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 June 30, 1999
----------------------
[ ] 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. 811-08469
ACORN HOLDING CORP.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 59-2332857
- --------------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer Identifition No.)
of incorporation organization)
1251 Avenue of the Americas, 45th Floor, New York, New York 10020-1104
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code (212) 536-4089
-------------------------------
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: 1,408,750 shares of common stock, $.01 par value, as of August 13, 1999
(which reflects the two-for-five reverse stock split effective April 19, 1999).
<PAGE>
ACORN HOLDING CORP. AND SUBSIDIARIES
Consolidated Interim Balance Sheet
June 30, 1999 and December 31, 1998
June 30, 1999 December 31, 1998
(Unaudited)
------------ -----------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 863,229 $ 1,126,838
Restricted cash -- 11,798
Investment in marketable securities 642,555 668,439
Accounts receivable - trade 265,781 84,817
Current portion of note receivable
from sale of subsidiary 110,236 110,235
Current portion of note receivable
- employee 40,000 40,000
Inventories 1,856,528 2,055,827
Prepaid expenses and other 39,768 22,337
Deferred income tax assets 121,770 70,881
------------ ------------
Total current assets 3,939,867 4,191,172
------------ ------------
MACHINERY AND EQUIPMENT, net of accumulated
depreciation of $2,255,282 as of
December 31, 1998 and $2,424,889
as of June 30, 1999 1,918,488 1,978,743
------------ ------------
OTHER ASSETS
Note receivable from sale of
subsidiary, less current portion -- 110,236
Note receivable, less current portion
- employee 40,000 80,000
Other investments 9,108 9,108
Goodwill, net of amortization 256,591 299,357
Deferred income tax assets 1,385,491 1,322,583
------------ ------------
Total other assets 1,691,190 1,821,284
------------ ------------
7,549,545 7,991,199
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt 121,062 121,062
Accounts payable 100,705 20,157
Accrued expenses 103,355 127,021
Machine purchase deposit liability -- 11,798
Deferred income 300,000 300,000
------------ ------------
Total current liabilities 625,122 580,038
------------ ------------
LONG-TERM DEBT, less current maturities 60,531 121,061
------------ ------------
DEFERRED INCOME 375,000 525,000
------------ ------------
DEFERRED INCOME TAXES 189,791 --
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 40,684 40,684
Additional paid-in capital 11,823,449 11,823,449
Accumulated deficit (5,580,185) (5,083,839)
Accumulated other comprehensive
income (loss) 15,153 (15,194)
------------ ------------
Total stockholders' equity 6,299,101 6,765,100
------------ ------------
$ 7,549,545 $ 7,991,199
============ ============
-2-
<PAGE>
ACORN HOLDING CORP. AND SUBSIDIARIES
Consolidated Interim Statements of Operations
June 30, 1999 and June 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 1,103,469 $ 2,140,993 $ 1,980,924 $ 4,197,009
=========== =========== =========== ===========
Costs and expenses
Costs of sales 888,870 1,526,730 1,693,988 2,945,601
Selling, general and administrative 359,023 453,584 769,101 929,376
----------- ----------- ----------- -----------
1,247,893 1,980,314 2,463,089 3,874,977
Operating profit (loss) (144,424) 160,679 (482,165) 322,032
----------- ----------- ----------- -----------
Other income (expense)
Loss on investment -- 18,000 (754) 18,000
Interest income, net 49,805 (4,565) 62,567 (1,919)
----------- ----------- ----------- -----------
49,805 13,435 61,813 16,081
----------- ----------- ----------- -----------
Income (loss) before income taxes (94,619) 174,114 (420,352) 338,113
Income taxes expense (benefit)
Current (30,355) (28,160) -- 57,705
Deferred 173,155 81,270 75,994 5,405
----------- ----------- ----------- -----------
142,800 53,110 75,994 63,110
----------- ----------- ----------- -----------
Net Income (Loss) $ (237,419) $ 121,004 $ (496,346) $ 275,003
----------- ----------- ----------- -----------
Earnings per share ($ .146) $ .073 ($ .305) $ .161
Weighted average shares
outstanding 1,627,362 1,668,751 1,627,362 1,711,307
=========== =========== =========== ===========
See accompanying notes.
</TABLE>
-3-
<PAGE>
ACORN HOLDING CORP. AND SUBSIDIARIES
Consolidated Interim Statements of Cash Flows
June 30, 1999 and June 30, 1998
(Unaudited)
June 30, 1999 June 30, 1998
------------- -------------
Net income (loss) from operations $ (496,346) $ 275,003
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities
Depreciation and amortization 190,990 186,354
Deferred income taxes 75,944 58,205
(Increase) decrease in assets
Accounts receivable (180,964) 51,057
Inventory 199,299 145,949
Prepaid expenses (17,431) (40,985)
Deposits and other assets 3,185 --
Increase (decrease) in liabilities
Accounts payable 80,548 (117,670)
Accrued expenses (23,666) --
Deferred income (150,000) (233,341)
----------- -----------
Net cash provided by (used in)
operating activities (318,441) 324,572
----------- -----------
Cash flows from investing activities
Purchase of machinery and equipment (87,969) (479,089)
Purchase of marketable securities -- (337,855)
Proceeds of marketable securities 53,095 --
Proceeds notes receivable 150,236 184,618
----------- -----------
Net cash provided by (used in)
investing activities 115,362 (632,326)
----------- -----------
Cash flows from financing activities
Payment of debt (60,530) (50,441)
Purchase of treasury stock -- (2,102,475)
----------- -----------
Net cash used in financing activities (60,530) (2,152,916)
Net decrease in cash and cash equivalents (263,609) (2,460,670)
Cash and cash equivalents at
beginning of year 1,126,838 2,882,526
----------- -----------
Cash and cash equivalents at end of year $ 863,229 $ 421,856
----------- -----------
See accompanying notes
-4-
<PAGE>
ACORN HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Interim Financial Statements
June 30, 1999
(Unaudited)
NOTE A - 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
1998 balance sheet has been derived from the audited financial statements
contained in the 1998 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 three months ended June 30,
1999 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 B - NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 133 which amends the implementation date of SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activity." The
statement 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. The statement is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The Company is currently reviewing the provisions of the statement.
