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, 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 (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, 1999.
Class Outstanding at June 30, 1999
Common Stock, $.001 par value 1,619,400
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I N D E X
PART I. FINANCIAL INFORMATION Page
Number
Item 1. Financial Statements
<S> <C>
Condensed balance sheets - June 30, 1999
and December 31, 1998 (unaudited) 3
Condensed statements of operations and changes
in Retained Earnings - Three and six months ended
June 30, 1999 and 1998 (unaudited) 4
Condensed statements of cash flows - Three and six
months ended June 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
ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
(UNAUDITED)
June 30, 1999 December 31, 1998
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 131,100 $ 339,900
Accounts receivable, net of allowance of
$25,500 at June 30, 1999 and
December 31, 1998 1,231,300 530,400
Notes Receivable 309,600 339,600
Inventories, net 1,358,000 1,091,000
Prepaid expenses 209,300 100,100
Income taxes refundable 37,000 37,000
------------------ --------------------
Total Current Assets 3,276,300 2,438,000
Property, plant and equipment, net of
accumulated depreciation of $851,300 at
June 30, 1999 and $802,500 at
December 31, 1998 970,600 956,100
Notes Receivable 757,500 1,161,500
Other assets 503,900 460,700
------------------ --------------------
TOTAL ASSETS 5,508,300 5,016,300
================== ====================
Current liabilities:
Accounts payable & accrued expenses 183,800 191,100
Deferred Revenue 25,000 25,000
Current portion of mortgage payable 56,300 56,300
Borrowings under line of credit 426,000 99,900
------------------ --------------------
Total Current Liabilities 691,100 372,300
Long term liabilities:
Mortgage payable 683,500 691,800
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 June 30,1999 and
December 31, 1998 1,600 1,600
Additional paid-in capital 3,008,300 3,008,300
Retained Earnings 610,700 448,000
Stock Subscriptions Receivable (18,700) (43,700)
------------------ --------------------
Total Shareholders' Equity 3,601,900 3,414,200
------------------ --------------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 5,508,300 $ 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 June 30 Six months ended June 30
-------------------------------- ---------------------------------
1999 1998 1999 1998
-------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Net Sales $1,855,200 $1,827,800 $3,042,100 $3,081,500
00
Cost of Sales 909,600 935,600 1,475,800 1,583,800
------------------------------ -------------------------------
Gross Profit 945,600 892,200 1,566,300 1,497,700
Selling, General &
Administrative Expenses 779,300 706,500 1,452,300 1,267,400
Other (expenses) income
Other 46,900 70,400 87,300 81,900
Interest expense (23,100) (13,000) (38,600) (29,000)
------------------------------ -------------------------------
Total 23,800 57,400 48,700 52,900
Income before income taxes 190,100 243,100 162,700 283,200
Provision for income taxes - - - -
------------------------------ -------------------------------
Net Income 190,100 243,100 162,700 283,200
------------------------------ -------------------------------
Beginning retained earnings (accumulated deficit) 420,600 358,100 448,000 318,000
------------------------------ -------------------------------
Ending retained earnings (accumulated deficit) 610,700 $601,200 $610,700 $601,200
============================== ===============================
Net Income per share
Basic $ 0.12 $ 0.15 $ 0.10 $ 0.17
============================== ===============================
Diluted $ 0.07 $ 0.09 $ 0.06 $ 0.10
============================== ===============================
Weighted average number of
common shares outstanding
Basic 1,619,500 1,624,900 1,622,200 1,624,900
============================== ===============================
Diluted 2,578,400 2,842,900 2,662,900 2,838,300
============================== ===============================
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See Accompanying Notes
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ACTION PRODUCTS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended June 30 Six months ended June 30
------------------------------------ -----------------------------------
1999 1998 1999 1998
------------------------------------ -----------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $190,100 $243,100 $162,700 $283,200
Adjustments to reconcile net income
to net cash used in operating activities
Depreciation and amortization 30,700 48,300 96,400 69,300
Change in assets and liabilities:
Increase in current assets other
than cash and cash equivalents (378,300) (603,900) (643,100) (595,400)
Increase (decrease) in current liabilities (27,500) 278,800 (13,500) 183,700
Decrease (increase) in other assets (36,900) (39,100) (90,800) (35,300)
---------------------------------- ---------------------------------
Net cash used in operating activities (221,900) ($72,800) (488,300) ($94,500)
================================== =================================
Net cash used in investing activities (23,000) ($11,700) (63,300) ($23,900)
================================== =================================
Cash flows from financing activities:
Proceeds from borrowings
on line of credit 30,000 131,000 326,100 255,800
Results of other financing activities (4,000) - 16,700 -
---------------------------------- ---------------------------------
Net cash provided by (used in) fin. Activities 26,000 $131,000 342,800 ($255,800)
================================== =================================
Net increase (decrease) in cash and cash equiv. (218,900) $46,500 (208,800) ($374,200)
Cash and cash equivalents at start of period 350,000 $117,100 339,900 $537,800
---------------------------------- ---------------------------------
Cash and cash equivalents at end of period $131,100 $163,600 $131,100 $163,600
================================== =================================
Supplemental disclosures - cash paid for
Interest $ 23,100 $ 13,000 $ 38,600 $ 29,000
Taxes $ 4,800 $ - $ 14,800 $125,000
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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, 1999
and the results of its operations and cash flows for the second quarter ending
June 30, 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 June 30, 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.
