QUARTERLY REPORT FOR ATC VENTURE GROUP INC.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q/A (Amendment No.2?)10-Q

(Mark one)

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2011March 31, 2012
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from             __________ to             __________

Commission file number: 001-31715
Cycle Country Accessories Corp.
ATC Venture Group Inc.
(Exact name of registrant as specified in its charter)

Nevada
(State or other jurisdiction of incorporation or organization)

42-1523809
(IRS Employer Identification No.)
1701 38th Ave W, Spencer, Iowa 51301
(Address
5929 Baker Road, Suite 400
Minnetonka, MN 55345
 (Address of principal executive offices)
(712) 262-4191
P: (952) 215-3100
F: (952)215-3129
www.atcvg.com
(Registrant'sRegistrant’s telephone number, including area code)facsimile number, and corporate website)

          Indicate by check markCheck whether the registrantissuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the  Securities Exchange  Act during the precedingpast 12 months (or for such shorter period that the registrant was required to file such reports),  and (2) has been subject to such filing requirements for the past 90 days. Yes  x   No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes xo No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of "large“large accelerated filer", "accelerated filer",filer” and "smaller“accelerated filer” and “smaller reporting company"company” in Rule 12b-2 of the Exchange Act.

(Check one):

Large accelerated filer o
Accelerated filer o
  
Non-accelerated filer o
Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No x
          As
The number of August 22, 2011, there were 6,990,662 shares outstanding of the registrant'sregistrant’s common stock, par value $0.0001 per share. share, outstanding as of May 15, 2012; 7,090,662



 
 
Cycle Country Accessories Corp.


ATC Venture Group Inc
Index to Form 10-Q/A 10-Q.

 Page
Part I Financial Information
 
  Page
Part I Financial Information
Item 1. Financial Statements (Unaudited)
 
 
 
Condensed Consolidated Balance Sheet - June 30, 2011March 31, 2012 (Unaudited) and September 30, 20102011
3
4
 
 
Condensed Consolidated Statements of Operations - Three Months Ended June 30,March 31, 2012 and 2011 and 2010 (Unaudited)
4
5
 
 
Condensed Consolidated Statements of Operations - NineSix Months Ended June 30,March 31, 2012 and 2011 and 2010 (Unaudited)
4
6
 
 
Condensed ConsolidatedConsilidated Statements of Cash Flows - NineSix Months Ended June 30,March 31, 2012 and 2011 and 2010 (Unaudited)
7 5
 
 
Notes to Unaudited Condensed Consolidated Financial Statements
7
9
 
 
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
19
24
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
25
31
 
 
Item 4. Controls and Procedures
25
31
 
 
Part II Other Information
26
32
 
 
Item 1. Legal Proceedings
26
32
 
 
Item 1A. Risk Factors2. Unregistered Sales of Equity Securities and Use of Proceeds
26
32
 
Item 3. Defaults Upon Senior Securities26
Item 4. Mine Safety Disclosures26
Item 5. Other Information26
 
Item 6. Exhibits
26
32
 
 
Signatures
27
33
2

 
2
EXPLANATORY NOTE
Cycle Country Accessories Corp. filed its quarterly report on Form 10-Q for the three months ended June 30, 2011 on August 23, 2011. Amendment No. 1 was filed solely to file the original report in XBRL format. Amendment No. 1 did not contain any substantive changes from the original filing.
We are filing this 2nd Amended Quarterly Report on Form 10-Q/A (the "Amended Filing") to our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2011 (the "Original Filing"), to correct errors relating to the number of shares outstanding, the valuation and timing of the expense recognition of those employee 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 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. These errors, in total, caused us to understate total revenue and selling expenses related to our customer incentive program, while understating our stock-based compensation. Additionally, the error regarding the number of shares that were to have been issued and outstanding had the effect of further misstating the basic and fully-diluted earnings per share for the three and nine months ended June 30, 2011.
No other changes are being made other than the updating of: (i) the Exhibits to include updated Certifications of the Chief Executive and Chief Financial Officers, and (ii) the Exhibit Index to disclose that certain exhibits that were filed with the Original Filing are incorporated by reference into this Amended Filing. The sections of the Original Filing that are not being amended are unchanged and continue in full force and effect as originally filed. This Amended Filing speaks as of the date of the Original Filing and has not been updated to reflect events occurring subsequent to the date of the Original Filing.
3

Part I   Financial Information

Item 1.  Financial Statements

Cycle Country Accessories Corp.ATC Venture Group Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
 
 
   
 
 
 
June 30,
2011 (Restated)(1)
 
September 30,
2010 (Restated)(1)
 
 
 
(Unaudited)
  
 
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
 
(1)See Note 11- Restatement of Consolidated Financial Statements- of Notes to Condensed Consolidated Financial Statements
  March 31,  September 30, 
  2012 (Unaudited)  2011 
Assets      
       
Current Assets      
Cash and cash equivalents $16,286  $25,185 
Accounts receivable, net  774,411   850,087 
Inventories  563,739   799,205 
Income taxes receivable  -   2,120 
Deferred income taxes  326,000   625,000 
Prepaid expenses and other  49,572   424,726 
Assets held for sale  448,910   1,320,338 
Total current assets  2,178,918   4,046,661 
         
Property, plant and equipment, net  8,301,401   8,581,158 
Other assets  141   1,479 
         
Total assets $10,480,460  $12,629,298 
         
         
Liabilities and Stockholders' Equity        
Current Liabilities:        
Disbursements in excess of bank balances $69,651  $108,757 
Accounts payable  1,206,555   1,818,906 
Accrued expenses  990,281   1,251,966 
Bank line of credit  930,400   3,643,600 
    Current Portion of Notes Payable   287,367    441,718  
Total current liabilities  3,484,284   7,264,947 
         
Long-Term Liabilities:        
Notes payable, less current portion  1,783,729   2,033,545 
Deferred income taxes  824,000   124,000 
         
Total long term liabilities  2,607,729   2,157,545 
Total liabilities  6,091,983   9,422,492 
         
Stockholders' Equity:        
         
Common stock, $.0001 par value; 100,000,000 shares authorized; 7,090,662 shares issued and outstanding, respectively  709   709 
Additional paid-in capital  12,636,252   12,518,814 
Accumulated deficit  (8,248,484)  (9,312,717)
         
Total stockholders' equity  4,388,477   3,206,806 
         
Total liabilities and stockholders' equity $10,480,460  $12,629,298 
See accompanying notes to the unaudited condensed consolidated financial statements.
4

 
3

Cycle Country Accessories Corp.ATC Venture Group Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
 
 
Three Months ended June 30,
 
 
 
2011 (Restated)(1)
 2010
 
 
 
(Unaudited)
 
(Unaudited)
 
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)
(1)See Note 11- Restatement of Consolidated Financial Statements- of Notes to Condensed Consolidated Financial Statements
  For the three months ended March 31, 
  2012 (Unaudited)  2011 (Unaudited) 
       
Revenue $1,956,444  $660,220 
Cost of goods sold  1,808,890   702,331 
Inventory adjustments   -    48,092  
         
          Gross profit (loss)  147,554   (90,203)
         
Selling, general, and administrative expenses  724,259   240,404 
         
     Loss from operations  (576,705)  (330,607)
         
Other income (expense)        
         
     Gain on sale of assets  21,528   - 
     Miscellaneous  -   (6,980)
     Interest expense, net  (44,878)  (17,018)
         
          Total other expense, net  (23,350)  (23,998)
         
Loss from continuing operations before income tax benefit  (600,055)  (354,605)
         
Income tax benefit  -   123,623 
         
     Net loss from continuing operations  (600,055)  (230,982)
         
Net income (loss) from discontinued operations, net of tax  1,185   (1,120,729)
         
Net Loss $(598,870) $(1,351,711)
         
         
         
Weighted average shares of common stock:        
     Basic  7,090,662   6,990,662 
         
     Diluted  7,090,662   6,990,662 
         
Loss per basic and diluted share:        
    Continuing Operations $(0.08) $(0.03)
         
    Discontinued Operations $0.00  $(0.16)
         
  $(0.08) $(0.19)
See accompanying notes to the unaudited condensed consolidated financial statements.
5


 
4
Cycle Country Accessories Corp.
ATC Venture Group Inc. and Subsidiaries
Condensed Consolidated Statements of Operations

  For the six months ended March 31, 
  2012 (Unaudited)  2011 (Unaudited) 
       
Revenue $2,528,247  $1,353,269 
Cost of goods sold  2,301,881   1,359,995 
         
          Gross profit (loss)  226,366   (54,818)
         
Selling, general, and administrative expenses  837,392   424,196 
         
     Loss from operations  (611,026)  (479,014)
         
Other income (expense)        
         
     Gain on sale of assets  21,528   - 
     Miscellaneous  -   (6,980)
     Interest expense, net  (55,838)  (31,830)
         
          Total other expense, net  (34,310)  (65,126)
    ��    
Loss from continuing operations before income tax benefit  (645,336)  (544,140)
         
Income tax benefit  -   184,423 
         
     Net loss from continuing operations  (645,336)  (359,717.18)
         
Net income (loss) from discontinued operations, net of tax  1,709,571   (1,301,073)
         
Net Income (Loss) $1,064,235  $(1,660,790)
         
         
         
Weighted average shares of common stock:        
     Basic  7,090,662   7,518,567 
         
     Diluted  7,090,662   7,518,567 
         
Loss per basic and diluted share:        
    Continuing Operations $(0.09) $(0.05)
         
    Discontinued Operations $0.24  $(0.17)
         
  $0.15  $(0.22)
See accompanying notes to the unaudited condensed consolidated financial statements.

