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What changed in ACME UNITED CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ACME UNITED CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+142 added−178 removedSource: 10-K (2024-03-07) vs 10-K (2023-03-10)

Top changes in ACME UNITED CORP's 2023 10-K

142 paragraphs added · 178 removed · 109 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeIn 2019, we introduced our next generation SmartCompliance Complete ™ which offers a modular system that addresses first aid, bloodborne pathogen, bleed control, eyewash and OTC medication requirements for the most challenging workplace environments. PhysiciansCare The PhysiciansCare brand offers a variety of portable eyewash solutions and over-the counter medications, including the active ingredients aspirin, acetaminophen and ibuprofen.
Biggest changeThe Company’s SafetyHub App technology digitizes the replenishment process for a broad range of first aid components and provides data analytics to manage costs. Our next generation SmartCompliance Complete ™ offers a modular system that addresses first aid, bloodborne pathogen, bleed control, eyewash and OTC medication requirements for the most challenging workplace environments.
In recent years, as a result of acquisition, the amount of first aid and medical products produced in North America has been increasing substantially. The Company assembles its first aid kits at its facilities in Vancouver, WA, Rocky Mount, NC, Keene, NH and Laval, Canada. The components for the first aid kits are primarily sourced from U.S. suppliers.
In recent years, as a result of acquisitions, the amount of first aid and medical products produced in North America has been increasing substantially. The Company assembles its first aid kits at its facilities in Vancouver, WA, Rocky Mount, NC, Keene, NH and Laval, Canada. The components for the first aid kits are primarily sourced from U.S. and international suppliers.
First Aid Central First Aid Central has been a trusted provider and manufacturer of a wide variety of first aid kits since 2007.
First Aid Central First Aid Central has been a provider and manufacturer of a wide variety of first aid kits since 2007.
Its principal products sold across all segments are first aid kits and medical products, scissors, shears, knives, rulers, pencil sharpeners and sharpening tools. The Company sells its products primarily to mass market and e-commerce retailers, industrial distributors, wholesale, contract and retail stationery distributors, office supply superstores, sporting goods stores, and hardware chains.
Its principal products sold across all segments are first aid kits and medical products, scissors, shears, knives, and sharpening tools. The Company sells its products primarily to mass market and e-commerce retailers, industrial distributors, wholesale, contract and retail stationery distributors, office supply superstores, sporting goods stores, and hardware chains.
Product Distribution; Major Customers Independent manufacturer representatives and direct sales are primarily used to sell the Company’s line of consumer products to mass market, ecommerce retailers, industrial distributors, wholesale, contract and retail stationery distributors, office supply super stores, school supply distributors, and hardware chains (including through their websites).
Product Distribution; Major Customers Independent manufacturer representatives and direct sales are primarily used to sell the Company’s line of consumer products to mass market, e-commerce retailers, industrial distributors, wholesale, contract and retail stationery distributors, office supply super stores, school supply distributors, and hardware chains (including through their websites).
Item 1. Business Overview Acme United Corporation, a Connecticut corporation (together, with its subsidiaries, the "Company"), is a leading worldwide supplier of innovative first aid and medical products and cutting technology to the school, home, office, hardware, sporting goods and industrial markets.
Item 1. B usiness Overview Acme United Corporation, a Connecticut corporation (together, with its subsidiaries, the "Company"), is a leading worldwide supplier of innovative first aid and medical products and cutting technology to the school, home, office, hardware, sporting goods and industrial markets.
In addition, the Company has manufacturing facilities in the U.S. at Smyrna, TN and Santa Ana, CA for Spill Magic absorbent products, Marlborough, MA for DMT sharpening tools, and Brooksville, FL for Med-Nap alcohol and benzalkonium chloride non-alcohol (BZK) wipes.
In addition, the Company has manufacturing facilities in the U.S. at La Vergne, TN and Santa Ana, CA for Spill Magic absorbent products, Marlborough, MA for DMT sharpening tools, and Brooksville, FL for Med-Nap alcohol and benzalkonium chloride non-alcohol (BZK) wipes.
Total net sales in 2022 were $194 million. The Company was organized as a partnership in l867 and incorporated in l882 under the laws of the State of Connecticut. The Company sources most of its products from suppliers located outside the United States, primarily in Asia.
Total net sales in 2023 were $192 million. The Company was organized as a partnership in l867 and incorporated in l882 under the laws of the State of Connecticut. The Company sources most of its products from suppliers located outside the United States, primarily in Asia.
The Company also considers its trademarks important to the success of its business. The more significant trademarks include Westcott, Clauss, Camillus, PhysiciansCare, First Aid Only, Cuda, DMT, Pac-Kit, Spill Magic and First Aid Central. Patents and trademarks are amortized over their estimated useful lives. The weighted average amortization period remaining for intangible assets at December 31, 2022 was 9 years.
The Company also considers its trademarks important to the success of its business. The more significant trademarks include Westcott, Clauss, PhysiciansCare, First Aid Only, DMT, Pac-Kit, Spill Magic and First Aid Central. Patents and trademarks are amortized over their estimated useful lives. The weighted average amortization period remaining for intangible assets at December 31, 2023 was 8 years.
These initiatives include the implementation of a wide range of productivity improvements in our manufacturing and distribution facilities and a reduction of SG&A expenses and other costs. Principal Products The Company markets and sells under two main categories: i) first aid and medical; and ii) cutting, sharpening and measuring.
These initiatives included the implementation of a wide range of productivity improvements in our manufacturing and distribution facilities and a reduction of SG&A expenses and other costs. 3 Principal Products The Company markets and sells under two main product categories: i) first aid and medical; and ii) cutting and sharpening.
Med-Nap Med-Nap, an Acme United brand since 2020, manufactures critical FDA regulated components found in first aid kits and used by healthcare facilities, including alcohol prep pads, alcohol wipes, benzalkonium chloride non-alcohol wipes, various antiseptic wipes, castile soap, and lens cleaning wipes.
Med-Nap Med-Nap manufactures critical FDA regulated components found in first aid kits and used by healthcare facilities, including alcohol prep pads, alcohol wipes, benzalkonium chloride non-alcohol wipes, various antiseptic wipes, castile soap, and lens cleaning wipes.
The Company believes that the principal points of competition in these markets are product innovation, quality, price, merchandising, design and engineering capabilities, product development, timeliness and completeness of delivery, conformity to customer specifications and post-sale support. The major competitors in the cutting category are 3M and Fiskars Corporation.
The Company believes that the principal points of competition in these markets are product innovation, quality, price, merchandising, design and engineering capabilities, product development, timeliness and completeness of delivery, conformity to customer specifications and post-sale support. The major competitors in the first aid and safety category are Honeywell and Cintas.
Westcott is one of the leading scissor and ruler brands in North America. Many of the Westcott branded cutting products contain patented titanium bonding and proprietary non-stick coatings, making the blades more than three times harder than stainless steel as well as reducing friction and corrosion.
Many of the Westcott branded cutting products contain patented titanium bonding and proprietary non-stick coatings, making the blades more than three times harder than stainless steel as well as reducing friction and corrosion.
As of December 31, 2022, the Company employed 619 people, all of whom are full time and none of whom is covered by union contracts. Employee relations are considered good and no foreseeable problems with the work force are evident. Culture and Diversity The Company’s workforce represents nearly all demographics, with diversity in age, race, ethnicity, and gender.
As of December 31, 2023, the Company employed 645 people, all of whom are full time and none of whom is covered by union contracts. Employee relations are considered good and the Company is not aware of any material work force issues. Culture and Diversity The Company’s workforce represents nearly all demographics, with diversity in age, race, ethnicity, and gender.
Med-Nap provides to the Company vertical integration advantages including shorter delivery times, lower total costs, and a secure U.S. source of supply during unprecedented healthcare challenges. The facilities offer a platform for future product expansion. Safety Made Safety Made is a leading manufacturer of first aid kits for the promotional products industry.
Med-Nap provides to the Company vertical integration advantages including shorter delivery times, lower total costs, and a U.S. source of supply during unprecedented healthcare challenges. The facilities offer a platform for future product expansion.
They assist Canadian businesses to stay compliant with federal & provincial first aid and medical regulations through their wide variety of first aid kits, refills, and safety supplies, including CPR kits, burn kits, and automotive and emergency first aid kits.
The first aid kits facilitate compliance by Canadian businesses with federal & provincial first aid and medical regulations through their wide variety of first aid kits, refills, and safety supplies, including CPR kits, burn kits, and automotive and emergency first aid kits.
The Company also sells a limited selection of its products directly to consumers through its own websites. The Company had two customers in 2022 and 2021, respectively, that individually exceeded 10% of consolidated net sales.
The Company also sells its products directly to consumers through its own websites. The Company had two customers in 2023 and 2022, respectively, that individually exceeded 10% of consolidated net sales. Net sales to these two customers were approximately 14% and 12% of consolidated net sales in 2023 and 15% and 10% in 2022.
The major competitors in the first aid and safety category are Honeywell and Cintas. Seasonality Traditionally, the Company’s sales and profits are stronger in the second and third quarters and weaker in the first and fourth quarters of the fiscal year, due to the seasonal nature of the Westcott back-to-school market.
The major competitors in the cutting category are 3M and Fiskars Corporation. Seasonality Traditionally, the Company’s sales of its cutting, sharpening and measuring products are stronger in the second and third quarters and weaker in the first and fourth quarters of the fiscal year, due to the seasonal nature of the Westcott back-to-school market.
