SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
----------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- -----------
Commission File No. 814-29
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ACORN VENTURE CAPITAL CORPORATION
- -----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 59-2332857
- ------------------------------- -----------------------
(State or other jurisdiction of (IRS Employer Identifi-
incorporation or organization) cation No.)
522 Park Street, Jacksonville, Florida 32204
- -------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code (904) 359-8624
--------------
N/A
- --------------------------------------------------------------
Former name, former address and former fiscal year, if changed
since last report.
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past 12 months (or for such shorter period that the
issuer was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
----------- ----------
APPLICABLE ONLY TO CORPORATE ISSUERS: State the number of shares
outstanding of each of the issuer's classes of common equity, as of
the latest practicable date: 5,538,906 shares of common stock, $.01
par value, as of May 13, 1996.
<PAGE>
Acorn Venture Capital Corporation
Condensed Interim Balance Sheets
(Unaudited)
March 31, December 31,
1996 1995
---------------------------
(Unaudited) (Note 1)
Assets:
Investments at market or fair value:
Investment in Recticon Enterprises, Inc.
(100% owned) $12,500,000 $12,500,000
Investment in Automotive Industries, Inc.
(100% owned) 2,900,000 2,900,000
Investment in Service Max Tire & Auto
Centers, Inc. (100.0% owned) 0 0
--------------------------
15,400,000 15,400,000
Investments in common stock and warrants 12,981 12,981
Investments in U.S. Treasury bills 198,466 199,093
--------------------------
Total investments (cost $13,066,280 and
$14,288,138 at March 31, 1996 and
December 31, 1995, respectively) 15,611,447 15,612,074
Cash and cash equivalents 153,632 383,563
Accounts and management fee receivable 102,425 100,000
Other assets 5,776 6,183
--------------------------
Total assets 15,873,280 16,101,820
Liabilities:
Accounts payable 0 4,392
Note payable to Recticon Enterprises, Inc. 760,000 760,000
Capital contribution payable to Automotive
Industries, Inc. 0 460,330
Accrued interest and other payables to
affiliates 44,333 43,544
Deferred income taxes 600,000 650,000
--------------------------
Net assets $14,468,947 $14,183,554
==========================
Net Assets:
Common Stock, par value $.01 per share -
authorized 20,000,000 shares, issued
5,538,906 at March 31, 1996 and $ 55,389 $ 55,889
5,588,906 at December 31, 1995
Additional paid-in capital 14,090,156 14,128,656
Treasury stock 0 (39,000)
Accumulated:
Net operating losses (672,134) (907,527)
Net realized losses on investments (911,921) (911,921)
Net unrealized appreciation of
investments (net of deferred
income taxes of $600,000 and
$650,000 at March 31, 1996 and
December 31, 1995) 1,907,457 1,857,457
--------------------------
323,402 38,009
--------------------------
Net assets applicable to outstanding
common shares (equivalent to $2.61
per share in 1996 and $2.56 per share
in 1995, based on outstanding common
shares of 5,538,906 in 1996 and 5,538,906
in 1995) $14,468,947 $14,183,554
==========================
See accompanying notes.
<PAGE>
Acorn Venture Capital Corporation
Condensed Interim Statements of Operations
(Unaudited)
Three months ended
March 31
1996 1995
--------------------------------------------
Investment Income:
Interest $ 4,226 $ 29,574
Dividends from affiliates 302,500 42,500
Consulting and management fee
income from affiliate 150,000 17,500
Other 0 10,000
--------------------------------------------
456,726 99,574
Expenses:
Consulting fees 4,642 51,809
Compensation 131,653 85,526
Legal and accounting 35,004 22,720
Payroll taxes 9,874 6,470
Office expense 965 1,579
Registration and exchange 5,413 5,525
Director fees 6,500 5,000
Interest expense 19,475 0
License and tax expense 825 621
Other 6,982 4,468
--------------------------------------------
221,333 183,718
--------------------------------------------
Net investment income (loss) 235,393 (84,144)
============================================
Realized gains from sales of
investments 0 0
--------------------------------------------
Net change in unrealized appre-
ciation (depreciation) of
investments 0 0
Deferred income tax benefit
applicable to unrealized appre-
ciation (depreciation) of
investments 50,000 0
--------------------------------------------
50,000 0
--------------------------------------------
Net realized and unrealized
gains on investments 50,000 0
--------------------------------------------
Net increase (decrease) in net
assets resulting from operations $285,393 ($84,144)
============================================
Net investment income (loss)
per share $0.04 ($0.02)
Net realized gains on investments
per share $0.00 $0.00
Net unrealized gain on
investments per share $0.01 $0.00
--------------------------------------------
$0.05 ($0.02)
============================================
Weighted average number of shares
in per share computation 5,538,906 5,588,906
============================================
See accompanying notes.
