ACU 10-K & 10-Q changes, risk factors and insider trading

The impact thatof these and any otheradditional trade measures will have on our business and financial results is difficult to predict, particularly because trade ispolicy remains a currentkey focus of theU.S. neweconomic United States administrationstrategy and itlitigation isaffecting notexisting possiblemeasures tocontinues. know theThe amount, scope, and natureduration of any additional tariffs or other trade measures that may be adopted, as well as the Unitednature Statesof willany adoptretaliatory andactions howby trading partnerspartners, willremain respond to the administration’s future and present actions.uncertain.

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. 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. 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. We may be able to pass some or all of these cost increases to customers by increasing the selling prices of our products in the future; however, higher product prices may also result in a reduction in sales volume and/or consumption. If we are not able to mitigate these inflationary pressures, such as by increasing our selling prices sufficiently, there could be a negative impact on our results of operations and financial condition.

Our business has experienced significant historical growth both internally and through acquisitions through the years including through the acquisitions of Hawktree in 2023 and Elite First Aid in 2024.2024 and My Medic in January 2026. 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. If we cannot effectively manage our growth, we would likely experience operational inefficiencies and incur unanticipated costs, thus negatively impacting our operating results. To the extent we continue grow through strategic acquisitions, our success will depend on selecting the appropriate targets, integrating such acquisitions quickly and effectively and realizing any expected synergies and cost savings related to such acquisitions.

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 20242025 and 2023,2024, that individually exceeded 10% of consolidated net sales. Net sales to each of those customers were approximately 13%, in 2025 and 14% and 13% in 2024 and 14% and 12% in 2023,2024, respectively. The Company had three customers in 20242025 that individually exceeded 10% of consolidated accounts receivable. Accounts receivable to those customers were approximately 16%,17%, 15%,13%, and 11%. In 2023,2024, the Company had receivables to these customers of approximately 17%,11%, 14%,16%, and 14%,15%, 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 business risks associated with this concentration, including increased credit risks for these and other customers and the possibility of related bad debt write-offs, could negatively affect our margins and profits. 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.

The Company’s products are sold in highly competitive markets including at mass merchants, high volume office supply stores and online. 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. Competitive conditions may require the Company to match or better competitors’ prices to retain business or market shares. The Company believes that its competitive position will depend on continued investment in innovation and product development, manufacturing and sourcing, quality standards, marketing and customer service and support. 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 may not have sufficient resources to make the investments that may be necessary to anticipate those changing needs and the Company may not anticipate, identify, develop and market products successfully or otherwise be successful in maintaining its competitive position. In addition, there are numerous uncertainties inherent in successfully developing and commercializing innovative new products on a continuing basis, and new product launches may not provide expected growth results. There are no significant barriers to entry into the markets for most of the Company’s products.

As of December 31, 2024,2025, excluding net deferred financing costs of $34,983,$10,299, $17,640,550$11,863,085 was outstanding and $47,359,450$53,136,915 was available for borrowing under the Company’s revolving credit facility. 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 $10,409,797$9,975,587, excluding deferred financing fees of $89,627, was outstanding as of December 31, 2024.2025. Our indebtedness if it were to increase substantially, combined with our other financial obligations and contractual commitments, could have significant consequences for our business. For example, it could:

limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; or 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 military conflicts in Ukraine and the Middle East have resulted in significant geopolitical instability. Additionally, the escalation of tensions in the South China Sea and the Taiwan Strait, ongoing hostilities involving Iran and its proxies, increased missile testing by North Korea, and renewed violence in sub-Saharan Africa (including Sudan and the Sahel region) have contributed to further instability. 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 arehave activelycontinued resistingto resist the invasion. Although the length, impactimpact, and outcome of the war isremain highly unpredictable, this warconflict has contributed to significant market and other disruptions, including significant volatility in commodity prices and the supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, changes in consumer or purchaser preferencespreferences, as well as an increase inincreased cyberattacks and espionage.

Separately, onOn 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,Hamas. Hostilities in the region persisted until a cease fire was announced on October 9, 2025, which has reduced immediate hostilities and temporarily eased regional tensions. However, the situation remains fragile, and the armedrisk of renewed conflict isor ongoingescalation as of the date of this filing. Hostilities between Israel and Hamas could escalate and involve surrounding countries in the Middle East.persists. 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. The risk of ongoing supply disruptions may further result in delayed deliveries of our products.

