UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________________________________
FORM 10-Q
/X/ QUARTERLY REPORT Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter ended March 31, 1997
Commission File No. 1-6485
________________________________________________________________
or
/ / TRANSITION REPORT Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
________________________________________________________________
ACTION INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
________________________________________________________________
Pennsylvania
(State or other jurisdiction of incorporation or organization)
________________________________________________________________
25-0918682
(I.R.S. Employer Identification No.)
________________________________________________________________
460 Nixon Road, Cheswick, Pennsylvania 15024-1098
(Address of principal executive offices) (Zip Code)
________________________________________________________________
Registrant's telephone number, including area code: (412) 782-4800
_________________________________________________________________
The number of shares of the Registrant's common stock outstanding
at May 12, 1997 was 5,539,458.
_________________________________________________________________
Indicate by check mark 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
----- -----
INDEX
ACTION INDUSTRIES, INC. AND SUBSIDIARIES
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -
March 31, 1997, March 31, 1996,
and June 30, 1996 3
Consolidated Statements of Operations -
Nine Months and Three Months Ended
March 31, 1997 and March 31, 1996 4
Consolidated Statements of Shareholders' Equity
(Capital Deficiency) - Nine Months Ended
March 31, 1997 and March 31, 1996 5
Consolidated Statements of Cash Flows -
Nine Months Ended March 31, 1997 and
March 31, 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
PART I. FINANCIAL INFORMATION
<TABLE>
ACTION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<CAPTION>
(In thousands)
March March June
31, 1997 31, 1996 30, 1996
-------- -------- --------
ASSETS
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents $411 $59 $78
Trade accounts receivable, less allowances
of $200, $329, and $353 937 4,440 2,769
Inventories 0 9,582 3,928
Other current assets 418 1,143 671
------ ------- ------
Total Current Assets 1,766 15,224 7,446
Property, Plant and Equipment 44 7,459 385
Other Assets
Note Receivable 544 1,200 850
Other 166 470 227
------ ------- ------
$2,520 $24,353 $8,908
====== ======= ======
LIABILITIES AND SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Current Liabilities
Notes payable $0 $3,337 $3,039
Accounts payable 1,776 3,373 2,628
Accrued compensation 442 113 607
Other accrued liabilities 326 1,008 736
------ ------- ------
Total Current Liabilities 2,544 7,831 7,010
Long-Term Liabilities
Financing obligation - sale/leaseback 0 7,013 0
Long-term debt 115 115 115
Deferred compensation 1,459 1,304 1,554
------ ------- ------
Total Long-Term Liabilities 1,574 8,432 1,669
Shareholders' Equity (Capital Deficiency)
Common stock, $0.10 par value;
authorized 20,000,000 shares;
issued 7,187,428 shares 719 719 719
Capital in excess of par 25,498 25,498 25,498
Retained earnings (deficit) (16,241) (6,553) (14,414)
------ ------- ------
9,976 19,664 11,803
Less treasury shares, at cost 11,574 11,574 11,574
------ ------- ------
Total Shareholders' Equity (Capital Deficiency) (1,598) 8,090 229
------ ------- ------
$2,520 $24,353 $8,908
====== ======= ======
See notes to consolidated financial statements.
</TABLE>
<TABLE>
ACTION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(In thousands except per share data)
<CAPTION>
Nine Months Ended Three Months Ended
---------------------- ----------------------
March March March March
31, 1997 31, 1996 31, 1997 31, 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $5,424 $24,534 $0 $5,455
COSTS AND EXPENSES
Cost of products sold 3,654 20,326 0 4,937
Operating expenses 4,006 7,836 561 2,438
Interest expense 446 1,614 67 416
-------- -------- -------- --------
8,106 29,776 628 7,791
OTHER INCOME (EXPENSE), NET 855 204 365 (29)
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES (1,827) (5,038) (263) (2,365)
PROVISION FOR INCOME TAXES - - - -
-------- -------- -------- --------
NET LOSS ($1,827) ($5,038) ($263) ($2,365)
======== ======== ======== ========
NET LOSS PER SHARE ($0.33) ($0.91) ($0.05) ($0.43)
======== ======== ======== ========
Weighted average shares outstanding 5,539 5,539 5,539 5,539
======== ======== ======== ========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
ACTION INDUSTRIES, INC. AND SUBSIDIAIRIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
UNAUDITED
(In thousands except share amounts)
<CAPTION>
Nine Months Ended March 31, 1997 and March 31, 1996
--------------------------------------------------------------------------------
Capital Retained
Common Stock In Excess Earnings Treasury Stock
Shares Amount of Par (Deficit) Shares Amount Total
------ ------ --------- --------- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE - JUNE 24, 1995 7,187,428 $719 $25,498 ($1,515) 1,647,970 ($11,574) $13,128
Net Loss - - - (5,038) - - (5,038)
--------------------------------------------------------------------------------
BALANCE - MARCH 31, 1996 7,187,428 $719 $25,498 ($6,553) 1,647,970 ($11,574) $8,090
================================================================================
BALANCE - JUNE 30, 1996 7,187,428 $719 $25,498 ($14,414) 1,647,970 ($11,574) $229
Net Loss - - - (1,827) - - (1,827)
--------------------------------------------------------------------------------
BALANCE - MARCH 31, 1997 7,187,428 $719 $25,498 ($16,241) 1,647,970 ($11,574) ($1,598)
================================================================================
See notes to consolidated financial statements.
</TABLE>
<TABLE>
ACTION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)
<CAPTION>
Nine Months Ended
------------------------
March March
31, 1997 31, 1996
-------- --------
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ($1,827) ($5,038)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 240 678
Changes in operating assets and liabilities:
Trade accounts receivable 1,832 5,468
Inventories 3,928 8,551
Other current assets 253 (32)
Accounts payable and accrued expenses (1,427) (2,220)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,999 7,407
======= =======
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment - (220)
Payments received on notes receivable 306 -
------- -------
NET CASH USED IN INVESTMENT ACTIVITIES 306 (220)
======= =======
FINANCING ACTIVITIES:
Notes and acceptances payable (3,039) (6,825)
Payment of deferred compensation (95) (384)
Principal payments on long-term obligations - (726)
Other, net 162 240
------- -------
NET CASH USED IN FINANCING ACTIVITIES (2,972) (7,695)
======= =======
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 333 (508)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 78 567
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $411 $59
======= =======
See notes to consolidated financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ACTION INDUSTRIES, INC. AND SUBSIDIARIES
A. The consolidated financial statements included herein have been
prepared by the Company, pursuant to the rules and regulations
of the Securities and Exchange Commission. With the exception
of the consolidated balance sheet which was derived from the
audited financial statements as of June 30, 1996, such
statements have not been audited. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such
rules and regulations. The Company believes that the
disclosures are adequate to make the information presented not
misleading. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements
and the notes thereto included in the Company's latest Annual
Report on Form 10-K. Effective July 1995 the Company changed
its fiscal calendar from a 52-53 week year ending on the last
Saturday of each fiscal month to the last day of the calendar
month.
