UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D. C.   20549


FORM
10-K





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


THE
SECURITIES EXCHANGE ACT OF 1934













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


THE
SECURITIES EXCHANGE ACT OF 1934





Commission
file number 01-07698


ACME
UNITED CORPORATION


Exact name of registrant as
specified in its charter







Connecticut
            06-0236700(State or other jurisdiction
      of
            (I.R.S.
    Employerincorporation or
      organization)
            Identification
      No.)60 Round Hill
      RoadFairfield,
      Connecticut
            06824(Address of principal
      executive offices)
            (Zip
    Code)





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





Securities
registered pursuant to Section 12(b) of the Act:




Name
      of each exchange onTitle of each
      class
            which
    registered$2.50 par value Common
      Stock
            NYSE
  Amex




Securities
registered pursuant to Section 12 (g) of the Act:  None





Indicate
by check mark whether the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act.


YES 
[     ]   NO  [ X ]





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


YES 
[     ]   NO  [ X ]




Indicate
by check mark whether the registrant (l) 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.


YES 
[ X ]    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 ]





The
aggregate market value of the voting stock held by non-affiliates of the
registrant as of the last business day of the registrant’s most recently
completed second fiscal quarter was $21,960,360. Registrant had 3,174,109
shares of its $2.50 par value Common Stock outstanding as of March 2,
2010.





Documents
Incorporated By Reference





(1)
Certain portions of the Company’s Proxy Statement for the Annual Meeting
scheduled for April 19, 2010 is incorporated into the Company’s 2009 Annual
Report on Form 10-K, Part III.











2







PagePart
      IItem
      1.    Business
            
            4Item 1A.  Risk
      Factors
            
            6Item
      1B.  Unresolved Staff Comments
            
            8Item
      2.     Properties
            
            9Item
      3.    Legal Proceedings
            
            9Item
      4.    Reserved
            
            9Part
      IIItem
      5.   Market for Registrant’s Common Equity, Related
      Stockholder Matters and Issuer Purchases of Equity
    Securities
            
            10Item
      6.   Selected Financial Data
            
            12Item
      7.   Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
            
            12Item
      7A.  Quantitative and Qualitative Disclosures About Market
      Risk
            
            16Item
      8.  Financial Statements and Supplementary Data
            
            17Item
      9.  Changes In and Disagreements with Accountants on Accounting
      and Financial Disclosure
            
            35Item
      9A(T).  Controls and Procedures
            
            35Item
      9B.  Other Information
            
            35Part
      IIIItem
      10.  Directors, Executive Officers and Corporate
      Governance
            
            36Item
      11.  Executive Compensation
            
            37Item
      12.  Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
            
            37Item
      13.  Certain Relationships and Related Transactions, and
      Director Independence
            
            37Item 14.  Principal
      Accountant Fees and Services
            
            38Part
      IVItem
      15.  Exhibits and Financial Statement Schedules
            
            38Schedule
      II – Valuation and Qualifying AccountsSignatures
            
            41





3


PART
I


Item
1.  Business





General


Acme
United Corporation (together with its subsidiaries, the "Company") was organized
as a partnership in l867 and incorporated in l882 under the laws of the State of
Connecticut.  The Company is a leading worldwide supplier of
innovative cutting, measuring and safety products to the school, home, office,
hardware and industrial markets.  The Company's operations are in the
United States, Canada, Europe (located in Germany) and Asia (located in Hong
Kong and China).  The operations in the United States, Canada and
Europe are primarily involved in product development, marketing, sales,
administrative and distribution activities.  The operations in Asia
consist of sourcing, product development, production planning, quality control
and sales activities.  Net sales in 2009 were: United States
(including Asia) - $44.9 million, Canada - $7.0 million, and Europe - $7.2
million.





The
Company has grouped its operations into three reportable segments based on the
Company’s geographical organization and structure: (1) United States (which
includes its Asian operations); (2) Canada and (3) Europe.  Refer to
Note 10 of the Notes to Consolidated Financial Statements for additional segment
information.





Business
Strategy





The
Company’s business strategy includes the following key elements:





·
            a
      commitment to technological innovation achieved through consumer insight,
      creativity and speed to market;


·
            a
      broad selection of products in both brand and private
    label;


·
            prompt
      response and same-day shipping;


·
            superior
      customer service; and


·
            value
      pricing.





Principal
Products





The
Company markets and sells under four main brands - Westcott®,
Clauss®,  Camillus® and PhysiciansCare®.





Cutting


Principal
products within the cutting device category are scissors, shears, guillotine
paper trimmers, rotary paper trimmers, rotary cutters, knives, hobby knives and
blades, utility knives, manicure products, medical cutting instruments and
pencil sharpeners. Products introduced in 2008 and 2009
included  Westcott Ultra Soft Handle anti-microbial scissors, True
ProfessionalTM sewing shears as well as a line of iPoint® pencil sharpeners
utilizing the Company’s proprietary non-stick coating. The Company also added to
its KleenEarth® family of recycled products by modifying the production process
to allow for multi-colored products as opposed to the traditional black. Two
years ago, the Company acquired the patents and intellectual property of
Camillus Cutlery, the oldest knife company in the United States and in 2009,
launched a new family of knives with proprietary designs and high performance
titanium carbonitride coatings. Also, in 2008 the Company began shipping the
Clauss Speedpak utility knife with replaceable cartridges.





Measuring


Principal
products within the measuring instrument category are rulers, math tools and
tape measures. Products introduced in 2009 included Westcott branded erasers,
compasses and protractors. Products introduced in 2008 included Westcott
anti-microbial rulers and math kits.





Safety


Principal
products within the safety product category are first aid kits, personal
protection products and over-the-counter medication refills.  Products
introduced in 2009 included PhysiciansCare Emergency Care Responder Kits, Flu
Care Kits and a line of safety products with Microban. Products introduced in
2008 included PhysiciansCare Ready Care Kits and Triage First Aid
Stations.





4




Product
Development




Our
strong commitment to understanding our consumers and defining products that
fulfill their needs through innovation drives our product development strategy,
which we believe is and will be a key contributor to our success. The Company
incurred research and development costs of $440,378 in 2009 and $529,685 in
2008.




Intellectual
Property




The
Company has many patents and trademarks that are important to its business. The
Company’s success depends in part on its ability to maintain patent protection
for its products, to preserve its proprietary technology and to operate without
infringing upon the patents or proprietary rights of others. The Company
generally files patent applications in the United States and foreign countries
where patent protection for its technology is appropriate and
available.  The Company also considers its trademarks important to the
success of its business. The more significant trademarks include Westcott,
Clauss, Camillus and PhysiciansCare.




Product
Distribution





Independent
manufacturer representatives and direct sales are primarily used to sell the
Company’s line of consumer products to wholesale, contract and retail stationery
distributors, office supply super stores, school supply distributors, industrial
distributors, wholesale florists, mass market retailers and hardware
chains.  In 2009, the Company had one customer that individually
exceeded 10% of consolidated net sales and three customers that individually
exceeded 10% of consolidated net sales in 2008. Net sales to these customers
amounted to approximately 20% in 2009, 19%, 12% and 10% in
2008.  Sales to no other customer exceeded 10% of consolidated net
sales in 2009 and 2008.





Competition





The
Company competes with many companies in each market and geographic
area.  The major competitor in the cutting category is Fiskars
Corporation.  The major competitor in the measuring category is Helix
International Ltd. The major competitor in the safety category is Johnson and
Johnson.





Seasonality





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




Compliance with Environmental
Laws





The
Company believes that it is in compliance with applicable environmental
laws.  The Company believes that there are no environmental matters
that could have a significant financial impact. The Company believes that no
major adverse financial impact is expected to result from compliance with
current environmental rules and regulations.  In December 2008, the
Company sold property it owned in Bridgeport, CT. Under the terms of the sales
agreement, the Company is responsible for environmental remediation on the
property in accordance with the Connecticut Transfer Act. Please refer to Note
16 of the Notes to Consolidated Financial Statements for additional information
regarding the sale of the Bridgeport property.





Employees





As of
December 31, 2009, the Company employed 134 people, all of whom are full time
and none of whom is covered by union contracts. Employee relations are
considered good and no foreseeable problems with the work force are
evident.


5
 
 Available
Information





The
Company files its annual reports on Form 10-K, quarterly reports on
Form 10-Q and current reports on Form 8-K pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 with the SEC
electronically. The public may read or copy any materials filed by the Company
with the SEC at the SEC’s Public Reference Room at 100 F Street, NE,
Washington, DC 20549 on official business days during the hours of 10:00 a.m.
and 3:00 p.m. The public may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The address of that
site is http://www.sec.gov.


You may
obtain a free copyof the Company’s annual reports on
Form 10-K, quarterly reports on Form 10-Q and current reports on
Form 8-K and amendments to those reports on the Company’s website at http://www.acmeunited.com
or by contacting the Investor Relations Department at the Company’s corporate
offices by calling (203) 254-6060. Such reports and other information are
made available as soon as reasonably practicable after such material is filed
with or furnished to the SEC.





Item
1A.  Risk Factors





The
Company is subject to a number of significant risks that might cause the
Company’s actual results to vary materially from its forecasts, targets or
projections, including:





·
            achieving
      planned revenue and profit growth in each of the Company's business
      segments;





·
            changes
      in customer requirements and in the volume of sales to principal
      customers;





·
            the
      timing of orders and shipments;





·
            emergence
      of new competitors or consolidation of existing competitors;
      and





·
            industry
      demand fluctuations.





The
Company’s expectations for both short- and long-term future net revenues are
based on the Company’s estimates of future demand. Orders from the Company’s
principal customers are ultimately based on demand from end-users and end-user
demand can be difficult to predict. Low end-user demand would negatively affect
orders the Company receives from distributors and other principal customers
which could, in turn adversely affect the Company’s revenues in any fiscal
period. If the Company’s estimates of sales are not accurate and the Company
experiences unforeseen variability in its revenues and operating results, the
Company may be unable to adjust its expense levels accordingly and its profit
margins could be adversely affected.





A number
of the Company’s products are sold through distributors and large retailers. No
assurances can be given that any or all of such distributors or retailers will
continue their relationships with the Company. Distributors and other
significant retail customers cannot easily be replaced and the loss of revenues
and the Company’s inability to reduce expenses to compensate for the loss of
revenues could adversely affect the Company’s net revenues and profit
margins.





Adverse
conditions in the global economy and disruption of financial markets could
negatively impact our ability to obtain financing.


Financial
markets in the United States, Europe and Asia have experienced significant
disruption during 2009, including, among other things, reduced consumer
spending, fluctuations in foreign currency exchange rates, significant
volatility in security prices, severely diminished liquidity and credit
availability, and declines in asset valuation. While currently these conditions
have not impaired our ability to access credit markets and finance our
operations, there can be no assurance that any deterioration in financial
markets in major economies will not have an impact on the Company’s ability to
finance its operation.





The
ongoing uncertainty in the global economy could negatively impact our
business.


The
ongoing uncertainty in the global economy could adversely affect our customers
and our suppliers and businesses such as ours. In addition, the uncertainty
could have a variety of negative effects on the Company such as reduction in
revenues, increased costs, lower gross margin percentages, increased allowances
for doubtful accounts and/or write-offs of accounts receivable and could
otherwise have material adverse effects on our business, results of operations,
financial condition and cash flows.





6





Loss of a major customer could result
in a decrease in the Company’s future sales and earnings.


In 2009,
the Company had one customer that individually exceeded 10% of consolidated net
sales and three customers in 2008 that individually exceeded 10% of consolidated
net sales. Net sales to these customers amounted to approximately 20% in
2009 and 19%, 12% and 10% in 2008. The Company anticipates that a limited number
of customers may account for a substantial portion of its total net revenues for
the foreseeable future. The loss of a major customer or a disruption in sales to
such a customer could result in a decrease of the Company’s future sales and
earnings.





Reliance
on foreign suppliers could adversely affect the Company’s business.


The
Company purchases the majority of its products from foreign manufacturing
partners and, as a result, its business is exposed to risks due to:


·
            Increases
      in transportation costs;


·
            New
      or increased import duties;


·
            Transportation
      delays;


·
            Work
      stoppages;


·
            Capacity
      constraints;


·
            Poor
      quality; and


·
            Inflation
      and exchange rate fluctuations that could increase the cost of foreign
      manufactured goods.





