See accompanying Notes to Consolidated Financial Statements.
See accompanying Notes to Consolidated Financial Statements.
See accompanying Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Operations
The operations of Acme United Corporation (the
“Company”) consist of three reportable segments. The operations of the Company are structured and evaluated based on
geographic location. The three reportable segments operate in the United States (including Asian operations), Canada and Europe.
Principal products across all segments are scissors, shears, knives, rulers, pencil sharpeners, first aid kits, and related products
which are sold primarily to wholesale, contract and retail stationery distributors, office supply super stores, mass market retailers,
industrial distributors, school supply distributors, drug store retailers, sporting goods stores, hardware chains and wholesale
florists.
2. Accounting Policies
Estimates - The preparation of financial statements
in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most sensitive and
significant accounting estimates relate to customer rebates, valuation allowances for deferred income tax assets, obsolete and
slow-moving inventories, potentially uncollectible accounts receivable, pension liability and accruals for income taxes. Actual
results could differ from those estimates.
Principles of Consolidation - The consolidated
financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned by the Company. All
significant intercompany accounts and transactions are eliminated in consolidation.
Translation of Foreign Currency - For foreign
operations whose functional currencies are not U.S. dollars, assets and liabilities are translated at rates in effect at the end
of the year; revenues and expenses are translated at average rates in effect during the year. Resulting translation adjustments
are made directly to accumulated other comprehensive income. Foreign currency transaction gains and losses are recognized in operating
results. Foreign currency transaction losses, which are included in other expense, net, were $75,041 in 2016 and $202,587 in 2015.
Cash Equivalents - Investments with an original
maturity of three months or less, as well as time deposits and certificates of deposit that are readily redeemable at the date
of purchase, are considered cash equivalents.
Accounts Receivable - Accounts receivable are shown less an allowance
for doubtful accounts of $152,357 at December 31, 2016 and $104,760 at December 31, 2015.
Inventories - Inventories are stated at the lower of cost, determined
by the first-in, first-out method, or market.
Property, Plant and Equipment and Depreciation – Property,
plant and equipment is recorded at cost. Depreciation is computed by the straight-line method over the estimated useful lives of
the assets, which range from 3 to 30 years.
Intangible Assets– Intangible assets with
finite useful lives are recorded at cost upon acquisition, and amortized over the term of the related contract or useful life,
as applicable. Intangible assets held by the Company with finite useful lives include patents and trademarks. Patents and trademarks
are amortized over their estimated useful lives. The weighted average amortization period for intangible assets at December 31,
2016 was 8 years. The Company periodically reviews the values recorded for intangible assets to assess recoverability from future
operations whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. At December
31, 2016 and 2015, the Company assessed the recoverability of its long-lived assets and believed that there were no events or circumstances
present that would that would require a test of recoverability on those assets. As a result, there was no impairment of the carrying
amounts of such assets and no reduction in their estimated useful lives.
Deferred Income Taxes - Deferred income taxes are provided for the
differences between the financial statement and tax bases of assets and liabilities, and on operating loss carryovers, using tax
rates in effect in years in which the differences are expected to reverse.
Revenue Recognition – Revenue is recognized when
the price is fixed, the title and risks and rewards of ownership have passed to the customer, and when collection is
reasonably assured. Depending on the contractual terms of each customer, revenue is recognized either at the time of shipment
or upon delivery. When revenue is recorded, estimates of returns are made and recorded as a reduction of revenue. Customer
rebates and incentives are earned based on promotional programs in place, volume of purchases or other factors are also
estimated at the time of revenue recognition and recorded as a reduction of that revenue.
Research and Development – Research and development costs
($750,000 in 2016 and 690,000 in 2015) are expensed as incurred.
Shipping Costs – The costs of shipping product
to our customers ($5,388,481 in 2016 and $4,597,663 in 2015) are included in selling, general and administrative expenses.
Advertising Costs – The Company expenses the production costs
of advertising the first time that the related advertising takes place. Advertising costs ($1,934,250 in 2016 and $1,717,456 in
2015) are included in selling, general and administrative expenses.
Subsequent Events - The Company
has evaluated events and transactions subsequent to December 31, 2016 through the date the consolidated financial statements were
included in this Form 10-K and filed with the SEC.
Concentration – The Company performs ongoing credit evaluations
of its customers and generally does not require collateral for the extension of credit. Allowances for credit losses are provided
and have been within management's expectations. In 2016 and 2015, the Company had two customers that individually exceeded 10%
of consolidated net sales. In 2016, net sales to these customers amounted to approximately 14% and 11%, respectively, and 12% for
each in 2015.
Recently Issued Accounting Standards
In February 2016, the FASB issued guidance that
will change the requirements for accounting for leases. The principal change under the new accounting guidance is that lessees
under leases classified as operating leases will recognize a right-of-use asset and a lease liability. Current lease accounting
does not require lessees to recognize assets and liabilities arising under operating leases on the balance sheet. Under the new
guidance, lessees (including lessees under leases classified as finance leases and operating leases) will recognize a right-to-use
asset and a lease liability on the balance sheet, initially measured as the present value of lease payments under the lease. Expense
recognition and cash flow presentation guidance will be based upon whether the lease is classified as an operating lease or a finance
lease (the classification criteria for distinguishing between finance leases and operating leases is substantially similar to the
classification criteria for distinguishing between capital leases and operating leases under current guidance). The standard is
effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is
permitted. The new standard must be adopted using a modified retrospective transition approach for capital and operating leases
existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements; the
guidance provides certain practical expedients. The Company is currently evaluating this guidance to determine its impact on the
Company’s results of operations, cash flows and financial position.
