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, 2000                       Commission File Number
                                                Registration Number 2-93512-A



                       ACTION PRODUCTS INTERNATIONAL, INC.
             (Exact name of registrant as specified in its charter)




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

             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 March 31, 2000.


          Class                                 Outstanding at March 31, 2000
Common Stock, $.001 par value                             2,007,400



<PAGE>




                                    I N D E X
<TABLE>
<CAPTION>

   PART I.      FINANCIAL INFORMATION                                                        Page
                                                                                            Number
   Item 1.      Financial Statements
<S>                                                                                          <C>
                Condensed balance sheets - March 31, 2000
                    and December 31, 1999 (unaudited)                                         3

                Condensed statements of income and changes in
                    Retained earnings  - Three months ended
                    March 31, 2000 and 1999 (unaudited)                                       4

                Condensed statements of cash flows for the three months
                    ended March 31, 2000 and March 31, 1999 (unaudited)                       5

                Condensed Statement of Stockholders' Equity from
                    January 1, 2000 through March 31, 2000 (unaudited)                        6

                Notes to unaudited condensed financial statements                             7

   Item 2.      Management's Discussion and Analysis of Financial Condition,
                Results of Operations and Liquidity and Capital Resources                     8


   PART II.     OTHER INFORMATION

   Item 6.      Exhibits and Reports on Form 8-K                                             14

                SIGNATURE PAGE                                                               15

</TABLE>
                                       2
<PAGE>

                       ACTION PRODUCTS INTERNATIONAL, INC.
                            CONDENSED BALANCE SHEETS
                  ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                           March 31, 2000            December 31, 1999
<S>                                                                        <C>                           <C>
Current assets:
  Cash and cash equivalents                                                $   779,200                   $ 1,053,600
  Accounts receivable, net of allowance of
    $57,300 at March 31, 2000 and
    December 31, 1999                                                        1,147,800                       956,700
  Inventories, net                                                           1,357,500                     1,416,300
  Prepaid expenses                                                             328,000                       178,800
                                                                           -----------                   -----------

    Total Current Assets                                                     3,612,500                     3,605,400

Property, plant and equipment, net of
  accumulated depreciation of $806,100 at
  March 31, 2000 and $777,900 at
  December 31, 1999                                                            953,300                       972,000
Other assets                                                                   642,000                       691,800
                                                                           -----------                   -----------

    TOTAL ASSETS                                                             5,207,800                     5,269,200
                                                                           ===========                   ===========

Current liabilities:
 Accounts payable & accrued expenses                                           301,700                       600,200
 Deferred Revenue                                                               25,000                        25,000
 Current portion of mortgage payable                                            18,700                        19,000
 Borrowings under line of credit                                               722,000                       516,000
                                                                           -----------                   -----------
    Total Current Liabilities                                                1,067,400                     1,160,200

Long term liabilities:
  Mortgage payable                                                             708,200                       712,400
  Deferred Revenue                                                             168,800                       175,000
  Deferred Income Taxes                                                         14,000                        14,000

Shareholder's equity:
Common stock $.001 par value authorized
  15,000,000; 2,007,400 issued and
  outstanding at March 31,2000 and
  December 31, 1999                                                              2,000                         2,000
Additional paid-in capital                                                   3,524,200                     3,524,200
Retained Earnings                                                              247,700                       215,500
Stock Subscriptions Receivable                                                (524,500)                     (534,100)
                                                                           -----------                   -----------

     Total Shareholders' Equity                                              3,249,400                     3,207,600
                                                                           -----------                   -----------

TOTAL LIABILITIES AND
 SHAREHOLDERS' EQUITY                                                        5,207,800                     5,269,200
                                                                           ===========                   ===========
</TABLE>


                             See Accompanying Notes

                                       3
<PAGE>

                             ACTION PRODUCTS INTERNATIONAL, INC.
                          CONDENSED STATEMENTS OF INCOME AND CHANGES
                                     IN RETAINED EARNINGS
                                         (UNAUDITED)


                                                   Three months ended March 31,
                                                  -----------------------------
                                                      2000             1999
                                                      ----             ----

Net sales                                         $ 1,470,200       $ 1,186,900
Cost of sales                                         715,800           566,200
                                                  -----------       -----------

