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, 1995
------------------
[ ] 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. 814-29
ACORN VENTURE CAPITAL CORPORATION
(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.)
522 Park Street, Jacksonville, Florida 32204
(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code (904) 359-8624
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: 5,588,906 shares of common stock, $.01
par value, as of November 17, 1995.
Acorn Venture Capital Corporation
Condensed Interim Balance Sheets
(Unaudited)
September 30, December 31,
1995 1994
---------------------------
(Unaudited) (Note 1)
Assets
Investments at market or fair value:
Investment in Recticon Enterprises, Inc.
(100% owned) $ 9,300,000 $ 3,195,750
Investment in Automotive Industries, Inc.
(100% owned) 2,900,000 2,900,000
Investment in Service Max Tire & Auto
Centers, Inc. (100.0% owned) 250,000 2,500,000
Investment in Madison Avenue Propulsion
Corporation (80.0% owned) 149,037 428,555
Investments in common stock 9,913 9,913
Investments in common stock warrants 3,000 3,000
Investments in notes receivable 392,917 380,417
Investments in Convertible debenture 0 100,000
Investments in Certificates of Deposit 0 100,000
Investments in U.S. Treasury bills 199,000 593,691
--------------------------
Total investments 13,203,867 10,211,326
Cash and cash equivalents 529,245 55,976
Receivable from broker 0 0
Prepaid expenses 80,927 130,929
Equipment, net 1,229 1,878
--------------------------
13,815,268 10,400,109
Liabilities
Accounts payable 475 5,900
--------------------------
$13,814,793 $10,394,209
==========================
Net Assets
Common Stock, par value $.01 per share -
authorized 20,000,000 shares, issued
5,588,906 at September 30, 1995 and $ 55,889 $ 55,889
5,588,906 at December 31,1994
Additional paid-in capital 14,128,656 14,128,656
Undistributed operating losses and
investment (losses):
Accumulated operating losses (704,040) (770,374)
Realized losses on investments (941,921) (822,860)
Unrealized appreciation (depreciation) 1,276,209 (2,197,102)
of investments
--------------------------
(369,752) (3,790,336)
--------------------------
Net assets applicable to outstanding
common shares (equivalent to $2.47
per share in 1995 and $1.86 per share
in 1994, based on outstanding common
shares of 5,588,906 in 1995 and 5,588,906
in 1994) $13,814,793 $10,394,209
==========================
See accompanying notes.
Acorn Venture Capital Corporation
Condensed Interim Statements of Operations
(Unaudited)
Three months ended Nine months ended
September 30 September 30
1995 1994 1995 1994
-----------------------------------------------
Investment Income:
Interest $ 21,709 $ 35,979 $ 80,931 $ 95,283
Dividends from affiliated
companies 335,000 37,500 430,000 37,500
Consulting and management fee
income from affiliate 30,000 62,500 92,500 71,875
Other 0 0 10,000 0
-----------------------------------------------
386,709 135,979 613,431 204,658
Expenses:
Consulting fees 49,309 26,130 162,927 71,414
Salaries 88,966 89,328 257,562 262,339
Legal and accounting 20,126 21,801 59,707 103,293
Payroll taxes 2,751 3,103 12,849 14,701
Office expense 1,601 3,627 5,615 12,211
Registration and exchange 3,727 1,183 11,500 13,279
Director fees 5,000 5,000 15,000 15,000
License and tax expense 0 450 3,605 13,071
Other 8,883 (665) 18,332 5,232
-----------------------------------------------
180,363 149,957 547,097 510,540
-----------------------------------------------
Investment loss before income
tax benefit 206,346 (13,978) 66,334 (305,882)
Income tax expense
-----------------------------------------------
Net investment loss 206,346 (13,978) 66,334 (305,882)
Realized gains from sales of
investments 0 0 (119,061) 91,521
Less income tax expense applicable
to realized gains from sales of
investments
-----------------------------------------------
0 0 (119,061) 91,521
Unrealized appreciation
(depreciation) of investments 3,615,437 (1,000,000) 3,473,311 ( 1,149,900)
Less deferred income tax expense
applicable to unrealized appre-
ciation (depreciation) of
investments
-----------------------------------------------
3,615,437 (1,000,000) 3,473,311 ( 1,149,900)
-----------------------------------------------
Net realized and unrealized gains
(losses) on investments 3,615,437 (1,000,000) 3,354,250 ( 1,058,379)
-----------------------------------------------
Net increase (decrease) in net
assets resulting from operations $3,821,783 ($1,013,978) $3,420,584 ($1,364,261)
===============================================
Net investment loss per share $0.04 ($0.00) $0.01 ($0.05)
Net realized gains on investments
per share 0.00 0.00 (0.02) 0.02
Net unrealized gain (loss) on
investments per share 0.65 (0.18) (0.62) (0.21)
-----------------------------------------------
$0.68 ($0.18) ($0.60) ($0.24)
===============================================
Weighted average number of shares
in per share computation 5,588,906 5,588,906 5,588,906 5,588,906
===============================================
See accompanying notes.
