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, 2002
______________________
[ ] 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 Identifi-
incorporation or organization) cation No.)
599 Lexington Avenue, New York, New York 10022-6030
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(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code (212) 536-4089
____________________
N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the issuer was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
_____________ ____________
APPLICABLE ONLY TO CORPORATE ISSUERS: State the number of shares outstanding of
each of the issuer's classes of common equity, as of the latest practicable
date: 1,573,942 shares of common stock, $.01 par value, as of November 14, 2002
(which reflects the two-for-five reverse stock split effective April 19, 1999).
Acorn Holding Corp. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2002 2001
------------ ------------
ASSETS (Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 848,460 $ 1,476,244
Investment securities 14,964 16,360
Accounts receivable - trade 62,442 147,316
Inventories 2,005,015 2,135,351
Prepaid expenses 61,583 30,284
------------ ------------
Total current assets 2,992,464 3,805,555
------------ ------------
MACHINERY AND EQUIPMENT, net of accumulated
depreciation of $2,033,349 as of September 30,
2002 and $1,684,469 as of December 31, 2001 2,850,171 2,605,481
------------ ------------
OTHER ASSETS
Other investments 9,108 9,108
Deposits 28,000 -
Goodwill - 42,767
Deferred income tax asset - 1,236,718
------------ ------------
37,108 1,288,593
------------ ------------
$ 5,879,743 $ 7,699,629
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 127,196 $ 128,779
Accrued expenses
Deferred compensation 725,963 524,006
Other 89,960 197,765
Due to bank 200,000 -
------------ ------------
Total current liabilities 1,143,119 850,550
------------ ------------
STOCKHOLDERS' EQUITY
Common stock 15,856 16,273
Additional paid-in capital 11,786,229 11,847,860
Accumulated deficit (7,055,214) (4,957,776)
Accumulated other comprehensive income 3,374 4,770
------------ ------------
4,750,245 6,911,127
Treasury stock, at cost (13,621) (62,048)
------------ ------------
Total stockholders' equity 4,736,624 6,849,079
------------ ------------
$ 5,879,743 $ 7,699,629
============ ============
The accompanying notes are an integral part of these statements.
2
Acorn Holding Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
------------------------------- --------------------------------
September 30, September 30,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net sales $ 887,903 $ 988,802 $ 3,127,331 $ 4,674,722
------------ ------------ ------------ ------------
Costs and expenses
Cost of sales 974,453 906,006 2,864,555 3,553,850
Selling, general and
administrative 350,525 372,653 1,103,849 1,249,495
------------ ------------ ------------ ------------
1,324,978 1,278,659 3,968,404 4,803,345
------------ ------------ ------------ ------------
Operating profit (loss) (437,075) (289,857) (841,073) (128,623)
------------ ------------ ------------ ------------
Other income
Interest (expense) income (380) 14,027 5,060 41,576
------------ ------------ ------------ ------------
(380) 14,027 5,060 41,576
------------ ------------ ------------ ------------
Loss before income tax expense (437,455) (275,830) (836,013) (87,047)
Income tax expense 1,267,137 18,084 1,218,658 99,424
------------ ------------ ------------ ------------
Loss before cumulative effect
of a change in accounting
principle (1,704,592) (293,914) (2,054,671) (186,471)
Cumulative effect of a change
in accounting principle - - 42,767 -
------------ ------------ ------------ ------------
Net loss $(1,704,592) $ (293,914) $(2,097,438) $ (186,471)
============ ============ ============ ============
Loss per share before change in
accounting principle (basic and
diluted) $ (1.08) $ (0.18) $ (1.32) (0.12)
Cumulative effect of change in
accounting principle
(basic and diluted) $ - $ - $ (0.02) $ -
------------ ------------ ------------ ------------
Loss per share before change in
accounting principle (basic
and diluted) $ (1.08) $ (0.18) $ (1.32) $ (0.12)
Weighted average shares outstanding
- basic 1,578,500 1,595,742 1,584,400 1,599,009
============ ============ ============ ============
Weighted average shares outstanding
- diluted 1,578,500 1,595,742 1,584,400 1,599,009
============ ============ ============ ============
The accompanying notes are an integral part of these statements.
