+





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 June 30,
2010




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 [   ]





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
August 5, 2010 the registrant had outstanding 3,141,459 shares of its $2.50 par
value Common Stock.







ACME
UNITED CORPORATION






Part I — FINANCIAL
      INFORMATION
              
              PageItem 1. Financial Statements (Unaudited)Condensed
      Consolidated Balance Sheets as of June 30, 2010 and
                December
      31, 2009
              
              3Condensed
      Consolidated Statements of Operations for the three and six months
                ended
      June 30, 2010 and 2009
              
              5Condensed
      Consolidated Statements of Cash Flows for the six months ended
                June 30,
      2010 and 2009
              
              6Notes to Condensed
      Consolidated Financial Statements
              
              7Item 2.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations
              
              11Item 3. Quantitative
      and Qualitative Disclosure About Market Risk
              
              14Item 4T. Controls
      and Procedures
              
              14Part II — OTHER
      INFORMATIONItem 1.   Legal
      Proceedings
              
              15Item 1A. Risk
      Factors
              
              15Item 2.   Unregistered
      Sales of Equity Securities and Use of Proceeds
              
              15Item 3.   Defaults
      Upon Senior Securities
              
              15Item 4.   Removed
      and reserved
              
              15Item 5.   Other
      Information
              
              15Item 6.   Exhibits
              
              16Signatures
              
              17


2


ACME
      UNITED CORPORATIONCONDENSED
      CONSOLIDATED BALANCE SHEETS(all
      amounts in thousands)June
      30,
            
            
            December
      31,2010
            
            
            2009(unaudited)
            
            
            (Note
      1)ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            4,250
            
            
            $
            6,519Accounts
      receivable, less allowance
            
            
            20,416
            
            
            
            10,704Inventories:Finished
      goods
            
            
            17,492
            
            
            
            16,337Work
      in process
            
            
            96
            
            
            
            97Raw
      materials and supplies
            
            
            382
            
            
            
            96617,970
            
            
            
            17,400Prepaid
      expenses and other current assets
            
            
            1,213
            
            
            
            1,133Total
      current assets
            
            
            43,849
            
            
            
            35,756Property,
      plant and equipment:Land
            
            
            149
            
            
            
            172Buildings
            
            
            2,395
            
            
            
            2,558Machinery
      and equipment
            
            
            8,089
            
            
            
            8,17010,633
            
            
            
            10,900Less
      accumulated depreciation
            
            
            8,639
            
            
            
            8,8121,994
            
            
            
            2,088Note
      receivable
            
            
            1,865
            
            
            
            1,891Other
      assets
            
            
            2,561
            
            
            
            2,574Total
      assets
            
            $
            50,269
            
            
            $
            42,309




See notes
to condensed consolidated financial statements.




3


ACME
      UNITED CORPORATIONCONDENSED
      CONSOLIDATED BALANCE SHEETS (continued)(all
      amounts in thousands)June
      30,
              
              
              December
      31,2010
              
              
              2009(unaudited)
              
              
              (Note
      1)LIABILITIESCurrent
      liabilities:Accounts
      payable
              
              $
              6,177
              
              
              $
              3,546Other
      accrued liabilities
              
              
              4,298
              
              
              
              3,257Total
      current liabilities
              
              
              10,475
              
              
              
              6,803Bank
      debt
              
              
              13,125
              
              
              
              9,154Other
              
              
              1,748
              
              
              
              1,811Total
      liabilities
              
              
              25,348
              
              
              
              17,768STOCKHOLDERS'
      EQUITYCommon
      stock, par value $2.50:authorized
      8,000,000 shares;issued
      - 4,337,074 shares in 2010and
      4,313,024 shares in 2009,including
      treasury stock
              
              
              10,842
              
              
              
              10,783Additional
      paid-in capital
              
              
              4,388
              
              
              
              4,208Retained
      earnings
              
              
              22,023
              
              
              
              20,508Treasury
      stock, at cost - 1,220,615 sharesin
      2010 and  1,155,165 shares in 2009
              
              
              (10,862
              )
              
              
              (10,144
              )Accumulated
      other comprehensive income:Translation
      adjustment
              
              
              (335
              )
              
              
              321Unrecognized
      pension costs
              
              
              (1,134
              )
              
