SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   Form 10-QSB

                   QUARTERLY REPORT UNDER SECTION 13 or 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


For Quarter Ended March 31, 2001               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 May 21, 2001
Common Stock, $.001 par value                               2,230,700



       Transitional Small Business Disclosure Format (check one): YES  NO   X
                                                                      ---- ----

<PAGE>


                                    I N D E X



PART I.  FINANCIAL INFORMATION                                             Page
                                                                          Number
Item 1.    Financial Statements

Condensed Consolidated Balance Sheets - March 31, 2001
            and December 31, 2000 (unaudited)                                3

Condensed Consolidated Statements of Operations - Three months ended
            March 31, 2001 and 2000 (unaudited)                              4

Condensed Consolidated Statements of Cash Flows - Three months ended
              March 31, 2001 and 2000 (unaudited)                            5

Notes to unaudited condensed consolidated financial statements               6

Item 2.    Management's Discussion and Analysis of Financial Condition
           and Results of Operations                                         6


PART II.  OTHER INFORMATION

Item 2. Changes in Securities and Use of Proceeds                           12

Item 6. Exhibits and Reports on Form 8-K                                    12

SIGNATURE PAGE                                                              13


                                       2
<PAGE>

               ACTION PRODUCTS INTERNATIONAL, INC. AND SUBSIDIARY
                CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>

                                                                                                       Mar. 31, 2001   Dec. 31, 2000
                                                                                                       -------------   -------------
<S>                                                                                                     <C>             <C>
                                                                        ASSETS

CURRENT ASSETS
   Cash and cash equivalents                                                                            $   440,500     $   614,700
   Accounts receivable, net of an allowance for doubtful accounts of $113,000 at
      March 31, 2001 and $97,000 at December 31, 2000                                                     1,703,300       1,692,600
   Inventories, net                                                                                       1,357,100       1,387,900
   Prepaid expenses and other assets                                                                        340,300         217,600
                                                                                                        -----------     -----------
                                                                          TOTAL CURRENT ASSETS            3,841,200       3,912,800
PROPERTY, PLANT AND EQUIPMENT
   Land                                                                                                      67,400          67,400
   Building and building improvements                                                                     1,026,600       1,023,600
   Equipment                                                                                                951,900         919,100
   Furniture and fixtures                                                                                   183,200         173,200
                                                                                                        -----------     -----------
                                                                                                          2,229,100       2,183,300
   Less accumulated depreciation and amortization                                                          (986,800)       (963,700)
                                                                                                        -----------     -----------
                                                             NET PROPERTY, PLANT AND EQUIPMENT            1,242,300       1,219,600
EXCESS OF FAIR VALUE OVER COST OF ASSETS ACQUIRED                                                           553,100         548,300
OTHER ASSETS                                                                                                637,700         649,200
                                                                                                        -----------     -----------
                                                                                  TOTAL ASSETS          $ 6,274,300     $ 6,329,900
                                                                                                        ===========     ===========

                                                LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
   Current portion of installment notes payable and
     obligation under capital lease                                                                     $    67,100     $   139,600
   Accounts payable                                                                                         423,600         534,100
   Accrued expenses                                                                                         218,600          62,300
   Accrued payroll and related expenses                                                                      85,500          32,900
   Current portion of mortgage payable                                                                       16,900          19,500
   Borrowings under lines of credit                                                                       1,027,100         898,300
   Income taxes payable                                                                                      13,000          80,300
   Deferred revenue                                                                                          25,000          25,000
                                                                                                        -----------     -----------
                                                                     TOTAL CURRENT LIABILITIES            1,876,800       1,792,000
INSTALLMENT NOTES PAYABLE AND OBLIGATION
   UNDER CURRENT LEASE                                                                                      281,100         197,000
MORTGAGE PAYABLE                                                                                            691,600         693,900
DEFERRED INCOME TAXES                                                                                        61,000          37,500
DEFERRED REVENUE                                                                                            143,800         150,000
                                                                                                        -----------     -----------
                                                                             TOTAL LIABILITIES            3,054,300       2,870,400
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
   Common stock - $.001 par value; 15,000,000 shares authorized;
     2,230,700 shares issued and outstanding at March 31, 2001 and
     2,116,400 shares issued and outstanding
     at December 31, 2000                                                                                     2,200           2,100
   Additional paid-in capital                                                                             3,870,000       3,670,100
   Retained earnings                                                                                         68,300         310,800
   Stock subscriptions receivable                                                                          (720,500)       (523,500)
                                                                                                        -----------     -----------
                                                                    TOTAL SHAREHOLDERS' EQUITY            3,220,000       3,459,500
                                                                                                        -----------     -----------
                                                    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY          $ 6,274,300     $ 6,329,900
                                                                                                        ===========     ===========
</TABLE>


