Acme United Corporation


TO MY FELLOW SHAREHOLDERS:

Increased  shareholder  value has been your  management's  primary goal over the
past three years.  The list of actions taken has been  extensive and each action
has been supportive of the primary goal.  Three of the most  significant  things
accomplished have been (1) the strategic sale of the Medical  business,  (2) new
consumer products being sold to new major customers,  and (3)  implementation of
initiatives  for  substantial   product  cost  reductions.   In  addition,   the
international  operations have also undergone  extensive  restructuring  and are
anticipated  to be  profitable  in 1999.  It is time for  management  to deliver
consistent profit growth and we are dedicated to do that in 1999.

In 1998 Acme had revenues of $46.5  million  compared to $46.3  million in 1997.
The  Company  reported a loss of $1.7  million for the year versus a gain of $.2
million in 1997. During the year, headcount was reduced from 433 to 312.

On March 22, 1999, Acme United sold the Medical Division for approximately $8.15
million.  This is a major step for the Company.  It focuses our sales efforts on
scissors,  rulers,  and first aid kits in the  consumer  market,  and provides a
stronger foundation for growth.  Medical revenues declined from $13.5 million in
1997 to  $10.1  million  in 1998  primarily  due to the sale of the  wound  care
product line and weak orders from Asia.

Revenues from continuing operations in 1998 were $36.5 million compared to $32.8
million in 1997. Our U.S. and international  consumer  divisions reported growth
and had improved operating performance.

In the United  States,  revenues  were $24.1  million in 1998  compared to $21.9
million in 1997,  an increase  of 10 percent.  The  patented  Tagit!  children's
scissors had good market  reception and broadened our mass market  distribution.
The traditional  scissor and ruler product lines experienced  growth.  Our first
aid category increased 30 percent.

In Canada,  revenues were $5.9 million in 1998 compared to $4.2 million in 1997,
an increase of 39 percent.  Although the  acquisition  of the Rotex  Division of
Esselte  Canada  contributed  strongly to the  increase in  revenues,  all major
product categories experienced sales growth. However, the subsidiary had foreign
exchange  losses of $220,000,  sold excess  inventory  below cost,  and incurred
certain costs related to fully integrating the Rotex product lines.

The United  Kingdom  operation  had revenues of $3.3 million in 1998 versus $4.1
million  in 1997,  with the  majority  of the  decline  due to the  shift of its
manicure scissors to our German business.  In 1998, the U.K. subsidiary sold its
manufacturing  operation and moved to a modern  warehouse and office.  Headcount
declined from 20 to 9 during the year.

The German  subsidiary  had  revenues of $3.2  million in 1998  compared to $2.7
million in 1997.  Most of the sales  increase was due to the shift of the United
Kingdom manicure scissor sales to Germany as referred to above.

We look forward to improved performance in 1999. New Tagit!  scissors and rulers
have been  introduced  and have gained  distribution.  Margins are  improving in
Canada  and  Germany.  The  transition  in  the  United  Kingdom  to  exit  from
manufacturing  is  complete.   We  anticipate   reducing  our  scissor  business
manufacturing  in the U.S.  in 1999,  and  benefiting  from lower costs from our
international suppliers.

The Company is saddened to report that Henry C. Wheeler  passed away on March 2,
1999.  He was  Acme's  Chief  Executive  Officer  from  1941 to 1990,  served as
Chairman and Chief  Executive  Officer from 1990 to 1994, was Chairman  Emeritus
since  1994,  and a member of our Board  until his death.  Mr.  Wheeler  was the
driving force for Acme United's growth from a small scissor  manufacturer to its
present size. He was an inspiration to our customers,  suppliers, and employees.
We will miss his guidance, support and presence.

Thank you for your support.

Sincerely,

/s/ Walter C. Johnsen
-----------------------------
    Walter C. Johnsen
    President and Chief Executive Officer

<PAGE 2>
                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
                   For the fiscal year ended December 31, 1998

                                       OR

           ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

                         Commission file number 0-4823

                            ACME UNITED CORPORATION
                            -----------------------
              Exact name of registrant as specified in its charter

           Connecticut                                           06-0236700
           -----------                                           ----------
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

        75 Kings Highway Cutoff
         Fairfield, Connecticut                                     06430
        -----------------------                                     -----
(Address of principal executive offices)                         (Zip Code)

Registrant's telephone number, including area code      (203) 332-7330

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

                                            Name of each exchange on
              Title of each class               which registered
              -------------------           ------------------------
         $2.50 par value Common Stock       American Stock Exchange

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

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. (X)

Registrant  had 3,377,488  shares  outstanding as of March 22, 1999 of its $2.50
par value Common Stock.  The aggregate  market value of the voting stock held by
non-affiliates  of  the  registrant  as of  March  22,  1999  was  approximately
$7,599,348.

Documents Incorporated By Reference

(1) Proxy  Statement  for the  annual  meeting  scheduled  for  April  26,  1999
incorporated into 1998 10-K, Part III 

<PAGE 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 operated two business segments,  consumer
and  medical  through  1998.  On March 22,  1999 the  Company  sold its  medical
segment. The Company's continuing  operations are in the United States,  Canada,
England and Germany.  Financial information concerning net sales, and long-lived
assets  by  geographic  area  appears  in note 11 of the  notes to  consolidated
financial statements.

Consumer

The Company manufactures and distributes scissors,  shears, rulers and first aid
kits for school,  office and home use.  Acquisitions  of Emil Schlemper GmbH and
Co. KG of Solingen, Germany in January l990, Homeric, Ltd. of Sheffield, England
in July l990 and Peter  Altenbach  and Sohne GmbH of  Solingen,  Germany in l99l
extended the Company's  presence in Europe as a scissor and shear  manufacturer.
On May 1, 1996, the Company sold the assets (excluding  accounts  receivable) of
Peter Altenbach and Sohne GmbH. The Company continues to be a major manufacturer
of  scissors  and shears in the United  States  and  Germany,  and rulers in the
United  States;  a  distributor  of  scissors,  shears,  rulers and other office
products in Canada;  and a  distributor  of  scissors,  shears and other  office
products in  England.  In addition to local  competitors  in each  country,  the
Company  competes  with  imported  products  from China,  Taiwan and Korea.  The
Company also imports scissors,  shears,  rulers and other products to supplement
its manufactured products.

Independent manufacturer  representatives are primarily used to sell its line of
consumer products with wholesale,  contract and retail stationery  distributors,
office  supply  super  stores,  school  supply  distributors,  and  mass  market
retailers  in  the  United  States.  Foreign  operations  use a  combination  of
independent commission agents and an internal sales force.

A seasonal surge in revenues  arises from March through July which is attributed
to sales in the educational field,  primarily through school supply distributors
and  mass  market  retailers.  Unfilled  order  backlog  at year  end  1998  was
$1,400,498 as compared to $2,455,306 in l997.

Medical

The Company  entered the medical  products field in l965,  producing  disposable
medical scissors and instruments in bulk for hospital distributors. In l972, the
Company's  Medical  Products  Division began marketing its own line of products.
New products have been added to the  procedure  tray line every year to meet the
specialized needs of hospitals,  clinics and convalescent  homes. In l978, wound
dressings were introduced by the Company. Bandage products were added in January
l992,  when the Company  acquired the major portion of the United States medical
products  business of SePro  Healthcare,  Inc., the United States  subsidiary of
Seton  Healthcare  Group,  plc of Oldham,  England.  The  Company  entered  into
distribution   agreements  with  Seton  Healthcare   International  Limited  for
exclusive United States rights to an extensive line of state-of-the-art pressure
therapy bandages and specialized wound dressings.  Subsequently,  in March 1997,
the Company sold its distribution rights of certain wound care products to Seton
Healthcare  International  Limited.  Under  the  agreement,  Acme  continued  to
distribute the products for a portion of 1997.

In February, 1999, the Company announced its decision to discontinue the Medical
products  business.  On March 22, 1999, the Company sold the medical business to
Medical Action Industries, Inc.

The  Company has  historically  sold its  products  through a network of medical
dealers who  distribute  its line of medical  products with  hospitals,  nursing
facilities, other alternate care providers, and certain major buying groups. The
Company's  field sales  force  historically  provided  technical  assistance  in
addition to overseeing a network of manufacturer representatives.

<PAGE 4>
Unfilled  order backlog at year end 1998 was  $107,044,  compared to $313,178 in
l997.

Other

Environmental  Rules and  Regulations  -  Environmental  rules  and  regulations
regarding hazardous waste control and electroplating effluent have been complied
with and the Company  believes no major  financial  impact is expected to result
from current and future compliance with these rules and regulations.

Employment - As of year end, the Company employed 312 persons,  most of whom are
full  time and none are  covered  by union  contracts.  Employee  relations  are
considered good and no foreseeable problems with the work force are evident.

Item 2.  Properties

Acme United Corporation is headquartered at 75 Kings Highway Cutoff,  Fairfield,
Connecticut  in 15,403 square feet of leased space.  The Company owns and leases
manufacturing and warehousing  facilities in the United States,  owns a facility
in Germany,  and leases  52,000 square feet of  warehousing  space in Canada and
6,000 square feet of  warehousing  space in England.  All facilities are part of
the  consumer  segment  except  for the  60,000  square  foot  plant  leased  in
Goldsboro, North Carolina which serves as the packaging,  warehouse and shipping
operation for both the U.S. medical and consumer segments.