              
              (1,134
              )(1,469
              )
              
              
              (813
              )Total
      stockholders’ equity
              
              
              24,921
              
              
              
              24,541Total
      liabilities and stockholders’ equity
              
              $
              50,269
              
              
              $
              42,309
 
 See notes
to condensed consolidated financial statements.
  4
  ACME
      UNITED CORPORATIONCONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS(UNAUDITED)(all
      amounts in thousands, except per share amounts)Three
      Months Ended
              
              
              Six
      Months EndedJune
      30
              
              
              June
      302010
              
              
              2009
              
              
              2010
              
              
              2009Net
      sales
              
              $
              20,585
              
              
              $
              19,161
              
              
              $
              33,706
              
              
              $
              30,458Cost
      of goods sold
              
              
              13,034
              
              
              
              12,056
              
              
              
              21,042
              
              
              
              19,056Gross
      profit
              
              
              7,551
              
              
              
              7,105
              
              
              
              12,664
              
              
              
              11,402Selling,
      general and administrative expenses
              
              
              5,605
              
              
              
              5,086
              
              
              
              10,417
              
              
              
              9,302Operating
      income
              
              
              1,946
              
              
              
              2,019
              
              
              
              2,247
              
              
              
              2,100Non-operating
      items:Interest:Interest
      expense
              
              
              79
              
              
              
              44
              
              
              
              131
              
              
              
              86Interest
      income
              
              
              (41
              )
              
              
              (31
              )
              
              
              (73
              )
              
              
              (66
              )Interest
      expense, net
              
              
              38
              
              
              
              13
              
              
              
              58
              
              
              
              20Other
      expense (income), net
              
              
              24
              
              
              
              (30
              )
              
              
              39
              
              
              
              (19
              )Total
      other expense (income)
              
              
              63
              
              
              
              17
              
              
              
              97
              
              
              
              1Income
      before income taxes
              
              
              1,883
              
              
              
              2,036
              
              
              
              2,150
              
              
              
              2,099Income
      tax expense
              
              
              317
              
              
              
              695
              
              
              
              370
              
              
              
              716Net
      income
              
              $
              1,566
              
              
              $
              1,341
              
              
              $
              1,780
              
              
              $
              1,383Basic
      earnings per share
              
              $
              0.50
              
              
              $
              0.40
              
              
              $
              0.56
              
              
              $
              0.41Diluted
      earnings per share
              
              $
              0.48
              
              
              $
              0.40
              
              
              $
              0.54
              
              
              $
              0.41Weighted
      average number of common shares outstanding-denominator
      used for basic per share computations
              
              
              3,158
              
              
              
              3,325
              
              
              
              3,163
              
              
              
              3,336Weighted
      average number of dilutive stock optionsoutstanding
              
              
              131
              
              
              
              63
              
              
              
              107
              
              
              
              60Denominator
      used for diluted per share computations
              
              
              3,289
              
              
              
              3,388
              
              
              
              3,270
              
              
              
              3,396Dividends
      declared per share
              
              $
              0.05
              
              
              $
              0.05
              
              
              $
              0.10
              
              
              $
              0.10
  See notes
to condensed consolidated financial statements.


5


ACME
      UNITED CORPORATIONCONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)(all
      amounts in thousands)Six
      Months EndedJune
      30,2010
              
              
              2009Operating
      Activities:Net
      income
              
              $
              1,780
              
              
              $
              1,383Adjustments
      to reconcile net incometo
      net cash used by operating activities:Depreciation
              
              
              394
              
              
              
              393Amortization
              
              
              57
              
              
              
              56Stock
      compensation expense
              
              
              189
              
              
              
              146Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              (10,025
              )
              
              
              (7,453
              )Inventories
              
              
              (974
              )
              
              
              2,580Prepaid
      expenses and other current assets
              
              
              (86
              )
              
              
              209Accounts
      payable
              
              
              2,794
              
              
              
              599Other
      accrued liabilities
              
              
              1,071
              
              
              
              650Total
      adjustments
              
              
              (6,580
              )
              
              
              (2,818
              )Net
      cash used by operating activities
              
              
              (4,800
              )
              
              
              (1,435
              )Investing
      Activities:Purchase
      of property, plant, and equipment
              
