U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1996Commission 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 (IRS Employer
incorporation or organization Identification No.)
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: $ 5,574,746
The aggregate market value of the voting stock held by the non-affiliates of
the Registrant was $1,943,032 based on the average bid and asked price reported
March 4, 1997 (based on 887,229 shares).
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of March 4, 1997
Class Outstanding
Common Stock, $.001 1,549,926
DOCUMENTS INCORPORATED BY REFERENCE
NONE
<PAGE>
PART I
ITEM 1. BUSINESS:
Description of Business
The Company, and its divisions Action Snacks, Action Publishing, and Logo
America, design, manufacture, and market toys, gifts, books, freeze dried snack
foods, and other products in an extensive line of creative merchandise. The
Company also sells and imprints wearables such as t-shirts and caps and other
promotional products, gifts, and souvenirs. The Company's products are sold to
edutainment specialty retailers, museums, zoos, aquariums, theme parks,
attractions and toy stores in the United States and worldwide.
Educational Toys and Other Products - "Action Products"
The Company sells an educational toy and gift product line with an emphasis
on nature, space and dinosaurs. The Company's products are derived from
approximately 50 sources. About 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.
Freeze Dried Snack Foods - "Action Snacks"{r}
The Company domestically manufactures freeze dried snack foods including
ice cream and ice cream sandwiches, frozen yogurt, fruit and pizza. 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 protected registered trademark "Action Snacks."
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 aerospace. Its
books are published both domestically and overseas.
Promotional Products - "Logo America"
The Company sells "Activewear" such as t-shirts, jackets, and hats upon
which the Company prints original designs, as well as corporate and other
promotional logos. The Company maintains an in-house screen printing plant with
two computerized presses which produce the garments for sale. The Company uses
state of the art printing equipment together with computer graphic systems to
obtain a high-quality reproduction of photographic realism. It 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 also sells other
promotional products such as pens, pencils, lapel pins, coffee mugs, mouse pads,
and other stationery items imprinted with corporate logos, promotional logos,
and original designs. The Company markets its promotional products through its
"Logo America" division.
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). The Company is
increasingly selling outside its established niche to toy stores, gift stores
and other types of specialty retailers.
No single customer accounts for more than 3% of sales and no single product
accounts for more than 6% of sales. The Company has customers in every state in
the United States, as well as the District of Columbia. The Company exports to
more than 20 foreign countries and regions including Canada, Europe, South and
Central America, Saudi Arabia, Finland, Germany, Japan, Hong Kong, Korea, New
Zealand, Denmark, Sweden and Australia.
<PAGE>
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, as well as showrooms located across the country staffed by manufacturers'
sales representatives. The Company continues to emphasize its own proprietary
products and trade names through aggressive advertising and extensive package
redesign.
Inside sales representatives sell the Company's products directly to key
accounts by telephone and other personal contact. This sales method 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. National sales coverage is supplemented by a network
of manufacturers' representative companies.
The Company's product lines are presented to customers through full color
catalogs which were completely redesigned for 1997. The catalogs segregate the
Company's product lines by division. The catalogs are designed to permit buyers
to select and purchase products and play an important role in the generation of
new customers and leads. Customers are encouraged to place orders from the
catalog through the Company's toll-free telephone number and by toll-free fax.
Sales invoices are posted to the financial records on day of shipment,
which is usually the same day as the order is entered. No interest is charged
during the first 30 days following posting of an invoice. After 30 days, unpaid
invoices are deemed overdue and late charges of one and one half percent per
month are applied to the unpaid balance. A small number of orders are prepaid,
paid C.O.D. or paid by credit card. The Company requires a deposit of 50% or
more for most custom design or imprinting orders. A computerized perpetual
inventory is maintained. Customers must request approval for credits in
writing. Credits are processed and approved by the accounting department.
Returned merchandise is inspected for damage and is generally subject to a
reasonable restocking charge. Credit memos must generally be used against
future purchases. Sales are netted in the month the credit memo is issued.
Historically, credits and adjustments have been less than 2% of sales. The
Company believes that its sales, inventory and credit policies reflect standard
industry practices.
Less than 15% 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 against toy, educational, scientific and souvenir
manufacturers and importers, distributors and book publishers. The Company's
ability to compete successfully is based upon its core competencies: 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 build and maintain
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. In addition, the
Company has maintained its focused efforts towards the establishment and
extension of proprietary product lines in a move away from distributed lines.
