<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 8-KA
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
Date of Report: May 15, 1998
ACTION INDUSTRIES, INC.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 1-6485 25-0918682
- ------------------ ------------------- -------------
(State of Incorporation) (Commission (IRS Employer
File Number) Identification No.)
330 West 42nd Street, New York, NY 10036-6902
- ---------------------------------------------- ------------
(Address of principal executive offices) (Zip code)
212-594-2580
-------------------------------------------------------
(Registrant's telephone number, including area code)
<PAGE> 2
INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A). Financial Statements of General Vision Services, Inc.
(B). Pro Forma Financial Information
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ACTION INDUSTRIES, INC.
(Registrant)
By: /s/ William J. Rappaport
-------------------------------
Name: William J. Rappaport
Title: President and
Chief Executive Officer
Dated: May 15, 1998
<PAGE> 1
EXHIBIT A
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY INFORMATION
For the Years Ended November 30, 1997 and 1996
MARCUM & KLIEGMAN LLP
Certified Public Accountants & Consultants
<PAGE> 2
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 2-4
Consolidated Statements of Operations 5-6
Consolidated Statements of Stockholders' Deficiency 7
Consolidated Statements of Cash Flows 8-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11-29
INDEPENDENT AUDITORS' REPORT ON CONSOLIDATED
SUPPLEMENTARY INFORMATION 30
Consolidated Schedules of Cost of Revenues 31
Consolidated Schedules of Laboratory Expenses 31
Consolidated Schedules of Store and Selling Expenses 32
Consolidated Schedules of General and Administrative Expenses 33
</TABLE>
MARCUM & KLIEGMAN LLP
Certified Public Accountants & Consultants
<PAGE> 3
[MARCUM & KLIEGMAN LLP Letterhead]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
General Vision Services, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of General Vision
Services, Inc. and Subsidiaries as of November 30, 1997 and 1996, and the
related consolidated statements of operations, stockholders' deficiency and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of General Vision
Services, Inc. and Subsidiaries as of November 30, 1997 and 1996, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ MARCUM & KLIEGMAN LLP
-------------------------
March 17, 1998, except for Note 24 as to which
the date is May 1, 1998
-1-
<PAGE> 4
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November 30, 1997 and 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 154,141 $ 123,765
Accounts receivable, less allowance for doubtful accounts
of $78,474 and $7,500 in 1997 and 1996, respectively 2,172,420 1,396,121
Current maturities of notes receivable 697,373 306,436
Inventories 1,015,721 1,339,196
Prepaid expenses and other current assets 51,436 51,952
---------- ----------
Total Current Assets 4,091,091 3,217,470
---------- ----------
PROPERTY AND EQUIPMENT, Net 739,895 883,455
---------- ----------
OTHER ASSETS
Intangible assets, net 504,486 485,874
Deferred merger costs 797,481 -0-
Due from related entity 188,844 -0-
Investment in affiliates 638,082 250,000
Note receivable, net of current maturities 422,496 361,112
Security deposits and other assets 139,547 136,133
Cash surrender value - officers' life insurance,
net of loans of $19,356 in 1996 - 0 - 51,652
---------- ----------
Total Other Assets 2,690,936 1,284,771
---------- ----------
TOTAL ASSETS $7,521,922 $5,385,696
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE> 5
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November 30, 1997 and 1996
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $2,306,800 $1,540,695
Accrued expenses 876,713 889,903
Loan payable, bank 1,124,289 1,118,342
Current maturities of long-term debt 309,174 397,320
Customer deposits 119,014 156,325
Trade notes payable - 0 - 50,996
Current maturities of notes payable, stockholders 297,351 405,212
Income taxes payable - 0 - 13,667
Deferred income taxes - 0- 139,000
---------- ----------
Total Current Liabilities 5,033,341 4,711,460
OTHER LIABILITIES
Long-term debt, net of current maturities 343,533 264,975
Deferred commissions payable 175,041 207,286
Deferred revenue -0- 100,000
Notes payable, stockholders, net of current maturities 2,697,582 121,941
Security deposits 7,000 7,000
---------- ----------
Total Other Liabilities 3,223,156 701,202
---------- ----------
TOTAL LIABILITIES (Forward) $8,256,497 $5,412,662
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 6
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November 30, 1997 and 1996
LIABILITIES AND STOCKHOLDERS' DEFICIENCY, Continued
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY
Common stock, $.0001 par value, 200,000,000
shares authorized, 32,878,135 shares issued and
26,707,278 and 27,007,278 outstanding in 1997 and
1996, respectively 3,288 3,288
Additional contributed capital 1,123,184 1,123,184
Accumulated deficit (1,252,631) (633,438)
----------- -----------
(126,159) 493,034
Less: Treasury stock, 6,170,857 and 5,870,857 shares
at cost in 1997 and 1996, respectively (608,416) (520,000)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIENCY (734,575) (26,966)
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIENCY $ 7,521,922 $ 5,385,696
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 7
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended November 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
REVENUES
Retail sales $ 19,788,441 $ 19,126,187
Provider sales and sales of provider agreements 3,912,989 1,686,330
------------ ------------
TOTAL REVENUES 23,701,430 20,812,517
------------ ------------
COST OF REVENUES
Cost of retail sales 6,956,280 6,914,899
Cost of provider sales 2,913,721 1,075,637
------------ ------------
TOTAL COST OF REVENUES 9,870,001 7,990,536
------------ ------------
GROSS PROFIT 13,831,429 12,821,981
------------ ------------
OPERATING EXPENSES
Store and selling expenses 9,854,114 9,598,799
General and administrative expenses 3,224,781 2,356,319
Distribution of store profits 560,888 536,748
Loss on disposal of laboratory 650,000 -0-
------------ ------------
TOTAL OPERATING EXPENSES 14,289,783 12,491,866
------------ ------------
OPERATING (LOSS) INCOME (458,354) 330,115
------------ ------------
OTHER INCOME (EXPENSE)
Gain on sale of store interest 100,000 168,000
Gain on sale of stores 1,363 119,317
Gain on sale of Hearing Aid Division -0- 488,740
Interest income 14,073 7,301
Interest expense (393,379) (351,395)
------------ ------------
TOTAL OTHER (EXPENSE) INCOME $ (277,943) $ 431,963
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE> 8
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS, Continued
For the Years Ended November 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
(LOSS) INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST $(736,297) $ 762,078
INCOME TAX (BENEFIT) EXPENSE (127,104) 175,282
--------- ---------
NET (LOSS) INCOME BEFORE MINORITY
INTEREST (609,193) 586,796
MINORITY INTEREST IN SUBSIDIARY (10,000) (7,979)
--------- ---------
NET (LOSS) INCOME $(619,193) $ 578,817
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE> 9
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
For the Years Ended November 30, 1997 and 1996
<TABLE>
<CAPTION>
Additional Treasury
Common Paid-in Accumulated Stock
Stock Capital Deficit at Cost Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE -
December 1, 1995 $ 3,058 $ 743,414 $(1,212,255) $ (520,000) $ (985,783)
Issuance of stock in exchange for
investment in affiliate (1,000,000
shares) 100 249,900 250,000
Issuance of stock in exchange for
services rendered (1,300,000
shares) 130 129,870 130,000
Net income 578,817 578,817
----------- ----------- -----------
BALANCE -
November 30, 1996 3,288 1,123,184 (633,438) (520,000) (26,966)
Purchase of treasury stock
(300,000 shares), at cost (88,416) (88,416)
Net loss (619,193) (619,193)
----------- ----------- ----------- -----------
BALANCE -
November 30, 1997 $ 3,288 $ 1,123,184 $(1,252,631) $ (608,416) $ (734,575)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE> 10
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended November 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (619,193) $ 578,817
----------- -----------
Adjustments to reconcile net (loss) income to net
cash used in operating activities:
Stock compensation -0- 130,000
Depreciation and amortization 308,356 356,446
Sale of provider agreements (56,000) (550,000)
Gain on sale of store interest (100,000) (168,000)
Gain on sale of store (1,363) (119,317)
Gain on sale of Hearing Aid Division -0- (488,740)
