Filed pursuant to Rule 424(b)(3)
File Number 333-105641
PROSPECTUS
60,000 Shares of Common Stock
ACTION PRODUCTS INTERNATIONAL, INC.
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CEOCast, Inc. may, from time to time, offer and sell up to 60,000
shares of our common stock issuable upon exercise of an outstanding warrant.
The prices at which the selling shareholder may sell its shares will be
determined by the prevailing market price for its shares or in negotiated
transactions. We will not receive any of the proceeds from the sale of the
common stock being offered by this prospectus.
Our common stock is listed on the Nasdaq SmallCap Market under the
symbol "APII." On July 28, 2003, the last reported sale price of the common
stock on the Nasdaq SmallCap Market was $2.98 per share.
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Investing in our common stock involves risks. See "Risk Factors"
beginning on page 5.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The date of this Prospectus is July 31, 2003
TABLE OF CONTENTS
PAGE
Special Note Regarding Forward-Looking Statements.............................2
Where You Can Find More Information About Us..................................2
Prospectus Summary............................................................3
Risk Factors..................................................................5
Use of Proceeds..............................................................11
Selling Shareholder..........................................................11
Plan of Distribution.........................................................11
Legal Matters................................................................12
Experts......................................................................12
You should rely only on the information contained in this prospectus.
We have not authorized anyone to provide you with information different from
that contained in this prospectus. The selling shareholder is offering to sell,
and seeking offers to buy, shares of common stock only in jurisdictions where
offers and sales are permitted. The information contained in this prospectus is
accurate only as of the date of this prospectus.
References in this prospectus to "we", "us", "our" and similar terms
means Action Products International, Inc., a Florida corporation.
1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Our Company," "Risk Factors" and
elsewhere in this prospectus are forward-looking statements. These statements
involve known and unknown risks, uncertainties, and other factors that may cause
our actual results, levels of activity, performance, or achievements to be
materially different from any future results, levels of activity, performance,
or achievements expressed or implied by those forward-looking statements. In
some cases, you can identify forward-looking statements by terminology such as
"may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue" or the negative of those
terms or other comparable words. We believe that the expectations reflected in
the forward-looking statements are reasonable, but we cannot guarantee future
results, levels of activity, performance, or achievements. We do not promise to
update or revise any of the forward-looking statements, whether as a result of
new information, future events or otherwise. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed in this
prospectus may not occur.
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
We file annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any document we file with the Commission at the Public Reference Room at
the Commission, located at 450 Fifth Street, N.W., Washington, D.C. 20549.
Please call 1-800-SEC-0330 for further information concerning the Public
Reference Room. The Commission also makes these documents and other information
available on its web site at http://www.sec.gov.
We have filed with the Commission a registration statement on Form S-3
under the Securities Act of 1933, as amended, relating to the common stock
offered by this prospectus. This prospectus is a part of the registration
statement but does not contain all of the information in the registration
statement and its exhibits. For further information, we refer you to the
registration statement and its exhibits.
The Commission allows us to "incorporate by reference" the information
we file with it, which means that we can disclose important information to you
by referring you to another document we have filed with the Commission. The
information incorporated by reference is an important part of this prospectus
and information that we file later with the Commission will automatically update
and supersede this information. We incorporate by reference the following:
o our Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2002 filed with the Commission on March 26, 2003,
as amended on March 31, 2003;
o our Proxy Statement filed with the Commission on May 7, 2003;
o our Quarterly Report on Form 10-QSB for the quarter ended
March 31, 2003 filed with the Commission on April 30, 2003;
o our Quarterly Report on Form 10-QSB for the quarter ended June
30, 2003 filed with the Commission on July 25, 2003;
o any future filings we make with the Commission until the
selling shareholder sells all of the common stock offered by
it by this prospectus.
You may request a copy of these filings, at no cost, by writing or
telephoning us at Action Products International, Inc., Attn: Investor Relations,
390 N. Orange Ave., Suite 2185, Orlando, Florida 32801, (407) 481-8007.
2
PROSPECTUS SUMMARY
OUR COMPANY
We are a brand-focused, educational toy company. We design, manufacture
and market a diversified portfolio of educational and non-violent brands of toy
products, to various retailing channels such as toy stores, specialty retailers,
education outlets, museums, and attractions in the United States and throughout
the world. Our revenues for the twelve months ended December 31, 2002 and the
six months ended June 30, 2003 were approximately $6,429,000 and $3,651,000,
respectively. We incurred net losses for the twelve months ended December 31,
2002 and the six months ended June 30, 2003 of approximately $1,306,000 and
$104,000, respectively.
