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 December 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 February 10, 1998 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
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -
December 31, 1997, December 31, 1996,
and June 30, 1997
Consolidated Statements of Operations -
Six Months and Three Months Ended
December 31, 1997 and December 31, 1996
Consolidated Statements of Shareholders' Equity
(Capital Deficiency) - Six Months Ended
December 31, 1997 and December 31, 1996
Consolidated Statements of Cash Flows -
Six Months Ended December 31, 1997 and
December 31, 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Part II. Other Information
Item 2. Changes in Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
<TABLE>
ACTION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
UNAUDITED
<CAPTION>
December December June
31, 1997 31, 1996 30, 1997
-------- -------- --------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $59 $195 $582
Trade accounts receivable, less allowances
of $0, $393, and $50 20 2,298 232
Inventories - 1,088 -
Other current assets 100 367 100
------ ------ ------
TOTAL CURRENT ASSETS 179 3,948 914
PROPERTY, PLANT AND EQUIPMENT - 208 -
OTHER ASSETS
Notes receivable 1,614 621 1,614
Other 238 178 241
------ ------ ------
$2,031 $4,955 $2,769
====== ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
CURRENT LIABILITIES
Notes payable and current portion of long-term debt $115 $916 $115
Accounts payable 492 2,928 970
Accrued compensation 139 528 122
Other accrued liabilities 777 321 969
------ ------ ------
TOTAL CURRENT LIABILITIES 1,523 4,693 2,176
LONG-TERM LIABILITIES
Long-term debt - 115 -
Convertible notes payable 1,003 - 500
Deferred compensation 1,172 1,482 1,426
------ ------ ------
TOTAL LONG-TERM LIABILITIES 2,175 1,597 1,926
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) (16,310) (15,978) (15,976)
------ ------ ------
9,907 10,239 10,241
Less treasury shares, at cost 11,574 11,574 11,574
------ ------ ------
TOTAL SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY) (1,667) (1,335) (1,333)
------ ------ ------
$2,031 $4,955 $2,769
====== ====== ======
See notes to consolidated financial statements.
</TABLE>
<TABLE>
ACTION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
UNAUDITED
<CAPTION>
Six Months Ended Three Months Ended
---------------------- ----------------------
December December December December
31, 1997 31, 1996 31, 1997 31, 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $0 $5,424 $0 $1,756
COSTS AND EXPENSES
Cost of products sold 0 3,654 0 1,382
Operating expenses 575 3,445 270 1,470
Interest expense 54 379 28 196
-------- -------- -------- --------
629 7,478 298 3,048
OTHER INCOME (EXPENSE), NET 295 490 107 461
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES (334) (1,564) (191) (831)
PROVISION FOR INCOME TAXES - - - -
-------- -------- -------- --------
NET LOSS ($334) ($1,564) ($191) ($831)
======== ======== ======== ========
NET LOSS PER SHARE ($0.06) ($0.28) ($0.03) ($0.15)
======== ======== ======== ========
Weighted average shares outstanding 5,539 5,539 5,539 5,539
======== ======== ======== ========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
ACTION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
(In thousands except share amounts)
UNAUDITED
<CAPTION>
Six Months Ended December 31, 1997 and December 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 30, 1996 7,187,428 $719 $25,498 ($14,414) 1,647,970 ($11,574) $229
Net Loss - - - (1,564) - - (1,564)
----------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1996 7,187,428 719 25,498 (15,978) 1,647,970 (11,574) (1,335)
============================================================================
BALANCE - JUNE 30, 1997 7,187,428 719 25,498 (15,976) 1,647,970 (11,574) (1,333)
Net Loss - - - (334) - - (334)
----------------------------------------------------------------------------
BALANCE - DECEMBER 31, 1997 7,187,428 $719 $25,498 ($16,310) 1,647,970 ($11,574) ($1,667)
============================================================================
See notes to consolidated financial statements.