Personnel
As of December 31, 1996, the Company had 41 full time employees, including
three executive positions, twelve sales positions, and the remaining twenty-six
positions to fulfill administrative responsibilities in marketing, product
development, accounting, logistics, etc. None of the employees are represented
by a union. In 1996, the Company offered certain benefits to its employees
including life insurance, an Employee Stock Ownership Plan (ESOP), a 401(k)
plan, and employee contributed IRC 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.
<PAGE>
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 to house its operations for the foreseeable
future.
ITEM 3. LEGAL PROCEEDINGS:
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
NONE
<PAGE>
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, but 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 March 5, 1997, was approximately 500.
The high and low bid quotations for each quarter of the fiscal years ended
December 31, 1996 and 1995 are follows:
Quarter Ended: High Bid Low Bid
March 31, 1995 1.75 1
June 30, 1995 3.625 1.375
September 30, 1995 3.375 2.3125
December 31, 1995 3.9375 1.625
March 31, 1996 3.3125 2.875
June 30, 1996 4.25 3
September 30, 1996 3.125 2.75
December 31, 1996 2.8125 2.0625
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
General
The Company achieved a marginal sales increase over its record sales in
1995. Management has expressed its dissatisfaction with the rate of its sales
growth, but is optimistic about the effects of its current marketing and product
development efforts on future sales. During the year ended December 31, 1996,
the Company exerted significant energy towards the development of its core
management team, creation of new marketing programs, packaging and repositioning
of its products, and the development of new concepts and products for sale in
future years. Management expects these projects, joined by an emphasis on
developing and selling only proprietarily packaged products, to lead to
increased market penetration and improved gross profit margins.
Sales, marketing, and product development efforts have been focused on
developing divisionalized, proprietary lines of products. During 1996, the
Company established its network of manufacturers' reps to provide national sales
coverage for its new and existing lines of product. The continued recruiting of
outside reps supplemented the further development of the Company's inside sales
force.
The marketing efforts of the Company bridge the gap between sales and
product development. It seeks to provide the Company's sales force with the
tools and resources necessary to further penetrate the Company's markets. To
accomplish this, the Company continues to redesign its product packaging and is
working with retailers to develop planagrams and point-of-purchase displays.
By improving the presentation of its proprietary products, the Company provides
its customers--retail stores--with the means to improve sales to their customers
- -the consumers. It addition to sales support, the Company's marketing efforts
provide product development research, feedback, and data needed to create and
improve product types and mix.
<PAGE>
Coupled with its efforts in the improvement of the quality of its sales and
its marketing efforts, the Company continues its investments in product quality
through its product development system. The Company feels the time and resources
invested in developing more proprietary products is leading to increased market
penetration into its current and expanding customer base. The Company now has
in place a network of model makers, pattern makers, designers and product
development specialists. This network composes the foundation of the Company's
product development system. The Company feels that the resultant proprietary
products carry higher perceived values and lay the foundation for the
improvement of lasting profit margins.
Any statements that are not historical facts contained in this discussion
are forward looking statements that involve risks and uncertainties, including
but not limited to those relating to product demand, pricing, market acceptance,
the effect of economic conditions, intellectual property rights and litigation
and the outcome of governmental proceedings, competitive products, risks in
product and technology 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.
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 the audited financial
statements and related notes included elsewhere herein.
Twelve (12) Months Ended December 31,
1996 1995
Net Sales $5,574,746 $5,487,015
Cost of Sales 3,651,392 3,575,517
Selling, General &
Administrative Exp. 2,226,206* 1,700,258
Net Income (loss) (317,855) 149,878
Net Income (loss)
per Common Share (0.21) 0.12
Total Assets 3,872,316 3,734,184
Stockholders' Equity 2,504,142 2,553,997
*Includes charges of $491,662 associated with the
discontinuation of distribution activities and
a write down of assets.
Year Ended December 31
Net sales were $5,574,746 and $5,487,015 in 1996 and 1995, respectively.
The Company produced an increase despite a substantial reduction in the total
number of available products. Management's efforts to streamline the product
mix in a directed move away from the distribution of other manufacturer's
products resulted in an only slight sales increase of $87,731, up 1.6%.
Cost of sales were $3,651,392 and $3,575,517 in 1996 and 1995,
respectively. As a percentage of net sales, cost of sales was up slightly 65.5%
in 1996 and 65.2% in 1995. Accordingly, gross profit was $1,923,354 and
$1,911,498 in 1996 and 1995, respectively. Management placed a strong focus on
product and product packaging improvements in 1996 and 1995 which it anticipates
will reap benefits in future years.
