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, 1996
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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. 814-29
ACORN VENTURE CAPITAL CORPORATION
- -----------------------------------------------------------------
(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.)
522 Park Street, Jacksonville, Florida 32204
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(Address of principal executive offices) (Zip code)
Issuer's telephone number, including area code (904) 359-8624
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N/A
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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: 5,538,906 shares of common stock, $.01
par value, as of November 6, 1996.
Acorn Venture Capital Corporation
Condensed Interim Balance Sheets
(Unaudited)
September 30, December 31,
1996 1995
---------------------------
(Unaudited) (Note 1)
Assets:
Investments at market or fair value:
Investments in and advances to subsidiaries:
Investment in Recticon Enterprises, Inc.
(100% owned) $15,000,000 $12,500,000
Investment in Automotive Industries, Inc.
(100% owned) 2,900,000 2,900,000
Investment in ServiceMax Tire & Auto
Centers, Inc. (100.0% owned) 0 0
--------------------------
17,900,000 15,400,000
Other common stock and warrants 12,981 12,981
Certificate of Deposit 100,000 0
U.S. Treasury bills 247,328 199,093
--------------------------
Total investments (cost $13,215,531 and
$14,288,138 at September 30, 1996 and
December 31, 1995, respectively) 18,260,309 15,612,074
Cash and cash equivalents 165,754 383,563
Accounts and management fee receivable 88,950 100,000
Other assets 4,962 6,183
--------------------------
Total assets 18,519,975 16,101,820
Liabilities:
Accounts payable 0 4,392
Note payable to Recticon Enterprises, Inc. 760,000 760,000
Capital contribution payable to Automotive
Industries, Inc. 0 460,330
Accrued interest and other payables to
affiliates 83,283 43,544
Deferred income taxes 1,342,000 650,000
--------------------------
Net assets $16,334,692 $14,183,554
==========================
Net Assets:
Common Stock, par value $.01 per share -
authorized 20,000,000 shares, issued
5,538,906 at September 30, 1996 and $ 55,389 $ 55,889
5,588,906 at December 31, 1995,
and outstanding 5,538,906 at
September 30, 1996 and December 31,
1995, respectively
Additional paid-in capital 14,090,156 14,128,656
Treasury stock (50,000 shares in 1995) 0 (39,000)
Accumulated:
Net investment losses (526,389) (907,527)
Net realized losses on investments (911,921) (911,921)
Net unrealized appreciation of
investments (net of deferred
income taxes of $1,342,000 and
$650,000 at September 30, 1996 and
December 31, 1995, respectively) 3,627,457 1,857,457
--------------------------
2,189,147 38,009
--------------------------
Net assets applicable to outstanding
common shares (equivalent to $2.95
per share in 1996 and $2.56 per share
in 1995, based on outstanding common
shares of 5,538,906 in 1996 and 5,538,906
in 1995) $16,334,692 $14,183,554
==========================
See accompanying notes.
Acorn Venture Capital Corporation
Condensed Interim Statements of Operations
(Unaudited)
Three months ended Nine months ended
September 30 September 30
1996 1995 1996 1995
----------------------------------------------
Investment Income:
Interest $ 4,066 $ 21,709 $ 10,649 $ 80,931
Dividends from affiliates 178,300 335,000 583,300 430,000
Consulting and management fees
from subsidiaries 150,000 30,000 450,000 92,500
Other income 0 0 0 10,000
----------------------------------------------
332,366 386,709 1,043,949 613,431
----------------------------------------------
Expenses:
Consulting fees 2,642 49,309 9,926 162,927
Compensation 132,653 88,966 396,958 257,562
Legal and accounting 28,957 20,126 73,896 59,707
Registration fees 1,605 3,727 8,730 11,500
Interest and other 36,256 18,235 173,301 55,401
----------------------------------------------
202,113 180,363 662,811 547,097
Net investment income (loss) 130,253 206,346 381,138 66,334
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Realized and unrealized gains
(losses) on investments:
Realized (losses) from sales
of investments 0 0 0 (119,061)
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Net change in unrealized
appreciation (depreciation)
of investments 0 3,615,437 2,500,000 3,473,311
Less deferred taxes
applicable to unrealized
appreciation (depreciation)
of investments 0 0 (730,000) 0
----------------------------------------------
0 3,615,437 1,770,000 3,473,311
----------------------------------------------
Net realized and unrealized
gains (losses) on investments 0 3,615,437 1,770,000 3,354,250
----------------------------------------------
Net increase (decrease) in net
assets resulting from
operations $ 130,253 $3,821,783 $2,151,138 $3,420,584
==============================================
Per-share amounts:
Net investment income (loss) $0.02 $0.04 $0.07 $0.01
Net realized gains on
investments $0.00 $0.00 $0.00 ($0.02)
Net unrealized gain investments $0.00 $0.65 $0.31 $0.62
----------------------------------------------
$0.02 $0.68 $0.38 $0.60
==============================================
Weighted average number of
shares in per share
computation 5,769,409 5,588,906 5,769,409 5,588,906
===============================================
See accompanying notes.
