-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C5U5gsS9my0VyGv5TKk9pFqUJ1MNbNhcReA3M6ByemT99lsAig6Xc/658fkaY/rg ll8yi74sdDEHj35GWM74PQ== 0000747435-96-000003.txt : 19960418 0000747435-96-000003.hdr.sgml : 19960418 ACCESSION NUMBER: 0000747435-96-000003 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960417 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACTION PRODUCTS INTERNATIONAL INC CENTRAL INDEX KEY: 0000747435 STANDARD INDUSTRIAL CLASSIFICATION: ICE CREAM & FROZEN DESSERTS [2024] IRS NUMBER: 592095427 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-13118 FILM NUMBER: 96548017 BUSINESS ADDRESS: STREET 1: 344 CYPRESS RD CITY: OCALA STATE: FL ZIP: 34472-3108 BUSINESS PHONE: 9046872202 MAIL ADDRESS: STREET 1: 344 CYPRESS ROAD CITY: OCALA STATE: FL ZIP: 34472 FORMER COMPANY: FORMER CONFORMED NAME: ACTION PACKETS INC DATE OF NAME CHANGE: 19880818 10KSB/A 1 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB/A (Mark One) [ X ] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] OR [ ] Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the fiscal year ended December 31, 1995 Commission file number 0-13118 For the transition period from _________________ to ___________________ ACTION PRODUCTS INTERNATIONAL, INC. (Name of Small Business Issuer in Its Charter) Florida 59-2095427 State or other jurisdiction of incorporation (I.R.S. Employer Identification No.) 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 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.001 per share (Title of Class) Check whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] State issuer's revenues for its most recent fiscal year: $ 5,487,015 The aggregate market value of the voting stock held by the non-affiliates of the Registrant was $2,490,698 based on the average bid and asked price reported March 14, 1995 (based on 838,972 shares). Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of March 1, 1996 Class Outstanding Common Stock, $.001 1,499,926 DOCUMENTS INCORPORATED BY REFERENCE NONE PART I ITEM 1. BUSINESS: Description of Business The Company is engaged in the manufacture and sale of toys, books, freeze dried snack foods and other educational products. The Company also sells and imprints promotional products primarily to the educational and leisure markets. The Company's products are sold worldwide to museums, zoos, aquariums, theme parks, science and nature-related specialty retailers and NASA bases for resale. Freeze Dried Snack Foods - "Action Snacks" The Company manufactures freeze dried snack foods including ice cream and ice cream sandwiches, frozen yogurt, fruit and pizza. Produced using a process developed by NASA for the Apollo program, they are sold primarily as novelty foods to space and science-related shops. The freeze dried products are sold under the protected registered trademark "Action Snacks." Promotional Products - "Logo America" The Company prints and sells "Activewear" such as t-shirts, fleece, jackets, hats, and the like onto which the Company silk screens original artwork as well as corporate and other promotional logos using state of the art printing equipment together with computer graphic systems. The Company maintains an in-house screen printing plant with two computerized presses which produce the garments for sale. The Company has developed processes which allow photographs to be used as primary sources of artwork and is introducing new lines of photographic t-shirts. The Company sells other promotional products such as pens, pencils, coffee mugs, and stationery items imprinted with corporate or promotional logos. The Company markets its promotional products through its "Logo America" division. Educational Toys and Other Products The Company sells an educational product line consisting of toys, models, science kits, , and collectibles with an emphasis on nature, space and dinosaurs. The Company's products are purchased from over 100 sources. More than 50% of the products are manufactured for the Company outside the United States, primarily in Taiwan, Hong Kong and increasingly, China, and are directly imported by the Company. Publishing - "Action Publishing" The Company publishes a line of educational books under the name "Action Publishing." The line of books includes children's activity, coloring and sticker books on such topics as nature, science, dinosaurs and airplanes. Customers The Company currently sells to approximately 2,000 museum stores throughout the United States out of a market of over 6,000 stores. The museum gift shop market includes natural history, science, zoos, nature centers, aquariums, history and space related facilities (NASA base shops). To a lesser degree, the Company sells to toy stores, gift stores and other types of retailers. No single customer accounts for more than 3% of sales and no single product accounts for more than 8% of sales. The Company has customers in every state in the United States, as well as the District of Columbia. The Company exports to approximately 20 countries including Canada, Saudi Arabia, Finland, The Netherlands, Germany, Japan, Hong Kong, New Zealand, Denmark, Sweden and Australia. Marketing and Sales The Company markets its products through its full color catalogs, newsletters, client visits, and telephone contact and solicitation. The Company also exhibits its products and services at museum, gift, toy, and other trade shows. The Company seeks to emphasize its own proprietary products and trade names. Customer service representatives sell the Company's products directly to regular accounts by telephone. This method of marketing has permitted the Company to have continuing contact with the Company's customers, allowing the Company to identify new markets quickly and to respond promptly to individual customer needs. The Company's product lines are presented to customers through an extensively illustrated full color catalog. The catalog permits buyers to select and purchase products and is important for generating new customers. Customers are encouraged to place orders from the catalog through the Company's toll free telephone number and by fax. Sales invoices are posted to the financial records on day of shipment, which usually is the same day as the order is entered. No interest is charged during the first 30 days following invoice. After 30 days, unpaid invoices are overdue and a late charge of 1 1/2% per month is applied to the unpaid balance. A small number of orders are made by C.O.D. or by credit card. The Company requires most customers placing a custom design or imprinting order to pay a deposit of 50% or more. A computerized inventory is maintained for each item which is updated at time of customer invoice or receipt of merchandise on the Company's premises. All credits are processed and approved by the accounts