SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
     of 1934

For the fiscal year ended December 31, 1997

                           Commission File No. 811-08469

                               ACORN HOLDING CORP.
                 ---------------------------------------------
                 (Name of small business issuer in its charter)

            Delaware                                       59-2332857
-------------------------------                      ------------------------
(State or other jurisdiction of                      (IRS Employer Identifi-
incorporation or organization)                            cation No.)

  100 Park Avenue, 23rd Floor, New York, New York   10017
------------------------------------------------------------
(Address of principal executive offices)           (Zip code)

Issuer's telephone number, including area code (212) 685-5654

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:
                                           Common Stock, $.01 par value

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  Registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days.
                             Yes   X                          No
                                 -----                           -----
Check if disclosure  of delinquent  filers in response to Item 405 of Regulation
S-B is not contained in this Form, and no disclosure  will be contained,  to the
best  of  the  Registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [  ]

Issuer's revenues for the fiscal year ended December 31, 1997 were $7,907,820.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant as of April 8, 1998 (valued at the average of the bid price of $1.625
and asked price of $1.7188 on such date) was $3,232,140.

The  number of shares of Common  Stock  outstanding  (including  shares  held by
affiliates of the issuer) as of April 8, 1998: 4,172,906

Transitional Small Business Disclosure Format (check one):
                                                           Yes        No   X
                                                               -----     ----- 
                    DOCUMENTS INCORPORATED BY REFERENCE: NONE


<PAGE>



                                     PART I

ITEM 1.  Description of Business
-------  -----------------------
         
General
-------

     Acorn  Holding  Corp.  (the  "Company")  is  a  holding  company  with  one
wholly-owned  subsidiary,  Recticon  Enterprises,  Inc.  ("Recticon"),  which it
acquired in 1993 by issuing 800,000 shares of the Company's  common stock,  $.01
par value (the "Common  Stock") to the  stockholders of Recticon in exchange for
all of the outstanding shares of stock of Recticon. The principal purpose of the
Company is to derive  earnings from the operation of Recticon and possibly other
businesses rather than for the purpose of obtaining dividend and interest income
through the  efforts of others.  The Company  may  acquire  other  companies  or
operating  businesses  in the future.  While there can be no assurance  that any
such  acquisitions  will be made, the Company intends only to acquire the entire
or,  at the  least,  controlling  interests  in such  companies  and  have  such
companies operate as subsidiaries of the Company.

Significant Developments
------------------------

     Since January 1, 1997, the following significant developments occurred:

     (a)  On May 30,  1997,  the Company  consummated  the sale and transfer of
substantially  all of the  assets  of its  wholly-owned  subsidiary,  Automotive
Industries,  Inc., a Delaware corporation (the "Seller"), to Morgan Tire & Auto,
Inc., a Florida  corporation  (the  "Purchaser"),  pursuant to an Asset Purchase
Agreement by and among the Purchaser,  the Company and the Seller.  In addition,
the parties entered into an Assumption Agreement pursuant to which the Purchaser
agreed to assume and pay certain  liabilities and obligations of the Seller. The
purchase  price  paid to the  Seller by  Purchaser  was  $2,500,000,  subject to
adjustment.  In  addition,  by  subsequent  agreement,  Purchaser  agreed to the
payment  to  Seller  of the  amount  of  $425,000  in  settlement  of all of the
adjustments  (payable  over a  three-year  period).  Reference  is  made  to the
Company's  Current  Report on Form  8-K,  dated  June 9,  1997,  filed  with the
Securities and Exchange Commission (the "Commission ") on June 9, 1997.

     (b) On  November  4, 1997,  pursuant  to the  approval  of the  Company's
stockholders,  the  Company  filed Form N-54C  with the  Commission  in order to
withdraw its election to be treated as a Business  Development Company under the
Investment Company Act of 1940 (the "1940 Act"). See "Submission of Matters to a
Vote of Security Holders."

                                       2
<PAGE>
     (c) On  November  3, 1997,  pursuant  to the  approval  of the  Company's
stockholders, the Company filed a Certificate of Amendment to its Certificate of
Incorporation  with the  Secretary of State of Delaware  changing the  Company's
name from "Acorn  Venture  Capital  Corporation"  to "Acorn  Holding  Corp." See
"Submission of Matters to a Vote of Security Holders."

     (d)  On  November  17,  1997  the  Company  announced  its  intention  to
repurchase up to 1,500,000 shares of the Company's  Common Stock  (approximately
27% of the issued and outstanding shares),  depending upon market conditions and
other factors.  On January 22, 1998, the Company  repurchased,  for an aggregate
consideration of $2,060,000, 1,300,000 shares of the Common Stock (approximately
22% of the outstanding  Common Stock) from Asset Value Fund Limited  Partnership
and  entered  into a  "standstill  agreement"  with  Asset  Value and one of its
principals.  The Company has also repurchased an additional 66,000 shares of its
Common Stock  through  April 8, 1998,  representing  a total  repurchase  by the
Company of  approximately  25% of the issued  and  outstanding  shares of Common
Stock.

Recticon's Present Business
---------------------------

     Recticon,  located in Pottstown,  Pennsylvania,  manufactures  two,  three,
four,  five and six-inch  monocrystalline  silicon  wafers,  which are made from
silicon crystals and are the basic substrate from which integrated  circuits and
other  semiconductor  devices  are  fabricated.  Recticon's  wafers  are used by
university research departments and microelectronic manufacturers,  and are best
suited for use in electronics  devices employed in avionics,  telecommunications
and computers.

     The  business in which  Recticon is engaged is highly  competitive  and the
Company believes that there are many competitors who produce,  sell,  design and
support similar products.  Many of these competitors have substantially  greater
marketing, financial, administrative and other resources than Recticon.

     In 1995,  Recticon entered into long-term  agreements with two of its major
customers,  pursuant  to which said  customers  have paid an  aggregate  of $2.3
Million in cash for the right to receive a specified number of silicon wafers at
a predetermined gross profit margin. In addition, in 1996, Recticon entered into
agreements  pursuant to which  Recticon  received  $2.4 Million in cash from two
customers  in order for  Recticon to purchase  additional  furnaces  and related
equipment (the "Units"). At the end of five years, the Units will be turned over
to Recticon at no cost. In exchange therefor,  Recticon has agreed to sell these
customers the wafers  produced by the Units at a mutually agreed to gross profit
margin to  Recticon.  Recticon  has  expanded  its  facilities  and, as a result
thereof,  has the  capacity to add an  additional  four or five Units.  Recticon
presently  has ten  functioning  Units.  These  new  Units  have

                                       3
<PAGE>

not only given Recticon added  capacity,  but have also enabled it to enter into
the five and  six-inch  wafer  market  and,  subject  to  purchasing  additional
equipment,  give it the capacity to enter into the eight-inch market.  There can
be no assurance that Recticon will acquire any additional  Units or successfully
enter into the eight-inch wafer market.

     Recticon's raw materials are acquired from silicon  wholesalers.  For 1997,
12% of its raw materials were acquired from one supplier.  Although Recticon has
from time to time experienced shortages of certain supplies, such shortages have
not resulted in any  significant  disruptions in production.  Recticon  believes
that there are adequate alternative sources of supply to meet its requirements.

     For 1997, three customers of Recticon accounted for 39%, 18% and 11% of its
sales, respectively. For 1996, three customers of the Company accounted for 34%,
15%  and  11%  of its  sales,  respectively.  The  loss  of any or all of  these
customers,  could have an adverse,  possibly  severe,  effect on the business of
Recticon.

     Compliance with federal,  state and local laws and  regulations  regulating
the discharge of materials into the  environment  has not had, and under present
conditions,  Recticon does not anticipate  that such laws and  regulations  will
have a material effect on the results of operations, capital expenditures or the
competitive position of Recticon.

Employees
---------

     The  Company  currently  has  five  executive  officers,  all of  whom  are
employees of the Company. Recticon presently employs 53 full-time people, all of
whom are located at its facility in Pottstown.

ITEM 2.  Description of Property
--------------------------------

     In June 1997, in order to reduce costs and consolidate its operations,  the
Company  relocated its principal  executive offices to New York, New York, at no
charge to the  Company.  The  Company  also  maintains  an office in New Canaan,
Connecticut, at no charge to the Company.

     Recticon currently leases approximately 30,000 square feet in a facility in
Pottstown, Pennsylvania, pursuant to a lease agreement which expires on February
28, 2009.  Recticon has a right of first refusal to purchase the property in the
event of a sale by the lessor.  Recticon  considers the facility to be generally
well-maintained,  adequate  for its current  needs and capable of  supporting  a
reasonably higher level of demand for its products.
 
                                      4
<PAGE>

ITEM 3.  Legal Proceedings
--------------------------

     The  Company   instituted   suit  against  Digital   Products   Corporation
("Digital")  in Circuit  Court of the 17th  Judicial  Circuit in and for Broward
County,  Florida  for  nonpayment  of  $500,000  owing  on  a  10%  subordinated
convertible note due 1996 (the "Note"), plus accrued interest since November 22,
1995. Since such time, Digital has filed a petition under Chapter 11 in the U.S.
Bankruptcy   Court,   in  the   Southern   District   of   Florida   (Case   No.
97-21987-BKC-RBR). The Company has fully reserved against the Note. No assurance
can be given as to the  successful  outcome of the collection of all or any part
of the Note.

ITEM 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------

     The Company held two meetings of its stockholders in 1997, as follows:

     (a) The Company  held a Special  Meeting of  Stockholders  on November 3,
1997 (the  "Special  Meeting"),  at which a majority of the  outstanding  voting
shares of Common Stock of the Company  were  present in person or by proxy,  for
the following purposes:

                  (i) The  stockholders  were asked to consider and act upon a
         proposal  that the  Company  withdraw  its  election to be treated as a
         business  development  company under the 1940 Act.  4,150,653 shares of
         Common  Stock of the  Company  voted in favor of the  proposal,  21,575
         shares of Common  Stock voted  against  such  proposal,  13,650  shares
         abstained  and 965,968  broker shares were not voted.  The  affirmative
         vote of (a) 67% or more of the  shares  of  Common  Stock  present  (in
         person or by proxy) at the Special Meeting, or (b) more than 50% of the
         outstanding shares of Common Stock,  whichever is less, was required to
         approve this proposal. Accordingly, the proposal received more than the
         vote  required  for  approval  in  accordance  with  Delaware   General
         Corporation Law and the 1940 Act.

                  (ii)  Upon   approval  of  the   foregoing   proposal,   the
         stockholders  were  then  presented  with the  proposal  to  amend  the
         Company's  Certificate of Incorporation to change the Company's name to
         "Acorn Holding Corp."  5,122,621  shares of Common Stock voted in favor
         of the  proposal,  16,125 shares voted against such proposal and 13,100
         shares  abstained.  The  proposal  received the  affirmative  vote of a
         majority of the outstanding  shares of Common Stock required to approve
         this proposal in accordance with Delaware General Corporation Law.

     (b)  The  Annual  Meeting  of  Stockholders  of the  Company  was held on
December  30, 1997 (the  "Meeting").  The  following  matters  were voted on and
approved by the holders of a majority of the 

                                       5

<PAGE>

5 outstanding  shares of the Company's  Common Stock in accordance with Delaware
General Corporation Law:

         (i) The first proposal presented to the stockholders was the election
         of seven  persons as  directors of the Company to hold office until the
         next  Annual  Meeting  of  Stockholders   and  until  their  respective
         successors are duly elected and qualified.  The following  persons were
         elected as  directors  of the Company,  and each person  received  that
         number of votes set opposite that person's name:


                     VOTES
                                               FOR                 WITHHELD
                                            --------------------------------- 
                  Paula Berliner            3,679,011              1,295,625
                  Edward S. Croft, III      3,677,511              1,297,125
                  Edward N. Epstein         3,675,461              1,299,175
                  Ronald J. Manganiello     3,679,011              1,295,625
                  Stephen A. Ollendorff     3,671,461              1,303,175
                  Bert Sager                3,671,461              1,303,175
                  Kenneth I. Sawyer         3,677,511              1,297,125


                  (ii) The second proposal  presented to the  stockholders was
         to ratify  the firm of Grant  Thornton  LLP as the  independent  public
         accountants  of the  Company  for the  1997  fiscal  year.  There  were
         3,684,811  shares  of  Common  Stock  cast in favor  of such  proposal,
         1,287,525 shares of Common Stock voted against such proposal, and 2,300
         shares abstained.


                                     PART II

ITEM 5.  Market for the Registrant's Common Equity
         and Related Stockholder Matters
------   -----------------------------------------

     The  Company's  Common  Stock was  accepted  for listing in October 1988 on
NASDAQ under the symbol "AVCC".  The following table sets forth, for the periods
indicated,  the range of high and low  closing  bid  quotations  as  reported by
NASDAQ.  Such quotations reflect  inter-dealer  prices,  without retail mark-up,
mark-down or commission and do not necessarily  represent  actual  transactions.
There presently is a limited public market for the Common Stock.

         Quarter Ending             Low          High
         --------------             ---          ----

            1997
            ----

         March 31                   $1.56        $2.00
         June 30                    $1.38        $2.19
         September 30               $1.56        $2.06
         December 31                $1.38        $1.84

                                       6
 
<PAGE>

        Quarter Ending             Low          High
        --------------             ---          ----

            1996
            ----

         March 31                   $ .88        $1.38
         June 30                    $1.09        $3.13
         September 30               $1.50        $2.63
         December 31                $1.31        $2.31


     As of April 8, 1998, there were  approximately 441 holders of record of the
Company's  Common Stock with 4,172,906  shares of Common Stock  outstanding.  In
addition,  the Company believes that there are more than 1,500 beneficial owners
of Common Stock whose shares are held in "street" name as of such date. On April
8, 1998,  the closing bid and asked  quotations  of the Common Stock were $1.625
and $1.7188, respectively.

     The  Company  has  never  paid and does not  currently  intend  to pay cash
dividends.  In  addition,  the Company has never made,  nor adopted any policies
with respect to, in-kind distributions, and has no present intention of adopting
any such policies or of making any such distributions.

ITEM 6.  Management's Discussion and Analysis
         or Plan of Operations
------   ---------------------

     During the fiscal year ended December 31, 1997 ("Fiscal 1997"), the Company
completed  the  divestiture  of all of its major  operating  assets  other  than
Recticon  and, on November 4, 1997,  pursuant to the  approval of the  Company's
stockholders,  withdrew  its  election  with the  Commission  to be treated as a
Business Development Company under the 1940 Act.  Accordingly,  the Company will
be  operating  in  the  foreseeable   future  as  a  holding  company  with  one
wholly-owned  subsidiary,  Recticon. The Company believes that it has sufficient
short-term and long-term liquidity either from cash on hand, credit arrangements
or cash flow from  operations.  Although  the  business  in which the Company is
engaged is highly  competitive  and  cyclical in nature,  the  Company  does not
foresee any material  impact during the upcoming  calendar year on its net sales
or income from continuing operations.

     The Company has reviewed its  computer  software and hardware  requirements
with respect to the Year 2000 issue. Recticon is the only portion of the Company
which is affected by the Year 2000 issue.

     Recticon has  identified  the changes in its computer  software  which were
required to make their computer systems Year 2000 compliant. The majority of the
changes which were required have been  completed.  The remaining  system changes
are scheduled to be

                                       7
<PAGE>
 
completed and tested during 1998.  The costs to complete the remaining  software
alterations are nominal.

ITEM 7.  Financial Statements.
-------  ---------------------

     See Index to Financial Statements after Signature Page.

