10-Q/A (Amendment No.2?)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2011
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934.
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. | |
| For the quarterly period ended June 30, 2011 | ||
| OR | ||
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. | |
__________
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
(Address of principal executive offices)
F: (712) 262-0248
www.cyclecountry.com
(Registrant’sRegistrant's telephone number, facsimile number, and corporate website)
including area code)
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March 31, September 30, 2011 2010 (Unaudited) Assets Current Assets Cash and cash equivalents $ 147,830 $ 28,939 Accounts receivable, net 340,028 1,879,491 Inventories 2,236,560 2,716,639 Income taxes receivable 627,434 640,733 Deferred income taxes 516,000 299,000 Prepaid expenses and other 237,696 320,475 Assets held for sale 189,250 795,439 Total current assets 4,294,798 6,680,716 Property, plant and equipment, net 9,609,782 9,809,351 Intangible assets, net 50,385 161,957 Other assets 3,387 7,413 Total assets $ 13,958,352 $ 16,659,437 Liabilities and Stockholders’ Equity Current Liabilities Disbursements in excess of bank balances $ 238,826 $ 387,141 Accounts payable 1,769,570 689,030 Accrued expenses 1,315,257 959,433 Bank line of credit 1,528,305 2,700,000 Current portion of notes payable 465,829 699,681 Liabilities related to assets held for sale 24,995 12,409 Current portion of deferred gain — 27,754 Total current liabilities 5,342,782 5,475,448 Long-Term Liabilities Notes payable, less current portion 2,261,018 2,478,279 Deferred income taxes 905,000 1,587,000 Total long term liabilities 3,166,018 4,065,279 Total liabilities 8,508,800 9,540,727 Stockholders’ Equity Common stock, $.0001 par value; 100,000,000 shares authorized; 6,353,843 and 5,934,853 shares issued and outstanding, respectively 635 593 Additional paid-in capital 12,223,009 12,197,101 Accumulated deficit (6,774,092 ) (5,078,984 ) Total stockholders’ equity 5,449,552 7,118,710 Total liabilities and stockholders’ equity $ 13,958,352 $ 16,659,437 Cycle Country Accessories Corp. and Subsidiaries Three Months ended March 31, 2011 2010 (Unaudited) (Unaudited) Revenue Net sales $ 2,662,492 $ 2,159,994 Freight income 35,526 27,389 Total revenues 2,698,018 2,187,383 Cost of goods sold 2,548,828 1,455,739 Lower of cost or market adjustment 480,918 — Gross profit (loss) (331,728 ) 731,644 Selling, general, and administrative expenses 1,394,157 1,005,343 Fraud expense — 134,775 Total operating expenses 1,394,157 1,140,118 Loss from operations (1,725,885 ) (408,474 ) Other income (expense) Interest expense (73,567 ) (70,856 ) Interest income — 1 Miscellaneous 60,171 46,543 Total other expense, net (13,396 ) (24,312 ) Loss from continuing operations before income tax benefit (1,739,281 ) (432,786 ) Benefit from income taxes 598,394 172,742 Net loss from continuing operations (1,140,887 ) (260,044 ) Loss from discontinued operations, net of tax (267,360 ) (28,427 ) Net loss $ (1,408,247 ) $ (288,471 ) Weighted average shares of common stock Basic 6,340,510 5,992,919 Diluted 6,340,510 5,992,919 Loss per basic and diluted share: Continuing Operations $ (0.18 ) $ (0.04 ) Discontinued Operations $ (0.04 ) $ — Cycle Country Accessories Corp. and Subsidiaries Six Months ended March 31, 2011 2010 (Unaudited) (Unaudited) Revenue Net sales $ 6,838,604 $ 6,190,909 Freight income 57,307 50,482 Total revenues 6,895,911 6,241,391 Cost of goods sold 5,906,255 4,218,484 Lower of cost or market adjustment 480,918 — Gross profit 508,738 2,022,907 Selling, general, and administrative expenses 2,568,470 1,854,964 Fraud expense — 134,775 Total operating expenses 2,568,470 1,989,739 Income (loss) from operations (2,059,732 ) 33,168 Other income (expense) Interest expense (172,316 ) (153,245 ) Interest income — 3 Miscellaneous 87,246 81,031 Total other expense, net (85,070 ) (72,211 ) Loss from continuing operations before income tax benefit (2,144,802 ) (39,043 ) Benefit from income taxes 744,021 20,385 Net loss from continuing operations (1,400,781 ) (18,658 ) Loss from discontinued operations, net of tax (294,327 ) (42,536 ) Net loss $ (1,695,108 ) $ (61,194 ) Weighted average shares of common stock Basic 6,338,825 6,033,224 Diluted 6,338,825 6,033,224 Loss per basic and diluted share: Continuing Operations $ (0.22 ) $ — Discontinued Operations $ (0.05 ) $ (0.01 ) Cycle Country Accessories Corp. and Subsidiaries Six Months ended March 31, 2011 2010 (Unaudited) (Unaudited) Cash Flows from Operating Activities from Continuing Operations: Net loss from continuing operations $ (1,400,781 ) $ (18,658 ) Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities: Depreciation 309,885 352,608 Amortization 779 673 Reserve for bad debts 60,000 — Lower of cost or market adjustment 480,918 — Share-based compensation — 13,750 Loss on sale of property, plant and equipment 13,319 114,112 Deferred income taxes (899,000 ) — Fraud recovery — (120,000 ) Change in operating assets and liabilities: Accounts receivable 1,479,463 1,153,953 Inventories (840 ) 166,641 Income tax receivable 13,299 5,546 Prepaid expenses, net 82,779 (8,189 ) Other assets 4,026 3,988 Accounts payable, net 1,080,540 (215,291 ) Accrued expenses 381,772 (119,635 ) Net cash provided by operating activities from continuing operations 1,606,159 1,329,498 Cash Flows from Investing Activities from Continuing Operations Purchase of property, plant and equipment (76,909 ) (164,477 ) Purchase of intangible assets, net (1,755 ) (2,660 ) Proceeds from sale of property, plant and equipment 5,338 12,500 Net cash used for investing activities in continuing operations (73,326 ) (154,637 ) Cash Flows from Financing Activities from Continuing Operations: Disbursements in excess of bank balances (148,315 ) (438,636 ) Payments on bank notes payable (451,113 ) (423,247 ) Bank line of credit, net (1,171,695 ) (288,164 ) Net cash used for financing activities from continuing operations (1,771,123 ) (1,150,047 ) Cash Flows from Discontinued Operations: Cash provided by operating activities 357,181 14,443 Net cash provided by discontinued operations 357,181 14,443 Net increase in cash and cash equivalents 118,891 39,257 Cash and cash equivalents, beginning of period 28,939 27,490 Cash and cash equivalents, end of period $ 147,830 $ 66,747 Six Months ended March 31, 2011 2010 (Unaudited) (Unaudited) Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 174,786 $ 153,000 Supplemental schedule of non-cash investing and financing: Issuance of common stock and options for payment of compensation $ 25,949 $ — Disposal of fixed assets $ 56,131 $ — Cycle Country Accessories Corp Cash and Cash Equivalents - The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. The Company maintains its accounts primarily at one financial institution. At times throughout the year, the Plant Equipment Vehicles Office Equipment amount of $100,000 for trademarks and $10,186 for unamortized patents was recognized valuation of deferred tax assets; allowance for doubtful accounts; and allowance for inventory reserves. Actual results could differ significantly from those estimates. operations for the nine month period ended June 30,2011. Funds: management that took place in our second quarter (which were more fully disclosed in our Form 10-Q/A filing for the period ended March 31, 2011), allowed us to analyze the inventory from a fresh perspective. This evaluation concluded that the need existed to more aggressively challenge the prior sales and marketing March 31, September 30, 2011 2010 (Unaudited) Raw Material $ 665,393 $ 895,688 Work in Process 86,908 68,631 Finished Goods 1,634,259 1,902,320 Inventory Reserve (150,000 ) (150,000 ) Total Inventories $ 2,236,560 $ 2,716,639 The Company is currently working with the Lender to modify or extend these obligations, but as of August 22, 2011, a signed agreement has not been reached. In addition, in June 2011, the Company announce the signing of a new term sheet with a new lender to provide a $5,000,000 credit facility for working capital. The new credit facility, expected to close in 30 days, will replace the existing lines of credit and provide for ongoing operations. Debt: March 31, September 30, 2011 2010 (Unaudited) Note 1 to commercial lender payable in equal monthly installments of $42,049 including interest at 6.125%. The note matured April 2011. $ 37,519 $ 284,263 Note 2 to commercial lender payable in equal monthly installments of $33,449 including interest fixed at 6.125% until April 2011. Beginning April 2011, the interest is reset every 60 months to 0.50% over prime not to exceed 10.5% or be less than 5.5%. The note matures April 2018 and is secured by all Company assets. 2,289,874 2,418,530 Note 3 to commercial lender payable in equal monthly installments of $14,567 including interest at 6.125% until maturity of April 2013 secured by the specific equipment acquired. 339,454 415,167 Note due to Spencer Area Jobs Trust, due in full March 2014 interest free and forgivable in full if the Company maintans required job levels. 60,000 60,000 Total 2,726,847 3,177,960 Less current maturities (465,829 ) (699,681 ) Net $ 2,261,018 $ 2,478,279 See Note 4 on a further description of our credit agreements. The Company incurred a net loss from continuing operations of For the three months For the three months ended March 31, 2011 ended March 31, 2010 (Unaudited) (Unaudited) Weighted Weighted Loss Average Shares Per share Loss Average Shares Per share (numerator) (denominator) amount (numerator) (denominator) amount Basic and Diluted EPS Loss from continuing operations $ (1,140,887 ) 6,340,510 $ (0.18 ) $ (260,044 ) 5,992,919 $ (0.04 ) Loss from discontinued operations $ (267,360 ) 6,340,510 $ (0.04 ) $ (28,427 ) 5,992,919 $ — For the six months For the six months ended March 31, 2011 ended March 31, 2010 (Unaudited) (Unaudited) Weighted Weighted Loss Average Shares Per share Loss Average Shares Per share (numerator) (denominator) amount (numerator) (denominator) amount Basic and Diluted EPS Loss from continuing operations $ (1,400,781 ) 6,338,825 $ (0.22 ) $ (18,658 ) 6,033,224 $ — Loss from discontinued operations $ (294,327 ) 6,338,825 $ (0.05 ) $ (42,536 ) 6,033,224 $ (0.01 ) The significant accounting policies of the operating segments are the same as those described in Note 1 to the consolidated financial statements of the For the Three Months Ended For the Three Months Ended March 31, 2011 March 31, 2010 (Unaudited) (Unaudited) Cycle Imdyne Total Cycle Imdyne Total Net sales $ 2,010,043 $ 652,449 $ 2,662,492 $ 1,386,620 $ 773,374 $ 2,159,994 Freight income 27,755 7,771 35,526 17,773 9,616 27,389 Total Revenue 2,037,798 660,220 2,698,018 1,404,393 782,990 2,187,383 Cost of goods sold 1,846,497 702,331 2,548,828 763,326 692,413 1,455,739 Lower of cost or market adjustment 432,826 48,092 480,918 — — — Gross profit (loss) $ (241,525 ) $ (90,203 ) (331,728 ) $ 641,067 $ 90,577 731,644 Sales, general & admin (1,394,157 ) (1,005,343 ) Fraud expense — (134,775 ) Interest expense, net (73,567 ) (70,855 ) Other income /expense, net 60,171 46,543 Income tax benefit 598,394 172,742 Net loss from continuing operations $ (1,140,887 ) $ (260,044 ) For the Six Months Ended For the Six Months Ended March 31, 2011 