The first aid and medical category includes first aid and safety products (First Aid Only®, PhysiciansCare®, Pac-Kit®, Spill Magic®, First Aid Central®, Med-Nap and Safety Made brands).
The first aid and medical category includes first aid and safety products (First Aid Only®, PhysiciansCare®, Pac-Kit®, Spill Magic®, First Aid Central®, Med-Nap and Safety Made brands). The cutting and sharpening categories include school, home and office products (Westcott® brand), and hardware, industrial and sporting goods products (Clauss® and DMT® brands).
CUTTING, SHARPENING AND MEASURING School, Home and Office Westcott Westcott, with a history of quality dating back to 1872, provides innovative cutting and measuring products for the school, home and office as well as industrial safety cutting. Principal products under the Westcott brand include scissors, rulers, pencil sharpeners, paper trimmers, safety cutters, lettering products, glue guns and other craft products.
Safety Made Safety Made is a leading manufacturer of first aid kits for the promotional products industry. 4 CUTTING, SHARPENING AND MEASURING School, Home and Office Westcott Westcott, with a history of quality dating back to 1872, provides innovative cutting and measuring products for the school, home and office as well as industrial safety cutting.
Spill Magic Spill Magic, an Acme United brand since 2017, is a leader in bodily fluid and spill clean-up solutions with a lightweight, absorbent powder that quickly encapsulates a spill.
PhysiciansCare The PhysiciansCare brand offers a variety of portable eyewash solutions and over-the counter medications, including the active ingredients aspirin, acetaminophen and ibuprofen. Spill Magic Spill Magic is a leader in bodily fluid and spill clean-up solutions with a lightweight, absorbent powder that quickly encapsulates a spill.
The Smart Compliance® first aid system is an effective solution for maintaining compliance with ANSI standards. The Company’s SafetyHub App technology digitizes the replenishment process for a broad range of first aid components and provides data analytics to manage costs.
FIRST AID AND MEDICAL First Aid and Medical First Aid Only The First Aid Only brand offers first aid and medical products that meet regulatory requirements for a broad range of industries. The Smart Compliance® first aid system is an effective solution for maintaining compliance with ANSI standards.
DMT DMT products are leaders in diamond sharpening tools for knives, scissors, chisels, skis, skates and many other edges that require sharpening. DMT was founded in 1976 by aerospace engineers.
In 2021, Clauss was the first to innovate and apply industrial Carbide materials to steel cutting blades, revolutionizing cutting performance and edge-retention for hardware applications. DMT Diamond Machining Technology (DMT) was founded in 1976 by aerospace engineers and is a leader in diamond tools for sharpening knives, scissors, chisels, skis, skates and many other edges.
In addition, in 2022 DMT launched a new line of professional and outdoor sharpeners with enhanced features and special grits to optimize the sharpener process. Intellectual Property The Company owns many patents and trademarks that are important to its business.
Today, DMT continues to innovate its sharpening assortment with sharpening solutions for the home consumer while continuing to provide the very best in professional sharpening solutions. Intellectual Property The Company owns many patents and trademarks that are important to its business.
Net sales to these two customers were approximately 15% and 10% of consolidated net sales in 2022 and 17% and 11% in 2021. 5 Competition The Company competes with many companies in each market and geographic area.
As of December 31, 2022, the Company had three customers that individually represented 10% or more of total trade receivables, which accounted for 12%, 11%, and 10%. Competition The Company competes with many companies in each market and geographic area.
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Recent accomplishments and initiatives In 2022, the Company’s key business accomplishments and initiatives included the following: • Record Sales Growth – The Company has achieved thirteen years of consecutive record annual sales growth averaging 10%; • Successful Responses to Challenging Environment – The Company encountered and successfully met significant macroeconomic and operational challenges.
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Recent accomplishments and initiatives In 2023, the Company’s key business accomplishments and initiatives included the following: • Sales Growth – Average annual growth rate over ten years of 8%. • Reduction in Debt – Net debt decreased from $55 million at December 31, 2022 to $19 million at December 31, 2023, a reduction of $36 million. • First Aid Acquisition – On September 27, 2023, the Company acquired the assets of Hawktree Solutions.
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These included supply chain issues, increased costs (including product costs, extraordinary container expenses, transportation and fuel costs, and rising wages), rising interest rates and shortages of workers.
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Inc., a supplier of first aid survival kits and medical supplies based in Laval, Quebec, Canada. The Company successfully integrated the assets and business in the fourth quarter of 2023. • Divestiture – On November 1, 2023, the Company sold its Camillus and Cuda hunting and fishing product lines for $19.8 million.
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Notwithstanding these factors, the Company’s revenues for 2022 increased to approximately $194 million, an increase of 7% over its revenues in 2021. • Diversification of Product Lines – D uring the past seven years, sales of first aid and medical products have grown to approximately 55% of total sales.
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The transaction enables Acme United to increase focus on its primary product lines and allowed the Company to pay down approximately $15 million of bank debt.
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As a result, our reliance on sales of school and office products has declined, although such sales have remained steady. • First Aid Acquisition – The Company acquired and s uccessfully integrated the assets of Safety Made, a first aid promotional business based in Keene, New Hampshire. • Strengthened Capital Position - In May 2022, the Company significantly improved its capital position by amending its revolving loan agreement with HSBC Bank, N.A. to increase the amount available for borrowing from $50 million to $65 million.
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The sale also increased net income by $9.6 million. • Increase In United States and Canadian Sourcing – The last eight acquisitions by the Company have consisted of manufacturing businesses in United States and Canada. • Reduction of Inventory – Commencing in 2023, the Company successfully completed its previously announced inventory reduction program of $5 million. • Cost Reduction Initiatives – In 2023, the Company completed a series of cost reduction initiatives announced at the end of 2022 that are generating approximately $6.5 million in annual savings, a $1.5 million increase over the original annual target of $5 million.
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As a result of the extension and increase in the credit facility, the Company is better positioned to take advantage of its various growth opportunities, including potential acquisitions. • Reduction of Inventory – In 2022, the Company increased inventory by approximately $9 million in anticipation of continued growth and to be positioned to offset potential supply chain interruptions related to COVID-19.
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Principal products under the Westcott brand include scissors, rulers, pencil sharpeners, paper trimmers, safety cutters, lettering products, glue guns and other craft products. Westcott is one of the leading scissor and ruler brands in North America.
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As a result of the disruption in the Company’s supply chains having been reduced significantly, the Company initiated an inventory reduction program in the fourth quarter of 2022; through the Company’s efforts, inventory was reduced by $2.9 million compared to the end of the third quarter of 2022.
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In 2023, DMT launched a complete product assortment that provides simple sharpening solutions to educate and create enthusiasm surrounding the sharpening category. The EdgeSharp product assortment features an entirely new line of sharpeners that are easy to use while providing a safe sharpening experience.
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The Company plans to reduce inventory by an additional $5 million in 2023. • Cost Reduction Initiatives – Commencing in the second half of 2022, the Company implemented a series of cost reduction initiatives that are expected to generate over $5 million in savings in 2023.
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Accounts Receivable 5 As of December 31, 2023, the Company had three customers that represented 10% or more of total trade receivables. Accounts receivables from these three customers were approximately 17%, 14%, and 14% of consolidated accounts receivable.
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The cutting, sharpening and measuring category includes school, home and office products (Westcott® brand), and hardware, industrial and sporting goods products (Clauss®, Camillus®, Cuda® and DMT® brands). 3 FIRST AID AND MEDICAL First Aid and Medical First Aid Only The First Aid Only brand offers first aid and medical products that meet regulatory requirements for a broad range of industries.
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In 4 2021, Clauss was the first to innovate and apply industrial Titanium Carbide infused blades which has revolutionized cutting performance and edge-retention for hardware and industrial based cutting applications. Camillus Since 1876 Camillus has been supplying innovative and high-quality knives. The Camillus brand has a strong heritage in the hunting, sporting, survival and tactical markets.
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The Company acquired the brand in 2007 and re-launched it in 2009 with an updated and innovative line of fixed blade, folding knives, line of sight cutting tools and tactical tools. Many of the knives are enhanced with titanium carbonitride coatings to increase the hardness of the blade of up to 10 times that of untreated stainless steel.
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In 2021 Camillus continued its innovative path in creating outdoor tools that serve its customers with multifunction features, which allow outdoor enthusiasts to carry fewer tools. In 2022, Camillus developed a new ball bearing-based blade launching system, “Cuda Lock” blade locking mechanism. Cuda The Cuda line of fishing tools and knives was launched in 2014.
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Featuring titanium bonded quality steels and alloys, Cuda tools provide world class hardness, corrosion and adhesive resistance. In 2014, Cuda won Best of Show in the “Fish Smart” category at the ICast show in Orlando, Florida. In 2016, Cuda won six GOOD DESIGN awards from the Chicago Athenaeum, Museum of Architecture and Design.
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In 2017, Cuda launched a line of cut and puncture resistant gloves which feature quadruple layered Kevlar® and a line of telescopic landing nets featuring replaceable nets and a net containment system. In 2018, Cuda launched a Professional Series of knives, tools and fishing gaffs that are directed towards the commercial fishing market.
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In 2022, Cuda launched a line of tools devoted to freshwater angling including cleaning, measuring and sharpening solutions. Cuda’s newest innovation, AquaTuff® Technology, encapsulates both Zirconium and Carbide Edge infusion, thus creating best in class corrosion resistance and edge retention resulting in a knife that can stand up to the elements and requires significantly less sharpening.