ITEM 8.  Changes in and Disagreements with Accountants
         on Accounting and Financial Disclosure
------   ---------------------------------------------

     Reference  is made to the  Company's  Current  Report  on Form  8-K,  dated
November 10, 1997,  filed with the Commission on November 10, 1997, with respect
to the change of its accountants.

                                    PART III

ITEM 9. Directors, Executive Officers, Promoters and
        Control Persons
------  --------------------------------------------

     The following is a list (along with certain  biographical  information)  of
the  executive  officers  and  directors of the  Company.  All  directors of the
Company  are serving a current  term of office  which  continues  until the next
annual meeting of  stockholders,  and all officers are serving a current term of
office which continues until the next annual meeting of directors:

                              Year of
                             Election
                                as
Name and Age                 Director    Position
------------                 --------    --------
(As of 3/1/98)

Bert Sager(1)(2)             1983        Co-Chairman of the Board
  (72)                                   and Director

Stephen A. Ollendorff        1983        Chairman of the Board,
  (59)  (1)(2)                           Chief Executive Officer,
                                         Secretary and Director

Edward N. Epstein*           1995        President and Chief
  (57)  (1)(2)                           Operating Officer; Director

Larry V. Unterbrink          (3)         Treasurer
  (63)

Robert P. Freeman             -          President and Chief
  (63)                                   Executive Officer
                                         of Recticon

Paula Berliner               1990        Vice President; Director
  (54)  (1)(2)

                                       8
 


<PAGE>

                             Year of
                             Election
                                as
Name and Age                 Director    Position
------------                 --------    --------
(As of 3/1/98)
Edward S. Croft, III         1997        Director
  (54)    (2)(4)(5)

Ronald J. Manganiello*       1997        Director
  (48)    (2)(4)(5)(6)

Kenneth I. Sawyer            1992        Director
  (52)    (2)(4)(5)

--------------
*Designees of Edward N. Epstein.  See "Certain Relationships and
 Related Transactions."

(1)  Member of the Executive Committee.
(2)  Member of Nominating Committee.
(3)  Mr. Unterbrink was a member of the Board from
     1985 until February 1995.
(4)  Member of the Audit Committee.
(5)  Member of Stock Option and Compensation Committee.
(6)  Mr.  Manganiello was a member of the Board from November 1995 until January
     1997, and was elected to the Board in December 1997.
--------------

     BERT SAGER has been  Co-Chairman of the Board of the Company since November
1995 and was Chairman from June 1989 to November  1995.  Prior  thereto,  he was
President  since the Company's  inception  until June 1989. Mr. Sager has been a
private  investor  for more than five years and has been a  practicing  attorney
since  1949.  He  is  a  director  of  Computer   Products,   Inc.  ("CPI"),   a
publicly-traded manufacturer of standardized electronic products, of Boca Raton,
Florida.

     STEPHEN A. OLLENDORFF has been Chief Executive Officer of the Company since
September  1992,  Chairman of the Board since  November  1995,  President of the
Company from June 1989 until November  1995,  and Secretary  since the Company's
inception.  He served as Vice President from the Company's  inception  until his
election as  President.  Mr.  Ollendorff  has been of counsel to the law firm of
Hertzog, Calamari & Gleason since December 1990. Mr. Ollendorff also serves as a
director of CPI.

     EDWARD N. EPSTEIN was elected  President and Chief Operating Officer of the
Company  in  November  1995.  For more  than the past five  years,  has been the
principal  of Edward N.  Epstein & Assoc.,  

                                       9
<PAGE>
a consulting  firm  specializing in corporate  structure and management.  He has
also been,  since January 1996, a principal in the merchant  banking firm of New
Canaan  Capital  LLC,  and since  July  1996,  a  principal  of Sylhan  LLC,  an
integrated  contract  manufacturer  specializing  in the precision  machining of
refractory metal parts.

     LARRY V.  UNTERBRINK,  Treasurer of the Company since  February  1990, is a
private investor  residing in Florida.  Since November 1986, Mr.  Unterbrink has
been  a  principal  of  Groupe  Financier,  a  publishing  and  consulting  firm
specializing in international finance. Mr. Unterbrink had been, from May 1982 to
December  1994,  President  and  Treasurer  of  Seahorse  Ltd.,  a  leasing  and
publishing company.

     PAULA  BERLINER has been a Vice  President  of the Company  since June 1992
and, since May 1990,  has been a private  investor  residing in Florida.  She is
presently a director of Republic Security Financial Corp., a holding company for
Republic Securities Bank.

     EDWARD S. CROFT,  III,  since August 1996,  has been  Managing  Director of
Croft & Bender  L.L.C.,  an  investment  banking  firm and  strategic  financial
advisory firm; from April 1996 to August 1996 Mr. Croft was President of Croft &
Co., a financial  advisory  firm.  For more than five years prior to April 1996,
Mr. Croft was  Managing  Director of The  Robinson-Humphrey  Company,  Inc.,  an
investment  banking  firm.  He is a director of CPI and Just For Feet,  Inc., an
athletic footwear retailer.

     RONALD J.  MANGANIELLO has been a principal in the merchant banking firm of
New  Canaan  Capital  LLC,  since  January  1996.  Since July 1996 he has been a
principal of Sylhan LLC. From 1986 to January 1996, Mr. Manganiello was Chairman
and Chief Executive Officer of Hanger Orthopedic Group,  Inc,, a publicly-traded
provider of patient care  services  and  products  for  orthotic and  prosthetic
rehabilitation; director of Hanger Orthopedic Group, Inc.

     KENNETH I.  SAWYER has been  Chairman  of the  Board,  President  and Chief
Executive Officer of Pharmaceutical  Resources, Inc. for more than the past five
years.

     There  are no  family  relationships  between  any  executive  officers  or
directors of the Company.


Section 16(a) Compliance
------------------------

     The Company is aware of the following  late filings of reports  required by
Section 16(a) of the Exchange Act:  Paula  Berliner  failed to file, on a timely
basis,  a  Statement  of Changes in  

                                       10

<PAGE>

Beneficial  Ownership  on Form 4;  Ronald J.  Manganiello  failed to file,  on a
timely basis, an Initial Statement of Beneficial Ownership on Form 3; Stephen A.
Ollendorff failed to file, on a timely basis, his Annual Statement of Changes in
Beneficial  Ownership  on Form 5; and  Kenneth I.  Sawyer  failed to file,  on a
timely basis,  a Statement of Changes in  Beneficial  Ownership on Form 4. These
filings were subsequently completed on the appropriate forms.

ITEM 10.  Executive Compensation
--------  ----------------------

Summary Compensation Table
--------------------------

     The  following  table sets forth  information  for the fiscal  years  ended
December  31, 1997,  December  31, 1996 and  December  31,  1995,  respectively,
respecting compensation earned by the Chief Executive Officer of the Company and
the  executive  officers  (whose salary and bonus earned in Fiscal 1997 exceeded
$100,000)  of  the  Company  serving  at the  end of  Fiscal  1997  (the  "Named
Executives").

                                                                     Long-Term
                                 Annual Compensation(1)            Compensation
                           ------------------------------------    ------------ 
                                                                     Securities
Name and Principal                                                   Underlying
Position                   Year        Salary($)       Bonus($)    Options(#)(2)
------------------         ----        ---------       --------    -------------

Stephen A. Ollendorff      1997(3)     $254,615(4)         --         50,000
 Chairman and Chief        1996(3)     $264,042            --           --
 Executive Officer         1995(3)     $256,750            --           --

Edward N. Epstein          1997        $182,090(4)         --           --
 President and             1996        $150,000            --           --
 Chief Operating           1995        $122,500(5)     $ 30,000      150,000
 Officer

Robert P. Freeman          1997        $215,920        $ 95,673       50,000
 President and Chief       1996        $242,480        $150,000         --
 Executive Officer -       1995        $171,340        $ 50,000         --
 Recticon Enterprises,
 Inc.
--------
(1)  No officer received  perquisites which, are in the aggregate,  greater than
     or equal to the lesser of $50,000 or 10% of annual salary and bonus.

                                       11

<PAGE>

(2)  Represents options awarded under the 1991 Stock Option Plan.

(3)  Mr.  Ollendorff  has  voluntarily  assumed   responsibility  for  rent  and
     secretarial  expenses relating to the New York office.  Mr. Ollendorff does
     not receive any fringe benefits from the Company.

(4)  As a result of an  agreement between  Messrs. Epstein and Ollendorff, Mr. 
     Ollendorff voluntarily reduced his annual compensation by $24,280 to
     $242,475, effective July 1997, in order to increase Mr. Epstein's  annual
     compensation by $24,280 to $209,230. See "Employment Arrangements" below.

(5)  This amount was paid to Mr. Epstein  pursuant to his consulting arrangement
     with the Company.


     The Company does not have any  annuity,  retirement,  pension,  deferred or
incentive  compensation plan or arrangement  under which any executive  officers
are entitled to benefits, nor does the Company have any long-term incentive plan
pursuant to which  performance  units or other forms of  compensation  are paid.
Executives  who qualify are permitted to participate in the Company's 1991 Stock
Option Plan.

Stock Option Grants In Last Fiscal Year
---------------------------------------

     The following table sets forth information concerning stock options granted
to the Named Executives during the fiscal year ended December 31, 1997:

                   No. of     Percentage of
                 Securities   Total Options
                 Underlying    Granted to     Exercise
                  Options     Employees in    Price Per  Expiration
Name             Granted(#)   Fiscal Year(%)   Share($)     Date
----             ----------   --------------   --------  ----------

Stephen A.          50,000         50           $1.58     6/1/07
 Ollendorff

Edward N.             -            -             -           -
  Epstein

Robert P.           50,000         50           $1.58     6/1/07
  Freeman
-------------


     On March 2, 1998 the Stock Option and Compensation Committee authorized the
further amendment to certain of the Company's

                                       12

<PAGE>

outstanding  stock options  (which had  previously  been amended on November 22,
1994).  In exchange  for each  optionee  agreeing to an increase in the exercise
price in the event of a "change of control"  from $.5625 to $1.25  (equal to the
"fair market value" of the Company's Common Stock on March 2, 1998), the Company
would expand the  definition of "change of control" to include the merger,  sale
or  liquidation  of the  business  as set forth in (iv)  below.  The amended and
expanded  definition  of  "change  of  control"  would  occur  in the  following
circumstances:  (i) the first  purchase  of shares of equity  securities  of the
Company pursuant to a tender offer or exchange offer (other than an offer by the
Company) for 25% or more of the equity  securities  of the Company,  which offer
has not been approved by the Board of the Company,  (ii) a single purchaser or a
group of associated purchasers acquiring, without the approval or consent of the
Board of the Company,  securities of the Company representing 25% or more of the
combined voting power of the Company's then  outstanding  securities in one or a
related series of transactions,  (iii) in respect of an election of directors by
the Company's stockholders, the election of any or all of the management's slate
of directors  being  contested or opposed,  whether  through a  solicitation  of
proxies,  or  otherwise,  or (iv) on the day  the  stockholders  of the  Company
approve (A) a definitive  agreement for the merger or other business combination
of  the  Company  with  or  into  another  corporation  pursuant  to  which  the
stockholders of the Company do not own, immediately after the transaction,  more
than 50% of the voting power of the corporation  that survives and is a publicly
owned  corporation  and  not a  subsidiary  of  another  corporation,  or  (B) a
definitive  agreement for the sale,  exchange,  or other  disposition  of all or
substantially all of the assets of the Company,  or (C) any plan or proposal for
the  liquidation  or  dissolution  of the Company.  As of April 8, 1998, no such
"change of control" has occurred.

     On November 7, 1996, the Board of Directors  authorized the Company to loan
moneys to officers and  employees  of the Company in order to encourage  them to
exercise their stock options. The term of such loans would be for the shorter of
ten years or 60 days after termination of employment of the officer or employee,
interest would accrue and be payable monthly on the principal, at the prevailing
rate  applicable to 90-day  treasury bills at the time the loan is made, and the
loan  would  be  collateralized  at all  times,  which  collateral  (subject  to
applicable  law)  may  include  shares  of  the  Company.   The  loans  must  be
collateralized  so that the fair market  value of the  collateral  would have to
equal or exceed the principal outstanding amount of the loan at all times. As of
April 8, 1998,  no such loans to  officers  or  employees  have been made by the
Company.

                                       13

<PAGE>

Year-End Option Values Table

     The following table sets forth  information at December 31, 1997 respecting
exercisable and  non-exercisable  options held by the Named  Executives.  During
Fiscal 1997, the Named Executives did not exercise any stock options.  The table
also includes the value of  "in-the-money"  stock options which  represents  the
spread  between  the  exercise  prices of the  existing  stock  options  and the
year-end price of the Common Stock.


                     Number of Unexercised        Value of Unexercised In-
                        Options Held               the-Money Options
                  at December 31, 1997(1)      Held at December 31, 1997(1)
                 --------------------------    ----------------------------
                                   Not                          Not
Name             Exercisable    Exercisable     Exercisable  Exercisable
----             -----------    -----------     -----------  -----------
Stephen A.
  Ollendorff       330,000         -0-            $-0-             $-0-

Edward N.
  Epstein          150,000         -0-            $80,250          $-0-

Robert P.
  Freeman          100,000         -0-            $14,000          $-0-

----------------
(1)       Based upon the closing sales price of the Common Stock on December 31,
          1997 ($1.44).


Compensation of Directors
-------------------------

     Effective  December 1993,  directors who are not executive  officers of the
Company are  compensated  for their services by payment of an annual retainer of
$4,000,  $500 for  each  Board  meeting  attended  in  person  by such  director
(excluding  the  four  regular  quarterly  Board  meetings)  and  $250  for each
committee meeting attended in person by such director.

Employment Arrangements
-----------------------

     The  Company  has  entered  into an  employment  agreement,  for a  minimum
three-year  period,  which  has been  renewed  by its  terms,  with  Stephen  A.
Ollendorff,  pursuant to which Mr.  Ollendorff  receives annual  compensation of
$250,000,  subject to annual  cost-of-living  adjustments,  from the Company. On
January 17, 1996, Mr. Ollendorff's  employment agreement was amended in order to
clarify

                                       14

<PAGE>

certain  terms  and  conditions,  including  the  geographic  location  in which
services are to be provided,  events of  termination  and his  obligations  with
respect to confidential information, non-solicitation of employees and covenants
not to compete.  Mr.  Ollendorff  agrees to devote such time to the business and
affairs of the Company as he believes is  necessary  for the  operations  of the
Company. In addition,  Mr. Ollendorff has voluntarily assumed responsibility for
rent and  secretarial  expenses  relating to the Company's New York office.  Mr.
Ollendorff receives no fringe benefits from the Company.

     Effective January 1, 1997, Mr. Ollendorff receives a salary of $120,000 per
year as Chairman of the Board of Recticon Enterprises, Inc. ("Recticon"),  which
amount is paid by the Company  from the amounts  paid by Recticon to the Company
each month.  In addition,  Recticon rents office space in Mr.  Ollendorff's  New
Jersey office and pays rent directly to Mr.  Ollendorff  directly for such space
in the amount of $500 per month.  Any amounts  received by Mr.  Ollendorff  from
Recticon as rent and/or  salary are deducted from his salary from the Company to
the extent and as long as he receives such monies from Recticon.

     The Company  entered into an employment  agreement  with Edward N. Epstein,
effective January 1, 1996, for a three year period,  for an annual  compensation
of $150,000,  subject to  cost-of-living  adjustments.  In  addition,  the Stock
Option and Compensation  Committee  granted Mr. Epstein a $30,000 bonus in 1995.
Mr.  Epstein  agrees to devote  such time to the  business  and  affairs  of the
Company as he believes is necessary for the operations of the Company.  Prior to
the execution of such employment  agreement,  Mr. Epstein had been retained as a
consultant to the Company, at the annual compensation of $120,000.