receivable department. Any customer who wishes to receive a credit to their account must request it in writing and submit it to the Company for approval. Upon approval, a return authorization number is issued to the customer along with a return label which must be used on the return shipment. Upon receipt by the Company, the merchandise is inspected for damage by the receiving department and forwarded to the accounts receivable department. A separate credit memo is issued to the customer's account. This credit must be used against future purchases. Historically, credits and adjustments have been approximately 2% of sales. Sales are netted in the month the credit memo is issued. The Company believes that its sales, inventory and credit policies reflect standard industry practices. Less than 10% of the Company's sales are made on terms other than regular terms as noted above. In a limited number of cases, customers are granted an additional 30 to 60 days credit without service charges. Competition The Company competes with both toy, educational, scientific and souvenir manufacturers and importers, distributors and book publishers. The Company's ability to compete successfully is based upon its ability to offer a wide range of specialized "theme" products; "same day" shipment on most orders; and its in-house sales personnel who maintain regular and close contact with the Company's customers. The Company believes its reputation, service, and customer orientation enable it to maintain and build customer loyalty. The Company believes that it can maintain and expand its customer base due to its wide range of products, its customer service abilities, and its experience in the industry.. The Company is strongly committed to maintaining and enhancing its advantages in its markets by continually improving the products and services it offers. These services include "value-added" merchandising such as packaging and display materials intended to assist the company's customers in the sale of the Company's products. The Company's goal is to have state of the art operations in all the areas of customer service including computerization, warehouse technology, telecommunications, graphics, and screen printing. The Company believes it maintains its competitive advantage in its improved products and product packaging by including UPC and ISBN markings on new proprietary products. Personnel The Company, as of December 31, 1995, had 40 full time employees. None of the Company's employees are represented by a union. In 1995, benefits offered employees included life insurance, Employee Stock Ownership Plan (ESOP), a 401(k) plan, and employee contributed section 125 health plan. All employees are required to sign a non-compete agreement prohibiting competition with the Company for a period of one year following termination of their employment. The Company believes its employee relations are good. ITEM 2. DESCRIPTION OF PROPERTY: The Company's operations are located in a 35,000 square foot building on 2.5 acres which it owns in an industrial park in Ocala, Florida. Management considers the building adequate for the foreseeable future. ITEM 3. LEGAL PROCEEDINGS: NONE ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: NONE PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS: The Company paid an 8% stock dividend in August 1995. The Company has previously distributed warrants as dividends. The Company has not paid any cash dividends. Any payment of cash dividends in the future will be at the discretion of the Board of Directors and will depend on, among other things, the Company's future earnings, financial condition, capital and other cash requirements and general business conditions. The Company's Common Stock is traded on The NASDAQ SmallCap Market under the respective symbol APII. The number of holders of the Company's Common Stock as of January 30, 1996, was approximately 500. The high and low bid quotations for each quarter of the fiscal years ended December 31, 1995 and 1994 are follows:
Quarter Ended: High Bid Low Bid March 31, 1994 2.875 1.50 June 30, 1994 1.656 1.25 September 30, 1994 1.687 1.25 December 31, 1994 1.25 0.875 March 31, 1995 1.75 1 June 30, 1995 3.625 1.375 September 30, 1995 3.375 2.3125 December 31, 1995 3.9375 1.625
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS: General The Company achieved record sales in 1995. The Company attributes its near 20 percent increase in revenues to two key management decisions. During 1995, the Company focused its efforts on the improvement of the quality of its sales and the refocus of its product development system. The Company believed that meeting these objectives would strengthen its position in its market and provide for the sustained growth of the Company. The Company seeks to continually improve the quality of its sales efforts. Rather than strictly selling more and more different products, the Company is focusing its sales effort towards its main market arena: Edutainment. The Company's 1995 record sales were not attributable any one significant customer or transaction, but rather were a result of the improved sales process, including the Company's addition of manufacturers' representative companies. The Company seeks to maintain its sales in its current market while concurrently pursuing opportunities provided by the Edutainment arena. The Company believes the concept of Edutainment crosses into multiple markets and naturally related areas. Coupled with is efforts in the improvement of the quality of its sales effort, the Company continues its investments in product quality through its product development system. The Company seeks to bring its products to market more attractively packaged and merchandised. The Company feels the time and resources invested in developing more proprietary products could lead to increased market penetration into its current and expanding customer base. The Company now has in place a network of model makers, pattern makers, package designers and specialists in the display or merchandising at the retail level. This network composes the foundation of the Company's product development system. The Company feels that the resultant products of its development system carry higher perceived values, determined in part by attractive packaging, and include modern merchandising solutions for its current and potential retailers. The Company continues to develop new sales outlets for its potential new product lines prior to investing heavily in molds, packaging or inventories. Results of Operations The financial data included in the following table has been selected by the Company and has been derived from the financial statements. The following financial data should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and related notes included elsewhere herein.