The
loss of key management could adversely affect the Company’s ability to run its
business.


The
Company’s success depends, to a large extent, on the continued service of its
executive management team, operating officers and other key personnel. The
Company must therefore continue to recruit, retain and motivate management and
operating personnel sufficient to maintain its current business and support its
projected growth.





The
Company’s inability to meet its staffing requirements in the future could
adversely affect its results of operations.





Failure
to protect the Company’s proprietary rights or the costs of protecting these
rights could adversely affect its business.


The
Company’s success depends in part on its ability to obtain patents and licenses
and to preserve other intellectual property rights covering its products and
processes. The Company obtained certain domestic and foreign patents, and
intends to continue to seek patents on its inventions when appropriate. The
process of seeking patent protection can be time consuming and expensive. There
can be no assurance that pending patents related to any of the Company’s
products will be issued, in which case the Company may not be able to legally
prevent others from producing similar and/or compatible competing products. If
other companies were to sell similar and/or compatible products, the Company’s
results of operations could be adversely affected. Furthermore, there can be no
assurance that the Company’s efforts to protect its intellectual property will
be successful. Any infringement of the Company’s intellectual property or legal
defense of such action could have a material adverse effect on the
Company.





The
Company may need to raise additional capital to fund its
operations.


The
Company’s management believes that, under current conditions,  the
Company’s current cash and cash equivalents, cash generated by operations,
together with the borrowing availability under its revolving loan agreement with
Wachovia Bank, will be sufficient to fund planned operations for the next twelve
months. However, if the Company is unable to generate sufficient cash from
operations, it may be required to find additional funding sources. If adequate
financing is unavailable or is unavailable on acceptable terms, the Company may
be unable to maintain, develop or enhance its operations, products and services,
take advantage of future opportunities or respond to competitive
pressures.





The
Company may not be able to maintain or to raise prices in response to inflation
and increasing costs.


Future
market and competitive pressures may prohibit the Company from raising prices to
offset increased product costs, freight costs and other inflationary items. The
inability to pass these costs through to the Company’s customers could have a
negative effect on its results of operations.





7





The
Company is subject to intense competition in all of the markets in which it
competes.


The
Company’s products are sold in highly competitive markets. The Company believes
that the principal points of competition in these markets are product
innovation, quality, price, merchandising, design and engineering capabilities,
product development, timeliness and completeness of delivery, conformity to
customer specifications and post-sale support. Competitive conditions may
require the Company to match or better competitors’ prices to retain business or
market shares. The Company believes that its competitive position will depend on
continued investment in innovation and product development, manufacturing and
sourcing, quality standards, marketing and customer service and support. The
Company’s success will depend in part on its ability to anticipate and offer
products that appeal to the changing needs and preferences of our customers in
the various market categories in which it competes. The Company may not have
sufficient resources to make the investments that may be necessary to anticipate
those changing needs and the Company may not anticipate, identify, develop and
market products successfully or otherwise be successful in maintaining its
competitive position. There are no significant barriers to entry into the
markets for most of the Company’s products.





Product
liability claims or regulatory actions could adversely affect the Company's
financial results and reputation.


Claims
for losses or injuries allegedly caused by some of the Company’s products arise
in the ordinary course of its business. In addition to the risk of substantial
monetary judgments, product liability claims or regulatory actions could result
in negative publicity that could harm the Company’s reputation in the
marketplace or the value of its brands. The Company also could be required to
recall possible defective products, which could result in adverse publicity and
significant expenses. Although the Company maintains product liability insurance
coverage, potential product liability claims are subject to a deductible or
could be excluded under the terms of the policy.





The
Company’s business is subject to risks associated with seasonality which could
adversely affect its cash flow, financial condition, or results of
operations.


The
Company’s business, historically, has experienced higher sales volume in the
second and third quarters of the calendar year, when compared to the first and
fourth quarters. The Company is a major supplier of products related to the
“back-to-school” season, which occurs principally during the months of May,
June, July and August. If this typical seasonal increase in sales of certain
portions of the Company’s product line does not materialize, the Company could
experience a material adverse effect on its business, financial condition and
results of operations.





To
compete successfully, the Company must develop and commercialize a continuing
stream of innovative new products that create consumer demand.


The
Company’s long-term success in the current competitive environment depends on
its ability to develop and commercialize a continuing stream of innovative new
products that create and maintain consumer demand. The Company also faces the
risk that its competitors will introduce innovative new products that compete
with the Company’s products. The Company’s strategy includes increased
investment in new product development and increased focus on innovation. There
are, nevertheless, numerous uncertainties inherent in successfully developing
and commercializing innovative new products on a continuing basis, and new
product launches may not provide expected growth results.





The
Company is subject to environmental regulation and environmental
risks.


The
Company is subject to national, state, provincial and/or local environmental
laws and regulations that impose limitations and prohibitions on the discharge
and emission of, and establish standards for the use, disposal and management
of, certain materials and waste. These environmental laws and regulations also
impose liability for the costs of investigating and cleaning up sites, and
certain damages resulting from present and past spills, disposals, or other
releases of hazardous substances or materials. Environmental laws and
regulations can be complex and may change often. Capital and operating expenses
required to comply with environmental laws and regulations can be significant,
and violations may result in substantial fines and penalties. In addition,
environmental laws and regulations, such as the Comprehensive Environmental
Response, Compensation and Liability Act, or CERCLA, in the United States impose
liability on several grounds for the investigation and cleanup of contaminated
soil, ground water and buildings and for damages to natural resources on a wide
range of properties. For example, contamination at properties formerly owned or
operated by the Company, as well as at properties it will own and operate, and
properties to which hazardous substances were sent by the Company, may result in
liability for the Company under environmental laws and regulations. The costs of
complying with environmental laws and regulations and any claims concerning
noncompliance, or liability with respect to contamination in the future could
have a material adverse effect on the Company’s financial condition or results
of operations. Refer to Note 16 – Sale of Property of the Notes to Consolidated
Financial Statements for further discussion on the environmental costs related
to the sale of property.





8





Item
1B. Unresolved Staff Comments





Not
applicable to smaller reporting companies.




Item
2.  Properties


The
Company is headquartered at 60 Round Hill Road, Fairfield, Connecticut in 7,500
square feet of leased space. The Company owns and leases manufacturing and
warehousing facilities in the United States totaling 205,000 square feet, and
leases 44,000 square feet of warehousing space in Canada. The Company also
leases approximately 2,000 square feet of office space in
Canada.  Distribution for Europe is presently being conducted at a
35,000 square foot facility owned by the Company in Solingen, Germany. The
Company also leases office space in Hong Kong and Guangzhou,
China.





Management
believes that the Company's facilities, whether leased or owned, are adequate to
meet its current needs and should continue to be adequate for the foreseeable
future.





Item
3.  Legal Proceedings


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.





Item
4.  Reserved









9


PART
II


Item
5.  Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.


The
Company's Common Stock is traded on the NYSE Amex under the symbol "ACU". The
following table sets forth the high and low sale prices on the NYSE Amex for the
Common Stock for the periods indicated:





Year
      Ended December 31, 2009
            
            High
            
            
            Low
            
            
            Dividends
              DeclaredFourth
      Quarter
            
            $
            10.29
            
            
            $
            8.11
            
            
            $
            .05Third
      Quarter
            
            
            9.30
            
            
            
            7.82
            
            
            
            .05Second
      Quarter
            
            
            8.24
            
            
            
            6.53
            
            
            
            .05First
      Quarter
            
            
            8.37
            
            
            
            5.95
            
            
            
            .05Year
      Ended December 31, 2008
            
            High
            
            
            Low
            
            
            Dividends
              DeclaredFourth
      Quarter
            
            $
            12.30
            
            
            $
            5.33
            
            
            $
            .05Third
      Quarter
            
            
            14.10
            
            
            
            12.10
            
            
            
            .05Second
      Quarter
            
            
            14.87
            
            
            
            12.92
            
            
            
            .04First
      Quarter
            
            
            14.40
            
            
            
            12.60
            
            
            
            .04





As of
March 3, 2010 there were approximately 1,225 holders of record of the Company's
Common Stock.







Performance
Graph




The graph
compares the yearly cumulative total shareholder return on the Company’s Common
Stock with the yearly cumulative total return of the following for the period
2005 to 2009: (a) the NYSE Amex Index and (b) a peer group of companies that,
like the Company, (i) are currently listed on the NYSE Amex, and (ii) have a
market capitalization of $30 million to $35 million.




The
Company does not believe that it can reasonably identify a peer group of
companies, on an industry or line-of-business basis, for the purpose of
developing a comparative performance index.  While the Company is
aware that some other publicly-traded companies market products in the Company’s
line-of-business, none of these other companies provide most or all of the
products offered by the Company, and many offer products or services not offered
by the Company.  Moreover, some of these other companies that engage
in the Company’s line-of-business do so through divisions or subsidiaries that
are not publicly-traded.  Furthermore, many of these other companies
are substantially more highly capitalized than the Company.  For these
reasons, any such comparison would not, in the opinion of the Company, provide a
meaningful index of comparative performance.




The
comparisons in the graph below are based on historical data and are not
indicative of, or intended to forecast, the possible future performance of the
Company’s Common Stock. [Missing Graphic Reference]




10


Graphic






Issuer
Purchases of Equity Securities




During
2009, the Company announced a Common Stock repurchase program of 200,000
shares.  This program does not have an expiration
date.  During the twelve months ended December 31, 2009, the Company
repurchased 205,509 shares of its Common Stock at an average price of $8.46, of
which 154,335 were purchased under a previously announced program and 51,174
were purchased under the program announced in 2009. As of December 31, 2009,
there were 148,826 shares that may be purchased under this repurchase program
announced in 2009.




Set forth
in the table below is certain information regarding purchases of Common Stock by
the Company during the quarter ended December 31, 2009.




Period
            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 these Plans or
      ProgramsOctober
      1 - 31
            
            
            -
            249,335November
      1 - 30
            100,509
            $8.65
            100,509
            148,826December
      1 - 31
            
            
            -
            148,826








11


Item
      6.  Selected Financial DataFIVE
      YEAR SUMMARY OF SELECTED FINANCIAL DATA(All
      figures in thousands except per share data)2009
              
              
              2008
              
              
              2007
              
              
              2006
              
              
              2005Net
      sales
              
              $
              59,149
              
              
              $
              68,719
              
              
              $
              63,173
              
              
              $
              56,863
              
              
              $
              49,947Net
      income
              
              $
              2,842
              
              
              $
              4,467
              
              
              $
              4,022
              
              
              $
              3,886
              
              
              $
              2,937Total
      assets
              
              $
              42,309
              
              
              $
              45,424
              
              
              $
              42,222
              
              
              $
              35,021
              
              
              $
              28,194Long-term
      debt, less current portion
              
              $
              9,154
              
              
              $
              11,749
              
              
              $
              10,187
              
              
              $
              10,218
              
              
              $
              5,577Net
      incomePer
      share (Basic)
              
              $
              0.86
              
              
              $
              1.28
              
              
              $
              1.14
              
              
              $
              1.11
              
              
              $
              0.84Per
      share (Diluted)
              
              $
              0.85
              
              
              $
              1.24
              
              
              $
              1.09
              
              
              $
              1.05
              
              
              $
              0.78Dividends
      per share
              
              $
              0.20
              
              
              $
              0.18
              
              
              $
              0.16
              
              
              $
              0.12
              
              
              $
              0.11





Item
7.  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 system and financial markets, including the impact
on the Company’s suppliers and customers,changes in
client needs and consumer spending habits, the impact of competition and
technological change on the Company, the Company’s ability to manage its growth
effectively, including its ability to successfully integrate any business which
it might acquire, and currency fluctuations.  All forward-looking
statements in this report are based upon information available to the Company on
the date of this report.  The Company undertakes no obligation to
publicly update or revise any forward-looking statement, whether as a result of
new information, future events, or otherwise, except as required by
law.