We were originally incorporated, and began our operations, in New York
in 1977, and relocated and re-incorporated in Florida in 1980 as a distributor
of education oriented toys and children's books, stationery and souvenirs,
supplying museum gift shops. Under new executive leadership, a new business
model was developed and implemented. From 1997 through 2002 we successfully
developed or acquired and brought to market a core portfolio of proprietary
branded product lines to replace sales of divested non-core lines. Our first
internally-developed proprietary toy brand, Space Voyagers(R), generated
approximately $1.0 million in its first full year on the market. During the past
three fiscal years, we have continued to develop other new proprietary products
through internal development, licensing and acquisition. In October 2002 we
began shipping our newest brand, Jay Jay The Jet Plane(TM), based on a PBS
television show, videos and children's books of the same name. Our business
model is based on the expansion of core brands, while developing new brands
through internal product development, favorable licensing agreements and prudent
acquisitions. Our growth strategy is based on diversifying distribution
channels, while creating and increasing brand equity.
We sell our educational toy product lines under the umbrella name
"Action Products(TM)." Our marketing and promotion communications focus on our
individual brands such as, Space Voyagers(R), Climb@tron(TM), I DIG
DINOSAURS(R), Woodkits(TM), Drop Zone Extreme(R), Play & Store(TM) and Jay Jay
The Jet Plane(TM). Products include action figures, play-sets, activity kits and
various other toys with a strategic emphasis on non-violent and educational and
fun topics such as space, dinosaurs, science, and nature.
The EarthLore(R) I DIG DINOSAURS(R) brand acquired in October 2000
continues to grow in popularity and contributed over $1.5 million to net sales
in 2002. The introduction of the new Jay Jay The Jet Plane(TM) brand in the
fourth quarter 2002 added another $0.4 million in net sales. Our other brands
including Drop Zone Extreme(TM), Space Voyagers(R) and Play & Store(TM)
contributed the remaining $4.5 million net sales in 2002.
In addition to the development of internal brands, we actively pursue
prudent acquisition opportunities and licensing arrangements. In October 2000,
we acquired certain assets of Earth Lore Ltd., a privately held Canada-based
maker of popular award-winning educational excavation kits for children. The
acquisition provided us with an appropriate product line extension, and channels
of distribution that complemented our existing bases. In 2001, we acquired a
license agreement with the developers of the PBS children's show Jay Jay The Jet
Plane(TM) to develop and launch our new Wooden Adventure System(TM) based on the
episodes, videos and books of this popular children's series. We launched this
product line in the fourth quarter 2002 to popular reception from trade and
consumers.
3
Our mailing address and telephone number of our principal executive
offices are Action Products International, Inc., 390 N. Orange Ave., Suite 2185,
Orlando, Florida 32801, (407) 481-8007.
RECENT EVENTS
On April 24, 2003, our Board of Directors declared a warrant dividend
so that our shareholders will receive, for each Action Products common share
owned as of June 12, 2003, one warrant. Each warrant will entitle the holder to
purchase one share of Action Products common stock for $2.00. The warrants will
be exercisable for one year after they are issued.
THE OFFERING
Securities Offered: 60,000 shares of common stock
issuable upon exercise of an
outstanding warrant.
Common Stock
Currently outstanding: 3,099,270 shares
After exercise of the warrant: 3,159,270 shares
Shares being offered as a percent
of total outstanding shares 2%
Common Stock Market Symbol: Nasdaq SmallCap Market - "APII"
Use of Proceeds: The selling shareholder will receive
the net proceeds from the sale of the
shares. We will receive none of the
proceeds from the sale of the shares
offered by this prospectus. Proceeds
from the exercise of the warrant will
be used for general corporate
purposes.
Risk Factors: An investment in the shares involves a
high degree of risk. See "Risk
Factors" commencing on the next page.
