##### 



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 June 30, 2002 |  | Commission File Number 0-13118

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 last practicable date.

|                              |  |                              
|----------------------------- |  | -----------------------------
|Class                         |  | Outstanding at August 9, 2002
|Common Stock, $.001 par value |  | 2,190,422                    

Transitional Small Business
Disclosure Format (check one):    YES

         NO
X

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##### 



I N D E X

|                                                                                                                       |  |        |    | 
|---------------------------------------------------------------------------------------------------------------------- |  | ------ | -- | 
|PART I. FINANCIAL INFORMATION                                                                                          |  | Page  
|                                                                                                                       |  | Number
|Item 1. Financial Statements                                                                                           |  |        |    | 
|                                                                                                                       |  |        |    | 
|Condensed Consolidated Balance Sheet at June 30, 2002 (unaudited)                                                      |  |        | 3  | 
|                                                                                                                       |  |        |    | 
|Condensed Consolidated Statements of Operations  Three months and
six months ended June 30, 2002 and 2001 (unaudited) |  |        | 4  | 
|                                                                                                                       |  |        |    | 
|Condensed Consolidated Statements of Cash Flows  Six months
ended June 30, 2002 and 2001 (unaudited)                  |  |        | 5  | 
|                                                                                                                       |  |        |    | 
|Notes to unaudited Condensed Consolidated Financial Statements                                                         |  |        | 6  | 
|                                                                                                                       |  |        |    | 
|Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations                          |  |        | 7  | 
|                                                                                                                       |  |        |    | 
|                                                                                                                       |  |        |    | 
|PART II. OTHER INFORMATION                                                                                             |  |        |    | 
|                                                                                                                       |  |        |    | 
|Item 4. Submission of Matters to Vote of Shareholders                                                                  |  |        | 9  | 
|                                                                                                                       |  |        |    | 
|Item 6. Exhibits and Reports on Form 8-K                                                                               |  |        | 10 | 
|                                                                                                                       |  |        |    | 
|SIGNATURE PAGE                                                                                                         |  |        | 11 | 

Page 2 of 11



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##### 



PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements

ACTION PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)