Gross profit                                          754,400           620,700

Selling, general &
 administrative expenses                              751,900           673,000

Other (expenses) income
   Other                                               77,000            40,400
   Interest expense                                   (34,200)          (15,500)
                                                  -----------       -----------
Total                                                  42,800            24,900

Income (loss) before income taxes                      45,300           (27,400)

Provision for income taxes                             13,100              --
                                                  -----------       -----------

Net income (loss)                                 $    32,200       $   (27,400)
                                                  -----------       -----------

Beginning retained earnings                           215,500           448,000
                                                  -----------       -----------

Ending retained earnings                          $   247,700       $   420,600
                                                  ===========       ===========

Net income (loss) per share
  Basic                                           $      0.02       $     (0.02)
  Diluted                                         $      0.01             (0.02)
                                                  ===========       ===========

Weighted average number
 of common shares outstanding
  Basic                                             2,007,400         1,624,900
                                                  ===========       ===========
  Diluted                                           2,785,600         1,624,900
                                                  ===========       ===========



                             See Accompanying Notes

                                       4

<PAGE>

                       ACTION PRODUCTS INTERNATIONAL, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                                    Three months ended March 31,
                                                                                                    ----------------------------
                                                                                                     2000                   1999
                                                                                                     ----                   ----
<S>                                                                                            <C>                       <C>
Cash flows from operating activities:
          Net income (loss)                                                                    $    32,200              $   (27,400)
Adjustments to reconcile net income
   to net cash provided by (used in)
   operating activities:

        Depreciation and amortization                                                               84,900                   65,700

Changes in assets and liabilities:
        Current assets, other than
            cash and cash equivalents                                                             (281,500)                (264,800)

        Other assets                                                                                (6,900)                 (53,900)

        Current liabilities and deferred taxes                                                    (304,700)                  14,000
                                                                                               -----------              -----------

  Net cash used in operating activities                                                           (476,000)                (266,400)
                                                                                               ===========              ===========

  Net cash used in investing activities                                                             (9,500)                 (40,300)
                                                                                               ===========              ===========

  Net cash provided by (used in) financing activities                                              211,100                  316,800
                                                                                               ===========              ===========

  Net decrease in cash and cash equivalents                                                       (274,400)                  10,100

Cash and cash equivalents at beginning of period                                                 1,053,600                  339,900
                                                                                               -----------              -----------

Cash and cash equivalents at end of period                                                     $   779,200              $   350,000
                                                                                               ===========              ===========

Supplemental disclosures - cash paid for
      Interest                                                                                 $    34,200              $    15,500
      Taxes                                                                                    $   101,000              $    10,000

</TABLE>


                             See Accompanying Notes
                                       5
<PAGE>


                       ACTION PRODUCTS INTERNATIONAL, INC.

                  STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                     CONSOLIDATED STATEMENT OF STOCKHOLDERS'
                 EQUITY December 31, 1999 through March 31, 2000
                                   (Unaudited)

<TABLE>
<CAPTION>
                                               Common Stock
                                             $.001 Par Value             Additional                       Stock           Total
                                          --------------------            Paid-In         Retained     Subscription    Shareholders'
                                           Shares           Amount        Capital         Earnings      Receivable       Equity
                                           ------           ------        -------         --------      ----------       ------
<S>                                       <C>            <C>             <C>             <C>             <C>              <C>
BALANCE -                                 2,007,400      $    2,000      $3,524,200      $  215,500      $ (534,100)      $3,207,600
DECEMBER 31, 1999

COLLECTION OF
STOCK                                          --              --              --              --             9,600            9,600
SUBSCRIPTIONS

NET INCOME                                     --              --              --            32,200            --             32,200
                                         ----------      ----------      ----------      ----------      ----------       ----------

BALANCE - MARCH 31, 2000                  2,007,400      $    2,000      $3,524,200      $  247,700      $ (524,500)      $3,249,400
                                         ==========      ==========      ==========      ==========      ==========       ==========
</TABLE>


                             See Accompanying Notes

                                       6
<PAGE>

                       ACTION PRODUCTS INTERNATIONAL, INC.
                     NOTES TO CONDENSED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.  Condensed financial statements
In the opinion of management, the accompanying unaudited condensed financial
statements contain all normal recurring adjustments necessary to present fairly
the financial position of Action Products International, Inc. at March 31, 2000
and the results of its operations and cash flows for the first quarter ending
March 31, 2000.

