Valentec Systems 10QSB 2005 Q1 Quarterly report (small business)

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB

(Mark One)

þ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005

o 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 of	(IRS Employer Identification No.)
incorporation or organization)

2618 York Avenue, Minden, LA 71055
(Address of principal executive offices)	(Zip code)
Issuer’s telephone number, including area code 318) 382-4574

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.

Yeso       Noþ

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yesþ      Noo

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: 6,997,076 shares of common stock, $.01 par value, as of November 1, 2005:

TABLE OF CONTENTS

	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. CONTROLS AND PROCEDURES
PART II
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
Certification by the Chief Executive Officer
Certification by the Chief Financial Officer
Certification by the Chief Executive Officer
Certification by the Chief Financial Officer

ACORN HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2005
(UNAUDITED)

	2005
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	255,348
Total assets	$	255,348
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	7,915
Total current liabilities		7,915
STOCKHOLDERS’ EQUITY
Common stock, $0.01 par value, 20,000,000 shares authorized, 1,573,946 shares issued and outstanding		15,739
Additional paid-in capital		11,772,377
Accumulated deficit		(11,540,683	)
Total stockholders’ equity		247,433
	$	255,348

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ACORN HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)

	March 31,
	2005			2004
Net sales	$	—		$	—
Costs of Sales		—			—
Gross (loss) profit		—			—
Selling, general and administrative		11,871			23,878
Loss from operations		(11,871	)		(23,878	)
Other income (expense)
Interest income / (expense)		1,096			356
Total Other Income (Expense)		1,096			356
Loss before income tax expense		(10,775	)		(23,522	)
Income tax expense		—			—
Net Loss	$	(10,775	)	$	(23,522	)
Loss per share (basic and diluted)	$	(0.01	)	$	(0.01	)
Weighted average shares outstanding — basic and diluted		1,573,946			1,573,946

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ACORN HOLDING CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)

	March 31,
	2005			2004
Cash flows from operating activities
Net (loss)	$	(10,775	)	$	(23,522	)
Adjustments to reconcile net (loss) to net cash (used in) operating activities
Increase (decrease) in liabilities
Accounts payable		(18,609	)		(3,415	)
Net cash used in operating activities		(29,384	)		(26,937	)
NET DECREASE IN CASH AND CASH EQUIVALENTS		(29,384	)		(26,937	)
Cash and cash equivalents at beginning of year		284,732			330,098
Cash and cash equivalents at end of year	$	255,348		$	303,161
Supplemental disclosure of cash flow information
Cash paid for interest expense	$	—		$	—

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ACORN HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005
(UNAUDITED)

NOTE 1	ORGANIZATION AND PURPOSE
	Acorn Holding Corp. (the “Company”) was incorporated under the laws of the State of Delaware on September 8, 1983. Acorn is a holding company for its wholly-owned subsidiaries, Recticon Enterprises, Inc. (Recticon) and AI Liquidating Corp. Recticon was organized to engage in the business of manufacturing and processing silicon wafers for the semiconductor industry. AI Liquidating Corp. is an inactive subsidiary.
NOTE 2	BASIS OF PRESENTATION
	Interim financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the financial position and results for the periods. The 2005 balance sheet has been derived from the audited financial statements contained in the 2004 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 accounting principles generally accepted in the United States. The results for the three months ended March 31, 2005 are not necessarily indicative of the results to be expected for the full year. Reporting developments have been updated where appropriate.
NOTE 3	ACCOUNTING POLICIES
	(A) Use of Estimates
	In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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.
	(B) Cash and Cash Equivalents
	Cash and cash equivalents consist of cash and highly liquid investments with maturity of three months or less when purchased.
	(C) Loss Per Share
	Basic and diluted net loss per common share is computed based upon the weighted average common shares outstanding as defined by Financial Accounting Standards No. 128, “Earnings Per Share.” As of March 31, 2005 and 2004, there were no common share equivalents outstanding.

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ACORN HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005
(UNAUDITED)

(D) Income Taxes

The Company accounts for income taxes under the Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“Statement 109”). Under Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

(E) Concentration of Credit Risk

The Company at times has cash in banks in excess of FDIC insurance limits and places its temporary cash investments with high credit quality financial institutions. At March 31, 2005, the Company had approximately $138,000 in cash balances at financial institutions which were in excess of the FDIC insured limits.

(F) Business Segments

The Company operates in one segment and therefore segment information is not presented.

(G) Recent Accounting Pronouncements

Statement of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs – an amendment of ARB No. 43, Chapter 4”” SFAS No. 152, “Accounting for Real Estate Time-Sharing Transactions — an amendment of FASB Statements No. 66 and 67,” SFAS No. 153, “Exchanges of Non-monetary Assets – an amendment of APB Opinion No. 29,” and SFAS No. 123 (revised 2004), “Share-Based Payment,” were recently issued. SFAS No. 151, 152, 153 and 123 (revised 2004) have no current applicability to the Company and have no effect on the financial statements.