     As a result of an agreement  between Messrs.  Epstein and  Ollendorff,  Mr.
Ollendorff  voluntarily  reduced his annual compensation by $24,280 to $242,475,
effective July 1997, in order to increase Mr. Epstein's  annual  compensation by
$24,280 to  $209,230.  Mr.  Ollendorff  has  agreed not to accept any  increased
compensation  (other than  cost-of-living  increases) until Mr. Epstein's annual
compensation shall be equal to Mr. Ollendorff's.

     Robert P.  Freeman,  President  and Chief  Executive  Officer of  Recticon,
entered into a letter  agreement  with  Recticon as of February 15, 1995,  which
provides  that if,  within one (1) year of a "change of control"  (as defined in
the  agreement)  of Recticon,  his  employment  is  terminated  without cause by
Recticon, or he resigns because of (i) assignment,  without his written consent,
of any duties  inconsistent  with his  position,  duties,  responsibilities  and
status with  Recticon,  or change in his  reported  responsibilities,  titles of
offices or any plan, act, scheme or design to  constructively  terminate him, or
(ii)  reduction  by  Recticon of his annual base  salary,  he shall  receive the
following 

                                       15

<PAGE>

benefits:  (i) annual base salary through the date of termination;  (ii) in lieu
of  any  further  salary  payments,  severance  pay on the  tenth  business  day
following the date of termination, a lump sum equal to two times his annual base
salary; and (iii) if Mr. Freeman terminates his employment with Recticon between
the first and second year of a change of control for any reason  other than "for
cause",  Recticon  will pay him the  amount  he would  have  been paid if he had
remained employed through the end of the second year of a change of control, but
in no event less than an amount equal to six months of base salary. In addition,
Recticon  will maintain all medical,  health and accident  plans for a period of
the  earlier  of (i) 24 months or (ii) the date of which he is covered by reason
of his being employed by a new employer.


ITEM 11.  Security Ownership of Certain Beneficial Owners and
          Management
--------  ---------------------------------------------------

Security Ownership of Certain Beneficial Owners
-----------------------------------------------

     The  following  table sets forth,  as of the close of business on March 15,
1998,  information as to those stockholders (other than members of the Company's
management),  which is known by the Company to beneficially  own more than 5% of
its outstanding Common Stock.

                                   No. of Shares
Name and Address                   Beneficially                   Percentage
of Beneficial Owner                 Owned(1)                       of Class
-------------------                 --------                       --------

Estate of Herbert Berman(2)         283,000                         6.8%
 405 Lexington Avenue
 New York, NY 10174

Allen Landers, M.D.
1385 York Avenue
New York, NY 10021                  253,800                         6.1%

---------------
(1)       Beneficial  ownership,  as  reported  in the  above  table,  has  been
          determined  in accordance  with Rule 13d-3 under the 1934 Act.  Unless
          otherwise  indicated,  beneficial  ownership includes both sole voting
          and sole dispositive power.

(2)       Excludes 51,000 shares of Common Stock owned by the adult children of 
          the late Herbert Berman.

Ownership by Management
-----------------------

     The  following  table sets  forth,  as of March 30,  1998,  the  beneficial
ownership of the Common Stock of the Company of (i) each director (including the
Named Executives) of the Company,  and (ii)

                                       16
<PAGE>
all  directors  and  executive  officers of the  Company as a group  (based upon
information  furnished by such persons).  Under the rules of the  Commission,  a
person is deemed to be a beneficial  owner of a security if he has or shares the
power to vote or direct the voting of such  security  or the power to dispose or
direct the disposition of such security.  Accordingly,  more than one person may
be  deemed to be a  beneficial  owner of the same  securities.  A person is also
deemed to be a beneficial  owner of any  securities of which that person has the
right to acquire beneficial ownership within 60 days.

                                        No. of Shares
Name and Address                        Beneficially        Percentage
of Beneficial Owner(1)                   Owned(2)           of Class
----------------------                   -----------        ----------

Bert Sager                                428,125(3)(4)         9.88%

Stephen A. Ollendorff                   1,513,700              32.53%
                                           (4)(5)(6)

Edward N. Epstein                         957,500(4)(5)        22.10%

Paula Berliner                            168,300(4)            4.00%

Robert P. Freeman                         140,000(4)            3.30%

Edward S. Croft, III                         --                  --

Ronald J. Manganiello                     184,946(7)            4.43%

Kenneth I. Sawyer                            --                  --

All directors and executive
 officers as a group
 (9 persons)                            2,602,892(4)           51.31%

-------------
(1)   The business address for purposes hereof of all of the Company's directors
      and executive officers is in care of the Company.

(2)   Unless  otherwise  noted,  the Company believes that all persons in the
      table have sole voting and disposition power with respect to all shares
      of Common Stock beneficially owned by them.

(3)   Does not include 200 shares owned by Marilyn Sager, his wife, as sole 
      trustee of a trust formed by her mother, with  respect
      to which he disclaims beneficial ownership.

(4)   Includes the following shares that may be acquired upon the exercise of
      options  within 60 days of March 30,  1998:  Mr.  Sager - 160,000;  Mr.

                                       17
  
<PAGE>

      Ollendorff - 330,000; Mr. Epstein - 150,000; Ms. Berliner - 70,000; Mr.
      Freeman - 100,000;  and all directors and executive officers as a group
      (9 persons) - 900,000.

(5)   Stephen A. Ollendorff has entered into an Irrevocable  Proxy and Voting
      Agreement  With Respect to Election of  Directors,  dated  December 19,
      1995,  with  Edward N.  Epstein,  with  respect to the shares of Common
      Stock beneficially owned by Mr. Epstein.  Accordingly, Mr. Ollendorff's
      beneficial ownership includes such shares. Other than as set forth, Mr.
      Ollendorff  disclaims beneficial ownership of such shares. See "Certain
      Relationships and Related Transactions."

(6)   Includes 1,000 shares owned of record by Bjorg Ollendorff, his wife.

(7)   Includes 32,946 shares owned of record by Lisa Manganiello, Mr.
      Manganiello's wife


ITEM 12.  Certain Relationships and Related Transactions
--------  ----------------------------------------------

     Mr.  Ollendorff,  Chief Executive Officer of the Company,  is of counsel to
Hertzog,  Calamari & Gleason, general counsel to the Company. Mr. Ollendorff has
entered into an Irrevocable  Proxy and Voting Agreement With Respect to Election
of Directors (the "Proxy"),  with Edward N. Epstein,  with respect to the shares
of Common Stock beneficially  owned by Mr. Epstein (the "Stock"),  commencing on
December  19, 1995 and  terminating  on December 31 of such year in which either
party shall have given the other  party at least  twelve  (12)  months'  written
notice   thereof   prior  to   December  31  of  such  year;   provided,   that,
notwithstanding  the  foregoing  the Proxy shall remain in full force and effect
until at least  December  31,  1998.  If any shares of the Stock  covered by the
Proxy are sold to any other  party,  the Proxy as it relates  to such  shares of
Stock shall terminate  immediately  upon such sale.  Pursuant to the Proxy,  Mr.
Ollendorff  undertakes  to vote  the  Stock,  as well  as use his  best  efforts
(including  voting shares of stock of the Company owned by him) for the election
of the greater of (i) two (2)  directors or (ii) a number of directors  equal to
22%  (rounded up to the next highest  number) of the entire Board of  Directors,
acceptable to Mr.  Epstein.  Mr.  Epstein had  designated  himself and Ronald J.
Manganiello  to Mr.  Ollendorff  with  respect to the election of members of the
Board as acceptable to him.


                                       18

<PAGE>

ITEM 13.  Exhibits and Reports on Form 8-K
--------  --------------------------------

      (a)    Exhibits:
             ---------

      3.1 Certificate of  Incorporation as filed and recorded with the Secretary
of State of Delaware, as amended.

      3.3 By-laws,  as amended,  effective  November 7, 1996 -  incorporated  by
reference to Exhibit 3 to the Company's  Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1996.

      10.1 Employment  Agreement dated August 31, 1993,  between the Company and
Stephen A.  Ollendorff  -  incorporated  by  reference  to  Exhibit  10.2 to the
Company's  Registration  Statement  on Form N-2 (No.  33-69610)  filed  with the
Commission on September 19, 1993.

      10.2 Agreement dated October 31, 1991 between the Company and Bert Sager -
incorporated by reference to Exhibit 10.3 to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1991.

      10.3  Agreement  dated  October 31, 1991  between the Company and Larry V.
Unterbrink - incorporated  by reference to Exhibit 10.3 to the Company's  Annual
Report on Form 10-K for the fiscal year ended December 31, 1991.

      10.4 1991 Stock Option  Plan,  as amended -  incorporated  by reference to
Exhibit 10.7 to the Company's  Registration Statement on Form N-2 (No. 33-69610)
filed with the Commission on September 29, 1993.

      10.5 Purchase and Settlement Agreement,  dated as of April 8, 1994, by and
among  ServiceMax,  ServiceMax  Tire and Auto  Centers of  Michigan,  Inc.,  the
Company, Stephen A. Ollendorff,  Orland Wolford, Bert Sager, Donald R. Nance, C.
James Sabo,  Richard A. Sabo and Robert L. Sabo -  incorporated  by reference to
Exhibit  10.7 to the  Company's  Annual  Report on Form 10-K for the fiscal year
ended December 31, 1993.

      10.6  Amendment  No. 1 to  Employment  Agreement,  dated as of January 17,
1996,  by and between the Company and Stephen A.  Ollendorff -  incorporated  by
reference to Exhibit 10.7 to the Company's  Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1995.

      10.7  Employment  Agreement,  dated as of January 17, 1996, by and between
the Company and Edward N. Epstein - incorporated by reference to Exhibit 10.8 to
the Company's  Annual  Report on Form 10-KSB for the fiscal year ended  December
31, 1995.

      10.8  Amendment  No. 1 to  Employment  Agreement,  dated as of January 17,
1996,  by and between the Company and Bert Sager  incorporated  by  reference to
Exhibit 10.9 to the  Company's  Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1995.

                                       19
  
<PAGE>

     10.9 Amendment No. 1 to Employment Agreement, dated as of January 17, 1996,
by and between the Company and Larry V.  Unterbrink - incorporated  by reference
to Exhibit  10.10 to the  Company's  Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1995.

      10.10 Employment  Agreement,  dated as of January 17, 1996, by and between
the Company and Paula Berliner -  incorporated  by reference to Exhibit 10.11 to
the Company's  Annual Report on Form 10-K for the fiscal year ended December 31,
1995.

      10.11 Asset  Purchase  Agreement,  dated May 30, 1997, by and among Morgan
Tire & Auto, Inc., the Company and Automotive Industries, Inc. - incorporated by
reference to Exhibit 2.1 to the Company's  Current Report on Form 8-K dated June
9, 1997.

      10.12 Assumption Agreement, dated May 30, 1997, by and among Morgan Tire &
Auto,  Inc.,  the Company and  Automotive  Industries,  Inc. -  incorporated  by
reference to Exhibit 2.2 to the Company's  Current Report on Form 8-K dated June
9, 1997.

     10.13 Letter  Agreement,  dated as of February 15, 1995,  between Robert P.
Freeman and Recticon.

      21    List of subsidiaries of the Company.

      27    Financial Data Schedule.

      (b) Reports on Form 8-K:
          -----------------------

      On November  10,  1997,  the Company  filed with the  Commission a Current
Report on Form  8-K,  dated  November  10,  1997,  reporting  the  change of its
accountants.


                                       20
<PAGE>
                                   SIGNATURES

         In accordance  with Section 13 or 15(d) of the Securities  Exchange Act
of 1934,  the  Registrant  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                   ACORN HOLDING CORP.
                                          (Registrant)

Dated: April 9, 1998               By: Stephen A. Ollendorff
                                      ---------------------------------------
                                       Stephen A. Ollendorff, Chairman
                                       of the Board and Chief Executive
                                       Officer

     In accordance  with the  Securities  Exchange Act of 1934,  this report has
been  signed  by the  following  persons  on  behalf  of the  Registrant  in the
capacities and on the dates indicated.

Signature                     Title                          Date


Stephen A. Ollendorff         Chairman of the Board          April 9, 1998
------------------------      Chief Executive Officer
Stephen A. Ollendorff         (Principal Executive
                              Officer), Secretary
                              and Director

Bert Sager                    Co-Chairman of the Board       April 9, 1998
------------------------      and Director
Bert Sager

Edward N. Epstein             President and Chief            April 9, 1998
------------------------      Operating Officer
Edward N. Epstein             Director


Larry V. Unterbrink           Treasurer (Principal           April 9, 1998
------------------------      Financial and Accounting
Larry V. Unterbrink           Officer)


Paula Berliner                Vice President and             April 9, 1998      
------------------------      Director
Paula Berliner        


Edward S. Croft, III          Director                       April 9, 1998
------------------------
Edward S. Croft, III


Ronald J. Manganiello         Director                       April 9, 1998
------------------------
Ronald J. Manganiello


Kenneth I. Sawyer             Director                       April 9, 1998
------------------------
Kenneth I. Sawyer

                                       21
<PAGE>
                       FINANCIAL STATEMENTS AND REPORTS OF
                    INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

                      ACORN HOLDING CORP. AND SUBSIDIARIES

                           December 31, 1997 and 1996






                                       F1
<PAGE>

                                    CONTENTS



                                                                            Page
                                                                            ----

ACORN HOLDING CORP. AND SUBSIDIARIES
------------------------------------

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                           F-4

FINANCIAL STATEMENTS

         CONSOLIDATED BALANCE SHEET                                          F-5

         CONSOLIDATED STATEMENT OF INCOME                                    F-6

         CONSOLIDATED STATEMENT OF 
         CHANGES IN STOCKHOLDERS' EQUITY                                     F-7

         CONSOLIDATED STATEMENT OF CASH FLOWS                                F-8

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                          F-9


AUTOMOTIVE INDUSTRIES, INC.
---------------------------

REPORT OF INDEPENDENT ACCOUNTANTS                                           F-19

FINANCIAL STATEMENTS

         BALANCE SHEETS                                                     F-20

         STATEMENTS OF OPERATIONS                                           F-21

         STATEMENTS OF SHAREHOLDER'S EQUITY                                 F-22

         STATEMENTS OF CASH FLOWS                                           F-23

         NOTES TO FINANCIAL STATEMENTS                                      F-24


                                      F-2
<PAGE>
                                                                            Page
                                                                            ----

ACORN VENTURE CAPITAL CORPORATION
---------------------------------

REPORT OF INDEPENDENT ACCOUNTANTS                                           F-31

FINANCIAL STATEMENTS

         BALANCE SHEET                                                      F-32

         STATEMENTS OF OPERATIONS                                           F-33

         STATEMENTS OF CHANGES IN NET ASSETS                                F-34

         STATEMENTS OF CASH FLOWS                                           F-35

         NOTES TO FINANCIAL STATEMENTS                                      F-37



                                     F-3

<PAGE>










               Report of Independent Certified Public Accountants


Board of Directors
Acorn Holding Corp.


