**UNITED        STATES**

**SECURITIES        AND EXCHANGE COMMISSION**

**FORM        10-Q **

|  | x | Quarterly                  Report under Section 13 or 15(d) of the Securities Exchange Act                  of                  1934 |
|--|---|--------------------------------------------------------------------------------------------------------------------------------------|

**September        30, 2008**

|  | o | Transition                  Report under Section 13 or 15(d) of the Securities Exchange Act                  of                  1934 |
|--|---|---------------------------------------------------------------------------------------------------------------------------------------|

**000-13118**

**ACTION        PRODUCTS INTERNATIONAL, INC.**

| Florida                                          | 59-2095427                                         |
|--------------------------------------------------|----------------------------------------------------|
| (State                  or other jurisdiction of | (IRS                  Employer Identification No.) |
| incorporation                  or organization)  |                                               |

| Class                                          | Outstanding                  at November 11, 2008 |
|------------------------------------------------|---------------------------------------------------|
| Common                  Stock, $.001 par value | 5,676,400                                         |

----

**INDEX**

|                                                                                                                                                                           |                                                                                                                        | **Page**   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                                                                                           |                                                                                                                        | **Number** |
| **PART                    I. FINANCIAL INFORMATION**                                                                                                                           |                                                                                                                        |
|                                                                                                                                                                           |                                                                                                                        |       |
| Item                    1.                                                                                                                                                     | Financial                    Statements                                                                                     |       |
|                                                                                                                                                                           |                                                                                                                        |       |
| Condensed                    Consolidated Balance Sheets at September 30, 2008 (unaudited)                    and December                    31, 2007                         |  3                                                                                                                     |
|                                                                                                                                                                           |                                                                                                                        |
| Condensed                    Consolidated Statements of Operations - Three and nine months                    ended                    September 30, 2008 and 2007 (unaudited) |  4                                                                                                                     |
|                                                                                                                                                                           |                                                                                                                        |
| Condensed                    Consolidated Statements of Cash Flows - Nine months ended                    September 30, 2008 and 2007 (unaudited)                              |  5                                                                                                                     |
|                                                                                                                                                                           |                                                                                                                        |
| Notes                    to Condensed Consolidated Financial Statements (unaudited)                                                                                            |  6                                                                                                                     |
|                                                                                                                                                                           |                                                                                                                        |       |
| Item                    2.                                                                                                                                                     | Management's                    Discussion and Analysis of Financial Condition and Results of                    Operations | 11         |
|                                                                                                                                                                           |                                                                                                                        |       |
| Item                    4.                                                                                                                                                     | Controls                    and Procedures                                                                                  | 13         |
|                                                                                                                                                                           |                                                                                                                        |       |
| **PART                    II. OTHER INFORMATION**                                                                                                                              |                                                                                                                        |
|                                                                                                                                                                           |                                                                                                                        |       |
| Item                    1.                                                                                                                                                     | Legal                    Proceedings                                                                                        | 14         |
|                                                                                                                                                                           |                                                                                                                        |       |
| Item                    2.                                                                                                                                                     | Unregistered                    Sales of Securities and Use of Proceeds                                                     | 14         |
|                                                                                                                                                                           |                                                                                                                        |       |
| Item                    4.                                                                                                                                                     | Submission                    of Matters to Vote of Shareholders                                                            | 14         |
|                                                                                                                                                                           |                                                                                                                        |       |
| Item                    5.                                                                                                                                                     | Other                    Information                                                                                        | 15         |
|                                                                                                                                                                           |                                                                                                                        |       |
| Item                    6.                                                                                                                                                     | Exhibits                                                                                                                    | 15         |
|                                                                                                                                                                           |                                                                                                                        |       |
| **SIGNATURE                    PAGE**                                                                                                                                          | 16                                                                                                                          |