In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46, “Consolidation of Variable Entities”, (FIN No. 46) an interpretation of Accounting Research Bulletin No. 51. FIN No. 46 requires that variable interest entities be consolidated by a company if that company is subject to a majority of the risk and loss from the variable interest entity’s activities or is entitled to receive a majority of the entity’s residual returns or both. FIN No. 46 requires disclosures about variable interest entities that companies are not required to consolidate but which the company has a significant variable interest. The consolidation requirements will apply immediately for newly formed variable interest entities created after January 31, 2003 and entities established prior to January 31, 2003, in the first

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ACORN HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2005
(UNAUDITED)

	fiscal year or interim period beginning after June 30, 2003. The adoption of FIN No. 46 is not expected to have a material impact on our consolidated results of operations and financial position.
	In April 2003, the FASB issued Statements of Financial Accounting Standards No. 149 (“SFAS No. 149”), an amendment to SFAS No. 133. SFAS No. 149 clarifies under what circumstances a contract with initial investments meets the characteristics of a derivative and when a derivative contains a financing component. This SFAS is effective for contracts entered into or modified after June 30, 2003.
NOTE 4	SUBSEQUENT EVENTS
	On June 6, 2005, the transactions contemplated under the Stock Purchase and Share Exchange Agreement (the “Purchase Agreement”), dated May 27, 2005, by and among the Company, Valentec and the two stockholders of Valentec (the “Valentec Stockholders”) were consummated. Pursuant to the terms of the Purchase Agreement, the Company purchased all of the outstanding shares of common stock of Valentec (i.e., 100 shares) in exchange for the issuance by the Company to the Valentec Stockholders on a pro rata basis of 5,423,130 newly-issued shares of the Company’s common stock, par value $.01 per share (the “Common Stock”). The shares of Common Stock are restricted securities that are exempt from the registration requirements of the Securities Act of 1933, as amended, in reliance on the exemption provided by Rule 506 of Regulation D. Following the consummation of such transactions, the Valentec Stockholders, on an aggregate basis, own approximately 77.47% of the issued and outstanding Common Stock of the Company.
	Pursuant to the terms of the Purchase Agreement, five of the six members of the board of directors of the Company, namely Paula Berliner, George Farley, Ronald J. Manganiello, Stephen A. Ollendorff and Bert Sager, resigned effective as of June 6, 2005. In addition, Edward N. Epstein resigned as the Company’s Chief Executive Officer and Larry V. Unterbrink resigned as the Company’s Secretary and Treasurer effective as of June 6, 2005. Mr. Epstein is the sole remaining member of the Company’s board of directors.
	Effective as of June 6, 2005, Mr. Zummo was appointed President and Chief Executive Officer of the Company. Since 2000, Mr. Zummo has been Chairman of the Board, President and Chief Executive Officer of Valentec.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement Regarding Forward-Looking Statements

     Certain statements in this Form 10-QSB may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including those concerning management’s expectations with respect to future financial performance and future events, particularly relating to sales of current products. Such statements involve known and unknown risks, uncertainties and contingencies, many of which are beyond the control of the Company, which could cause actual results and outcomes to differ materially from those expressed herein. These statements are often, but not always, made typically by use of words or phrases such as “estimate,” “plans,” “projects,” “anticipates,” “continuing,” “ongoing,” “expects,” “believes,” or similar words and phrases. Factors that might affect such forward-looking statements set forth in this Form 10-QSB include, among others: (i) increased competition from new and existing competitors and pricing practices from such competitors and (ii) general industry and economic conditions. Any forward-looking statements included in this Form 10-QSB are made only as of the date hereof, based on information available to the Company as of the date hereof, and subject to applicable law to the Company, the Company assumes no obligation to update any forward-looking statements.

Nature of the Company’s Present Operation and Plan of Operation

     On June 23, 2003, the Company announced that its wholly-owned subsidiary Recticon Enterprises, Inc. (“Recticon”) had been advised by its principal customer that the demand for the type of product Recticon was making would not increase and furthermore there would be a sharp erosion in the price for such products going forward. As a result thereof, the Company’s negotiations to raise additional capital were terminated. The Board of Directors of Recticon and of the Company determined that since the Company did not have the financial resources to sustain the anticipated operating losses of Recticon and to try to limit the further erosion of Recticon’s assets, the management of Recticon was authorized to liquidate the assets of Recticon at the highest possible price in the shortest period of time. As of September 30, 2003, Recticon has sold all of its assets.

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     As of March 31, 2005, the Company had $255,348 in cash reserves. Relative to the Company’s current expenses, the Company believes this amount will be sufficient for the Company to continue in existence as a shell company for at least the next twelve months while exploring its strategic alternatives, including the possibility of merging into another company with operations.