     We have  audited  the  accompanying  consolidated  balance  sheet  of Acorn
Holding  Corp.  and  Subsidiaries  as of  December  31,  1997,  and the  related
consolidated  statements  of income,  changes in  stockholders'  equity and cash
flows for the year then ended. These financial statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these  financial  statements  based on our audit. We did not audit the financial
statements of Automotive Industries, Inc. as of and for the period ended May 31,
1997, at which date the net assets of that company were sold. The net operations
of that  company  for the period  ended May 31, 1997 and the gain on the sale of
that  company's  net  assets  at that  date  are  included  in the  consolidated
statement of income as "Discontinued  Operations." This caption,  except for the
elimination of intercompany transactions and related tax effects, was audited by
other auditors,  whose report thereon has been furnished to us, and our opinion,
insofar as it relates to those  amounts  included in the  statement of income of
Automotive  Industries,  Inc.,  is  based  solely  on the  report  of the  other
auditors.

     We conducted  our audit in  accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We  believe  that our audit  and the  report  of the  other  auditors  provide a
reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the consolidated  financial position of Acorn Holding
Corp. and Subsidiaries as of December 31, 1997, and the consolidated  results of
their  operations and their  consolidated  cash flows for the year then ended in
conformity with generally accepted accounting principles.

     As explained  in note A, the Company  changed its method of reporting as of
January  1,  1997  from the  fair  value  accounting  basis  used  for  business
development companies to the historical cost basis used for operating companies.
Therefore,  the 1997  consolidated  financial  statements  are not comparable to
previous years.


Grant Thornton LLP

Philadelphia, Pennsylvania
March 23, 1998

                                       F-4
<PAGE>



                      Acorn Holding Corp. and Subsidiaries

                           CONSOLIDATED BALANCE SHEET
                               (Operating Company)

                                December 31, 1997


                ASSETS
CURRENT ASSETS
    Cash and cash equivalents                                      $  2,882,526
    Restricted cash                                                      41,439
    U.S. Treasury bills                                                 986,706
    Accounts receivable - trade                                         429,893
    Current portion of note receivable
       from sale of subsidiary                                          121,696
    Current portion of note receivable
       - employee                                                        40,000
    Inventories                                                       2,506,763
    Prepaid expenses                                                     13,843
    Deferred income tax asset                                           179,000
                                                                   ------------
                Total current assets                                  7,201,866
                                                                   ------------
MACHINERY AND EQUIPMENT, net of accumulated
     depreciation of $1,998,010                                       1,706,823
                                                                   ------------
OTHER ASSETS
    Deposits and other                                                   82,563
    Note receivable from sale of subsidiary,
     less current portion                                               243,393
    Note receivable, less current portion
     - employee                                                         120,000
    Other investments                                                     9,981
    Goodwill, net of amortization of $470,417                           384,887
    Deferred income tax asset                                         1,306,000
                                                                   ------------
                                                                      2,146,824
                                                                   ------------
                                                                   $ 11,055,513
                                                                   ============
                LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
    Current maturities of long-term debt                           $    121,062
    Accounts payable                                                    303,474
    Accrued expenses
       Salaries and bonus                                               142,672
       Other                                                             70,847
    Machine purchase deposit liability                                   41,439
    Deferred income                                                     466,680
                                                                   ------------
                Total current liabilities                             1,146,174
                                                                   ------------
LONG-TERM DEBT, less current maturities                                 242,122
                                                                   ------------
DEFERRED INCOME                                                         783,306
                                                                   ------------
COMMITMENTS                                                                --
STOCKHOLDERS' EQUITY
    Common stock                                                         55,389
    Additional paid-in capital                                       14,090,156
    Accumulated deficit                                              (5,247,684)
    Less common stock in treasury, at cost - 9,000 shares               (13,950)
                                                                   ------------
                Total stockholders' equity                            8,883,911
                                                                   ------------
                                                                   $ 11,055,513
                                                                   ============

The accompanying notes are an integral part of this statement.

                                     F-5
<PAGE>



                      Acorn Holding Corp. and Subsidiaries

                        CONSOLIDATED STATEMENT OF INCOME
                               (Operating Company)

                          Year ended December 31, 1997




Net sales                                                           $ 7,907,820
                                                                    -----------

Costs and expenses
    Cost of sales                                                     5,209,795
    Selling, general and administrative                               1,977,433
                                                                    -----------
                                                                      7,187,228
                                                                    -----------
         Operating profit                                               720,592
                                                                    -----------

Other income
    Gain on investment                                                  102,000
    Interest income, net                                                 83,616
                                                                    -----------
                                                                        185,616
                                                                    -----------
         Income from continuing operations
          before income taxes                                           906,208

Income taxes                                                            142,749
                                                                    -----------

         Income from continuing operations                              763,459
                                                                    -----------

Discontinued operations
    Loss from operations of Automotive
     Industries, Inc. (net of income tax
     benefit of $239,589)                                              (379,395)
    Gain on sale of assets and liabilities
     of Automotive Industries, Inc. 
     (net of income taxes of $700,138)                                1,095,087
                                                                    -----------
                                                                        715,692
                                                                    -----------

                     NET INCOME                                     $ 1,479,151
                                                                    ===========

Earnings per share (note N)
    Income from continuing operations                               $      0.14
    Income from discontinued operations                                    0.13
                                                                    -----------

    Net income                                                      $      0.27
                                                                    ===========

Weighted average shares outstanding                                   5,538,164
                                                                      =========


The accompanying notes are an integral part of this statement.

                                      F-6
<PAGE>



                      Acorn Holding Corp. and Subsidiaries

            CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                               (Operating Company)

                          Year ended December 31, 1997




<TABLE>
<CAPTION>
                                                        Retained
                                       Additional       earnings
                            Common       paid-in      (accumulated      Treasury
                             stock       capital        deficit)          stock          Total
                            ------     ----------     ------------      --------         -----
<S>                     <C>            <C>            <C>             <C>             <C>   
Balance at
 January 1, 1997        $     55,389   $ 14,090,156   $  1,999,143    $       --      $ 16,144,688

Cumulative adjustment
 at January 1,
 1997 due to
 deregistration
 as a business                  --             --       (8,725,978)           --        (8,725,978)
 development company

Treasury shares
 purchased                      --             --             --           (13,950)        (13,950)

Net income                      --             --        1,479,151            --         1,479,151
                        ------------   ------------   ------------    ------------    ------------
Balance at
 December 31, 1997      $     55,389   $ 14,090,156   $ (5,247,684)   $    (13,950)   $  8,883,911
                        ============   ============   ============    ============    ============
</TABLE>


The accompanying notes are an integral part of this statement.

                                      F-7
<PAGE>



                      Acorn Holding Corp. and Subsidiaries

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                               (Operating Company)

                          Year ended December 31, 1997



Cash flows from operating activities
    Net income                                           $ 1,479,151
    Adjustments to reconcile net income to
       net cash provided by operating activities
      Depreciation and amortization                          525,524
      Deferred income tax asset                              584,000
      Gain on sale of assets                              (1,795,225)
      Imputed interest                                        53,321
      Loss on sale of assets                                   3,645
      Deferred credit                                        (53,321)
      Decrease in assets
         Accounts receivable                                 312,817
         Inventories                                         256,719
         Prepaid expenses and other assets                   151,200
      Increase (decrease) in liabilities
         Accounts payable                                   (829,655)
         Accrued expenses                                     21,467
         Deferred income                                    (466,680)
                                                         -----------

             Net cash provided by operating activities       242,963
                                                         -----------

Cash flows from investing activities
    Purchase of machinery and equipment                     (678,544)
    Redemption of treasury notes                           1,739,232
    Purchase of investments                               (2,735,919)
    Proceeds from the sale of machinery and equipment          6,000 
    Note receivable                                           41,200
    Proceeds from sale of assets                           2,863,322
                                                         -----------

             Net provided by investing activities          1,235,291

Cash flows from financing activities
    Payment of long-term debt and capital lease             (792,651)
    Purchase of treasury stock                               (13,950)
                                                         -----------

             Net cash used in financing activities          (806,601)
                                                         -----------

             NET INCREASE IN CASH AND CASH EQUIVALENTS       671,653

Cash and cash equivalents at beginning of year             2,210,873
                                                         -----------

Cash and cash equivalents at end of year                 $ 2,882,526
                                                         ===========

Supplemental disclosure of cash flow information
    Interest paid                                        $   105,084
                                                         ===========


The accompanying notes are an integral part of this statement.

                                      F-8
<PAGE>

                      Acorn Holding Corp. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 1997


NOTE A - ORGANIZATION AND PURPOSE


Acorn Holding Corp.  (Acorn)  (formerly Acorn Venture Capital  Corporation)  was
incorporated under the laws of the State of Delaware on September 8, 1983.

Acorn  filed an election  with the  Securities  and  Exchange  Commission  to be
treated as a "business  development company" under the Investment Company Act of
1940, as amended and operated as such until  November  1997.  In November  1997,
Acorn  withdrew its election as an investment  company,  ceased to be a Business
Development  Company,  and commenced business as an operating  company.  At that
date, the name of the company was changed to Acorn Holding Corp.

The effect of the change in status  from a  business  development  company to an
operating  company was to decrease retained earnings by $8,728,978 at January 1,
1997, principally due to reflecting its investment in Recticon Enterprises, Inc.
on a historical cost equity basis from a fair value basis.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. Nature of Business and Principles of Consolidation

The consolidated  financial statements include the accounts of Acorn and its two
wholly-owned subsidiaries: Automotive Industries, Inc. (Automotive) and Recticon
Enterprises,  Inc.  (Recticon)  (collectively,  the Company).  All  intercompany
transactions and balances have been eliminated. Automotive operated full-service
automotive  retail stores until the assets of Automotive were sold as of May 31,
1997. Recticon manufactures monocrystalline silicon wafers which are used in the
microelectronics industry.

2. Use of Estimates

In preparing the financial  statements in  accordance  with  generally  accepted
accounting principles,  management is required to make estimates and assumptions
that affect the reported  amounts of assets and  liabilities  and  disclosure of
contingent  assets and  liabilities at the date of the financial  statements and
revenues and expenses  during the reported  period.  Actual results could differ
from those estimates.

3. Concentration of Risk

The  subsidiaries  provide  their  products to customers  throughout  the United
States. The subsidiaries  perform ongoing credit evaluations of their customers'
financial  condition and generally  require no collateral from their  customers.
Bad debt expense is not significant.


                                   (Continued)

                                      F-9
<PAGE>

                      Acorn Holding Corp. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                                December 31, 1997


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

4. Cash and Cash Equivalents

Cash and cash equivalents  consist of cash and highly liquid  investments with a
maturity of three months or less when purchased.

5. Inventories

Inventories are stated at the lower of cost or market. Cost is determined by the
first-in, first-out method.

6. Machinery and Equipment

Machinery  and  equipment  are  stated  at cost less  accumulated  depreciation.
Depreciation  is provided by the  straight-line  method  over  estimated  useful
lives. Maintenance and repair costs are charged to expense as incurred.

7. Deferred Income

Deferred  income is an amount received from customers in exchange for Recticon's
commitment to provide certain quantities of product over periods extending until
September 2001. The deferred amounts are amortized on a straight-line basis over
the terms of the agreements.

8. Income Taxes

Deferred income tax assets and liabilities  represent the tax effects,  based on
current tax law, of future deductible or taxable amounts  attributable to events
that have been  recognized  in the  financial  statements.  Income  tax  expense
represents  taxes  payable,  net of  changes in  deferred  income tax assets and
liabilities during the year. The Company files a consolidated federal income tax
return which  includes the  subsidiaries'  taxable  income.  Under the Company's
tax-sharing  agreement with its  subsidiaries,  the subsidiaries are required to
pay to the Company an amount  equivalent to what it would have paid had it filed
a separate company federal income tax return.

                                   (Continued)

                                      F-10

<PAGE>
                      Acorn Holding Corp. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                                December 31, 1997


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

9. Earnings Per Share

The  Company  adopted  the  provisions  of  Statement  of  Financial  Accounting
Standards (SFAS) No. 128, Earnings Per Share, which eliminates primary and fully
diluted  earnings  per  share and  requires  presentation  of basic and  diluted
earnings per share in conjunction with the disclosure of the methodology used in
computing such earnings per share.  Basic  earnings per share excludes  dilution
and is computed by  dividing  income  available  to common  shareholders  by the
weighted average common shares outstanding  during the period.  Diluted earnings
per share  takes  into  account  the  potential  dilution  that  could  occur if
securities or other contracts to issue common stock were exercised and converted
into common  stock.  The  adoption of SFAS No. 128 had no impact on earnings per
share of any year presented.

10. Goodwill

Goodwill  represents  the  excess of cost over the fair  value of the net assets
acquired  for the purchase of Recticon.  This excess is being  amortized  over a
period of 10 years.

NOTE C - SALE OF ASSETS AND LIABILITIES OF AUTOMOTIVE INDUSTRIES, INC.

Automotive  entered into an agreement to sell its operating assets as of May 30,
1997. In accordance with the agreement, Automotive sold substantially all of its
assets and liabilities for a price of $2,500,000 plus an incentive  amount equal
to 1% of the aggregate  gross sales of all the  currently  existing 28 locations
for each of the three years  beginning June 1, 1997 through May 31, 2000, not to
exceed $500,000.

As of December 31, 1997,  Automotive and the purchaser entered into an agreement
which amended the original  purchase price.  Automotive and the purchaser agreed
to delete the incentive  purchase amount discussed above, and the parties agreed
for the  purchaser to pay  Automotive  an aggregate  amount of $425,000 in equal
annual installments  through June 2000, with no interest.  The $425,000 has been
recorded at its present value, assuming an 8% imputed interest rate.

In accordance with the sale agreement,  essentially all operating assets of that
company were sold and liabilities assumed by the buyer.

In accordance with generally accepted accounting  principles,  the operations of
Automotive are included in the accompanying  consolidated statement of income as
"Discontinued  Operations."  In  addition,  the  net  gain  on the  sale of that
subsidiary  is shown as "Gain on Sale of Assets and  Liabilities  of  Automotive
Industries, Inc."

NOTE D - RESTRICTED CASH

Recticon has entered into agreements with customers and has purchased  machinery
consisting of crystal  growing and wafer  finishing  units.  The customers  have
provided cash to Recticon for the purchase and construction of the units.  Title
of all  machinery  and  equipment  purchased  is in the  name of the  customers.
Amounts  received and not  utilized are  refundable.  At the  conclusion  of the
contracts with these customers, title to the machinery will be given to Recticon
for a nominal sum.

                                      F-11
<PAGE>

                      Acorn Holding Corp. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                                December 31, 1997

NOTE E - U.S. TREASURY BILLS

U.S. Treasury bills consist of the following:
                                                           
      Face                                              Value at
      value         Interest rate and due date      December 31, 1997
      -----         --------------------------      -----------------
                                                        
     $500,000       5.38% due January 22, 1998         $493,345
      500,000       6.00% due April 2, 1998             493,361
                                                       --------

                                                       $986,706
                                                       ========


NOTE F - INVENTORIES

    Inventories consist of the following:

       Raw materials and supplies              $1,122,426
       Work in process                          1,273,883
       Finished goods                             110,454
                                               ----------

                                               $2,506,763
                                               ==========
NOTE G - CREDIT ARRANGEMENTS

    Recticon has available a $750,000  revolving  line of credit which is due on
    demand.  Interest  is payable  monthly at the prime rate plus 1/2% (8.25% at
    December  31,  1997).  The  line is  secured  by  Recticon's  assets  and is
    guaranteed  by Acorn.  At December  31, 1997,  there was $750,000  available
    under the line of credit.

