U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] Annual Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required]
OR
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the fiscal year ended December 31, 1995 Commission file number 0-13118
For the transition period from _________________ to ___________________
ACTION PRODUCTS INTERNATIONAL, INC.
(Name of Small Business Issuer in Its Charter)
Florida 59-2095427
State or other jurisdiction of incorporation (I.R.S. Employer Identification
No.) or organization
344 Cypress Road, Ocala, Florida 34472-3108
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (352) 687-2202
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
(Title of Class)
Check whether the Issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
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
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB.[ ]
State issuer's revenues for its most recent fiscal year: $ 5,487,015
The aggregate market value of the voting stock held by the non-affiliates of
the Registrant was $2,490,698 based on the average bid and asked price
reported March 14, 1995 (based on 838,972 shares).
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of March 1, 1996
Class Outstanding
Common Stock, $.001 1,499,926
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE>
PART I
ITEM 1. BUSINESS:
Description of Business
The Company is engaged in the manufacture and sale of toys, books, freeze
dried snack foods and other educational products. The Company also sells
and imprints promotional products primarily to the educational and leisure
markets. The Company's products are sold worldwide to museums, zoos,
aquariums, theme parks, science and nature-related specialty retailers and
NASA bases for resale.
Freeze Dried Snack Foods - "Action Snacks"
The Company manufactures freeze dried snack foods including ice cream and
ice cream sandwiches, frozen yogurt, fruit and pizza. As these are produced
using a process developed by NASA for the Apollo program, they are sold
primarily as novelty foods to space and science-related shops. The freeze
dried products are sold under the registered trademark "Action Snacks."
Promotional Products - "Logo America"
The Company prints and sells "Activewear" such as t-shirts, fleece, jackets,
hats, and the like onto which the Company silk screens original artwork as
well as corporate and other promotional logos using state of the art
printing equipment together with computer graphic systems. The Company
maintains an in-house screen printing plant with two computerized presses
which produce the garments for sale. The Company has developed processes
which allow photographs to be used as primary sources of artwork and is
introducing new lines of photographic t-shirts. The Company sells other
promotional products such as pens, pencils, coffee mugs, and stationery
items imprinted with corporate or promotional logos. The Company markets its
promotional products through its "Logo America" division.
Educational Toys and Other Products
The Company sells an educational product line consisting of toys, models,
science kits, , and collectibles with an emphasis on nature, space and
dinosaurs. The Company's products are purchased from over 100 sources.
More than 50% of the products are manufactured for the Company outside the
United States, primarily in Taiwan, Hong Kong and increasingly, China, and
are directly imported by the Company.
Publishing - "Action Publishing"
The Company publishes a line of educational books under the name "Action
Publishing." The line of books includes children's activity, coloring and
sticker books on such topics as nature, science, dinosaurs and airplanes.
Customers
The Company currently sells to approximately 2,000 museum stores throughout
the United States out of a market of over 6,000 stores. The museum gift
shop market includes natural history, science, zoos, nature centers,
aquariums, history and space related facilities (NASA base shops). To a
lesser degree, the Company sells to toy stores, gift stores and other types
of retailers.
No single customer accounts for more than 3% of sales and no single product
accounts for more than 8% of sales. The Company has customers in every
state in the United States, as well as the District of Columbia. The
Company exports to approximately 20 countries including Canada, Saudi
Arabia, Finland, The Netherlands, Germany, Japan, Hong Kong, New Zealand,
Denmark, Sweden and Australia.
Marketing and Sales
The Company markets its products through its full color catalogs,
newsletters, client visits, and telephone contact and solicitation. The
Company also exhibits its products and services at museum, gift, toy, and
other trade shows. The Company seeks to emphasize its own proprietary
products and trade names.
Customer service representatives sell the Company's products directly to
regular accounts by telephone. This method of marketing has permitted the
Company to have continuing contact with the Company's customers, allowing
the Company to identify new markets quickly and to respond promptly to
individual customer needs.
The Company's product lines are presented to customers through an
extensively illustrated full color catalog. The catalog permits buyers to
select and purchase products and is important for generating new customers.
Customers are encouraged to place orders from the catalog through the
Company's toll free telephone number and by fax.
Sales invoices are posted to the financial records on day of shipment, which
usually is the same day as the order is entered. No interest is charged
during the first 30 days following invoice. After 30 days, unpaid invoices
are overdue and a late charge of 1 1/2% per month is applied to the unpaid
balance. A small number of orders are made by C.O.D. or by credit card.
The Company requires most customers placing a custom design or imprinting
order to pay a deposit of 50% or more. A computerized inventory is
maintained for each item which is updated at time of customer invoice or
receipt of merchandise on the Company's premises. All credits are processed
and approved by the accounts receivable department. Any customer who wishes to
receive a credit to their account must request it in writing and submit it to
the Company for approval. Upon approval, a return authorization number is
issued to the customer along with a return label which must be used on the
return shipment. Upon receipt by the Company, the merchandise is inspected for
damage by the receiving department and forwarded to the accounts receivable
department. A separate credit memo is issued to the customer's account. This
credit must be used against future purchases.