Selling expenses were $775,407 and $659,689 in 1996 and 1995, respectively.
As a percentage of net sales, selling expenses were 13.9% and 12.0% in 1996 and
1995, 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 further addition of manufacturers' representative
companies.
<PAGE>
General and Administrative expenses were $959,137 and $1,040,569 in 1996
and 1995, respectively. The decrease in General and Administrative is a result
of management's efforts to control costs.
Product development and market repositioning expense of $491,662 in 1996
included the costs associated with the development of new proprietary product
lines, repackaging and repositioning of existing lines, and a write down of
assets associated with discontinued and substantially altered products. These
charges resulted from management's efforts to reposition the Company from
distributor to manufacturer.
Interest expense related to current and long term debt was $55,493 and
$67,624 in 1996 and 1995, respectively. (See "Liquidity and Capital Resources")
Interest income was $12,376 and $7,668 in 1996 and 1995, respectively, and
related primarily to interest earned on temporary cash investments.
Other income has historically been insignificant and represented less than
one fourth of one percent of net sales in each of the last two years.
Liquidity and Capital Resources
As of December 31, 1996, current assets were $2,432,785 compared to current
liabilities of $768,174 for a current ratio of 3.2:1 from 4.3:1 at December 31,
1995.
The Company had negative cash flows from operations of $383,803 primarily
due to the investment in other assets subsequently written off as product
development and market repositioning expense. Total current assets decreased by
$63,436 while total assets increased by $138,132. Accounts receivable decreased
by $36,944 due in part to the increase in the allowance for doubtful accounts.
Inventories, primarily finished goods, decreased by $106,452 to $1,204,778 at
December 31, 1996, from $1,311,230 at December 31, 1995 due primarily to the
reduction in the number of products being distributed by the Company and
improved inventory turn management. Cash and cash equivalents were down by
$136,948 and prepaid assets were up $195,908 due to the timing of cash outlays
for short term amortizable assets. Current liabilities were up $187,987 due
primarily to borrowings against the Company's revolving line of credit.
As of December 31, 1995, the Company's only long-term debt was a
convertible promissory note of $600,000 owed to a related party. This note
bears interest at 9% per annum, payable monthly, and is convertible into
1,036,800 shares of the Company's Common Stock.
During the year ended December 31, 1996, the Company received approximately
$268,000 from the collection of stock subscription receivables. In addition,
the Company had a stock subscription receivable of $84,000 at year end.
The Company has established a revolving line of credit with a financial
institution that is secured by accounts receivable and inventory. The borrowing
limit as of December 31, 1996 was $300,000, on which the Company had borrowed
$175,000. As of March 14, 1997, the Company's financial institution increased
the Company's borrowing limit to $700,000.
During 1996, the Company recorded normal depreciation of its fixed assets
of approximately $111,000 and write downs of approximately $83,000. In
addition, the Company invested approximately $196,000 and 88,000 in the
acquisition of new assets in 1996 and 1995, respectively. Accordingly, net
property, plant and equipment increased by approximately $85,000.
Shareholders' equity at December 31, 1996 decreased by approximately
$50,000 to $2,504,142. Shareholder equity decreased due to the loss which was
offset by the collection of stock subscription receivables.
<PAGE>
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:
MANAGEMENT/BOARD OF DIRECTORS
Name Age Position
Ronald Kaplan 31 Director, President, Chairman of the
Board of Directors, Chief Executive Officer
Judith Kaplan 58 Director, Chief Financial Officer
Warren Kaplan 59 Director
Richard Gordon 67 Director
Delton G. de Armas 26 Secretary
Robert Zumbahlen 40 Treasurer
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 now operates Kaplan Asset Management and serves as a
consultant to the Company.
Richard Gordon, Director since April 1996, is a former Apollo and Gemini
Astronaut and has served both as director and officer with other publicly traded
companies, including Executive Vice President of the National Football League's
New Orleans Saints, Board Director of Scott Science and Technology, Inc.,
President/CEO of Astro Sciences Corporation, and President of Space Age America,
Inc.
Delton G. de Armas, Secretary, is a graduate of the University of Central
Florida in Orlando, Florida with Bachelor of Science degrees in Accounting
(1992) and Finance (1993). Mr. de Armas joined Action Products in 1995 from the
Certified Public Accounting firm of Lovelace, Roby & Company, P.A., the
Company's auditors. He currently serves as the Company's Controller and
Accounting Manager.