Bad debt expense 238,974 -0-
Increase (decrease) in cash attributable to changes
in assets and liabilities:
Accounts receivable (847,273) (163,068)
Inventories 81,673 (112,261)
Prepaid expenses and other current assets 516 11,194
Security deposits and other assets (3,415) (1,331)
Accounts payable 766,105 (311,281)
Accrued expenses (87,738) (10,068)
Customer deposits (37,311) 36,249
Trade notes payable (50,996) (186,085)
Deferred commissions payable (32,245) (27,638)
Income tax payable (13,667) 13,667
Deferred income taxes (139,000) 139,000
----------- -----------
TOTAL ADJUSTMENTS 26,616 (1,451,233)
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (592,577) (872,416)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Collection of notes receivable 214,680 724,144
Issuance of notes receivable (505,000) -0-
Purchase of fixed assets (161,928) (153,408)
Decrease (increase) in cash surrender value - officers'
life insurance 51,652 (32,808)
Proceeds from sale of provider agreements -0- 130,000
Proceeds from sale of stores -0- 50,000
Proceeds from sale of Hearing Aid Division -0- 50,000
Investment in unconsolidated affiliates (125,000) -0-
Purchase of intangible assets (304,931) (68,276)
----------- -----------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES $ (830,527) $ 699,652
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-8-
<PAGE> 11
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
For the Years Ended November 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments of long-term debt $ (397,405) $ (760,196)
Proceeds from of loan payable, bank, net 5,947 1,118,342
Proceeds of notes payable, stockholders 2,352,000 250,692
Principal repayments of notes payable, stockholders (229,802) (342,905)
Advances to affiliate (188,844) -0-
Purchase of treasury stock (88,416) -0-
----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 1,453,480 265,933
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 30,376 93,169
CASH AND CASH EQUIVALENTS - Beginning 123,765 30,596
----------- -----------
CASH AND CASH EQUIVALENTS - Ending $ 154,141 $ 123,765
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the years for:
Interest $ 376,924 $ 344,281
Income taxes $ 28,964 $ 22,615
</TABLE>
Noncash investing and financing activities:
During the year ended November 30, 1997, the Company recognized $100,000 of
revenue deferred in the prior year.
During the year ended November 30, 1997, the Company acquired 40% of the
common stock of an unconsolidated affiliate in exchange for cash and $442,336
of inventory, fixed assets and a note payable.
During the year ended November 30, 1997, the Company acquired 50% of the
common stock of an unconsolidated affiliate in exchange for cash and $70,745
of inventory and fixed assets.
During the year ended November 30, 1997, the Company acquired the remaining
49% of the common stock of a consolidated subsidiary in exchange for a note
payable of $144,000.
The accompanying notes are an integral part of these financial statements.
-9-
<PAGE> 12
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, Continued
For the Years Ended November 30, 1997 and 1996
Noncash investing and financing activities:, continued
During the year ended November 30, 1997, the Company sold the common stock
held in an unconsolidated affiliate in exchange for a note receivable of
$250,000.
During the year ended November 30, 1997, the Company recognized a gain of
$1,363 on the sale of a store in exchange for a note receivable of $24,000.
During the year ended November 30, 1997, the Company had $74,548 in accrued
expenses for deferred merger and acquisition costs.
During the year ended November 30, 1997, the Company paid for $345,582 of
deferred merger and acquisition costs through a note payable.
During the year ended November 30, 1997, the Company recognized a loss of
$168,000 on the write off a note receivable of $168,000.
During the year ended November 30, 1996, the Company acquired an investment
of $250,000 in an affiliate in exchange for common stock issued.
During the year ended November 30, 1996, the Company recognized gains on the
sale of stores of $119,317, in exchange for cash and notes receivable
aggregating $185,000.
During the year ended November 30, 1996, the Company recognized revenue from
the sale of provider agreements of $550,000 in exchange for cash and notes
receivable of $420,000.
During the year ended November 30, 1996, the Company recognized a gain on the
sale of its Hearing Aid Division of $488,740 in exchange for cash and a note
receivable of $450,000.
During the year ended November 30, 1996, the Company recognized a gain of
$168,000 on the sale of a store interest in exchange for a note receivable of
$168,000.
The accompanying notes are an integral part of these financial statements.
-10-
<PAGE> 13
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies
Nature of Business
General Vision Services, Inc. and Subsidiaries (the "Company") (a Delaware
corporation organized in 1984) operates in the retail optical industry. The
Company performs optometric and optical services at its retail stores
located throughout the New York City metropolitan area and panel store
providers located throughout New York, New Jersey and Florida.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
General Vision Services, Inc., its wholly-owned subsidiaries, General
Vision Services Corp. - N.J., M. LaPorte, Inc. and J.C. Optical, Inc. d/b/a
Spectique of Mastic ("Spectique"). All material intercompany accounts and
transactions have been eliminated in consolidation.
Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
short-term investments with an original maturity of three months or less to
be cash equivalents.
The Company has a cash balance in a bank in excess of the maximum amount
insured by the FDIC at November 30, 1997 and 1996.
Property and Equipment
Property and equipment are stated at cost and are being depreciated or
amortized using accelerated and straight-line methods over the estimated
useful lives of the related assets.
Amortization of Intangible Assets
The costs of intangible assets are being amortized using the straight-line
method over their estimated useful lives ranging from five to fifteen
years.
Revenue Recognition
The Company recognizes revenue from retail sales and provider sales at the
time the customer picks up finished goods and/or at the time of completion
of services.
The Company recognizes revenue from sale of provider agreements at closing.
The Company had revenues from the sale of provider agreements of $100,216
and $542,500 for the years ended November 30, 1997 and 1996, respectively.
-11-
<PAGE> 14
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies, continued
Advertising Costs
Advertising costs are expensed as incurred.
Net (Loss) Income Per Share
Net (loss) income per share for the years ended November 30, 1997 and 1996
is computed based on the average number of common shares outstanding during
the period. Common stock equivalents were not included in the computation
as their effect would be immaterial. Per share amounts are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Net (loss) income per share $ (.02) $ .02
======== ========
</TABLE>
Reclassifications
Certain amounts from the prior year financial statements been reclassified
to conform to the 1997 financial statement presentation.
Use of Estimates in the Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE 2 - Inventories
Inventories are stated at the lower of cost (first-in, first-out basis) or
market and consist of the following at November 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Frames, lenses and contact lenses $ 813,091 $1,031,726
Finished goods 125,014 188,021
Work-in-process 30,464 58,629
Supplies for resale 47,152 60,820
---------- ----------
Total $1,015,721 $1,339,196
========== ==========
</TABLE>
-12-
<PAGE> 15
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - Property and Equipment
Property and equipment at November 30, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
Estimated
1997 1996 Useful Lives
---------- ---------- -------------
<S> <C> <C> <C>
Machinery and equipment $ 480,303 $ 744,937 5-7 years
Assets under capitalized lease obligations 458,607 576,171 5-7 years
Furniture and fixtures 1,133,440 1,069,407 5-7 years
Leasehold improvements 517,833 508,237 Life of lease
Leasehold costs 353,805 362,480 Life of lease
---------- ----------
2,943,988 3,261,232
Less: accumulated depreciation
and amortization 2,204,093 2,377,777
---------- ----------
Total Property and Equipment, Net $ 739,895 $ 883,455
========== ==========
</TABLE>
Depreciation and amortization expense amounted to $255,389 and $248,992 for
the years ended November 30, 1997 and 1996, respectively.