The American Institute of Certified Public Accountants ("AICPA") issued
Statement of Option ("SOP") 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." The SOP was issued to provide
authoritative guidance on the subject of accounting for the costs associated
with the purchase or development of computer software. The statement is
effective for fiscal years beginning after December 15, 1998. This statement has
been implemented and has no impact on the Company's consolidated financial
statements.
NOTE C - REVERSE STOCK SPLIT
On April 19, 1999 the Company approved a resolution to amend the Company's
certificate of incorporation to decrease the authorized common shares from
approximately 4 million to 1.3 million and to effect a 5-for-2 reverse stock
split. Earnings per share and weighted average shares outstanding for all
periods presented have been changed to reflect the 5 for 2 reverse stock split.
-5-
<PAGE>
NOTE D - Legal Matters
On May 14, 1999, the Chapter 7 Trustee in Bankruptcy for ServiceMax Tire & Auto
Center of Michigan, Inc., (ServiceMax) filed an avoidance action in the United
States Bankruptcy Court for the Eastern District of Michigan seeking to recover
$1,750,000 from the Company on account of payments made to the Company and its
subsidiary, Automotive Industries Inc. (Automotive).
During 1996, ServiceMax was forced into Chapter 7 bankruptcy. ServiceMax is a
wholly owned subsidiary of ServiceMax Tire & Auto Centers, Inc. (ServiceMax
Inc.) which is a wholly owed subsidiary the Company.
During 1996, $1,750,000 was received by the Company from a third party with
respect to certain claims in exchange for certain releases with respect to
Service Max Tire & Auto Centers, of which $752,0000 was remitted directing to
the Company and the remaining balance of $997,500 was remitted to the Company's
subsidiary, Automotive in settlement of outstanding liens and payables.
During 1997, the Company sold the assets and liabilities of Automotive.
ServiceMax Inc. is not included in the consolidated financial statements of the
Company, because the majority owned subsidiary's control does not rest with the
Company.
The Company has filed an answer to the avoidance action and intends to
vigorously defend this action
-6-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Sales for the three-month period ended June 30, 1999 decreased
$1,037,524 from the three-month period ended June 30, 1998, while sales for the
six-month period ended June 30, 1999 decreased $2,216,085 from the six-month
period ended June 30, 1998. The Company incurred operating losses of $144,424
and $482,165 for the three months and six months ended June 30, 1999,
respectively, as compared to operating profits of $160,679 and $322,032,
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.
Although the business in which the Company is engaged is highly
competitive and cyclical in nature and has been recently incurring losses from
operations, 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.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 14, 1999, the Chapter 7 Trustee in Bankruptcy for ServiceMax
Tire & Auto Centers of Michigan, Inc., filed an avoidance action in the United
States Bankruptcy Court for the Eastern District of Michigan seeking to recover
$1,750,000 from the Company on account of payments made to the Company and its
subsidiary, Automotive Industries, Inc., during 1996 and 1997. The Company has
filed an answer to the avoidance action and will vigorously defend this action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of Stockholders of the Company was held on April 15,
1999 (the "Meeting") to consider and vote upon a proposed amendment of the
Company's Certificate of Incorporation to effect a combination of the Company's
issued and outstanding shares of Common Stock on the basis that each five (5)
shares of Common Stock then outstanding would be converted into two (2) shares
of Common Stock. A majority of the outstanding shares of the Company's Common
Stock in accordance with Delaware General Corporation Law voted on and approved
the proposal as follows: by the holders of : 3,465,091 shares of Common Stock
cast in favor of such proposal, 164,195 shares of Common Stock voted against
such proposal, and 5,300 shares abstained.
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 filed during the
quarter ended June 30, 1999.
-6-
<PAGE>
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.
Date: August , 1999 /s/ Larry V. Unterbrink
----------------------------------------
Larry V. Unterbrink, Treasurer
(Principal Financial and
Accounting Officer)
/s/ Stephen A. Ollendorff
----------------------------------------
Stephen A. Ollendorff,
Chairman, Chief Executive Officer,
and Secretary
-7-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ACORN HOLDING CORP. FOR THE SIX MONTHS ENDED JUNE 30,
1999 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 863,229
<SECURITIES> 265,781
<RECEIVABLES> 416,017
<ALLOWANCES> 0
<INVENTORY> 1,865,528
<CURRENT-ASSETS> 3,939,867
<PP&E> 1,918,488
<DEPRECIATION> 2,424,889
<TOTAL-ASSETS> 7,549,545
<CURRENT-LIABILITIES> 625,122
<BONDS> 0
0
0
<COMMON> 40,684
<OTHER-SE> 7,508,861
<TOTAL-LIABILITY-AND-EQUITY> 7,549,545
<SALES> 1,980,924
<TOTAL-REVENUES> 1,980,924
<CGS> 1,693,988
<TOTAL-COSTS> 2,463,089
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (420,352)
<INCOME-TAX> 75,994
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (496,346)
<EPS-BASIC> (.305)
<EPS-DILUTED> (.305)
</TABLE>