In 1996 all United States  manufacturing was consolidated into the 58,000 square
foot owned  Fremont,  North  Carolina  plant.  The Seneca Falls,  New York ruler
manufacturing  plant was sold in 1996.  The  Bridgeport,  Connecticut  plant was
closed in 1996; that facility is being leased.

Manufacturing  for Europe is presently  being  conducted at a 48,000 square foot
owned plant in Solingen, Germany.

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.

Properties owned by the Company in Fremont, North Carolina and Solingen, Germany
are  collateralized  by notes and mortgages.  The leased facilities are occupied
under leases for terms ranging from less than one year to four years.

Item 3.  Legal Proceedings

The Company has been involved in certain  environmental  matters.  Additionally,
the Company has been involved in numerous  legal actions  relating to the use of
certain latex products, which the Company distributes, but does not manufacture.
The Company is one of many  defendants.  The Company has been  released from the
majority  of the  lawsuits.  While  two  lawsuits  remain,  they  are  still  in
preliminary  stages  and there is no  indication  the  Company's  products  were
involved. Based on information available, the Company believes there will not be
a material  adverse  impact on financial  position,  results of  operations,  or
liquidity, from environmental and product liabilities, either individually or in
the aggregate.

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

There were no matters submitted to a vote of the security holders of the Company
through the  solicitation  of proxies or otherwise  during the fourth quarter of
the fiscal year ended December 31, 1998.


<PAGE 5>

PART II

Item 5.  Market for the Registrant's  Common Stock and Related  Security  Holder
         Matters

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

                                            High              Low
Year Ended December 31, 1998
First Quarter                               6                 4 7/8
Second Quarter                              6 1/2             4
Third Quarter                               4 1/8             2 1/4
Fourth Quarter                              3                 1 7/8

Year Ended December 31, 1997
First Quarter                               6                 4 9/16
Second Quarter                              6 3/8             5 1/4
Third Quarter                               8 1/8             6
Fourth Quarter                              7 7/16            5 11/16

As of March 22,  1999 there were  approximately  1,300  holders of record of the
Company's Common Stock.

The Company did not pay cash dividends on its Common Stock in 1998 and 1997. The
Company presently intends to retain earnings to finance business improvements.

Item 6.  Selected Financial Data

<TABLE>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
(All figures in thousands except per share data)

                                                   1998       1997 (A)       1996 (A)(B)       1995 (A)       1994 (A)
----------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S>                                            <C>        <C>            <C>               <C>            <C>     
Net Sales                                      $ 36,457   $ 32,843       $ 33,125          $ 35,882       $ 36,015
----------------------------------------------------------------------------------------------------------------------
Loss from Continuing Operations                  (2,364)    (2,847)        (4,744)           (9,110)        (1,873)
----------------------------------------------------------------------------------------------------------------------
Total Assets                                     28,896     29,327 (C)     27,251            37,021         42,888
----------------------------------------------------------------------------------------------------------------------
Long Term Debt, less Current Portion              6,382     11,852          8,444            14,880         14,388
----------------------------------------------------------------------------------------------------------------------
Loss Per Share from Continuing Operations (D)  $   (.70)  $   (.85)      $  (1.42)         $  (2.73)      $   (.56)
</TABLE>

(A)  Restated  to reflect  the sale of the  medical  business  on March 22, 1999
     which is reported as discontinued operations.
(B)  Reflects the divestiture of Altenbach as of May 1, 1996.
(C)  Restated to reclassify an accrual for a loss on the write-down of abandoned
     property  and plant of $530,000 as a reduction  in assets to conform to the
     1998 presentation.
(D)  The effects of the weighted average number of stock options outstanding are
     antidilutive  for all years  presented  and have been excluded from the per
     share calculations.

<PAGE 6>
QUARTERLY FINANCIAL INFORMATION
(All figures in thousands except per share data)
<TABLE>
                                                                            Quarters
                                                      ------------------------------------------------
1998                                                       1st       2nd       3rd       4th     Total
------------------------------------------------------------------------------------------------------
<CAPTION>
<S>                                                   <C>       <C>       <C>       <C>       <C>     
Net Sales                                             $  8,471  $ 10,273  $ 10,651  $  7,062  $ 36,457
------------------------------------------------------------------------------------------------------
Costs of Goods Sold                                      6,531     7,874     8,291     6,096    28,792
------------------------------------------------------------------------------------------------------
Loss from Continuing Operations                           (376)     (129)     (153)   (1,706)   (2,364)
------------------------------------------------------------------------------------------------------
Income (Loss) from Discontinued Operations                 284       248       223       (57)      698
------------------------------------------------------------------------------------------------------
Net (Loss) Income                                          (92)      119        70    (1,763)   (1,666)
------------------------------------------------------------------------------------------------------
Loss Per Share - Continuing Operations                $   (.11) $   (.03) $   (.05) $   (.51) $   (.70)
------------------------------------------------------------------------------------------------------
Earnings (Loss) Per Share - Discontinued Operations   $    .08  $    .07  $    .07  $   (.01) $    .21
------------------------------------------------------------------------------------------------------
Net (Loss) Earnings Per Share                         $   (.03) $    .04  $    .02  $   (.52) $   (.49)
------------------------------------------------------------------------------------------------------

1997
------------------------------------------------------------------------------------------------------
Net Sales                                                7,037     9,312     9,431     7,063    32,843
------------------------------------------------------------------------------------------------------
Costs of Goods Sold                                      5,376     7,240     7,257     5,699    25,572
------------------------------------------------------------------------------------------------------
Loss from Continuing Operations                           (787)     (692)     (592)     (776)   (2,847)
------------------------------------------------------------------------------------------------------
Income from Discontinued Operations                      1,068       914       778       290     3,050
------------------------------------------------------------------------------------------------------
Net Income (Loss)                                          281       222       186      (486)      203
------------------------------------------------------------------------------------------------------
Loss Per Share - Continuing Operations                $   (.23) $   (.21) $   (.17) $   (.24) $   (.85)
------------------------------------------------------------------------------------------------------
Earnings Per Share - Discontinued Operations          $    .31  $    .28  $    .23  $    .09  $    .91
------------------------------------------------------------------------------------------------------
Net Earnings (Loss) Per Share                         $    .08  $    .07  $    .06  $   (.15) $    .06
------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE 7>

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

Acme  United  Corporation  (the  "Company")   operated  two  principal  business
segments,  consumer and medical,  in 1998,  1997 and 1996.  The Company sold the
medical segment in March 1999, and has classified the operating  results of this
segment as discontinued operations in the accompanying financial statements. The
Company's continuing  operations consist of a single reportable consumer segment
which operates in the United States, Canada, England and Germany.

On March 22, 1999,  the Company sold its medical  business,  including  customer
lists,  inventory,   and  certain  equipment  for  approximately  $8.15  million
resulting in a gain of  approximately  $2.0 million.  Net sales of that business
had declined from  $14,356,000  in 1996 to $13,435,000 in 1997 to $10,090,000 in
1998.  The Company  used a portion of the net  proceeds  from the sale to reduce
debt.  The sale of the medical  business  enables  management to focus its sales
efforts on  scissors,  rulers,  and first aid kits in the consumer  market.  The
Company believes the consumer market provides a strong foundation for growth.

The loss from continuing  operations was $2,364,242 in 1998;  $2,847,263 in 1997
and $4,743,606 in 1996.

The following  comments on the results of operations  relate  exclusively to the
continuing operations of the Company's consumer business.

Results of Operations 1998 Compared with 1997

Net sales from  continuing  operations  increased  $3,614,173  or 11% in 1998 to
$36,456,687  compared to  $32,842,514  in 1997.  Net sales in the United  States
increased  $2,233,000 or 10% driven mainly by increased  volume in the first aid
line and the new Tagit! scissors.  Foreign net sales increased $1,381,173 or 13%
primarily on increased volume in Canada,  including Rotex products.  The Company
purchased the majority of the inventory of the Rotex  division of Esselte Canada
on December 8, 1997.

Net other  expense was $51,758 in 1998  compared to net other income of $367,406
in 1997. Net other expense in 1998 includes foreign currency  transaction losses
of $194,000 in 1998  compared to currency  gains of $182,000 in 1997. A currency
loss  of  $220,000  was  incurred  in 1998  related  to the  Company's  Canadian
operations.

Gross profit was 21% of net sales in 1998  compared to 22% of net sales in 1997.
Temporary manufacturing  inefficiencies  negatively impacted manufacturing costs
for 1998. In addition,  customer  rebates which are netted against  sales,  were
higher in 1998 than 1997 as a percentage of gross sales.

Selling,  general and  administrative  expenses were $8,519,808 in 1998 compared
with  $8,678,687 in 1997, a decrease of $158,879 or 2%.  Decreased  compensation
expense   applicable  to  fewer  employees  was  offset  in  part  by  increased
advertising expense.

Interest expense increased $175,289 in 1998 to $1,501,575 compared to $1,326,286
in 1997 on higher borrowings to fund the purchase of the Rotex inventory and, in
part, to fund a portion of the net operating loss for the current year.

An income tax benefit of $44,002 was  recognized  in 1998 compared to an expense
of $94,317 in 1997. The Company has  significant  net operating loss  carryovers
for United States  federal and state,  and foreign tax reporting  purposes.  The
benefits from such loss carryovers will only be recognized when realized.

Results of Operations 1997 Compared with 1996

Net sales from  continuing  operations in 1997 were  $32,842,514,  a decrease of
$282,073 or 1%  compared to  $33,124,587  in 1996.  Net sales for 1996  included
$1,568,000  for the  Company's  former Peter  Altenbach & Sohne GmbH  subsidiary
("Altenbach")  which  was sold May 1,  1996.  Net  sales  in the  United  States
increased $2,038,000 or 10% in 1997 over 1996.  Excluding  Altenbach,  net sales
from foreign  operations  declined $752,000 in 1997 from 1996.  Foreign currency
translations in 1997 resulted in $375,000 of the net sales decline.

