SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1999
Commission File No. 811-08469
ACORN HOLDING CORP.
(Name of small business issuer in its charter)
Delaware 59-2332857
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1251 Avenue of the Americas, 45th Floor, New York, NY 10020-1104
(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code (212) 536-4089
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to
Section 12(g) of the Act: Common Stock, $.01 par value
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 Registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
------ -----
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this Form, and no disclosure will be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
Issuer's revenues for the fiscal year ended December 31, 1999 were $4,281,949.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 27, 2000 (valued at the average of the bid price of
$1.65625 and asked price of $2.00 on such date) was $1,515,097.75.
The number of shares of Common Stock outstanding (including shares held by
affiliates of the issuer) as of March 27, 2000: 1,627,358 (which reflects a
two-for-five reverse stock split, effective April 19, 1999).
Transitional Small Business Disclosure Format (check one):
Yes ; No X
----- ------
DOCUMENTS INCORPORATED BY REFERENCE: NONE
<PAGE>
ITEM 1. Description of Business
General
Acorn Holding Corp. (the "Company") is a holding company with one
wholly-owned subsidiary, Recticon Enterprises, Inc. ("Recticon"), which it
acquired in 1993 by issuing 320,000 shares of the Company's common stock, $.01
par value (the "Common Stock") to the stockholders of Recticon in exchange for
all of the outstanding shares of stock of Recticon. Unless otherwise indicated,
all of the shares of the Common Stock have been adjusted to reflect the
two-for-five reverse stock split, effective April 19, 1999.
The principal purpose of the Company is to derive earnings from the
operation of Recticon and possibly other businesses rather than for the purpose
of obtaining dividend and interest income through the efforts of others. The
Company may acquire other companies or operating businesses in the future. While
there can be no assurance that any such acquisitions will be made, the Company
intends only to acquire the entire or, at the least, controlling interests in
such companies and have such companies operate as subsidiaries of the Company.
Recticon's Present Business
Recticon, located in Pottstown, Pennsylvania, manufactures two, three,
four, five and six-inch monocrystalline silicon wafers, which are made from
silicon crystals and are the basic substrate from which integrated circuits and
other semiconductor devices are fabricated. Recticon's wafers are used by
university research departments and microelectronic manufacturers, and are best
suited for use in electronics devices employed in avionics, telecommunications
and computers.
The business in which Recticon is engaged is highly competitive and the
Company believes that there are many competitors who produce, sell, design and
support similar products. Many of these competitors have substantially greater
marketing, financial, administrative and other resources than Recticon.
In 1995, Recticon entered into long-term agreements with two of its
major customers, pursuant to which said customers have paid an aggregate of $2.3
Million in cash for the right to receive a specified number of silicon wafers at
a predetermined gross profit margin. In addition, in 1996, Recticon entered into
agreements pursuant to which Recticon received $2.4 Million in cash from two
customers in order for Recticon to purchase additional furnaces and related
equipment (the "Units"). At the end of five years, the Units will be turned over
to Recticon at no cost. In exchange therefor, Recticon has agreed to sell these
customers the wafers produced by the Units at a mutually agreed to gross profit
margin. Recticon has expanded its facilities and, as a result thereof, has the
capacity to add an additional four or five Units. Recticon presently has ten
functioning Units. These new Units have not only given Recticon added capacity,
but have also enabled it to enter into the five and six-inch wafer market and,
subject to purchasing additional equipment, give it the capacity to enter into
the eight-inch market. There can be no assurance that Recticon will acquire any
additional Units or successfully enter into the eight-inch wafer market.
Recticon's raw materials are acquired from silicon wholesalers. For
1999, 7% of its raw materials were acquired from one supplier, while for 1998 it
was 13%. Although Recticon has from time to time experienced shortages of
certain supplies, such shortages have not resulted in any significant
disruptions in production. Recticon believes that there are adequate alternative
sources of supply to meet its requirements.
For 1999 three customers of Recticon accounted for 46%, 31% and 4% of
its sales, respectively. For 1998, three customers of the Company accounted for
2
<PAGE>
53%, 15% and 5% of its sales, respectively. The loss of any or all of these
customers, could have an adverse, possibly severe, effect on the business of
Recticon.
Compliance with federal, state and local laws and regulations
regulating the discharge of materials into the environment has not had, and
under present conditions, Recticon does not anticipate that such laws and
regulations will have a material effect on the results of operations, capital
expenditures or the competitive position of Recticon.
Employees
The Company currently has three executive officers, all of whom are
employees of the Company. Recticon presently employs 42 full-time people, all of
whom are located at its facility in Pottstown.
ITEM 2. Description of Property
The Company maintains its principal executive office in New York, New
York at no charge to the Company and an office in New Canaan, Connecticut, at a
cost of $300 per month.
Recticon currently leases approximately 30,000 square feet in a
facility in Pottstown, Pennsylvania, pursuant to a lease agreement which expires
on February 28, 2009. Recticon has a right of first refusal to purchase the
property in the event of a sale by the lessor. Recticon considers the facility
to be generally well-maintained, adequate for its current needs and capable of
supporting a reasonably higher level of demand for its products.
ITEM 3. Legal Proceedings
On May 14, 1999, the Chapter 7 Trustee in Bankruptcy for ServiceMax
Tire & Auto Centers 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.
ITEM 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of the Company was held on December
23, 1999 (the "Meeting"). The following matters were voted on and approved by
the holders of a majority of the outstanding shares of the Company's Common
Stock in accordance with Delaware General Corporation Law:
(a) The first proposal presented to the stockholders was the
election of five persons as directors of the Company to hold office until the
next Annual Meeting of Stockholders and until their respective successors are
duly elected and qualified. The following persons were elected as directors of
the Company, and each person received that number of votes set opposite that
person's name:
3
<PAGE>
VOTES
FOR WITHHELD
-------------------------
Paula Berliner 1,356,423 5,390
Edward N. Epstein 1,356,183 5,630
Ronald J. Manganiello 1,356,423 5,390
Stephen A. Ollendorff 1,356,183 5,630
Bert Sager 1,356,423 5,390
(b) The second proposal presented to the stockholders was to
ratify the firm of Grant Thornton LLP as the independent public accountants of
the Company for the 1999 fiscal year. There were 1,359,757 shares of Common
Stock cast in favor of such proposal, 900 shares of Common Stock voted against
such proposal, and 1,156 shares abstained.
PART II
ITEM 5. Market for the Registrant's Common Equity
and Related Stockholder Matters
The Company's Common Stock was accepted for listing in October 1988 on
NASDAQ under the symbol "AVCC". The following table sets forth, for the periods
indicated, the range of high and low closing bid quotations as reported by
NASDAQ, adjusted for the two-for-five stock split, effective, April 19, 1999.
Such quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission and do not necessarily represent actual transactions. There
presently is a limited public market for the Common Stock.