In
March 2016, the FASB issued ASU 2016-09 to improve the accounting for employee share-based payments. This standard simplifies
several aspects of the accounting for share-based payment award transactions, including the income tax consequences, classification
of awards as either equity or liabilities, and classification on the statement of cash flows, as part of FASB’s simplification
initiative to reduce cost and complexity in accounting standards while maintaining or improving the usefulness of the information
provided to the users of financial state. The Company is still evaluating whether the adoption of this standard on January 1,
2017 will have a material impact on its consolidated financial statements.
In
November 2015, the FASB issued ASU 2015-17, "Balance Sheet Classification of Deferred Taxes" (Topic 740), which simplifies
the presentation of deferred income taxes. This ASU requires that deferred tax assets and liabilities be classified as non-current
in a statement of financial position. ASU 2015-17 may be adopted either prospectively or retrospectively and is effective for
reporting periods beginning after December 15, 2016, with early adoption permitted. The Company expects the adoption of this ASU
to result in a reclassification of its net current deferred tax asset to the net non-current deferred tax asset on it consolidated
balance sheet.
In August 2015, the FASB issued
ASU No. 2015-14, which defers the effective date of ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) by one year.
ASU 2015-14 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of
goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or
services. As a result, the ASU is now effective for fiscal years, and interim periods within those years, beginning after December
15, 2017, which for us is the first quarter of 2018. Earlier application is permitted for fiscal years beginning after December
15, 2016, including interim reporting periods within those years, which for us is the first quarter of 2017. We do not expect this
ASU to have a material impact on our financial position, results of operations or disclosures.
In July 2015, the FASB issued
ASU 2015-11, "Simplifying the Measurement of Inventory" (Topic 330). The new guidance changes the subsequent measurement
of inventory from lower of cost or market to lower of cost and net realizable value. ASU 2015-11 should be applied on a prospective
basis and is effective for the Company beginning in the first fiscal quarter of 2017. Early adoption is permitted. The Company
does not expect the adoption of this guidance to have a material impact on its financial position, results of operations or cash
flows.
3. Inventories
|
|
December 31,
|
Inventories consisted of:
|
|
2016
|
|
2015
|
Finished goods
|
|
$
|
33,971,922
|
|
|
$
|
29,802,745
|
|
Work in process
|
|
|
187,833
|
|
|
|
169,540
|
|
Materials and supplies
|
|
|
3,078,106
|
|
|
|
5,535,306
|
|
|
|
$
|
37,237,861
|
|
|
$
|
35,507,591
|
|
Inventories are stated net of valuation allowances
for slow moving and obsolete inventory of $677,253 as of December 31, 2016 and $698,592 as of December 31, 2015.
4. Intangible Assets and Goodwill
|
|
December 31,
|
Intangible assets consisted of:
|
|
2016
|
|
2015
|
|
|
|
|
|
First Aid Only Tradename, Customer List
|
|
$
|
8,910,010
|
|
|
$
|
8,910,010
|
|
DMT Tradename, Customer List
|
|
|
2,756,000
|
|
|
|
—
|
|
DMT Non-Compete
|
|
|
183,000
|
|
|
|
—
|
|
Patents
|
|
|
2,271,980
|
|
|
|
2,242,844
|
|
Trademarks
|
|
|
663,698
|
|
|
|
663,698
|
|
Pac-Kit Tradename, Customer List
|
|
|
1,500,000
|
|
|
|
1,500,000
|
|
C-Thru, Customer List
|
|
|
1,050,000
|
|
|
|
1,050,000
|
|
Subtotal
|
|
|
17,334,688
|
|
|
|
14,366,552
|
|
Accumulated amortization
|
|
|
3,346,502
|
|
|
|
2,415,561
|
|
Subtotal Intangible assets
|
|
|
13,988,186
|
|
|
|
11,950,991
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
3,948,235
|
|
|
|
1,406,000
|
|
|
|
$
|
17,936,421
|
|
|
$
|
13,356,991
|
|
Amortization
expense for patents and trademarks for the years ended December 31, 2016, and 2015 were $930,941 and $734,496, respectively. The
estimated aggregate amortization expense for each of the next five succeeding years, calculated on a similar basis, is as follows:
2017 - $953,038; 2018 - $932,247; 2019 - $881,785; 2020 - $877,164; and 2021 - $875,339.
5. Other
Accrued Liabilities
Other current
and long-term accrued liabilities consisted of:
|
|
December 31,
|
|
|
2016
|
|
2015
|
Customer rebates
|
|
$
|
2,789,003
|
|
|
$
|
3,168,756
|
|
Remediation liability
|
|
|
57,197
|
|
|
|
80,947
|
|
Pension liability
|
|
|
205,071
|
|
|
|
359,216
|
|
Other
|
|
|
2,619,819
|
|
|
|
2,052,074
|
|
|
|
$
|
5,671,090
|
|
|
$
|
5,660,993
|
|
6. Pension and Profit Sharing
United States employees, hired prior to July 1, 1993, are covered
by a funded, defined benefit pension plan. The benefits of this pension plan are based on years of service and the average compensation
of the highest three consecutive years during the last ten years of employment. In December 1995, the Company's Board of Directors
approved an amendment to the United States pension plan that terminated all future benefit accruals as of February 1, 1996, without
terminating the pension plan.
The Company’s funding policy with respect to its qualified
plan is to contribute at least the minimum amount required by applicable laws and regulations. In 2016, the Company did not contribute
to the plan.
The plan asset weighted average allocation at December 31, 2016
and December 31, 2015, by asset category, were as follows:
Asset Category
|
2016
|
2015
|
Equity Securities
|
65%
|
58%
|
Fixed Income Securities
|
32%
|
37%
|
Other Securities / Investments
|
3%
|
5%
|
Total
|
100%
|
100%
|
The Company’s investment policy for the
pension plan is to minimize risk by balancing investments between equity securities and fixed income securities. Plan funds are
invested in long-term obligations with a history of moderate to low risk.