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In 2017, DMT launched 12 new diamond sharpeners that include a gear-driven sharpener, sonic sharpener and pull through sharpeners that provide a simple sharpening solution for beginners as well as sharpening experts. In 2022, DMT launched an entirely new line of sharpeners. EdgeSharp allows for a more simplistic sharpening process.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAdditionally, the loss of a major customer, whether through competition or consolidation, or a disruption in sales to such a customer, could result in a decrease of the Company’s future sales and earnings. 8 Because our products are primarily sold by third parties, our financial results depend in part on the financial health of these parties and any loss of a third-party distributor could adversely affect the Company’s revenues.
Biggest changeBecause our products are primarily sold by third parties, our financial results depend in part on the financial health of these parties and any loss of a third-party distributor could adversely affect the Company’s revenues. A large majority of the Company’s products are sold through third-party distributors and large retailers.
For example, it could: • make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations under any of our debt instruments, including restrictive covenants, could result in an event of default under the agreements governing such indebtedness; • require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing funds available for working capital, capital expenditures, acquisitions, business development and other purposes; • compromise our ability to capitalize on business opportunities and to react to competitive pressures, as compared to our competitors, due to our high level of debt and the restrictive covenants in our loan documents; • limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; • limit our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for working capital, capital expenditures, acquisitions and other corporate purposes.
For example, it could: • make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations under any of our debt instruments, including restrictive covenants, could result in an event of default under the agreements governing such indebtedness; • require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing funds available for working capital, capital expenditures, acquisitions, business development and other purposes; • compromise our ability to capitalize on business opportunities and to react to competitive pressures, as compared to our competitors, due to our high level of debt and the restrictive covenants in our loan documents; • limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; • limit our ability to borrow additional funds, or to dispose of pledged assets to raise funds, if needed, for working capital, capital expenditures, acquisitions and other corporate purposes.
The Company’s management believes that, under current conditions, the Company’s current cash and cash equivalents, cash generated by operations, together with the borrowing availability under its revolving loan agreement with HSBC Bank N.A., will be sufficient to fund planned operations for the next twelve months from the issuance date of this report.
The Company’s management believes that, under current conditions, the Company’s current cash and cash equivalents, cash generated by operations, together with the borrowing availability under its revolving loan agreement with HSBC Bank N.A., will be sufficient to fund planned 10 operations for the next twelve months from the issuance date of this report.
Any compromise of our systems or data could disrupt our operations, damage our reputation, and expose us to claims from customers, financial institutions, regulators, payment 9 card associations, employees, and other persons, any of which could have an adverse effect on our business, financial condition and results of operations.
Any compromise of our systems or data could disrupt our operations, damage our reputation, and expose us to claims from customers, financial institutions, regulators, payment card associations, employees, and other persons, any of which could have an adverse effect on our business, financial condition and results of operations.
There can be no assurance that labor will continue to be available to the Company’s suppliers in China at costs consistent with historical levels or that changes in labor or other laws will not be enacted which would have a material adverse effect on the Company’s operations in China.
There can be no assurance that labor will continue to be available to the Company’s suppliers at costs consistent with historical levels or that changes in labor or other laws will not be enacted which would have a material adverse effect on the Company’s operations.
In addition, the Company might have to write off inventories that are considered obsolete based upon changes in customer demand, product design changes, or new product introductions, which eliminate demand for existing products. Historically, the Company has not had to materially write down or write off product inventories.
In addition, the Company might have to write off inventories that are considered obsolete based upon changes in customer demand, product design changes, or new product 8 introductions, which eliminate demand for existing products. Historically, the Company has not had to materially write down or write off product inventories.
If we do not have sufficient fulfillment capacity or experience a problem fulfilling orders in a timely manner, our customers may experience delays in receiving their purchases, which could harm our reputation and our relationship with our customers.
If we do not have sufficient fulfillment capacity or experience a 7 problem fulfilling orders in a timely manner, our customers may experience delays in receiving their purchases, which could harm our reputation and our relationship with our customers.
For example, it is possible that the conflict could result in lower sales in Europe if supply parts and raw materials for become less available or if there are continued significant increases in energy and fuel prices.
For example, it is possible that the conflict could result in lower sales if supply parts and raw materials for become less available or if there are continued significant increases in energy and fuel prices.
Risks Related to Our Common Stock We cannot provide assurance that we will continue to pay dividends or purchase shares of our common stock under our stock repurchase programs. 13 We continue to pay and declare dividends on a quarterly basis and we anticipate that we will continue to do so.
Risks Related to Our Common Stock We cannot provide assurance that we will continue to pay dividends or purchase shares of our common stock under our stock repurchase programs. We continue to pay and declare dividends on a quarterly basis and we anticipate that we will continue to do so.
Product liability claims or regulatory actions could adversely affect the Company's financial results and reputation. 11 Claims for losses or injuries allegedly caused by some of the Company’s products could arise in the ordinary course of its business.
Product liability claims or regulatory actions could adversely affect the Company's financial results and reputation. Claims for losses or injuries allegedly caused by some of the Company’s products could arise in the ordinary course of its business.
There can be no assurance that we will be able to continue to comply with FDA requirements applicable to our current products and facilities or any product or facility we may establish in the future.
There can be no assurance that we will be able to continue to comply with FDA and HealthCanada requirements applicable to our current products and facilities or any product or facility we may establish in the future.
The Company’s success will depend in part on its ability to anticipate and offer products that appeal to the changing needs and preferences of our customers in the various market categories in which it competes.
The Company’s success will depend in part on its ability to anticipate 9 and offer products that appeal to the changing needs and preferences of our customers in the various market categories in which it competes.
Based on the continued, and more recently increased market volatility and geopolitical unrest pertaining to the military conflict between Russia and Ukraine, European energy crisis and highly inflationary environment, and corresponding macro-economic uncertainty, we cannot reasonably estimate the full impact the conflict will have on our long-term financial condition, results of operations, liquidity and cash flows.
Based on the continued, and more recently increased market volatility and geopolitical unrest pertaining to the military conflict between Russia and Ukraine and the Middle East, European energy crisis and highly inflationary environment, and corresponding macro-economic uncertainty, we cannot reasonably estimate the full impact the conflict will have on our long-term financial condition, results of operations, liquidity and cash flows.
Industry and Operational Risks The Company is subject to a number of significant operational risks that might cause the Company’s actual results to vary materially from its forecasts, targets or projections, including: • failing to achieve planned revenue and profit growth in each of the Company's business segments; • changes in customer requirements and in the volume of sales to principal customers; • the ability of the Company to anticipate timing of orders and shipments particularly in the ecommerce area; 6 • • reliance on third party distributors; emergence of new competitors or consolidation of existing competitors; and • industry demand fluctuations.
Industry and Operational Risks 6 The Company is subject to a number of significant operational risks that might cause the Company’s actual results to vary materially from its forecasts, targets or projections, including: • failing to achieve planned revenue and profit growth in each of the Company's business segments; • changes in customer requirements and in the volume of sales to principal customers; • the ability of the Company to anticipate timing of orders and shipments particularly in the e-commerce area; • reliance on third party distributors; • emergence of new competitors or consolidation of existing competitors; and • industry demand fluctuations.
Any increase in the interest which we pay would reduce our cash available for working capital, acquisitions, and other uses.
Any additional increase in the interest which we pay would reduce our cash available for working capital, acquisitions, and other uses.
Our business has experienced significant historical growth both internally and through acquisitions through the years including through the acquisitions of Safety Made in 2022. We expect our business to continue to grow organically and seek to grow through strategic acquisitions both domestically and internationally. This growth places significant demands on management and operational systems.
Our business has experienced significant historical growth both internally and through acquisitions through the years including through the acquisitions of Safety Made in 2022 and Hawktree in 2023. We expect our business to continue to grow organically and seek to grow through strategic acquisitions both domestically and internationally. This growth places significant demands on management and operational systems.
The failure to address any concerns raised by the FDA could also lead to facility shutdown or the delay or withholding of product approval by the FDA, or product recalls, and could have a material adverse effect on our business, results of operations and financial condition. The Company is subject to environmental regulation and environmental risks.
The failure to address any concerns raised by the FDA and HealthCanada could also lead to facility shutdown or the delay or withholding of product approval by these agencies, or product recalls, and could have a material adverse effect on our business, results of operations and financial condition. The Company is subject to environmental regulation and environmental risks.
The Company’s ability to continue to select and retain reliable vendors and suppliers who provide timely deliveries of quality products efficiently will impact its success in meeting customer demand for timely delivery of quality products. The Company’s sourcing operations and its vendors are impacted by labor costs in China.
The Company’s ability to continue to select and retain reliable vendors and suppliers who provide timely deliveries of quality products efficiently will impact its success in meeting customer demand for timely delivery of quality products. The Company’s sourcing operations and its vendors are impacted by labor costs in China and other global locations.
Item 1A. Risk Factors Ownership of the Company’s securities involves a number of risks and uncertainties. Potential investors should carefully consider the risks and uncertainties described below and the other information in this Annual Report on Form 10-K before deciding whether to invest in the Company’s securities.
Item 1A. Ri sk Factors Ownership of the Company’s securities involves a number of risks and uncertainties. Potential investors should carefully consider the risks and uncertainties described below and the other information in this Annual Report on Form 10-K before deciding whether to invest in the Company’s securities.
Among other things, trading of a relatively small volume of our common stock may have a greater impact on the trading price for our stock than would be the case if our public float were larger. Item 1B. Unresolved Staff Comments Not applicable.
Among other things, trading of a relatively small volume of our common stock may have a greater impact on the trading price for our stock than would be the case if our public float were larger. Item 1B. Unresolve d Staff Comments Not applicable.
