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187.2







U.S.
SECURITIES AND EXCHANGE COMMISSION




Washington,
D.C. 20549




FORM
10-Q




x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES




EXCHANGE
ACT OF 1934




For the
quarterly period ended March 31, 2010




o TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES




EXCHANGE
ACT OF 1934




For the
transition period from




Commission
File No. 000-52455




ACTION INDUSTRIES,
INC.




(Exact
name of small business issuer as specified in its charter)


Nevada
                      
                      11-3699388(State
      or other jurisdiction of
                        incorporation
      or formation)
                      
                      (I.R.S.
      employer identification
                        number)





No.
1 Jingguang Road, Neiqiu County


Xingtai
City, Hebei Province, China


(Address
of principal executive offices) (Zip Code)





+86
0319-686-1111


(Registrant’s
telephone number, including area code)





(Former
Address)


8744
Riverside House Path


Brewerton,
New York 13029







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 o




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o No x




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.





1


Large
      Accelerated Filer o
              Accelerated
      Filer oNon-Accelerated
      Filer o  (Do
      not check if a smaller reporting company)
              Smaller
      reporting company x








Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes o No x





APPLICABLE
ONLY TO CORPORATE ISSUERS




Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date: 18,750,000 shares of $.001 par value
common stock outstanding as of May 13, 2010.




2





ACTION
INDUSTRIES, INC.





INTERIM
AND UNAUDITED FINANCIAL STATEMENTS INDEX





PART
I – FINANCIAL INFORMATION




PageItem
      1.
                        CONSOLIDATED
      FINANCIAL STATEMENTS (UNAUDITED)
                        4CONSOLIDATED
      BALANCE SHEETS
                        4CONSOLIDATED
      STATEMENTS OF OPERATIONS
                        5CONSOLIDATED
      STATEMENTS OF CASH FLOWS
                        6NOTES
      TO UNAUDITED FINANCIAL STATEMENTS
                        7-12Item
      2.
                        MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND    RESULTS OF OPERATIONS
                        13Item
      3.
                        QUANTITATIVE
      AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
                        21Item
      4. T.
                        CONTROLS
      AND PROCEDURES
                        21PART
      II – OTHER INFORMATIONItem
      1.
                        LEGAL
      PROCEEDINGS
                        21Item
      1A.
                        RISK
      FACTORS
                        21Item
      2.
                        UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
                        21Item
      3.
                        DEFAULTS
      UPON SENIOR SECURITIES
                        22Item
      4.
                        OTHER
      INFORMATION
                        22Item
      5.
                        EXHIBITS
                        23SIGNATURES
                        23





3





ACTION
      INDUSTRIES, INC.CONSOLIDATED
      BALANCE SHEETSAS
      OF MARCH 31, 2010 AND DECEMBER 31, 2009(UNAUDITED)





March
      31, 2010
                    
                    
                    December
      31, 2009ASSETSCurrent
      assetsCash
      and cash equivalents
                    
                    $
                    211,416
                    
                    
                    $
                    115,510Notes
      receivable
                    
                    
                    737,262
                    
                    
                    
                    -Accounts
      receivable
                    
                    
                    16,056,171
                    
                    
                    
                    19,009Other
      receivables, net of allowance for doubtful accounts
                    
                    
                    8,351,773
                    
                    
                    
                    2,799Advance
      to suppliers
                    
                    
                    29,941,660
                    
                    
                    
                    15,663,763Inventory,
      net
                    
                    
                    14,380,945
                    
                    
                    
                    2,393,159VAT
      receivable
                    
                    
                    -
                    
                    
                    
                    1,579,933Income
      tax receivable
                    
                    
                    150,337
                    
                    
                    
                    -Due
      from related parties
                    
                    
                    -
                    
                    
                    
                    42,290,438Total
      current assets
                    
                    
                    69,829,564
                    
                    
                    
                    62,064,611Property,
      plant and equipment, net
                    
                    
                    25,983,643
                    
                    
                    
                    26,680,244TOTAL
      ASSETS
                    
                    $
                    95,813,207
                    
                    
                    $
                    88,744,855LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilitiesAccounts
      payable
                    
                    $
                    7,647,490
                    
                    
                    $
                    15,536,226Advance
      from customers
                    
                    
                    41,431,780
                    
                    
                    
                    33,245,360Income
      tax payable
                    
                    
                    -
                    
                    
                    
                    2,325,984VAT
      payable
                    
                    
                    3,142,355
                    
                    
                    
                    -Current
      deferred tax liabilities
                    
                    
                    4,214,814
                    
                    
                    
                    1,172,181Accrued
      expenses and other payables
                    
                    
                    5,143,374
                    
                    
                    
                    5,169,708Due
      to related parties
                    
                    
                    90,026
                    
                    
                    
                    -Total
      current liabilities
                    
                    
                    61,669,839
                    
                    
                    
                    57,449,459Non-current
      deferred tax liabilities
                    
                    
                    184,058
                    
                    
                    
                    190,351TOTAL
      LIABILITIES
                    
                    
                    61,853,897
                    
                    
                    
                    57,639,810STOCKHOLDERS’
      EQUITYSeries
      A Stock, .001 par value, 10,000,000 shares authorized,10,000
      shares issued and outstanding, see Footnote 8
                    
                    
                    10
                    
                    
                    
                    10Common
      Stock, .001 par value, 100,000,000 shares authorized,18,750,000
      shares issued and outstanding
                    
                    
                    18,750
                    
                    
                    
                    -Additional
      paid-in capital
                    
                    
                    2,615,630
                    
                    
                    
                    2,664,881Statutory
      surplus reserves
                    
                    
                    288,163
                    
                    
                    
                    -Accumulated
      other comprehensive income
                    
                    
                    811,795
                    
                    
                    
                    806,818Retained
      earning
                    
                    
                    30,224,962
                    
                    
                    
                    27,633,336TOTAL
      STOCKHOLDERS' EQUITY
                    
                    
                    33,959,310
                    
                    
                    
                    31,105,045TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                    
                    $
                    95,813,207
                    
                    
                    $
                    88,744,855




The
accompanying notes are an integral part of these consolidated financial
statements.
 4





ACTION
      INDUSTRIES, INC.CONSOLIDATED
      STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOMEFOR
      THE THREE MONTHS ENDED MARCH 31, 2010 AND 2009(UNAUDITED)





Three
      Months Ended March 312010
                          
                          
                          2009Revenues
                          
                          $
                          105,976,651
                          
                          
                          $
                          89,061,713Cost
      of revenues
                          
                          
                          (101,932,251
                          )
                          
                          
                          (84,552,382
                          )Gross
      profit/(loss)
                          
                          
                          4,044,400
                          
                          
                          
                          4,509,331General
      and administrative expenses
                          
                          
                          (151,281
                          )
                          
                          
                          (76,303
                          )Operating
      income
                          
                          
                          3,893,119
                          
                          
                          
                          4,433,028Other
      income (expense)Interest
      income
                          
                          
                          620
                          
                          
                          
                          521Interest
      expense
                          
                          
                          (52,331
                          )
                          
                          
                          (9,436
                          )Other
      expenses
                          
                          
                          (1,076
                          )
                          
                          
                          (8,581
                          )Income
      before income tax
                          
                          
                          3,840,332
                          
                          
                          
                          4,415,532Income
      tax expense
                          
                          
                          (960,543
                          )
                          
                          
                          (1,104,911
                          )Net
      Income
                          
                          $
                          2,879,789
                          
                          
                          $
                          3,310,621Other
      comprehensive income
                          
                          
                          4,977
                          
                          
                          
                          24,792Comprehensive
      income
                          
                          $
                          2,884,766
                          
                          
                          $
                          3,335,413Earnings
      per share – basic and diluted (assuming the completion ofthe
      1 to 125 reverse stock split and the conversion of the Series
      APreferred
      Stock).  See Footnote 8
                          