                             See Accompanying Notes

                                       3
<PAGE>





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


                                                                                       March 31, 2001   March 31, 2000
                                                                                       --------------   --------------

<S>                                                                                     <C>                <C>
NET SALES                                                                               $ 1,657,700        $ 1,470,200

COST OF SALES                                                                               864,900            771,700
                                                                                        -----------        -----------

                                                                    GROSS PROFIT            792,800            698,500

OPERATING EXPENSES
   Selling                                                                                  337,200            291,600
   General and administrative                                                               600,100            404,400
                                                                                        -----------        -----------
                                                                                            937,300            696,000
                                                                                        -----------        -----------

                                                   INCOME (LOSS) FROM OPERATIONS           (144,500)             2,500

OTHER INCOME (EXPENSE)
   Interest expense                                                                         (33,200)           (34,200)
   Interest income                                                                            4,000              9,700
   Other income (expense)                                                                   (52,900)            67,300
                                                                                        -----------        -----------
                                                                                            (82,100)            42,800
                                                                                        -----------        -----------
                                 INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES           (226,600)            45,300

PROVISION FOR INCOME TAXES                                                                   15,900             13,100
                                                                                        -----------        -----------

NET INCOME (LOSS)                                                                       ($  242,500)       $    32,200
                                                                                        ===========        ===========

INCOME (LOSS) PER SHARE
   Basic                                                                                ($     0.11)       $      0.02
                                                                                        ===========        ===========
   Diluted                                                                              ($     0.11)       $      0.01
                                                                                        ===========        ===========

Weighted average number of common shares outstanding:
   Basic                                                                                  2,117,700          2,007,400
   Diluted                                                                                2,117,700          2,785,600

</TABLE>




                             See Accompanying Notes

                                       4

<PAGE>

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


                                                                                         March 31, 2001    March 31, 2000
                                                                                         --------------    --------------
<S>                                                                                       <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net income (loss)                                                                      ($  242,500)       $    32,200
   Adjustments to reconcile net income (loss) to net cash
        used in operating activities
     Depreciation                                                                              36,600             28,200
     Amortization                                                                              90,700             56,700

     Provision for bad debts                                                                   16,000                  0
     Deferred income tax provision                                                             23,500                  0

     Loss on Disposal of Fixed Assets                                                          (6,300)                 0
     Changes in:
        Accounts  receivable                                                                  (26,700)          (191,100)
        Inventories                                                                            30,800             58,800
        Prepaid expenses                                                                     (122,700)          (149,200)
        Other assets                                                                          (84,000)            (6,900)
        Accounts payable                                                                     (110,500)            90,700
        Accrued expenses and payroll                                                          208,900           (288,200)
        Income taxes payable                                                                  (67,300)          (101,000)
        Deferred revenue                                                                       (6,200)            (6,200)
                                                                                          -----------        -----------
                                             NET CASH USED IN OPERATING ACTIVITIES           (259,700)          (476,000)
                                                                                          -----------        -----------

CASH FLOWS FROM INVESTING ACTIVITIES

                                                                                          -----------        -----------
   Acquisition of property, plant and equipment                                               (53,000)            (9,500)
                                                                                          -----------        -----------


CASH FLOWS FROM FINANCING ACTIVITIES
   Collection of stock subscriptions receivable                                                 3,000              9,600
   Repayment of mortgage and capital lease principal                                          (20,700)            (4,500)
                                                                                                                 (13,100)
   Repayment of notes payable to related parties                                                   --
   Proceeds from borrowings                                                                   169,300            206,000
                                                                                          -----------        -----------
                                         NET CASH PROVIDED BY FINANCING ACTIVITIES            138,500            211,100
                                                                                          -----------        -----------
                                         NET DECREASE IN CASH AND CASH EQUIVALENTS           (174,200)          (274,400)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                              614,700          1,053,600
                                                                                          -----------        -----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                $   440,500        $   779,200
                                                                                          ===========        ===========