Recent Developments

     Effective as of March 28, 2005, Stephen A. Ollendorff resigned from the positions of Chairman and Chief Executive Officer and Secretary of the Company. Effective as of March 28, 2005, the Company appointed Edward N. Epstein, the Company’s President and Chief Operating Officer, to the position of Chairman and Chief Executive Officer of the Company. Larry V. Unterbrink, the Company’s Treasurer, was appointed as the Secretary of the Company, effective as of March 28, 2005.

     On March 29, 2005, Grant Thornton LLP (“Grant Thornton”) advised the Company that it had resigned as the Company’s independent registered public accounting firm. That determination was a decision of Grant Thornton and was not recommended by the Audit Committee of the Company’s Board of Directors.

     On April 14, 2005, the Company engaged Webb & Company, P.A. as its principal independent accountant. The Audit Committee of the Company’s Board of Directors approved the appointment of Webb & Company as the Company’s principal independent accountant on April 4, 2005.

     On May 27, 2005, the Company, Valentec, a Delaware corporation, and the two sole stockholders of Valentec (the “Valentec Stockholders”) entered into a stock purchase and share exchange agreement (the “ Purchase Agreement”) pursuant to which the Company agreed to purchase all of the outstanding shares of common stock of Valentec in exchange for the issuance by the Company to the Valentec Stockholders on a pro rata basis, pursuant to a private placement exemption, of 5,423,130 newly-issued shares of common stock, par value $.01 per share (the “Common Stock”), of the Company.

     On June 6, 2005, the transactions contemplated under the Purchase Agreement were consummated. Pursuant to the terms of the Purchase Agreement, the Company purchased all of the outstanding shares of common stock of Valentec, totaling 100 shares, in exchange for the issuance by the Company to the Valentec Stockholders on a pro rata basis of 5,423,130 newly-issued shares of Common Stock. The shares of Common Stock are restricted securities that are exempt from the registration requirements of the Securities Act of 1933, as amended, in reliance on the exemption provided by Rule 506 of Regulation D. Immediately following the consummation of such transactions, the Valentec Stockholders, on an aggregate basis, owned approximately 77.47% of the issued and outstanding Common Stock of the Company.

     Pursuant to the terms of an Assignment and Assumption Agreement (the “Assignment Agreement”), dated as of June 6, 2005, the Company assumed all of the rights and obligations of Valentec under that certain Promissory Note in the principal amount of $1,000,000 issued by Valentec on April 28, 2005 in favor of Montgomery Equity Partners, Ltd and the Standby Equity

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Distribution Agreement, dated April 28, 2005, by and between Cornell Capital Partners, LP, together with the related agreements and documents.

     Pursuant to the terms of the Purchase Agreement, five of the six members of the board of directors of the Company, namely Paula Berliner, George Farley, Ronald J. Manganiello, Stephen A. Ollendorff and Bert Sager, resigned effective as of June 6, 2005. In addition, Edward N. Epstein resigned as the Company’s Chief Executive Officer and Larry V. Unterbrink resigned as the Company’s Secretary and Treasurer effective as of June 6, 2005. As of June 6, 2006, Mr. Epstein was the sole remaining member of the Company’s Board of Directors.

     Effective as of June 6, 2005, Robert Zummo was appointed President and Chief Executive Officer of the Company.

     On August 19, 2005, the Company issued to each of Robert Zummo, Avraham (Miko) Gilat, Larry Matheson and Zwika Kreizman a Warrant to purchase shares of Common Stock. The aggregate number of shares of Common Stock that each of Mr. Zummo and Mr. Gilat can purchase pursuant to their Warrants is 200,000 shares of Common Stock at an exercise price of $0.25 per share. The aggregate number of shares of Common Stock that each of Mr. Matheson and Mr. Kreizman can purchase is 100,000 shares of Common Stock at an exercise price of $0.25 per share. In each case with respect to the foregoing, the Warrants became exercisable immediately and expire on August 19, 2008. Messrs. Zummo, Gilat, Matheson and Kreizman have all been appointed to fill vacancies on the Company’s Board of Directors, and the Warrants are intended to compensate them for their service to the Company as Board members. Messrs. Zummo and Gilat are Chairman and Vice Chairman of the Board, respectively.

ITEM 3. CONTROLS AND PROCEDURES

     The management of the Company, including Robert A. Zummo, Chairman, President and Chief Executive Officer, has evaluated the Company’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”). Under rules promulgated by the Commission, disclosure controls and procedures are defined as those controls or other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Based on the evaluation of the Company’s disclosure controls and procedures, Messrs. Zummo determined that, as of the Evaluation Date, such controls and procedures were effective. Since the Evaluation Date, there have not been any significant changes in the Company’s internal controls or in other factors that could significantly affect such controls.

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PART II
OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

31.1	Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act.
31.2	Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Rule 13a-14(a) of the Exchange Act.
32.1	Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Principal Financial and Accounting Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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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 22, 2005
	/s/ Robert A. Zummo
	Robert A. Zummo
	Chief Executive Officer and
	Principal Accounting Officer

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