|                                                                                   |                                                                                       |                                      |                                            |                                   |   |               |           | 
|---------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | ------------------------------------ | ------------------------------------------ | --------------------------------- | - | ------------- | --------- | 
|                                                                                   |                                                                                       |                                      |                                            |                                   |   | June 30, 2002
|                                                                                   |                                                                                       |                                      |                                            |                                   |   |              
|                                                                                   |                                                                                       |                                      |                                            | ASSETS                            |   |               |           | 
|CURRENT ASSETS                                                                     |                                                                                       |                                      |                                            |                                  
|Cash and cash equivalents                                                          |                                                                                       | $                                    | 91,800                                     |                                  
|Accounts receivable, net of an allowance for doubtful accounts of $112,500         |                                                                                       |                                      | 869,800                                    |                                  
|Inventories, net                                                                   |                                                                                       |                                      | 1,358,600                                  |                                  
|Prepaid expenses and other assets                                                  |                                                                                       |                                      | 659,200                                    |                                  
|                                                                                   |                                                                                       |                                      |                                            |                                  
|                                                                                   |                                                                                       |                                      |                                            | TOTAL CURRENT ASSETS              |   |               | 2,979,400 | 
|                                                                                   |                                                                                       |                                      |                                            |                                  
|PROPERTY, PLANT AND EQUIPMENT                                                      |                                                                                       |                                      | 2,129,300                                  |                                  
|Less accumulated depreciation and amortization                                     |                                                                                       |                                      | (1,126,100                                 | )                                
|                                                                                   |                                                                                       |                                      |                                            |                                  
|                                                                                   |                                                                                       |                                      |                                            | NET PROPERTY, PLANT AND EQUIPMENT |   |               | 1,003,200 | 
|EXCESS OF COST OVER FAIR VALUE OF ASSETS ACQUIRED, NET                             |                                                                                       |                                      | 782,400                                    |                                  
|OTHER ASSETS                                                                       |                                                                                       |                                      | 752,400                                    |                                  
|                                                                                   |                                                                                       |                                      |                                            |                                  
|                                                                                   |                                                                                       |                                      |                                            | TOTAL ASSETS                      |   | $             | 5,517,400 | 
|                                                                                   |                                                                                       |                                      |                                            |                                  
|                                                                                   |                                                                                       | LIABILITIES AND SHAREHOLDERS EQUITY |                                            |                                   |   |              
|CURRENT LIABILITIES                                                                |                                                                                       |                                      |                                            |                                  
|Current portion of installment notes payable and
obligation under capital lease    |                                                                                       | $                                    | 81,500                                     |                                  
|Borrowings under lines of credit                                                   |                                                                                       |                                      | 1,475,700                                  |                                  
|Other Current Liabilities                                                          |                                                                                       |                                      | 736,900                                    |                                  
|                                                                                   |                                                                                       |                                      |                                            |                                  
|                                                                                   |                                                                                       |                                      |                                            | TOTAL CURRENT LIABILITIES         |   |               | 2,294,100 | 
|                                                                                   |                                                                                       |                                      |                                            |                                  
|                                                                                   |                                                                                       |                                      |                                            |                                  
|INSTALLMENT NOTES PAYABLE AND OBLIGATION
UNDER CAPITAL LEASE                       |                                                                                       |                                      | 27,800                                     |                                  
|MORTGAGE PAYABLE                                                                   |                                                                                       |                                      | 662,700                                    |                                  
|DEFERRED INCOME TAXES                                                              |                                                                                       |                                      | 7,500                                      |                                  
|DEFERRED REVENUE                                                                   |                                                                                       |                                      | 112,500                                    |                                  
|                                                                                   |                                                                                       |                                      |                                            |                                  
|                                                                                   |                                                                                       |                                      |                                            | TOTAL LIABILITIES                 |   |               | 3,104,600 | 
|                                                                                   |                                                                                       |                                      |                                            |                                  
|                                                                                   |                                                                                       |                                      |                                            |                                  
|SHAREHOLDERS EQUITY                                                               |                                                                                       |                                      |                                            |                                  
|Preferred Stock - 10,000,000 shares authorized, zero shares issued and outstanding |                                                                                       |                                      |                                           |                                  
|                                                                                   | Common stock  $.001 par value; 15,000,000 shares authorized; 2,230,800 shares
issued |                                      |                                            | 2,200                             |  
|Treasury Stock  $.001 par value; 40,400 shares                                    |                                                                                       |                                      | (40                                        | )                                
|Additional paid-in capital                                                         |                                                                                       |                                      | 3,828,140                                  |                                  
|Accumulated Deficit                                                                |                                                                                       |                                      | (897,000                                   | )                                
|Stock subscriptions receivable                                                     |                                                                                       |                                      | (520,500                                   | )                                
|                                                                                   |                                                                                       |                                      |                                            |                                  
|                                                                                   |                                                                                       |                                      |                                            | TOTAL SHAREHOLDERS EQUITY        |   |               | 2,412,800 | 
|                                                                                   |                                                                                       |                                      |                                            |                                  
|                                                                                   |                                                                                       |                                      | TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |                                   | $ | 5,517,400     |          
|                                                                                   |                                                                                       |                                      |                                            |                                  

See Accompanying Notes

Page 3 of 11



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##### 



ITEM 1. Financial Statements (cont.)