              
              (346
              )
              
              
              (360
              )Purchase
      of patents and trademarks
              
              
              (44
              )
              
              
              (57
              )Net
      cash used by investing activities
              
              
              (390
              )
              
              
              (417
              )Financing
      Activities:Net
      borrowing of bank debt
              
              
              3,971
              
              
              
              403Proceeds
      from issuance of common stock
              
              
              50
              
              
              
              32Distributions
      to stockholders
              
              
              (317
              )
              
              
              (333
              )Purchase
      of treasury stock
              
              
              (718
              )
              
              
              (215
              )Net
      cash (used) provided by financing activities
              
              
              2,986
              
              
              
              (113
              )Effect
      of exchange rate changes
              
              
              (65
              )
              
              
              (33
              )Net
      change in cash and cash equivalents
              
              
              (2,269
              )
              
              
              (1,998
              )Cash
      and cash equivalents at beginning of period
              
              
              6,519
              
              
              
              5,225Cash
      and cash equivalents at end of period
              
              $
              4,250
              
              
              $
              3,227
 
 See notes
to condensed consolidated financial statements.
  6


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, 2009 for such disclosures.  The condensed
consolidated balance sheet as of December 31, 2009 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 2009 Annual Report on
Form 10-K.




The
Company has evaluated events and transactions subsequent to June 30, 2010 and
through the date these consolidated financial statements were included in this
Form 10-Q and filed with the SEC.




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, of which $2.0 million is secured by a
mortgage on the property.  The property consists of approximately four
acres of land and 48,000 sq. feet of warehouse space.  The property
was the site of the Company’s original 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 required 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. At June 30, 2010, the Company had approximately
$546,000 remaining in its accrual for environmental remediation, of which
approximately $230,000 was classified as a current liability at that
date.





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 from the original plan, 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 non-operating income during the three months ended September 30,
2009.





7





The
change in the accrual for environmental remediation for the six months ended
June 30, 2010 follows (in thousands):








Balance
      at
              December
      31, 2009
            Payments
            Balance
      at
              June
      30, 2010$  681
            $  (135)
            $  546





Also, as
part of the sale, the Company provided the buyer with a mortgage loan of $2.0
million at six percent interest. The mortgage is payable in monthly installments
of principal and interest with the outstanding balance due in full, one year
after remediation  and monitoring on the property have been completed.
It is estimated that the remediation project will be completed within five years
from the date of the sale.




Note 3 — Pension





Components
of net periodic benefit cost are as follows (in thousands):




Three
      Months Ended
                June
      30,
              
              
              Six
      Months Ended
                June
      30,2010
              
              
              2009
              
              
              2010
              
              
              2009Components
      of net periodic benefit cost:Interest
      cost
              
              $
              31
              
              
              $
              38
              
              
              $
              61
              
              
              $
              76Service
      cost
              
              
              6
              
              
              
              6
              
              
              
              13
              
              
              
              13Expected
      return on plan assets
              
              
              (24
              )
              
              
              (24
              )
              
              
              (48
              )
              
              
              (47
              )Amortization
      of prior service costs
              
              
              2
              
              
              
              2
              
              
              
              5
              
              
              
              5Amortization
      of actuarial loss
              
              
              39
              
              
              
              42
              
              
              
              77
              
              
              
              83$
              54
              
              
              $
              64
              
              
              $
              108
              
              
              $
              130
  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 2010,
the Company is required to contribute approximately $250,000.  The
Company 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
$18 million, with all principal amounts outstanding thereunder required to be
repaid in a single amount on February 1, 2012. In addition, the Company’s
revolving loan agreement requires monthly interest payments.  As of
June 30, 2010 and December 31, 2009, the Company had outstanding borrowings of
$13,125,000 and $9,154,000, respectively, under the revolving loan
agreement.




During
the three and six months ended June 30, 2010, the Company issued 7,500 and
24,050 shares of common stock upon the exercise of outstanding stock options and
received total proceeds of  $17,250 and $50,556,
respectively.  During the three and six months ended June 30, 2010,
the Company repurchased 65,450 shares of common stock for its
treasury.  These shares were purchased at fair market value, with a
total cost to the Company of $718,100.