                          $
                          0.29
                          
                          
                          $
                          0.34Weighted
      average shares outstanding - basic and diluted (assumingthe
      completion of the 1 to 125 reverse stock split and the conversion
      ofthe
      Series A Preferred Stock) . See Footnote 8
                          
                          
                          9,860,000
                          
                          
                          
                          9,850,000


The
accompanying notes are an integral part of these consolidated financial
statements.
 5





ACTION
      INDUSTRIES, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWSTHREE
      MONTHS ENDED MARCH 31, 2010 AND 2009(UNAUDITED)
  Three
      Months Ended March 312010
                        
                        
                        2009Cash
      flows from operating activities:Net
      income
                        
                        $
                        2,879,789
                        
                        
                        $
                        3,310,621Adjustments
      to reconcile net income to cash provided (used) by operating
      activities:Depreciation
      expense
                        
                        
                        749,831
                        
                        
                        
                        741,379Deferred
      tax assets
                        
                        
                        3,036,120
                        
                        
                        
                        (272,251
                        )Changes
      in operating assets and liabilities:Accounts
      receivable
                        
                        
                        (16,037,159
                        )
                        
                        
                        (2,600
                        )Inventory
                        
                        
                        (11,985,713
                        )
                        
                        
                        (1,104,141
                        )Advances
      to suppliers
                        
                        
                        (14,275,377
                        )
                        
                        
                        (1,061,777
                        )Prepaid
      expenses and other current assets
                        
                        
                        (8,348,974
                        )
                        
                        
                        (65,086
                        )Accounts
      payable
                        
                        
                        (7,902,762
                        )
                        
                        
                        7,613,623Advance
      from customers
                        
                        
                        8,181,070
                        
                        
                        
                        3,708,354Accrued
      expenses and other current liabilities
                        
                        
                        3,091,327
                        
                        
                        
                        1,440,799VAT
      receivable
                        
                        
                        1,580,187
                        
                        
                        
                        -Income
      tax payable
                        
                        
                        (2,476,695
                        )
                        
                        
                        893,607Cash
      provided by (used in) operating activities
                        
                        
                        (41,508,356
                        )
                        
                        
                        15,202,528Cash
      flows from investing activities:Advance
      to others
                        
                        
                        (737,262
                        )Proceeds
      from (payments to) related parties
                        
                        
                        42,387,269
                        
                        
                        
                        (10,073,990
                        )Purchase
      of property and equipment and other long-term assets
                        
                        
                        (46,761
                        )
                        
                        
                        (18,111
                        )Net
      cash provided by (used in)  investing activities
                        
                        
                        41,603,246
                        
                        
                        
                        (10,092,101
                        )Cash
      flows from financing activities:payments
      to related parties
                        
                        
                        
                        
                        
                        
                        (4,220,053
                        )Financing
      cost on fixed assets purchase
                        
                        
                        -
                        
                        
                        
                        7,595Net
      cash used in financing activities
                        
                        
                        -
                        
                        
                        
                        (4,212,458
                        )Effect
      of exchange rate changes on cash
                        
                        
                        (14
                        )
                        
                        
                        5,082Net
      increase in cash and cash equivalents
                        
                        
                        94,876
                        
                        
                        
                        903,051Cash
      and cash equivalents, beginning balance
                        
                        
                        116,540
                        
                        
                        
                        363,903Cash
      and cash equivalents, ending balance
                        
                        $
                        211,416
                        
                        
                        $
                        1,266,954SUPPLEMENTARY DISCLOSURE:Interest
      paid
                        
                        $
                        51,053
                        
                        
                        $
                        9,436Income
      tax paid
                        
                        $
                        401,113
                        
                        
                        $
                        617,295


The
accompanying notes are an integral part of these consolidated financial
statements.
 6





ACTION
INDUSTRIES, INC.


NOTES
TO FINANCIAL STATEMENTS





NOTE 1 - ORGANIZATION AND
BUSINESS OPERATIONS





Action
Industries, Inc. was originally incorporated under the laws of the State of
Georgia on December 4, 1995.  On March 14, 2008, the Georgia
corporation was merged with and into a newly formed Nevada corporation also
named Action Industries, Inc. and all of the outstanding shares of the Georgia
corporation were exchanged for shares in the surviving Nevada
corporation.





On March
26, 2010, the Company completed a reverse acquisition transaction through a
share exchange with Kalington Limited (hereafter referred to as “Kalington”), a
Hong Kong entity established on November 5, 2009, and its shareholders, or the
Shareholders, whereby the Company acquired 100% of the issued and outstanding
capital stock of Kalington in exchange for 10,000 shares of our Series A
Preferred Stock which constituted 98.5% of the Company’s issued and outstanding
capital stock on a as-converted basis as of and immediately after the
consummation of the reverse acquisition. As a result of the reverse acquisition,
Kalington became the Company’s wholly-owned subsidiary and the former
shareholders of Kalington became our controlling stockholders.  The
share exchange transaction with Kalington and the Shareholders, or Share
Exchange, was treated as a reverse acquisition, with Kalington as the acquirer
and the Company as the acquired party for accounting and financial reporting
purposes.





As a
result of our acquisition of Kalington, the Company now owns all of the issued
and outstanding capital stock of Kalington.





By virtue
of its ownership in Kalington, the Company also owns Kalington Consulting, which
is a wholly owned foreign subsidiary of Kalington and effectively and
substantially controls Longhai, a leading producer of steel wire products in
northeastern China, through a series of captive agreements known as variable
interest agreements (the “VIE Agreements”) with Kalington
Consulting.





Prior to
the reverse acquisition of Kalington, the Company was primarily in the business
of providing prepaid long distance calling cards and other telecommunication
products and was in the development stage and had not commenced planned
principal operations. As a result of our reverse acquisition of Kalington, the
Company no longer a shell company and active business operations were
revived.





All of
the Company’s business operations are now conducted through its Hong Kong and
Chinese subsidiaries, Kalington and Kalington Consulting, respectively, and
controlled affiliate, Longhai.  The Company’s principal business is
the production of steel wire ranging from 6mm to 10mm in
diameter.  The Company operates two wire production lines which have a
combined annual capacity of approximately nine hundred thousand tons per
year.  The Company’s products are sold to a number of distributors who
transport the wire to nearby wire processing facilities.  The
Company’s wire is then further processed by third party wire refiners into a
variety of products such as nails, screws, and wire mesh for use in reinforced
concrete and fencing.  The Company’s facilities and head offices are
located in the town of Xingtai in southern Hebei.





Kalington
was established in Hong Kong on November 5, 2009 to serve as an intermediate
holding company. Chaojun Wang and William Hugh Luckman currently serve as the
directors of Kalington.  Kalington Consulting was established in the
PRC on March 18, 2010.





Longhai
was established in the PRC on August 26, 2008 as a result of the division of the
Longhai Steel Group for the purpose of engaging in the production of steel
wire.  Chaojun Wang serves as the Chairman of the Board of Directors
and General Manager of Longhai and owns 80% of the capital stock in
Longhai.  Longhai’s additional shareholders are Wealth Index
International (Beijing) Investment Co., Ltd. (15% owner) and Wenyi Chen (5%
owner).  Chaojun Wang also owns 80% of the capital stock of and is the
chief executive officer of the Longhai Steel Group.




7




Longhai
leases a five-story office space and the building which houses our production
facilities from the Longhai Steel Group.  Until 2008, Longhai
purchased 100% of its steel billet from the Longhai Steel
Group.  Since 2009, Longhai has purchased steel billet from third
party vendors. Steel Billet is the principal raw material used in our production
of steel wire.  Longhai also purchases production utilities from the
Longhai Steel Group.





Since the
common control between Action Industries, Inc. and Longhai for accounting
purposes, the acquisition of Longhai has been treated as a recapitalization with
no adjustment to the historical basis of their assets and
liabilities.  The restructuring has been accounted for using the “as
if” pooling method of accounting and the operations were consolidated as if the
restructuring had occurred as of the beginning of the earliest period presented
in our consolidated financial statements and the current corporate structure had
been in existence throughout the periods covered by our consolidated financial
statements.