NOTE 4 - Intangible Assets
Intangible assets at November 30, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
Estimated
1997 1996 Useful Lives
-------- -------- ------------
<S> <C> <C> <C>
Goodwill, customer lists and license fees $520,495 $448,916 5 - 15 years
Covenant not to compete 10,000 10,000 10 years
Acquisition costs 172,026 172,026 15 years
-------- --------
702,521 630,942
Less: accumulated amortization 198,035 145,068
-------- --------
Intangible Assets, Net $504,486 $485,874
======== ========
</TABLE>
Amortization expense amounted to $52,967 and $107,454 for the years ended
November 30, 1997 and 1996, respectively. Acquisition costs consists of
loan fees of $68,499 in connection with the obtaining of certain bank
financing and acquisition costs of $103,527 incurred in connection with the
purchase of three stores and certain licensing agreements.
-13-
<PAGE> 16
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - Deferred Merger Costs
The Company has entered into a stock purchase agreement with Action
Industries Inc. (Action), whereby Action will acquire all of the issued and
outstanding shares of the Company (see Note 24). In connection with this
transaction the Company has incurred $797,481 of merger related expenses on
behalf of Action during the year ended November 30, 1997.
NOTE 6 - Notes Receivable
Notes receivable at November 30, 1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Note receivable from the sale of a 50% interest in the
Queens Center Store, payable in an installment of $100,000
in February 1996 and the remainder payable monthly
commencing March 1996 by retaining a 50% share of
distributable store profits up to a maximum of $1,900 per
month, with the balance, if any, due November 1999. $ 74,756 $ 74,756
Note receivable from the sale of seven (7) third-party
provider agreements, due in monthly installments of $2,500
plus interest at 6% commencing October 1, 1996, with the
balance of principal and accrued interest due in full on
January 1, 2000. 1,160 88,737
Note receivable from the sale of the White Plains Store to an
entity owned by a stockholder of the Company, due in
monthly installments of the lesser of $8,607 or 50% of the
service fees due to the buyer pursuant to the Provider
Agreement between the parties, including interest at 6%
commencing July 1, 1996, secured by the store's assets and
future service fees. - 0 - 62,845
Note receivable from the sale of the Hicksville store and
sale of a third party provider agreement, due in monthly
installments of $2,802 including interest at 9% commencing
November 1, 1996 through October 2001, secured by the store's
assets. 118,398 133,210
Note receivable from sale of 50% interest in the Bay Ridge
Store due in monthly installments of $2,338, without interest
commencing September 1, 1996 through August 2002. -0- 168,000
-------- --------
(Forward) $194,314 $527,548
-------- --------
</TABLE>
-14-
<PAGE> 17
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - Notes Receivable, continued
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
(Forward) $ 194,314 $ 527,548
Note receivable from sale of two (2) third-party provider
agreements, payable by retaining the provider service fees
until the note is repaid. 0- 45,000
Note receivable from the sale of the Hearing Aid Division,
due without interest and no definite terms of repayment. -0- 95,000
Note receivable from the sale of 41% of the issued and
outstanding common stock of three unconsolidated affiliates:
Infinity Optical, Inc., Innovation Vision, Inc. and Horizon
Eyes, Inc., due in monthly installments of $2,400 including
interest at 7% commencing on March 1, 1998 through February
1, 2005, secured by the common stock (see Note 15). 250,000 -0-
Note receivable from the sale of the East Orange store to a
third party due in monthly installments of $464 including
interest at 6% commencing July 1, 1997 through June 2002,
secured by the store's assets. 24,000 -0-
Note receivable from the sale of two (2) third-party provider
agreements, payable by retaining the provider service fees
until the note is repaid. 51,555 -0-
Note receivable from General Hearing Services, Inc. a
related entity, due September 1, 1998, interest of 10% paid
quarterly, secured by the assets of the entity. 600,000 -0-
---------- ----------
Total 1,119,869 667,548
Less: current maturities 697,373 306,436
---------- ----------
Notes Receivable, net of current maturities $ 422,496 $ 361,112
========== ==========
</TABLE>
NOTE 7 - Due From Related Entity
At November 30, 1997 the Company was owed $188,844 from an entity related
by common officers. The amount represents reimbursement owed for overhead
paid by the Company on behalf of the related entity in the normal course of
business. The amount due from related entity has no definite repayment
terms and is noninterest-bearing.
-15-
<PAGE> 18
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - Loan Payable, Bank
On February 1, 1996, the Company established a revolving line of credit
with a bank through January 31, 1998 with automatic one year renewals
thereafter. Under the agreement, the Company may borrow up to the lesser of
$1,200,000 (amended to $1,400,000) or 80% of its eligible accounts
receivable, as defined. Interest is payable monthly at the bank's base rate
plus 3% and the line is collateralized by the Company's accounts
receivable, inventory, certain intangible assets and property and equipment
and is guaranteed by the Company's majority stockholder/officer. As
security, the Company assigned all of its receivables, present and future
to the bank. In addition, the Company must comply with financial covenants
relating to net worth and working capital and certain other restrictive
covenants. Furthermore, long-term debt and notes payable to stockholders
and a former stockholder in the amount of $2,930,692 and $471,771 at
November 30, 1997 and 1996, respectively, are subordinated to this credit
facility (see Notes 10 and 11).
Upon establishing this line of credit, the Company borrowed approximately
$1,021,000 under the line and simultaneously repaid the loan payable to
Amalgamated Bank in the amount of $555,214.
On December 4, 1997 the Company borrowed an additional $500,000 under a
term loan due in weekly installments of $33,333 including interest at the
bank's base rate plus 3% commencing January 15, 1998 through April 23,
1998. During the term of this loan, the aggregate indebtedness to the bank
may not exceed $2,000,000.