Quarter Ending Low High
-------------- --- ----
1999
----
March 31 $1.563 $3.344
June 30 $1.188 $2.344
September 30 $1.063 $1.875
December 31 $ .938 $2.063
Quarter Ending Low High
-------------- --- ----
1998
----
March 31 $3.125 $3.75
June 30 $3.125 $4.063
September 30 $2.110 $3.125
December 31 $1.875 $3.047
As of March 27, 2000, there were approximately 398 holders of record of
the Company's Common Stock with 1,627,358 shares of Common Stock outstanding. In
addition, the Company believes that there are more than 1,300 beneficial owners
of Common Stock whose shares are held in "street" name as of such date. On March
27, 2000, the closing bid and asked quotations of the Common Stock were
$1.65625 and $2.00, respectively.
The Company has never paid and does not currently intend to pay cash
dividends. In addition, the Company has never made, nor adopted any policies
with respect to, in-kind distributions, and has no present intention of adopting
any such policies or of making any such distributions.
4
<PAGE>
ITEM 6. Management's Discussion and Analysis
or Plan of Operations
On November 4, 1997, pursuant to the approval of the Company's
stockholders, the Company withdrew its election with the Commission to be
treated as a Business Development Company under the 1940 Act. Since that time,
the Company has been operating as a holding company with one wholly-owned
subsidiary, Recticon. 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. For the fiscal year ended December 31, 1999,
the Company's net sales declined approximately $2,685,227 from the fiscal year
ended December 31, 1998 and operating profit (loss) declined approximately
$896,317 during the corresponding period from a gain of $205,802 in fiscal 1998
to a loss of $690,515 in fiscal 1999.
The Company's sales and profitability have shown improvement during the
first quarter of the fiscal year ending December 31, 2000 and the Company is
anticipating to be profitable for the first quarter of 2000. Although the
Company hopes to achieve even greater profitability during the second quarter of
2000, no assurance can be given that the Company will maintain its profitability
during 2000.
The Company completed implementation of its Year 2000 compliance plan on
a timely basis and did not experience any disruption in business or significant
issues resulting from Year 2000 compliance.
From time to time in both written reports and oral statements by the
Company's senior management, we may express our expectations regarding future
performance by the Company. These "forward-looking statements" are inherently
uncertain, and investors must recognize that events could turn out to be other
than what senior management expected.
ITEM 7. Financial Statements.
See Index to Financial Statements after Signature Page.
ITEM 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
Not Applicable
PART III
ITEM 9. Directors, Executive Officers, Promoters and
Control Persons
The following is a list (along with certain biographical information)
of the executive officers and directors of the Company. All directors of the
Company are serving a current term of office which continues until the next
annual meeting of stockholders, and all officers are serving a current term of
office which continues until the next annual meeting of directors:
5
<PAGE>
Year of
Election
as
Name and Age Director Position
- --------------- --------- --------
(As of 3/1/2000)
Bert Sager(1)(2) 1983 Director
(74)
Stephen A. Ollendorff 1983 Chairman of the Board,
(61) (1) Chief Executive Officer,
Secretary and Director
Edward N. Epstein* 1995 President and Chief
(59) (1) Operating Officer; Director
Larry V. Unterbrink (3) Treasurer
(65)
Robert P. Freeman - President and Chief
(65) Executive Officer
of Recticon
Paula Berliner 1990 Director
(56) (1)(2)
Ronald J. Manganiello* 1997 Director
(50) (1)(2)(4)
- --------------
*Designees of Edward N. Epstein. See "Certain Relationships and
Related Transactions."
(1) Member of the Stock Option and Compensation Committee
(2) Member of the Audit Committee.
(3) Mr. Unterbrink was a member of the Board from
1985 until February 1995.
(4) Mr. Manganiello was a member of the Board from November 1995 until January
1997, and was elected to the Board in December 1997.
- --------------
BERT SAGER was Co-Chairman of the Board of the Company from November
1995 to December 1998 and was Chairman from June 1989 to November 1995. Prior
thereto, he was President since the Company's inception until June 1989. Mr.
Sager has been a private investor for more than five years and has been a
practicing attorney since 1949. He is a director of Artesyn Technologies, Inc.
("Artesyn"), a publicly-traded manufacturer of standardized electronic products,
of Boca Raton, Florida.
STEPHEN A. OLLENDORFF has been Chief Executive Officer of the Company
since September 1992, Chairman of the Board since November 1995, President of
the Company from June 1989 until November 1995, and Secretary since the
Company's inception. He served as Vice President from the Company's inception
until his election as President. Mr. Ollendorff was of counsel to the law firm
of Hertzog, Calamari & Gleason from December 1990 until January 1999. He is
currently of counsel to the law firm of Kirkpatrick & Lockhart LLP. Mr.
Ollendorff also serves as a director of Artesyn and Pharmaceutical Resources,
Inc., a publicly-traded manufacturer of generic drugs, of Spring Valley, New
York.
6
<PAGE>
EDWARD N. EPSTEIN was elected President and Chief Operating Officer of
the Company in November 1995. For more than the past five years, has been the
principal of Edward N. Epstein & Assoc., a consulting firm specializing in
corporate structure and management. He has also been, since January 1996, a
principal in the merchant banking firm of New Canaan Capital LLC, and since July
1996, a principal of Sylhan LLC, an integrated contract manufacturer
specializing in the precision machining of refractory metal parts.
LARRY V. UNTERBRINK, Treasurer of the Company since February 1990, is a
private investor residing in Florida. Since November 1986, Mr. Unterbrink has
been a principal of Groupe Financier, a publishing and consulting firm
specializing in international finance. Mr. Unterbrink had been, from May 1982 to
December 1994, President and Treasurer of Seahorse Ltd., a leasing and
publishing company.
PAULA BERLINER was a Vice President of the Company from June 1992 until
December 1998, and, since May 1990, has been a private investor residing in
Florida. She is presently a director of Republic Security Financial Corp., a
holding company for Republic Securities Bank.
RONALD J. MANGANIELLO has been a principal in the merchant banking firm
of New Canaan Capital LLC, since January 1996. Since July 1996 he has been a
principal of Sylhan LLC. From 1986 to January 1996, Mr. Manganiello was Chairman
and Chief Executive Officer of Hanger Orthopedic Group, Inc., a publicly-traded
provider of patient care services and products for orthotic and prosthetic
rehabilitation.
There are no family relationships between any executive officers or
directors of the Company.
Section 16(a) Compliance
The Company is aware of the following late filing of a report required
by Section 16(a) of the Exchange Act: Edward N. Epstein failed to file, on a
timely basis, a Statement of Changes in Beneficial Ownership on Form 4. This
filing was subsequently completed on the appropriate form.
ITEM 10. Executive Compensation
Summary Compensation Table
The following table sets forth information for the fiscal years ended
December 31, 1999, December 31, 1998 and December 31, 1997, respectively,
respecting compensation earned by the Chief Executive Officer of the Company and
the executive officers (whose salary and bonus earned in fiscal 1999 exceeded
$100,000) of the Company serving at the end of fiscal 1999 (the "Named
Executives").