Critical
Accounting Policies


The
following discussion and analysis of financial condition and results of
operations are based upon the Company’s consolidated financial statements, which
have been prepared in conformity with accounting principles generally accepted
in the United States of America.  The Company’s significant accounting
policies are more fully described in Note 2 of the Notes to Consolidated
Financial Statements. Certain accounting estimates are particularly important to
the understanding of the Company’s financial position and results of operations
and require the application of significant judgment by the Company’s management
or can be materially affected by changes from period to period in economic
factors or conditions that are outside the control of management.  The
Company’s management uses their judgment to determine the appropriate
assumptions to be used in the determination of certain estimates. Those
estimates are based on historical operations, future business plans and
projected financial results, the terms of existing contracts, the observance of
trends in the industry, information provided by customers and information
available from other outside sources, as appropriate. The following discusses
the Company’s critical accounting policies and estimates.





Estimates.Operating
results may be affected by certain accounting estimates.  The most
sensitive and significant accounting estimates in the financial statements
relate to customer rebates, valuation allowances for deferred income tax assets,
obsolete and slow moving inventories, potentially uncollectible accounts
receivable, and accruals for income taxes.  Although the Company’s
management has used available information to make judgments on the appropriate
estimates to account for the above matters, there can be no assurance that
future events will not significantly affect the estimated amounts related to
these areas where estimates are required. However, historically, actual results
have not been materially different than original estimates.





12


Revenue
Recognition.  The Company recognizes revenue from the sales of
its products when ownership transfers to the customers, which occurs either at
the time of shipment or upon delivery based upon contractual terms with the
customer.  The Company recognizes customer program costs, including
rebates, cooperative advertising, slotting fees and other sales related
discounts, as a reduction to sales.





Allowance for doubtful
accounts.  The Company provides an allowance for doubtful accounts
based upon a review of outstanding accounts receivable, historical collection
information and existing economic conditions. The allowance for doubtful
accounts represents estimated uncollectible accounts receivables associated with
potential customer defaults on contractual obligations, usually due to potential
insolvencies. The allowance includes amounts for certain customers where a risk
of default has been specifically identified. In addition, the allowance includes
a provision for customer defaults based on historical experience. The Company
actively monitors its accounts receivable balances and its historical experience
of annual accounts receivable write offs has been negligible.




Customer
Rebates.Customer rebates and incentives are a common practice
in the office products industry. We incur customer rebate costs to obtain
favorable product placement, to promote sell-through of products and to maintain
competitive pricing. Customer rebate costs and incentives, including volume
rebates, promotional funds, catalog allowances and slotting fees, are accounted
for as a reduction to gross sales. These costs are recorded at the time of sale
and are based on individual customer contracts. Management periodically reviews
accruals for these rebates and allowances, and adjusts accruals when
appropriate.




Obsolete and Slow Moving
Inventory.Inventories are stated at the lower of cost,
determined on the first-in, first-out method, or market. An allowance is
established to adjust the cost of inventory to its net realizable value.
Inventory allowances are recorded for obsolete or slow moving inventory based on
assumptions about future demand and marketability of products, the impact of new
product introductions and specific identification of items, such as discontinued
products. These estimates could vary significantly from actual requirements if
future economic conditions, customer inventory levels or competitive conditions
differ from expectations.





Income Taxes.Deferred income
tax liabilities or assets are established for temporary differences between
financial and tax reporting bases and are subsequently adjusted to reflect
changes in tax rates expected to be in effect when the temporary differences
reverse. A valuation allowance is recorded to reduce deferred income tax assets
to an amount that is more likely than not to be realized.




Intangible
Assets.  Intangible assets with finite useful lives are
recorded at cost upon acquisition and amortized over the term of the related
contract, if any, or useful life, as applicable.  Intangible assets
held by the Company with finite useful lives include patents and
trademarks.  The weighted average amortization period for intangible
assets at December 31, 2009 was 14 years.  The Company periodically
reviews the values recorded for intangible assets to assess recoverability from
future operations whenever events or changes in circumstances indicate that its
carrying amount may not be recoverable. At December 31, 2009 and 2008, the
Company assessed the recoverability of its long-lived assets and believed that
there were no events or circumstances present that would that would require a
test of recoverability on those assets. As a result, there was no impairment of
the carrying amounts of such assets and no reduction in their estimated useful
lives. The net book value of the Company’s intangible assets increased to
$1,863,648 as of December 31, 2009, from $1,845,391 as of December 31,
2008.




Pension
Obligation.The pension benefit obligation is based on various
assumptions used by third-party actuaries in calculating this
amount.  These assumptions include discount rates, expected return on
plan assets, mortality rates and other factors.  Revisions in assumptions
and actual results that differ from the assumptions affect future expenses, cash
funding requirements and obligations. Our funding policy is to
fund the Plan in accordance with the Internal Revenue Code and
regulations.




These assumptions are
reviewed annually and updated as required. The Company has a frozen defined
benefit pension plan. Two assumptions, the discount rate and
the expected return on plan assets, are important elements of expense and
liability measurement.




We
determine the discount rate used to measure plan liabilities as of the
December 31 measurement date. The discount rate reflects the current rate
at which the associated liabilities could be effectively settled at the end of
the year. In estimating this rate, we look at rates of return on fixed-income
investments of similar duration to the liabilities in the plan that receive
high, investment grade ratings by recognized ratings agencies. Using these
methodologies, we determined a discount rate of 5.06% to be appropriate as of
December 31, 2009, which is a decrease of 1.13 percentage points from
the rate used as of December 31, 2008. An increase of 1.0% in the discount
rate would have decreased our plan liabilities as of December 31, 2009 by
$0.2 million.




13




The
expected long-term rate of return on assets considers the Company’shistorical
results and projected returns for similar allocations among asset classes. In
accordance with generally accepted accounting principles, actual results that
differ from the Company’s assumptions are accumulated and amortized over future
periods and, therefore, affect expense and obligation in future periods. For the
U.S. pension plan, our assumption for the expected return on plan assets was
8.25% for 2009. For
more information concerning these costs and obligations, see the discussion in
Note 6 – Pension and Profit Sharing, in the Notes to the Company’s Consolidated
Financial Statements.




Accounting for Stock-Based
Compensation.  Stock based compensation cost is measured at the
grant date fair value of the award and is recognized as expense over the
requisite service period.  The Company uses the Black-Scholes option -
pricing model to determine fair value of the awards, which involves certain
subjective assumptions. These assumptions include estimating the length of time
employees will retain their vested stock options before exercising them
(“expected term”), the estimated volatility of the Company’s common stock price
over the expected term (“volatility”) and the number of options for
which  vesting requirements will not be completed (“forfeitures”).
Changes in the subjective assumptions can materially affect estimates of fair
value stock-based compensation, and the related amount recognized on the
consolidated statements of operations. Refer to Note 11 “Stock Option Plans” in
the Notes to Consolidated Financial Statements in this report for a more
detailed discussion.





Results
of Operations 2009 Compared with 2008




Net
Sales




Net sales
decreased by $9,570,465 or 13.9% (17% in constant currency) in 2009 to
$59,148,547 compared to $68,719,012 in 2008.  The U.S. segment sales
decreased by $8,640,000 or 16.1% in 2009 compared to 2008.  Sales in
Canada declined by $1,062,000 or 13.1% (6% in local currency) in 2009 compared
to 2008.  European sales increased by $131,000 or 2% in U.S. dollars
(8% in local currency) in 2009 compared to 2008.




The
declines in net sales for the twelve months ended December 31, 2009 in the U.S.
and Canadian segments were primarily due to a reduction in customer orders
across all of our product lines as a result of the economic
downturn.  The increase in net sales in Europe for the twelve months
ended December 31, 2009 was primarily due to an increase in sales of manicure
products, which include scissors, clippers and other related items.




Gross
Profit




Gross
profit was 37% of net sales in 2009 compared to 40% of net sales in
2008.  The gross margin decline for 2009 was primarily due to fixed
costs spread over lower sales, the weaker Canadian dollar, which raised the cost
of our products in our 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




Selling,
general and administrative expenses were $19,046,864 in 2009 compared with
$20,778,093 in 2008, a decrease of $1,731,229 or 8.3%.  SG&A
expenses were 32% of net sales in 2009 compared to 30% in 2008.  The
decrease in SG&A expenses was primarily related to 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 was $3,026,623 in 2009, compared with $6,878,794 in 2008, a decrease of
$3,852,171.  Operating income in the U.S. segment declined by
approximately $3,490,000. Operating income decreased in Canada by
$371,000.  The declines in operating income for 2009 in the U.S. and
Canadian segments are principally due to the lower sales and associated gross
profits partially offset by lower selling, general and administrative costs. The
European operating loss remained relatively constant compared to
2008.




14





Interest
Expense, Net




Net
interest expense for 2009 was $25,674, compared with $395,548 for 2008, a
decrease of $369,874.  The decrease in interest expense, net was
primarily the result of lower average interest rates under the Company’s bank
revolving loan agreement combined with lower average borrowings.  The
Company also received $118,550 of interest income related to the mortgage it
holds on the Bridgeport property which it sold in 2008. Refer to Note 16 – Sale
of Property, in the Notes to the Company’s Consolidated Financial Statements for
further details related to the Bridgeport property.




Other
Income, Net




Net other
income was $452,005 in 2009 compared to $192,855 in 2008.  The
increase in other income, net for 2009 was primarily related to a $460,000
benefit recorded for the change in estimated costs associated with the
remediation of the Bridgeport property. Net other income in 2008 included a gain
of $265,000 related to the sale of our Bridgeport property. Refer to Note 16 –
Sale of Property, in the Notes to the Company’s Consolidated Financial
Statements for further details related to the Bridgeport property.




Income
Tax




The
effective tax rate in 2009 was 18%, compared to 33% in 2008.The decrease in the
effective tax rate for the year ended December 31, 2009 was primarily the result
of approximately $500,000 of tax savings related to the Company’s donation of
medical products to AmeriCares and the donation of land to the City of
Bridgeport, CT. This donation of land, which occurred in December 2009,
consisted of waterfront property adjacent to the property the Company sold in
December 2008. Without these credits, the effective tax rate would have been
approximately 32% for the year ended December 31, 2009.




Off-Balance
Sheet Transactions





The
Company did not engage in any off-balance sheet transactions during
2009.





Liquidity
and Capital Resources





During
2009, the Company experienced the effects of the continuing global economic
crisis. Demand for the Company’s products softened and sales and earnings were
negatively impacted. In response, management took strong actions to control
costs. Entering 2010, management believes that the market for its products is
improving as sales in the fourth quarter of 2009 increased 7% over the same
period in 2008.





During
2009, working capital decreased by approximately $0.9 million compared to
December 31, 2008.  Inventory decreased by approximately $4.4 million
principally due to the Company managing inventory levels to compensate for lower
sales in the trailing twelve months ended December 31, 2009. Inventory turnover,
calculated using a twelve month average inventory balance, decreased to 1.9 from
2.0 at December 31, 2008.





Receivables
remained approximately the same at December 31, 2009 compared to December 31,
2008. The average number of days sales outstanding in accounts receivable was 61
days in 2009 compared to 64 days in 2008.




The
      Company's working capital, current ratio and long-term debt to equity
      ratio follow:2009
              
              
              2008Working
      Capital
              
              $
              28,952,754
              
              
              $
              29,819,680Current
      Ratio
              
              
              5.26
              
              
              
              4.38Long-Term
      Debt to Equity Ratio
              
              
              37.3%
              
              
              
              44.2%




During
2009, total debt outstanding under the Company’s revolving credit facility,
(referred to below) decreased by approximately $2.6 million compared to total
debt at December 31, 2008. As of December 31, 2009, $9,154,000 was outstanding
and $10,846,000 was available for borrowing under the revolving credit
facility.




15





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 Modified Loan
Agreement may be used for working capital, general operating expenses, share
repurchases and certain other purposes.




Under the
provisions of the Modified Loan Agreement, the Company, among other things, is
restricted with respect to outside borrowings, investments and
mergers.  Further, the Modified Loan Agreement requires the Company to
maintain specific amounts of tangible net worth, a specified debt service
coverage ratio and a fixed charge coverage ratio.  The Company was in
compliance with all financial covenants under the revolving loan agreement as of
and through December 31, 2009, and believes it will be able to continue to
comply with these covenants under the Modified Loan Agreement for the remainder
of the term of the credit facility.





Capital
expenditures during 2009 and 2008 were $566,939 and $742,429, respectively,
which were, in part, financed with debt.  Capital expenditures in 2010
are not expected to differ materially from recent years.