Supplemental disclosures - cash paid for:
    Interest                                                                              $    33,200        $    34,200
    Taxes                                                                                 $    64,500        $   101,000

</TABLE>



                             See Accompanying Notes

                                       5

<PAGE>

                       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. and its subsidiary, Action
Products Canada Ltd. (Collectively, the "Company") at March 31, 2001 and the
results of its operations and cash flows for the quarters ending March 31, 2001
and 2000. The quarterly financial information included herein 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 for the year ended
December 31, 2000. The results of operations for the period ended March 31, 2001
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 for up to $2 million at the "Prime" lending rate (the "Revolver"). 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's previous line of credit with another financial
institution expired during the first quarter of 2001.

3. Earnings per share. Common stock equivalents were not included in the
computation of diluted earnings per share for the period ending March 31, 2001,
as their effect would have been anti-dilutive.

4. Shareholders Equity Transactions. Upon the employment of Mr. Ronald Tuchman
as President and Chief Operating Officer, effective February 2001, Mr. Tuchman
agreed to invest $200,000 in the Company in exchange for 114,266 shares of the
Company's common stock at a purchase price of $1.75 per share. As of March 31,
2001, the $200,000 investment was a Stock Subscription receivable. The full
amount was collected in May 2001. The Company also collected $3,000 from other
Stock Subscriptions during the quarter ending March 31, 2001.

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 the Company's 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 we make 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: the
Company's ability to successfully (i) develop its 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 its E-commerce strategy.

Additional factors include, but are not limited to the following: the size and
growth of the market for the Company's products, competition, pricing pressures,
market acceptance of the Company's product, the effect of

                                       6
<PAGE>

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

economic conditions, intellectual property rights, the results of financing
efforts, risks in product development, the ability to identify acquisition
opportunities and consummate same, and other risks identified in this report,
and the Company's other periodic filings with the Securities Exchange
Commission.

Results of Operations:
Three Months Ended March 31, 2001 Compared With Three Months Ended March 31,
2000

Net sales increased to $1,657,700 during the first quarter ended March 31, 2001,
compared with net sales of $1,470,200 during the first quarter of 2000.
Management attributes the 12.8% increase in revenues to increasing penetration
of new products in its distribution channels and the growing strength of various
proprietary lines and brands.

The Company continues to diversify its distribution channels and reduce its
dependence on any one product or market. The continued improvements to the
Company's sales systems have eased diversification into new markets,
particularly the Company's increasing penetration into the specialty toy market.
Management believes the downturn in the general economy and consumer confidence
in the first quarter 2001 has adversely affected the Company's sales and may
continue to affect sales throughout the remaining of the year. Several of the
Company's specialty toy customers are experiencing financial distress and as a
result, have slowed or stopped reorders of the Company's products. Despite these
factors, the Company has been successful in increasing its sales during the
first quarter of 2001 because of the opening of new sales channels and
investment in new product lines that have been well received by its customers.

Gross profit increased by $94,300 from $698,500 to $792,800 in the period ended
March 31, 2000 and 2001, respectively. This is attributable to the strategic
implementation of propriety products such as Space Voyagers (R), Earth Lore(TM),
etc. These products have a higher gross margin and currently comprise a larger
percentage of the Company's total sales than in the past. However, as a
percentage of net sales, there was a slight gross profit increase to 47.8%
during the first quarter of 2001, compared with 47.5% for the first quarter of
2000.

Selling, General and Administrative (SG&A) expenses increased by $241,300 to
$937,300 in the period ended March 31, 2001 from $696,000 for the same period in
2000. This 34.7% increase in SG&A expenses is due primarily to increased
expenses incurred in connection with the start up of the operations of Action
Products Canada Ltd. in association with the acquisition of assets of Earth Lore
Ltd. and Its "I Dig Dinosaurs" line, which occurred during the fourth-quarter
2000. Also, the Company leased new computer software and hardware during the
first quarter. These costs will directly enhance the sales and backoffice
effiencies. In addition, selling expenses, including marketing efforts, growth
of the distribution channels, commissions to the growing network of toy
representatives, as well as added product development expenses and salaries,
also contributed to the increase in SG&A.

