+





UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




__________________




FORM
10-Q




____________________________________




[X]  QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934




For the
quarterly period ended September 30,
2009




OR




[  
]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE


SECURITIES
EXCHANGE ACT OF 1934




For the
transition period from ______ to ______




__________________




Commission
file number 001-07698




ACME
UNITED CORPORATION


(Exact
name of registrant as specified in its charter)


__________________




CONNECTICUT
            06-0236700(State
      or other jurisdiction of incorporation or organization)
            (I.R.S.
      Employer Identification No.)60
      ROUND HILL ROAD,  FAIRFIELD, CONNECTICUT
            06824(Address
      of principal executive offices)
            (Zip
      Code)





Registrant’s
telephone number, including area code:  (203) 254-6060





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.  Yes [X]     No  [  
]




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T ( 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).    Yes [  
]     No  [   ]





1


Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “accelerated filer and large accelerated filer” in Rule 12b-2
of the Exchange Act (Check one).


Large
accelerated filer  [   ]     Accelerated
filer  []Non-accelerated filer  [  
]     Smaller reporting company [X]




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).   Yes [  
]     No  [X]




As of
November 2, 2009, the registrant had outstanding 3,258,368 shares of its $2.50
par value Common Stock.




































2


ACME
UNITED CORPORATION








Part I — FINANCIAL
      INFORMATION
            
            PageItem 1.
      Financial Statements (Unaudited)Condensed
      Consolidated Balance Sheets as of September 30, 2009 and December
      31, 2008
            
            4Condensed
      Consolidated Statements of Operations for the three and nine
      months ended September 30, 2009 and 2008
            
            6Condensed
      Consolidated Statements of Cash Flows for the nine months ended
      September 30, 2009 and 2008
            
            7Notes to Condensed
      Consolidated Financial Statements
            
            8Item 2.
      Management’s Discussion and Analysis of Financial Conditionand
      Results of Operations
            
            12Item 3. Quantitative
      and Qualitative Disclosure About Market Risk
            
            16Item 4T. Controls
      and Procedures
            
            16Part II — OTHER
      INFORMATIONItem 1.   Legal
      Proceedings
            
            17Item 1A. Risk
      Factors
            
            17Item 2.   Unregistered
      Sales of Equity Securities and Use of Proceeds
            
            17Item 3.   Defaults
      Upon Senior Securities
            
            17Item 4.   Submission
      of Matters to a Vote of Security Holders
            
            17Item 5.   Other
      Information
            
            17Item 6.   Exhibits
            
            18Signatures
            
            19







3


ACME
      UNITED CORPORATIONCONDENSED
      CONSOLIDATED BALANCE SHEETS(all
      amounts in thousands)September
      30,
              
              
              December
      31,2009
              
              
              2008(unaudited)
              
              
              (Note
      1)ASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              6,599
              
              
              $
              5,225Accounts
      receivable, less allowance
              
              
              11,846
              
              
              
              10,564Inventories:Finished
      goods
              
              
              16,906
              
              
              
              20,825Work
      in process
              
              
              106
              
              
              
              21Raw
      materials and supplies
              
              
              838
              
              
              
              92317,850
              
              
              
              21,769Prepaid
      expenses and other current assets
              
              
              1,207
              
              
              
              1,088Total
      current assets
              
              
              37,502
              
              
              
              38,646Property,
      plant and equipment:Land
              
              
              175
              
              
              
              167Buildings
              
              
              2,579
              
              
              
              2,966Machinery
      and equipment
              
              
              8,116
              
              
              
              7,45510,870
              
              
              
              10,587Less
      accumulated depreciation
              
              
              8,710
              
              
              
              8,3182,160
              
              
              
              2,269Note
      receivable
              
              
              1,905
              
              
              
              2,000Other
      assets
              
              
              2,504
              
              
              
              2,508Total
      assets
              
              $
              44,071
              
              
              $
              45,424
 See notes
to condensed consolidated financial statements.
  4
 ACME
      UNITED CORPORATIONCONDENSED
      CONSOLIDATED BALANCE SHEETS (continued)(all
      amounts in thousands, except share amounts)September
      30,
              
              
              December
      31,2009
              
              
              2008(unaudited)
              
              
              (Note
      1)LIABILITIESCurrent
      liabilities:Accounts
      payable
              
              $
              3,305
              
              
              $
              3,669Other
      accrued liabilities
              
              
              4,680
              
              
              
              5,158Bank
      debt, due June 30, 2010
              
              
              9,324
              
              
              
              -Total
      current liabilities
              
              
              17,309
              
              
              
              8,827Bank
      debt, due June 30, 2010
              
              
              -
              
              
              
              11,719Other
              
              
              1,990
              
              
              