3
Acorn Holding Corp. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
From January 1, 2002 to September 30, 2002 (Unaudited)
Accumulated
Additional other
Common paid-in Accumulated comprehensive Treasury
stock capital deficit income stock Total
------- ----------- ------------ ------------- --------- -----------
Balance at January 1, 2002 $16,273 $11,847,860 $(4,957,776) $ 4,770 $(62,048) $6,849,079
Comprehensive income (loss)
Net loss (2,097,438) (2,097,438)
Net unrealized loss on investments
in securities available-for-sale (1,396) (1,396)
-----------
Total comprehensive loss (2,098,834)
-----------
Treasury shares purchased (13,621) (13,621)
Treasury shares retired (417) (61,631) 62,048 -
------- ----------- ------------ ------------- --------- -----------
Balance at September 30, 2002 $15,856 $11,786,229 $(7,055,214) $ 3,374 $(13,621) $4,736,624
======== =========== ============ =========== ========= ==========
The accompanying notes are an integral part of this statement.
4
Acorn Holding Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30,
(Unaudited)
2002 2001
------------ ------------
Cash flows from operating activities
Net loss $(2,097,438) $ (186,471)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization 348,880 336,069
Deferred income taxes 1,236,718 84,299
Non-cash charge due to change in accounting principle 42,767 -
(Increase) decrease in assets
Accounts receivable 84,874 206,471
Inventories 130,336 375,882
Prepaid expenses and other assets (31,299) (26,223)
Increase (decrease) in liabilities
Accounts payable (1,583) (190,126)
Accrued expenses - deferred compensation 201,957 184,959
Accrued expenses - other (107,805) 7,014
Deferred income - (225,000)
------------ ------------
Net cash (used in) provided by operating activities (192,593) 566,874
------------ ------------
Cash flows from investing activities
Purchase of machinery and equipment, including deposits (621,570) (224,225)
Proceeds from redemption of investments - 197,878
Note receivable payments received - 40,000
------------ ------------
Net cash (used in) provided by investing activities (621,570) 13,653
------------ ------------
Cash flows from financing activities
Proceeds from line of credit 200,000 -
Purchase of treasury stock (13,621) (18,854)
------------ ------------
Net cash provided by (used in) financing activities 186,379 (18,854)
------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (627,784) 561,673
Cash and cash equivalents at beginning of period 1,476,244 1,012,124
------------ ------------
Cash and cash equivalents at end of period $ 848,460 $ 1,573,797
============ ============
The accompanying notes are an integral part of these statements.
5
Acorn Holding Corp. and Subsidiaries
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
September 30, 2002
(Unaudited)
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 it's wholly-owned
subsidiaries, Recticon Enterprises, Inc. (Recticon) and Automotive Industries,
Inc. (Automotive). Recticon is organized to engage in the business of
manufacturing and processing of silicon wafers for the semi conductor industry.
Automotive is an inactive subsidiary.
NOTE B - BASIS OF PRESENTATION
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
2001 balance sheet has been derived from the audited financial statements
contained in the 2001 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 of America. The results for
the nine months ended September 30, 2002 are not necessarily indicative of the
results to be expected for the full year. Reporting developments have been
updated where appropriate.
NOTE C - RECENT ACCOUNTING PRONOUNCEMENTS
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and Intangible Assets". SFAS No. 141
eliminates the use of the pooling method of accounting and requires the use of
purchase accounting for all business combinations initiated after June 30, 2001.
It also provides guidance on purchase accounting related to the recognition of
intangible assets separate from goodwill. SFAS No. 142 changes the accounting
for goodwill from an amortization method to an impairment-only approach. Under
SFAS No. 142, goodwill will be tested annually and whenever events or
circumstances occur indicating that goodwill might be impaired. SFAS No. 141 and
SFAS No. 142 are effective for all business combinations completed after June
30, 2001.