Twelve (12) Months Ended December 31 1995 1994 Net Sales $5,487,015 $4,603,224 Cost of Sales 3,575,517 2,965,400 Selling, General & Administrative Expenses 1,700,258 1,452,211 Net Income (loss) 149,878 (240,543) Net Income (loss) per Common Share .12 (0.22) Total Assets 3,734,184 3,438,416 Stockholders' Equity 2,553,997 2,153,147
Year Ended December 31 Net sales were $5,487,015 and $4,603,224 in 1995 and 1994, respectively. The sales increase of $883,791, up 19.2%, is attributable to the regionalization of the Company's sales force allowing more aggressive targeting of the Company's existing and potential customer base, a program which the Company began in 1994. Cost of sales were $3,575,517 and $2,965,400 in 1995 and 1994, respectively. As a percentage of net sales, cost of sales was 65.2% in 1995 and 64.4% in 1994. Management placed a strong focus on product and product packaging improvements in 1995. Gross profit was $1,911,498 and $1,637,824 in 1995 and 1994, respectively. Gross profit increased in 1995 by $273,674, up 16.7%. Selling expenses were $659,689 and $490,873 in 1995 and 1994, respectively. As a percentage of net sales, selling expenses were 12.02% and 10.66% in 1995 and 1994, respectively. Selling expenses are primarily related to sales commissions, the Company's representation at industry trade shows, and its efforts to increase the quality of customer contacts. The increase in selling expenses is primarily attributable to an enhanced commission structure for the Company's sales force and the addition of manufacturers' representative companies. General and Administrative costs were $1,040,569 and $961,338 in 1995 and 1994, respectively. The Company achieved a reduction in General and Administrative costs as a percentage of sales, that is, 18.96% and 20.88% in 1995 and 1994, respectively. This reduction is due to continued cost cutting and streamlining efforts and the increase in sales. Interest expense related to current and long term debt was $67,624 and $57,850 in 1995 and 1994, respectively. (See "Liquidity and Capital Resources") Interest income was $7,668 and $5,757 in 1995 and 1994, respectively, and related primarily to interest earned on temporary cash investments. Other income has historically been insignificant and represented less than 1/2 of one percent of net sales in each of the last two years. Liquidity and Capital Resources As of December 31, 1995, current assets were $2,496,221 compared to current liabilities of $580,187 for a current ratio of 4.30:1 from 3.36.1 at December 31, 1994. The Company had positive cash flows from operations of approximately $490,000 compared to negative cash flow from operations in the prior year of approximately $(330,000), an improvement of approximately $820,000. Total current assets increased by $215,154 and total assets increased by $295,768. Accounts receivable increased by $108,855 while inventories decreased by $130,021. Cash and cash equivalents were up by $313,035 and prepaid expenses were down by $66,715. Current liabilities decreased by $99,082. Working capital demand notes were paid down to zero from $335,320. During the year ended December 31, 1995, the Company received approximately $246,000 from the exercise of stock options. In addition, the Company had a stock subscription receivable of $277,000 at year end, which was subsequently received. As of December 31, 1995, the Company's only long-term debt was a 9% convertible promissory note of $600,000 owed to officers and directors. The Company has no current indebtedness. The assets of the Company are not encumbered and the Company does not have a line of credit. Inventories, primarily finished goods, decreased to $1,311,230 at December 31, 1995, from $1,441,251 at December 31, 1994. During 1995, gross property, plant and equipment increased by approximately $88,000. Net property, plant and equipment decreased by approximately $5,000. The increase in the accounts payable to $472,245 from $280,955 is due to the timing of vendor's shipments and the increase in sales volume. Accounts receivable, net of allowance for doubtful accounts, increased by $108,855 to $554,926 at December 31, 1995 due to improved sales. The Company's collection history is excellent; however, there can be no assurance that the Company's success in debt collection will continue. The Company believes its credit policies and history are within industry standards. Shareholders' equity at year end 1995 increased by approximately $400,000 to $2,553,997. Shareholder equity increased due to the Company's earnings of approximately $150,000 and the issuance of common shares representing capital raised of approximately $250,000. Other Matters The Company's product line historically has not been significantly affected by inflation and inflation has not had a significant effect on gross earnings. The Company's industry is seasonal in nature, reflecting peak sales in the second quarter and slower sales in the fourth quarter. ITEM 7. FINANCIAL STATEMENTS: Financial statements and schedules are submitted in Items 13(1) and (2) on this Form 10-KSB/A. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE: NONE ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS: COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT: MANAGEMENT/BOARD OF DIRECTORS