</TABLE>
<TABLE>
ACTION INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
UNAUDITED
<CAPTION>
Six Months Ended
-----------------------
December December
31, 1997 31, 1996
-------- --------
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ($334) ($1,564)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization - 160
Changes in operating assets and liabilities:
Trade accounts receivable 212 471
Inventories - 2,840
Other current assets - 304
Accounts payable and accrued expenses (907) (194)
------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (1,029) 2,017
======= =======
INVESTING ACTIVITIES:
Payments received on notes receivable - 229
------- -------
NET CASH USED IN INVESTMENT ACTIVITIES 0 229
======= =======
FINANCING ACTIVITIES:
Notes and acceptances payable - (2,123)
Payment of deferred compensation - (72)
Proceeds of convertible notes payable 503 -
Other, net 3 66
------- -------
NET CASH USED IN FINANCING ACTIVITIES 506 (2,129)
======= =======
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (523) 117
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 582 78
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $59 $195
======= =======
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,
1997, 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.
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. The
Company's 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.
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. On August 12, 1997 Action and GVS entered into a
definitive merger agreement.
The terms of the merger call for the Company to issue
3,040,000 shares of its Common Stock and 3,650,000 shares of
a new Class B Redeemable Preferred Stock with a par value of
$1 per share, in exchange for 100% of the outstanding capital
stock of GVS.
The proposed merger is subject to a number of closing
conditions, including a private placement financing
transaction which was completed in June, July and August of
1997. The gross proceeds of the financing were $3,700,000,
approximately $2,697,000 of which has been loaned to GVS
pursuant to the terms of the merger. If the merger is not
consummated, Action may elect to cause GVS to be obligated
to repay the loan amount directly to the holders of the private
placement notes. The securities issued in the 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 approval of the
current shareholders of both the Company and GVS. The
process of obtaining such approval is expected to be
completed in March, 1998. Action will require additional working
capital financing in order to avoid liquidation prior to consummating
the merger. Accordingly, there can be no assurance that the merger
will be consummated.
The American Stock Exchange ("AMEX") halted trading in the
Company's Common Stock on October 21, 1996. The AMEX
determined to delist the Company's Common Stock in January of
1997. AMEX had granted a period for the Company to effect
an acquisition to satisfy the criteria for AMEX listing, but
reinstated its determination to delist in January of 1998.
The Company has exercised its right of appeal in an effort to
maintain its 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 second fiscal quarter and
the six months ended December 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.
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. Foothill's remedies under such a default
included the right to demand repayment of the outstanding
loan and interest due, which was done in connection with the
foreclosure sale of the Company's Promotional-related assets
on February 12, 1997.
H. No income tax benefits were provided on the losses incurred
in the three and six month periods ended December 31, 1997
and December 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 $47 million, including losses for
financial reporting purposes which have not yet been reported
for income tax reporting purposes.
I. In September, 1997 Action completed negotiations of an
agreement which settled certain obligations to former
officers and their beneficiaries under lifetime severance
agreements. The agreement provides for Action to pay $80,000
in cash, assign an interest in the $2.3 million note
receivable due to Action in connection with a the 1996
settlement of a 1991 sale/leaseback transaction, which
interest approximates $920,000, and assign an interest in the
amounts remaining due to Action from the sale of its lamp
assembly business in 1995, which interest approximates
$270,000 (both included in Other Assets - Notes Receivable in
the accompanying balance sheet). Upon assignment of the
interests in these notes, the obligations are non-recourse to
Action. In addition to the recognition of the sale/leaseback
note to the extent it is utilized to satisfy the obligations,
the settlement results in a reduction of the aggregate amount
of the obligations which had been previously recorded in the
financial statements by approximately $320,000. This
agreement was reflected in the financial statements as of
June 30, 1997. In the six month period ended December 31,
1997 other severance and employment obligations were
resolved, resulting in the reduction of the previously
recorded liabilities for such obligations in the amount of
$135,000, $39,000 of which occurred in the quarter ended
December 31, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Until February, 1997, the principal business of Action
Industries, Inc. and its Subsidiaries ("Action" or the "Company")
was the sale of comprehensive promotional programs to retailers.
These programs were designed to provide a broad range of
products, programs, displays and services for retail stores. The
principal product categories were housewares (kitchenware,
cleaning aids, food storage), plastic products for the home,
picture frames, toys, stationery, closet accessories, health and
beauty aids and similar products.