              1,991Total
      liabilities
              
              
              19,299
              
              
              
              22,536STOCKHOLDERS'
      EQUITYCommon
      stock, par value $2.50:authorized
      8,000,000 shares;issued
      - 4,313,024 shares in 2009and
      4,293,024 shares in 2008,including
      treasury stock
              
              
              10,781
              
              
              
              10,733Additional
      paid-in capital
              
              
              4,114
              
              
              
              3,906Retained
      earnings
              
              
              20,098
              
              
              
              18,319Treasury
      stock, at cost - 1,054,656 sharesin
      2009 and  949,656 shares in 2008
              
              
              (9,275
              )
              
              
              (8,407
              )Accumulated
      other comprehensive income:Translation
      adjustment
              
              
              329
              
              
              
              (388
              )Unrecognized
      pension costs
              
              
              (1,275
              )
              
              
              (1,275
              )(946
              )
              
              
              (1,663
              )Total
      stockholders’ equity
              
              
              24,772
              
              
              
              22,888Total
      liabilities and stockholders’ equity
              
              $
              44,071
              
              
              $
              45,424
 See notes
to condensed consolidated financial statements.
 5
 ACME
      UNITED CORPORATIONCONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)(all
      amounts in thousands, except share and per share amounts)Three
      Months Ended
              
              Nine
      Months EndedSeptember
      30
              
              
              September
      302009
              
              
              2008
              
              
              2009
              
              
              2008Net
      sales
              
              $
              15,269
              
              
              $
              19,158
              
              
              $
              45,727
              
              
              $
              56,135Cost
      of goods sold
              
              
              9,771
              
              
              
              11,288
              
              
              
              28,827
              
              
              
              33,361Gross
      Profit
              
              
              5,498
              
              
              
              7,870
              
              
              
              16,900
              
              
              
              22,774Selling,
      general and administrative expenses
              
              
              4,864
              
              
              
              5,651
              
              
              
              14,166
              
              
              
              16,690Operating
      income
              
              
              634
              
              
              
              2,219
              
              
              
              2,734
              
              
              
              6,084Non-operating
      items:Interest:Interest
      expense
              
              
              (38
              )
              
              
              (135
              )
              
              
              (124
              )
              
              
              (389
              )Interest
      income
              
              
              31
              
              
              
              15
              
              
              
              97
              
              
              
              83Interest
      expense, net
              
              
              (7
              )
              
              
              (120
              )
              
              
              (27
              )
              
              
              (306
              )Other
      income (expense), net
              
              
              461
              
              
              
              (138
              )
              
              
              480
              
              
              
              23Total
      other income (expense)
              
              
              454
              
              
              
              (258
              )
              
              
              453
              
              
              
              (283
              )Income
      before income taxes
              
              
              1,088
              
              
              
              1,961
              
              
              
              3,187
              
              
              
              5,801Income
      tax expense
              
              
              360
              
              
              
              610
              
              
              
              1,076
              
              
              
              1,968Net
      income
              
              $
              728
              
              
              $
              1,351
              
              
              $
              2,111
              
              
              $
              3,833Basic
      earnings per share
              
              $
              0.22
              
              
              $
              0.38
              
              
              $
              0.64
              
              
              $
              1.09Diluted
      earnings per share
              
              $
              0.22
              
              
              $
              0.37
              
              
              $
              0.63
              
              
              $
              1.05Weighted
      average number of common shares outstanding-denominator
      used for basic per share computations
              
              
              3,290
              
              
              
              3,515
              
              
              
              3,318
              
              
              
              3,517Weighted
      average number of dilutive stock optionsoutstanding
              
              
              63
              
              
              
              135
              
              
              
              45
              
              
              
              137Denominator
      used for diluted per share computations
              
              
              3,353
              
              
              
              3,650
              
              
              
              3,363
              
              
              
              3,654Dividends
      declared per share
              
              $
              0.05
              
              
              $
              0.04
              
              
              $
              0.15
              
              
              $
              0.12See
      notes to condensed consolidated financial statements.
  6
  ACME
      UNITED CORPORATIONCONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)(all
      amounts in thousands)Nine
      Months EndedSeptember
      30,2009
              
              
              2008Operating
      Activities:Net
      income
              
              $
              2,111
              
              
              $
              3,833Adjustments
      to reconcile net incometo
      net cash provided by operating activities:Depreciation
              
              
              594
              
              
              
              666Amortization
              
              
              85
              
              
              
              81Stock
      compensation expense
              
              
              214
              
              
              
              220Change
      in estimated cost of environmental remediation
              
              
              (460
              )Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              (983
              )
              
              
              (3,444
              )Inventories
              
              
              4,275
              
              
              