Robert Zumbahlen has been Treasurer since 1991. He is a graduate of
Bentley College in Waltham, Massachusetts (1979) with a Bachelor of Science in
accounting. Mr. Zumbahlen joined Action Products in 1984 and is currently the
Company's Purchasing Manager.
PART III
ITEM 10. EXECUTIVE COMPENSATION:
The following table sets forth the aggregate compensation paid to Ronald
Kaplan (the "Named Executive Officer") by the Company. None of the other
executive officers of the Company were paid a total annual salary and bonuses
which was $100,000 or more.
<TABLE>
<CAPTION>
Summary
Compensation Table
Long Term
Compensation
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Other
Restricted Other Options All
Name and Annual Compen- Stock /LTIP Compen-
Principal Salary Bonus sation Award(s) SARs Payouts sation
Position Year ($) ($) ($)(1) ($) (#) ($) ($)
Ronald 1996 $73,370 $6,000 -0- -0- -0-
Kaplan 1995 $54,218 $6,000 -0- -0- -0-
CEO 1994 $47,335 $6,000 -0- -0- -0-
_________________________
(1)Includes value of use of automobile, vacation pay, sick pay.
</TABLE>
Ron Kaplan was promoted to Chief Executive Officer and Chairman of the
Board of Directors as of January 1, 1996 and continues to serve as President of
the Company. Mr. Kaplan's annual salary is $75,000 plus the use of an
automobile.
The following table sets forth the aggregate of options exercised in the
year ended December 31, 1996 and the value of options held at December 31, 1996.
<TABLE>
<CAPTION>
Option Exercises/Option Values
<S> <C> <C> <C> <C>
Value of
Shares Unexercised Unexercised
Acquired on Value Options at Options at
Name Exercise Realized Year End Year End(1)
Ronald Kaplan - - 343,000 $228,420
(1)The market price of the stock at December 31, 1996 was
$2.44 per share. The Value of Unexercised options is
shown net of the exercise price of $1.50. Based upon the
market price at year end, there were 100,000 options with
an exercise price of $3.50 that were deemed to have no value.
</TABLE>
Paragraph 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent (10%) of the Company's outstanding common stock to file with the
Securities and Exchange Commission (the "SEC") initial reports of ownership and
reports of changes in ownership of common stock. Such persons are required by
the SEC Regulation to furnish the Company with copies of all such reports they
file. To the Company's knowledge, based solely on a review of the copies of
such reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to
officers, directors and greater than ten percent (10%) beneficial owners have
been complied with.
<PAGE>
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, at the discretion of its Board of
Directors, may make 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, 1996, there were
28,215 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 subsequent
contributions. Benefits are determined annually. The lowest 66% of paid
employees may contribute the lesser of 15% of their salary or approximately
$9,000. 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 approximately $9,000 or applicable maximum
allowed by the Internal Revenue Code. Employer contributions vest within three
months and all contributions are held in individual employee accounts with an
outside company.
Stock Option Plan
On May 28, 1996 the Board of Directors adopted a stock option plan called
the "1996 Stock Option Plan" (the "Plan"). The Board of Directors have
determined that the Plan will work to increase the officers', key employees' and
consultants' interest in the Company and to align more closely their interests
with the interests of the Company's shareholders. The Board of Directors
believes that the Plan is in the Company's best interests.
Under the Plan, the Company has reserved an aggregate of 900,000 shares of
Common Stock for issuance pursuant to options granted under the Plan ("Plan
Options"). Plan Options may either be options qualifying as incentive stock
options ("Incentive Options") or options that do not qualify ("Non-Qualified
Options"). Any Incentive Option granted under the Plan must provide for an
exercise price of not less than 100% of the fair market value of the underlying
shares on the date of such grant. The exercise price of Non-Qualified Options
shall be determined by the Board of Directors or the Committee but shall in no
event be less than 5% of the fair market value of the underlying shares on the
date of the grant. As of December 31, 1996, there were 509,000 options existing
under the plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:
The following table sets forth information as of March 4, 1997, 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 1,549,926
shares of Common Stock outstanding.
<PAGE>
<TABLE>
<CAPTION>
Table of Beneficial Ownership
<S> <C> <C> <C>
Amount and
Nature of
Name and Title Beneficial Percent
Address of Class Ownership(1) of Class
Ronald S. Kaplan
344 Cypress Road
Ocala, FL 34472 Common 364,157 (3) 19.24%
Judith Kaplan
344 Cypress Road
Ocala, FL 34472 Common 843,302 (2) 44.02%
Warren Kaplan
344 Cypress Road
Ocala, FL 34472 Common 843,302 (2) 44.02%
Richard (Dick) Gordon, Jr.