While the length and total impact of thethese military conflicts are unpredictable, itthey hashave led to market disruptions, including volatility in raw material prices and credit and capital markets, and supply chain challenges. In response to thethese military conflict,conflicts, governments in the U.S. and abroad have imposed sanctions against RussiaRussia, and proposedhave imposed or threatened additional potentialsanctions sanctions.and trade restrictions in connection with China, Iran, North Korea, and entities involved in African conflicts. These sanctions could adversely affect the global economy and financial markets in which we operate.

We do not have manufacturing operations in Ukraine or Russiain, nor any significant business relationships with Ukraine or Russian-based customers or suppliers.suppliers Tobased date,in Ukraine, Russia, Iran, North Korea or sub-Saharan Africa. While we do have significant business relationships with suppliers based in China, they are not experiencedcurrently any material impacts of the ongoing military conflict.affected. We are monitoring the situation and its impact on the global markets, which may, in turn, impact our business. For example, it is possible that thethese conflictconflicts and related disruptions 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.

Based on the continued,continued and more recently increased market volatility and geopolitical unrest pertainingrelated to the militaryconflicts conflict between Russia andin Ukraine and the Middle East, the European energy crisiscrisis, andthe highly inflationary environment, and corresponding macro-economic uncertainty, newly escalated conflicts and tensions in Asia and Africa, as well as recent cease fires or negotiations, we cannot reasonably estimate the full impact thethese conflictconflicts and their resolutions will have on our long-term financial condition, results of operations, liquidity and cash flows. It is not possible to predict the extent and duration of the military conflict,conflicts, cease fires, sanctions, andor any associated market disruptions, which could have a material adverse effect on our business, financial position, results of operations and cash flows.

In connection with the preparation of our annual report for the year ended December 31, 2024, we identified a material weakness related to the Company’s information technology general controls (ITGCs). A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As reported in this annual report, the material weakness identified asIf a result of ITGCs that were not designed and operating effectively related to logical security and privileged access management for a financially relevant system. In response to the material weakness, the Company removed the privileged access and will further limit users with privileged access as discussed in Item 9A, Controls and Procedures, in this Annual Report. The actions deemed taken are subject to continued review, supported by monitoring and testing by management as well as audit committee oversight. If our remedial measures are insufficient to address the material weakness or if another material weakness or significant deficienciesdeficiency in our internal control areis 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.

Certain orof our products and facilities are subject to regulation by the FDA and by analogous foreign regulators.

The Company sources its products from suppliers located in Asia, EuropeEurope, Africa and the United States. 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. 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.

Uncertainty in the global economyeconomy, including uncertainty resulting from the military conflicts in the Ukraine, the Middle East and elsewhere, could adversely affect our customers and our suppliers and businesses such as ours. In addition, any uncertainty could have a variety of negative effects on the Company, such as reduction in revenues, increased costs, lower gross margin percentages, increased allowances for credit losses and/or write-offs of accounts receivable and could otherwise have material adverse effects on our business, results of operations, financial condition and cash flows.

The Company may from time to time make written or oral “forward-looking statements” including statements contained in this report and in other communications by the Company, which are made in good faith pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on our beliefs as well as assumptions made by and information currently available to us. When used in this document, words like “may,” “might,” “will,” “except,expect,” “anticipate,” “believe,” “potential,” and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from our current expectations.

European net sales for the year ended December 31, 2024,2025, increased 5%8% in both U.S. dollars and(4% in local currency,currency), compared with the same period in 2023.2024. ExcludingOn CamillusOctober 1, 2025, the Company's German subsidiary acquired a line of cutting and Cuda,sharpening nettools that contributed $0.5 million in sales forduring the year ended December 31, 2024 increased 8% compared to the same period in 2023 due to market share gains in the office channel.2025.

Net sales in Canada for the year ended December 31, 2024,2025, decreasedincreased 5%14% in U.S. dollars (3%16% in local currency) compared to the same period in 2023.2024. ExcludingThe Camillusincrease and Cuda, netin sales for the year ended December 31, 20242025 increasedwas 1% compareddue to thestrong same period in 2023. Salessales of first aid products were strong, however sales of school and office products continued to be adversely impacted by a soft economy.products.

Selling, general and administrative (“SG&A”) expenses were $62,210,882$62,685,334 in 20242025 compared with $59,021,618$62,210,882 in 2023,2024, an increase of $3,189,264,$474,452, or 5.4%.0.8%. SG&A expenses were 32.0%31.9% of net sales in 20242025 compared to 30.8%32.0% in 2023. The increase in SG&A expenses was primarily due to higher personnel related costs.2024.

Operating income in the U.S. segment increased in 20242025 by approximately $1,768,000$117,000 compared to 2023, primarily due to productivity improvements in the Company's manufacturing and distribution facilities.2024.