Name Age Position Ronald Kaplan 30 Director, President, Chairman of the Board of Directors, Chief Executive Officer, Chief Operating Officer Judith Kaplan 57 Director, Chief Financial Officer, Secretary Warren Kaplan 58 Director Robert Zumbahlen 39 Treasurer
Ronald Kaplan, Director since 1991, was appointed Chairman of the Board on January 1, 1996. He was President ('93-present), Chief Executive Officer ('96-present), Chief Operating Officer ('93-present), and Executive Vice President ('91-'93) of the Company. Judith Kaplan, Director since 1981, served as Chairperson of the Board of Directors of the Company since its formation in 1981 until December 31, 1995. Ms. Kaplan was President ('81-'87), Secretary ('81-present), Chief Executive Officer ('81-'95), Chief Financial Officer ('81-present) and Treasurer ('81-'91) of the Company. She is the wife of Warren Kaplan and mother of Ronald Kaplan. Warren Kaplan, Director since 1987, was President of the Company from 1987 until 1994. Mr. Kaplan is a consultant to the Company. Robert Zumbahlen has been Treasurer since 1991. He is a graduate of Bentley College in Waltham, Massachusetts (1979) with a B.S. in accounting and is currently the Company's Purchasing Manager. PART III ITEM 10. EXECUTIVE COMPENSATION: Summary Compensation Table Long Term Compensation
Other Restricted Other Options/ All Name and Annual Compen- Stock LTIP Compen Principal Salary Bonus sation Award(s) SARs Payout sation Position Year ($) ($) ($)1 ($) (#) ($) ($) Judith 1995 $56,949 $6,000 0 0 0 Kaplan 1994 $55,385 $6,000 0 0 0 CEO Ronald 1995 $54,218 $6,000 0 0 0 Kaplan 1994 $47,335 $6,000 150,000 0 0 CEO2 All Exec 1995 $142,560 Officers 1994 $124,340 as a Group (3)
__________________________ 1Includes value of use of automobile, vacation pay, sick pay. 2Beginning January 1, 1996 Ronald Kaplan has an agreement with the Company pursuant to which he will be paid $75,000 for the year beginning January 1, 1996, as well as the use of an automobile. As of January 1, 1996, Mr. Kaplan was promoted to Chief Executive Officer and Chairman of the Board of Directors. Judith Kaplan was Chairperson of the Board of Directors until December 31, 1995. She is employed by the Company as Chief Financial Officer and Secretary. Ms. Kaplan's salary is $30,000 annually plus the use of an automobile. In November 1994, the Company's Board of Directors reduced the exercise price of outstanding options to $1.50 per share and granted Ronald Kaplan options to purchase 150,000 shares. No options/SARs were granted to any executives during the fiscal year ended December 31, 1995. The following table sets forth the aggregate of options exercised in the year ended December 31, 1995 and the value of options held at December 31, 1995. Option Exercises/Option Values
Value of Shares Unexercised Unexercised Acquired on Value Options at Options at Name Exercise Realized Year End Year End1 Ronald Kaplan 25,000 $37,500 243,000 $106,920 Judith Kaplan 0 0 108,000 $47,520
1The market price at December 31, 1995 was $1.94 per share. Value of Unexercised options shown net of the exercise price of $1.50. Employee Stock Ownership Plan On April 23, 1984, the Company adopted an Employee Stock Ownership Plan ("ESOP"). The ESOP qualifies for special tax benefits under the Internal Revenue Code. Under the ESOP, the Company, at the discretion of its Board of Directors, makes an annual contribution to a trust which purchases the Company's stock from the Company for the benefit of the Company's employees who have completed at least 1,000 hours of work during the fiscal year. Employer contributions under the ESOP are allocated to each employee's account on a pro-rata basis according to the total compensation paid to, and the number of years of service by, all eligible employees. An employee becomes 100% vested in the ESOP following 5 years of plan eligibility. As of December 31, 1995, there were 30,475 shares of Common Stock held by the Company's ESOP trust. 401(k) Plan Effective October 3, 1986, the Company adopted a Voluntary 401(k) Plan. All employees are eligible for the plan. Employees who have worked for the Company 18 months are eligible for a 34% match of their subsequent contributions. Benefits are determined annually. The lowest 66% of paid employees may contribute the lesser of 15% of their salary or $9,240. The top 1/3 of employees cannot contribute a percentage greater than 15% of their compensation or 150% of average contributions of the lowest 66% of paid employees to a maximum of $9,240 or applicable maximum allowed by the Internal Revenue Code. Employer contributions vest within three months and all contributions are held in individual employee accounts with an outside company. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT: The following table sets forth information as of February 29, 1996, with respect to the beneficial ownership of Common Stock by all shareholders known by the Company to be the beneficial owners of more than 5% of its outstanding Common Stock, all directors, and all directors and officers of the Company as a group. Except as noted below, each person has sole voting and investment power with respect to the shares shown. On the above date the Company had 1,499,926 shares of Common Stock outstanding.