B. The accompanying financial statements reflect all adjustments
(consisting of normal recurring accruals and estimates) which
are, in the opinion of management, necessary for a fair
presentation.
C. In October 1996 the Company entered into an agreement to sell
its inventory and related intellectual property associated with
its Replenishment (Powerhouse) business and Promotional
business. The Powerhouse-related assets were sold on October
18, 1996. The Promotional-related assets were sold on February
12, 1997 pursuant to a foreclosure sale by Foothill Capital
Corporation ("Foothill"), the Company's secured lender. The
assets sold represented substantially all of the operating
assets employed in the Company's business. Trade accounts
receivable were retained, as were non-operating notes and other
receivables from prior sales of the Company's headquarters
facility and certain business units. The Company also retained
its substantial income tax net operating loss carryforwards.
Also in October 1996 the Company finalized negotiations and
signed a new lease arrangement for its headquarters facility.
The new lease obligates the Company for rent of approximately
$100,000 per year for a five year period under an operating
lease. This lease agreement, in conjunction with the physical
departure from the warehouse space in the facility, resulted in
the elimination as of June 30, 1996 of the previously reported
capital lease obligation for the facility.
The accompanying financial statements include the historical
results of operations of the Company's Promotional and
Replenishment businesses. Valuation adjustments were made as
of June 30, 1996 to the historical cost basis of the Company's
inventories and property and equipment impacted by the sale of
the Company's current operations, to value these assets at
estimated net realizable value, and to reflect the abandonment
or sale of certain fixed assets no longer used to support
operations. The net value realized by the Company in the sale
of its inventories and the sale and abandonment of
substantially all of its property and equipment approximated
the net book value of these assets at the time of sale.
D. In April 1997 the Company announced that it had signed a letter
of intent to acquire General Vision Services, Inc. ("GVS"), a
direct and third-party provider of retail vision services
primarily in the New York City metropolitan area, as well as
elsewhere in New York and surrounding states, and in Florida.
GVS operates from 104 locations, including 23 owned locations.
GVS also provides retail hearing management services.
The terms of the merger call for the Company to issue
approximately 3,700,000 shares of its Common Stock and
approximately 4,000,000 shares of a new Class B Redeemable
Preferred Stock with a par value of $1 per share, in exchange
for 100% of the capital stock of GVS.
The proposed merger is subject to a number of closing
conditions, including the consummation of a proposed private
placement financing transaction. The gross proceeds of the
financing are expected to range between a best efforts minimum
of $2,000,000 and a maximum of $3,300,000. An amount ranging
from $1,200,000 at the minimum to $2,000,000 at the maximum
will be loaned to GVS prior to the consummation of the proposed
merger. The Company is currently considering increasing the
maximum to $4,000,000. If such increase is authorized,
substantially all of the increase in the net proceeds will be
added to the loan to GVS. The securities to be issued in the
proposed private financing transaction will not be registered
with the Securities Exchange Commission and may not be offered
or sold in the United States without registration or an
applicable exemption from registration. The proposed merger is
also subject to the execution of a definitive merger agreement
and to the approval of the current shareholders of both the
Company and GVS. The process of obtaining such approval is
expected to take 120 days or more.
The American Stock Exchange ("AMEX") halted trading in the
Company's Common Stock on October 21, 1996. The AMEX has
determined to delist the Company's Common Stock, but has
granted a brief period for the Company to effect an acquisition
to satisfy the criteria for AMEX listing. The proposed merger
with GVS may or may not result in the Company qualifying for
AMEX listing. There can be no assurance that the listing will
be maintained.
E. The results of operations for the third fiscal quarter and nine
month period ended March 31, 1997 are not necessarily
indicative of the results to be expected for the full year. As
a result of the asset sales described above, the Company does
not currently have an operating business or source of revenue.
F. Inventories consisted primarily of merchandise held for resale.
Inventories were valued at the lower of first-in, first-out
(FIFO) cost or market. All inventories were sold or otherwise
disposed of in connection with the asset sales described above.
G. The Company had a credit agreement which provided for up to $10
million in committed credit lines through June 30, 1997. In
connection with the foreclosure sale by Foothill, the credit
agreement was terminated as of February 12, 1997. Availability
under the credit line was limited by the level of eligible
accounts receivable and inventories. Interest was payable at
3.5% over the prime rate of interest.
The Company did not meet the requirements under the restrictive
covenants of the credit agreement as of December 31, 1996, and
was not able to meet these covenants subsequently. The
lender's remedies under such a default included the right to
demand repayment of the outstanding loan and interest due.
H. No income tax benefits were provided on the losses incurred in
the nine month periods ended March 31, 1997 and March 31, 1996
because realization of such benefits is not reasonably assured.
Net operating loss carryforwards available to offset future
taxable income and thereby reduce income taxes payable in the
future are approximately $48 million, including losses for
financial reporting purposes which have not yet been reported
for income tax reporting purposes.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Sale of Operating Assets. The Company entered into a nonbinding
letter of intent dated August 30, 1996 to sell to Mazel Stores,
Inc. ("Mazel") the inventory and related intellectual property
associated with its Powerhouse (Replenishment) business, and
pending the approval of its shareholders, to also sell the
inventory and intellectual property related to its Promotional
business. A binding Asset Purchase Agreement (subject to
shareholder approval with regard to the Promotional assets) was
signed on October 18, 1996. The Powerhouse-related assets were
then sold to Mazel.
The Company's Promotional-related assets were to be sold to Mazel
upon satisfaction of various conditions, including shareholder
approval. Unanticipated delays in satisfying those conditions of
closing resulted in the delay of the sale of the Promotional
assets. The Company expected the process of obtaining shareholder
approval to be completed in December 1996 or early January 1997.
The Company was not able to obtain timely approval to distribute
the proxy statement to solicit such shareholder approval. The sale
of the Promotional-related assets was delayed beyond the time
provided for in the Company's agreement with Mazel, and beyond the
time expected by Foothill. Foothill exercised its rights and
remedies under the Amended and Restated Loan and Security Agreement
with the Company, and sold the Promotional-related assets to Mazel
in a private foreclosure sale on February 12, 1997.