              (1,551
              )Prepaid
      expenses and other current assets
              
              
              (18
              )
              
              
              251Accounts
      payable
              
              
              (400
              )
              
              
              (799
              )Other
      accrued liabilities
              
              
              (39
              )
              
              
              857Total
      adjustments
              
              
              3,268
              
              
              
              (3,719
              )Net
      cash provided by operating activities
              
              
              5,379
              
              
              
              114Investing
      Activities:Purchase
      of property, plant, and equipment
              
              
              (443
              )
              
              
              (611
              )Purchase
      of patents and trademarks
              
              
              (81
              )
              
              
              (173
              )Net
      cash used by investing activities
              
              
              (524
              )
              
              
              (784
              )Financing
      Activities:Net
      (repayment) borrowing of bank debt
              
              
              (2,395
              )
              
              
              2,760Proceeds
      from issuance of common stock
              
              
              44
              
              
              
              133Distributions
      to stockholders
              
              
              (500
              )
              
              
              (422
              )Purchase
      of treasury stock
              
              
              (868
              )
              
              
              (1,000
              )Net
      cash (used) provided by financing activities
              
              
              (3,719
              )
              
              
              1,471Effect
      of exchange rate changes
              
              
              238
              
              
              
              (304
              )Net
      change in cash and cash equivalents
              
              
              1,374
              
              
              
              497Cash
      and cash equivalents at beginning of period
              
              
              5,225
              
              
              
              4,988Cash
      and cash equivalents at end of period
              
              $
              6,599
              
              
              $
              5,485See
      notes to condensed consolidated financial statements.
 7


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




(UNAUDITED)




Note
1 — Basis of Presentation




In the
opinion of management, the accompanying condensed consolidated financial
statements include all adjustments necessary to present fairly the financial
position, results of operations and cash flows of Acme United Corporation (the
“Company”).  These adjustments are of a normal, recurring
nature.  However, the financial statements do not include all of the
disclosures normally required by accounting principles generally accepted in the
United States of America or those normally made in the Company's Annual Report
on Form 10-K. Please refer to the Company's Annual Report on Form 10-K for the
year ended December 31, 2008 for such disclosures.  The condensed
consolidated balance sheet as of December 31, 2008 was derived from the audited
consolidated balance sheet as of that date.  The results of operations
for interim periods are not necessarily indicative of the results to be expected
for the full year.  The information included in this Quarterly Report
on Form 10-Q should be read in conjunction with the Management’s Discussion and
Analysis of Financial Condition and Results of Operations and financial
statements and notes thereto, included in the Company’s 2008 Annual Report on
Form 10-K.




The
Company has evaluated events and transactions subsequent to September 30,
2009 through November 13, 2009, the date these consolidated financial
statements were included in this Form 10-Q and filed with the SEC. The
Company has not identified any events that occurred subsequent to
September 30, 2009 and through November 13, 2009, that require
recognition or disclosure in the consolidated financial statements.




Note
2 — Contingencies




The
Company is involved from time to time in disputes and other litigation in the
ordinary course of business and may encounter other contingencies, which may
include environmental and other matters.  The Company presently
believes that none of these matters, individually or in the aggregate, would be
likely to have a material adverse impact on its financial position, results of
operations or liquidity, as set forth in these financial
statements.





In
December 2008, the Company sold property it owned in Bridgeport, Connecticut to
B&E Juices, Inc. for $2.5 million.  The property consists of
approximately four acres of land and 48,000 sq. feet of warehouse
space.  The property was the site of the original Acme United scissor
factory which opened in 1887 and was closed in 1996.




Under the
terms of the sale agreement, and as required by the Connecticut Transfer Act,
the Company is responsible to remediate any environmental contamination on the
property. During 2008, 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, the Company recorded an undiscounted liability of
approximately $1.8 million related to the remediation of the property. This
accrual includes the costs of required investigation, remedial activities, and
post-remediation operating and maintenance.





Remediation
work on the project began in the third quarter of 2009 and a major portion of
the work has been completed. The Company expects to have significantly all of
the remediation work completed by year end. As of September 30, 2009, the
Company paid approximately $311,000 for work related to the remediation and has
approximately $953,000 remaining in its accrual for environmental remediation,
of which approximately $550,000 was classified as a current liability. The
Company expects to pay approximately $500,000 in the fourth quarter for
remediation work on the site.





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 could last a minimum of three
years from the completion of the remediation work.





In
connection with the remediation work completed in the third quarter of 2009, the
environmental study was updated by the independent environmental consulting
firm. The results of this study produced a remedial action plan with a more
narrow scope which allowed the Company, along with its environmental consulting
firm, to refine the original project plan resulting in a new estimate of costs
to complete the project. The change in estimated costs resulted in a benefit of
approximately $460,000 which the Company recorded as other income during the
three months ended September 30, 2009.


