SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 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(IRS 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 March 31, 1998.
Class Outstanding at March 31, 1998
Common Stock, $.001 par value 1,624,900
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Page 2 of 9
I N D E X
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page Number
Condensed balance sheets - March 31, 1998
and December 31, 1997 (unaudited) 3
Condensed statements of operations and changes in
retained earnings (accumulated deficit) - Three
months ended March 31, 1998 and 1997 (unaudited) 4
Condensed statements of cash flows - Three months
ended March 31, 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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Page 3 of 9
ACTION PRODUCTS INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 117,100 $ 537,800
Accounts receivable, net of
allowance of $25,500 at
March 31, 1998 and
December 31, 1997 803,600 720,000
Notes Receivable 303,300 575,000
Inventories, net 1,309,900 1,086,000
Prepaid expenses 125,600 58,600
Total Current Assets 2,659,500 2,977,400
Property, plant and equipment,
net of accumulated depreciation of
$739,700 at March 31, 1998 and
$718,700 at December 31, 1997 914,600 923,400
Notes Receivable 1,163,800 1,275,000
Other assets 146,200 150,100
TOTAL ASSETS 4,884,100 5,325,900
Current liabilities:
Accounts payable & accr exp 346,300 316,400
Deferred Revenue 75,000 75,000
Income tax payable 37,000 37,000
Borrowings under line of credit 205,000 591,800
Total Current Liabilities 663,300 1,020,200
Long term liabilities:
Notes payable to shareholders 600,000 600,000
Deferred Revenue 225,000 225,000
Deferred Income Taxes 141,000 266,000
Shareholder's equity:
Common stock $.001 par value
authorized 7,500,000; 1,624,900
issued and outstanding at
March 31,1998 and December 31, 1997 1,600 1,600
Additional paid-in capital 3,008,300 3,008,300
Retained Earnings 358,100 318,000
Stock Subscription Receivable (113,200) (113,200)
Total Shareholders' Equity 3,254,800 3,214,700
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 4,884,100 $ 5,325,900
</TABLE>
See Accompanying Notes
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Page 4 of 9
ACTION PRODUCTS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS AND CHANGES
IN RETAINED EARNINGS (ACCUMULATED DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
1998 1997
<S> <C> <C>
Net sales $ 1,253,700 $ 1,144,400
Cost of sales 648,200 668,200
Gross profit 605,500 476,200
Selling, general &
administrative expenses 560,900 525,200
Other (expenses) income
Other 11,500 3,200
Interest expense (16,000) (17,900)
Total (4,500) (14,700)
Income before income taxes 40,100 (63,700)
Provision for income taxes - -
Net income (loss) $ 40,100 $ (63,700)
Beginning retained earnings
(accumulated deficit) 318,000 (317,600)
Ending retained earnings
(accumulated deficit) $ 358,100 $ (381,300)
Net inc (loss) per share - Basic $ 0.02 $ (0.04)
Net inc (loss) per share - Diluted $ 0.02 $ (0.04)
Weighted average number of common
shares outstanding - Basic 1,624,900 1,549,900
Weighted average number of common
shares outstanding - Diluted 2,833,400 1,549,900
</TABLE>
See Accompanying Notes
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Page 5 of 9
ACTION PRODUCTS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
1998 1997
<S> <C> <C>
Cash flows from operating
activities:
Net income (loss) $ 40,100 $ (63,700)
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 35,400 59,900
Change in assets and liabilities:
Increase in current assets,
other than cash and cash
equivalents 8,400 (588,100)
Increase in current liabilities
and deferred taxes (95,100) 24,500
Increase in other assets (10,600) (8,500)
Net cash used in oper activities (21,800) (575,900)
Net cash used in inv activities (12,200) (5,500)
Net cash provided by fin activities (386,700) 176,800
Net decrease in cash and cash equiv (420,700) (404,600)
Cash and cash equivalents at
beginning of period 537,800 463,100
Cash and cash equivalents at
end of period $ 117,100 $ 58,500
Supplemental disclosures - cash
paid for
Interest $ 16,000 $ 17,900
Taxes $ 125,000 $ -
</TABLE>
See Accompanying Notes
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Page 6 of 9
ACTION PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED 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 March
31, 1998 and the results of its operations and cash flows for the first
quarter ending March 31, 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 March 31, 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
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.
Results of Operations:
Revenues increased to $1,253,700 during the first quarter ended March 31, 1998
from $1,144,400 in 1997, up ten percent. Management attributes the increase in
net sales to improved selling systems and channels, broader distribution, 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 early expectations. 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, as well as the introduction of
additional proprietary products in the latter part of last year also contributed
to the increase.
As a percent of sales, gross profit continued its upward trend with a
substantial increase to 48.3% from 41.6% for the same period in 1997, in line
with Management's focus on profitability. Gross profit dollars increased 27% to
$605,500 from $476,200 in the prior year. Selling, General & Administrative
Expenses increased only slightly, resulting in a turnaround net income of
$40,100, or $0.02 per share, from a net loss in the prior year of $63,700, or
$0.04 per share, an improvement of $103,800. Management attributes the
turnaround to the strong performance of its proprietary toy lines and
improvements to the marketing and sales systems.
Financial Condition, Liquidity and Capital Resources:
As of March 31, 1998, current assets were $2,659,500 compared to current
liabilities of $663,300 resulting in an improved current ratio of 4:1, up from
3:1 at December 31, 1997. Total assets decreased to $4,884,100 from $5,325,900
at December 31, 1997. Current liabilities decreased $356,800 due primarily to
repayments of the Company's line of credit. Current assets decreased $317,900
due to primarily to payments received towards notes receivable and cash expended
to pay down the line of credit.
Accounts receivable and inventories were $803,600 and $1,309,900, respectively,
at March 31, 1998, compared to $720,000 and $1,086,000, respectively, at
December 31, 1997. The increases are as a result of the Company's normal
business cycle.
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Page 8 of 9
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Cash and cash equivalents were down by $420,700, as cash was used to position
the Company for its peak period and pay down the Company's line of credit.
Property, plant and equipment, net of depreciation, decreased by $8,800. Other
assets were down $3,900.
Accounts payable and accrued expenses increased $29,900 to $346,300 at March 31,
1998 from $316,400 at December 31, 1997 due primarily to the timing of purchases
and payments. Net borrowings under the line of credit were paid down to
$205,000 at March 31, 1998 from $591,800 at December 31, 1997.
Cash used in operations was $21,800 for the three months ended March 31, 1998,
as compared to $575,900 for the comparable period in 1997. This improvement is
due to the turnaround in net earnings, the collection of payments on notes
receivable, and the extent and timing of accruals and payments.
Shareholders' equity at March 31, 1998 increased by $40,100 as a direct
result of net 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: May 14, 1998 By: /s/ Delton G. de Armas
Delton G. de Armas
Chief Financial Officer
<PAGE>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<CASH> 117
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<RECEIVABLES> 804
<ALLOWANCES> 0
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<BONDS> 600
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0
0
<OTHER-SE> 3253
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<CGS> 648
<TOTAL-COSTS> 648
<OTHER-EXPENSES> 549
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16
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<EPS-PRIMARY> 0.02
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</TABLE>