NOTE 2 - BASIS OF
PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Basis of
Presentation





The
accompanying unaudited interim consolidated financial statements of the Company
have been prepared in accordance with accounting principles generally accepted
in the United States of America and the rules of the Securities and Exchange
Commission, and should be read in conjunction with the December 31, 2009 audited
financial statements of the Company and the notes thereto as included in the
Company’s Form 8-K filed on March 26, 2010. In the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary for fair
presentation of financial position and results of operations for the interim
periods presented have been reflected herein. The results of operations for
interim periods are not necessarily indicative of the results to be expected for
the full year. Notes to the consolidated financial statements, which would
substantially duplicate the disclosure required in the Company’s December 31,
2009 annual financial statements have been omitted.





All
significant inter-company balances and transactions have been eliminated in
consolidation. Certain prior period numbers are reclassified to conform to
current period presentation.





Principles
of Consolidation





The
accompanying consolidated financial statements include the accounts of Action
Industries and its 100%-owned subsidiary Kalington for the period from March 26
to 31, 2010, its 100%-owned subsidiary Longhai for the three months ended March
31, 2010.  All significant inter-company accounts and transactions
were eliminated in consolidation.





Basis of
Presentation





The
financial statements reflect the financial position, results of operations and
cash flows of the Company and all of its wholly owned and majority owned
subsidiaries as of March 31, 2010 and December 31, 2009 and for the three months
ended March 31, 2010 and 2009.  All intercompany items are eliminated
during consolidation.





Use of
Estimates





The
preparation of consolidated financial statements in conformity with US GAAP
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 dates of the consolidated financial statements and the amount
of revenues and expenses during the reporting periods.  Management
makes these estimates using the best information available at the time the
estimates are made.  However, actual results could differ materially
from those results.





Accounts
Receivable





The
Company’s policy is to maintain reserves for potential credit losses on accounts
receivable.  Management reviews the composition of accounts receivable
and analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves.  Accounts are written off
against the allowance when it becomes evident collection will not
occur.  As of March 31, 2010 and December 31, 2009, the accounts
receivable was $16,056,171 and $19,009, respectively.




8





Foreign Currency
Transactions





The
reporting currency of the Company is the US dollar. The functional currency of
PRC subsidiaries is RMB. The financial statements of PRC subsidiaries are
translated to United States Dollars using year-end exchange rates as to assets
and liabilities and average exchange rates as to revenues, expenses and cash
flows.  Capital accounts are translated at their historical exchange
rates when the capital transaction occurred.  Translation adjustments
resulting from this process are included in accumulated other comprehensive
income in the statement of shareholders’ equity.  Transaction gains
and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the
results of operations as incurred.





The
balance sheet amounts with the exception of equity at March 31, 2010 were
translated 6.8361 RMB to $1.00 as compared to 6.8376 RMB at December 31,
2009.  The equity accounts were stated at their historical exchange
rate.  The average translation rates applied to the income and cash
flow statement amounts for the three months ended March 31, 2010 and 2009 was
6.83604 RMB and 6.84659 RMB to $1.00, respectively.





Translations
adjustments resulting from this process are included in accumulated other
comprehensive income in the consolidated statement of stockholders’ equity and
were $806,818 and $811,795 as of March 31, 2010 and December 31, 2009,
respectively.





Earnings Per
Share





The
Company reports earnings per share in accordance with the provisions of ASC 260
“Earnings Per Share”.  ASC 260 requires presentation of basic and
diluted earnings per share in conjunction with the disclosure of the methodology
used in computing such earnings per share.  Basic earnings per share
excludes dilution and is computed by dividing income available to common
stockholders by the weighted average common shares outstanding during the
period.  Diluted earnings per share takes into account the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised and converted into common stock using the treasury
method.





Common
stock equivalents represent the dilutive effect of the assumed exercise of the
outstanding stock options and warrants, using the treasury stock method, at
either the beginning of the respective period presented or the date of issuance,
whichever is later, and only if the common stock equivalents are considered
dilutive based upon the Company’s net income (loss) position at the calculation
dates.  As of March 31, 2010 and 2009, the Company does not have any
dilutive securities.


NOTE
3 - INVENTORY





Inventory
as of March 31, 2010 and December 31, 2009 were as follows:





March 31,
      2010
                            
                            
                            December
      31, 2009Raw
      material
                            
                            $
                            110,935
                            
                            
                            $
                            27,292Finished
      goods
                            
                            
                            12,489,060
                            
                            
                            
                            849,000Auxiliary
      inventory (spare parts)
                            
                            
                            1,780,950
                            
                            
                            
                            1,516,867Total
      inventory
                            
                            $
                            14,380,945
                            
                            
                            $
                            2,393,159





NOTE
4 - ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER PAYABLES




9





As of
March 31, 2010 and December 31, 2009, the accounts payable, unearned revenue and
accrued liabilities of the Company were summarized as follows:





March
      31, 2010
                          
                          
                          December
      31, 2009Accounts
      payable
                          
                          $
                          7,647,490
                          
                          
                          $
                          15,536,226Unearned
      revenue
                          
                          
                          41,431,780
                          
                          
                          
                          33,245,360Accrued liabilities
      and other payables:–
      payroll payable
                          
                          
                          178,498
                          
                          
                          
                          97,894–
      VAT payable
                          
                          
                          3,142,355
                          
                          
                          
                          -–
      customer deposits
                          
                          
                          4,853,282
                          
                          
                          
                          2,923,634–
      payable for equipment purchased
                          
                          
                          -
                          
                          
                          
                          2,119,889–
      others
                          
                          
                          111,594
                          
                          
                          
                          28,291Subtotal
      of accrued expenses and other payables
                          
                          $
                          8,285,729
                          
                          
                          $
                          5,169,708





NOTE
5 - RELATED PARTY BALANCE AND TRANSCATIONS





Duefromrelated
parties





As of
March 31, 2010 and December 31, 2009, due from related parties was summarized as
follows:





March
      31, 2010
                  
                  
                  December
      31, 2009Xingtai
      Longhai Steel Group Co., Ltd.
                  
                  $
                  -
                  
                  
                  $
                  42,047,673Xingtai
      Longhai Steel Group Metal Product Co., Ltd.
                  
                  
                  -
                  
                  
                  
                  242,765Total
                  
                  $
                  -
                  
                  
                  $
                  42,290,438





Due to related
parties





As of
March 31, 2010 and December 31, 2009, due to related parties was summarized as
follows:





March
      31, 2010
                      
                      
                      December
      31, 2009Xingtai
      Longhai Steel Group Co., Ltd.
                      
                      $
                      90,026
                      
                      
                      $
                      -





The
Company loaned cash deposit received from third party customers to Longhai
Group, a related party. As of March 31, 2010 and December 31, 2009, the
outstanding balance of this service was Nil and $42,047,673,
respectively.





The
Company earned finance income from Longhai Group amounted to $1,527,203 and
$947,865 for the three months ended March 31, 2010 and March 31, 2009
respectively, which is included in the Company’s revenue.





The
Company also sells steel wire to Xingtai Longhai Steel Group Metal Product Co.,
Ltd. (“Longhai Metal”) As of March 31, 2010 and December 31, 2009, the balance
due from Longhai Metal related to such sales was Nil and $242,765
respectively.





Related party
transactions





For the
three months ended March 31, 2010, the Company purchased production utilities
from Longhai Group amounted to $2,573,640.  In addition, the amount of
$1,128,405 scrape metal was sold to Longhai Group for the three months
ended March 31, 2010. The Company provided financing service to Longhai Group
amounted to $1,527,203 for the three months ended March 31, 2010.





For the
three months ended March 31, 2009, the Company purchased production utilities
from Longhai Group amounted to $2,202,917.  In addition, the amount of
$958,828 scrape metal was sold to Longhai Group for the three months ended
March 31, 2009. The Company provided financing service to Longhai Group amounted
to $947,865 for the three months ended March 31, 2009.