8





The
change in the accrual for environmental remediation for the nine months ended
September 30, 2009 follows (in
thousands):








Balance
      at
              December
      31, 2008
            Payments
            Change
      in
              Estimate
            Balance
      at
              September
      30, 2009$  1,724
            $  (311)
            $  (460)
            $  953


Note 3 — Pension





Components
of net periodic pension cost are as follows:


Three
      Months Ended September 30,
              
              
              Nine
      Months Ended September 30,2009
              
              
              2008
              
              
              2009
              
              
              2008Components
      of net periodic benefit cost:Interest
      cost
              
              $
              43,750
              
              
              $
              41,611
              
              
              $
              131,250
              
              
              $
              131,611Service
      cost
              
              
              3,750
              
              
              
              3,750
              
              
              
              11,250
              
              
              
              18,750Expected
      return on plan assets
              
              
              (37,500
              )
              
              
              (39,428
              )
              
              
              (112,500
              )
              
              
              (151,928
              )Amortization
      of prior service costs
              
              
              2,250
              
              
              
              1,959
              
              
              
              6,750
              
              
              
              6,459Amortization
      of actuarial loss
              
              
              18,750
              
              
              
              15,983
              
              
              
              56,250
              
              
              
              53,483$
              31,000
              
              
              $
              23,875
              
              
              $
              93,000
              
              
              $
              58,375


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 2009,
the Company is required to contribute approximately $120,000, of which the
Company has contributed approximately $108,000 through September 30, 2009 and
expects to make contributions to the plan as required during the remainder of
the year.





Note
4 —Debt and Shareholders Equity




The
Company’s revolving loan agreement, as amended, provides for borrowings up to
$20 million, with all principal amounts outstanding thereunder required to be
repaid in a single amount on June 30, 2010. In addition, the Company’s revolving
loan agreement requires monthly interest payments.  As of September
30, 2009 and December 31, 2008, the Company had outstanding borrowings of
$9,324,000 and $11,719,000, respectively, under the revolving loan
agreement.  Based on the scheduled payment date for the principal, the
Company has classified all borrowings under the revolving loan agreement as of
September 30, 2009 as a current liability. For
additional details regarding the bank debt please Item 3 -  Liquidity and
Capital Resources.





During
the first nine months of 2009, the Company issued 20,000 shares of common stock
upon the exercise of outstanding stock options and received total proceeds of
$43,775.  During the same period, the Company also repurchased 105,000
shares of common stock for its treasury.  These shares were purchased
at fair market value, with a total cost to the Company of $868,200.




9


Note
5— Segment Information





The
Company reports financial information based on the organization structure used
by management for making operating and investment decisions and for assessing
performance. The Company’s reportable business segments consist of (1) United
States; (2) Canada and (3) Europe. The activities of the Company’s Asian
operating segment are closely linked to those of the U.S. operating segment;
accordingly, management reviews the financial results of both segments on a
consolidated basis, and the results of the Asian operating segment have been
aggregated with the results of the United States operating segment to form one
reportable segment called the “United States operating segment”. Each reportable
segment derives its revenue from the sales of cutting devices, measuring
instruments and safety products for school, office, home and industrial
use.




The chief
operating decision maker evaluates the performance of each operating segment
based on segment revenues and operating income. Segment amounts are presented
after converting to U.S. dollars and consolidating eliminations.




Financial
data by segment:




(in
thousands)


Three
      months ended
                September
      30,
              
              
              Nine
      months ended
                September
      30,2009
              
              
              2008
              
              
              2009
              
              
              2008Sales
      to external customers:United
      States
              
              $
              11,145
              
              
              $
              15,117
              
              
              $
              34,520
              
              
              $
              44,053Canada
              
              
              1,770
              
              
              
              1,906
              
              
              
              5,680
              
              
              
              6,592Europe
              
              
              2,354
              
              
              
              2,135
              
              
              
              5,527
              
              
              
              5,490Consolidated
              
              $
              15,269
              
              
              $
              19,158
              
              
              $
              45,727
              
              
              $
              56,135Operating
      income (loss):United
      States
              
              $
              593
              
              
              $
              2,107
              
              
              $
              2,833
              
              
              $
              5,741Canada
              
              
              80
              
              
              
              183
              
              
              
              325
              
              
              
              762Europe
              
              
              (39
              )
              
              
              (71
              )
              
              
              (424
              )
              
              
              (419
              )Consolidated
              
              $
              634
              
              
              $
              2,219
              
              
              $
              2,734
              
              
              $
              6,084Interest
      expense, net
              
              
              (7
              )
              