In October, 1996 Action sold part of its business and operating
assets to Mazel Stores, Inc. ("Mazel") and in February, 1997
Action's secured lender sold substantially all of the remaining
operating assets to Mazel in a foreclosure sale.
Later in February, 1997 a nonbinding letter of intent was signed
providing for Action to acquire General Vision Services, Inc.
("GVS"). A definitive merger agreement was signed in August,
1997, providing for Action to acquire all of the outstanding
capital stock of GVS in exchange for approximately 35% of the
outstanding common stock of Action, and $3,650,000 of a new
Series B Preferred Stock. The merger is subject to a number of
conditions, including approval of the shareholders of both Action
and GVS.
GVS offers a full range of vision care products and services at
21 retail stores in New York City. GVS sells prescription
eyeglasses, contact lenses and related accessories. In addition,
at each store GVS engages one or more licensed optometrists and
opticians who perform eye examinations and assist in the
selection and fitting of eyewear. GVS also operates a production
laboratory which supplies its retail stores with eyewear. GVS
markets its services principally to labor unions and managed care
organizations ("MCO's"). Eligible members of the union or MCO
receive an eye examination and a pair of prescription eyeglasses
or contact lenses for a fixed price, which can range from $50 to
$200. Currently GVS has non-exclusive agreements with
approximately 525 unions and six MCO's representing in excess of
2.5 million members. Approximately 225,000 of these members are
customers of GVS. GVS has agreements with 127 independent vision
care providers, to whom it refers eligible members who live in
areas in which GVS does not have a retail store. GVS also offers
hearing services to its customers, consisting principally of
providing hearing aid devices and hearing care programs. GVS is a
privately owned Delaware corporation organized in 1982.
Background and Reasons for the Merger.
Action 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 million in 1996. Action's initial response to
its declining sales was to implement a restructuring plan in
1990, including various activities intended to return Action to
sales growth or stability and profitability. Action focused on
its core Promotional business and sold or eliminated those
noncore business units (including non-promotional merchandise
item sales lines, plastics manufacturing and lamp assembly, and
retail store operations) and assets which were not profitable or
were incompatible with those objectives.
Almost continuous downsizing efforts were made over the years
since 1990 to reduce merchandise inventories and Action's
reliance on working capital borrowings, and to reduce personnel
and other operating costs in order to compensate for the decline
in sales. While progress was made initially and at other times
over the years, Action was unable to make sufficient progress
overall to improve or even maintain its position in the retail
marketplace.
In fiscal year 1996 the decline in sales continued. Action lost
significant business with two of its largest customers, three
significant customers went out of business, export business was
lost due to unfavorable currency activity, and Action was not
able to match the number of new stores added to the Powerhouse
business in the prior year.
Despite the steps taken by Action to improve sales and
profitability, sales continued to decline, and losses have been
substantial since 1993.
Action's liquidity was significantly impaired as a result of the
decline in sales and the resulting operating losses. Action's
credit agreement provided for secured loans on a revolving basis.
At June 30, 1996 outstanding borrowings under the credit
agreement had been $3.0 million. Action did not meet restrictive
covenants in the credit agreement as of June 30, 1996, September
30, 1996 and December 31, 1996 related to minimum levels of net
worth and working capital, current ratio, and the ratio of
liabilities to tangible net worth.
LIQUIDITY AND CAPITAL RESOURCES
The major source of cash during the first six months of fiscal
1998 was the issuance of additional convertible notes under the
private placement financing. The aggregate amount of the private
placement financing was $3,700,000, including $2,000,000 issued
prior to June 30, 1997. Net proceeds from the $1,700,000 notes
issued in fiscal 1998 were $1,485,000 after costs of the
financing. Action retained $438,000 of the net proceeds for its
own purposes, and loaned the remaining $1,047,000 to GVS in
accordance with the terms of the merger agreement. Total net
proceeds of the private placement financing were $3,226,000,
$2,352,000 of which was loaned to GVS. Operating losses and
repayment of accounts payable and other current obligations were
the primary uses of cash. Working capital at December 31, 1997
was a deficit of $1,344,000, comparable to deficit working
capital of $1,262,000 at June 30, 1997. Action continues to
manage the timing of payment of its obligations to deal with this
impaired liquidity.
