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 September 30, 1998
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 811-08469
ACORN HOLDING CORP.
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(Exact name of small business issuer as specified in its charter)
Delaware 59-2332857
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(State or other jurisdiction of (IRS Employer Identifi-
incorporation or organization) cation No.)
100 Park Avenue, 23rd Floor, New York, New York 10017
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(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code (212) 685-5654
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N/A
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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
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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: 4,070,406 shares of common stock, $.01
par value, as of November 13, 1998.
Page -1-
<PAGE>
ACORN HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheet
September 30, 1998 and December 31, 1997
September 30, December 31,
1998 1997
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ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 482,965 $ 2,882,526
Restricted cash 11,802 41,439
Investments 1,098,097 986,706
Accounts receivable - trade 406,656 429,893
Current portion of note receivable from
sale of subsidiary 110,235 121,696
Current portion of note receivable
- employee 40,000 40,000
Inventories 2,314,298 2,506,763
Prepaid expenses 39,708 13,843
Deferred income tax asset 121,770 179,000
----------- -----------
Total Current Assets 4,625,531 7,201,866
----------- -----------
MACHINERY AND EQUIPMENT, net of
accumulated depreciation of
$2,185,554 as of September 30,
1998 and $1,998,010 as of
December 31, 1997 2,042,744 1,706,823
----------- -----------
OTHER ASSETS
Deposits and other 0 82,563
Note receivable from sale of
subsidiary, less current
portion 110,236 243,393
Note receivable, less
current portion - employee 80,000 120,000
Other investments 9,108 9,981
Goodwill, net of amortization 299,356 384,887
Deferred income tax asset 1,301,890 1,306,000
----------- -----------
1,800,590 2,146,824
----------- -----------
$ 8,468,865 $11,055,513
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 121,062 $ 121,062
Accounts payable 145,063 303,474
Accrued expenses 212,151 213,519
Machine purchase deposit liability 11,802 41,439
Deferred income 300,000 466,680
----------- -----------
Total Current Liabilities 790,078 1,146,174
----------- -----------
LONG-TERM DEBT, less current maturities 151,327 242,122
----------- -----------
DEFERRED INCOME 599,975 783,306
----------- -----------
COMMITMENTS -- --
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<PAGE>
ACORN HOLDING CORP. AND SUBSIDIARIES
Consolidated Balance Sheet, Continued
September 30, 1998 and December 31, 1997
September 30, December 31,
1998 1997
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(Unaudited)
STOCKHOLDERS' EQUITY
Common Stock, par value $.01 per share:
20,000,000 shares authorized,
4,164,806 shares issued as of
September 30, 1998 and 5,538,906
issued as of December 31, 1997 55,389 55,389
Additional paid-in capital 14,090,156 14,090,156
Accumulated deficit (4,938,144) (5,247,684)
Less common stock in treasury, at cost
-1,468,500 shares as of September 30,
1998 and 9,000 shares as of
December 31, 1997 (2,279,916) 13,950)
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Total stockholders' equity 6,927,485 8,883,911
------------ ------------
$ 8,468,865 $11,055,513
============ ============
See accompanying notes
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<PAGE>
ACORN HOLDING CORP. AND SUBSIDIARIES
Consolidated Interim Statement of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 1,704,344 $ 1,876,507 $ 5,901,353 $ 5,829,151
----------- ----------- ----------- -----------
Costs and expenses
Costs of sales 1,210,695 1,196,285 4,156,296 3,916,367
Selling, general and
administrative 418,441 329,491 1,347,817 1,346,324
----------- ----------- ----------- -----------
1,629,136 1,525,776 5,504,113 5,262,691
Operating profit 75,208 350,731 397,240 566,460
----------- ----------- ----------- -----------
Other income (expense)
Gain (loss) on investment
sales 0 (3,000) 18,000 102,000
Interest, net (637) 41,055 (2,556) 52,916
----------- ----------- ----------- -----------
(637) 38,055 15,444 154,916
Income from continuing
operations before income
taxes 74,571 388,786 412,684 721,376
Income taxes expense (benefit)
Current 3,727 (33,357) 7,513 7,931
Deferred 58,378 151,373 117,702 124,252
----------- ----------- ----------- -----------
62,105 118,016 125,215 132,183
----------- ----------- ----------- -----------
Income from continuing
operations 12,466 270,770 287,469 589,193
Discontinued operations
Loss from discontinued
operations net of tax benefit
of $239,589 0 0 0 (379,395)
Gain on sale of assets of
Automotive Industries, Inc.,
net of $700,138 taxes 0 0 0 1,095,087
----------- ----------- ----------- -----------
0 0 0 715,692
----------- ----------- ----------- -----------
Net Income $ 12,466 $ 270,770 $ 287,469 $ 1,304,885
=========== =========== =========== ===========
Net Income per share-
Basic & Dilutive
Continuing Operations $ 0.00 $ 0.05 $ 0.07 $ 0.10
Discontinued Operations 0.00 0.00 0.00 0.13
----------- ----------- ----------- -----------
$ 0.00 $ 0.05 $ 0.07 $ 0. 23
=========== =========== =========== ===========
Weighted average shares
outstanding-basic and dilutive 4,157,214 5,665,253 4,258,795 5,665,253
=========== =========== =========== ===========
See accompanying notes.