<PAGE 8>

The gross profit was 22% in both 1997 and 1996.

Selling,  general and  administrative  (SG&A)  expenses were  $8,678,687 in 1997
compared to  $9,071,207  in 1996, a decrease of $392,520 or 4%. SG&A expense for
1996 included $363,000 from the divested Altenbach subsidiary.

Interest  expense  decreased  $211,113  or 14% in 1997  from  1996  due to lower
average  borrowings and a slight  reduction in interest rates.  The reduction in
average  borrowings  resulted  from the  divestiture  of Altenbach in 1996,  the
extinguishment  of certain debt in 1997 with a portion of the proceeds  from the
sale of marketing  rights  referred to in Note 2 to the  accompanying  financial
statements, and improved cash management.

The provision for income taxes in 1997 was $94,317 compared to $83,963 in 1996.

Liquidity and Capital Resources

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

                                              1998               1997
---------------------------------------------------------------------
Working Capital                        $ 3,616,421       $ 10,017,000
Current Ratio                            1.20 to 1          1.86 to 1
Long - Term Debt to Equity Ratio              1.37               1.88

The decease in working  capital and current  ratio in 1998 is primarily a result
of a decrease of inventories,  a decrease in current notes payable,  an increase
in  accounts  payable  and an increase  in current  portion of  long-term  debt.
Inventories  decreased  $812,362  or 5.8% in 1998 due to the  Company  adjusting
purchasing levels to support sales levels.  Accounts payable increased  $897,731
or 25% in 1998  primarily as a result of the Company  increasing  payment  terms
with certain key vendors. Current notes payable decreased $1,656,758 as a result
of a 1998  refinancing.  The current  portion of long-term  debt  includes  debt
repaid with proceeds from the sale of the medical  business.  On March 22, 1999,
the Company  sold its medical  business  for  approximately  $8,150,000.  At the
closing the Company used a portion of the cash  proceeds to repay  approximately
$6,000,000 of bank debt.

Long-term debt  increased  $2,285,538 to $15,326,209 as of December 31, 1998 due
to a  refinancing  of  short-term  lines  of  credit  to a  long-term  borrowing
arrangement and increased borrowing related to the purchase of equipment.

Net cash provided by operating  activities was $607,885 for 1998 compared to net
cash used by operating  activities of $3,356,965  in 1997.  The change  resulted
primarily  from a decrease in the level of  inventories  which was offset by the
net loss of $1,666,242.

On March 25, 1999, the Company entered into an irrevocable  financing  agreement
(the  Commitment)  with a bank to refinance  debt.  The closing is scheduled for
April 5, 1999.  Under the  Commitment  the Company may borrow up to  $10,500,000
through  November 15, 1999 and from  January 1, 2000 to April 30, 2000;  between
November 16, 1999 and December 31, 1999 the Company may borrow up to $7,250,000.
The amounts the Company may borrow are based on a formula which applies specific
percentages to balances of accounts  receivable and  inventories.  Upon closing,
the Company expects to have  approximately  $1,000,000  available for additional
borrowings.

Under the Commitment the Company, among other things, is restricted with respect
to dividends, additional borrowings,  investments,  mergers, distributions,  and
property  and  equipment  acquisitions.  Further,  the  Company is  required  to
maintain specific amounts of tangible net worth, as defined, commencing June 30,
1999,  and  specified  debt  service  coverage  ratio,  as  defined,  commencing
September 30, 1999. The Company believes these financial covenants will be met.

Capital  expenditures  during 1998 were approximately  $1,600,000 which were, in
part,  financed  with  long-term  debt.  Capital  expenditures  in 1999  are not
expected to be material.

Cash  generated  from  operations,  together  with  funds  available  under  the
Commitment,  is expected, under current conditions,  to be sufficient to finance
the Company's planned operations in 1999.

Market Risk Disclosures

Foreign Currency Risk:

The  Company  manufactures  products in the United  States,  Germany and Canada.
Further,  the Company  engages in  intracompany  sales which are  denominated in
currencies  other then those of the  operating  entity making the sale. As such,
these  transaction  give rise to foreign  currency risk. The Company's  currency
exposures vary, but are concentrated in the Canadian dollar,  British pound, and
German mark.

<PAGE 9>

At times, the Company  utilizes forward foreign exchange  contracts
to hedge  specific  transactions  with  third  parties  denominated  in  foreign
currencies.  The terms of these forward foreign exchange contracts are typically
under 90 days.  Because the  contracts  are acquired for specific  transactions,
they are an effective  hedge  against  fluctuations  in the value of the foreign
currency  underlying the  transaction.  The Company does not hedge  intracompany
sales nor does it enter into financial  instruments  for  speculation or trading
purposes.

The Company and its foreign  subsidiaries  utilize  bank loans to finance  their
operations.  To mitigate foreign currency risk, foreign loans are denominated in
the local currency of the foreign subsidiary wherever possible.

Interest Rate Risk:

The Company's interest expense on debt is most sensitive to changes in the level
of United States interest  rates. To mitigate the impact of these  fluctuations,
the Company periodically evaluates alternative interest rate arrangements.

The  Company's  debt  portfolio  and  associated  interest  rates  after  giving
retroactive effect to the debt refinancing referred to above follows:
<TABLE>
                                            1999         2000          2001          Total    Fair Value
--------------------------------------------------------------------------------------------------------
<CAPTION>
<S>                                  <C>          <C>          <C>             <C>          <C>         
Current Liabilities -Notes payable   $   881,538                               $   881,538  $    881,538
Average interest rate                       8.3%                                      8.3%          8.3%
--------------------------------------------------------------------------------------------------------
Long-term Debt:
Fixed rate                           $ 1,139,547  $   148,922                  $ 1,288,469  $  1,288,469 
Average interest rate                       6.7%         8.0%                         6.9%          6.9%
--------------------------------------------------------------------------------------------------------
Variable rate:
To be refinanced                     $   582,492  $ 6,031,138                  $ 6,613,630  $  6,613,630
Average interest rate                       9.3%         9.3%                         9.3%          9.3%
Other                                $ 7,221,739  $   188,768  $     13,603    $ 7,424,110  $  7,424,110
Average interest rate                       7.8%        11.0%         11.0%           7.9%          7.9%
</TABLE>

Compliance with Year 2000

The Company  has  completed  the  assessment  phase of its Year 2000  compliance
program and is currently completing modifications and testing of its information
technology and other internal systems with the exception of Germany. In Germany,
the Company is presently in the  selection  phase of a new  financial  system to
mitigate the Year 2000 problem. The Company's goal is to complete implementation
of this new system by the end of the second quarter 1999.  Financial  systems at
the Company's other locations are substantially Year 2000 compliant.

The  Company is in the  process  of  gathering  information  about the Year 2000
compliance  status of its significant  suppliers and is developing a contingency
plan for alternative  sourcing.  The Company's goal is to complete its Year 2000
compliance program by the end of the third quarter 1999.

Estimated future costs for the Year 2000 compliance  program range from $225,000
to $275,000 of which approximately  $150,000 relates to Germany. Of these costs,
the Company expects that $75,000 will be charged to operations as expenses.  The
costs of this project and its  completion  date are based on  management's  best
estimates,  which were derived from numerous  assumptions  about future  events,
including the availability of certain resources,  third party remediation plans,
and other factors.

The Company  continuously  monitors  its action plans  addressing  the Year 2000
issue, and is developing  contingency plans to address  unforeseen  problems and
"worst case" scenarios. This is potentially a significant issue for most, if not
all, companies, with implications which can not be anticipated or predicted with
any degree of certainty.

Inflation

Inflation had a negligible  effect on the Company's  operations  during 1998 and
1997. The Company estimates that inflationary  effects,  in the aggregate,  were
generally  recovered or offset through  increased  pricing or cost reductions in
both years.

<PAGE 10>

Forward-Looking Information

Forward-looking   statements  in  this  report,  including  without  limitation,
statements related to the Company's plans, strategies, objectives, expectations,
intentions  and  adequacy  of  resources,  are made  pursuant to the safe harbor
provisions of the Private  Securities  Litigation Reform Act of 1995.  Investors
are  cautioned   that  such   forward-looking   statements   involve  risks  and
uncertainties  including  without  limitation the  following:  (i) the Company's
plans, strategies, objectives, expectations and intentions are subject to change
at any time at the  discretion  of the  Company;  (ii) the  Company's  plans and
results of operations  will be affected by the  Company's  ability to manage its
growth and  inventory;  and (iii) other risks and  uncertainties  indicated from
time  to  time  in the  Company's  filings  with  the  Securities  and  Exchange
Commission.