4
RISK FACTORS
You should carefully consider the risks described below before making
an investment decision. Our business, financial condition or results of
operations could be materially adversely affected by any of these risks. The
trading price of our common stock could decline due to any of these risks and
you may lose all or part of your investment.
Risks associated with our business
We incurred significant net losses in fiscal 2002 and 2001. If we
continue to incur net losses, our ability to satisfy our cash requirements may
be more difficult. We incurred net losses of approximately $1.3 million and $0.5
million in fiscal 2002 and 2001, respectively. There can be no assurance that we
will return to profitability in the future. If we fail to generate operating
income and net income, we could have difficulty meeting our working capital
requirements.
We have substantial cash requirements and may require additional
sources of funds. Additional sources of funds may not be available or available
on reasonable terms. We have substantial cash requirements in connection with
our operations and debt service obligations. In addition, new product
development, which is key to the success of our business, is cash intensive. If
the cash we generate from our operations or from our other sources is not
available when needed or is insufficient to satisfy our requirements, we may
require additional sources of funds. We cannot assure you that such additional
sources of funds would be available on reasonable terms or at all. If we do not
generate sufficient amounts of capital to meet our cash requirements at the
times and on the terms required by us, our business will be adversely affected.
Changing consumer preferences may negatively impact our product lines.
As a result of changing consumer preferences, many toys are successfully
marketed for only one or two years, if at all. We cannot assure you that any of
our current successful products or product lines will continue to be popular
with consumers for any significant period of time, or that new products and
product lines 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. Our success is dependent upon our ability to enhance existing product
lines and develop new products and product lines. The failure of our new
products and product lines to achieve and sustain market acceptance and to
produce acceptable margins could have a material adverse effect on our financial
condition and results of operations.
We may need additional financing. We have an agreement with Mercantile
Bank, pursuant to which Mercantile Bank provides us with a revolving line of
credit for up to $2.0 million as described in the agreement. The borrowings
under the line of credit are utilized to finance accounts receivable, inventory
and other operating and capital requirements. This line of credit matures June
30, 2005 and contains covenants relating to our financial condition. If we fail
to maintain compliance with the financial covenants contained in the line of
credit, the maturity date could be accelerated.
We have received financing in the past from members of the Kaplan
family. In 2002, members of the Kaplan family, including Ronald S. Kaplan, a
director and our President and Chief Executive Officer, Warren Kaplan, our
chairperson of the board, and Judith Kaplan, a director, made an aggregate cash
infusion into our company of approximately $1.1 million. None of the members of
the Kaplan family, however, have any obligation to make any capital contribution
to our company in the future, nor have any of them indicated whether they will
exercise any of the public warrants issued to them as part of their pro rata
share of the 2003 warrant distribution.
5
Our customers' inventory management systems may cause us to produce
excess inventory that may become obsolete and increase our inventory carrying
costs. Most of our largest retail customers utilize an inventory management
system to track sales of products and rely on reorders being rapidly filled by
us and other suppliers, rather than maintaining large product inventories. These
types of systems put pressure on suppliers like us to promptly fill customer
orders and also shift some of the inventory risk from the retailer to suppliers.
Production of excess inventory by us to meet anticipated retailer demand could
result in our carrying obsolete inventory and increasing our inventory carrying
costs. Similarly, if we fail to predict consumer demand for a product, we 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 could impact our revenues. As is customary in the
toy industry, we have historically permitted, on a minimum basis, certain
customers to return slow-moving items for credit. We expect that we will
continue to make such accommodations in the future. Any significant increase in
the amount of returns could have a material adverse effect on our financial
condition and results of operations.
There are risks related to our acquisition strategy. We may, from time
to time, evaluate and pursue acquisition opportunities on terms management
considers favorable. A successful acquisition involves an assessment of the
business condition and prospects of the acquisition target, which includes
factors beyond our control. This assessment is necessarily inexact and its
accuracy is inherently uncertain. In connection with such an assessment, we
perform a review we believe to be generally consistent with industry practices.
This review, however, will not reveal all existing or potential problems, nor
will it permit us to become sufficiently familiar with the acquisition target to
assess fully its deficiencies. We cannot assure you that any such acquisition
would be successful or that the operations of the acquisition target could be
successfully integrated with our operations. Any unsuccessful acquisition could
have a material adverse effect on our financial condition and results of
operations.