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 report on Form 10-KSB for the year ended December 31,
1999. The results of operations for the period ended March 31, 2000 are not
necessarily indicative of the operating results for the full year.

2.  Year 2000
The Company concluded its efforts concerning its exposure relative to year 2000
issues for both information and non-information technology systems. Management
actively monitors the status of the readiness program of the Company. The
Company`s out of pocket costs associated with becoming Year 2000 compliant were
approximately $15,000. These costs were expensed as incurred, and the Company
does not anticipate any additional material expenditure as a result of Year 2000
issues.

Based on operations since January 1, 2000, including the leap year date of
February 29, 2000, the Company has not experienced any significant disruption or
change, and does not expect any significant impact to its ongoing business a
result of the Year 2000 issue. Additionally, the Company is not aware of any
significant Year 2000 issues or problems that have arisen for its significant
customers, vendors or service providers. As there can be no assurance that the
Company's efforts to achieve Year 2000 readiness have been completely successful
or that customers, vendors and service providers will not experience Year 2000
related failures in the future, the Company will continue to monitor its
exposure to Year 2000 issues and will leave its contingency plans in place in
the event that any significant Year 2000 related issues arise.

3.  Renewal of Line of Credit
During May 2000, the Company obtained an extension of the maturing date of its
line of credit though May 2001, unsubstantially the same terms as previously
existed. The only significant change was an interest rate change from prime to
prime plus 1%.

4.  Earnings per share
Common stock equivalents were not included in the presentation of diluted
earnings per share for the period ending March 31, 1999, as their effect would
have been anti-dilutive.

                                       7
<PAGE>

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

Forward-looking Statements:
Any statements that are not historical facts contained in this discussion are
forward looking statements. It is possible that the assumptions made by
management for purposes of such statements may not materialize. Actual results
may differ materially from those projected or implied in any forward-looking
statements. Such statements may involve risks and uncertainties, including but
not limited to those relating to product demand, pricing, market acceptance, the
effect of economic conditions, and intellectual property rights and the outcome
of competitive products, risks in product development, the results of financing
efforts, the ability to complete transactions, and other risks identified in
"Factors That May Affect Future Results and Market Price of Stock" and the
Company's other Securities and Exchange Commission filings.

Results of Operations:

Three Months Ended March 31, 2000 Compared with Three Months Ended March 31,
1999

         Revenues. Revenues increased to $1,470,200 during the first quarter
ended March 31, 2000 compared with revenues of $1,186,900 during the first
quarter of 1999. Management attributes the 23.9% increase in revenues to a
diversification of product lines and the success of the Company's products at
the 2000 Toy Fair in New York City. With the strengthening of the Companies
branding, sales to museums continue to increase.

         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.

         Gross Profit. In addition to sales growth generated within certain
target markets, management credits its proprietary brands with generating
improved margins. There was a slight decrease in gross margins to 51.3% during
the first quarter of 2000, compared with 52.3% for the first quarter of 1999.

         Selling, General & Administrative Expenses. Selling, general and
administrative expenses increased to $751,9000 during the first quarter of 2000
from $673,000 during the first quarter of 1999, an 11.7% increase. This increase
in SG&A is primarily as result of the Company's headquarters moving from Ocala,
Florida to Orlando, Florida, and the relocation of staff. Management's planned
efforts to decrease selling, general and administrative expenses include
reducing future costs in certain areas such as staffing, outside labor, bank
charges.

         Interest Expense and Other Income. Interest expense related to current
and long-term debt was approximately $34,200 during the first quarter of 2000
compared with $15,500 during the first quarter of 1999. This increase is due
primarily to the additional borrwings that were need for in-tranist inventories
and the build up of inventory levels.

         Other income was $77,000 during the first quarter of 2000 and $40,400
during the first quarter of 1999. This increase is due to investment income
received.

                                       8

<PAGE>

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

         Other income and expenses are netted for financial statement purposes.
This amount has historically been. Insignificant and represented less than three
percent of net sales in each of the last two fiscal years.