<PAGE>
Acorn Venture Capital Corporation
Condensed Interim Statements of Changes in Net Assets
(Unaudited)
Three Months Ended
March 31,
1996 1995
---------------------------
Net investment income (loss) $ 235,393 ($ 84,144)
Net realized gains on investments 0 0
Net increase in unrealized appreciation
(depreciation) of investments 50,000 (261,187)
---------------------------
Net increase (decrease) in assets
resulting from operations 285,393 (345,331)
Net assets at beginning of period 14,183,554 10,394,209
---------------------------
Net assets at end of period $14,468,947 $10,048,878
===========================
See accompanying notes.
<PAGE>
Acorn Venture Capital Corporation
Condensed Interim Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
1996 1995
---------------------------
Net cash provided by (used) in operating
activities $ 227,983 ($ 99,073)
---------------------------
Investing activities:
Investment in Automotive Industries, Inc. (460,330) 0
Purchase of U.S. Treasury bill (197,584) 0
Redemption of U.S. Treasury bill 200,000 100,000
---------------------------
Net cash provided (used) by investing (457,914) 100,000
activities
---------------------------
Increase in cash and cash equivalents (229,931) 927
Cash and cash equivalents at beginning
of period 383,563 55,976
---------------------------
Cash and cash equivalents at end of period $ 153,632 $ 56,903
===========================
See accompanying notes.
<PAGE>
Acorn Venture Capital Corporation
Notes to Condensed Interim Financial
Statements (Unaudited)
March 31, 1996
1. Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB and Item 310 of Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March
31, 1996, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996. For further
information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-KSB for the year
ended December 31, 1995.
2. Investments
Securities for which no market exists are valued at fair market value as
determined by the Board of Directors. At March 31, 1996, the value of
investments is as follows:
Number
of
Shares Type of Issue and Name of User Cost Value
- ---------------------------------------------------------------
100 Common stock, Recticon Enter-
prises, Inc. 100% owned. $3,195,750 $12,500,000
In July 1993, the Company acquired Recticon Enterprises, Inc., a
Pennsylvania corporation ("Recticon"), by issuing 800,000 shares of its
Common Stock (the transaction was recorded at the net asset value of the
Company's Stock, which was $2.71 per share as of such date) to the
stockholders of Recticon in exchange for all the outstanding shares of
stock of Recticon. Such shares are restricted securities and are not
registered under either the Securities Act of 1933 or the Investment
Company Act of 1940. Recticon manufacturers monocrystalline silicon
wafers which are used in the microelectronics industry.
In 1993 and 1994, the Company made capital contributions to Recticon
totaling $1,027,750. During 1995, Recticon advanced funds and issued a
promissory note to the Company in the amount of $760,000, accruing
interest at 10-1/4% and due July 15, 1997. Considering a number of
factors influencing the value of the Company's investment in Recticon,
including its current and expected future operating performance, among
other factors, the Board of Directors approved increases in the
valuation of the investment in Recticon from $3,195,750 at December 31,
1994 to $12,500,000 at December 31, 1995. As of March 31, 1996, the
Board of Directors has maintained the valuation of Recticon at
$12,500,000.
During the quarter ended March 31, 1996, Recticon paid the Company
management fees totaling $150,000, and declared and paid a cash divided
of $250,000.
The following selected financial data of Recticon has been derived from
unaudited financial statements provided by Recticon. The financial
information is of March 31, 1996, and March 31, 1995.