<PAGE 11>
Item 8. Financial Statements and Supplementary Data

<TABLE>
Acme United Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Years ended December 31, 1998, 1997 and 1996

                                                              1998            1997            1996
--------------------------------------------------------------------------------------------------
<CAPTION>
<S>                                                   <C>             <C>             <C>         
Net Sales                                             $ 36,456,687    $ 32,842,514    $ 33,124,587
Other (Expense)/Income - Net                               (51,758)        367,406         449,275
--------------------------------------------------------------------------------------------------
                                                        36,404,929      33,209,920      33,573,862
Costs and Expenses:
    Cost of Goods Sold                                  28,791,790      25,572,257      25,845,868
    Selling, General and Administrative Expenses         8,519,808       8,678,687       9,071,207
    Interest Expense                                     1,501,575       1,326,286       1,537,399
    Restructuring and Other Charges                             --         385,636       1,779,031
--------------------------------------------------------------------------------------------------
                                                        38,813,173      35,962,866      38,233,505
--------------------------------------------------------------------------------------------------
Loss from Continuing Operations before Income Taxes     (2,408,244)     (2,752,946)     (4,659,643)
Income Taxes (Benefit)                                     (44,002)         94,317          83,963
--------------------------------------------------------------------------------------------------
Loss from Continuing Operations                         (2,364,242)     (2,847,263)     (4,743,606)
Income from Discontinued Operations                        698,000       3,050,000       1,569,000
--------------------------------------------------------------------------------------------------
Net (Loss) Income                                       (1,666,242)        202,737      (3,174,606) 
Other Comprehensive (Expense) Income -
Foreign Currency Translation                                (8,675)       (250,436)         25,708
--------------------------------------------------------------------------------------------------
Comprehensive Loss                                    $ (1,674,917)   $    (47,699)   $ (3,148,898)
==================================================================================================
(Loss) Earnings Per Share:
     Continuing Operations                            $       (.70)   $       (.85)   $      (1.42)
     Discontinued Operations                                   .21             .91             .47
--------------------------------------------------------------------------------------------------
     Net (Loss) Income                                $       (.49)   $        .06    $       (.95)
==================================================================================================
See accompanying notes.
</TABLE>

<TABLE>
Acme United Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended December 31, 1998, 1997 and 1996
                                                                                                 Accumulated
                                                                                                       Other
                                     Outstanding                                               Comprehensive
                                       Shares of                                   Additional          Loss-       Retained
                                          Common         Common       Treasury        Paid-In    Translation       Earnings
                                           Stock          Stock          Stock        Capital     Adjustment       (Deficit)
---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
<S>                                    <C>          <C>            <C>            <C>            <C>            <C>        
Balances, December 31,1995             3,337,620    $ 8,461,550    $  (357,631)   $ 2,145,119    $(1,001,812)   $   257,627
Net Loss                                                                                                         (3,174,606)
Exercise of Stock Options                 50,000        125,000         34,375
Translation Adjustment                                                                                25,708
---------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1996            3,387,620      8,586,550       (357,631)     2,179,494       (976,104)    (2,916,979)
Net Income                                                                                                          202,737
Exercise of Stock Options                 39,375         98,438                        58,734
Purchase of Treasury Stock               (64,620)                     (331,178)
Translation Adjustment                                                                              (250,436)
---------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1997            3,362,375      8,684,988       (688,809)     2,238,228     (1,226,540)    (2,714,242)
Net Loss                                                                                                         (1,666,242)
Exercise of Stock Options                  8,500         21,250                        12,375
Issuance of Treasury Stock                 6,613                        40,809        (17,898)
Translation Adjustment                                                                                (8,675)
---------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1998            3,377,488    $ 8,706,238    $  (648,000)   $ 2,232,705    $(1,235,215)   $(4,380,484)
===========================================================================================================================
See accompanying notes.
</TABLE>

<PAGE 12>
<TABLE>
Acme United Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997

ASSETS                                                  1998          1997
--------------------------------------------------------------------------
<CAPTION>
<S>                                              <C>           <C>
Current Assets:
   Cash and cash equivalents                     $    39,805   $    24,706
   Accounts receivable, less allowance             7,721,699     7,445,839
   Inventories                                    13,268,989    14,081,351
   Prepaid expenses and other current assets         423,772       176,223
--------------------------------------------------------------------------
Total current assets                              21,454,265    21,728,119

Plant, Property and Equipment:
   Land                                              219,249       204,928
   Buildings                                       2,178,805     2,120,427
   Machinery and equipment                        16,216,082    15,527,753
--------------------------------------------------------------------------
Total plant, property and equipment               18,614,136    17,853,108
Less accumulated depreciation                     12,572,886    11,618,129
--------------------------------------------------------------------------
Net plant, property and equipment                  6,041,250     6,234,979
Goodwill, less accumulated amortization              504,848       526,513
Other assets                                         895,156       837,116
--------------------------------------------------------------------------
Total Assets                                    $ 28,895,519  $ 29,326,727
==========================================================================

LIABILITIES                                             1998          1997
Current Liabilities:
   Notes payable                                $    881,538  $  2,538,296
   Accounts payable                                4,422,315     3,524,584
   Restructuring liability                                 -        27,688
   Other accrued liabilities                       3,590,213     3,901,863
   Current portion of long-term debt               8,943,778     1,188,665
--------------------------------------------------------------------------
Total current liabilities                         17,837,844    11,181,096
Long-term debt, less current portion               6,382,431    11,852,006
--------------------------------------------------------------------------
Total Liabilities                                 24,220,275    23,033,102

Commitments and Contingencies

STOCKHOLDERS' EQUITY
Common Stock, par value $2.50: authorized
   4,000,000 shares; issued - 3,482,495
   shares in 1998 and 3,473,995 shares
   in 1997, including Treasury Stock               8,706,238     8,684,988
Treasury Stock, at cost,  105,007
   shares in 1998 and 111,620 shares in 1997        (648,000)     (688,809)
Additional paid-in capital                         2,232,705     2,238,228
Retained - earnings deficit                       (4,380,484)   (2,714,242)
Accumulated other comprehensive loss -
   translation adjustment                         (1,235,215)   (1,226,540)
--------------------------------------------------------------------------
Total Stockholders' Equity                         4,675,244     6,293,625
--------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity      $ 28,895,519  $ 29,326,727
==========================================================================
See accompanying notes.
</TABLE>

<PAGE 13>
<TABLE>
Acme United Corporation and Subsidiaries
CONSOLIDATED  STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996

                                                                      1998             1997               1996
--------------------------------------------------------------------------------------------------------------
<CAPTION>
<S>                                                           <C>               <C>               <C>          
Operating activities:
Net (loss) income                                             $ (1,666,242)     $    202,737      $ (3,174,606)
Adjustments to reconcile net (loss) income to net cash
 provided (used) by operating activities
   Gain on sale of marketing rights                                     --          (846,178)               --
   Depreciation                                                  1,242,605           979,196           923,031
   Amortization                                                     33,421            92,480           443,977
   (Gain) loss on disposal of plant, property and equipment        (98,264)               --           120,259
   Changes in operating assets and liabilities
      Accounts receivable                                         (275,860)         (709,695)          684,562
      Inventories                                                  812,362        (4,030,034)        5,352,588
      Prepaid expenses and other current assets                   (247,549)         (114,580)        2,157,901
      Other assets                                                 (69,796)         (196,518)         (835,892)
      Accounts payable                                             897,731         1,034,140          (324,665)
      Other accrued liabilities                                    (20,523)          231,487           898,103
--------------------------------------------------------------------------------------------------------------
Total adjustments                                                2,274,127        (3,559,702)        9,419,864
--------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities                   607,885        (3,356,965)        6,245,258
--------------------------------------------------------------------------------------------------------------

Investing activities:
Capital expenditures                                            (1,572,516)       (1,824,394)       (1,068,550)
Proceeds from sales of plant, property and equipment               326,000           345,106           484,340
Proceeds from sale of marketing rights                                  --         1,915,178                --
Proceeds from divestiture of Altenbach                                  --                --           962,290
Divestiture of Altenbach                                                --                --        (3,253,873)
--------------------------------------------------------------------------------------------------------------
Net cash (used) provided by investing activities                (1,246,516)          435,890        (2,875,793)
--------------------------------------------------------------------------------------------------------------

Financing activities:
Net (repayments) borrowings on notes payable and
 revolving credit facilities                                      (400,375)        3,661,074        (2,103,352)
Borrowings of long-term debt                                     1,266,557           600,000                --
Repayment of long-term debt                                       (237,402)       (1,903,896)       (1,518,670)
Exercise of stock options                                           33,625           157,172           159,375
--------------------------------------------------------------------------------------------------------------
Net cash provided (used) for financing activities                  662,405         2,514,350        (3,462,647)
--------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash                             (8,675)            4,229           (11,389)
--------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                15,099          (402,496)         (104,571)
Cash and cash equivalents at beginning of year                      24,706           427,202           531,773
--------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                      $     39,805      $     24,706      $    427,202
==============================================================================================================
See accompanying notes.
</TABLE>

<PAGE 14>
Acme United Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Continuing Operations

The continuing  operations of Acme United Corporation (the Company) consist of a
single  reportable  "consumer"  segment.  The consumer  segment  operates in the
United States, Canada, England and Germany.  Principal consumer segment products
are scissors,  shears,  rulers,  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 and mass
market  retailers.  Revenues related to sales of such products are recognized at
the time of  shipment.  Continuous  credit  evaluations  are made of  customers;
collateral is not required.  Allowances  for credit losses are provided and have
been within management's  expectations.  Net sales for 1998 and 1997 include two
customers which aggregate approximately 20% for each year.