NOTE 9 - Trade Notes Payable
Trade notes payable at November 30, 1997 and 1996, all of which are
personally guaranteed by a stockholder/officer of the Company, consists of
the following:
<TABLE>
<CAPTION>
1997 1996
---- -------
<S> <C> <C>
Trade note payable - Supreme Optical, Inc., due in monthly
installments of $1,846 including interest at 10% through
November 1997 $-0- $20,996
Trade note payable - Nassau Lens Co. Inc., with interest
payable at 8.75% -0- 30,000
---- -------
Total Trade Notes Payable $-0- $50,996
==== =======
</TABLE>
-16-
<PAGE> 19
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - Long-Term Debt
Long-term debt at November 30, 1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Capitalized equipment lease - due in monthly installments of
$1,449, including interest at 19% through March 2000,
collateralized by underlying equipment. $ 35,246 $ 44,883
Capitalized equipment lease, due in monthly installments of
$1,356, including interest at 8% through June 2000,
collateralized by underlying equipment. 40,053 52,574
Capitalized equipment lease - due in monthly installments of
$980, including interest at 8% through January 1997,
collateralized by underlying equipment. -0- 2,901
Note payable, Expressway, due in monthly installments of
$13,475 including interest at 8% through August 1997,
collateralized by furniture, equipment, accounts receivable
and store leases pertaining to the three stores acquired in
December 1993. -0- 117,325
Capitalized equipment lease - due in monthly installments of
$1,232, including interest at 11% through July 1997,
collateralized by underlying equipment. -0- 9,447
Capitalized equipment lease - due in monthly installments of
$2,675, including interest at 13% through May 1998,
collateralized by underlying equipment. 10,415 41,324
Note payable related to the purchase of treasury stock and
stock options, payable in monthly installments of $6,500,
including interest at 7% through December 1994, then in
thirty-eight monthly installments of $7,500, including
interest at 7% through February 1998, with the remaining
principal balance of $127,925 due March 5, 1998. This note
is subordinated to the Company's credit facility with the
Bank (see Note 8). 160,385 223,971
-------- --------
(Forward) $246,099 $492,425
-------- --------
</TABLE>
-17-
<PAGE> 20
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - Long-Term Debt, continued
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
(Forward) $246,099 $492,425
Loan payable, the bank, due in bi-weekly installments of
$10,000 plus interest at prime plus 3%, payable monthly
through April 1997 collateralized by inventory, property and
equipment and accounts receivable and the guarantee of an
officer/stockholder of the Company. -0- 110,000
Note payable, Pildes, due in monthly installments of $2,494
including interest at 7.6% through January 1997, guaranteed
by an officer/stockholder of the Company. -0- 4,942
Capitalized equipment lease, due in monthly installments of
$1,763, including interest at 10.5% through June 1999,
collateralized by underlying equipment. 20,478 37,430
Capitalized equipment lease, due in monthly installments of
$545, including interest at 8% through May 1999,
collateralized by underlying equipment. 9,216 14,774
Capitalized equipment lease - due in monthly installments
aggregating $339, including interest at 8% through
November 1997, collateralized by underlying equipment. -0- 2,724
Note payable, 21st Century Optics Inc., an unconsolidated
affiliate, due in monthly installments of $5,284 including
interest at 10.23% through November 2002 (see Note 15). 243,817 -0-
Loan payable, related to the purchase of treasury stock and
the remaining 48.34% of the common stock of Spectique,
payable in 36 monthly installments of $4,446 including
interest at 7% through August 2000 collateralized by the
Company's common stock (see Notes 13 and 14). 133,097 -0-
-------- --------
Total 652,707 662,295
Less: Current Maturities 309,174 397,320
-------- --------
Long-Term Debt $343,533 $264,975
======== ========
</TABLE>
-18-
<PAGE> 21
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - Long-Term Debt, continued
Maturities of long-term debt at November 30, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending Loans and
November 30, Notes Payable Capital Leases Total Amount
------------ ------------- -------------- ------------
<S> <C> <C> <C>
1998 $243,075 $ 66,099 $309,174
1999 92,665 34,490 127,155
2000 87,559 14,818 102,377
2001 54,041 -0- 54,041
2002 59,960 -0- 59,960
-------- -------- --------
Total $537,300 $115,407 $652,707
======== ======== ========
</TABLE>
NOTE 11 - Notes Payable, Stockholders
Notes payable, stockholders at November 30, 1997 and 1996 consists of the
following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Note payable, stockholder/officer, with interest payable
monthly at 9%, convertible into shares of common stock at
$.10 per share. (A) $ 72,725 $ 189,490
Note payable, stockholder/officer, due in monthly installments
of $687, including interest at 5% through September 1996
This note is unsecured. (A) -0- 12,138
Note payable, stockholder/director, due in monthly
installments of $4,597, including interest at 9% through
August 1997. This note is unsecured. (A) -0- 39,860
Note payable, stockholder/director, due in monthly
installments of $6,360, including interest at 9% through
December 1996. (A) -0- 6,312
Note payable, stockholder, due June 30, 2000 with interest at
10% payable quarterly. (A) 1,500,000 -0-
Note payable, stockholder, due June 30, 2000 with interest
payable at 10% payable quarterly. (A) 474,982 -0-
---------- ----------
(Forward) $2,047,707 $ 247,800
---------- ----------
</TABLE>
-19-
<PAGE> 22
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - Notes Payable, Stockholders, continued
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
(Forward) $2,047,707 $ 247,800
Note payable, stockholder, due June 30, 2000 with interest at
10% payable quarterly. (A) 722,600 -0-
Demand promissory note payable, stockholder/director, with
interest payable monthly at 9% (see Note 18) 224,626 279,353
---------- ----------
Total Notes Payable, Stockholders 2,994,933 527,153
Less: current maturities 297,351 405,212
---------- ----------
Notes Payable, Stockholders, net of current maturities $2,697,582 $ 121,941
========== ==========
</TABLE>
(A) These notes are subordinated to the Company's credit facility with the
bank (see Note 10).
Interest expense charged to operations on the notes payable, stockholders
amounted to approximately $41,161 and $42,858 in 1997 and 1996,
respectively.
Maturities of notes payable, stockholders at November 30, 1997 are as
follows:
<TABLE>
<CAPTION>
Year Ending
November 30, Amount
------------ ------
<S> <C>
1998 $ 297,351
1999 -0-
2000 2,697,582
----------
Total $2,994,933
----------
</TABLE>
NOTE 12 - Income Taxes
The Company files a consolidated federal income tax return. The provision
for income taxes for the years ended November 30, 1997 and 1996 consists of
the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Current Taxes:
Federal $ 171 $ 5,000
State and City 11,725 31,282
------- -------
Total Current Taxes (Forward) $11,896 $36,282
------- -------
</TABLE>
-20-
<PAGE> 23
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - Income Taxes
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Total Current Taxes (Forward) $ 11,896 $ 36,282
--------- ---------
Deferred Tax (Benefit) Expense
Federal (115,000) 115,000
State and City (24,000) 24,000
--------- ---------
Total Deferred Tax (Benefit) Expense (139,000) 139,000
--------- ---------
$(127,104) $ 175,282
========= =========
</TABLE>
The provision for income taxes for the year ended November 30, 1996 is net
of a tax benefit from the utilization of net operating loss carryforwards
of approximately $615,000.
For Federal income tax purposes, at November 30, 1997, the Company has
approximately $645,000 of net operating loss carryforward available,
$197,000 expiring in 2010 and $448,000 expiring in 2011.
Deferred tax asset (liability) at November 30, 1997 and 1996 consists of
the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Gross deferred tax asset $ 267,500 $ 72,000
Gross deferred tax liability (116,500) (211,000)
Valuation allowance (151,000) -0-
--------- ---------
Total Deferred Tax Liability $ -0- $(139,000)
========= =========
</TABLE>
The deferred tax asset represents primarily net operating loss
carryforwards. The deferred tax liability is related primarily to the
temporary timing differences in depreciation of fixed assets and income
earned under the installment sale method for note receivable.
NOTE 13 - Treasury Stock
On December 5, 1991 the Company, at a cost of $520,000 ($20,000 in cash and
a promissory note for $500,000), acquired from a former director and his
wholly-owned corporation, 5,870,857 shares of the Company's stock, stock
options originally granted during December 1987 to purchase 2,100,000
shares at $.07 per share, stock options originally granted during March
1990 to purchase 1,000,000 shares at $.25 per share, additional options to
purchase 450,000 shares and warrants to acquire 600,000 shares of the
Company's common stock. Additionally, the Company is committed to paying
the former director, in the event of a public offering of the Company's
stock or sale of the Company prior to March 5, 1998, $75,000 and delivering
325,000 shares of the common stock and 350,000 shares of Class B preferred
stock of the acquiring Company.
-21-
<PAGE> 24
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - Treasury Stock, continued
On July 17, 1997 the Company acquired 300,000 shares of the Company's stock
from the minority interest stockholders of a consolidated subsidiary at a
cost of $88,416, as part of a $144,000 thirty-six (36) month loan at 7%
interest (see Note 10).
NOTE 14 - Investment in Subsidiary
On July 26, 1995, the Company acquired 51.66% of the issued and outstanding
shares of Spectique in exchange for 300,000 shares of common stock of the
Company in a stock swap transaction. This transaction has been recorded
under the purchase method.
The Company also received the option at any time to repurchase the shares
that were issued to Spectique for $88,416, payable in 36 monthly
installments. The Company also received the option to purchase the
remaining Spectique shares under certain circumstances. On July 17, 1997
the Company exercised this option and acquired the remaining 48.34% of the
outstanding common stock for $72,176 paid in the form of forgiveness of
$17,192 of advances to Spectique and $54,632 as part of a total $144,000
thirty-six (36) month loan at 7% interest (see Note 10).