</TABLE>
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<PAGE>
ACORN HOLDING CORP. AND SUBSIDIARIES
Consolidated Interim Statement of Cash Flows
September 30, September 30,
1998 1997
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(Unaudited) (Unaudited)
Net income from operations $ 287,469 $ 1,034,885
Adjustments to reconcile net income
to net cash used in
operating activities
Depreciation 182,088 308,628
Amortization 85,531 85,531
Gain on sale of assets 0 (1,795,225)
Loss on sale of property 0 3,645
Imputed Interest 0 53,321
(Increase) decrease in assets
Trade receivable 23,237 307,407
Notes and other receivable 0 170,165
Inventory 192,465 400,107
Prepaid expenses (25,865) 20,197
Deferred taxes 61,340 8,443
Deposits and other assets 104,634 0
Increase (decrease) in liabilities
Accounts payable (158,411) (843,569)
Accrued expenses (1,368) 90,967
Deferred income (350,011) (350,010)
Deferred credit 0 (53,321)
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Net cash provided by (used in)
operating activities 401,109 (288,829)
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Cash flows from Investing Activities
Purchase of property, plant
and equipment (518,009) (177,218)
Purchase of investments, net (110,518) (1,357,145)
Proceeds from sales of
property, plant and equipment 0 2,506,000
Proceeds notes receivable 184,618 (80,961)
----------- -----------
Net cash provided by (used in)
investing activities (443,909) 890,676
----------- -----------
Cash Flows from Financing Activities
Acquisition of treasury stock (2,265,966) 0
Additional paid - capital 0 236,374
Proceeds from line of credit 0 534,000
Payment of debt (90,795) (762,386)
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Net cash provided by (used in)
investing activities (2,356,761) 7,988
----------- -----------
Net increase (decrease) in cash
and cash equivalents (2,399,561) 609,835
Cash and cash equivalents at
beginning of period 2,882,526 2,210,873
----------- -----------
Cash and cash equivalents at
end of period $ 482,965 $ 2,820,708
=========== ===========
See accompanying notes
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<PAGE>
ACORN HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Interim Financial Statements
September 30, 1998
NOTE 1 - ORGANIZATION AND PURPOSE
Interim financial statements reflect all adjustments which are, in the opinion
of management, necessary to a fair statement of the results for the periods. The
1997 balance sheet has been derived from the audited financial statements
contained in the 1997 Annual Report to Stockholders. These interim financial
statements conform with the requirements for interim financial statements and
consequently do not include all the disclosures normally required by generally
accepted accounting principles. The results for the nine months ended September
30, 1998 are not necessarily indicative of the results to be expected for the
full year. Reporting developments have been updated where appropriate. In this
connection, there are no significant changes in disclosures, except for the
following:
Acorn Holding Corp. filed an election with the Securities and Exchange
Commission to be treated as a business development company under the Investment
Company Act of 1940, as amended, and operated as such until November 1997. In
November 1997, Acorn Holding Corp. withdrew its election as an investment
company, ceased to be a business development company, and commenced business as
an operating company. At that date, the name of the company was changed to Acorn
Holding Corp. The financial statements presented reflect Acorn Holding Corp. as
an operating company.
NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS
A. In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activity." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments imbedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a
derivative may be specifically designated as a hedge. The accounting for
changes in the fair value of a derivative (gains and loses) depends upon
the intended use of the derivative and resulting designation. SFAS No. 133
is effective for all fiscal quarters of fiscal years beginning after June
15, 1999. Earlier application is permitted only as of the beginning of any
fiscal quarter. The Company is currently reviewing the provisions of SFAS
No. 133.
B. The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income," which is effective for years beginning after December 15, 1997.
This new standard requires entities presenting a complete set of financial
statements to include details of comprehensive income. Comprehensive income
consists of net income or loss for the current period and income, expenses,
gains, and losses that bypass the income statement and are reported
directly in a separate component of equity. The adoption of SFAS No. 130
will not have a material effect on the presentation of the Company's
financial position or results of operations.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
During the fiscal year ended December 31, 1997, the Company completed the
divestiture of all of its major operating assets other than Recticon
Enterprises, Inc. (its principal subsidiary) ("Recticon") and, on November 4,
1997, pursuant to the approval of the Company's stockholders, withdrew its
election with the Securities and Exchange Commission to be treated as a Business
Development Company under the 1940 Act. Accordingly, the Company will be
operating in the foreseeable future as a holding company with one wholly-owned
subsidiary, Recticon.
Sales for the three-month period ended September 30, 1998 decreased
$172,163 from the three-month period ended September 30, 1997, while sales for
the nine-month period ended September 30, 1998 increased $72,202 from the
nine-month period ended September 30, 1997. Operating profits for the three
months and nine-months ended September 30, 1998 decreased $275,523 and $169,200
respectively, over the comparable prior year periods. The principal reason for
the decline in profitability was due to pricing pressures resulting from a lower
demand for the Company's products, without a corresponding decrease in the cost
of sales. The Company does not foresee, based on its present orders, an
increased demand for its products for the next several months. However, it is
cautiously optimistic that the Company may see an increased demand for its
products in the second half of the 1999 fiscal year.
The Company believes that it has sufficient short-term and long-term
liquidity either from cash on hand, credit arrangements or cash flow from
operations. The business in which the Company is engaged is highly competitive
and cyclical in nature. Therefore, the reported financial information may not be
necessarily indicative during the upcoming calendar year of the future operating
results of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. 27 -- Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed by the Company during the quarter
ended September 30, 1998.
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 HOLDING CORP.
Dated: November 13, 1998 Larry V. Unterbrink
-----------------------------
Larry V. Unterbrink, Treasurer
(Principal Financial and
Accounting Officer)
Stephen A. Ollendorff
------------------------------
Stephen A. Ollendorff,
Chairman, Chief Executive Officer,
and Secretary
Page -7-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ACORN HOLDING CORP. FOR THE THIRD QUARTER ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000737243
<NAME> ACORN HOLDING CORP.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 482,965
<SECURITIES> 1,098,097
<RECEIVABLES> 556,891
<ALLOWANCES> 0
<INVENTORY> 2,314,298
<CURRENT-ASSETS> 4,625,531
<PP&E> 2,042,744
<DEPRECIATION> 2,185,554
<TOTAL-ASSETS> 8,468,865
<CURRENT-LIABILITIES> 790,078
<BONDS> 0
0
0
<COMMON> 55,389
<OTHER-SE> 6,872,096
<TOTAL-LIABILITY-AND-EQUITY> 8,468,865
<SALES> 5,901,353
<TOTAL-REVENUES> 5,901,353
<CGS> 4,156,296
<TOTAL-COSTS> 5,504,113
<OTHER-EXPENSES> (18,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,556
<INCOME-PRETAX> 412,684
<INCOME-TAX> 125,215
<INCOME-CONTINUING> 287,469
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 287,469
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