----

**PART**
**          I. FINANCIAL INFORMATION**

**ITEM          1. Financial Statements**

|                                                                                                                                                                 |   | September 30, 2008 |       |                        |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|------------|-----------------------------|--------|
|                                                                                                                                                                 |   | (Unaudited)                  |       | December 31, 2007 |   |
|                                                                                                                                                                 |   |                         |       |                        |   |
| ASSETS                                                                                                                                                               |
| CURRENT                    ASSETS                                                                                                                                    |   |                         |       |                        |   |   |   |
| Cash                    and cash equivalents                                                                                                                         |   | $                            | 7,800      |                        | $      | 44,400 |   |
| Investment                    securities                                                                                                                             |   |                         | 295,000    |                        |   | 475,000 |   |
| Accounts                    receivable, net of allowance of $26,100 and $47,200                                                                                      |   |                         | 1,395,100  |                        |   | 1,429,800 |   |
| Other                    receivable                                                                                                                                  |   |                         | -          |                        |   | 3,233,700 |   |
| Inventories,                    net                                                                                                                                  |   |                         | 1,502,100  |                        |   | 2,131,800 |   |
| Prepaid                    expenses and other assets                                                                                                                 |   |                         | 235,500    |                        |   | 197,700 |   |
| TOTAL                    CURRENT ASSETS                                                                                                                              |   |                         | 3,435,500  |                        |   | 7,512,400 |   |
|                                                                                                                                                                 |   |                         |       |                        |   |   |   |
| PROPERTY,                    PLANT AND EQUIPMENT                                                                                                                     |   |                         | 3,680,200  |                        |   | 3,650,400 |   |
| Less                    accumulated depreciation and amortization                                                                                                    |   |                         | (2,875,600 | )                           |   | (2,761,100 | ) |
| NET                    PROPERTY, PLANT AND EQUIPMENT                                                                                                                 |   |                         | 804,600    |                        |   | 889,300 |   |
|                                                                                                                                                                 |   |                         |       |                        |   |   |   |
| GOODWILL                                                                                                                                                             |   |                         | 1,890,300  |                        |   | 1,405,300 |   |
| OTHER                    ASSETS                                                                                                                                      |   |                         | 504,300    |                        |   | 276,100 |   |
| TOTAL                    ASSETS                                                                                                                                      |   | $                            | 6,634,700  |                        | $      | 10,083,100 |   |
|                                                                                                                                                                 |   |                         |       |                        |   |   |   |
| LIABILITIES                    AND SHAREHOLDERS' EQUITY                                                                                                              |
| CURRENT                    LIABILITIES                                                                                                                               |   |                         |       |                        |   |   |   |
| Accounts                    payable                                                                                                                                  |   | $                            | 1,100,900  |                        | $      | 1,811,900 |   |
| Accrued                    expenses, payroll and related expenses                                                                                                    |   |                         | 686,300    |                        |   | 593,900 |   |
| Borrowings                    under line of credit                                                                                                                   |   |                         | 1,556,500  |                        |   | 1,960,400 |   |
| Borrowings                    under investment account                                                                                                               |   |                         | 66,300     |                        |   | 141,800 |   |
| Other                    current liabilities                                                                                                                         |   |                         | 19,800     |                        |   | 89,600 |   |
| TOTAL                    CURRENT LIABILITIES                                                                                                                         |   |                         | 3,429,800  |                        |   | 4,597,600 |   |
|                                                                                                                                                                 |   |                         |       |                        |   |   |   |
| SHAREHOLDERS'                    EQUITY                                                                                                                              |
| Preferred                    stock - $.001 par value; 10,000,000 shares authorized, 40,000                    and -0-                    shares issued, respectively |   |                         | -          |                        |   | - |   |
| Common                    stock -$.001 par value; 15,000,000 authorized;5,916,000 and 5,660,000                    shares issued, respectively                       |   |                         | 5,900      |                        |   | 5,700 |   |
| Treasury                    stock - 240,600 and 208,600 shares, at par,                    respectively                                                         |   |                         | (200       | )                           |   | (200 | ) |
| Additional                    paid-in capital                                                                                                                        |   |                         | 9,875,300  |                        |   | 9,260,200 |   |
| Unearned                    share based compensation cost                                                                                                            |   |                         | (113,500   | )                           |   | (256,300 | ) |
| Accumulated                    deficit                                                                                                                               |   |                         | (6,562,600 | )                           |   | (3,523,900 | ) |
| TOTAL                    SHAREHOLDERS' EQUITY                                                                                                                        |   |                         | 3,204,900  |                        |   | 5,485,500 |   |
| TOTAL                    LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                        |   | $                            | 6,634,700  |                        | $      | 10,083,100 |   |

