SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1997 Commission File Number
Registration Number 2-93512-A
ACTION PRODUCTS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2095427
(State or other jurisdiction of(I.R.S. Employer Identification No.)
incorporation 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
Check whether the registrant (1) has filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of June 30, 1997.
Class Outstanding at June 30, 1997
Common Stock, $.001 par value 1,549,926
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I N D E X
PART I. FINANCIAL INFORMATION Page
Number
Item 1. Financial Statements
Condensed balance sheets - June 30, 1997
and December 31, 1996 (unaudited) 3
Condensed statements of operations and changes
in Retained Earnings - Three and six months ended
June 30, 1997 and 1996 (unaudited) 4
Condensed statements of cash flows - Three and six
months ended June 30, 1997 and 1996 (unaudited) 5
Notes to condensed financial statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
SIGNATURE PAGE 9
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ACTION PRODUCTS INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<S> <C> <C>
June 30, December 31,
1997 1996
Current assets:
Cash and cash equivalents $ 7,885 $ 463,137
Accounts receivable, net of
allowance of $5,500 at
June 30, 1997 and $25,500
at December 31, 1996 1,013,646 517,982
Inventories, net 1,891,533 1,204,778
Prepaid expenses 270,517 246,888
Total Current Assets 3,183,581 2,432,785
Property, plant and equipment,
net of accumulated depreciation of
$926,658 at June 30, 1997 and
$872,692 at December 31, 1996 1,018,830 1,064,522
Other assets 332,879 375,009
TOTAL ASSETS 4,535,290 3,872,316
Current liabilities:
Accounts payable & accrued expenses 773,987 593,174
Borrowings under line of credit 416,750 175,000
Total Current Liabilities 1,190,737 768,174
Long term liabilities:
Notes payable 600,000 600,000
Shareholders' equity: Common
stock $.001 par value authorized
7,500,000; 1,549,926 issued and
outstanding at June 30,1997
and December 31, 1996 1,550 1,550
Capital in excess of par value 2,904,192 2,904,192
Stock subscription receivable (14,556) (84,000)
Accumulated deficit (146,633) (317,600)
Total Shareholders' Equity 2,744,553 2,504,142
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 4,535,290 $ 3,872,316
</TABLE>
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ACTION PRODUCTS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
AND CHANGES IN RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
Three months Six months ended
ended June 30 June 30
1997 1996 1997 1996
Net Sales $1,809,623 $1,736,182 $2,954,009 $3,173,846
Cost of Sales 998,314 1,155,792 1,666,467 2,071,599
Gross Profit 811,309 580,390 1,287,542 1,102,247
Selling, General &
Administrative Expenses 554,662 465,631 1,079,888 851,370
Other (expenses) income
Other 1,197 12,234 4,391 18,939
Interest expense (23,142) (14,156) (41,078) (28,199)
Total (21,945) (1,922) (36,687) (9,260)
Income before income taxes 234,702 112,837 170,967 241,617
Provision for income taxes 0 0 0 0
Net Income 234,702 112,837 170,967 241,617
Beginning retained earnings
(accumulated deficit) (381,335) 129,035 (317,600) 255
Ending retained earnings
(accumulated deficit) ($146,633) $241,872 ($146,633) $241,872
Net Income per share $0.15 $0.08 $0.11 $0.16
Weighted average number of
common shares outstanding 1,549,926 1,499,926 1,549,926 1,499,926
</TABLE>
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ACTION PRODUCTS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
Three months Six months ended
ended June 30 June 30
<S> <C> <C> <C> <C>
1997 1996 1997 1996
Cash flows from operating
activities:
Net income $234,702 $112,837 $170,967 $241,617
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation 25,513 28,036 53,966 53,182
Change in assets and liabilities:
Increase in current assets
other than cash and
cash equivalents (617,966) (177,864)(1,206,048) (882,420)
Increase (decrease) in
current liabilities 156,335 (137,436) 180,813 66,954
Decrease (increase) in
other assets 19,160 5,055 42,130 (38,285)
Net cash used in operating
activities ($182,256)($169,372) ($758,172)($558,952)
Net cash used in investing
activities ($2,823) ($53,472) ($8,274)($112,253)
Cash flows from financing
activities:
Proceeds from borrowings
on line of credit 65,000 0 241,750 0
Results of other financing
activities 69,444 0 69,444 268,000
Net cash provided by fin.