As of December 31, 2015, equity securities
in the pension plan included 10,000 shares of the Company's Common Stock, having a market value of $174,000. As of December 31,
2016, the plan did not hold shares of the Company.
The pension plan asset information included
below is presented at fair value. ASC 820 establishes a framework for measuring fair value and requires disclosures about assets
and liabilities measured at fair value. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure
fair value into three levels as follows:
|
·
|
Level 1 – Inputs to the valuation methodology based on unadjusted quoted market prices in
active markets that are accessible at the measurement date.
|
|
·
|
Level 2 – Inputs to the valuation methodology that include quoted market prices that are
not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly.
|
|
·
|
Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair
value measurement.
|
The following tables present the pension plan
assets by level within the fair value hierarchy as of December 31, 2016 and 2015:
2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Money Market Fund
|
|
$
|
19,327
|
|
|
$
|
19,897
|
|
|
$
|
—
|
|
|
$
|
39,224
|
|
Acme United Common Stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Equity Common and Collected Funds
|
|
|
131,737
|
|
|
|
705,523
|
|
|
|
—
|
|
|
|
837,260
|
|
Fixed Income Common and Collected Funds
|
|
|
104,491
|
|
|
|
313,752
|
|
|
|
—
|
|
|
|
418,243
|
|
Total
|
|
$
|
255,555
|
|
|
$
|
1,039,172
|
|
|
$
|
—
|
|
|
$
|
1,294,727
|
|
2015
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Money Market Fund
|
|
$
|
66,914
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
66,914
|
|
Acme United Common Stock
|
|
|
174,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
174,000
|
|
Equity Common and Collected Funds
|
|
|
—
|
|
|
|
652,135
|
|
|
|
—
|
|
|
|
652,135
|
|
Fixed Income Common and Collected Funds
|
|
|
—
|
|
|
|
524,523
|
|
|
|
—
|
|
|
|
524,523
|
|
Total
|
|
$
|
240,914
|
|
|
$
|
1,176,658
|
|
|
$
|
—
|
|
|
$
|
1,417,572
|
|
Other disclosures related to the pension plan follow:
|
|
2016
|
|
2015
|
Assumptions used to determine benefit obligation:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
3.40
|
%
|
|
|
3.50
|
%
|
Changes in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
(1,776,788
|
)
|
|
$
|
(1,904,377
|
)
|
Interest cost
|
|
|
(55,811
|
)
|
|
|
(59,348
|
)
|
Service cost
|
|
|
(36,000
|
)
|
|
|
(25,000
|
)
|
Actuarial gain (loss)
|
|
|
99,019
|
|
|
|
(62,677
|
)
|
Benefits and plan expenses paid
|
|
|
269,782
|
|
|
|
274,614
|
|
Benefit obligation at end of year
|
|
|
(1,499,798
|
)
|
|
|
(1,776,788
|
)
|
|
|
|
|
|
|
|
|
|
Changes in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
1,417,572
|
|
|
|
1,684,535
|
|
Actual return on plan assets
|
|
|
146,937
|
|
|
|
(22,349
|
)
|
Employer contribution
|
|
|
—
|
|
|
|
30,000
|
|
Benefits and plan expenses paid
|
|
|
(269,782
|
)
|
|
|
(274,614
|
)
|
Fair value of plan assets at end of year
|
|
|
1,294,727
|
|
|
|
1,417,572
|
|
Funded status
|
|
$
|
(205,071
|
)
|
|
$
|
(359,216
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in Accumulated Other Comprehensive Income:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
1,128,647
|
|
|
$
|
1,423,319
|
|
Prior service cost
|
|
|
2,168
|
|
|
|
2,711
|
|
Total
|
|
$
|
1,130,815
|
|
|
$
|
1,426,030
|
|
Accrued benefits costs are included in other accrued liabilities (non-current).
|
|
2016
|
|
2015
|
Assumptions used to determine net periodic benefit cost:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
3.50
|
%
|
|
|
3.23
|
%
|
Expected return on plan assets
|
|
|
6.00
|
%
|
|
|
6.00
|
%
|
Components of net benefit expense:
|
|
|
|
|
|
|
|
|
Interest cost
|
|
$
|
55,811
|
|
|
$
|
59,348
|
|
Service cost
|
|
|
36,000
|
|
|
|
25,000
|
|
Expected return on plan assets
|
|
|
(76,138
|
)
|
|
|
(92,620
|
)
|
Amortization of prior service costs
|
|
|
543
|
|
|
|
9,155
|
|
Amortization of actuarial loss
|
|
|
124,854
|
|
|
|
122,352
|
|
Net periodic benefit cost
|
|
$
|
141,070
|
|
|
$
|
123,235
|
|
The Company employs a building block approach in determining the
long-term rate of return for plan assets. Historical markets are studied and long-term historical relationships between equity
securities and fixed income securities are preserved consistent with the widely-accepted capital market principle that assets with
higher volatility generate higher returns over the long run. Our expected 6% long-term rate of return on plan assets is
determined based on long-term historical performance of plan assets, current asset allocation and projected long-term rates of
return.
The following table discloses the change recorded
in other comprehensive income related to benefit costs:
|
|
2016
|
|
2015
|
|
|
|
|
|
Balance at beginning of the year
|
|
$
|
1,426,030
|
|
|
$
|
1,379,890
|
|
Change in net loss
|
|
|
(169,818
|
)
|
|
|
177,647
|
|
Amortization of actuarial loss
|
|
|
(124,854
|
)
|
|
|
(122,352
|
)
|
Amortization of prior service cost
|
|
|
(543
|
)
|
|
|
(9,155
|
)
|
Change recognized in other comprehensive income
|
|
|
(295,215
|
)
|
|
|
46,140
|
|
Total recognized in other comprehensive income
|
|
$
|
1,130,815
|
|
|
$
|
1,426,030
|
|
The Company anticipates that in 2017, net periodic
benefit cost will include approximately $106,000 of net actuarial loss and $1,000 of prior service cost.
