next three anniversaries.

As of December 31, 2022, the number of shares available for grant under the 2022 Employee Plan is 166,750 .

Under the terms of the 2022 Employee Plan, no option may be granted under that plan after the tenth anniversary of the adoption of the plan.

The 2012 Employee Plan, which became effective April 23, 2012, provides for the issuance of incentive and nonqualified stock options at an exercise price equal to the fair market value of the Common Stock on the date the option is granted.

1 unchanged sentence

Options granted under the 2012 Employee Plan vest 25% one day after the first anniversary of the grant date and 25% one day after each of the next three anniversaries.

As of December 31, 2021, the number of shares available for grant under the 2012 Employee Plan was 18,650 .

Under the terms of the 2012 Employee Plan, no option may be granted under that plan after the tenth anniversary of the adoption of the plan.

Options outstanding under the Company’s 2002 Employee Stock Option Plan have the same vesting schedule as the 2012 Employee Plan.

On February 22, 2022, the Board of Directors, approved the Acme United 2022 Employee Stock Option Plan (the “2022 Plan”), with the adoption and effectiveness of the 2022 Plan being subject to the approval of the shareholders of the Company at the April 25, 2022 Annual Meeting .

The 2017 Director Plan provides for the issuance of stock options for up to a total of 50,000 shares of the Company's common stock to non-salaried directors.

Under the 2017 Director Plan, Directors elected after the effective date and at subsequent Annual Meetings who have not received any prior grant under this or previous plans shall receive an initial grant of an option to purchase 5,000 shares of Common Stock (the “Initial Option”).

Each year, each elected Director not receiving an Initial Option will receive an option to purchase 5,000 shares of Common Stock (the “Annual Option”).

Under the 2017 Director Plan, Directors elected after the effective date and at subsequent Annual Meetings who have not received any prior grant under the plan or previous plans shall receive an initial grant of an option to purchase 5,000 shares of Common Stock (the “Initial Option”).

Each year, each elected non-salaried Director not receiving an Initial Option will receive an option to purchase 5,000 shares of Common Stock (the “Annual Option”).

The Initial Option vests 25% on the date of grant and 25% on the anniversary of the grant date in each of the following 3 years.

1 unchanged sentence

The exercise price of each option granted equals the fair market value of the Common Stock on the date the option is granted and expires ten (10) years from the date of grant.

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.

The 2017 Director Plan provides that the Board of Directors has the authority to increase or decrease the number of shares of Common Stock which are the subject of the annual or initial option grants to directors.

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, 2022, there were no shares available for grant under the 2017 Director Plan.

Annual Options were customarily granted to non-salaried Directors on the date of the respective Annual Meeting of Shareholders.

However, in 2022, there were then no options available for grant under the 2017 Director Plan.

As a result, options were not granted to Directors in 2022.

Because the Company did not make the customary annual grant of options to the non-salaried directors in 2022, the Company, instead, paid a cash fee to each of the non-salaried directors in an amount equal to $ 61,800 .

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.

3 unchanged sentences

Each Annual Option became fully exercisable one day after the date of grant.

The exercise price of each option granted equaled the fair market value of the Common Stock on the date the option was granted, and expired ten (10) years from the date of grant.

The exercise price of each option granted equalled the fair market value of the Common Stock on the date the option was granted and expired ten (10) years from the date of grant.

As provided in the Director Plan, no options could be granted under the 2005 Director Plan after the tenth anniversary of the adoption of the Plan, i.e., after April 25, 2015.

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.

The Company’s stock option plans for both employees and directors 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”);

1 unchanged sentence

In 2022 and 2021, the Company paid a total of approximately $ 108,155 and $ 342,285 respectively, to optionees who had elected a net cash settlement of their respective share options.

In 2021, the Company issued 7,726 shares to optionees who had elected a net share settlement.

There were no such elections in 2020.

In 2022 and 2021, the Company issued 10,067 and 7,726 shares, respectively, to optionees who had elected a net share settlement.

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

30 unchanged sentences

All stock-based payment awards are amortized over the requisite service periods of the awards, which are generally the vesting periods.