ATC Venture Group Inc. and Subsidiaries
 
 
 
 
 
 
Nine Months ended June 30,
 
 
 
2011 (Restated)(1)
 2010
 
 
 
(Unaudited)
 
(Unaudited)
 
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)
(1)See Note 11- Restatement of Consolidated Financial Statements- of Notes to Condensed Consolidated Financial Statements of Cash Flows
   Six months ending March 31,   Six months ending March 31, 
  2012 (Unaudited)  2011 (Unaudited) 
Cash Flows from Operating Activities:      
Net income (loss) $1,064,235  $(1,660,790)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:     
     Depreciation  297,052   361,025 
     Bad debt reserve  (6,454)  60,000 
     Share-based compensation  117,438   90,736 
     (Gain) loss on sale of assets  (2,233,506)  -  
     Deferred income taxes  999,000   (820,000)
     Change in:        
          Accounts receivable, net  82,130   1,500,055 
          Inventories  192,494   1,090,158 
          Income tax receivable  40,240   12,999 
          Prepaid expenses and other  375,154   (81,125) 
          Other assets  1,338   119,888 
          Accounts payable  (612,350)  1,055,537 
          Accrued expenses  (299,806)  112,316 
         
Net cash provided by (used for) operating activities   16,695   1,963,340 
         
Cash Flows from Investing Activities:        
     Proceeds from sale of property, plant and equipment  97,902   5,338 
     Purchase of property, plant and equipment  25,000   78,664 
         
Net cash used for investing activities  122,902   73,326 
         
Cash Flows from Financing Activities:        
     Change in disbursements in excess of bank balances  (39,106)  (148,315)
     Payments on bank notes payable  (380,003)  (451,113)
     Bank line of credit, net  280,343   (1,171,695)
         
Net cash used for financing activities  (138,766)  (1,771,123)
         
         
Net increase (decrease) in cash and cash equivalents  (8,899)  118,891 
         
Cash and cash equivalents, beginning of period  25,185   28,939 
         
Cash and cash equivalents, end of period $16,286  $147.830 
See accompanying notes to the unaudited condensed consolidated financial statements.
6

 
6
Cycle Country Accessories Corp.

ATC Venture Group Inc. and Subsidiaries
Condensed Consolidated Statements of Cash FlowsFlow
 
 
 
 
 
 
Nine Months ended June 30,
 
 
 
2011 (Restated)(1)
 2010
 
 
 
(Unaudited)
 
(Unaudited)
 
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
 
(1)See Note 11- Restatement of Consolidated Financial Statements- of Notes to Condensed Consolidated Financial Statements
  Six months ending March 31,   Six months ending March 31, 
  2012 (Unaudited)  2011 (Unaudited) 
       
Supplemental disclosures of cash flow information:      
       
Cash paid during the period for:      
       
Interest $121,534  $174,786 
         
Income tax refunds (payments), net $(300) $1,430 
         
Supplemental schedule of non-cash investing and financing:        
         
Treasury stock purchased included in accrued expense $-  $128,744 
        Non cash sale of ATV Accessories segment so proceeds applied directly to outstanding debt $3,017,707  $- 
        Disposal of fixed assets  -    $56,131  
See accompanying notes to the unaudited condensed consolidated financial statements.
7

 
7
Cycle Country Accessories Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flow
   
 
  Nine Months ended June 30,
 
  
2011 Restated(1)
 2010
 
  
(Unaudited)
 
(Unaudited)
 
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
 
$-
 
(1)ATC Venture Group Inc.See Note 11- Restatement of Consolidated Financial Statements- of
Notes to Condensed Consolidated Financial Statements
See accompanying notes to the unaudited condensed consolidated financial statements.(Unaudited)
8

Cycle Country Accessories Corp
Notes to Condensed Consolidated Financial Statements
For the three and nine months ended June 30, 2011(Restated) and 2010
(Unaudited)
Note 1. Summary of Significant Accounting Policies:

Basis of Presentation - The accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2012 and nine months ended 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.

The results of operations for the interim periods ended June 30,March 31, 2012 and 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, 20102011 consolidated financial statements and related notes included in the Company'sCompany’s Annual Report on Form 10-K/A10-K for the fiscal year ended September 30, 2010.2011.

Reporting Entity and Principles of Consolidation - Cycle Country Accessories Corp. ("Cycle Country"— ATC Venture Group Inc (“ATC”) a Nevada corporation, has a wholly-owned subsidiary, Cycle Country Accessories Corp. ("Cycle Country - Iowa"Simonsen Iron Works Inc. (“Simonsen”), an Iowa corporation.

The entities are collectively referred to as the "Company"“Company” for these condensed consolidated financial statements.  All significant intercompany balances and transactions have been eliminated in consolidation.

Nature of the Business -– The Company has twoone distinct segments engaged in the design, manufacture, sale and distribution of products. One of the segments has branded, proprietary products, and the other is a contract manufacturing division. The largestoperating segment, Cycle Country ATV Accessories, designs, manufactures and sells a popular selection of branded accessories for vehicles in the Powersports industrySimonsen Iron Works Inc., which are sold to various wholesale distributors 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 includingin its owned building in Spencer, and leased space in Milford, IA.

The Company records assets, liabilities, revenues and expenses associated with twothree other segments as discontinued operations for all periods presented.  On August 26, 2011, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) for the sale (the “Asset Sale”) of the Company’s assets related to its business in aftermarket accessories for all-terrain vehicles and utility vehicles sold under the “Cycle Country” brand name (the “Product Line”) to Kolpin Outdoors, Inc. (“Kolpin”).  Details of the Purchase Agreement are more fully disclosed in the Company’s 8-K filing dated September 11, 2011. As of March 31, 2012, the brand “Cycle Country” and the ATV accessories division, as well as Perf-Form segment, were sold.  See Note 8 for additional information on these sales.  Following these sales, the Company redefined its business strategies and changed its name “Cycle Country Accessories Corp.”  to “ATC Venture Group Inc.”

The Company previously had two other reporting segments. The first, Plazco, manufactures, sells,manufactured, sold, and distributesdistributed injection-molded plastic products for vehicles such as golf cars and low-speed vehicles (LSVs).  Perf-Form manufactures, sells,The other, perf-Form, the other, manufactured, sold, and distributesdistributed oil filters for the Powersports industry, including ATVs, UTVs, and Motorcycles.  As more fully disclosed in Note 9, duringin the nine months ended June 30, 2011previous fiscal year the Company has concluded that these segments doare not fit withinin the long-term strategic plans of the Company.Company and classified them as discontinued operations.

Revenue Recognition - The Company primarily ships products to its customers by third party carriers.  The Company recognizes revenues from product sales when title and risk of loss to the products is passed to the customer, which occurs at the point of shipping.

