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 September 30, 1999 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)
390 N. Orange Avenue, Suite 2185, Orlando, FL 32801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (407) 481-8007
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 September 30, 1999.
Class Outstanding at September 30, 1999
Common Stock, $.001 par value 1,694,400
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I N D E X
PART I. FINANCIAL INFORMATION Page
Number
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Item 1. Financial Statements
Condensed Balance Sheets - September 30, 1999
and December 31, 1998 (unaudited) 3
Condensed Statements of Operations and Changes
in Retained Earnings - Three and nine months ended
September 30, 1999 and 1998 (unaudited) 4
Condensed Statements of Cash Flows - Three and nine months
ended September 30, 1999 and 1998 (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
(UNAUDITED)
September 30, 1999 December 31, 1998
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 262,800 $ 339,900
Accounts receivable, net of allowance of
$25,500 at September 30, 1999 and
December 31, 1998 1,097,900 530,400
Notes Receivable 765,500 339,600
Inventories 1,276,200 1,091,000
Prepaid expenses 178,900 100,100
Income taxes refundable 37,000 37,000
----------- ------------
Total Current Assets 3,618,300 2,438,000
Property, plant and equipment, net of
Accumulated depreciation of $746,100 at
September 30, 1999 and $802,500 at
December 31, 1998 965,700 956,100
Notes receivable - 1,161,500
Other assets 576,600 460,700
----------- ------------
TOTAL ASSETS $5,160,600 $5,016,300
=========== ============
Current liabilities:
Accounts payable & accrued expenses $ 169,400 $ 191,100
Deferred revenue 25,000 25,000
Current portion of mortgage payable 56,300 56,300
Borrowings under line of credit 402,000 99,900
----------- ------------
Total Current Liabilities 652,700 372,300
Long term liabilities:
Deferred income taxes 278,000 338,000
Deferred revenue 193,800 200,000
Mortgage payable 679,400 691,800
Commitments and contingencies
Shareholders' equity: Common stock $.001
par value authorized 15,000,000; 1,694,400
issued and outstanding at September 30,1999
and December 31, 1998 1,700 1,600
Capital in excess of par value 3,112,400 3,008,300
Stock subscriptions receivable (103,400) (43,700)
Retained earnings 346,000 448,000
----------- ------------
Total Shareholders' Equity 3,356,700 3,414,200
----------- ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 5,160,600 $ 5,016,300
=========== ============
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See Accompanying Notes
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ACTION PRODUCTS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
AND CHANGES IN RETAINED EARNINGS
(UNAUDITED)
Three months ended September 30 Nine months ended September 30
------------------------------- ------------------------------
1999 1998 1999 1998
--------------- --------------- ---------------- -------------
<S> <C> <C> <C> <C>
Net Sales $ 1,402,600 $ 1,764,800 $4,444,700 $ 4,846,300
Cost of Sales 846,600 940,500 2,322,400 2,524,300
------------- ------------ ------------ ------------
Gross Profit 556,000 824,300 2,122,300 2,322,000
Selling, General &
Administrative Expenses 879,500 760,500 2,331,800 2,027,900
Other (expenses) income
Other 23,900 119,000 111,200 200,900
Interest expense (25,100) (26,400) (63,700) (55,400)
------------- ------------ ------------ ------------
Total (1,200) 92,600 47,500 145,500
Income (loss) before income taxes (324,700) 156,400 (162,000) 439,600
Provision (benefit) for income taxes (60,000) - (60,000) -
------------- ------------ ------------ ------------
Net Income (loss) (264,700) 156,400 (102,000) 439,600
Beginning retained earnings 610,700 601,200 448,000 318,000
------------- ------------ ------------ ------------
Ending retained earnings $ 346,000 $ 757,600 $346,000 $ 757,600
============= ============ ============ ============
Net Income (loss) per share
Basic ($0.16) $0.10 ($0.06) $0.27
============= ============ ============ ============
Diluted ($0.16) $0.06 ($0.06) $0.16
============= ============ ============ ============
Weighted average number
of common shares outstanding
Basic 1,693,600 1,624,900 1,693,600 1,624,900
============= ============ ============ ============
Diluted 2,584,200 2,807,200 2,584,200 2,828,700
============= ============ ============ ============
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See Accompanying Notes
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ACTION PRODUCTS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended September 30 Nine months ended September 30
------------------------------------ -----------------------------------
1999 1998 1999 1998
------------------------------------ -----------------------------------