Acorn Venture Capital Corporation
Condensed Interim Statements of Changes in Net Assets
(Unaudited)
Nine Months Ended
September 30,
1995 1994
---------------------------
Net investment income (loss) $ 66,334 ($305,882)
Net realized gains on investments (119,061) 91,521
Net increase in unrealized appreciation
(depreciation) of investments 3,473,311 (1,149,900)
---------------------------
Net increase (decrease) in assets
resulting from operations 3,420,584 (1,364,261)
Net assets at beginning of period 10,394,209 13,755,091
Issuance of 175,000 shares of common stock 444,500
1993 Common stock offering costs (7,254)
Net assets at end of period
---------------------------
$13,814,793 $12,828,076
==========================
See accompanying notes.
Acorn Venture Capital Corporation
Condensed Interim Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
1995 1994
---------------------------
Net cash provided (used) by operating
activities $ 388,582 ($ 903,990)
---------------------------
Investing activities:
Investment in Recticon Enterprises, Inc. 700,000 (254,168)
Investment in Data Access Systems, Inc. 1,000,000
(AVCC)
Investment in Service Max Tire & Auto
Centers, Inc. ( 1,200,000) (588,957)
Purchases of common stock (470,100)
Proceeds from sale of common stock 314,957
Redemption of certificates of deposit 100,000 1,000,000
Redemption of certificates of U.S.
Treasury bill 384,687
Redemption of convertible debenture 100,000
---------------------------
Net cash provided (used) by investing 84,687 1,001,732
activities
---------------------------
Financing activities:
Common stock issuance cost (7,254)
---------------------------
Net cash used in financing activities 0 (7,254)
---------------------------
Increase in cash and cash equivalents 473,269 90,488
Cash and cash equivalents at beginning
of period 55,976 858,513
---------------------------
Cash and cash equivalents at end of period $ 529,245 $ 949,001
===========================
Non-cash investing activity:
Purchase of investment in ServiceMax
Tire and Auto Centers, Inc. in exchange
for 25,000 shares of the Company's
Common Stock $ 444,500
===========================
See accompanying notes.
Acorn Venture Capital Corporation
Notes to Condensed Interim Financial
Statements (Unaudited)
September 30, 1995
1. Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form
10-QSB and Item 310 of Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended
September 30, 1995, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1995. For further
information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-KSB for the year
ended December 31, 1994.
2. Investments
Securities for which no market exists are valued at fair market value as
determined by the Board of Directors. As of September 30, 1995, the
value of investments is as follows:
Number
of Original
Shares Type of Issue and Name of User Cost Value
- ---------------------------------------------------------------
100 Common stock, Recticon Enter-
prises, Inc. 100% owned. $3,195,750 $10,000,000
Note Payable to Recticon
Face Value $700,000 ( 700,000) ( 700,000)
--------- ----------
Total investment in Recticon
Enterprises, Inc. $2,495,750 $ 9,300,000
========== ===========
In July 1993, the Company acquired Recticon Enterprises, Inc., a
Pennsylvania corporation ("Recticon"), by issuing 800,000 shares of
its Common Stock (the transaction was recorded at the net asset value
of the Company's Stock, which was $2.71 per share as of such date) to
the stockholders of Recticon in exchange for all the outstanding
shares of stock of Recticon. Such shares are restricted securities
and are not registered under either the Securities Act of 1933 or the
Investment Company Act of 1940. In addition, the Company has made
capital contributions to Recticon totaling $1,027.750. The Company
made loans to Recticon during 1994 totaling $190,000 pursuant to 8%
promissory notes. The loans were repaid prior to December 31, 1994.
Recticon manufacturers monocrystalline silicon wafers which are used in
the microelectronics industry.