----

**ITEM          1. Financial Statements (cont.)**

|                                                                     |   | Three Months Ended September 30 |       | Nine Months Ended September 30 |   |
|--------------------------------------------------------------------------|--------|-----------------------------------------------------|------------|----------------------------------------------------|--------|
|                                                                     |   | 2008                                                |       | 2007                                               |   | 2008 |   | 2007 |   |
|                                                                     |   |                                                |       |                                               |   |   |   |   |   |
| GROSS                    SALES                                           |   | $                                                   | 1,790,400  |                                               | $      | 1,776,400 |   | $ | 4,204,600 |   | $ | 4,685,200 |   |
| SALES                    RETURNS AND ALLOWANCES                          |   |                                                | 57,300     |                                               |   | 91,500 |   |   | 136,800 |   |   | 198,400 |   |
| NET                    SALES                                             |   |                                                | 1,733,100  |                                               |   | 1,684,900 |   |   | 4,067,800 |   |   | 4,486,800 |   |
|                                                                     |   |                                                |       |                                               |   |   |   |   |   |   |   |   |   |
| COST                    OF SALES                                         |   |                                                | 1,397,800  |                                               |   | 998,000 |   |   | 2,877,900 |   |   | 2,630,000 |   |
| GROSS                    PROFIT                                          |   |                                                | 335,300    |                                               |   | 686,900 |   |   | 1,189,900 |   |   | 1,856,800 |   |
|                                                                     |   |                                                |       |                                               |   |   |   |   |   |   |   |   |   |
| OPERATING                    EXPENSES                                    |   |                                                |       |                                               |   |   |   |   |   |   |   |   |   |
| Selling                                                                  |   |                                                | 545,600    |                                               |   | 359,500 |   |   | 1,386,200 |   |   | 1,175,900 |   |
| General                    and administrative                            |   |                                                | 777,100    |                                               |   | 724,500 |   |   | 2,507,700 |   |   | 2,041,300 |   |
| TOTAL                    OPERATING EXPENSES                              |   |                                                | 1,322,700  |                                               |   | 1,084,000 |   |   | 3,893,900 |   |   | 3,217,200 |   |
|                                                                     |   |                                                |       |                                               |   |   |   |   |   |   |   |   |   |
| LOSS                    FROM OPERATIONS                                  |   |                                                | (987,400   | )                                                  |   | (397,100 | ) |   | (2,704,000 | ) |   | (1,360,400 | ) |
|                                                                     |   |                                                |       |                                               |   |   |   |   |   |   |   |   |   |
| OTHER                    INCOME (EXPENSE)                                |   |                                                |       |                                               |   |   |   |   |   |   |   |   |   |
| Interest                    expense                                      |   |                                                | (20,800    | )                                                  |   | (42,200 | ) |   | (85,900 | ) |   | (100,600 | ) |
| Other                                                                    |   |                                                | (139,600   | )                                                  |   | (90,000 | ) |   | (225,900 | ) |   | 132,500 |   |
| TOTAL                    OTHER INCOME (EXPENSE)                          |   |                                                | (160,400   | )                                                  |   | (132,200 | ) |   | (311,800 | ) |   | 31,900 |   |
|                                                                     |   |                                                |       |                                               |   |   |   |   |   |   |   |   |   |
| LOSS                    BEFORE INCOME TAX PROVISION                      |   |                                                | (1,147,800 | )                                                  |   | (529,300 | ) |   | (3,015,800 | ) |   | (1,328,500 | ) |
| INCOME                    TAX PROVISION                                  |   |                                                | 23,100     |                                               |   | - |   |   | 23,100 |   |   | - |   |
|                                                                     |   |                                                |       |                                               |   |   |   |   |   |   |   |   |   |
| NET                    LOSS                                              |   | $                                                   | (1,170,900 | )                                                  | $      | (529,300 | ) | $ | (3,038,900 | ) | $ | (1,328,500 | ) |
|                                                                     |   |                                                |       |                                               |   |   |   |   |   |   |   |   |   |
| LOSS                    PER SHARE                                        |   |                                                |       |                                               |   |   |   |   |   |   |   |   |   |
| Basic                    and Diluted                                     |   | $                                                   | (0.21      | )                                                  | $      | (0.10 | ) | $ | (0.56 | ) | $ | (0.25 | ) |
|                                                                     |   |                                                |       |                                               |   |   |   |   |   |   |   |   |   |
| Weighted                    average number of common shares outstanding: |   |                                                |       |                                               |   |   |   |   |   |   |   |   |   |
| Basic                    and Diluted                                     |   |                                                | 5,529,500  |                                               |   | 5,227,100 |   |   | 5,473,400 |   |   | 5,229,600 |   |