The following benefits are expected to be paid:
2017
|
|
|
$
|
207,000
|
|
2018
|
|
|
|
187,000
|
|
2019
|
|
|
|
169,000
|
|
2020
|
|
|
|
152,000
|
|
2021
|
|
|
|
136,000
|
|
Years 2022 - 2026
|
|
|
|
488,000
|
|
The Company also has a qualified, profit sharing
plan covering substantially all of its United States employees. Annual Company contributions to this profit sharing plan are determined
by the Company’s Compensation Committee. For the years ended December 31, 2016 and 2015, the Company contributed 50% of employee’s
contributions, up to the first 6% contributed by each employee. Total contribution expense under this profit sharing plan was $188,518
in 2016 and $166,050 in 2015.
7. Income Taxes
The amounts of income tax expense (benefit) reflected in operations is as follows:
|
|
2016
|
|
2015
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
566,361
|
|
|
$
|
1,304,253
|
|
State
|
|
|
(5,648
|
)
|
|
|
164,913
|
|
Foreign
|
|
|
984,469
|
|
|
|
553,259
|
|
|
|
|
1,545,182
|
|
|
|
2,022,425
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
|
83,290
|
|
|
|
(196,476
|
)
|
State
|
|
|
17,233
|
|
|
|
(5,077
|
)
|
|
|
|
100,523
|
|
|
|
(201,553
|
)
|
|
|
$
|
1,645,705
|
|
|
$
|
1,820,872
|
|
The current state tax provision was comprised
of taxes on income, the minimum capital tax and other franchise taxes related to the jurisdictions in which the Company's facilities
are located.
A summary of United States and foreign income
before income taxes follows:
|
|
2016
|
|
2015
|
United States
|
|
$
|
2,008,065
|
|
|
$
|
3,256,251
|
|
Foreign
|
|
|
5,488,638
|
|
|
|
3,358,146
|
|
|
|
$
|
7,496,703
|
|
|
$
|
6,614,397
|
|
As discussed in Note 10 below, for segment
reporting, Direct Import sales are included in the United States segment. However, the revenues are earned by our Hong Kong subsidiary
and related income taxes are paid in Hong Kong whose rate approximates 16.5%. As such, income of the Asian subsidiary is included
in the foreign income before taxes.
The following
schedule reconciles the amounts of income taxes computed at the United States statutory rates to the actual
amounts reported in operations:
|
|
2016
|
|
2015
|
Federal income
|
|
|
|
|
|
|
|
|
taxes at
|
|
|
|
|
|
|
|
|
34% statutory rate
|
|
$
|
2,496,270
|
|
|
$
|
1,878,464
|
|
State and local
|
|
|
|
|
|
|
|
|
taxes, net of
|
|
|
|
|
|
|
|
|
federal income
|
|
|
|
|
|
|
|
|
tax effect
|
|
|
18,998
|
|
|
|
105,492
|
|
Permanent items
|
|
|
(25,077
|
)
|
|
|
328,075
|
|
Foreign tax rate difference
|
|
|
(919,038
|
)
|
|
|
(601,269
|
)
|
Change in deferred income tax
|
|
|
|
|
|
|
|
|
valuation allowance
|
|
|
74,552
|
|
|
|
110,110
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
1,645,705
|
|
|
$
|
1,820,872
|
|
The following summarizes deferred income tax
assets and liabilities:
|
|
2016
|
|
2015
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Plant, property
|
|
|
|
|
|
|
|
|
and equipment
|
|
$
|
604,271
|
|
|
$
|
536,759
|
|
|
|
|
604,271
|
|
|
|
536,759
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Asset valuations
|
|
|
720,189
|
|
|
|
677,994
|
|
Operating loss
|
|
|
|
|
|
|
|
|
carryforwards and credits
|
|
|
121,658
|
|
|
|
110,110
|
|
Pension
|
|
|
227,681
|
|
|
|
189,920
|
|
Foreign tax credit
|
|
|
186,504
|
|
|
|
186,504
|
|
Other
|
|
|
593,140
|
|
|
|
753,219
|
|
|
|
|
1,849,172
|
|
|
|
1,917,747
|
|
Net deferred
|
|
|
|
|
|
|
|
|
income tax asset before valuation allowance
|
|
|
1,244,901
|
|
|
|
1,380,988
|
|
Valuation
|
|
|
|
|
|
|
|
|
allowance
|
|
|
(74,552
|
)
|
|
|
(110,110
|
)
|
Net deferred
|
|
|
|
|
|
|
|
|
income tax asset
|
|
$
|
1,170,349
|
|
|
$
|
1,270,878
|
|
In 2016, the Company evaluated its tax positions for years which
remain subject to examination by major tax jurisdictions, in accordance with the requirements of ASC 740 and as a result concluded
no adjustment was necessary. The Company files income tax returns in the U.S. federal jurisdiction, and various state and foreign
jurisdictions. The Company’s evaluation of uncertain tax positions was performed for the tax years ended December 31, 2013
and forward, the tax years which remain subject to examination by major tax jurisdictions as of December 31, 2016.
In accordance with the Company’s accounting policies, any
interest and penalties related to uncertain tax positions are recognized as a component of income tax expense.
The Company provides deferred income taxes on foreign subsidiary
earnings, which are not considered permanently reinvested. Earnings permanently reinvested would become taxable upon the sale or
liquidation of a foreign subsidiary or upon the remittance of dividends. The Company plans to repatriate future earnings of its
Canadian subsidiary and will provide for U.S. income taxes accordingly. Foreign subsidiary earnings of $7,158,497 and $3,157,020
are considered permanently reinvested as of December 31, 2016 and 2015, respectively, and no deferred income taxes have been provided
on these foreign earnings. These unremitted foreign earnings are primarily related to the Hong Kong subsidiary, and there is no
unrecognized deferred income tax liability for these permanently reinvested earnings.