         Income Before Provision for Income Taxes and Net Income. As a result of
the foregoing, the Company had income before taxes of $45,300 during the first
quarter of 2000 compared with a net loss of $27,400 during the first quarter of
1999. The Company made a $13,100 provision for income taxes during the first
quarter of 2000, so the Company's net income for the first quarter of 2000 was
$32,200.

Financial Condition, Liquidity and Capital Resources:

As of March 31, 2000, current assets were $3,612,500 compared to current
liabilities of $1,067,400 resulting in a current ratio of better than 3.4:1.
Total assets decreased to $5,207,800 from $5,269,200 at December 31, 1999.
Current liabilities decreased $92,800. Current assets increased $7,100 due
primarily to increases in accounts receivable.

Net accounts receivable and inventories were $1,147,800 and $1,357,500,
respectively, at March 31, 2000, compared to $956,700 and $1,416,300,
respectively, at December 31, 1999. The difference between the three months
ending March 31, 2000, was a result of the Company's normal business cycle.

Cash and cash equivalents were $779,200 at March 31, 2000, a decrease of
$274,400 from December 31, 1999, as a net result of prepayments of inventory in
transit and other reductions in liabilities.

Net property, plant and equipment decreased from $972,000 at December 31, 1999
to $953,300 at March 31, 2000, a decrease of $18,700 or 1.9%. The Company
recorded depreciation of $28,200 during the first quarter of 2000. The Company
made capital expenditures in the amount of $9,500 during the first quarter of
2000 to purchase networking computers for the accounting and art departments.
Other assets decreased from $691,800 at December 31, 1999 to $642,000 at March
31, 2000, a decrease of $49,000 or .1%

Accounts payable and accrued expenses decreased $298,500 to $301,700 at March
31, 2000 from $600,200 at December 31, 1999 due primarily to payments of
liabilities to vendors. Net borrowings under the line of credit increased to
$722,000 at March 31, 2000 from $516,000 at December 31, 1999 due primarily to
the receipt of and payment for in-transit inventory during the quarter.

Cash used in operations was $476,000 for the three months ended March 31, 2000,
as compared to $266,400 for the comparable period in 1999, due primarily to
sales on credit and the increase of inventory levels in anticipation of the
upcoming seasonal spike in business. Also, the Company used cash from operations
during this period to make a tax payment of $101,000 for the gain on the sale of
Action SnacksTM.

                                       9

<PAGE>

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

During May 2000, the Company obtained an extension of the maturing date of its
line of credit though May 2001, at substantially the same terms as previously
existed. The only significant change was an interest rate change from prime to
prime plus 1%.

Shareholders' equity at March 31, 2000 increased by $41,800 as a combined result
of the net income and collections of stock subscriptions receivable.

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 risk, some of these the Company controls. The following indicate some
of these risks:

                  Concentration of Stock Ownership. The Companies present
Officers and Directors beneficially own approximately 65 % of the outstanding
common stock. 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.

                  Dependence on Key Management. The Company 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, President & Chief
Executive Officer. The loss of Mr. Kaplan or any of its key executives could
have a material adverse effect on the Company and its operations and prospects.
Currently the Company has no key man life insurance on Mr. Kaplan. 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 operations for the development and growth of its
business. Accordingly, the Company does not anticipate paying any cash dividends
on its common stock.

                  Dilution. The Company's Articles of Incorporation authorizes
the issuance of Shares of common and preferred stock. As of March 27, 2000, the
Company has 2,007,400 shares of its common stock issued and outstanding and has
not issued any preferred stock. The Company's Board has the ability, without
further shareholder approval, issue up to 12,974,667 additional shares of common
stock, with preferences designed by the Board of Directors. As such issuance may
result in a reduction of the book value or market price, of the outstanding
common shares. Issuance of the additional common stock will reduce the
proportionate ownership and voting power of the then existing shareholders.

                  Anti-Takeover Provisions. The foregoing provision in the
Company's Articles of Incorporation (namely the ability, without further
shareholder approval) to issue additional shares of common stock and/or
preferred stock with rights and preferences determined by the Board of Directors
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.