Interest expense related to current and long-term debt was $33,200 and $34,200
during the first quarter of 2001 and 2000, respectively. The decrease is due
primarily to lower interest rates granted under the Company's line of credit.

Interest income was $4,000 and $9,700 during the first quarter of 2001 and 2000,
respectively.

Other income and expense are netted for financial statement presentation. This
amount has historically been insignificant.

Income Before Provision for Income Taxes and Net Income. As a result of the
foregoing, the Company had a net loss before taxes of $226,600 during the first
quarter of 2001 compared with a net income of $45,300 during the first quarter
of 2000. The Company recorded a $15,900 income tax provision during the first
quarter of 2001, resulting in an after tax net loss of $242,500 for the first
quarter of 2001.

                                       7
<PAGE>

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

Financial Condition, Liquidity, and Capital Resources:
As of March 31, 2001, current assets were $3,841,200 compared to current
liabilities of $1,876,800, resulting in a current ratio of 2.1:1, compared to a
3.4:1 current ratio at March 31, 2000. Total assets decreased by $55,600 to
$6,274,300 at March 31, 2001 from $6,329,900 at December 31, 2000. Current
liabilities increased by $84,800. Current assets decreased by $71,600 due
primarily to a decrease in cash and inventories.

Net accounts receivable and inventories were $1,703,300 and $1,357,500,
respectively, at March 31, 2001, compared to $1,692,600 and $1,387,900,
respectively, at December 31, 2000. The difference between the amounts at March
31, 2001 and year-end was a result of the Company's normal business cycle. In
addition, during this period, the Company recorded $16,000 as additional
allowance for doubtful accounts.

Cash and cash equivalents were $440,500 at March 31, 2001, a decrease of
$174,200 from December 31, 2000. The decrease was a net result of prepaid
expenses and payments of liabilities.

The Company had net cash flows used in operations of $259,700 for the three
months ended March 31, 2001, as compared to net cash flows used in operations
for the same period in 2000 of $476,000, a decrease of $216,300. The items that
make up the difference are presented in the cash flow statement.

The Company extends credit to its customers, generally on terms which require
payment within 30 days. Some customers participate in an accounts receivable
dating program pursuant to which payments for products are delayed for up to 120
days. The Company believes this is consistent with normal practices in its
industry. As the Company has expanded its customer base to include more broadly
defined customer base in addition to specialty retailers, the risk of larger
uncollectable accounts receivable has increased. To mitigate this risk,
effective March 1, 2001, the Company obtained a business credit insurance policy
to guarantee the majority of its accounts receivable through a Standard & Poors
rated insurance company.

Net property, plant and equipment increased from $1,219,600 at December 31, 2000
to $1,242,300 at March 31, 2001, an increase of $22,700 or approx. 2%. The
Company recorded depreciation of $23,000 during the first quarter of 2001. The
Company made capital expenditures in the amount of $53,000 during the first
quarter of 2001 to purchase computer software and hardware for all departments.
Other assets decreased from $649,200 at December 31, 2000 to $637,700 at March
31, 2001, a decrease of $11,500 or 1.8%.

Accounts payable and accrued expenses increased by $45,800 to $642,200 as of
March 31, 2001 from $596,400 at December 31, 2000, due primarily to in-transit
inventory.

At March 31, 2001, the Company had $1,027,100 of borrowings under the line of
credit, an increase of $128,800 from $898,300 as of March 31, 2000. This is due
primarily to the receipt of, and payment for inventory during the quarter. The
Company also had, at March 31, 2001, a capital lease obligation, payable in
monthly installments, excluding sales tax of approximately $4,200, including
interest imputed at 9.4%. The capital lease is secured by certain tangible
equipment, maturing September 2003, in the amount of $180,500.

Other long-term liabilities were comprised of deferred revenue of $143,800
associated with a non-compete agreement related to the earlier sale of assets of
Action Snacks (R), and deferred income taxes of $61,000.