Operating income in Canadathe decreasedEuropean segment increased in 20242025 by approximately $168,000$143,000 compared to 2023.2024. The decreaseincrease in operating income was primarily due to lower nethigher sales ofas schoolwell andas officeimproved products.gross margins.

Net interest expense for 20242025 was $1,942,643$1,559,920 compared with $2,977,164$1,942,643 for 2023,2024, a decrease of $1,034,521.$382,723. The decrease in net interest expense resulted from alower average outstanding borrowings as well as lower average debtinterest outstandingrates underon the revolvingdebt loan agreement of approximately $16 million.outstanding.

Total Other (Expense) Income, net

Income tax expense was $2,270,058$2,933,201 in 2024,2025, resulting in an effective tax rate of 18%22% compared to $4,941,444$2,270,058 in 2023,2024, an effective tax rate of 22%.18%. TheIn lower effective tax rate in 2024 was due to a higher proportion of earnings in jurisdictions with a lower tax rate. Also in 2024,2025, the Company recorded a tax credit of approximately $600,000$300,000 related to employee exercise of stock options, compared to $385,000$600,000 in 2023.2024.

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 toon the Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA. Effective as of June 26, 2025, Acme United Corporation (the “Company”) entered into Amendment No. 11 to the Revolving Loan Agreement dated as of April 5, 2012, as amended (the ”Loan Agreement”), between the Company and HSBC Bank, N.A. Amendment No. 11 extends the scheduled maturity of the $65 million dollar secured revolving credit facility under the Loan Agreement to May 31, 2027. The revolving loan agreement provides for borrowings of up to $65 millionmillion, atwhich anpresently bears interest rate that ranges from SOFR +1.70% up to a high of SOFR + 2.45% on a basis that varies quarterly with the funded debt to EBITDA ratio. The current interest rate isat SOFR plus 1.70%; interest is payable monthly. The creditloan facilityagreement has an expiration date of May 31, 2026.2027. 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,share repurchases, dividends, share repurchases,acquisitions, and other business activities. Under the revolving loan agreement, the Company is required to maintain specific amounts of funded debt to EBITDA, a fixed charge coverage ratio and must have annual net income greater than $0, measured as of the end of each fiscal year. As of December 31, 2024,2025, the Company was in compliance with the covenants under the revolving loan agreement as then in effect.

At December 31, 2024,2025, total debt outstanding under the Company’s revolving credit facility increaseddecreased by approximately $4.5$5.8 million compared to total debt outstanding at December 31, 2023.2024. As of December 31, 2024,2025, $17,640,550$11,863,085 was outstanding, and $47,359,450$53,136,915 was available for borrowing under the Company’s revolving credit facility.

Capital expenditures during 20242025 and 20232024 were $7,148,648$10,651,913 and $4,673,717,$7,148,648, respectively, which were, in part, financed with borrowings under the Company’s revolving credit facility. The increase in capital expenditures is primarily related to the purchase of the manufacturing facility in Mt. Pleasant, TN as discussed above.

These 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 volatility in global economic conditions, including the impact on the Company’s suppliers and customers; (iii) international trade policies of the United States or foreign governments and their impact on demand for our products and our competitive position, including the imposition of new tariffs, changes in existing tariff rates or the threat of any such action; (iv) the continuing adverse impact of inflation, including product costs, transportation costs and interest rates; (v) currency fluctuations; (vi) potential adverse effects on the Company, its customers, and suppliers resulting from the wars in IranUkraine and elsewhere in the Middle East and Ukraine; (v) the continuing adverse impact of inflation, including product costs, transportation costs and interest rates; (vivii) additional disruptions in the Company’s supply chains, whether caused by pandemics, natural disasters, including trucker shortages, port closures, port strikes or otherwise; (viiviii) labor related costs the Company has and may continue to incur, including costs of acquiring and training new employees and rising wages and benefits; (viiiix) changes in client needs and consumer spending habits; (ix) currency fluctuations; (x) the Company’s ability to effectively manage its inventory in a rapidly changing business environment; (xi) the impact of competition; (xii) the impact of technological changes including, specifically, the growth of online marketing and sales activity; (xiii) the Company’s ability to manage its growth effectively, including its ability to successfully integrate any business it might acquire; ; and (xiv) other risks and uncertainties indicated from time to time in the Company’s filings with the Securities and Exchange Commission.

For a more detailed discussion of these and other factors affecting the Company, see the Risk Factors described in Item 1A included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025 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. 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.