Certain costs associated with the shipping and handling of products to customers are billed to the customer and included as freight income in the accompanying condensed consolidated statements of operations.  The actual freight costs incurred are included in cost of goods sold.  
Sales were recorded net of sales discounts, returns and allowances.  Sales discounts, returns and allowances were approximately $150,000 (restated)$25,000 and $73,000$321,000 for the three months ended June 30,March 31, 2012 and 2011, and 2010, respectively.  For the ninesix months ended June 30,March 31, 2012 and 2011, and 2010, sales discounts, returns and allowances were approximately $671,000 (restated)$430,000 and $543,000, respectively.$629,000.   Of these amounts, sales discounts, returns and allowances related tofor continuing operations were approximately $145,000 (restated)totaled $25,000 and $66,000$71,000, respectively and $-0- and $250,000 for discontinuing operations, respectively, for the three monthsmonth periods ended June 30,March 31, 2012 and 2011.  For the six month periods ended March 31, 2012 and 2011, sales discounts, returns and 2010allowances for continuing operations totaled $39,000 and $80,000, respectively and $654,000 (restated)$391,000 and $532,000$550,000 for the nine months ended June 30, 2011 and 2010,discontinuing operations, respectively.
Cost of Goods Sold - The components of cost of goods sold in the accompanying condensed consolidated statements of operations include overhead allocation, all direct materials and direct labor associated with the assembly and/or manufacturing of the Company's products.
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 Company'sCompany’s cash and cash equivalent balances may exceed amounts insured by the Federal Deposit Insurance Company.
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Accounts Receivable - Credit terms are generally extended to customers on a short-term basis. These receivables do not bear interest, although a finance charge may be applied to balances more than thirty days past due. Trade accounts receivable are carried on the books at their net realizable value. The Company performs ongoing credit evaluations of its customers to reduce credit risk.
Individual trade accounts receivable are periodically evaluated for collectability based on past credit history and their current financial condition. Trade accounts receivable are charged against the allowance for doubtful accounts when such receivables are deemed to be uncollectible. While the Company has a large customer base that is geographically dispersed, a slowdown in markets in which the Company operates may result in higher than expected uncollectible accounts, and therefore, the need to revise estimates for bad debts. To the extent historical experience is not indicative of future performance or other assumptions used by management do not prevail, the provision for uncollectible accounts could differ significantly, resulting in either higher or lower future provisions for uncollectible accounts. The allowance for doubtful accounts was $75,000 and $15,000 at June 30, 2011 and September 30, 2010, respectively. It is at least reasonably possible that the Company's estimate will change in the future.
Inventories - 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.
Property, Plant, and Equipment - Property, plant and equipment is stated at cost. Depreciation is provided over the estimated useful lives of the assets by using the straight-line and accelerated methods. Long-lived assets, such as property, plant, and equipment, are reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. 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" 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'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 Description
Years
Land Improvements
15-20
Building
15-40
Plant Equipment
7-10
Tooling and Dies
3-7
Vehicles
3-7
Office Equipment
3-10
Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized.
Intangible Assets - 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.
As discussed more fully in Note 9, the Company concluded that the Perf-Form and Plazco segments may not fit within the long-term strategic plans for the Company. As such, the Company determined that indicators of potential impairment existed in the value of trademarks and patents for its Perf-Form segment. Plazco'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 impairment charge in the amount of $100,000 for trademarks and $10,186 for unamortized patents was recognized on March 31, 2011. These charges are included in discontinued operations.
Warranty Costs - Estimated future costs related to product warranties are accrued as products are sold based on prior experience and known current events and are included in accrued expenses in the accompanying condensed consolidated balance sheets. Accrued warranty costs have historically been sufficient to cover actual costs incurred.
Income Taxes - Income taxes are provided for the tax effects of transactions reported in the condensed consolidated financial statements and consist of taxes currently receivable and deferred taxes related primarily to differences between the basis for financial and income tax reporting.  Deferred taxes also are recognized for operating losses that are available to offset future taxable income and tax credits that are available to offset future income taxes payable.
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8

ATC Venture Group Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

The Company follows a two-step approach to recognizing and measuring tax benefits and liabilities when realization of the tax position is uncertain. The first step is to determine whether the tax positions meet the more-likely-than-not condition for recognition and the second step is to determine the amount to be recognized based on the cumulative probability that exceeds 50%.

The Company recognizes in its condensed consolidated financial statements only those tax positions that are "more-likely-than-not"“more-likely-than-not” of being sustained upon examination by taxing authorities, based on the technical merits of the position.

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. With a few exceptions, the Company is no longer subject to U.S. federal, state, or local income tax examinations by tax authorities for years before 2008.2007.  The 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, 2010September 30, 2011 or June 30, 2011March 31, 2012 and such uncertain tax positions as of each reporting date are insignificant.
Stock-Based Compensation -  The Company accounts for stock-based compensation on a fair value basis. The estimated grant date fair value of each stock-based award is recognized in expense overdoes not anticipate that the requisite service period (generally the vesting period).total unrecognized tax benefits will significantly change prior to March 31, 2013.

Earnings (Loss) Per Share - Basic earnings (loss) per share ("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 by the weighted average number of shares and share equivalents during the period.  See Note 65 for details regarding basic and diluted earnings per share.

Legal - The Company is subject to legal proceedings and claims which arise in the ordinary course of its business.  While the ultimate outcome of these matters is not presently determinable, it is in the opinion of management that the resolution of outstanding claims will not have a material adverse effect on the financial position or results of operations of the Company.  Due to the uncertainties in the settlement process, it is at least reasonably possible that management'smanagement’s view of outcomes will change in the near term.

Advertising - Advertising consists primarily of trade magazine advertisements, product brochures and catalogs, and trade shows. Advertising expense totaled approximately $35,000 and $45,000 for the three months ended June 30, 2011 and 2010 respectively and $122,000 and $110,000 in the nine month period ended June 30, 2011 and 2010 respectively, and is included in selling, general, and administrative expenses in the accompanying condensed consolidated statements of operations.
Research and Development Costs - Research and development costs are expensed as incurred. Research and development costs totaled approximately $154,000 and $74,000 in the three month periods ended June 30, 2011 and 2010, respectively, and totaled approximately $341,000 (restated) and $251,000 for the nine months ended 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.
Shipping and Handling Costs - Shipping and handling costs represent costs associated with shipping products to customers and handling finished goods. Shipping and handling costs totaled approximately $34,000 and $65,000 in the three months ended June 30, 2011 and 2010, respectively and totaled approximately $152,000 and $204,000 in the nine months ended June 30, 2011 and 2010, respectively, and are included in cost of goods sold in the accompanying condensed consolidated statements of operations.
Use of Estimates -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-livedproperty, plant, and equipment; valuation of intangible assets; valuation of deferred tax assets; allowance for doubtful accounts; and allowance for inventory reserves.  Actual results could differ significantly from those estimates.

Fair Value of Financial Instruments -– The Company utilizesCompany’s accounting for fair value measurements of assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring or nonrecurring basis adhere to the Financial Accounting Standards Board ASC 820 "Fair Value Measurements" which defines(FASB) fair value outlines a frameworkhierarchy that prioritized the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets 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 June 30, 2011, the Company does not have any financial or nonfinancialidentical assets or liabilities that would require fair value recognition or disclosures under ASC 820.
(Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).  The Company estimates thatthree levels of the fair value hierarchy are as follows:

·  Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date
·  Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset of liability
·  Level 3 inputs are unobservable inputs for the asset or liability

The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

The carrying value of all financial instrumentscash, accounts receivable, accounts payable, short and long-term debt, and other working capital items approximate fair value at JuneMarch 31, 2012 and September 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 relateddue to the Perf-Form segment to $0 in March 2011. The impairment chargeshort maturity nature of approximately $110,000 is included in the loss from discontinued operations for the nine month period ended June 30,2011.these instruments.
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9