Historically, credits and adjustments have been approximately 2% of sales.
Sales are netted in the month the credit memo is issued. The Company
believes that its sales, inventory and credit policies reflect standard
industry practices.
Less than 10% of the Company's sales are made on terms other than regular
terms as noted above. In a limited number of cases, customers are granted
an additional 30 to 60 days credit without service charges.
Competition
The Company competes with both toy, educational, scientific and souvenir
manufacturers and importers, distributors and book publishers. The
Company's ability to compete successfully is based upon its ability to offer
a wide range of specialized "theme" products; "same day" shipment on most
orders; and its in-house sales personnel who maintain regular and close
contact with the Company's customers. The Company believes its reputation,
service, and customer orientation enable it to maintain and build customer
loyalty.
The Company believes that it can maintain and expand its customer base due
to its wide range of products, its customer service abilities, and its
experience in the industry.. The Company is strongly committed to
maintaining and enhancing its advantages in its markets by continually
improving the products and services it offers. These services include
"value-added" merchandising such as packaging and display materials intended
to assist the company's customers in the sale of the Company's products.
The Company's goal is to have state of the art operations in all the areas
of customer service including computerization, warehouse technology,
telecommunications, graphics, and screen printing. The Company believes it
maintains its competitive advantage in its improved products and product
packaging by including UPC and ISBN markings on new proprietary products.
Personnel
The Company, as of December 31, 1995, had 40 full time employees. None of
the Company's employees are represented by a union. In 1995, benefits
offered employees included life insurance, Employee Stock Ownership Plan
(ESOP), a 401(k) plan, and employee contributed section 125 health plan.
All employees are required to sign a non-compete agreement prohibiting
competition with the Company for a period of one year following termination
of their employment. The Company believes its employee relations are good.
ITEM 2. DESCRIPTION OF PROPERTY:
The Company's operations are located in a 35,000 square foot building on 2.5
acres which it owns in an industrial park in Ocala, Florida. Management
considers the building adequate for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS:
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
NONE
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS:
The Company paid an 8% stock dividend in August 1995. The Company has
previously distributed warrants as dividends. The Company has not paid any
cash dividends. Any payment of cash dividends in the future will be at the
discretion of the Board of Directors and will depend on, among other things,
the Company's future earnings, financial condition, capital and other cash
requirements and general business conditions.
The Company's Common Stock is traded on The NASDAQ SmallCap Market under the
respective symbol APII. The number of holders of the Company's Common Stock
as of January 30, 1996, was approximately 500.
The high and low bid quotations for each quarter of the fiscal years ended
December 31, 1995 and 1994 are follows:
<TABLE>
<CAPTION>
Quarter Ended: High Bid Low Bid
<S> <C> <C>
March 31, 1994 2.875 1.500
June 30, 1994 1.656 1.250
September 30, 1994 1.687 1.250
December 31, 1994 1.25 0.875
March 31, 1995 1.75 1.000
June 30, 1995 3.625 1.375
September 30, 1995 3.375 2.3125
December 31, 1995 3.9375 1.625
</TABLE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
General
The Company achieved record sales in 1995. The Company attributes its near
20 percent increase in revenues to two key management decisions. During
1995, the Company focused its efforts on the improvement of the quality of
its sales and the refocus of its product development system. The Company
believed that meeting these objectives would strengthen its position in its
market and provide for the sustained growth of the Company.
The Company seeks to continually improve the quality of its sales efforts.
Rather than strictly selling more and more different products, the Company
is focusing its sales effort towards its main market arena: Edutainment.
The Company's 1995 record sales were not attributable any one significant
customer or transaction, but rather were a result of the improved sales
process, including the Company's addition of manufacturers' representative
companies. The Company seeks to maintain its sales in its current market
while concurrently pursuing opportunities provided by the Edutainment arena.
The Company believes the concept of Edutainment crosses into multiple markets
and naturally related areas.
Coupled with is efforts in the improvement of the quality of its sales
effort, the Company continues its investments in product quality through its
product development system. The Company seeks to bring its products to
market more attractively packaged and merchandised. The Company feels the
time and resources invested in developing more proprietary products could
lead to increased market penetration into its current and expanding customer
base. The Company now has in place a network of model makers, pattern makers,
package designers and specialists in the display or merchandising at the
retail level. This network composes the foundation of the Company's product
development system. The Company feels that the resultant products of its
development system carry higher perceived values, determined in part by
attractive packaging, and include modern merchandising solutions for its
current and potential retailers. The Company continues to develop new sales
outlets for its potential new product lines prior to investing heavily in
molds, packaging or inventories.
Results of Operations
The financial data included in the following table has been selected by the
Company and has been derived from the financial statements. The following
financial data should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations and the
financial statements and related notes included elsewhere herein.
<TABLE>
<CAPTION>
Twelve (12) Months Ended December 31
1995 1994
<S> <C> <C>
Net Sales $5,487,015 $4,603,224
Cost of Sales 3,575,517 2,965,400
Selling, General &
Administrative Expenses 1,700,258 1,452,211
Net Income (loss) 149,878 (240,543)
Net Income (loss)
per Common Share .12 (0.22)
Total Assets 3,734,184 3,438,416
Stockholders' Equity 2,553,997 2,153,147
</TABLE>
Year Ended December 31
Net sales were $5,487,015 and $4,603,224 in 1995 and 1994, respectively.