The
Company believes that cash generated from operating activities, together with
funds available under its current loan agreement, are expected, under current
conditions, to be sufficient to finance the Company’s planned operations for 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. 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. The adoption did not
have any impact on the Company’s consolidated financial statements.








Item
7A. Quantitative and Qualitative Disclosure about Market Risk





Not
applicable to smaller reporting companies.








16


Item
      8. Financial Statements and Supplementary DataAcme
      United Corporation and SubsidiariesCONSOLIDATED
      STATEMENTS OF OPERATIONSFor
      the years ended
                December
      31,2009
              
              
              2008Net
      sales
              
              $
              59,148,547
              
              
              $
              68,719,012Cost
      of goods sold
              
              
              37,075,060
              
              
              
              41,062,125Gross
      Profit
              
              
              22,073,487
              
              
              
              27,656,887Selling,
      general and administrative expenses
              
              
              19,046,864
              
              
              
              20,778,093Operating
      income
              
              
              3,026,623
              
              
              
              6,878,794Non
      operating items:Interest:Interest
      expense
              
              
              (155,008
              )
              
              
              (497,308
              )Interest
      income
              
              
              129,334
              
              
              
              101,760Interest
      expense, net
              
              
              (25,674
              )
              
              
              (395,548
              )Other
      income
              
              
              452,005
              
              
              
              192,855Total
      other income (expense), net
              
              
              426,331
              
              
              
              (202,643
              )Income
      before income tax expense
              
              
              3,452,954
              
              
              
              6,676,101Income
      tax expense
              
              
              610,867
              
              
              
              2,209,030Net
      income
              
              $
              2,842,087
              
              
              $
              4,467,071Earnings
      per share:Basic
              
              $
              0.86
              
              
              $
              1.28Diluted
              
              $
              0.85
              
              
              $
              1.24See
      accompanying Notes to Consolidated Financial Statements.
  17
 Acme
      United Corporation and SubsidiariesCONSOLIDATED
      BALANCE SHEETSDecember
      31,
              
              
              December
      31,2009
              
              
              2008ASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              6,519,065
              
              
              $
              5,224,564Accounts
      receivable, less allowance
              
              
              10,703,433
              
              
              
              10,564,097Inventories
              
              
              17,400,270
              
              
              
              21,769,304Deferred
      income taxes
              
              
              180,241
              
              
              
              209,172Prepaid
      expenses and other current assets
              
              
              952,946
              
              
              
              879,222Total
      current assets
              
              
              35,755,955
              
              
              
              38,646,359Property,
      plant and equipment:Land
              
              
              171,660
              
              
              
              167,003Buildings
              
              
              2,558,572
              
              
              
              2,515,641Machinery
      and equipment
              
              
              8,169,641
              
              
              
              7,454,662Total
      property, plant and equipment
              
              
              10,899,873
              
              
              
              10,137,306Less:
      accumulated depreciation
              
              
              8,811,705
              
              
              
              7,867,863Net
      plant, property and equipment
              
              
              2,088,168
              
              
              
              2,269,443Note
      receivable
              
              
              1,891,604
              
              
              
              2,000,000Intangible
      assets, less accumulated amortization
              
              
              1,863,648
              
              
              
              1,845,391Deferred
      income taxes
              
              
              621,270
              
              
              
              574,051Other
      assets
              
              
              88,828
              
              
              
              88,828Total
      assets
              
              $
              42,309,473
              
              
              $
              45,424,072LIABILITIESCurrent
      liabilities:Accounts
      payable
              
              $
              3,546,139
              
              
              $
              3,668,689Other
      accrued liabilities
              
              
              3,257,062
              
              
              
              5,157,990Total
      current liabilities
              
              
              6,803,201
              
              
              
              8,826,679Long-term
      debt
              
              
              9,154,000
              
              
              
              11,719,000Other
              
              
              1,811,022
              
              
              
              1,990,730Total
      liabilities
              
              
              17,768,223
              
              
              
              22,536,409STOCKHOLDERS'
      EQUITYCommon
      stock, par value $2.50: authorized 8,000,000shares;
      issued - 4,313,024 shares in 2009 and  4,293,024 shares in 2008,
      including treasury stock
              
              
              10,782,555
              
              
              
              10,732,555Treasury
      stock, at cost, 1,155,165 shares in 2009and
      949,656 shares in 2008
              
              
              (10,144,325
              )
              
              
              (8,406,722
              )Additional
      paid-in capital
              
              
              4,208,112
              
              
              
              3,906,000Accumulated
      other comprehensive loss
              
              
              (812,970
              )
              
              
              (1,663,361
              )Retained
      earnings
              
              
              20,507,878
              
              
              
              18,319,191Total
      stockholders' equity
              
              
              24,541,250
              
              
              
              22,887,663Total
      liabilities and stockholders' equity
              
              $
              42,309,473
              
              
              $
              45,424,072See
      accompanying Notes to Consolidated Financial Statements.
  18
 Acme
      United Corporation and SubsidiariesCONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITYOutstanding
      Shares of Common Stock
              
              
              Common
      Stock
              
              
              Treasury
      Stock
              
              
              Additional
      Paid-In Capital
              
              
              Accumulated
      Other Comprehensive Income (Loss)
              
              
              Retained
      Earnings
              
              
              TotalBalances,
      December 31, 2007
              
              
              3,552,883
              
              
              $
              10,668,185
              
              
              $
              (5,929,999
              )
              
              $
              3,550,053
              
              
              $
              285,842
              
              
              $
              14,472,662
              
              
              $
              23,046,743Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,467,071
              
              
              
              4,467,071Translation
      adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,309,018
              )
              
              
              
              
              
              
              (1,309,018
              )Change
      in pension plannet
      prior service credit andactuarial
      losses, net of taxbenefit
      of $373,575
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (640,185
              )
              
              
              
              
              
              
              (640,185
              )Comprehensive
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,517,868Stock
      compensation expense
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              277,577
              
              
              
              
              
              
              
              
              
              
              
              277,577Tax
      benefit from exercise ofemployee
      stock options
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              9,928
              
              
              
              
              
              
              
              
              
              
              
              9,928Distribution
      to shareholders
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (620,542
              )
              
              
              (620,542
              )Issuance
      of common stock
              
              
              25,750
              
              
              
              64,370
              
              
              
              
              
              
              
              68,443
              
              
              
              
              
              
              
              
              
              
              
              132,813Purchase
      of treasury stock
              
              
              (235,265
              )
              
              
              
              
              
              
              (2,476,723
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,476,723
              )Balances,
      December 31, 2008
              
              
              3,343,368
              
              
              
              10,732,555
              
              
              
              (8,406,722
              )
              
              
              3,906,000
              
              
              
              (1,663,361
              )
              
              
              18,319,191
              
              
              
              22,887,663Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,842,087
              
              
              
              2,842,087Translation
      adjustment
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              709,421
              
              
              
              
              
              
              
              709,421Change
      in pension plannet
      prior service credit andactuarial
      losses, net of taxof
      $82,218
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              140,970
              
              
              
              
              
              
              
              140,970Comprehensive
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,692,478Stock
      compensation expense
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              308,337
              
              
              
              
              
              
              
              
              
              
              
              308,337Distribution
      to shareholders
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (653,400
              )
              
              
              (653,400
              )Issuance
      of common stock
              
              
              20,000
              
              
              
              50,000
              
              
              
              
              
              
              
              (6,225
              )
              
              
              
              
              
              
              
              
              
              
              43,775Purchase
      of treasury stock
              
              
              (205,509
              )
              
              
              
              
              
              
              (1,737,603
              )
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,737,603
              )Balances,
      December 31, 2009
              
              
              3,157,859
              
              
              $
              10,782,555
              
              
              $
              (10,144,325
              )
              
              $
              4,208,112
              
              
              $
              (812,970
              )
              
              $
              20,507,878
              
              
              $
              24,541,250See
      accompanying Notes to Consolidated Financial Statements.
  19
 Acme
      United Corporation and SubsidiariesCONSOLIDATED
      STATEMENTS OF CASH FLOWFor
      the years ended December 31,2009
              
              
              2008Operating
      activities:Net
      income
              
              $
              2,842,087
              
              
              $
              4,467,071Adjustments
      to reconcile net income to netcash
      provided by operating activitiesDepreciation
              
              
              803,902
              
              
              
              899,142Amortization
              
              
              113,987
              
              
              
              108,828Stock
      compensation expense
              
              
              308,337
              
              
              
              277,577Deferred
      income taxes
              
              
              (280,188
              )
              
              
              (213,353
              )Change
      in estimated cost of environmental remediation
              
              
              (457,379
              )
              
              
              -Gain
      on disposal of property, plant and equipment
              
              
              -
              
              
              
              (260,984
              )Tax
      benefit on exercise of stock options
              
              
              -
              
              
              
              9,928Changes
      in operating assets and liabilitiesAccounts
      receivable
              
              
              49,438
              
              
              
              1,842,262Inventories
              
              
              4,668,500
              
              
              
              (3,473,436
              )Prepaid
      expenses and other current assets
              
              
              43,310
              
              
              
              254,127Accounts
      payable
              
              
              (149,341
              )
              
              
              (854,450
              )Other
      accrued liabilities
              
              
              (1,361,210
              )
              
              
              208,919Total
      adjustments
              
              
              3,739,356
              
              
              
              (1,201,439
              )Net
      cash provided by operating activities
              
              
              6,581,443
              
              
              
              3,265,632Investing
      activities:Purchase
      of property, plant and equipment
              
              
              (566,939
              )
              
              
              (742,429
              )Purchase
      of patents and trademarks
              
              
              (132,244
              )
              
              
              (295,339
              )Net
      cash used by investing activities
              
              
              (699,183
              )
              
              
              (1,037,767
              )Financing
      activities:Net
      (repayments) borrowings of long-term debt
              
              
              (2,565,000
              )
              
              
              1,568,825Distributions
      to shareholders
              
              
              (662,547
              )
              
              
              (594,631
              )Purchase
      of treasury stock
              
              
              (1,737,603
              )
              
              
              (2,476,723
              )Issuance
      of common stock
              
              
              43,775
              
              
              
              132,813Net
      cash used by financing activities
              
              
              (4,921,375
              )
              
              
              (1,369,716
              )Effect
      of exchange rate changes
              
              
              333,616
              
              
              
              (621,574
              )Net
      change in cash and cash equivalents
              
              
              1,294,501
              
              
              
              236,573Cash
      and cash equivalents at beginning of year
              
              
              5,224,564
              
              
              
              4,987,991Cash
      and cash equivalents at end of year
              
              $
              6,519,065
              
              
              $
              5,224,564Supplemental
      cash flow informationCash
      paid for income taxes
              
              $
              1,334,358
              
              
              $
              1,700,324Cash
      paid for interest expense
              
              $
              165,092
              
              
              $
              495,113See
      accompanying Notes to Consolidated Financial Statements.
  20


Acme
United Corporation and Subsidiaries


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





1.  Operations





The
operations of Acme United Corporation (the “Company”) consist of three
reportable segments. The operations of the Company are structured and evaluated
based on geographic location.  The three reportable segments operate
in the United States (including Asian operations), Canada and
Germany.  Principal products across all segments are scissors, shears,
knives, rulers, pencil sharpeners, first aid kits, and related products which
are sold primarily to wholesale, contract and retail stationery distributors,
office supply super stores, school supply distributors, drug store retailers,
industrial distributors, wholesale florists, mass market retailers and hardware
chains.





2.  Accounting
Policies





Estimates
- The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period.  The most sensitive and significant
accounting estimates relate to customer rebates, valuation allowances for
deferred income tax assets, obsolete and slow-moving inventories, potentially
uncollectible accounts receivable and accruals for income
taxes.  Actual results could differ from those estimates.





Principles
of Consolidation - The consolidated financial statements include the accounts of
the Company and its subsidiaries, all of which are wholly owned by the
Company.  All significant intercompany accounts and transactions are
eliminated in consolidation.





Translation
of Foreign Currency - For foreign operations, assets and liabilities are
translated at rates in effect at the end of the year; revenues and expenses are
translated at average rates in effect during the year.  Resulting
translation adjustments are made directly to accumulated other comprehensive
loss.  Foreign currency transaction gains and losses are recognized in
operating results.  Foreign currency transaction losses, which are
included in other income, net, were $35,519 in 2009 and $101,355 in
2008.