----

**ITEM          1. Financial Statements (cont.)**

**ACTION          PRODUCTS INTERNATIONAL INC.**

**CONDENSED          CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)**

|                                                                                                                           |   | Nine Months Ended September 30 |       |
|--------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|------------|
|                                                                                                                           |   | 2008                                               |       | 2007 |   |
| CASH                    FLOWS FROM OPERATING ACTIVITIES                                                                        |   |                                               |       |   |   |   |   |
| Net                    Loss                                                                                                    |   | $                                                  | (3,038,900 | ) | $ | (1,328,400 | ) |
| Adjustments                    to reconcile net loss to net cash provided by/(used in) operating                    activities |   |                                               |       |   |   |   |   |
| Depreciation                                                                                                                   |   |                                               | 114,500    |   |   | 135,800 |   |
| Amortization                                                                                                                   |   |                                               | 227,000    |   |   | 66,000 |   |
| Unrealized                    (gain)loss on investment securities                                                              |   |                                               | 274,100    |   |   | (80,100 | ) |
| Stock                    based compensation expense                                                                            |   |                                               | 238,700    |   |   | 13,500 |   |
| Provision                    for bad debts                                                                                     |   |                                               | 77,500     |   |   | (33,400 | ) |
| Loss                    on disposal of other assets                                                                            |   |                                               | -          |   |   | 52,400 |   |
| Changes                    in:                                                                                                 |   |                                               |       |   |   |   |   |
| Litigation                    settlement receivable                                                                            |   |                                               | 3,233,700  |   |   | - |   |
| Accounts                    receivable                                                                                         |   |                                               | (24,300    | ) |   | 608,500 |   |
| Investment                    securities                                                                                       |   |                                               | (94,100    | ) |   | (249,100 | ) |
| Inventories                                                                                                                    |   |                                               | 629,700    |   |   | (1,160,300 | ) |
| Prepaid                    expenses                                                                                            |   |                                               | (35,100    | ) |   | 111,900 |   |
| Other                    assets                                                                                                |   |                                               | (466,100   | ) |   | (168,100 | ) |
| Accounts                    payable                                                                                            |   |                                               | (711,000   | ) |   | 1,316,400 |   |
| Accrued                    expenses, payroll and related expenses                                                              |   |                                               | 22,500     |   |   | 62,700 |   |
| Deferred                    revenue                                                                                            |   |                                               | -          |   |   | (18,800 | ) |
| NET                    CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                                                         |   |                                               | 448,200    |   |   | (671,000 | ) |
|                                                                                                                           |   |                                               |       |   |   |   |   |
| CASH                    FLOWS FROM INVESTING ACTIVITIES                                                                        |   |                                               |       |   |   |   |   |
| Acquisition                    of property, plant and equipment                                                                |   |                                               | (29,800    | ) |   | (61,500 | ) |
|                                                                                                                           |   |                                               |       |   |   |   |   |
| CASH                    FLOWS FROM FINANCING ACTIVITIES                                                                        |   |                                               |       |   |   |   |   |
| Purchase                    of treasury stock                                                                                  |   |                                               | (32,700    | ) |   | (7,700 | ) |
| Repayment                    of mortgage principal                                                                             |   |                                               | -          |   |   | (41,100 | ) |
| Proceeds                    from exercise of warrants and sale of preferred stock                                              |   |                                               | 57,100     |   |   | - |   |
| Common                    stock options and warrants issuance costs                                                            |   |                                               | -          |   |   | (900 | ) |
| Net                    change in borrowings under line of credit                                                               |   |                                               | (403,900   | ) |   | 401,600 |   |
| Net                    change in borrowings under investment account                                                           |   |                                               | (75,500    | ) |   | 46,800 |   |
| NET                    CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                                         |   |                                               | (455,000   | ) |   | 398,700 |   |
|                                                                                                                           |   |                                               |       |   |   |   |   |
| NET                    INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                        |   |                                               | (36,600    | ) |   | (333,800 | ) |
| CASH                    AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                            |   |                                               | 44,400     |   |   | 369,900 |   |
| CASH                    AND CASH EQUIVALENTS AT END OF PERIOD                                                                  |   | $                                                  | 7,800      |   | $ | 36,100 |   |
|                                                                                                                           |   |                                               |       |   |   |   |   |
| Supplemental                    disclosures - cash paid for:                                                                   |   |                                               |       |   |   |   |   |
| Interest                                                                                                                       |   | $                                                  | 85,900     |   | $ | 74,100 |   |
| Income                    Taxes                                                                                                |   | $                                                  | 23,100     |   | $ | - |   |

----

**ACTION          PRODUCTS INTERNATIONAL, INC.**

**NOTES          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

| **1.** | **Condensed                    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. (the “Company”), at September 30, 2008 and December                    31, 2007, the results of its (i) operations for the three and                    nine month                    periods ended September 30, 2008 and 2007 and (ii) cash flows                    for the nine                    month periods ended September 30, 2008 and 2007. The financial                    information                    included herein is taken from the books and records of the Company                    and is                    unaudited. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **2.** | **Operations**.                    The Company incurred significant losses during the three and                    nine month                    periods ended September 30, 2008. In its effort to eliminate                    these losses,                    the Company has recently changed certain key members of management,                    has                    focused efforts on increasing sales and is evaluating its product                    lines                    for profitable margin contributions. In addition, management                    has                    implemented various cost reductions in compensation and facility                    expense                    and is evaluating additional reductions. In conjunction, the                    product                    development process and plans for 2009 are being streamlined                    to focus                    investments in market segments that are anticipated to generate                    higher                    sales growth. Management believes that it will be successful                    in its plans                    to return the Company to profitability; accordingly, no adjustments                    have                    been made to the accompanying financials that might be necessary                    if the                    Company were unable to return to profitable                    operations. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **3.** | **Line                    of credit.** On                    June 25, 2008, the Company and Presidential Financial Corporation                    entered into a Loan Agreement and Security Agreement which replaced                    the                    previous facility with Regions Bank and was funded on July 1,                    2008. The                    Loan Agreement provides the Company the ability to borrow up                    to $2 million                    at any time during the term of the Loan Agreement. The amount                    that the                    Company may have outstanding under the Loan Agreement at any                    time is the                    sum of 85% of the Company’s receivables approved by the Lender plus 50% of                    the Company’s eligible inventory. The maximum amount of the inventory loan                    the Company may have outstanding against its inventory is the                    lesser of                    $600,000, or $700,000 from July 1 through September 30, and the                    loan amount outstanding against the Company’s receivables. Borrowings                    under the Loan Agreement will bear interest at a rate equal to                    1% over the                    prime rate as quoted in the Wall Street Journal adjusted upon                    each change                    in such prime rate. The Company shall also pay the Lender a monthly                    service charge of 0.6% of the average daily outstanding balance                    during the                    month. The Company shall also pay an annual facility fee equal                    to 1% of                    the $2 million maximum loan amount. The Lender may audit the                    Company’s                    records at the Company’s expense of $550 per day, up to a maximum amount                    of $8,000 per year. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**NOTES          TO CONDENSED FINANCIAL STATEMENTS (Continued)**