The proceeds of the sale to Mazel were $1.6 million, including
$400,000 related to the sale of the Powerhouse assets in October,
and $1.2 million related to the foreclosure sale of the Promotional
assets in February 1997. This resulted in a loss to the Company
of $900,000, representing the difference between the proceeds and
the net book value of the assets sold. The loss was previously
recorded in the Company's year-end financial statements as of June
30, 1996. Proceeds were used to repay in its entirety the debt
owed to Foothill under the Company's credit agreement, and
transaction related costs.
The assets sold to Mazel by the Company and Foothill represented
substantially all of the operating assets employed in the Company's
business. Trade accounts receivable were retained, as were
non-operating notes receivable and rights to future payments from prior
sales of the Company's headquarters facility and certain business
units. The Company also retained its substantial income tax net
operating loss carryforwards.
Acquisition of Operating Business. After signing the letter of
intent with Mazel, the Company continued to actively explore other
strategic options available to it, including business combinations
with other operating businesses in order to continue as an
operating concern and preserve all or a portion of its income tax
net operating loss carryforwards. The Company received indications
of interest from various third parties for a business combination
of this type, and engaged in specific discussions relating to such
a transaction with these interested parties. Such discussions led
to the signing of a nonbinding letter of intent to acquire General
Vision Services, Inc. ("GVS"), a direct and third-party provider of
retail vision services. GVS operates primarily in the New York
City metropolitan area, as well as elsewhere in New York and
surrounding states, and in Florida. GVS operates from 104
locations, including 23 owned locations. GVS also provides retail
hearing management services.
The terms of the merger call for the Company to issue approximately
3,700,000 shares of its Common Stock and approximately 4,000,000
shares of a new Class B Redeemable Preferred Stock with a par value
of $1 per share, in exchange for 100% of the capital stock of GVS.
The shares to be issued by the Company would result in the current
shareholders of GVS owning a 40% equity interest in the Company
after the proposed merger, and the pre-merger Action Industries,
Inc. shareholders retaining 60%, prior to the further dilution, if
any, which may result from the private financing discussed below
and incentive stock options to be granted to key employees of GVS
based upon future operating performance.
The Company currently has a federal income tax net operating loss
carryforward ("NOL") of approximately $48 million, which can be used
to offset future taxable income, if any. There can be no assurance
that the NOL will be preserved if the proposed merger with GVS is
consummated, nor that the NOL can be utilized in part or in full.
If fully utilized to offset future taxable income of the Company
after the proposed merger, however, the NOL could offset future
federal income taxes in excess of $15 million, based on current
rates.
The proposed merger is subject to a number of closing conditions,
including the consummation of a proposed private placement
financing transaction, the maximum gross proceeds of which are
expected to be approximately $3,300,000. After transaction costs
estimated to be approximately $440,000, $2,000,000 of the proceeds
will be loaned to GVS prior to the consummation of the proposed
merger. The Company is currently considering increasing the
maximum to $4,000,000. If such increase is authorized,
substantially all of the increase in the net proceeds will be added
to the loan to GVS. The remainder of the proceeds will be utilized
to pay outstanding liabilities and for ongoing expenses. The
securities to be issued in the proposed private financing
transaction will not be registered with the Securities Exchange
Commission and may not be offered or sold in the United States
without registration or an applicable exemption from registration.
The proposed merger is also subject to the execution of a
definitive merger agreement and to the approval of the current
shareholders of both the Company and GVS. The process of obtaining
such approval is expected to take 120 days or more. The letter of
intent was originally subject to the retention of the Company's
American Stock Exchange listing, however, that condition has been
waived.
The American Stock Exchange ("AMEX") halted trading in the Company's
Common Stock on October 21, 1996. The AMEX has determined to
delist the Company's Common Stock, but has granted a brief period
for the Company to effect an acquisition to satisfy the criteria
for AMEX listing. The proposed merger with GVS may or may not
result in Action qualifying for AMEX listing. There can be no
assurance that the listing will be maintained.
In connection with the foreclosure sale by Foothill, the Company's
working capital credit agreement was terminated on February 12,
1997. The ability of the Company to repay its existing obligations
and to continue in existence until the merger discussed in the
preceding paragraphs can be consummated, is dependent on the
realization of the remaining assets and the proceeds of the private
placement financing, as well as the ability to coordinate the
timing of payment of the obligations with cash receipts.
The events which have led to the decision to sell the current
operations are described in the following paragraphs.
Organization and Business. The organization and business of Action
Industries, Inc. and its Subsidiaries (collectively, the "Company")
have undergone significant changes beginning in fiscal 1990 and
continuing through fiscal 1996 and into fiscal 1997 in connection
with a major restructuring effort and the Company's response to
declining sales.
The Company experienced declining sales in its traditional
promotional business each year since 1989. Net sales were $134.2
million in 1989, had declined to $84.1 million by 1992, and had
declined further to $30.2 by 1996. The Company implemented a
restructuring plan in 1990 including various activities intended
to return the Company to sales growth or stability and
profitability. The Company focused on its core business and sold
or eliminated those noncore business units and assets which were
not profitable or were not consistent with those objectives.
Almost continuous downsizing efforts were made over the years since
1990 to reduce merchandise inventories and the Company's reliance
on working capital borrowings, and to reduce personnel and other
operating costs in order to compensate for the decline in sales.
The strategy also encompassed reduction of low margin business,
including reduction of guaranteed sale business, which contributed
to the decline in sales. While progress was made initially and at
other times over the years, the Company was not able to make
sufficient progress overall to improve or even maintain its
position in the retail marketplace.
The historical decline in sales was the result of many factors,
including a changing retail marketplace, the increasing complexity
of the promotional business itself, and strategic decisions to exit
or downsize unprofitable, higher risk product lines.
During fiscal 1996 continued declining sales and increasing
operating losses resulted in the Company aggressively accelerating
its inventory reduction plan, further downsizing its operating
infrastructure, and the assessment that significant improvements
in sales and profitability were necessary in order to provide
sufficient liquidity to continue to operate the business.
In response to this assessment, the Company engaged Parker/Hunter,
an investment banking firm to assist in identifying, analyzing and
pursuing possible strategic alternatives for potential business
combinations involving substantially all of the business, all of
its operating assets or the capital stock of the Company.
Working with its advisors, the Company was unable to attract a
source of additional debt and/or equity capital. A credible
forecast showing improved future operating results could not be
developed, given the Company's sales and profitability prospects.