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Cash flows from operating activities:
Net income (loss) ($264,700) $156,400 ($102,000) $439,600
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation & Amortization 94,100 38,300 190,500 80,300
Change in assets and liabilities:
Decrease (increase) in current
assets other than cash and cash
equivalents 487,500 286,800 (155,600) (308,700)
Decrease in current liabilities & deferred taxes (74,400) (364,500) (87,900) (180,800)
(Increase) in other assets (137,700) (31,700) (228,500) (39,600)
-------------- ----------- ------------- -----------
Net cash provided by (used in) operating activities 104,800 85,300 (383,500) ( 9,200)
============== =========== ============= ===========
Net cash used in investing activities (24,200) ( 9,600) (87,500) ( 33,500)
============== =========== ============= ===========
Cash flows from financing activities:
Proceeds from (repayments of) borrowings
on line of credit, net (24,000) 1,000 302,100 (254,800)
Results of other financing activities 75,100 13,900 91,800 13,900
-------------- ----------- ------------- -----------
Net cash (used in) provided by fin. activities 51,100 14,900 393,900 (240,900)
============== =========== ============= ===========
Net increase (decrease) in cash and cash equiv. 131,700 90,600 (77,100) (283,600)
Cash and cash equivalents at start of period 131,100 163,600 339,900 537,800
-------------- ----------- ------------- -----------
Cash and cash equivalents at end of period $262,800 $ 254,200 $262,800 $ 254,200
============== =========== ============= ===========
Supplemental disclosures - cash paid for
Interest $25,100 $26,400 $63,700 $55,400
Taxes ($14,800) $0 ($14,800) $0
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See Accompanying Notes
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ACTION PRODUCTS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Condensed consolidated financial statements
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all normal recurring adjustments necessary to
present fairly the financial position of Action Products International, Inc. at
September 30, 1999 and the results of its operations and cash flows for the
three and nine month periods ended September 30, 1999 and 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, 1998. The results of operations for the period ended September 30,
1999 are not necessarily indicative of the operating results for the full year.
2. Income per common share
Basic earnings per share is based on the weighted average number of common
shares outstanding during each period. Diluted earnings per share is based on
the sum of the weighted average number of common shares outstanding plus common
stock equivalents arising out of stock options and convertible debt. To avoid an
anti-dilutive calculation in periods where there is a net loss, diluted earnings
(loss) per share are presented as the same amount as basic earnings (loss) per
share.
3. Notes Receivable
The Company had certain Notes Receivable totaling $765,500 as of September 30,
1999 which the Company anticipates collecting before fiscal year end December
31, 1999. Accordingly, the total amounts of the Notes are included in Current
Assets.
4. Changes in Shareholders' Equity
During the nine month period ended September 30, 1999, changes in shareholders'
equity included the exercise of 75,000 stock options at approximately $1.38 each
which is reflected in the September 30, 1999 balance sheet as a stock
subscription receivable. Approximately $44,000 of stock subscriptions receivable
were collected during the period.
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ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Any statements contained in this discussion that are not historical facts 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:
Three months ended September 30, 1999
Sales for the three month period ended September 30, 1999 decreased to
$1,402,600 compared to the third quarter record of $1,764,800 set in 1998. While
sales to specialty toy stores and internet retailers continued to increase,
sales to the Company's museum market customers declined sharply. Due to a shift
in its core product offerings from the museum market, historically strong during
the summer months, to the specialty toy market, traditionally strong during the
fourth quarter, management expects a continued shift in its seasonal sales
performance. Third quarter 1999 sales were also affected because of delays in
the receipt of several new products. These delays resulted in certain
anticipated third quarter sales being recorded in the fourth quarter. These
items along with the seasonal change in sales, should strengthen fourth quarter
and fiscal year results. The third quarter of 1999 produced a net loss of
$264,700. Net income for the same period last year was $156,400.