Loss of a major customer could result in a decrease in the Company’s future sales and earnings. Sales of our products are primarily concentrated in a few major customers including office product superstores and mass market distributors. The Company had two customers in 2022 and 2021, that individually exceeded 10% of consolidated net sales.
Loss of a major customer could result in a decrease in the Company’s future sales and earnings. Sales of our products are primarily concentrated in a few major customers including commercial retailers, office product superstores, and mass market distributors. The Company had two customers in 2023 and 2022, that individually exceeded 10% of consolidated net sales.
The inability to pass these costs through to the Company’s customers could have a negative effect on its results of operations. Commencing in the first half of 2022 the Company was not able to fully pass these costs along to customers. We expect for the foreseeable future to experience inflationary pressure on our cost structure.
The inability to pass these costs through to the Company’s customers could have a negative effect on its results of operations. Commencing in the first half of 2022 the Company was not able to fully pass these costs along to customers. In the future, we may continue to experience future inflationary pressure on our cost structure.
Labor historically has been readily available at low cost relative to labor costs in North America. However, labor costs have risen in some regions due to the impact of the COVID-19 pandemic and the effects of rapid social, political and economic changes.
Labor historically has been readily available at low cost relative to labor costs in North America. However, labor costs have risen in some regions due to the effects of rapid social, political and economic changes.
Changes in interest rates could adversely affect us . We have exposure to increases in interest rates under our revolving credit loan agreement with HSBC Bank, N.A. which presently bears interest at SOFR + 2.35%. The economy has been experiencing inflation since 2021 and the U.S.
Changes in interest rates could adversely affect us . We have exposure to increases in interest rates under our revolving credit loan agreement with HSBC Bank, N.A. which presently bears interest at SOFR + 1.60%. The economy has been experiencing inflation since 2021. In response to significant and prolonged increases in inflation, the U.S.
Matters relating to the employment market and prevailing wage standards may adversely affect our business. 7 Our ability to meet our labor needs on a cost-effective basis is subject to numerous external factors, including the availability of qualified personnel in the workforce in the local markets in which we operate, unemployment levels within those markets, prevailing wage rates which have increased significantly, health and other insurance costs and changes in employment and labor laws.
Our ability to meet our labor needs on a cost-effective basis is subject to numerous external factors, including the availability of qualified personnel in the workforce in the local markets in which we operate, unemployment levels within those markets, prevailing wage rates which have increased significantly, health and other insurance costs and changes in employment and labor laws.
If these or other tax regulations should change, the Company’s financial results could be impacted. Certain or our products and facilities are subject to regulation by the FDA and by analogous foreign regulators. The FDA requires us to register certain of our products and manufacturing facilities. The FDA also inspects these facilities and products to confirm compliance with its requirements.
If these or other tax regulations should change, the Company’s financial results could be impacted. Certain or our products and facilities are subject to regulation by the FDA and by analogous foreign regulators. The FDA requires us to register certain of our products and manufacturing facilities.
The Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA were financed by a fixed rate mortgage with HSBC Bank, N.A. of which $11,232,990 was outstanding as of December 31, 2022. Our substantial indebtedness, combined with our other financial obligations and contractual commitments, could have important consequences for our business.
The Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA were financed by a fixed rate mortgage with HSBC Bank, N.A. of which $10,823,033 was outstanding as of December 31, 2023. Our substantial indebtedness, combined with our other financial obligations and contractual commitments, could have significant consequences for our business.
Although we have taken steps designed to safeguard such information, there can be no assurance that such information will be protected against unauthorized access or disclosure. Computer hackers may attempt to penetrate our or our vendors' network security and, if successful, misappropriate such information.
Although we have taken steps designed to safeguard such information, there can be no assurance that such information will be protected against unauthorized access or disclosure. Computer hackers, if successful, may misappropriate such information.
Our ability to obtain additional financing, if and when required, will depend on investor demand, our operating performance, the condition of the capital markets and other factors. We cannot assure you that additional financing will be available to us on favorable terms when required, or at all.
Our ability to obtain additional financing, if and when required, will depend on investor demand, our operating performance, the condition of the capital markets and other factors. There can be no assurance that additional financing will be available to us on favorable terms when required, or at all.
These factors include: • The duration, severity, spread and recurrence of the COVID-19 pandemic in foreign countries, including through variant strains of the underlying virus. • Changes generally in political, regulatory or economic conditions in the countries in which we conduct business; 12 • Trade protection measures in favor of local producers of competing products, including government subsidies, tax benefits, changes in local tax rates, trade actions (such as anti-dumping proceedings) and other measures giving local producers a competitive advantage over the Company; • Changes in foreign currency exchange rates which could adversely affect our competitive position, selling prices and manufacturing costs, and therefore the demand for our products in a particular market; and These risks could affect the cost of manufacturing and selling our products, our pricing, sales volume, and ultimately our financial performance.
These factors include: • Changes generally in political, regulatory or economic conditions in the countries in which we conduct business; • Trade protection measures in favor of local producers of competing products, including government subsidies, tax benefits, changes in local tax rates, trade actions (such as anti-dumping proceedings) and other measures giving local producers a competitive advantage over the Company; • Changes in foreign currency exchange rates which could adversely affect our competitive position, selling prices and manufacturing costs, and therefore the demand for our products in a particular market; and • The effects of any future pandemics in foreign countries. 13 These risks could affect the cost of manufacturing and selling our products, our pricing, sales volume, and ultimately our financial performance.
The extent of the impact of such pandemic on our business, operating results, cash flows, liquidity and financial conditions will be primarily driven by the ultimate duration and severity of the pandemic and its impact on the U.S. and global economies. 10 The military conflict between Russia and Ukraine has resulted in geopolitical instability.
The extent of the impact of any such pandemic on our business, operating results, cash flows, liquidity and financial conditions will be primarily driven by the ultimate duration and severity of the pandemic and its impact on the U.S. and global economies. The military conflicts in Ukraine and the Middle East have resulted in geopolitical instability.
Additional factors that could adversely affect the Company’s business in connection with its foreign suppliers include increases in transportation costs, new or increased import duties, transportation delays, work stoppages, capacity constraints and poor quality; the possibility that the Company might experience any of these factors has been increased by the COVID-19 pandemic.
Additional factors that could adversely affect the Company’s business in connection with its foreign suppliers include increases in transportation costs, new or increased import duties, transportation delays, work stoppages, capacity constraints and poor quality; the possibility that the Company might experience any of these factors would increase in the event of future pandemics.
Although the Company maintains product liability insurance coverage, potential product liability claims are subject to a deductible or could be excluded under the terms of the policy. Historically, the Company has not experienced any material product liability claims or regulatory actions. The Company’s businesses and operations are subject to regulation in the U.S. and abroad.
Although the Company maintains product liability insurance coverage, potential product liability claims are subject to a deductible or could be excluded under the terms of the policy. Historically, the Company has not experienced any material product liability claims or regulatory actions.
Future market and competitive pressures may prohibit the Company from raising prices to offset increased raw material, or other product costs, including but not limited to packaging, direct labor, overhead, employee benefits, shipping costs, and other inflationary items, whether due to increases in the costs of raw materials or components or to the COVID-19 pandemic, or to offset currency fluctuations.
Increases in inflation raise the Company’s costs for labor, raw materials and services. Future market and competitive pressures may prohibit the Company from raising prices to offset increased raw material, or other product costs, including but not limited to packaging, direct labor, overhead, employee benefits, shipping costs, and other inflationary items, or to offset currency fluctuations.
If a material weakness or significant deficiency in our internal controls is discovered or occur in the future, our ability to report our financial condition and results of operations in a timely and accurate manner may be materially adversely affected and investor confidence in the Company may be negatively impacted.
If our remedial measures are insufficient to address the material weakness, or if additional material weaknesses or significant deficiencies in our internal control are discovered or occur in the future, our ability to report our financial condition and results of operations in a timely and accurate manner may be materially adversely affected and investor confidence in the Company may be negatively impacted.
Net sales to those customers were approximately 15% and 10% in 2022 and 17% and 11% in 2021, respectively. The Company anticipates that a limited number of customers may account for a substantial portion of its total net revenues for the foreseeable future.
In 2022, the Company had receivables to these customers of approximately 12%, 11%, and 10%, respectively. The Company anticipates that a limited number of customers may account for a substantial portion of its total net revenues for the foreseeable future.
The Company’s Asia vendors are located primarily in China, which subjects the Company to various risks within the region including regulatory, political, economic and foreign currency changes, and, commencing in 2020 through the present, the impact of the COVID-19 pandemic.
The Company’s Asia vendors are located primarily in China, which subjects the Company to various risks within the region including regulatory, political, economic and foreign currency changes.
Changes in laws, regulations and related interpretations may alter the environment in which the Company does business. This includes changes in environmental, data privacy, competitive and product-related laws, as well as changes in accounting standards, taxation and other regulations.
The Company’s businesses and operations are subject to regulation in the U.S. and abroad. 12 Changes in laws, regulations and related interpretations may alter the environment in which the Company does business. This includes changes in environmental, data privacy, competitive and product-related laws, as well as changes in accounting standards, taxation and other regulations.
We also rely upon third-party carriers for our product shipments from our distribution centers to customers. Accordingly, we are subject to risks, including inclement weather, natural disasters, cybersecurity attacks, general availability of trucks, and increased security restrictions associated with such carriers’ ability to provide delivery services to meet our shipping needs.
Accordingly, we are subject to risks, including inclement weather, natural disasters, cybersecurity attacks, general availability of trucks, and increased security restrictions associated with such carriers’ ability to provide delivery services to meet our shipping needs.
