-----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, GXtFx5lrR+lhVcf6CX57kr3Xiud44vBiD5h6Q2fU7vz25B9i48dSOiOkunkMJxT4 vZ2cHySgyT0abi97P8Ub1g== 0000747435-98-000007.txt : 19981116 0000747435-98-000007.hdr.sgml : 19981116 ACCESSION NUMBER: 0000747435-98-000007 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACTION PRODUCTS INTERNATIONAL INC CENTRAL INDEX KEY: 0000747435 STANDARD INDUSTRIAL CLASSIFICATION: GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES) [3944] IRS NUMBER: 592095427 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-13118 FILM NUMBER: 98747723 BUSINESS ADDRESS: STREET 1: 344 CYPRESS RD CITY: OCALA STATE: FL ZIP: 34472-3108 BUSINESS PHONE: 3526872202 MAIL ADDRESS: STREET 1: 344 CYPRESS ROAD CITY: OCALA STATE: FL ZIP: 34472-3108 FORMER COMPANY: FORMER CONFORMED NAME: ACTION PACKETS INC DATE OF NAME CHANGE: 19880818 10QSB 1 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, 1998 Commission File Number Registration Number 2-93512-A ACTION PRODUCTS INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Florida 59-2095427 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 344 Cypress Road, Ocala, Florida 34472-3108 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (352) 687-2202 Check whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of September 30, 1998. Class Outstanding at September 30, 1998 Common Stock, $.001 par value 1,624,900 Page 2 of 9 I N D E X PART I. FINANCIAL INFORMATION Page Number Item 1. Financial Statements Condensed Balance Sheets - September 30, 1998 and December 31, 1997 (unaudited) 3 Condensed Statements of Operations and Changes in Retained Earnings - Three and nine months ended September 30, 1998 and 1997 (unaudited) 4 Condensed Statements of Cash Flows - Three and nine months ended September 30, 1998 and 1997 (unaudited) 5 Notes to condensed financial statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 7 SIGNATURE PAGE 9 Page 3 of 9 ACTION PRODUCTS INTERNATIONAL, INC. CONDENSED BALANCE SHEETS ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED)
September 30, 1998 December 31, 1997 Current assets: Cash and cash equivalents $ 254,200 $ 537,800 Accounts receivable, net of allowance of $25,500 at September 30, 1998 and December 31, 1997 1,121,800 720,000 Inventories, net 1,292,600 1,086,000 Prepaid expenses 144,100 58,600 Notes receivable 303,300 575,000 Total Current Assets 3,116,000 2,977,400 Property, plant and equipment, net of accumulated depreciation of $799,000 at September 30, 1998 and $718,700 at December 31, 1997 876,600 923,400 Notes receivable 1,161,500 1,275,000 Other assets 189,700 150,100 TOTAL ASSETS $5,343,800 $5,325,900 Current liabilities: Accounts payable & accrued expenses $ 299,100 $ 353,400 Deferred revenue 50,000 75,000 Borrowings under line of credit 337,000 591,800 Total Current Liabilities 686,100 1,020,200 Long term liabilities: Deferred income taxes 178,000 266,000 Deferred revenue 211,500 225,000 Notes payable 600,000 600,000 Shareholders' equity: Common stock $.001 par value authorized 15,000,000; 1,624,900 issued and outstanding at September 30,1998 and December 31, 1997 1,600 1,600 Capital in excess of par value 3,008,300 3,008,300 Stock subscriptions receivable (99,300) (113,200) Retained earnings 757,600 318,000 Total Shareholders' Equity 3,668,200 3,214,700 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 5,343,800 $ 5,325,900
See Accompanying Notes Page 4 of 9 ACTION PRODUCTS INTERNATIONAL, INC. CONDENSED STATEMENTS OF OPERATIONS AND CHANGES IN RETAINED EARNINGS (UNAUDITED)
Three months ended Nine months ended September 30 September 30 1998 1997 1998 1997 Net Sales $1,764,800 $1,700,500 $4,846,300 $4,654,500 Cost of Sales 940,500 918,800 2,524,300 2,585,300 Gross Profit 824,300 781,700 2,322,000 2,069,200 Selling, General & Administrative Expenses 760,500 623,600 2,027,900 1,703,500 Other (expenses) income Other 119,000 300 200,900 4,700 Interest expense (26,400) (25,800) (55,400) (66,800) Total 92,600 (25,500) 145,500 (62,100) Income before income taxes 156,400 132,600 439,600 303,600 Provision for income taxes - - - - Net Income 156,400 132,600 439,600 303,600 Beginning retained earnings (accumulated deficit) 601,200 (146,600) 318,000 (317,600) Ending retained earnings (accumulated deficit) $ 757,600 $ (14,000) $ 757,600 $ (14,000) Net Income per share Basic $ 0.10 $ 0.09 $ 0.27 $ 0.20 Diluted $ 0.06 $ 0.05 $ 0.16 $ 0.12 Weighted average number of common shares outstanding Basic 1,624,900 1,549,900 1,624,900 1,549,900 Diluted 2,807,200 2,739,200 2,828,700 2,739,200