activities $134,444 $0 $311,194 $268,000
Net decrease in cash and cash
equiv. ($50,635)($222,844) ($455,252)($403,205)
Cash and cash equivalents at
start of period $58,520 $419,724 $463,137 $600,085
Cash and cash equivalents at end
of period $7,885 $196,880 $7,885 $196,880
Supplemental disclosures - cash
paid for
Interest $23,142 $14,156 $41,078 $28,199
Taxes $0 $0 $0 $11,075
</TABLE>
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ACTION PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Condensed financial statements
In the opinion of management, the accompanying unaudited condensed financial
statements contain all normal recurring adjustments necessary to present
fairly the financial position of Action Products International, Inc. at June
30, 1997 and the results of its operations and cash flows for the second
quarter ending June 30, 1997.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's report on Form 10-KSB
for the year ended December 31, 1996. The results of operations for the
period ended June 30, 1997 are not necessarily indicative of the operating
results for the full year.
2. Income per common share
Income per common share is computed based upon the weighted average number of
shares outstanding during the period.
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ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations:
Any statements that are not historical facts contained in this discussion are
forward looking statements. It is possible that the assumptions made by
management for purposes of such statements may not materialize. Actual results
may differ materially from those projected or implied in any forward looking
statements. Such statements may that involve risks and uncertainties, including
but not limited to those relating to product demand, pricing, market acceptance,
the effect of economic conditions, and intellectual property rights and the
outcome of competitive products, risks in product development, the results of
financing efforts, the ability to complete transactions, and other risks
identified in this and the Company's other Securities and Exchange Commission
filings.
Three months ended June 30, 1997
During the second quarter ended June 30, 1997 revenue increased to a new
quarterly record of $1,809,623 in 1997 from $1,736,182 in 1996, up 4%. The
second quarter 1997 net income more than doubled to $234,702 versus $112,837 for
the 1996 comparable period, due to the increase in sales and the significant
eleven point improvement in the gross profit margin. The increase in sales is
attributable to the improved packaging, merchandising and marketing efforts of
the Company's core product lines, new products released in latter part of the
second quarter, and a continued effort by sales management to expand the sales
force and broaden the market base.
Gross profit increased $230,919 to $811,309 from $580,390, up 40%. As a percent
of sales, gross profit was up more than eleven points to 44.8% from 33.4% for
the 1996 comparable period. Management attributes this improvement to selling
price increases, increasing market penetration, new proprietary products, and
more beneficial terms and pricing with overseas vendors, all of which are
attributable to the Company's transition from distributor to manufacturer.
Selling, General & Administrative expenses increased $89,031, or about 19%.
Management attributes the increase in expenses to various transitional costs
including its new divisional catalogs, extended trade show coverage, and other
marketing expenditures; additional salaries and commissions connected with the
Company's strengthening of its marketing and sales force and outside sales
representative organizations; and increases in depreciation and amortization
linked to prior year acquisitions of equipment and other assets.
Six months ended June 30, 1997
During the six months ended June 30, 1997 revenues were $2,954,009 in 1997, down
less than 7% from $3,173,846 in 1996. The decrease in sales for the six months
ended is attributable to the decrease in first quarter revenues. Management
attributed the decrease in first quarter net sales to early shortages in
shippable inventories. These shortages were primarily as a result of the
Company's transition from its role as a distributor to a manufacturer of
proprietary products. Packaging complications and delays in receipts of
overseas shipments also contributed to the inventory shortages. Furthermore,
management did not anticipate the overwhelming response at its trade shows and
from the distribution of its recently divisionalized toy and publishing
catalogs. As a result, the Company experienced inventory shortages in product
lines where demand was underestimated.