ACTION PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

|                                                      |                          |   |                            |         |                          |   |           |         |      |   |           |           |  |   |           |           | 
|----------------------------------------------------- | ------------------------ | - | -------------------------- | ------- | ------------------------ | - | --------- | ------- | ---- | - | --------- | --------- |  | - | --------- | --------- | 
|                                                      |                          |   | Three Months Ended June 30 |         | Six Months Ended June 30
|                                                      |                          |   |                           
|                                                      |                          |   | 2002                       |         | 2001                     |   | 2002      |         | 2001
|                                                      |                          |   |                            |        
|NET SALES                                             |                          | $ | 1,479,600                  |         |                          | $ | 1,613,300 |         |      | $ | 2,937,800 |           |  | $ | 3,271,000 |          
|                                                      |                          |   |                            |         |                          |   |           |         |      |   |           |           |  |   |           |          
|COST OF SALES                                         |                          |   | 903,400                    |         |                          |   | 923,600   |         |      |   | 1,749,600 |           |  |   | 1,788,400 |          
|                                                      |                          |   |                            |        
|                                                      |                          |   |                            |         |                          |   |           |         |      |   |           |           |  |   |           |          
|GROSS PROFIT                                          |                          |   | 576,200                    |         |                          |   | 689,700   |         |      |   | 1,188,200 |           |  |   | 1,482,600 |          
|                                                      |                          |   |                            |         |                          |   |           |         |      |   |           |           |  |   |           |          
|OPERATING EXPENSES                                    |                          |   |                            |         |                          |   |           |         |      |   |           |           |  |   |           |          
|Selling                                               |                          |   | 312,200                    |         |                          |   | 337,000   |         |      |   | 712,400   |           |  |   | 675,600   |          
|General and administrative                            |                          |   | 600,200                    |         |                          |   | 634,900   |         |      |   | 1,207,500 |           |  |   | 1,233,700 |          
|                                                      |                          |   |                            |        
|                                                      | TOTAL OPERATING EXPENSES |   |                            | 912,400 |                          |   |           | 971,900 |      |   |           | 1,919,900 |  |   |           | 1,909,300 | 
|                                                      |                          |   |                            |        
|                                                      |                          |   |                            |         |                          |   |           |         |      |   |           |           |  |   |           |          
|LOSS FROM OPERATIONS                                  |                          |   | (336,200                   | )       |                          |   | (282,200  | )       |      |   | (731,700  | )         |  |   | (426,700  | )        
|                                                      |                          |   |                            |         |                          |   |           |         |      |   |           |           |  |   |           |          
|OTHER INCOME (EXPENSE)                                |                          |   |                            |         |                          |   |           |         |      |   |           |           |  |   |           |          
|Interest expense                                      |                          |   | (35,700                    | )       |                          |   | (52,600   | )       |      |   | (73,900   | )         |  |   | (85,700   | )        
|Other                                                 |                          |   | 13,200                     |         |                          |   | 149,200   |         |      |   | 15,800    |           |  |   | 100,200   |          
|                                                      |                          |   |                            |        
|                                                      |                          |   | (22,500                    | )       |                          |   | 96,600    |         |      |   | (58,100   | )         |  |   | 14,500    |          
|                                                      |                          |   |                            |        
|                                                      |                          |   |                            |         |                          |   |           |         |      |   |           |           |  |   |           |          
|LOSS BEFORE PROVISION (BENEFIT) FOR INCOME TAX        |                          |   | (358,700                   | )       |                          |   | (185,600  | )       |      |   | (789,800  | )         |  |   | (412,200  | )        
|                                                      |                          |   |                            |         |                          |   |           |         |      |   |           |           |  |   |           |          
|(PROVISION) BENEFIT FOR INCOME TAXES                  |                          |   | (21,000                    | )       |                          |   | 117,900   |         |      |   | 37,700    |           |  |   | 102,000   |          
|                                                      |                          |   |                            |        
|                                                      |                          |   |                            |         |                          |   |           |         |      |   |           |           |  |   |           |          
|NET LOSS                                              |                          |   | ($379,700                  | )       |                          |   | ($67,700  | )       |      |   | ($752,100 | )         |  |   | ($310,200 | )        
|                                                      |                          |   |                            |        
|                                                      |                          |   |                            |         |                          |   |           |         |      |   |           |           |  |   |           |          
|LOSS PER SHARE                                        |                          |   |                            |         |                          |   |           |         |      |   |           |           |  |   |           |          
|Basic                                                 |                          |   | ($0.17                     | )       |                          |   | ($0.03    | )       |      |   | ($0.34    | )         |  |   | ($0.14    | )        
|                                                      |                          |   |                            |        
|Diluted                                               |                          |   | ($0.17                     | )       |                          |   | ($0.03    | )       |      |   | ($0.34    | )         |  |   | ($0.14    | )        
|                                                      |                          |   |                            |        
|                                                      |                          |   |                            |         |                          |   |           |         |      |   |           |           |  |   |           |          
|Weighted average number of common shares outstanding: |                          |   |                            |         |                          |   |           |         |      |   |           |           |  |   |           |          
|                                                      |                          |   |                            |         |                          |   |           |         |      |   |           |           |  |   |           |          
|Basic                                                 |                          |   | 2,190,700                  |         |                          |   | 2,230,900 |         |      |   | 2,196,900 |           |  |   | 2,174,600 |          
|                                                      |                          |   |                            |         |                          |   |           |         |      |   |           |           |  |   |           |          
|Diluted                                               |                          |   | 2,190,700                  |         |                          |   | 2,230,900 |         |      |   | 2,196,900 |           |  |   | 2,174,600 |          

See Accompanying Notes

Page 4 of 11



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ITEM 1. Financial Statements (cont.)