              
              120
              
              
              
              (27
              )
              
              
              306Other
      income (expense), net
              
              
              461
              
              
              
              (138
              )
              
              
              480
              
              
              
              23Consolidated
      income before taxes
              
              $
              1,103
              
              
              $
              1,961
              
              
              $
              3,242
              
              
              $
              5,801
  Assets
      by segment: September
      30,
                
                
                December
      31,2009
                
                
                2008United
      States
                
                $
                32,785
                
                
                $
                33,719Canada
                
                
                5,639
                
                
                
                5,890Europe
                
                
                5,647
                
                
                
                5,815Consolidated
                
                $
                44,071
                
                
                $
                45,424
 
 10
 Note
6 – Stock Based Compensation




The Company recognizes share-based
compensation at fair value of the equity instrument on the grant date.
Compensation expense is recognized over the required service period. Share-based
compensation expense was $67,618 and $53,606 for the quarters ended September
30, 2009 and September 30, 2008, respectively. Share-based compensation expense
was $214,006 and $219,869 for the nine months ended September 30, 2009 and
September 30, 2008, respectively. The Company did not issue options during the
three months ended September 30, 2009.  During the nine months ended
September 30, 2009, the Company issued 151,000 options with a weighted average
fair value of $2.34 per share. During the three and nine months ended September
30, 2008, the Company issued 68,000 and 80,500 options with a weighted average
fair value of $3.86 and $3.62 per share, respectively. The assumptions used to
value option grants for the three and nine months ended September 30, 2009
and September 30, 2008 are as follows:




Three
      months ended
              September
      30,
            
            
            Nine
      months ended
              September
      30,2009
            
            2008
            
            
            2009
            
            
            2008Expected
      life in years
            NA
            
            
            5
            
            
            
            5
            
            
            
            5Interest
      rate
            NA
            
            
            3.30%
            
            
            
            1.82%
      - 2.95%
            
            
            
            2.95%
      - 3.30%Volatility
            NA
            
            
            0.29
            
            
            
            0.384
      – 0.386
            
            
            
            0.29
      - 0.31Dividend
      yield
            NA
            
            
            1.2%
            
            
            
            2.5%
            
            
            
            1.2%








As of
September 30, 2009, there was a total of $596,431 of unrecognized compensation
cost related to non-vested share –based payments granted to the Company’s
employees.  The remaining unamortized expense is expected to be
recognized over a weighted average period of approximately three
years.





Note
7 – Comprehensive Income





Comprehensive
income for the three and nine months ended September 30, 2009 and September 30,
2008 consisted of the following:








Three
      Months Ended
              
              
              Nine
      Months EndedSeptember
      30,
              
              
              September
      30,2009
              
              
              2008
              
              
              2009
              
              
              2008Net
      income
              
              $
              728
              
              
              $
              1,351
              
              
              $
              2,111
              
              
              $
              3,833Other
      comprehensive income / (loss)  -Foreign
      currency translation
              
              
              530
              
              
              
              (532
              )
              
              
              717
              
              
              
              (548
              )Comprehensive
      income
              
              $
              1,258
              
              
              $
              819
              
              
              $
              2,829
              
              
              $
              3,285





Note
8 – Fair Value Measurements





The
carrying value of bank debt is a reasonable estimate of fair value because of
its short term nature. The carrying value of the Company’s note receivable
approximates fair value. Fair value was determined using a discounted cash flow
analysis.


11


MANAGEMENT’S
DISCUSSION AND ANALYSIS OF




FINANCIAL
CONDITION AND RESULTS OF OPERATIONS




Item
2.  – 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 by the Company pursuant to the “safe
harbor” provisions of the Private Securities Litigation Reform Act of
1995.





These forward-looking statements
include statements of the Company’s plans, objectives, expectations, estimates
and intentions, which are subject to change based on various important factors
(some of which are beyond the Company’s control). The following factors, in
addition to others not listed, could cause the Company’s actual results to
differ materially from those expressed in forward looking statements: the
strength of the domestic and local economies in which the Company conducts
operations, the impact of current uncertainties in global economic conditions
and the ongoing financial crisis affecting the domestic and foreign banking
systems and financial markets, including the impact on the Company’s supplier
and customers, currency fluctuations, the continued availability of credit on
terms satisfactory to the Company, changes in client needs and consumer spending
habits, the impact of competition and technological change on the Company, and
the Company’s ability to manage its growth effectively, including its ability to
successfully integrate any business which it might acquire. A more detailed
discussion of risk factors is set forth in Item 1A, “Risk Factors”, included in
the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2008.  Allforward-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 orrevise any forward-looking statement, whether as a result of
new information, future events, or otherwise, except as required by
law.