The assumptions used to value option grants for the twelve months ended December 31, 2021 and December 31, 2020 were as follows:

The assumptions used to value option grants for the years ended December 31, 2022 and 2021 were as follows:

Expected life in years

1 unchanged sentence

Dividend yield

Total stock-based compensation recognized in the Company’s consolidated statements of operations for the years ended December 31, 2021 and 2020 was $ 1,806,758 and $ 1,259,079 , respectively.

Total stock-based compensation recognized in the Company’s consolidated statements of operations for the years ended December 31, 2022 and 2021 were $ 1,803,302 and $ 1,806,758 , respectively.

At December 31, 2022, there was approximately $ 3,599,153 of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested stock-based payments granted to the Company’s employees.

1 unchanged sentence

The weighted average fair value at the date of grant for options granted during 2022 and 2021 was $ 11.14 and $ 13.63 per option, respectively.

The aggregate intrinsic value of outstanding options was $ 15,436,026 at December 31, 2021.

The aggregate intrinsic value of exercisable options was $ 12,128,507 at December 31, 2021.

The aggregate intrinsic value of options exercised during 2021 was $ 6,582,918 .

The aggregate intrinsic value of outstanding options was $ 1,622,738 and $ 15,436,026 at December 31, 2022 and 2021, respectively.

The aggregate intrinsic value of exercisable options was $ 1,565,553 and $ 12,128,507 at December 31, 2022 and 2021, respectively.

The aggregate intrinsic value of options exercised during 2022 and 2021 was $ 747,730 and $ 6,582,918 , respectively.

Earnings Per Share

The calculation of earnings per share follows:

The calculation of earnings per share is as follows:

Denominator for basic earnings per share:

8 unchanged sentences

Foreign currency

Net prior service

actuarial losses

Balances, December 31, 2020

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

Translation adjustment

2 unchanged sentences

Balances, December 31, 2022

Cash, Cash Equivalents and Restricted Cash

(dollars in 000’s):

Cash and cash equivalents

Restricted Cash - current

Restricted Cash - non-current

Total cash, cash equivalents and restricted cash

Restricted cash, which is reported within other short-term and long-term assets in the consolidated balance sheets consists of the contingent payment held in escrow related to the acquisition of certain assets of Safety Made.

See Note 16 – Business Combinations, for additional information related to the acquisition of certain assets of Safety Made.

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.

2 unchanged sentences

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

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

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

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

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

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

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

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

Operating lease cost was $ 1.3 million for the twelve-months end ed December 31, 20 2 1 .

For the twelve months ended December 31, 20 2 1 , $ 0.5 million was included in cost of goods sold and $ 0.8 million was included in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations .

Information related to leases (in 000’s) :

Twelve months ended

Operating lease cost was $ 1.2 million and $ 1.3 million for the year ended December 31, 2022 and 2021, respectively.

For the year ended December 31, 2022 and 2021, $ 0.5 million was included in cost of goods sold and $ 0.7 million and $ 0.8 million, respectively, was included in selling, general and administrative expenses in the accompanying consolidated statements of operations.

Information related to leases (dollars in 000’s) :

Operating cash flow information:

December 31, 2022

December 31, 2021

Operating lease cost

3 unchanged sentences

December 31, 2022

December 31, 2021

Weighted-average remaining lease term

1 unchanged sentence

Future minimum lease payments under non-cancellable leases as of December 31, 2022:

(dollars in 000’s) :

Total future minimum lease payments

2 unchanged sentences

Present value of lease liabilities - non-current

Business Combinations

On June 1, 2022, the Company purchased certain assets of Live Safely Products, LLC (d/b/a “Safety Made”) for approximately $ 11 million, including $ 1.5 million of which is contingent upon meeting certain annual financial targets during a two-year period.

Based in Keene, NH, Safety Made is a leading manufacturer of first aid kits for the promotional products industry.

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

Accounts Receivable

Prepaid Expense

Property, plant and equipment

Intangible Assets

Customer list

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

All assets acquired in the acquisition are included in the Company’s United States operating segment.

Intangible assets include Customer List, Trade Names, Non-Compete Agreements, and Goodwill.