344 Cypress Road
Ocala, FL 34472 Common 20,000 (4) 1.27%
All Directors and
Officers as a Group
(6 persons) Common 1,286,912 (2,3,4) 56.97%
___________________
(1) Nature of ownership is record holder unless otherwise shown.
(2) Includes spouse's shares (Judith Kaplan - 318,212; Warren Kaplan - 313,875)
plus 28,215 shares held as Trustee of the Company's Employee Stock Ownership
Plan Trust. Also includes immediately exercisable options for Warren and Judith
Kaplan each to purchase 83,000 shares at $1.50 per share and 100,000 shares at
$3.50 per share. Does not include 104,000 options issued to Elissa Kaplan,
daughter of Warren and Judith Kaplan, or any shares or options held by Ronald S.
Kaplan. Does not include approximately 1,036,800 shares of Common Stock which
may be issued upon conversion of certain convertible promissory notes held by
Ronald S. Kaplan and Elissa Kaplan.
(3) Includes immediately exercisable options to purchase 243,000 shares at $1.50
per share and 100,000 shares at $3.50 per share. Does not include approximately
1,036,800 shares of Common Stock which may be issued upon conversion of certain
convertible promissory notes held by Ronald S. Kaplan and Elissa Kaplan.
(4) Includes immediately exercisable options to purchase 20,000 shares at $3.50
per share.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of December 31, 1996, the Company owed $600,000 to Ronald S. Kaplan and
Elissa Kaplan in the amounts of $480,000 and $120,000, respectively, on five
year convertible promissory notes. This note bears interest at 9% per annum,
payable monthly, and is convertible into approximately 1,036,800 shares of the
Company's Common Stock.
<PAGE>
PART IV
ITEM 13. EXHIBITS, LIST:
(a) 1. Financial Statements
(i) Report of Independent Certified Public Accountants
(ii) Balance Sheet - December 31, 1996
(iii) Statements of Operations - Years ended December 31, 1996 and 1995
(iv) Statements of Changes in Stockholders' Equity - Years ended
December 31, 1996 and 1995
(v) Statements of Cash Flows - Years ended December 31, 1996 and 1995
(vi) Notes to Financial Statements - Years ended December 31, 1996 and
1995
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 Ronald S.
Kaplan and Elissa Kaplan.
(v) Statement re: Computation of Per Share Footnote 1, Page 7
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
<PAGE>
(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
<PAGE>
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 31, 1997 By: /s/ Ronald Kaplan
Ronald Kaplan, Chairman of the Board,
Chief Executive 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 31, 1997
Ronald Kaplan President/Chief Executive
Officer/ Director
/s/ Judith Kaplan Chief Financial Officer/ March 31, 1997
Judith Kaplan Director
/s/ Delton de Armas Controller/Secretary March 31, 1997
Delton de Armas
</TABLE>
ACTION PRODUCTS INTERNATIONAL, INC.
FINANCIAL STATEMENTS
Years Ended December 31, 1996 and 1995
<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, 1996, 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, 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 financial position of Action Products International,
Inc. as of December 31, 1996, and the results of its operations and its cash
flows for each of the two years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Lovelace, Roby & Company, P. A.
LOVELACE, ROBY & COMPANY, P. A.
Certified Public Accountants
Orlando, Florida
January 23, 1997, except for Note 7 as
to which the date is March 10, 1997
<PAGE>
<TABLE>
<CAPTION>
ACTION PRODUCTS INTERNATIONAL, INC.
