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, 1998 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, 1998.
Class Outstanding at June 30, 1998
Common Stock, $.001 par value 1,624,900
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I N D E X
PART I. FINANCIAL INFORMATION Page
Number
Item 1. Financial Statements
Condensed balance sheets - June 30, 1998
and December 31, 1997 (unaudited) 3
Condensed statements of operations and changes
in Retained Earnings - Three and six months ended
June 30, 1998 and 1997 (unaudited) 4
Condensed statements of cash flows - Three and six
months ended June 30, 1998 and 1997 (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 30,1998 December 31, 1997
Current assets:
Cash and cash equivalents $ 163,600 $ 537,800
Accounts receivable, net of
allowance of $25,500 at
June 30, 1998 and
December 31, 1997 1,097,900 720,000
Notes receivable, current 303,300 575,000
Inventories, net 1,585,500 1,086,000
Prepaid expenses 159,700 58,600
Total Current Assets 3,310,000 2,977,400
Property, plant and equipment,
net of accumulated depreciation of
$760,700 at June 30, 1998 and
$718,700 at December 31, 1997 905,300 923,400
Note receivable, long term 1,163,700 1,275,000
Other assets 158,000 150,100
TOTAL ASSETS 5,537,000 5,325,900
Current liabilities:
Accounts payable &
accrued expenses 663,600 353,400
Deferred revenue, current 50,000 75,000
Borrowings under line of credit 336,000 591,800
Total Current Liabilities 1,049,600 1,020,200
Long term liabilities:
Deferred income taxes 178,000 266,000
Deferred revenue, long term 211,500 225,000
Notes payable 600,000 600,000
Shareholders' equity: Common
stock $.001 par value authorized
15,000,000; 1,624,900 issued and
outstanding at June 30,1998
and December 31, 1997 1,600 1,600
Capital in excess of par value 3,008,300 3,008,300
Stock subscription receivable (113,200) (113,200)
Retained earnings 601,200 318,000
Total Shareholders'Equity 3,497,900 3,214,700
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 5,537,000 $ 5,325,900
</TABLE>
See Accompanying Notes
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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 ended Six months ended
June 30 June 30
1998 1998 1997 1998
Net Sales $1,827,800 $1,809,600 $3,081,500 $2,954,000
Cost of Sales 935,600 998,300 1,583,800 1,666,500
Gross Profit 892,200 811,300 1,497,700 1,287,500
Selling, General &
Administrative Expenses 706,500 554,700 1,267,400 1,079,900
Other (expenses) income
Other 70,400 1,200 81,900 4,400
Interest expense (13,000) (23,100) (29,000) (41,000)
Total 57,400 (21,900) 52,900 (36,600)
Income before income taxes 243,100 234,700 283,200 171,000
Provision for income taxes - - - -
Net Income 243,100 234,700 283,200 171,000
Beginning retained earnings
(accumulated deficit) 358,100 (381,300) 318,000 (317,600)
Ending retained earnings
(accumulated deficit) $ 601,200 $(146,600) $601,200 $(146,600)
Net Income per share
Basic $0.15 $0.15 $0.17 $0.11
Diluted $0.09 $0.09 $0.10 $0.06
Weighted average number of
common shares outstanding
Basic 1,624,900 1,549,900 1,624,900 1,549,900
Diluted 2,842,900 2,667,700 2,838,300 2,693,200
</TABLE>
See Accompanying Notes
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Page 5 of 9
ACTION PRODUCTS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
Three months ended Six months ended
June 30 June 30
1998 1997 1998 1997
Cash flows from operating
activities:
Net income $243,100 $234,700 $283,200 $171,000
Adjustments to reconcile net
income to net cash used in
operating activities
Depreciation and
amortization 48,300 59,100 69,300 118,900
Change in assets and liabilities:
Increase in current assets
other than cash and cash
equivalents (603,900) (617,900) (595,400)(1,206,000)
Increase (decrease) in
current liabilities 278,800 156,300 183,700 180,800
Decrease (increase) in
other assets (39,100) (14,400) (35,300) (22,800)
Net cash used in operating
activities ($72,800) ($182,200) ($94,500) ($758,100)
Net cash used in investing
activities ($11,700) ($2,800) ($23,900) ($8,300)
Cash flows from financing
activities:
Proceeds from borrowings
on line of credit 131,000 65,000 (255,800) 241,800
Results of other financing
activities - 69,400 - 69,400
Net cash provided by (used in)
fin. activities $131,000 $134,400 ($255,800) $311,200
Net increase (decrease) in cash
and cash equiv. $46,500 ($50,600) ($374,200) ($455,200)
Cash and cash equivalents at
start of period $117,100 $58,500 $537,800 $463,100
Cash and cash equivalents at
end of period $163,600 $7,900 $163,600 $7,900
Supplemental disclosures -
cash paid for
Interest $13,000 $23,100 $29,000 $41,000
Taxes $ - $ - $125,000 $ -
</TABLE>
See Accompanying Notes
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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, 1998 and the results of its operations and cash flows for the second
quarter ending June 30, 1998.