NOTE H - LONG-TERM DEBT

Recticon has long-term debt consisting of the following:

Term loan at 8.25% interest per annum; principal payable 
    in 48 monthly installments of $10,088, with 
    final payment due December 30, 2000; secured 
    by Recticon's assets                                    $   363,184

Less current maturities                                         121,062
                                                            -----------

                                                            $   242,122
                                                            ===========
                                  (Continued)

                                      F-12

<PAGE>

                      Acorn Holding Corp. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                                December 31, 1997


NOTE H - LONG TERM DEBT - Continued

    Annual maturities of long-term debt are as follows:

       Year ending December 31,

                  1998                                      $   121,062
                  1999                                          121,062
                  2000                                          121,060
                                                             ----------

                                                            $   363,184
                                                            ===========

NOTE I - DEFERRED INCOME

    Recticon  received  nonrefundable  payments of $2,300,000  from customers in
    exchange for its  commitment to provide  certain  quantities of product over
    periods  extending  until  September  2001. The payments  received have been
    recorded as deferred  income and are being amortized over the periods of the
    contracts.  The  sales  price  of the  product  to be  delivered  under  the
    agreements  is  permitted  to provide a gross  profit not to exceed 35%. The
    customers  are not  required  to  purchase  any amount of product  under the
    agreements.

    Annual recognition of deferred income is as follows:

         Year ending December 31,

                  1998                  $   466,680
                  1999                      300,000
                  2000                      300,000
                  2001                      183,306
                                        -----------

                                        $ 1,249,986
                                        ===========

NOTE J - INCOME TAXES

    The Company  depreciates its machinery and equipment for income tax purposes
    at rates which vary from those used for  financial  reporting  purposes.  In
    addition,  the Company has reported certain income for tax purposes which is
    being  recognized  over a period of years for financial  statement  purposes
    (note I).


                                  (Continued)

                                      F-13
<PAGE>
                      Acorn Holding Corp. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                                December 31, 1997

NOTE J - INCOME TAXES - Continued

    The income tax provision consists of the following:

       Current
           Federal                                $     35,000

       Deferred
           Federal                                     568,298
                                                  ------------
                                                  $    603,298
                                                  ============

    Deferred tax assets consist of the following:

       Net operating loss carryforwards            $ 2,079,000
       Depreciation                                   (137,000)
       Deferred income                                 507,000
       Carrying value of assets                        386,000
       Other                                            47,000
                                                   -----------
                                                     2,882,000
       Less valuation allowance                      1,397,000
                                                   -----------
                                                   $ 1,485,000
                                                   ===========

    A valuation  allowance has been established  against the deferred tax assets
    of net operating loss  carryforwards due to separate return limitations that
    are  applicable  to  $4,109,000  of losses.  The income tax benefits must be
    reduced to the extent that it is more likely than not the  benefits  may not
    be realized.

    The income tax  provisions  reconciled  to the tax computed at the statutory
    federal rate was as follows:

     Tax at statutory federal rate                   34.0%

     State income taxes, net of federal benefits      4.5

     Net operating losses                            (8.6)

     Other                                           (1.0)
                                                     -----
                                                     28.9%
                                                     =====

                                      F-14

<PAGE>
                      Acorn Holding Corp. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                                December 31, 1997

NOTE K - COMMITMENTS

    Recticon  leases its  facilities  under a lease  agreement  which expires on
    February 28, 2009. Minimum lease payments are as follows:

         Year ending December 31,

                     1998                     $    96,000
                     1999                          96,000
                     2000                          96,000
                     2001                         116,000
                     2002                         120,000
                     Thereafter                   778,000
                                              -----------

                                              $ 1,302,000
                                              ===========

NOTE L - CONCENTRATIONS

    For 1997,  three  customers  of Recticon  accounted  for 39%, 18% and 11% of
    sales, respectively.

    For 1997, one vendor accounted for 12% of Recticon's materials purchases.

    The  Company  and its  subsidiaries  maintain  cash  balances  at  financial
    institutions,  mutual funds and brokerage  accounts  located  throughout the
    United  States.  Accounts  with  financial  institutions  are insured by the
    Federal Deposit Insurance  Corporation up to $100,000.  The Company believes
    it is  not  exposed  to  any  significant  credit  risk  on  cash  and  cash
    equivalents.

NOTE M - RELATED PARTY TRANSACTIONS

    During 1997, the Company and its subsidiaries  paid a law firm, of which the
    Company's Chief Executive  Officer and Chairman is of counsel,  $100,367 for
    services rendered, including reimbursement of expenses.


                                       F-15
<PAGE>



                      Acorn Holding Corp. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                                December 31, 1997




NOTE N - EARNINGS PER SHARE

     The Company's calculation of EPS in accordance with SFAS No.
     128 is as follows:

                                            Income        Shares      Per share
                                         (numerator)   (denominator)    amount
                                         -----------   -------------  ---------
Basic EPS
   Income from continuing operations     $  763,459      5,538,164     $   0.14
   Income from discontinued operations      715,692      5,538,164         0.13
                                         ----------                    --------

   Net income                            $1,479,151      5,538,164     $   0.27
                                         ==========                    ========

    Diluted  EPS is not  presented,  as the  effect of  dilutive
    securities, consisting of options, has no impact.

    Of the total  options  outstanding,  options to purchase  600,000  shares of
    common stock ranging from $1.84 to $3.38 per share were  outstanding  during
    the year. They were not included in the computation of diluted  EPS
    because the option  exercise price was greater than the average market
    price.

NOTE O - STOCK OPTIONS

    The Company has issued stock options to various officers of the Company. The
    stock  options  were issued at fair value as of the date of grant and have a
    term of 10 years from the date of grant. The following is a summary of stock
    options outstanding at December 31, 1997:

                                                               Weighted
                                                               average
                                                               exercise
                                                   Shares        price
                                                   ------      --------

Outstanding at January 1, 1997                     900,000     $   1.85
Granted                                            100,000         1.58
Cancelled                                         (100,000)        1.16
                                                  --------     
Outstanding at December 31, 1997                   900,000     $   1.83
                                                  ========     
Options exercisable at December 31, 1997           900,000     $   1.83
                                                  ========     


                                   (Continued)

                                      F-16
<PAGE>



                      Acorn Holding Corp. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                                December 31, 1997




NOTE O - STOCK OPTIONS - Continued

    The  following  table  summarizes  information  about  fixed  stock  options
outstanding at December 31, 1997:

                        Options outstanding            Options exercisable
                 -------------------------------  -----------------------------
                            Weighted   Weighted               Weighted
Range of                   remaining   average                average
exercise                  contractual  exercise               exercise
  price          Shares      life       price     Shares       price  
-------------    ------   -----------  --------   ------      ---------
$0.88 - $1.16    200,000    7 years     $1.02     200,000     $  0.95
$1.58 - $2.00    550,000    6 years      1.18     550,000        1.18
$   3.38         150,000    4 years      3.38     150,000        3.38
                 -------                          -------            
                 900,000                          900,000
                 =======                          =======

    The  Company  applies  Accounting  Principles  Board  (APB)  Opinion No. 25,
    Accounting  for Stock Issued to Employees,  and related  interpretations  in
    accounting for the option plan.  Accordingly,  no compensation cost has been
    recognized. The compensation cost that would have been recognized based upon
    estimated fair value at the grant dates  consistent  with the method used in
    SFAS No. 123, Accounting for Stock-Based Compensation, was immaterial.

    According to the stock option plan,  outstanding options can be exercised at
    the fair  value  of the  Company's  common  stock as of  November  22,  1994
    ($0.5625)  if a "change  of  control"  of the  Company,  as  defined  in the
    agreements,  occurs.  The plan was amended on March 2, 1998 to increase  the
    exercise  price to $1.25 in the event of a  "change  in  control."  Assuming
    these shares were  exercised,  there would be no material impact on earnings
    per share.

    As of December 31, 1997, no options had been exercised.

    The Company  has adopted  only the  disclosure  provisions  of SFAS No. 123.
    It applies APB Opinion No. 25 and related  interpretations  in accounting 
    for its plans and does not recognize compensation   expense  for  its   
    stock-based   compensation   plans.   Had compensation  cost been determined
    based on the fair value of the options at the grant date  consistent with 
    SFAS No. 123, the Company's net earnings and EPS for the year ended December
    31, 1997 would have been reduced to the pro forma amounts indicated below:

     Net earnings
        As reported                    $   1,479,151
        Pro forma                          1,378,151

     Earnings per share
        As reported                             0.27
        Pro forma                               0.25


                                   (Continued)

                                      F-17
<PAGE>



                      Acorn Holding Corp. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                                December 31, 1997




NOTE O - STOCK OPTIONS - Continued

    These pro forma  amounts  may not be  representative  of future  disclosures
    because they do not take into effect pro forma compensation  expense related
    to grants  before  January  1,  1998.  The fair  value of these  options  is
    estimated on the date of grant using the Black-Scholes  option pricing model
    with the following  weighted  average  assumptions for grants in fiscal year
    1997:  expected  volatility of 40%,  risk-free  interest rate of 6.81%,  and
    expected  life of 10 years.  The  weighted  average  fair  value of  options
    granted during fiscal year 1997 was $1.59.

NOTE P - COMMON STOCK

    At December 31,  1997,  the Company had  20,000,000  shares of common stock
    authorized, 5,538,906 shares issued, and 5,529,908 shares outstanding.

    During November and December 1997, the Company  repurchased  9,000 shares of
    its common stock through the open market. The total cash outlay was $13,950.

NOTE Q - SUBSEQUENT EVENT

    Subsequent  to December 31, 1997,  the Company  announced  its  intention to
    repurchase up to 1,500,000  shares of its common stock.  Through February 2,
    1998, 1,357,000 shares had been repurchased at a cost of $2,141,492.





                                       F-18
<PAGE>


Report of Independent Accountants






Board of Directors
Automotive Industries, Inc.

We have audited the accompanying balance sheets of Automotive Industries,  Inc.,
a wholly owned  subsidiary of Acorn Venture Capital  Corporation,  as of May 31,
1997  and  December  31,  1996,  and  the  related   statements  of  operations,
shareholder's  equity and cash flows for the five months  ended May 31, 1997 and
for the year  ended  December  31,  1996.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Automotive Industries,  Inc. as
of May 31, 1997 and December 31, 1996, and the results of its operations and its
cash  flows  for the five  months  ended  May 31,  1997  and for the year  ended
December 31, 1996, in conformity with generally accepted accounting principles.

As  more  fully  described  in  Note  2,  on  May  30,  1997  the  Company  sold
substantially all of its assets and liabilities to a third party.



Coopers & Lybrand L.L.P.



Jacksonville, Florida

August 21, 1997,  except for the second paragraph of
Note 2, as to which date is December 3, 1997

                                       F-19
<PAGE>

                          Automotive Industries, Inc.
                                 BALANCE SHEETS
                       May 31, 1997 and December 31, 1996

        ASSETS                                     1997                1996
        ------                                     ----                ----
Current assets:
   Cash and cash equivalents                       $ 1,888,277  $ 1,161,632
   Trade accounts receivable (net
     of allowance for doubtful
     accounts of $49,420 in
     December 31, 1996)
                                                          --        510,411
   Receivable from parent                              562,500      434,000
   Other receivables                                      --        118,290
   Receivable from purchaser                           121,696         --
   Inventory                                              --      1,570,991
   Prepaid expenses                                      4,500      141,812
   Deferred taxes                                         --        150,665
                                                   -----------  -----------
        Total current assets                         2,576,973    4,087,801

   Property and equipment, net                            --      1,881,897
   Deferred taxes                                      553,560      678,194
   Goodwill, net                                          --      1,031,011
   Receivable from purchaser                           243,393         --
   Other assets                                           --        136,547
                                                   -----------  -----------

        Total assets                               $ 3,373,926  $ 7,815,450
                                                   ===========  ===========

        LIABILITIES AND SHAREHOLDER'S EQUITY

Current liabilities:
   Accounts payable                                $    44,442  $ 2,153,241
   Current portion of long-term debt                   562,500      165,335
   Current portion of capital leases                      --         36,992
   Accrued expenses                                     81,602      378,476
   Deferred revenue                                       --        185,510
                                                   -----------  -----------
        Total current liabilities                      688,544    2,919,554

Long-term debt                                            --      1,633,049
Obligations under capital leases                          --         63,788
Deferred credit                                           --        505,619
                                                   -----------  -----------

        Total liabilities                              688,544    5,122,010
                                                   -----------  -----------

Contingencies and commitments (Notes
  5 and 7)

Shareholder's equity:
   Common stock, $.01 par value;
   3,000 shares authorized,
   142 shares issued and outstanding
                                                             1            1
   Additional paid-in capital                        2,359,234    2,793,234
   Retained earnings (deficit)                         326,147      (99,795)
                                                   -----------  -----------

        Total shareholder's equity                   2,685,382    2,693,440
                                                   -----------  -----------

        Total liabilities and
          shareholder's
          equity                                   $ 3,373,926  $ 7,815,450
                                                   ===========  ===========

The accompanying notes are an integral part of these financial statements

                                     F-20
<PAGE>


                          Automotive Industries, Inc.
                            STATEMENTS OF OPERATIONS
   for the five months ended May 31, 1997 and the year ended December 31, 1996


                                              1997                1996
                                              ----                ----
Sales:
   Merchandise sales                        $  5,112,751    $ 13,560,831
   Labor sales                                 2,658,613       7,119,904
                                            ------------    ------------
      Total sales                              7,771,364      20,680,735

Cost of sales                                  3,528,024       9,282,321
                                            ------------    ------------

      Gross profit                             4,243,340      11,398,414

Operating expenses                             4,393,415      11,403,224
Depreciation                                     196,342         395,474
Amortization                                      35,799          94,918
                                            ------------    ------------

      Operating loss                            (382,216)       (495,202)

Other (expense) income:
   Gain on sale of assets and liabilities      1,795,225            --
   Recovery of receivable and advances
   made to affiliate, net                           --           750,070
   Management fees to parent                    (475,000)           --
   Severance pay to former employees            (160,000)           --
   Interest expense                              (82,529)       (151,606)
   Other income                                    5,761           9,520
                                            ------------    ------------
      Total other income, net                  1,083,457         607,984
                                            ------------    ------------

Net income before income taxes                   701,241         112,782

Income tax benefit (provision)                  (275,299)      1,262,859
                                            ------------    ------------

Net income                                  $    425,942    $  1,375,641
                                            ============    ============




The accompanying notes are an integral part of these financial statements.

                                     F-21
<PAGE>

                          Automotive Industries, Inc.
                       STATEMENTS OF SHAREHOLDER'S EQUITY
     for the five months ended May 31, 1997 and the year ended December 31,


                    Common Stock     Additional    Retained        Total
                    ------------      Paid-In      Earnings     Shareholder's
                   Shares   Amount     Capital     (Deficit)       Equity
                   ------   ------     -------     ---------    -------------

Balance at            142  $      1  $ 3,054,834   $(1,475,436)  $ 1,579,399
December 31,
1995

Dividends            --        --       (261,600)         --        (261,600)
($1,842 per
share)

Net income           --        --           --       1,375,641     1,375,641


Balance at            142         1    2,793,234       (99,795)    2,693,440
December 31,
1996

Dividends            --        --       (434,000)         --        (434,000)
($3,056 per
share)

Net income           --        --           --         425,942       425,942
                 --------  --------  -----------   -----------   -----------

Balance at May        142  $      1  $ 2,359,234   $   326,147   $ 2,685,382
31, 1997         ========  ========  ===========   ===========   ===========



The accompanying notes are an integral part of these financial statements.