Three months ended
March 31,
Income Statement Data: 1996 1995
------------------------------
(Unaudited)
Net Sales $2,321,374 $1,377,476
Cost of goods sold 1,488,258 1,052,039
---------- ------------
Gross margin 833,116 325,437
Total expense 273,553 188,181
---------- ----------
Net income $ 559,563 $ 137,256
========== ==========
As of March 31,
Balance Sheet Data: 1996 1995
------------------------------
(Unaudited)
Total assets $7,664,257 $2,322,390
========== ==========
Total current liabilities 3,347,330 1,003,633
Deferred revenue 2,066,660 0
Total long term debt 139,762 112,500
Stockholders' equity 2,110,505 1,206,257
---------- ----------
$7,664,257 $2,322,390
========== ==========
Number
of
Shares Type of Issue and Name of User Cost Value
- ---------------------------------------------------------------
142 Common stock, Automotive
Industries, Inc., 100% owned.
$3,577,335 $2,900,000
On December 22, 1993, the Company acquired Automotive Industries,
Inc., a Delaware corporation ("Automotive"), by purchasing 100% of
the outstanding common stock of Automotive for $2,400,000. Such
shares are restricted securities and are not registered under
either the Securities Act of 1933 or the Investment Company Act of
1940. Through December 31, 1995, the Company has made additional
contributions to Automotive totaling $1,177,335. Automotive owns
and operates thirty-two (32) full-service automotive retail centers
in northern Florida and southeast Georgia. At March 31, 1996, the
Board of Directors valued the investment in Automotive at
$2,900,000.
During the quarter ended March 31, 1996, Automotive declared and
paid dividends to the Company totaling $52,500.
The following selected financial data of Automotive has been
derived from unaudited financial statements as of March 31, 1996
and March 31, 1995.
Three months ended
March 31,
Income Statement Data: 1996 1995
------------------------------
(Unaudited)
Net Sales $4,896,162 $4,113,199
Cost of goods sold 2,179,507 1,794,740
----------- ------------
Gross margin 2,716,655 2,318,459
Total expense $2,763,272 $2,329,014
----------- -----------
Net income ($46,617) ($10,555)
=========== ===========
As of March 31,
Balance Sheet Data: 1996 1995
------------------------------
(Unaudited)
Total assets $7,316,068 $6,770,231
========== ==========
Total current liabilities 3,083,128 2,812,732
Total long term debt 1,250,000 1,155,304
Stockholders' equity 2,982,940 2,802,195
---------- ----------
$7,316,068 $6,770,231
========== ==========
Number
of
Shares Type of Issue and Name of User Cost Value
- ---------------------------------------------------------------
23,210 Common stock, ServiceMax Tire
& Auto Centers, Inc., 100%
owned
$5,580,503 $ 0
========== ==========
The investment in ServiceMax Tire & Auto Centers, Inc.
("ServiceMax") was made on June 1, 1992. ServiceMax operates tire
and service facilities at gas station and convenience store
locations in Michigan. The Company made an original investment of
$1,000,000 in exchange for 75% of ServiceMax shares. Through
December 31, 1993, the Company contributed an additional $2,179,279
to ServiceMax in exchange for an additional 9,900 shares of common
stock.
In March 1994, the Company purchased 580 shares of ServiceMax
common stock from a member of ServiceMax's management (representing
a 2.5% equity interest in ServiceMax) in exchange for 25,000
restricted shares of the Company's Common Stock. The Board of
Directors has assigned a value of $2.54 per share to the 25,000
restricted shares issued. In April 1994, the Company reached a
settlement with former management pursuant to which Acorn issued
150,000 restricted shares of the Company's Common Stock in exchange
for the 5,230 ServiceMax shares held by former management, giving
the Company a 100% ownership interest in ServiceMax. Such shares
are restricted securities and are not registered under either the
Securities Act of 1933 or the Investment Company Act of 1940. The
Board of Directors has assigned a value of $2.54 per share to the
150,000 restricted shares issued. Also, as part of the settlement,
the Company purchased certain notes payable totaling $68,229, which
it contributed to the capital of ServiceMax.