ACTION PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

|                                                                           |                                    |                                                     |                                           |                                       |          |                          |          |          |         |         |          |  
|-------------------------------------------------------------------------- | ---------------------------------- | --------------------------------------------------- | ----------------------------------------- | ------------------------------------- | -------- | ------------------------ | -------- | -------- | ------- | ------- | -------- | -
|                                                                           |                                    |                                                     |                                           |                                       |          | Six Months Ended June 30
|                                                                           |                                    |                                                     |                                           |                                       |          |                         
|                                                                           |                                    |                                                     |                                           |                                       |          | 2002                     |          | 2001    
|                                                                           |                                    |                                                     |                                           |                                       |          |                          |          |         
|CASH FLOWS FROM OPERATING ACTIVITIES                                       |                                    |                                                     |                                           |                                       |          |                          |          |         
|Net Loss                                                                   |                                    |                                                     | (752,100                                  | )                                     |          |                          | (310,200 | )       
|Adjustments to reconcile net loss to net cash used in operating activities |                                    |                                                     |                                           |                                       |          |                          |          |         
|                                                                           | Depreciation                       |                                                     |                                           | 83,400                                |          |                          |          | 82,800   |        
|                                                                           | Amortization                       |                                                     |                                           | 88,100                                |          |                          |          | 201,100  |        
|                                                                           | Loss on disposal of asset          |                                                     |                                           | 58,500                                |          |                          |          | 6,300    |        
|                                                                           | Provision for bad debts            |                                                     |                                           | 24,100                                |          |                          |          | 44,100   |        
|                                                                           | Deferred income tax provision      |                                                     |                                           | (37,700                               | )        |                          |          | (37,500  | )      
|Changes in:                                                                |                                    |                                                     |                                           |                                       |          |                          |          |         
|                                                                           | Accounts receivable                |                                                     |                                           | 405,900                               |          |                          |          | 65,600   |        
|                                                                           | Inventories                        |                                                     |                                           | 388,400                               |          |                          |          | (300     | )      
|                                                                           | Prepaid expenses                   |                                                     |                                           | (108,000                              | )        |                          |          | (235,600 | )      
|                                                                           | Other assets                       |                                                     |                                           | (304,000                              | )        |                          |          | (87,600  | )      
|                                                                           | Accounts payable                   |                                                     |                                           | 440,100                               |          |                          |          | (250,200 | )      
|                                                                           | Accrued expenses                   |                                                     |                                           | (475,600                              | )        |                          |          | 16,100   |        
|                                                                           | Income taxes receivable/ (payable) |                                                     |                                           | 152,400                               |          |                          |          | (77,800  | )      
|                                                                           | Deferred revenue                   |                                                     |                                           | (12,500                               | )        |                          |          | (12,500  | )      
|                                                                           |                                    |                                                     |                                           |                                       |          |                          |          |         
|                                                                           |                                    |                                                     |                                           | NET CASH USED IN OPERATING ACTIVITIES |          |                          | (49,000  | )        |         |         | (595,700 | )
|                                                                           |                                    |                                                     |                                           |                                       |          |                          |          |         
|                                                                           |                                    |                                                     |                                           |                                       |          |                          |          |         
|CASH FLOWS FROM INVESTING ACTIVITIES                                       |                                    |                                                     |                                           |                                       |          |                          |          |         
|Acquisition of property, plant and equipment                               |                                    |                                                     | (10,900                                   | )                                     |          |                          | (77,500  | )       
|                                                                           |                                    |                                                     |                                           |                                       |          |                          |          |         
|                                                                           |                                    |                                                     |                                           | NET CASH USED IN INVESTING ACTIVITIES |          |                          | (10,900  | )        |         |         | (77,500  | )
|                                                                           |                                    |                                                     |                                           |                                       |          |                          |          |         
|                                                                           |                                    |                                                     |                                           |                                       |          |                          |          |         
|CASH FLOWS FROM FINANCING ACTIVITIES                                       |                                    |                                                     |                                           |                                       |          |                          |          |         
|Purchase of Treasury Stock                                                 |                                    |                                                     | (41,800                                   | )                                     |          |                          |         |         
|Collection of stock subscriptions receivable                               |                                    |                                                     |                                          |                                       |          |                          | 203,000  |         
|Repayment of mortgage and capital lease principal                          |                                    |                                                     | (72,300                                   | )                                     |          |                          | (23,700  | )       
|Repayment of notes payable to related parties                              |                                    |                                                     |                                          |                                       |          |                          | (18,600  | )       
|Proceeds/(repayment) from borrowings (net)                                 |                                    |                                                     | (217,000                                  | )                                     |          |                          | 638,100  |         
|                                                                           |                                    |                                                     |                                           |                                       |          |                          |          |         
|                                                                           |                                    | NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |                                           |                                       | (331,100 | )                        |          |          | 798,800 |        
|                                                                           |                                    |                                                     |                                           |                                       |          |                          |          |         
|                                                                           |                                    |                                                     |                                           |                                       |          |                          |          |         
|                                                                           |                                    |                                                     | NET DECREASE IN CASH AND CASH EQUIVALENTS |                                       |          | (391,000                 | )        |          |         | 125,600 |         
|                                                                           |                                    |                                                     |                                           |                                       |          |                          |          |         
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                           |                                    |                                                     | 482,800                                   |                                       |          |                          | 614,700  |         
|                                                                           |                                    |                                                     |                                           |                                       |          |                          |          |         
|                                                                           |                                    |                                                     |                                           |                                       |          |                          |          |         
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                 |                                    |                                                     | 91,800                                    |                                       |          |                          | 740,300  |         
|                                                                           |                                    |                                                     |                                           |                                       |          |                          |          |         
|                                                                           |                                    |                                                     |                                           |                                       |          |                          |          |         
|Supplemental disclosures  cash paid for:                                  |                                    |                                                     |                                           |                                       |          |                          |          |         
|                                                                           | Interest                           |                                                     |                                           | 73,900                                |          |                          |          | 77,600   |        
|                                                                           | Income Taxes                       |                                                     |                                           |                                      |          |                          |          | 66,000   |        