Shareholders' equity at March 31, 2001 decreased by $239,500 to $3,220,000 from
$3,459,500 at December 31, 2000 due primarily to the net loss and an increase in
stock subscriptions and stock subscriptions receivable. During the three months
ending March 31, 2001, the Company collected $3,000 of stock subscriptions
receivable from related parties. In addition, the Company had stock
subscriptions receivable of approximately $720,500 due from related parties at
March 31, 2001. As of May 10, 2001, the Company collected $200,000 in stock
subscriptions receivable from a related party, thereby reducing the stock
subscriptions receivable to $525,000.

                                       8
<PAGE>

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

Factors That May Affect Future Results and Market Price of Stock:
-----------------------------------------------------------------

The Company is operating in a rapidly changing environment, which involves a
number of risks identified herein and in our other periodic Securities and
Exchange Commission filings. Some of these the risks are beyond the Company's
control. The following indicates some of those risks:

Changing Consumer Preferences, reliance on New Product Introduction. As a
result, of changing consumer preferences, many toys are successfully marketed
for only one, two, or three years, if at all. There can be no assurance that (i)
any of the Company's current successful products or product lines will continue
to be popular with consumers for any significant period of time, (ii) new
products and product lines introduced by the Company will achieve a desired
degree of market acceptance, or (iii) if such acceptance is achieved, it will be
maintained for any significant period of time. Furthermore, sales of the
Company's existing products are expected to decline over time and may decline at
rates faster than expected. The Company's success is dependent upon the
Company's ability to enhance existing product lines and develop new products and
product lines. The failure of the Company's new products and product lines to
achieve and sustain market acceptance and to produce acceptable margins could
have a material adverse effect on the Company's financial condition and results
of operations.

Liquidity. 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
for up to $2 million at the "Prime" lending rate (the "Revolver"). 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's previous line of credit with another financial
institution expired during the first quarter of 2001.

Inventory Management. Most of the Company's largest retail customers utilize an
inventory management system to track sales of products and rely on reorders
being rapidly filled by the Company and other suppliers rather than maintaining
large product inventories. These types of systems put pressure on suppliers like
the Company to promptly fill customer orders and shift some of the inventory
risk from the retailer to suppliers. Production of excess products by the
Company to meet anticipated retailer demand could result in price markdowns and
increased inventory carrying costs for the Company. Similarly, if the Company
fails to predict consumer demand for a product, it may not be able to deliver an
adequate supply of products on a timely basis and will, as a result, lose sales
opportunities.

Returns and Markdowns. As is customary in the toy industry, the Company
historically has permitted, on a minimum basis, certain customers to return
slow-moving items for credit or has provided price protection by making any
price reductions effective as to certain products held by retailers in
inventory. The Company expects that it will continue to be required to make such
accommodations in the future. Any significant increase in the amount of returns
or markdowns could have a material adverse effect on the Company's financial
condition and results of operations.

Acquisition Risks. The Company may from time to time evaluate and pursue
acquisition opportunities on terms management considers favorable to the
Company. A successful acquisition involves an assessment of the business
condition and prospects of the acquisition target, which includes factors beyond
the Company's control. This assessment is necessarily inexact and its accuracy
is inherently uncertain. In connection with such an assessment, the Company
performs a review it believes to be generally consistent with industry
practices. This review, however, will not reveal all existing or potential
problems, nor will it permit a buyer to become sufficiently familiar with the
acquisition target to assess fully its deficiencies. There can be no assurance
that any such acquisition would be successful or that the operations of the
acquisition target could be successfully Integrated with the Company's
operations. Any unsuccessful acquisition could have a material adverse effect on
the Company.


                                       9
<PAGE>

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

Dependence on Contract Manufacturers.
The Company conducts substantially all of its manufacturing operations through
contract manufacturers, except for the Earth Lore(TM) brand, many of which are
located in the People's Republic of China (the "PRC"), Hong Kong, Singapore and
Taiwan. The Company generally does not have long-term contracts with its
manufacturers. Foreign manufacturing is subject to a number of risks, including
but not limited to transportation delays and interruptions, political and
economic disruptions, the impositions of tariffs and import and export controls,
difficulties in staffing and managing foreign operations, longer payment cycles,
problems in collecting accounts receivable, changes in governmental policies,
restrictions on the transfer of funds, currency fluctuations and potentially
adverse tax consequences. While the Company to date has not experienced any
material adverse effects due to such risks, there can be no assurance that such
events will not occur in the future and possibly result in increases in costs
and delays of, or interference's with, product deliveries resulting in losses of
sales and goodwill.