Due to the uncertain nature of the realization of the Company's
deferred income tax assets based on past performance of its German subsidiary and carry forward expiration dates, the Company has
recorded a valuation allowance for the amount of deferred income tax assets which are not expected to be realized. This valuation
allowance, all of which is related to deferred tax assets resulting from net operating losses of the Company’s German subsidiary,
is subject to periodic review, and, if the allowance is reduced, the tax benefit will be recorded in future operations as a reduction
of the Company's tax expense.
8. Long-Term Debt
On May 6, 2016, the Company amended its revolving credit loan agreement
with HSBC Bank, N.A. The amended facility provides for borrowings of up to an aggregate of $50 million at an interest rate of LIBOR
plus 2.0%. In addition, the Company must pay a facility fee, payable quarterly, in an amount equal to two tenths of one percent
(.20%) per annum of the average daily unused portion of the revolving credit line. All principal amounts outstanding under the
agreement are required to be repaid in a single amount on May 6, 2019, the date the agreement expires; interest is payable monthly.
Funds borrowed under the agreement may be used for working capital, acquisitions, general operating expenses, share repurchases
and certain other purposes. Under the revolving loan agreement, the Company is required to maintain specific amounts of tangible
net worth, a specified debt to net worth ratio and a fixed charge coverage ratio and must have annual net income greater than $0,
measured as of the end of each fiscal year. At December 31, 2016, the Company was in compliance with the covenants then in effect
under its loan agreement.
Long term debt consists
of borrowings under the Company’s revolving loan agreement with HSBC Bank, N.A. As of December 31, 2016
,
$32,935,858
was outstanding and $17,064,142 was available for borrowing under the Company’s revolving loan agreement.
9. Commitments and Contingencies
The Company leases certain office, manufacturing
and warehouse facilities and various equipment under non-cancelable operating leases. Total rent expense was $1,227,341 and $1,350,617
in 2016 and 2015, respectively. Minimum annual rental commitments under non-cancelable leases with remaining terms of one year
or more as of December 31, 2016 are as follows: 2017 - $1,207,410; 2018 - $1,088,244; 2019 - $918,549; 2020 - $873,644; 2021 –
$437,668 and thereafter - $0.
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 authority.
10. Segment Information
The Company reports financial information based on the organizational
structure used by management for making operating and investment decisions and for assessing performance. The Company’s reportable
business segments include (1) United States; (2) Canada and (3) Europe. The financial results for the Company’s Asian operations
have been aggregated with the results of its United States operations to form one reportable segment called the “United States
segment”. Sales in the United States segment include both domestic sales as well as direct import sales. Each reportable
segment derives its revenue from the sales of cutting devices, measuring instruments and first aid products for school, home, office,
hardware, sporting goods and industrial use.
Domestic sales orders are filled from the Company’s distribution
centers in North Carolina, Washington and Massachusetts. The Company is responsible for the costs of shipping, insurance, customs
clearance, duties, storage and distribution related to such products. Orders filled from the Company’s inventory are generally
for less than container-sized lots.
Direct Import sales are products sold by the Company’s Asian
subsidiary, directly to major U.S. retailers who take ownership of the products in Asia. These sales are completed by delivering
product to the customers’ common carriers at the shipping points in Asia. Direct Import sales are made in larger quantities
than domestic sales, typically full containers. Direct Import sales represented approximately 17% and 18% of the Company’s
total net sales in 2016 and 2015, respectively.
The Chief Operating Decision Maker evaluates the performance of
each operating segment based on segment revenues and operating income. Segment revenues are defined as total revenues, including
both external customer revenue and inter-segment revenue. Segment operating earnings are defined as segment revenues, less cost
of goods sold and operating expenses. Identifiable assets by segment are those assets used in the respective reportable segment’s
operations. Inter-segment amounts are eliminated to arrive at consolidated financial results.
The following table sets forth certain financial
data by segment for the fiscal years ended December 31, 2016 and 2015:
Financial
data by segment:
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(000's omitted)
|
|
United States
|
|
Canada
|
|
Europe
|
|
Consolidated
|
Net sales
|
|
$
|
110,793
|
|
|
$
|
6,824
|
|
|
$
|
6,957
|
|
|
$
|
124,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
7,769
|
|
|
|
568
|
|
|
|
105
|
|
|
|
8,442
|
|
Assets
|
|
|
84,104
|
|
|
|
3,882
|
|
|
|
4,080
|
|
|
|
92,066
|
|
Additions to property, plant and equipment
|
|
|
1,737
|
|
|
|
7
|
|
|
|
44
|
|
|
|
1,789
|
|
Depreciation and amortization
|
|
|
2,362
|
|
|
|
8
|
|
|
|
23
|
|
|
|
2,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
96,622
|
|
|
$
|
6,804
|
|
|
$
|
6,385
|
|
|
$
|
109,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
7,147
|
|
|
|
56
|
|
|
|
144
|
|
|
|
7,347
|
|
Assets
|
|
|
73,688
|
|
|
|
3,709
|
|
|
|
4,024
|
|
|
|
81,421
|
|
Additions to property, plant and equipment
|
|
|
1,720
|
|
|
|
19
|
|
|
|
17
|
|
|
|
1,757
|
|
Depreciation and amortization
|
|
|
2,017
|
|
|
|
8
|
|
|
|
28
|
|
|
|
2,053
|
|
The following is a reconciliation of segment
operating income to consolidated income before taxes:
|
|
2016
|
|
2015
|
Total operating income
|
|
$
|
8,442
|
|
|
$
|
7,347
|
|
Interest expense, net
|
|
|
869
|
|
|
|
565
|
|
Other expense, net
|
|
|
77
|
|
|
|
167
|
|
Consolidated income before taxes
|
|
$
|
7,497
|
|
|
$
|
6,614
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
5,851
|
|
|
$
|
4,794
|
|
The
table below presents revenue by geographic area. Revenues are attributed to countries based on location of the customer.