We are dependent on contracts with manufacturers, most of which are
short-term. We conduct substantially all of our manufacturing operations through
contract manufacturers, many of which are located in the People's Republic of
China (PRC), Hong Kong, Singapore and Taiwan. We generally do not have long-term
contracts with our manufacturers. Foreign manufacturing is subject to a number
of risks including, but not limited to,
o transportation delays and interruptions,
o political and economic disruptions,
o the impositions of tariffs and import and export controls, and
o changes in governmental policies.
While we have not experienced any material adverse effects due to such
risks to date, we cannot assure you 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.
We are dependent on intellectual property rights and cannot ensure that
we will be able to successfully protect such rights. We rely on a combination of
trademark, copyright, patent and other proprietary rights laws to protect our
rights to valuable intellectual property related to our brands. We also rely on
license and other agreements to establish ownership rights and to maintain
confidentiality. We cannot assure you that such intellectual property rights can
be successfully asserted in the future or that they will not be invalidated,
circumvented or challenged. In addition, laws of certain foreign countries in
which our products are sold, or in which we operate, do not protect intellectual
property rights to the same extent as the laws of the U.S. The failure to
protect our proprietary information and any successful intellectual property
challenges or infringement proceedings against us could have a material adverse
affect on our business, financial condition or results of operations.
6
There are specific risks associated with international sales. We have
sold products to customers in the United Kingdom, Canada, Korea, Japan,
Australia and New Zealand. We expect to augment our presence in international
markets. Accordingly, our business, and our ability to expand our operations
internationally, is subject to various risks inherent in international business
activities. We may have difficulty in safeguarding our intellectual property in
countries where intellectual property laws are not well developed or are poorly
enforced. General economic conditions and political conditions of various
countries may be subject to severe fluctuations at any time. Such fluctuations
could hinder our performance under contracts in those countries or could hinder
our ability to collect for product and services delivered in those countries.
Unexpected changes in foreign regulatory requirements could also make it
difficult or too costly for us to conduct business internationally.
In addition, although we have normally been successful in stipulating
that our foreign customers pay in U.S. dollars, any payment provisions involving
foreign currencies may result in less revenue than expected due to foreign
currency rate fluctuations. Other risks associated with international operations
include
o import and export licensing requirements,
o trade restrictions,
o changes in tariff rates,
o overlapping tax structures,
o transportation delays,
o currency fluctuations,
o potentially adverse tax consequences, and
o compliance with a variety of foreign laws and regulations.
Any of the foregoing factors could have a material adverse effect on
our ability to expand our international sales. Increased exposure to
international markets creates new areas with which we may not be familiar and
could place us in competition with new vendors. We cannot assure you that we
will be successful in our efforts to compete in these international markets.
We face potential liability from product safety claims. Products that
have been or may be developed or sold by us may expose us to potential liability
from personal injury or property damage claims by end-users of such products. We
have never been and are not presently a defendant in any product liability
lawsuit; however, we cannot assure you that such a suit will not be brought
against us in the future. We currently maintain product liability insurance
coverage in the amount of $1.0 million per occurrence, with a $2.0 million
excess umbrella policy. We cannot assure you that we 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 we maintain adequate insurance, any successful claim could materially
and adversely affect our reputation and prospects, and divert management's time
and attention. The U.S. Consumer Products Safety Commission, or 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 we are found
in the future to have violated any such law or regulation, the sale of the
relevant product could be prohibited and we could be required to repurchase such
products.
7
We may become subject to burdensome governmental regulation. In the
U.S., we are subject to the provisions of, among other laws, the Federal
Consumer Product Safety Act and the Federal Hazardous Substances Act. These acts
empower the CPSC to protect the public against unreasonable risks of injury
associated with consumer products, including toys and other articles. The CPSC
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 CPSC is subject to court
review. Violations of these acts may also result in civil and criminal
penalties. Similar laws exist in some states and cities in the U.S. and in many
jurisdictions throughout the world. We maintain a quality control program,
including the retention of independent testing laboratories, to ensure
compliance with applicable laws. We believe we are currently in substantial
compliance with these laws. In general, we have not experienced difficulty
complying with such regulations, and compliance has not had an adverse effect on
our business.