Upon this determination that there was little or no possibility of
raising the additional capital necessary to finance a turnaround or
further restructuring of the business, a comprehensive search for
purchase and/or merger candidates interested in the Company's
common stock, all of its assets, or its business in its entirety
was undertaken. This was also unsuccessful for the same reasons.
Parker/Hunter located the opportunity to sell the Company's
inventory and intangible assets related to the operation of the
business to Mazel. The opportunity for the sale to Mazel was the
only alternative to a liquidation of the business, and was
considered preferable to a liquidation of the business in terms of
the expected proceeds on the sale of the assets, and the ability to
maximize the value of the realization of the other assets not
involved in the sale.
These issues led to the Company's decision to sell the inventory
and other assets of its Powerhouse (Replenishment) business and its
Promotional business. Substantial doubt existed as to the ability
of the Company to continue to exist as a going concern, unless a
business combination which would provide additional capital could
be accomplished on a timely basis.
In fiscal 1997 the decline in sales continued, principally due to
the Company's plan to sell its Powerhouse and Promotional
businesses, and the inability to purchase additional merchandise
for sale as a result of the Company's constrained capital
resources. Net sales decreased $19.1 million (78%) in the nine
month period ended March 31, 1997, as compared to the prior year.
In fiscal year 1996 the Company agreed in principle to terminate
the lease on its headquarters office/warehouse facility (where it
had been the sole tenant) and to enter into a new lease as a tenant
for significantly reduced space in this facility in the form of
office space only. The Company operated its business exclusively
from public warehouses beginning in February of 1996. A new
operating lease arrangement for the facility was signed in October
1996. The new lease eliminated the Company's substantial
commitment under the prior arrangement (annual rent of $1.9
million), which materially reduced (but did not eliminate) the
Company's current and future occupancy costs. The new lease
requires minimum annual rental payments of $100,000 for the five
year period beginning in March of 1997.
The Company and its landlord are actively seeking prospective
tenants to relieve the Company of some or all of its obligations
under the current lease. The note receivable discussed below
accrues interest beginning in March of 1999, at which time the
Company will receive annual interest of $138,000, which may be
offset against the rental obligation. In addition, the new lease
arrangements are expected to provide the Company's landlord in the
facility with the ability to refinance or resell the property in
the future, such that the Company could realize some or all of the
$2.3 million reduced principal portion of what was originally a
$3.5 million note receivable due to the Company from its
sale/leaseback of the facility in 1991. The note has been recorded
in the financial statements along with a valuation allowance of
$2.3 million, resulting in a net recoverable amount of zero. This
is because the note does not bear interest until 1999 and the
Company's ability to realize some or all of the value of the note
is dependent on whether or not the landlord can sell or refinance
the property in sufficient amount to satisfy the first mortgage on
the property, which has priority over the Company's note
receivable. The Company expects to be able to negotiate the
utilization of part or all of its interest in the zero net book
value note receivable in settlement of certain of its balance sheet
liabilities.
LIQUIDITY AND CAPITAL RESOURCES
The major sources of cash during the first nine months of the 1997
fiscal year were the sale of remaining inventories, including the
sale to Mazel, and collections on accounts receivable. Operating
losses and repayment of notes payable and other current obligations
were the primary uses of cash. Working capital at March 31, 1997
was a deficit of $778,000, decreased from positive working capital
of $436,000 at June 30, 1996, largely related to the lower level of
sales in the current year and operating losses. The Company will
be required to continue to manage the timing of payment of its
obligations to deal with this impaired liquidity.
Cash and cash equivalents were $411,000 at March 31, 1997 as
compared to $78,000 at June 30, 1996 and $59,000 at March 31, 1996.
Cash balances fluctuate daily to meet operating requirements and as
a result of the timing of receipts and disbursements.
Accounts receivable of $937,000 at March 31, 1997 decreased from
$2.8 million at June 30, 1996 and $4.4 million at March 31, 1996 as
a result of decreased sales in the current fiscal year to date, in
part the result of the completion of the sale of the operating
business in February, 1997.
Remaining Promotional inventories were sold in the foreclosure sale
to Mazel in February of 1997. Inventories on hand had been $1.1
million at December 31, 1996, decreased from $3.9 million at June
30, 1996 as a result of minimal purchasing related to the Company's
capital constraints and the sale of the Powerhouse inventories to
Mazel. Inventories decreased from $9.6 million at March 31, 1996
due to the Company's aggressive inventory reduction efforts in
light of its capital constraints, and inventory adjustments and
writeoffs related to the sale of the inventories and the sale of
the Company's operating business.
Aggregate borrowings (long-term debt and notes payable) decreased
from $10.5 million at March 31, 1996 to $3.2 million at June 30,
1996 and $115,000 at March 31, 1997. This was the result of the
elimination of the sale/leaseback obligation upon finalizing the
negotiations of the new lease, and the payoff of the Company's
short-term borrowings under its credit agreement in connection with
the February 12, 1997 foreclosure sale of inventories by Foothill.
Borrowings were repaid with cash generated from the sale of
inventories and collection of receivables, net of cash used to fund
operating losses incurred.
In connection with the foreclosure sale by Foothill, the Company's
credit agreement was terminated as of February 12, 1997. Interest
had been payable at 3.5% over the prime rate of interest.
The Company did not meet the requirements under the restrictive
covenants of the credit agreement as of December 31, 1996, and was
not able to meet those covenants subsequently. The lender's
remedies under such a default included the right to demand
repayment of the outstanding loan and interest due.
As indicated above, the Company's working capital credit agreement
was terminated in February, 1997. The ability of the Company to
repay its existing obligations and to continue in existence until
the merger discussed above can be consummated, is dependent on the
realization of the remaining assets and the proceeds of the private
placement financing, as well as the ability to coordinate the
timing of payment of the obligations with cash receipts.
The Company suspended current payments under certain long-term
severance arrangements with former employees in November 1996. The
former employees have consented to the suspension of payments
pending negotiations of settlement of the amounts due. The Company
is negotiating the terms of these arrangements and certain other
assets and liabilities in an effort to improve its impaired
liquidity. Unless the proposed merger discussed above can be
completed on a timely basis, it is unlikely that the Company's
capital resources will be sufficient to meet its cash needs, in
which case material adverse consequences may result.
The Company made no capital expenditures in the nine month period
ended March 31, 1997. No capital expenditures are planned.