As of December 31, 2001, the beginning of fiscal 2002, the Company no longer
amortizes goodwill. The Company's goodwill is subject to an annual impairment
test, using a two-step process. If impairment losses are required to be
recognized upon the initial application of this statement, they would be
accounted for as a cumulative effect of the change in accounting principles. The
Company has completed the transitional impairment tests prescribed by the
Statement, with goodwill impairment recorded during the third quarter and as of
January 1, 2002. (See Note D, Change in Accounting Principle)
In August 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 applies to all entities, including rate-regulated
entities that have legal obligations associated with the retirement of a
tangible long-lived asset that result from acquisition, constructions or
development and (or) normal operations of the long- lived asset. The application
of this Statement is not limited to certain specialized industries, such as the
6
(Continued)
Acorn Holding Corp. and Subsidiaries
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS - CONTINUED
September 30, 2002
(Unaudited)
NOTE C - RECENT ACCOUNTING PRONOUNCEMENTS - Continued
extractive or nuclear industries. This Statement also applies, for example, to a
company that operates a manufacturing facility and has a legal obligation to
dismantle the manufacturing plant and restore the underlying land when it ceases
operation of that plant. A liability for an asset retirement obligation should
be recognized if the obligation meets the definition of a liability and can be
reasonably estimated. The initial recording should be at fair value. SFAS No.
143 is effective for financial statements issued for fiscal years beginning
after June 15, 2002, with earlier application encouraged. The provisions of the
Statement are not expected to have a material impact on the financial condition
or results of operations of the Company.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets". SFAS No. 144 retains the existing requirements
to recognize and measure the impairment of long-lived assets to be held and used
or to be disposed of by sale. However, SFAS No. 144 makes changes to the scope
and certain measurement requirements of existing accounting guidance. SFAS No.
144 also changes the requirements relating to reporting the effects of a
disposal or discontinuation of a segment of a business. SFAS No. 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001 and interim periods within those fiscal years. The adoption of
this Statement did not have a significant impact on the financial condition or
results of operations of the Company.
In April 2002, SFAS No. 145, "Rescission of FASB Statements Nos. 4, 44 and 64,
Amendment of FASB No. 13, and Technical Correction", was issued. This standard
changes the accounting principles governing extraordinary items by, among other
things, providing more definitive criteria for extraordinary items by clarifying
and, to some extent, modifying the existing definition and criteria, specifying
disclosure for extraordinary items and specifying disclosure requirements for
other unusual or infrequently occurring events and transactions that are not
extraordinary items. SFAS No. 145 is effective for financial statements issued
for fiscal years beginning after June 15, 2002. The provisions of the Statement
are not expected to have a material impact on the financial condition or results
of operations of the Company.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" (SFAS 146). SFAS 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
SFAS 146 is effective prospectively for exit and disposal activities initiated
after December 31, 2002. As the provisions of SFAS 146 are to be applied
prospectively after adoption date, the Company cannot determine the potential
effects that the adoption of SFAS 146 will have on its financial statements.
7
Acorn Holding Corp. and Subsidiaries
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS - CONTINUED
September 30, 2002
(Unaudited)
NOTE D - CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 2002, we adopted SFAS 142, "Goodwill and Other Intangible
Assets." In connection with the adoption, we discontinued approximately $85,500
in annual amortization of goodwill. SFAS 142 also requires companies to test
intangibles for impairment on an annual basis. The Company performed it's
transitional testing under SFAS 142 pertaining to its evaluation of goodwill,
and determined that there was an impairment issue. The impairment of $42,767,
was recorded as a cumulative effect of a change in accounting principle as
proscribed by SFAS 142.
Under the provisions of SFAS 142, the Company was required to complete the first
phase of the goodwill transitional impairment test within six months of adopting
the new standard or by June 30, 2002 and the final phase of the transitional
test before the end of the year of adoption, or December 31, 2002. The Company
reviewed the value of it's subsidiary, Recticon and determined due to the
continued decline in earnings and the need for increasing sales to secure long
term liquidity, that there was an impairment loss of $42,767. This charge
represented a complete write-off of the remaining goodwill associated with the
acquisition of Recticon.