Critical
Accounting Policies




There
have been no material changes to our critical accounting policies and estimates
from the information provided in Item 7, Management’s Discussion and Analysis of
Financial Condition and Results of Operations, included in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2008.








Results
of Operations




Net
sales




Consolidated
net sales for the three months ended September 30, 2009 were $15,269,000
compared with $19,158,000 in the same period in 2008, a 20% decrease (19% at
constant currency). Consolidated net sales for the nine months ended September
30, 2009 were $45,727,000, compared with $56,135,000 for the same period in
2008, a 19% decrease (16% at constant currency). Net sales for the three and
nine months ended September 30, 2009 in the U.S. segment decreased 26% and 22%,
respectively, compared with the same periods in 2008.  Net sales in
Canada for the three and nine months ended September 30, 2009 decreased by 7%
and 14%, respectively, in U.S. dollars and approximately 2% in local currency
compared with the same periods in 2008. The declines in net sales for the three
and nine months in the U.S. and Canadian segments are primarily due to a
reduction in customer orders across all of our product lines as a result of the
continued economic downturn.  Also contributing to the decline in the
U.S. operating segment in the three and nine months ended September 30, 2009 was
the fact that a large special new order in the third quarter 2008 of
approximately $1.2 million from a major retailer for product for the back to
school market did not reoccur this year. European net sales for the three months
ended September 30, 2009 increased 10% in U.S. dollars and 16% in local
currency. European net sales for the nine months ended September 30, 2009
increased 1% in U.S. dollars but increased 12% in local currency compared with
the same periods in 2008.  The increase in net sales in Europe for the
three and nine months were primarily due to higher sales of manicure products,
which include scissors, clippers and other related items. Also contributing to
the increase in the three months ended September 30, 2009 were higher sales of
the iPoint pencil sharpener.





Traditionally,
the Company’s sales are stronger in the second and third quarters, and weaker in
the first and fourth quarters of the fiscal year, due to the seasonal nature of
the back-to-school market.


12




Gross
profit




Gross
profit for the three months ended September 30, 2009 was $5,498,000 (36.0% of
net sales) compared to $7,870,000 (41.0% of net sales) for the same period in
2008.  Gross profit for the nine months ended September 30, 2009 was
$16,900,000 (36.9% of net sales) compared to $22,774,000 (40.5% of net sales) in
the same period in 2008. The gross margin declines for the three and nine months
ended September 30, 2009 were primarily due to fixed costs spread over lower
sales, the weaker Canadian dollar, which raised the cost of our products in the
Canadian operating segment, and a product mix which consisted of a higher
proportion of sales of our lower cost, lower margin products.




Selling,
general and administrative expenses




Selling,
general and administrative ("SG&A") expenses for the three months ended
September 30, 2009 were $4,864,000 (31.9% of net sales) compared with $5,651,000
(29.5% of net sales) for the same period of 2008, a decrease of $787,000.
SG&A expenses for the nine months ended September 30, 2009 were $14,166,000
(31.0% of net sales) compared with $16,690,000 (29.7% of net sales) in the
comparable period of 2008, a decrease of $2,524,000. The decrease in SG&A
expenses for the three and nine months ended September 30, 2009, compared to the
same periods in 2008, was primarily the result of cost cutting initiatives,
lower freight and commission costs as a result of lower sales and a lower impact
from foreign currency translation as a result of a weaker Euro and Canadian
dollar.




Operating
income




Operating
income for the three months ended September 30, 2009 was $634,000 compared with
$2,219,000 in the same period of 2008. Operating income for the nine months
ended September 30, 2009 was $2,734,000 compared to $6,084,000 in the same
period of 2008.  Operating income in the U.S. segment decreased by
$1,516,000 and $2,909,000 for the three and nine months, respectively, compared
to the same periods in 2008. Operating income in the Canadian segment decreased
by $103,000 and $437,000 for the three and nine months, respectively, compared
to the same periods in 2008.  The decline in operating income for the
three and nine months in the U.S. and Canadian segments is principally due to
the lower sales and associated gross profits partially offset by lower selling,
general and administrative costs. The operating loss in Europe decreased by
$32,000 for the three months ended September 30, 2009 compared to the same
period in 2008. The operating loss in Europe increased by $5,000 for the nine
months ended September 30, 2009 compared to the same period in
2008.




Interest
expense, net




Interest
expense, net for the three months ended September 30, 2009 was $7,000, compared
with $120,000 for the same period of 2008, a $113,000
decrease.  Interest expense, net for the nine months ended September
30, 2009 was $27,000 as compared to $306,000 for the same period in 2008, a
$279,000 decrease. The decrease in interest expense, net for both the three and
nine months ended September 30, 2009 was primarily the result of lower interest
rate on the Company’s debt outstanding under its revolving loan agreement. The
Company also received $29,539 and $89,212 of interest income for the three and
nine months ended September 30, 2009, respectively, related to the mortgage on
the Bridgeport property.