It is not possible to predict the extent and duration of the military conflict, sanctions, and any associated market disruptions, which could have a material adverse effect on our business, financial position, results of operations and cash flows.
It is not possible to predict the extent and duration of the military conflict, sanctions, and any associated market disruptions, which could have a material adverse effect on our business, financial position, results of operations and cash flows. 11 We have identified a material weakness in our internal control over financial reporting which could, if not remediated, result in material misstatements in our financial statements.
There were approximately 3,090,453 shares of our common stock held by non-affiliates as of December 31, 2022. Thus, our common stock is less liquid than the stock of companies with broader public ownership, and, as a result, the trading price for shares of our common stock may be more volatile.
Thus, our common stock is less liquid than the stock of companies with broader public ownership, and, as a result, the trading price for shares of our common stock may be more volatile.
The Company’s inability to meet its staffing requirements in the future could adversely affect its results of operations. Execution or the lack thereof, of our e-commerce business may reduce our operating results. Our e-commerce business constituted approximately 17% of our net sales in 2022 and has been our fastest growing distribution channel over the last several years.
The Company’s inability to meet its staffing requirements in the future could adversely affect its results of operations. Execution or the lack thereof, of our e-commerce business may reduce our operating results. Our e-commerce business constituted approximately 18% of our net sales in 2023.
Our business, financial position, results of operations and cash flows could be adversely affected by the negative impacts on the global economy resulting from the conflict in Ukraine. In February 2022, Russian troops invaded Ukraine and the military conflict is ongoing.
Our business, financial position, results of operations and cash flows could be adversely affected by the negative impacts on the global economy resulting from these conflicts. In February 2022, Russian military forces invaded Ukraine. In response, Ukrainian military personnel and civilians are actively resisting the invasion.
While the length and total impact of the military conflict is unpredictable, it has led to market disruptions, including volatility in raw material prices and credit and capital markets, and supply chain challenges in our European segment.
The risk of ongoing supply disruptions may further result in delayed deliveries of our products. While the length and total impact of the military conflicts are unpredictable, it has led to market disruptions, including volatility in raw material prices and credit and capital markets, and supply chain challenges.
We have a substantial amount of indebtedness, which could adversely affect our financial condition and ability to operate our business. As of December 31, 2022, $50,000,000 was outstanding and $15,000,000 was available for borrowing under the Company’s revolving credit facility.
Although the Company has recently reduced its indebtedness, we continue to have a substantial amount of indebtedness, which could adversely affect our financial condition and ability to operate our business. As of December 31, 2023, $13,164,358 was outstanding and $51,835,642 was available for borrowing under the Company’s revolving credit facility.
Our shares of common stock are thinly traded and our stock price may be volatile. Because our common stock is thinly traded, its market price may fluctuate significantly more than the stock market in general or the stock prices of other companies listed on major stock exchanges.
Because our common stock is thinly traded, its market price may fluctuate significantly more than the stock market in general or the stock prices of other companies listed on major stock exchanges. There were approximately 3,185,316 shares of our common stock held by non-affiliates as of December 31, 2023.
A large majority of the Company’s products are sold through third-party distributors and large retailers. Some of our distributors also market products that compete with our products. Changes in the financial or business conditions or the purchasing decisions of these third parties or their customers could affect our sales and profitability.
Some of our distributors also market products that compete with our products. Changes in the financial or business conditions or the purchasing decisions of these third parties or their customers could affect our sales and profitability. Additionally, no assurances can be given that any or all of such distributors or retailers will continue their relationships with the Company.
The Company’s business, operations and financial results, may be adversely affected by those risks and uncertainties resulting from new variant strains of COVID-19, any future pandemics; the effectiveness, availability, and public acceptance of vaccines against potential new viruses.
The Company’s business, operations and financial results, may be adversely affected by those risks and uncertainties resulting from any future pandemics.
Timely delivery of our products and the fulfillment of consumer demand throughout the year is critical to our success. Various factors that might affect product delivery to customers include vendor production delays, difficulties encountered in shipping from overseas, availability of shipping containers, customs clearance delays, and cybersecurity attacks on our vendors.
Various factors that might affect product delivery to customers include vendor production delays, difficulties encountered in shipping from overseas, availability of shipping containers, customs clearance delays, and cybersecurity attacks on our vendors. We also rely upon third-party carriers for our product shipments from our distribution centers to customers.
If we do not pay dividends or decrease the amount of dividends we pay, the price of our common stock would likely decrease. At December 31, 202 2 , a total of 160 , 365 shares may be purchased in the future under the repurchase program which the Company announced in 2019.
At December 31, 2023, a total of 160,365 shares may be purchased in the future under the repurchase program which the Company announced in 2019. 14 Our shares of common stock are thinly traded and our stock price may be volatile.
The ability to deliver products to our customers in a timely manner and to satisfy our customers’ fulfillment standards are subject to many factors, some of which are beyond our control. These factors presently include the impact of supply chain issues and the COVID-19 pandemic on the Company.
The ability to deliver products to our customers in a timely manner and to satisfy our customers’ fulfillment standards are subject to many factors, some of which are beyond our control. Timely delivery of our products and the fulfillment of consumer demand throughout the year is critical to our success.
Further, we rely on the ability to attract and retain labor on a cost-effective basis. The availability of labor in certain of the markets in which we operate has declined in recent years and competition for such labor has increased. Our ability to attract and retain a sufficient workforce on a cost-effective basis depends on several factors.
Further, we rely on the ability to attract and retain labor on a cost-effective basis. Our ability to attract and retain a sufficient workforce on a cost-effective basis depends on several factors. We may not be able to attract and retain a sufficient workforce on a cost-effective basis in the future.
The Company may not be successful at implementing customer pricing or other actions in an effort to mitigate the related effects of the product cost increases.
Dollar. If the Chinese Renminbi continues to increase with respect to the U.S. Dollar in the future, the Company may experience cost increases on such purchases, and this can adversely impact profitability. The Company may not be successful at implementing customer pricing or other actions in an effort to mitigate the related effects of the product cost increases.
The Company is a major supplier of products related to the “back-to-school” season, which occurs principally during the months of May through August.
The Company’s business, historically, has experienced higher sales volume in the second and third quarters of the calendar year, when compared to the first and fourth quarters. The Company is a major supplier of products related to the “back-to-school” season, which occurs principally during the months of May through August.
The Company’s Westcott business is subject to risks associated with seasonality which could adversely affect its cash flow, financial condition, or results of operations. The Company’s business, historically, has experienced higher sales volume in the second and third quarters of the calendar year, when compared to the first and fourth quarters.
In the event of increased costs of attracting and retaining a workforce, our profit margins may materially decline as a result. The Company’s Westcott business is subject to risks associated with seasonality which could adversely affect its cash flow, financial condition, or results of operations.
Federal Reserve has raised interest rates in an attempt to control such inflation and is likely to continue to do so in the immediate future. Increases in interest rates have increased our interest costs on our variable-rate debt as well as any future fixed rate debt.
Federal Reserve has raised interest rates multiple times since the beginning of 2022, which has significantly increased our interest expense. Interest rates may remain at the current high levels or continue to increase. Increases in interest rates have increased our interest costs on our variable-rate debt as well as any future fixed rate debt.
Although inflation in the United States had been relatively low for many years, there was a significant increase in inflation beginning in the second half of 2021, which has continued into 2022 and through the present.
Although inflation in the United States had been relatively low for many years, from 2021 to the present, the United States’ economy has experienced a substantial rise in the inflation rate. There is increased uncertainty as to whether the rise in inflation will continue and for how long.
If we identify a material weakness in our internal controls over financial reporting in the future, such material weakness could result in material misstatements in our financial statements.
We have identified a material weakness in our internal control over financial reporting, as described below.
Removed
We may not be able to attract and retain a sufficient workforce on a cost-effective basis in the future. In the event of increased costs of attracting and retaining a workforce, our profit margins may materially decline as a result.
Added
Matters relating to the employment market and prevailing wage standards may adversely affect our business.
Removed
Additionally, no assurances can be given that any or all of such distributors or retailers will continue their relationships with the Company.
Added
Net sales to those customers were approximately 14% and 12% in 2023 and 15% and 10% in 2022, respectively. The Company had three customers in 2023 that individually exceeded 10% of consolidated accounts receivable. Accounts receivable to those customers were approximately 17%, 14%, and 14%.
Removed
Dollar during the last two years and is unpredictable. If the Chinese Renminbi continues to increase with respect to the U.S. Dollar in the future, the Company may experience cost increases on such purchases, and this can adversely impact profitability. Future interventions by China may result in further currency appreciation and increase our product costs over time.
Added
Additionally, the loss of a major customer, whether through competition or consolidation, or a disruption in sales to such a customer, could result in a decrease of the Company’s future sales and earnings.
Added
Although the length, impact and outcome of the war is highly unpredictable, this war has contributed to significant market and other disruptions, including significant volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, changes in consumer or purchaser preferences as well as an increase in cyberattacks and espionage.
Added
Separately, on October 7, 2023, Hamas, a U.S.-designated terrorist organization, launched a series of coordinated attacks from the Gaza Strip onto Israel. On October 8, 2023, Israel formally declared war on Hamas, and the armed conflict is ongoing as of the date of this filing. Hostilities between Israel and Hamas could escalate and involve surrounding countries in the Middle East.