Revenues
|
|
2016
|
|
2015
|
United States
|
|
$
|
109,823
|
|
|
$
|
95,652
|
|
International:
|
|
|
|
|
|
|
|
|
Canada
|
|
|
6,824
|
|
|
|
6,804
|
|
Europe
|
|
|
6,957
|
|
|
|
6,385
|
|
Other
|
|
|
970
|
|
|
|
971
|
|
Total International
|
|
$
|
14,751
|
|
|
$
|
14,160
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
124,574
|
|
|
$
|
109,812
|
|
11. Stock Option Plans
The Company grants stock options under the 2012 Employee Stock Option
Plan (the “2012 Employee Plan”). The Company also has two plans under which the Company no longer grants options but
under which certain options remain outstanding: the 2002 Employee stock Option Plan and the 2005 Non-Salaried Director Stock Option
Plan (the “2005 Director Plan”).
The 2012 Employee Plan, which became effective
April 23, 2012, provides for the issuance of incentive and nonqualified stock options at an exercise price equal to the fair market
value of the Common Stock on the date the option is granted. The terms of the options granted are subject to the provisions of
the 2012 Employee Plan. Options granted under the 2012 Employee Plan vest 25% one day after the first anniversary of the grant
date and 25% one day after each of the next three anniversaries. As of December 31, 2016, the number of shares available for grant
under the 2012 Employee Plan was 66,850. Under the terms of the Employee Plan, no option may be granted under that plan after the
tenth anniversary of the adoption of the plan. Options outstanding under the Company’s 2002 Employee Stock Option Plan have
the same vesting schedule as the 2012 Employee Plan.
The 2005 Director Plan, as amended, provided for
the issuance of stock options for up to a total of 180,000 shares of the Company's common stock to non-salaried directors. Under
the Director Plan, Directors elected on April 25, 2005 and at subsequent Annual Meetings who have not received any prior grant
under this or previous plans received an initial grant of an option to purchase 5,000 shares of Common Stock (the “Initial
Option”). Each year, each elected Director not receiving an Initial Option received a 5,000 share option (the “Annual
Option”). The Initial Option vests 25% on the date of grant and 25% on the anniversary of the grant date in each of the following
3 years. Each Annual Option becomes fully exercisable one day after the date of grant. The exercise price of each option granted
equals the fair market value of the Common Stock on the date the option is granted, and expires ten (10) years from the date of
grant. As provided in the Director Plan, no options may be granted under the Director Plan after the tenth anniversary of the adoption
of the Plan, i.e., after April 25, 2015.
The Company has amended certain of its stock option plans for
both employees and directors to permit options to be exercised on a net basis and receive either cash or shares of the
Company’s Common Stock. Specifically, optionees may, at the time of exercise of an option and subject to the consent of
the Company, elect either (i) to receive from the Company cash in an amount equal to the number of shares of Common Stock
subject to the option (or portion thereof) that is being exercised multiplied by the excess of (a) the fair market value per
share over (b) the exercise price per share of the option ( a “net cash settlement”); or (ii) to make payment of
the exercise price of the option by reduction in the number of shares of Common Stock otherwise deliverable upon exercise of
such option by the number of shares having an aggregate fair market value equal to the total exercise price of the option (or
portion thereof). In 2016, the Company paid a total of approximately $2,274,000 to optionees who had elected a net cash
settlement of their respective options.
A summary of changes in options issued under the Company’s
stock option plans follows:
|
|
2016
|
|
2015
|
|
|
|
|
|
Options outstanding at the
|
|
|
|
|
|
|
|
|
beginning of the year
|
|
|
1,267,802
|
|
|
|
1,357,813
|
|
Options granted
|
|
|
171,000
|
|
|
|
47,000
|
|
Options forfeited
|
|
|
(33,825
|
)
|
|
|
(39,375
|
)
|
Options exercised
|
|
|
(316,699
|
)
|
|
|
(97,636
|
)
|
Options outstanding at
|
|
|
|
|
|
|
|
|
the end of the year
|
|
|
1,088,278
|
|
|
|
1,267,802
|
|
Options exercisable at the
|
|
|
|
|
|
|
|
|
end of the year
|
|
|
769,403
|
|
|
|
970,017
|
|
Common stock available for future grants
at the end of the year
|
|
|
66,850
|
|
|
|
201,350
|
|
Weighted average exercise price per share:
|
|
|
|
|
|
|
|
|
Granted
|
|
$
|
21.41
|
|
|
$
|
18.90
|
|
Forfeited
|
|
|
15.03
|
|
|
|
15.65
|
|
Exercised
|
|
|
10.99
|
|
|
|
12.79
|
|
Outstanding
|
|
|
14.18
|
|
|
|
12.46
|
|
Exercisable
|
|
|
12.29
|
|
|
|
11.72
|
|
A summary of options outstanding at December 31, 2016 is as follows:
|
|
Options Outstanding
|
|
Options Exercisable
|
Range
of Exercise Prices
|
Number
Outstanding
|
Weighted-
Average
Remaining Contractual
Life (Years)
|
Weighted-
Average
Exercise
Price
|
|
Number
Exercisable
|
Weighted-
Average
Exercise
Price
|
$7.30 to $10.10
|
214,038
|
4
|
$ 9.49
|
|
214,038
|
$ 9.49
|
$10.11 to $12.14
|
221,865
|
5
|
10.85
|
|
212,490
|
10.80
|
$12.15 to $14.68
|
218,000
|
5
|
13.49
|
|
182,000
|
13.44
|
$14.69 to $16.98
|
216,375
|
6
|
16.35
|
|
134,125
|
16.20
|
$16.99 to $21.49
|
218,000
|
9
|
20.84
|
|
26,750
|
19.09
|
|
1,088,278
|
|
|
|
769,403
|
|
The weighted average remaining contractual
life of all outstanding stock options is 6 years.