On August 16, 1995 a press release by the Company announced that
Recticon Enterprises, Inc. entered into a long-term agreement with one
of its major customers, pursuant to which said customer will pay
Recticon $1.8 million for the right to receive a specified number of
four inch silicon wafers at a predetermined price.
During the quarter ending September 30, 1995, Recticon issued a
Promissory Note to the Company in the amount of $700,000. The note
will be repaid to Recticon by way of management fees over a specified
period of time.
During the quarter and nine month period ended September 30, 1995
Recticon paid the Company management fees totaling $30,000 and
$92,500, respectively.
As of September 30, 1995, the Board of Directors valued the investment
in Recticon at $10,000,000.
The following selected financial data of Recticon has been derived
from unaudited financial statements provided by Recticon. The
financial information is for the period ending October 1, 1995 and
October 2, 1994.
Three months ended Nine months ended
October 1 October 2 October 1 October 2
Income Statement Data: 1995 1994 1995 1994
----------------------------------------------
(Unaudited) (Unaudited)
Net Sales $1,626,407 $1,211,546 $4,556,748 $3,047,586
Cost of goods sold 1,174,827 974,993 3,429,153 2,335,476
---------- ---------- ---------- ----------
Gross margin 451,580 236,553 1,127,595 712,110
Total expense 256,249 264,342 679,319 542,677
---------- ---------- ---------- ----------
Net income $ 195,331 ($ 27,789) $ 448,276 $ 169,433
========== ========== ========== ==========
October 1 October 2
Balance Sheet Data: 1995 1994
---------------------
(Unaudited)
Total assets $4,847,578 $2,008,191
========== ==========
Total current liabilities $ 955,302 883,814
Total long term debt 75,000 156,250
Deferred income 2,300,000
Stockholders' equity 1,517,276 968,127
----------------------
$4,847,578 $2,008,191
======================
Number
of Original
Shares Type of Issue and Name of User Cost Value
- ---------------------------------------------------------------
142 Common stock, Automotive
Industries, Inc., 100% owned.
$2,900,000 $2,900,000
On December 22, 1993, the Company acquired Automotive
Industries, Inc., a Delaware corporation ("Automotive"), by
purchasing 100% of the outstanding common stock of Automotive
for $2,400,000. In addition, the Company made capital
contributions to Automotive totaling $500,000. Automotive owns
and operates thirty-one (31) full-service automotive retail tire
and service centers.
During the quarter and nine month period ended September 30,
1995, Automotive declared and paid dividends to the Company
totaling $335,000 and $430,000, respectively.
As of September 30, 1995, the Board of Directors valued the
investment in Automotive at original cost of $2,900,000.
The following selected financial data of Automotive has been
derived from unaudited financial statements as of September 30,
1995.
Three months ended Nine months ended
September 30 September 30
Income Statement Data: 1995 1994 1995 1994
----------------------------------------------
(Unaudited) (Unaudited)
Net Sales $5,208,476 $4,910,644 $14,479,930 $14,765,166
Cost of goods sold 2,404,086 2,380,089 6,496,400 7,321,488
---------- ---------- ----------- -----------
Gross margin 2,804,390 2,530,555 7,983,530 7,443,678
Total expense 2,824,865 2,521,930 7,741,344 7,237,798
---------- ---------- ----------- -----------
Net income ( $20,475) $ 8,625 $ 242,186 $ 205,880
========== ========== =========== ===========
September 30
Balance Sheet Data: 1995 1994
-----------------------
(Unaudited)
Total assets $7,135,271 $6,492,051
========== ==========
Total current liabilities $3,255,711 $2,321,743
Total long term debt 1,212,124 1,101,928
Stockholders' equity 2,667,436 3,068,380
---------- ----------
$7,135,271 $6,492,051
========== ==========
Number
of Original
Shares Type of Issue and Name of User Cost Value
- ---------------------------------------------------------------
23,210 Common stock, ServiceMax Tire
& Auto Centers, Inc., 100%
owned
$5,619,503 $ 250,000
The investment in ServiceMax Tire & Auto Centers, Inc.
("ServiceMax") was made on June 1, 1992. Service Max operates
twenty-six (26) full-service automotive retail tire centers at
gas station and convenience store locations. The Company made an
original investment of $1,000,000 in exchange for 75% or 7,500
shares of ServiceMax. Through December 31, 1993, the Company
contributed an additional $2,179,279 to ServiceMax in exchange
for an additional 9,900 shares of common stock. During 1994, the
Company made an additional capital contribution of $46,994 and
loans to ServiceMax totaling $718,000 for expansion purposes.