Cash and cash equivalents were $59,000 at December 31, 1997, as
compared to $582,000 at June 30, 1997. Cash balances fluctuate
daily, as they are used to meet operating requirements.
Accounts receivable of $20,000 at December 31, 1997 decreased
from $232,000 at June 30, 1997 as a result of collections.
Remaining receivables at December 31, 1997 represent settlements
of prior business expected to be collected during the third
quarter ending March 31, 1998. No sales have been made since
January 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 $2.5 million at
September 30, 1996 as a result of the sale of the Powerhouse
inventories to Mazel.
Aggregate borrowings decreased from $1,031,000 at December 31,
1996 to $615,000 at June 30, 1997. This was the result of the
payoff in February 1997 of Action's short-term borrowings under
its credit agreement in connection with the 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.
As of December 31, 1997, aggregate borrowings consisted of
$115,000 remaining outstanding under the Company's 9% Convertible
Debentures due April 1, 1998 and $1,003,000 in 10% Convertible
Notes issued in June, July and August, 1997 in connection with
the private placement financing required by the GVS merger
agreement.
Action did not meet the requirements under the restrictive
covenants of its credit agreement with Foothill as of June 30,
1996, September 30, 1996 and December 31, 1996. Foothill waived
the non-compliance with the covenants, and continued to provide
Action with advances within the borrowing formula and other
limitations, with the understanding that the sale to Mazel would
provide funds to pay off the financing. Foothill's remedies
under such a default included the right to demand repayment of
the outstanding loan and interest due, which was done in February
of 1997, as a result of the delays in completing the sale to
Mazel.
In connection with the foreclosure sale by Foothill, Action's
credit agreement was terminated as of February 12, 1997.
Action has negotiated the settlement of certain long-term
severance obligations to satisfy those obligations, in part, by
utilizing a partial interest in a long-term note receivable due
to Action as a result of the sale/leaseback of its headquarters
facility several years ago. The note receivable is valued in the
accompanying balance sheet at the amount of those obligations
which the partial interest in the note receivable will offset by
agreement. The remainder of the note receivable has been offset
by a valuation allowance.
Action must obtain additional financing to provide cash resources
required to meet its needs until the closing of the merger can be
completed. The ability of Action to repay its existing obligations
and to continue in existence until the merger with GVS can be
consummated is dependent on the realization of Action's remaining
assets as well as the ability to obtain additional financing, and the
ability to coordinate the timing of payment of its remaining
obligations with cash receipts. Unless the merger is consummated
and/or additional financing is obtained, Action cannot continue as a
going concern.
Action believes that its cash on hand, together with the
additional funds generated from its remaining assets and possible
additional financing to be obtained, may be sufficient to permit
Action to meet most or all of its operating needs until the
merger is consummated, provided that the merger is consummated
early in calendar year 1998. If these conditions are not met, it
is likely that Action will be liquidated.
For the longer term, if Action is to benefit from the use of its
tax net operating losses it must improve its liquidity through
the operations of GVS in the merger. Unless the merger is
completed shortly, there can be no assurance that the Action's
capital resources will be sufficient to meet its operating needs,
in which case material adverse consequences may result. Such
consequences would most likely involve liquidation of Action.
Action made no capital expenditures in fiscal 1998 or 1997.
Action is not planning any capital expenditures prior to the
merger.
RESULTS OF OPERATIONS
SECOND QUARTER OF FISCAL 1998 COMPARED WITH SECOND QUARTER OF
FISCAL 1997
Net Sales. There were no sales during the second quarter of
fiscal 1998 ended December 31, 1997. Aggregate net sales for the
second quarter of fiscal 1997 were $1,756,000. The decline in
sales is the result of the sale of the Powerhouse business on
October 18, 1996 and the Promotional business on February 12,
1997.
Cost of Products Sold and Gross Profit Margins. There were no
sales during the second quarter of fiscal 1998. Gross profit
margins (as a percentage of sales) were 21.3% in fiscal 1997.