The sales increase of $883,791, up 19.2%, is attributable to the
regionalization of the Company's sales force allowing more aggressive
targeting of the Company's existing and potential customer base, a program
which the Company began in 1994.
Cost of sales were $3,575,517 and $2,965,400 in 1995 and 1994, respectively.
As a percentage of net sales, cost of sales was 65.2% in 1995 and 64.4% in
1994. Management placed a strong focus on product and product packaging
improvements in 1995.
Gross profit was $1,911,498 and $1,637,824 in 1995 and 1994, respectively.
Gross profit increased in 1995 by $273,674, up 16.7%.
Selling expenses were $659,689 and $490,873 in 1995 and 1994, respectively.
As a percentage of net sales, selling expenses were 12.02% and 10.66% in
1995 and 1994, respectively. Selling expenses are primarily related to
sales commissions, the Company's representation at industry trade shows, and
its efforts to increase the quality of customer contacts. The increase in
selling expenses is primarily attributable to an enhanced commission
structure for the Company's sales force and the addition of manufacturers'
representative companies.
General and Administrative costs were $1,040,569 and $961,338 in 1995 and
1994, respectively. The Company achieved a reduction in General and
Administrative costs as a percentage of sales, that is, 18.96% and 20.88% in
1995 and 1994, respectively. This reduction is due to continued cost
cutting and streamlining efforts and the increase in sales.
Interest expense related to current and long term debt was $67,624 and
$57,850 in 1995 and 1994, respectively. (See "Liquidity and Capital Resources")
Interest income was $7,668 and $5,757 in 1995 and 1994, respectively, and
related primarily to interest earned on temporary cash investments.
Other income has historically been insignificant and represented less than
1/2 of one percent of net sales in each of the last two years.
Liquidity and Capital Resources
As of December 31, 1995, current assets were $2,496,221 compared to current
liabilities of $580,187 for a current ratio of 4.30:1 from 3.36.1 at
December 31, 1994.
The Company had positive cash flows from operations of approximately
$490,000 compared to negative cash flow from operations in the prior year of
approximately $(330,000), an improvement of approximately $820,000. Total
current assets increased by $215,154 and total assets increased by $295,768.
Accounts receivable increased by $108,855 while inventories decreased by
$130,021. Cash and cash equivalents were up by $313,035 and prepaid
expenses were down by $66,715. Current liabilities decreased by $99,082.
Working capital demand notes were paid down to zero from $335,320.
During the year ended December 31, 1995, the Company received approximately
$246,000 from the exercise of stock options. In addition, the Company had a
stock subscription receivable of $277,000 at year end, which was
subsequently received.
As of December 31, 1995, the Company's only long-term debt was a 9%
convertible promissory note of $600,000 owed to officers and directors. The
Company has no current indebtedness.
The assets of the Company are not encumbered and the Company does not have a
line of credit.
Inventories, primarily finished goods, decreased to $1,311,230 at December
31, 1995, from $1,441,251 at December 31, 1994.
During 1995, gross property, plant and equipment increased by approximately
$88,000. Net property, plant and equipment decreased by approximately $5,000.
The increase in the accounts payable to $472,245 from $280,955 is due to the
timing of vendor's shipments and the increase in sales volume.
Accounts receivable, net of allowance for doubtful accounts, increased by
$108,855 to $554,926 at December 31, 1995 due to improved sales. The
Company's collection history is excellent; however, there can be no
assurance that the Company's success in debt collection will continue. The
Company believes its credit policies and history are within industry standards.
Shareholders' equity at year end 1995 increased by approximately $400,000 to
$2,553,997. Shareholder equity increased due to the Company's earnings of
approximately $150,000 and the issuance of common shares representing
capital raised of approximately $250,000.
Other Matters
The Company's product line historically has not been significantly affected
by inflation and inflation has not had a significant effect on gross earnings.
The Company's industry is seasonal in nature, reflecting peak sales in the
second quarter and slower sales in the fourth quarter.
ITEM 7. FINANCIAL STATEMENTS:
Financial statements and schedules are submitted in Items 13(1) and (2) on
this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:
NONE
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS:
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT:
<TABLE>
MANAGEMENT/BOARD OF DIRECTORS
<CAPTION>
Name Age Position
<S> <C> <C>
Ronald Kaplan 30 Director, President, Chairman of the Board of
Directors, Chief Executive Officer, Chief Operating
Officer
Judith Kaplan 57 Director, Chief Financial Officer, Secretary
Warren Kaplan 58 Director
Robert Zumbahlen 39 Treasurer
</TABLE>
Ronald Kaplan, Director since 1991, was appointed Chairman of the Board on
January 1, 1996. He was President ('93-present), Chief Executive Officer
('96-present), Chief Operating Officer ('93-present), and Executive Vice
President ('91-'93) of the Company.