Other
income (expense), net




Net other
income was $461,000 in the three months ended September 30, 2009 as compared to
net other expense of $138,000 in the same period of 2008.  Net other
income was $480,000 in the first nine months of 2009 compared to $23,000 in the
first nine months of 2008.  The increase in other income, net for the
three and nine months ended September 30, 2009 was primarily due to the $460,000
benefit recorded for the change in estimated costs associated with the
remediation of the Bridgeport property. Refer to Note 2 – Contingencies, for
further details related to the Bridgeport property.




Income
taxes




The
effective tax rate for each of the three and nine month periods ended September
30, 2009 was 33% and 34% compared to 31% and 34%, respectively, in the same
periods of 2008.




13


Financial
Condition




Liquidity
and Capital Resources





The
Company continues to experience the effects of the ongoing global recession.
This economic downturn has softened demand for the Company’s products and caused
our customers to reduce their inventory levels which have negatively impacted
our sales and earnings. In response to these circumstances, management has cut
expenses where possible, including incentive pay, travel, professional service
fees and other discretionary spending. The Company has also implemented a freeze
on salary increases and hiring employees. Despite the weak economic conditions,
management believes it has sufficient access to the credit market. Management
has had preliminary negotiations with its current bank and other potential
lending institutions regarding the refinancing of its current credit facility.
 Based on these negotiations, management expects to complete a refinancing
early in 2010. However, given the current economic environment, there can be no
assurance that the terms of a new loan agreement will be as favorable as the
current agreement.


During
the first nine months of 2009, working capital decreased by approximately $9.6
million compared to December 31, 2008, principally due to the reclassification
of all bank debt, due June 30, 2010 (approximately $9.3 million) as short-term,
compared to long-term at December 31, 2008. Inventory decreased by approximately
$3.9 million at September 30, 2009 compared to December 31, 2008. The inventory
decline is principally related to the Company managing inventory levels to
compensate for lower sales in the trailing twelve months ended September 30,
2009 as compared to the twelve months ended December 31, 2008. Inventory
turnover, calculated using a twelve month average inventory balance, decreased
to 1.8 at September 30, 2009 from 2.0 at December 31, 2008.





Receivables
increased approximately $1.3 million at September 30, 2009 compared to December
31, 2008 primarily as a result of the seasonal nature of the back to school
business where sales are typically higher in the second and third quarters as
compared to the first and fourth quarters. The average number of days sales
outstanding in accounts receivable was 63 days at September 30, 2009 compared to
64 days at December 31, 2008.




During
the first nine months of 2009, total debt outstanding under the Company’s
Modified Loan Agreement, (referred to below) decreased by approximately $2.4
million compared to total debt at December 31, 2008. As of September 30, 2009,
$9,324,000 was outstanding and $10,676,000 was available for borrowing under the
Modified Loan Agreement.




On June
23, 2008, the Company modified its revolving loan agreement (the “Modified Loan
Agreement”) with Wachovia Bank. The Modified Loan Agreement amends certain
provisions of the original revolving loan agreement.  The amendments
include (a) an increase in the maximum borrowing amount from $15 million to $20
million; (b) an extension of the maturity date of the loan from June 30, 2009 to
June 30, 2010; (c) a decrease in the interest rate to LIBOR plus 7/8% (from
LIBOR plus 1.0%) and (d) modification of certain covenant
restrictions.  Funds borrowed under the Modified Loan Agreement are
used for working capital, general operating expenses, share repurchases and
certain other purposes.




As
discussed in Note 2, in the three months ended September 30, 2009, the Company
recorded a benefit of approximately $460,000 related to a reduction in the
estimated costs to complete the remediation and monitoring of the Bridgeport
property which was sold to B & E Juices in December 2008. Also during the
third quarter of 2009, the Company hired an independent environmental firm and
began the remediation work on the property. As of September 30, 2009, the
Company paid approximately $310,000 for costs related to the remediation of the
Bridgeport property and has approximately $950,000 remaining in its accrual for
environmental remediation. The Company expects to pay approximately $500,000 in
the fourth quarter for remediation work on the site. The Company will use cash
flow from operations or borrowings under its loan agreement to pay for these
costs. The Company does not believe that payment of such remediation costs will
have a material adverse affect on its ability to implement its business plan. In
addition, the buyer of the property has financed the purchase by providing the
Company with a $2.0 million mortgage at 6 percent interest. Payments on the
mortgage are due monthly and will also help fund the remediation.