2.  Discontinued Operations

On March 22, 1999 the  Company  sold its medical  business,  including  customer
lists, inventory, and certain equipment for approximately $8,150,000 realizing a
gain of approximately $2,000,000.  The consolidated statements of operations for
1998, 1997 and 1996 have been reclassified to reflect the  discontinuance of the
medical business segment.  The consolidated balance sheets include the assets of
the discontinued medical business. A summary of those assets follows:

                                 1998         1997
--------------------------------------------------
Current assets:
Accounts receivable        $1,121,000   $1,210,000
Inventories                 3,464,000    3,339,000
Other                         150,000      107,000
--------------------------------------------------
                            4,735,000    4,656,000
Equipment, net and other    1,215,000    1,213,000
--------------------------------------------------
                           $5,950,000   $5,869,000
==================================================

The condensed statements of operations relating to the medical business follow:

                                              1998          1997          1996
------------------------------------------------------------------------------
Net sales                              $10,090,000   $13,435,000   $14,356,000
Costs and expenses                       9,392,000    11,231,000    12,787,000
------------------------------------------------------------------------------
                                           698,000     2,204,000     1,569,000
Gain on sale of marketing rights (A)            --       846,000            --
------------------------------------------------------------------------------
Income from operations (B)             $   698,000   $ 3,050,000   $ 1,569,000
==============================================================================

(A)  On March 3, 1997, the Company sold  marketing  rights of certain wound care
     products  applicable to the medical business for approximately $2.0 million
     which resulted in a gain of $846,000.

(B)  Income taxes related to the medical business are not material.

3.  Accounting Policies

(a)  Estimates - The  preparation  of financial  statements in  conformity  with
     generally  accepted  accounting  principles  requires  management  to  make
     estimates and  assumptions  that affect the reported  amounts of assets and
     liabilities and 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.  Actual  results could differ from
     those estimates.

<PAGE 15>
(b)  Principles of Consolidation - The consolidated financial statements include
     the accounts of the Company and its  subsidiaries,  all of which are wholly
     owned.   All   significant   intercompany   accounts  are   eliminated   in
     consolidation.

(c)  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.  Translation  adjustments  are  shown  as  a  separate  component  of
     stockholders'  equity.  Foreign currency  transaction  gains and losses are
     recognized  at  the  time  of  settlement   of  the   underlying   purchase
     transactions  and treated as purchasing  variances.  Resulting  translation
     adjustments  are made  directly to a separate  component  of  shareholders'
     equity--"Accumulated  other  comprehensive loss - translation  adjustment".
     Foreign  currency  transaction  (losses)  gains which are included in other
     (expense) income were $(194,000) in 1998, $182,000 in 1997, and $104,000 in
     1996.

(d)  Hedging Activity - Foreign currency contracts are occasionally purchased as
     hedges  against  foreign  currency  fluctuation  risk  related to  specific
     purchase  commitments.  The  Company  does not engage in  foreign  currency
     exchange contracts for speculative purposes and accordingly,  the contracts
     are accounted for as hedges.  There were no  significant  foreign  currency
     contracts outstanding as of December 31, 1998 and 1997.

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

(f)  Accounts  Receivable - Accounts  receivable are shown less an allowance for
     doubtful accounts of $195,325 in 1998 and $252,079 in 1997.

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

(h)  Plant,  Property  and  Equipment  and  Depreciation  - Plant,  property and
     equipment   is   recorded  at  cost.   Depreciation   is  computed  by  the
     straight-line method over the estimated useful lives of the assets.

(i)  Goodwill - Goodwill  represents  the excess of the cost of  investments  in
     businesses  acquired over the net asset values at acquisition.  Goodwill is
     being  amortized by the straight line method over periods ranging from 3 to
     40 years. Accumulated amortization thereon aggregated $325,546 and $292,125
     at December 31, 1998 and 1997, respectively.

(j)  Asset  Impairment  -The  Company  evaluates  the  propriety of the carrying
     amounts of its  long-lived  assets,  including  goodwill,  as well as their
     estimated useful lives,  when current events and  circumstances  indicate a
     potential  impairment.  The Company  believes that there are no significant
     impairments  of the  carrying  amounts of such assets and no  reduction  in
     their estimated useful lives is warranted.

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

(l)  Research and Development - Research and development costs ($90,651 in 1998,
     $385,000  in 1997 and  $47,277  in  1996)  are  charged  to  operations  as
     incurred.

(m)  Advertising - Advertising  costs  ($2,353,188 in 1998,  $2,044,179 in 1997,
     and $1,990,086 in 1996) are expensed as incurred.

(n)  Reclassifications  - Certain prior year amounts have been  reclassified  to
     conform to the current year presentation.

<PAGE 16>

4.  Inventories

Inventories consists of:

                                1998          1997
--------------------------------------------------
Finished goods           $ 7,122,146   $ 7,658,012
Work in process            1,240,055     1,229,079
Materials and supplies     4,906,788     5,194,260
--------------------------------------------------
                         $13,268,989   $14,081,351
==================================================

5.  Other Assets

Other assets consist of:

                            1998       1997
-------------------------------------------
Prepaid pension costs   $867,540   $768,876
Other                     27,616     68,240
-------------------------------------------
                        $895,156   $837,116
===========================================

6.  Other Accrued Liabilities

Other accrued liabilities consist of:

                       1998         1997
----------------------------------------
Vendor rebates   $1,278,226   $1,078,692
Other             2,311,987    2,823,171
----------------------------------------
                 $3,590,213   $3,901,863
========================================

7.  Pension and Profit Sharing

United States  employees,  hired prior to July 1, 1993, are covered by a funded,
defined benefit pension plan. The benefits 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  ceasing all future  benefit
accruals as of February 1, 1996, without terminating the pension plan.

<PAGE 17>

Other disclosures related to the pension plan follow:

                                                   1998           1997
----------------------------------------------------------------------
Changes in benefit obligation
  Benefit obligation at beginning of year   $(5,306,010)   $(5,270,640)
  Interest cost                                (381,457)      (376,622)
  Plan participants' contributions                              (7,833)
  Actuarial loss                               (350,647)      (210,618)
  Benefits paid                                 726,575        559,703
----------------------------------------------------------------------
  Benefit obligation at end of year         $(5,311,539)   $(5,306,010)
----------------------------------------------------------------------

Changes in plan assets
  Fair value of plan assets at
   beginning of year                        $ 5,911,452    $ 5,509,300
  Actual return on plan assets                  685,461        954,022
  Employer contributions                                         7,833
  Benefits paid                                (726,575)      (559,703)
----------------------------------------------------------------------
Fair value of plan assets at end of year    $ 5,870,338    $ 5,911,452
----------------------------------------------------------------------

Funded status                               $   558,799    $   605,442
Unrecognized loss                               308,741        163,434
----------------------------------------------------------------------
Prepaid benefit costs                       $   867,540    $   768,876
======================================================================

At  December  31,  1998 and  1997,  plan  assets  include  30,000  shares of the
Company's  Common  Stock  having a market value of $67,500 and $180,000 at those
dates, respectively.

                                        1998         1997
---------------------------------------------------------
Assumptions
Discount rate                           6.5%         7.0%
Expected return on plan assets          8.5%         8.5%

                                        1998         1997         1996
----------------------------------------------------------------------
Components of net benefit income
Interest cost                      $ 381,457    $ 376,622    $ 329,189
Expected return on plan assets      (480,121)    (446,996)    (345,539)
----------------------------------------------------------------------
Net benefit income                 $ (98,664)   $ (70,374)   $ (16,350)
======================================================================

The Company also has a qualified,  non-contributory profit sharing plan covering
substantially  all United States  employees.  Annual Company  contributions  are
determined  by the  Compensation  Committee  and have amounted to 2% of eligible
employee  earnings.  Total  contribution  expense  under this plan  approximated
$102,000, $104,000, and $108,000 for 1998, 1997, and 1996, respectively.

8.  Income Taxes

The amounts of income taxes (benefit) reflected in operations follow:

                        1998          1997         1996
-------------------------------------------------------
Current:
    State         $   29,808    $   49,800    $  49,800
    Foreign          (73,810)       44,517       34,163
-------------------------------------------------------
                  $  (44,002)   $   94,317    $  83,963
=======================================================

The current  state tax  provision is  comprised  of the minimum  capital tax and
other  franchise  taxes  related  to the  jurisdictions  in which the  Company's
manufacturing plants are located.

<PAGE 18>

A  summary  of United  States  and  foreign  losses  before  income  taxes  from
continuing operations follows:

                       1998           1997           1996
---------------------------------------------------------
United States   $(1,443,434)   $(2,280,601)   $(3,785,565)
Foreign            (964,810)      (472,345)      (874,078)
---------------------------------------------------------
                $(2,408,244)   $(2,752,946)   $(4,659,643)
=========================================================

The following schedule reconciles the amounts of income taxes (benefit) computed
at  the  United  States  statutory  rate  to  the  actual  amounts  reported  in
operations.
<TABLE>
                                                                 1998             1997            1996
------------------------------------------------------------------------------------------------------
<CAPTION>
<S>                                                       <C>              <C>             <C>         
Federal income taxes (benefit) at 34% statutory rate      $  (581,483)     $   100,999     $(1,050,819)
State and local taxes, net of federal income tax effect        19,673           32,868          32,415
Foreign income taxes (benefit)                                (22,345)         (19,473)       (123,355)
Deferred income tax asset valuation allowance                 578,601          117,666         716,177
Repatriated earnings of foreign subsidiary                         --               --         353,136
Other                                                         (38,448)        (137,743)        156,409
------------------------------------------------------------------------------------------------------
Provision (benefit) for income taxes                      $   (44,002)     $    94,317     $    83,963
======================================================================================================
</TABLE>

Income taxes paid,  net of refunds  received,  were $66,363 in 1998,  $13,267 in
1997 and $20,676 in 1996.