Judith Kaplan, Director since 1981, served as Chairperson of the Board of
Directors of the Company since its formation in 1981 until December 31,
1995. Ms. Kaplan was President ('81-'87), Secretary ('81-present), Chief
Executive Officer ('81-'95), Chief Financial Officer ('81-present) and
Treasurer ('81-'91) of the Company. She is the wife of Warren Kaplan and
mother of Ronald Kaplan.
Warren Kaplan, Director since 1987, was President of the Company from 1987
until 1994. Mr. Kaplan is a consultant to the Company.
Robert Zumbahlen has been Treasurer since 1991. He is a graduate of Bentley
College in Waltham, Massachusetts (1979) with a B.S. in accounting and is
currently the Company's Purchasing Manager.
PART III
ITEM 10. EXECUTIVE COMPENSATION:
<TABLE>
Summary Compensation Table
Long Term Compensation
<CAPTION>
Other
Restricted Other Options/ All
Name and Annual Compen- Stock LTIP Compen-
Principal Salary Bonus sation Award(s) SARs Payout sation
Position Year ($) ($) ($)1 ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Judith 1995 $56,949 $6,000 0 0 0
Kaplan 1994 $55,385 $6,000 0 0 0
CEO
Ronald 1995 $54,218 $6,000 0 0 0
Kaplan 1994 $47,335 $6,000 150,000 0 0
CEO2
All Exec 1995 $142,560
Officers 1994 $124,340
as a
Group (3)
</TABLE>
__________________________
1Includes value of use of automobile, vacation pay, sick pay.
2Beginning January 1, 1996
Ronald Kaplan has an agreement with the Company pursuant to which he will be
paid $75,000 for the year beginning January 1, 1996, as well as the use of
an automobile. As of January 1, 1996, Mr. Kaplan was promoted to Chief
Executive Officer and Chairman of the Board of Directors.
Judith Kaplan was Chairperson of the Board of Directors until December 31,
1995. She is employed by the Company as Chief Financial Officer and
Secretary. Ms. Kaplan's salary is $30,000 annually plus the use of an
automobile.
In November 1994, the Company's Board of Directors reduced the exercise
price of outstanding options to $1.50 per share and granted Ronald Kaplan
options to purchase 150,000 shares. No options/SARs were granted to any
executives during the fiscal year ended December 31, 1995.
The following table sets forth the aggregate of options exercised in the
year ended December 31, 1995 and the value of options held at December 31,
1995.
<TABLE>
Option Exercises/Option Values
<CAPTION>
Value of
Shares Unexercised Unexercised
Acquired on Value Options at Options at
Name Exercise Realized Year End Year End1
<S> <C> <C> <C> <C>
Ronald Kaplan 25,000 $37,500 243,000 $425,250
Judith Kaplan 0 0 108,000 $189,000
</TABLE>
1The market price at December 31, 1995 was $1.75 per share.
Employee Stock Ownership Plan
On April 23, 1984, the Company adopted an Employee Stock Ownership Plan
("ESOP"). The ESOP qualifies for special tax benefits under the Internal
Revenue Code. Under the ESOP, the Company makes an annual contribution to a
trust which purchases the Company's stock from the Company for the benefit
of the Company's employees who have completed at least 1,000 hours of work
during the fiscal year. Employer contributions under the ESOP are allocated to
each employee's account on a pro-rata basis according to the total compensation
paid to, and the number of years of service by, all eligible employees. An
employee becomes 100% vested in the ESOP following 5 years of plan
eligibility. As of December 31, 1995, there were 30,475 shares of Common
Stock held by the Company's ESOP trust.
401(k) Plan
Effective October 3, 1986, the Company adopted a Voluntary 401(k) Plan. All
employees are eligible for the plan. Employees who have worked for the
Company 18 months are eligible for a 34% match of their contributions.
Benefits are determined annually. The lowest 66% of paid employees may
contribute the lesser of 15% of their salary or $9,240. The top 1/3 of
employees cannot contribute a percentage greater than 15% of their
compensation or 150% of average contributions of the lowest 66% of paid
employees to a maximum of $9,240 or applicable maximum allowed by the
Internal Revenue Code.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
The following table sets forth information as of February 29, 1995, with
respect to the beneficial ownership of Common Stock by all shareholders
known by the Company to be the beneficial owners of more than 5% of its
outstanding Common Stock, all directors, and all directors and officers of
the Company as a group. Except as noted below, each person has sole voting
and investment power with respect to the shares shown. On the above date the
Company had 1,499,926 shares of Common Stock outstanding.