In
addition, Longhai Group rents office building and workshop to the Company. The
rent expense for the three months ended March 31, 2010 and 2009 was $7,089 and
$7,078, respectively.




10




The
amount of steel wire sold to Longhai Steel Group Metal Products was Nil and
$3,563,149 for the three months ended March 31, 2010 and 2009
respectively.





NOTE
7 - INCOME TAX





Longhai
is governed by the Income Tax Law of the PRC concerning the private-run
enterprises, which are generally subject to tax at a statutory rate of 25% on
income reported in the statutory financial statements after appropriate tax
adjustments.





The
following table summarizes the temporary differences which result in deferred
tax assets and liabilities as of March 31, 2010 and December 31,
2009:





March
      31, 2010
                      
                      
                      December
      31, 2009Current
      deferred tax assets:Cost
      of un-invoiced goods delivery
                      
                      
                      2,209,290
                      
                      
                      
                      161,673Expenses
      deductible in next year
                      
                      
                      72,523
                      
                      
                      
                      31,547Total
      current deferred tax assets
                      
                      
                      2,281,813
                      
                      
                      
                      193,220Total
      deferred tax assets
                      
                      $
                      2,281,813
                      
                      
                      $
                      193,220





March
      31, 2010
                      
                      
                      December
      31, 2009Current
      deferred tax liabilities:Sales
      of uninvoiced goods delivery (net of output VAT)
                      
                      
                      6,496,627
                      
                      
                      
                      1,365,401Non-current
      deferred tax liabilities:Depreciation
      of fixed assets
                      
                      $
                      184,058
                      
                      
                      $
                      190,351Total
      deferred tax liabilities
                      
                      $
                      6,680,685
                      
                      
                      $
                      1,555,752Net
      current deferred tax liabilities
                      
                      
                      4,214,814
                      
                      
                      
                      1,172,181Net
      non-current deferred tax liabilities
                      
                      
                      184,058
                      
                      
                      
                      190,351





The
following table reconciles the U.S. statutory rates to the Company’s effective
tax rate for the three months ended March 31, 2010 and 2009:





2010
                
                2009US
      statutory rates
                34.0%
                
                34.0%Tax
      rate difference
                (9.0%)
                
                (9.0%)Tax
      per financial statements
                25.0%
                
                25.0%





NOTE
8 – SHAREHOLDERS’ EQUITY





Series
A Convertible Preferred Stock





The
Company issued 10,000 shares ofSeries A Preferred Stock. The Certificate of
Designation was filed on March 25, 2010.





Shares of
Series A Preferred Stock will automatically convert into shares of common stock
on the basis of one share of Series A Preferred Stock for 985 shares of common
stock immediately subsequent to the effectiveness of a planned 1-for-125 reverse
split of our outstanding common stock, which will become effective on the
effective date (the “Reverse Stock Split”). Upon the Reverse Stock Split the
10,000 outstanding shares of Series A Preferred Stock will automatically convert
into 9,850,000 shares of common stock, which will constitute 98.5% of the
outstanding common stock of Action Industries, Inc. subsequent to the Reverse
Stock Split.




11




Holders
of Series A Preferred Stock vote with the holders of common stock on all matters
on an as-converted to common stock basis, based on an assumed post 1-for-125
reverse split (to retroactively take into account the Reverse Stock
Split).





The
holders of our Series A Preferred Stock are entitled to vote on all matters
together with all other classes of stock. Holders of Series A Preferred Stock
have protective class voting veto rights on certain matters, such as increasing
the authorized shares of Series A Preferred Stock and modifying the rights of
Series A Preferred Stock.





Following
the effectiveness of the Reverse Stock Split and conversion of Series A
Preferred Stock into common stock, there will be approximately 10,000,000 shares
of our common stock issued and outstanding and no shares of preferred stock
issued and outstanding.








The
1-for-125 Reverse Stock Split





The
Company’s Board of Directors unanimously approved, subject to Stockholder
approval, the 1-for-125 Reverse Stock Split of our issued and outstanding Common
Stock.  The Reverse Stock Split will reduce the number of issued and
outstanding shares of our Common Stock outstanding prior to the
split.  The Reverse Stock Split will trigger the automatic conversion
of our Series A Preferred Stock into 9,850,000 shares of Common Stock. The
Reverse Stock Split will become effective on the Effective Date which occurs
when the Amendment is filed with the Secretary of State of the State of Nevada
following the expiration of the 20 day period mandated by Rule 14c of the
Exchange Act.





On the
Effective Date, 125 shares of Common Stock will automatically be combined and
changed into one share of Common Stock.  The table below sets forth,
as of the Record Date and as of the Effective Date, the following information
both before and after the proposed Reverse Stock Split and assumes the
conversion of all shares of Series A Preferred Stock into shares of Common Stock
at the applicable conversion ratios:





Capital
                    Structure
                    prior to
                    conversion
                    of issued
                    and
                    outstanding
                    Series A
                    Preferred
                    Stock on
                    Pre-Reverse
                    Split Basis
                  
                  
                  Capital
                    Structure
                    after the
                    Reverse
                    Split and
                    automatic
                    conversion
                    of Series A
                    Preferred
                    Stock(As
      of
                    Record
                    Date)
                  
                  
                  (On
                    Effective
                    Date)Issued
      and outstanding Common Stock
                  
                  
                  18,750,000
                  
                  
                  
                  10,000,000Issued
      and outstanding Series A Preferred Stock
                  
                  
                  10,000
                  
                  
                  
                  -0-Common
      Stock reserved for issuance upon conversion of Series A Preferred
      Stock
                  
                  
                  9,850,000
                  
                  
                  
                  -0-Authorized
      but unissued and unreserved Common Stock
                  
                  
                  71,400,000
                  
                  
                  
                  90,000,000





As of the
filing date of the 10Q, the above reverse split is not effective yet. It is
expected to be effective within the next month or two,, based on management
assessment.




The
following is a pro forma earning per share calculation assuming successful
completion of the 1 to 125 stock reverse split and the conversion of the Series
A convertible preferred stock to 9,850,000 shares of common stock on a post
reverse split basis.





Three
      Months EndedMarch
      31, 2010
                
                
                March
      31, 2009Net
      Income
                
                $
                2,879,789
                
                
                $
                3,310,621Pro
      forma net income per share - basic
                
                $
                0.29
                
                
                $
                0.34Pro
      forma weighted average shares outstanding - basic
                
                
                9,860,000
                
                
                
                9,850,000




12





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





All
references to the “Company,” “we,” “our,” and “us” refer to Action Industries,
Inc., its subsidiaries and controlled affiliate.





Note
Regarding Forward-Looking Statements




This
quarterly report on Form 10-Q and other reports filed by the Company from time
to time with the Securities and Exchange Commission (collectively the “Filings”)
contain or may contain forward-looking statements and information that are based
upon beliefs of, and information currently available to, Company’s management as
well as estimates and assumptions made by Company’s management. Readers are
cautioned not to place undue reliance on these forward-looking statements, which
are only predictions and speak only as of the date hereof. When used in the
filings, the words “anticipate”, “believe”, “estimate”, “expect”, “future”,
“intend”, “plan”, or the negative of these terms and similar expressions as they
relate to Company or Company’s management identify forward-looking statements.
Such statements reflect the current view of Company with respect to future
events and are subject to risks, uncertainties, assumptions, and other factors
(including the risks contained in the section of operations and results of
operations, and any businesses that Company may acquire. Should one or more of
these risks or uncertainties materialize, or should the underlying assumptions
prove incorrect, actual results may differ significantly from those anticipated,
believed, estimated, expected, intended, or planned.





Although
Company believes that the expectations reflected in the forward-looking
statements are reasonable, Company cannot guarantee future results, levels of
activity, performance, or achievements. Except as required by applicable law,
including the securities laws of the United States, the Company does not intend
to update any of the forward-looking statements to conform these statements to
actual results. Readers are urged to carefully review and consider the various
disclosures made throughout the entirety of this quarterly report, which attempt
to advise interested parties of the risks and factors that may affect our
business, financial condition, results of operations, and
prospects.