Operating Expenses. Operating expenses decreased from $1,470,000
(83.7% of sales) in fiscal 1997 to $270,000 in fiscal 1998. The
decrease in costs was primarily the result of the sale of the
operating businesses and Action's continuing cost reduction
efforts.
Interest Expense. The decrease of $168,000 (86%) was due to the
payoff of short-term borrowings at the termination of the
Company's credit agreement.
Other Income (Expense), Net. Other income of $107,000 in fiscal
1998 included the settlement of severance and other employment
obligations of $39,000 and settlement of other obligations of
$65,000, and other miscellaneous items. The prior year other
income amount of $461,000 included recovery of sales and use
taxes paid in prior years ($671,000, including interest) net of
charges in connection with the settlement of an arbitration award
to a former sales agent ($175,000), and other miscellaneous
items.
Loss Before Income Taxes. The loss before income taxes decreased
from $831,000 in fiscal 1997 to $191,000 in fiscal 1998. The
improvement of $640,000 reflects the lower level of operations
and the combined effect of all the above.
Provision for Income Taxes. No income tax benefits were provided
on the losses in fiscal 1998 and 1997 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 $47
million, including losses for financial reporting purposes which
have not yet been reported for income tax reporting purposes due
to timing differences.
Net Loss. The decrease of $640,000 reflects the combined effect
of all of the above.
SIX MONTH PERIOD OF FISCAL 1998 COMPARED WITH SIX MONTH PERIOD OF
FISCAL 1997
Net Sales. There were no sales during the first six months of
fiscal 1998 ended December 31, 1997. Aggregate net sales for the
first six months of fiscal 1997 were $5,424,000. The decline in
sales is the result of the sale of the Powerhouse business on
October 18, 1996 and the Promotional business on February 12,
1997.
Cost of Products Sold and Gross Profit Margins. There were no
sales during the first six months of fiscal 1998. Gross profit
margins (as a percentage of sales) were 32.6% in fiscal 1997.
Operating Expenses. Operating expenses decreased from $3,445,000
(63.5% of sales) in fiscal 1997 to $575,000 in fiscal 1998. The
decrease in costs was primarily the result of the sale of the
operating businesses and Action's continuing cost reduction
efforts.
Interest Expense. The decrease of $325,000 (86%) was due to the
payoff of short-term borrowings at the termination of the
Company's credit agreement.
Other Income (Expense), Net. Other income of $295,000 in fiscal
1998 included the settlement of severance and other employment
obligations of $135,000, settlement of other obligations of
$114,000 and other miscellaneous items. The prior year other
income amount of $490,000 included recovery of sales and use
taxes paid in prior years ($671,000, including interest) net of
charges in connection with the settlement of an arbitration award
to a former sales agent ($175,000), and other miscellaneous
items.
Loss Before Income Taxes. The loss before income taxes decreased
from $1,564,000 in fiscal 1997 to $334,000 in fiscal 1998. The
improvement of $1,230,000 reflects the lower level of operations
and the combined effect of all the above.
Provision for Income Taxes. No income tax benefits were provided
on the losses in fiscal 1998 and 1997 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 $47
million, including losses for financial reporting purposes which
have not yet been reported for income tax reporting purposes due
to timing differences.
Net Loss. The decrease of $1,230,000 reflects the combined
effect of all of the above.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
_________________________________________________________________
During June, July and August, 1997, the Company issued $3,700,000
principal amount of its 10% Convertible Notes, convertible into a
new Class A Preferred Stock upon completion of the merger with
General Vision Services, Inc.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
_________________________________________________________________
The Company did not submit any matters to a vote of security
holders during the second quarter of fiscal 1998 (quarter ending
December 31, 1997).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(a) Exhibits: None
(b) Reports on Form 8-K:
The Company filed no reports on Form 8-K during the
quarter ended December 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: February 10, 1998 T. Ronald Casper
--------------------------
T. Ronald Casper
Acting President and
Chief Executive Officer
Date: February 10, 1998 Kenneth L. Campbell
--------------------------
Kenneth L. Campbell
Senior Vice President, Finance
(Principal Financial and
Accounting Officer)
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