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Title Beneficial Percent
Address of Class Ownership1 of Class
<S> <C> <C> <C>
Ronald S. Kaplan
344 Cypress Road
Ocala, FL 34472 Common 264,127 3 15.15%
Judith Kaplan
344 Cypress Road
Ocala, FL 34472 Common 720,562 2 41.99%
Warren Kaplan
344 Cypress Road
Ocala, FL 34472 Common 720,562 2 41.99%
All Directors and
Officers as a Group
(4 persons) Common 994,172 2,3 50.75%
</TABLE>
___________________
1 Nature of ownership is record holder unless otherwise shown.
2 Includes spouse's shares (Judith Kaplan - 293,212; Warren Kaplan - 288,875)
plus 30,475 shares held as Trustee of the Company's Employee Stock Ownership
Plan Trust. Also includes immediately exercisable options for Judith Kaplan
and Warren Kaplan each to purchase 108,000 shares at $1.50 per share . Does
not include 54,000 options issued to Elissa Kaplan, daughter of Judith
Kaplan and Warren Kaplan, who was an employee of the Company until May 1994,
or any shares or options held by Ronald S. Kaplan. Does not include 960,000
shares of Common Stock which may be issued upon conversion of certain
convertible promissory notes held by the Kaplans.
3 Includes immediately exercisable options to purchase 243,000 shares at $1.50
per share.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of December 31, 1995, the Company owed its principal shareholders, Warren
and Judith Kaplan, $600,000 on a five year convertible promissory note.
This note, which bears interest at 9% per annum and is convertible into
shares of the Company's Common Stock at 62 1/2 cents per share, consists of
approximately $300,000 used to purchase the Company's operating facility in
1991 and $300,000 of short term operating capital recast as long term debt
in 1994.
PART IV
ITEM 13. EXHIBITS, LIST:
(a) 1. Financial Statements
(i) Report of Independent Certified Public Accountants
(ii) Consolidated Balance Sheet - December 31, 1995
(iii) Consolidated Statements of Operations - Years ended December 31, 1995
and 1994
(iv) Consolidated Statements of Changes in Stockholders' Equity - Years ended
December 31, 1995 and 1994
(v) Consolidated Statements of Cash Flows - Years ended December 31, 1995
and 1994
(vi) Notes to Consolidated Financial Statements - Years ended December 31,
1995 and 1994
2. Financial Statement Schedules NONE
3. Exhibits
(i) Plan of acquisition, reorganization, arrangement, liquidation or
succession NONE
(ii) Articles of Incorporation and By-Laws filed as an Exhibit to Form 10-K
filed April 12, 1988
(iii) Voting Trust Agreement NONE
(iv) Material Contracts
(a) Employee Stock Ownership Plan filed as an Exhibit to the Company's
Registration Statement on Form S-18, dated April 23, 1984, at pages
154-208
(b) Incentive Stock Option Plan filed as an Exhibit to the Company's
Registration Statement on Form S-18 dated September 25, 1984, at
pages 210-220
(c) Employment Agreement for Judith Kaplan dated January 1, 1992 as filed
as an Exhibit to Form 10-K for the year ended December 31, 1993.
(d) Employment Agreement for Warren Kaplan dated January 1, 1992 as filed
as an Exhibit to Form 10-K for the year ended December 31, 1993.
(e) 401(k) Plan dated October 3, 1986, filed as an Exhibit to Form 10-K
filed August 15, 1987
(f) Convertible Promissory Notes dated August 4, 1994 to Judith and
Warren Kaplan.
(v) Statement re: Computation of Footnote 1, Page 7
Per Share Earnings Financial Statement
(vi) Statements re: computation of ratios NONE
(vii) Annual Report to security holders, Form 10-Q or quarterly report to
security holders NONE
(viii) Letter re: Change in Accounting Principles NONE
(ix) Previously unfiled Documents NONE
(x) Subsidiaries of Registrant NONE
(xi) Published Report re: Matters Submitted to Vote of Security Holders NONE
(xii) Consents of Experts and Counsel Consent of independent
certified public accountants
(xiii) Power of Attorney NONE
(xiv) Additional Exhibits
(a) Amendment to Employee Stock Ownership Plan dated February 8, 1988,
filed as an Exhibit to Form 10-K filed March 31, 1989
(b) Amendment to Employee Stock Ownership Plan dated March 10, 1989, filed
as an Exhibit to Form 10-K filed March 31, 1989
(xv) Information from reports furnished to state insurance regulatory
authorities NONE
(b) Reports on Form 8-K NONE
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Action Products International, Inc. has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
ACTION PRODUCTS INTERNATIONAL, INC.
a Florida corporation
Date: March 22, 1996 By: /s/ Ronald Kaplan
Ronald Kaplan, Chairman of the Board,
Chief Executive Officer, Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature Title Date
/s/ Ronald Kaplan Chairman of the Board/ March 22, 1996
Ronald Kaplan President/Chief Executive
Officer/Chief Operating
Officer/Director
/s/ Judith Kaplan Chief Financial Officer/ March 22, 1996
Judith Kaplan Director
/s/ Delton de Armas Controller March 22, 1996
Delton de Armas
ACTION PRODUCTS INTERNATIONAL, INC.
FINANCIAL STATEMENTS
Years Ended December 31, 1995 and 1994
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Action Products International, Inc.
Ocala, Florida
We have audited the accompanying balance sheet of Action Products International,
Inc. as of December 31, 1995, and the related statements of operations, changes
in shareholders' equity, and cash flows for each of the two years in the period
ended December 31, 1995. 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 financial position of Action Products International,
Inc. as of December 31, 1995, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
LOVELACE, ROBY & COMPANY, P. A.