ATC Venture Group Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 2. Misappropriation of Funds:Inventories:
The Company previously reported the misappropriation of funds by its then-Chairman of the Board of Directors and 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's behalf (the "Stock Buyback") in fiscal 2009.
The Company continues to work to recover all of the amounts misappropriated. During the year ended September 30, 2010, the Company recovered and cancelled 195,416 shares of Company stock with a market value of $120,000, which reduced common equity and was recorded against fraud expense, net in the consolidated statement of operations. The Company believes the value represents the amount the Company provided for the purchase of shares to the third party that returned these shares to the Company. The price per share is consistent with the trading in the market at the time the Company believed that the shares were being purchased on its behalf.
In June 2010, the Company commenced a lawsuit against Mr. Hancher. On August 2, 2010, Mr. Hancher filed a Chapter 7 petition in the Bankruptcy Court for the Southern District of Indiana. Proceedings in the Bankruptcy Court are pending. There has been no recovery to date on this action and the amount of a potential recovery, if any, cannot be reasonably estimated at this time.
On January 13, 2011, the Securities and Exchange Commission filed a complaint in U.S. District Court, Northern District of Iowa, against Mr. Hancher and various affiliates of his, charging them with six counts of securities violations involving multiple issuers, including the Company. On the same day, Mr. Hancher entered into a consent agreement with the SEC in which, among other things, Mr. Hancher agreed to pay back an aggregate of approximately $2.4 million in disgorgement, plus approximately $600,000 in pre-judgment interest, and a fine of $130,000.
On May 9, 2011, the Company entered into a settlement agreement with Mr. Hancher. In this agreement, Mr. Hancher and the Company settled the adversary proceedings in exchange for a non-dischargeable judgment in the amount of $600,000. In doing so, the Company did not limit the size of the claim, but rather, agreed that the amount of $600,000 was non-dischargeable by Mr. Hancher in his pending bankruptcy case. Through this negotiated settlement, the Company was able to protect its future recovery without the additional expense of continuing the pursuit of a judgment in federal court against Mr. Hancher, and without the expense of defending its claim in Mr. Hancher's bankruptcy case.
On May 18, 2011, the Securities and Exchange Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions against Mr. Hancher. The order bars Mr. Hancher from associating with any broker, dealer, etc., and while he consented to the entry of the permanent injunction against him, he did so without admitting or denying any the findings of the Order.
At this time, it is not believed that this will result in restitution to the Company in the foreseeable future, based on the information provided in the filings in Mr. Hancher's pending bankruptcy case.
Additional recoveries, if any, will impact subsequent periods and will be reported for the periods in which such recoveries occur. The possibility of any future recoveries and the amount of any such recovery remain uncertain, and the Company can have no assurance that any such recoveries can be achieved or that they can be achieved without significant cost to the Company.
Note 3. Inventories:
Inventories are stated at the lower of cost or market using the weighted average cost method.  Cost includes materials, labor, and manufacturing overhead related to the purchase and production of inventories.  Management regularly reviews inventory quantities on hand, future product demand and the estimated utility of inventory.  If the review indicates a deductionreduction in utility below carrying value, management would reduce the Company'sCompany’s inventory to a new cost basis through a lower of cost or market adjustment.
Though we routinely do this analysis each quarter, as discussed more fully  Details on historical adjustments to inventory can be found in the Executive-level Overview of Item 2, Management Discussion and Analysis, the changes in our senior sales, marketing, and product development 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 team's processes and conclusions.Company’s most recent 10-K filing.
Therefore, during the three months ended March 31, 2011, management evaluated the carrying amount of inventory as it compared to the market values. As a result of the evaluation, the Company recorded an adjustment to inventory in the amount of $480,918. This charge is recorded in the condensed consolidated financial statements as a lower of cost or market adjustment. During that 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.
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10
For the three month period ended March 31, 2011, these two adjustments
ATC Venture Group Inc
Notes to inventory totaled $704,052.Condensed Consolidated Financial Statements
During the three months ended June 30, 2011, management evaluated the carrying amount of inventory as it compared to the market values, and found no further adjustments were necessary under the present market conditions.(Unaudited)

The major components of inventories are as follows:
 
 
 
 
 
 
 
 
 
 
June 30,
2011		 September 30,
2010
 
 
 
(Unaudited)
   
 
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
 

  March 31, 2012 (Unaudited)  September 30, 2011 
       
Raw Material $472,378  $382,452 
Work in Process  112,305   77,961 
Finished Goods  129,056   488,792 
Inventory Reserve  (150,000)  (150,000)
Total Inventories $563,739  $799,205 

Inventory consists of raw material, work in process, and finished goods.  Management has evaluated the 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 June 30, 2011March 31, 2012 and September 30, 2010 remains2011 was appropriate.  It is reasonably possible the inventory reserve will change in the near future.

Note 4.3. Line of Credit:
The
On September 22, 2011, the Company entered into a Secured Credit Agreement which provided for a line of credit ("(“Line of Credit One"Four”) with BankMidwest,the Lender.  This line increased the revolving credit commitment under the Credit Agreement to $4,100,000 until the closing of the Company’s previously disclosed sale of its branded ATV Accessories product line to Kolpin Outdoors Inc. (the "Lender"“Kolpin Sale”), on August 1, 2001, for the lesser of $1,000,000 or 80% of eligible accounts receivable and 50% of eligible inventory..  Line of Credit One has an interest rate at 8%. At June 30, 2011Four required the Company to repay a portion of the amounts outstanding under the Credit Agreement upon the closing of the Kolpin Sale.  After the closing of the Kolpin Sale, the revolving credit commitment under the Credit Agreement automatically reduced to $1,000,000.  As of March 31, 2012 and September 30, 2010 there was $1,000,0002011, the balance due onunder Line of Credit One.Four was $930,400 and $3,643,600, respectively.
On July 16, 2010, the Company entered into an agreement with the Lender to replace
The Line of Credit Two with a new, larger facility, ("Line of Credit 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 50% of inventory and bears interest at 8%. The note is collateralized by all of the Company's assets. The balance of Line of Credit Three was $1,000,000 and $1,700,000 as of June 30, 2011 and September 30, 2010, respectively.
Lines of Credit One and Three containcontains conditions and covenants that prevent or restrict the Company from engaging in certain transactions without the consent of the Lender 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 distributionsdistributors without the consent of the Lender.  As more fully described in Note 5, as of and for the three months ended March 31, 2012 and nine months ended JuneSeptember 30, 2011, the Company was not in compliance with some of its covenants with the Lender.
On January 17, 2011, the Company and the Lender entered into the Seventh Amendment to the Secured Credit Agreement and Waiver ("Amendment 7"). Amendment 7 modified Line of Credit One and Line of Credit Three to extend the maturities of each line of credit until March 31, 2011.
On March 31, 2011, the Company20, 2012, for all notes and the Lender entered into the Eighth Amendment to the Secured Credit Agreement and Waiver ("Amendment 8"). Amendment 8 modified Line of Credit Three to reduce the amount of the Line from $1,700,000 to a new amount not to exceed $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. 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.the lender agreed to waive the covenant noncompliance by the Company.

11

ATC Venture Group Inc
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 5.4.  Long-Term Debt:
Long
Long- term debt consists of the following:
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  March 31,  September 30, 
  2012 (Unaudited)  2011 
       
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. $2,011,096  $2,153,545 
         
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.  The Note was paid in full during the year ended September 30, 2011.  -   261,718 
         
Note -  Spencer Area Jobs Trust due in full March 2014, forgivable in full if the Company meets certain employment covenants  60,000   60,000 
         
Total  2,071,096   2,475,263 
Less current maturities  (287,367)  (441,718)
Net $1,783,729  $2,033,545 
 
 
 
 
 
 
 
 
 
 
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
 

These secured credit agreements contain conditions and covenants that prevent or restrict the Company from engaging in certain transactions without the consent of the Lendercommercial lender and require the Company to maintain certain financial ratios, including term debt coverage and maximum leverage.  As of and for the three and ninesix months ended June 30, 2011,March 31, 2012, the Company was not in compliance with the term debt coverage requirement or the working capital requirement of the agreements.agreement.

On January 17, 2011,March 20, 2012, for all notes and lines of credit, the Company and the Lender entered into Amendment 7. Under the terms of Amendment 7, the Lenderlender agreed to waive the covenant noncompliance by the Company with the required ratio of current assetsretroactively to current liabilities as of September 30, 2010 and December 31, 2010 and the Company's anticipated noncompliance with the required ratio of current assets to current liabilities through October 1, 2011 and further, waive the Company'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's anticipated noncompliance with the Term Debt Coverage Ratio through October 1, 2011. See Note 4 on a further description of our credit agreements.

On April 29, 2010,2011, the Company entered into an agreement with the Spencer Area Jobs Trust (the "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 maintainsemploys no less than seventy full time employment positions throughpeople on February 28, 2014.  If the Company does not maintainemploy seventy employment positions,full time people, the amount of the loan forgiven will equal $850 for each employment positionperson employed retained.  The Company will extinguish this debt amount, if any, upon notice from the Trust.
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ATC Venture Group Inc
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 6.5. Earnings (Loss) Per Share:
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares and share equivalents outstanding during the period.
The Company incurred a net loss from continuing operations of $332,182 (restated) for the three months ended June 30, 2011 and a net loss from continuing operations of $1,695,535 (restated) for the nine months ended June 30, 2011. A net loss causes all outstanding common stock equivalents, such as certain stock options and warrants, to be antidilutive. As a result, the basic and dilutive losses per common share are the same for the three and nine months June 30, 2011. There were no common stock equivalents outstanding duringfor the three and ninesix months ended June 30,March 31, 2012 or 2011.