In addition, the Company agreed to loan and advance up to $88,416 to the
sellers of the Spectique stock, drawn at a maximum of $1,228 per month. As
of November 30, 1997 and 1996, $-0- and $14,736 was advanced under this
agreement, respectively.
NOTE 15 - Investment in Affiliates
On November 18, 1997 the Company acquired 40% of the outstanding common
stock (200 shares) and 275,000 shares of preferred stock of 21st Century
Optics, Inc. ("21st Century") for $450,000, in the form of cash, inventory,
fixed assets and a promissory note of $243,817 (see Note 10). The preferred
stock is convertible into not more than 10% of the issued and outstanding
common stock of 21st Century. The investment in the unconsolidated
affiliate is recorded under the equity method of accounting which
approximated cost at November 30, 1997. In addition, the Company received
an option to purchase the remaining outstanding shares of common stock for
four times the earnings before interest, income taxes, depreciation and
amortization for the two years ending August 30,2000. The Company may
exercise this option after August 20, 2000.
-22-
<PAGE> 25
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15 - Investment in Affiliates, continued
For the year ended November 30, 1997 the Company purchased $520,440 of
optical lenses from 21st Century.
On October 29, 1997 the Company acquired 100,000 shares of General Vision
Express, Inc. which represents 50% of the issued and outstanding shares of
the unconsolidated affiliate. The Company paid $120,745 for these shares in
the form of cash and book value of all the shares of a newly formed
wholly-owned subsidiary. The investment in the unconsolidated subsidiary is
recorded under the equity method of accounting and approximated cost at
November 30, 1997.
In January 1996, the Company acquired 41% of the issued and outstanding
shares of three entities: Infinity Optical, Inc. Innovation Vision, Inc.
and Horizon Eyes, Inc. (the "Stores") for an aggregate 1,000,000 shares of
common stock of the Company in a stock swap transaction. This investment is
carried at cost because the Company does not exercise significant influence
over the Stores operating and financial activities. On July 29, 1997 the
Company agreed to sell their 41% of the issued and outstanding common stock
of the stores for a $250,000 promissory note (see Note 6).
NOTE 16 - Sale of Hearing Aid Division
In June 1996, the Company sold substantially all the assets of its Hearing
Aid Division for $500,000, recognizing a gain of $488,740 on the sale. In
addition, the Company received an option to purchase an aggregate of
500,000 shares of the purchaser's common stock which represents 50% of the
purchaser's issued and outstanding common stock on the closing date. The
exercise price of the option will be $.20 per share, payable at the
Company's option, in cash or by exchange of its common stock at the then
market value.
NOTE 17 - Retirement Plans
The Company has a 401(k) savings plan for the benefit of eligible
employees. Contributions to the 401(k) plan are based upon a percentage of
the employees' elected contributions. For the years ended November 30, 1997
and 1996, Company contributions to the plan amounted to $28,858 and
$26,157, respectively.
The Company also contributes to a multi-employer pension plan on behalf of
its union employees. For the years ended November 30, 1997 and 1996,
Company contributions to the plan amounted to $42,316 and $76,328.
-23-
<PAGE> 26
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - Commitments and Contingencies
Employment and Consulting Agreements
The Company has an employment agreement with a stockholder/officer
providing for annual compensation in the approximate amount of $295,000
during the term of the agreement. In addition the agreement provides for
health insurance coverage, term life insurance not less than $500,000 with
the stockholder's wife designated as beneficiary, term life insurance not
less than $2,000,000 payable to the Company as beneficiary with the
proceeds used to purchase the outstanding shares of common stock of the
stockholder's estate upon his death and a monthly automobile allowance not
to exceed $450 per month. This agreement is set to expire on May 31, 2002
but is automatically renewable from year to year thereafter.
The Company entered into an employment agreement with a stockholder on
January 1, 1995 providing for annual compensation in the amount of $75,000
in 1995 with annual increases of $5,000 through 2004, plus incentive
commissions of 2% of yearly voucher sales not to exceed $130,000 for 1995
and increasing $5,000 per year thereafter. In connection with this
agreement, in the event of a sale of the Company by or in progress at
January 1, 1998, either through a stock purchase or an asset purchase, the
stockholder will receive a total of 12% of the sales price as payment for
the stockholder's outstanding shares in the Company which at November 30,
1997 consisted of 2,050,000 shares of stock (the "Net Payment"). If no sale
transaction has been completed by January 1, 1998 and none is in progress
at that time the Company agrees to grant the stockholder an option to
purchase a sufficient number of shares over a seven year period, commencing
January 1, 1998, to enable the stockholder to acquire a 25% percent stock
interest in the Company, subject to certain dilution provisions as defined
under the agreement. Pursuant to the amendment of the employment agreement
dated September 1, 1997, upon closing of the Action merger transaction (see
Note 24), the Company will issue 2,100,000 shares of the Company's common
stock to the stockholder in lieu of the Net Payment. These additional
2,100,000 shares will be exchanged for Action shares. However, delivery of
the Action shares will be delayed for one year from the commencement date
of the new employment agreement and provided further that the stockholder
is still employed with the Company or its successors at that time. In the
event the Action merger does not occur for any reason, neither the
2,100,000 shares of the Company nor the Action shares will be issued to the
stockholder. Thereafter during the term of the employment agreement, the
stockholder will receive upon any subsequent sales, merger or acquisition
of the Company eight (8%) of the gross consideration.
The Company has an employment agreement with a stockholder/officer
providing for annual compensation in the approximate amount of $150,000
during the term of the agreement. The agreement provides for a bonus during
the first twelve months of the contract not to exceed 30% of the base
salary if certain financial goals are achieved. In addition the agreement
provides for health insurance coverage, term life insurance equal to two
and one half times the annual compensation with the beneficiary to be
designated by the stockholder and an automobile allowance not to exceed
$450 per month. The agreement is set to expire April 30, 1999 but is
automatically renewable from year to year thereafter.
-24-
<PAGE> 27
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - Commitments and Contingencies, continued
Employment and Consulting Agreements, continued
The Company has an employment agreement with its general counsel/director
of business development providing for annual compensation in the
approximate amount of $50,000 during the term of the agreement. In addition
the agreement provides for health insurance coverage, term life insurance
qual to two and one half times the annual compensation with the beneficiary
to be designated by the counsel/director and an automobile allowance not to
exceed $450 per month. The agreement is set to expire August 31, 2002 but
is automatically renewable year to year thereafter.
The Company has an employment agreement with an officer providing for an
annual compensation of $100,000 during the term of the agreement. If the
officer terminates employment with a related entity, the annual
compensation shall be increased to $160,000. In addition, the agreement
provides for health insurance coverage, term life insurance equal to two
and one half times the annual compensation with the beneficiary to be
designated by the officer and an automobile allowance not to exceed $450
per month. The agreement is set to expire July 31, 2002 but is
automatically renewable year to year thereafter.
The Company has a consulting agreement with a stockholder/director of
professional services providing for annual compensation in the amount of
$135,000 during the term of the agreement. The agreement also provides for
a $200 per week director's fee, disability insurance coverage and a monthly
automobile allowance not to exceed $450 per month. The agreement is set to
expire February 28, 2003.
The Company has a consulting agreement providing for annual compensation of
$96,000. The agreement is set to expire October 1, 2002, but is
automatically renewable for successive five (5) year terms thereafter.
The Company has a financial consulting agreement with a securities
broker-dealer providing for compensation of $3,000 per month for the first
six (6) months of the agreement and shall increase to $5,000 per month for
the remaining fifty-four (54) months. The agreement is set to commence upon
the completion of a sale or merger transaction of the Company.