Long-Term
Annual Compensation(1) Compensation
---------------------- ------------
Securities
Name and Underlying
Principal Position Year Salary($) Bonus($) Options(#)(2)
- ------------------- ---- --------- -------- -------------
Stephen A. Ollendorff 1999(3) $250,543(4) -0- --
Chairman and Chief 1998(3) $246,597 -0- --
Executive Officer 1997(3) $254,615(5) -0- 50,000
7
<PAGE>
Long-Term
Annual Compensation(1) Compensation
---------------------- ------------
Securities
Name and Underlying
Principal Position Year Salary($) Bonus($) Options(#)(2)
- ------------------- ---- --------- -------- -------------
Edward N. Epstein 1999 $216,192(4) -0- --
President and Chief 1998 $212,787 -0- --
Operating Officer 1997 $182,090(5) -0- --
Robert P. Freeman 1999 $203,353 $ 50,000 --
President and Chief 1998 $197,830 $ 50,000 --
Executive Officer - 1997 $215,920 $ 95,673 50,000
Recticon Enterprises,
Inc.
(1) No officer received perquisites which, are in the aggregate, greater
than or equal to the lesser of $50,000 or 10% of annual salary and bonus.
(2) Represents options awarded under the 1991 Stock Option Plan.
(3) Mr. Ollendorff has voluntarily assumed responsibility for rent and
secretarial expenses relating to the New York office. Mr. Ollendorff does
not receive any fringe benefits from the Company.
(4) Effective November, 1999 Messrs. Ollendorff and Epstein voluntarily
reduced by 50% their cash compensation received from the Company. Includes
the unpaid balance of $29,879 and $18,016 for Messrs. Ollendorff and
Epstein, respectively, reflecting the amounts being accrued on the books
of the Company.
(5) As a result of an agreement between Messrs. Epstein and Ollendorff, Mr.
Ollendorff voluntarily reduced his annual compensation by $24,280,
effective July 1997, in order to increase Mr. Epstein's annual
compensation for 1997 by $24,280. See "Employment Arrangements" below.
The Company does not have any annuity, retirement, pension, deferred or
incentive compensation plan or arrangement under which any executive officers
are entitled to benefits, nor does the Company have any long-term incentive plan
pursuant to which performance units or other forms of compensation are paid.
Executives who qualify are permitted to participate in the Company's 1991 Stock
Option Plan.
Stock Option Grants In Last Fiscal Year
During the fiscal year ended December 31, 1999, there were no stock
option grants or stock appreciation rights granted to the Named Executives or
any other stock appreciation rights.
On March 2, 1998 the Stock Option and Compensation Committee authorized
the further amendment to certain of the Company's outstanding stock options
(which had previously been amended on November 22, 1994). In exchange for each
optionee agreeing to an increase in the exercise price in the event of a "change
of control" from $1.406 to $3.13 (equal to the "fair market value" of the
Company's Common Stock on March 2, 1998), the Company would expand the
definition of "change of control" to include the merger, sale or liquidation of
the business as set forth in (iv) below. The amended and expanded definition of
"change of control" would occur in the following circumstances: (i) the first
8
<PAGE>
purchase of shares of equity securities of the Company pursuant to a tender
offer or exchange offer (other than an offer by the Company) for 25% or more of
the equity securities of the Company, which offer has not been approved by the
Board of the Company, (ii) a single purchaser or a group of associated
purchasers acquiring, without the approval or consent of the Board of the
Company, securities of the Company representing 25% or more of the combined
voting power of the Company's then outstanding securities in one or a related
series of transactions, (iii) in respect of an election of directors by the
Company's stockholders, the election of any or all of the management's slate of
directors being contested or opposed, whether through a solicitation of proxies,
or otherwise, or (iv) on the day the stockholders of the Company approve (A) a
definitive agreement for the merger or other business combination of the Company
with or into another corporation pursuant to which the stockholders of the
Company do not own, immediately after the transaction, more than 50% of the
voting power of the corporation that survives and is a publicly owned
corporation and not a subsidiary of another corporation, or (B) a definitive
agreement for the sale, exchange, or other disposition of all or substantially
all of the assets of the Company, or (C) any plan or proposal for the
liquidation or dissolution of the Company. As of March 27, 2000, no such "change
of control" has occurred.
On November 7, 1996, the Board of Directors authorized the Company to
loan moneys to officers and employees of the Company in order to encourage them
to exercise their stock options. The term of such loans would be for the shorter
of ten years or 60 days after termination of employment of the officer or
employee, interest would accrue and be payable monthly on the principal, at the
prevailing rate applicable to 90-day treasury bills at the time the loan is
made, and the loan would be collateralized at all times, which collateral
(subject to applicable law) may include shares of the Company. The loans must be
collateralized so that the fair market value of the collateral would have to
equal or exceed the principal outstanding amount of the loan at all times. As of
March 27, 2000, no such loans to officers or employees have been made by the
Company.
Year-End Option Values Table
The following table sets forth information at December 31, 1999
respecting exercisable and non-exercisable options held by the Named Executives.
During the fiscal year ended December 31, 1999, the Named Executives did not
exercise any stock options. The table also includes the value of "in-the-money"
stock options which represents the spread between the exercise prices of the
existing stock options and the year-end price of the Common Stock.
Number of Unexercised Value of Unexercised In-
Options Held the-Money Options
at December 31, 1999(1) Held at December 31, 1999(1)
-------------------------- ----------------------------
Not Not
Name Exercisable Exercisable Exercisable Exercisable
- ---- ----------- ----------- ----------- -----------
Stephen A.
Ollendorff 120,000 -0- $-0- $-0-
Edward N.
Epstein 48,000 -0- $-0- $-0-
Robert P.
Freeman 40,000 -0- $-0- $-0-
- ----------------
(1) Based upon the closing sales price of the Common Stock on December 31, 1999:
$1.75.
9
<PAGE>
Compensation of Directors
Effective December 1998 directors who are not executive officers of the
Company are compensated for their services by payment of an annual retainer of
$12,000, $1,000 per day for each Board meeting attended in person by such
director and $750 per day for each committee meeting attended in person by such
director. Pursuant to existing contractual commitments, Mr. Sager and Mrs.
Berliner are each entitled as consultants to receive $24,000 per year,
including directors' fees, for a minimum three-year period, which has been
renewed by its terms.
Employment Arrangements
The Company has entered into an employment agreement, for a minimum
three-year period, which has been renewed by its terms, with Stephen A.
Ollendorff, pursuant to which Mr. Ollendorff receives annual compensation of
$250,000, subject to annual cost-of-living adjustments, from the Company. On
January 17, 1996, Mr. Ollendorff's employment agreement was amended in order to
clarify certain terms and conditions, including the geographic location in which
services are to be provided, events of termination and his obligations with
respect to confidential information, non-solicitation of employees and covenants
not to compete. Mr. Ollendorff agrees to devote such time to the business and
affairs of the Company as he believes is necessary for the operations of the
Company. In addition, Mr. Ollendorff has voluntarily assumed responsibility for
rent and secretarial expenses relating to the Company's New York office. Mr.