Our
financial statements are prepared in US Dollars and in accordance with
accounting principles generally accepted in the United States. See "Foreign
Currency Translation and Comprehensive Income (Loss)" and "Foreign Exchange
Rates" below for information concerning the exchange rates at the Renminbi
("RMB") were translated into US Dollars ("USD") at various pertinent dates and
for pertinent periods.





COMPANY
OVERVIEW





Action
Industries, Inc. was originally incorporated under the laws of the State of
Georgia on December 4, 1995.  On March 14, 2008, the Georgia
corporation was merged with and into a newly formed Nevada corporation also
named Action Industries, Inc. and all of the outstanding shares of the Georgia
corporation were exchanged for shares in the surviving Nevada
corporation.





On March
26, 2010, the Company completed a reverse acquisition transaction through a
share exchange with Kalington Limited (hereafter referred to as “Kalington”), a
Hong Kong entity established on November 5, 2009, and its shareholders, or the
Shareholders, whereby the Company acquired 100% of the issued and outstanding
capital stock of Kalington in exchange for 10,000 shares of our Series A
Preferred Stock which constituted 98.5% of the Company’s issued and outstanding
capital stock on a as-converted basis as of and immediately after the
consummation of the reverse acquisition. As a result of the reverse acquisition,
Kalington became the Company’s wholly-owned subsidiary and the former
shareholders of Kalington became our controlling stockholders.  The
share exchange transaction with Kalington and the Shareholders, or Share
Exchange, was treated as a reverse acquisition, with Kalington as the acquirer
and the Company as the acquired party.





As a
result of our acquisition of Kalington, the Company now owns all of the issued
and outstanding capital stock of Kalington.





By virtue
of its ownership in Kalington, the Company also owns Kalington Consulting, which
is a wholly owned foreign subsidiary of Kalington and effectively and
substantially controls Longhai, a leading producer of steel wire products in
northeastern China, through a series of captive agreements known as variable
interest agreements (the “VIE Agreements”) with Kalington
Consulting.




13




Prior to
the reverse acquisition of Kalington, the Company was primarily in the business
of providing prepaid long distance calling cards and other telecommunication
products and was in the development stage and had not commenced planned
principal operations. As a result of our reverse acquisition of Kalington, the
Company no longer a shell company and active business operations were
revived.





All of
the Company’s business operations are now conducted through its Hong Kong and
Chinese subsidiaries, Kalington and Kalington Consulting, respectively, and
controlled affiliate, Longhai.  The Company’s principal business is
the production of steel wire ranging from 6mm to 10mm in
diameter.  The Company operates two wire production lines which have a
combined annual capacity of approximately nine hundred thousand tons per
year.  The Company’s products are sold to a number of distributors who
transport the wire to nearby wire processing facilities.  The
Company’s wire is then further processed by third party wire refiners into a
variety of products such as nails, screws, and wire mesh for use in reinforced
concrete and fencing.  The Company’s facilities and head offices are
located in the town of Xingtai in southern Hebei.





Kalington
was established in Hong Kong on November 5, 2009 to serve as an intermediate
holding company. Chaojun Wang and William Hugh Luckman currently serve as the
directors of Kalington.  Kalington Consulting was established in the
PRC on March 18, 2010.





Longhai
was established in the PRC on August 26, 2008 as a result of the division of the
Longhai Steel Group for the purpose of engaging in the production of steel
wire.  Chaojun Wang serves as the Chairman of the Board of Directors
and General Manager of Longhai and owns 80% of the capital stock in
Longhai.  Longhai’s additional shareholders are Wealth Index
International (Beijing) Investment Co., Ltd. (15% owner) and Wenyi Chen (5%
owner).  Chaojun Wang also owns 80% of the capital stock of and is the
chief executive officer of the Longhai Steel Group.





Longhai
leases a five-story office space and the building which houses our production
facilities from the Longhai Steel Group.  Until 2008, Longhai
purchased 100% of its steel billet from the Longhai Steel
Group.  Since 2009, Longhai has purchased steel billet from third
party vendors. Steel Billet is the principal raw material used in our production
of steel wire.  Longhai also purchases production utilities from the
Longhai Steel Group.





On March
19, 2010, prior to the reverse acquisition transaction, Kalington Consulting and
Longhai entered into the VIE Agreements pursuant to which Longhai became
Kalington Consulting’s contractually controlled affiliate.  The use of
VIE agreements is a common structure used to acquire PRC corporations,
particularly in certain industries in which foreign investment is restricted or
forbidden by the PRC government.  The VIE Agreements
included:





(1)
            A
      Consulting Services Agreement through which Kalington Consulting has the
      right to advise, consult, manage and operate Longhai and collect and own
      all of the net profits of Longhai;





(2)
            an
      Operating Agreement through which Kalington Consulting has the right to
      recommend director candidates and appoint the senior executives of
      Longhai, approve any transactions that may materially affect the assets,
      liabilities, rights or operations of Longhai, and guarantee the
      contractual performance by Longhai of any agreements with third parties,
      in exchange for a pledge by Longhai of its accounts receivable and
      assets;





(3)
            a
      Proxy Agreement under which the three owners of Longhai have vested their
      collective voting control over Longhai to Kalington Consulting and will
      only transfer their respective equity interests in Longhai to Kalington
      Consulting or its designee(s);




(4)
            an
      Option Agreement under which the owners of Longhai have granted to
      Kalington Consulting the irrevocable right and option to acquire all of
      their equity interests in Longhai;
and





(5)
            an
      Equity Pledge Agreement under which the owners of Longhai have pledged all
      of their rights, titles and interests in Longhai to Kalington Consulting
      to guarantee Longhai’s performance of its obligations under the Consulting
      Services Agreement.




14




Because
of the common control between Kalington, Kalington Consulting and Longhai, for
accounting purposes, the acquisitions of these entities has been treated as a
recapitalization with no adjustment to the historical basis of their assets and
liabilities. The restructuring has been accounted for using the “as if” pooling
method of accounting and the operations were consolidated as if the
restructuring had occurred as of the beginning of the earliest period presented
in our consolidated financial statements and the current corporate structure had
been in existence throughout the periods covered by our consolidated financial
statements.





Principal
Factors Affecting Our Financial Performance





Our
operating results are primarily affected by the following factors:





·
            Growth in
      the Chinese Economy - We operate our facilities in China and derive
      almost all of our revenues from sales to customers in China. Economic
      conditions in China, therefore, affect virtually all aspects of our
      operations, including the demand for our products, the availability and
      prices of our raw materials and our other expenses. China has experienced
      significant economic growth, achieving a compound annual growth rate of
      over 10% in gross domestic product from 1996 through 2008. China is
      expected to experience continued growth in all areas of investment and
      consumption, even in the face of a global economic recession. However,
      China has not been entirely immune to the global economic slowdown and is
      experiencing a slowing of its growth
rate.





·
            Supply and
      Demand in the Steel Market – We are subject to macroeconomic
      factors dictating the supply and demand of steel and wire in the
      PRC.  Steel commodity prices have been volatile in the past, and
      while they have stabilized since the first quarter of 2009, our revenues
      and earnings could be dramatically affected by increases and decreases in
      raw material and wire costs.





·
            Infrastructure
      and Construction Growth – We have in the past benefited from strong
      growth in fixed asset investment in roads, residential and commercial
      construction, bridges and other fundamental infrastructure and
      construction projects in the PRC.  As the Chinese economy
      matures and develops, while we expect this growth to slow and fixed asset
      investment to fall as a percentage of GDP, we still believe demand for our
      products will remain strong.





Taxation





United
States and Hong Kong





We are
subject to United States tax at a tax rate of 34%. No provision for income taxes
in the United States has been made as we have no income taxable in the United
States.