The Company has a consulting agreement for financial advisory services
providing for annual compensation of $50,000 to be paid in quarterly
installments of $12,500. The agreement is set to expire June 2002.
-25-
<PAGE> 28
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - Commitments and Contingencies, continued
The minimum future commitments under the terms of employment and consulting
agreements are as follows:
<TABLE>
<CAPTION>
Year Ending
November 30, Amount
------------ ----------
<S> <C>
1998 $ 913,883
1999 1,013,483
2000 955,983
2001 960,983
2002 719,650
Thereafter 330,517
----------
Total $4,894,499
==========
</TABLE>
Distribution of Store Profits
The Company has agreements with several of its store managers to pay
commissions based upon individual store profits. Under the terms of these
agreements, the Company withholds payments of these commissions until an
agreed upon amount has accrued. The withheld commissions, which are
reflected in the accompanying balance sheet as deferred commissions
payable, are payable without interest over a two year period commencing
upon termination of employment.
The Company has an agreement with a store optometrist/stockholder whereby
the Company and the optometrist/stockholder share in the operating profits
of two stores. This agreement provides that the Company distribute one-half
of such stores' net operating profits on a monthly basis. At November 30,
1997 and 1996 the Company owed this optometrist/stockholder $224,626 and
$279,353, respectively, pursuant to this agreement (see Note 11).
Royalty Agreement
On December 22, 1993, the Company entered into a licensing agreement
effective January 1, 1994 for a term of fifteen (15) years with Pildes
Management Corp., to operate four optical centers in New York and use the
"Pildes" and "Pildes Optical" trademarks. Under the terms of the agreement,
the Company must remit monthly royalty payments of $4,333 for the six month
period commencing July 1, 1994 and ending December 31, 1994, plus 8% of the
gross sales exceeding $650,000 of the four centers in the aggregate during
the same six month period. For all periods subsequent to January 1, 1995,
the Company shall pay royalties at a rate of 8% per month of aggregate
gross sales for the four centers, with a minimum annual aggregate royalty
payment. Royalty expense for the years ended November 30, 1997 and 1996 was
$47,058 and $52,000, respectively.
In connection with this agreement the Company also entered into two
equipment lease agreements. The first requires monthly installments of
$2,105 for 36 months and the second requires monthly installments of $2,215
for 54 months.
-26-
<PAGE> 29
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 18 - Commitments and Contingencies, continued
Leasing Arrangements
The Company is committed under several noncancellable operating leases
expiring at various dates through 2005. The Company is responsible for the
annual base rent plus taxes, a percentage of sales above specific amounts,
maintenance and certain other costs. Rental expense, net of sublease income
of $135,466 and $173,622 for the years ended November 30, 1997 and 1996,
respectively, was $1,370,041 and $1,546,033 for the years ended November
30, 1997 and 1996, respectively.
The future rental commitments under noncancellable leases as of November
30, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending Gross Rental Sublease Income Net Rental
November 30, Amount Amount Amount
------------ ------ ------ ------
<S> <C> <C> <C>
1998 $1,383,734 $ 35,700 $1,348,034
1999 1,340,910 36,780 1,304,130
2000 1,309,863 37,860 1,272,003
2001 1,204,250 -0- 1,204,250
2002 958,999 -0- 958,999
Thereafter 1,048,948 -0- 1,048,948
---------- ---------- ----------
Total $7,246,704 $ 110,340 $7,136,364
========== ========== ==========
</TABLE>
NOTE 19 - Major Customer
The Company had sales to one customer during the years ended November 30,
1997 and 1996 which approximated 11.5% and 13.0% of retail sales. The
amount due from that customer at November 30, 1997 and 1996 was $241,942
and $195,600, respectively, and is included in accounts receivable in the
accompanying financial statements.
NOTE 20 - Deferred Revenue
On November 30, 1995, the Company sold a 50% interest in the profits and
losses of one of its stores for an indefinite period for $192,000. The
Company may elect to terminate this agreement under certain circumstances
subsequent to May 31, 1997 for $100,000 plus additional amounts as defined
in the agreement. Accordingly, the Company recorded deferred revenue of
$100,000 at November 30, 1996. As the Company did not exercise this right,
the deferred revenue of $100,000 was recognized during the year ended
November 30, 1997.
-27-
<PAGE> 30
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 21 - Gain on Sale of Stores
During the years ended November 30, 1997 and 1996, the Company sold stores
as follows:
<TABLE>
<CAPTION>
Year Ended Date Location Sale Price Gain on Sale
---------- ---- -------- ---------- ------------
<S> <C> <C> <C> <C>
November 30, 1997 April 1997 East Orange $ 24,000 $ 1,363
November 30, 1996 May 1996 White Plains $150,000 $113,499
November 30, 1996 September 1996 Hicksville 85,000 5,818
-------- --------
$235,000 $119,317
======== ========
</TABLE>
NOTE 22 - Disposal of Laboratory
In August 1997 the Company closed its laboratory pursuant to a condition of
its acquisition of 40% of the outstanding common stock of 21st Century (see
Note 15). A loss of $650,000 was recorded during the year ended November
30, 1997 related to this disposal. The loss consists primarily of severance
and related benefits, real property lease expenses and non-salable
inventory adjustments.
NOTE 23 - Stock Exchanged for Services
During the year ended November 30, 1996, the Company issued 1,000,000
shares of common stock in exchange for management services rendered, and
issued 300,000 shares of common stock in exchange for legal services
rendered. The cost of the services have been charged to operations and
additional paid-in capital has been increased by a total of $129,870,
representing the excess of the cost of the services over the par value of
the common stock issued.
NOTE 24 - Subsequent Events
On August 10, 1997, the Company entered into a merger agreement with Action
Industries, Inc. ("Action"), a Pennsylvania corporation whose stock is
publicly traded whose stock is listed on the American Stock Exchange but
whose stock trading has been halted since October 1996. The Merger
Agreement provided for each shareholder of GVS to receive .1138 shares of
Action's Common Stock and .1367 shares of Action's Series B Preferred
Stock, subject to adjustment.
The completion of the merger is subject to various conditions including
approval of the shareholders of both companies.
-28-
<PAGE> 31
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 24 - Subsequent Events, continued
On March 20, 1998, the Company entered into a stock purchase agreement with
Action. Action acquired 26,800,000 shares of newly issued common stock of
the Company. This represents 50.09% of the 53,507,278 issued and
outstanding common stock of the Company at the time of this agreement. The
purchase price of these shares of $5,197,582 is to be paid through the
forgiveness of $2,697,582 of 10% promissory notes due June 30, 2000 to
Action and the issuance of $2,500,000 6% promissory note due March 31, 2000
by Action to the Company. The terms of the merger agreement have not been
otherwise materially altered.
Future financial statements of the Companies will be issued on a
consolidated basis.
April 1, 1998 the Company agreed to sell to Action its option to acquire
50% of the outstanding common stock of General Hearing Services, Inc.
("Hearing") and promissory notes from Hearing totaling $700,000 in exchange
for a $700,000 interest in a trust created to hold a judgement note.
On May 1, 1998 the Company received from the bank a waiver on various
covenants in the loan agreement and enables the Company to be in compliance
with all the provisions and covenants in the loan agreement for the period
ending November 30, 1997. Additionally the bank has agreed to extend this
wavier to February 28, 1998.
