Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Information

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," "expect," "anticipate," "believe," "potential," and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from our current expectations.

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.

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 Ukraine and the Middle East; (vii) additional disruptions in the Company's supply chains, whether caused by pandemics, natural disasters, including trucker shortages, port closures, port strikes or otherwise; (viii) labor related costs the Company has and may continue to incur, including costs of acquiring and training new employees and rising wages and benefits; (ix) changes in client needs and consumer spending habits; (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.

Critical Accounting Estimates

There have been no material changes to the Company's critical accounting estimates as previously reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2025.

Results of Operations

Net sales

Consolidated net sales for the three months ended September 30, 2026 were $58,013,000 compared to $49,063,000 in the same period in 2025, an increase of 18%. Consolidated net sales for the nine months ended September 30, 2026 were $173,030,000 compared to $149,018,000 in the same period in 2025, an increase of 16%. Excluding the incremental sales resulting from the acquisition of the assets of My Medic on January 15, 2026, sales increased 10% and 8%, for the three and nine months ended September 30, 2026, respectively, compared to the same periods in 2025.

Net sales in the U.S. for the three months ended September 30, 2026 increased 20% compared to the same period in 2025. Net sales in the U.S. for the nine months ended September 30, 2026 increased 17% compared to the same period in 2025. The sales increases for the three and nine months were due to strong sales across all product lines and contribution from the acquisition of the My Medic business.

Net sales in Canada for the three months ended September 30, 2026 increased 9% in U.S. dollars and 12% in local currency compared to the same period in 2025. Net sales in Canada for the nine months ended September 30, 2026 increased 8% in both U.S. dollars and 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 September 30, 2026 increased 5% in U.S. dollars and 7% in local currency compared to the same period in 2025. European net sales for the nine months ended September 30, 2026 increased 20% in U.S. dollars and 15% in local currency compared to the same period in 2025. The sales increases for the three and nine months were due primarily to higher ecommerce sales and contribution from the line of cutting and sharpening products acquired in Germany on October 1, 2025.

Gross profit

Gross profit for the three months ended September 30, 2026 was $26,300,000 (45.3% of net sales) compared to $19,195,000 (39.1% of net sales) in the same period in 2025. Gross profit for the nine months ended September 30, 2026 was $73,773,000 (42.6% of net sales) compared to $59,262,000 (39.8% of net sales) in the same period of 2025. The increases in gross profit for the three and nine months were primarily due to the IEEPA tariff refund ($4.0 million) as well as the inclusion of the new My Medic direct to consumer business partially offset by the costs to close the DMT manufacturing facility ($1.8 million). The IEEPA tariff refund increased gross profit as a percentage of net sales by 690 basis points and 230 basis points for the three and nine months ended September 30, 2026, respectively, partially offset by DMT closing costs, which reduced gross profit as a percentage of net sales by 310 basis points and 105 basis points, respectively.

Selling, general and administrative expenses

Selling, general and administrative ("SG&A") expenses for the three months ended September 30, 2026 were $21,837,000 (37.6% of net sales) compared with $16,188,000 (33.0% of net sales) in the same period in 2025, an increase of $5,649,000. SG&A expenses for the nine months ended September 30, 2026 were $60,736,000 (35.1% of net sales) compared with $47,438,000 (31.8% of net sales) in the same period in 2025, an increase of $13,298,000. The increases in SG&A expenses for the three and nine months were primarily due to the acquisition of the assets of My Medic as well as higher personnel related expenses which included $1.0 million of variable compensation related to the tariff refund. 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

Operating income for the three months ended September 30, 2026 was $4,463,000 compared with $3,007,000 in the same period of 2025. Operating income for the nine months ended September 30, 2026 was $13,037,000 compared with $11,824,000 in the same period of 2025. The increases in operating income for the three and nine months ended September 30, 2026 were primarily due to the benefit from the IEEPA tariff refund and higher sales partially offset by the costs to close the DMT facility and variable compensation directly attributable to the tariff refund.

Operating income in the U.S. segment increased by $1,306,000 for the three months ended September 30, 2026 compared to the same period in 2025. The increase in the three months ended September 30, 2026 was primarily due to the benefit from the IEEPA tariff refund and higher sales partially offset by the costs incurred to close the DMT facility and variable compensation related to the tariff refund. Operating income in the U.S. segment decreased by $58,000 for the nine months ended September 30, 2026 compared to the same period in 2025.

