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, 2003
----------------------
[ ] 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
- --------------------------------------------------------------------------------
(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 No x
----- -----
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 December 29, 2003
(which reflects the two-for-five reverse stock split effective April 19, 1999).
Acorn Holding Corp. and Subsidiaries
CONSOLIDATED INTERIM BALANCE SHEETS
September 30, December 31,
2003 2002
------------- -------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 665,014 $ 753,785
Investment securities 0 14,230
Accounts receivable - trade 0 106,548
Inventories 0 1,852,319
Prepaid expenses 0 40,321
----------- -----------
Total current assets 665,014 2,767,203
----------- -----------
MACHINERY AND EQUIPMENT, net of accumulated
depreciation of $2,136,798 0 2,819,579
----------- -----------
OTHER ASSETS - Other Investments 0 9,108
----------- -----------
Total assets $ 665,014 $ 5,595.890
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,169 $ 106,727
Accrued expenses:
Deferred Compensation 198,297 858,383
Other 87,890 93,947
Line of credit 0 375,000
----------- -----------
Total current liabilities 289,356 1,434,057
----------- -----------
STOCKHOLDERS' EQUITY
Common stock 15,739 15,856
Additional paid-in capital 11,772,377 11,786,229
Accumulated deficit (11,412,458) (7,628,923)
Accumulated other comprehensive income 0 2,640
----------- -----------
375,658 4,175,802
Treasury stock, at cost 0 (13,969)
----------- -----------
Total stockholders' equity 375,658 4,161,833
----------- -----------
$ 665,014 $ 5,595,890
=========== ===========
2
Acorn Holding Corp. and Subsidiaries
CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Nine Months Ended
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------------
2003 2002 2003 2002
-------- --------- -------- --------------
Net sales $ 0 $ 0 $ 0 $ 0
--------- -------- ---------- ---------
Costs and expenses
Cost of sales 0 0 0 0
Selling, general and administrative (884,846) 91,122 (533,782) (322,347)
--------- -------- --------- ---------
Operating income (loss) 884,846 (91,122) 533,782 (322,347)
Other income
Interest income 167 2,122 1,655 6,313
--------- -------- --------- ---------
Income (loss) from continuing operations
before income taxes and cumulative effect of a
change in accounting principle 885,013 (89,000) 535,437 (316,034)
Income tax (benefit) expense 0 1,286,731 0 (1,306,517)
--------- --------- --------- ---------
Income (loss) from continuing operations before
cumulative effect of a change in accounting
principle 885,013 (1,375,731) 535,437 (1,622,551)
--------- --------- --------- ---------
Cumulative effect of change in accounting
principle 0 0 0 42,767
--------- --------- --------- ---------
Income (loss) from continuing operations 885,013 (1,375,731) 535,437 (1,665,318)
---------- --------- --------- ---------
Discontinued operations
Loss from operations of
discontinued component (351,885) (328,861) (1,082,555) (432,120)
Loss on disposal of assets (42,440) 0 (3,236,417) 0
---------- -------- --------- ---------
Loss on discontinued operations (394,325) (328,861) (4,318,972) (432,120)
--------- ---------- ---------- ----------
Net Income (loss) $ 490,688 $(1,704,592) $(3,783,535) $(2,097,438)
--------- ---------- ---------- ----------
Net Income (loss) per share:
Continuing operations (basic and diluted) $ 0.56 $ (0.87) $ 0.34 $ (1.05)
Discontinued operations (basic and diluted) (0.25) (0.21) (2.73) (0.27)
------ ------ ------ -----
Net income (loss) per share (basic and diluted) $ 0.31 $ (1.08) $ (2.39) $ (1.32)
Weighted average shares outstanding - basic 1,579,796 1,578,500 1,579,796 1,584,400
--------- --------- --------- ---------
Weighted average shares outstanding - diluted 1,579,796 1,578,500 1,579,796 1,584,400
--------- --------- --------- ---------
3
Acorn Holding Corp. and Subsidiaries
CONSOLIDATED INTERIM STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS
From January 1, 2003 to September 30, 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 (3,783,535) (3,783,535)
Reversal of unrealized holding
gains on securities sold (2,640) (2,640)
----------
Total comprehensive loss (3,786,175)
----------
Treasury shares retired (117) (13,852) 0 0 13,969 0
------- ---------- ---------- ---------- --------- ----------
Balance at September 30, 2003 $ 15,739 $11,772,377 $ (11,412,458) $ 0 $ 0 $ (375,658)
======= ========== ============== ========== ========= ===========
4
Acorn Holding Corp. and Subsidiaries
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
Nine months ended September 30,
(unaudited)
2003 2002
----------- ------------
Cash flows from operating activities
Net loss $(3,783,535) $(2,097,438)
Adjustments to reconcile net loss to net cash
(used in) operating activities
Depreciation and amortization 249,282 348,880
Non-cash charge due to change in
accounting principle 0 42,767
Loss on investments 8,796 0
Deferred income taxes (benefit) 0 1,236,718
Loss on liquidation of assets 3,236,417 0
(Increase) decrease in assets
Accounts receivable 106,548 84,874
Inventories 219,747 130,336
Prepaid expenses and other assets (19,689) (31,299)
Increase (decrease) in liabilities
Accounts payable (103,558) (1,583)
Accrued expenses (666,143) 94,152
----------- ---------
Net cash used in operating activities (752,135) (192,593)
---------- ---------
Cash flows from investing activities
Sale proceeds / (Purchase) of machinery and equipment 1,026,462 (621,570)
Proceeds from redemption of investments 11,902 0
----------- ---------
Net cash provided by (used in) investing activities 1,038,364 (621,570)
---------- ---------
Cash flows from financing activities
Purchase of treasury stock 0 (13,621)
(Payment) Proceeds - bank line of credit (375,000) 200,000
---------- ---------
Net cash (used in) provided by financing activities (375,000) 186,379
------------ ---------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (88,771) (627,784)
Cash and cash equivalents at beginning of period 753,785 1,476,244
---------- ---------
Cash and cash equivalents at end of period $ 665,014 $ 848,460
=========== ==========
5
Acorn Holding Corp. and Subsidiaries
NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
September 30, 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 was organized to engage in the business of manufacturing and processing
of silicon wafers for the semiconductor industry (see Note D). AI Liquidating
Corp. 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 financial position and
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. The results for the three and nine months ended September 30,
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
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 applies to the liquidation of Recticon as of September 30, 2003
and during the three and nine month periods ended September 30, 2003.