Amount and Nature of Name and Title Beneficial Percent Address of Class Ownership1 of Class Ronald S. Kaplan 344 Cypress Road Ocala, FL 34472 Common 264,127 3 15.15% Judith Kaplan 344 Cypress Road Ocala, FL 34472 Common 720,562 2 41.99% Warren Kaplan 344 Cypress Road Ocala, FL 34472 Common 720,562 2 41.99% All Directors and Officers as a Group (4 persons) Common 994,172 2,3 50.75%
___________________ 1 Nature of ownership is record holder unless otherwise shown. 2 Includes spouse's shares (Judith Kaplan - 293,212; Warren Kaplan - 288,875) plus 30,475 shares held as Trustee of the Company's Employee Stock Ownership Plan Trust. Also includes immediately exercisable options for Judith Kaplan and Warren Kaplan each to purchase 108,000 shares at $1.50 per share . Does not include 54,000 options issued to Elissa Kaplan, daughter of Judith Kaplan and Warren Kaplan, who was an employee of the Company until May 1994, or any shares or options held by Ronald S. Kaplan. Does not include approximately 1,036,800 shares of Common Stock which may be issued upon conversion of certain convertible promissory notes held by Warren and Judith Kaplan. 3 Includes immediately exercisable options to purchase 243,000 shares at $1.50 per share. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS As of December 31, 1995, the Company owed its principal shareholders, Warren and Judith Kaplan, $600,000 on a five year convertible promissory note. This note, which bears interest at 9% per annum and is convertible into approximately 1,036,800 shares of the Company's Common Stock, consists of approximately $300,000 used to purchase the Company's operating facility in 1991 and $300,000 of short term operating capital recast as long term debt in 1994. PART IV ITEM 13. EXHIBITS, LIST: (a) 1. Financial Statements (i) Report of Independent Certified Public Accountants (ii) Consolidated Balance Sheet - December 31, 1995 (iii) Consolidated Statements of Operations - Years ended December 31, 1995 and 1994 (iv) Consolidated Statements of Changes in Stockholders' Equity - Years ended December 31, 1995 and 1994 (v) Consolidated Statements of Cash Flows - Years ended December 31, 1995 and 1994 (vi) Notes to Consolidated Financial Statements - Years ended December 31, 1995 and 1994 2. Financial Statement Schedules NONE 3. Exhibits (i) Plan of acquisition, reorganization, arrangement, liquidation or succession NONE (ii) Articles of Incorporation and By-Laws filed as an Exhibit to Form 10-K filed April 12, 1988 (iii) Voting Trust Agreement NONE (iv) Material Contracts (a) Employee Stock Ownership Plan filed as an Exhibit to the Company's Registration Statement on Form S-18, dated April 23, 1984, at pages 154-208 (b) Incentive Stock Option Plan filed as an Exhibit to the Company's Registration Statement on Form S-18 dated September 25, 1984, at pages 210-220 (c) Employment Agreement for Judith Kaplan dated January 1, 1992 as filed as an Exhibit to Form 10-K for the year ended December 31, 1993. (d) Employment Agreement for Warren Kaplan dated January 1, 1992 as filed as an Exhibit to Form 10-K for the year ended December 31, 1993. (e) 401(k) Plan dated October 3, 1986, filed as an Exhibit to Form 10-K filed August 15, 1987 (f) Convertible Promissory Notes dated August 4, 1994 to Judith and Warren Kaplan. (v) Statement re: Computation of Footnote 1, Page 7 Per Share Earnings Financial Statement (vi) Statements re: computation of ratios NONE (vii) Annual Report to security holders, Form 10-Q or quarterly report to security holders NONE (viii) Letter re: Change in Accounting Principles NONE (ix) Previously unfiled Documents NONE (x) Subsidiaries of Registrant NONE (xi) Published Report re: Matters Submitted to Vote of Security Holders NONE (xii) Consents of Experts and Counsel Consent of independent certified public accountants (xiii) Power of Attorney NONE (xiv) Additional Exhibits (a) Amendment to Employee Stock Ownership Plan dated February 8, 1988, filed as an Exhibit to Form 10-K filed March 31, 1989 (b) Amendment to Employee Stock Ownership Plan dated March 10, 1989, filed as an Exhibit to Form 10-K filed March 31, 1989 (xv) Information from reports furnished to state insurance regulatory authorities NONE (b) Reports on Form 8-K NONE SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Action Products International, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ACTION PRODUCTS INTERNATIONAL, INC. a Florida corporation Date: April 2, 1996 By: /s/ Ronald Kaplan Ronald Kaplan, Chairman of the Board, Chief Executive Officer, Chief Operating Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Ronald Kaplan Chairman of the Board/ April 2, 1996 Ronald Kaplan President/Chief Executive Officer/Chief Operating Officer/Director /s/ Judith Kaplan Chief Financial Officer/ April 2, 1996 Judith Kaplan Director /s/ Delton de Armas Controller April 2, 1996 Delton de Armas EX-99 2 AUDITED FINANCIAL STATEMENTS ACTION PRODUCTS INTERNATIONAL, INC. FINANCIAL STATEMENTS Years Ended December 31, 1995 and 1994 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Action Products International, Inc. Ocala, Florida We have audited the accompanying balance sheet of Action Products International, Inc. as of December 31, 1995, and the related statements of operations, changes in shareholders' equity, and cash flows for each of the two years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Action Products International, Inc. as of December 31, 1995, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. LOVELACE, ROBY & COMPANY, P. A. Certified Public Accountants Orlando, Florida January 26, 1996 ACTION PRODUCTS INTERNATIONAL, INC. BALANCE SHEET December 31, 1995 ASSETS CURRENT ASSETS Cash and cash equivalents $ 600,085 Accounts receivable, net of an allowance for doubtful accounts of $3,500 554,926 Inventories, net 1,311,230 Prepaid expenses and other assets 29,980 TOTAL CURRENT ASSETS 2,496,221 PROPERTY, PLANT AND EQUIPMENT Land 67,382 Building and building improvements 996,167 Equipment 819,788 Furniture and fixtures 136,452 2,019,789 Less accumulated depreciation (1,040,404) NET PROPERTY, PLANT AND EQUIPMENT 979,385 OTHER ASSETS 258,578 TOTAL ASSETS $3,734,184 The accompanying notes are an integral part of the financial statements.
LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 472,245 Accrued expenses Other 57,375 Payroll and related 34,550 Interest 4,942 Income taxes payable 11,075 TOTAL CURRENT LIABILITIES 580,187 LONG-TERM LIABILITIES Notes payable to shareholders 600,000 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common stock - $.001 par value; 7,500,000 shares authorized; 1,499,926 shares issued and outstanding 1,500 Additional paid-in capital 2,829,242 Retained earnings 255 Stock subscription receivable (277,000) TOTAL SHAREHOLDERS' EQUITY 2,553,997 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,734,184
ACTION PRODUCTS INTERNATIONAL, INC. STATEMENTS OF OPERATIONS
Years Ended December 31, 1995 1994 NET SALES $5,487,015 $4,603,224 COST OF SALES 3,575,517 2,965,400 GROSS PROFIT 1,911,498 1,637,824 OPERATING EXPENSES Selling 659,689 490,873 General and administrative 1,040,569 961,338 1,700,258 1,452,211 INCOME FROM OPERATIONS 211,240 185,613 OTHER INCOME (EXPENSE) Net loss on litigation settlement - (294,500) Warrant related expenses - (114,860) Interest expense (67,624) (57,850) Interest income 7,668 5,757 Other income 12,594 13,297 (47,362) (448,156) INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 163,878 (262,543) PROVISION (BENEFIT) FOR INCOME TAXES Current 23,000 (20,000) Deferred (9,000) (2,000) 14,000 (22,000) NET INCOME (LOSS) $ 149,878 $ (240,543) INCOME (LOSS) PER SHARE Primary $ 0.12 $ (0.22) Fully diluted $ 0.11 $ (0.22) WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Primary 1,421,000 1,107,400 Fully diluted 1,466,600 1,107,400
The accompanying notes are an integral part of the financial statements. ACTION PRODUCTS INTERNATIONAL, INC. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL $.001 PAR VALUE PAID-IN RETAINED STOCK, SUBSCRIPTION SHAREHOLDERS' SHARES AMOUNT CAPITAL EARNINGS AT COST RECEIVABLE EQUITY BALANCE - DECEMBER 31, 1993 972,820 973 1,938,690 445,070 - - 2,384,733 ISSUANCE OF COMMON SHARES TO ACQUIRE THE MINORITY INTEREST IN SUBSIDIARY 76,000 76 19,924 - - - 20,000 REPURCHASE OF 6,000 COMMON SHARES - - - - (13,349) - (13,349) RETIREMENT OF TREASURY SHARES (6,000) (6) (13,343) - 13,349 - - SALE OF COMMON STOCK OPTIONS - - 2,306 - - - 2,306 NET LOSS - - - (240,543) - - (240,543) BALANCE - DECEMBER 31, 1994 1,042,820 1,043 1,947,577 204,527 - - $2,153,147 ISSUANCE OF COMMON SHARES FOR EMPLOYEE STOCK OWNERSHIP TRUST 5,000 5 4,683 - - - 4,688 ISSUANCE OF COMMON SHARES ON EXERCISE OF OPTIONS 341,000 341 522,943 - - (277,000) 246,284 ISSUANCE OF 8% STOCK DIVIDEND 111,106 111 354,039 (354,150) - - - NET INCOME - - - 149,878 - - 149,878 BALANCE - DECEMBER 31, 1995 1,499,926 1,500 2,829,242 255 - (277,000) 2,553,997
The accompanying notes are an integral part of the financial statements. ACTION PRODUCTS INTERNATIONAL, INC. STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 149,878 $ (240,543) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities Depreciation 93,240 106,665 Amortization 54,836 33,864 Warrant related expenses - 114,860 Benefit for deferred income taxes (9,000) (2,000) Provision for contribution to Employee Stock Ownership Plan 4,688 - Increase in accounts receivable, net (108,855) (4,759) Decrease (increase) in inventories, net 130,021 (105,545) Decrease (increase) in prepaid expenses and other current assets 66,715 (42,615) Decrease (increase) in income taxes refundable 10,000 (10,000) Increase in other assets (140,726) (110,229) Increase (decrease) in accounts payable 191,290 (72,774) Increase in accrued expenses 36,873 10,120 Increase (decrease) in income taxes payable 11,075 (7,000) NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 490,035 (329,956) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment (87,964) (55,596) NET CASH USED IN INVESTING ACTIVITIES (87,964) (55,596) CASH FLOWS FROM FINANCING ACTIVITIES Repurchase of common shares for treasury - (13,349) Net proceeds from issuance of common stock and options 246,284 2,306 Proceeds from(repayments of) related- party borrowings (335,320) 464,500 NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (89,036) 453,457 NET INCREASE IN CASH AND CASH EQUIVALENTS 313,035 67,905 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 287,050 219,145 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 600,085 $ 287,050