The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for continuing and discontinued operations:computations:
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  For the three months ended     For the three months ended    
  March 31, 2012 (Unaudited)     March 31, 2011 (Unaudited)    
                   
     Weighted        Weighted    
  Net Income (Loss) Average Shares  Per share  Net Loss  Average Shares  Per share 
  (numerator)  (denominator)  amount  (numerator)  (denominator)  amount 
Basic and Diluted EPS                  
Loss from continuing operations
 
$
(600,055
)
  
7,090,662
  
$
(0.08
)
 
$
(230,982
)
  
6,990,662
  
$
(0.03
)
                         
Income (loss) from discontinued operations
 
$
1,185
   
7,090,662
  
$
0.00
  
$
(1,120,729
)
  
6,990,662
  
$
(0.16
)
                         
                         
  
For the six months ended
      
For the six months ended
     
  
March 31, 2012 (Unaudited)
      
March 31, 2011 (Unaudited)
     
                         
      
Weighted
          
Weighted
     
  
Net Income (Loss)
 
Average Shares
  
Per share
  
Net Loss
  
Average Shares
  
Per share
 
  
(numerator)
  
(denominator)
  
amount
  
(numerator)
  
(denominator)
  
amount
 
Basic and Diluted EPS
                        
Loss from continuing operations
 
$
(645,336
)
  
7,090,662
  
$
(0.09
)
 
$
(359,717
)
  
7,518,567
  
$
(0.05
)
                         
Income (loss) from discontinued operations
 
$
1,709,571
   
7,090,662
  
$
0.24
  
$
(1,301,073
)
  
7,518,567
  
$
(0.17
)
 
13
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the three months
ended June 30, 2011
 
For the three months
ended June 30, 2010		 
 
 
(Unaudited)
 
(Unaudited)
 
 
 
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)

ATC Venture Group Inc
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the nine months
ended June 30, 2011		 For the nine months
ended June 30, 2010
 
 
 
(Unaudited)
 
(Unaudited)
 
 
 
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)
Notes to Condensed Consolidated Financial Statements

Note 7. Segment Information:
Segment information has been presented on a basis consistent with how business activities are reported internally to management. Management evaluates the operating profit of each segment by using the direct costs of manufacturing its products after an allocation of indirect costs. In determining the total revenues by segment, freight income and sales discounts are allocated to each of the segments for internal reporting purposes. 
The Company has four operating segments that assemble, manufacture, or sell a variety of products. Each operating segment is separately managed and has separate financial information evaluated regularly by the Company'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.
"Cycle Country ATV 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", the Company'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.
The significant accounting policies of the operating segments are the same as those described in Note 1 to the consolidated financial statements of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2010.
The following is a summary of certain financial information related to continuing operations:
15

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended
June 30, 2011 (Restated)		 For the Three Months Ended
June 30, 2010
 
 
 
(Unaudited)
 
(Unaudited)
 
 
 
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
 
 
 
(Unaudited)
 
(Unaudited)
 
 
 
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)
16

GEOGRAPHIC REVENUE
The following is a summary of the Company's revenue in different geographic areas:
 
 
 
 
 
 
 
 
For the three months
ended June 30,		 For the nine months
ended June 30,
 
 
 
(Unaudited)
 
(Unaudited)
 
 
 
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
 
As of June 30, 2011, all of the Company's long-lived assets are located in the United States of America.
The Company had sales to three major customers that were approximately 32%, 21% and 14% of total sales respectively for the three months ended June 30, 2011. During the three months ended June 30, 2010, sales to the same customers were approximately 19%, 11% and 10% of total sales, respectively. For the nine months ended June 30, 2011, sales to the same customers were approximately 15%, 23% and 17% of total sales. During the nine months ended June 30, 2010, sales to the same customers were approximately 21% 13%, and 11% of total sales.
Note 8.6. Stock Based Compensation:

The Company accounts for share-based payments using the related accounting guidance, which requires share-based payment transactions to be accounted for using a fair value based method and the recognition of the related expense in the results of operations.
The Company's employment agreement dated June 24, 2008 with its former chief executive officer, Jeffrey M. Tetzlaff, provided for
Executive Stock Based Compensation

On July 1, 2011, 201,162 of Mr. Davis’ remaining 603,485 restricted shares were released from restriction and forfeiture, based upon the grant of 50,000 shares of stock in the Company, vesting over a three-year period. At the endschedule of the firstagreement.

For the three months ended March 31, 2012 and second full year of employment, Mr. Tetzlaff became vested in2011, respectively,$-0- and received 16,666 shares of$38,156 was recognized as total executive stock each year.based compensation expense.  During the yearsix months ended September 30, 2010, the Board accelerated the vesting of the final installment of 16,668 shares ofMarch 31, 2012, as all previously unrecognized stock which otherwise would have vestedbased compensation was recognized on April 7,December 31, 2011. For the six months ended March 31, 2010, $6,8752012 and 2011, respectively, $77,645 and $86,448 was recognized as total executive stock based compensation expense.  TheDue to within 3 years was $0 and $135,121 at March 31, 2012 and 2011, respectively.

On December 31, 2011, and concurrent with the triggering event detailed in related contracts.  Remaining unrecognized executive stock based compensation expense expected to be recognized execution and completion of the Asset Purchase Agreement more fully disclosed in the Company’s 8-K filing dated September 1, 2011, the remaining 402,323 restricted shares of Mr. Davis’ shares were released from restriction and forfeiture.  All previously unrecognized executive stock-based compensation expense was recognized as of December 31, 2011.

Director Stock Based Compensation

For the three months ended March 31, 2012 and 2011, $-0- and $1,519, respectively, were recognized as total director stock based compensation expense. For the six months ended March 31, 2012 and 2011, $39,793 and $2,768, respectively, were recognized as total director stock based compensation expense.   Unrecognized executive stock based compensation expense remaining was $-0- and $15,124 at March 31, 2012 and 2011, respectively.

Subsequent to the year-end, and concurrent with the execution and completion of the Asset Purchase Agreement more fully recognizeddisclosed in fiscal year 2010.
Under the 2008 employment agreement, Mr. Tetzlaff also received an option to purchase up to an additional 500,000Company’s 8-K filing dated September 1, 2011, the 50,000 restricted shares of the Company's common stock. Effective July 1, 2010, the option to purchase these shares was terminated. There were no outstanding options as of June 30, 2011.
On July 1, 2010, the Company entered into new employment agreements with Mr. Tetzlaff and Robert Davis, as the Chief Operating Officer and Chief Financial Officer. Under the terms of these agreements, the Company granted to each 1,005,809 shares of common stock, subject to shareholder approval, equal to 12.5% on a fully-diluted basis of the common stock, 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's stockholders at the 2010 annual meeting. During the vesting period,Paul DeShaw, Mr. TetzlaffLance Morgan and Mr. Davis have full votingJohn P. Bohn were released from restriction and participating rights of common stock.
Both Mr. Tetzlaff and Mr. Davis made elections under Section 83(b) of the Internal Revenue Code for their shares, which allows them to pay income tax on the initial grant instead of paying the tax as theforfeiture.  All previously unrecognized director stock vests. As such, the Company originally used the Section 83(b) assigned value of $.05 per share ($100,581 in total), and recognized the entire associated expense during the year ended September 30, 2010. It was subsequently determined that this was not the appropriate fair value for these shares, and that the stock award included multiple vesting dates that covered multi-year service periods. As part of the restatement further described in Note 11, the shares were revalued as of September 30, 2010 at the grant date fair value price of $.37, or $744,299 in total
Effective December 31, 2010, Mr. Tetzlaff resigned and the Company and Mr. Tetzlaff entered into a Separation Agreement and Release of Claims. In accordance with the terms of that agreement, Mr. Tetzlaff settled the 402,234 shares that vested October 1, 2010, and forfeited his unvested shares. Cumulativebased compensation expense of $48,493 (restated) related to Mr. Tetzlaff's unvested shares was reversedexpensed during the three months ended December 31, 2010.2011.
During the fourth quarter of the fiscal year ended September 30, 2010, each of two members of the board of directors were granted 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.
17Note 7. Going Concern:

 
14
Effective December 31, 2010, Daniel Thralow resigned as a member of the Company's Board of Directors. Accordingly, Mr. Thralow forfeited his 50,000 unvested shares. Cumulative compensation expense of $1,857 (restated) related
ATC Venture Group Inc
Notes to these unvested shares was reversed during the three months ended December 31, 2010.Condensed Consolidated Financial Statements
For the three and nine months ended June 30, 2011, $40,116 (restated) and $128,084 (restated) was recognized as officer restricted stock compensation expense, respectively. For the three and nine months ended June 30, 2011, $1,536 (restated) and $4,304 (restated) was recognized as director restricted stock compensation expense, respectively. In total, $37,126 (restated) and $124,753 (restated) was allocated to continuing operations for the three and nine months ended June 30, 2011, respectively, while $4,526 (restated) and $7,635 (restated) was allocated to discontinued operations for the three and nine months ended June 30, 2011, respectively.(Unaudited)
As of June 30, 2011, $108,594 (restated) of total unrecognized compensation cost related to the remaining unvested shares and is expected to be recognized over the next 3 years.
Note 9. Discontinued Operations:
In the quarter ended March 31, 2011, the Company concluded that the Perf-Form and Plazco segments no longer fit with the long term strategic plans of the Company. Both of these segments are outside of the Company'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's strategic plan, and therefore, these segments are reported as discontinued operations in the condensed consolidated financial statements.
In addition, the value of the Perf-Form segment did not support the carrying value of the intangible assets, and an impairment charge in the amount of $110,186 for trademarks and unamortized patents was recognized in the three months ended March 31, 2011.
The carrying amounts of the major classes of assets and liabilities for these segments are presented below:
 