Kalington
is incorporated in Hong Kong and is subject to Hong Kong profits
tax.





People’s
Republic of China





Income
Taxes:





The
Company accounts for income taxes in accordance with ASC 740 “Income
Taxes”.  ASC 740 requires an asset and liability approach for
financial accounting and reporting for income taxes and allows recognition and
measurement of deferred tax assets based upon the likelihood of realization of
tax benefits in future years.  Under the asset and liability approach,
deferred taxes are provided for the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.  A valuation
allowance is provided for deferred tax assets if it is more likely than not
these items will either expire before the Company is able to realize their
benefits, or that future deductibility is uncertain. There was no deferred tax
asset or liability for the years ended December 31, 2009 and
2008.  The Company is governed by the Income Tax Law of the PRC
concerning the private-run enterprises, which are generally subject to tax at a
statutory rate of 25% and 33% on income reported in the statutory financial
statements after appropriated tax adjustments in 2009 and 2008,
respectively.




15




Value
Added Taxes:





The
Company is subject to value added tax (“VAT”) for selling merchandise. The
applicable VAT rate is 17% for products sold in the PRC. The amount of VAT
liability is determined by applying the applicable tax rate to the invoiced
amount of goods sold (output VAT) less VAT paid on purchases made with the
relevant supporting invoices (input VAT). Under the commercial practice of the
PRC, the Company pays VAT based on tax invoices issued. The tax invoices may be
issued subsequent to the date on which revenue is recognized, and there may be a
considerable delay between the date on which the revenue is recognized and the
date on which the tax invoice is issued. In the event that the PRC tax
authorities dispute the date on which revenue is recognized for tax purposes,
the PRC tax office has the right to assess a penalty, which can range from zero
to five times the amount of the taxes which are determined to be late or
deficient.  According to PRC tax laws, any potential tax penalty
payable on late or deficient payments of this tax could be between zero and five
times the amount of the late or deficient tax payable,, and will be expensed as
a period expense if and when a determination has been made by the taxing
authorities that a penalty is due.  As of December 31, 2009 and 2008,
the Company accrued zero and $1,328,829, respectively, of unpaid value-added
taxes.





Our
future effective income tax rate depends on various factors, such as tax
legislation, the geographic composition of our pre-tax income and non-tax
deductible expenses incurred. Our management carefully monitors these legal
developments and will punctually adjust our effective income tax rate when
necessary.




RESULTS
OF OPERATION





Comparison of Three Months
Ended March 31, 2010 and March 31, 2009 (Unaudited)





The
following table sets forth key components of our results of operations during
the three month periods ended March 31, 2010 and 2009, both in dollars and as a
percentage of our net sales.





Three Months
      Ended
                
                
                Three Months
      EndedMarch 31,
      2010
                
                
                March 31,
      2009%
      of Net
                
                
                
                
                
                %
      of NetAmount
                
                
                Sales
                
                
                Amount
                
                
                SalesNet
      Sales
                
                $
                105,976,651
                
                
                
                100.0
                %
                
                $
                89,061,713
                
                
                
                100.0
                %Cost
      of sales
                
                
                101,932,251
                
                
                
                96.2
                %
                
                
                84,552,382
                
                
                
                94.9
                %Gross
      profit
                
                
                4,044,400
                
                
                
                3.8
                %
                
                
                4,509,331
                
                
                
                5.1
                %Selling,
      General and Administrative Expenses
                
                
                151,281
                
                
                
                0.1
                %
                
                
                76,303
                
                
                
                0.1
                %Operating
      Income
                
                
                3,893,119
                
                
                
                3.7
                %
                
                
                4,433,028
                
                
                
                5.0
                %Other income & interest expense
                
                
                (52,787
                )
                
                
                0.0
                %
                
                
                (17,496
                )
                
                
                0.0
                %Income
      Before Income Taxes
                
                
                3,840,332
                
                
                
                3.6
                %
                
                
                4,415,532
                
                
                
                5.0
                %Income
      taxes
                
                
                960,543
                
                
                
                0.9
                %
                
                
                1,104,911
                
                
                
                1.2
                %Net
      Income
                
                
                2,879,789
                
                
                
                2.7
                %
                
                
                3,310,621
                
                
                
                3.7
                %Other
      Comprehensive Income
                
                
                4,977
                
                
                
                0.0
                %
                
                
                24,792
                
                
                
                0.0
                %Comprehensive
      Income
                
                $
                2,884,766
                
                
                
                2.7
                %
                
                $
                3,335,413
                
                
                
                3.7
                %





Net Sales.
Our net sales increased to $105,976,651 in the three months ended March 31, 2010
from $89,061,713 in the same period in 2009, representing a 19.0% increase
year-on-year. This increase was mainly due to the quarter over quarter increase
in steel wire prices.





Cost of
Sales. Our cost of sales increased $17,379,869 to $101,932,251 in the
three months ended March 31, 2010 from $84,552,382 in the same period in 2009.
The cost of goods sold per sales ratio changed from 96.2%% to 94.9% as the price
of raw material billet increased.





Gross Profit and
Gross Margin.Our gross profit decreased $464,931 to $4,044,400 in the three months
ended March 31, 2010 from $4,509,331 in the same period in 2009. Gross profit as
a percentage of net revenue was 3.8% and 5.1% for the three months ended March
31, 2010 and 2009, respectively. The slight decrease in the gross margin was
primarily due to a greater increase in the price of billet than in the price of
wire.




16




Selling, General
and Administrative Expenses. Our selling, general and administration grew
slightly to $151,281 in the three months ended March 31, 2010 from $76,303 in
the same period in 2009.  These costs represent 0.1% of our revenues
and have a minimal impact on our profitability.





Other Income and
Expenses. Other expenses increased to $52,787 in the three months ended
March 31, 2010 from $17,496 in the same period in 2009 due an increase in
interest expenses.





Income Before
Income Taxes. Our income before income taxes decreased to $3,840,332 in
the three months ended March 31, 2010 from $4,415,532 in the same period in
2009. This decrease was due to the factors discussed above.





Income
Taxes. Income tax decreased to $960,543 in the three months ended March
31, 2010 from $1,104,911in the same period in 2009 as we had lower taxable
income.





Net
Income. In the three months ended March 31, 2010, we generated a net
income of $2,879,789, and $3,310,621 in the same period in 2009. This decrease
was primarily attributable to the factors discussed above.





Liquidity
and Capital Resources





As of
March 31, 2010, we had cash and cash equivalents of $211,416, primarily
consisting of cash on hand and demand deposits. The following table provides
detailed information about our net cash flow for all financial statement periods
presented in this report. To date, we have financed our operations primarily
through cash flows from investing activities and equity contributions by our
shareholders.





The
following table sets forth a summary of our cash flows for the periods
indicated:





Cash
Flow


(all
amounts in U.S. dollars)




Three Months
      EndedMarch
31,2010
                
                
                2009Net
      cash provided by operating activities
                
                $
                (41,508,356
                )
                
                $
                15,202,528Net
      cash provided by (used in) investing activities
                
                
                41,603,246
                
                
                
                (10,092,101
                )Net
      cash used in financing activities
                
                
                -
                
                
                
                (4,212,458
                )Effects
      of Exchange Rate Change in Cash
                
                
                (14
                )
                
                
                5,082Net
      (Decrease) Increase in Cash and Cash Equivalents
                
                
                94,876
                
                
                
                903,051Cash
      and Cash Equivalent at Beginning of the Quarter
                
                
                116,540
                
                
                
                363,903Cash
      and Cash Equivalent at End of the Quarter
                
                
                211,416
                
                
                
                1,266,954





Operating
activities





Net cash
used by operating activities was $(41,508,356) for the three months ended March
31, 2010, as compared to $15,202,528 for the same period in 2009. The decrease
in net cash provided by operating activities was due to increases in Accounts
Receivable, Inventory, Advances to Suppliers, Prepaid Expenses, and Accounts
Payable.  As steel prices rose rapidly in the first quarter, we
purposefully accumulated a larger than normal amount of inventory with the goal
of benefiting from the price increase.  We anticipate returning to
normal levels in the near future.