RESULTS OF OPERATIONS
Third Quarter Fiscal 1997 Compared with Third Quarter Fiscal 1996
Net Sales. There were no sales during the third quarter ended
March 31, 1997 as a result of the sale of the operating business to
Mazel. Net sales in the prior year third quarter ended March 31,
1996 were $5,455,000.
Following is a breakdown of net sales by type of program:
<TABLE>
<CAPTION>
NET SALES
Third Quarter Ended
--------------------------
March March Increase
31, 1997 31, 1996 (Decrease)
-------- -------- ----------
<S> <C> <C> <C>
Dollar Days $ -0- $3,944,000 $(3,944,000)
Replenishment -0- 1,465,000 (1,465,000)
-------- ---------- ------------
Core Promotional Business -0- 5,409,000 (5,409,000)
Gift and Other -0- 46,000 (46,000)
-------- ---------- ------------
$ -0- $5,455,000 $(5,455,000)
======== ========== ============
</TABLE>
Cost of Products Sold and Gross Profit Margins. Gross profit
margins were 9.5% in the third quarter ended March 31, 1996.
Margins decreased from the previous year principally due to higher
than anticipated returns on prior period guaranteed sales. Also,
the Company sold certain merchandise at reduced prices and
experienced increased display costs per sales dollar due to a
decrease in the value of merchandise included per display fixture.
Operating Expenses. Operating expenses decreased from $2,438,000
(45% of sales) in the fiscal 1996 third quarter to $561,000 in
fiscal 1997. The decrease in costs was primarily the result of the
sale of the operating business and the Company's continuing cost
reduction efforts.
Interest Expense. The decrease of $349,000 (84%) was due to
elimination of the sale/leaseback obligation and the February 1997
payoff of short-term borrowings at the termination of the Company's
credit agreement.
Other Income (Expense), Net. Other income of $365,000 in the third
quarter of fiscal 1997 included adjustments for improved accounts
receivable collections of approximately $318,000 and other
miscellaneous items. The prior year other expense amount of
$29,000 was comprised of miscellaneous items.
Loss Before Income Taxes. The third quarter loss decreased from
$2,365,000 in fiscal 1996 to $263,000 in fiscal 1997. The
improvement of $2,102,000 reflects the combined effect of all the
above.
Provision for Income Taxes. No income tax benefits were provided
on the losses in the third quarter of fiscal 1997 and 1996 because
realization of such benefits cannot be reasonably assured. Net
operating loss carryforwards available to offset future taxable
income and thereby reduce future income taxes payable are
approximately $48 million, including losses for financial reporting
purposes which have not yet been reported for income tax reporting
purposes.
Net Loss. The decrease of $2,102,000 reflects the combined effect
of all of the above.
Nine Month Period of Fiscal 1997 Compared with Nine Month Period of
Fiscal 1996
Net Sales. Aggregate net sales for the period of nine months
ended March 31, 1997 were $5,424,000, a decrease of $19,110,000
(78%) compared to $24,534,000 in the prior year.
The decline in sales is primarily the result of the sale of the
Powerhouse business on October 18, 1996 and the Promotional
business on February 12, 1997, and limitations on purchases of
additional merchandise for sale in fiscal year 1997, as a result of
the Company's constrained capital resources.
Following is a comparison of net sales by type of program:
<TABLE>
<CAPTION>
NET SALES
Nine Month Period Ended
--------------------------
March March Increase
31, 1997 31, 1996 (Decrease)
-------- -------- ----------
<S> <C> <C> <C>
Dollar Days $3,150,000 $16,875,000 $(13,725,000)
Replenishment 1,436,000 5,326,000 (3,890,000)
---------- ----------- -------------
Core Promotional Business 4,586,000 22,201,000 (17,615,000)
Gift and Other 838,000 2,333,000 (1,495,000)
---------- ----------- -------------
$5,424,000 $24,534,000 $(19,110,000)
========== =========== =============
</TABLE>
Cost of Products Sold and Gross Profit Margins. Gross profit
margins (as a percentage of sales) increased from 17% in fiscal
1996 to 33% in the current year. The increase was principally due
to lower levels of guaranteed sales and returns on guaranteed sales
in the nine month year to date period of fiscal 1997 and the sale
in fiscal year 1997 of inventories which had been written down or
written off as of June 30, 1996.
Operating Expenses. Operating expenses decreased from $7,836,000
(32% of sales) in the nine month period of fiscal 1996 to
$4,006,000 (74% of sales) in the nine month period of fiscal 1997.
The decrease in costs was primarily the result of the Company's
continuing cost reduction efforts. The increase in costs as a
percentage of net sales is due to the greater impact of fixed and
indirect costs on the lower level of sales. These include legal
and other corporate costs, as well as the cost of the Company's
merchandising and distribution operations.
Interest Expense. The decrease of $1,168,000 (72%) was due to
elimination of the sale/leaseback obligation and lower short-term
borrowing levels, including the payoff of short-term borrowings at
the termination of the Company's credit agreement, net of the
impact of higher effective interest rates and other borrowing costs
in the current year.
Other Income (Expense), Net. Other income of $855,000 in the first
nine months of fiscal 1997 included recovery of sales and use taxes
paid in prior years ($671,000, including interest), adjustments for
improved accounts receivable collections of approximately $318,000,
and miscellaneous items, net of charges in connection with the
settlement of an arbitration award to a former sales agent
($175,000). The prior year other income amount of $204,000 was
comprised of miscellaneous items.
Loss Before Income Taxes. The loss for the nine month period ended
in March decreased from $5,038,000 in fiscal 1996 to $1,827,000 in
fiscal 1997. The improvement of $3,211,000 reflects the combined
effect of all the above.
Provision for Income Taxes. No income tax benefits were provided
on the losses in the first nine months of fiscal 1997 and 1996
because realization of such benefits cannot be reasonably assured.
Net operating loss carryforwards available to offset future taxable
income and thereby reduce future income taxes payable are
approximately $48 million, including losses for financial reporting
purposes which have not yet been reported for income tax reporting
purposes.
Net Loss. The decrease of $3,211,000 reflects the combined effect
of all of the above.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a) Exhibits: Page
10.27 Acknowledgement of Default; Waiver;
and Agreement 22
10.28 Letter of Intent Re: Acquisition of
General Vision Services, Inc. 24
10.29 Letter Agreement Re: Binding Effect of
Letter of Intent Re: Acquisition of
General Vision Services, Inc. 30
10.30 Letter Agreement Re: Modification to
Letter of Intent Re: Acquisition of
General Vision Services, Inc. to delete
as a closing condition the retention by
the Company of its listing with the
American Stock Exchange. 31
(b) Reports on Form 8-K:
The Company filed no reports on Form 8-K during the
quarter ended March 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ACTION INDUSTRIES, INC.
