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, 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 Ave., Suite 2185, Orlando, Florida 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 March 31, 1999.
Class Outstanding at March 31, 1999
Common Stock, $.001 par value 1,624,900
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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 - March 31, 1999
and December 31, 1998 (unaudited) 3
Condensed statements of income and changes in
retained earnings - Three months ended
March 31, 1999 and 1998 (unaudited) 4
Condensed statements of cash flows - Three months
ended March 31, 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
ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
(UNAUDITED)
March 31, 1999 December 31, 1998
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 350,000 $ 339,900
Accounts receivable, net of allowance of
$25,500 at March 31, 1999 and
December 31, 1998 752,900 530,400
Notes Receivable 339,600 339,600
Inventories, net 1,231,800 1,091,000
Prepaid expenses 169,200 100,100
Income taxes refundable 37,000 37,000
------------------- -----------------------
Total Current Assets 2,880,500 2,438,000
Property, plant and equipment, net of
accumulated depreciation of $826,300 at
March 31, 1999 and $802,500 at
December 31, 1998 972,600 956,100
Notes Receivable 993,900 1,161,500
Other assets 472,700 460,700
------------------- -----------------------
TOTAL ASSETS 5,319,700 5,016,300
=================== =======================
Current liabilities:
Accounts payable & accrued expenses 211,300 191,100
Deferred Revenue 25,000 25,000
Current portion of mortgage payable 56,300 56,300
Borrowings under line of credit 395,900 99,900
------------------- -----------------------
Total Current Liabilities 688,500 372,300
Long term liabilities:
Mortgage payable 687,600 691,800
Deferred Revenue 193,800 200,000
Deferred Income Taxes 338,000 338,000
Shareholder's equity:
Common stock $.001 par value authorized
15,000,000; 1,624,900 issued and
outstanding at March 31,1999 and
December 31, 1998 1,600 1,600
Additional paid-in capital 3,008,300 3,008,300
Retained Earnings 420,600 448,000
Stock Subscriptions Receivable (18,700) (43,700)
------------------- -----------------------
Total Shareholders' Equity 3,411,800 3,414,200
------------------- -----------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 5,319,700 $ 5,016,300
=================== =======================
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See Accompanying Notes
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ACTION PRODUCTS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF INCOME AND CHANGES
IN RETAINED EARNINGS
(UNAUDITED)
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Three months ended March 31,
------------------------------------------------
1999 1998
----------------------- -----------------
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Net sales $ 1,186,900 $ 1,253,700
Cost of sales 566,200 648,200
----------------------- -----------------
Gross profit 620,700 605,500
Selling, general &
administrative expenses 673,000 560,900
Other (expenses) income
Other 40,400 11,500
Interest expense (15,500) (16,000)
----------------------- -----------------
Total 24,900 (4,500)
Income (loss) before income taxes (27,400) 40,100
Provision for income taxes - -
----------------------- -----------------
Net income (loss) $ (27,400) $ 40,100
----------------------- -----------------
Beginning retained earnings 448,000 318,000
----------------------- -----------------
Ending retained earnings $ 420,600 $ 358,100
======================= =================
Net income (loss) per share
Basic $ (0.02) $ 0.02
Diluted $ (0.02) $ 0.02
======================= =================
Weighted average number
of common shares outstanding
Basic 1,624,900 1,624,900
======================= =================
Diluted 1,624,900 2,833,400
======================= =================
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See Accompanying Notes
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ACTION PRODUCTS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended March 31,
-----------------------------------
1999 1998
--------------- -----------------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ (27,400) $ 40,100
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 65,700 35,400
Changes in assets and liabilities:
Current assets, other than
cash and cash equivalents (264,800) 8,400
Other assets (53,900) (10,600)
Current liabilities and deferred taxes 14,000 (95,100)
--------------- -----------------
Net cash used in operating activities (266,400) (21,800)
=============== =================
Net cash used in investing activities (40,300) (12,200)
=============== =================
Net cash provided by financing activities 316,800 (386,700)
=============== =================
Net decrease in cash and cash equivalents 10,100 (420,700)
Cash and cash equivalents at beginning of period 339,900 537,800
--------------- -----------------
Cash and cash equivalents at end of period $ 350,000 $ 117,100
=============== =================
Supplemental disclosures - cash paid for
Interest $ 15,500 $ 16,000
Taxes $ 10,000 $ 125,000
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See Accompanying Notes
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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, 1999
and the results of its operations and cash flows for the first quarter ending
March 31, 1999.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed financial statements should be
read in conjunction with the audited 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 March 31, 1999 are not
necessarily indicative of the operating results for the full year.