 
 
 
 
 
 
As of June 30, 2011
 
As of September 30, 2010 (Restated)
 
 
(Unaudited)
 
       
 
 
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
Losses from discontinued operations, net of income taxes for all periods presented include the operating results of Perf-Form and Plazco and are as follows:
 
 
 
 
 
 
 
 
For the Three Months Ended
June 30, 2011 (Restated)		 For the Three Months Ended
June 30, 2010
 
 
 
(Unaudited)
 
(Unaudited)
 
 
 
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)
18

 
 
For the Nine Months Ended
June 30, 2011(Restated)		 For the Nine Months Ended
June 30, 2010
 
 
 
(Unaudited)
 
(Unaudited)
 
 
 
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)
Note 10. Going Concern:
The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern.  During the three and six months ended June 30, 2011,March 31, 2012, the Company incurred a net lossgain (loss) of approximately $422,000 (restated)$599,000 and for the nine months ended June 30, 2011, the Company incurred a net loss of approximately $2,083,000 (restated).$1,064,000, respectively.  As of June 30, 2011,March 31, 2012, the Company had an accumulated deficit of approximately $7,484,000 (restated).$8,248,000.  As discussed in Note 5,4, as of June 30, 2011,March 31, 2012, the Company was in violation of covenants with the Lender,its 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.
As noted in the Company's Form 8-K filed on June 8, 2011, the Company has signed a term sheet with a new lender for larger, replacement credit facility. This new credit facility is expected to close within 30 days. The new credit facility is expected to be in the aggregate amount of $5,000,000, replacing the Company's current $2,000,000 working capital facility. The new credit facility will be used to repay the existing line of credit and to provide working capital for the ongoing operations.
While the Company is in the process of completing the restructuring of its financing, theThe Company expects the existing cash balances, cash flow generated from operating activities, and the available borrowing capacity under Linethe revolving line of Credit One and Line of Credit Three provided by Amendment 8credit agreement to be sufficient to fund operations. Short term cash can be generated through the aggressive collection of accounts receivable and by reducing inventory balances.  The Company is in the process of securing replacement financing through an asset-based lender for its Revolving Credit Agreement.

Note 11. Restatement8 – Sale of Consolidated Financial Statements:Segment
These financial statements have
On December 31, 2011, the brand “Cycle Country” and the ATV accessories division were sold to Kolpin Outdoors, Inc. (“Kolpin”) for a sale price of up to $8,000,000, subject to certain adjustments.  A portion of the revenue was recognized on this sale in the period the transaction was complete or at the time revenue was earned for portions requiring continued products or services.  Details of the Purchase Agreement are more fully disclosed in the Company’s 8-K filing dated September 1, 2011.  The transaction closed effective December 31, 2011, as fully disclosed in the Company’s 8-K filing dated January 6, 2012.  There has been restated to correct errorsa recent dispute relating to certain equity compensation awards. These errors affected the numberpayment of shares outstanding, the valuation and timinga portion of the expense recognition of those equity awards,deferred and the amount and timing of sales discounts and allowances and selling expenses relatedcontingent purchase price due to a customer incentive program that was put into place by 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 under the asset purchase agreement.  No portion of these contingent and deferred payments were recognized as of March 31, 2012.

Property, plant, equipment, net $174,575 
Inventory  695,400 
Intangibles, net  3,754 
Total assets sold  873,729 
     
Proceeds from sale and applied directly to outstanding debt  3,017,707 
     
Gain on sale $2,143,978 


Following this sale, the Company redefined its business strategies and changed its name from “Cycle Country Accessories Corp.” to understate selling expenses related“ATC Venture Group Inc.” and changed the name of its subsidiary from “Cycle Country Accessories Corporation” to customer incentive program“Simonsen Iron Works Inc.”

On November 3, 2011, the Perf-Form segment was sold for $25,000.

Inventory sold $10,419 
Proceeds from sale  25,000 
Gain on sale $14,581 
Note 9 – Discontinued Operations

In the year ended September 30, 2011, the Company concluded that the Perf-Form and stock-based compensation. Additionally,Plazco segments no longer fit with the error regarding the number of issued and outstanding had the further effect of misstating the basic and fully-diluted earnings per share for the three and nine months ended June 30, 2011.
The following tables show the specific effectslong term strategic plans of the restatement onCompany. Both of these segments are outside of the Company’s core product lines and/or our core customer relationships. Both of these segments have seen substantial decline in the past five 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’s strategic plan, and therefore, these segments are expected to cease operations within one year and are reported as discontinued operations in the condensed consolidated financial statements as of andstatements.

On August 26, 2011, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) for the threesale (the “Asset Sale”) of the Company’s assets related to its business in aftermarket accessories for all-terrain vehicles and nine months ended Juneutility vehicles sold under the “Cycle Country” brand name (the “Product Line”) to Kolpin Outdoors, Inc. (“Kolpin”). Details of the Purchase Agreement are more fully disclosed in the Company’s 8-K filing dated September 1, 2011. Since this Product Line (ATV) was sold subsequent to September 30, 2011:2011, it has been included in discontinued operations for all years presented.
19
See Note 8 for information on sales of the Perf-Forn and Cycle Country ATV Accessories segments.

 
15
 
Gains (Losses) from discontinued operations, net of income taxes for all periods presented, include the operating results of Cycle Country ATV Accessories, Corp.Perf-Form and Subsidiaries
Condensed Consolidated Balance SheetPlazco are as follows:
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
20
 For the three months ended March 31, 2012 (Unaudited) 
  Plazco  Total 
Revenue
      
     Sales- general
 
$
11,085
  
$
11,085
 
     Discounts, returns & allowances
  
-
   
-
 
     Freight income
  
-
   
-
 
Total revenue
  
11,085.00
   
11,085.00
 
Cost of goods sold
  
2,342
   
2,342
 
         
          Gross profit
 
$
8,743
  
 
8,743
 
         
Selling, general, and administrative expenses
      
7,322
 
Interest expense, net
      
453
 
Other (income) expense, net
      
(217
)
       
- 
 
         
Net income from discontinued operations
     
$
1,185
 

  For the three months ended March 31, 2011 (Unaudited) 
             
  ATV Accessories  Plazco  Perf-Form  Total 
Revenue
            
     Sales- general
 
$
2,404,610
  
$
104,414
  
$
28,654
  
$
2,537,678
 
     Discounts, returns & allowances
  
(236,675
)
  
(10,277
)
  
(2,820
)
  
(249,772
)
     Freight income
  
27,755
   
1,110
   
370
   
29,235
 
Total revenue
  
2,195,690.00
   
95,247.00
   
26,204.00
   
2,317,141.00
 
Cost of goods sold
  
1,846,497
   
86,443
   
45,913
   
1,978,853
 
Inventory impairment adjustment
  
432,826
   
148,000
   
75,134
   
655,960
 
                 
          Gross profit (loss)
 
$
(83,633
)
 
$
(139,196
)
 
$
(94,843
)
 
 
(317,672
)
                 
Selling, general, and administrative expenses
           
1,163,507
 
Intangible impairment
              
110,186
 
Interest expense, net
              
56,549
 
Other (income) expense, net
              
23,191
 
Income tax benefit
              
(550,376
)
                 
Net loss from discontinued operations
             
$
(1,120,729
)

  For the six months ended March 31, 2012 (Unaudited) 
  ATV Accessories  Plazco  Perf-Form  Total 
Revenue            
     Sales- general $5,867,629  $74,643  $60  $5,942,332 
     Discounts, returns & allowances  (387,777)  (3,278)  -   (391,055)
     Freight income  6,405   -   -   6,405 
Total revenue  5,486,257   71,365   60   5,557,682 
Cost of goods sold  3,606,302   37,729   (156)  3,643,875 
                 
          Gross profit $1,879,955  $33,636  $216   1,913,807 
                 
Selling, general, and administrative expenses           1,284,531 
Interest expense, net              106,773 
Other (income) expense, net (primarily, gain on sale of segment)              (2,222,068)
Income tax expense              1,035,000 
                 
Net income from discontinued operations          $1,709,571 
 
16
 
Cycle Country Accessories Corp.