Certified Public Accountants
Orlando, Florida
January 26, 1996
<PAGE>
ACTION PRODUCTS INTERNATIONAL, INC.
BALANCE SHEET
December 31, 1995
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 600,085
Accounts receivable, net of an
allowance for doubtful accounts of $3,500 554,926
Inventories, net 1,311,230
Prepaid expenses and other assets 29,980
TOTAL CURRENT ASSETS 2,496,221
PROPERTY, PLANT AND EQUIPMENT
Land 67,382
Building and building improvements 996,167
Equipment 819,788
Furniture and fixtures 136,452
2,019,789
Less accumulated depreciation (1,040,404)
NET PROPERTY, PLANT AND EQUIPMENT 979,385
OTHER ASSETS 258,578
TOTAL ASSETS $3,734,184
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C>
CURRENT LIABILITIES
Accounts payable $ 472,245
Accrued expenses
Other 57,375
Payroll and related 34,550
Interest 4,942
Income taxes payable 11,075
TOTAL CURRENT LIABILITIES 580,187
LONG-TERM LIABILITIES
Notes payable to shareholders 600,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock - $.001 par value; 7,500,000
shares authorized; 1,499,926 shares issued
and outstanding 1,500
Additional paid-in capital 2,829,242
Retained earnings 255
Stock subscription receivable (277,000)
TOTAL SHAREHOLDERS' EQUITY 2,553,997
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,734,184
</TABLE>
<PAGE>
ACTION PRODUCTS INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994
<S> <C> <C>
NET SALES $5,487,015 $4,603,224
COST OF SALES 3,575,517 2,965,400
GROSS PROFIT 1,911,498 1,637,824
OPERATING EXPENSES
Selling 659,689 490,873
General and administrative 1,040,569 961,338
1,700,258 1,452,211
INCOME FROM OPERATIONS 211,240 185,613
OTHER INCOME (EXPENSE)
Net loss on litigation settlement - (294,500)
Warrant related expenses - (114,860)
Interest expense (67,624) (57,850)
Interest income 7,668 5,757
Other income 12,594 13,297
(47,362) (448,156)
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES 163,878 (262,543)
PROVISION (BENEFIT) FOR INCOME TAXES
Current 23,000 (20,000)
Deferred (9,000) (2,000)
14,000 (22,000)
NET INCOME (LOSS) $ 149,878 $ (240,543)
INCOME (LOSS) PER SHARE
Primary $ 0.12 $ (0.22)
Fully diluted $ 0.11 $ (0.22)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Primary 1,421,000 1,107,400
Fully diluted 1,466,600 1,107,400
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
ACTION PRODUCTS INTERNATIONAL, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
$.001 PAR VALUE PAID-IN RETAINED STOCK, SUBSCRIPTION SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS AT COST RECEIVABLE EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - DECEMBER 31, 1993
972,820 973 1,938,690 445,070 - - 2,384,733
ISSUANCE OF COMMON SHARES TO ACQUIRE
THE MINORITY INTEREST IN SUBSIDIARY
76,000 76 19,924 - - - 20,000
REPURCHASE OF 6,000 COMMON SHARES
- - - - (13,349) - (13,349)
RETIREMENT OF TREASURY SHARES
(6,000) (6) (13,343) - 13,349 - -
SALE OF COMMON STOCK OPTIONS
- - 2,306 - - - 2,306
NET LOSS
- - - (240,543) - - (240,543)
BALANCE - DECEMBER 31, 1994
1,042,820 1,043 1,947,577 204,527 - - $2,153,147
ISSUANCE OF COMMON SHARES
FOR EMPLOYEE STOCK
OWNERSHIP TRUST
5,000 5 4,683 - - - 4,688
ISSUANCE OF COMMON SHARES ON
EXERCISE OF OPTIONS
341,000 341 522,943 - - (277,000) 246,284
ISSUANCE OF 8% STOCK DIVIDEND
111,106 111 354,039 (354,150) - - -
NET INCOME
- - - 149,878 - - 149,878
BALANCE - DECEMBER 31, 1995
1,499,926 1,500 2,829,242 255 - (277,000) 2,553,997
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
ACTION PRODUCTS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 149,878 $ (240,543)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Depreciation 93,240 106,665
Amortization 54,836 33,864
Warrant related expenses - 114,860
Benefit for deferred income taxes (9,000) (2,000)
Provision for contribution to
Employee Stock Ownership Plan 4,688 -
Increase in accounts receivable, net (108,855) (4,759)
Decrease (increase) in inventories, net 130,021 (105,545)
Decrease (increase) in prepaid expenses and
other current assets 66,715 (42,615)
Decrease (increase) in income taxes refundable 10,000 (10,000)
Increase in other assets (140,726) (110,229)
Increase (decrease) in accounts payable 191,290 (72,774)
Increase in accrued expenses 36,873 10,120
Increase (decrease) in income taxes payable 11,075 (7,000)
NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES 490,035 (329,956)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment (87,964) (55,596)
NET CASH USED IN INVESTING ACTIVITIES (87,964) (55,596)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of common shares for treasury - (13,349)
Net proceeds from issuance of common
stock and options 246,284 2,306
Proceeds from(repayments of) related-
party borrowings (335,320) 464,500
NET CASH (USED IN)
PROVIDED BY FINANCING ACTIVITIES (89,036) 453,457
NET INCREASE IN CASH AND CASH EQUIVALENTS 313,035 67,905
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 287,050 219,145
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 600,085 $ 287,050
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
ACTION PRODUCTS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1995 and 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Action Products International, Inc. (the Company) is engaged in the manufacture
and sale of freeze dried snack foods, toys, books, and other educational and
entertaining products. The Company also sells and imprints promotional
products. The Company's products are sold worldwide to the educational and
leisure markets.