Cash
Equivalents - Investments with an original maturity of three months or less at
the date of purchase are considered cash equivalents.





Accounts
Receivable - Accounts receivable are shown less an allowance for doubtful
accounts of $71,629 in 2009 and $64,105 in 2008.





Inventories
- Inventories are stated at the lower of cost, determined by the first-in,
first-out method, or market.





Property,
Plant and Equipment and Depreciation – Property, plant and equipment is recorded
at cost.  Depreciation is computed by the straight-line method over
the estimated useful lives of the assets, which range from 3 to 30
years.





Intangible
Assets– Intangible assets with finite useful lives are recorded at cost upon
acquisition, and amortized over the term of the related contract or useful life,
as applicable.  Intangible assets held by the Company with finite
useful lives include patents and trademarks.  Patents and trademarks
are amortized over their estimated useful lives.  The weighted average
amortization period for intangible assets at December 31, 2009 was 14
years.  The Company periodically reviews the values recorded for
intangible assets to assess recoverability from future operations whenever
events or changes in circumstances indicate that their carrying amounts may not
be recoverable.  At December 31, 2009 and 2008, the Company assessed
the recoverability of its long-lived assets and believed that there were no
events or circumstances present that would that would require a test of
recoverability on those assets. As a result, there was no impairment of the
carrying amounts of such assets and no reduction in their estimated useful
lives.




Deferred
Income Taxes - Deferred income taxes are provided for the differences between
the financial statement and tax bases of assets and liabilities, and on
operating loss carryovers, using tax rates in effect in years in which the
differences are expected to reverse.





21





Revenue
Recognition – The Company recognizes revenue from the sales of its products when
ownership transfers to the customers, which occurs either at the time of
shipment or upon delivery based upon contractual terms with the
customer.  The Company recognizes customer program costs, including
rebates, cooperative advertising, slotting fees and other sales related
discounts, as a reduction to sales.




Research
and Development – Research and development costs ($440,378 in 2009 and $529,685
in 2008) are expensed as incurred.





Shipping
Costs – Shipping costs ($2,529,743 in 2009 and $3,073,673 in 2008) are included
in selling, general and administrative expenses.




Advertising
Costs – The Company expenses the production costs of advertising the first time
that the related advertising takes place.  Advertising costs
($1,066,860 in 2009 and $1,159,462 in 2008) are included in selling, general and
administrative expenses.





Subsequent
events - The Company has evaluated events and transactions subsequent to
December 31, 2009 through the date our consolidated financial statements were
included in this Form 10-K and filed with the SEC.




Concentrations
– The Company performs ongoing credit evaluations of its customers and generally
does not require collateral for the extension of credit. Allowances for credit
losses are provided and have been within management's
expectations.  In 2009, with respect to concentration risk related to
accounts receivable, the Company had one customer that accounted for greater
than 10% of total net receivables.  In 2009, the Company had one
customer that individually exceeded 10% of consolidated net sales and three
customers that individually exceeded 10% of consolidated net sales in 2008. Net
sales to these customers amounted to approximately 20% in 2009, 19%, 12%
and 10% in 2008.  Sales to no other customer exceeded 10% of
consolidated net sales in 2009 and 2008.




3.  InventoriesInventories
      consisted of:
              
              2009
              
              
              2008Finished
      goods
              
              $
              16,337,034
              
              
              $
              20,824,717Work
      in process
              
              
              97,297
              
              
              
              21,151Materials
      and supplies
              
              
              965,939
              
              
              
              923,436$
              17,400,270
              
              
              $
              21,769,304


Inventories
are stated net of valuation allowances for slow moving and obsolete inventory of
$421,685 as of December 31, 2009 and $498,887 as of December 31,
2008.




4.  Intangible
      AssetsIntangible
      assets consisted of:
              
              2009
              
              
              2008Patents
              
              $
              1,695,881
              
              
              $
              1,577,580Trademarks
              
              
              534,058
              
              
              
              520,1152,229,939
              
              
              
              2,097,695Accumulated
      amortization
              
              
              366,291
              
              
              
              252,304$
              1,863,648
              
              
              $
              1,845,391




Amortization
expense for patents and trademarks for the years ended December 31, 2009, and
2008 were $113,987 and $108,828, respectively.  The estimated aggregate
amortization expense for each of the next five succeeding years, calculated on a
similar basis, is as follows:  2010 - $114,870; 2011 - $113,768; 2012
- $112,312; 2013 - $112,172; and 2014 - $100,406.





22




5.  Other
      Accrued LiabilitiesOther
      current and long-term accrued liabilities consisted of:2009
              
              
              2008Customer
      rebates
              
              $
              2,489,410
              
              
              $
              2,506,807Remediation
      liability
              
              
              681,444
              
              
              
              1,724,000Pension
      liability
              
              
              1,308,655
              
              
              
              1,380,890Other
              
              
              588,575
              
              
              
              1,537,022$
              5,068,084
              
              
              $
              7,148,720The
      decline in other acccrued liabilities is primarily related to a decrease
      in income taxes payable.




6.  Pension
and Profit Sharing





United
States employees, hired prior to July 1, 1993, are covered by a funded, defined
benefit pension plan.  The benefits of this pension plan are based on
years of service and the average compensation of the highest three consecutive
years during the last ten years of employment.  In December 1995, the
Company's Board of Directors approved an amendment to the United States pension
plan that terminated all future benefit accruals as of February 1, 1996, without
terminating the pension plan.





The
Company’s funding policy with respect to its qualified plan is to contribute at
least the minimum amount required by applicable laws and regulations. In 2009,
the Company contributed $107,740 to the plan and expects to contribute
approximately $265,000 during 2010.





The plan
asset weighted average allocation at December 31, 2009 and December 31, 2008, by
asset category, were as follows:




Asset
      Category
              2009
              2008Equity
      Securities
              70%
              67%Fixed
      Income Securities
              30%
              30%Other
      Securities / Investments
              0%
              3%Total
              100%
              100%




The
Company’s investment policy for the pension plan is to minimize risk by
balancing investments between equity securities and fixed income securities,
utilizing a weighted average approach of 65% equity securities, 30% fixed income
securities, and 5% cash investments.  Plan funds are invested in
long-term obligations with a history of moderate to low risk.





As of
each December 31, 2009 and 2008, equity securities in the pension plan included
10,000 shares of the Company's Common Stock, having a market value of $91,993
and $70,500, respectively.





The
pension plan asset information included below is presented at fair value. ASC
820 establishes a framework for measuring fair value and requires disclosures
about assets and liabilities measured at fair value. The fair value hierarchy
prioritizes the inputs to valuation techniques used to measure fair value into
three levels as follows:





·
            Level
      1 – Inputs to the valuation methodology based on unadjusted quoted market
      prices in active markets that are accessible at the measurement
      date.


·
            Level
      2 – Inputs to the valuation methodology that include quoted market prices
      that are not considered to be active or financial instruments for which
      all significant inputs are observable, either directly or
      indirectly.


·
            Level
      3 – Inputs to the valuation methodology are unobservable and significant
      to the fair value measurement.





The
following table presents the pension plan assets by level within the fair value
hierarchy as of December 31, 2009.





23


Level
      1
              
              
              Level
      2
              
              
              Level
      3
              
              
              TotalMoney
      Market Fund
              
              $
              9,595
              
              
              $
              -
              
              
              $
              -
              
              
              $
              9,595Acme
      United Common Stock
              
              
              91,993
              
              
              
              -
              
              
              
              -
              
              
              
              91,993Equity
      Common and Collected Funds
              
              
              -
              
              
              
              779,225
              
              
              
              -
              
              
              
              779,225Fixed
      Income Common and Collected Funds
              
              
              -
              
              
              
              365,728
              
              
              
              -
              
              
              
              365,728Total
              
              $
              101,588
              
              
              $
              1,144,953
              
              
              $
              -
              
              
              $
              1,246,541





Other
      disclosures related to the pension plan follow:2009
              
              
              2008Assumptions
      used to determine benefit obligation:Discount
      rate
              
              
              5.06
              %
              
              
              6.19
              %Changes
      in benefit obligation:Benefit
      obligation at beginning of year
              
              $
              (2,641,926
              )
              
              $
              (2,919,276
              )Interest
      cost
              
              
              (151,990
              )
              
              
              (175,481
              )Service
      cost
              
              
              (25,000
              )
              
              
              (25,000
              )Amendment
              
              
              -
              
              
              
              (6,508
              )Actuarial
      loss
              
              
              (99,923
              )
              
              
              (159,484
              )Benefits
      and plan expenses paid
              
              
              363,643
              
              
              
              643,823Benefit
      obligation at end of year
              
              
              (2,555,196
              )
              
              
              (2,641,926
              )Changes
      in plan assets:Fair
      value of plan assets at beginning of year
              
              
              1,261,036
              
              
              
              2,632,142Actual
      return on plan assets
              
              
              241,408
              
              
              
              (727,283
              )Employer
      contribution
              
              
              107,740
              
              
              
              -Benefits
      and plan expenses paid
              
              
              (363,643
              )
              
              
              (643,823
              )Fair
      value of plan assets at end of year
              
              
              1,246,541
              
              
              
              1,261,036Funded
      status
              
              $
              (1,308,655
              )
              
              $
              (1,380,890
              )Accrued
      benefits costs are included in other accrued liabilities
      (non-current).




2009
              
              
              2008Assumptions
      used to determine net periodic benefit cost:Discount
      rate
              
              
              6.19
              %
              
              
              6.25
              %Expected
      return on plan assets
              
              
              8.25
              %
              
              
              8.25
              %Components
      of net benefit expense:Interest
      cost
              
              $
              151,990
              
              
              $
              175,481Service
      cost
              
              
              25,000
              
              
              
              25,000Expected
      return on plan assets
              
              
              (94,951
              )
              
              
              (202,570
              )Amortization
      of prior service costs
              
              
              9,154
              
              
              
              8,612Amortization
      of actuarial loss
              
              
              167,500
              
              
              
              71,310Net
      periodic benefit cost
              
              $
              258,693
              
              
              $
              77,833
  24





The
Company employs a building block approach in determining the long-term rate of
return for plan assets. Historical markets are studied and long-term historical
relationships between equity securities and fixed income securities are
preserved consistent with the widely-accepted capital market principle that
assets with higher volatility generate higher returns over the long run.  
Our expected 8.25% long-term rate of return on plan assets is determined based
on long-term historical performance of plan assets, current asset allocation and
projected long-term rates of return.





The
following table discloses the change recorded in other comprehensive income
related to benefit costs:




2009
            
            
            2008Balance
      at beginning of the year
            
            $
            2,148,797
            
            
            $
            1,132,874Change
      in net loss
            
            
            (46,534
            )
            
            
            1,089,337Amortization
      of actuarial loss
            
            
            (167,500
            )
            
            
            (71,310
            )Amortization
      of prior service cost
            
            
            (9,154
            )
            
            
            (8,612
            )Change
      recognized in other comprehensive income
            
            
            (223,188
            )
            
            
            1,015,923Total
      recognized in other comprehensive income
            
            $
            1,925,609
            
            
            $
            2,148,797




Amounts
      recognized in Accumulated Other Comprehensive Income:Net
      actuarial loss
              
              $
              1,867,972
              
              
              $
              2,082,006Prior
      service cost
              
              
              57,637
              
              
              
              66,791Total
              
              $
              1,925,609
              
              
              $
              2,148,797


In 2010,
net periodic benefit cost will include approximately $150,000 of net actuarial
loss and $9,000 of prior service cost.





The
following benefits are expected to be paid:





2010
              
              $
              325,0002011
              
              
              307,0002012
              
              
              292,0002013
              
              
              273,0002014
              
              
              262,000Years
      2015 - 2019
              
              
              1,028,000





The
Company also has a qualified, profit sharing plan covering substantially all of
its United States employees. Annual Company contributions to this profit sharing
plan are determined by the Company’s Compensation Committee.  For the
years ended December 31, 2009 and 2008, the Company contributed 50% of
employee’s contributions, up to the first 6% of each employee’s
contribution.  Total contribution expense under this profit sharing
plan was $99,882 in 2009 and $97,666 in 2008.