Deferred income taxes relate to:
<TABLE>
                                                                  1998           1997
-------------------------------------------------------------------------------------
<CAPTION>
<S>                                                        <C>            <C>        
Deferred income tax liabilities:
Plant, property and equipment                              $   373,115    $   275,719
Pension                                                        301,170        305,244
Other                                                               --         55,762
-------------------------------------------------------------------------------------
                                                               674,285        636,725
Deferred income tax assets:
Asset valuations allowances                                    381,595        844,402
Operating loss carryforwards                                 4,279,050      3,084,142
Intangible assets                                              126,962         (9,344)
Other                                                           88,022        340,268
-------------------------------------------------------------------------------------
                                                             4,875,629      4,259,468
-------------------------------------------------------------------------------------
Net deferred income tax asset before valuation allowance    (4,201,344)    (3,622,743)
Valuation allowance                                          4,201,344      3,622,743
-------------------------------------------------------------------------------------
Net deferred income taxes                                  $        --    $        --
=====================================================================================
</TABLE>

The deferred income tax asset valuation  allowance was $3,505,077 as of December
31, 1996.

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.  $1,414,000  and  $2,153,000  of  foreign  subsidiary
earnings are considered permanently reinvested as of December 31, 1998 and 1997,
respectively,  and the  amount  of  deferred  income  taxes  thereon  cannot  be
reasonably determined.

<PAGE 19>

Due to the uncertain nature of the realization of the Company's  deferred income
tax assets based on past  performance and  carryforward  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,  1998,  the  Company  has  tax  operating  loss  carryforwards
aggregating  $13,209,000  of which  $6,068,000  relate to United States  federal
income  taxes which expire from 2011 through  2018,  $2,910,000  relate to state
income  taxes  which  expire from 1999  through  2008 and  $4,231,000  relate to
foreign operations income taxes which can be carried forward indefinitely.

9.  Debt

The Company has short-term  lines of credit for its foreign  subsidiaries  which
expire in 1999. The aggregate  amount  available under these lines is $1,051,061
of which  $881,538 is  outstanding  at December  31, 1998 and bears  interest at
rates ranging from local prime to local prime plus 3.25%.  The weighted  average
interest rate for outstanding  borrowings was 8.3% at December 31, 1998 (8.0% at
December 31, 1997).

Long-term debt consists of:

                                1998          1997
--------------------------------------------------
Notes payable to bank:
To be refinanced         $ 6,613,630   $        --
Other                      7,120,533    11,514,800
Other notes payable        1,592,026     1,525,871
--------------------------------------------------
                          15,326,209    13,040,671
Less current portion       8,943,778     1,188,665
--------------------------------------------------
                         $ 6,382,431   $11,852,006
==================================================

On March 25, 1999 the Company  entered into an irrevocable  financing  agreement
(the  Commitment)  with a bank to refinance  debt.  The closing is scheduled for
April 5, 1999.  Under the  Commitment  the Company may borrow up to  $10,500,000
through  November  15,  1999 and from  January  1, 2000 to April  30,  2000 (the
maturity date);  between November 16, 1999 and December 31, 1999 the Company may
borrow up to  $7,250,000.  (The  amounts  the  Company may borrow are based on a
formula which applies  specific  percentages to balances of accounts  receivable
and  inventories.)  Throughout  1999 the  Company  expects  to have a minimum of
$6,000,000  outstanding  under this arrangement.  In addition,  the Company will
borrow $2,500,000 under a term loan arrangement payable in monthly  installments
of $50,000,  plus  interest,  commencing May 1, 1999 through April 1, 2000 and a
final installment of $1,900,000,  plus interest, due April 30, 2000. All amounts
borrowed under the Commitment  bear interest at the prime base rate, as defined,
plus 1.5%.  A portion of the amount to be  borrowed  under the  Commitment  will
refinance  $6,613,630 of debt  outstanding  as of December 31, 1998 and has been
applied retroactively.


Under the Commitment the Company, among other things, is restricted with respect
to dividends, aditional borrowings,  investments,  mergers,  distributions,  and
property  and  equipment  acquisitions.  Further,  the  Company is  required  to
maintain specific amounts of tangible net worth, as defined, commencing June 30,
1999 and a  specified  debt  service  coverage  ratio,  as  defined,  commencing
September 30, 1999. The Company believes these financial covenants will be met.


Current maturities of long-term debt which reflect the Commitment follow: 1999 -
$8,943,778; 2000 - $6,368,828; and 2001 - $13,603.

The interest rates of the other notes payable range from 6.25% to 11.0%.

Interest paid was  $1,530,290 in 1998,  $1,306,694  in 1997,  and  $1,537,399 in
1996.

Substantially  all  assets are  pledged  as  collateral  for  outstanding  debt,
including that portion to be refinanced.

10.  Commitments and Contingencies

The Company leases certain office,  manufacturing  and warehouse  facilities and
various equipment under non-cancelable  operating leases. Total rent expense was
$684,000 in 1998,  $613,000 in 1997 and $626,000 in 1996.  Minimum annual rental
commitments under  non-cancelable  leases with initial or remaining terms of one
year or more as of December 31, 1998 follow:  1999 - $552,639;  2000 - $446,784;
2001 - $84,784; 2002 - $29,170; 2003 - $3,800; and thereafter - $950.

<PAGE 20>

The Company has been involved in certain  environmental  matters.  Additionally,
the Company has been involved in numerous  legal actions  relating to the use of
certain latex products, which the Company distributes, but does not manufacture.
The Company is one of many  defendants.  The Company has been  released from the
majority  of the  lawsuits.  While  two  lawsuits  remain,  they  are  still  in
preliminary  stages  and there is no  indication  the  Company's  products  were
involved.  Based on information available,  the Company believes that there will
not be a material adverse impact on financial  position,  results of operations,
or liquidity, from environmental and product liabilities, either individually or
in aggregate.

11.Geographic Data

Net sales of the  Company's  continuing  operations  by  geographic  area follow
(000's omitted):

                                             1998      1997      1996
---------------------------------------------------------------------
Net Sales:
United States                            $ 24,108  $ 21,875  $ 19,837
Canada                                      5,880     4,235     4,103
England                                     3,296     4,067     3,942
Germany and other European countries        3,173     2,666     5,243
---------------------------------------------------------------------
                                         $ 36,457  $ 32,843  $ 33,125
=====================================================================

Long-lived assets by geographic area follow (000's omitted):

                                             1998      1997      1996
---------------------------------------------------------------------
Long-Lived Assets:
United States                            $  5,648  $  4,950  $  5,485
Canada                                         83        66        48
England                                       184       661     1,117
Germany                                     1,526     1,922     2,356
---------------------------------------------------------------------
                                         $  7,441  $  7,599  $  9,006
=====================================================================

12.  Stock Option Plans

The Company has a stock option plan which  provides  incentive and  nonqualified
stock options for up to 520,000 shares of the Company's Common Stock to officers
and key employees (the  Employee's  Plan).  The Employee's Plan provides for the
purchase  of shares of the  Company's  Common  Stock at a price of not less than
100% of its fair market value at the date of grant.  Generally,  options granted
under the Employee's Plan prior to June 24, 1996 vested  immediately or within a
year;  after June 24, 1996,  25% of options  granted vest  immediately  with the
balance  vesting over the next three years.  The term of options  issued  cannot
exceed 10 years from the date of grant.

The Company  also has a stock  option  plan which  provides  nonqualified  stock
options for up to 120,000 shares of the Company's  Common Stock to  non-salaried
directors (the Director's  Plan).  The original  Director's Plan, as approved at
the 1996 Annual Meeting,  granted 10,000 options to new directors elected to the
Board at the 1996 Annual Meeting and for subsequent Annual Meetings which vested
one year after the grant date. The Director's  Plan was amended in 1997 to grant
10,000  options to directors  elected at the 1997 annual  meeting who were first
elected  prior  to  the  1996  Annual  Meeting  which  vested  immediately.  The
Director's  Plan  was  amended  again  in 1998 to grant  2,500  options  to each
director  re-elected  to the Board at the annual  meeting.  These  options  vest
immediately.  The  Director's  Plan  provides  for the purchase of shares of the
Company's Common Stock at a price of not less than 100% of its fair value at the
date of grant.

<PAGE 21>

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

                                                        1998     1997     1996
------------------------------------------------------------------------------
Options outstanding at the beginning of the year     318,750  301,500  250,000
Options granted                                       67,950   66,000  159,500
Options canceled                                      (1,650)  (9,375) (58,000)
Options exercised                                     (8,500) (39,375) (50,000)
------------------------------------------------------------------------------
Options outstanding at the end of year               376,550  318,750  301,500
==============================================================================
Options exercisable at the year end                  292,563  245,000  245,625
==============================================================================
Options available for future grants at
  the end of the year                                165,575   51,875  108,500
==============================================================================

Average price of options granted                       $4.62    $5.81    $3.92
Average price of options canceled                      $4.17    $4.52    $4.35
Average price of options exercised                     $3.96    $3.99    $3.19
Average price of options outstanding                   $4.31    $4.23    $3.87
Average price of options exercisable                   $4.14    $3.93    $3.81

A summary of options outstanding at December 31, 1998 follows:
<TABLE>

                            Options Outstanding              Options Exercisable
                   ---------------------------------------  ---------------------
                                  Weighted-
                                   Average       Weighted-              Weighted-
                                  Remaining       Average                Average
Range of Exercise     Number     Contractual     Exercise     Number     Exercise
    Prices         Outstanding   Life (Years)      Price    Exercisable    Price
----------------------------------------------------------  ---------------------
<CAPTION>
<S>                  <C>              <C>         <C>         <C>         <C>   
$ 2.50 to $ 3.65     113,200          6           $ 3.51      102,550     $ 3.59
$ 3.66 to $ 5.00     144,600          7           $ 3.91      123,700     $ 3.85
$ 5.01 to $ 7.25     118,750          8           $ 5.57       66,313     $ 5.54
                     -------                                  -------
                     376,550                                  292,563
                     =======                                  =======
</TABLE>

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

The  Company  applies  APB  Opinion  No.  25,  Accounting  for  Stock  Issued to
Employees,  and related  interpretations to recognize compensation expense under
its stock option plans.  As such,  no expense is  recognized  if, at the date of
grant,  the  exercise  price of the option is at least  equal to the fair market
value of the Company's  Common Stock.  No  compensation  expense  related to the
Company's  stock  option plans was  required to be  recognized  for its plans in
1998, 1997 and 1996.