Added
Furthermore, following Hamas’ attack on Israel, the Houthi movement, which controls parts of Yemen, launched a number of attacks on marine vessels in the Red Sea. The Red Sea is an important maritime route for international trade. As a result of such disruptions, we may experience in the future extended lead times, delays in supplier deliveries, and increased freight costs.
Added
In connection with the preparation of our annual report for the year ended December 31, 2023, we identified a material weakness related to the Company’s information technology general controls (ITGCs).
Added
The material weakness identified is a result of ITGCs that were not designed and operating effectively to ensure IT program and data changes affecting the Company's financial IT applications and underlying accounting records are identified and tested.
Added
Business process controls (automated and manual) that are dependent on the affected ITGCs were also deemed to be ineffective because they could have been adversely impacted. We are in the process of implementing database change management and auditing software, as well as designing and implementing associated management review procedures.
Added
The actions deemed taken are subject to continued review, supported by monitoring and testing by management as well as audit committee oversight.
Added
Our facilities in the United States are subject to inspections by the FDA while our facility in Canada is subject to inspection by HealthCanada to confirm compliance with their requirements.
Added
If we do not pay dividends or decrease the amount of dividends we pay, the price of our common stock would likely decrease.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeProperties Location Square Footage Purpose Owned Rocky Mount, NC Vancouver, WA Brooksville, FL 340,000 53,000 42,460 Warehousing, manufacturing and distribution Warehousing, manufacturing and distribution Warehousing, manufacturing and distribution Keene, NH 11,000 Warehousing, manufacturing and distribution Solingen, Germany 35,000 Warehousing, distribution and administrative 481,460 Leased Shelton, CT 34,200 Administrative Bentonville, AK 1,500 Administrative Marlborough, MA 28,000 Manufacturing, warehousing and distribution Santa Ana, CA 10,000 Manufacturing, warehousing, and distribution La Vergne, TN 56,000 Manufacturing, warehousing and distribution Mount Forest, Ontario, Canada 42,500 Warehousing and distribution Orangeville, Ontario, Canada 2,850 Administrative Laval, Quebec, Canada 14,500 Manufacturing, warehousing, distribution and administrative Hong Kong, China 2,750 Administrative Guangzhou, China 3,500 Administrative Ningbo, China 1,800 Administrative 197,600 Total: 679,060 The Company’s facilities located in the United States and China are utilized by all of its segments.
Biggest changePr operties Location Square Footage Purpose Owned Rocky Mount, NC Vancouver, WA Brooksville, FL 340,000 53,000 42,460 Warehousing, manufacturing and distribution Warehousing, manufacturing and distribution Warehousing, manufacturing and distribution Keene, NH 11,000 Warehousing, manufacturing and distribution Solingen, Germany 35,000 Warehousing, distribution and administrative 481,460 Leased Shelton, CT 34,200 Administrative Bentonville, AK 1,500 Administrative Marlborough, MA 28,000 Manufacturing, warehousing and distribution Santa Ana, CA 10,000 Manufacturing, warehousing, and distribution La Vergne, TN 56,000 Manufacturing, warehousing and distribution Mount Forest, Ontario, Canada 42,500 Warehousing and distribution Orangeville, Ontario, Canada 2,850 Administrative Laval, Quebec, Canada 24,100 Manufacturing, warehousing, distribution and administrative Hong Kong, China 2,750 Administrative Guangzhou, China 3,500 Administrative Ningbo, China 1,800 Administrative 207,200 Total: 688,660 The Company’s facilities located in the United States and China are utilized by all of its segments.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings There are no pending material legal proceedings to which the Company is a party or, to the actual knowledge of the Company, contemplated by any governmental agency. Item 4. Mine Safety Disclosures Not applicable. 14 PART II
Biggest changeItem 3. Legal Proceedings There are no pending material legal proceedings to which the Company is a party or, to the actual knowledge of the Company, contemplated by any governmental agency. Item 4. Mine Saf ety Disclosures Not applicable. 17 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDuring the twelve months ended December 31, 2022, the Company did not repurchase any of its shares of its Common Stock. As of December 31, 2022, a total of 160,365 may be purchased under the repurchase program announced in 2019. The 2019 program does not have an expiration date. Item 6. Reserved 15
Biggest changeDuring the twelve months ended December 31, 2023, the Company did not repurchase any of its shares of Common Stock. As of December 31, 2023, a total of 160,365 shares may be purchased under the repurchase program announced in 2019. The 2019 program does not have an expiration date. Item 6. R eserved 18
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. The Company's Common Stock is traded on the NYSE American under the symbol "ACU". Issuer Purchases of Equity Securities On November 14, 2019, the Company announced a Common Stock repurchase program of up to a total 200,000 shares.
Item 5. Market for Registrant's Common Equity, Related Stoc kholder Matters and Issuer Purchases of Equity Securities. The Company's Common Stock is traded on the NYSE American under the symbol "ACU". Issuer Purchases of Equity Securities On November 14, 2019, the Company announced a Common Stock repurchase program of up to a total of 200,000 shares.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

22 edited+14 added−51 removed5 unchanged
Biggest changeThese risks and uncertainties further include, without limitation, the following: (i) changes in the Company’s plans, strategies, objectives, expectations and intentions, which may be made at any time at the discretion of the Company; (ii) the impact of uncertainties in global economic conditions, whether caused by COVID-19 or otherwise, including the impact on the Company’s suppliers and customers; (iii) additional disruptions in the Company’s supply chains, whether caused by COVID-19, the war in Ukraine, or otherwise, including trucker shortages, port closures and delays, and delays with container ships themselves; (iv) labor shortages and related costs the Company has and may continue to incur, including costs of acquiring and training new employees and rising wages and benefits; (v) the continuing adverse impact of inflation, including product costs, and transportation costs; (vi) currency fluctuations including, for example, the increasing strength of the dollar against the euro: the Company’s ability to effectively manage its inventory in a rapidly changing business environment, including the additional inventory the Company has acquired in anticipation of supply chain disruptions and uncertainties; (vii) changes in client needs and consumer spending habits; (viii) the impact of competition; (ix) the impact of technological changes including, specifically, the growth of online marketing and sales activity; (x) the Company’s ability to manage its growth effectively, including its ability to successfully integrate any business it might acquire; (xi) international trade policies and their impact on demand for our products and our competitive position, including the imposition of new tariffs or changes in existing tariff rates; and (xiii) other risks and uncertainties indicated from time to time in the Company’s filings with the Securities and Exchange Commission.
Biggest changeThese risks and uncertainties include, without limitation, the following: (i) changes in the Company’s plans, strategies, objectives, expectations and intentions, which may be made at any time at the discretion of the Company; (ii) the impact of uncertainties in global economic conditions, including the impact on the Company’s suppliers and customers; (iii) the continuing adverse impact of inflation, including product costs, and interest rates; (iv) potential adverse effects on the Company, its customers, and suppliers resulting from the conflicts in Ukraine and the Middle East; (v) additional disruptions in the Company’s supply chains, whether caused by pandemics, natural disasters, or otherwise, including trucker shortages, port closures and delays, and delays with container ships themselves; (vi) labor related costs the Company has and may continue to incur, including costs of acquiring and training new employees and rising wages and benefits; (vii) currency fluctuations; (viii) the Company’s ability to effectively manage its inventory in a rapidly changing business environment; (ix) changes in client needs and consumer spending habits; (x) the impact of competition; (xi) the impact of technological changes including, specifically, the growth of online marketing and sales activity; (xii) the Company’s ability to manage its growth effectively, including its ability to successfully integrate any business it might acquire; (xiii) international trade policies and their impact on demand for our products and our competitive position, including the imposition of new tariffs or changes in existing tariff rates; and (xiv) other risks and uncertainties indicated from time to time in the Company’s filings with the Securities and Exchange Commission.
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, acquisitions, and other business activities.
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, acquisitions, dividends, share repurchases, and other business activities.
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.
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.
Forward-looking statements in this report, including without limitation, statements related to the Company’s plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements in this report, including without limitation, statements related to the Company’s plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties that may impact the Company’s business, operations and financial results.
The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.
All forward-looking statements in this report are based upon information available to the Company on the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.
For a more detailed discussion of these and other factors affecting the Company, see the Risk Factors described in Item 1A included in this Annual Report on Form 10-K and below under “Financial Condition”. All forward-looking statements in this report are based upon information available to the Company on the date of this report.
For a more detailed discussion of these and other factors affecting the Company, see the Risk Factors described in Item 1A included in this Annual Report on Form 10-K for the fiscal year December 31, 2023 and below under “Financial Condition”.
The reserve for slow moving and obsolete inventory was $1,720,350 at December 31, 2022 compared to $1,554,217 at December 31, 2021. We do not anticipate material increases in the allowance for slow moving and obsolete inventory in the ordinary course of business during 2023. Receivables decreased by approximately $1.6 million at December 31, 2022 compared to December 31, 2021.
We do not anticipate material increases in the allowance for slow moving and obsolete inventory in the ordinary course of business during 2024. Receivables decreased by approximately $6.4 million at December 31, 2023 compared to December 31, 2022. The average number of days sales outstanding in accounts receivable was 55 days in 2023 compared to 62 days in 2022.
Results of Operations 2022 Compared with 2021 Traditionally, the Company’s sales and profits are stronger in the second and third quarters and weaker in the first and fourth quarters of the fiscal year, due to the seasonal nature of the Westcott back-to-school market.
Results of Operations 2023 Compared with 2022 Traditionally, the Company’s sales and profits are stronger in the second and third quarters and weaker in the first and fourth quarters of the fiscal year, due to the seasonal nature of the Westcott back-to-school market. 19 Net Sales In 2023, sales decreased by $2,461,410, or 1%, to $191,500,947 compared to $193,962,357 in 2022.