There are risks related to our customers' payment terms. The majority
of our customers receive trade terms to which payments for products are delayed
for up to 30 days and some receive up to 90 days, pursuant to various sales
promotion programs. To reduce our exposure to uncollectible accounts receivable,
in March 2001 we secured a business credit insurance policy to guarantee the
majority of our accounts receivable. Although we have secured such a policy, the
insolvency or business failure of one or more of our customers with large
accounts receivable could have a material adverse affect on our future sales.
Seasonality may affect our results of operations. Our sales have
historically been seasonal in nature, reflecting peak sales in the third and
fourth quarters and slower sales in the first and second quarters.
Risks associated with investing in us
We expect our stock price to be volatile. The market price of the
shares of our common stock has been, and will likely continue to be, subject to
wide fluctuations in response to several factors, such as
o actual or anticipated variations in our results of operations,
o new services or product introductions by us or our
competitors,
o changes in financial estimates by securities analysts, and
o conditions and trends in the consumer toy industry.
The stock markets generally, and the Nasdaq SmallCap Market in
particular, have experienced extreme price and volume fluctuations that have
particularly affected the market prices of equity securities of many companies
and that often have been unrelated or disproportionate to the operating
performance of those companies. These market fluctuations, as well as general
economic, political and market conditions such as recessions, interest rates or
international currency fluctuations may adversely affect the market price of our
common stock.
If our common stock is delisted from Nasdaq, liquidity in our common
stock will likely be adversely affected. Our common stock is listed for trading
on the Nasdaq SmallCap Market. In order to continue to be listed on Nasdaq,
however, we must meet certain criteria, including one of the following
o maintaining $2,500,000 in shareholders' equity,
o having a market capitalization of at least $35,000,000, or
o generating net income of $500,000.
8
In addition, the minimum bid price of our common stock must be at least
$1.00 per share and the market value of the public float must be at least
$1,000,000. On July 28, 2003, our bid price was $2.98. The dilution to our
shareholders which could be caused by the additional shares of our common stock
being sold into the market could cause the per share value of our common stock
to drop below the minimum bid price of $1.00. As of June 30, 2003, we had
shareholders' equity of $2,782,000 but did not satisfy the requirements for
market capitalization or net income. The failure to meet Nasdaq's maintenance
criteria may result in the delisting of our common stock from Nasdaq, and
trading, if any, in our securities would thereafter be conducted in the
non-Nasdaq over-the-counter market. As a result of such delisting, you could
find it more difficult to dispose of, or to obtain accurate quotations as to the
market value of, our securities.
If our common stock is delisted from Nasdaq, our common stock may
become subject to the penny stock rules. Broker-dealer practices in connection
with transactions in "penny stocks" are regulated by certain rules adopted by
the Securities and Exchange Commission. Penny stocks generally are equity
securities with a price of less than $5.00 other than securities registered on
certain national securities exchanges or quoted on Nasdaq provided that current
price and volume information with respect to transactions in such securities is
provided by the exchange or system. The rules require that, prior to a
transaction in a penny stock not otherwise exempt from the rules, the
broker-dealer must
o deliver a standardized risk disclosure document that provides
information about penny stocks and the risks in the penny
stock market,
o provide the customer with current bid and offer quotations for
the penny stock,
o disclose the compensation of the broker-dealer and its
salesperson in connection with the transaction,
o provide the customer monthly account statements showing the
market value of each penny stock held in the customer's
account, and
o make a special written determination that the penny stock is a
suitable investment for the customer and receive the
customer's written agreement to the transaction.
These disclosure requirements may have the effect of reducing the
liquidity of penny stocks. If our securities are subject to the penny stock
rules, you may find it more difficult to sell your shares of our common stock.
Our officers and directors control a large percentage of outstanding
stock and may be able to exercise significant control. Our current officers and
directors beneficially own approximately 59% of our common stock on a fully
diluted basis. As a result, current management will be able to exercise
significant influence over all matters requiring shareholder approval, including
the election of directors and approval of significant corporate transactions.