See Accompanying Notes

Page 5 of 11



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ACTION PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARY
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. and
its subsidiary, Action Products Canada Ltd. (collectively, the
Company), at June 30, 2002 and the results of its (i) operations for
the three and six month periods ended June 30, 2002 and 2001 and (ii)
cash flows for the six month periods ended June 30, 2002 and 2001.
The financial information included herein is taken from the books and
records of the Company and is unaudited.

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 annual
report on Form 10-KSB and Form 10-KSB/A for the year ended December 31,
2001. The results of operations for the six month period ended June 30,
2002 are not necessarily indicative of the operating results for the full
year.

2.     Line of credit.As of March 22, 2001, the Company entered into an
agreement with Citrus Bank, pursuant to which Citrus Bank provides a
revolving line of credit (the Revolver) for up to $2 million at the
Prime lending rate. The borrowings under the Revolver are utilized by
the Company to finance accounts receivable, inventory and other operating
and capital requirements. The Revolver matures June 30, 2003 and contains
covenants relating to the financial condition of the Company. If the
Company fails to maintain compliance with the financial covenants
contained in the Revolver, the maturity date could be accelerated. The
Company is currently non-compliant with one of the covenants related to
current assets and liabilities. However, we have received a wavier of
non-compliance on this issue.

3.     Mortgage Payable.In November 1998, the Company borrowed $750,000 in
the form of a mortgage payable. The mortgage is collateralized by real
estate and improvements and contains certain restrictive covenants, which
provide that, among other things, the Company maintain a minimum working
capital, net worth, debt service coverage and a maximum debt to net worth
ratio. At December 31, 2001, the Company was not in compliance with the
debt service coverage and debt to net worth covenants. However, the
Company has obtained a waiver of non-compliance from the financial
institution for the twelve month period ending December 31, 2002.

4.     Earnings per share.Common stock equivalents were not included in the
computation of diluted earnings per share for the three and six month
periods ending June 30, 2002 and 2001, as their effect would have been
anti-dilutive.

5.     New accounting pronouncements. On July 20, 2001, the Financial
Accounting Standards Board issued Statements of Financial Accounting
Standards No. 141 (SFAS 141), Business Combinations, and No. 142 (SFAS
142), Goodwill and Other Intangible Assets. SFAS 141 addresses
financial accounting and reporting for goodwill and other intangible
assets acquired in a business combination at acquisition. SFAS 141
requires the purchase method of accounting to be used for all business
combinations initiated after June 30, 2001; establishes specific criteria
for the recognition of intangible assets separately from goodwill; and
requires unallocated negative goodwill to be written off immediately as
an extraordinary gain (instead of being deferred and amortized).
SFAS 142 addresses financial accounting and reporting for intangible assets
acquired individually or with a group of other assets (but not those
acquired in a business combination) at acquisition. SFAS 142 also
addresses financial accounting and reporting for goodwill and other
intangible assets subsequent to their acquisition. SFAS 142 provides
that goodwill and intangible assets which have indefinite useful lives
will not be amortized but rather will be tested at least annually for
impairment. It also provides that

Page 6 of 11



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##### 



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont.)

5. New accounting pronouncements (cont.)

intangible assets that have finite useful lives will continue to be
amortized over their useful lives, but those lives will no longer be
limited to forty years. SFAS 141 is effective for all business
combinations initiated after June 30, 2001 and for all business
combinations accounted for by the purchase method for which the date of
acquisition is after June 30, 2001. The Company has not transacted any
business combinations subsequent to June 30, 2001 and therefore has
reported no impact to its financial statements from the provisions of
SFAS 141. The provisions of SFAS 142 are effective for fiscal years
beginning after December 15, 2001. The Company adopted SFAS 142
beginning January 1, 2002 and has ceased the amortization of goodwill. If
these rules had applied to goodwill during the six months ended June 30,
2001, the Company believes amortization expense would have decreased by
$19,200. Hereafter all goodwill and any indefinite-lived intangible
assets must be tested at least annually for impairment.