Consolidated net sales for the three months ended MarchJune 31,30, 2026 were $52,301,000$62,716,000 compared to $45,958,000$53,996,000 in the same period in 2025, an increase of 14%.16%. Consolidated net sales for the six months ended June 30, 2026 were $115,017,000 compared to $99,954,000 in the same period in 2025, an increase of 15%. Excluding the incremental sales resulting from the acquisition of the assets of My Medic on January 15, 2026, comparable sales increased 6%.8% and 7%, for the three and six months ended June 30, 2026, respectively, compared to the same periods in 2025.

Net sales in the U.S. for the three months ended MarchJune 31,30, 2026 increased 12%17% compared to the same period in 2025. Net sales in the U.S. for the six months ended June 30, 2026 increased 15% compared to the same period in 2025. The increasesales in net salesincreases for the three and six months ended March 31, 2026 was primarilywere due to increasedstrong sales ofacross firstall aidproduct lines and medical products and additional sales resultingcontribution from the acquisition of the assets of My Medic.Medic business.

Net sales in Canada for the three months ended MarchJune 31,30, 2026 increased 16%1% in U.S. dollars and 11%3% in local currency compared to the same period in 20252025. Net sales in Canada for the six months ended June 30, 2026 increased 7% in U.S. dollars and 6% in local currency compared to the same period in 2025. The increases in net sales for both periods were due to higher sales of first aid products.

European net sales for the three months ended MarchJune 31,30, 2026 increased 32%24% in U.S. dollars and 19% in local currency compared to the same period in 20252025. European net sales for the six months ended June 30, 2026 increased 28% in U.S. dollars and 19% in local currency compared to the same period in 2025. The sales increases for the three and six months were due primarily due to higher ecommerce sales and additional sales resultingcontribution from the acquisitionline of the cutting and sharpening lineproducts ofacquired productsin Germany on October 1, 2025.

Selling, general and administrative ("SG&A") expenses for the three months ended MarchJune 31,30, 2026 were $19,039,000$19,858,000 (36.4%31.7% of net sales) compared with $15,491,000$15,759,000 (33.7%29.2% of net sales) in the same period in 2025, an increase of $3,548,000.$4,099,000. Selling, general and administrative ("SG&A") expenses for the six months ended June 30, 2026 were $38,899,000 (33.8% of net sales) compared with $31,250,000 (31.3% of net sales) in the same period in 2025, an increase of $7,649,000. The increaseincreases in SG&A expenses wasfor the three and six months were primarily due to the acquisition of the assets of My Medic as well as higher personnel related expenses. The increase in SG&A expenses as a percentage of sales was due to the higher amount of advertising needed for the direct to consumer My Medic business.

Operating income in the U.S. segment decreased by $1,320,000 for the three months ended MarchJune 31,30, 2026 was $6,830,000 compared towith $6,390,000 in the same period of 2025. Operating income for the six months ended June 30, 2026 was $8,574,000 compared with $8,816,000 in the same period of 2025. The decrease in operating income for the threesix months ended MarchJune 31,30, 2026 was primarily due to higher cost of sales and increased operating expenses as a result of higher tariff-related costs and investments in enhanced quality assurance protocols at the Med-Nap facility, together with rising employee healthcare expenses.sales. Tariff expenses were recognized during the first quartersix months as the Company sold inventory that had been subject to the high tariff rates imposed in 2025.

Operating income in the EuropeanU.S. segment increaseddecreased by $434,000$24,000 for the three months ended MarchJune 31,30, 2026,2026 compared to the same period in 2025. TheOperating increaseincome in operatingthe incomeU.S. segment decreased by $1,344,000 for the threesix months ended MarchJune 31,30, 2026 was primarily duecompared to higherthe sales.same period in 2025.

InterestOperating expense,income netin the Canadian segment increased by $11,000 and $215,000 for the three and six months ended MarchJune 31,30, 2026 was $486,0002026, compared with $397,000 into the same periodperiods ofin 2025, an $89,000 increase.2025. The increase in interestoperating expenseincome for the three and six months ended MarchJune 31,30, 2026 resultedwas fromprimarily due to higher averagesales outstandingof borrowingsfirst partiallyaid offset by lower average interest rates on the debt outstanding.products.

Other expense,income, net was $16,000$5,000 in the three months ended MarchJune 31,30, 2026 compared to other income of $90,000$99,000 in the same period of 2025. Other expense, net was $11,000 in the six months ended June 30, 2026 compared to Other income, net of $188,000 in the same period of 2025.

The effective income tax rate for the three and six months ended MarchJune 31,30, 2026 was 21%20% compared to 22% in the same periodperiods of 2025.