Product Safety and Liability, Regulation.
Products that have been or may be developed or sold by the Company may expose
the Company to potential liability from personal injury or property damage
claims by end-users of such products. The Company has never been and is not
presently a defendant in any product liability lawsuit; however, there can be no
assurance that such a suit will not be brought in the future against the
Company. The Company currently maintains product liability insurance coverage in
the amount of $1.0 million per occurrence, with a $2.0 million excess umbrella
policy. There can be no assurance that the Company will be able to maintain such
coverage or obtain additional coverage on acceptable terms, or that such
insurance will provide adequate coverage against all potential claims. Moreover,
even if the Company maintains adequate insurance, any successful claim could
materially and adversely affect the reputation and prospects of the Company, as
well as divert management time. The CPSC has the authority under certain federal
laws and regulations to protect consumers from hazardous goods. The CPSC may
exclude from the market goods it determines are hazardous, and may require a
manufacturer to repurchase such goods under certain circumstances. Some state,
local and foreign governments have similar laws and regulations. In the event
that such laws or regulations change or the Company is found in the future to
have violated any such law or regulation, the sale of the relevant product could
be prohibited and the Company could be required to repurchase such products.

Competition.
The toy industry is highly competitive. Many of the Company's competitors have
longer operating histories, broader product lines and greater financial
resources and advertising budgets than the Company. In addition, the toy
industry has nominal barriers to entry. Competition is based primarily on the
ability to design and develop new toys, procure licenses for popular products,
characters and trademarks, and successfully marketed products. Many of the
Company's competitors offer similar products or alternatives to the Company's
products. The Company's products compete with other products for retail shelf
space. There can be no assurance that shelf space in retail stores will continue
to be available to support the Company's existing products or any expansion of
the Company's products and product lines. There can be no assurance that the
Company will be able to continue to compete effectively in this marketplace.

Possible Volatility of Stock Price.
The market price of the common stock has been, and may continue to be, highly
volatile and has been, and could be, subject to wide fluctuations in response to
quarterly variations in operating results, announcements of new products by the
Company or its competitors, changes in financial estimates by securities
analysts, or other events or factors. In the event that the Company's operating
results are below the expectations of public market analysts and investors in
one or more future quarters, it is likely that the price of the Company's common
stock will be materially adversely affected. General market fluctuations may
adversely affect the market price of the Company's common stock.

Governmental  Regulation.
In the United States, the Company is subject to the provisions of, among other
laws, the Federal Consumer Product Safety Act and the Federal Hazardous
Substances Act (the "Acts"). The

                                       10
<PAGE>

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

Acts empower the Consumer Product Safety Commission (the "Consumer Commission")
to protect the public against unreasonable risks of injury associated with
consumer products, including toys and other articles. The Consumer Commission
has the authority to exclude from the market articles, which are found to be
hazardous and can require a manufacturer to repair or repurchase such toys under
certain circumstances. Any such determination by the Consumer Commission is
subject to court review. Violations of the Acts may also result in civil and
criminal penalties. Similar laws exist in some states and cities in the United
States and in many jurisdictions throughout the world. The Company maintains a
quality control program (including the retention of independent testing
laboratories) to ensure compliance with applicable laws. The Company believes it
currently is in substantial compliance with these laws. In general, the Company
has not experienced difficulty complying with such regulations, and compliance
has not had an adverse effect on the Company's business.

Accounts Receivable Risks.
Certain of the Company's customers participate in an accounts receivable dating
program pursuant to which payments for products are delayed for up to 120 days.
Although several customers accounted for more than 4% of the Company's sales in
2000, the insolvency or business failure of any customer with a large account
receivable could have a material adverse affect on the Company.