**Line          of Credit **
***(cont.)***

| **4.** | **Borrowings                      under Investment Account.**As                      part of the normal arrangement with the broker handling the                      Company’s                      marketable securities investments, the Company has the opportunity                      to                      borrow under a margin arrangement, for investment, when appropriate.                      The                      balance on the borrowing is secured by the securities in the                      portfolio and                      interest is charged at a variable rate on the average balance.                      The rate at                      September 30, 2008 ranged from 3.99 percent to 6.99 percent                      based on the                      balance borrowed. Borrowings under this account were $66,300                      and $141,800                      as of September 30, 2008 and December 31, 2007,                      respectively. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **5.** | **Earnings                      (loss) per share.**Common                      stock equivalents were not included in the computation of diluted                      earnings                      (loss) per share for the three and nine month periods ended                      September 30,                      2008 and 2007, as their effect would have been anti-dilutive.                      Common share                      equivalents excluded from the diluted earnings per share computations                      were                      7,034,400 and 7,121,600 for the three and nine months ended                      September 30,                      2008 and September 30, 2007                      respectively. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **6.** | **Common                    Stock and Equity Securities.**                    On                    May                    17, 2007,                    the Board of Directors authorized effective immediately, a program                    to                    repurchase up to 150,000 of the outstanding common shares. Repurchases                    may                    be made by the Company from time to time in the open market at                    prevailing                    prices, in either block purchases or in privately negotiated                    transactions.                    The share repurchase program does                    not have a fixed expiration date. However, the Board may discontinue                    or                    suspend the program at any time.                    During the three month period ended September 30, 2008 the Company                    repurchased 11,949 shares of its common stock at a cost of $17,600                    and                    115,182 shares remain available for repurchase under the                    plan. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Share-Based          Compensation**

----

**NOTES          TO CONDENSED FINANCIAL STATEMENTS (Continued)**

**Common          Stock and Equity Securities (**
***cont***
**.)**

| Options                                                     |   | Number of Options |     | Weighted-Average Exercise Price |   | Weighted-Average Remaining Contractual Term |   | Weighted-Average Grant Date Fair Value                                                                                                                                                                                                                                             |   |
|-------------------------------------------------------------|--------|-----------------------------|----------|-------------------------------------------|--------|------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                        |   |                        |     |                                      |   |                                                       |   |                                                   |   |
| Outstanding                    at January 1, 2008      |   |                        | 204,000  |                                      | $      | 3.13                                                       |   |                                                                                                                                                                                                                                                                                                   | 1.2    |   | $ | 1.84 |   |
| Grants                                                      |   |                        | 70,000   |                                      | $      | 1.20                                                       |   |                                                                                                                                                                                                                                                                                                   | 4.3    |   | $ | 0.59 |   |
| Exercises                                                   |   |                        | -        |                                      | $      | -                                                          |   |                                                                                                                                                                                                                                                                                                   | -      |   | $ | - |   |
| Cancellations                                               |   |                        | (10,000) |                                      | $      | 3.04                                                       |   |                                                                                                                                                                                                                                                                                                   | -      |   | $ | 1.36 |   |
| Outstanding                    at March 31, 2008       |   |                        | 264,000  |                                      | $      | 2.62                                                       |   |                                                                                                                                                                                                                                                                                                   | 1.9    |   | $ | 1.57 |   |
| Grants                                                      |   |                        | -        |                                      | $      | -                                                          |   |                                                                                                                                                                                                                                                                                                   | -      |   | $ | - |   |
| Exercises                                                   |   |                        | -        |                                      | $      | -                                                          |   |                                                                                                                                                                                                                                                                                                   | -      |   | $ | - |   |
| Cancellations                                               |   |                        | (6,000)  |                                      | $      | 6.25                                                       |   |                                                                                                                                                                                                                                                                                                   | -      |   | $ | 1.79 |   |
| Outstanding                    at June 30, 2008             |   |                        | 258,000  |                                      | $      | 2.54                                                       |   |                                                                                                                                                                                                                                                                                                   | 1.7    |   | $ | 1.55 |   |
| Grants                                                      |   |                        | 45,000   |                                      | $      | 1.80                                                       |   |                                                                                                                                                                                                                                                                                                   | 4.7    |   | $ | 1.07 |   |
| Exercises                                                   |   |                        | -        |                                      | $      | -                                                          |   |                                                                                                                                                                                                                                                                                                   | -      |   | $ | - |   |
| Cancellations                                               |   |                        | -        |                                      | $      | -                                                          |   |                                                                                                                                                                                                                                                                                                   | -      |   | $ | - |   |
| Outstanding                    at September 30, 2008        |   |                        | 303,000  |                                      | $      | 2.85                                                       |   |                                                                                                                                                                                                                                                                                                   | 5.0    |   | $ | 1.48 |   |
| Shares                    exercisable at September 30, 2008 |   |                        | 258,000  |                                      | $      | 2.54                                                       |   |                                                                                                                                                                                                                                                                                                   | 1.5    |   | $ | 1.55 |   |