Stock Based Compensation
Stock-based compensation cost is measured at the grant date based
on the fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period.
The Company uses the Black-Scholes option pricing model to determine the fair value of employee and non-employee director stock
options. The determination of the fair value of stock-based payment awards on the date of grant, using an option-pricing model,
is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. 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 that will not fully vest in accordance with applicable vesting requirements (“forfeitures”).
The Company estimates the expected term of options granted by evaluating
various factors, including the vesting period, historical employee information, as well as current and historical stock prices
and market conditions. The Company estimates the volatility of its common stock by calculating historical volatility based on the
closing stock price on the last day of each of the 60 months leading up to the month the option was granted. The risk-free interest
rate that the Company uses in the option valuation model is the interest rate on U.S. Treasury zero-coupon bond issues with remaining
terms similar to the expected term of the options granted. Historical information was the basis for calculating the dividend yield.
The Company is required to estimate forfeitures at the time of grant and to revise those estimates in subsequent periods if actual
forfeitures differ from those estimates. The Company used a mix of historical data and future assumptions to estimate pre-vesting
option forfeitures and to record stock-based compensation expense only for those awards that are expected to vest. All stock-based
payment awards are amortized over the requisite service periods of the awards, which are generally the vesting periods.
The assumptions used to value option grants for the twelve months
ended December 31, 2016 and December 31, 2015 were as follows:
|
|
|
|
|
2016
|
|
2015
|
Expected life in years
|
|
|
5
|
|
|
|
5
|
|
Interest rate
|
|
|
1.07 – 1.24%
|
|
|
|
1.33 – 1.62%
|
|
Volatility
|
|
|
.236-.258
|
|
|
|
.234-.252
|
|
Dividend yield
|
|
|
1.6% - 2.0%
|
|
|
|
1.95% - 2.10%
|
|
Total stock-based compensation recognized in the Company’s
consolidated statements of operations for the years ended December 31, 2016 and 2015 was $440,536 and $513,986, respectively. At
December 31, 2016, there was approximately $867,624 of unrecognized compensation cost, adjusted for estimated forfeitures, related
to non-vested stock-based payments granted to the Company’s employees. As of December 31, 2016, the remaining unamortized
expense is expected to be recognized over a weighted average period of 3 years.
The weighted average fair value at the date
of grant for options granted during 2016 and 2015 was $4.05 and $3.44 per option, respectively. The aggregate intrinsic value of
outstanding options was $12,395,486 at December 31, 2016. The aggregate intrinsic value of exercisable options was $10,271,617
at December 31, 2016
.
The aggregate intrinsic value of options exercised during 2016 was $4,633,306.
12. Earnings Per Share
The calculation of earnings per share follows:
|
|
2016
|
|
2015
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,850,998
|
|
|
$
|
4,793,525
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share:
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
3,327,867
|
|
|
|
3,334,790
|
|
Effect of dilutive employee stock options
|
|
|
249,956
|
|
|
|
352,546
|
|
Denominator for dilutive earnings per share
|
|
|
3,577,823
|
|
|
|
3,687,336
|
|
Basic earnings per share
|
|
$
|
1.76
|
|
|
$
|
1.44
|
|
Dilutive earnings per share
|
|
$
|
1.64
|
|
|
$
|
1.30
|
|
For 2016 and 2015, respectively, 203,000 and
47,000 stock options were excluded from diluted earnings per share calculations because they would have been anti-dilutive.
13. Accumulated Other Comprehensive (loss) income
The components of accumulated other comprehensive (loss) income follow:
|
|
Foreign currency translation adjustment
|
|
Net prior service credit and actuarial losses
|
|
Total
|
Balances, December 31, 2014
|
|
$
|
(751,765
|
)
|
|
$
|
(895,332
|
)
|
|
$
|
(1,647,098
|
)
|
Change in net prior service credit
|
|
|
|
|
|
|
|
|
|
|
|
|
and actuarial losses, net of tax
|
|
|
|
|
|
|
(52,825
|
)
|
|
|
(52,825
|
)
|
Translation adjustment
|
|
|
(830,867
|
)
|
|
|
|
|
|
|
(830,867
|
)
|
Balances, December 31, 2015
|
|
$
|
(1,582,632
|
)
|
|
$
|
(948,157
|
)
|
|
$
|
(2,530,790
|
)
|
Change in net prior service credit
|
|
|
|
|
|
|
|
|
|
|
|
|
and actuarial losses, net of tax
|
|
|
|
|
|
|
284,145
|
|
|
|
284,145
|
|
Translation adjustment
|
|
|
(89,556
|
)
|
|
|
|
|
|
|
(89,556
|
)
|
Balances, December 31, 2016
|
|
$
|
(1,672,188
|
)
|
|
$
|
(664,012
|
)
|
|
$
|
(2,336,201
|
)
|
14. Financial Instruments
The carrying value of the Company’s bank debt is a reasonable
estimate of fair value because of the nature of its payment terms and maturity.