Operating income in the Canadian segment increased by $95,000 and $308,000 for the three and nine months ended September 30, 2026, compared to the same periods in 2025. The increases in operating income for the three and nine months ended September 30, 2026 were primarily due to higher sales of first aid products.

Operating income in the European segment increased by $55,000 for the three months ended September 30, 2026, compared to the same period in 2025. Operating income in the European segment increased by $963,000 for the nine months ended September 30, 2026 compared to the same period in 2025. The increases in operating income for the three and nine months ended September 30, 2026 were primarily due to higher sales.

Interest expense, net

Interest expense, net for the three months ended September 30, 2026 was $594,000 compared with $422,000 in the same period of 2025, a $172,000 increase. Interest expense, net for the nine months ended September 30, 2026 was $1,612,000 compared with $1,222,000 in the same period of 2025, a $390,000 increase. The increase in interest expense for the three and nine months ended September 30, 2026 resulted from higher average outstanding borrowings.

Other expense (income), net

Other expense, net was $6,000 in the three months ended September 30, 2026 compared to other expense of $146,000 in the same period of 2025. Other expense, net was $17,000 in the nine months ended September 30, 2026 compared to Other income, net of $44,000 in the same period of 2025.

Income taxes

The effective income tax rate for the three and nine months ended September 30, 2026 was 11% and 17%, respectively, compared to 22% in the same periods of 2025. The lower effective tax rate for the three and nine months is primarily due to a tax benefit resulting from the exercise of stock options.

Financial Condition

Liquidity and Capital Resources

During the first nine months of 2026, working capital increased approximately $13.5 million. Inventory turnover, calculated using a twelve-month average inventory balance, was 1.9 at September 30, 2026 and 2.0 at December 31, 2025. The increase in inventory at September 30, 2026 was primarily due to a deliberate increase of the Company's top-selling products in response to the conflict in the Middle East and the related risk of product shortages and higher shipping costs. Also contributing to the increase was additional inventory resulting from the acquisition of My Medic and purchases made in anticipation of expected future growth. Receivables increased approximately $7.1 million at September 30, 2026 compared to December 31, 2025 primarily due to higher sales. The average number of days sales outstanding in accounts receivable was 55 days at September 30, 2026 compared to 54 days at December 31, 2025. Accounts payable and other current liabilities increased by approximately $7.4 million at September 30, 2026 compared to December 31, 2025.

The Company's working capital, current ratio and long-term debt to equity ratio are as follows (dollar amounts in thousands):

Long-term debt consists of (i) borrowings under the Company's revolving credit facility (the "Loan Agreement") with HSBC Bank USA, N.A. ("HSBC") and City National Bank and (ii) amounts outstanding under the fixed rate mortgage on the Company's manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA. On July 15, 2026 the Company entered into the Loan Agreement, a new $65 million syndicated credit facility with HSBC and City National Bank, a U.S. subsidiary of Royal Bank of Canada. The new facility, which replaces the Company's prior $65 million credit facility with HSBC that was scheduled to expire on May 31, 2027, is intended to provide liquidity for growth, acquisitions, dividends, and other business activities. The new Loan Agreement expires on July 15, 2029. HSBC serves as the administrative agent for the syndicate.

Borrowings bear interest at Term SOFR plus an applicable margin (ranging from 2.00%-2.75%) determined by the Company's Net Funded Debt to EBITDA ratio. A commitment fee of 0.25% per annum accrues on unused commitments and is paid monthly. The Loan Agreement is secured by a first-priority lien on substantially all assets of the Company.

The new Loan Agreement contains customary affirmative and negative covenants, representations and warranties and other terms which are materially similar to those of the prior credit agreement. These provisions include the following quarterly financial maintenance covenants: (i) maximum Net Funded Debt to EBITDA ratio of 3.75 to 1.00 and (ii) minimum Fixed Charge Coverage Ratio of 1.10 to 1.00. It also contains customary events of default, including payment defaults, covenant breaches, cross-default with material indebtedness, bankruptcy events, and a change of control, upon which payment of outstanding amounts may be accelerated. As of September 30, 2026, the Company was in compliance with the covenants under the Loan Agreement as then in effect.

On July 15, 2026, the opening balance under the new credit facility was $28.5 million, an amount equal to the payoff amount paid by the Company to HSBC in connection with the termination of the former credit facility.

During the first nine months of 2026, total debt outstanding under the Company's revolving credit facility increased by approximately $16.2 million, compared to total debt thereunder at December 31, 2025. As of September 30, 2026, $28,453,036 was outstanding and $36,546,964 was available for borrowing under the Company's credit facility.