March 31, 2010 (Unaudited) (Unaudited) Cycle Imdyne Total Cycle Imdyne Total Net sales $ 5,496,779 $ 1,341,825 $ 6,838,604 $ 4,642,778 $ 1,548,131 $ 6,190,909 Freight income 45,943 11,364 57,307 34,970 15,512 50,482 Total Revenue 5,542,722 1,353,189 6,895,911 4,677,748 1,563,643 6,241,391 Cost of goods sold 4,553,422 1,352,833 5,906,255 2,817,980 1,400,504 4,218,484 Lower of cost or market adjustment 432,826 48,092 480,918 — — — Gross profit (loss) $ 556,474 $ (47,736 ) 508,738 $ 1,859,768 $ 163,139 2,022,907 Sales, general & admin (2,568,470 ) (1,854,964 ) Fraud expense — (134,775 ) Interest expense, net (172,316 ) (153,242 ) Other income /expense, net 87,246 81,031 Income tax benefit 744,021 20,385 Net loss from continuing operations $ (1,400,781 ) $ (18,658 ) For the three months For the six months ended March 31, ended March 31, (Unaudited) (Unaudited) 2011 2010 2011 2010 United States $ 2,581,991 $ 2,060,571 $ 6,376,210 $ 5,869,812 Other Countries 116,027 126,812 519,701 371,579 Total Revenue $ 2,698,018 $ 2,187,383 $ 6,895,911 $ 6,241,391 During the vesting period, Mr. Tetzlaff and Mr. Davis have full voting and participating rights of common stock. statements. ended March 31, 2011. As of March 31, 2011 As of September 30, 2010 (Unaudited) Plazco Perf-Form Total Plazco Perf-Form Total Assets: Accounts Receivable $ 58,003 $ 6,312 $ 64,315 $ 70,719 $ 13,337 $ 84,056 Inventories 29,889 15,186 45,075 367,604 124,507 492,111 Net Property, Equip and Intangibles 78,346 1,514 79,860 105,032 114,240 219,272 Assets $ 166,238 $ 23,012 $ 189,250 $ 543,355 $ 252,084 $ 795,439 Liabilities: Accounts Payable $ 16,229 $ 4,325 $ 20,554 $ 6,024 $ 187 $ 6,211 Accrued Expenses 1,942 2,499 4,441 3,684 2,514 6,198 Total Liabilities $ 18,171 $ 6,824 $ 24,995 $ 9,708 $ 2,701 $ 12,409 For the Three Months Ended For the Three Months Ended March 31, 2011 March 31, 2010 (Unaudited) (Unaudited) Plazco Perf-Form Total Plazco Perf-Form Total Net sales $ 94,137 $ 25,834 $ 119,971 $ 104,304 $ 43,966 $ 148,270 Freight income 1,110 370 1,480 1,166 583 1,749 Total Revenue 95,247 26,204 121,451 105,470 44,549 150,019 Cost of goods sold 86,443 45,913 132,356 99,874 32,924 132,798 Lower of cost or market adjustment 148,000 75,134 223,134 — — — Gross profit (loss) $ (139,196 ) $ (94,843 ) (234,039 ) $ 5,596 $ 11,625 17,221 Sales, general & admin (62,740 ) (64,531 ) Impairment of intangibles (110,186 ) — Income tax benefit 139,605 18,883 Net loss from discontinued operations $ (267,360 ) $ (28,427 ) For the Six Months Ended For the Six Months Ended March 31, 2011 March 31, 2010 (Unaudited) (Unaudited) Plazco Perf-Form Total Plazco Perf-Form Total Net sales $ 167,592 $ 54,504 $ 222,096 $ 180,190 $ 65,846 $ 246,036 Freight income 1,559 595 2,154 2,149 1,074 3,223 Total Revenue 169,151 55,099 224,250 182,339 66,920 249,259 Cost of goods sold 164,952 80,705 245,657 195,590 70,175 265,765 Lower of cost or market adjustment 148,000 75,134 223,134 — — — Gross profit (loss) $ (143,801 ) $ (100,740 ) (244,541 ) $ (13,251 ) $ (3,255 ) (16,506 ) Sales, general & admin (94,578 ) (72,495 ) Impairment of intangibles (110,186 ) — Income tax benefit 154,978 46,465 Net loss from discontinued operations $ (294,327 ) $ (42,536 ) Concern: Item 2. Cautionary Note about Forward Looking Statements. operational effectiveness. demonstrate results. long-term lean initiatives and future seasonality. Three Months Ended March 31, 2011 2010 (Unaudited) (Unaudited) Total revenue $ 2,698,018 100.00 % $ 2,187,383 100.00 % Cost of goods sold 2,548,828 94.47 % 1,455,739 66.55 % Lower of cost or market adjustment 480,918 17.82 % — 0.00 % Gross profit (loss) (331,728 ) (12.29 )% 731,644 33.45 % Selling, general, and administrative expenses (1,394,157 ) (51.67 )% (1,005,343 ) (45.96 )% Fraud expense — 0.00 % (134,775 ) (6.16 )% Loss from operations (1,725,885 ) (63.96 )% (408,474 ) (18.67 )% Other expense (net) (13,396 ) (0.50 )% (24,312 ) (1.11 )% Loss before benefit from income taxes (1,739,281 ) (64.46 )% (432,786 ) (19.78 )% Income tax benefit 598,394 22.18 % 172,742 7.90 % Net loss from continuing operations (1,140,887 ) (42.28 )% (260,044 ) (11.88 )% Loss from discontinued operations, net of tax (267,360 ) (9.91 )% (28,427 ) (1.30 )% Net loss $ (1,408,247 ) (52.19 )% $ (288,471 ) (13.18 )% 32% of total revenue. $583,541 in the same period in fiscal year 2010. This reduction of net loss was attributable to an increase in our total gross profit of approximately $169,000 (restated). For the Three Months Ended Increase Increase March 31, March 31, (Decrease) (Decrease) 2011 2010 $ % (Unaudited) (Unaudited) Net revenue by segment Cycle Country ATV Accessories $ 2,010,043 $ 1,386,620 $ 623,423 44.96 % Imdyne 652,449 773,374 (120,925 ) (15.64 )% Total segment revenue 2,662,492 2,159,994 502,498 23.26 % Freight income 35,526 27,389 8,137 29.71 % Total combined revenue $ 2,698,018 $ 2,187,383 $ 510,635 23.34 % Gross profit (loss) by segment Cycle Country ATV Accessories $ (241,525 ) $ 641,067 $ (882,592 ) (137.68 )% Imdyne (90,203 ) 90,577 (180,781 ) (199.59 )% Total gross profit (loss) (331,728 ) 731,644 (1,063,372 ) (145.34 )% Sales, general and administrative (1,394,157 ) (1,005,343 ) (388,814 ) 38.67 % Fraud expense — (134,775 ) 134,775 (100.00 )% Interest income and expense (73,567 ) (70,855 ) (2,712 ) 3.83 % Other income and expense 60,171 46,543 13,628 29.28 % Income tax benefit 598,394 172,742 425,652 246.41 % Net loss from continuing operations (1,140,887 ) (260,044 ) (880,843 ) 338.73 % Loss from discontinued operations, net of tax (267,360 ) (28,427 ) (238,933 ) 840.50 % Net loss $ (1,408,247 ) $ (288,471 ) $ (1,119,776 ) 388.18 % Six Months Ended March 31, 2011 2010 (Unaudited) (Unaudited) Total revenue $ 6,895,911 100.00 % $ 6,241,391 100.00 % Cost of goods sold 5,906,255 85.65 % 4,218,484 67.59 % Lower of cost or market adjustment 480,918 6.97 % — 0.00 % Gross profit 508,738 7.38 % 2,022,907 32.41 % Selling, general, and administrative expenses (2,568,470 ) (37.25 )% (1,854,964 ) (29.72 )% Fraud expense — 0.00 % (134,775 ) (2.16 )% Loss from operations (2,059,732 ) (29.87 )% 33,168 0.53 % Other expense (net) (85,070 ) (1.23 )% (72,211 ) (1.16 )% Loss before benefit from income taxes (2,144,802 ) (31.10 )% (39,043 ) (0.63 )% Income tax benefit 744,021 10.79 % 20,385 0.33 % Net loss from continuing operations (1,400,781 ) (20.31 )% (18,658 ) (0.30 )% Loss from discontinued operations, net of tax (294,327 ) (4.27 )% (42,536 ) (0.68 )% Net loss $ (1,695,108 ) (24.58 )% $ (61,194 ) (0.98 )% The change in revenue from Imdyne's largest OEM customer accounts for all of that growth. For the Six Months Ended Increase Increase March 31, (Decrease) (Decrease) 2011 2010 $ % (Unaudited) Net revenue by segment Cycle Country ATV Accessories $ 5,496,779 $ 4,642,778 $ 854,001 18.39 % Imdyne 1,341,825 1,548,131 (206,306 ) (13.33 )% Net revenue by segment 6,838,604 6,190,909 647,695 10.46 % Freight income 57,307 50,482 6,825 13.52 % Total combined revenue $ 6,895,911 $ 6,241,391 $ 654,520 10.49 % Gross profit (loss) by segment Cycle Country ATV Accessories $ 556,474 $ 1,859,768 $ (1,303,294 ) (70.08 )% Imdyne (47,736 ) 163,139 (210,876 ) (129.26 )% Total gross profit 508,738 2,022,907 (1,514,169 ) (74.85 )% Sales, general and administrative (2,568,470 ) (1,854,964 ) (713,506 ) 38.46 % Impairment of intangibles — (134,775 ) 134,775 (100.00 )% Interest income and expense (172,316 ) (153,242 ) (19,074 ) 12.45 % Other income and expense 87,246 81,031 6,215 7.67 % Income tax benefit 744,021 20,385 723,636 3,549.85 % Net loss from continuing operations (1,400,781 ) (18,658 ) (1,382,123 ) 7,407.51 % Loss from discontinued operations, net of tax (294,327 ) (42,536 ) (251,791 ) 591.95 % Net loss $ (1,695,108 ) $ (61,194 ) $ (1,633,914 ) 2,670.05 % The Imdyne segment reported sales of approximately For the Three Months Ended March 31, 2011 March 31, 2010 (Unaudited) (Unaudited) ATV Imdyne ATV Imdyne % of Net Sales % of Net Sales Materials 57.46 % 64.26 % 39.87 % 61.60 % Direct labor 4.64 % 7.66 % 3.82 % 6.85 % Mfg variance (0.54 )% (1.04 )% (1.72 )% 1.02 % Subcontract 1.03 % 1.19 % 0.59 % 1.53 % Royalty 0.13 % 0.00 % 0.44 % 0.00 % Burden 14.21 % 12.57 % 7.22 % 7.28 % Mfg overhead 14.93 % 23.01 % 4.83 % 11.25 % 91.86 % 107.65 % 55.05 % 89.53 % For the Six Months Ended March 31, 2011 March 31, 2010 (Unaudited) (Unaudited) ATV Imdyne ATV Indyne % of Net Sales % of Net Sales Materials 53.11 % 59.63 % 42.17 % 59.34 % Direct labor 4.61 % 7.13 % 3.51 % 6.65 % Mfg variance 0.07 % 1.56 % (0.20 )% 1.13 % Subcontract 0.99 % 1.18 % 0.67 % 1.18 % Royalty 0.12 % 0.00 % 0.27 % 0.00 % Burden 14.04 % 16.21 % 9.31 % 12.55 % Mfg overhead 9.90 % 15.11 % 4.97 % 9.61 % 82.84 % 100.82 % 60.70 % 90.46 % Direct labor as a percentage of sales increased for both segments programs. Six Months Ended March 31, 2011 2010 (Unaudited) (Unaudited) Net cash provided by operating activities from continuing operations $ 1,606,159 $ 1,329,498 Net cash used for investing activities in continuing operations (73,326 ) (154,637 ) Net cash used for financing activities from continuing operations (1,771,123 ) (1,150,047 ) Net cash provided by discontinued operations 357,181 14,443 $ 118,891 $ 39,257 debt. Our continued existence is dependent upon or ability to generate cash and to market and sell our products successfully. However, there are no assurances
Condensed Consolidated Balance Sheet
2011 (Restated)(1)
2010 (Restated)(1) Assets Current Assets Cash and cash equivalents $ 23,350 $ 28,939 Accounts receivable, net 390,070 1,879,491 Inventories 3,126,074 2,716,639 Income taxes receivable 4,371 640,733 Deferred income taxes 521,000 366,000 Prepaid expenses and other 101,314 320,475 Assets held for sale 139,033 795,439 Total current assets 4,305,213 6,747,716 Property, plant and equipment, net 9,481,534 9,809,351 Intangible assets, net 59,620 161,957 Other assets 16,600 7,413 Total assets $ 13,862,968 $ 16,726,437 Liabilities and Stockholders' Equity Current Liabilities Disbursements in excess of bank balances 121,334 387,141 Accounts payable 2,001,430 689,030 Accrued expenses 1,394,378 1,049,385 Bank line of credit 2,000,000 2,700,000 Current portion of notes payable 434,962 699,681 Liabilities related to assets held for sale 21,362 12,409 Current portion of deferred gain - 27,754 Total current liabilities 5,973,466 5,565,400 Long-Term Liabilities Notes payable, less current portion 2,149,333 2,478,279 Deferred income taxes 724,000 1,587,000 Total long term liabilities 2,873,333 4,065,279 Total liabilities 8,846,799 9,630,679 Stockholders' Equity Common stock, $.0001 par value; 100,000,000 shares authorized; 6,990,662 and 8,046,471 shares issued and outstanding, respectively 699 805 Additional paid-in capital 12,499,672 12,495,917 Accumulated deficit (7,484,202 ) (5,400,964 ) Total stockholders' equity 5,016,168 7,095,758 Total liabilities and stockholders' equity $ 13,862,968 $ 16,726,437 Table of Contents