These loans were subsequently contributed to ServiceMax as
additional capital. ServiceMax declared and paid the Company
dividends totaling $37,500 during 1994.
In March 1994, the Company purchased 580 shares of ServiceMax
common stock from a member of ServiceMax's management
(representing a 2.5% equity interest in ServiceMax) in exchange
for 25,000 restricted shares of the Company's Common Stock. In
April 1994, Acorn reached a settlement with former management
pursuant to which Acorn issued 150,000 restricted shares of the
Company's Common Stock in exchange for the 5,230 ServiceMax
shares held by former management, giving the Company a 100%
ownership interest in ServiceMax. The Board of Directors
assigned a value of $2.54 per share to the 175,000 restricted
shares issued. Also, as part of the settlement, the Company
purchased certain notes payable totaling $68,229, which it
contributed to the capital of ServiceMax.
An additional capital investment in ServiceMax of $400,000 was
approved during the May 12, 1995, Board of Directors meeting.
The additional capital investment was for operating capital.
During the quarter ended September 30, 1995, additional capital
of $800,000 was invested in ServiceMax.
The Board of Directors valued the investment in ServiceMax at
$250,000 as of September 30, 1995.
The following selected financial data of ServiceMax has been
derived from unaudited financial statements provided by
ServiceMax. Financial information is as of September 30, 1995.
Three months ended Nine months ended
September 30 September 30
Income Statement Data: 1995 1994 1995 1994
----------------------------------------------
(Unaudited) (Unaudited)
Net Sales $2,646,865 $2,898,774 $7,445,787 $8,399,198
Cost of goods sold 1,345,226 1,266,523 3,405,861 3,208,511
---------- ---------- ---------- ----------
Gross margin 1,301,639 1,723,251 4,039,926 5,190,687
Total expense 1,896,425 2,001,522 5,120,240 5,465,959
---------- ---------- ----------- ----------
Net income ( $594,786) ($ 278,271) ($1,080,314) ($ 275,272)
========== ========== =========== ==========
September 30
Balance Sheet Data: 1995 1994
-----------------------
(Unaudited)
Total assets $2,349,261 $2,607,421
========== ==========
Total current liabilities $3,107,072 $1,711,539
Total long term debt 538,642 964,257
Stockholders' equity (1,296,453) (68,375)
---------- ----------
$2,349,261 $2,607,421
========== ==========
Number
of Original
Shares Type of Issue and Name of User Cost Value
- ---------------------------------------------------------------
80 Common stock,
Madison Avenue
Propulsion Corpo-
ration, 80% owned
at September 30, 1995. $ 40,000 $ 40,000
Notes receivable, 8%,
principal and interest
due on July 1, 1995,
including accrued
interest of $530. 108,507 109,037
Total investment $148,507 $149,037
On March 3, 1994, the Company invested $40,000 in and loaned
$110,000 to Madison Avenue Propulsion Corporation ("Madison").
Madison is a start-up company that, through a subsidiary,
manufactures amusement rides for use by theme parks and
carnivals. In addition, the Company loaned an additional
$262,400 to Madison during 1994.
On April 7, 1995, the previous notes plus interest as of December
31, 1994, were consolidated into a new note. The new note in the
amount of $388,555, at eight (8) percent interest is due July 1,
1995. As of September 30, 1995 note principal payments of
$280,048 have been received by the Company.