Selling, General and Administrative Selling, general and administrative (“SG&A”) expenses were $57,285,483 in 2022 compared with $52,030,370 in 2021, an increase of $5,255,113, or 10.1%. SG&A expenses were 29.5% of net sales in 2022 compared to 28.6% in 2021. Approximately 34% of the increase in SG&A expenses was due to higher personnel related costs.
Selling, General and Administrative Selling, general and administrative (“SG&A”) expenses were $59,021,618 in 2023 compared with $57,285,483 in 2022, an increase of $1,736,135, or 3.0%. SG&A expenses were 30.8% of net sales in 2023 compared to 29.5% in 2022. The increase in SG&A expenses was primarily due to higher personnel related costs.
The amendment increases the amount available for borrowing to $65 million from $50 million, at an interest rate of 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 revolving loan agreement provides for borrowings of up to $65 million at an interest rate of SOFR plus 1.75%; interest is payable monthly. The credit facility has an expiration date of May 31, 2026.
At December 31, 2022, total debt outstanding under the Company’s revolving credit facility increased by approximately $16.9 million compared to total debt outstanding at December 31, 2021. As of December 31, 2022, $50,000,000 was outstanding and $15,000,000 was available for borrowing under the Company’s revolving credit facility.
At December 31, 2023, total debt outstanding under the Company’s revolving credit facility decreased by approximately $36.8 million compared to total debt outstanding at December 31, 2022. As of December 31, 2023, $13,164,358 was outstanding and $51,835,642 was available for borrowing under the Company’s revolving credit facility.
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.
The amendment also modified the interest rate from SOFR +1.75% to range from SOFR +1.60% up to a high of SOFR + 2.35% on a basis that varies quarterly with the funded debt to EBITDA ratio. As of December 31, 2023, the Company was in compliance with the covenants under the revolving loan agreement as then in effect.
The increase in net interest expense resulted from a higher average interest rate on the outstanding debt as well as higher average debt outstanding under the Company’s revolving loan agreement. The weighted average interest rate in 2022 was 3.8% compared to 2.1% in 2021. Other Expense Other expense was $246,396 in 2022 compared to $194,877 in 2021.
The increase in net interest expense resulted from a higher average interest rate on the outstanding debt. The weighted average interest rate in 2023 was 6.5% compared to 3.8% in 2022. Other Income (Expense), net Other income was $41,002 in 2023 compared to other expense of $246,396 in 2022.
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 increase was in effect for four quarters commencing in the third quarter of 2022 and ending with the three months ended June 30, 2023. The increase for those four quarters ranged from a low of 4.75 to 1 to a high of 5.75 to 1.
The Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA were financed by a fixed rate mortgage with HSBC Bank, N.A. at a fixed interest rate of 3.8%. The Company entered into the agreement on December 1, 2021. Payments of principal and interest are due monthly, with all amounts outstanding due on maturity on December 1, 2031.
The Company used the proceeds from the sale of its Camillus and Cuda business to pay down the outstanding debt. The Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA were financed by a fixed rate mortgage with HSBC Bank, N.A. at a fixed interest rate of 3.8%.
Operating income in Canada decreased in 2022 by approximately $757,000 compared to 2021, primarily due to higher inbound and outbound freight. Interest Expense, Net Net interest expense for 2022 was $2,364,461, compared with $908,223 for 2021, an increase of $1,456,238.
Operating income in the European segment increased by $491,000 compared to 2022 primarily due to a stronger Euro against the U.S. dollar and lower inbound freight costs. . Operating income in Canada decreased in 2023 by approximately $270,000 compared to 2022. Interest Expense, net Net interest expense for 2023 was $2,977,164, compared with $2,364,461 for 2022, an increase of $612,703.
Off-Balance Sheet Transactions The Company did not engage in any off-balance sheet transactions during 2022. Liquidity and Capital Resources During 2022, working capital increased by approximately $8.5 million compared to December 31, 2021. Inventory increased by approximately $9.7 million, or 18%.
The higher effective tax rate in 2023 was due to a higher proportion of earnings in jurisdictions with a higher tax rate. Off-Balance Sheet Transactions The Company did not engage in any off-balance sheet transactions during 2023. 20 Liquidity and Capital Resources During 2023, working capital decreased by approximately $17.4 million compared to December 31, 2022.
European net sales for the year ended December 31, 2022, decreased 2% in U.S. dollars but increased 10% in local currency, compared with the same period in 2021. The increase was mainly due to market share gains in Westcott cutting products.
The decrease was primarily due to weak economic conditions in Europe. Net sales in Canada for the year ended December 31, 2023, increased 1% in U.S. dollars (5% in local currency) compared to the same period in 2022. The increase in sales is primarily due to higher sales of first aid products.
The outstanding principal on December 31, 2022, was $11,232,990. Capital expenditures during 2022 and 2021 were $4,304,264 and $6,372,615, respectively, which were, in part, financed with borrowings under the Company’s revolving credit facility.
Capital expenditures during 2023 and 2022 were $4,673,717 and $4,304,264, respectively, which were, in part, financed with borrowings under the Company’s revolving credit facility. The Company implemented a series of cost reduction initiatives that generated over $6.5 million in savings in 2023.
Net sales in Canada for the year ended December 31, 2022, decreased 4% in U.S. dollars and were constant in local currency compared to the same period in 2021. Gross Profit Gross profit was $63,558,785 (32.8% of net sales) in 2022 compared to $64,800,357 (35.6% of net sales) in 2021.
The U.S. segment sales decreased by 1% in 2023 compared to 2022. The decline in net sales is primarily due to customer reductions of inventory in the first half of 2023. European net sales for the year ended December 31, 2023, decreased 4% in U.S. dollars (6% in local currency), compared with the same period in 2022.
During 2023, our goal is to reduce inventory by $5.0 million. The Company expects that changes in inventory levels will continue to be consistent with changes in sales, including the seasonal impact on the Company’s revenue stream. Inventory turnover calculated using a twelve-month average inventory balance, was 2.0 at December 31, 2022 as compared to 2.3 at December 31, 2021.
Inventory decreased by approximately $7.9 million, or 12%. The decline in inventory was due to planned reductions as the risk of supply chain disruptions has diminished. The Company expects that changes in inventory levels will continue to be consistent with changes in sales, including the seasonal impact on the Company's revenue stream.
The increase in total other expense was due to losses from foreign currency transactions, primarily due to a declining Euro in our European business. 18 Income Tax Expense Income tax expense was $627,679 in 2022, resulting in an effective tax rate of 17% compared to $1,519,255, an effective tax rate of 10% in 2021.
The decrease in total other income (expense), net was due to the gain on the sale of the Camillus and Cuda business. The pre-tax gain was approximately $12,551,000. Income Tax Expense Income tax expense was $4,941,444 in 2023, resulting in an effective tax rate of 22% compared to $627,679, in 2022, an effective tax rate of 17%.
Removed
Investors are cautioned that such forward-looking statements involve risks and uncertainties that may impact the Company’s business, operations and financial results, including those risks and uncertainties resulting from the global COVID-19 pandemic, future waves of COVID-19, including through the Delta and Omicron variants and any new variant strains of the underlying virus; any future pandemics; the continuing effectiveness, global availability, and public acceptance of existing vaccines; the effectiveness, availability, and public acceptance of vaccines against variant strains of potential new viruses; and the heightened impact the pandemic has on many of the risks described herein, including, without limitation, risks relating to disruptions in our domestic and global supply chains, and labor shortages, any of which could materially adversely impact the Company’s ability to manufacture, source or distribute its products, both domestically and internationally.
Added
Critical Accounting Estimates We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles, which require our management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting periods.
Removed
Critical Accounting Policies & Estimates The following discussion and analysis of financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in conformity with generally accepted accounting principles in the United States of America.
Added
To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected. We base our estimates on our own historical experience and other assumptions that we believe are reasonable after taking account of our circumstances and expectations for the future based on available information.
Removed
The Company’s significant accounting policies are more fully described in Note 2 of the notes to consolidated financial statements.
Added
We evaluate these estimates on an ongoing basis.
Removed
Certain accounting estimates are particularly important to the understanding of the Company’s financial position and results of operations and require the application of significant judgment by the Company’s management and can be materially affected by changes from period to period in economic factors or conditions that are outside the control of management.
Added
We consider an accounting estimate to be critical if: (i) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii) changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.
Removed
The Company’s management uses its judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on historical operations, future business plans and projected financial results, the terms of existing contracts, the observance of trends in the industry, information provided by customers and information available from other outside sources, as appropriate.
Added
There are items within our financial statement that require estimation but are not deemed critical, as defined above. For a detailed discussion of our significant accounting policies and related judgments, see Note 2 of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of this report.
Removed
The following discusses the Company’s critical accounting policies and estimates: Estimates – Operating results may be affected by certain accounting estimates. The most sensitive and significant accounting estimates in the financial statements relate to customer rebates, valuation allowances for deferred income tax assets, obsolete and slow-moving inventories, potentially uncollectible accounts receivable, intangibles and stock-based compensation.
Added
Gross Profit Gross profit was $72,210,235 (37.7% of net sales) in 2023 compared to $63,558,785 (32.8% of net sales) in 2022. The increase was primarily due to productivity improvements in the Company's manufacturing and distribution facilities, as well as lower in-bound freight costs.