If compensation expense for the Company's stock option plans had been determined
using the fair value  method  under SFAS No.  123,  Accounting  for Stock  Based
Compensation,  the Company would have reported a net loss of $1,814,064  ($.54 a
share) for 1998 and net income of $89,541  ($.03 a share) for 1997.  Because the
SFAS No. 123 method of accounting has not been applied to options  granted prior
to January 1, 1995, the resulting compensation cost may not be representative of
that to be expected in future years.

The weighted average fair value at date of grant for options granted during 1998
and 1997 is $1.83 and $2.52 per option, respectively.

<PAGE 22>

The fair value of options at date of grant was estimated using the Black-Scholes
model with the following weighted average assumptions:

                                  1998     1997
-----------------------------------------------
Expected Life (years)                5        5
Interest Rate                    5.69%    6.65%
Volatility                       37.2%    36.4%
Dividend Yield                      0%       0%

13.  Earnings Per Share

The denominators used in the (loss) earnings per share  computations  consist of
the weighted  average  shares of Common Stock  outstanding of 3,371,099 in 1998,
3,353,581 in 1997,  and 3,342,278 in 1996.  The effects of the weighted  average
number of stock options  outstanding were antidilutive in 1998 and 1996 and have
been excluded from the per share calculations.  Further, because the Company had
a loss from continuing  operations in 1997 the weighted  average number of stock
options outstanding were also excluded from the per share calculations.

14.  Restructuring and Other Charges

In 1996 the  Company  completed a  consolidation  of its  Connecticut  and North
Carolina manufacturing facilities. Additional severance charges were incurred as
the Company  reorganized its senior and middle  management  organization.  These
steps resulted in a reduction of 95 positions in 1996 and a charge to operations
of $1,779,000.

A summary of restructuring and other charges included in operations follows:

                                                       1997             1996
----------------------------------------------------------------------------
Severance costs                                                   $  948,000
Write down of abandoned property and plant       $  530,000
Adjustment of prior year exit costs                (144,000)
Exit costs                                                           274,000
Relocation                                                           328,000
Other                                                                229,000
----------------------------------------------------------------------------
                                                 $  386,000       $1,779,000
============================================================================

A summary  of the  changes  in the  components  of the  Company's  restructuring
liability follows:
<TABLE>
                            Balance at                         Balance at                          Balance at
                           December 31,      1997 Charges     December 31,      1998 Charges      December 31,
                               1996                               1997                                1998
--------------------------------------------------------------------------------------------------------------
<CAPTION>
<S>                        <C>               <C>              <C>               <C>               <C>    
Severance costs            $ 368,000         $ 340,000        $ 28,000          $ 28,000          $     -
Exit costs                   274,000           274,000 (A)           -                 -                -
Relocation and other         113,000           113,000               -                 -                -
--------------------------------------------------------------------------------------------------------------
                           $ 755,000         $ 727,000        $ 28,000          $ 28,000          $     -
==============================================================================================================
</TABLE>

(A)  Net of an  adjustment  of $144,000 to reduce exit costs  accrued in a prior
     year.

<PAGE 23>

15.  Financial Instruments

The  carrying  values  of  financial  instruments  (cash  and cash  equivalents,
accounts  receivable,  accounts  payable,  and debt) as of December 31, 1998 and
1997  approximate  fair value.  Fair value was based on expected  cash flows and
current market conditions.

16.  Purchase of Inventory from Rotex Division of Esselte Canada

On December 8, 1997, the Company  purchased the majority of the inventory of the
Rotex Division of Esselte Canada. This inventory was purchased for $967,000 with
a debt  financing  of  $564,800,  and  assumed  liabilities  of  $402,200.  This
represents  an expansion of the  Company's  office  products  business in Canada
where the Company  distributes  a broad range of office  products to most of the
major distributors and retail chains.

<PAGE 24>

Report of Ernst & Young LLP, Independent Auditors

To the Board of Directors and Stockholders of Acme United Corporation

We have  audited  the  accompanying  consolidated  balance  sheet of Acme United
Corporation  and   subsidiaries  as  of  December  31,  1998,  and  the  related
consolidated  statements  of  operations  and  comprehensive  loss,  changes  in
stockholders'  equity,  and cash flows for the year then  ended.  Our audit also
included the  financial  statement  schedule  listed in the Index at Item 14(a).
These financial  statements and schedule are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and schedule based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 Acme United
Corporation and subsidiaries at December 31, 1998, and the consolidated  results
of their  operations  and their cash flows for the year then ended in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements  taken as a whole,  presents  fairly  in all  material  respects  the
information set forth therein.


                                                      /s/ Ernst & Young LLP
                                                      --------------------------
                                                      Hartford, Connecticut
                                                      March 25, 1999


Report of PricewaterhouseCoopers LLP, Independent Accountants

To the Board of Directors and Stockholders of Acme United Corporation

We have  audited  the  accompanying  consolidated  balance  sheet of Acme United
Corporation  and   Subsidiaries  as  of  December  31,  1997,  and  the  related
consolidated  statements  of  operations  and  comprehensive  loss,  changes  in
stockholders'  equity,  and cash flows for the years December 31, 1997 and 1996.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as 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 Acme United
Corporation  and  Subsidiaries  as of December  31, 1997,  and the  consolidated
results of their  operations  and their cash flows for the years ended  December
31, 1997 and 1996, in conformity with generally accepted accounting principles.


/s/ PricewaterhouseCoopers LLP
------------------------------
Hartford, Connecticut
March 19, 1998, except as to the information  presented in note 2, for which the
date is March 26, 1999

<PAGE 25>

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 1998.

PART III

Item 10.  Directors and Executive Officers of the Registrant

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 to the Board of
Directors to hold office until their successors are elected and qualified.

Name                       Age    Position Held with Company
------------------------   ---    ----------------------------------------------
Walter C. Johnsen          48     President and Chief Executive Officer and
                                  Director

Gary D. Penisten           67     Chairman of the Board and Director

Brian S. Olschan           42     Executive Vice President and Chief Operating
                                  Officer

Ronald P. Davanzo          36     Vice President and Chief Financial Officer,
                                  Secretary and Treasurer

David W. Clark, Jr.        61     Director

George R. Dunbar           75     Director

Richmond Y. Holden, Jr.    45     Director

Wayne R. Moore             68     Director

James L.L. Tullis          51     Director

Walter C. Johnsen has served as director  since 1995 and as President  and Chief
Executive  Officer since November 30, 1995.  Prior to that he was Executive Vice
President since January 24, 1995. He also was Chief Financial Officer from March
26, 1996 until June 30, 1996.  Before  joining the Company he was Vice  Chairman
and a principal of Marshall Products, Inc., a medical supply distributor.

Gary D.  Penisten  has served as director  since 1994 and  Chairman of the Board
since  February 27, 1996.  He is a Director of D. E. Foster & Partners  L.P., an
executive  search  firm.  From 1977 to 1988,  he was Senior  Vice  President  of
Finance,  Chief  Financial  Officer and a Director of Sterling  Drug Inc. in New
York City.

Brian S.  Olschan  served as Senior  Vice  President-Sales  and  Marketing  from
September 10, 1996 until  February 22, 1999.  From 1991 to 1996, he was employed
by General Cable  Corporation  in various  executive  positions  including  Vice
President  and  General  Manager  of the  Cordset  and  Assembly  Business  from
1994-1996.  Effective  January  23,  1999,  he was  promoted to  Executive  Vice
President and Chief Operating Officer.

Ronald P.  Davanzo has served as Vice  President  and Chief  Financial  Officer,
Secretary  and  Treasurer  since  March  18,  1999.  Prior  to that he was  Vice
President-International  since April 27,  1998,  and  continues to serve in that
capacity.  Mr. Davanzo joined Acme on May 19, 1997.  From 1985 to 1997 he served
in several  increasingly  responsible  positions in Sterling Drug, Inc., Eastman
Kodak, and Sanofi S.A. In his final position before joining Acme he was Director
of Finance for Sanofi's Oscar de la Renta fragrance business.

<PAGE 26>

David W. Clark,  Jr. has served as director since 1980. He is Managing  Director
of Pryor & Clark Company,  an investment  company.  From July 1988 to June 1992,
Mr. Clark was President of Corcap,  Inc.  which was spun out of Lydall,  Inc. in
July 1988.  Mr.  Clark  joined  Lydall in 1972 as Vice  President-Treasurer  and
Director.  He became  Executive  Vice  President in 1977 and  President in 1986.
Until  July of 1992,  Mr.  Clark was also  Chairman  of the  Board of  CompuDyne
Corporation of which he remains a Director.  He is also a Director of Checkpoint
Systems, Inc., Thorofare, NJ and SSC Technologies, Bloomfield, Connecticut.