(Registrant)
Date: May 12, 1997 T. RONALD CASPER
------------------------------
T. Ronald Casper
Acting President and
Chief Executive Officer
Date: May 12, 1997 KENNETH L. CAMPBELL
------------------------------
Kenneth L. Campbell
Senior Vice President, Finance
(Principal Financial and
Accounting Officer)
E X H I B I T 10.27
Acknowledgement of Default; Waiver; and Agreement
- -------------------------------------------------
ACKNOWLEDGEMENT OF DEFAULT; WAIVER; AND AGREEMENT
- -------------------------------------------------
TO: Foothill Capital Corporation
11111 Santa Monica Boulevard, Suite 1500
Los Angeles, California 90025
("Secured Creditor")
FROM: Action Industries, Inc.
460 Nixon Road
Cheswick, Pennsylvania 15024
("Debtor")
1. Debtor acknowledges that it is currently indebted to Secured
Creditor, which indebtedness arose under and pursuant to that
certain Amended and Restated Loan and Security Agreement, dated
as of October 20, 1995, between Debtor and Secured Party (the
"Loan Agreement"), and other documents executed in connection
with the Loan Agreement, together with any and all changes,
alterations, modifications, or amendments to any of the foregoing
(collectively, the "Loan Documents"), between Secured Creditor
and Debtor. Debtor further acknowledges that it is now in
default under the Loan Documents, acknowledges that the amount of
the indebtedness owing to Secured Creditor thereunder is
approximately $816,935 plus interest and fees from February 1,
1997 and out-of-pocket expenses incurred by Secured Creditor, and
that such indebtedness is now wholly due and owing.
2. Debtor unconditionally, forthwith, and effective
immediately, consents to Secured Creditor's exercising its rights
and remedies (including the right to sell in a foreclosure sale)
with respect to all of Debtor's inventory, (the "Inventory"),
general intangibles ("General Intangibles") and all other
Collateral as provided for in the Loan Documents and in
accordance with the California Uniform Commercial Code ("Code").
3. Debtor, being in default as aforesaid, and pursuant to
Section 9504(3) of the Code, hereby unconditionally and forever
waives and renounces all rights that it may have to notification
of the disposition of the Inventory, the General Intangibles or
any other Collateral (as defined in the Loan Agreement) or any
portion thereof.
4. Debtor acknowledges and agrees that any sale by Secured
Creditor of the Inventory, the General Intangibles and the other
Collateral to Mazel Stores, Inc. on the same economic terms as
are set forth in the Asset Purchase Agreement dated October 18,
1996 between Mazel Stores, Inc. (by assignment from Mazel
Company, L.P.) and Debtor is commercially reasonable and in the
best interests of Debtor's creditors and shareholders. In
connection with any sale to Mazel Stores, Inc. on such terms,
Debtor agrees to take any and all actions and to execute and
deliver all agreements and instruments necessary to ensure,
confirm or perfect the transfer of the Inventory, General
Intangibles and other Collateral to Mazel Stores, Inc., including
without limitation making any required filings in the Federal
Patent and Trademark Office.
5. Debtor hereby represents, declares, and affirms to Secured
Creditor that it has had the opportunity to be represented by
counsel of its choice throughout the negotiations which led to
the execution of this instrument.
IN WITNESS WHEREOF, the undersigned has executed this
Acknowledgement of Default; Surrender of Possession; Waiver; and
Agreement as of the 7th day of February, 1997.
ACTION INDUSTRIES, INC.
a Pennsylvania corporation
By: /s/ T. Ronald Casper
--------------------
Title: President
------------------
The undersigned, a guarantor of all of the obligations of Action
Industries, Inc. ("Debtor") owing to Foothill Capital Corporation
("Secured Party"), hereunder acknowledges Debtor's execution of
the attached Acknowledgement of Default; Surrender of Possession;
Waiver; and Agreement. The undersigned hereby unconditionally
and forever waives and renounces any rights that it may have to
notification of the disposition of any collateral by Secured
Party.
ACTION INVESTMENT COMPANY,
a Delaware corporation
By: /s/ T. Ronald Casper
--------------------
Title: President
------------------
E X H I B I T 10.28
Letter of Intent Re: Acquisition of General Vision Services, Inc.
- -----------------------------------------------------------------
ACTION INDUSTRIES, INC.
February 27, 1997
General Vision Services, Inc.
330 West 42nd Street
New York, NY 10036
Attention: William J. Rappaport, Chairman
Re: Acquisition of General Vision Services, Inc.
--------------------------------------------
Dear Mr. Rappaport:
Action Industries, Inc., a Pennsylvania corporation ("Action"),
proposes to acquire all of the issued and outstanding capital
stock of General vision Services, Inc., a Delaware corporation
("GVS"), and to merge GVS with and into Action (the "Merger"), in
accordance with the following:
1. Merger Consideration. The outstanding GVS stock would be
exchanged for (a) 3,700,000 shares of Action's common stock and
(b) 4,000,000 shares of a newly-created Class B Redeemable
Preferred Stock (the "Class B Stock"). The Class B Stock would
be non-voting, would not yield a dividend, would be redeemable at
Action's option, would have a redemption price and liquidation
preference of $1.00 per share and would have priority on
liquidation second only to Action's newly-created Class A
Redeemable Preferred Stock (the "Class A Stock").
2. Action's Closing Conditions. In addition to the general
closing conditions specified below, the consummation of the
Merger by Action would be subject to the following:
(a) Acquisition of GHS. GVS shall have acquired all of the
issued and outstanding stock of General Hearing Services, Inc.
("GHS") in a transaction which does not materially and adversely
affect the net worth of GVS.