6.     Reclassification.Certain prior year amounts in the accompanying condensed consolidated
financial statements have been reclassified to conform to the present
year classifications. Also, certain operating expenses incurred during
the quarter ended March 31, 2002 have been reclassified to conform to the
current presentation.

ITEM 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations

Forward-looking Statements:

Forward-looking statements in this Form 10-QSB including, without
limitation, statements relating to our plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. All statements made in this report, other than statements
of historical fact, are forward-looking statements. These
forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause our actual results, performance or
achievements to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking
statements. The following factors, among others, could cause actual
results to differ materially from those set forth in the forward-looking
statements: our ability to successfully (i) develop our brands and
proprietary products through internal development, licensing and/or
mergers and acquisitions, (ii) access the mass market by entering into
licensing agreements with major retailers and (iii) develop our
E-commerce strategy. Additional factors include, but are not limited to
the following: the size and growth of the market for our products,
competition, pricing pressures, market acceptance of our products, the
effect of economic conditions, intellectual property rights, the results
of financing efforts, risks in product development, the ability to
identify and consummate acquisition opportunities, other risks identified
in this report and our other periodic filings with the Securities
Exchange Commission.

Results of Operations:

Three Months Ended June 30, 2002 Compared With Three Months Ended June
30, 2001

Net salesduring the three months ended June 30, 2002 were $1,479,600,
compared with net sales of $1,613,300 during the three months ended June
30, 2001. Management attributes the $133,700 or 8% decrease in net sales
to the continued weakness in the retail market. Our sales decreased
principally in the museum and theme park channels, where we experienced a
significant decrease in sales of our Climb@tron product line.

Gross profitdecreased by $113,500 to $576,200 during the three months
ended June 30, 2002, compared with $689,700 during the three months
ended June 30, 2001. The gross profit percentage was 39% and 43% during
the three month periods ended June 30, 2002 and 2001 respectively. The
decrease in gross profit is mainly attributable to the decrease in sales
discussed above. The decrease in gross profit percentage was attributable
to: sales promotions, offering free and discounted freight, intended to
stimulate specialty retailer orders; royalties related to licensed
products; and a higher proportion of sales to chain and discount
retailers compared to the same period in 2001.

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ITEM 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

Selling, general and administrative (SG&A) expensesdecreased by $59,500
to $912,400 for the three month period ended June 30, 2002 from $971,900
for the three month period ended June 30, 2001. This 6% decrease in SG&A
expenses is due primarily to savings in lease expense and facility costs,
resulting from the outsourcing of EarthLore production and shutdown of
the Canadian facility and a reduction in bad debt expense.

Interest expenserelated to current and long-term debt was $35,700 and
$52,600 for the three month periods ended June 30, 2002 and 2001,
respectively. The decrease of $16,900 is due to lower borrowings under
our line of credit, combined with a lower rate of interest.

Other income and (expense)are netted for financial statement
presentation. During the three month periods ended June 30, 2002 and
2001, other income and (expense) was $13,200 and $149,200, respectively.
The $136,000 change was mainly attributable to lower finance charges
related to late customer payments and a decrease in unrealized gains on
investments and currency exchange.

Income before provision for income taxes and net income. As a result of
the foregoing, we had a net loss before taxes of $358,700 and a net loss
after taxes of $379,700 for the three months ended June 30, 2002,
compared with a net loss before taxes of $185,600 and net loss after
taxes of $67,700 for the three months ended June 30, 2001.

Six Months Ended June 30, 2002 Compared With Six Months Ended June 30,
2001

Net salesduring the six months ended June 30, 2002 were $2,937,800,
compared with net sales of $3,271,000 during the six months ended June
30, 2001. Management attributes the $333,200 or 10% decrease in net
sales to continued weakness in the retail market, principally in the
museum and theme park channels. These two of our non-traditional toy
channels have been heavily affected by the decline in tourism activity
that began in the fourth quarter of 2001.