15. Quarterly Data (unaudited)
Quarters (000's omitted, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
Total
|
Net sales
|
|
$
|
25,288
|
|
|
$
|
40,997
|
|
|
$
|
31,913
|
|
|
$
|
26,377
|
|
|
$
|
124,574
|
|
Cost of goods sold
|
|
|
16,103
|
|
|
|
26,302
|
|
|
|
20,050
|
|
|
|
16,564
|
|
|
|
79,019
|
|
Net income
|
|
|
565
|
|
|
|
3,267
|
|
|
|
1,473
|
|
|
|
545
|
|
|
|
5,851
|
|
Basic earnings per share
|
|
$
|
0.17
|
|
|
$
|
0.98
|
|
|
$
|
0.44
|
|
|
$
|
0.16
|
|
|
$
|
1.76
|
|
Diluted earnings per share
|
|
$
|
0.16
|
|
|
$
|
0.91
|
|
|
$
|
0.40
|
|
|
$
|
0.15
|
|
|
$
|
1.64
|
|
Dividends per share
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
|
$
|
0.10
|
|
|
$
|
0.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
First
|
|
|
|
Second
|
|
|
|
Third
|
|
|
|
Fourth
|
|
|
|
Total
|
|
Net sales
|
|
$
|
22,837
|
|
|
$
|
33,954
|
|
|
$
|
29,903
|
|
|
$
|
23,118
|
|
|
$
|
109,812
|
|
Cost of goods sold
|
|
|
14,402
|
|
|
|
21,419
|
|
|
|
19,578
|
|
|
|
14,852
|
|
|
|
70,251
|
|
Net income
|
|
|
436
|
|
|
|
2,710
|
|
|
|
1,208
|
|
|
|
440
|
|
|
|
4,794
|
|
Basic earnings per share
|
|
$
|
0.13
|
|
|
$
|
0.82
|
|
|
$
|
0.36
|
|
|
$
|
0.12
|
|
|
$
|
1.44
|
|
Diluted earnings per share
|
|
$
|
0.12
|
|
|
$
|
0.74
|
|
|
$
|
0.33
|
|
|
$
|
0.11
|
|
|
$
|
1.30
|
|
Dividends per share
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
$
|
0.10
|
|
|
$
|
0.37
|
|
Earnings per share were computed independently
for each of the quarters presented. Therefore, the sum of the four quarterly earnings per share amounts may not necessarily equal
the earnings per share for the year.
16. Sale of Property
On April 7, 2014, the Company sold its Fremont,
NC distribution facility for $850,000 in cash. The facility originally served as a manufacturing site for the Company’s scissors
and rulers. The Company hired an independent environmental consulting firm to conduct environmental studies in order to identify
the extent of the environmental contamination on the property and to develop a remediation plan. As a result of those studies and
the estimates prepared by the independent environmental consulting firm, and in conjunction with the sale of the property, the
Company recorded a liability of $300,000 in the second quarter of 2014, related to the remediation of the property. The accrual
includes the total estimated costs of remedial activities and post-remediation operating and maintenance costs.
Remediation work on the Fremont project began
in the third quarter of 2014 and was completed in 2015. In addition to the remediation work, the Company, with the assistance of
its independent environmental consulting firm, must continue to monitor contaminant levels on the property to ensure they comply
with set governmental standards. The Company expects that the monitoring period will last a period of five years from the completion
of the remediation and be complete by the end of 2020.
The change in the accrual for environmental
remediation, which is included in other accrued liabilities on the accompanying consolidated balance sheets, for the twelve months
ended December 31, 2016 follows (in thousands):
|
|
Balance
at
December 31, 2015
|
|
|
Payments
|
|
Balance
at
December 31, 2016
|
Fremont, NC
|
|
$
|
80
|
|
|
$
|
(23
|
)
|
|
$
|
57
|
|
|
Total
|
|
$
|
80
|
|
|
$
|
(23
|
)
|
|
$
|
57
|
|
|
17. Business Combinations
On February 1, 2016, the Company acquired the
assets of Vogel Capital, Inc., d/b/a Diamond Machining Technology (DMT) for $7.0 million in cash.
DMT
products are leaders in sharpening tools for knives, scissors, chisels, and other cutting tools. The DMT products use finely dispersed
diamonds on the surfaces of sharpeners. The acquired assets include over 50 patents and trademarks.
The purchase price was allocated to assets acquired
and liabilities assumed as follows (in thousands):
Assets:
|
|
|
|
|
Accounts
Receivable
|
|
$
|
1,145
|
|
Inventory
|
|
|
280
|
|
Equipment
|
|
|
262
|
|
Prepaid
expenses
|
|
|
176
|
|
Intangible Assets
|
|
|
5,481
|
|
Total
assets
|
|
$
|
7,344
|
|
Liabilities
|
|
|
|
|
Accounts
Payable
|
|
$
|
192
|
|
Accrued
Expense
|
|
|
181
|
|
Total
liabilities
|
|
$
|
373
|
|
Net sales from the date of acquisition through
December 31, 2016 attributable to DMT products were approximately $5.6 million. Net income from the date of acquisition through
December 31, 2016 attributable to DMT products was approximately $800,000.
Assuming DMT was acquired on January 1, 2016,
unaudited proforma combined net sales for the twelve months ended December 31, 2016 for the Company would have been approximately
$125.2 million. Unaudited proforma combined net income for the twelve months ended December 31, 2016 for the Company would have
been approximately $5.9 million.
Assuming DMT was acquired on January 1, 2015,
unaudited proforma combined net sales for the twelve months ended December 31, 2015, for the Company would have been approximately
$115.3 million. Unaudited proforma combined net income for the twelve months ended December 31, 2015 for the Company would have
been approximately $5.3 million.
18. Subsequent Event
On February 1, 2017 the Company announced that
it had acquired assets of Spill Magic, Inc., for $7.2 million in cash. The
Spill Magic products are
leaders in absorbents that encapsulate spills into dry powders that can be safely disposed. Many large retail chains use its products
to remove liquids from broken glass containers, oil and gas spills, bodily fluids, and solvents. Its easy-to-use and environmentally
friendly products permanently absorb the spills, leaving the floors underneath dry and reducing injuries from falls. Spill Magic
also sells spill clean-up kits and blood borne pathogen kits for the safety market.
The acquired assets include inventory,
accounts receivable and fixed assets. Spill Magic is located in Santa Ana, California and Smyrna, Tennessee, and began operations
in 1995. The company employed 22 people all of whom the Company retained.