BALANCE SHEET
December 31, 1996
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 463,137
Accounts receivable, net of an allowance
for doubtful accounts of $25,500 517,982
Inventories, net 1,204,778
Prepaid expenses and other assets 225,888
Income taxes refundable 21,000
TOTAL CURRENT ASSETS 2,432,785
PROPERTY, PLANT AND EQUIPMENT
Land 67,382
Building and building improvements 986,795
Equipment 737,871
Furniture and fixtures 145,166
1,937,214
Less accumulated depreciation (872,692)
NET PROPERTY, PLANT AND EQUIPMENT 1,064,522
OTHER ASSETS 375,009
TOTAL ASSETS $3,872,316
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES
Accounts payable $ 383,891
Accrued expenses 161,264
Accrued payroll and related 43,519
Accrued interest 4,500
Borrowings under line of credit 175,000
TOTAL CURRENT LIABILITIES 768,174
LONG-TERM LIABILITIES
Notes payable to shareholders 600,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock - $.001 par value; 7,500,000
shares authorized; 1,549,926 shares issued
and outstanding 1,550
Additional paid-in capital 2,904,192
Accumulated deficit (317,600)
Stock subscription receivable (84,000)
TOTAL SHAREHOLDERS' EQUITY 2,504,142
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,872,316
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACTION PRODUCTS INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31,
1996 1995
<S> <C> <C>
NET SALES $5,574,746 $5,487,015
COST OF SALES 3,651,392 3,575,517
GROSS PROFIT 1,923,354 1,911,498
OPERATING EXPENSES
Selling 775,407 659,689
General and administrative 959,137 1,040,569
Product development and market
repositioning expense 491,662 -
2,226,206 1,700,258
INCOME (LOSS) FROM OPERATIONS (302,852) 211,240
OTHER INCOME (EXPENSE)
Interest expense (55,493) (67,624)
Interest income 12,376 7,668
Other income 7,114 12,594
(36,003) (47,362)
INCOME (LOSS) BEFORE
PROVISION FOR INCOME TAXES (338,855) 163,878
PROVISION (BENEFIT) FOR INCOME TAXES
Current (21,000) 23,000
Deferred - (9,000)
(21,000) 14,000
NET INCOME (LOSS) $ (317,855) $ 149,878
INCOME (LOSS) PER SHARE
Primary $ (0.21) $ 0.12
Fully diluted $ (0.21) $ 0.11
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
Primary 1,524,926 1,421,000
Fully diluted 1,524,926 1,466,600
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
ACTION PRODUCTS INTERNATIONAL, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON STOCK ADDITIONAL STOCK TOTAL
$.001 PAR VALUE PAID-IN ACCUM. SUBS SHRHLDRS'
SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE EQUITY
<S> <C> <C> <C> <C> <C> <C>
BALANCE-12/31/94 1,042,820 $1,043 $1,947,577 $204,527 $ - $2,153,147
ISSUANCE OF 5,000 5 4,683 - - 4,688
COMMON SHARES
FOR EMPLOYEE
STOCK OWNERSHIP
TRUST
ISSUANCE OF 341,000 341 522,943 - (277,000) 246,284
COMMON SHARES
ON EXERCISE OF
OPTIONS
ISSUANCE OF 8% 111,106 111 354,039 (354,150) - -
STOCK DIVIDEND
NET INCOME - - - 149,878 - 149,878
BALANCE - 1,499,926 $1,500 $2,829,242 $255 $(277,000) $2,553,997
DECEMBER 31,
1995
COLLECTION OF - - - - 268,000 268,000
STOCK
SUBCRIPTIONS
ISSUANCE OF 50,000 50 74,950 - (75,000) -
COMMON SHARES
ON EXERCISE OF
OPTIONS
NET LOSS - - - (317,855) - (317,855)
BALANCE- 1,549,926 $1,550 $2,904,192 $(317,600) $(84,000) $2,504,142
DECEMBER 31,
1996
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
ACTION PRODUCTS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (317,855) $ 149,878
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities
Depreciation 110,415 93,240
Amortization 67,312 54,836
Benefit for deferred income taxes - (9,000)
Provision for contribution to
Employee Stock Ownership Plan - 4,688
Provision for bad debts 22,000 -
Provision for Product development
and market repositioning expense 491,662 -
Loss on disposal of fixed assets 593 -
Decrease (increase) in accounts
receivable, net 14,944 (108,855)
Decrease in inventories, net 106,452 130,021
(Increase) decrease in prepaid
expenses and other current assets (360,255) 66,715
(Increase) decrease in income
taxes refundable (21,000) 10,000
Increase in other assets (511,058) (140,726)
(Decrease) increase in accounts payable (88,354) 191,290
Increase in accrued expenses 112,416 36,873
(Decrease) increase in income
taxes payable (11,075) 11,075
NET CASH (USED IN)
PROVIDED BY OPERATING ACTIVITIES (383,803) 490,035
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant
and equipment (196,145) (87,964)
CASH FLOWS FROM FINANCING ACTIVITIES
Collection of stock subscriptions
receivable 268,000 -
Net proceeds from issuance of common
stock and options - 246,284
Proceeds from borrowings under line
of credit 175,000 -
Repayments of related-party
borrowings - (335,320)
NET CASH PROVIDED BY
(USED IN) FINANCING ACTIVITIES 443,000 (89,036)
NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS (136,948) 313,035
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 600,085 287,050
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 463,137 $ 600,085
</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, 1996 and 1995
NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Action Products International, Inc. (the Company) is engaged in the
manufacture and sale of toys, books, freeze dried snack foods, and
other educational and entertaining products. The Company also sells
and imprints promotional products. The Company's products are
wholesaled worldwide to educational and leisure industry retailers.