|                                                 |   | Nine months ended September 31, 2008 |   |
|------------------------------------------------------|--------|---------------------------------------------------------------|--------|
| Risk-free                    rate                    |   |                                                          | 3.8%   |   |
| Expected                    option life (in years)   |   |                                                          | 4.4    |   |
| Expected                    stock price volatility   |   |                                                          | 80.0%  |   |
| Dividend                    yield                    |   |                                                          | 0.0%   |   |
| Weighted                    average grant date value |   | $                                                             | 1.07   |   |

----

**NOTES          TO CONDENSED FINANCIAL STATEMENTS (Continued)**

**Common          Stock and Equity Securities (**
***cont***
**.)**

| Three                    months ended December 31, 2008 |   | $ | 55,000  |   |
|---------------------------------------------------------|--------|---|---------|--------|
| Year                    ended December 31, 2009         |   | $ | 58,500  |   |
|                                                    |   | $ | 113,500 |   |

| **7.** | **Investment                    Securities**.                    Investment                    securities are categorized as trading securities and stated at                    market                    value. Market value is determined using the quoted closing or                    latest bid                    prices. Realized gains and losses on investment transactions                    are                    determined by specific identification and are recognized as incurred                    in                    the statement of operations. Net unrealized gains and losses                    are reported                    in the statement of operations and represent the change in market                    value of                    investment holdings during the period. At September 30, 2008                    marketable                    securities consisted of the                    following: |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                 |   | Value At September 30,2008 |    | Cumulative UnrealizedGain (Loss) At September 30,2008 |   |
|--------------------------------------|--------|-------------------------------------------|---------|--------------------------------------------------------------------------------|--------|
| Equity                    Securities |   | $                                         | 295,000 |                                                                           | $      | (272,300 | ) |
| Stock                    Options     |   | $                                         | (19,700 | )                                                                              | $      | (1,800 | ) |
| Total                                |   | $                                         | 275,300 |                                                                           | $      | (274,100 | ) |

| **8.** | **Related                      Party Transactions**.                      During the nine months ended September 30, 2008 and 2007, the                      Company paid                      $39,000 and $34,400, respectively, to Warren Kaplan, $7,400                      and $0                      respectively, to Judith Kaplan and $79,400 and $75,100, respectively,                      for                      consulting services to Ronel Management Company, wholly owned                      by Warren                      Kaplan, former Chairperson of the Board and Judith Kaplan,                      former Board                      member. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **9.** | **Business                    Combination with BE Overseas**.                    On August 25, 2008, the Company and a newly-formed wholly owned                    subsidiary of the Company, Action Healthcare Products, Inc.,                    a Florida                    corporation, (“AHCP”) entered into a Membership Interest Purchase                    Agreement to acquire all of the membership interests of B.E.                    Overseas                    Investment Group, LLC, a Florida limited liability company (“B.E.”). The                    acquisition was closed on August 25, 2008. Under the terms of the                    Membership Interest Purchase Agreement, AHCP acquired all of                    the                    outstanding membership interests in B.E. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**NOTES          TO CONDENSED FINANCIAL STATEMENTS (Continued)**

**Business          Combination with BE Overseas (**
***cont***
**.)**

| **10.** | **Other                    Commitments.**In                    January 2006, the Company renewed its License Agreement with                    Porchlight                    Entertainment, Inc., for the rights to market certain toy lines                    including                    a wooden adventure system and die cast metal collection under                    the Jay Jay                    The Jet PlaneTM name. The term of the Agreement is for two years expiring                    on December 31, 2008, subject to the Company meeting certain                    minimum sales                    objectives and royalty requirements. |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