We have implemented anti-takeover provisions that could prevent an
acquisition of us at a premium price. Certain provisions of our articles of
incorporation and bylaws may be deemed to have anti-takeover effects and may
delay, defer or prevent a take-over attempt of us. We are subject to the
"affiliated transactions" and "control share acquisition" provisions of the
Florida Business Corporation Act. These provisions require, subject to certain
exceptions, that an "affiliated transaction" be approved by the holders of
two-thirds of the voting shares other than those beneficially owned by an
"interested shareholder" or by a majority of disinterested directors. Voting
rights must also be conferred on "control shares" acquired in specific control
share acquisitions. Lastly, our articles of incorporation authorize the issuance
of up to 10,000,000 shares of preferred
9
stock with such rights and preferences as may be determined form time to time by
our board, of which all shares remain without designation and available for
issuance. We include such preferred stock in our capitalization in order to
enhance our financial flexibility. However, the issuance of large blocks of
preferred stock may have a dilutive effect with respect to existing holders of
our common stock.
We depend on key personnel. Our success largely depends on a number of
key employees. The loss of services of one or more of these employees could have
a material adverse effect on our business. We are especially dependent upon the
efforts and abilities of certain of our senior management, particularly Ronald
S. Kaplan, our President and Chief Executive Officer. Currently, we do not
maintain key man life insurance on Mr. Kaplan or any other executive officer. We
believe that our future success will also depend, in part, upon our ability to
attract, retain and motivate qualified personnel. We cannot assure you, however,
that we will be successful in attracting and retaining such personnel.
We do not plan to pay cash dividends. We expect that we will retain all
available earnings generated by our operations for the development and growth of
our business. Accordingly, we do not anticipate paying any cash dividends on our
common stock.
The issuance of additional shares of common stock or the exercise of
outstanding options and warrants will dilute the interests of our shareholders.
As of July 28, 2003, we had 3,099,270 shares of our common stock outstanding.
Our board has the ability, without further shareholder approval, to issue up to
approximately 11.9 million additional shares of common stock. Such issuance may
result in a reduction of the book value or market price of our outstanding
common shares. Issuance of additional common stock will reduce the proportionate
ownership and voting power of the then existing shareholders. Further, if all
our outstanding options and warrants are exercised, we will have approximately 7
million shares outstanding. Thus, the percentage of shares owned by all existing
shareholders will be reduced proportionately as options and warrants are
exercised. The table below summarizes our current outstanding common shares,
options and warrants:
- ---------------------------------------------- ---------------------- -------------------------- -------------
Common Shares, Options and Warrants Number of Common Number of Common Shares Total
Shares underlying Options and
Warrants
- ---------------------------------------------- ---------------------- -------------------------- -------------
Common shares issued as of issued 3,272,092
July 28, 2003
----------------- ---------------------- -------------------------- -------------
less treasury (172,822)
shares
- ---------------------------- ----------------- ---------------------- -------------------------- -------------
Options outstanding as of currently 400,942
July 28, 2003 under our exercisable
stock option plan
----------------- ---------------------- -------------------------- -------------
currently 120,334
unexercisable
- ---------------------------- ----------------- ---------------------- -------------------------- -------------
Warrants outstanding as of issued to 60,000
July 28, 2003 (all CEOcast
warrants are currently
exercisable)
----------------- ---------------------- -------------------------- -------------
public warrants 3,272,092
- ---------------------------- ----------------- ---------------------- -------------------------- -------------
TOTAL 3,099,270 3,853,368 6,952,638
- ---------------------------- ----------------- ---------------------- -------------------------- -------------
10
USE OF PROCEEDS
All of the shares of common stock offered by this prospectus are being
offered by the selling shareholder listed under "Selling Shareholder." We will
not receive any proceeds from sales of common stock by the selling shareholder.
Proceeds from the exercise of the warrant will be used for general corporate
purposes.
SELLING SHAREHOLDER
On May 15, 2003, we entered into an agreement with CEOCast, Inc., the
selling shareholder. CEOCast will provide us with certain investor relations and
related services for three months. As consideration for these services, we will
pay CEOCast $7,500 per month plus a warrant to purchase 60,000 shares of our
common stock at $2.00 per share.
The following table sets forth information as of July 28, 2003 about
the selling shareholder and the number of shares of common stock beneficially
owned by the selling shareholder, all of which are offered by this prospectus.