Ollendorff receives no fringe benefits from the Company.
Effective January 1, 1997, Mr. Ollendorff receives a salary of
$120,000 per year as Chairman of the Board of Recticon Enterprises, Inc.
("Recticon"), which amount is paid by the Company from the amounts paid by
Recticon to the Company each month. In addition, Recticon rents office space in
Mr. Ollendorff's New Jersey office and pays rent directly to Mr. Ollendorff
directly for such space in the amount of $500 per month. Any amounts received by
Mr. Ollendorff from Recticon as rent and/or salary are deducted from his salary
from the Company to the extent and as long as he receives such monies from
Recticon.
The Company entered into an employment agreement with Edward N.
Epstein, effective January 1, 1996, for a three year period, which has been
renewed by its terms, on a year-to-year basis, through December 31, 2000 at an
annual compensation of $150,000, subject to cost-of-living adjustments. Mr.
Epstein agrees to devote such time to the business and affairs of the Company as
he believes is necessary for the operations of the Company.
As a result of an agreement between Messrs. Epstein and Ollendorff,
Mr. Ollendorff voluntarily reduced his annual compensation by $24,280, effective
July 1997, in order to increase Mr. Epstein's annual compensation for 1997 by
$24,280. Mr. Ollendorff has agreed not to accept any increased compensation
(other than cost-of-living increases) until Mr. Epstein's annual compensation
shall be equal to Mr. Ollendorff's.
Robert P. Freeman, President and Chief Executive Officer of Recticon,
entered into a letter agreement with Recticon as of February 15, 1995, which
provides that if, within one (1) year of a "change of control" (as defined in
the agreement) of Recticon, his employment is terminated without cause by
Recticon, or he resigns because of (i) assignment, without his written consent,
of any duties inconsistent with his position, duties, responsibilities and
status with Recticon, or change in his reported responsibilities, titles of
offices or any plan, act, scheme or design to constructively terminate him, or
(ii) reduction by Recticon of his annual base salary, he shall receive the
following benefits: (i) annual base salary through the date of termination; (ii)
in lieu of any further salary payments, severance pay on the tenth business day
following the date of termination, a lump sum equal to two times his annual base
salary; and (iii) if Mr. Freeman terminates his employment with Recticon between
the first and second year of a change of control for any reason other than "for
10
<PAGE>
cause", Recticon will pay him the amount he would have been paid if he had
remained employed through the end of the second year of a change of control, but
in no event less than an amount equal to six months of base salary. In addition,
Recticon will maintain all medical, health and accident plans for a period of
the earlier of (i) 24 months or (ii) the date of which he is covered by reason
of his being employed by a new employer. In addition, the Board of Directors of
Recticon authorized an annual bonus to Mr. Freeman equal to 5% of the operating
profit of Recticon, prior to the payment of bonuses and without giving effect to
the account supply commitment fees, corporate charges, executive compensation
and consulting fees, but no less than $50,000 through the year 2000.
ITEM 11. Security Ownership of Certain Beneficial Owners and
Management
Security Ownership of Certain Beneficial Owners
The following table sets forth, as of the close of business on March
15, 1999, information as to those stockholders (other than members of the
Company's management), which is known by the Company to beneficially own more
than 5% of its outstanding Common Stock.
No. of Shares
Name and Address Beneficially Percentage
of Beneficial Owner Owned(1) of Class
- -------------------- ------------- ----------
Estate of Herbert Berman(2) 113,200 7.0%
405 Lexington Avenue
New York, NY 10174
Allen Landers, M.D.
1385 York Avenue
New York, NY 10021 101,520 6.3%
- ---------------
(1) Beneficial ownership, as reported in the above table, has been determined
in accordance with Rule 13d-3 under the 1934 Act. Unless otherwise
indicated, beneficial ownership includes both sole voting and sole
dispositive power.
(2) Excludes shares of Common Stock owned by the adult children of the late
Herbert Berman.
Ownership by Management
The following table sets forth, as of March 15, 2000, the
beneficial ownership of the Common Stock of the Company of (i) each director
(including the Named Executives) of the Company, and (ii) all directors and
executive officers of the Company as a group (based upon information furnished
by such persons). Under the rules of the Commission, a person is deemed to be a
beneficial owner of a security if he has or shares the power to vote or direct
the voting of such security or the power to dispose or direct the disposition of
such security. Accordingly, more than one person may be deemed to be a
beneficial owner of the same securities. A person is also deemed to be a
beneficial owner of any securities of which that person has the right to acquire
beneficial ownership within 60 days.
11
<PAGE>
Amount and Nature Percentage of
Name and Address of of Beneficial Outstanding
Beneficial Owner(1) Ownership Shares Owned
------------------- ----------------- -------------
Bert Sager 171,250 10.6%
(3)(4)
Stephen A. Ollendorff 606,980 34.9%
(5)(6)
Edward N. Epstein 387,500 23.3%
(4)(5)(7)
Paula Berliner 67,320 4.09%
(4)
Robert P. Freeman 56,000 3.38%
(4)
Ronald J. Manganiello 66,578 4.57%
(8)
All executive officers and 1,036,056 53.0%
directors as a group (7 persons) (3)(4)(5)
(6)(7)(8)
- -------------------
* Less than 1%
(1) Unless otherwise indicated, the address of all the Company's directors
and executive officers is c/o the Company's principal executive offices
at 1251 Avenue of the Americas, 45th Floor, New York, NY 10020-1104.
(2) A person is deemed to be the beneficial owner of voting securities that
can be acquired by such person within 60 days from March 15, 2000 upon
the exercise of options, warrants or convertible securities. Each
beneficial owner's percentage ownership is determined by assuming that
convertible securities, options or warrants that are held by such person
(but not those held by any other person) and which are exercisable
within 60 days of the Record Date have been exercised. Unless otherwise
noted, the Company believes that all persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock beneficially owned by them.
(3) Does not include 80 shares of Common Stock owned by Mr. Sager's spouse,
as sole trustee of a trust formed by Mrs. Sager's mother, as to which
Mr. Sager disclaims beneficial ownership
(4) Includes the following shares that may be acquired upon exercise of
options within 60 days from March 15, 1999: Mr. Sager - 64,000; Mr.
Ollendorff - 20,000; Mr. Epstein - 48,000; Ms. Berliner - 28,000; Mr.
Freeman - 40,000; and all directors and executive officers as group (7
persons) 336,000.
(5) Stephen A. Ollendorff, Chairman of the Board, Chief Executive Officer
and Secretary of the Company, has entered into an Irrevocable Proxy and
Voting Agreement with Respect to Election of Directors dated December
19, 1995 with Edward N. Epstein, President of the Company, with respect
to 387,500 shares of Common Stock beneficially owned by Mr. Epstein. See
"Certain Relationship and Related Transactions." Accordingly, Mr.
Ollendorff's beneficial ownership includes such shares. Other than as
set forth above, Mr. Ollendorff disclaims beneficial ownership of such
shares.
(6) Includes 400 shares owned by Mr. Ollendorff's spouse.