25


7.  Income
      TaxesThe
      amounts of income tax expense (benefit) reflected in operations
      follow:2009
              
              
              2008Current:Federal
              
              $
              246,910
              
              
              $
              1,403,689State
              
              
              28,055
              
              
              
              216,310Foreign
              
              
              630,500
              
              
              
              813,298905,465
              
              
              
              2,433,307Deferred:Federal
              
              
              (257,441
              )
              
              
              (200,126
              )State
              
              
              (22,747
              )
              
              
              (12,911
              )Foreign
              
              
              (14,410
              )
              
              
              (11,240
              )(294,598
              )
              
              
              (224,277
              )$
              610,867
              
              
              $
              2,209,030


The
current state tax provision was comprised of taxes on income, the minimum
capital tax and other franchise taxes related to the jurisdictions in which the
Company's facilities are located.





A summary
of United States and foreign income before income taxes follows:




2009
              
              
              2008United
      States
              
              $
              814,582
              
              
              $
              3,373,597Foreign
              
              
              2,638,372
              
              
              
              3,302,504$
              3,452,954
              
              
              $
              6,676,101


The
following schedule reconciles the amounts of income taxes computed at the United
States statutory rates to the actual amounts  reported in
operations.


2009
            
            
            2008Federal
      incometaxes
      at34%
      statutory rate
            
            $
            1,174,004
            
            
            $
            2,269,874State
      and localtaxes,
      net offederal
      incometax
      effect
            
            
            3,503
            
            
            
            135,059Permanent
      items
            
            
            39,505
            
            
            
            255,332Charitable
      Donations
            
            
            (345,099
            )
            
            
            -Foreign
      tax rate difference
            
            
            (494,861
            )
            
            
            (175,726
            )Change
      in deferred income taxvaluation
      allowance
            
            
            233,815
            
            
            
            (275,509
            )Provision
      for income taxes
            
            $
            610,867
            
            
            $
            2,209,030




26








2009
              
              
              2008Deferred
      income tax liabilities:Plant,
      propertyand
      equipment
              
              $
              356,726
              
              
              $
              203,727356,726
              
              
              
              203,727Deferred
      income tax assets:Asset
      valuations
              
              
              122,921
              
              
              
              209,172Contribution
      carryforward
              
              
              373,925
              
              
              
              -Operating
      losscarryforwards
      and credits
              
              
              1,850,929
              
              
              
              1,617,114Pension
              
              
              576,114
              
              
              
              561,964Foreign
      tax credit
              
              
              142,000
              
              
              
              242,000Other
              
              
              85,277
              
              
              
              115,8143,151,166
              
              
              
              2,746,064Net
      deferredincome
      tax asset before valuation allowance
              
              
              2,794,440
              
              
              
              2,542,337Valuationallowance
              
              
              (1,992,929
              )
              
              
              (1,759,114
              )Net
      deferredincome
      tax asset
              
              $
              801,511
              
              
              $
              783,223




In 2009,
the Company evaluated its tax positions, for years which remain subject to
examination by major tax jurisdictions, in accordance with the requirements of
ASC 740 and as a result concluded no adjustment was necessary. The Company files
income tax returns in the U.S. federal jurisdiction, and various state and
foreign jurisdictions. The Company’s evaluation of uncertain tax positions was
performed for the tax years ended December 31, 2006 and forward, the tax years
which remain subject to examination by major tax jurisdictions as of December
31, 2009.





In
accordance with the Company’s accounting policies, any interest and penalties
related to uncertain tax positions are recognized as a component of income tax
expense.




The
Company provides deferred income taxes on foreign subsidiary earnings, which are
not considered permanently reinvested.  Earnings permanently
reinvested would become taxable upon the sale or liquidation of a foreign
subsidiary or upon the remittance of dividends.  During 2009, the
Company repatriated $1,000,000 of foreign earnings from its Canadian subsidiary.
U.S. income taxes on those repatriated earnings have been offset by foreign tax
credits. The Company plans to continue to repatriate future earnings of its
Canadian subsidiary and will provide for U.S. income taxes
accordingly.  Foreign subsidiary earnings of $7,220,529 and $5,729,313
are considered permanently reinvested as of December 31, 2009 and 2008,
respectively, and no deferred income taxes have been provided on these foreign
earnings.





Due to
the uncertain nature of the realization of the Company's deferred income tax
assets based on past performance and carry forward expiration dates, the Company
has recorded a valuation allowance for the amount of deferred income tax assets
which are not expected to be realized.  This valuation allowance is
subject to periodic review, and if the allowance is reduced, the tax benefit
will be recorded in future operations as a reduction of the Company's tax
expense.





At
December 31, 2009, the Company has tax operating loss carry forwards aggregating
$6,078,072, all of which are applicable to Germany, and can be carried forward
indefinitely.





27





8.  Debt




Long term
debt consists of borrowings under the Company’s revolving loan agreement with
Wachovia Bank. As of December 31, 2009,$9,154,000 was outstanding
and $10,846,000 was available for borrowing under the Company’s revolving loan
agreement.





Under the
revolving loan agreement, the Company is required to maintain specific amounts
of tangible net worth, a specified debt service coverage ratio, and a fixed
charge coverage ratio.  The Company was in compliance with these
financial covenants at December 31, 2009.





On
January 26, 2010, the Company modified its revolving loan agreement with
Wachovia Bank to amend certain provisions of the original
agreement.  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.  This Modified Loan
Agreement continues to be secured by the assets of the U.S. parent company.
Funds borrowed under the Modified Loan Agreement may be used for working
capital, general operating expenses, share repurchases and certain other
purposes.







9.
Commitments and Contingencies





The
Company leases certain office, manufacturing and warehouse facilities and
various equipment under non-cancelable operating leases. Total rent expense was
$668,297 and $643,162 in 2009 and 2008. Minimum annual rental commitments under
non-cancelable leases with remaining terms of one year or more as of December
31, 2009:  2010 - $578,632; 2011 - $124,000; 2012 - $43,297; and 2013
- $30,642;.





The
Company is involved, from time to time, in disputes and other litigation in the
ordinary course of business, including certain 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
effect on financial position, results of operations, or liquidity of the
Company.








10.
Segment Information





The
Company reports financial information based on the organizational structure used
by management for making operating and investment decisions and for assessing
performance. The Company’s reportable business segments include (1) United
States; (2) Canada and (3) Europe. The financial results of the Company’s Asian
operations have been aggregated with the results of its United States operations
to form one reportable segment called the “United States segment”. Each
reportable segment derives its revenue from the sales of cutting devices,
measuring instruments and safety products for school, office, home, hardware and
industrial use.




The Chief
Operating Decision Maker evaluates the performance of each operating segment
based on segment revenues and operating income. Segment revenues are defined as
total revenues, including both external customer revenue and intersegment
revenue. Segment operating earnings are defined as segment revenues, less cost
of goods sold and operating expenses. Identifiable assets by segment are those
assets used in the respective reportable segment’s operations. Intersegment
amounts are eliminated to arrive at consolidated financial results.







28




Financial
      data by segment:2009(000's
      omitted)
              
              United
      States
              
              
              Canada
              
              
              Europe
              
              
              ConsolidatedSales
      to unaffiliated customers
              
              $
              44,908
              
              
              $
              7,033
              
              
              $
              7,207
              
              
              $
              59,149Operating
      income
              
              
              3,158
              
              
              
              416
              
              
              
              (547
              )
              
              
              3,027Assets
              
              
              31,377
              
              
              
              5,606
              
              
              
              5,326
              
              
              
              42,309Additions
      to property, plant and equipment
              
              
              534
              
              
              
              14
              
              
              
              20
              
              
              
              567Depreciation
      and amortization
              
              
              771
              
              
              
              62
              
              
              
              85
              
              
              
              9182008Sales
      to unaffiliated customers
              
              $
              53,548
              
              
              $
              8,095
              
              
              $
              7,076
              
              
              $
              68,719Operating
      income
              
              
              6,648
              
              
              
              787
              
              
              
              (556
              )
              
              
              6,879Assets
              
              
              33,719
              
              
              
              5,890
              
              
              
              5,815
              
              
              
              45,424Additions
      to property, plant and equipment
              
              
              656
              
              
              
              49
              
              
              
              37
              
              
              
              742Depreciation
      and amortization
              
              
              856
              
              
              
              65
              
              
              
              87
              
              
              
              1,008




The
following is a reconciliation of segment operating income to consolidated income
before taxes:




2009
              
              
              2008Total
      operating income
              
              $
              3,027
              
              
              $
              6,879Interest
      (income) expense, net
              
              
              26
              
              
              
              395Other
      income (expense), net
              
              
              452
              
              
              
              193Consolidated
      income before taxes
              
              $
              3,453
              
              
              $
              6,677Net
      Income
              
              $
              2,842
              
              
              $
              4,467




11.  Stock
Option Plans





The
Company has two stock option plans: (1) the 2002 Employee Stock Option Plan, as
amended (the “Employee Plan”) and (2) the 2005 Non-Salaried Director Stock
Option Plan (the “Director Plan”).





The
Employee Plan provides for the issuance of incentive and nonqualified stock
options at an exercise price equal to the fair market value of the Common Stock
on the date the option is granted.  The terms of the options granted
are subject to the provisions of the Employee Plan. Options granted under the
Employee Plan vest 25% one day after the first anniversary of the grant date and
25% one day after each of the next three anniversaries. As of December 31, 2009,
the number of shares available for grant under the Employee Plan was
72,438.





The
Director Plan provides for the issuance of stock options for up to 50,000 shares
of the Company's common stock to non-salaried directors.  Under the
Director Plan, Directors elected on April 25, 2005 and at subsequent Annual
Meetings who have not received any prior grant under this or previous plans
receive an initial grant of an option to purchase 5,000 shares of Common Stock
(the “Initial Option”). Each year, each elected Director not receiving an
Initial Option will receive a 2,500 share option (the “Annual
Option”).  The Initial Option vests 25% on the date of grant and 25%
on the anniversary of the grant date in each of the following 3 years. Each
Annual Option becomes fully exercisable one day after the date of grant. The
exercise price of all options granted equals the fair market value of the Common
Stock on the date the option is granted and expires ten (10) years from the date
of grant. As of December 31, 2009, the number of shares available for grant
under the Director Plan was 26,500.





29





A summary
of changes in options issued under the Company’s stock option plans
follows:




2009
              
              
              2008Options
      outstanding  at thebeginning
      of the year
              
              
              608,500
              
              
              
              565,750Options
      granted
              
              
              151,000
              
              
              
              80,500Options
      forfeited
              
              
              (17,000
              )
              
              
              (12,000
              )Options
      exercised
              
              
              (20,000
              )
              
              
              (25,750
              )Options
      outstanding atthe
      end of the year
              
              
              722,500
              
              
              
              608,500Options
      exercisable at theend
      of the year
              
              
              482,125
              
              
              
              439,688Common
      stock available for future grants at the end of the year
              
              
              98,938
              
              
              
              82,938Weighted
      average exercise price per share:Granted
              
              $
              7.84
              
              
              $
              13.24Forfeited
              
              
              15.36
              
              
              
              14.64Exercised
              
              
              2.19
              
              
              
              5.19Outstanding
              
              
              9.96
              
              
              
              10.38Exercisable
              
              
              9.62
              
              
              
              8.91


A
      summary of options outstanding at December 31, 2009 is as
      follows:Options
      Outstanding
              
              Options
      ExercisableRange
      of Exercise Prices
              Number
      Outstanding
              Weighted-Average
      Remaining Contractual Life (Years)
              Weighted-Average
      Exercise Price
              
              Number
      Exercisable
              Weighted-Average
      Exercise Price$1.25
      to $2.49
              20,300
              <
      1
              $          1.90
              
              20,300
              $        1.90$2.50
      to $3.65
              125,200
              2
              3.10
              
              125,200
              3.10$3.66
      to $5.00
              53,750
              3
              3.99
              
              53,750
              3.99$5.01
      to $7.99
              159,000
              7
              7.71
              
              24,000
              6.67$8.00
      to $17.02
              364,250
              7
              14.62
              
              258,875
              14.83722,500
              
              
              
              482,125





The
weighted average remaining contractual life of all outstanding stock options is
6 years.