8





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 below are
presented after converting to U.S. dollars and consolidating
eliminations.




Financial
data by segment:


(in
thousands)


Three
      months ended
                June
      30,
              
              
              Six
      months ended
                June
      30,2010
              
              
              2009
              
              
              2010
              
              
              2009Sales
      to external customers:United
      States
              
              $
              14,996
              
              
              $
              14,892
              
              
              $
              24,626
              
              
              $
              23,374Canada
              
              
              2,881
              
              
              
              2,618
              
              
              
              4,449
              
              
              
              3,911Europe
              
              
              2,709
              
              
              
              1,651
              
              
              
              4,631
              
              
              
              3,172Consolidated
              
              $
              20,585
              
              
              $
              19,161
              
              
              $
              33,706
              
              
              $
              30,458Operating
      income (loss):United
      States
              
              $
              1,502
              
              
              $
              1,898
              
              
              $
              1,880
              
              
              $
              2,241Canada
              
              
              455
              
              
              
              257
              
              
              
              517
              
              
              
              245Europe
              
              
              (10
              )
              
              
              (136
              )
              
              
              (150
              )
              
              
              (385
              )Consolidated
              
              $
              1,946
              
              
              $
              2,019
              
              
              $
              2,247
              
              
              $
              2,100Interest
      expense, net
              
              
              38
              
              
              
              13
              
              
              
              58
              
              
              
              20Other
      expense (income), net
              
              
              24
              
              
              
              (30
              )
              
              
              39
              
              
              
              (19
              )Consolidated
      income before taxes
              
              $
              1,883
              
              
              $
              2,036
              
              
              $
              2,150
              
              
              $
              2,099







Assets by June
      30,
            
            
            December
      31,2010
            
            
            2009United
      States
            
            $
            38,325
            
            
            $
            31,377Canada
            
            
            5,964
            
            
            
            5,606Europe
            
            
            5,980
            
            
            
            5,326Consolidated
            
            $
            50,269
            
            
            $
            42,309


9


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 $112,100 and
$94,000 for the quarters ended June 30, 2010 and June 30, 2009, respectively.
Share-based compensation expense was $189,200 and $146,400 for the six months
ended June 30, 2010 and June 30, 2009, respectively. During the three months
ended June 30, 2010, the Company issued 19,000 options with a weighted average
fair value of $3.32 per share. During the six months ended June 30, 2010 the
Company issued 89,000 options with a weighted average fair value of $2.96.
During the three and six months ended June 30, 2009, the Company issued 12,250
options with a weighted average fair value of $3.86 per share. The assumptions
used to value option grants for the three and six months ended June 30,
2010 and June 30, 2009 are as follows:




Three
      months ended
                June
      30,
              
              
              Six
      months ended
                June
      30,2010
              
              
              2009
              
              
              2010
              
              
              2009Expected
      life in years
              
              
              5
              
              
              
              5
              
              
              
              5
              
              
              
              5Interest
      rate
              
              
              2.54
              %
              
              
              2.95
              %
              
              
              2.28%
      - 2.54
              %
              
              
              2.95
              %Volatility
              
              
              0.353
              
              
              
              0.31
              
              
              
              0.353
      – 0.359
              
              
              
              0.31Dividend
      yield
              
              
              2.0
              %
              
              
              1.2
              %
              
              
              1.8
      - 2.0
              %
              
              
              1.2
              %





As of
June 30, 2010, there was a total of $562,000 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 3 years.





Note
7 – Comprehensive Income





Comprehensive
income for the three and six months ended June 30, 2010 and June 30, 2009
consisted of the following (in thousands):




Three
      Months Ended
              
              
              Six
      Months EndedJune
      30,
              
              
              June
      30,2010
              
              
              2009
              
              
              2010
              
              
              2009Net
      income
              
              $
              1,566
              
              
              $
              1,341
              
              
              $
              1,780
              
              
              $
              1,383Other
      comprehensive income / (loss)  -Foreign
      currency translation
              
              
              (479
              )
              
              
              554
              
              
              
              (605
              )
              
              
              188Comprehensive
      income
              
              $
              1,087
              
              
              $
              1,895
              
              
              $
              1,175
              
              
              $
              1,571





Note
8 – Fair Value Measurements





The
carrying values of cash and cash equivalents, accounts receivable, accounts
payable and bank debt are a reasonable estimate of fair value because of their
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.