14


Cash
expected to be generated from operating activities, together with funds
available under the revolving loan agreement are expected, under current
conditions, to be sufficient to finance the Company’s planned operations over
the next twelve months.








Recently
Issued Accounting Standards





In June
2009, the Financial Accounting Standards Board (FASB) issued FASB Accounting
Standards Codification (ASC) 105, Generally Accepted Accounting Principles,
which established the FASB Accounting Standards Codification as the sole source
of authoritative generally accepted accounting principles. Pursuant to the
provisions of the FASB ASC 105, the Company has updated references to GAAP in
its financial statements issued for the period ended September 30, 2009. The
adoption of FASB ASC 105 did not impact the Company’s financial position or
results of operations.





In April
2009, the FASB issued authoritative guidance requiring publicly traded companies
to include certain fair value disclosures related to financial instruments in
their interim financial statements.  This guidance, which was
incorporated into ASC Topic 825, “Financial Instruments,” was effective for
interim periods ending after June 15, 2009.  The adoption did not have
a material impact on the Company’s consolidated financial
statements.





In May
2009, the FASB issued authoritative guidance establishing general standards of
accounting for and disclosure of events that occur after the balance sheet date
but before financial statements are issued.  This guidance, which was
incorporated into ASC Topic 855,“Subsequent Events” was effective for interim or annual financial periods ending
after June 15, 2009, and the adoption did not have any impact on the Company’s
Consolidated Financial Statements.








15




Item
3. Quantitative and Qualitative Disclosure About Market Risk




Not
applicable.






Item
4T. Controls and Procedures




(a) Evaluation
of Disclosure Controls and Procedures





Under the
supervision and with the participation of our management, including the Chief
Executive Officer and Chief Financial Officer, we have evaluated the
effectiveness of our disclosure controls and procedures as required by Exchange
Act Rule 13a-15(b) as of September 30, 2009. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that these
disclosure controls and procedures are effective.





(b) Changes
in Internal Control over Financial Reporting





During
the quarter ended September 30, 2009, there were no changes in our internal
control over financial reporting that materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.












16


PART
II.  OTHER INFORMATION






Item
1 — Legal Proceedings





The
Company is involved from time to time in disputes and other litigation in the
ordinary course of business.  The Company presently believes that none
of these matters, individually or in the aggregate, would be likely to have a
material adverse impact on its financial position, results of operations, or
liquidity.




Item
1A – Risk Factors




See Risk
Factors set forth in Part I, Item 1A of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2008.




Item
2 — Unregistered Sales of Equity Securities and Use of Proceeds




Issuer
      purchases of equity securitiesPeriod
              
              Total
      Number of
                Shares
      Purchased
              
              
              Average
      Price Paid
                per
      Share
              
              
              Total
      Number of Shares Purchased as Part of Publicly Announced Plans or
      Programs
              
              
              Maximum
      Number of Shares that may yet be Purchased Under the
    Programs7/1/09
      - 7/31/09
              
              
              10,000
              
              
              $
              8.17
              
              
              
              10,000
              
              
              
              114,3358/1/09
      - 8/31/09
              
              
              65,000
              
              
              
              8.80
              
              
              
              65,000
              
              
              
              49,3359/1/09
      - 9/30/09
              
              
              -
              
              
              
              -
              
              
              
              -Total
              
              
              75,000
              
              
              $
              8.72
              
              
              
              75,000
              
              
              
              49,335


(1)
            Shares
      repurchased during the three months ended September 30, 2009 were
      repurchased under the Company’s repurchase program which was approved by
      the board of directors and announced on December 16, 2008. That program
      allows for the repurchase of up to 150,000 shares and does not have an
      expiration date. There are 49,335 shares available for repurchase under
      this program. The Company also has 200,000 shares available for repurchase
      under a plan approved by the board of directors and announced on October
      7, 2009.






Item
3.  —Defaults Upon Senior Securities




None.






Item
4 — Submission of Matters to a Vote of Security Holders




None.






Item
5 — Other Information




None.


17


Item
6 — Exhibits







Documents
filed as part of this report.




Exhibit 31.1 Certification of Walter C.
Johnsen pursuant to Section 302 of the Sarbanes-Oxley Act of 2002




Exhibit 31.2 Certification of Paul G. Driscoll
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002




Exhibit 32.1 Certification Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002




Exhibit 32.2 Certification Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002














18




SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.











By
            /s/  Walter C.
      JohnsenWalter C.
      JohnsenChairman of
      the Board andChief
      Executive OfficerDated:  November
      13, 2009By
            /s/  PAUL
      G. DRISCOLLPaul G.
      DriscollVice President
      andChief
      Financial OfficerDated:  November
      13, 2009



















19