Stock
Based Compensation


Stock-based
compensation cost is measured at the grant date based on the fair value of the
award and is recognized as expense over the requisite service period, which is
generally the vesting period. The Company uses the Black-Scholes option pricing
model to determine the fair value of employee and non-employee director stock
options. The determination of the fair value of stock-based payment awards on
the date of grant, using an option-pricing model, is affected by the Company’s
stock price as well as assumptions regarding a number of complex and subjective
variables. These assumptions include estimating the length of time employees
will retain their vested stock options before exercising them (“expected term”),
the estimated volatility of the Company’s common stock price over the expected
term (“volatility”) and the number of options that will not fully vest in
accordance with applicable vesting requirements (“forfeitures”).




30




The
Company estimates the expected term of options granted by evaluating various
factors, including the vesting period, historical employee information, as well
as current and historical stock prices and market conditions. The Company
estimates the volatility of its common stock by calculating historical
volatility based on the closing stock price on the last day of each of the 60
months leading up to the month the option was granted. The risk-free interest
rate that the Company uses in the option valuation model is the interest rate on
U.S. Treasury zero-coupon bond issues with remaining terms similar to the
expected term of the options granted. Historical information was the basis for
calculating the dividend yield. The Company is required to estimate forfeitures
at the time of grant and to revise those estimates in subsequent periods if
actual forfeitures differ from those estimates. The Company used a mix of
historical data and future assumptions to estimate pre-vesting option
forfeitures and to record stock-based compensation expense only for those awards
that are expected to vest. All stock-based payment awards are amortized over the
requisite service periods of the awards, which are generally the vesting
periods.




The
assumptions used to value option grants for the twelve months ended December 31,
2009 and December 31, 2008 were as follows:




2009
            
            
            2008Expected
      life in years
            
            
            5
            
            
            
            5Interest
      rate
            
            
            1.82
      - 2.95%
            
            
            
            2.95
      - 3.30%Volatility
            
            
            .38-.39
            
            
            
            .28-.31Dividend
      yield
            
            
            2.50%
            
            
            
            1.17
      - 1.20%







Total
stock-based compensation recognized in the Company’s consolidated statement of
operations for the years ended December 31, 2009 and 2008 was $308,377 and
$277,577, respectively.  As of December 31, 2009, there was
approximately $528,815 of unrecognized compensation cost, adjusted for estimated
forfeitures, related to non-vested stock-based payments granted to the Company’s
employees. As of December 31, 2009, the remaining unamortized expense is
expected to be recognized over a weighted average period of 3
years.




The
weighted average fair value at the date of grant for options granted during 2009
and 2008 was $2.34 and $3.66 per option, respectively.  The aggregate
intrinsic value of outstanding options was $1,428,174 at December 31, 2009. The
aggregate intrinsic value of exercisable options was $1,252,674 at December 31,
2009.The
aggregate intrinsic value of options exercised during 2009 was
$110,026.








12.  Earnings
Per Share


The
calculation of earnings per share follows:


2009
              
              
              2008Numerator:Net
      income
              
              $
              2,842,087
              
              
              $
              4,467,071Denominator:Denominator
      for basic earnings per share:Weighted
      average shares outstanding
              
              
              3,165,984
              
              
              
              3,486,370Effect
      of dilutive employee stock options
              
              
              99,501
              
              
              
              125,503Denominator
      for dilutive earnings per share
              
              
              3,265,485
              
              
              
              3,611,873Basic
      earnings per share
              
              $
              0.86
              
              
              $
              1.28Dilutive
      earnings per share
              
              $
              0.85
              
              
              $
              1.24




For 2009
and 2008, respectively, 364,250 and 381,250 stock options were excluded from
diluted earnings per share calculations because they would have been
anti-dilutive.





31




13. Accumulated
      Other Comprehensive (loss) incomeThe
      components of the accumulated other comprehensive (loss) income
      follow:Foreign
      currency translation adjustment
              
              
              Net
      prior service credit and actuarial losses
              
              
              TotalBalances,
      December 31, 2007
              
              $
              920,798
              
              
              $
              (634,955
              )
              
              $
              285,842Change
      in net prior service creditand
      actuarial losses, net oftax
      benefit of $373,575,
              
              
              
              
              
              
              (640,185
              )
              
              
              (640,185
              )Translation
      adjustment
              
              
              (1,309,018
              )
              
              
              
              
              
              
              (1,309,018
              )Balances,
      December 31, 2008
              
              
              (388,220
              )
              
              
              (1,275,140
              )
              
              
              (1,663,361
              )Change
      in net prior service creditand
      actuarial losses, net ofincome
      tax expense of $82,218,
              
              
              
              140,970
              
              
              
              140,970Translation
      adjustment
              
              
              709,421
              
              
              
              
              
              
              
              709,421Balances,
      December 31, 2009
              
              $
              321,201
              
              
              $
              (1,134,170
              )
              
              $
              (812,970
              )






14.  Financial
Instruments


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.








15.  Quarterly
Data (unaudited)


Quarters
      (000's omitted, except per share data)2009
              
              First
              
              
              Second
              
              
              Third
              
              
              Fourth
              
              
              TotalNet
      sales
              
              $
              11,297
              
              
              $
              19,161
              
              
              $
              15,269
              
              
              $
              13,422
              
              
              $
              59,149Cost
      of goods sold
              
              
              7,000
              
              
              
              12,056
              
              
              
              9,771
              
              
              
              8,248
              
              
              
              37,075Net
      income
              
              
              42
              
              
              
              1,341
              
              
              
              728
              
              
              
              731
              
              
              
              2,842Basic
      earnings per share
              
              $
              0.01
              
              
              $
              0.40
              
              
              $
              0.22
              
              
              $
              0.23
              
              
              $
              0.86Diluted
      earnings per share
              
              $
              0.01
              
              
              $
              0.40
              
              
              $
              0.22
              
              
              $
              0.22
              
              
              $
              0.85Dividends
      per share
              
              $
              0.05
              
              
              $
              0.05
              
              
              $
              0.05
              
              
              $
              0.05
              
              
              $
              0.202008
              
              First
              
              
              Second
              
              
              Third
              
              
              Fourth
              
              
              TotalNet
      sales
              
              $
              14,269
              
              
              $
              22,708
              
              
              $
              19,158
              
              
              $
              12,584
              
              
              $
              68,719Cost
      of goods sold
              
              
              8,283
              
              
              
              13,790
              
              
              
              11,288
              
              
              
              7,701
              
              
              
              41,062Net
      income
              
              
              753
              
              
              
              1,730
              
              
              
              1,351
              
              
              
              634
              
              
              
              4,467Basic
      earnings per share
              
              $
              0.21
              
              
              $
              0.49
              
              
              $
              0.38
              
              
              $
              0.19
              
              
              $
              1.28Diluted
      earnings per share
              
              $
              0.21
              
              
              $
              0.47
              
              
              $
              0.37
              
              
              $
              0.18
              
              
              $
              1.24Dividends
      per share
              
              $
              0.04
              
              
              $
              0.04
              
              
              $
              0.05
              
              
              $
              0.05
              
              
              $
              0.18


Earnings
per share are computed independently for each of the quarters
presented.  Therefore, the sum of the four quarterly earnings per
share amounts may not necessarily equal the earnings per share for the
year.








16.  Sale
of Property





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.




32





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 in the fourth quarter of 2008, 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. As of December 31, 2009, the Company paid
approximately $583,000 for work related to the remediation and has approximately
$681,000 remaining in its accrual for environmental remediation, of which
approximately $362,000 was classified as a current liability.





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 showed that the extent of contamination on the
site was not as extensive as originally estimated 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 third quarter of
2009.





The
change in the accrual for environmental remediation for the year ended December
31, 2009 follows (in thousands):





Balance
      at
              December
      31, 2008
            Payments
            Change
      in Estimate
            Balance
      at
              December
      31, 2009$  1,724
            $  (583)
            $  (460)
            $  681











Also, as
part of the sale, the Company has provided the buyer with a mortgage of $2.0
million at six percent interest  The mortgage is payable in monthly
installments 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.


33




Report
of Independent Registered Public Accounting Firm











To the
Board of Directors and Stockholders of Acme United Corporation





We have
audited the accompanying consolidated balance sheets of Acme United Corporation
and subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the
related consolidated statements of operations, changes in stockholders’ equity,
and cash flows for the years then ended. Our audits also included the financial
statement schedule listed in the Index at Item 15(a)(2). These consolidated
financial statements and financial statement schedule are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our
audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company’s internal controls over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting.  Accordingly, we
express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company as of
December 31, 2009 and 2008, and the consolidated results of its operations and
its cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.








/s/ UHY
LLP







Hartford,
Connecticut







34


Item 9.  Changes In and Disagreements with
Accountants on Accounting and Financial Disclosure





There
have been no disagreements with accountants related to accounting and financial
disclosures in 2009.







Item
9A(T). Controls and Procedures




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.






Management’s
Report on Internal Control over Financial Reporting




Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting. The Company’s internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles in the
United States of America. The Company’s internal control over financial
reporting includes those policies and procedures that: (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the Company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles in the United States of America, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Company’s assets that could have a
material effect on the financial statements.




Any
system of internal control, no matter how well designed, has inherent
limitations, including the possibility that a control can be circumvented or
overridden and misstatements due to error or fraud may occur and not be detected
in a timely manner. Also, because of changes in conditions, internal control
effectiveness may vary over time. Accordingly, even an effective system of
internal control will provide only reasonable assurance with respect to
financial statement preparation.




Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2009. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in "Internal Control-Integrated Framework.” Based on
management’s assessment using the COSO criteria, management has concluded that
the Company's internal control over financial reporting was effective as of
December 31, 2009.




This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management’s report
in this Annual Report.







Changes
in Internal Control over Financial Reporting





During
the quarter ended December 31, 2009, there were no changes in the Company’s
internal control over financial reporting that materially affected, or was
reasonably likely to materially affect, our internal control over financial
reporting.






Item
9B.  Other Information


None.





35








PART
III





Item 10.  Directors, Executive Officers and
Corporate Governance





The
following table sets forth certain information with respect to the directors and
executive officers of the Company.  All directors of the Company hold
office until the next annual meeting of the shareholders or until their
successors have been elected and qualified.  Executive officers are
elected by the Board of Directors to hold office until their successors are
elected and qualified.





Name
            Age
            Position
      Held with CompanyWalter
      C. Johnsen
            59
            Chairman
      of the Board and Chief Executive OfficerBrian
      S. Olschan
            53
            President,
      Chief Operating Officer and DirectorPaul
      G. Driscoll
            49
            Vice
      President, Chief Financial Officer, Secretary and
  TreasurerRex
      L. Davidson
            60
            DirectorRichmond
      Y. Holden, Jr.
            56
            DirectorSusan
      H. Murphy
            58
            DirectorStevenson
      E. Ward III
            64
            Director





Walter C. Johnsen has served
as Chairman of the Board and Chief Executive Officer of the Company since
January 1, 2007; President and Chief Executive Officer of the Company from
November 30, 1995 to December 31, 2006. He formerly served as Vice Chairman and
a principal of Marshall Products, Inc., a medical supply
distributor.  Mr. Johnsen’s qualifications to serve on the Board
include the in-depth knowledge of all facets of the Company’s business which he
has gained during his more than fifteen years of service as the Company’s Chief
Executive Officer.





Brian S. Olschan has served as
President and Chief Operating Officer of the Company since January 1, 2007;
Executive Vice President and Chief Operating Officer of the Company from January
25, 1999 to December 31, 2006; Senior Vice President - Sales and Marketing of
the Company from September 12, 1996 to January 24, 1999; formerly served as Vice
President and General Manager of the Cordset and Assembly Business of General
Cable Corporation, an electrical wire and cable manufacturer.  Mr.
Olschan’s qualifications to serve on the Board include his detailed knowledge of
the Company’s operations which he has gained in his capacity as a member of
senior management for more than eleven years, including as Chief Operating
Officer since January 1999 and President since January 2007.





Paul G. Driscoll has served as
Vice President and Chief Financial Officer, Secretary and Treasurer since
October 2, 2002.  Mr. Driscoll joined Acme as Director International
Finance on March 19, 2001.  From 1997 to 2001 he was employed by
Ernest and Julio Gallo Winery including Director of Finance and Operations in
Japan.  Prior to Gallo he served in several increasingly responsible
finance positions in Sterling Winthrop Inc. in New York City and Sanofi S.A. in
France.