The accompanying notes are an integral part of the financial statements. ACTION PRODUCTS INTERNATIONAL, INC. NOTES TO FINANCIAL STATEMENTS Years Ended December 31, 1995 and 1994 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business Action Products International, Inc. (the Company) is engaged in the manufacture and sale of freeze dried snack foods, toys, books, and other educational and entertaining products. The Company also sells and imprints promotional products. The Company's products are sold worldwide to the educational and leisure markets. Cash and Cash Equivalents For financial presentation purposes, the Company considers short-term, highly liquid investments with original maturities of three months or less to be cash equivalents. Inventories Inventories, which consist primarily of finished goods purchased for resale, are stated at lower of cost (determined by the first-in, first-out method) or market. At December 31, 1995, the Company had approximately $322,000 of work in process inventory. The inventory valuation allowance at December 31, 1995 was approximately $106,000. Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the various classes of assets, as follows: Building 40 Years Building improvements 6 - 12 Years Furniture and fixtures 5 Years Equipment 5 - 7 Years Revenue Recognition The Company recognizes revenue from the sale of its products to retail establishments as transactions are completed. Transactions are generally considered complete when goods are shipped. Income Taxes The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been included in its financial statements or tax returns. Deferred income tax liabilities and assets are determined based on the difference between the financial statement and tax bases of liabilities and assets using enacted tax rates in effect for the year in which the differences are expected to reverse. (See Note 5) Net Income (Loss) Per Share Net income (loss) per common share and common share equivalents are computed based upon the weighted average number of shares and common share equivalents outstanding during each year. (See Note 4) Primary and fully diluted net income per share in 1995 include common shares assumed to have been issued as a result of the exercise of stock options. Proceeds from the pro-forma exercise of stock options for greater than 300,000 shares, approximately 20 percent of total common shares outstanding at December 31, 1995, were assumed to be used to retire long-term debt bearing interest at nine percent, increasing pro-forma net income accordingly. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk at December 31, 1995 include approximately $565,000 of cash deposited in a money market fund and trade receivables. Concentrations of credit risk with respect to trade receivables are limited, in the opinion of management, due to the Company's large number of customers and their geographic dispersion. Subsidiary In 1992, the Company formed Logo America, Inc. (Logo America) as a subsidiary. Logo America was a development stage company and did not commence operations. During 1994, the Company acquired all minority interests in Logo America in exchange for an aggregate of 76,000 shares of the Company's common stock, thus making Logo America a wholly owned subsidiary. Certain former minority shareholders of Logo America were also shareholders of the Company. The corporate existence of Logo America was subsequently terminated. NOTE 2 - RELATED-PARTY BORROWINGS At December 31, 1995, the Company had long-term debt payable to shareholders, resulting primarily from working capital loans and the purchase of the Company's facility in prior years, as follows: Promissory notes payable to related parties, bearing interest at 9% per annum, monthly payments of interest only until September 1, 1997, with 24 monthly payments of principal and interest of $27,411 due thereafter, unsecured, convertible at any time and from time to time in whole or in part after May 9, 1995, into common shares of the Company at $.579 per share $600,000 The Company has reserved, from its authorized but unused shares of common stock, approximately 1,036,800 shares for use in the event the long-term debt is converted. Subsequent maturities of long-term debt to related parties at December 31, 1995 are approximately as follows: Year Amount 1997 $ 92,680 1998 295,250 1999 212,070 $600,000 The Company had nine percent demand loans of $335,320 payable to officers and shareholders which were repaid during 1995. Cash paid for interest during the years ended December 31, 1995 and 1994 was approximately $66,000 and $52,000, respectively. NOTE 3 - COMMON STOCK WARRANTS AND TREASURY SHARE TRANSACTIONS As a result of the expiration of warrants, approximately $115,000 of deferred costs related to the Company's issuance of the warrants was charged to operations in 1994. Additionally, during 1994, the Company repurchased and retired 6,000 shares of its common stock purchased at an aggregate cost of approximately $13,000. NOTE 4 - STOCK DIVIDEND At its 1995 annual shareholders' meeting, the Company's Board of Directors declared an 8 percent stock dividend payable to shareholders of record on July 28, 1995. As a result, approximately 111,000 common shares were