The following schedule reconciles the net loss for 2001 to comparable amounts
for 2002 as a result of the elimination of amortization of goodwill as of
January 1, 2002:
Three months ended Nine months ended
September 30, September 30,
--------------------- ---------------------
2002 2001 2002 2001
--------- --------- -------- ---------
Net loss $(431,562) $(293,914) $(761,855) $(186,471)
Add amortization of goodwill - 21,382 - 42,767
--------- --------- --------- ---------
Reconciled loss $(431,562) $(272,532) $(761,855) $(122,325)
========= ========= ========= =========
The total impairment charge is considered a change in accounting principle, and
the cumulative effect of adopting SFAS 142 on our first quarter's results is
provided below:
Basic and
diluted
loss per
--------
share
- -----
Net loss as reported for the three months ended
March 31, 2002 $
$(154,238) (0.10)
Less: cumulative effect of change in accounting
principle 42,767 (0.02)
--------- ---------
Adjusted to include impairment charge $(197,005) (0.12)
========= =========
8
Acorn Holding Corp. and Subsidiaries
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS - CONTINUED
September 30, 2002
(Unaudited)
NOTE E - INCOME TAX VALUATION ALLOWANCE
Management believes due to a decline in profitability of it's subsidiary
Recticon, it appears doubtful that the Company will be able to utilize it's net
operating loss carryforwards in the reasonably near future. Accordingly the
Company has established a valuation allowance to fully offset the deferred tax
asset.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Sales for the three-month period ended September 30, 2002 decreased
$100,899 from the three-month period ended September 30, 2001, while sales for
the nine-month period ended September 30, 2002 decreased $1,547,391 from the
nine-month period ended September 30, 2001. The Company had an operating loss of
$437,075 for the three-months ended September 30, 2002 and an operating loss of
$841,073 for the nine-months ended September 30, 2002, as compared to an
operating loss of $289,857 and an operating loss of $128,623, respectively, over
the comparable prior year periods.
The principal reason for the decrease in profitability was due to a
decreased demand for the Company's products. Due to the economic slowdown in the
industry, the outlook for the next several months continues to remain poor.
The business in which the Company is engaged is highly competitive and
cyclical in nature. Based on cost cutting and compensation deferrals measures,
and assuming such deferrals and the Company's credit arrangements remain
operative, of which no assurance can be given, and further assuming no further
deterioration in the business, of which no assurance can be given, the Company
believes it has sufficient short-term liquidity, from its cash on hand and
credit arrangements. However, the Company's long term liquidity will be
dependent on an increase in sales so that the Company can generate cash flow
from operations.
SUMMARY OF CRITICAL ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company ships products to customers based on FOB shipping point, and as
such recognizes sales on the date of shipment.
VALUATION OF INVENTORY
The Company's inventories are stated at the lower of cost or market. Cost
is determined by the first-in, first-out method.
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 3. CONTROLS AND PROCEDURES
The management of the Company, including Stephen A. Ollendorff as Chairman
and Chief Executive Officer and Larry V. Unterbrink as Treasurer, have evaluated
the Company's disclosure controls and procedures. Under rules promulgated by the
Securities and Exchange 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 [Securities 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. Ollendorff and Unterbrink determined
that such controls and procedures were effective as of September 16, 2002, the
date of the conclusion of the evaluation. There were no significant changes in
the Company's internal controls or in other factors that could significantly
affect these controls between September 16, 2002, the date of the conclusion of
the evaluation of disclosure controls and procedures, and the date of this
report.
10
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 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.
99.2 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.
(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, 2002.
11
CERTIFICATION
I, Stephen A. Ollendorff, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Acorn Holding
Corp.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including it's
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
1. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors:
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
2. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Stephen A. Ollendorff
------------------------------------
Stephen A. Ollendorff
Chairman and Chief Executive Officer
12
CERTIFICATION
I, Larry V. Unterbrink, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Acorn Holding
Corp.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors:
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002
/s/Larry V. Unterbrink
----------------------
Larry V. Unterbrink
Treasurer
13
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 14, 2002
Larry V. Unterbrink
----------------------------------
(Principal Financial and
Accounting Officer)
Stephen A. Ollendorff
----------------------------------
Chairman, Chief Executive Officer,
and Secretary
14