Condensed Consolidated Statements of OperationsThree Months ended June 30, 2010 Revenue Net sales $ 973,664 $ 1,783,457 Freight income 17,116 13,551 Total revenues 990,780 1,797,008 Cost of goods sold 589,091 1,542,269 Gross profit 401,689 254,739 Selling, general, and administrative expenses 937,185 988,770 Loss from operations (535,497 ) (734,030 ) Other income (expense) Interest expense (71,749 ) (79,201 ) Miscellaneous 84.043 35,738 Total other income (expense), net 12,295 (43,463 ) Loss from continuing operations before income tax benefit (523,202 ) (777,493 ) Benefit from income taxes 191,020 265,793 Net loss from continuing operations (332,182 ) (511,699 ) Loss from discontinued operations, net of tax (90,272 ) (71,842 ) Net loss $ (422,453 ) $ (583,541 ) Weighted average shares of common stock Basic 6,990,662 5,877,697 Diluted 6,990,662 5,877,697 Loss per basic and diluted share: Continuing Operations $ (0.05 ) $ (0.09 ) Discontinued Operations $ (0.01 ) $ (0.01 ) Table of Contents
Condensed Consolidated Statements of Operations Nine Months ended June 30, 2010 Revenue Net sales $ 7,906,776 $ 7,974,366 Freight income 74,386 61,350 Total revenues 7,981,162 8,035,715 Cost of goods sold 6,495,312 5,758,063 Lower of cost or market adjustment 480,918 - Gross profit 1,004,932 2,277,653 Selling, general, and administrative expenses 3,475,267 2,843,736 Fraud expense - 134,775 Total operating expenses 3,475,267 2,978,511 Loss from operations (2,470,335 ) (700,859 ) Other income (expense) Interest expense (244,064 ) (232,446 ) Interest income - 3 Gain (loss) on sale of assets (8,466 ) - Miscellaneous 171,289 116,769 Total other expense, net (81,241 ) (115,674 ) Loss from continuing operations before income tax benefit (2,551,576 ) (816,533 ) Benefit from income taxes 856,041 286,181 Net loss from continuing operations (1,695,535 ) (530,351 ) Loss from discontinued operations, net of tax (387,706 ) (114,382 ) Net loss $ (2,083,241 ) $ (644,734 ) Weighted average shares of common stock Basic 7,342,598 5,981,382 Diluted 7,342,598 5,981,382 Loss per basic and diluted share: Continuing Operations $ (0.23 ) $ (0.09 ) Discontinued Operations $ (0.05 ) $ (0.02 ) Table of Contents
Condensed Consolidated Statements of Cash Flows Nine Months ended June 30, 2010 Cash Flows from Operating Activities from Continuing Operations: Net loss from continuing operations $ (1,695,535 ) $ (530,351 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 472,667 533,724 Amortization 1,168 1,052 Reserve for bad debts 60,000 - Lower of cost or market adjustment 480,918 - Stock-based compensation 124,753 45,250 (Gain) loss on sale of property, plant and equipment 8,466 (11,231 ) Fraud recovery - (120,000 ) Change in: Accounts receivable 1,425,089 1,114,069 Inventories (605,305 ) (476,715 ) Income tax receivable 636,362 (376,360 ) Prepaid expenses, net 219,161 (37,405 ) Other assets (9,187 ) 30,981 Accounts payable, net 1,307,551 386,810 Deferred income taxes (1,018,000 ) 88,000 Accrued expenses 217,471 (43,351 ) Net cash provided by operating activities from continuing operations 1,625,578 604,473 Cash Flows from Investing Activities from Continuing Operations Purchase of property, plant and equipment (126,661 ) (232,200 ) Purchase of intangible assets, net (11,380 ) (5,036 ) Proceeds from sale of property, plant and equipment 25,996 12,500 Net cash used for investing activities in continuing operations (112,045 ) (224,736 ) Cash Flows from Financing Activities from Continuing Operations: Change in disbursements in excess of bank balances (265,807 ) (208,559 ) Payments on bank notes payable (593,665 ) (638,952 ) Advance on development loan - 60,000 Bank line of credit, net (700,000 ) 470,000 Net cash used for financing activities from continuing operations (1,559,472 ) (317,511 ) Cash Flows from Discontinued Operations: Cash provided by operating activities 40,350 (39,919 ) Net cash (used for) provided by discontinued operations 40,350 (39,919 ) Net increase (decrease) in cash and cash equivalents (5,589 ) 22,307 Cash and cash equivalents, beginning of period 28,939 27,490 Cash and cash equivalents, end of period $ 23,350 $ 49,797
Condensed Consolidated Statements of Cash Flow Nine Months ended June 30, 2010 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 244,069 $ 228,510 Supplemental schedule of non-cash investing and financing: Recovery of treasury shares from fraud $ - $ 120,000 Issuance of common stock and options for payment of compensation $ - $ 41,250 Issuance of common stock for payment of director fees $ - $ 4,000 Treasury stock purchased included in accrued expense $ 128,744 $ - Disposal of fixed assets $ 55,124 $ - Table of Contents
Notes to Condensed Consolidated Financial Statements
For the three and nine months ended June 30, 2011(Restated) and 2010
(Unaudited)(Unaudited)sixnine months ended March 31,June 30, 2011 and 2010 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission for Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. It is the opinion of management that the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting only of normal recurring accruals, considered necessary for a fair presentation of the Company’sCompany's financial position, results of operations, and cash flows for the periods presented.March 31,June 30, 2011 and 2010 are not necessarily indicative of the results to be expected for the full year. These interim condensed consolidated financial statements should be read in conjunction with the September 30, 2010 consolidated financial statements and related notes included in the Company’sCompany's Annual Report on Form 10-K10-K/A for the fiscal year ended September 30, 2010. — - Cycle Country Accessories Corp. (“("Cycle Country”Country") a Nevada corporation, has a wholly-owned subsidiary, Cycle Country Accessories Corp. (“("Cycle Country — Iowa”- Iowa"), an Iowa corporation.“Company”"Company" for these condensed consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation. and retail dealers throughout the United States of America, Canada, Mexico, South America, Europe, and Asia. Imdyne is engaged in the design, manufacture and assembly of an array of parts for original equipment manufacturers (OEMs) and other customers. The Company has offices in Minnetonka, MN and Spencer, IA, and has approximately 160,000 square feet of modern manufacturing facilities including its owned building in Spencer and leased space in Milford, IA.threenine months ended March 31,June 30, 2011 the Company has concluded that these segments do not fit within the long-term strategic plans of the Company.$294,000$150,000 (restated) and $36,000$73,000 for the three months ended March 31,June 30, 2011 and 2010, respectively. For the sixnine months ended March 31,June 30, 2011 and 2010, respectively, sales discounts and allowances were approximately $485,000$671,000 (restated) and $354,000.$543,000, respectively. Of these amounts, discounts and allowances related to continuing operations were approximately $293,000$145,000 (restated) and $33,000$66,000 for the three months ended March 31,June 30, 2011 and 2010 respectively and $478,000$654,000 (restated) and $348,000$532,000 for the sixnine months ended March 31,June 30, 2011 and 2010, respectively.Company’sCompany's products.Company’sCompany's cash and cash equivalent balances may exceed amounts insured by the Federal Deposit Insurance Company.March 31,June 30, 2011 and September 30, 2010, respectively. It is at least reasonably possible that the Company’sCompany's estimate will change in the future. — - Inventory is stated at the lower of cost or market. Inventory consists of raw material, work in process, and finished goods. Cost is determined using the weighted average method. The Company determined that indicators of potential impairment existed because the Company experienced a decrease in the Company’s market capitalization for a sustained period of time. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows (undiscounted and without interest charges) expected to be generated by the asset. If these projected cash flows are less than the carrying amount, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third party appraisals, as considered necessary. In accordance with Accounting Standards Codification, “ASC”"ASC" 360, the Company evaluated its long-lived assets using an undiscounted cash flow analysis. This analysis supported the carrying value of the long-lived assets and, therefore, no impairment was recorded. The Company’sCompany's analysis uses significant estimates in its evaluation. It is reasonably possible that its estimates and assumptions could change in the near future, which could lead to further impairment of long-lived assets. The estimated useful lives are as follows:Asset DescriptionYearsLand Improvements15-20Building15-4015-20 Plant Equipment7-1015-40 7-10 Tooling and Dies 3-73-7 3-73-7 3-103-10 — - Intangible assets with estimable useful lives are amortized over their respective estimated useful lives. Intangible assets are reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.Plazco’sPlazco's intangible assets had been previously fully amortized. Recoverability of intangible assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows (undiscounted and without interest charges) expected to be generated by the asset. If these projected cash flows are less than the carrying amount, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted or estimated market values and third party appraisals, as considered necessary. This analysis did not support the carrying value of the intangible assets for the Perf-Form segment and, therefore, an impairmentchargeimpairment charge in thein the three months endedon March 31, 2011. These charges are included in discontinued operations.“more-likely-than-not”"more-likely-than-not" of being sustained upon examination by taxing authorities, based on the technical merits of the position.Company’sCompany's policy is to recognize interest and penalties related to uncertain tax benefits in income tax expense. The Company has no significant accrued interest or penalties related to uncertain tax positions as of October 1, 2010 or March 31,June 30, 2011 and such uncertain tax positions as of each reporting date are insignificant.(“EPS”("EPS") is calculated by dividing net income (loss) by the weighted-average number of shares outstanding during the period. Diluted EPS is computed in a manner consistent with that of basic EPS while giving effect to the potential dilution that could occur if stock options or other share-based awards were exercised, by dividing net income (loss) by the weighted average number of shares and share equivalents during the period. See Note 6 for details regarding basic and diluted earnings per share.management’smanagement's view of outcomes will change in the near term.$52,000$35,000 and $31,000$45,000 for the three months ended March 31,June 30, 2011 and 2010 respectively and $87,000$122,000 and $65,000$110,000 in the sixnine month period ended March 31,June 30, 2011 and 2010 respectively, and is included in selling, general, and administrative expenses in the accompanying condensed consolidated statements of operations.$117,000$154,000 and $91,000$74,000 in the three month periodperiods ended March 31,June 30, 2011 and 2010, respectively, and totaled approximately $211,000$341,000 (restated) and $177,000$251,000 for the sixnine months ended March 31,June 30, 2011 and 2010 respectively and are included in selling, general and administrative expenses and cost of goods sold in the accompanying condensed consolidated statements of operations.