Investments in Common Stock, Warrants, Convertible Debentures,
and Notes Receivable
Number
of Original
Shares Type of Issue and Name of User Cost Value
- ---------------------------------------------------------------
Common stocks
Restricted:
49,565 Amerinex Artificial
Intelligence, Inc. $ 12,040 $ 9,913
Number
of Original
Warrants Type of Issue and Name of User Cost Value
- ---------------------------------------------------------------
Common stock warrants
Restricted:
30,000 Aqua Care Systems,
Inc., each entitling
the holder to purchase
one (1) common share
at $3 per share, exer-
cisable through April 17,
1997. $ 3,000 $ 3,000
25,000 Cortex Pharmaceuticals,
Inc., each entitling the
holder to purchase .26
common shares at $9.185
per share through
December 31, 1995. - -
750,000 Digital Products Corpo-
ration, each entitling
the holder to purchase
one (1) common share at
$2.00 per share through
November 22, 1996. - -
$ 3,000 $ 3,000
========= =========
Face Original
Value Type of Issue and Name of Issuer Cost Value
- ----------------------------------------------------------
Notes receivable
Restricted:
$1,212,017 Note receivable from
Proexe Corporation,
5%, principal due no
later than October 1,
2001, pursuant to de-
fined prepayment terms. - -
$ 500,000 Note receivable from
Digital Products Cor-
poration, 10%, sub-
ordinated convertible
note, principal due on
November 22, 1996;
interest due semi-
annually commencing
May 22, 1994. 500,000 392,217
-------- --------
$500,000 $392,217
======== ========
3. Prepaid Consulting
The Company entered into a three-year consulting agreement, to
retain the underwriter as a financial consultant after the close
of the 1993 public offering. The fee for the agreement was
$200,000 and was paid in full upon the consummation of the
public offering. Approximately fourteen (14) months or $80,552 of
the fee was included in prepaid expense at September 30, 1995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of September 30, 1995, the net asset value increased from
$1.86 to $2.47 per share, an increase of $.61 per share, due to a
determination to increase the fair market value of Recticon from
$3,195,750 to $10,000,000. The increase in Recticon's valuation
was primarily a result of the anticipated increased profitability
due to a substantially higher backlog and certain contractual
arrangements it entered into with two of its major customers,
each of which will result in substantially higher gross profit
margins. Said customers paid Recticon $2,300,000 for the right
to receive a specified number of its silicon wafers over the next
three to six years. However, the Board has reduced the valuation
of ServiceMax from $2,638,813 to $250,000 to reflect the creation
of a reserve for a liability, the ultimate exposure and amount of
which ServiceMax is presently unable to determine because of the
uncertainty of successfully seeking indemnification for any or
all of the liability from applicable third parties. The
valuation of ServiceMax could be subject to further adjustment
(either upward or downward), depending upon further developments
to this liability.
As of September 30, 1995, the Company had cash and cash
equivalents of $529,245, United States Treasury Bills of $199,000
as compared to cash and cash equivalents of $55,976, United
States Treasury Bills of $593,691, and certificate of deposit of
$100,000 at December 31, 1994. Activity during the quarter
ending September 30, 1995 included $700,000 received from
Recticon via a promissory note, receipt of $335,000 dividends
from Automotive Industries, Inc. and additional investment in
ServiceMax of $800,000. The decline in capital resources of
approximately $21,422 from December 31, 1994, was primarily the
result of net cash used in the operations of the company. As of
September 30, 1995, the Company had liabilities of $475 as
compared to liabilities of $5,900 at December 31, 1994.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
A Special Meeting of Stockholders of the Company was held on
July 18, 1995 (the "Meeting"). The following matters were voted
on and approved by the holders of a majority of the outstanding
shares (except the first proposal which was approved by a
majority of the shares cast at the Meeting) of the Company's
Common Stock in accordance with Delaware General Corporation Law
and the Investment Company Act of 1940:
1. The first proposal presented to the stockholders was to
approve and adopt a proposal to permit the Company to issue
senior securities representing indebtedness accompanied by
warrants, options or rights, subject to issuance being approved
by a majority of the independent directors. There were 2,515,411
shares of Common Stock cast in favor of such proposal, which
represented a majority of the shares of the Company's Common
Stock cast for such proposal, 297,610 shares of Common Stock
voted against such proposal, and 37,375 shares abstained. In
addition, there were 1,901,362 broker non-votes.
2. The second proposal presented to the stockholders was to
ratify the firm of Ernst & Young as the independent public
accountants of the Company for the 1995 fiscal year. There were
4,596,558 shares of Common Stock cast in favor of such proposal,
which represented a majority of the shares of the Company's
Common Stock outstanding, 140,650 shares of Common Stock voted
against such proposal, and 14,550 shares abstained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed by the Company
during the quarter ended September 30, 1995.
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 VENTURE CAPITAL CORPORATION
Date: November 20, 1995 Larry V. Unterbrink
----------------------------------
Larry V. Unterbrink, Treasurer
(Principal Financial and
Accounting Officer)
Stephen A. Ollendorff
----------------------------------
Stephen A. Ollendorff,
Chairman and Chief Executive Officer