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, 1997. The results of operations for the
period ended June 30, 1998 are not necessarily indicative of the operating
results for the full year.
2. Income per common share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, which is effective for the
periods ending after December 15, 1997. SFAS No. 128 replaces the
presentation of primary earnings per share with a presentation of basic
earnings per share based upon the weighted average number of common shares
for the period.
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Page 7 of 9
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 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, 1998
During the second quarter ended June 30, 1998 revenue increased to a new
quarterly record of $1,827,800 in 1998 from $1,809,600 in 1997. Net income for
the second quarter 1998 increased to $243,100 from $234,700 for the 1997
comparable period. Management had anticipated a decline in sales from last
years record quarter due to the divestiture of certain product lines, but
stronger than expected sales from its new proprietary lines negated the lost
sales.
Gross profit increased $80,900 to $892,200 from $811,300. As a percent of
sales, gross profit was up four more percentage points to 48.8% from 44.8% for
the 1997 comparable period. Management attributes this continued improvement to
deeper market penetration, additional proprietary products, and more beneficial
terms and pricing with overseas vendors. Selling, General & Administrative
expenses increased $151,800. Management attributes the increase in expenses to
certain sales and marketing expenditures, including additional salaries and
commissions connected with the Company's strengthening of its marketing staff,
sales force, and outside sales representative organizations. Other income
increased $69,200 due to gains on the disposal of assets and the recognition of
deferred revenue in connection with the divestiture of certain product lines.
Six months ended June 30, 1998
During the six months ended June 30, 1998 revenues were $3,081,500 in 1998, up
$127,500 from $2,954,000 in 1997, thus exceeding the $3 million mark in the
first half of the year for the first time in the Company's history. Management
attributes the increase in net sales to improved selling systems and channels,
broader distribution, stronger than expected sales from its new proprietary
lines, and the earlier availability of shippable inventories. The Company
continues to benefit from its transition from a toy distributor to a toy maker,
as sales from proprietary toy lines have exceeded prior year results.
Improvements to the sales systems have eased diversification into new markets,
particularly the Company's increasing penetration into the specialty toy
market. Further improvements to marketing and merchandising also contributed to
the increase.
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Page 8 of 9
Gross profit for the six months ended increased $210,200 to $1,497,700 from
$1,287,500, or about 16%. As a percentage of sales, gross profit was up five
points to 48.6% from 43.6% for the 1997 comparable period, especially
significant considering last year's nine-point jump. Selling, General &
Administrative Expenses for the six months ended increased about 17%. As
previously discussed, management attributes the increase in expenses to certain
sales and marketing expenditures, including additional salaries and commissions
connected with the Company's strengthening of its marketing staff, sales force,
and outside sales representative organizations.
Financial Condition, Liquidity and Capital Resources:
As of June 30, 1998, current assets were $3,310,000 compared to current
liabilities of $1,049,600 for a current ratio of better than 3:1. At June 30,
1998, working capital improved by $303,200 compared to December 31, 1997.
Though gradually changing due to the Company's penetration into the specialty
toy market, the peak period of the Company's business cycle has historically
been March through August. As expected, accounts receivable and inventories
increased cyclically to $1,097,900 and $1,585,500, respectively, at June 30,
1998 compared to $720,000 and $1,086,000 at December 31, 1997, respectively.
Total current assets increased by $332,600 and total assets increased by
$211,100, while current liabilities increased slightly by $29,400.
Other changes in balance sheet from December 31, 1997 included the following:
Property, plant and equipment, net of depreciation, decreased by $18,100 from
December 31, 1997 as a result of normal depreciation. Other assets increased
slightly from December 31, 1997, primarily due to amortizations and deferrals of
product development, dies, molds, designs and prepaid expenses related to new
products and packaging. Accounts payable and accrued expenses increased
$310,200 to $663,600 at June 30, 1998 from $353,400 at December 31, 1997 due
primarily to the seasonal nature of the purchases and the timing of inventory
receipts.
Cash and cash equivalents were down $374,200 from December 31, 1997 and up
$46,500 from March 31, 1998. Cash flow used in operating activities improved to
$72,800 for the three months ended June 30, 1998 as compared to cash flow used
in operating activities of $182,200 for the comparable period June 30, 1997.
This is due primarily to increases in sales and net income and the increases in
current liabilities. Cash flow used in operating activities for the six months
ended June 30, 1998 improved to $94,500 as compared to cash flow used in
operating activities of $758,100 for the comparable period June 30, 1997, an
improvement of $663,600. This cash flow increase is due in part to smaller
inventory balances needed to sustain profitable sales in light of the
divestiture of certain low-margin product lines, as well as the collection of
notes receivable resulting from the divestitures.
Shareholders' equity at June 30, 1998 increased during the six months then
ended by $283,200 to $3,497,900 as a result of earnings.
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Page 9 of 9
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: August 4, 1998 By: /s/ Delton G. de Armas
Delton G. de Armas
Chief Financial Officer
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<PERIOD-START> Jan-01-1998
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