$56,000$34,000 and $67,000$65,000 in the three months ended March 31,June 30, 2011 and 2010, respectively and totaled approximately $120,000$152,000 and $135,000$204,000 in the sixnine months ended March 31,June 30, 2011 and 2010, respectively, and are included in cost of goods sold in the accompanying condensed consolidated statements of operations. —The -The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and operating results, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses. Significant items subject to such estimates include the useful lives and assumptions used in the impairment analysis of long-lived assets;“Fair"Fair Value Measurements”Measurements" which defines fair value, outlines a framework for measuring fair value (although it does not expand the required use of fair value) and details the required disclosures about fair value measurements. At March 31,June 30, 2011, the Company does not have any financial or nonfinancial assets or liabilities that would require fair value recognition or disclosures under ASC 820.March 31,June 30, 2011 approximates their carrying values in the accompanying balance sheet. The estimated fair value amounts have been determined by the Company using appropriate valuation methodologies. As a result of its analysis of intangible assets, the Company reduced the book value of intangible assets related to the Perf-Form segment to $0 during the three months endedin March 31, 2011. The impairment charge of approximately $110,000 is included in the loss from discontinued operations.Fundsits Audit Committee Chairman, Mr. L. G. Hancher Jr. in the fiscal year ended September 30, 2009. This misappropriation of funds was related to a plan for the Company to purchase shares of its own stock which was to be completed by Mr. Hancher on the Company’sCompany's behalf (the “Stock Buyback”"Stock Buyback") in fiscal 2009.previousinformation provided in the filings in Mr. Hancher’sHancher's pending bankruptcy case.Company’sCompany's inventory to a new cost basis through a lower of cost or market adjustment.recent changes in our senior sales, marketing, and product developmentteam’steam's processes and conclusions.Duringthethat same period, the company adjusted inventory held in the segments identified as discontinued operations to lower of cost or market, as well. This adjustment totaled $223,134 and is included in the net loss from discontinued operations.endingended March 31, 2011, these two adjustments to inventory totaled $704,052. June 30,
2011 September 30,
2010 Raw Material $ 914,318 $ 895,688 Work in Process 80,864 68,631 Finished Goods 2,280,892 1,902,320 Inventory Reserve (150,000 ) (150,000 ) Total Inventories $ 3,126,074 $ 2,716,639 Company’sCompany's inventory reserve based on historical experience and current economic conditions and determined that, after the adjustments of lower of cost or market noted above, an inventory reserve of approximately $150,000 at March 31,June 30, 2011 and September 30, 2010 remains appropriate. It is reasonably possible the inventory reserve will change in the near future.hasentered into a Secured Credit Agreement which provided for a line of credit (“("Line of Credit One”One") with BankMidwest, (the "Lender"), on August 1, 2001, for the lesser of $1,000,000 or 80% of eligible accounts receivable and 35%50% of eligible inventory. Line of Credit One bearshas an interest rate at prime (3.25% at March 31, 2011 and September 30, 2010) plus 0.50% with a ceiling of 10.5% and a floor of 6.5%8%. At March 31, 2011 and SeptemberJune 30, 2010, the rate was 6.5%. At March 31, 2011 and September 30, 2010 there was $1,000,000 due on Line of Credit One.On September 30, 2009, the Company and its commercial lender entered into an additional secured credit agreement, (“Line of Credit Two”), dated September 30, 2009, as a temporary expansion of its credit facility Under the terms of Line of Credit Two, the Company added an additional line of credit for the lesser of $500,000 or 80% of eligible accounts receivable and 35% of eligible inventory. The line was subsequently increased to $600,000. The interest rate on Line of Credit Two was at 6.5%. There was no amount due on Line of Credit Two at March 31, 2011 or September 30, 2010.its commercial lenderthe Lender to replace Line of Credit Two with a new, larger facility, (“("Line of Credit Three”Three"). Under the terms of Line of Credit Three, the Company has added an additional line of credit for the lesser of $1,700,000 or 80% of eligible accounts receivable and 35%50% of inventory and bears interest at 6.75%8%. The note is collateralized by all of the Company’sCompany's assets. The balance of Line of Credit Three was $528,305$1,000,000 and $1,700,000 as of March 31,June 30, 2011 and September 30, 2010, respectively. Two and Three contain conditions and covenants that prevent or restrict the Company from engaging in certain transactions without the consent of the commercial lenderLender and require the Company to maintain certain financial ratios, including term debt coverage and maximum leverage. In addition, the Company is required to maintain a minimum working capital ratio and shall not declare or pay any dividends or any other distributions without the consent of the lender.Lender. As more fully described in Note 5, as of and for the three months and sixnine months ending March 31,ended June 30, 2011, the Company was not in compliance with allsome of its covenants with the lender.As ofLender.its lenderthe Lender entered into the Seventh Amendment to the Secured Credit Agreement and Waiver (“("Amendment 7”7"). Amendment 7 replacesmodified Line of Credit One Line of Credit Two and Line of Credit Three with a Revolving Credit Agreement in an amount not to exceed $2,700,000, maturing onextend the maturities of each line of credit until March 31, 2011.As ofOn March 30,31, 2011, the Company and its lenderthe Lender entered into the Eighth Amendment to the Secured Credit Agreement and Waiver (“("Amendment 8”8"). Amendment 8 replaces Amendment 7 withmodified Line of Credit Three to reduce the amount of the Line from $1,700,000 to a Revolving Credit Agreement in annew amount not to exceed $2,000,000, maturing$1,000,000. Agreement 8 matured on June 1, 2011, and was modified on June 9, 2011 to extend the maturity to August 1, 2011.Debt June 30, 2011 September 30, 2010 (Unaudited) Note 1 to commercial lender payable in equal monthly installments of $42,049 including interest at 6.125%. The note matured April 2011 and was secured by all Company assets. $ - $ 284,263 Note 2 to commercial lender payable in equal monthly installments of $33,449 including interest fixed at 5.5% until April 2012. Beginning April 2012, the interest is reset every 60 months to 0.50% over prime not to exceed 10.5% or be less than 5.5%. The note matures April 2018 and is secured by all Company assets. 2,223,324 2,418,530 Note 3 to commercial lender payable in equal monthly installments of $14,567 including interest at 6.125% until maturity of April 2013 secured by the specific equipment acquired. 300,971 415,167 Note - Spencer Area Jobs Trust due in full March 2014 interest free and forgivable in full if the Company maintains required job levels. 60,000 60,000 Total 2,584,295 3,177,960 Less current maturities (434,962 ) (699,681 ) Net $ 2,149,333 $ 2,478,279 commercial lenderLender and require the Company to maintain certain financial ratios, including term debt coverage and maximum leverage. As of and for the three and sixnine months ended March 31,June 30, 2011, the Company was not in compliance with the term debt coverage requirement or the working capital requirement of the agreement.As ofagreements.its lenderthe Lender entered into Amendment 7. Under the terms of Amendment 7, the lenderLender agreed to waive the noncompliance by the Company with the required ratio of current assets to current liabilities as of September 30, 2010 and December 31, 2010 and the Company’sCompany's anticipated noncompliance with the required ratio of current assets to current liabilities through October 1, 2011 and further, waive the Company’sCompany's noncompliance with the Term Debt Coverage Ratio (as defined in Amendment 7) as of September 30, 2010 and December 31, 2010, and the Company’sCompany's anticipated noncompliance with the Term Debt Coverage Ratio through October 1, 2011.“Trust”"Trust"). Under the terms of this agreement, the Trust advanced $60,000 to the Company under a loan which is forgivable in full if the Company maintains no less than seventy full time employment positions through February 2014. If the Company does not maintain seventy employment positions, the amount of the loan forgiven will equal $850 for each employment position retained. The Company will extinguish this debt amount, if any, upon notice from the Trust.$1,408,247$332,182 (restated) for the three months ended March 31,June 30, 2011 and $1,695,108a net loss from continuing operations of $1,695,535 (restated) for the sixnine months ended March 31,June 30, 2011. A net loss causes all outstanding common stock equivalents, such as certain stock options warrants, and restricted share awards,warrants, to be antidilutive. As a result, the basic and dilutive losses per common share are the same for the three and sixnine months March 31,June 30, 2011. CommonThere were no common stock equivalents that are not included in diluted net loss per share were 653,485 at March 31,outstanding during the three and nine months ended June 30, 2011. For the three months
ended June 30, 2011For the three months
ended June 30, 2010 Restated
Loss Restated
Weighted
Average
Shares Restated
Per share Loss Weighted
Average
Shares Per share (numerator) (denominator) amount (numerator) (denominator) amount Basic and Diluted EPS Loss from continuing operations $ (332,182 ) 6,990,662 $ (0.05 ) $ (511,699 ) 5,877,697 $ (0.09 ) Loss from discontinued operations $ (90,272 ) 6,990,662 $ (0.01 ) $ (71,842 ) 5,877,697 $ (0.01 ) For the nine months
ended June 30, 2011 For the nine months
ended June 30, 2010 Restated Loss Restated
Weighted
Average Shares Restated
Per share Earnings Weighted
Average
Shares Per share (numerator) (denominator) amount (numerator) (denominator) amount Basic and Diluted EPS Loss from continuing operations $ (1,695,535 ) 7,342,598 $ (0.23 ) $ (530,351 ) 5,981,382 $ (0.09 ) Loss from discontinued operations $ (387,706 ) 7,342,598 $ (0.05 ) $ (114,382 ) 5,981,382 $ (0.02 ) This represents a change in the way the Company reports segment results. Management believes segments are more accurately analyzed if costs are allocated to each segment. Prior periods have been re-stated using segment allocations. This resulted in no change to net income.Company’sCompany's executive officers in determining resource allocation and assessing performance. Two of the segments are classified in continuing operations and, as more fully discussed in Note 9, two of these segments are classified as discontinued operations.“Accessories”Accessories" is engaged in the design, manufacture, and sale of accessories for all terrain vehicles (ATVs) and utility vehicles (UTVs) such as snowplow blades, lawnmowers, spreaders, sprayers, tillage equipment, winch mounts, and utility boxes.“Imdyne”Company’sCompany's contract manufacturing division, is engaged in the design, manufacture and assembly of a wide array of parts, components, and other precuts for non-competing OEM and other businesses.Company’sCompany's Annual Report on Form 10-K for the fiscal year ended September 30, 2010.