Acorn Venture Capital Corporation
Condensed Interim Statements of Changes in Net Assets
(Unaudited)
Nine Months Ended
September 30,
1996 1995
---------------------------
Net investment income $ 381,138 $ 66,334
Net realized (losses) from sales
of investments 0 ( 119,061)
Net change in unrealized appreciation
of investments 1,770,000 3,473,311
---------------------------
Net increase in assets
resulting from operations 2,151,138 3,420,584
Net assets at beginning of period 14,183,554 10,394,209
---------------------------
Net assets at end of period $16,334,692 $13,814,793
===========================
See accompanying notes.
Acorn Venture Capital Corporation
Condensed Interim Statements of Cash Flows
(Unaudited)
Nine Months Ended
Septmeber 30,
1996 1995
---------------------------
Net cash provided by (used) in operating
activities $ 388,474 $ 388,582
---------------------------
Investing activities:
Investment in Automotive Industries, Inc. (460,330) 0
Investment in Recticon Enterpries, Inc. 0 700,000
Investment in ServiceMax Tire & Auto
Centers, Inc. 0 (1,200,000)
Purchase of U.S. Treasury bill (444,419) 0
Redemption of U.S. Treasury bill 398,466 384,687
Purchase of certificate of deposit (100,000) 100,000
Redemption of certificate of deposit 0 0
Redemption of convertible debenture 0 100,000
---------------------------
Net cash provided (used) by investing
activities (606,283) 84,687
---------------------------
Increase in cash and cash equivalents (217,809) 473,269
Cash and cash equivalents at beginning
of period 383,563 55,976
---------------------------
Cash and cash equivalents at end of period $ 165,754 $ 529,245
===========================
See accompanying notes.
Acorn Venture Capital Corporation
Notes to Condensed Interim Financial
Statements (Unaudited)
September 30, 1996
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, 1996, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996. 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, 1995.
2. Investments
Securities for which no market exists are valued at fair market value as
determined by the Board of Directors. At September 30, 1996, the value of
investments is as follows:
Number
of
Shares Type of Issue and Name of User Cost Value
- ---------------------------------------------------------------
100 Common stock, Recticon Enter-
prises, Inc. 100% owned. $3,195,750 $15,000,000
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. Recticon manufacturers monocrystalline silicon
wafers which are used in the microelectronics industry.
In 1993 and 1994, the Company made capital contributions to Recticon
totaling $1,027,750. During 1995, Recticon advanced funds and issued a
promissory note to the Company in the amount of $760,000, accruing
interest at 10-1/4% and due July 15, 1997. Considering a number of
factors influencing the value of the Company's investment in Recticon,
including its current and expected future operating performance, among
other factors, the Board of Directors approved increases in the
valuation of the investment in Recticon from $3,195,750 at December 31,
1994 to $12,500,000 at December 31, 1995, and to $15,000,000 at June 30, 1996.
As of September 30, 1996, the Board of Directors valued the investment in
Recticon at $15,000,000.
On July 26, 1996, the Company entered into a Guaranty Agreement on behalf of
Recticon for (1) a line of credit in the amount of five hundred fifty thousand
dollars ($550,000), (2) a term loan in the amount of two hundred twenty five
thousand dollars ($225,000) and (3) a line of credit in the amount of two
hundred thousand dollars ($200,000).
During the quarter ended September 30, 1996, Recticon paid the Company
management fees totaling $150,000, and declared and paid a cash divided
of $100,000.
The following selected financial data of Recticon has been derived from
unaudited financial statements provided by Recticon. The financial
information is of September 30, 1996, and September 30, 1995.
Three months ended Nine months ended
September 30 September 30
Income Statement Data: 1996 1995 1996 1995
----------------------------------------------
(Unaudited) (Unaudited)
Net Sales $2,483,265 $1,626,407 $7,248,360 $4,556,748
Cost of goods sold 1,768,656 1,174,827 4,717,234 3,429,153
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Gross Profit 714,609 451,580 2,531,126 1,127,595
Tax Expense 142,600 211,250 409,554 544,319
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Net income $ 572,009 $ 240,330 $2,121,572 $ 583,276
========== ========== ========== ==========
Note: Above figures DO NOT include taxes or Management Fees of $150,000 for
the quarter ended September 30, 1996 and $45,000 for the quarter ended
September 30, 1995.
As of September 30
Balance Sheet Data: 1996 1995
---------------------
(Unaudited)
Total assets $6,787,316 $4,147,578
---------- ----------
Total current liabilities 1,853,446 955,302
Total long term debt 1,906,355* 2,375,000
Stockholders equity/deficit 3,027,515 817,276
----------------------
$6,787,316 $4,147,578
======================
* Includes Deferred Income of $1,833,320 from Customer Supply Agreements for
the period ending September 30, 1996 and $2,300,000 for the period ending
September 30, 1995.
Number
of
Shares Type of Issue and Name of User Cost Value
- ---------------------------------------------------------------
142 Common stock, Automotive
Industries, Inc., 100% owned.