(7) Includes shares owned by Mr. Epstein as trustee for his minor child.
(8) Includes shares owned by Mr. Manganiello's spouse and by Mr. Manganiello
as trustee for his children.
12
<PAGE>
ITEM 12. Certain Relationships and Related Transactions
Mr. Ollendorff, Chief Executive Officer of the Company, was of counsel
to Hertzog, Calamari & Gleason, general counsel to the Company, through January
31, 1999. Effective February 1, 1999, the Company no longer retains counsel who
are affiliated with Mr. Ollendorff.
Mr. Ollendorff has entered into an Irrevocable Proxy and Voting
Agreement With Respect to Election of Directors (the "Proxy"), with Edward N.
Epstein, with respect to the shares of Common Stock beneficially owned by Mr.
Epstein (the "Stock"), commencing on December 19, 1995 and terminating on
December 31 of such year in which either party shall have given the other party
at least twelve (12) months' written notice thereof prior to December 31 of such
year. If any shares of the Stock covered by the Proxy are sold to any other
party, the Proxy as it relates to such shares of Stock shall terminate
immediately upon such sale. Pursuant to the Proxy, Mr. Ollendorff undertakes to
vote the Stock, as well as use his best efforts (including voting shares of
stock of the Company owned by him) for the election of the greater of (i) two
(2) directors or (ii) a number of directors equal to 22% (rounded up to the next
highest number) of the entire Board of Directors, acceptable to Mr. Epstein. Mr.
Epstein had designated himself and Ronald J. Manganiello to Mr. Ollendorff with
respect to the election of members of the Board as acceptable to him.
ITEM 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Certificate of Incorporation as filed and recorded with the
Secretary of State of Delaware, as amended - incorporated by reference to
Exhibit 3.1 to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997.
3.3 By-laws, as amended, effective November 7, 1996 - incorporated
by reference to Exhibit 3 to the Company's Quarterly Report on Form 10-QSB for
the quarter ended September 30, 1996.
10.1 Employment Agreement dated August 31, 1993, between the Company
and Stephen A. Ollendorff - incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement on Form N-2 (No. 33-69610) filed with the
Commission on September 19, 1993.
10.2 Agreement dated October 31, 1991 between the Company and Larry
V. Unterbrink - incorporated by reference to Exhibit 10.3 to the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1991.
10.3 1991 Stock Option Plan, as amended - incorporated by reference to
Exhibit 10.7 to the Company's Registration Statement on Form N-2 (No. 33-69610)
filed with the Commission on September 29, 1993.
10.4 Purchase and Settlement Agreement, dated as of April 8, 1994, by
and among ServiceMax, ServiceMax Tire and Auto Centers of Michigan, Inc., the
Company, Stephen A. Ollendorff, Orland Wolford, Bert Sager, Donald R. Nance, C.
James Sabo, Richard A. Sabo and Robert L. Sabo - incorporated by reference to
Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993.
10.5 Amendment No. 1 to Employment Agreement, dated as of January 17,
1996, by and between the Company and Stephen A. Ollendorff - incorporated by
reference to Exhibit 10.7 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995.
13
<PAGE>
10.6 Employment Agreement, dated as of January 17, 1996, by and between
the Company and Edward N. Epstein - incorporated by reference to Exhibit 10.8 to
the Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1995.
10.7 Amendment No. 1 to Employment Agreement, dated as of January 17,
1996, by and between the Company and Larry V. Unterbrink - incorporated by
reference to Exhibit 10.10 to the Company's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995.
10.8 Asset Purchase Agreement, dated May 30, 1997, by and among Morgan
Tire & Auto, Inc., the Company and Automotive Industries, Inc. - incorporated by
reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated June
9, 1997.
10.9 Assumption Agreement, dated May 30, 1997, by and among Morgan Tire
& Auto, Inc., the Company and Automotive Industries, Inc. - incorporated by
reference to Exhibit 2.2 to the Company's Current Report on Form 8-K dated June
9, 1997.
10.10 Letter Agreement, dated as of February 15, 1995, between Robert
P. Freeman and Recticon - incorporated by reference to Exhibit 10-13 to the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1997.
21 List of subsidiaries of the Company.
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 December 31, 1999.
14
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ACORN HOLDING CORP.
(Registrant)
Dated: March 29, 2000 By: Stephen A. Ollendorff
---------------------------------
Stephen A. Ollendorff, Chairman
of the Board and Chief Executive
Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
Stephen A. Ollendorff Chairman of the Board March 29, 2000
- ------------------------ Chief Executive Officer
Stephen A. Ollendorff (Principal Executive
Officer), Secretary
and Director
Edward N. Epstein President and Chief March 29, 2000
- ------------------------ Operating Officer;
Edward N. Epstein Director
Larry V. Unterbrink Treasurer (Principal March 29, 2000
- ------------------------ Financial and Accounting
Larry V. Unterbrink Officer)
Paula Berliner Director March 29, 2000
- ------------------------
Paula Berliner
Ronald J. Manganiello Director March 29, 2000
- ------------------------
Ronald J. Manganiello
Bert Sager Director March 29, 2000
- ------------------------
Bert Sager
15
<PAGE>
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ACORN HOLDING CORP. AND SUBSIDIARIES
December 31, 1999 and 1998
F-1
<PAGE>
C O N T E N T S
Page
ACORN HOLDING CORP. AND SUBSIDIARIES
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS F-4
CONSOLIDATED STATEMENTS OF OPERATIONS F-5
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY AND COMPREHENSIVE INCOME (LOSS) F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8
F-2
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
Acorn Holding Corp.