issued and the Company charged retained earnings approximately $354,000 to reflect the capitalization of the dividend shares. The weighted average number of common shares outstanding during 1994 has been restated for the effect of the 8 percent stock dividend resulting in a change in the 1994 net loss per share from ($.23) to ($.22). NOTE 5 - INCOME TAXES The Company had no foreign operation and, therefore, all components of income were domestic. Significant components of the Company's deferred tax liabilities and assets at December 31, 1995 are as follows: Deferred Tax Liabilities Depreciation $(6,000) Deferred Tax Assets Bad Debt Allowance $ 500 Inventories 6,000 Accrued interest and compensation 1,500 Gross deferred tax assets 8,000 Valuation allowance (2,000) Net deferred tax assets 6,000 Net deferred taxes $ - During 1995, deferred tax asset valuation allowance decreased $17,000. The difference between the Company's effective income tax rate and the federal statutory rate is reconciled below: 1995 1994 Federal provision (benefit) expected at statutory rate $55,500 $(89,000) Surtax exemption (7,800) 2,000 Depreciation, Alternative Minimum Tax and Other (2,000) 10,000 Net operating loss carryforward (31,700) 55,000 Provision (benefit) for income taxes $ 14,000 $(22,000) Income taxes paid in cash were approximately $10,000 and $6,600 during the years ended December 31, 1995 and 1994, respectively. NOTE 6 - EMPLOYEE STOCK OWNERSHIP AND OPTION PLANS The Company has an Employee Stock Ownership Plan (the Plan), which covers substantially all employees. The Plan provides, among other things, that contributions to the Plan shall be determined by the Board of Directors prior to the end of the Company's year and that the contributions may be paid in cash, Company stock or other property at any time within the limits prescribed by the Internal Revenue Code. At December 31, 1995, the Plan held approximately 30,000 shares of the Company's common stock. During 1995 and 1994, the Company contributed 5,000 and 0 of its common shares, respectively, to the plan. As a result, $4,688 and $0 were charged to operations in 1995 and 1994, respectively. NOTE 6 - EMPLOYEE STOCK OWNERSHIP AND OPTION PLANS (Continued) During 1994, the Company's Board of Directors extended the expiration dates on certain options and adjusted the exercise price on all then outstanding options to $1.50 per share. In the event of a change in the Company's control, the options may not be callable by the Company. The options outstanding at December 31, 1995 expire in 1999. The following table summarizes the stock option activity for the years ended December 31, 1994 and 1995: Shares Under Option Outstanding at December 31, 1993 625,000 Called during 1994 (10,000) Granted during 1994 96,000 Outstanding at December 31, 1994 711,000 Exercised during 1995 (341,000) Called during 1995 (5,000) Granted during 1995 110,000 Effect of Stock Dividend 38,000 Outstanding at December 31, 1995 513,000 Net contribution to the Company from the exercise of stock options during 1995 amounted to approximately $523,000, of which approximately $246,000 had been collected through December 31, 1995. The remaining balance of $277,000 is presented as a stock subscription receivable. NOTE 7 - EMPLOYEE BENEFIT PLANS The Company has a 401(k) employee benefit plan, which covers substantially all employees. Under the terms of the 401(k) plan, the Company is to contribute a percentage, as determined annually by the Company's Board of Directors, of the participants' voluntary contributions to the plan. The Company has charged approximately $13,100 and $13,600 in 1995 and 1994, respectively, to operations for its contributions to the plan. NOTE 8 - FOREIGN SALES Revenues from sales to customers located outside of the United States amounted to approximately $455,000 and $275,000 in 1995 and 1994, respectively. EX-23 3 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the reference to our Firm under the caption "Experts" in the registration statement on Form S-8 and related prospectus of Action Products International, Inc. and to the incorporation by reference therein of our report dated January 26, 1996, with respect to the financial statements of Action Products International, Inc. included in its Annual Report on Form 10-KSB for the years ended December 31, 1995 and 1994, filed with the Securities and Exchange Commission. LOVELACE, ROBY & COMPANY, P. A. Certified Public Accountants Orlando, Florida March 26, 1996 EX-27 4 ARTICLE 5 FIN. DATA SCHEDULE FOR ANNUAL 10-KSB/A
5 1,000 YEAR Dec-31-1995 Jan-01-1995 Dec-31-1995 600 0 554 0 1311 2496 2020 (1040) 3734 580 600 1 0 0 2553 3734 5487 5487 3576 3576 1700 0 68 164 14 150 0 0 0 150 .12 .11
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