$3,577,335 $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. Such
shares are restricted securities and are not registered under
either the Securities Act of 1933 or the Investment Company Act of
1940. Through December 31, 1995, the Company has made additional
contributions to Automotive totaling $1,177,335. Automotive owns
and operates twenty-nine (29) full-service automotive retail centers
in northern Florida and southeast Georgia.
During the quarter ended June 30, 1996, the Company guaranteed a
term loan obtained by Automotive in the amount of $387,900. In
addition, as part of this guarantee, a letter of credit, supported
by a Certificate of Deposit, in the amount of $100,000, was issued
by the Company on behalf of Automotive. A new Point of Sale
computer system was purchased with the proceeds of this term loan.
The term loan is due in monthly installments through October 1,
2000.
During the quarter ended September 30, 1996, Automotive declared
dividends to the Company totaling $78,300.
At September 30, 1996, the Board of Directors valued the investment at
$2,900,000.
The following selected financial data of Automotive has been
derived from unaudited financial statements as of September 30, 1996 and
September 30, 1995.
Three months ended Nine months ended
September 30, September 30,
Income Statement Data: 1996 1995 1996 1995
----------------------------------------------
(Unaudited) (Unaudited)
Net Sales $5,661,542 $5,208,476 $16,037,848 $14,479,930
Cost of goods sold 2,294,016 2,404,086 7,156,847 6,496,400
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Gross margin 3,367,526 2,804,390 8,881,001 7,983,530
Total Expense 3,473,699 2,824,865 8,911,053 7,741,344
Discontinued Operations 65,946 0 59,502 0
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Net income ($ 172,119) ($ 20,475)($ 89,554) $ 242,186
========== ========== =========== ===========
Balance Sheet Data: September 30
1996 1995
---------------------
(Unaudited)
Total assets $ 5,468,785 $ 7,135,271
=========== ===========
Total current liabilities $ 2,912,239 $ 3,255,711
Total long term debt 1,250,000 1,212,124
Stockholders' equity 1,306,546 2,667,436
-----------------------
$ 5,468,785 $ 7,135,271
=======================
Number
of
Shares Type of Issue and Name of User Cost Value
- ---------------------------------------------------------------
23,210 Common stock, ServiceMax Tire
& Auto Centers, Inc., 100%
owned
$5,580,503 $ 0
========== ==========
The investment in ServiceMax Tire & Auto Centers, Inc.
("ServiceMax") was made on June 1, 1992. ServiceMax operates tire
and service facilities at gas station and convenience store
locations in Michigan. The Company made an original investment of
$1,000,000 in exchange for 75% of ServiceMax shares. 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.
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. The Board of
Directors has assigned a value of $2.54 per share to the 25,000
restricted shares issued. In April 1994, the Company 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. Such shares
are restricted securities and are not registered under either the
Securities Act of 1933 or the Investment Company Act of 1940. The
Board of Directors has assigned a value of $2.54 per share to the
150,000 restricted shares issued. Also, as part of the settlement,
the Company purchased certain notes payable totaling $68,229, which
was contributed to the capital of ServiceMax.
During 1995 and 1994, the Company made an additional capital
contribution aggregating $1,200,000 and $764,994, respectively. As
of September 30, 1996, the Company's investment amounted to $5,580,503.
As of June 15, 1996, all operations at ServiceMax were terminated.
As of September 30, 1996, the Board of Directors maintained a valuation
of ServiceMax at zero, due to continued losses and a significant
liability, and the uncertainty of successfully seeking
indemnification for any or all of the liability from applicable
third parties.
Investments in Common Stock, Warrants, and Notes Receivable
Number
of
Shares Type of Issue and Name of User Cost Value
- ---------------------------------------------------------------
Common stocks - Restricted:
49,565 Amerinex Artificial
Intelligence, Inc. $ 12,040 $ 9,913
24 Cardiac Control
Systems, Inc. 68 68
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
-------- --------
$ 15,108 $ 12,981
======== ========
Face
Value Type of Issue and Name of Issuer Cost Value
- ----------------------------------------------------------
Notes receivable - Restricted
$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 $ 0
-------- --------
$500,000 $ 0
======== ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of September 30, 1996, the Company had cash and cash equivalents
of $165,754, United States Treasury Bills of $247,328, and a
Certificate of Deposit of $100,000, as compared to cash and cash
equivalents of $383,563, and United States Treasury Bills of
$199,093, at December 31, 1995. The decline in capital resources
of $69,574 from December 31, 1995, was primarily the funding of
the capital contribution payable to Automotive. As of September 30,
1996, the Company had liabilities of $2,185,283 as compared to
liabilities of $1,918,266 at December 31, 1995. The increase in
liabilities is due to an increase in deferred income tax.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3. By-Laws, as amended, effective November 7, 1996.
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed by the Company during the
quarter ended September 30, 1996.
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 7, 1996 Larry V. Unterbrink
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Larry V. Unterbrink, Treasurer
(Principal Financial and
Accounting Officer)
Stephen A. Ollendorff
----------------------------------
Stephen A. Ollendorff,
Chairman, Chief Executive Officer,
and Secretary