For purposes of computing the number and percentage of shares beneficially owned
by the selling shareholder on July 28, 2003, any shares which such person has
the right to acquire within 60 days after such date are deemed to be
outstanding:
- --------------------------------------- ----------------- ---------------------- ------------------ ----------------
Name of Selling Shareholder Shares
Owned Upon Percent
Shares Being Percent Owned Completion Owned After
Offered Before Offering of Offering Offering
- --------------------------------------- ----------------- ---------------------- ------------------ ----------------
CEOCast, Inc. 60,000 (1) 1.6% 0 0
- --------------------------------------- ----------------- ---------------------- ------------------ ----------------
TOTAL 60,000 1.6% 0 0
- --------------------------------------- ----------------- ---------------------- ------------------ ----------------
(1) Represents 60,000 shares underlying a warrant exercisable at $2.00 per
share.
PLAN OF DISTRIBUTION
The selling shareholder may sell the common stock being offered by this
prospectus from time to time directly to other purchasers, or to or through
dealers or agents. The selling shareholder will act independently of us in
making decisions regarding the timing, manner and size of each sale. It may sell
its common stock in one or more transactions at fixed prices, at prevailing
market prices at the time of sale, at varying prices determined at the time of
sale or at negotiated prices. The sales may be made in transactions (which may
involve crosses or block transactions)
o on any exchange or market on which the common stock may be
listed or quoted at the time of sale,
o in the over-the-counter market,
o in negotiated transactions, or
o through the writing of options.
In connection with sales of the common stock, the selling shareholder
may enter into hedging transactions with broker-dealers, and those
broker-dealers may in turn engage in short sales of the common stock in the
course of hedging the positions they assume. The selling shareholder may also
sell short the common stock and deliver the common stock offered by this
prospectus to close out such
11
short positions, or lend or pledge such common stock to broker-dealers that in
turn may sell such securities.
The selling shareholder and any brokers, dealers or agents described
above may be deemed "underwriters" as that term is defined by the Securities
Act.
The selling shareholder and any other persons participating in a
distribution of securities will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, that may limit the timing of purchases and sales of
securities by the selling shareholder and others participating in a distribution
of securities. In addition, under Regulation M, those engaged in a distribution
of securities may not at the same time make a market in the securities or take
other actions that may affect the market price of the securities for a specified
period of time before the beginning of the distribution, subject to some
exceptions or exemptions. All of the restrictions described above may affect the
marketability of the securities offered by this prospectus.
The selling shareholder has advised us that it has not entered into any
agreements, understandings or arrangements with any underwriter or broker-dealer
regarding the sale of its shares underlying the warrant.
If a dealer is used in the sale of any common stock where this
prospectus is delivered, the selling shareholder may sell the common stock to
the public at varying prices to be determined by the dealer at the time of
resale.
In connection with the sale of common stock, dealers or agents may
receive discounts, concessions, or commissions from the selling shareholder or
from purchasers of the common stock for whom they may act as agents. Agents and
dealers participating in the distribution of the common stock may be deemed to
be underwriters, and any compensation received by them and any profit on the
resale of common stock by them may be deemed to be underwriting discounts or
commissions under the Securities Act.
Under the registration rights agreement between us and the selling
shareholder, we have agreed to pay costs and expenses associated with the
registration of the shares of common stock to be sold by this prospectus. In
addition, the selling shareholder may be entitled to indemnification against
certain liabilities under the registration rights agreement.
We will make copies of this prospectus available to the selling
shareholder and have informed the selling shareholder of the need to deliver a
copy of this prospectus to each purchaser before or at the time of such sale.
LEGAL MATTERS
The validity of the issuance of shares of common stock offered by this
prospectus will be passed upon for us by Raice Paykin & Krieg, LLP. Elissa
Paykin, the spouse of one of the partners of the firm, owns 237,254 shares of
our common stock. Ms. Paykin is the sister of Ronald Kaplan, a director and our
President and Chief Executive Officer, and is the daughter of two of our
directors, Warren and Judith Kaplan.
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EXPERTS
Our consolidated balance sheet as of December 31, 2002 and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for each of the two years in the period ended December 31, 2002 have been
incorporated by reference in this prospectus and in the registration statement
in reliance on the report of Moore Stephens Lovelace, P.A., independent
auditors, given upon the authority of that firm as experts in accounting and
auditing.
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ACTION PRODUCTS INTERNATIONAL, INC.
60,000 Shares of Common Stock
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Prospectus
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July 31, 2003