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, 1996, the Company had
approximately $164,000 of work in process inventory. The inventory
valuation allowance at December 31, 1996 was approximately $77,000.
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 4)
<PAGE>
NOTE 1 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 (including
ESOP shares) and common share equivalents outstanding during each year.
In 1996, common share equivalents were not considered in the earnings
per share calculation because the effect would have been anti-dilutive.
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 and Fair Value of Financial Instruments
Financial instruments which potentially subject the Company to
concentrations of credit risk at December 31, 1996 include trade
receivables and approximately $185,000 of cash deposited in a money
market fund. 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.
The carrying values of cash and cash equivalents and the line of credit
approximate their fair values. It is not practicable to estimate the
fair value of the note payable to related party due to the related
party nature and the equity conversion features.
Product Development and Market Repositioning Costs
During 1996, to reposition itself in its market and enter new markets,
the Company consolidated its array of products into distinct,
proprietary lines. As a result, expense was recognized for previously
deferred costs related to abandoned and substantially altered products.
Additionally, costs associated with the development of new products and
changes to existing products were charged to operations.
<PAGE>
NOTE 2 -RELATED-PARTY BORROWINGS
At December 31, 1996, 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:
Unsecured promissory notes payable to related
parties, bearing interest at 9% per annum,
monthly payments of interest only until
September 1, 2002, with 24 monthly payments of
principal and interest of $27,411 due
thereafter, convertible at any time in whole
or in part at the lender's option after May 9,
1995, into common shares of the Company at
$.579 per share $600,000
The Company has reserved, from its authorized but unused shares of
common stock, 1,036,800 shares for use in the event the long-term debt
is converted.
Future principal maturities of long-term debt to related parties are
approximately as follows: $93,000 in 2002; $295,000 in 2003; and
$212,000 in 2004.
Cash paid for interest during the years ended December 31, 1996 and
1995 was approximately $55,000 in each year.
NOTE 3 -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 in 1995 to reflect the capitalization of the
dividend shares.
NOTE 4 -INCOME TAXES
The Company had no foreign operations subject to foreign income taxes.
Significant components of the Company's deferred tax liabilities and
assets at December 31, 1996 are approximately as follows:
Deferred Tax Liabilities
Depreciation $ (10,000)
Deferred Tax Assets
Bad Debt Allowance $ 5,000
Inventories 8,000
Accrued interest and
compensation 2,000
Net operating loss
carryforwards 62,000
Gross deferred tax assets 77,000
Valuation allowance (67,000)
Net deferred tax assets 10,000
Net deferred taxes $ -
During 1996, deferred tax asset valuation allowance increased $65,000.
The difference between the Company's effective income tax rate and the
federal statutory rate is reconciled below:
1996 1995
Federal provision (benefit)
expected at statutory rates $ (111,000) $ 55,500
Surtax exemption 4,000 (7,800)
Alternative Minimum Tax and
other carryback items (21,000) (2,000)
Tax effects of net operating loss 107,000 (31,700)
Provision (benefit) for
income taxes $ (21,000) $ 14,000
At December 31, 1996, net operating losses in the amount of $275,000
are available to carry forward to offset taxable income through the
year 2011. Income taxes paid in cash were approximately $12,000 and
$10,000 during the years ended December 31, 1996 and 1995,
respectively. The Company has received overpayments from the Internal
Revenue Service of approximately $112,000. This amount is included in
the liabilities of the accompanying balance sheet.
NOTE 5 -EMPLOYEE STOCK OWNERSHIP AND OPTION PLANS
The Company has an Employee Stock Ownership Plan (the ESOP), which
covers substantially all employees. The ESOP provides, among other
things, that contributions to the ESOP 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, 1996, the ESOP held approximately 33,000 shares of the
Company's common stock. During 1995, the Company contributed 5,000 of
its common shares to the ESOP. As a result, $4,688 was charged to
operations in 1995. No shares were contributed in 1996.
On May 28, 1996 the Company's Board of Directors adopted the "1996 Stock
Option Plan" (the SOP). Under the SOP, the Company has reserved an
aggregate of 900,000 shares of Common Stock for issuance pursuant to
options. SOP options are issuable at the discretion of the Board of
Directors at exercise prices of not less than the fair market value of
the underlying shares on the grant date. During 1996, a total of 509,000
options were issued under the SOP at a weighted average exercise price
of approximately $3.50 per share.