We have audited the accompanying consolidated balance sheets of Acorn
Holding Corp. and Subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, changes in stockholders' equity and
comprehensive income (loss) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provides a reasonable basis for our opinions.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Acorn
Holding Corp. and Subsidiaries as of December 31, 1999 and 1998, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
Philadelphia, Pennsylvania
March 17, 2000
F-3
<PAGE>
Acorn Holding Corp. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 1999 1998
----------- -----------
CURRENT ASSETS
Cash and cash equivalents $ 956,357 $ 1,126,838
Restricted cash - 11,798
Investment securities 208,601 668,439
Accounts receivable - trade 355,259 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 2,073,308 2,055,827
Prepaid expenses 20,482 22,337
Deferred income tax asset 121,770 70,881
----------- -----------
Total current assets 3,886,013 4,191,172
----------- -----------
MACHINERY AND EQUIPMENT, net of accumulated
depreciation of $1,016,755 and $720,055
in 1999 and 1998, respectively 1,832,326 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 of $641,477
and $555,947 in 1999 and 1998, respectively 213,827 299,357
Deferred income tax asset 1,544,542 1,322,583
----------- -----------
1,807,477 1,821,284
$ 7,525,816 $ 7,991,199
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ 150,000 -
Current maturities of long-term debt 121,062 121,062
Accounts payable 138,257 20,157
Accrued expenses
Salaries and bonuses 136,144 86,688
Other 39,820 40,333
Machine purchase deposit liability - 11,798
Deferred income 300,000 300,000
----------- -----------
Total current liabilities 885,283 580,038
----------- -----------
LONG-TERM DEBT, less current maturities - 121,061
----------- -----------
DEFERRED INCOME 225,000 525,000
----------- -----------
DEFERRED INCOME TAX LIABILITY 206,800 -
COMMITMENTS - -
STOCKHOLDERS' EQUITY
Common stock 16,280 40,684
Additional paid-in capital 11,847,853 11,823,449
Accumulated deficit (5,635,154) (5,083,839)
Accumulated other comprehensive income (loss) (20,246) (15,194)
----------- -----------
Total stockholders' equity 6,208,733 6,765,100
----------- -----------
$ 7,525,816 $ 7,991,199
=========== ===========
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Acorn Holding Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
1999 1998
----------- -----------
Net sales $ 4,281,949 $ 6,967,176
----------- -----------
Costs and expenses
Cost of sales 3,453,085 5,098,572
Selling, general and administrative 1,519,379 1,662,802
----------- -----------
4,972,464 6,761,374
Operating profit (loss) (690,515) 205,802
----------- -----------
Other income (expense)
Gain on sale of fixed assets -- 18,000
Loss on investment (11,763) (4,696)
Interest income, net 84,451 42,232
----------- -----------
72,688 55,536
----------- -----------
Income (loss) before income taxes
(benefit) expenses (617,827) 261,338
Income tax (benefit) expenses (66,512) 97,493
----------- -----------
Net income (loss) $ (551,315) $ 163,845
=========== ===========
Earnings (loss) per share (basic and diluted) $ (0.34) $ 0.10
=========== ===========
Weighted average shares outstanding 1,628,002 1,671,817
=========== ===========
F-5
The accompanying notes are an integral part of these statements.
<PAGE>
Acorn Holding Corp. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Accumulated
Additional other
Common paid-in Accumulated comprehensive Treasury
stock capital deficit income (loss) stock Total
------------ ------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $ 55,389 $ 14,090,156 $ (5,247,684) $ -- $ (13,950) $ 8,883,911
Comprehensive income (loss)
Net income -- -- 163,845 -- -- 163,845
Other comprehensive income
(loss), net of reclassi-
fication adjustments and
taxes -- -- -- (15,194) -- (15,194)
------------
Total comprehensive income 148,651
------------
Treasury shares purchased -- -- -- -- (2,267,462) (2,267,462)
Retirement of treasury stock (14,705) (2,266,707) -- -- 2,281,412 --
------------ ------------ ------------ ------------- ------------ ------------
Balance at December 31, 1998 40,684 11,823,449 (5,083,839) $ (15,194) -- 6,765,100
=============
Five for two reverse stock split (24,404) 24,404 -- -- -- --
Comprehensive income (loss)
Net loss -- -- (551,315) $ -- -- (551,315)
Other comprehensive income
(loss), net of reclassi-
fication adjustments and taxes (20,246) (20,246)
------------
Total comprehensive income
(loss) -- -- -- -- -- (571,561)
------------ ------------ ------------ ------------- ------------ ------------
Balance at December 31, 1999 $ 16,280 $ 11,847,853 $ (5,635,154) $ (20,246) $ -- $ 6,208,733
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
Acorn Holding Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
1999 1998
----------- -----------
Cash flows from operating activities
Net income (loss) $ (551,315) $ 163,845
Adjustments to reconcile net income
(loss) to net cash (used in)
provided by operating activities
Realized loss on investment (11,763) --
Depreciation and amortization 382,230 343,210
Deferred income taxes (66,519) 91,536
Gain on sale of assets -- (18,000)
(Increase) decrease in assets
Accounts receivable (270,442) 345,076
Inventories (17,481) 450,936
Prepaid expenses and other assets 2,326 74,069
Increase (decrease) in liabilities
Accounts payable 118,100 (283,317)
Accrued expenses 48,943 (86,498)
Deferred income (300,000) (424,986)
----------- -----------
Net cash (used in) provided
by operating activities (665,921) 655,871
----------- -----------
Cash flows from investing activities
Purchase of machinery and equipment (150,283) (529,600)
Purchase of investments -- 303,946
Proceeds from sale of machinery
and equipment -- 8,000
Proceeds from redemption of
investments 466,548 --
Note receivable proceeds 150,236 184,618
----------- -----------
Net cash provided by
(used in) investing activities 466,502 (23,036)
----------- -----------
Cash flows from financing activities
Proceeds from line of credit, net 150,000 --
Payment of long-term debt and
capital lease (121,062) (121,061)
Purchase of treasury stock -- (2,267,462)
----------- -----------
Net cash provided by
(used in) financing activities 28,938 (2,388,523)
----------- -----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (170,481) (1,755,688)
Cash and cash equivalents at
beginning of year 1,126,838 2,882,526
----------- -----------
Cash and cash equivalents at end of year $ 956,357 $ 1,126,838
=========== ===========
Supplemental disclosure of cash flow
information
Interest paid $ 16,985 $ 26,060
=========== ===========
Retirement of treasury stock $ -- $ 2,281,412
=========== ===========
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
Acorn Holding Corp. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - ORGANIZATION AND PURPOSE
Acorn Holding Corp. (Acorn) was incorporated under the laws of the State of
Delaware on September 8, 1983.
Acorn is a holding company for its wholly-owned subsidiaries, Automotive
Industries, Inc. (Automotive) and Recticon Enterprises, Inc. (Recticon).
Automotive is an inactive subsidiary.
Recticon is organized to engage in the business of manufacturing and
processing of silicon wafers for the semi-conductor industry.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Principles of Consolidation
The consolidated financial statements include the accounts of Acorn and its
wholly owned subsidiaries.
2. Use of Estimates
In preparing the financial statements in accordance with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and revenues and expenses during the reported period. Actual
results could differ from those estimates.
3. Concentration of Risk
The subsidiaries provide their products to customers throughout the United
States. The subsidiaries perform ongoing credit evaluations of their
customers' financial condition and generally require no collateral from
their customers. Bad debt expense is not significant.
4. Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments with
a maturity of three months or less when purchased.
5. Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
the first-in, first-out method.
6. Machinery and Equipment
Machinery and equipment are stated at cost less accumulated depreciation.
Depreciation is provided by the straight-line method over estimated useful
lives. Maintenance and repair costs are charged to expense as incurred.
(Continued)
F-8
<PAGE>
Acorn Holding Corp. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
7. Deferred Income
Deferred income is an amount received from customers in exchange for
Recticon's commitment to provide certain quantities of product over periods
extending until September 2001. The deferred amounts are amortized on a
straight-line basis over the terms of the agreements.
8. Income Taxes
Deferred income tax assets and liabilities represent the tax effects, based
on current tax law, of future deductible or taxable amounts attributable to
events that have been recognized in the financial statements. Income tax
expense represents taxes payable, net of changes in deferred income tax
assets and liabilities during the year. Acorn files a consolidated federal
income tax return which includes the subsidiaries' taxable income. Under
Acorn's tax-sharing agreement with its subsidiaries, the subsidiaries are
required to pay to Acorn an amount equivalent to what it would have paid had
it filed a separate company federal income tax return and the subsidiaries'
tax losses may be offset against future years' amounts payable to Acorn.