Gross profitduring the six months ended June 30, 2002 decreased $294,400
to $1,188,200, compared with $1,482,600 during the six months ended June
30, 2001. The gross profit percentage was 40% and 45% during the six
month periods ending June 30, 2002 and June 30, 2001 respectively. The
majority of the decrease in gross profit is attributable to the decrease
in sales discussed above. The decrease in gross profit percentage was
attributable to: one time costs associated with the consolidation and
outsourcing of our Canadian production and warehousing operations for the
EarthLore brand; sales promotions using free and discounted freight
incentives to stimulate specialty retailer orders ; royalties for
licensed products and a higher proportion of sales to chain and
discount retailers.

Selling, general and administrative (SG&A) expensesfor the six month
period ended June 30, 2002 increased by $10,600 to $1,919,900 from
$1,909,300 for the six month period ended June 30, 2001. This 0.6%
increase in SG&A expenses is due to increased compensation costs, related
to the hiring of staff more experienced in implementing our marketing and
product development strategies and expenditures made in connection with
new product design and sourcing activities for the Kidz Workshop and JAY
JAY THE JET PLANE  product lines. These increased costs were largely
offset by decreases in catalog expenses, bad debt expense and cost
savings resulting from the shutdown of our Canadian facility. This
facility was completely decommissioned on March 31, 2002. Our operating
costs will reflect a significant benefit from this action in the second
half of the year. JAY JAY THE JET PLANE , our new Wooden Adventure
System, is based on characters from the childrens show which airs on
PBS or PBS Kids nationwide. The JAY JAY THE JET PLANE  brand is a major
portion of our current product development activities; during the first
six months of 2002 we have invested over $300,000 in product and
packaging design and manufacturing tooling. This line, which is expected
to contribute to sales in the second half of 2002, received very
favorable reviews at the February 2002 New York Toy Fair and orders
received to date indicate strong market interest.

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ITEM 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

Interest expenserelated to current and long-term debt was $73,900 and
$85,700 during the six month period ended June 30, 2002 and 2001,
respectively. The decrease of $11,800 is due to lower borrowings under
our line of credit, combined with the lower rate of interest.

Other income and (expense)are netted for financial statement
presentation. During the six month period ended June 30 of 2002 and
2001, other income and (expense) were $15,800 and $100,200, respectively.
The $84,400 change was mainly attributable to lower finance charges
related to late customer payments and increased realized loss on currency
exchange.

Income before provision for income taxes and net income. As a result of
the foregoing, we had a net loss before taxes of $789,800 and a net loss
after taxes of $752,100 during the six month period ended June 30, 2002,
compared with a net loss before taxes of $412,200 and net loss after
taxes of $310,200 during the six month period ended June 30, 2001.

Financial Condition, Liquidity, and Capital Resources:

As of June 30, 2002, the Company had cash and cash equivalents of
$91,800, representing a decrease of $391,000 compared to December 31,
2001. Principal sources of liquidity for the six months ended June 30,
2002 were; increase in collections of accounts receivable $405,900; a
refund of prior year federal income tax payments resulting from allowable
NOL carry backs of $150,300; increase in accounts payable $440,100, and
decrease in inventories $388,400. Principal uses of cash in the first six
months of fiscal 2002 were: an increase of $304,000 in other assets; a
reduction of $475,600 in accrued expenses reflecting payment of costs
associated with the decommissioning of the Canadian production facility,
product development and inventory purchases; $289,300 for repayment of
line of credit borrowings, mortgage and capital lease principal and
$41,800 for the repurchase of common stock.

At June 30, 2002, we had $1,475,700 of borrowings under our line of
credit, a decrease of $60,500 from $1,536,200 as of June 30, 2001. Our
line of credit provides for borrowings up to $2,000,000 at the prime rate
and matures June 30, 2003. Under the agreement for our line of credit, we
are subject to financial covenants relating to certain asset balances and
financial ratios. As of June 30, 2002 we were eligible to borrow
$1,699,085 under our line of credit and were not in compliance with one
of our financial covenants. However, we have received a waiver of
non-compliance through October, 2002.

We are updating our brand development plans for the
next 12 to 18 months, encompassing product development, tooling and
initial inventory investments.  In order to support the product
development, tooling and inventory investments needed to expand
existing and new product lines, we anticipate that we will be
pursuing additional financing over our current working line.