Removed
Although the Company’s management has used available information to make judgments on the appropriate estimates to account for the above matters, there can be no assurance that future events will not significantly affect the estimated amounts related to these areas where estimates are required. However, historically, actual results have not been materially different than original estimates.
Added
Operating Income Operating income was $13,188,617 in 2023 compared with $6,273,302 in 2022, an increase of $6,915,315. Operating income in the U.S. segment increased in 2023 by approximately $6,694,000 compared to 2022, primarily due to productivity improvements in the Company's manufacturing and distribution facilities, a reduction of SG&A expenses, as well as lower in-bound freight costs.
Removed
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").
Added
Inventory turnover calculated using a twelve-month average inventory balance, was 2.1 at December 31, 2023 as compared to 2.0 at December 31, 2022. The reserve for slow moving and obsolete inventory was $1,338,211 at December 31, 2023 compared to $1,720,350 at December 31, 2022.
Removed
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.
Added
The Company entered into the agreement on December 1, 2021. Payments of principal and interest are due monthly, with all amounts outstanding due on maturity on December 1, 2031. The outstanding principal on December 31, 2023, was $10,823,033.
Removed
Depending on the contractual terms of each customer, revenue is recognized either at the time of shipment “FOB Shipping Point” or upon delivery “FOB Destination". When revenue is recorded, estimates of returns are made and recorded 16 as a reduction of revenue.
Added
On November 1, 2023, the Company sold the assets of its Camillus Cutlery and Cuda business lines (the “Business”) to GSM Holdings, Inc., a Delaware corporation (“GSM Holdings”), pursuant to an Asset Purchase Agreement entered into on the same date. The purchase price for the Business was $19.8 million.
Removed
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.
Added
At closing, GSM Holdings paid $18.3 million to the Company; the balance of the purchase price, $1.5 million, is subject to a 12-month holdback as a non-exclusive source of recovery primarily to satisfy indemnification claims under the Asset Purchase Agreement.
Removed
Refer to Note 9 – Revenue from Contracts with Customers , in the notes to consolidated financial statements in this report for a more detailed discussion . Allowance for Doubtful Accounts – The Company provides an allowance for doubtful accounts based upon a review of outstanding accounts receivable, historical collection information and existing economic conditions.
Added
The divestiture resulted in a gain of $12.6 million, which was recorded within Other Income, Net in the consolidated statements of operations. The gain, net of tax, was approximately $9.6 million. Sales of Camillus and Cuda products represented approximately 6% of the total net sales in 2023.
Removed
The allowance for doubtful accounts represents estimated uncollectible accounts receivables associated with potential customer defaults on contractual obligations, usually due to potential insolvencies. The allowance includes amounts for certain customers where a risk of default has been specifically identified. In addition, the allowance includes a provision for customer defaults based on historical experience.
Added
Recently Issued Accounting Standards In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 requires additional categories of information about federal, state and foreign income taxes to be included in effective tax rate 21 reconciliation disclosure. Additionally, the newly added categories also apply to the income taxes paid disclosure.
Removed
The Company actively monitors its accounts receivable balances, and its historical experience of annual accounts receivable write-offs has been negligible. Customer Rebates – Customer rebates and incentives are a common practice in the office products industry. We incur customer rebate costs to obtain favorable product placement, to promote sell-through of products and to maintain competitive pricing.
Added
Implementation of said additions are subject to quantitative thresholds. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of adopting ASU 2023-09. Item 7A. Quantitative and Qualitat ive Disclosures about Market Risk As a smaller reporting company, the Company is not required to provide this information.
Removed
Customer rebate costs and incentives, including volume rebates, promotional funds, catalog allowances and slotting fees, are accounted for as a reduction to gross sales. These costs are recorded at the time of sale and are based on individual customer contracts. Management periodically reviews accruals for these rebates and allowances and adjusts accruals when appropriate.
Removed
Obsolete and Slow Moving Inventory – Inventories are stated at the lower of cost or net realizable value. Cost of inventories is determined by the first-in, first-out method. An allowance is established to adjust the cost of inventory to its net realizable value.
Removed
Inventory allowances are recorded for obsolete or slow moving inventory based on assumptions about future demand and marketability of products, the impact of new product introductions and specific identification of items, such as discontinued products. These estimates could vary significantly from actual requirements if future economic conditions, customer inventory levels or competitive conditions differ from expectations.
Removed
Income Taxes – Deferred income tax liabilities or assets are established for temporary differences between financial and tax reporting bases and are subsequently adjusted to reflect changes in tax rates expected to be in effect when the temporary differences reverse.
Removed
A valuation allowance is recorded to reduce deferred income tax assets to an amount that is more likely than not to be realized. 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.
Removed
Intangible assets held by the Company with finite useful lives include patents and trademarks. The weighted average amortization period for intangible assets at December 31, 2022 was 9 years.
Removed
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 amount may not be recoverable.
Removed
At December 31, 2022 and 2021, 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.
Removed
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.
Removed
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.
Removed
Accounting for Stock-Based Compensation – Stock based compensation cost is measured at the grant date fair value of the award and is recognized as expense over the requisite service period. The Company uses the Black-Scholes option - pricing model to determine fair value of the awards, which involves certain subjective assumptions.
Removed
These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (“expected term”), the estimated volatility of the Company’s common stock price over the expected term (“volatility”) and the number of options for which vesting requirements will not be completed (“forfeitures”).
Removed
Changes in the subjective assumptions can materially affect estimates of fair value stock-based compensation, and the related amount recognized on the consolidated statements of operations. Refer to Note 11 – Stock Option Plans, in the notes to consolidated financial statements in this report for a more detailed discussion.
Removed
Macroeconomic, Supply Chain and Related Considerations The global macroeconomic environment has continued to be challenging in 2022, characterized by global inflation at multi-decade highs, rising interest rates, and significant currency fluctuations. These factors have exacerbated an economy that was struggling to recover from the COVID-19 pandemic. During 2022, the Company experienced significant supply chain issues.
Removed
In anticipation of potential supply chain disruptions, the Company had purchased and maintained additional inventory to minimize the impact of any disruption in our supply chain. However, as economies have become less restricted by the COVID pandemic, global supply chains have struggled to keep up with increasing demand, and the resulting supply chain disruptions have significantly increased costs.
Removed
The supply chain issues caused exceptional ocean and inland freight and demurrage 17 costs. The freight and demurrage costs began to decrease in the third quarter of 2022.
Removed
We recognize those expenses as products are sold and, as a result, the unusually high freight and demurrage costs continued to adversely impact our results for the quarter s ended September 30 , 2022 and December 31 , 2022 and had an overall adverse effect on our operating margin for the twelve months of 2022.
Removed
In addition, the war in Ukraine is causing a slowdown in the European economy. This softness, coupled with a historically low exchange rate for the Euro, has led to challenges in our European markets which we anticipate will continue for at least the near future.
Removed
Any continuation of supply chain issues, continued high inflation, currency fluctuations, high interest rates, and any further increase in the duration or severity of the COVID-19 pandemic or a resurgence of the pandemic might continue to adversely affect the Company’s business, operations and financial condition. The impact of these developments is highly uncertain and cannot be predicted.
Removed
Net Sales In 2022, sales increased by $11,874,798, or 7%, to $193,962,357 compared to $182,087,559 in 2021. The U.S. segment sales increased by 8%, in 2022 compared to 2021.
Removed
The large majority of the increase was attributable to strong sales of first aid and medical products, primarily due to continued market share gains in the industrial, mass market and e-commerce channels as well as sales coming from the Safety Made acquisition.
Removed
The decline was primarily due to exceptionally high ocean container costs and demurrage charges (1.7% impact). Also contributing to the decline in gross profit were weaker currencies in Europe and Canada, where we purchase most of our inventory in U.S. dollars.
Removed
Approximately 31% of the increase was due to higher commissions and shipping costs related to higher sales. The increased shipping costs included fuel surcharges due to higher gas prices in the first half of 2022. The remaining increase was mainly due to Safety Made related ordinary S,G&A expenses.
Removed
Operating Income Operating income was $6,273,302 in 2022, compared with $12,769,987 in 2021, a decrease of $6,496,685.
Removed
Operating income in the U.S. segment decreased in 2022 by approximately $4,750,000 compared to 2021, primarily due to increased supply chain costs which include exceptionally high ocean container costs and demurrage charges. $3.3 million of exceptional supply chain costs were recognized in 2022 compared to $0 in 2021.
Removed
Operating income in the European segment decreased by $1,000,000 compared to 2021 primarily due to increased supply chain costs as well as a weaker currency in Europe where we purchase most of our inventory in U.S. dollars. $700,000 of exceptional supply chain costs were recognized in 2022 compared to $0 in 2021.
Removed
Income tax expense in 2021 included a $1.4 million tax credit for stock-based compensation. The Company’s effective tax rate in 2021, excluding the tax credit and the income from the PPP Loan forgiveness was 24%. The lower effective tax rate in 2022 was due to a lower proportion of earnings in jurisdictions with a higher tax rate.
Removed
We increased inventory during 2022 to anticipate our continued growth and to be positioned to offset the impact of potential supply chain disruptions related to COVID-19. The increase also reflects higher product costs. We believe the risk of supply chain disruptions has been reduced, and we are now lowering our inventory.
Removed
The average number of days sales outstanding in accounts receivable was 62 days in 2022 compared to 60 days in 2021.
Removed
The increase in the ratio brought the Company into compliance with the covenant as of September 30, 2022, and going forward, provides the Company with flexibility to conduct its business in light of current and anticipated economic conditions. As of December 31, 2022, the Company was in compliance with the covenants under the revolving loan agreement, as amended.

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