Inflation & Seasonality.
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 sales have historically been seasonal in nature, reflecting peak sales
in the second and third quarters and slower sales in the first quarter. Due to
changes in customer base and products which reflect more of the toy market, the
impact of the seasonal nature of the Company's sales is expected to increase.

Concentration of Stock Ownership.
The Company's present officers and directors beneficially own approximately 73.6
% of the common stock on a fully diluted basis. As a result, current management
will be substantially able to exercise significant influence over all matters
requiring shareholder approval, including the election of directors and approval
of significant corporate transactions.

Anti-Takeover Provisions.
The Company's Articles of Incorporation permits the Company (without further
shareholder approval) to issue additional shares of common stock determined by
the Board of Directors. Such provisions could be used as anti-takeover measures.
These provisions could prevent or discourage or delay a non-negotiated change in
control and result in shareholders receiving less for their common stock than
they otherwise might in the event of a takeover attempt.

Dependence on Key Management.
The Company's success largely depends on a number of key employees. The loss of
services or one or more of these employees could have a material adverse effect
on the Company's business. The Company is especially dependent upon the efforts
and abilities of certain of its senior management, particular Ronald Kaplan, its
Chairman & Chief Executive Officer, and Ronald Tuchman, its President and Chief
Operating Officer. The loss of Mr. Kaplan, Mr. Tuchman or any of its other key
executives could have a material adverse effect on the Company and its
operations and prospects. Currently, the Company does not maintain key man life
insurance on either Mr. Kaplan or Mr. Tuchman. The Company believes that its
future success will also depend, in part, upon its ability to attract, retain
and motivate qualified personnel. There is no assurance, however, that the
Company will be successful in attracting and retaining such personnel.

No Dividends.
The Company expects that it will retain all available earnings generated by our
operations for the development and growth of our business. Accordingly, the
Company does not anticipate paying any cash dividends on its common stock.

Dilution.
As of March 31, 2001, the Company has 2,230,700 shares of its common stock
issued and outstanding. The Company's Board has the ability, without further
shareholder approval, to issue up to 12,769,300 additional shares of common
stock. Such issuance may result in a reduction of the book value or market price
of any of the outstanding common shares. Issuance of additional equity
securities, or debt securities convertible into equity, will reduce the
proportionate ownership and voting power of the then existing shareholders.

PART II. OTHER INFORMATION

ITEM 2.  CHANGES IN SECURITES AND USE OF PROCEEDS.

Upon the employment of Mr. Ronald Tuchman as President and Chief Operating
Officer, effective February 2001, Mr. Tuchman agreed to invest $200,000 in the
Company in exchange for 114,266 shares of the Company's common stock at a

                                       11
<PAGE>

purchase price of $1.75 per share. As of March 31, 2001, the $200,000 investment
was a stock subscriptions receivable, collected in May 2001. The proceeds will
be used for general working capital purposes. In connection with the sale of
securities, the Company relied on the exemption from registration provided under
section 4(2) of the Securities Act of 1933, as amended. As an executive officer
and director of the Company, Mr. Tuchman is an accredited investor. Mr. Tuchman
was provided information about the Company, or had access to same, and was
afforded the opportunity to ask questions of, and receive answers from
management regarding the information provided or to which he had access. He
acquired the securities with investment intent and the certificates for the
securities bear a legend accordingly.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.


A.      Exhibits

            Exhibit No.

               3.1            Amended Articles of Incorporation, incorporated by
                              reference to an Exhibit to Definitive Proxy
                              Statement filed May 22, 1998.

               3.2            Amended By-laws, incorporated by reference to an
                              Exhibit to the 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-K 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.

B.       Reports on Form 8-K
         None

         Items 1, 3, 4 and 5 are inapplicable and have been omitted.

                                       12
<PAGE>


                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                               Action Products International, Inc.

Date:   May 21, 2001        By:     /s/ Ronald Kaplan
      --------------              ------------------------------------------
                                        Ronald Kaplan,
                                        President  (Chief Executive Officer)

Date:   May 21, 2001        By:     /s/ Timothy L. Young
      --------------              ------------------------------------------
                                        Timothy L. Young,
                                        Chief Financial Officer
                                        (Principal Accounting Officer)



                                       13