Country
ATV
Accessories
Country
ATV
Accessories
Country
ATV
Accessories
Country
ATV
Accessories For the Three Months Ended
June 30, 2011 (Restated) For the Three Months Ended
June 30, 2010 Cycle
Country ATV Accessories Imdyne Total Cycle Country
ATV
Accessories Imdyne Total Net sales $ 545,868 $ 427,796 $ 973,664 $ 915,922 $ 867,536 $ 1,783,458 Freight income 9,808 7,307 17,116 7,004 6,547 13,551 Total Revenue 555,676 435,103 990,780 922,926 874,083 1,797,009 Cost of goods sold 192,341 396,751 589,091 829,229 713,040 1,542,269 Gross profit $ 363,338 $ 38,351 $ 401,689 $ 93,697 $ 161,043 $ 254,740 Sales, general & admin (937,185 ) (1,030,851 ) Interest expense, net (71,749 ) (79,201 ) Other income /expense, net 84,043 77,820 Income tax benefit 191,020 265,793 Net loss from continuing operations $ (332,182 ) $ (511,699 ) For the Nine Months Ended
June 30, 2011 Restated For the Nine Months Ended
June 30, 2010 Cycle
Country ATV
Accessories Imdyne Total Cycle Country ATV Accessories Imdyne Total Net sales $ 6,137,155 $ 1,769,621 $ 7,906,776 $ 5,558,700 $ 2,415,666 $ 7,974,366 Freight income 49,652 24,734 74,386 31,709 29,641 61,350 Total Revenue 6,186,807 1,794,355 7,981,162 5,590,409 2,445,307 8,035,715 Cost of goods sold 4,730,142 1,765,169 6,495,311 3,613,422 2,144,641 5,758,062 Lower of cost or market adjustment 480,918 - 480,918 Gross profit $ 975,748 $ 29,186 $ 1,004,932 $ 1,976,987 $ 300,666 $ 2,277,653 Sales, general & admin (3,475,267 ) (2,843,736 ) Fraud expense - (134,775 ) Interest expense, net (244,064 ) (232,440 ) Other income /expense, net 162,824 116,770 Income tax benefit 856,041 286,177 Net loss from continuing operations $ (1,695,535 ) $ (530,351 ) Company’sCompany's revenue in different geographic areas:For the three months
ended June 30, For the nine months
ended June 30, 2011
(Restated) 2010 2011
(Restated) 2010 United States $ 936,375 $ 1,621,029 $ 7,705,804 $ 7,389,383 Other Countries 54,404 175,980 275,358 646,333 Total Revenue $ 990,780 $ 1,797,009 $ 7,981,162 $ 8,035,716 March 31,June 30, 2011, all of the Company’sCompany's long-lived assets are located in the United States of America.29%32%, 16%21% and 17%14% of total sales respectively for the three months ended March 31,June 30, 2011. During the three months ended March 31,June 30, 2010, sales to the same customers were approximately 18%19%, 11% and 14%10% of total sales, respectively. For the sixnine months ended March 31,June 30, 2011, sales to the same customers were approximately 24%15%, 18%23% and 12%17% of total sales. Sales to two customers exceeded 10% forDuring the sixnine months ended March 31,June 30, 2010, sales to the same customers were approximately 21% 13%, and were 25% and 14%11% of total sales.Company’sCompany's employment agreement dated June 24, 2008 with its former chief executive officer, Jeffrey M. Tetzlaff, provided for the grant of 50,000 shares of stock in the Company, vesting over a three-year period. At the end of the first and second full year of employment, Mr. Tetzlaff became vested in and received 16,666 shares of stock each year. During the year ended September 30, 2010, the Board accelerated the vesting of the final installment of 16,668 shares of stock which otherwise would have vested on April 7, 2011. For the six months ended March 31, 2010, $6,875 was recognized as compensation expense. The compensation expense was fully recognized in fiscal year 2010.Company’sCompany's common stock. Effective July 1, 2010, the option to purchase these shares was terminated.Effective There were no outstanding options as of June 30, 2011.stock. Whichstock, which vest in four installments during the respective terms of the agreements with the first installment of 40% vesting October 1, 2010 and which vesting is subject to acceleration on the occurrence of certain events, including a change of control. These awards were approved by the Company’sCompany's stockholders at the 2010 annual meeting.surrenderedsettled the 402,234 shares that vested October 1, 2010, and forfeited his unvested shares.There Cumulative compensation expense of $48,493 (restated) related to Mr. Tetzlaff's unvested shares was reversed during the three months ended December 31, 2010.no outstanding optionsgranted 50,000 shares of stock for services provided to the Company under the approved Director Equity Compensation Agreement. The shares vest over a period of three years.or March 31, 2010.Note 9. Discontinued OperationsThethe Company concluded that the Perf-Form and Plazco segments do notno longer fit with the long term strategic plans of the Company. Both of these segments are outside of the Company’sCompany's core product lines and/or our core customer relationships. Both of these segments have seen substantial decline in the past three years in sales and profitability as they lacked adequate sales, marketing, and operational leadership. Further, the Company has no internal expertise in engineering in either of these product segments. As a result, with the changes in the senior management of the Company, the determination was made that these segments no longer fit the Company’sCompany's strategic plan, and as a result,therefore, these segments are reported as discontinued operations in the condensed consolidated financial statement.therefore, an impairment charge in the amount of $110,186 for trademarks and unamortized patents was recognized in the three months As of June 30, 2011 As of September 30, 2010 (Restated) Plazco Perf-Form Total Plazco Perf-Form Total Assets: Accounts Receivable $ 61,303 $ (1,542 ) $ 59,761 $ 70,719 $ 13,337 $ 84,056 Inventories - - 367,604 124,507 492,111 Net Property, Equipment and Intangibles 77,758 1,515 79,272 105,032 114,240 219,272 Assets $ 139,061 $ (27 ) $ 139,033 $ 543,355 $ 252,084 $ 795,439 Liabilities: Accounts Payable $ 13,414 $ 2,294 $ 15,707 $ 6,024 $ 187 $ 6,211 Accrued Expenses 3,375 2,280 5,655 3,684 2,514 6,198 Total Liabilities $ 16,789 $ 4,573 $ 21,362 $ 9,708 $ 2,701 $ 12,409 For the Three Months Ended
June 30, 2011 (Restated) For the Three Months Ended
June 30, 2010 Plazco Perf-Form Total Plazco Perf-Form Total Net sales $ 91,385 $ 19,372 $ 110,758 $ 138,340 $ 87,556 $ 225,897 Freight income 3,330 - 3,330 1,066 609 1,675 Total Revenue 94,715 19,372 114,088 139,406 88,165 227,572 Cost of goods sold 68,976 27,991 96,967 128,853 80,298 209,151 Gross profit(loss) $ 25,739 $ (8,620 ) 17,120 $ 10,553 $ 7,867 18,421 Sales, general & administrative expense (114,323 ) (127,579 ) Income tax benefit 6,931 37,317 Net loss from discontinued operations $ (90,272 ) $ (71,842 ) For the Nine Months Ended
June 30, 2011(Restated) For the Nine Months Ended
June 30, 2010 Plazco Perf-Form Total Plazco Perf-Form Total Net sales $ 258,977 $ 73,877 $ 332,855 $ 318,530 $ 153,402 $ 471,932 Freight income 3,935 1,586 5,521 4,825 2,757 7,582 Total Revenue 262,912 75,463 338,376 323,355 156,159 479,514 Cost of goods sold 392,270 173,524 565,794 322,052 155,554 477,606 Gross profit (loss) $ (129,357 ) $ (98,062 ) (227,419 ) $ 1,303 $ 605 1,908 Sales, general & administrative expense (200,415 ) (200,070 ) Impairment of intangibles (110,186 ) - Other income/expense, net (11,596 ) - Income tax benefit 161,910 83,781 Net loss from discontinued operations $ (387,706 ) $ (114,382 ) ConcernMarch 31,June 30, 2011, the Company incurred a net loss of approximately $1,408,000$422,000 (restated) and for the sixnine months ended March 31,June 30, 2011, the Company incurred a net loss of approximately $1,695,000.$2,083,000 (restated). As of March 31,June 30, 2011, the Company had an accumulated deficit of approximately $6,774,000.$7,484,000 (restated). As discussed in Note 5, as of March 31,June 30, 2011, the Company was in violation of covenants with its lender,the Lender, a waiver for which was received. Based on these circumstances, it raises substantial doubt about the Company's ability to continue as a going concern. If the Company is unable to generate profits and unable to continue to obtain financing or renew existing financing for its working capital requirements, it may have to curtail its business sharply or cease business altogether. These unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts and classification of liabilities that might be necessary in the event the Company does not continue as a going concern.the revolving lineLine of credit agreementCredit One and Line of Credit Three provided by Amendment 8 to be sufficient to fund operations. Short term cash can be generated throughaggressive collectionnumber of accounts receivableshares outstanding, the valuation and timing of the expense recognition of those equity awards, and the amount and timing of sales discounts and allowances and selling expenses related to a customer incentive program that was put into place by reducing inventory balances.former management and the error regarding the number of shares outstanding related to equity compensation awards with multiple vesting dates that covered multi-year service periods. The errors caused the Company is into understate selling expenses related to customer incentive program and stock-based compensation. Additionally, the processerror regarding the number of securing replacement financing through an asset-based lenderissued and outstanding had the further effect of misstating the basic and fully-diluted earnings per share for its Revolving Credit Agreement which maturesthe three and nine months ended June 1,30, 2011.