In July 2002, the FASB issued SFAS No. 146, "Accounting for the Costs Associated
with Exit or Disposal Activities". SFAS No. 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 No. 146 is
effective prospectively for exit and disposal activities initiated after
December 31, 2002. The adoption of this accounting principle applies to the plan
of liquidation of Recticon at and for the three and nine month periods ended
September 30, 2003.
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity". SFAS
No. 150 established standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires an issuer to classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). SFAS No. 150 is
effective for all financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The statement did not have a material impact on
the Company's consolidated financial position or results of operations.
6
NOTE D - LIQUIDATION OF RECTICON
On June 23, 2003 the Board of Directors of Acorn voted to cease operations and
to liquidate the assets of Recticon. Immediately thereafter, Recticon fulfilled
its backlog of orders and proceeded to sell or liquidate its assets and to pay
its creditors. Recticon has completed its liquidation.
The consolidated statement of operations for the three and nine month periods
ended September 30, 2003 and 2002 include the operations of Recticon as a
discontinued operations. Management of Recticon has settled its future lease
obligations by paying a settlement sum and has abandoned the space as of
September 30, 2003.
The net sales and pre tax losses of Recticon for the periods presented are as
follows:
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
------------------------------- ------------------------------
2003 2002 2003 2002
---- ---- ---- ----
Net Sales $ 91,314 $887,903 $ 910,635 $3,127,331
Pre-tax net loss 394,025 348,455 4,318,972 519,979
NOTE E - SETTLEMENT OF COMPENSATION LIABILITY
The Company settled all of the accrued compensation claims of management
totaling $1,319,971 as of September 30, 2003 for approximately $225,000. In
addition, the Board and Management agreed to waiver all contractual rights, and
agreed not to accept any compensation on or after of September 30, 2003. The
reduction in the liability is reflected in the accompanying Consolidated Interim
Statement of Operations as a reduction of Selling, general and administrative
expenses for the three and nine month periods ended September 30, 2003.
7
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.
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 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, it has sold all of its assets
for $1,099,869. The Company believes that as of the date hereof, all of the
creditors of Recticon have been paid except for approximately $8,000 which will
be paid prior to the end of the year.
Because the assets of Recticon have been liquidated, the operations of
Recticon are shown in the accompanying Statement of Operations as a discontinued
operation for all periods presented. Included in "Operations of discontinued
component" in the Statement of Operations are sales less all costs of operations
and other expenses of Recticon in each period. Sales for Recticon for the
three-month period ended September 30, 2003 decreased $819,321 from the
three-month period ended September 30, 2002 while sales for the nine month
period ended September 30, 2003 decreased $2,239,428 from the nine month period
ended September 30, 2002.
The balance sheet as of September 30, 2003 reflects the value of the
Company after the liquidation of Recticon and a settlement of all accrued and
contractual claims of Recticon. The Company settled all of the accrued
compensation claims of management totaling $1,319,971.28 as of September 30,
2003 for approximately $225,000. In addition, the Board and Management agreed to
waive all contractual rights, and agreed not to accept any compensation on or
after of September 30, 2003. In addition, they agreed to relinquish all their
options so that there are presently no outstanding options.
The Company plans on seeking strategic alternatives.
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
8
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
31.1 Certification by the Chief Executive Officer pursuant to Rule
13a-14(a) of the Exchange Act.
31.2 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.
32.1 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.
32.2 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:
The Company did not file any Current Reports on Form 8-K during the quarter
ended September 30, 2003.
9
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: December 29, 2003
/s/ Larry V. Unterbrink
-----------------------------
Larry V. Unterbrink, Treasurer
(Principal Financial and
Accounting Officer)
/s/ Stephen A. Ollendorff
-----------------------------
Stephen A. Ollendorff,
Chairman, Chief Executive Officer,
and Secretary
10