(b) Financing Transaction. Action shall have obtained
approximately $2,750,000 in net proceeds from a financing
transaction similar to the private financing transaction
currently proposed by J. Robbins Securities, Inc. ("Robbins") in
which Action would sell not more than $3,200,000 of its
convertible notes. The notes would have a term of three years,
would bear interest at the rate of 10% per annum payable
quarterly in arrears and would be automatically converted to not
more than 3,200,000 shares of its Class A Stock upon the closing
of the Merger. The Class A Stock would be non-voting, would
yield an annual dividend of 10% of the liquidation value payable
quarterly in arrears, would be redeemable at Action's option,
would have a redemption price and liquidation preference of $1.00
per share plus accrued dividends and would have priority on
liquidation senior to all of Action's other capital stock. The
notes would have attached thereto warrants to acquire up to
1,600,000 shares of Action's common stock (the "Warrants"). The
warrants could be exercised at any time within five years after
issuance at an exercise price of $.50 per share, and the holders
thereof would have the benefit of certain demand and piggy-back
registration rights. Action would have the right to call the
Warrants if its common stock trades at or more than a specified
price for a specified period. If the loan from Action to GVS
described below is consummated, but the Merger is not
consummated, then (i) the holders of the notes will look solely
to GVS for repayment of the notes to the extent of the principal
amount of the GVS loan and (ii) GVS will be liable for two-thirds
of the placement agent fees, discounts and expenses payable by
Action in obtaining the financing described above.
(c) Termination of Rights. All rights to acquire the
capital stock of GVS or to cause GVS to repurchase any of its
capital stock, and all compensation plans for directors, officers
and shareholders of GVS which are based upon the net income of
GVS (including without limitation any bonus plans and stock
option plans), would be terminated.
(d) Restrictions on Securities. As of closing, none of the
securities contemplated to be issued by Action hereunder will be
registered under the Securities Act of 1933 or applicable state
securities law (and Action will have no obligation to register
any of such securities except pursuant to the registration rights
referenced above), and the certificates evidencing such
securities will contain a legend stating that such securities may
not be transferred unless they are so registered or unless an
exemption from registration is available. The issuance of all
such securities must be exempt from the registration requirements
of the Securities Act of 1933 and applicable state securities
laws.
(e) Financial Condition of GVS. GVS' financial condition at
closing shall not be worse, in any material respect, than its
financial condition at November 30, 1996, as reflected in its
financial statements for the 12 months ending on such date, true
and correct copies of which have been delivered to Action. Such
financial statements were prepared in accordance with generally
accepted accounting principles consistently applied and fairly
reflect the financial condition of GVS as at the end of the
period covered thereby.
3. GVS' Closing Conditions. In addition to the general closing
conditions specified below, the consummation of the Merger by GVS
would be subject to the following:
(a) Action Loan. Action would loan to GVS, concurrently
with and out of the proceeds of the financing transaction
described above (which shall occur not later than April 15, 1997)
the sum of $2,000,000. Such loan would bear interest at the rate
of 10% per annum payable quarterly in arrears and would be
secured by liens on all of GVS' assets, subject only to existing
liens in favor of its current institutional lender. If the
Merger does not occur within six months after such loan is made,
then such loan will have a term of three years. The proceeds of
such loan may be used by GVS for accounts payable, store
expansion, laboratory modernization and general working capital
purposes.
(b) Incentive Stock Options. The executive officers of GVS
who become executive officers of Action would receive incentive
stock options to acquire up to 4,200,000 shares of Action's
common stock (the "Options"). The exercise price for the Options
would be the fair market value of such stock as of the date of
the issuance of the Options, as determined by Action's board of
directors (currently estimated to be approximately $1.00 per
share). The Options would be exercisable for a 10-year period
commencing 114 months after issuance, except that if Action
attains earnings levels which would support share prices ranging
from $4.00 to $7.00 per share, then the Options would be
exercisable in blocks of 1,000,000 shares as each earnings level
is attained.
(c) Retention of AMEX Listing. Action shall have retained
its American Stock Exchange listing.
(d) Financial Condition of Action. GVS shall be reasonably
satisfied that Action's operations (exclusive of GVS' operations)
will not generate a material negative cash flow, and Action shall
not have a negative net worth in excess of $200,000.
4. General Closing Conditions. The consummation of the Merger
by both parties would be subject to the following:
(a) Employment Agreement. Action shall have entered into a
mutually satisfactory employment agreement with Harry C.
Kleinman.
(b) Resolution of Long-Term Compensation Arrangements.
Action shall have satisfied, or otherwise resolved, all long-term
compensation arrangements with former employees of Action or
their families in a manner reasonably satisfactory to Action and
GVS.
(c) Documentation. The parties shall have executed and
delivered a definitive Merger Agreement and related documentation
containing representations and warranties, covenants, terms and
conditions customary in a transaction of this nature and
otherwise satisfactory in form and substance to the parties and
their counsel.
(d) Due Diligence. The parties' respective due diligence
reviews of the Company shall be satisfactory to the parties and
their counsel.
(e) Approvals. The parties shall have obtained all board
and shareholder approvals, and such consents and approvals of
governmental authorities and other persons, as are necessary or
desirable in connection with the consummation of the transactions
contemplated hereby.
(f) Closing Date. The conditions precedent specified in
Paragraphs 2 and 3 above and in this Paragraph shall have been
satisfied, and the closing shall have occurred, not later than
July 1, 1997.
5. Confidential Information. Each of the parties agrees as
follows with respect to any Confidential Information of the other
party which may be disclosed to it:
(a) As used herein, the "Confidential Information" of a
party shall mean all information concerning or related to the
business, operations, financial condition or prospects of such
party or any of its Affiliates, regardless of the form in which
such information appears and whether or not such information has
been reduced to a tangible form, and shall specifically include
(i) all information regarding the officers, directors, employees,
equity holders, customers, suppliers, distributors, sales
representatives and licensees of such party and its Affiliates,
in each case whether present or prospective, (ii) all inventions,
discoveries, trade secrets, processes, techniques, methods,
formulae, ideas and know-how of such party and its Affiliates,
(iii) all financial statements, audit reports, budgets and
business plans or forecasts of such party and its Affiliates and
(iv) all information concerning or related to the transactions
contemplated hereby; provided that the Confidential Information
of a party shall not include (A) information which is or becomes
generally known to the public through no act or omission of the
other party and (B) information which has been or hereafter is
lawfully obtained by the other party from a source other than the
party to whom such Confidential Information belongs (or any of
its Affiliates or their respective officers, directors,
employees, equity holders or agents) so long as, in the case of
information obtained from a third party, such third party was or
is not, directly or indirectly, subject to an obligation of
confidentiality owed to the party to whom such Confidential
Information belongs or any of its Affiliates at the time such
Confidential Information was or is disclosed to the other party.
As used in this paragraph, an "Affiliate" of a party shall mean
an entity which controls, is controlled by or is under common
control with such party, and the term "control" shall mean, with
respect to any entity, the possession, direct or indirect, of the
power to direct or cause the direction of the management and
policies of such entity, whether through ownership of voting
securities, by contract or otherwise.