-29-
<PAGE> 32
[MARCUM & KLIEGMAN LLP Letterhead]
INDEPENDENT AUDITORS' REPORT ON
CONSOLIDATED SUPPLEMENTARY INFORMATION
To the Board of Directors and Stockholders of
General Vision Services, Inc. and Subsidiaries
Our report on our audits of the basic consolidated financial statements of
General Vision Services, Inc. and Subsidiaries for the years ended November 30,
1997 and 1996 appears on page one. These audits were made for the purpose of
forming an opinion on the basic consolidated financial statements taken as a
whole. The consolidated schedules of cost of revenues, laboratory expenses,
store and selling expenses and general and administrative expenses are presented
for purposes of additional analysis and are not a required part of the basic
consolidated financial statements. Such information has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.
/s/ MARCUM & KLIEGMAN LLP
-------------------------
March 17, 1998
-30-
<PAGE> 33
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF COST OF REVENUES AND
LABORATORY EXPENSES
For the Years Ended November 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
COST OF REVENUES
Inventory - beginning $ 1,339,196 $ 1,300,360
Purchases 4,912,922 4,351,807
Laboratory expenses 1,719,883 2,601,928
Reimbursements to panel stores 2,913,721 1,075,637
Total Available For Sale 10,885,722 9,329,732
Less: Inventory - ending 1,015,721 1,339,196
------------ ------------
TOTAL COST OF REVENUES $ 9,870,001 $ 7,990,536
LABORATORY EXPENSES
Salaries $ 1,412,575 $ 1,538,194
Payroll taxes 136,722 148,959
Union expenses 112,296 132,663
Rent, utilities and insurance 250,407 265,887
Supplies and other lab costs 216,302 264,615
Allocated general and administrative expenses 139,581 139,581
Depreciation 102,000 112,029
Loss on disposal of laboratory (650,000) -0-
------------ ------------
TOTAL LABORATORY EXPENSES $ 1,719,883 $ 2,601,928
============ ============
</TABLE>
See independent auditors' report on supplementary information.
-31-
<PAGE> 34
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF STORE AND
SELLING EXPENSES
For the Years Ended November 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Salaries $4,284,887 $4,497,353
Employee incentives 578,937 538,794
Temporary help 393,628 318,970
Payroll taxes and employee benefits 742,502 792,562
Union expenses 102,394 120,622
Rent, net 1,187,442 1,348,636
Commercial rent tax 18,528 27,354
Utilities 157,104 191,888
Insurance 75,555 62,507
Telephone 101,383 122,018
Repairs and maintenance 57,747 69,034
Cleaning and janitorial 41,539 48,724
Messengers and freight 113,643 144,871
Postage 25,501 26,991
Store supplies 58,116 62,680
Equipment and furniture rental 28,465 71,200
Auto expenses 5,761 9,261
Travel and entertainment 23,427 59,547
Advertising 591,588 161,658
Marketing (allocated) 680,046 697,355
Royalty Expense 47,059 52,000
Stationery and printing 64,992 71,509
Recruitment 30 2,299
Cash short 23,585 8,864
Bank charges 38,329 36,149
Depreciation 28,174 55,953
Management fees 383,752 -0-
---------- ----------
TOTAL STORE AND SELLING EXPENSES $9,854,114 $9,598,799
========== ==========
</TABLE>
See independent auditors' report on supplementary information.
-32-
<PAGE> 35
GENERAL VISION SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED SCHEDULES OF GENERAL AND
ADMINISTRATIVE EXPENSES
For the Years Ended November 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Officers' salaries $ 362,669 $ 328,359
Office salaries 1,604,612 1,248,638
Temporary help 128,138 94,383
Payroll taxes and employee benefits 325,740 216,803
Stock compensation - 0 - 100,000
Rent, utilities and rent tax 242,786 248,668
Telephone 84,303 69,561
Machine rentals and repairs 47,628 30,308
Office supplies and expenses 14,018 15,271
Data processing 95,597 60,629
Professional fees 86,043 279,582
Recruitment 28,404 6,290
Insurance 24,641 25,003
Auto expenses 19,937 38,572
Travel, entertainment and promotions 177,760 146,169
Holiday expenses 9,713 10,742
Advertising 28,284 7,390
Contributions 17,151 11,550
Officers' life insurance 39,705 45,382
Depreciation and amortization 178,182 188,464
Bank charges 26,034 5,312
Miscellaneous 148,734 16,179
Bad debts 354,329 -0-
----------- -----------
4,044,408 3,193,255
Less: Administration charged to laboratory
expenses (139,581) (139,581)
Marketing charged to store expenses (680,046) (697,355)
----------- -----------
TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES $ 3,224,781 $ 2,356,319
=========== ===========
</TABLE>
See independent auditors' report on supplementary information.
-33-
<PAGE> 1
EXHIBIT B
ACTION INDUSTRIES INC. AND SUBSIDIARIES
PROFORMA COMBINED BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
ADJUSTMENTS
---------------------------- AS
ACTION GVS TOTAL DEBIT CREDIT ADJUSTED
------ --- ----- ----- ------ --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 59 $ 0 $ 59 $ 59
TRADE ACCOUNTS RECEIVABLE
NET OF ALLOWANCES 20 1,843 1,863 1,863
INVENTORIES 1,012 1,012 1,012
NOTES RECEIVABLE 3,147 3,147 a. 2,500 647
OTHER CURRENT ASSETS 100 45 145 145
-------- ------- -------- --------
TOTAL CURRENT ASSETS 179 6,047 6,226 3,726
-------- ------- -------- --------
PROPERTY, PLANT AND
EQUIPMENT, NET 0 722 722 722
-------- ------- -------- --------
OTHER ASSETS
NOTES RECEIVABLE 1,614 469 2,083 2,083
INVESTMENT IN SUBSIDIARY 5,198 806 6,004 b. 5,198 806
DEFERRED ACQUISITION COSTS 785 785 785
INTANGIBLE ASSETS, NET 502 502 502
GOODWILL, NET b. 2,970 2,970
OTHER 238 139 377 377
-------- ------- -------- --------
TOTAL OTHER ASSETS 7,050 2,701 9,751 7,523
-------- ------- -------- --------
TOTAL ASSETS $ 7,229 $ 9,470 $ 16,699 $ 11,971
======== ======= ======== ========
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
NOTES PAYABLE AND OTHER
DEBT CURRENTLY PAYABLE $ 115 $ 809 $ 924 $ 924
ACCOUNTS PAYABLE 492 1,473 1,965 1,965
ACCRUED EXPENSES 139 1,495 1,634 1,634
LOAN PAYABLE, BANK 439 439 439
INCOME TAXES PAYABLE (3) (3) (3)
OTHER CURRENT LIABILITIES 777 119 896 896
-------- ------- -------- --------
TOTAL CURRENT LIABILITIES 1,523 4,332 5,855 5,855
-------- ------- -------- --------
OTHER LIABILITIES
LONG TERM DEBT 0 586 586 586
CONVERTIBLE NOTES 3,701 0 3,701 3,701
NOTES PAYABLE 2,500 2,500 a. 2,500 0
DEFERRED EXPENSES 1,172 175 1,347 1,347
OTHER LIABILITIES 0 7 7 7
-------- ------- -------- --------
TOTAL OTHER LIABILITIES 7,373 768 8,141 5,641
-------- ------- -------- --------
TOTAL LIABILITIES 8,896 5,100 13,996 11,496
-------- ------- -------- --------
STOCKHOLDERS' EQUITY (DEFICIENCY)
COMMON STOCK, PAR VALUE $.10 719 6 725 b. 3 719
c. 3
PREFERRED STOCK, CLASS A 0
PREFERRED STOCK, CLASS B 0
0
CAPITAL IN EXCESS OF PAR 25,498 6,318 31,816 b. 3,222 25,498
c. 3,096
RETAINED EARNINGS (ACCUM. DEFICIT) (16,310) (1,346) (17,656) b. 687 (16,309)
c. 660