Investing
activities




Net cash
provided by investing activities for the three months ended March 31, 2010 was
$41,603,246 , as compared to $(10,092,101) net cash used in investing activities
during the same period of 2009. This amount was mainly due to payment received
from related party, partially offset by advances to others.





17





Financing
activities




Net
cash used in financing activities for the three months ended March 31,
2010 was $-, as compared to $(4,212,458) net cash used in financing activities
during the same period of 2009.  This was the result of a repayment of
a related party loan during first quarter 2009..




We
believe that our cash on hand and cash flow from operations will meet part of
our present cash needs and we will require additional cash resources, to meet
our expected capital expenditure and working capital for the next 12 months. We
may, however, in the future, require additional cash resources due to changed
business conditions, implementation of our strategy to ramp up our marketing
efforts and increase brand awareness, or acquisitions we may decide to pursue.
If our own financial resources are insufficient to satisfy our capital
requirements, we may seek to sell additional equity or debt securities or obtain
additional credit facilities. The sale of additional equity securities could
result in dilution to our stockholders. The incurrence of indebtedness would
result in increased debt service obligations and could require us to agree to
operating and financial covenants that would restrict our operations. Financing
may not be available in amounts or on terms acceptable to us, if at all. Any
failure by us to raise additional funds on terms favorable to us, or at all,
could limit our ability to expand our business operations and could harm our
overall business prospects.




Inflation




Inflation
and changing prices have not had a material effect on our business and we do not
expect that inflation or changing prices will materially affect our business in
the foreseeable future. However, our management will closely monitor the price
change in travel industry and continually maintain effective cost control in
operations.




Off
Balance Sheet Arrangements




We do not
have any off balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity or capital
expenditures or capital resources that is material to an investor in our
securities.




Seasonality




We may
experience seasonal fluctuations in our revenue in some regions in the PRC, but
our main exposure is to the business cycle for steel in the PRC.  Any
seasonality may cause pressure on us to monitor the development of materials
accurately and to anticipate and satisfy these requirements.




Significant Accounting
Policies




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires our management to make
assumptions, estimates and judgments that affect the amounts reported, including
the notes thereto, and related disclosures of commitments and contingencies, if
any. We have identified certain accounting policies that are significant to the
preparation of our financial statements. These accounting policies are important
for an understanding of our financial condition and results of operation.
Critical accounting policies are those that are most important to the portrayal
of our financial conditions and results of operations and require management’s
difficult, subjective, or complex judgment, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain and may
change in subsequent periods. Certain accounting estimates are particularly
sensitive because of their significance to financial statements and because of
the possibility that future events affecting the estimate may differ
significantly from management’s current judgments. We believe the following
critical accounting policies involve the most significant estimates and
judgments used in the preparation of our financial statements:




Revenue
Recognition




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Retail
sales are recognized at the point of sale to customers, are recorded net of
estimated returns, and exclude value added tax (“VAT”). Wholesales to its
contracted customers are recognized as revenue at the time the product is
shipped and title passes to the customer on an FOB shipping point
basis.





Use
of Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“US GAAP”) 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 dates of the financial statements and the amount of revenues and expenses
during the reporting periods.  Management makes these estimates using
the best information available at the time the estimates are
made.  However, actual results could differ materially from those
estimates.





Accounts
Receivable





Accounts
receivable consists of unpaid balances due from the whole-sale customers. Such
balances generally are cleared in the subsequent month when the whole-sale
customers place another order. The Company does not provide an allowance for
doubtful accounts because the Company has not experienced any credit losses in
collecting these amounts from whole-sale customers.





Impairment
of Long-Lived Assets





The
Company accounts for impairment of property and equipment and amortizable
intangible assets in accordance with ASC 360, “Accounting for Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of”, which requires the
Company to evaluate a long-lived asset for recoverability when there is event or
circumstance that indicate the carrying value of the asset may not be
recoverable. An impairment loss is recognized when the carrying amount of a
long-lived asset or asset group is not recoverable (when carrying amount exceeds
the gross, undiscounted cash flows from use and disposition) and is measured as
the excess of the carrying amount over the asset’s (or asset group’s) fair
value. There was no impairment of long-lived assets for the three month ended
March 31, 2010 and 2009.





Inventories





Merchandise
inventories are stated at the lower of cost or market.  Cost is
determined on a weighted average basis and includes all expenditures incurred in
bringing the goods to the point of sale and putting them in a salable
condition.  In assessing the ultimate realization of inventories, the
management makes judgments as to future demand requirements compared to current
or committed inventory levels.  Our reserve requirements generally
increase as our projected demand requirements; or decrease due to market
conditions and product life cycle changes.  The Company estimates the
demand requirements based on market conditions, forecasts prepared by its
customers, sales contracts and orders in hand.





In
addition, the Company estimates net realizable value based on intended use,
current market value and inventory ageing analyses.  The Company
writes down inventories for estimated obsolescence or unmarketable inventory
equal to the difference between the cost of inventories and their estimated
market value based upon assumptions about future demand and market
conditions.





Comprehensive
Income





The
Company has adopted the provisions of ASC 220 “Reporting Comprehensive Income”
which establishes standards for the reporting and display of comprehensive
income, its components and accumulated balances in a full set of general purpose
financial statements.





ASC 220
defines comprehensive income is comprised of net income and all changes to the
statements of stockholders' equity, except those due to investments by
stockholders, changes in paid-in capital and distributions to stockholders,
including adjustments to minimum pension liabilities, accumulated foreign
currency translation, and unrealized gains or losses on marketable securities.
The Company’s other comprehensive income arose from the effect of foreign
currency translation adjustments.




19




Foreign
Currency Translation




The
reporting currency of the Company is the US dollar. The functional currency of
PRC subsidiaries is RMB. The financial statements of PRC subsidiaries are
translated to United States Dollars using year-end exchange rates as to assets
and liabilities and average exchange rates as to revenues, expenses and cash
flows.  Capital accounts are translated at their historical exchange
rates when the capital transaction occurred.  Translation adjustments
resulting from this process are included in accumulated other comprehensive
income in the statement of shareholders’ equity.  Transaction gains
and losses that arise from exchange rate fluctuations on transactions
denominated in a currency other than the functional currency are included in the
results of operations as incurred.





The
balance sheet amounts with the exception of equity at March 31, 2010 were
translated 6.8361 RMB to $1.00 as compared to 6.8376 RMB at December 31,
2009.  The equity accounts were stated at their historical exchange
rate.  The average translation rates applied to the income and cash
flow statement amounts for the three months ended March 31, 2010 and 2009 was
6.83604 RMB and 6.84659 RMB to $1.00, respectively.





Translations
adjustments resulting from this process are included in accumulated other
comprehensive income in the consolidated statement of stockholders’ equity and
were $806,818 and $811,795 as of March 31, 2010 and December 31, 2009,
respectively.




Recent
Accounting Pronouncements




In
December 2007, the FASB issued SFAS No. 141R (Now included in ASC 805),
“Business Combinations” which establishes principles and requirements for how
the acquirer of a business recognizes and measures in its financial statements
the identifiable assets acquired, the liabilities assumed and any noncontrolling
interest in the acquiree. The statement also provides guidance for recognizing
and measuring the goodwill acquired in the business combination and for
disclosure to enable evaluation of the nature and financial effects of the
business combination. The Company adopted this standard as of January 1, 2009
and does not expect it to have an impact on the Company’s financial
statements.





In
December 2007, the FASB issued SFAS No. 160 (Now ASC 810-10), "Noncontrolling
Interests in Consolidated Financial Statements, an amendment of ARB No. 51. ASC
810-10 introduces significant changes in the accounting and reporting for
business acquisitions and noncontrolling interest in a subsidiary. ASC 810-10
also changes the accounting and reporting for the deconsolidation of a
subsidiary. Companies are required to adopt the new standard for fiscal years
beginning after January 1, 2009. The Company adopted this standard effectively
January 1, 2009 and does not expect it to have an impact on the Company’s
financial statements.