2. Year 2000
The Year 2000 issue is the result of shortcomings in electronic data processing
systems and other electronic equipment that may adversely affect business
operations.
The Company's management is making efforts to determine the possible effects of
Year 2000 issues on its operations. Management will also attempt to determine if
its significant customers, vendors and other third parties upon which it relies
have addressed or will be able to address any affected systems on a timely
basis. Management does not expect the potential disruption from Year 2000 issues
to have a material effect on the Company's business operations, but the outcome
remains uncertain. The accompanying financial statements contain no provision or
adjustments related to the ultimate outcome of this uncertainty.
3. Earnings per share
Common stock equivalents were not included in the presentation of diluted
earnings per share for the period ending March 31, 1999, as their effect would
have been anti-dilutive.
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ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Forward-looking Statements:
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 decreased to $1,186,900 during the first quarter ended March 31, 1999
from $1,253,700 in 1998. Management attributes the slight downturn in net sales
primarily to declines in museum market as a whole. The Company continues to
diversify its distribution channels and reduce its dependence on any one market.
This strategy allowed the Company to avoid a greater detriment as a result of
reduced museum industry traffic. The dip in the Company's museum business was
nearly twice the overall downturn, implying strong sales gains within the
prioritized distribution channels. Improvements to the sales systems have eased
diversification into new markets, particularly the Company's increasing
penetration into the specialty toy market.
In addition to sales growth generated within certain target markets, Management
credits its proprietary brands with generating improved margins. Gross margins
continued an upward trend with a substantial increase to 52.3% from 48.3% for
the same period in 1998, surging the Company's gross margins to over 50% for the
first time in its history. Selling, General & Administrative Expenses increased
to $673,000 primarily as a result of ramped up promotional efforts furthering
the Company's brand development, including advertising and public relations,
certain marketing and product development expenses, and advance licensing fees
related to its Discovery Channel(R) product line. The Company also incurred
certain expenses related to the opening of its new Orlando headquarters.
Management's efforts offset many of these increases by reducing costs in some
general areas such as staff costs, outside labor, bank charges, subscriptions
and dues, and other general and administrative expenses.
Financial Condition, Liquidity and Capital Resources:
As of March 31, 1999, current assets were $2,880,500 compared to current
liabilities of $688,500 resulting in a current ratio of better than 4:1. Total
assets increased to $5,319,700 from $5,016,300 at December 31, 1998. Current
liabilities increased $316,200 due primarily to seasonal borrowings on the
Company's line of credit. Current assets increased $442,500 due to primarily to
increases in accounts receivable and inventories.
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ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)
Accounts receivable and inventories were $752,900 and $1,231,800, respectively,
at March 31, 1999, compared to $530,400 and $1,091,000, respectively, at
December 31, 1998. The increases are as a result of the Company's normal
business cycle.
Cash and cash equivalents were up by $10,100, as a net result of borrowings on
the Company's line of credit to position the Company for its peak period.
Property, plant and equipment, net of depreciation, increased by $16,500,
primarily related to leasehold improvements associated with the new Orlando
headquarters. Other assets were up $12,000.
Accounts payable and accrued expenses increased $20,200 to $211,300 at March 31,
1999 from $191,100 at December 31, 1998 due primarily to the timing of purchases
and payments. Net borrowings under the line of credit increased to $395,900 at
March 31, 1999 from $99,900 at December 31, 1998 as a result of routine seasonal
inventory purchases.
Cash used in operations was $266,400 for the three months ended March 31, 1999,
as compared to $21,800 for the comparable period in 1998, due primarily to sales
on credit and fortification of inventory levels in anticipation of the upcoming
seasonal spike in business.
Shareholders' equity at March 31, 1999 decreased by $2,400 as a combined result
of the net loss and collections of stock subscriptions receivable.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Action Products International, Inc.
Date: May 14,1999 By: /s/ Delton G. de Armas
----------- ------------------------
Delton G. de Armas
Chief Financial Officer
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Mar-31-1999
<CASH> 350
<SECURITIES> 0
<RECEIVABLES> 753
<ALLOWANCES> 0
<INVENTORY> 1232
<CURRENT-ASSETS> 2880
<PP&E> 1799
<DEPRECIATION> (826)
<TOTAL-ASSETS> 5320
<CURRENT-LIABILITIES> 689
<BONDS> 688
<COMMON> 2
0
0
<OTHER-SE> 3410
<TOTAL-LIABILITY-AND-EQUITY> 5320
<SALES> 1187
<TOTAL-REVENUES> 1187
<CGS> 566
<TOTAL-COSTS> 566
<OTHER-EXPENSES> 673
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16
<INCOME-PRETAX> (27)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27)
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<EXTRAORDINARY> 0
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<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
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