During the first threesix months of 2026, working capital increased approximately $9.2$4.2 million. Inventory turnover, calculated using a twelve-month average inventory balance, was 2.01.9 at MarchJune 31,30, 2026 and 2.0 at December 31, 2025. Receivables increased approximately $4.4$9.6 million at MarchJune 31,30, 2026 compared to December 31, 2025. The average number of days sales outstanding in accounts receivable was 5152 days at MarchJune 31,30, 2026 compared to 54 days at December 31, 2025. Accounts payable and other current liabilities increased by approximately $0.3$12.0 million at MarchJune 31,30, 2026 compared to December 31, 2025.

Long-term debt consists of (i) borrowings under the Company’s revolving loan agreement with HSBC Bank,Bank USA, N.A. (“HSBC”) and (ii) amounts outstanding under the fixed rate mortgage on the Company’s manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA. Effective as of June 26, 2025, the Company entered into Amendment No. 11 to the Revolving Loan Agreement.Agreement dated as of April 5, 2012, as amended (the ”Loan Agreement”), between the Company and HSBC. Amendment No. 11 extendsextended the scheduled maturity of the $65 million dollar secured revolving credit facility under the Loan Agreement to May 31, 2027. The terms of the Loan Agreement otherwise remain unchanged. The Loan Agreement provides for borrowings of up to $65 million,million at an interest rate of Secured Overnight Financing Rate (“SOFR”) plus a margin of +1.75%; interest is payable monthly. The Loan Agreement has an expiration date of May 31, 2027. 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 operating activities, growth, acquisitions, dividendsdividends, share repurchases and other business activities. Under the revolvingLoan loan agreement,Agreement, the Company is required to maintain a specific amountsratio of funded debt to EBITDA, a fixed charge coverage ratio and must have annual net income greater than $0, measured as of the end of each fiscal year. As of MarchJune 31,30, 2026, the Company was in compliance with the covenants under the revolvingLoan loan agreementAgreement as then in effect.

During the first threesix months of 2026, total debt outstanding under the Company’s revolving credit facility increased by approximately $21.2$10.8 million, compared to total debt thereunder at December 31, 2025. As of MarchJune 31,30, 2026, $33,034,000$22,637,000 was outstanding and $31,966,000$42,363,000 was available for borrowing under the Company’s credit facility.

On January 15, 2026, the Company acquired the assets of SLED Distribution, LLC. (d/b/a "My Medic") a leading supplier of tactical, trauma and emergency response products sold primarily through the direct-to-consumer channel, for approximately $18.7$18.5 million,million. OnAt July 15, 2025,closing, the Company purchasedpaid $14.4 million in cash to My Medic. Payment of the $4.1 million balance of the purchase price is subject to certain contingencies as follows: (a) $1,000,000, the payment of which is contingent upon the achievement of certain revenue milestones during the twelve months ended December 31, 2027; and (b) $3.1 million, which is subject to a manufacturingholdback andas distributiona centernon-exclusive in Mt. Pleasant, TN for approximately $6.0 million. The property consistssource of 77,000 square feet of manufacturing and warehouse space on 12 acres and is designed to be expanded by up to an additional 60,000 square feet. The facility is usedrecovery primarily to manufacturesatisfy ourindemnification Spillclaims Magicunder linethe Asset Purchase Agreement, which claims must be made within various time periods depending on the nature of bodilythe fluidclaim. The $3.1 million holdback and spill$1.0 cleanmillion upcontingent solutions.payment are reported in other long term liabilities on the condensed consolidated balance sheet.

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 rate of 3.8%. The Company entered into the mortgage loan agreement on December 1, 2021. Payments of principal and interest are due monthly, with all amounts outstanding due on maturity on December 1, 2031. At MarchJune 31,30, 2026, there was approximately $9.9$9.8 million outstanding on the mortgage.

Our operations, supply chains, and financial performance are impacted by evolving global trade policies and tariffs, and geopolitical tensions and wars, including ongoing conflicts and instability in the Middle East.East and its effects on global energy prices. In particular, our global operations and international sales expose us to risks associated with trade conflicts between the United States and other governments, as well as broader regional instability in the Middle East that can disrupt global shipping routes and energy markets. These factors have resulted in and could continue to result in inflationary costs to produce and sell our products, both domestically and in foreign markets.

The higher tariff expenses incurred by the Company during the first quartersix months of 2026 resulted from the Company selling inventory that had been subject to high tariff rates imposed in 2025. We expect that the impact of tariffs on the Company will gradually lessen over the balance of 2026 as the Company beginscontinues to sell inventory subject to lower tariffs set in November 2025 and February 2026. In addition, we have commenced purchasing a total of approximately $10 million of inventory for delivery in the second and third quarters of 2026 to mitigate the potential shortages or price increases as a result of the war in Iran or other regional conflicts.