Effective
July 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (Now ASC
820), which provides guidance on how to measure assets and liabilities that use
fair value. ASC 820 applies whenever another U.S. GAAP standard requires (or
permits) measurement of assets or liabilities at fair value, but does not expand
the use of fair value to any new circumstances. The Company also adopted FASB
Staff Position ("FSP") No.FAS 157-2, which allows the Company to partially defer
the adoption of ASC820. This FSP defers the effective date of ASC 820 for
nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually), to fiscal years beginning after November 15, 2008,
and interim periods within those fiscal years. Nonfinancial assets and
nonfinancial liabilities include all assets and liabilities other than those
meeting the definition of a financial asset or financial liability as defined in
paragraph 6 of Statement No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities. The adoption of ASC 820 had no impact on our financial
statements.





In May
2009, the FASB issued SFAS No. 165, “Subsequent Events” (Now ASC 855), which
provides guidance to establish general standards of accounting for and
disclosures of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. ASC 855 also
requires entities to disclose the date through which subsequent events were
evaluated as well as the rationale for why that date was selected. This
disclosure should alert all users of financial statements that an entity has not
evaluated subsequent events after that date in the set of financial statements
being presented. ASC 855 is effective for interim and annual periods ending
after June 15, 2009. The adoption of ASC 855 did not have a material impact on
the Company’s financial position, results of operations or cash
flows.




20




In June
2009, the FASB issued Update No. 2009-01, Generally Accepted Accounting
Principles (ASU 2009-01). ASU 2009-01 establishes “The FASB Accounting Standards
Codification,” or Codification, which became the source of authoritative GAAP
recognized by the FASB to be applied by nongovernmental entities. On the
effective date, the Codification superseded all then-existing non-SEC accounting
and reporting standards. All other non grandfathered non-SEC accounting
literature not included in the Codification will become non authoritative. ASU
2009-01 is effective for interim and annual periods ending after September 15,
2009. The Company will adopt the provisions of ASU 2009-01 for the period ended
September 30, 2009. There will be no impact on the Company’s operating results,
financial position or cash flows.





The
Company does not expect the adoption of any other recently issued accounting
pronouncements to have a significant impact on the Company’s results of
operations, financial position or cash flows.





Item 3.  Quantitative and
Qualitative Disclosure About Market Risks.




Not
Applicable.




Item 4.T.  Controls and
Procedures.





(a)
              Evaluation
      of Disclosure Controls and
Procedures.




As
required by paragraph (b) of Rules 13a-15 or 15d-15 under the Securities
Exchange Act of 1934, the Company's principal executive officer and principal
financial officer have evaluated the Company's disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as
of the end of the period covered by this Quarterly Report on Form 10-Q. Based on
this evaluation these officers have concluded that as of the end of the period
covered by this Quarterly Report on Form 10-Q, our disclosure controls and
procedures were effective and were adequate to insure that the information
required to be disclosed by the Company in reports it files or submits under the
Exchange Act were recorded, processed, summarized and reported within the time
period specified in the Commission's rules and forms.





(b)
            Changes
      in Internal Control Over Financial
Reporting.




There
have been no significant changes in our internal controls over financial
reporting that could materially affect such controls over financial reporting
subsequent to the date we completed our evaluation. Therefore, no corrective
actions were taken.




PART
II - OTHER INFORMATION




Item 1.  Legal
Proceedings.





From time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties and an adverse result in these or other matters may arise
from time to time that may harm our business. We are currently not aware of any
such legal proceedings or claims that we believe will have a material adverse
affect on our business, financial condition or operating results.




Item 1A.  Risk
Factors.




There
have been no material changes to the risk factors previously disclosed under
Item 2.01 of the Company’s Form 8-K, as filed with the United States Securities
and Exchange Commission on March 26, 2010.




Item 2.  Unregistered Sales of
Equity Securities and Use of Proceeds.





On March
26, 2010, we issued 10,000 shares of our Series A Preferred Stock to the
shareholders of Kalington. The total consideration for the 10,000 shares of our
Series A Preferred Stock was 10,000 ordinary shares of Kalington, which is all
the issued and outstanding capital stock of Kalington. The number of our shares
issued to the shareholders of Kalington was determined based on an arms-length
negotiation. The issuance of our shares to the shareholders of Kalington was
made in reliance on the exemption provided by Section 4(2) of the Securities Act
for the offer and sale of securities not involving a public offering and
Regulation D promulgated thereunder.




21




On March
26, 2010, we issued 7,450,000 shares of our Common Stock to Goodwin Ventures,
Inc. in consideration for Goodwin Ventures, Inc. paying off approximately
$90,000 in liabilities of Action Industries, Inc. immediately prior to the Share
Exchange. The issuance of our shares to Goodwin Ventures, Inc. was made in
reliance on the exemption provided by Section 4(2) of the Securities Act for the
offer and sale of securities not involving a public offering and Regulation D
promulgated thereunder.




We issued
securities in reliance upon Rule 506 of Regulation D of the Securities Act.
These shareholders who received the securities in such instances made
representations that (a) the shareholder is acquiring the securities for his,
her or its own account for investment and not for the account of any other
person and not with a view to or for distribution, assignment or resale in
connection with any distribution within the meaning of the Securities Act, (b)
the shareholder agrees not to sell or otherwise transfer the purchased shares
unless they are registered under the Securities Act and any applicable state
securities laws, or an exemption or exemptions from such registration are
available, (c) the shareholder has knowledge and experience in financial and
business matters such that he, she or it is capable of evaluating the merits and
risks of an investment in us, (d) the shareholder had access to all of our
documents, records, and books pertaining to the investment and was provided the
opportunity ask questions and receive answers regarding the terms and conditions
of the offering and to obtain any additional information which we possessed or
were able to acquire without unreasonable effort and expense, and (e) the
shareholder has no need for the liquidity in its investment in us and could
afford the complete loss of such investment. Management made the determination
that the investors in instances where we relied on Regulation D are accredited
investors (as defined in Regulation D) based upon management’s inquiry into
their sophistication and net worth. In addition, there was no general
solicitation or advertising for securities issued in reliance upon Regulation
D.




In instances described above where we indicate that
we relied upon Section 4(2) of the Securities Act in issuing securities, our
reliance was based upon the following factors: (a) the issuance of the
securities was an isolated private transaction by us which did not involve a
public offering; (b) there were only a limited number of offerees; (c) there
were no subsequent or contemporaneous public offerings of the securities by us;
(d) the securities were not broken down into smaller denominations; and (e) the
negotiations for the sale of the stock took place directly between the offeree
and us.




Shares of
Series A Preferred Stock will automatically convert into shares of common stock
on the basis of one share of Series A Preferred Stock for 985 shares of common
stock upon the effectiveness of a planned 1-for-125 reverse split of our
outstanding common stock. Upon the Reverse Split, the 10,000 outstanding shares
of Series A Preferred Stock will automatically convert into 9,850,000 shares of
common stock, which will constitute 98.5% of the outstanding common stock of
subsequent to the Reverse Split.




Item 3.  Defaults Upon Senior
Securities.




None.




Item 4.  Other
Information.




None.







22




Item 5.  Exhibits.


Exhibits:


31.1           Certification
pursuant to Section 302 of Sarbanes Oxley Act of 2002.


31.2           Certification
pursuant to Section 302 of Sarbanes Oxley Act of 2002.


32.1           Certification
pursuant to Section 906 of Sarbanes Oxley Act of 2002.


32.2           Certification
pursuant to Section 906 of Sarbanes Oxley Act of 2002.









SIGNATURES




In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, there unto duly
authorized.




Dated:
 May 14, 2010




ACTION INDUSTRIES,
      INC.By:
              /s/ Chaojun
      WangChaojun
      WangChief
      Executive Officer






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