Stock options outstanding at December 31, 1996 expire as follows:
463,000 in 1999, 509,000 in 2001. In the event of a change in the
Company's control, the options may not be callable by the Company.
The following table summarizes the stock option activity for the years
ended December 31, 1995 and 1996:
Shares Under
Option
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
Exercised during 1996 (50,000)
Granted during 1996 509,000
Outstanding at December 31, 1996 972,000
<PAGE>
NOTE 5 -EMPLOYEE STOCK OWNERSHIP AND OPTION PLANS (Continued)
All stock options not granted under the SOP are exercisable at $1.50 per
share.
During 1995, 341,000 stock options were exercised, resulting in net
proceeds to the Company of approximately $523,000. During 1996, 50,000
stock options were exercised resulting in net proceeds of $75,000.
Stock subscriptions receivable from the exercise of options were
$84,000 and $277,000 at December 31, 1996 and 1995, respectively.
During 1995, the Financial Accounting Standards Board issued FAS 123,
"Accounting for Stock-Based Compensation." This pronouncement requires
that the Company calculate the value of stock options at the date of
grant using an option pricing model. The Company has elected the "pro-
forma, disclosure only" option permitted under FAS 123, instead of
recording a charge to operations, as shown below:
1996 1995
Net income (loss) As reported (317,855) 149,878
Pro forma (635,487) 114,880
Income (loss) per share Primary
As reported (0.21) 0.12
Pro forma (0.42) 0.08
Fully diluted
As reported (0.21) 0.11
Pro forma (0.42) 0.07
Because the FAS 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in
future years.
The Company's weighted-average assumptions used in the pricing model
and resulting fair values were as follows:
1996 1995
Risk-free rate 6.50% 6.50%
Expected option life (in years) 5 5
Expected stock price volatility 45% 45%
Grant date value $0.62 $0.32
NOTE 6 -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 an amount, as determined annually by the
Company's Board of Directors, of the participants' voluntary
contributions to the plan. The Company has charged approximately
$15,500 and $13,100 in 1996 and 1995, respectively, to operations for
its contributions to the plan.
<PAGE>
NOTE 7 -CREDIT LINE
During 1996, the Company obtained a line of credit with a financial
institution under a revolving loan agreement, which matures May 9,
1997. The borrowing limit as of December 31, 1996 was $300,000.
Borrowings are collateralized by all accounts receivable and
inventories and interest is payable quarterly at one half of one
percent over the financial institution's prime rate (8.25 at December
31, 1996). The agreement provides that, among other things, the
Company maintain a minimum working capital and net worth, a maximum
debt to net worth ratio, and a 30 day resting requirement, all as
defined in the agreement. The agreement also prohibits additional
indebtedness in excess of $200,000 in aggregate. At December 31, 1996
the Company had $175,000 of borrowings under the line of credit. As of
March 10, 1997, the Company had received a commitment from its
financial institution to increase the borrowing limit to $700,000 with
no material changes in the covenant requirements.
NOTE 8 -INTERNATIONAL SALES
Export sales amounted to approximately $325,000 and $455,000 in 1996
and 1995, respectively.
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
of Action Products International, Inc. on Form S-8 and in the related prospectus
of our report dated January 23, 1997, except for Note 7 as to which the date is
March 10, 1997, with respect to the financial statements of Action Products
International, Inc. included in this Annual Report on Form 10-KSB for the years
ended December 31, 1996.
/s/ Lovelace Roby & Company, P. A.
LOVELACE, ROBY & COMPANY, P. A.
Certified Public Accountants
Orlando, Florida
March 31, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Dec-31-1996
<CASH> 463
<SECURITIES> 0
<RECEIVABLES> 518
<ALLOWANCES> 0
<INVENTORY> 1205
<CURRENT-ASSETS> 2433
<PP&E> 1937
<DEPRECIATION> (873)
<TOTAL-ASSETS> 3872
<CURRENT-LIABILITIES> 768
<BONDS> 600
<COMMON> 2
0
0
<OTHER-SE> 2503
<TOTAL-LIABILITY-AND-EQUITY> 3872
<SALES> 5575
<TOTAL-REVENUES> 5575
<CGS> 3651
<TOTAL-COSTS> 3651
<OTHER-EXPENSES> 2226
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55
<INCOME-PRETAX> (339)
<INCOME-TAX> (21)
<INCOME-CONTINUING> (317)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (317)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