PART II. OTHER INFORMATION

ITEM 4. Submission of Matters to Vote of Shareholders

The Annual Meeting was held in the Companys offices at 390 North Orange
Ave. Suite 2185, Orlando, Florida 32801 on Monday, June 17, 2002. The
sole proposal brought before the shareholders was the nomination, by the
Board of Directors, of Ronald Kaplan, Ronald Tuchman and Neil Swartz for
reelection as Class II Directors. The total number of shares entitled to
vote at the meeting was 1,306,504. As a result of the votes cast, as
described below, all three nominees were elected for two year terms to
expire at the Annual Shareholders Meeting in 2004:

|               |  |     |           |         |  |           |         |  |  |  |        | 
|-------------- |  | --- | --------- | ------- |  | --------- | ------- |  |  |  | ------ | 
|Name           |  | For |           | Against |  | Abstained
|               |  |     |           |         |  |          
|Ronald Kaplan  |  |     | 1,283,900 |         |  |           | -0-     |  |  |  | 22,604 | 
|Ronald Tuchman |  |     | 863,040   |         |  |           | 420,860 |  |  |  | 22,604 | 
|Neil Swartz    |  |     | 1,283,900 |         |  |           | -0-     |  |  |  | 22,604 | 

Judith Kaplan and Marvin Smollar were the two remaining Directors whose
terms will continue to the Annual Meeting of Shareholders in 2003. No
other business was brought before the Annual Meeting.

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ITEM 6. Exhibits and Reports on Form 8-K



| |            
| | -----------
| | A. Exhibits

|            |  |                                                                                                                                                                                                                    
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                    
|3.2         |  | Amended By-laws, incorporated by
reference to an Exhibit to the Definitive Proxy Statement
filed May 22, 1999                                                                                                      
|            |  |                                                                                                                                                                                                                    
|3.1         |  | Amended Articles of Incorporation,
incorporated by reference to an Exhibit to Definitive
Proxy Statement filed May 22, 1998.                                                                                       
|            |  |                                                                                                                                                                                                                    
|10.1        |  | Employee Stock Ownership Plan,
incorporated by reference to an Exhibit to the Companys
Registration Statement on Form S-18, dated April 23, 1984,
at pages 154-208.                                               
|            |  |                                                                                                                                                                                                                    
|10.2        |  | Incentive Stock Option Plan, incorporated
by reference to an Exhibit to the Companys Registration
Statement on Form S-18 dated September 25, 1984, at pages
210-220.                                              
|            |  |                                                                                                                                                                                                                    
|10.3        |  | 401(k) Plan dated October 3, 1986,
incorporated by reference to an Exhibit to Form 10-Q filed
August 15, 1987.                                                                                                     
|            |  |                                                                                                                                                                                                                    
|10.4        |  | Amendment to Employee Stock Ownership
Plan dated February 8, 1988, incorporated by reference to
an Exhibit to Form 10-K filed March 31, 1989.                                                                      
|            |  |                                                                                                                                                                                                                    
|10.5.1      |  | Amendment to Employee Stock Ownership Plan dated March
10, 1989, incorporated by reference to an Exhibit to Form
10-K filed March 31, 1989.                                                                        
|            |  |                                                                                                                                                                                                                    
|10.6        |  | Companys 1996 Stock Option Plan
incorporated by reference to an Exhibit to the Companys
Registration Statement on Form S-8 filed on April 20,
1999.                                                              
|            |  |                                                                                                                                                                                                                    
|10.7        |  | Asset Purchase Agreement between the
Company and American Outdoor Products, Inc. dated
December 31, 1997, incorporated by reference to Exhibit in
the Companys Current Report on Form 8-K filed February
26, 1998.
|            |  |                                                                                                                                                                                                                    
|10.8        |  | Asset Purchase Agreement between the
Company and Earth Lore Ltd., dated October 15, 2000,
incorporated by reference to Exhibit in the Companys
Current Report on Form 8-K filed November 6, 2000.                 
|            |  |                                                                                                                                                                                                                    
|10.9        |  | Common Stock Repurchase Authorization,
dated October 10, 2001, incorporated by reference to
Exhibit in the Companys Current Report on Form 8-K filed
October 17, 2001.                                            
|           
|99.1        |  | Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant
to section 906 of the Sarbanes-Oxley Act of 2002.                                                                                            



| |                       
| | ----------------------
| | B. Reports on Form 8-K



| |      
| | -----
| | None.

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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 14, 2002 |  | By:                                 |  | /s/ RONALD S. KAPLAN 
|      |  |                 |  |                                     |  |                      
|      |  |                 |  | Ronald Kaplan                      
|      |  |                 |  | Chief Executive Officer            
|      |  |                 |  | (Principal Executive Officer)      
|      |  |                 |  |                                     |  |                      
|      |  |                 |  |                                     |  |                      
|Date: |  | August 14, 2002 |  | By:                                 |  | /s/ ROBERT L. BURROWS
|      |  |                 |  |                                     |  |                      
|      |  |                 |  | Robert L. Burrows                  
|      |  |                 |  | Chief Financial Officer            
|      |  |                 |  | (Principal Accounting Officer)     

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