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, 1999
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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
- ---------------------------------- ----------------------------------
(State or other jurisdiction (IRS Employer Identification No.
of incorporation or organization
1251 Avenue of the Americas, 45th Floor, New York, New York 10020-1104
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(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code (212) 536-4089
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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: 1,617,358 shares of common stock, $.01 par value, as of November 12,
1999 (which reflects the two-for-five reverse stock split effective April 19,
1999).
<PAGE>
ACORN HOLDING CORP. AND SUBSIDIARIES
Consolidated Interim Balance Sheet
September 30, 1999 and December 31, 1998
September 30, 1999 December 31, 1998
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,044,521 $ 1,126,838
Restricted cash -- 11,798
Investment in marketable securities 215,887 668,439
Accounts receivable - trade 190,004 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 1,897,287 2,055,827
Prepaid expenses and other 26,822 22,337
Deferred income tax assets 121,770 70,881
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Total current assets 3,646,527 4,191,172
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MACHINERY AND EQUIPMENT, net of accumulated
depreciation of $2,501,046 as of
September 30, 1999 and $2,255,282
as of December 31, 1998 1,880,419 1,978,743
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OTHER ASSETS
Note receivable from sale of
subsidiary, less current portion -- 110,236
Note receivable, less current
portion - employee 40,000 80,000
Other investments 9,108 9,108
Goodwill, net of amortization 235,298 299,357
Deferred income tax assets 1,389,513 1,322,583
------------ ------------
Total other assets 1,673,919 1,821,284
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7,200,865 7,991,199
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt 121,062 121,062
Accounts payable 87,808 20,157
Accrued expenses 87,770 127,021
Machine purchase deposit liability -- 11,798
Deferred income 300,000 300,000
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Total current liabilities 596,640 580,038
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LONG-TERM DEBT, less current maturities 30,265 121,061
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DEFERRED INCOME 300,000 525,000
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DEFERRED INCOME TAXES 196,694 --
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STOCKHOLDERS' EQUITY
Common stock 40,684 40,684
Additional paid-in capital 11,823,449 11,823,449
Accumulated deficit (5,769,490) (5,083,839)
Accumulated other comprehensive
income (loss) (17,377) (15,194)
------------ ------------
Total stockholders' equity 6,077,266 6,765,100
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$ 7,200,865 $ 7,991,199
============ ============
See accompanying notes.
<PAGE>
ACORN HOLDING CORP. AND SUBSIDIARIES
Consolidated Interim Statements of Operations
September 30, 1999 and September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net sales $ 989,774 $ 1,704,344 $ 2,970,698 $ 5,901,353
----------- ----------- ----------- -----------
Costs and expenses
Costs of sales 814,828 1,210,695 2,508,816 4,156,296
Selling, general
and administrative 328,801 418,441 1,097,902 1,347,817
----------- ----------- ----------- -----------
1,143,629 1,629,136 3,606,718 5,504,113
Operating profit (loss) (153,855) 75,208 (636,020) 397,240
----------- ----------- ----------- -----------
Other income (expense)
Loss on investment (10,523) -- (11,277) 18,000
Interest income, net (1,853) (637) 74,896 (2,556)
----------- ----------- ----------- -----------
(12,376) (637) 63,619 15,444
----------- ----------- ----------- -----------
Income (loss) before income taxes (166,231) 74,571 (572,401) 412,684
Income taxes expense (benefit)
Current (14,182) 3,727 -- 7,513
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Deferred 37,256 58,378 113,250 117,702
----------- ----------- ----------- -----------
23,074 62,105 113,250 125,215
----------- ----------- ----------- -----------
Net Income (Loss) $ (189,305) $ 12,466 $ (685,651) $ 287,469
----------- ----------- ----------- -----------
Earnings (loss) per share (0.12) 0.01 (0.42) 0.17
Weighted average shares outstanding 1,627,362 1,518,157 1,627,362 1,686,853
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
<PAGE>
ACORN HOLDING CORP. AND SUBSIDIARIES
Consolidated Interim Statements of Cash Flows
September 30, 1999 and September 30, 1998
(Unaudited)
September 30, September 30,
1999 1998
Net income (loss) from operations $ (685,651) $ 287,469
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities
Depreciation 223,974 182,088
Amortization 64,059 85,531
(Increase) decrease in assets
Trade receivable (105,187) 23,237
Inventory 158,540 192,465
Prepaid expenses (4,485) (25,865)
Deferred taxes 78,875 61,340
Deposits and other assets (3,184) 104,634
Increase (decrease) in liabilities
Accounts payable 67,651 (158,411)
Accrued expenses (39,251) (1,368)
Deferred income (225,000) (350,011)
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Net cash provided by (used in)
operating activities (469,659) 401,109
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Cash flows from investing activities
Purchase of property, plant and equipment (125,650) (518,009)
Purchase of investments, net 452,552 (110,518)
Proceeds notes receivable 150,236 184,618
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Net cash provided by (used in)
investing activities 477,138 (443,909)
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Cash flows from financing activities
Acquisition of treasury stock -- (2,265,966)
Payment of debt (89,796) (90,795)
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Net cash used in financing activities (89,796) (2,356,761)
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Net decrease in cash and cash equivalents (82,317) (2,399,561)
Cash and cash equivalents at beginning of year 1,126,838 2,882,526
----------- -----------
Cash and cash equivalents at end of year $ 1,044,521 $ 482,965
----------- -----------
See accompanying notes
<PAGE>
ACORN HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Interim Financial Statements
September 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.
<PAGE>
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 al periods
presented have been changed to reflect the 5 for 2 reverse stock split.
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.
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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Sales for the three-month period ended September 30, 1999 decreased
$714,570 from the three-month period ended September 30, 1998, while sales for
the nine-month period ended September 30, 1999 decreased $2,930,655 from the
nine-month period ended September 30, 1998. The Company incurred operating
losses of $153,855 and $636,020 for the three months and nine months ended
September 30, 1999, respectively, as compared to operating profits of $75,208
and $397,240, 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 at least the
first quarter of the year 2000.
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 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 September 30, 1999.
<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: November 15, 1999
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> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ACORN HOLDING CORP. FOR THE SIX MONTHS ENDED SEPT. 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,044,521
<SECURITIES> 215,887
<RECEIVABLES> 340,240
<ALLOWANCES> 0
<INVENTORY> 1,897,287
<CURRENT-ASSETS> 3,646,527
<PP&E> 1,880,419
<DEPRECIATION> 2,501,046
<TOTAL-ASSETS> 7,200,865
<CURRENT-LIABILITIES> 596,640
<BONDS> 0
0
0
<COMMON> 40,684
<OTHER-SE> 6,036,582
<TOTAL-LIABILITY-AND-EQUITY> 7,200,865
<SALES> 2,970,698
<TOTAL-REVENUES> 2,970,698
<CGS> 2,508,816
<TOTAL-COSTS> 3,606,718
<OTHER-EXPENSES> 63,619
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (572,401)
<INCOME-TAX> 113,250
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (685,651)
<EPS-BASIC> (.42)
<EPS-DILUTED> (.42)
</TABLE>