                                       10

<PAGE>

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

            Changing Consumer Preferences, reliance on New Product Introduction.
As a result of changing consumer preferences, many toys are successfully
marketed for only one or two 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 or (ii)
new products and product lines introduced by the Company will achieve an
acceptable degree of market acceptance, or that if such acceptance is achieved,
it will be maintained for any significant period of time. Furthermore, sales of
the Company's existing products could possibly 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. Effective May 8, 2000, the Company entered into an
agreement with SouthTrust Bank pursuant to which SouthTrust provides a revolving
line of credit for up to $1 million (the "Revolver"). Borrowings under the
Revolver are utilized by the Company to finance accounts receivable, inventory,
and other operating and capital requirements. The Revolver matures April 17,
2001 and contains covenants relating to the condition of the Company. If the
Company fails to maintain compliance with the financial covenants contained in
the Revolver, the maturity date will be accelerated. The Company is currently
negotiating a new line of credit.

            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 also 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 certain customers to return slow-moving items
for credit or has provided price protection by making any price reductions
effective as to certain products then 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 ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (Continued)

                                       11

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

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.

            Dependence on Contract Manufacturers. The Company conducts
substantially all of its manufacturing operations through contract
manufacturers, many of which are located in the People's Republic of China (the
"PRC"), Hong Kong, Singapore and Taiwan. The Company does not have long-term
contracts with any of 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 and changes in governmental policies. 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 interferences with,
product deliveries resulting in losses of sales and goodwill.

            General Risks of Foreign Operations. Foreign operations are
generally subject to risks such as transportation delays and interruptions,
political and economic disruptions, the imposition 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 its foreign operations,
there can be no assurance that such events will not occur in the future. Any
growth of the Company's international operations will subject the Company to
greater exposure to risks of foreign operations. The occurrence of such an
event, particularly one affecting the Company's relations with its manufacturers
in the PRC, would have a material adverse effect on the Company.

            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

                                       12

<PAGE>

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

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 market 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.

            Seasonality and Fluctuations in Quarterly Performance. The Company's
sales are seasonal in that a substantial portion of net sales is made to
retailers in anticipation of the summer and Christmas holiday seasons. During
fiscal 1999, 56% of the Company's net sales were made during the Company's
second and forth fiscal quarters in connection with retail sales for the summer
and Christmas holiday season. Adverse business or economic conditions during
these periods could adversely affect results of operations for the full year.
The Company's financial results for a particular quarter may not be indicative
of results for an entire year, and the Company's revenues and/or expenses will
vary from quarter to quarter.

Sales tend to be lowest in the first and third quarters and highest in the
second and forth quarters of the calendar year. Products are generally shipped
as orders are received and accordingly the Company has historically operated
with little backlog. As a result, sales in any quarter are dependent on orders
booked and shipped in that quarter. If sales or timing of orders fall below the
Company's expectations, operating results could be adversely affected for
relevant quarters and for the year if expenses based on these expectations have
already been incurred. Further, due to the seasonality of the business, cash
flow tends to be negative during the first and third quarters when inventory and
accounts receivable have historically increased in anticipation of the
seasonally higher product sales in the second and forth quarters. Cash flow
requirements during these periods are funded by the revolving line of credit
that the Company has with its bank. Should the Company not have a sufficient
line of credit available during the year, it could have a material adverse
effect on the Company's results of operations due to its limited ability to

                                       13
<PAGE>

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

internally finance the growth in inventory and accounts receivables necessary to
generate a positive net income.

            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 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 Target Corporation
accounted for more than 4% of the Company's sales in 1999, 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
quarter and slower sales in the fourth quarter. Due to changes and improvements
in the Company's customer base, the impact of the seasonal nature of the
Company's sales is expected to diminish.

PART II.  OTHER INFORMATION

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

A.       Exhibits
         27.1 Financial Data Schedule

A.       Reports on Form 8-K
         None.

Items 1, 2, 3, 4 and 5 are inapplicable and have been omitted.

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<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 12, 2000        By:     /s/ Ronald Kaplan
       --------------              ----------------------------------
                                    Ronald Kaplan, President

 Date:   May 12, 2000        By:     /s/ Timothy L. Young
       --------------              -------------------------------------
                                    Timothy L. Young, Chief Financial Officer
                                    (Chief Accounting Officer)




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