9. Earnings Per Share
The Company follows Statement of Financial Accounting Standards (SFAS) No.
128, Earnings Per Share, which eliminates primary and fully diluted earnings
per share (EPS) and requires presentation of basic and diluted EPS in
conjunction with the disclosure of the methodology used in computing such
EPS. Basic EPS excludes dilution and is computed by dividing income
available to common shareholders by the weighted average common shares
outstanding during the period. Diluted EPS 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.
10. Goodwill
Goodwill represents the excess of cost over the fair value of the net assets
acquired for the purchase of Recticon. This excess is being amortized over a
period of 10 years.
11. Comprehensive Income
The Company follows SFAS No. 130, Reporting Comprehensive Income. SFAS No.
130 establishes standards to provide prominent disclosure of comprehensive
income items. Comprehensive income is the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from non-owner sources. Other comprehensive income consists of
net unrealized gains on investment securities available for sale.
12. Investments
The Company accounts for its investments in accordance with SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
Accordingly, the Company classifies its investments as available-for-sale,
whereby net unrealized gains and losses, net of tax, are required to be
recognized as a separate component of stockholders' equity.
F-9
<PAGE>
Acorn Holding Corp. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE C - RESTRICTED CASH
Recticon has entered into agreements with customers and has purchased
machinery consisting of crystal growing and wafer finishing units. The
customers have provided cash to Recticon for the purchase and construction
of the units. Title of all machinery and equipment purchased is in the name
of the customers. Amounts received and not utilized are refundable. At the
conclusion of the contracts with these customers, title to the machinery
will be given to Recticon for a nominal sum.
NOTE D - INVESTMENT SECURITIES
The amortized cost, unrealized gains and losses, and fair market value of
the Company's available-for-sale investment securities at December 31, 1999
and 1998 are:
1999
----
Gross Gross Fair
Amortized unrealized unrealized market
cost gain loss value
--------- ---------- ---------- ---------
U.S. government and agency $ - $ - $ - $ -
State and municipal obligations 228,847 - (20,246) 208,601
---------- ---------- --------- ----------
$ 228,847 $ - $(20,246) $ 208,601
========== ========== ========= ==========
1998
----
Gross Gross Fair
Amortized unrealized unrealized market
cost gain loss value
--------- ---------- ---------- ---------
U.S. government and agency $ 5,943 $ 82 $ - $ 6,025
State and municipal obligations 677,690 - (15,276) 662,414
---------- ---------- --------- ----------
$ 683,633 $ 82 $ (15,276) $ 668,439
========== ========== ========= ==========
The following table lists the contractual maturities of investments:
Fair
Amortized market
cost value
After ten years $ 228,847 $ 208,601
---------- ----------
$ 228,847 $ 208,601
========== ==========
F-10
<PAGE>
Acorn Holding Corp. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE E - INVENTORIES
Inventories consist of the following:
1999 1998
--------------- --------------
Raw materials and supplies $ 778,530 $ 961,333
Work in process 1,147,304 943,134
Finished goods 147,474 151,360
----------- -----------
$ 2,073,308 $ 2,055,827
=========== ==========
NOTE F - CREDIT ARRANGEMENTS
Recticon has available a $750,000 revolving line of credit which is due on
demand. Interest is payable monthly at the prime rate (8.5% at December 31,
1999). The line is available through April 30, 2000, and is secured by
Recticon's assets and is guaranteed by Acorn. At December 31, 1999, there
was $600,000 available under the line of credit.
NOTE G - LONG-TERM DEBT
Recticon has long-term debt consisting of the following:
1999 1998
--------------- --------------
Term loan at 8.25% interest per annum;
principal payable in 48 monthly
installments of $10,088, with final
payment due December 30, 2000;
secured by Recticon's assets $ 121,062 $ 242,123
Less current maturities 121,062 121,062
---------- ----------
$ - $ 121,061
========== ==========
NOTE H - DEFERRED INCOME
Recticon received nonrefundable payments of $2,300,000 from customers in
exchange for its commitment to provide certain quantities of product over
periods extending until September 2001. The payments received have been
recorded as deferred income and are being amortized over the periods of the
contracts. The sales price of the product to be delivered under the
agreements is permitted to provide a gross profit not to exceed 35%. The
customers are not required to purchase any amount of product under the
agreements.
Annual recognition of deferred income is as follows:
Year ending December 31,
2000 $ 300,000
2001 225,000
----------
$ 525,000
===========
F-11
<PAGE>
Acorn Holding Corp. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE I - INCOME TAXES
The Company depreciates its machinery and equipment for income tax purposes
at rates which vary from those used for financial reporting purposes. In
addition, the Company has reported certain income for tax purposes which is
being recognized over a period of years for financial statement purposes
(note H).
The income tax provision consists of the following:
1999 1998
--------------- --------------
Current
Federal $ - $ -
State - 8,286
Deferred
Federal (66,512) 89,207
State - -
------------- --------------
$ (66,512) $ 97,493
============= ==============
Deferred tax assets (liabilities) consist of the following:
1999 1998
--------------- --------------
Net operating loss carryforwards $ 2,290,000 $ 2,013,000
Depreciation (206,000) (174,000)
Deferred income 214,000 334,000
Carrying value of assets 293,000 332,000
Note receivable 192,000 192,000
Other 73,000 93,464
----------- -----------
2,856,000 2,790,464
Less valuation allowance 1,397,000 1,397,000
----------- -----------
$ 1,459,000 $ 1,393,464
=========== ===========
A valuation allowance has been established against the deferred tax assets
of net operating loss carryforwards due to separate return limitations that
are applicable to $1,397,000 of net operating losses.
The income tax provision reconciled to the tax computed at the statutory
federal rate was as follows:
1999 1998
------------- -----------
Tax at statutory federal rate - % 34.0%
State income taxes, net of federal benefits - 3.3
Net operating losses - -
Other - -
-------- ---------
- % 37.3%
======== =======
F-12
<PAGE>
Acorn Holding Corp. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE J - COMMITMENTS
Recticon leases its facilities under a lease agreement which expires on
February 28, 2009. Minimum lease payments are as follows:
Year ending December 31,
2000 $ 96,000
2001 116,000
2002 120,000
2003 120,000
Thereafter 656,000
-----------
$ 1,108,000
===========
NOTE K - CONCENTRATIONS
Three customers accounted for 46%, 31% and 4% of sales in 1999 and 53%, 15%
and 5% of sales in 1998.
For 1999 and 1998, one vendor accounted for 7% and 13% of materials
purchases, respectively.
Acorn and its subsidiaries maintain cash balances at financial institutions,
mutual funds and brokerage accounts located throughout the United States.
Accounts with financial institutions are insured by the Federal Deposit
Insurance Corporation up to $100,000. Acorn believes it is not exposed to
any significant credit risk on cash and cash equivalents.