Condensed Consolidated Balance Sheet June 30, June 30, 2011 2011 (Unaudited) ORIGINAL ADJUSTMENTS RESTATED Assets Current Assets: Cash and cash equivalents $ 23,350 $ - $ 23,350 Accounts receivable, net 390,070 - 390,070 Inventories 3,126,074 - 3,126,074 Income taxes receivable 4,371 - 4,371 Deferred income taxes 518,000 3,000 521,000 Prepaid expenses and other 101,314 - 101,314 Assets held for sale 139,033 - 139,033 Total current assets 4,302,213 - 4,305,213 Property, plant, and equipment, net 9,481,534 - 9,481,534 Intangible assets, net 59,620 - 59,620 Other assets 16,600 - 16,600 Total assets $ 13,859,968 $ 3,000 $ 13,862,968 Liabilities and Stockholders' Equity Current Liabilities: Disbursements in excess of bank balances $ 121,334 $ - $ 121,334 Accounts payable 2,001,430 - 2,001,430 Accrued expenses 1,416,178 (21,800 ) 1,394,378 Bank line of credit 2,000,000 - 2,000,000 Current portion of notes payable 434,962 - 434,962 Liabilities related to assets held for sale 21,362 - 21,362 Current portion of deferred gain - - - Total current liabilities 5,995,266 (21,800 ) 5,973,466 Long-Term Liabilities: Notes payable, less current portion 2,149,333 - 2,149,333 Deferred income taxes 697,000 27,000 724,000 Total long term liabilities 2,846,333 27,000 2,873,333 Total liabilities 8,841,599 5,200 8,846,799 Stockholders' Equity: Common stock, $.0001 par value; 100,000,000 shares authorized; 6,990,662 shares issued and outstanding 635 64 699 Additional paid-in capital 12,223,012 276,660 12,499,672 Accumulated deficit (7,205,278 ) (278,924 ) (7,484,202 ) Total stockholders' equity 5,018,368 (2,200 ) 5,016,168 Total liabilities and stockholders' equity $ 13,859,968 $ 3,000 $ 13,862,968
Condensed Consolidated Statement of ContentsOperations
For the Three Months Ended June 30, 2011 (Unaudited) ORIGINAL ADJUSTMENTS RESTATED Revenues: Net sales $ 911,874 $ 61,790 $ 973,664 Freight income 17,116 - 17,116 Total revenues 928,990 61,790 990,780 Cost of goods sold 589,091 - 589,091 Gross profit (loss) 339,899 61,790 401,689 Selling, general, and administrative expenses 900,659 36,526 937,185 Loss from operations (560,761 ) 25,264 (535,497 ) Other income (expense): Interest expense (71,749 ) - (71,749 ) Miscellaneous 84,043 - 84,043 Total other income (expense), net 12,295 - 12,295 Loss from continuing operations before income tax benefit (548,466 ) 25,264 (523,202 ) Benefit from income taxes 203,020 (12,000 ) 191,020 Net loss from continuing operations (345,446 ) 13,264 (332,182 ) Loss from discontinued operations, net of tax (85,746 ) (4,526 ) (90,272 ) Net loss $ (431,191 ) $ 8,738 $ (422,453 ) Weighted average shares of common stock: Basic 6,353,843 636,819 6,990,662 Diluted 6,353,843 636,819 6,990,662 Loss per basic and diluted share: Continuing Operations $ (0.05 ) $ (0.00 ) $ (0.05 ) Discontinued Operations $ (0.01 ) $ 0.00 $ (0.01 )
Condensed Consolidated Statement of Operations
For the Nine Months Ended June 30, 2011 ORIGINAL ADJUSTMENTS RESTATED Revenues: Net sales $ 7,750,480 $ 156,296 $ 7,906,776 Freight income 74,386 - 74,386 Total revenues 7,824,866 156,296 7,981,162 Cost of goods sold 6,495,312 - 6,495,312 Lower of cost or market adjustment 480,918 - 480,918 Gross profit 848,636 156,296 1,004,932 Selling, general, and administrative expenses 3,460,662 14,605 3,475,267 Loss from operations (2,612,026 ) 141,691 (2,470,335 ) Other income (expense): Interest expense (244,064 ) - (244,064 ) Gain (loss) on sale of assets (8,466 ) - (8,466 ) Miscellaneous 171,289 - 171,289 Total other expense, net (81,241 ) - (81,241 ) Loss from continuing operations before income tax benefit (2,693,267 ) 141,691 (2,551,576 ) Benefit from income taxes 947,041 (91,000 ) 856,041 Net loss from continuing operations (1,746,226 ) 50,691 (1,695,535 ) Loss from discontinued operations, net of tax (380,071 ) (7,635 ) (387,706 ) Net loss $ (2,126,297 ) $ 43,056 $ (2,083,241 ) Weighted average shares of common stock: Basic 6,343,929 998,669 7,342,598 Diluted 6,343,929 998,669 7,342,598 Loss per basic and diluted share: Continuing Operations $ (0.28 ) $ 0.05 $ (0.23 ) Discontinued Operations $ (0.06 ) $ 0.01 $ (0.05 )
Condensed Consolidated Statement of Cash Flows
For the Nine Months Ended June 30, 2011 ORIGINAL ADJUSTMENTS RESTATED Cash Flows from Operating Activities from Continuing Operations: Net loss from continuing operations $ (1,746,226 ) $ 50,691 $ (1,695,535 ) Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities: Depreciation 472,667 - 472,667 Amortization 1,168 - 1,168 Reserve for bad debts 60,000 - 60,000 Lower of cost or market adjustment 480,918 - 480,918 Stock-based compensation - 124,753 124,753 Loss on sale of property, plant and equipment 8,466 - 8,466 Change in operating assets and liabilities: Accounts receivable 1,425,089 - 1,425,089 Inventories (605,305 ) - (605,305 ) Income tax receivable 636,362 - 636,362 Prepaid expenses, net 219,161 - 219,161 Other assets (9,187 ) - (9,187 ) Accounts payable, net 1,307,551 - 1,307,551 Deferred income taxes (1,109,000 ) 91,000 (1,018,000 ) Accrued expenses 483,915 (266,444 ) 217,471 Net cash provided by operating activities from continuing operations 1,625,578 - 1,625,578 Cash Flows from Investing Activities from Continuing Operations: Purchase of property, plant and equipment (126,661 ) - (126,661 ) Purchase of intangible assets, net (11,380 ) - (11,380 ) Proceeds from sale of property, plant and equipment 25,996 - 25,996 Net cash used for investing activities in continuing operations (112,045 ) - (112,045 ) Cash Flows from Financing Activities from Continuing Operations: Changes in disbursements in excess of bank balances (265,807 ) - (265,807 ) Payments on bank notes payable (593,665 ) - (593,665 ) Bank line of credit, net (700,000 ) - (700,000 ) Net cash used for financing activities from continuing operations (1,559,472 ) - (1,559,472 ) Cash Flows from Discontinued Operations: Cash provided by operating activities 40,350 - 40,350 Net cash provided by discontinued operations 40,350 - 40,350 Net decrease in cash and cash equivalents (5,589 ) - (5,589 ) Cash and cash equivalents, beginning of period 28,939 - 28,939 Cash and cash equivalents, end of period $ 23,350 - $ 23,350
Condensed Consolidated Statement of Cash Flows
For the Nine Months Ended June 30, 2011 ORIGINAL ADJUSTMENTS RESTATED Supplemental disclosures of cash flow information: Cash paid (received) during the period for: Interest $ 244,069 - $ 244,069 Supplemental schedule of non-cash investing and financing: Treasury stock purchased included in accrued expense $ - 128,744 $ 128,744 Disposal of fixed assets $ 55,124 - $ 55,124 Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations10-Q10-Q/A are “forward-looking"forward-looking statements,”" and the Company intends these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and is including this statement for purposes of those safe harbor provisions. These forward-looking statements can generally be identified as such because they include phrases such as the Company “expects,” “believes,” “anticipates”"expects," "believes," "anticipates" or other words of similar meaning. Similarly, statements that describe the Company’sCompany's future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which could cause actual results or outcomes to differ materially from those currently anticipated. Factors that could affect actual results or outcomes include the matters described under the caption “Risk Factors”"Risk Factors" in Item 1A of our Form 10-K10-K/A for the year ended September 30, 2010. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this filing. The Company assumes no obligation, and disclaims any obligation, to update such forward-looking statements to reflect subsequent events or circumstances.“Company”"Company", "we", "us", or "our") and should be read in conjunction with our condensed consolidated financial statements as of September 30, 2010, and the fiscal year then ended, and Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations, both contained in our Annual Report on Form 10-K10-K/A for the fiscal year ended September 30, 2010.of January 1,we discussed in our Form 10-Q/A for the period ended March 31, 2011, the Company has a completely restructuredmade significant progress in accelerating the changes in our management team.and operations beginning January 1, 2011. With the resignation of the former CEO and one of the Company’sCompany's outside directors on December 31, 2010, and the elevation of the Chief Financial Officer to the role of the Interim Chief Executive Officer, the Company has been able to rebuild a team of former leaders of the Company and the industry. The Company has rehired both the former Vice President of Sales and the Vice President of Product Innovation, as well as retained and elevated two key people in the positions of��of Vice President of Product Implementation and the Vice President of Risk Management and Strategic Projects. This group constitutes a new level of experienced, qualified, professional managers for the Company.In addition, the Companyteam has hired a new General Manager for the Operations of the Spencerrevitalized our sales, marketing, and Milford production facilities, and has re-built the remaining manufacturing management team, with the combination of experience and tribal knowledge of our products and industry, combined with the lean manufacturing leadership and execution skills that the Company lacked previously.acceleratingimplementing operational changes, the challenges the Company has been working through will take some more time to show effect.reachinghaving reached their annual lows in the third quarter of our fiscal year, and with a strongprediction of a more favorable finish in the fourth quarter. DuringAs is discussed further in this report, during the normally slow sales period of the third quarter, the Company will focusfocused on implementingpreparingpreparation of the manufacturing operations for the next 24 month period, while we buildbuilt inventory for the coming season. The third quarter is historically a period of very light sales, and therefore heavy losses from operations. We do not anticipate that changing this year, asIn anticipation of the upcoming season, we continue to make the long-overduemade several major changes to our manufacturing processes to optimizeimprove our long-termoperating efficiencies. We believe that the work we are doing should make this year the last year of the seasonally heavy losses in this time of year, with better balance between the lows and the highs ofthese improvements will help us mitigate our seasonality in the years ahead.TheOur goal for the ATV Accessories segment is expected to regain and maintain its long-time average of 40% and above contribution margins. TheOur goal for the Imdyne segment is expected to have contribution margins in the range of 25%-30% of revenue. Overall, our goal is for gross margins, after manufacturing overhead, are expected to exceed 30% of revenues in that same period. Further, for the next 12-24 months, management believes we can reduceour goal is for our operating expenses to average between 20%-25% of revenues.Current management and the Board of Directors has a strong focus on returning the Company to profitability and feels that the recent changes and aggressive implementation of the sales, marketing and operating style previously used by Cycle Country will return the Company to the profitability of its past. Focusing on delivering value to our core customers through dependable, high-quality products in our core product line, backed by an experienced, professional team of our core people will continue to bring us back market share that has been lost through expensive, distracted, previously used by initiatives, while giving us operating efficiencies that return us to profitability.March 31, 2011June 30, 2011(Restated) and 2010 ((Unaudited)March 31,June 30, 2011 and March 31,June 30, 2010 (Unaudited): Three Months Ended June 30, 2011 (Restated) 2010 (Unaudited) (Unaudited) Total revenue $ 990,780 100.00 % $ 1,797,008 100.00 % Cost of goods sold 589,091 59.46 % 1,542,269 85.82 % Gross profit (loss) 401,689 40.54 % 254,739 14.18 % Selling, general, and administrative expenses (937,185 ) (94.59 )% (988,770 ) (55.02 )% Loss from operations (535,497 ) (54.05 )% (734,030 ) (40.85 )% Other expense (net) 12,295 1.24 % (43,463 ) (2.42 )% Loss before benefit from income taxes (523,202 ) (52.81 )% (777,493 ) (43.26 )% Income tax benefit 191,020 19.28 % 265,793 14.79 % Net loss from continuing operations (332,182 ) (33.53 )% (511,699 ) (28.47 )% Loss from discontinued operations, net of tax (90,272 ) (9.11 )% (71,842 ) (4.00 )% Net loss $ (422,453 ) (42.64 )% $ (583,541 ) (32.46 )% March 31,June 30, 2011, the Company reported a net loss of $1,408,247$422,000 (restated) or 52%43% of