The useful lives of the identified intangible assets range from 5 years to 15 years.

As part of the purchase agreement, there is a $ 1.5 million payment due to the owners that is contingent on certain revenue milestones being met and the owners being employed by the Company at the end of the two-year period.

The $ 1.5 million will be held by the Escrow Agent in escrow for twenty-five (25) months after the closing date.

After one year from the closing date, the Escrow Agent will disburse to the Seller a payment up to $ 750,000 or a portion thereof determined by the calculation outlined in the purchase agreement.

After two years from the closing date, the Escrow Agent will disburse to the seller the remaining escrow amount, or a portion thereof determined by the calculation outlined in the agreement.

The $ 1.5 million contingent payment that is being held in escrow is classified as restricted cash.

Of this amount, $ 750,000 is recorded in current assets, with the remaining $ 750,000 reported in other long-term assets on the consolidated balance sheet.

Net sales for the year ended December 31, 2022, attributable to the sales of Safety Made products were approximately $ 3.6 million.

Income from operations for the year ended December 31, 2022, attributable to Safety Made products was approximately $ 0.6 million.

Assuming Safety Made assets were acquired on January 1, 2021 , unaudited proforma combined net sales for the years ended December 31, 2022 and 2021 for the Company would have been approximately $ 195.8 million and $ 187.0 million, respectively.

Unaudited proforma combined net income for the years ended December 31, 2022 and 2021 for the Company would have been approximately $ 3.4 million and $ 15.5 million.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

2 unchanged sentences

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, 2021 and 2020, the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheet s of Acme United Corporation and Subsidiaries (the “Company”) as of December 31, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, 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, 2022, 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 10, 2023, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

11 unchanged sentences

Critical Audit Matter

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which it relates.

Business Combination

As described in Note 16 to the Company’s financial statements, the Company completed the acquisition of Live Safely Products, LLC for approximately $11 million on June 1, 2022, including $1.5 million of contingent earn-out liabilities.

This transaction resulted in recording of $5.1 million of intangible assets.

Management applied significant judgment in estimating the fair value of the intangible assets, each of which involved the use of significant estimates and assumptions with respect to expected future cash flows and discount rates.

We identified the valuation of the intangible assets as a critical audit matter.

Changes to management's judgments and assumptions used in determining the fair values of the intangible assets could have a material impact on the financial statements.

The significant estimation was primarily due to the complexity of the valuation models used to measure the fair value as well as the sensitivity of the respective fair values to the underlying significant assumptions.

The significant assumptions used to estimate the fair value of the intangible assets included discount rates, revenue and earnings before tax.

This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s cash flow projections and significant assumptions, including estimates of future revenue and earnings before tax.

How We Addressed the Matter in Our Audit

Our audit procedures related to the business combination include the following, amongst others:

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the accounting for the business combination and over the determination of the purchase price allocation.

We considered the results of our tests of controls in our other audit procedures.

To test the acquisition of Live Safely Products, LLC, our audit procedures included, among others, evaluating the Company's selection of the valuation methodology, evaluating the methods and significant assumptions used by the Company's valuation specialist, and testing the completeness and accuracy of the underlying data supporting the significant assumptions and estimates.

We involved our valuation specialists to assist with our evaluation of the methodology used by the Company and significant assumptions including the discount rate.

Specifically, when assessing the key assumptions, we focused on discount rates and revenue growth rates amongst others.

/s/ Marcum llp

1 unchanged sentence

such date takes into consideration the acquisition of a portion of UHY LLP by Marcum LLP in April 2010.

New Haven, Connecticut

Boston, Massachusetts

March 10, 2023

6 unchanged sentences

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, 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, 2021 and 2020 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 years in the two-year period ended December 31, 2021, of the Company, and our report dated March 30, 2022 expressed an unqualified opinion on those 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, 2022 and 2021 and the related consolidated statements of operations, 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, 2022, of the Company, and our report dated March 10, 2023 expressed an unqualified opinion on those financial statements.

Basis for Opinion

16 unchanged sentences

/s/ Marcum llp

New Haven, Connecticut

Boston, Massachusetts

March 10, 2023

2 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 8. Financial Statements and Supplementary Data