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 March 31, 2003
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 811-08469
ACORN HOLDING CORP.
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(Exact name of small business issuer as specified in its charter)
Delaware 59-2332857
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(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
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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
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APPLICABLE ONLY TO CORPORATE ISSUERS: State the number of shares outstanding of
each of the issuer's classes of common equity, as of the latest practicable
date: 1,573,942 shares of common stock, $.01 par value, as of May 14, 2003
(which reflects the two-for-five reverse stock split effective April 19, 1999).
Acorn Holding Corp. and Subsidiaries
CONSOLIDATED INTERIM BALANCE SHEETS
March 31, December 31,
2003 2002
------------ ------------
(unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 572,225 $ 753,785
Investment securities 13,698 14,230
Accounts receivable - trade 64,680 106,548
Inventories 1,712,922 1,852,319
Prepaid expenses 119,699 40,321
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Total current assets 2,483,224 2,767,203
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MACHINERY AND EQUIPMENT, net of accumulated depreciation of
$2,269,581 and $2,144,940, respectively 2,694,938 2,819,579
------------ -----------
OTHER ASSETS
Other investments 9,108 9,108
Miscellaneous receivable 2,300 0
------------ -----------
11,408 9,108
$5,189,570 $5,595,890
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 205,810 $ 106,727
Accrued expenses
Salaries 993,989 858,383
Other 73,058 93,947
Line of credit 375,000 375,000
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Total current liabilities 1,647,857 1,434,057
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STOCKHOLDERS' EQUITY
Common stock 15,856 15,856
Additional paid-in capital 11,786,229 11,786,229
Accumulated deficit (8,248,511) (7,628,923)
Accumulated other comprehensive income 2,108 2,640
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3,555,682 4,175,802
Treasury stock, at cost (13,969) (13,969)
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Total stockholders' equity 3,541,713 4,161,833
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$5,189,570 $5,595,890
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2
Acorn Holding Corp. and Subsidiaries
CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
Three months ended March 31,
(unaudited)
2003 2002
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Net sales $ 471,067 $ 1,204,808
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Costs and expenses
Cost of sales 770,572 1,022,824
Selling, general and administrative 316,660 388,030
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1,087,232 1,410,854
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Operating loss (616,165) (206,046)
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Interest income (expense) (3,423) 3,329
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Loss before income tax expense (619,588) (202,717)
============ ============
Income tax (benefit) expense 0 (48,479)
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Net loss $(619,588) $ (154,238)
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Loss per share (basic and diluted) $ (0.39) $ (0.10)
============ ============
Weighted average shares outstanding - basic 1,573,946 1,686,642
============ ============
Weighted average shares outstanding - diluted 1,573,946 1,585,642
============ ============
The accompanying notes are an integral part of these statements.
3
Acorn Holding Corp. and Subsidiaries
CONSOLIDATED INTERIM STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE
INCOME
From January 1, 2003 to March 31, 2003 (unaudited)
Accumulated
Additional other
Common paid-in Accumulated comprehensive Treasury
Stock Capital Deficit Income Stock Total
--------- --------- --------- ----------- --------- -------------
Balance at January 1, 2003 $ 15,856 $11,786,229 $(7,628,923) $ 2,640 $(13,969) $ 4,161,833
Comprehensive loss
Net loss - - (619,588) - - (619,588)
Net unrealized loss on investments
in securities available-for-sale - - - (532) - (532)
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Total comprehensive loss (620,120)
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Balance at March 31, 2003 $ 15,856 $11,786,229 $(8,248,511) $ 2,108 $(13,969) $ 3,541,713
======== ========== ========== ======= ======= ===========
4
Acorn Holding Corp. and Subsidiaries
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
Three months ended March 31,
(unaudited)
2003 2002
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Cash flows from operating activities
Net loss $(619,588) $(154,238)
Adjustments to reconcile net income to net cash
used in operating activities
Depreciation and amortization 124,641 112,184
Deferred income taxes (benefit) 0 (18,828)
(Increase) decrease in assets
Accounts receivable 41,868 (21,700)
Inventories 139,397 104,823
Prepaid expenses and other assets (81,678) (61,895)
Increase (decrease) in liabilities
Accounts payable 99,083 (48,407)
Accrued expenses 114,717 41,353
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Net cash used in operating activities (181,560) (46,708)
Cash flows from investing activities
Purchase of machinery and equipment, including deposits 0 (211,930)
Proceeds from redemption of investments 0 (1,273)
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Net cash used in investing activities 0 (213,203)
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NET DECREASE IN CASH AND
CASH EQUIVALENTS (181,560) (259,911)
Cash and cash equivalents at beginning of period 753,785 1,476,244
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Cash and cash equivalents at end of period $ 572,225 $1,216,333
========= ===========
The accompanying notes are an integral part of these statements.