                                     F-22
<PAGE>
                          Automotive Industries, Inc.
                            STATEMENTS OF CASH FLOWS
  for the five months ended May 31, 1997 and the year ended December 31, 1996

                                                  1997             1996
                                                  ----             ----
Cash flows from operating activities:
   Net income                                  $   425,942    $ 1,375,641
   Adjustments  to  reconcile  net
    income  to net cash  (used in)
    provided  by
    operating activities:
      Deferred taxes                               275,299       (828,859)
      Gain on sale of assets                    (1,795,225)          --
      Depreciation and amortization                232,141        490,392
      Imputed interest                              53,321         97,740
      Loss on sale of property and equipment         3,645         66,248
      Changes in operating assets and
        liabilities:
        Trade accounts receivable and other
          receivables                               93,873        (12,342)
        Note receivable from related party            --          341,053
        Receivable from parent                        --         (434,000)
        Inventory                                   98,524        372,137
        Prepaid and other assets                    89,292         52,463
        Accounts payable                          (485,960)      (548,234)
        Accrued expenses                           103,070        (38,772)
        Deferred revenue                              --           55,510
        Deferred credit                            (53,321)       (97,758)
                                               -----------    -----------
           Net cash (used in) provided by
          operating activities                    (959,399)       891,219

                                               -----------    -----------

Cash flows from investing activities:
   Proceeds from sale of property and
     equipment                                       6,000         21,025
   Purchases of property and equipment            (148,366)      (686,676)
                                               -----------    -----------
           Net cash used in investing
               activities                         (142,366)      (665,651)
                                               -----------    -----------

Cash flows from financing activities:
   Payments on long-term debt and capital
     lease obligations                            (109,090)      (275,702)
   Dividends paid                                     --         (261,600)
   Capital contribution received from
     parent                                           --          460,330
   Proceeds from borrowings of long-term
     debt                                             --          987,929
   Loan to parent                                 (600,000)          --
   Repayment of loan to parent                      37,500           --
   Proceeds from sale of assets                  2,500,000           --
                                               -----------    -----------
           Net cash provided by
             financing activities                1,828,410        910,957
                                               -----------    -----------

Increase in cash and cash equivalents              726,645      1,136,525
Cash and cash equivalents at
    beginning of year                            1,161,632         25,107
                                               -----------    -----------
Cash and cash equivalents at end of year       $ 1,888,277    $ 1,161,632
                                               ===========    ===========

Supplemental Disclosure of Cash
 Flow Information:
   Cash paid for interest                      $    57,678    $    53,866

Supplemental Schedule of Noncash Investing
and Financing Activities:
   Imputed interest recorded from
      bond discount                            $      --      $   312,810
   Dividend declared to parent for
      satisfaction of receivable                   434,000           --




The accompanying notes are an integral part of these financial statements.

                                    F-23
<PAGE>



                          Automotive Industries, Inc.
                         NOTES TO FINANCIAL STATEMENTS


1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:

Organization  and  Nature of  Operations  

Automotive   Industries,   Inc.   (Automotive)   is  a   Delaware   corporation,
headquartered in  Jacksonville,  Florida.  Automotive  operated 28 retail stores
which sold automotive tires, accessories, and related services through a network
of  company-owned  retail  stores  located  primarily in North Florida and South
Georgia.  See Note 2 for sale of assets of  Automotive.  Automotive  is a wholly
owned subsidiary of Acorn Venture Capital Corporation (Acorn).

Accounts  Receivable  

Automotive  sold  its  products  and  services  and  extended  credit  to  local
businesses and individual  consumers located in North Florida and South Georgia.
Automotive maintained allowances for uncollectible  accounts based on historical
experience,  an evaluation of estimated  collectibility of outstanding  balances
and other relevant information. Automotive did not require collateral.

Cash and Cash Equivalents 

Cash and cash  equivalents  represent  demand deposits in banks and money market
accounts.

Inventory 

Inventory  of tires  and  automotive  accessories  were  stated  at the lower of
weighted average cost or market.

Property  and  Equipment  

Property and equipment was stated at cost and is depreciated using straight-line
methods over the assets' estimated useful lives.  Estimated useful lives were as
follows:
                                                               Years
                                                             ----------

    Buildings                                                 15 to 40
    Shop equipment                                             3 to 10
    Office equipment and automobiles                           3 to 10
    Leasehold improvements                                     3 to 10

                                  (Continued)

                                      F-24
<PAGE>
                          Automotive Industries, Inc.
                         NOTES TO FINANCIAL STATEMENTS


1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES - Continued

Goodwill

Goodwill  represented  the  excess of cost over the fair value of the net assets
acquired and was being amortized on a straight-line basis over 15 years.

Deferred  Revenue 

Automotive sold a road hazard warranty on certain of its tires. This revenue was
deferred and  recognized  over the warranty  period in which  service costs were
incurred.

Deferred  Taxes 

Automotive's  parent company,  Acorn,  files a consolidated  federal income tax
return which includes Automotive's  taxable income.  Under Acorn's  tax-sharing
agreement  with its  subsidiaries,  Automotive is  required  to pay or receive
to/from  Acorn an amount  equivalent  to what it would have paid or received had
Automotive filed a separate federal income tax return.

Deferred  income  tax  liabilities  and assets are  determined  using  currently
enacted tax rates  applicable to the period in which deferred tax liabilities or
assets are expected to be settled or realized.  The tax benefits recognized must
be reduced by a valuation allowance to the extent it is more likely than not the
benefits may not be realized.

Use of Estimates 

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual results could differ from those estimates.

2. SALE OF ASSETS AND LIABILITIES:

Automotive  entered into an agreement to sell its operating assets as of May 30,
1997. In accordance with the agreement,  Automotive has sold  substantially all
of its assets and liabilities for a price of $2,500,000 plus an incentive amount
equal to one percent  (1%) of the  aggregate  gross  sales of all the  currently
existing 28 locations for each of the three years beginning June 1, 1997 through
May 31, 2000 not to exceed $500,000.

                                  (Continued)

                                      F-25

<PAGE>


                          Automotive Industries, Inc.
                         NOTES TO FINANCIAL STATEMENTS


2. SALE OF ASSETS AND LIABILITIES, Continued:

As of December 3, 1997,  Automotive  and  purchaser  entered  into an  agreement
which amended the original  purchase price.  Automotive  and purchaser agreed to
delete the incentive  purchase amount discussed above and the parties agreed for
the  purchaser to pay Automotive  an aggregate  amount of $425,000 to be paid in
equal annual installments through June 2000, with no interest.  The $425,000 has
been recorded at its present value assuming a 8% imputed interest rate.

In accordance  with the  agreement,  the following  assets were sold:  all trade
accounts receivable and other miscellaneous  receivables  excluding  receivables
from Acorn and from any officers,  directors or affiliates;  all inventory;  all
property and equipment;  all leases used in the conduct of business; all prepaid
expenses  excluding  any  prepaid  income  taxes;  all  guarantees,  warranties,
indemnities and similar rights related to any asset; all goodwill;  and all cash
and cash equivalents.

In addition,  Automotive   assigned the following  liabilities to the purchaser:
All  current  and  long-term  debt other  than such debt owed to Falken  Tire in
excess of  $300,000;  all  regular  accounts  payable  excluding  amounts due to
officers or affiliates; all accrued expenses; all current sales tax payable; all
deferred  revenue;  all  capitalized  lease  obligations;  all  liabilities  and
obligations  under  contracts  accrued  or to be  performed  from and  after the
closing date; all  indemnities,  warranties,  service or other  obligations  and
liabilities arising out of or relating to goods manufactured or sold or services
provided by the seller on or before the closing date.

3. PROPERTY AND EQUIPMENT:
     
Property and equipment consist of the following:

                                            1997                1996
                                            ----                ----

Land                                 $         --     $         176,100
Buildings and building improvement             --               203,904
Plant and shop equipment                       --             1,215,140
Office equipment and automobiles               --               694,562
Leasehold improvements                         --               440,353
                                     --------------   -----------------
                                               --             2,730,059
Less accumulated depreciation                  --              (848,162)
                                     --------------   -----------------
                                     $         --     $       1,881,897
                                     ==============   =================

                                      F-26

<PAGE>

                          Automotive Industries, Inc.
                         NOTES TO FINANCIAL STATEMENTS



4. LONG-TERM DEBT:

Long-term debt is summarized as follows at
  December 31:
                                                           1997         1996
                                                           ----         ----
Non-interest bearing note issued in connection
with Falken Tire Corporation supply  agreement
due December 31, 2001  (discounted at an imputed
interest rate of 13%) net of  unamortized
discount of $312,810 at December 31, 1996,
without collateral                                     $  562,000   $  579,690

Non-interest bearing note payable to Pirelli
Armstrong in installments through February 1, 2002
(discounted at an imputed interest rate of 13%) net
of unamortized discount of $192,809 at December 31,
1996 without collateral
                                                             --        853,191

Note payable, interest at 11.75%, payable in monthly
installments of $258, through May 1, 2000,
collateralized by a vehicle
                                                             --          8,796

Note payable, interest at 12.77% payable in monthly
installments of $3,781, through May 1, 2002,
collateralized by computer equipment
                                                             --        124,117

Note payable, interest at 13.15% payable in monthly
installments of $5,069, through July 1, 2000,
collateralized by computer equipment
                                                             --        171,705

Note payable, interest at 12.77% payable in monthly
installments of $1,646, through December 2000,
collateralized by computer equipment
                                                             --         60,885
                                                       ----------   ----------

      Total                                               562,000    1,798,384
      Less current portion                                562,500      165,335
                                                       ----------   ----------

      Long-term portion                                $     --     $1,633,049
                                                       ==========   ==========

The non-interest bearing note to Pirelli Armstrong (Pirelli) was renegotiated on
November 20, 1996 and extended the terms through  February 1, 2002. The note was
in the form of a supply  agreement,  however,  Automotive  is no longer  selling
Pirelli  tires  through the supply  agreement and Automotive was paying off the
related note payable in monthly  installments  through the  purchase  date.  The
Pirelli note was assumed by the purchasers.

                                  (Continued)

                                      F-27

<PAGE>

4.  LONG-TERM DEBT - Continued

The  non-interest  bearing  note  issued  in  connection  with the  Falken  Tire
Corporation (Falken) supply agreement was renegotiated on January 1, 1997, which
provided additional proceeds of $600,000 and extended the terms through December
31, 2001. Interest was imputed on this transaction at a rate deemed commensurate
with the current rate of borrowing  and,  accordingly,  debt  discount  totaling
$312,810  was  recorded as a  reduction  of the  carrying  value of this debt at
December  31, 1996.  The Falken  agreement  provides  that if the amount of tire
purchases  required by the agreement is not met over specified  periods of time,
the debt  becomes  due upon  demand and  interest  accrues at a rate of 1.5% per
month or at the maximum rate permitted by law, whichever is less thereafter.  At
December 31, 1996,  Automotive was in compliance with all debt covenants.  As of
May 31,  1997,  the  purchaser  assumed a  significant  amount  of  Automotive's
outstanding  debt,  and the portion of the debt not assumed by the  purchaser of
$562,500 at May 31, 1997 was paid by Automotive on June 2, 1997.

The  deferred  credit of $505,619 at December  31, 1996  resulted  from  imputed
interest on the Pirelli and Falken  notes and was  amortized  as a reduction  of
cost of goods sold over the lives of the related notes.  Amortization of $53,321
and $97,740  was  recorded  for the five months  ended May 31, 1997 and the year
ended December 31, 1996.  This deferred credit was assumed by the purchaser as a
result of the sale of Automotive  on May 31, 1997.

5. LEASES:

The cost and related accumulated amortization of assets under capital leases was
$144,517 and $24,500 at December 31, 1996.

Automotive  also leases certain store sites,  office space,  and equipment under
operating  leases.  The leases expire at various dates through  August 15, 2000.
Total  rent  expense  for the five  months  ended  May 31,  1997 and year  ended
December 31, 1996 was $562,601 and $1,389,080, respectively.

All of the leases were assumed by the purchaser.

6. INCOME TAXES:

The  provision  (benefit)  for income  taxes for the five months ended 
May 31, 1997 and the year ended December 31, 1996 consists of the following:

                                                     1997       1996
                                                     ----       ----

Current                                           $    --     $  (434,000)
Deferred                                             275,299     (828,859)
                                                  ----------  -----------
Income tax expense (benefit)                      $  275,299  $(1,262,859)
                                                  ==========   =========== 

                                  (Continued)

                                      F-28

<PAGE>

                          Automotive Industries, Inc.
                         NOTES TO FINANCIAL STATEMENTS


6. INCOME TAXES, Continued:

The  benefit  (provision)  for income  taxes on income  differs from the amount
computed by applying the U.S.  federal income tax (35%) because of the effect of
the following items:

                                            1997             1996
                                            ----             ----

Tax expense at federal statutory rate   $   245,434    $    39,500
Net operating losses utilized in the
   current year by
   consolidated group                          --         (434,000)
State tax, net of federal benefit            25,028           --
Valuation allowance                            --         (828,859)
Other                                         4,837        (39,500)
                                        -----------    -----------

                                        $   275,299    $(1,262,859)
                                        ===========    ===========
                                     
Significant components of Automotive's  deferred tax  liabilities and assets as
of May 31, 1997 and December 31, 1996 are as follows:

                                                 1997         1996
                                                 ----         ----
Deferred tax assets (liabilities):
   Operating loss carryforward, expires 2010   $ 553,560   $ 739,000
   Bad debt reserve                                 --         4,521
   Inventory costs                                  --        62,631
   Property and equipment                           --       (70,509)
   Other assets                                     --         9,703
   Accrued vacation and deferred revenue            --        83,513
                                               ---------   ---------
        Total net deferred tax assets          $ 553,560   $ 828,859
                                               =========   =========

Pursuant to a tax sharing agreement with Acorn, deferred tax assets (principally
arising  from  net  operating  loss   carryforwards)  can  be  used  within  the
consolidated group, therefore no valuation allowance has been recognized,  since
it is more likely than not that the deferred tax assets will be realized.

7. DEFINED CONTRIBUTION PENSION PLAN:

Automotive  had a defined  contribution  pension plan which covers all full-time
employees  who have  completed  six months of service and are 21 years of age or
older.  Employer  matching  contributions  to the plan are at the  discretion of
management. No employer contributions were made in 1997 and 1996.

                                     F-29
<PAGE>


                          Automotive Industries, Inc.
                         NOTES TO FINANCIAL STATEMENTS


8. FINANCIAL INSTRUMENTS:

Financial  instruments that subject  Automotive to concentrations of credit risk
are cash and receivables.  Automotive  places its cash in what it believes to be
high quality financial  institutions which may, at times,  exceed FDIC insurance
limits.  In management's  opinion,  there are no significant  concentrations  of
credit risk at May 31, 1997.

9. RELATED PARTY TRANSACTIONS:

During 1996,  Automotive   received  $997,500  from an affiliate  for payment of
receivables  outstanding at December 31, 1995 that were written off in 1995. The
affiliate  received  the above funds from a litigation  settlement  with a third
party.  During 1996,  approximately  $247,430 of expenses were  allocated to the
affiliate which were incurred by Automotive  on behalf of the affiliate.

During 1996,  Automotive  approved and paid dividends of $261,600.  The Board of
Directors of Acorn approved a capital contribution of $677,335 to Automotive for
1995, of which $460,330 was paid in 1996.

During 1996,  Automotive   recorded a  receivable  of $434,000 due from Acorn in
connection with the tax sharing agreement entered into during the year. In 1997,
Automotive   declared a dividend of $434,000 to Acorn for  satisfaction  of this
receivable.  During 1997, Automotive  advanced  $1,075,000 to Acorn. This amount
was comprised of $475,000 of management fees and a $600,000 note receivable from
Acorn at 8% interest with the principal due on May 31, 1997.