MINORITY INTEREST c. 2,141 2,141
-------- ------- -------- --------
9,907 4,978 14,885 12,049
LESS TREASURY STOCK, AT COST (11,574) (608) (12,182) b. 310 (11,574)
c. 298
-------- ------- -------- --------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) (1,667) 4,370 2,703 475
TOTAL LIABILITIES AND
-------- ------- -------- --------
STOCKHOLDERS' EQUITY (DEFICIENCY) $ 7,229 $ 9,470 $ 16,699 $ 11,971
======== ======= ======== ========
</TABLE>
<PAGE> 3
ACTION INDUSTRIES INC. AND SUBSIDIARIES
PROFORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
ADJUSTMENTS
---------------------------- AS
ACTION GVS TOTAL DEBIT CREDIT ADJUSTED
------ --- ----- ----- ------ --------
<S> <C> <C> <C> <C> <C> <C>
NET SALES $ 0 $11,799 $ 11,799 $ 11,799
COST OF SALES 5,278 5,278 5,278
0
-------- ------- -------- --------
GROSS PROFIT 0 6,521 6,521 6,521
-------- ------- -------- --------
OPERATING EXPENSES
SELLING, GENERAL AND ADMIN 575 6,992 7,567 e. 74 7,641
DISTRIBUTION OF STORE PROFITS 297 297 297
LOSS ON DISPOSAL OF LABORATORY 650 650 650
-------- ------- -------- --------
TOTAL OPERATING EXPENSES 575 7,939 8,514 8,588
-------- ------- -------- --------
OPERATING INCOME (LOSS) (575) (1,418) (1,993) (2,067)
-------- ------- -------- --------
OTHER INCOME (EXPENSE)
INTEREST EXPENSE (54) (274) (328) (328)
INTEREST INCOME 14 14 14
OTHER INCOME (EXPENSE) 295 (22) 273 273
GAIN ON SALE OF STORES 1 1 1
GAIN ON SALE OF STORE INTEREST 99 99 99
-------- ------- -------- --------
TOTAL OTHER INCOME (EXPENSE) 241 (182) 59 59
INCOME BEFORE INCOME TAXES
-------- ------- -------- --------
AND MINORITY INTEREST (334) (1,600) (1,934) (2,008)
INCOME TAX EXPENSE (BENEFIT) (266) (266) (266)
-------- ------- -------- --------
INCOME BEFORE MINORITY INTEREST (334) (1,334) (1,668) (1,742)
MINORITY INTEREST IN SUBSIDIARY (10) (10) e. 654 (664)
-------- ------- -------- --------
NET LOSS ($ 334) ($ 1,344) ($ 1,678) ($ 2,406)
======== ======= ======== ========
PER SHARE DATA
NET LOSS PER SHARE (BASIC AND DILUTED) ($ 0.43)
WEIGHTED AVERAGE SHARES OUTSTANDING 5,539
</TABLE>
<PAGE> 4
ACTION INDUSTRIES INC. AND SUBSIDIARIES
PROFORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
(UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
ADJUSTMENTS
---------------------------- AS
ACTION GVS TOTAL DEBIT CREDIT ADJUSTED
------ --- ----- ----- ------ --------
<S> <C> <C> <C> <C> <C> <C>
NET SALES $ 5,424 $22,551 $27,975 $ 27,975
COST OF SALES 3,654 9,286 12,940 12,940
0
-------- ------ ------ ------
GROSS PROFIT 1,770 13,265 15,035 15,035
-------- ------ ------ ------
OPERATING EXPENSES
SELLING, GENERAL AND ADMIN 4,430 11,934 16,364 d. 149 16,513
DISTRIBUTION OF STORE PROFITS 628 628 628
-------- ------ ------ ------
TOTAL OPERATING EXPENSES 4,430 12,562 16,992 17,141
-------- ------ ------ ------
OPERATING INCOME (LOSS) (2,660) 703 (1,957) (2,106)
-------- ------ ------ ------
OTHER INCOME (EXPENSE)
INTEREST EXPENSE (485) (353) (838) (838)
OTHER INCOME 1,583 174 1,757 1,757
-------- ------ ------ ------
TOTAL OTHER INCOME (EXPENSE) 1,098 (179) 919 919
-------- ------ ------ ------
OPERATING INCOME (LOSS) (1,562) 524 (1,038) (1,187)
INCOME TAXES 314 314 314
-------- ------ ------ ------
INCOME (LOSS) BEFORE MINORITY INTEREST (1,562) 210 (1,352) (1,501)
MINORITY INTEREST IN SUBSIDIARY (8) (8) e. 99 (107)
-------- ------ ------ ------
NET INCOME (LOSS) ($ 1,562) $ 202 ($1,360) ($1,394)
======== ====== ====== ======
PER SHARE DATA
NET LOSS PER SHARE (BASIC AND DILUTED) ($ 0.25)
WEIGHTED AVERAGE SHARES OUTSTANDING 5,539
</TABLE>
<PAGE> 5
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following Unaudited Pro Forma Combined Balance Sheet as of December 31, 1997
and the related Unaudited Pro Forma Combined Statements of Operations for the
year ended June 30, 1997 and the six months ended December 31, 1997, are based
on the Consolidated Financial Statements and the notes related thereto. The Pro
Forma Combined Balance Sheet is adjusted to give effect to the acquisition of
51% interest of GVS (the "Acquisition") as if the transaction had occurred on
December 31, 1997. The Unaudited Pro Forma Combined Statement of Operations for
the year ended June 30, 1997 is adjusted to give effect to the Acquisition as if
this transaction had occurred as of July 1, 1996. The Unaudited Pro Forma
Combined Statement of Operations for the six months ended December 31, 1997 is
adjusted to give effect to the Acquisition as if this transaction had occurred
as of July 1, 1997. The Unaudited Pro Forma Combined Statements of Operations
reflect the Acquisition of GVS prior to the date the Company made such
Acquisition, using the purchase method of accounting. The Statement of
Operations for GVS for the year ended June 30, 1997 includes the five months
ended November 30, 1996 (GVS's fiscal year end) and the seven months ended June
30, 1997. The Pro Forma operating results are not necessarily indicative of the
operating results that would have been achieved had the Acquisition actually
occurred at July 1, 1996, nor do they purport to indicate the results of future
operations.
The Unaudited Pro Forma Combined Financial Data is based on the assumptions set
forth in the notes to such statements and should be read in conjunction with the
related Consolidated Financial Statements and notes thereto included elsewhere
in FORM 8-K. The Pro Forma adjustments are based on the terms of the Stock
Purchase Agreement. In the opinion of the Company, all adjustments have been
made that are necessary to fairly present the Pro Forma data.
<PAGE> 6
ACTION INDUSTRIES INC.
NOTES TO PROFORMA COMBINED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
a. To eliminate intercompany notes of $2.5 million owed by Action to GVS.
b. To record allocation of purchase price based on the estimated fair
value of net assets acquired and eliminate the 51% of GVS equity
accounts.
c. To record the 49% minority interest and eliminate the 49% of GVS equity
accounts.
d. To record amortization of goodwill over 20 years.
e. To record current period minority interest on statement of operations.
f. The Statement of Operations for GVS has combined the five months ended
November 30, 1996 plus the seven months ended June 30, 1997. GVS's
fiscal year ends on November 30 which differs from Action which ends on
June 30.
g. Action acquired 26,800,000 shares of newly issued GVS's common stock
which consists of 51% interest of GVS. The purchase price was
approximated $5.2 million which consists of the forgiveness of $2.7
million previously advanced to GVS and the issuance of a $2.5 million
promissory note due March 31, 2000 by Action to GVS. The acquisition
was accounted for as a purchase effective March 20, 1998 and the
purchase price has been allocated based upon the estimated fair market
value of assets acquired.