total revenue.revenue (restated). This compares to the three months ending March 31,ended June 30, 2010 during which the Company recorded a net loss of $288,471$584,000 or 13%These losses include significant one-time charges, such as $480,918 for lower of cost or market inventory adjustments, $267,360 for losses from discontinued operations, and approximately $250,000 related to discounts and allowances under a program which is no longer offered. These one-time, non-recurring expenses account for approximately $1,000,000 of the loss. In addition, our steel-based commodity material expenses increased over 50%, causing our total materials expense to increase 17% over the three-month period.Net revenuesperiod increasedthree months ended June 30, 2011 decreased approximately 23% over45% (restated), or approximately $806,000 (restated) compared to the same period in fiscal year 2010. However, after adjustingThis drop in year-over-year revenue was attributable to two significant changes in the business. The first was a scheduled lean manufacturing-driven shutdown of the Spencer manufacturing facility for two of the lossthree months ended June 30, 2011 to accomplish some long-overdue operational and process improvements. The second was attributable to a decline in revenues of approximately 17% of our total revenue for the same period last year from the unprofitable customers that we discontinued serving, as noted elsewhere, our total revenue is up closer to 40%. Revenue increased for the Cycle Country ATV Accessories segment by approximately 45%, due to continued seasonally favorable weather throughout the winter, as well as additional sales due to strengthened customer relationships. Net revenues were discounted approximately $249,500, or approximately 8% of the gross sales of the quarter ending March 31, 2011, due to the accrual of additional expenses related to a discontinued, unnecessary marketing program. Sales50% (restated) in the Imdyne segment, decreased approximately 16%, though when adjusted forafter the loss of theCompany'ssegment was up approximately 50%.Gross marginsdivision.ending March 31,ended June 30, 2011 were a negative 12.29%was 41% (restated), up from 14% in the same period in fiscal year 2010. The gross margin improvement in this quarter was attributable to continuation of revenue, after the adjustments for one-time charges. However, withoutimprovement in our operations as well as due to the one-time charges,lack of any materially-significant cleanups, allowing the gross marginsCompany to return to more normal margins.would have beenended June 30, 2011 was $422,453 (restated), compared to a positive 14.65%loss of revenue.March 31,June 30, 2011 (Restated) and March 31,June 30, 2010 (unaudited): For the Three Months Ended
2011 (Restated)
(Unaudited)
2010
(Unaudited)
$ Increase (Decrease)
%Net revenue by segment CCAC ATV $ 545,868 $ 915,922 $ (370,054 ) (40.40 )% Imdyne 427,796 867,536 (439,740 ) (50.69 )% Net revenue 973,664 1,783,458 (809,794 ) (45.41 )% Freight income 17,116 13,551 3,564 26.30 % Total combined revenue $ 990,780 $ 1,797,009 $ (806,229 ) (44.87 )% Gross profit by segment CCAC ATV $ 363,338 $ 93,697 $ 269,641 287.78 % Imdyne 38,351 161,043 (122,692 ) (76.19 )% Total gross profit 401,689 254,740 146,949 57.69 % Sales, general and administrative (937,185 ) (988,770 ) 51,585 5.22 % Interest income and expense (71,749 ) (79,201 ) 7,452 9.41 % Other income and expense 84,043 77,820 6,223 8.00 % Income tax benefit 191,020 265,793 (74,773 ) (28.13 )% Net loss from continuing operations (332,182 ) (469,618 ) 137,436 29.27 % Loss from discontinued operations, net of tax (90,272 ) (71,842 ) 16,058 22.35 % Net loss $ (422,453 ) $ (541,459 ) $ 119,006 21.98 % SixNine Months Ended March 31,June 30, 2011 and 2010 ((Unaudited)sixnine months ended March 31,June 30, 2011 and March 31,June 30, 2010 (Unaudited): Nine Months Ended June 30,
(Unaudited)
(Unaudited)Total revenue $ 7,981,162 100.00 % $ 8,035,716 100.00 % Cost of goods sold 6,495,312 81.38 % 5,758,063 71.66 % Lower of cost or market adjustment 480,918 6.03 % - 0.00 % Gross profit 1,004,932 12.59 % 2,277,654 28.34 % Selling, general, and administrative expenses (3,475,267 ) (43.54 )% (2,843,736 ) (35.39 )% Fraud expense - 0.00 % (134,775 ) (1.68 )% Loss from operations (2,470,335 ) (30.95 )% (700,859 ) (8.72 )% Other expense (net) (81,241 ) (1.02 )% (115,674 ) (1.44 )% Loss before benefit from income taxes (2,551,576 ) (31.97 )% (816,533 ) (10.16 )% Income tax benefit 856,041 10.73 % 286,181 3.56 % Net loss from continuing operations (1,695,535 ) (21.24 )% (530,351 ) (6.60 )% Loss from discontinued operations, net of tax (387,706 ) (4.86 )% (114,382 ) (1.42 )% Net loss $ (2,083,241 ) (26.10 )% $ (644,734 ) (8.02 )% sixnine months ended March 31,June 30, 2011, the Company reported a net loss of $1,695,108$2,083,241 (restated) or 25%26% (restated) of total revenue.revenue (restated). This compares to the sixnine months ending March 31,ended June 30, 2010 during which the Company recorded a net loss of $61,194$644,734 or about 1%8% of total revenue. These losses in the first sixnine months of fiscal year 2011 include significant nonrecurring charges, such as approximately $270,000$195,000 (restated) for one-time severance expense and signing bonuses, $480,918 for lower of cost or market inventory adjustments, $294,327write-downs, and $387,706 (restated) for losses from discontinued operations, and approximately $308,000 for discounts and allowances related to a program no longer offered.operations. These one-time, non-recurring expenses account for approximately $1,100,000$1,038,000 (restated) of the loss. In addition, our steel-based commodity material expenses increased over 50%34%, causing our total materials expense to increase 11%15% over the six-month period.Net revenuesnine-month period, accounting for approximately $300,000 of the net loss.increaseddecreased approximately 10%1% (restated) over the same period in fiscal year 2010. However, after adjusting for the loss in revenue from the unprofitable customers that we discontinued serving, as noted elsewhere, our total revenue for the sixnine month period is up closer to 25%approximately 16%. Revenue increased for the Cycle Country ATV Accessories segment by approximately 18%10% (restated), due to continued seasonally favorable weather throughout the six months of our busy season.snow season, which primarily runs from August through February. Sales in the Imdyne segment decreased approximately 13%27% (restated), though when adjusted for the loss of the unprofitable customers, the core Imdyne segment grew approximately 50%52% for the six-monthnine-month period.sixnine months ending March 31,ended June 30, 2011 were 7.38%13% of revenue (restated), after the adjustments for one-time charges. However, without the one-time charges, the gross margins would have been 18.02%19% of revenue.revenue (restated).sixnine months ended March 31, 2011June 30, 2011(restated) and March 31,June 30, 2010 (Unaudited):BUSINESS SEGMENTS For the Nine Months Ended June30, 2011(Restated) 2010 Increase (Decrease) % Net revenue by segment CCAC ATV $ 6,137,155 $ 5,558,700 $ 578,455 10.41 % Imdyne 1,769,621 2,415,666 (646,045 ) (26.74 )% Net revenue 7,906,776 7,974,366 (67,590 ) (0.85 )% Freight income 74,386 61,350 13,036 21.25 % Total combined revenue $ 7,981,162 $ 8,035,715 $ (54,553 ) (0.68 )% Gross profit (loss) by segment CCAC ATV $ 975,748 $ 1,976,987 $ (1,001,239 ) (50.64 )% Imdyne 29,186 300,666 (271,480 ) (90.29 )% Total gross profit 1,004,932 2,277,653 (1,272,721 ) (55.88 )% Sales, general and administrative (3,475,268 ) (2,843,736 ) (631,532 ) (22.21 )% Fraud expense - (134,775 ) 134,775 100.00 % Interest income and expense (244,065 ) (232,440 ) (11,625 ) (5.00 )% Other income and expense 162,824 116,770 46,054 39.44 % Income tax benefit 856,041 286,177 569,864 199.13 % Net loss from continuing operations (1,695,535 ) (530,351 ) (1,165,184 ) (219.70 )% Loss from discontinued operations, net of tax (387,706 ) (114,382 ) (273,324 ) (238.96 )% Net loss $ (2,083,241 ) $ (644,734 ) $ (1,438,507 ) (223.12 )% segregatedclassified two of the segments into discontinued operations.Revenue increased45%40% (restated) or $623,000$370,000 (restated) for the three months ended March 31,June 30, 2011 as compared to the three months ended March 31, 2010June 30, 2010. As noted earlier, the company shut down for two of the three months in the Cycle Country ATV Accessories segment. Salesquarter ended June 30, 2011 to accomplish some long-overdue lean manufacturing driven operational and process improvements. Revenues for the sixnine months ended March 31,June 30, 2011 increased approximately 10% (restated) to approximately $5,497,000$6,137,000 (restated) for this segment compared to approximately $4,643,000$5,559,000 for the sixnine months ended March 31,June 30, 2010. The increase of approximately $854,000$578,000 (restated) is dueattributable to increased sales throughouta favorable weather in our snow season, along with the solidification of our customer base as this segment benefited from increased snow fall throughout North Americarelations and Europe this winter.the resulting increase in market share.$652,000$428,000 and $773,000$867,000 for the three months ended March 31,June 30, 2011 and March 31,June 30, 2010, respectively. As of October 1, 2010, management made the decision to discontinue processing orders for customers that were not profitable for the Company, which resulted in a decrease in sales from those customers.sales. These customers represented approximately 17% of last year’syear's total sales or approximately 65% of the sales of the Imdyne segment in the fiscal year ended September 30, 2010. However, sales increased for other, more profitable existing customers, replacing muchsome of those sales that were those lost, resulting in aonly approximately $121,000.$439,000 (restated). Revenues for the segment were approximately $1,342,000$1,770,000 (restated) and $1,548,000$2,416,000 for the sixnine month periods ended March 31,June 30, 2011 and March 31,June 30, 2010, respectively, a decrease of 14%27% (restated) for the sixnine month period, again, due to sales to customers which were deliberately discontinued. For the Three Months Ended June 30, 2011 (Restated)
(Unaudited) June 30, 2010
(Unaudited)ATV Imdyne ATV Imdyne % of Net Sales % of Net Sales Materials 67.40 % 66.78 % 56.40 % 53.93 % Direct labor 4.97 % 7.24 % 5.00 % 5.93 % Mfg variance (25.32 )% 0.90 % 10.10 % 0.45 % Subcontract 0.40 % 0.39 % 0.40 % 1.77 % Royalty 1.00 % 0.00 % 0.76 % 0.00 % Burden 15.85 % 19.23 % 8.86 % 8.92 % Mfg overhead (17.23 )% 1.85 % 9.00 % 11.19 % 47.07 % 96.39 % 90.52 % 82.19 % 40%56% for the three months ended March 31,June 30, 2010 to approximately 57%67% (restated) for the three months ended March 31,June 30, 2011. The biggest change came in our steel-based raw materials and component parts. The Company attempted to manage the rapid increase in steel prices, but was only able to mitigate, rather than prevent, the impact on the cost of goods sold and therefore, margins. On average, the commodity steel market is up approximately 50%34% since October 1, 2010. As our products are primarily steel-based, our costs of raw materials are up 15% overall for the quarter ended June 30, 2011.17%15% overall for the quarter ended March 31, 2011.Direct labor increased for all segments which is due, in part, to additional wages paid to prosecution employees, as well as to additional labor expenses allocated.Manufacturing overhead applied to burden increased and for the threenine months ended March 31, 2011 was approximately $368,000 compared to approximately $156,000 applied for the three months ended March 31, 2010.Manufacturing overhead increased for the Cycle Country ATV Accessories and Imdyne segment as we were unable to absorb all of the manufacturing overhead into our products.The cost of materials increased from approximately 42% of net sales to approximately 53% of net sales for the six months ended March 31, 2011 as compared to the six months ended March 31, 2010. On average, the commodity steel market is up approximately 50% since October 1, 2011. As our products are primarily steel-based, our total costs of materials are up 11% overall for the six months ended March 31, 2011.which is due to increases in wages paid to production employees.Burden expense increased from approximately $432,000 to approximately $771,000 in the Cycle Country ATV Accessories segment for the six months ended March 31, 2010 and 2011, respectively. For the same periods, burden for the Imdyne segment was approximately $194,000 and $217,000. The increase in the Cycle Country ATV Accessories segment is due, in part, to increased sales.