In September 2026, we approved a plan to close our DMT production facility in Marlborough, Massachusetts, and transition production of the DMT products to more cost-effective third-party manufacturers in China. As a result of this action, during the third quarter of 2026, we recorded pre-tax charges of $1.8 million, consisting of employee termination benefits, impairment of machinery and equipment and the write-down of inventory. We expect to complete the closure in the fourth quarter of 2026. We expect the closure of the DMT production facility to result in annual cost savings of more than $1.0 million beginning in 2027.

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 $18.5 million. At closing, the Company paid $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 holdback as a non-exclusive source of recovery primarily to satisfy indemnification claims under the Asset Purchase Agreement, which claims must be made within various time periods depending on the nature of the claim. During the three months ended September 30, 2026, the Company paid approximately $0.2 million of the holdback. The remaining $2.9 million of the holdback and the $1.0 million contingent payment are reported in other long-term liabilities on the condensed consolidated balance sheet.

On July 15, 2025, the Company purchased a manufacturing and distribution center in Mt. Pleasant, TN for approximately $6.0 million. The property consists 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 being used primarily to manufacture our Spill Magic line of bodily fluid and spill clean up solutions.

The Company's manufacturing and distribution facilities in Rocky Mount, NC and Vancouver, WA were financed by a fixed rate mortgage with HSBC at a 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. At September 30, 2026, there was approximately $9.7 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 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. Since the outbreak of hostilities involving Iran, we have experienced supplier price increases and significantly higher freight costs, including ocean freight costs on shipments from China that have approximately tripled. We have partially offset these cost increases through, among other things, improved efficiencies from automation and new equipment, and we increased our inventory of top-selling products to reduce the risk of shortages. If these conditions continue or worsen, they could further increase our costs and affect our ability to obtain products on a timely basis.

Tariff Refunds

Beginning in 2025, the Company paid duties on certain imported products under tariffs imposed under the International Emergency Economic Powers Act ("IEEPA"). These duties were capitalized into inventory and recognized in cost of goods sold as the related products were sold.

On February 20, 2026, the U.S. Supreme Court issued a ruling invalidating tariffs imposed under the IEEPA. The ruling did not address potential refunds. The U.S. Court of International Trade ("CIT") has ordered the U.S. Customs and Border Protection ("CBP") to refund the collected IEEPA tariffs. The Company applied for and received refunds of IEEPA tariffs in the amount of $6.0 million. The Company applied the gain contingency model in accordance with ASC 450-30, Gain Contingencies, to account for recoveries of previously paid IEEPA tariffs. Under this model, a gain contingency is not recognized in the financial statements until the gain is realized or realizable. During the three months ended September 30, 2026, the Company recognized a pre-tax gain of $4.0 million as a reduction in cost of goods sold related to IEEPA tariff refunds. The remaining $2.0 million is recorded as an accrued liability on the condensed consolidated balance sheet as of September 30, 2026. As of September 30, 2026 the Company's IEEPA refund had been paid in full.

We have been actively diversifying our supply base for many years and source products and components in a number of countries. A significant portion of the products we sell (and components used in our products) are sourced from suppliers located in China. The United States government has imposed, and may continue to impose or adjust, significant tariffs on a range of Chinese goods, most recently through tariffs imposed in July 2026 under Section 301 of the Trade Act of 1974. These tariffs replaced the tariffs imposed under section 122 of that Act and which had expired, did not have a material incremental impact on our cost of goods sold however, tariffs could further escalate depending on changes in trade policy, negotiations, or retaliatory measures by China or by other countries similarly impacted. The indirect impact on demand for our products as a result of these developments has become more uncertain. The Company has taken and continues to take steps to mitigate the potential impact on our business and operations through strategic sourcing adjustments, price adjustments and supply chain diversification, but such efforts have not been able to fully mitigate the effects of the imposition of tariffs and related developments. Any further increases of existing tariffs, the imposition of new tariffs, the potential modifications to existing trade agreements, new restrictions on free trade and the responses by other governments to changes in trade policy by the United States may further adversely impact demand for our products, increase our costs, and disrupt our supply chain. These risks, in turn, could have a material adverse effect on our business, results of operations, and financial condition.

The Company believes that cash generated from operating activities, together with funds available under its revolving loan agreement, will, under current conditions, be sufficient to finance the Company's operations over the next twelve months from the filing of this report.