Cash and Cash Equivalents
For financial presentation purposes, the Company considers short-term, highly
liquid investments with original maturities of three months or less to be cash
equivalents.
Inventories
Inventories, which consist primarily of finished goods purchased for resale, are
stated at lower of cost (determined by the first-in, first-out method) or
market. At December 31, 1995, the Company had approximately $322,000 of work
in process inventory. The inventory valuation allowance at December 31, 1995
was approximately $106,000.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the various
classes of assets, as follows:
Building 40 Years
Building improvements 6 - 12 Years
Furniture and fixtures 5 Years
Equipment 5 - 7 Years
Revenue Recognition
The Company recognizes revenue from the sale of its products to retail
establishments as transactions are completed. Transactions are generally
considered complete when goods are shipped.
Income Taxes
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in its financial
statements or tax returns. Deferred income tax liabilities and assets are
determined based on the difference between the financial statement and tax
bases of liabilities and assets using enacted tax rates in effect for the
year in which the differences are expected to reverse. (See Note 5)
Net Income (Loss) Per Share
Net income (loss) per common share and common share equivalents are computed
based upon the weighted average number of shares and common share equivalents
outstanding during each year. (See Note 4)
Primary and fully diluted net income per share in 1995 include common shares
assumed to have been issued as a result of the exercise of stock options.
Proceeds from the pro-forma exercise of stock options for greater than
300,000 shares, approximately 20 percent of total common shares outstanding
at December 31, 1995, were assumed to be used to retire long-term debt
bearing interest at nine percent, increasing pro-forma net income accordingly.
Use of 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.
Estimates also affect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Credit Risk
Financial instruments which potentially subject the Company to concentrations of
credit risk at December 31, 1995 include approximately $565,000 of cash
deposited in a money market fund and trade receivables. Concentrations of
credit risk with respect to trade receivables are limited, in the opinion of
management, due to the Company's large number of customers and their
geographic dispersion.
Subsidiary
In 1992, the Company formed Logo America, Inc. (Logo America) as a subsidiary.
Logo America was a development stage company and did not commence operations.
During 1994, the Company acquired all minority interests in Logo America in
exchange for an aggregate of 76,000 shares of the Company's common stock,
thus making Logo America a wholly owned subsidiary. Certain former minority
shareholders of Logo America were also shareholders of the Company. The
corporate existence of Logo America was subsequently terminated.
NOTE 2 - RELATED-PARTY BORROWINGS
At December 31, 1995, the Company had long-term debt payable to shareholders,
resulting primarily from working capital loans and the purchase of the Company's
facility in prior years, as follows:
Promissory notes payable to related parties, bearing interest at 9% per annum,
monthly payments of interest only until September 1, 1997,
with 24 monthly payments of principal and interest of $27,411
due thereafter, unsecured, convertible at any time and from
time to time in whole or in part after May 9, 1995, into
common shares of the Company at $.625 per share $600,000
The Company has reserved, from its authorized but unused shares of common
stock, 960,000 shares for use in the event the long-term debt is converted.
Subsequent maturities of long-term debt to related parties at December 31, 1995
are approximately as follows:
Year Amount
1997 $ 92,680
1998 295,250
1999 212,070
$600,000
The Company had nine percent demand loans of $335,320 payable to officers and
shareholders which were repaid during 1995.
Cash paid for interest during the years ended December 31, 1995 and 1994 was
approximately $66,000 and $52,000, respectively.
NOTE 3 - COMMON STOCK WARRANTS AND TREASURY SHARE
TRANSACTIONS
As a result of the expiration of warrants, approximately $115,000 of deferred
costs related to the Company's issuance of the warrants was charged to
operations in 1994.
Additionally, during 1994, the Company repurchased and retired 6,000 shares of
its common stock purchased at an aggregate cost of approximately $13,000.
NOTE 4 - STOCK DIVIDEND
At its 1995 annual shareholders' meeting, the Company's Board of Directors
declared an 8 percent stock dividend payable to shareholders of record on
July 28, 1995. As a result, approximately 111,000 common shares were issued
and the Company charged retained earnings approximately $354,000 to reflect
the capitalization of the dividend shares.
The weighted average number of common shares outstanding during 1994 has been
restated for the effect of the 8 percent stock dividend resulting in a change in
the 1994 net loss per share from ($.23) to ($.22).
NOTE 5 - INCOME TAXES
The Company had no foreign operation and, therefore, all components of income
were domestic.