10


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 suppliers
and customers, the continuing labor shortage in southeast China, currency
fluctuations, 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,
2009.  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 or revise 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, 2009.




Results
of Operations




Net
sales




Consolidated
net sales for the three months ended June 30, 2010 were $20,585,000 compared
with $19,161,000 in the same period in 2009, a 7% increase (8% in local
currency). Consolidated net sales for the six months ended June 30, 2010 were
$33,706,000, compared with $30,458,000 for the same period in 2009, an 11%
increase (10% in local currency). Net sales for the three and six months ended
June 30, 2010 in the U.S. segment increased 1% and 5%, respectively, compared
with the same periods in 2009.  Net sales in Canada for the three and
six months ended June 30, 2010 increased by 10% and 14%, respectively, in U.S.
dollars but decreased approximately 2% and 1%, respectively in local currency
compared with the same periods in 2009. Net sales in the U.S. increased but
continue to be adversely affected by the slow economic
recovery.   European net sales for the three and six months ended
June 30, 2010 increased 64% and 46% in U.S. dollars (75% and 49% in local
currency) compared with the same periods in 2009.  The increases in
net sales in Europe for the three and six month periods are primarily due to
market share gains in the mass market and office channel.





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.




11





Gross
profit




Gross
profit for the three months ended June 30, 2010 was $7,551,000 (36.7% of net
sales) compared to $7,105,000 (37.1% of net sales) for the same period in
2009.  Gross profit for the six months ended June 30, 2010 was
$12,664,000 (37.6% of net sales) compared to $11,402,000 (37.4% of net sales) in
the same period in 2009. The gross margin for the three months ended June 30,
2010 was negatively impacted by higher air freight expense of approximately
$250,000, as a result of well publicized labor shortages in southeast China
leading to lower production at the Company’s suppliers partially offset by
improved gross margins in the Canadian segment.  The Company is adding
capacity at additional suppliers to reduce its exposure related to the current
labor shortages.




Selling,
general and administrative expenses




Selling,
general and administrative ("SG&A") expenses for the three months ended June
30, 2010 were $5,605,000 (27.2% of net sales) compared with $5,086,000 (26.5% of
net sales) for the same period of 2009, an increase of $519,000. SG&A
expenses for the six months ended June 30, 2010 were $10,417,000 (30.9% of net
sales) compared with $9,302,000 (30.5% of net sales) in the comparable period of
2009, an increase of $1,115,000. The increase in SG&A expenses for the three
and six months ended June 30, 2010, compared to the same periods in 2009, was
primarily the result of higher freight expense and sales commissions as a result
of higher sales as well as higher personnel related expenses.




Operating
income




Operating
income for the three months ended June 30, 2010 was $1,946,000 compared with
$2,019,000 in the same period of 2009. Operating income for the six months ended
June 30, 2010 was $2,247,000 compared to $2,100,000 in the same period of
2009.  Operating income in the U.S. segment decreased by $396,000 and
$361,000 for the three and six months, respectively, compared to the same
periods in 2009. The decline in operating income is principally due to higher
SG&A expenses including higher air freight costs.  Operating
income in the Canadian segment increased by $198,000 and $272,000 for the three
and six months, respectively, compared to the same periods in
2009.  The increase in operating income in Canada is principally due
to the improved gross margins as a result of a stronger Canadian dollar which
reduces the cost of goods. The operating loss in Europe decreased by $126,000
and $235,000 for the three and six months ended June 30, 2010 compared to the
same period in 2009. The improvements in the operating losses for the three and
six month periods are principally due to the increased sales in
Europe.




Interest
expense, net




Interest
expense, net for the three months ended June 30, 2010 was $38,000, compared with
$13,000 for the same period of 2009, a $25,000 increase.  Interest
expense, net for the six months ended June 30, 2010 was $58,000 as compared to
$20,000 for the same period in 2009, a $38,000 increase. The increase in
interest expense, net for both the three and six months ended June 30, 2010 was
primarily the result of higher interest rates on the Company’s debt outstanding
under its revolving loan agreement partially offset by lower average borrowings
during those periods.