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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.
Three months ended June 30, 1999
During the second quarter ended June 30, 1999 revenue again increased to a new
quarterly record of $1,855,200 in 1999 from the previous quarterly record of
$1,827,800 achieved in 1998. Net income for the second quarter 1999 was $190,100
compared to $243,100 for the 1998 comparable period. Increased sales coupled
with continued improvement in gross profit margins have sustained the growth of
expenditures associated with the development of the Company's proprietary brands
and product lines.
Gross profit increased $53,400 to $945,600 from $892,200. As a percent of sales,
gross profit was up more than two percentage points to 51.0% from 48.8% for the
1998 comparable period. Management attributes this continued improvement to
brand development and demand for its brands and product lines within its target
markets. Selling, General & Administrative expenses increased $72,800.
Management attributes the increase in expenses to certain sales and marketing
expenditures, product development costs, activities related to acquisitions and
corporate development, and costs associated with the opening and management of
the Company's new Orlando headquarters. Other income decreased $33,600 due to
gains on the disposal of assets recognized in the prior year and an increase in
interest expense associated with the Company's short term seasonal borrowings.
Six months ended June 30, 1999
During the six months ended June 30, 1999 revenues were $3,042,100 in 1999 from
$3,081,500 in 1998 due primarily to sales shortfalls in the first quarter. The
downturn in sales for the six-month period is also indicative of the shift in
the Company's seasonal period towards the latter part of the year. Management
anticipates that its concentration and focus as a toy company will continue to
align its seasonality with that traditional of the toy industry.
Gross profit for the six months ended increased $68,600 to $1,566,300 from
$1,497,700. As a percentage of sales, gross profit was up nearly three more
points to 51.5% from 48.6% for the 1998 comparable period. Selling, General &
Administrative Expenses for the six months ended increased 184,900, a
substantial portion of which were incurred in the first three months. As
previously discussed, management attributes the increase in expenses to certain
sales and marketing expenditures, product development costs, activities related
to acquisitions and corporate development, and costs associated with the opening
and management of the Company's new Orlando headquarters
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Financial Condition, Liquidity and Capital Resources:
As of June 30, 1999, current assets were $3,276,300 compared to current
liabilities of $691,100 for a current ratio of almost 5:1 compared to 3:1 at the
same point in time last year. At June 30, 1999, working capital improved by
$519,500 compared to December 31, 1998.
The peak period of the Company's business cycle has historically been March
through August, though gradually changing due to the Company's penetration into
the specialty toy market. As expected, accounts receivable and inventories
increased cyclically to $1,231,300 and $1,358,000, respectively, at June 30,
1999 compared to $530,400 and $1,091,000 at December 31, 1998, respectively.
Total current assets increased by $838,300 and total assets increased by
$492,000, while current liabilities increased by $318,800, due primarily to
short term borrowings on the Company's line of credit.
Other changes in balance sheet from December 31, 1997 included the following:
Property, plant and equipment, net of depreciation, increased by $14,500 from
December 31, 1998 as a result of furniture and fixtures additions and normal
depreciation. Other assets increased from December 31, 1998, primarily due to
deferrals of product development, dies, molds, designs and prepaid expenses
related to new products and packaging. Accounts payable and accrued expenses
decreased slightly to $183,800 at June 30, 1999 from $191,100 at December 31,
1998 due primarily to the seasonal nature of the purchases and the timing of
inventory receipts.
Cash and cash equivalents were down $208,800 from December 31, 1998 and $218,900
from March 31, 1999. Cash flow used in operating activities was $221,900 for the
three months ended June 30, 1999 as compared to cash flow used in operating
activities of $72,800 for the comparable period June 30, 1998. This is due
primarily to shifts in receivables and inventory related to the beginning of the
Company's seasonal push. Cash flow used in operating activities for the six
months ended June 30, 1999 was $488,300 as compared to cash flow used in
operating activities of $94,500 for the comparable period June 30, 1998. The
decrease in cash flow is due primarily to the decrease in net income and a
decrease in current liabilities compared to the comparable period in 1998.
Shareholders' equity at June 30, 1998 increased during the six months then ended
by $187,700 to $3,601,900 as a result of earnings and the collection 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: August 11, 1999 By:/s/ Delton G. de Armas
---------------- ------------------------
Delton G. de Armas
Chief Financial Officer
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