$1,394,000$937,000 (restated) and $1,005,000$989,000 for the three months ended March 31,June 30, 2011 and March 31,June 30, 2010, respectively.TheMarch 31,June 30, 2011 as compared to the three months ended March 31, 2010 were:·Wage expense increased approximately $270,000June 30, 2010. The company is working hard to reduce its overall expenses, including efforts such as the reduction in professional services due to the one-time charges related toconclusion of the hiringHancher fraud investigation and litigation, as well as savings from the discontinuation of sales, engineering, and operational management and the severance expense of prior management. One-time signing bonuses of $195,000 were accrued and severance and other expenses were accrued in the amount of $75,000 totaling $270,000 for the quarter.·Promotion expense increased due to costs associated with a non-recurring, failed marketing program, based on the Company’s priorunnecessary sales and marketing management’s unnecessary dealer incentives. In addition, the Company retained a full-service marketing agency with a cost of $30,000 for the three-month period.sixnine months ended March 31,June 30, 2011 and 2010, selling, general and administrative expenses were approximately $2,568,000$3,475,000 (restated) and $1,859,000,$2,844,000, respectively.sixnine months ended March 31,June 30, 2011 as compared to the sixnine months ended March 31,June 30, 2010 were:·Wage expense increased approximately $420,000 due in part to charges related to the hiring of sales, engineering, and operational management and the one-time severance expense of the prior CEO and other employees. Signing bonuses of $195,000 were accrued and severance and other expenses were accrued in the amount of $75,000. Effective July 1, 2010, the Company entered into an employment agreement with Robert Davis, its Chief Financial Officer and Chief Operating Officer. Prior to that time, Mr. Davis had been the Interim Chief Financial Officer and was compensated as a consultant.·Promotion expense increased on costs associated with marketing promotions, an agency retainer, and buyback programs.� Wage expense increased approximately $474,000 (restated) due in part to charges related to the hiring of sales, engineering, and operational management and the one-time severance expense of the prior CEO and other employees. Signing bonuses of $195,000 were accrued but was offset by severance and other expenses in the amount of -$3,000 (restated). Additionally, officer restricted stock-based compensation expense was approximately $128,000 (restated). � Promotion expense increased on costs associated with marketing promotions, an agency retainer, and buyback programs, each of which were either discontinued or else refocused. � Professional fees increased approximately $100,000 due, in part, to fees associated with SEC filing requirements and legal and audit expenses, including those related to the Hancher fraud matter and the departure of the former Chief Executive Officer. ·Professional fees increased approximately $100,000 due, in part, to fees associated with SEC filing requirements and legal and audit expenses, including those related to the departure of the former Chief Executive Officer.$147,830$23,350 as of March 31,June 30, 2011 compared to $28,939 as of September 30, 2010. Until required for operations, our policy is to invest any excess cash reserves in bank deposits, money market funds, and certificates of deposit after first repaying any built up balance on our bank line of credit.negative $1,047,984deficit of $1,668,253 (restated) as of March 31,June 30, 2011 compared to positive $1,205,268a surplus of $1,182,316 (restated) as of September 30, 2010. The working capital ratio was 0.800.72 (restated) and 1.221.21 (restated) as of March 31,June 30, 2011 and September 30, 2010, respectively.Company’sCompany's sources and uses of cash and equivalents for the periods indicated: Nine Months Ended June 30,
(Unaudited)
(Unaudited)Net cash provided by operating activities from continuing operations $ 1,625,578 $ 604,473 Net cash used for investing activities in continuing operations (112,045 ) (224,736 ) Net cash used for financing activities from continuing operations (1,559,472 ) (317,511 ) Net cash provided by (used for) discontinued operations 40,350 (39,919 ) $ (5,589 ) $ 22,307 Company’sCompany's principal uses of cash are to pay operating expenses, acquire necessary equipment and to make debt service payments. During the sixnine months ended March 31,June 30, 2011, the Company used cash to make principal payments of approximately $451,000$594,000 against long-term debt and paid down approximately $1,172,000 on its lines of credit. and income tax refunds receivable and available borrowing capacity under its line of credit agreement will be sufficient to fund normal operations and capital expenditure requirements for the next twelve months. Subsequent to March 31, 2011, the Company received the federal tax refund receivable noted on the condensed consolidated balance sheet. The Company is not considering any major capital investmentexpenditures for at least the next threesix months.March 31,June 30, 2011 and as of September 30, 2010, the Company was in violation of its current ratio and term debt coverage ratio covenants in its loan agreements with its lender. As ofLender. On January 17, 2011, the Company and its lenderLender entered into the Seventh Amendment to the Secured Credit Agreement and Waiver (“("Amendment 7”7"). Under the terms of Amendment 7, the lenderLender agreed to waive the noncompliance by the Company with the required ratio of current assets to current liabilities as of September 30, 2010 and December 31, 2010 and the Company’sCompany's anticipated noncompliance with the required ratio of current assets to current liabilities through October 1, 2011 and further, to waive the Company’sCompany's noncompliance with the Term Debt Coverage Ratio as of September 30, 2010 and December 31, 2010, and the Company’sCompany's anticipated noncompliance with the Term Debt Coverage Ratio through October 1, 2011.As of30,31, 2011, the Company and its lender entered into an Eighth Amendment to the Secured Credit Agreement and Waiver (“("Amendment 8”8"). Amendment 8 replaces Amendment 7 with a Revolving Credit Agreement in an amount not to exceed $2,000,000, maturingwhich matured on JuneAugust 1, 2011.Management expects to be able to comply with the requirements of Amendment 8 and has been working steadily to secure a commitment for funding from an asset-based lender. Management believes this is an appropriate financing vehicle for its operations and expects this action to have a positive impact on the Company’s working capital through fiscal year 2011 and beyond. Further, this funding will help to continue the stabilization and turnaround of the Company while facilitating continued growth. The failure to obtain a replacement lender by June 1, 2011 could result in the lender foreclosing on its security interest resulting in a significant disruption See Note 10 to the Company’s operations. whatsoever that we will be able to borrow further funds from our lender or that we will increase our revenues and/or control our expenses to a level sufficient to provide positive cash flow.Company’sCompany's discussion and analysis of its financial condition and results of operations are based upon its condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgmentsCompany’sCompany's inventory to a new cost basis through a charge to cost of goods sold.
United States. effectivelyThe Company’s management is responsible for maintainingthat are designed to ensure that information required to be disclosed(as defined in the reports that the Company files or submitsRules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)Exchanged Act), are ineffective, due to the material weakness in our internal control over financial reporting as discussed below, to provide reasonable assurance that the information to be disclosed by the Company in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’sSEC rules and forms. In addition, the disclosure controlsforms, and procedures must ensure that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officerour principal executive officer and Chief Financial Officer,principal financial officer as appropriate to allow timely decisions regarding required financialdisclosures.other required disclosures.Atin connection with the endrestatement and filing our prior 10-K/A, our management, including our current Chief Executive Officer and Chief Financial Officer, re-evaluated the effectiveness of the period covered by this report, an evaluation of the effectivenessdesign and operation of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15(d)-15(e)concluded that, because of the Securities Exchange Act of 1934 (the “Exchange Act”)) was carried out under the supervision and with the participation of our Principal Executive Officer and our Principal Financial and Accounting Officer. Based on their evaluation of our disclosure controls and procedures, they have concluded that during the period covered by this report, such disclosure controls and procedures were not effective to detect the inappropriate application of US GAAP standards. This was due to deficiencies that existedmaterial weakness in the design or operation of our internal control over financial reporting as of September 30, 2010 that adversely affectedthe Company's stock-based compensation plans and customer incentive programs, our disclosure controls and that may be consideredprocedures continued to be a “material weakness.”Asineffective as of SeptemberJune 30, 2010,2011. Notwithstanding the Principalmaterial weaknesses discussed below, our management, including our current Chief Executive Officer and PrincipalChief Financialhave identifiedhas concluded that the following specificconsolidated financial statements included in our recent 10-K/A present fairly, in all material weaknessesrespects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the Company’s internal controls over its financial reporting processes:· Financial Reporting Segregation of Duties — Currently, the Company has an issue regarding a general lack of segregation of duties. Requisite segregation of duties is not clearly defined or established throughout the financial reporting related business processes. The lack of segregation of duties amounts to a material weakness to the Company’s internal controls over its financial reporting processes.In light of the foregoing, management is in the process of developing the following additional procedures to help address this material weakness:· The Company will continue to create and refine a structure in which critical accounting policies and estimates are identified, and together with other complex areas, are subject to multiple reviews by accounting personnel. In addition, the Company will enhance and test our year-end financial close process. Additionally, the Company’s audit committee will increase its review of our disclosure controls and procedures. We also intend to more frequently engage an external accounting firm to assist us with our review of financial information relative to our financing arrangements.We believe these actions will remediate the disclosure control ineffectiveness by focusing additional attention and resources in our internal accounting functions.March 31,June 30, 2011. Our management is in the process of addressing the above material weakness, as updated above, and is utilizing the services of an outside accounting firm to assist with this process. We believe this will help remediate the material weakness by focusing additional attention and resources in our internal accounting functions. However, the material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.
Company’sCompany's annual report on Form 10-K10-K/A for the fiscal year ended September 30, 2010.
(32.1) Certification of Principal Executive and Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. By: /s/ Robert Davis Robert Davis Chief Financial Officer, Chief Operating Officer,Officer pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.(31.2) Certification of Principaland Financial Officer pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.reportamendment to be signed on its behalf by the undersigned, thereunto duly authorized, on May 23, 2011.April 16, 2012.CYCLE COUNTRY ACCESSORIES CORP. Interim Chief Executive OfficerIn accordance with the requirements of the Exchange Act, this report has been signed by the following persons on behalf of the registrant and in the capacities indicated.Name and SignatureTitleDate/s/ Robert Davis Interim Chief Executive Officer, Treasurer, Secretary and DirectorMay 23, 2011Robert Davis(principal executive, financial and accounting officer) /s/ Paul DeShawDirectorMay 23, 2011Paul DeShaw