**Forward-looking          Statements:**

**Strategic          Update**

----

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

|  | · | Accountable                    brand management philosophy |
|--|--------|------------------------------------------------------------|

|  | · | Eight                    award winning educational toy                    brands |
|--|--------|----------------------------------------------------------------------------------|

|  | · | 35,000                    sq ft distribution center |
|--|--------|-----------------------------------------------------|

|  | · | Outsourced/scalable                    manufacturing process |
|--|--------|--------------------------------------------------------------|

|  | · | Leverage                    over 1.5 million units sold annually with cross-selling                    materials |
|--|--------|------------------------------------------------------------------------------------------------------------------|

|  | · | Currently                    sold in 2,000+ retail stores across                    USA |
|--|--------|-----------------------------------------------------------------------------------------|

|  | · | 500+                    location-based edutainment venues: Museums, Zoos, Aquariums,                    Theme-parks                    & Attractions |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | Specialty                    & Department Retail Chains: Toy’s R’ Us, Barnes & Noble, JoAnn’s,                    Michaels, Lowes, Home Depot, JC Penney’s, Target, and                    others |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | Maximize                    existing relationships with retailers while opening new                    channels |
|--|--------|-----------------------------------------------------------------------------------------------------------------|

|  | · | Re-allocate                    resources to support our sales channel                    priorities |
|--|--------|-----------------------------------------------------------------------------------------------------|

|  | · | Promote                    all products to all customer segments to generate additional                    revenue                    opportunities |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | Become                    a recognized leader in the Educational toy children’s                    segment |
|--|--------|------------------------------------------------------------------------------------------------------------------|

|  | · | Create                    a multi-media on-line experience for our consumers to entertain,                    educate                    and generate revenue |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | Build                    targeted retailer and consumer programs to maximize selling opportunities                    year round |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------|

|  | · | Find                    other opportunities in the consumer products segment that can                    take                    advantage of existing                    infrastructure |
|--|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | Capitalize                    on business development through the BE                    acquisition |
|--|--------|-----------------------------------------------------------------------------------------------------|

**Results          of Operations:**

***Three          Months and Nine Months Ended September 30, 2008 Compared With Three Months          and          Nine Months Ended September 30, 2007***

----

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

|                                                  |   | Three MonthsEndedSeptember 30,2008 |    | Three Months Ended September 30, 2007 |   | Nine Months Ended September30, 2008 |   | Nine Months Ended September 30, 2007 |    |
|-------------------------------------------------------|--------|----------------------------------------------|---------|----------------------------------------------------------------|--------|---------------------------------------------------------|--------|---------------------------------------------------------------|---------|
| Net                    Sales                          |   |                                         | 100.0%  |                                                           |   | 100.0%                                                  |   |                                                          | 100.0%  |   |   | 100.0% |   |
| Cost                    of Sales                      |   |                                         | 80.7%   |                                                           |   | 59.2%                                                   |   |                                                          | 70.7%   |   |   | 58.6% |   |
| Gross                    Profit                       |   |                                         | 19.3%   |                                                           |   | 40.8%                                                   |   |                                                          | 29.3%   |   |   | 41.4% |   |
| Selling                    Expense                    |   |                                         | 31.5%   |                                                           |   | 21.3%                                                   |   |                                                          | 34.1%   |   |   | 26.2% |   |
| General                    and Administrative Expense |   |                                         | 44.8%   |                                                           |   | 43.0%                                                   |   |                                                          | 61.6%   |   |   | 45.5% |   |
| Total                    Operating Expense            |   |                                         | 76.3%   |                                                           |   | 64.3%                                                   |   |                                                          | 95.7%   |   |   | 71.7% |   |
| Loss                    from Operations               |   |                                         | (57.0%) |                                                           |   | (23.6%)                                                 |   |                                                          | (66.4%) |   |   | (30.3%) |   |
| Other                    Income (Expense)             |   |                                         | (9.3%)  |                                                           |   | 7.8%                                                    |   |                                                          | (7.7%)  |   |   | 0.7% |   |
| Loss                    before income taxes           |   |                                         | (66.3%) |                                                           |   | (31.4%)                                                 |   |                                                          | (74.1%) |   |   | (29.6%) |   |
| Income                    Taxes                       |   |                                         | 1.3%    |                                                           |   | -                                                       |        |                                                          | 0.6%    |   |   | - |  |
| Net                    Loss                           |   |                                         | (67.6%) |                                                           |   | (31.4%)                                                 |   |                                                          | (74.7%) |   |   | (29.6%) |   |