Other
expense (income), net




Net other
expense was $24,000 in the three months ended June 30, 2010 as compared to net
other income of $30,000 in the same period of 2009.  Net other expense
was $39,000 in the first six months of 2010 compared to net other income of
$19,000 in the first six months of 2009.  The increases in other
expense (income), net for the three and six months ended June 30, 2010 were
primarily due to losses from foreign currency transactions.




Income
taxes




The
effective tax rate for the three and six month periods ended June 30, 2010 was
17% compared to 34% in the same periods of 2009.  The decrease in the
effective tax rate for the three and six months ended June 30, 2010 was the
result of tax credits of approximately $180,000 related to the donation of land
to the city of Bridgeport, CT. The decrease in the effective tax rate was also
caused in part by a higher proportion of earnings in foreign jurisdictions with
a lower tax rate.




12


Financial
Condition




Liquidity
and Capital Resources




During
the first six months of 2010, working capital increased approximately $4.4
million compared to December 31, 2009. Inventory increased by approximately
$570,000 at June 30, 2010 compared to December 31, 2009. Inventory turnover,
calculated using a twelve month average inventory balance, was 2.2 at June 30,
2010 compared to 1.9 at December 31, 2009.  Accounts receivable
increased by approximately $9.7 million at June 30, 2010 compared to December
31, 2009. The average number of days sales outstanding in accounts receivable
was 59 days at June 30, 2010 compared to 61 days at December 31,
2009.




The
Company's working capital, current ratio and long-term debt to equity ratio
follow:


June 30, 2010
              
              
              
              December 31,
    2009(in
      thousands)Working
      capital
              
              $
              33,374
              
              
              $
              28,953Current
      ratio
              
              
              4.19
              
              
              
              5.26Long
      term debt to equity ratio
              
              
              52.7
              %
              
              
              37.2
              %




During
the first six months of 2010, total debt outstanding under the Company’s
recently modified credit facility, increased by $4.0 million compared to total
debt at December 31, 2009. As of June 30, 2010, $13,125,000 was outstanding and
$4,875,000 was available for borrowing under the Company’s credit
facility.




On
January 26, 2010, the Company modified its revolving loan agreement with
Wachovia Bank; the amendments include (a) a decrease in the maximum borrowing
amount from $20 million to $18 million; (b) an extension of the maturity date of
the loan from June 30, 2010 to February 1, 2012; (c) an increase in the interest
rate to LIBOR plus 2% (from LIBOR plus 7/8%) and (d) modification of certain
covenant restrictions.  Funds borrowed under the credit facility may
be used for working capital, general operating expenses, share repurchases and
certain other purposes.





As
discussed in Note 2, at June 30, 2010 the Company had approximately $546,000
remaining in its accrual for environmental remediation, with approximately
$230,000 classified as a current liability. The Company intends to use cash flow
from operations or borrowings under its revolving credit facility to pay for
these costs. The Company does not believe that payment of such remediation costs
will have a material adverse affect on the Company’s ability to implement its
business plan. In addition, the Company has provided the buyer with a $2.0
million mortgage loan at 6 percent interest. Payments of principal and interest
on the mortgage are due monthly and will also help fund the
remediation.





As noted
earlier, the Company was adversely affected by the ongoing labor shortages in
southeast China. However, due to the seasonal nature of the back to school
business and steps taken by management, the Company does not anticipate the same
level of expedited freight costs in the third quarter as it had incurred in the
second quarter.





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




13





Item
3. Quantitative and Qualitative Disclosure About Market Risk





Not
applicable.




Item
4T. Controls and Procedures




(a)
            Evaluation
      of Internal 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 the end of the period covered by this report. 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 June 30, 2010, 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.




14




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, 2009.




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




None.




Item
3.  —Defaults Upon Senior Securities




None.




Item
4 — Removed and Reserved






Item
5 — Other Information




None.




15




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




16





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.






ACME
UNITED CORPORATION


By
              /s/  Walter C.
      JohnsenWalter C.
      JohnsenChairman of the
      Board andChief Executive
      OfficerDated:  August
      12, 2010By
              /s/  Paul
      G. DriscollPaul G.
      DriscollVice
      President andChief
      Financial OfficerDated:  August
      12, 2010
  
 17