During 1995 and 1994, the Company made an additional capital
contribution aggregating $1,200,000 and $764,994, respectively. As
of March 31, 1996, the Company's investment in ServiceMax amounted
to $5,580,503.
As of March 31, 1996, the Board of Directors maintained its
valuation of ServiceMax at zero, due to continued operating losses
and a significant liability, and the uncertainty of successfully
seeking indemnification for any or all of the liability from
applicable third parties.
Investments in Common Stock, Warrants, and Notes Receivable
- -----------------------------------------------------------
Number
of
Shares Type of Issue and Name of User Cost Value
- ---------------------------------------------------------------
Common stocks - Restricted:
49,565 Amerinex Artificial
Intelligence, Inc. $ 12,040 $ 9,913
24 Cardiac Control
Systems, Inc. 68 68
Common stock warrants - Restricted:
30,000 Aqua Care Systems,
Inc., each entitling
the holder to purchase
one (1) common share
at $3 per share, exer-
cisable through April 17,
1997. $ 3,000 $ 3,000
750,000 Digital Products Corpo-
ration, each entitling
the holder to purchase
one (1) common share at
$2.00 per share through
November 22, 1996. - -
--------- ----------
$ 15,108 $ 12,981
========= =========
Face
Value Type of Issue and Name of Issuer Cost Value
- ----------------------------------------------------------
Notes receivable - Restricted
$500,000 Note receivable from
Digital Products Cor-
poration, 10%, sub-
ordinated convertible
note, principal due on
November 22, 1996;
interest due semi-
annually commencing
May 22, 1994. $500,000 $ 0
-------- --------
$500,000 $ 0
======== ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of March 31, 1996, the Company had cash and cash
equivalents of $153,632 and United States Treasury Bills of
$198,466 as compared to cash and cash equivalents of $383,563, and
United States Treasury Bills of $199,093. The decline in capital
resources of $230,558 from December 31, 1995, was primarily the
funding of the capital contribution payable to Automotive. As of
March 31, 1996, the Company had liabilities of $1,404,333 as
compared to liabilities of $1,918,266 at December 31, 1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K:
On January 5, 1996, the Company filed with the Commission
a Current Report on Form 8-K, dated January 2, 1996, reporting the
change in the Company's independent public accountants.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ACORN VENTURE CAPITAL CORPORATION
Date: May 13, 1996 Larry V. Unterbrink
----------------------------------
Larry V. Unterbrink, Treasurer
(Principal Financial and
Accounting Officer)
Stephen A. Ollendorff
----------------------------------
Stephen A. Ollendorff,
Chairman, Chief Executive Officer,
and Secretary
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ACORN VENTURE CAPITAL CORPORATION FOR THE QUARTER ENDED
MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 13,066,280
<INVESTMENTS-AT-VALUE> 15,611,447
<RECEIVABLES> 102,425
<ASSETS-OTHER> 5,776
<OTHER-ITEMS-ASSETS> 261,833
<TOTAL-ASSETS> 15,873,280
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,404,333
<TOTAL-LIABILITIES> 1,404,333
<SENIOR-EQUITY> 55,389
<PAID-IN-CAPITAL-COMMON> 14,090,156
<SHARES-COMMON-STOCK> 5,538,906
<SHARES-COMMON-PRIOR> 5,538,906
<ACCUMULATED-NII-CURRENT> (672,134)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (911,921)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,907,457
<NET-ASSETS> 14,468,947
<DIVIDEND-INCOME> 302,500
<INTEREST-INCOME> 4,226
<OTHER-INCOME> 150,000
<EXPENSES-NET> 221,333
<NET-INVESTMENT-INCOME> 235,393
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 50,000
<NET-CHANGE-FROM-OPS> 285,393
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> (907,527)
<ACCUMULATED-GAINS-PRIOR> (911,921)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 19,475
<GROSS-EXPENSE> 221,333
<AVERAGE-NET-ASSETS> 14,468,947
<PER-SHARE-NAV-BEGIN> 2.56
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> .01
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 2.61
<EXPENSE-RATIO> .02
<AVG-DEBT-OUTSTANDING> 760,000
<AVG-DEBT-PER-SHARE> .14
</TABLE>