George R. Dunbar has served as director  since 1977.  He is  President of Dunbar
Associates,  a  municipal  management  consulting  firm.  He is a  Former  Chief
Administrative  Officer  for the City of  Bridgeport  and  served  as  President
(1972-1987)  of  the  Bryant   Electric   division  of   Westinghouse   Electric
Corporation,  manufacturer of electrical  distribution and utilization products,
Bridgeport, Connecticut.

Richmond  Y.  Holden,  Jr. has served as director  since 1998.  He has served as
President and Chief Executive Officer of J.L. Hammett Co. since 1992;  Executive
Vice President from 1989 to 1992. J.L. Hammett Co. is a distributor and retailer
of educational  products throughout the United States, and is one of the largest
distributors to the K-12 educational marketplace.

Wayne R. Moore has served as director since 1976. He is presently a Director and
Chairman  Emeritus of The  Producto  Machine  Company,  manufacturer  of machine
tools,  special machines,  and tool die and mold components.  He was Chairman of
the  Board  of  The  Producto   Machine  Company  and  of  Moore  Tool  Company,
manufacturer of machine tools,  measuring machines and metrology  products.  Mr.
Moore was Chairman of the Association for Manufacturing Technology/U.S.  Machine
Tool Builders  (1985-1986) and Committee Member of U.S. Eximbank (1984). He is a
Trustee of the  American  Precision  Museum and on the Board of  advisors of the
Fairfield University School of Engineering.

James L.L.  Tullis has served as director  since 1996.  He is Chairman and Chief
Executive Officer of Tullis-Dickerson & Company, Inc., Greenwich, Connecticut, a
venture  capital firm. He has been a securities  analyst  researching the health
care industry at Putnam Funds and Morgan Stanley and Company, Inc. He also was a
Senior Vice President at E.F. Hutton and Company.  He is a Director of Physician
Sales & Service,  Inc. and American  Consolidated  Laboratories,  Inc. He is not
standing for reelection.

Henry C.  Wheeler  served as  director  since  1941.  The Company is saddened to
report that Mr. Wheeler died on March 2, 1999.  Until the time of his death,  he
was Chairman  Emeritus after serving as Chairman  through  November 29, 1995 and
President, Treasurer and Chief Executive Officer from 1941 to December 20, 1994.

Item 11.  Executive Compensation

          (Refer to Proxy Statement pages 8-12)

Item 12.  Security Ownership of Certain Beneficial Owners and Management

          (Refer to Proxy Statement pages 2-3)

Item 13.  Certain Relationships and Related Transactions

          (None)

<PAGE 27>

PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

     (a) Documents filed as part of this report:

     1. Financial Statements


                                                                         Page(s)

          Consolidated Balance Sheets                                         12
          Consolidated Statements of Operations and Comprehensive Loss        11
          Consolidated Statements of Changes in Stockholders' Equity          11
          Consolidated Statements of Cash Flows                               13
          Notes to Consolidated Financial Statements                       14-23
          Report of Ernst & Young LLP, Independent Auditors                   24
          Report of PricewaterhouseCoopers LLP, Independent Accountants       24

     2. Financial Statement Schedules

          Schedule II - Valuation and Qualifying Accounts                     28
          Report of Independent Accountants                                   28

Schedules  other than those listed above have been omitted  because the required
information  is contained in the  financial  statements  and notes  thereto,  or
because such schedules are not required or applicable.

     3. Exhibits

          Exhibit 21 - Parents and Subsidiaries                               29
          Exhibit 23 - Consent of Ernst & Young LLP, Independent Auditors     29
                     - Consent of PricewaterhouseCoopers LLP,
                       Independent Accountants                                29

The following  basic documents are contained in S-1  Registration  Statement No.
230682 filed with the  Commission on November 7, 1968 and amended by Substantive
Amendment No. 1 on December 31, 1968 and by No. 2 on January 31, 1969:

               Certificate of Organization of Registrant
               Amendment to Certificate of Incorporation of Registrant
                    dated September 24, 1968
               Proof of Common Stock Certificates

The following basic documents were filed with Form 10-K for 1971:

               Amendment to Certificate  of  Incorporation  of Registrant  dated
                    April 27, 1971
               Amendment to Certificate of Incorporation
                    dated June 29, 1971
               Proof of Common Stock Certificate
               Proof of Preferred Stock Certificate

          (b)  No Form 8-K was filed by the Company during the quarter ended
                  December  31,  1998.
               A Form 8-K was filed by the Company on March 6, 1998.
               A Form 8-K was filed by the Company on April 6, 1998.

<PAGE 28>

SCHEDULE II
Acme United Corporation and Subsidiaries
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1998, 1997 and 1996

<TABLE>
                                    Balance at        Charged to       Deductions
                                    Beginning of      Costs and        and Other         Balance at
                                    Period            Expenses         Adjustments       End of Period
------------------------------------------------------------------------------------------------------
<CAPTION>
<S>                                 <C>               <C>              <C>               <C>       
1998
Restructuring liability             $  27,688         $        -       $  27,688         $        -
Allowance for doubtful accounts       252,079             35,889          92,643            195,325

------------------------------------------------------------------------------------------------------
1997
Restructuring liability               755,440            385,636       1,113,388 (A)         27,688
Allowance for doubtful accounts       197,755            155,622         101,298            252,079

------------------------------------------------------------------------------------------------------
1996
Restructuring liability             2,549,500          1,779,000       3,573,060            755,440
Allowance for doubtful accounts       132,593            134,014          68,852            197,755
</TABLE>

(A) Reflects the write-down of abandoned property and plant of $530,000.

Report of Independent Accountants

To the Board of Directors and Stockholders of Acme United Corporation:

Our report on the consolidated  financial  statements of Acme United Corporation
and  Subsidiaries  is included on page 24 of this Form 10-K. In connection  with
our  audits of such  financial  statements,  we have also  audited  the  related
financial statement schedule included on page 28 of this form 10-K.

In our  opinion,  the  financial  statement  schedule  referred  to above,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents  fairly,  in all  material  respects,  the  information  required to be
included therein.

/s/ PricewaterhouseCoopers LLP
----------------------------------
PricewaterhouseCoopers LLP
Hartford, Connecticut
March 19, 1998

<PAGE 29>

EXHIBIT 21

                            PARENTS AND SUBSIDIARIES

The Company was  organized as a  partnership  in 1867 and  incorporated  in 1882
under  the laws of the  State of  Connecticut  as The Acme  Shear  Company.  The
corporate name was changed to Acme United Corporation in 1971.

There is no parent of the registrant.

Registrant has the following subsidiaries, all of which are totally held:

Name                                  State or Country of Incorporation
----                                  ---------------------------------
Acme United Limited                   Canada
Acme United, Ltd.                     England
Emil Schlemper GmbH                   Germany
Westcott Ruler Company, Inc.          New York
The Acme Shear Company                Connecticut

Only  Acme  United  Limited  (Canada),  Acme  United,  Ltd.  (England)  and Emil
Schlemper GmbH are active and included in the consolidated financial statements.


EXHIBIT 23

               Consent of Ernst & Young LLP, Independent Auditors

We consent to the  incorporation  by  reference in the  Registration  Statements
(Form S-8 Nos. 33-98918 and 333-26737) pertaining to the Acme United Corporation
Employee  Stock  Option  Plan  and  the  Registration  Statement  (Form  S-8 No.
333-26739)  pertaining  to the Acme United  Director's  Stock Option Plan of our
report  dated  March  25,  1999,  with  respect  to the  consolidated  financial
statements and schedule of Acme United Corporation and subsidiaries  included in
this Annual Report (Form 10-K) for the year ended December 31, 1998.



                                                      /s/ Ernst & Young LLP
                                                      --------------------------
                                                      Hartford, Connecticut
                                                      March 25, 1999


         Consent of PricewaterhouseCoopers LLP, Independent Accountants

We consent to the  incorporation by reference in the registration  statements of
Acme United  Corporation and Subsidiaries on Forms S-8 (File No. 33-98918,  File
No.  333-26737,  and File No.  333-26739)  of our report  dated March 19,  1998,
except as to the  information  presented  in note 2, for which the date is March
26, 1999, on our audits of the consolidated  financial  statements and financial
statement  schedule of Acme United  Corporation and  Subsidiaries as of December
31, 1997,  and for the two years in the period ended December 31, 1997 and 1996,
which reports are included in this Annual Report on Form 10-K.



/s/ PricewaterhouseCoopers LLP
------------------------------
Hartford, Connecticut
March 26, 1999

<PAGE 30>

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 29, 1999.


ACME UNITED CORPORATION
(Registrant)

Signatures                     Titles

/s/ Walter C. Johnsen
---------------------------   
    Walter C. Johnsen          Chief Executive Officer and Director

/s/ Gary D. Penisten
---------------------------
    Gary D. Penisten           Chairman of the Board and Director

/s/ Ronald P. Davanzo
---------------------------
    Ronald P. Davanzo          Vice President and Chief Financial Officer,
                               Secretary and Treasurer

/s/ David W. Clark, Jr.
---------------------------
    David W. Clark, Jr.        Director

/s/ George R. Dunbar
---------------------------
    George R. Dunbar           Director

/s/ Richmond Y. Holden, Jr.
---------------------------
    Richmond Y. Holden, Jr.    Director

/s/ Wayne R. Moore
---------------------------
    Wayne R. Moore             Director

/s/ James L.L. Tullis
---------------------------
    James L.L. Tullis          Director