Gross profit for the third quarter of 1999 was $556,000 compared to $824,300 for
the third quarter of 1998. This decline of $268,300 in gross profit was
primarily due to the $362,200 decline in sales. As a percentage of sales, the
gross margin declined to 40%. Management attributes that decline, in part, to
discounting programs aimed at improving third-quarter sales. Management expects
the margins to improve in the future as the discounting programs are
discontinued.
Selling, general & administrative expenses increased to $879,500 for the third
quarter of 1999, an increase of $119,000 from the same period in 1998.
Management attributes the increase in selling, general and administrative
expenses to the addition of office space and product licensing, development and
design costs incurred in 1999.
Other income (expense) was ($1,200) in the third quarter of 1999 compared to
$92,600 in the third quarter of 1998. The 1998 amount included a one time gain
from the sale of certain assets and equipment that had been used in the
Company's screen printing operation.
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Nine months ended September 30, 1999
Revenue for the nine month period ended September 30, 1999 was $4,444,700. This
represents a decrease of $401,600 from the record set in the prior year of
$4,846,300. Management attributes the decrease in year-to-date net sales
primarily to lagging sales in the third quarter. As described above, management
expects a continued shift in its seasonal business towards the fourth quarter.
The nine months 1999 net loss was $102,000 compared to net income of $439,600 in
1998, due to the third quarter results and increases in Selling, General &
Administrative Expenses.
Gross profit margin for the nine months was nearly identical to the same period
last year at 48%.
Selling, general & administrative expenses increased to $2,331,800 for the first
three quarters of 1999, an increase of $303,900 from the same period in 1998.
Management attributes the increase in selling, general and administrative
expenses to the addition of office space and product licensing, development and
design costs incurred in 1999.
Other income (expense) was $47,500 for the first three quarters of 1999 compared
to $145,500 for the first three quarters of 1998. The 1998 amount included a one
time gain from the sale of certain assets and equipment that had been used in
the Company's screen printing operation.
Financial Condition, Liquidity and Capital Resources
As of September 30, 1999, current assets were $3,618,300 compared to current
liabilities of $652,700 for a current ratio of 5.5:1, down from 6.5:1 at
December 31, 1998. At September 30, 1999, working capital increased by
approximately $900,000 compared to December 31, 1998.
Historically, the peak period of the Company's business cycle has been March
through August. Due to a shift in the Company's focus towards the specialty toy
market, management expects increased sales in the fourth quarter. Accounts
receivable and inventories were $1,097,900 and $1,276,200 respectively, at
September 30, 1999 compared to $530,400 and $1,091,000 at December 31, 1998. The
increase in receivables and inventories are considered normal for the Company
and reflect the anticipated activity in the Company's high volume period.
Current liabilities increased by $280,400 due primarily to draws on the
Company's line of credit.
Cash and cash equivalents were down $77,100 from December 31, 1998 but up
$131,700 from June 30, 1999. Operations provided cash flow of $104,800 for the
three months ended September 30, 1999 compared to cash flow provided by
operations of $85,300 for the comparable period ended September 30, 1998. Cash
flow used in operations was $383,500 for the nine months ended September 30,
1999 compared to $9,200 used in the comparable nine-month period ended September
30, 1998. Shareholders' equity at September 30, 1999 decreased during the nine
months by $57,500 to $3,356,700 due primarily to the net loss in the current
period.
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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: November 10, 1999 By: /s/ Ronald S. Kaplan
---------------------- ---------------------------
Ronald S. Kaplan
Chief Executive Officer
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