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Gross profit for the six months ended increased $185,295 to $1,287,542 from
$1,102,247, or 17%. As a percentage of sales, gross profit was up significantly
to 43.6% from 34.7% for the 1996 comparable period. Selling, General &
Administrative Expenses for the six months ended increased about 27%. As
previously discussed, management attributes the increase in expenses to various
first quarter expenditures as well as other transitional costs including its
additional marketing expenditures, additional salaries and commissions, and
increases in depreciation and amortization.
Financial Condition, Liquidity and Capital Resources:
As of June 30, 1997, current assets were $3,183,581 compared to current
liabilities of $1,190,737 for a current ratio of 3:1. At June 30, 1997, working
capital improved by $328,233 compared to December 31, 1996.
Historically, the peak period of the Company's business cycle has been March
through August. Thus, accounts receivable and inventories were $1,013,646 and
$1,891,533, respectively, at June 30, 1997 compared to $517,982 and $1,204,778,
respectively, at December 31, 1996. The increase in receivables and
inventories are considered normal for the Company and reflect the increased
activity in its high volume period. Total current assets increased by $750,796,
total assets increased by $662,974. Current liabilities increased by $422,563
due primarily to draws on the Company's line of credit, used for inventory
purchases, and seasonal increases in trade accounts payable.
Significant changes in balance sheet from December 31, 1996 included the
following: Accounts receivable increased to $1,013,646 from $517,982, due to
seasonal increases during the Company's peak period and a strong increase in
sales in the latter part of the second quarter. Inventories, consisting
primarily of finished goods, increased $686,755 to $1,891,533 at June 30, 1997
from $1,204,778 at December 31, 1996, also reflective of the Company's peak
period. Property, plant and equipment, net of depreciation, decreased by
$45,692 from December 31, 1996 as a result of normal depreciation. Other assets
decreased by $42,130 from December 31, 1996, primarily due to amortizations of
product development, dies, molds, designs and prepaid expenses related to new
products and packaging. Accounts payable and accrued expenses increased
$180,813 to $773,987 at June 30, 1997 from $593,174 at December 31, 1996 due
primarily to the seasonal nature of the purchases and the timing of inventory
receipts.
Cash and cash equivalents were down $455,252 from December 31, 1996 and $50,635
from March 31, 1997. Cash flow used in operations was $182,256 for the three
months ended June 30, 1997 as compared to cash flow used in operations of
$169,372 for the comparable period June 30, 1996. This is due primarily to
increases in sales and net income and the increases in inventory, accounts
receivable, and other current assets.
Shareholders' equity at June 30, 1997 increased during the six months then ended
by $240,411 to $2,744,553 due to earnings and the receipt of stock subscriptions
receivable.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Action Products International, Inc.
Date: May 12, 1997 By: /s/ Delton G. de Armas
Delton G. de Armas
Controller/Corporate Secretary
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Jun-30-1997
<CASH> 8
<SECURITIES> 0
<RECEIVABLES> 1013
<ALLOWANCES> 0
<INVENTORY> 1892
<CURRENT-ASSETS> 3184
<PP&E> 1945
<DEPRECIATION> (926)
<TOTAL-ASSETS> 4535
<CURRENT-LIABILITIES> 1190
<BONDS> 600
<COMMON> 2
0
0
<OTHER-SE> 2743
<TOTAL-LIABILITY-AND-EQUITY> 4535
<SALES> 2954
<TOTAL-REVENUES> 2954
<CGS> 1666
<TOTAL-COSTS> 1666
<OTHER-EXPENSES> 1075
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41
<INCOME-PRETAX> 171
<INCOME-TAX> 0
<INCOME-CONTINUING> 171
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 171
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
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