**Net          sales **

**Gross          profit **
** **

**Selling,          general and administrative (SG&A)**
** **

|  | · | An                    increase in compensation and related benefit costs of $155,100                    and                    $446,900 for the three and nine month periods, respectively,                    principally                    as the result of additions of senior financial and sales personnel                    and an                    increase in stock based compensation; |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | An                    increase in professional services of $34,700 and $242,800 for                    the three                    and nine month periods, respectively, resulting primarily from                    Sarbanes-Oxley compliance consulting services, legal, investor                    relations                    services and recruiting fees; |
|--|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|  | · | An                    increase in bad debt expense of $42,700 and $110,900 for the                    three and                    nine month periods, respectively;                    and |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  | · | A                    decrease in brand licensing expense of                    $44,600; |
|--|--------|-----------------------------------------------------------------------------------------|

|  | · | A                    decrease in commission expense of                    $21,800; |
|--|--------|------------------------------------------------------------------------------------|

|  | · | A                    decrease in travel expenses of $33,500                    and |
|--|--------|------------------------------------------------------------------------------------|

|  | · | A                    reduction in insurance expense of                    $15,000 |
|--|--------|-----------------------------------------------------------------------------------|

**Interest          expense**

**Other          income and (expense), net**

**Net          loss,**

**Financial          Condition, Liquidity, and Capital Resources:**

**ITEM          4.**
**Controls          and Procedures.**

----

**PART          II. OTHER INFORMATION**

**ITEM          1.**
**Legal          Proceedings**

**ITEM          2.**
**Unregistered          Sales of Securities and Use of Proceeds**

**Repurchase          of Securities**

| Repurchases                    of Common Shares                     |   |
|---------------------------------------------------------------------|--------|
|                                                                |   | Total number of common shares purchased |   | Average price paid per common share |   | Total number of common shares purchased as part of publicly announced plans or programs |   | Maximum number of common shares that may be purchased under the plans or programs |   |
| July 1, 2008 - July                    31, 2008 |   |   | - |   | $ | - |   |   | - |   |   | 127,131 |   |
| August                    1, 2008 - August 31, 2008                 |   |   | - |   | $ | - |   |   | - |   |   | 127,131 |   |
| September                    1, 2008 - September 30, 2008           |   |   | 11,949 |   | $ | 1.35 |   |   | 11,949 |   |   | 115,182 |   |
| Total                                                               |   |   | 11,949 |   | $ | 1.35 |   |   | 11,949 |   |   | 115,182 |   |

**ITEM          4.**
**Submission          of Matters to Vote of Shareholders**

**Proposal          1. Election of Directors **

----

| **NAME**                             |   | **FOR**   |   | **WITHHELD** |
|--------------------------------------|--------|-----------|--------|--------------|
| Neil                    Swartz       |   | 3,441,364 |   | 1,294,587    |
| Ronald                    S. Kaplan  |   | 3,324,845 |   | 1,411,106    |
| Scott                    Runkel      |   | 4,684,149 |   | 51,802       |
| Ann                    E. W. Stone   |   | 4,591,149 |   | 144,802      |
| Cecilia                    Sternberg |   | 4,667,920 |   | 68,031       |

**Proposal          2. Approval of Adoption of 2008 Long-Term Equity Incentive Plan**

| **FOR** |   | **AGAINST** |   | **ABSTAIN** |   | **BROKER NON-VOTE** |
|---------|--------|-------------|--------|-------------|--------|--------------------------|
| 250,896 |   | 1,428,404   |   | 1,948,925   |   | 1,107,726                |

**Proposal          3. Approval of Amendment to Amended and Restated Articles of Incorporation          **

| **FOR**   |   | **AGAINST** |   | **ABSTAIN** |   | **BROKER                      NON-VOTE** |
|-----------|--------|-------------|--------|-------------|--------|------------------------------------------|
| 4,562,695 |   | 134,480     |   | 38,776      |   | -                                        |

**ITEM          5.**
**Other          Information**

**ITEM          6.**
**Exhibits          **

**A.**

| Exhibit No.  | Description                                                                                                   |
|------------------------|---------------------------------------------------------------------------------------------------------------|
|                   |                                                                                                          |
| 31.1                   | Chief                    Executive Officer - Sarbanes-Oxley Act Section 302                    Certification* |
| 31.2                   | Chief                    Financial Officer - Sarbanes-Oxley Act Section 302                    Certification* |
| 32.1                   | Chief                    Executive Officer - Sarbanes-Oxley Act Section 906                    Certification* |
| 32.2                   | Chief                    Financial Officer - Sarbanes-Oxley Act Section 906                    Certification* |

----

**SIGNATURES**

**ACTION          PRODUCTS INTERNATIONAL, INC.**

| Date:                    November                    14, 2008 | By:    | /s/                    NEIL SWARTZ                                                          |
|---------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------|
|                                                          |   | Neil                    Swartz                                                              |
|                                                          |   | Chief                    Executive Officer (Principal Executive                    Officer) |

| Date:                    November                    14, 2008 | By:    | /s/                    ROBERT BURROWS                               |
|---------------------------------------------------------------|--------|---------------------------------------------------------------------|
|                                                          |   | Robert                    Burrows                                   |
|                                                          |   | Chief                    Financial Officer (Principal Financial and |
|                                                          |   | Accounting                    Officer)                              |

----