Subsequent  to  May  31,  1997  Automotive  Industries,   Inc.  declared  a
liquidating dividend of its remaining assets to Acorn.


                                       F-30

<PAGE>

                        Report of Independent Accountants


Board of Directors
Acorn Venture Capital Corporation


     We have audited the  accompanying  balance sheet of Acorn  Venture  Capital
Corporation as of December 31, 1996,  and the related  statements of operations,
changes  in net  assets  and cash  flows for the two  years  then  ended.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
verification  of  investments  by  physical  inspection  or  confirmation  as of
December 31, 1996. An audit also includes  assessing the  accounting  principles
used and  significant  estimates made by  management,  as well as evaluating the
overall financial statement  presentation.  We believe that our audits provide a
reasonable basis for our opinion.

     As explained in the notes to the financial  statements,  as of December 31,
1996  the  financial   statements   include  securities  valued  at  $16,812,981
(comprising  substantially all of net assets),  whose values have been estimated
by the Board of Directors in the absence of readily ascertainable market values.
We have  reviewed the  procedures  used by the Board of Directors in arriving at
their  estimate  of  value of such  securities  and  have  inspected  underlying
documentation  and,  in  the  circumstances,   we  believe  the  procedures  are
reasonable and the documentation  appropriate.  However, because of the inherent
uncertainty of valuation,  those estimated values may differ  significantly from
the  values  that would  have been used had a ready  market  for the  securities
existed, and the differences could be material.

     In our opinion,  the financial statements referred to above present fairly,
in all  material  respects,  the  financial  position of Acorn  Venture  Capital
Corporation as of December 31, 1996, and the results of its operations,  changes
in net assets and cash  flows for the two years  then ended in  conformity  with
generally accepted accounting principles.


Coopers & Lybrand L.L.P.

Philadelphia, Pennsylvania
March 28, 1997

                                       F-31
<PAGE>
                       Acorn Venture Capital Corporation

                                  BALANCE SHEET

                                December 31, 1996



ASSETS
    Investments at fair or market value
      Investments in and advances to
       majority-owned companies
         Recticon Enterprises, Inc.(100% owned)           $ 13,900,000
         Automotive Industries, Inc.(100% owned)             2,900,000
         ServiceMax Tire & Auto Centers, Inc. 
          (100% owned)                                             --
                                                          ------------

                                                            16,800,000

      Other common stocks and warrants                          12,981
      Certificate of deposit                                   100,000
      U.S. Treasury bills                                      250,341
                                                          ------------

                Total investments (cost of $13,122,865)     17,163,322

      Cash and cash equivalents                                951,782
      Receivable from affiliates                               458,093
      Other assets                                               4,555
                                                          ------------

                Total assets                                18,577,752

LIABILITIES
    Accounts payable                                            36,445
    Payables to affiliates                                     434,000
    Deferred income taxes                                    1,962,619
                                                          ------------

                Net assets                                $ 16,144,688

NET ASSETS
    Common stock, par value $0.01 per share,
      authorized 20,000,000 shares, issued
      and outstanding 5,538,906 shares                    $     55,389
                                                          ------------

    Additional paid-in capital                              14,090,156

    Accumulated
      Net investment income                                    274,607
      Net realized losses on investments                      (886,921)
      Net unrealized accumulated appreciation
         of investments (net of taxes
         of $1,429,000)                                      2,611,457
                                                          ------------
                                                             1,999,143
                                                          ------------
    Net assets applicable to outstanding
      common shares (equivalent to $2.91 per
      share based on outstanding common shares of
      5,538,906)                                          $ 16,144,688
                                                          ============




The accompanying notes are an integral part of this statement.

                                       F-32
<PAGE>
                        Acorn Venture Capital Corporation

                            STATEMENTS OF OPERATIONS

                             Year ended December 31,

                                                  1996             1995
                                              -----------    -----------
Investment income
    Interest, including interest on notes
      from majority-owned
      companies of $67,740 in 1995            $    15,062    $   101,312
    Dividends from majority-owned companies       661,600        447,500
    Consulting and management fees from
     majority-owned companies                     600,000        182,500
    Other income                                  752,500         10,000
                                              -----------    -----------
                                                2,029,162        741,312
                                              -----------    -----------

Expenses
    Compensation                                  552,842        374,542
    Consulting fees                                12,568        262,565
    Legal and accounting                          162,812         71,809
    Registration fees                              13,545         13,501
    Interest and other                            105,261        156,048
                                              -----------    -----------
                                                  847,028        878,465
                                              -----------    -----------

           Net investment income (loss)         1,182,134       (137,153)
                                              -----------    -----------

Realized and unrealized gains (losses)
  on investments
    Realized gains (losses) from
     sales of investments                          25,000        (89,061)
    Net change in unrealized
     appreciation of investments                1,533,000      4,704,559
                                              -----------    -----------

           Net realized and unrealized
            gains on investments                1,558,000      4,615,498
                                              -----------    -----------

           Net increase in net assets
            resulting from operations
            before income tax expense           2,740,134      4,478,345

Income tax expense                                779,000        650,000
                                              -----------    -----------

           NET INCREASE IN NET ASSETS
            RESULTING FROM
            OPERATIONS                        $ 1,961,134    $ 3,828,345
                                              ===========    ===========

Per share amounts
    Net investment income (loss)              $      0.21    $     (0.02)
    Net realized gains (losses)
     on investments                                  --            (0.02)
    Net unrealized gains on
     investments                                     0.28           0.84
    Income tax provision                            (0.14)         (0.11)
                                              -----------    -----------

                                              $      0.35    $      0.69
                                              ===========    ===========

Weighted average number of shares
    used in per share
    computations                                5,658,748      5,584,892
                                              ===========    ===========



The accompanying notes are an integral part of these statements.

                                       F-33
<PAGE>



                        Acorn Venture Capital Corporation

                       STATEMENTS OF CHANGES IN NET ASSETS

                             Year ended December 31,




                                                  1996              1995
                                              ------------    -------------

Net investment income (loss)                  $  1,182,134    $   (137,153)
Net realized gains (losses)
  from sales of investments                         25,000         (89,061)
Net change in unrealized
  appreciation of investments                    1,533,000       4,704,559
Income tax provision                              (779,000)       (650,000)
                                              ------------    ------------

       NET INCREASE IN NET ASSETS RESULTING
           FROM OPERATIONS                       1,961,134       3,828,345

Capital share transactions
    Treasury stock (50,000 shares)                    --           (39,000)
                                              ------------    ------------

       Net increase in net assets                1,961,134       3,789,345

Net assets at beginning of year                 14,183,554      10,394,209
                                              ------------    ------------

Net assets at end of year                     $ 16,144,688    $ 14,183,554
                                              ============    ============




The accompanying notes are an integral part of these statements.

                                       F-34
<PAGE>
                        Acorn Venture Capital Corporation

                            STATEMENTS OF CASH FLOWS

                             Year ended December 31,



                                                       1996           1995
                                                    -----------    -----------
Cash flows from operating activities
    Net increase in net assets resulting
        from operations                             $ 1,961,134    $ 3,828,345
    Adjustments to reconcile net
        increase in net assets resulting
        from operations to net cash
        provided by (used in)
        operating activities
      Change in unrealized appreciation of
         investments                                 (1,533,000)    (4,704,559)
      (Gains) losses on sales of investments            (25,000)        89,061
      Deferred income taxes                           1,312,619        650,000
      Adjustment to ServiceMax cost basis
        for utilization of net
        operating losses                                293,000           --
      Changes in operating assets and liabilities
         Receivable from affiliates                    (358,093)       (50,000)
         Other assets                                     1,628        131,881
         Accounts payable                                32,053         (1,508)
         Payables to affiliates                         390,456         43,544
                                                    -----------    -----------

           Net cash provided by (used in)
              operating activities                    2,074,797        (13,236)
                                                    -----------    -----------

Cash flows from investing activities
    Investment in Recticon Enterprises, Inc.           (160,000)          --
    Investment in Automotive Industries, Inc.          (460,330)      (217,005)
    Investment in ServiceMax Tire & Auto
      Centers, Inc.                                        --       (1,200,000)
    Proceeds from sale of investment
      in Madison Avenue Propulsion
      Corporation                                          --          388,555
    Purchase of convertible debentures                     --          100,000
    Collections on notes receivable                      25,000         20,000
    Purchase of certificates of deposit                (200,000)          --
    Redemption of certificates of deposit               100,000        100,000
    Purchase of U.S. Treasury bills                    (740,710)      (199,093)
    Proceeds from sales of U.S. Treasury bills          689,462        593,691
    Purchase of equipment and other                        --           (5,325)
                                                    -----------    -----------

          Net cash used in investing activities        (746,578)      (419,177)
                                                    -----------    -----------

Cash flows from financing activities
    Proceeds from note payable to
      Recticon Enterprises, Inc.                           --          760,000
    Payment on note payable to
      Recticon Enterprises, Inc.                       (760,000)          --
                                                    -----------    -----------

          Net cash (used in) provided
            by financing activities                    (760,000)       760,000
                                                    -----------    -----------

          NET INCREASE IN CASH AND
            CASH EQUIVALENTS                            568,219        327,587

Cash and cash equivalents at
  beginning of year                                     383,563         55,976
                                                    -----------    -----------

Cash and cash equivalents at
  end of year                                       $   951,782    $   383,563
                                                    ===========    ===========



                                   (Continued)

                                       F-35
<PAGE>



                        Acorn Venture Capital Corporation

                            STATEMENTS OF CASH FLOWS

                             Year ended December 31,


                                                         1996         1995
                                                       --------   -------------

Supplemental disclosure of cash flow information
     Cash paid for taxes                               $ 38,000   $        --
                                                       ========   =============

     Capital contribution to Automotive
       Industries, Inc. approved
       in 1995 but paid in 1996                        $   --     $     460,330
                                                       ========   =============

     Receipt of 50,000 shares of the
       Company's common stock
       for settlement of litigation
       with former management of
       ServiceMax Tire & Auto Centers, Inc.            $   --     $      39,000
                                                       ========   =============

     Sale of investment in Madison Avenue
       Propulsion Corporation
       common stock in exchange
       for a note receivable                           $   --     $      50,000
                                                       ========   =============

     Retirement  of $ 50,000 of treasury
       stock  received  in  settlement  of
       litigation with former management of
       ServiceMax Tire & Auto Centers, Inc.            $ 39,000   $        --
                                                       ========   =============






The accompanying notes are an integral part of these statements.

                                       F-36
<PAGE>



                        Acorn Venture Capital Corporation

                          NOTES TO FINANCIAL STATEMENTS

                                December 31, 1996




NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

    1.  Organization and Nature of Operations

    Acorn Venture Capital  Corporation (the Company) was incorporated  under the
    laws of the State of  Delaware  on  September  8, 1983.  The  Company  was a
    nondiversified,  closed-end management investment company and has filed with
    the  Securities  and Exchange  Commission a  notification  of election to be
    treated as a "business  development  company" as that term is defined in the
    Investment Company Act of 1940, as amended. The Company's primary investment
    objective has been  achievement  of long-term  capital  appreciation  of its
    assets,  rather than current income, by making investments in, and providing
    managerial assistance to, emerging and established companies that management
    believes offer significant potential for growth.

    2.  Investments

    The  Company  held three  wholly-owned  subsidiaries  during 1996 - Recticon
    Enterprises,  Inc. (Recticon),  Automotive Industries, Inc. (Automotive) and
    ServiceMax  Tire & Auto  Centers,  Inc.  (ServiceMax)  - which  are  neither
    investment companies nor business development  companies.  Accordingly,  the
    accounts  of  such  subsidiaries  are not  consolidated  with  those  of the
    Company. Recticon manufactures monocrystalline silicon wafers which are used
    in the microelectronics industry.  Automotive owns and operates full-service
    automotive  retail  centers  in  northern  Florida  and  southeast  Georgia.
    ServiceMax   operated  tire  and  service  facilities  at  gas  station  and
    convenience store locations in Michigan.  ServiceMax closed its facilities 
    in 1996.

    The  Company's  investments  in  these  wholly-owned   subsidiaries,   notes
    receivable, and other common stocks, warrants and convertible debentures are
    restricted  investments  and are valued at fair value as  determined  by the
    Board of Directors (see notes B, C and D).

    The net change in unrealized appreciation of investments for the years ended
    December 31, 1996 and 1995 was $1,533,000 and $4,704,559,  respectively, and
    includes  gross  unrealized   appreciation  of  $1,533,000  and  $9,304,250,
    respectively,  and  gross  unrealized  depreciation  of $0  and  $4,599,691,
    respectively.

    3.  Use of Estimates

    The  preparation  of  financial  statements  in  conformity  with  generally
    accepted  accounting  principles  requires  management to make estimates and
    assumptions  that affect the reported  amounts of assets and liabilities and
    disclosure of contingent assets and liabilities at the date of the financial
    statements and the reported amounts of gains, income and expenses during the
    reporting  period.   Actual  results  could  differ  from  those  estimates,
    particularly  with respect to the fair value  determination  of investments.
    Due to the  inherent  uncertainty  of the  valuation of  investments,  those
    estimated  values may differ  significantly  from the values that would have
    been used had a ready market for the securities existed, and the differences
    could be material.


                                   (Continued)

                                       F-37
<PAGE>



                        Acorn Venture Capital Corporation

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                                December 31, 1996


NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES - Continued

    4.  Income Taxes

    The Company is not entitled to the special treatment  available to regulated
    investment  companies and is taxed as a regular  corporation for federal and
    state income tax purposes.  The Company files a consolidated  federal income
    tax return with its three wholly-owned subsidiaries.

    Under  the   Company's   tax  sharing   agreement   with  its   wholly-owned
    subsidiaries,   the  subsidiaries  are  required  to  pay  Acorn  an  amount
    equivalent  to the  federal  income  taxes  that would have been paid if the
    subsidiaries filed separate federal income tax returns.

    5.  Cash and Cash Equivalents

    For the purpose of the statements of cash flows, the Company  considers cash
    and liquid  investments,  including  certificates  of deposits with original
    maturities of three months or less, to be cash and cash equivalents.

    6.  Per Share Amounts

    Per share amounts are computed  using the weighted  average number of shares
    of common  stock and  common  stock  equivalents  outstanding  in each year.
    Common stock equivalents consist of stock options.

    In February 1997, the Financial Accounting Standards Board issued Statement 
    of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. SFAS
    No. 128 is effective for financial  statements  issued for periods ending 
    after December 15, 1997.  The Company has determined its earnings per share 
    based on Accounting Principles Board (APB) Opinion No. 15.