  For the six months ended March 31, 2011 (Unaudited) 
             
  ATV Accessories  Plazco  Perf-Form  Total 
Revenue            
     Sales- general $6,123,303  $181,967  $57,521  $6,362,791 
     Discounts, returns & allowances  (532,018)  (14,375)  (3,017)  (549,410)
     Freight income  45,993   1,501   523   48,017 
Total revenue  5,637,278   169,093   55,027   5,861,398 
Cost of goods sold  4,559,600   149,859   82,458   4,791,917 
Inventory impairment adjustment  432,826   148,000   75,134   655,960 
                 
          Gross profit (loss) $644,852  $(128,766) $(102,565) $413,521 
                 
Selling, general, and administrative expenses           2,106,557 
Intangible impairment              110,186 
Interest expense, net              140,485 
Other (income) expense, net              19,258 
Income tax benefit              (661,892)
                 
Net loss from discontinued operations          $(1,301,073)

Note 10 - INCOME TAXES
During the three month and Subsidiaries
Condensed Consolidated Statementsix month periods ended March 31, 2012, the Company recorded income tax expense of Operations
$0 and $1,035,000 respectively.  The income tax expense of $1,035,000 for the six month period ended march 31, 2012 was netted within discontinued operations.  The Company did not record an income tax benefit for the three month period ended March 31, 2012 despite incurring a net loss.  The deferred tax asset valuation allowance was increased by $214,000 during the six month period ended March 31, 2012.  As of March 31, 2012 and September 30, 2011, the deferred tax asset valuation allowance was $465,000 and $200,000, respectively.
For the Three Months Ended June 30,three month and six month periods ended March 31, 2011, the Company recorded an income tax benefit of approximately $674,000 and $846,000, respectively.  Of these benefit amounts, $550,376 and $661,892 was recorded net within discontinued operations for the three month and six month periods ended March 31, 2011, respectively.
 
       
(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)

21

 
17
Table of Contents
Cycle Country Accessories Corp. and Subsidiaries
Condensed Consolidated Statement of Operations
For the Nine Months Ended June 30, 2011
 
      
 
(Unaudited)
 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)
22

 
Cycle Country Accessories Corp. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
For the Nine Months Ended June 30, 2011
 
 
 
 
 
 
 
 
(Unaudited)
 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
 
23

Cycle Country Accessories Corp. and Subsidiaries
Condensed Consolidated Statement of Cash Flows
For the Nine Months Ended June 30, 2011
 
 
 
 
 
 
 
 
(Unaudited)
 
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
 
Item 2.  Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note about Forward Looking Statements.

Certain matters discussed in this Form 10-Q/A10-Q are "forward-looking statements," and the“forward-looking statements.” 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.1995. 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-K/A10-K for the year ended September 30, 2010.2011.  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.

Executive-Level Overview

This discussion relates to Cycle Country Accessories Corp.ATC Venture Group Inc and its consolidated subsidiary (the "Company", "we", "us", or "our"“Company”) and should be read in conjunction with our condensed consolidated financial statements as of September 30, 2010,2011, 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-K/A10-K for the fiscal year ended September 30, 2010.2011.

We intend for this discussion to provide the reader with information that will assist in understanding our condensed consolidated financial statements, the changes in certain key items in those condensed consolidated financial statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our condensed consolidated financial statements. The discussion also provides information about the financial results of the various segments of our business to provide a better understanding of how those segments and their results affect the financial condition and results of operations of the Company as a whole.  To the extent that our analysis contains statements that are not of a historical nature, these statements are forward-looking statements, which involve risks and uncertainties.
As we discussed in our Form 10-Q/A for the period ended March 31, 2011, the Company has made significant progress in accelerating the changes in our management and operations beginning January 1, 2011. With the resignation of the former CEO and one of the Company'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 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 Vice President of Product Implementation and the Vice President of Risk Management and Strategic Projects. This team has revitalized our sales, marketing, and operational effectiveness.
These changes have accelerated the internal operational and financial reorganization efforts that started in 2009, as well as the external strengthening of relationships and opportunities. While we have made significant progress, especially in the areas of rebuilding customer trust and credibility, and in implementing operational changes, the challenges the Company has been working through will take some more time to demonstrate results.
24

 
18
Table of Contents
As noted in our condensed consolidated financial statements, the Company has become even more aggressive in analyzing and acting on the opportunities for growth and opportunities for risk management. We have made aggressive, bold changes to clean up underperforming segments and assets. The internal reorganization and initiatives have eliminated the unprofitable and/or unnecessary aspects of the business, allowing us to focus our efforts on our core customers, core products, and our core people.
Looking ahead to the balance of fiscal 2011, management is projecting a continuation of the seasonal pattern experienced by the Company, with sales having reached their annual lows in the third quarter of our fiscal year, and with a prediction of a more favorable finish in the fourth quarter. As is discussed further in this report, during the normally slow sales period of the third quarter, the Company focused on implementing long-term lean initiatives and preparation of the manufacturing operations for the next 24 month period, while we built inventory for the coming season. The third quarter is historically a period of very light sales, and therefore heavy losses from operations. In anticipation of the upcoming season, we made several major changes to our manufacturing processes to improve our operating efficiencies. We believe that these improvements will help us mitigate our future seasonality.
Looking further out over the next 12-24 months, management projects growth in both revenues and margins, based on many factors, including the response of the industry to the initiatives mentioned above, as well as the continued operational efficiencies gained from the efforts and initiatives of the past 24 months. The Company anticipates contribution margins over the next 12-24 month period to range between 25% and 45% of revenue, depending on the segment. Our goal for the ATV Accessories segment is to regain and maintain its long-time average of 40% contribution margins. Our goal for the Imdyne segment is to have contribution margins in the range of 25%-30% of revenue. Overall, our goal is for gross margins, after manufacturing overhead, to exceed 30% of revenues in that same period. Further, for the next 12-24 months, our goal is for our operating expenses to average between 20%-25% of revenues.
Overview for the Three Months Ended June 30, 2011(Restated)March 31, 2012 and 2010 (Unaudited)2011 (Unaudited)

The following is a summary of the results of operations for the three months ended June 30,March 31, 2012 and March 31, 2011 and 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)%
  Three Months Ended March 31,
  2012 (Unaudited)  2011 (Unaudited) 
             
Revenue $1,956,444   100.00% $660,220   100.00%
                 
Cost of goods sold  1,808,890   92.46%  702,331   106.38%
                 
Gross profit (loss)  147,554   7.54%  (90,203)  -13.66%
                 
Selling, general, and administrative expenses  724,259   37.02%  240,404   36.41%
                 
Loss from operations  (576,705)  -29.48%  (330,607)  -50.08%
                 
Other income (expense), net  (23,350)  -1.19%  (23,998)  -3.63%
                 
Loss from continuing operations before income tax benefit  (600,055)  -30.67%  (354,605)  -53.71%
                 
Income tax benefit  -   0.00%  123,623   18.72%
                 
Net loss from continuing operations  (600,055)  -30.67%  (230,982)  -34.99%
                 
Net income (loss) from discontinued operations, net of tax  1,185   0.06%  (1,120,729)  -169.75%
                 
Net Loss $(598,870)  -30.61% $(1,351,711)  -204.74%

For the three months ended June 30, 2011,March 31, 2012, the Company reported a net loss of $422,000 (restated)$598,870 or 43%(30.61%) of total revenue (restated).revenue. This compares to the three months ended June 30, 2010ending March 31, 2011 during which the Company recorded a net loss of $584,000$1,351,711 or 32%(204.74%) of total revenue.
Total revenuerevenues from continuing operations more than doubled for the three months ended June 30, 2011 decreased approximately 45% (restated), or approximately $806,000 (restated)March 31, 2012 compared to the same period in fiscal year 2010. This 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 three 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 50% (restated) inMarch 31, 2011.  This increase represents the Imdyne segment, after the Company's
25

decision not to pursue contract work with unprofitable customers from the prior years. These long-overdue operational and process improvements consisted of a series of layout and process changes in the Spencer manufacturing facility's operational flow, as well as reorganizing the quality and inventory management processes. In the case of Imdyne, as previously disclosed in other filings, the Company has chosen to discontinue work on contract manufacturing for customers in which the production was not profitable. This decision, starting in the first quarter of this fiscal year, has had an impact in our overall sales in the Imdyne division.
In total, the gross margin for the quarter ended June 30, 2011 was 41% (restated), up from 14% in the same period in fiscal year 2010. The gross margin improvement in this quarter was attributable to continuationbuild-up of the improvementnew lead operating segment and wrap-up of discontinued operations. Profitability was still lagging in our operations as well as due to the lack of any materially-significant cleanups, allowing the Company to return to more normal margins.
The net loss for the quarter ended June 30, 2011 was $422,453 (restated), compared to a loss of $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).
The following is a summary of the results of operations by segment for the three months ended June 30,March 31, 2011 (Restated)due to efficiencies temporarily lost in transition between discontinued operations and June 30, 2010 (unaudited):expansion of the contract manufacturing subsidiary.
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended    
 