(b) Except as otherwise permitted by subparagraph (c.)
below, each party agrees that it will not, without the prior
written consent of the other party, disclose or use for its own
benefit any Confidential Information of the other party.
(c) Notwithstanding subparagraph (b) above, each of the
parties shall be permitted to:
(i) disclose Confidential Information of the other
party to its officers, directors, employees, equity holders,
lenders, counsel, accountants and other agents, but only to the
extent reasonably necessary in order for such party to negotiate,
execute and deliver definitive documents for the consummation of
the transactions contemplated hereby (collectively, the
"Transaction Documents") and to perform its obligations and
exercise its rights and remedies under the Transaction Documents,
and such party shall take all such action as shall be necessary
or desirable in order to ensure that each of such persons
maintains the confidentiality of any Confidential Information
that is so disclosed;
(ii) after the execution and delivery of the
Transaction Documents, make additional disclosures of or use for
its own benefit Confidential Information of the other party, but
only if and to the extent that such disclosures or use are
specifically contemplated by the Transaction Documents; and
(iii) disclose Confidential Information of the
other party to the extent, but only to the extent, required by
law; provided, that prior to making any disclosure pursuant to
this clause (iii), the party required to make such disclosure
(the "Disclosing Party") shall notify the other party (the
"Affected Party") of the same, and the Affected Party shall have
the right to participate with the Disclosing Party in determining
the amount and type of Confidential Information of the Affected
Party, if any, which must be disclosed in order to comply with
applicable law.
(d) If negotiations in respect of the transactions
contemplated hereby shall cease without such transactions being
consummated then, promptly after the written request of either
party, the other party shall return to the requesting party all
Confidential Information of the requesting party which is in
tangible form and which is then in its possession (or in the
possession of any of its officers, directors, employees, equity
holders or agents),
(e) The parties acknowledge and agree that each would be
irreparably damaged in the event that any of the provisions of
this paragraph are not performed by the other in accordance with
their specific terms or are otherwise breached. Accordingly, it
is agreed that each party shall be entitled to an injunction or
injunctions to prevent breaches of this paragraph by the other
and shall have the right to specifically enforce this paragraph
and the terms and provisions hereof against the other in addition
to any other remedy to which such aggrieved party may be entitled
at law or in equity.
6. Publicity. Neither party shall make any press release or
other public announcement regarding the contents of this letter
or any transaction contemplated hereby until the text of such
release or announcement has been submitted to the other party and
the other party has approved the same.
7. Fees and Expenses. Except as otherwise specifically
provided herein, each party will be liable for their own fees and
expenses incurred in connection with any of the transactions
contemplated hereby.
If you are in agreement with the foregoing, please execute the
enclosed copy of this letter and return it to the undersigned at
your earliest convenience.
ACTION INDUSTRIES, INC.
By: /s/ T. Ronald Casper
-------------------------------
T. Ronald Casper, President
ACCEPTED AND AGREED TO:
GENERAL VISION SERVICES, INC.
By: /s/ William J. Rappaport
-------------------------------
Title: CEO
-------------------------------
E X H I B I T 10.29
Letter Agreement Re: Binding Effect of Letter of
Intent Re: Acquisition of General Vision Services, Inc.
- -------------------------------------------------------
ACTION INDUSTRIES, INC.
February 27, 1997
General Vision Services, Inc.
330 West 42nd Street
New York, NY 10036
Attention: William J. Rappaport, Chairman
Re: Binding Effect of Letter of Intent
----------------------------------
Dear Mr. Rappaport:
Reference is made to the Letter of Intent of even date herewith
between Action Industries, Inc. and General Vision Services, Inc.
(the "Letter of Intent"). It is our understanding that
Paragraphs 1 through 4 of the Letter of Intent are not binding
on, and create no rights in favor of, either party thereto.
Notwithstanding the foregoing, the parties agree to negotiate in
good faith to reach a binding agreement upon substantially the
terms set forth in Paragraphs 1 through 4 of the Letter of Intent
on or prior to April 15, 1997. Paragraphs 5 through 7 of the
Letter of Intent constitute a binding agreement between the
parties and the parties intend to be legally bound thereby.
If you are in agreement with the foregoing, please execute the
enclosed copy of this letter and return it to the undersigned at
your earliest convenience.
ACTION INDUSTRIES, INC.
By: /s/ T. Ronald Casper
-------------------------------
T. Ronald Casper, President
ACCEPTED AND AGREED TO:
GENERAL VISION SERVICES, INC.
By: /s/ William J. Rappaport
-------------------------------
Title: CEO
-------------------------------
E X H I B I T 10.30
Letter Agreement Re: Modification to Letter of Intent
Re: Acquisition of General Vision Services, Inc.
- -----------------------------------------------------
ACTION INDUSTRIES, INC.
March 28, 1997
General Vision Services, Inc.
330 West 42nd Street
New York, NY 10036
Attention: William J. Rappaport, Chairman
Re: Modification to Letter of Intent
--------------------------------
Dear Mr. Rappaport:
Reference is made to the Letter of Intent dated February 27, 1997
between Action Industries, Inc. and General Vision Services,
Inc., as modified by that certain side letter agreement between
the parties dated February 27, 1997 (collectively, the "Letter of
Intent"). The purpose of this letter is to delete from the
Letter of Intent the retention by Action of its listing with the
American Stock Exchange as a closing condition and as a condition
to the parties' obligation to negotiate in good faith to reach a
binding agreement upon substantially the terms set forth in
Paragraphs 1 through 4 of the Letter of Intent.
If you are in agreement with the foregoing, please execute the
enclosed copy of this letter and return it to the undersigned at
your earliest convenience.
ACTION INDUSTRIES, INC.
By: /s/ T. Ronald Casper
-------------------------------
T. Ronald Casper, President
ACCEPTED AND AGREED TO:
GENERAL VISION SERVICES, INC.
By: /s/ William J. Rappaport
-------------------------------
Title: CEO
-------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 411
<SECURITIES> 0
<RECEIVABLES> 937
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,766
<PP&E> 4,254
<DEPRECIATION> 4,210
<TOTAL-ASSETS> 2,520
<CURRENT-LIABILITIES> 2,544
<BONDS> 115
0
0
<COMMON> 719
<OTHER-SE> (2,317)
<TOTAL-LIABILITY-AND-EQUITY> 2,520
<SALES> 5,424
<TOTAL-REVENUES> 5,424
<CGS> 3,654
<TOTAL-COSTS> 7,660
<OTHER-EXPENSES> (855)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 446
<INCOME-PRETAX> (1,827)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,827)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,827)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