5
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2003
(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 its wholly-owned
subsidiaries, Recticon Enterprises, Inc. (Recticon) and AI Liquidating Corp.
Recticon is organized to engage in the business of manufacturing and processing
of silicon wafers for the semiconductor industry. AI Liquidating Corp. is an
inactive subsidiary.
NOTE B - BASIS OF PRESENTATION
The Company's financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern. Unless cash flow
improves substantially in the next few months, the Company believes that it will
require a significant infusion of capital to maintain its operations. Although
negotiations are presently being conducted to obtain an infusion of capital, no
assurance can be given that the Company will be able to obtain such infusion of
capital.
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
2002 balance sheet has been derived from the audited financial statements
contained in the 2002 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 three months ended March 31, 2003 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
RECENT ACCOUNTING PRONOUNCEMENTS
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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
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Acorn Holding Corp. and Subsidiaries
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS - CONTINUED
March 31, 2003
(Unaudited)
(Continued)
NOTE C - RECENT ACCOUNTING PRONOUNCEMENTS - Continued
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 of 2002 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
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 did not 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
did not have a material impact on the financial condition or results of
operations of the Company.
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NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS - CONTINUED
March 31, 2003
(Unaudited)
(Continued)
NOTE C - RECENT ACCOUNTING PRONOUNCEMENTS - Continued
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.
In December 2002, the FASB issued SFAS No. 148, ACCOUNTING FOR STOCK-BASED
COMPENSATION - TRANSITION AND DISCLOSURE. SFAS No. 148 amends SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, to provide alternative methods of
transition for a voluntary change to the fair value-based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. SFAS No. 148 is effective for fiscal years beginning after December 15,
2002. The expanded annual disclosure requirements and the transition provisions
are effective for fiscal years ending after December 15, 2002. The interim
disclosure provisions are effective for financial reports containing financial
statements for interim periods beginning after December 15, 2002. The adoption
of SFAS No. 148 did not have a material effect on the Company's financial
position, results of operations or cash flows.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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.
Sales for the three-month period ended March 31, 2003 decreased $773,741
from the three-month period ended March 31, 2002. The Company had an operating
loss of $616,165 for the three-months ended March 31, 2003, as compared to an
operating loss of $206,046 for the comparable prior year period.
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.
Sales of the Company's products will primarily depend upon, among other
things: (i) demand for its existing product line, especially, among its two
major customers; (ii) pricing level and competition; and (iii) the cyclical
nature of the Company's business.
Unless the Company's sales increase substantially, the Company does not
believe it will achieve profitability during fiscal year 2003.
Financial Condition - Unless cash flow improves substantially in the next
few months, the Company believes that it will require a significant infusion of
capital to maintain its operations. Although negotiations are presently being
conducted to obtain an infusion of capital, no assurance can be given that the
Company will be able to obtain such infusion of capital.
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
9
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 as of a date within 90 days
prior to the filing date of this quarterly 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. Ollendorff and Unterbrink 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.
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 March 31, 2003.
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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: May 14, 2003 /s/Larry V. Unterbrink
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Larry V. Unterbrink, Treasurer
(Principal Financial and
Accounting Officer)
/s/Stephen A. Ollendorff,
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Stephen A. Ollendorff,
Chairman, Chief Executive Officer,
and Secretary
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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: May 14 , 2003
/s/Stephen A. Ollendorff
-----------------------------------------
Stephen A. Ollendorff
Chairman and Chief Executive Officer
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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: May 14, 2003
/s/Larry V. Unterbrink
-----------------------------------------
Larry V. Unterbrink
Treasurer
14