See Accompanying Notes Page 5 of 9 ACTION PRODUCTS INTERNATIONAL, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three months ended Nine months ended September 30 September 30 1998 1997 1998 1997 Cash flows from operating activities: Net income $156,400 $132,600 $439,600 $303,600 Adjustments to reconcile net income to net cash provided by(used in)operating activities: Depreciation 38,300 25,600 80,300 79,500 Change in assets and liabilities: Decrease (increase) in current assets other than cash and cash equivalents 286,800 92,800 (308,700) (1,113,200) Decrease in current liabilities (364,500) (313,800) (180,800) (133,000) Decrease (increase) in other assets (31,700) 29,000 (39,600) 71,200 Net cash provided by (used in) operating activities 85,300 (33,800) (9,200) (791,900) Net cash used in investing activities (9,600) (5,800) (33,500) (14,100) Cash flows from financing activities: Proceeds from (repayments of) borrowings on line of credit, net 1,000 135,000 (254,800) 376,800 Results of other financing activities 13,900 - 13,900 69,400 Net cash (used in) provided by fin. activities 14,900 135,000 (240,900) 446,200 Net increase (decrease) in cash and cash equiv. 90,600 95,400 (283,600) (359,800) Cash and cash equivalents at start of period 163,600 7,900 537,800 463,100 Cash and cash equivalents at end of period $254,200 $103,300 $254,200 $103,300 Supplemental disclosures - cash paid for Interest $26,400 $25,800 $55,400 $66,900 Taxes $ 0 $ 0 $ 0 $ 0
See Accompanying Notes Page 6 of 9 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, 1998 and the results of its operations and cash flows for the three and nine month periods ended September 30, 1998. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's report on Form 10-KSB for the year ended December 31, 1997. The results of operations for the period ended September 30, 1998 are not necessarily indicative of the operating results for the full year. 2. Income per common share In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 128, which is effective for the periods ending after December 15, 1997. SFAS No. 128 replaces the presentation of primary earnings per share with a presentation of basic earnings per share based upon the weighted average number of common shares for the period. 3. Convertible Debt At September 30, 1998, the Company had long-term debt payable to shareholders, resulting primarily from working capital loans and the purchase of the Company''s plant facility and real property in prior years, as follows: unsecured promissory notes payable to related parties, bearing interest at 9% per annum, monthly payments of interest only until September 1, 2002, with 24 monthly payments of principal and interest of $27,400 due thereafter, convertible at any time in whole or in part at the lender''s option after May 9, 1995, into common shares of the Company at $0.579 per share. The Company has reserved, from its authorized but unused shares of common stock, 1,036,300 shares for use in the event the long-term debt is converted. During the third quarter, the Company issued warrants to purchase 1,036,300 shares at the same conversion price in exchange for the removal of the convertibility feature of the debt. The remaining terms and features of the debt are unchanged. Page 7 of 9 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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. Three months ended September 30, 1998 Revenue increased again during the three month period ended September 30, 1998 to a third quarter record $1,764,800 in 1998 from the previous third quarter high of $1,700,500 set in 1997. Stronger than expected sales from its new proprietary lines contributed to the gain, particularly in light of foregone sales of product lines divested in the fourth quarter of 1997. The third quarter 1998 net income also improved to a new record of $156,400 versus $132,600 for the 1997 comparable period due to the increases in sales and continued growth in the gross margins. Gross profit increased $42,600 to $824,300 from $781,700. Management attributes its gross profitability strength to additional proprietary products, divestitures of lower margin lines, and continued improvement of terms and pricing with overseas vendors. Selling, General & Administrative Expenses increased $136,900. Management attributes the increase in expenses to certain sales and marketing expenditures, including additional salaries and commissions connected with the Company''s strengthening of its marketing staff, sales force, and outside sales representative organizations, as well as expenses related to corporate development. Other income improved significantly to $92,600 due to gains on the disposal of assets and the recognition of deferred revenue in connection with the divestiture