NOTE L - RELATED PARTY TRANSACTIONS
During 1999, Acorn and its subsidiaries paid a law firm, of which the
Company's Chief Executive Officer and Chairman was of counsel, approximately
$5,200 for reimbursement of expenses.
During 1998, Acorn and its subsidiaries paid a law firm, of which the
Company's Chief Executive Officer and Chairman was of counsel, approximately
$116,000 for services rendered, including reimbursement of expenses.
For the year ended December 31, 1999, Acorn paid consulting fees totalling
$48,000 to two of its former Officers (currently Directors).
Directors fees expense for the years ended December 31, 1999 and 1998 were
$12,000 and $11,000, respectively.
F-13
<PAGE>
Acorn Holding Corp. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE M - EARNINGS PER SHARE
The Company's calculation of earnings per share in accordance with SFAS No.
128 is as follows:
Income (loss) Number of Shares
(numerator) (denominator) Per share amount
-------------------- -------------------- ----------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Basic EPS
Net income (loss) $(551,315) $163,845 1,628,002 1,671,817 $(0.34) $ 0.10
========== ======== ========= ========= ======= =======
Diluted EPS is not presented, as the effect of dilutive securities,
consisting of options, has no impact.
In 1999, all of the 360,000 options outstanding to purchase common stock
with an exercise price ranging from $2.19 to $8.44, were not included in
the computation of diluted EPS because the option exercise price was greater
than the average market price.
In 1998, of the total 360,000 options outstanding, options to purchase
288,000 shares of common stock ranging from $2.27 to $8.44 per share, were
outstanding during the year. They were not included in the computation of
diluted EPS because the option exercise price was greater than the average
market price.
NOTE N - STOCK OPTIONS
The Company has issued stock options to various officers of the Company. The
stock options were issued at fair value as of the date of grant and have a
term of 10 years from the date of grant. The following is a summary of stock
options outstanding at December 31, 1999 and 1998:
1999 1998
------------------------ ----------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
------- --------- ------ --------
Outstanding at
January 1, 360,000 $ 4.59 360,000 $ 4.58
Granted - - 24,000 2.27
Cancelled - - (24,000) 6.53
Outstanding at
December 31, 360,000 $ 4.59 360,000 $ 4.59
======= =======
Options exercisable at
December 31, 360,000 $ 4.59 360,000 $ 4.59
======= =======
(Continued)
F-14
<PAGE>
Acorn Holding Corp. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE N - STOCK OPTIONS - Continued
The following table summarizes information about stock options outstanding
at December 31, 1999:
Options outstanding and exercisable
-------------------------------------------------
Weighted Weighted
Range of remaining average
exercise price Shares contractual life exercise price
-------------- ---------- ---------------- --------------
1999
----
$ 8.44 52,000 1 year $ 8.44
$ 4.60 - 5.48 176,000 3 years 4.77
$ 2.90 20,000 4 years 2.90
$ 2.19 48,000 5 years 2.19
$ 3.95 40,000 7 years 3.95
$ 2.27 24,000 8 years 2.27
-----------
360,000
===========
The stock option agreements, as amended on March 2, 1998, state that
outstanding options can be exercised at a price of $3.125 in the event of a
"change in control," as defined in the agreements. Assuming these shares
were exercised, there would be no material impact on EPS.
The Company has adopted only the disclosure provisions of SFAS No. 123. It
applies APB Opinion No. 25 and related interpretations in accounting for its
plans and does not recognize compensation expense for its stock-based
compensation plans. Had compensation cost been determined based on the fair
value of the options at the grant date consistent with SFAS No. 123, the
Company's net earnings and EPS for the years ended December 31, 1999 and
1998 would have reflected the pro forma amounts indicated below:
1999 1998
---------------- --------------
Net earnings (loss)
As reported $ (551,315) $ 163,845
Pro forma (551,315) 138,897
EPS
As reported $ (0.34) $ 0.10
Pro forma (0.34) 0.08
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related
to grants before January 1, 1998. The fair value of these options is
estimated on the date of grant using the Black-Scholes option pricing model
with the following weighted average assumptions for grants in fiscal year
1998: expected volatility of 53%, risk-free interest rate of 4.91%, and
expected life of 10 years. The weighted average fair value of options
granted during fiscal year 1998 was $2.27. There were no options granted
during fiscal year 1999.
F-15
<PAGE>
Acorn Holding Corp. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
December 31, 1999 and 1998
NOTE O - COMMON STOCK
On April 19, 1999, the Company approved a resolution to amend the Company's
certificate of incorporation to decrease the issued and outstanding common
shares and to effect a 5-for-2 reverse stock split. Earnings per share and
weighted average earnings shares outstanding for all periods and stock
option information presented have been changed to reflect the 5-for-2
reverse stock split.
At December 31, 1999, the Company had 20,000,000 shares of $0.01 par value
common stock authorized, 1,628,002 shares issued and outstanding.
At December 31, 1998, the Company had 20,000,000 shares of $0.01 par value
common stock authorized, 4,068,400 shares issued, and 2,211,963 shares
outstanding.
During 1998, the Company repurchased 584,600 shares of its common stock
through the open market. All treasury shares were retired.
NOTE P - SEGMENT INFORMATION
The Company is a holding company which owns and operates one subsidiary
which manufactures monocrystalline silicon wafers used in the
microelectronics industry. The Company considers its business to consist of
one reportable operating segment.
NOTE Q - CONTINGENCIES
The Company is involved in legal and administrative proceedings and claims
of various types during the ordinary course of business. While any
litigation contains an element of uncertainty, management does not expect
these legal matters will have a material adverse effect on the Company's
results of operations or financial position.
F-16
EXHIBIT 21 -- SUBSIDIARIES OF THE COMPANY
The following are subsidiaries of the Company, as set forth below:
State of Incorporation
Name Ownership
- ---- ----------------------
AI Liquidating Corp. Delaware
Wholly-owned subsidairy
of the Company
Recticon Enterprises, Inc. Pennsylvania
Wholly-owned subsidiary
of the Company
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ACORN HOLDING CORP. FOR THE YEAR ENDED DECEMBER 31, 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> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 956,357
<SECURITIES> 208,601
<RECEIVABLES> 505,495
<ALLOWANCES> 0
<INVENTORY> 2,073,308
<CURRENT-ASSETS> 3,886,013
<PP&E> 1,832,326
<DEPRECIATION> 1,016,755
<TOTAL-ASSETS> 7,525,816
<CURRENT-LIABILITIES> 885,283
<BONDS> 0
0
0
<COMMON> 16,280
<OTHER-SE> 6,192,453
<TOTAL-LIABILITY-AND-EQUITY> 7,525,816
<SALES> 4,281,949
<TOTAL-REVENUES> 4,281,949
<CGS> 3,453,085
<TOTAL-COSTS> 4,972,464
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (617,827)
<INCOME-TAX> (66,512)
<INCOME-CONTINUING> (551,315)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (551,315)
<EPS-BASIC> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