NOTE B - INVESTMENTS IN AND ADVANCES TO MAJORITY-OWNED COMPANIES

    The Company's wholly-owned investments are valued at fair value by the Board
    of Directors as these investments are not readily marketable. In determining
    fair  value,  the Board of  Directors  considers  a number of factors  which
    influence  the value of the  Company's  investments,  including  current and
    expected  future  operating  performance,  industry  and general  market and
    economic  trends,  the  competitive  marketplace,  and  other  factors.  The
    Company's wholly-owned investments at December 31, 1996 are as follows:

    Recticon Enterprises, Inc.
                                                        Value at
Number of             Type of issue                  December 31,
shares              and name of issuer                   1996
-----------------   -------------------------  ------------------------

     100            Common stock of Recticon 
                    Enterprises, Inc.,
                    100% owned (86.1% of net 
                    assets at December 31, 
                    1996)                            $13,900,000
                                                     ===========

                                   (Continued)

                                       F-38
<PAGE>



                        Acorn Venture Capital Corporation

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                                December 31, 1996




NOTE B - INVESTMENTS IN AND ADVANCES TO MAJORITY-OWNED COMPANIES - Continued

    During  the  year  ended   December  31,  1996,  the  Company  made  capital
    contributions  to Recticon  totalling  $160,000.  Recticon  paid the Company
    dividends of $400,000  during  1996.  Also during  1996,  Recticon  paid the
    Company  $918,619 for  utilization of net operating loss  carryforwards,  of
    which the Company has  established  a payable of $53,267 to  Automotive  for
    utilization of Automotive's net operating loss  carryforwards.  During 1995,
    Recticon  advanced funds and issued a promissory  note to the Company in the
    amount of $760,000, accruing interest at 10.25% and due July 15, 1997, which
    was  repaid  in 1996.  The  accrued  interest  on this  promissory  note was
    forgiven.  Recticon paid the Company  management fees totalling $600,000 and
    $195,000  during 1996 and 1995,  respectively.  As of December 31, 1996, the
    Company  has  guaranteed  a  $750,000  line of credit  and term loan with an
    outstanding balance of $484,246 at December 31, 1996 obtained by Recticon.

    The Board of Directors approved increases in the valuation of the investment
    in Recticon from $12,500,000 at December 31, 1995 to $13,900,000 at December
    31, 1996. Cost at December 31, 1996 amounted to $3,355,750.

    The following  selected financial data of Recticon has been derived from the
    audited financial statements as of and for the years ended December 31, 1996
    and 1995:

                                         1996         1995
                                      ----------   ----------
Statement of Operations Data

  Total net sales                     $9,842,345   $6,491,505
  Total cost of goods sold             6,163,131    4,670,714
                                      ----------   ----------

          Gross margin                 3,679,214    1,820,791

  Operating expenses                   1,250,587      835,525
  Management fees to parent company      600,000      195,000
  Income taxes                           746,674      367,936
                                      ----------   ----------

          Net income                  $1,081,953   $  422,330
                                      ==========   ==========

Balance Sheet Data

          Total assets                $5,977,167
                                      ==========

          Total liabilities           $3,643,883
          Stockholders' equity         2,333,284
                                      ----------

                                      $5,977,167
                                      ==========



                                   (Continued)

                                       F-39
<PAGE>



                        Acorn Venture Capital Corporation

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                                December 31, 1996



NOTE B - INVESTMENTS IN AND ADVANCES TO MAJORITY-OWNED COMPANIES - Continued

      Automotive Industries, Inc.
                                                        Value at
Number of             Type of issue                  December 31,
shares              and name of issuer                   1996
-----------------   -------------------------  ------------------------

    142              Common stock of Automotive 
                      Industries, Inc., 100% 
                      owned (18% of net assets 
                      at December 31, 1996)          $ 2,900,000
                                                     ===========
                                                     
    The Board of Directors  valued the  investment  in  Automotive  at  
    $2,900,000.  Cost at December 31, 1996  amounted to $3,577,335.

    During  1996 and 1995,  Automotive  declared  and paid  dividends  totalling
    $261,600  and  $447,500,  respectively.  The  Company's  Board of  Directors
    approved  capital  contributions of $677,335 for 1995, which was recorded as
    an unrealized  loss in 1995 due to poor operating  performance of Automotive
    in 1995. Of this contribution, $460,330 was paid in 1996.

    Subsequent to year-end,  the Company  received  $1,075,000 from  Automotive.
    This amount was comprised of management fees of $475,000 and a $600,000 note
    payable to Automotive at 8% interest, with the principal due on December 31,
    1997.

    The  Company  also  guarantees  a $900,000  note  payable  to a supplier  of
    Automotive.

    The following  selected  financial  data of Automotive has been derived from
    its 1996 financial statements.

                                                   1996            1995
                                           ------------    ------------

Statement of Operations Data

   Total net sales                         $ 20,680,735    $ 19,307,943
   Total cost of goods sold                   9,282,321       8,657,925
                                           ------------    ------------
          Gross margin                       11,398,414      10,650,018
   Other income                                 607,984          75,475
   Total expenses                           (11,893,616)    (12,314,179)
   Income tax benefit                         1,262,859          83,000
                                           ------------    ------------
          Net income (loss)                $  1,375,641    $ (1,505,686)
                                           ============    ============
 
                                   (Continued)
  
                                      F-40
<PAGE>
                        Acorn Venture Capital Corporation

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                                December 31, 1996


NOTE B - INVESTMENTS IN AND ADVANCES TO MAJORITY-OWNED COMPANIES - Continued

Balance Sheet Data

          Total assets                     $  7,815,450
                                           ============
          Total current liabilities        $  2,919,554
          Other liabilities and debt          2,202,456
          Stockholders' equity                2,693,440
                                           ------------
                                           $  7,815,450
                                           ============

    During  1995,  Automotive  wrote  off  approximately   $1,400,000  of  notes
    receivable  and advances to ServiceMax  that were deemed  uncollectible,  of
    which  $997,500 was  collected  in 1996 as a result of a  settlement  with a
    third party by ServiceMax.

    ServiceMax Tire & Auto Centers, Inc.

    The Company has 23,210 shares of common stock of ServiceMax  with an 
    accumulated  cost of $5,619,503 as of December 31, 1996.

    During  1995,  the  Company  made  additional   capital   contributions   of
    $1,200,000.  As of December 31, 1996 and 1995, the Board of Directors valued
    its investment in ServiceMax at $-0- due to continued operating losses and a
    significant  liability.  During 1996,  the  operations  of  ServiceMax  were
    closed.

    During  1996,  $1,750,000  was  received  from a third party with respect to
    certain  claims in exchange  for general  releases,  of which  $752,500  was
    remitted  directly to the Company  and is  recorded as "Other Income" in the
    accompanying statements of operations. The remaining balance of $997,500 was
    remitted to Automotive in settlement of outstanding liens and payables.

NOTE C - NOTES RECEIVABLE

    The  Company  held  a  $500,000  note  receivable   from  Digital   Products
    Corporation which the Board of Directors valued at $-0- at December 31, 1996
    and 1995. In connection  with the Company's  note,  the Company held 750,000
    restricted warrants which expired during 1996.

                                   (Continued)

                                       F-41
<PAGE>

                        Acorn Venture Capital Corporation

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                                December 31, 1996


NOTE D - OTHER COMMON STOCK AND WARRANTS

                                                                    Value at
Number of                                                          December 31,
shares       Type of issue and name of issuer                          1996
---------  ----------------------------------------------          ------------

           Common stock - restricted
           -------------------------

49,565     Amerinex Artificial Intelligence, Inc.                   $      9,913

    24     Cardiac Control Systems, Inc.                                      68

           Warrants - restricted

30,000     Aqua Care Systems, Inc. - each entitling the holders
              to purchase 1 common share at $3.00 per share,
              exercisable through April 17, 1997                           3,000
                                                                    ------------

           (0.08% of net assets at December 31, 1996)               $     12,981
                                                                    ============



    The  investment  in  Amerinex  Artificial   Intelligence,   Inc.  (AAII)  is
    restricted as to sale. The Company held shares at December 31, 1996 and 1995
    which the Board of Directors  valued at $0.20 per share or $9,913.  There is
    no quoted market for AAII stock, and it has not paid any cash dividends. The
    investment in Cardiac Control Systems,  Inc. was received in connection with
    the redemption of a convertible debenture in April 1995.

NOTE E - CERTIFICATE OF DEPOSIT

    The  certificate  of deposit for  $100,000  has an  interest  rate of 4.85%,
    matures on May 12, 1997, and represents  0.62% of net assets at December 31,
    1996.

NOTE F - U.S. TREASURY BILLS

                                                                    Value at
Number of                                                          December 31,
shares       Type of issue and name of issuer                          1996
---------  ----------------------------------------------          ------------

$250,000    U.S. Treasury bill, 5.05%, due March 27,
             1997 (1.5% of net assets at December 31,
             1996)                                                 $   250,341
                                                                   ===========

                                       F-42
<PAGE>

                        Acorn Venture Capital Corporation

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                                December 31, 1996


NOTE G - INCOME TAXES

    The income tax provision  for the years ended  December 31, 1996 and 1995 is
as follows:

                             1996          1995
                         --------   -----------
Current
    Federal          $   293,000    $      --
    State                    --            --
                         --------   -----------
                          293,000          --
                         --------   -----------
Deferred
    Federal               429,000       574,000
    State                  57,000        76,000
                         --------   -----------
                          486,000       650,000
                         --------   -----------

                         $779,000   $   650,000
                         ========   ===========

    Deferred  income taxes reflect the net tax effects of temporary  differences
    between  the  carrying  amounts  of assets  and  liabilities  for  financial
    reporting  purposes and the amounts used for income tax  purposes.  Deferred
    tax assets recognized must be reduced by a valuation allowance to the extent
    it is more likely than not the benefits may not be realized.  As of December
    31, 1996, the significant  components of the Company's deferred income taxes
    are as follows:

       Deferred tax assets (liabilities)
         Net operating loss carryforwards                 $   294,000
         Unrealized appreciation on investments            (2,256,619)
                                                           ----------- 
                                                          $(1,962,619)
                                                          ============ 

    The  Company  files  a  consolidated   tax  return  with  its   wholly-owned
    subsidiaries.  For income tax purposes, at December 31, 1996 the Company had
    a separate Company net operating loss carryforward of approximately $763,000
    that begins to expire in 2006.

    The reason for the  differences  between the  provision for income taxes and
    the amount which  results from  applying the federal  statutory  tax rate to
    income before income taxes are as follows:

                                                    1996             1995
                                               ------------     -------------

       Income tax expense at statutory rate     $   932,000     $  1,570,000
       Reversal of valuation allowance                  -         (1,396,000)
       State income taxes and other                (153,000)         476,000
                                                -----------     ------------

                                                $   779,000     $    650,000
                                                ===========     ============


                                       F-43

<PAGE>

                        Acorn Venture Capital Corporation

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                                December 31, 1996


NOTE H - COMMON STOCK

    The following is a summary of the common stock transactions of the Company:

<TABLE>
<CAPTION>
                                    Common Stock          Additional
                               ----------------------      paid-in       Treasury
                                 Shares       Amount       capital         stock        Total
                               ----------    --------    ------------    --------    ------------
<S>                             <C>          <C>         <C>             <C>         <C>  
Balance at January 1, 1995      5,588,906    $ 55,889    $ 14,128,656    $   --      $ 14,184,545

Receipt of 50,000
   shares per settlement
   agreement with former
   management of ServiceMax
   Tire & Auto Centers, Inc.         --          --              --       (39,000)        (39,000)
                                ---------    --------    ------------    --------    ------------

Balance at December 31, 1995    5,588,906      55,889      14,128,656     (39,000)     14,145,545

Retirement of 50,000
   shares of treasury stock       (50,000)       (500)        (38,500)     39,000            --
                                ---------    --------    ------------    --------    ------------

       
Balance at December 31, 1996    5,538,906    $ 55,389    $ 14,090,156    $   --      $ 14,145,545
                                =========    ========    ============    ========    ============
</TABLE>

NOTE I - RELATED PARTY TRANSACTIONS

    During 1996 and 1995,  the Company paid a law firm,  of which the  Company's
    co-chairman is of counsel, $37,618 and $27,692,  respectively,  for services
    rendered, including reimbursement of expenses.

    The  president of  Automotive  was a vice  president of the Company  through
    December  1995.  The vice  president is also a  shareholder  of the Company.
    During 1995, this vice president  received an annual salary of $216,000 from
    Automotive.

    The  president  of Recticon was a vice  president  of the Company.  The vice
    president  was also a  shareholder  of the Company  through  December  1995.
    During 1995,  this vice  president  received an aggregate  annual  salary of
    $171,000 from Recticon and Data Access Systems, Inc., a former investee, but
    received no compensation from the Company.


                                       F-44
<PAGE>

                        Acorn Venture Capital Corporation

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                                December 31, 1996


NOTE J - STOCK OPTIONS

    The Company has issued stock options to various officers of the Company. The
    stock  options  were issued at fair market value as of the date of grant and
    have a term of 10 years from the date of grant.  The  following is a summary
    of the stock options outstanding:

                                         1996                    1995
                                     -------------------    --------------------
                                              Weighted                 Weighted
                                              average                  average
                                              exercise                 exercise
                                     Shares    price        Shares      price
                                    --------  --------      --------   --------
Outstanding at beginning of year     900,000   $  1.85      790,000    $   2.11

Granted                                 --        --        150,000        0.88

Cancelled                               --        --        (40,000)       3.38
                                     -------   -------      -------    --------

Outstanding at end of year           900,000   $  1.85      900,000    $   1.85
                                     =======   =======      =======    ========
Options exercisable at end of year   800,000   $  1.94      700,000    $   2.09
                                     =======   =======      =======    ========



    The  following  table  summarizes  information  about  fixed  stock  options
    outstanding at December 31, 1996:

                         Options outstanding              Options exercisable
                  --------------------------------      -----------------------
                             Weighted      Weighted                 Weighted
    Range of                 remaining     average                  average
    exercise                contractual    exercise                 exercise
      price       Shares        life        price        Shares      price
--------------   --------   -----------   ---------     --------   ---------
  $0.88-$1.16     300,000     8 years     $   1.02       200,000   $   0.95
  $1.84-$2.00     450,000     6 years         1.09       450,000       1.90
     $3.38        150,000     5 years         3.38       150,000       3.38
                  -------                                -------
                  900,000     7 years         1.85       800,000       1.94
                  =======                                =======

    The  Company  applies APB Opinion  No. 25,  Accounting  for Stock  Issued to
    Employees,  and related  interpretations  in accounting for the option plan.
    Accordingly, no compensation cost has been recognized. The compensation cost
    that would have been  recognized  based on the  estimated  fair value at the
    grant  rates  consistent  with the method of SFAS No.  123,  Accounting  for
    Stock-Based Compensation, had no effect on earnings per share.


                                   (Continued)

                                       F-45
<PAGE>

                        Acorn Venture Capital Corporation

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                                December 31, 1996




NOTE J - STOCK OPTIONS - Continued

    Effective  November 2, 1994, the Board of Directors  amended the outstanding
    option  agreements  whereby each outstanding  option can be exercised at the
    fair value of the  Company's  common stock on November 22, 1994 ($0.5625 per
    share) if a "change in  control"  of the  Company,  as defined in the option
    agreements,  occurs. Assuming these shares were exercised,  the earnings per
    share at December 31, 1996 would have been $0.32 per share.

    As of December 31, 1996, no options had been exercised.

NOTE K - FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF RISK

    Financial  instruments of the Company include  investments and cash and cash
    equivalents  which are  reported in the 1996  financial  statement  at their
    estimated fair value.

    Financial  instruments that subject the Company to  concentrations of credit
    risk are cash and cash  equivalents,  as well as  indirectly  the assets and
    liabilities  of the  Company's  majority-owned  companies.  In  management's
    opinion, there are no significant  concentrations of credit risk at December
    31, 1996.

    The Company's  investment in Recticon represents  approximately 82% of total
    investments held as of December 31, 1996. In addition,  approximately 34% of
    Recticon's sales are attributable to three customers.


                                       F-46

 
<PAGE>
                                 Exhibit Index



Exhibit No.         Description                            
-----------         -----------                            

 3.1              Certificate of Incorporation as filed
                  and recorded with the Secretary of
                  State of Delaware, as amended

10.13             Letter Agreement, dated as of
                  February 15, 1995, between Robert
                  P. Freeman and Recticon

21                List of subsidiaries of the Company

27                Financial Data Schedule