of certain product lines. Nine months ended September 30, 1998 Record nine months revenue for the period ended September 30, 1998 of $4,846,300 in 1998 improved over the record set in the prior year of $4,654,500, up $191,800. Management attributes the increase in net sales to the planning and implementation of its focused strategy and stronger than expected results, including improved selling systems and channels, broader distribution, sales from its new proprietary lines, and the earlier availability of shippable inventories. The nine months 1998 net income was $439,600 versus $303,600 in 1997, an improvement of 45%, due to the continued improvement of gross margins; other income from gains on the disposal of assets and the recognition of deferred revenue in connection with the divestiture of certain product lines; and the increase in sales. The increase in sales is attributable in part to significant merchandising and marketing efforts; sustained sales of its continuing core of proprietary product lines; and a strengthened effort by sales management to expand the sales force and broaden the market base. Page 8 of 9 Gross profit increased $252,800 to $2,322,000 from $2,069,200, up 12%. As a percent of sales, gross profit improved again to 48% after the dramatic improvement to 46% for the 1997 comparable period. Management attributes this sustained improvement in gross profit percentage to additional proprietary products, divestiture of lower margin lines, and continued improvement of terms and pricing with overseas vendors. Selling, General & Administrative Expenses for the nine months ended increased $324,400, or 19%. As previously discussed, management attributes the increase in expenses to certain sales and marketing expenditures, including additional salaries and commissions connected with the Company''s strengthening of its marketing staff, sales force, and outside sales representative organizations, as well as certain expenditures for corporate development. Other Income (Expense) improved significantly to $145,500 for the nine months ended September 30, 1998 compared to Other Income (Expense) of ($62,100) for the same 1997 period, due to gains on the disposal of assets, the recognition of deferred revenue in connection with the divestiture of certain product lines, and reductions in interest expense. Financial Condition, Liquidity and Capital Resources As of September 30, 1998, current assets were $3,116,000 compared to current liabilities of $686,100 for a current ratio of 4.5:1, up from 2.9:1 at December 31, 1997. At September 30, 1998, working capital improved by $472,700 compared to December 31, 1997. Historically, the peak period of the Company's business cycle has been March through August. Thus, accounts receivable and inventories were $1,121,800 and $1,292,600, respectively, at September 30, 1998 compared to $720,000 and $1,086,000, respectively, at December 31, 1997. The increase in receivables and inventories are considered normal for the Company and reflect the increased activity in the Company''s high volume period. Current liabilities decreased by $334,000 due primarily to reduced draws on the Company''s line of credit. Cash and cash equivalents were down $283,600 from December 31, 1997 but up $90,600 from June 30, 1998. Operations provided cash flow of $85,300 for the three months ended September 30, 1998 compared to cash flow used in operations of $33,800 for the comparable period ended September 30, 1997. This positive swing is due primarily to improved earnings before interest, taxes, depreciation and amortization (EBITDA) and seasonal increases in inventory since June 30, 1998. Cash flow used in operations was $9,200 for the nine months ended September 30, 1998 compared to $791,900 used in the comparable nine month period ended September 30, 1997. The improvement is primarily due to better control of seasonal increases in inventories associated with the Company''s peak period and payments received on notes receivable. Shareholders'' equity at September 30, 1998 increased during the nine months by $453,500 to $3,668,200 due to earnings and the receipt of payments of stock subscriptions from related parties. Page 9 of 9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Action Products International, Inc. Date: November 12, 1998 By: /s/ Delton G. de Armas Delton G. de Armas Chief Financial Officer EX-27 2 ARTICLE 5 FIN. DATA SCHEDULE FOR 3RD QTR 10-QSB
5 1,000 6-MOS Dec-31-1998 Jan-01-1998 Sep-30-1998 254 0 1122 0 1293 3116 1676 (799) 5344 686 600 2 0 0 3666 5344 4846 4846 2524 2524 2028 0 55 440 0 440 0 0 0 440 0.27 0.16
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