Significant components of the Company's deferred tax liabilities and assets at
December 31, 1995 are as follows:
Deferred Tax Liabilities
Depreciation $(6,000)
Deferred Tax Assets
Bad Debt Allowance $ 500
Inventories 6,000
Accrued interest and compensation 1,500
Gross deferred tax assets 8,000
Valuation allowance (2,000)
Net deferred tax assets 6,000
Net deferred taxes $ -
During 1995, deferred tax asset valuation allowance decreased $17,000.
The difference between the Company's effective income tax rate and the federal
statutory rate is reconciled below:
1995 1994
Federal provision (benefit) expected
at statutory rate $55,500 $(89,000)
Surtax exemption (7,800) 2,000
Depreciation, Alternative Minimum Tax
and Other (2,000) 10,000
Net operating loss carryforward (31,700) 55,000
Provision (benefit) for income taxes $ 14,000 $(22,000)
Income taxes paid in cash were approximately $10,000 and $6,600 during the years
ended December 31, 1995 and 1994, respectively.
NOTE 6 - EMPLOYEE STOCK OWNERSHIP AND OPTION PLANS
The Company has an Employee Stock Ownership Plan (the Plan), which covers
substantially all employees. The Plan provides, among other things, that
contributions to the Plan shall be determined by the Board of Directors prior
to the end of the Company's year and that the contributions may be paid in
cash, Company stock or other property at any time within the limits
prescribed by the Internal Revenue Code. At December 31, 1995, the Plan held
approximately 30,000 shares of the Company's common stock. During 1995 and
1994, the Company contributed 5,000 and 0 of its common shares, respectively,
to the plan. As a result, $4,688 and $0 were charged to operations in 1995
and 1994, respectively.
NOTE 6 - EMPLOYEE STOCK OWNERSHIP AND OPTION PLANS (Continued)
During 1994, the Company's Board of Directors extended the expiration dates on
certain options and adjusted the exercise price on all then outstanding options
to $1.50 per share. In the event of a change in the Company's control, the
options may not be callable by the Company. The options outstanding at
December 31, 1995 expire in 1999. The following table summarizes the stock
option activity for the years ended December 31, 1994 and 1995:
Shares Under
Option
Outstanding at December 31, 1993 625,000
Called during 1994 (10,000)
Granted during 1994 96,000
Outstanding at December 31, 1994 711,000
Exercised during 1995 (341,000)
Called during 1995 (5,000)
Granted during 1995 110,000
Effect of Stock Dividend 38,000
Outstanding at December 31, 1995 513,000
Net contribution to the Company from the exercise of stock options during 1995
amounted to approximately $523,000, of which approximately $246,000 had been
collected through December 31, 1995. The remaining balance of $277,000 is
presented as a stock subscription receivable.
NOTE 7 - EMPLOYEE BENEFIT PLANS
The Company has a 401(k) employee benefit plan, which covers substantially all
employees. Under the terms of the 401(k) plan, the Company is to contribute a
percentage, as determined annually by the Company's Board of Directors, of the
participants' voluntary contributions to the plan. The Company has charged
approximately $13,100 and $13,600 in 1995 and 1994, respectively, to
operations for its contributions to the plan.
NOTE 8 - FOREIGN SALES
Revenues from sales to customers located outside of the United States amounted
to approximately $455,000 and $275,000 in 1995 and 1994, respectively.
NOTE 9 - CONTINGENCIES
As of December 31, 1995, the Company is a party in several legal proceedings
that have arisen in the normal course of its business. In the opinion of
management, any monetary liability or financial impact of such legal
proceedings to which the Company might be subject after final adjudication
would not be material to the financial position of the Company.
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our Firm under the caption "Experts" in the
registration statement on Form S-8 and related prospectus of Action Products
International, Inc. and to the incorporation by reference therein of our report
dated January 26, 1996, with respect to the financial statements of Action
Products International, Inc. included in its Annual Report on Form 10-KSB for
the years ended December 31, 1995 and 1994, filed with the Securities and
Exchange Commission.
LOVELACE, ROBY & COMPANY, P. A.
Certified Public Accountants
Orlando, Florida
March 26, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-START> Jan-01-1995
<PERIOD-END> Dec-31-1995
<CASH> 600
<SECURITIES> 0
<RECEIVABLES> 554
<ALLOWANCES> 0
<INVENTORY> 1311
<CURRENT-ASSETS> 2496
<PP&E> 2020
<DEPRECIATION> (1040)
<TOTAL-ASSETS> 3734
<CURRENT-LIABILITIES> 580
<BONDS> 600
<COMMON> 1
0
0
<OTHER-SE> 2553
<TOTAL-LIABILITY-AND-EQUITY> 3734
<SALES> 5487
<TOTAL-REVENUES> 5487
<CGS> 3576
<TOTAL-COSTS> 3576
<OTHER-EXPENSES> 1700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68
<INCOME-PRETAX> 164
<INCOME-TAX> 14
<INCOME-CONTINUING> 150
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150
<EPS-PRIMARY> .12
<EPS-DILUTED> .11
</TABLE>