Rex L. Davidson has served as
director since April, 2006.  He is currently President of Rex Davidson
Associates, LLC, a management consulting service and Executive Director of Las
Cumbres Community Services which provides developmental disability and
mental health services to children, adults and families in Northern New
Mexico.  Past President and Chief Executive Officer of Goodwill Industries
of Greater New York and Northern New Jersey, Inc., and Past President of
Goodwill Industries Housing Corporation.  Mr. Davidson’s qualifications to
serve on the Board include significant management experience at the highest
level, having been responsible for the management of an organization with over
2,000 employees and revenues in excess of $100 million.  Mr.
Davidson’s experience in the areas of compensation of personnel at all levels,
his experience relating to retail matters, such as retail trends and pricing,
and diversity policies are of significant benefit to the company.




Richmond Y. Holden,
Jr.has served as director since 1998. Since 2007, President
of Educators Publishing Service, a supplementary publisher of education
materials and a subsidiary of School Specialty Inc.  Previously, President
and Chief Executive Officer of J.L. Hammett Co. from 1992 to 2006, a reseller,
of educational products. The qualifications of Mr. Holden to serve on the Board
include his senior management level experience of large complex companies in the
educational markets.  In particular, as a result of his experience
with School Specialty Inc., a $1 billion reseller of educational products, Mr.
Holden has broad knowledge of educational markets and operational matters
relating to educational products, such as marketing, sourcing, pricing and
distribution.





36





Susan H. Murphyhas served as
director since 2003. She is presently Vice President for Student and Academic
Services at Cornell University since 1994.  From 1985 through 1994,
Ms. Murphy served as Dean of Admissions and Financial Aid. Ms. Murphy has been
employed at Cornell since 1978. Ms. Murphy received a Ph.D. from Cornell
University.  Ms. Murphy has broad senior management level experience
in a large, complex organization.In particular,
her experience in employee compensation matters and the development and
implementation of diversity policies is helpful to the Company.





Stevenson E. Ward III has
served as director since 2001. He is presently Vice President and Chief
Financial Officer of Triton Thalassic Technologies, Inc. From 1999 through 2000,
Mr. Ward served as Senior Vice President – Administration of Sanofi-Synthelabo,
Inc. He also served as Executive Vice President (1996 – 1999) and Chief
Financial Officer (1994 – 1995) of Sanofi, Inc. and Vice President,
Pharmaceutical Group, Sterling Winthrop, Inc. (1992 – 1994). Prior to joining
Sterling he was employed by General Electric with assignments in Purchasing,
Corporate Audit and Financial Management.  Mr. Ward’s qualifications
for service on the Board include his extensive experience in senior executive
level finance positions at Fortune 100 multinational corporations.





Code
of Conduct





The Company has adopted a Code of
Conduct that is applicable to its employees, including the Chief Executive Officer, Chief
Financial Officer and Controller. The Code of Conduct is available in the
investor relations section on the Company’s website at
www.acmeunited.com





If the
Company makes any substantive amendments to the Code of Conduct which apply to
its Chief Executive Officer, Chief Financial Officer or Controller, or
grants any waiver, including any implicit waiver, from a provision of the Code
of Conduct to the Company’s executive officers, the Company will disclose the
nature of the amendment or waiver on its website or in a report on Form
8-K.





Information
regarding Section 16(a) Beneficial Ownership Reporting Compliance and Corporate
Governance is incorporated herein by reference to the sections entitled (i)
“Compliance with Section 16(a) of the Securities Exchange Act of 1934”, (ii)
“Nominations for Directors”, and (iii) “Audit Committee” contained in the
Company’s Proxy Statement to be filed with the Securities and Exchange
Commission in connection with its 2010 Annual Meeting of
Shareholders.





Item
11.  Executive Compensation





Information
with respect to executive compensation is incorporated herein by reference to
the section entitled “Executive Compensation” contained in the Company’s Proxy
Statement to be filed with the Securities and Exchange Commission in connection
with the Company’s 2010 Annual Meeting of Shareholders.





Item
12.  Security Ownership of Certain Beneficial Owners and
Management





Information
regarding security ownership of certain beneficial owners, directors and
executive officers is incorporated herein by reference to the information in the
section entitled “Security Ownership of Directors and Officers” contained in the
Company’s Proxy Statement to be filed with the Securities and Exchange
Commission in connection with its 2010 Annual Meeting of
Shareholders.




Item
13.  Certain Relationships and Related Transactions, and Director
Independence





The
Company has not engaged in any transactions with related persons in the fiscal
year ended December 31, 2009 and there are no transactions with related persons
currently proposed.





Information
regarding Director Independence is incorporated herein by reference to the
section entitled “Independence Determinations” contained in the Company’s Proxy
Statement to be filed with the Securities and Exchange Commission in connection
with the Company’s 2010 Annual Meeting of Shareholders





37





Item
14.  Principal Accountant Fees and Services





Information
regarding principal accountant fees and services is incorporated herein by
reference to the section entitled “Fees to Auditors” contained in the Company’s
Proxy Statement to be filed with the Securities and Exchange Commission in
connection with its 2010 Annual Meeting of Shareholders.





PART
IV





Item
15.  Exhibits and Financial Statement Schedules




(a)(1)
Financial Statements.




·
            Consolidated
      Balance Sheets




·
            Consolidated
      Statements of Operations




·
            Consolidated
      Statements of Changes in Stockholders’
Equity




·
            Consolidated
      Statements of Cash Flows




·
            Notes
      to Consolidated Financial
Statements




·
            Report
      of Independent Registered Public Accounting
Firm




(a)(2)
Financial Statement Schedules




·
            Schedule
      2—Valuation and Qualifying Accounts




·
            Schedules
      other than those listed above have been omitted because of the absence of
      conditions under which they are required or because the required
      information is presented in the Financial Statements or Notes
      thereto.




(a)(3)
The exhibits listed under Item 15(b) are filed or incorporated by reference
herein.




(b)  Exhibits.




The
exhibits listed below are filed as part of this Annual Report on Form
10-K.  Certain of the exhibits, as indicated, have been previously
filed and are incorporated herein by reference.




Exhibit No.
            Identification of
    Exhibit3(i)
            Certificate
      of Organization of the Company (1)Amendment
      to Certificate of Organization of Registrant dated September 24, 1968
      (1)Amendment
      to Certificate of Incorporation of the Company dated April 27, 1971
      (2)Amendment
      to Certificate of Incorporation of the Company dated June 29, 1971
      (2)3(ii)
            Amendment
      to the Company’s Bylaws (10)4
            Specimen
      of Common Stock certificate (2)10.1
            Non-Salaried
      Director Stock Option Plan dated April 22, 1996* (3)10.1(a)
            Amendment
      No. 1 to the Non-Salaried Director Stock Option Plan
  *(4)10.1(b)
            Amendment
      No. 2 to the Non-Salaried Director Stock Option Plan
  *(5)




38




10.2
            1992 Amended and RestatedStockOption Plan*
      (6)10.2(a)
            Amendment
      No. 1 to the Amended and Restated Stock Option Plan*
(7)10.2(b)
            Amendment
      No. 2 to the Amended and Restated Stock Option Plan*
(8)10.2(c)
            Amendment
      No. 3 to the Amended and Restated Stock Option Plan*
(9)10.2(d)
            Amendment
      No. 4 to the Amended and Restated Stock Option Plan*
(9)10.3
            Acme
      United Employee Stock Option Plan dated February 26, 2002* as amended
      (11)10.4
            Severance
      Pay Plan dated September 28, 2004*10.5
            Salary
      Continuation Plan dated September 28, 2004*10.6
            2005
      Non-Salaried Director Stock Option Plan (12)10.8
            Deferred
      Compensation Plan dated October 2, 200710.9
            Fifth
      Modification to Revolving Promissory Note and Revolving Credit and
      Security Agreement, and Reaffirmation of Guaranty21
            Subsidiaries
      of the Registrant23.1
            Consent
      of Independent Registered Public Accounting Firm31.1
            Certification
      of Walter Johnsen pursuant to Rule 13a-14(a) and 15d-14(a) and Section 302
      of the Sarbanes-Oxley Act of 200231.2
            Certification
      of Paul Driscoll pursuant to Rule 13a-14(a) and 15d-14(a) and Section 302
      of the Sarbanes-Oxley Act of 200232.1
            Certification
      of Walter Johnsen pursuant to Section 906 of the Sarbanes-Oxley Act of
      200232.2
            Certification
      of Paul Driscoll pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002




*
                Indicates
      a management contract or a compensatory plan or
  arrangement




(1)
            Previously
      filed in S-1 Registration Statement No. 230682 filed with the Commission
      on November 7, 1968 and amended by Amendment No. 1 on December 31, 1968
      and by Amendment No. 2 on January 31,
1969.




(2)
            Previously
      filed as an exhibit to the Company’s Form 10-K filed in
    1971.




(3)
            Previously
      filed in the Company’s Form S-8 Registration Statement No. 333-26739 filed
      with the Commission on May 9, 1997.




(4)
            Previously
      filed in the Company’s Form S-8 Registration Statement No. 333-84505 filed
      with the Commission on August 4,
1999.




(5)
            Previously
      filed in the Company’s Form S-8 Registration Statement No. 333-70348 filed
      with the Commission on September 21,
2000.




(6)
            Previously
      filed as an exhibit to the Company’s Proxy Statement filed on March 29,
      1996.




39


(7)
            Previously
      filed in the Company’s Form S-8 Registration Statement No. 333-26737 filed
      with the Commission on May 9, 1997.




(8)
            Previously
      filed in the Company’s Form S-8 Registration Statement No. 333-84499 filed
      with the Commission on August 4,
1999.




(9)
            Previously
      filed in the Company’s Form S-8 Registration Statement No. 333-70346 filed
      with the Commission on September 27,
2001.




(10)
            Previously
      filed in the Company’s form 8-K filed on February 28,
  2006.




(11)
            Previously
      filed in the Company’s Proxy statement for the 2005 Annual Meeting of
      Shareholders.




(12)
            Previously
      filed in the Company’s Form S-8 Registration Statement No. 333-126478
      filed with the Commission on July 8,
2005.







SCHEDULE
      IIAcme
      United Corporation and SubsidiariesVALUATION
      AND QUALIFYING ACCOUNTSFor
      the years ended December 31, 2009 and 2008Balance
      at Beginning of Period
              
              
              Charged
      to Costs and Expenses
              
              
              Deductions
      and Other Adjustments
              
              
              Balance
      at End of Period2009Allowance
      for doubtful accounts
              
              $
              64,105
              
              
              $
              26,910
              
              
              $
              19,386
              
              
              $
              71,629Allowance
      for inventory obsolescence
              
              
              498,887
              
              
              
              120,974
              
              
              
              198,176
              
              
              
              421,685Deferred
      income tax asset valuation allowance
              
              
              1,759,114
              
              
              
              233,815
              
              
              
              -
              
              
              
              1,992,9292008Allowance
      for doubtful accounts
              
              $
              89,856
              
              
              $
              6,033
              
              
              $
              31,784
              
              
              $
              64,105Allowance
      for inventory obsolescence
              
              
              461,467
              
              
              
              76,909
              
              
              
              39,489
              
              
              
              498,887Deferred
      income tax asset valuation allowance
              
              
              2,034,623
              
              
              
              142,000
              
              
              
              417,509
              
              
              
              1,759,114
  40


Pursuant
to the requirements of Section 13 or 15(d) 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, on March 8, 2010.








ACME
UNITED CORPORATION


(Registrant)







Signatures
            
            Titless/ Walter C.
      JohnsenWalter C.
      Johnsen
            
            Chairman and Chief
      Executive Officers/ Brian S.
      OlschanBrian
      S. Olschan
            
            President,
      Chief Operating Officer and Directors/ Paul G.
      DriscollPaul G.
      Driscoll
            
            Vice
      President, Chief Financial Officer, Secretary and Treasurers/ Rex L.
      DavidsonRex
      Davidson
            
            Directors/ Richmond Y.
      Holden, Jr.Richmond Y.
      Holden, Jr.
            
            Directors/ Susan H.
      MurphySusan H.
      Murphy
            
            Directors/ Stevenson
      E. Ward IIIStevenson E.
      Ward III
            
            Director







41