 
 
June 30,
2011 (Restated)
(Unaudited)
 
June 30,
2010
(Unaudited)
 
Increase (Decrease)
$
 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%

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19
Table of Contents
Overview for the Nine Months Ended June 30, 2011 and 2010 (Unaudited)
BUSINESS SEGMENTS

The following is a summary of the results of operations for the ninesix months ended June 30,March 31, 2012 and March 31, 2011 and June 30, 2010 (Unaudited):
 
 
 
 
 
 
Nine Months Ended June 30,
 
 
 
2011(Restated)
(Unaudited)
 
2010
(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)%

  Six Months Ended March 31,
  2012 (Unaudited)  2011 (Unaudited) 
             
Revenue $2,528,247   100.00% $1,353,269   100.00%
                 
Cost of goods sold  2,301,881   91.05%  1,359,995   100.50%
                 
Gross profit (loss)  226,366   8.95%  (6,726)  -0.50%
                 
Selling, general, and administrative expenses  837,392   33.12%  424,196   31.35%
                 
Loss from operations  (611,026)  -24.17%  (430,922)  -31.84%
                 
Other income (expense), net  (34,310)  -1.36%  (65,126)  -4.81%
                 
Loss from continuing operations before income tax benefit  (645,336)  -25.53%  (496,048)  -36.66%
                 
Income tax benefit  -   0.00%  136,331   10.07%
                 
Net income (loss) from continuing operations  (629,336)  -24.89%  (359,717)  -26.58%
                 
Net Income (loss) from discontinued operations, net of tax  1,709,591   70.03%  (1,301,073)  -96.14%
                 
Net income (loss) $1,064,235   42.09% $(1,660,790)  -122.72%

For the ninesix months ended June 30, 2011,March 31, 2012, the Company reported a net lossincome of $2,083,241 (restated)$1,064,235 or 26% (restated)42.09% of total revenue (restated).revenue. This compares to the ninesix months ended June 30, 2010ending March 31, 2011 during which the Company recorded a net loss of $644,734$1,660,790 or about 8%(122.72%) of total revenue. These lossesNet income increased as well.  The majority of these changes relate to a $2,143,979 gain on sale of the ATV segment, as this sale spiked revenues in the first nine monthsquarter of fiscal year 2011 include significant nonrecurring charges, such as approximately $195,000 (restated) for one-time severance expense and signing bonuses, $480,918 for inventory write-downs, and $387,706 (restated) for losses from discontinued operations. These one-time, non-recurring expenses account for approximately $1,038,000 (restated) of the loss. In addition, our steel-based commodity material expenses increased over 34%, causing our total materials expense to increase 15% over the nine-month period, accounting for approximately $300,000 of the net loss.
Total revenue for the period decreased approximately 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, our total revenue for the nine month period is up approximately 16%. Revenue increased for the Cycle Country ATV Accessories segment by approximately 10% (restated),2012.  Operating sales were down due to seasonally favorable weather throughout our busy snow season, which primarily runs from August through February. Sales in the Imdyne segment decreased approximately 27% (restated), though when adjusted for the loss of the unprofitable customers, the core Imdyne segment grew approximately 52% for the nine-month period. The change in revenue from Imdyne's largest OEM customer accounts for all of that growth.declining projects below profit goals.
Gross margins for the nine months ended June 30, 2011 were 13% of revenue (restated), after the adjustments for one-time charges. However, without the one-time charges, the gross margins would have been 19% of revenue (restated).
27

The following is a summary of the results of operations by segment for the nine months ended June 30, 2011(restated) and June 30, 2010 (Unaudited):
 
 
     
 
 
 
For the Nine Months Ended June30,    
 
 
 
2011(Restated) 2010 
Increase (Decrease) $
 Increase (Decrease) %
 
 
 
(Unaudited)
 
 
 
 
 
 
 
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)%
Business Segments
As more fully described above in Note 7 to the condensed consolidated financial statements included elsewhere in this filing,of March 31, 2012, the Company operates four reportable business segments. As describedsegments, two segments were sold in Note 9 toin the condensed consolidated financial statements, the Company has classified two of the segments intosix month period ended March 31, 2012 and one that is held in discontinued operations.
Cycle Country ATV Accessories
Simonson Iron Works Inc., on wholly-owned subsidiary is vertically integrated and utilizes a two-step distribution method. Ourengaged in contract manufacturing segment, Imdyne, deals directly with otherfor original equipment manufacturers (OEMs).(OEM's) and other businesses in various industries. 
Revenue
For the Cycle Country ATV Accessories segment, revenue decreased
Revenue increased approximately 40% (restated)196% or $370,000 (restated)$1,300,000 for the three months ended June 30, 2011March 31, 2012 as compared to the three months ended June 30, 2010. As noted earlier,March 31, 2011 in the company shutSimonsen Iron Works Inc. segment.  This increase represents increased production in the remaining operating segment, as planned with recent strategic segment eliminations.  The loss from discontinued operations decreased 57% or approximately $640,000, as the discontinued operations wound down for twoto no material activities by March 31, 2012.  For the six months ending March 31, 2012, net income increased 169% or approximately $2,800,000 over the six months ended March 31, 2011.  This increase was partially due to the gain on sale of the three months in the quarter ended June 30, 2011ATV Accessories segment and partially due to accomplish some long-overdue lean manufacturing driven operational and process improvements. Revenues for the nine months ended June 30, 2011 increased approximately 10% (restated) to approximately $6,137,000 (restated) for this segment compared to approximately $5,559,000 for the nine months ended June 30, 2010. The increasestrategic elimination of approximately $578,000 (restated) is attributable to a favorable weather in our snow season, along with the solidification of our customer relations and the resulting increase in market share.less profitable activities.
The Imdyne segment reported sales of approximately $428,000 and $867,000 for the three months ended June 30, 2011 and 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. These customers represented approximately 17% of last year'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 customers, replacing some of those sales that were lost, resulting in a
28

 
20
net decrease for the period of approximately $439,000 (restated). Revenues for the segment were approximately $1,770,000 (restated) and $2,416,000 for the nine month periods ended June 30, 2011 and June 30, 2010, respectively, a decrease of 27% (restated) for the nine month period, due to sales to customers which were deliberately discontinued.
Cost of Goods Sold

The following table details components of direct costs of goods sold by segment as a percentage of sales:
 
 
 
 
 
 
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%
  Simonsen Ironworks Inc. 
  For the Three Months Ended  For the Six Months Ended 
  June 30,  June 30, 
  2012 (Unaudited)  2011 (Unaudited)  2012 (Unaudited)  2011 Unaudited 
             
Materials  69.90%  64.26%  66.58%  59.63%
Direct labor  7.74%  7.66%  7.62%  7.13%
Mfg variance  -3.03%  1.04%  -1.20%  1.56%
Subcontract  0.54%  1.19%  0.51%  1.18%
Royalty  0.00%  0.00%  0.00%  0.00%
Burden  1.50%  9.24%  1.27%  15.21%
Mfg overhead  15.81%  22.99%  16.26%  15.79%
   92.46%  106.38%  91.05%  100.50%

The total cost of materials as a percentage of revenue has increased significantly this year. Thefor Simonsen Ironworks Inc., while total cost of material for the Cycle Country ATV Accessories segment increased from approximately 56% for the three months ended June 30, 2010 to approximately 67% (restated) for the three months ended 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 costcosts of goods sold and margins. On average, the commodity steel market is up approximately 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.
The cost of materials increased from approximately 45% of net sales to approximately 55% of net sales for the nine months ended June 30, 2011 as compared to the nine months ended June 30, 2010. On average, the commodity steel market is up approximately 45% since October 1, 2010. As our products are primarily steel-based, our total costs of materials are up 15% overall for the nine months ended June 30, 2011.
Direct laborsegment decreased as a percentage of sales increased for both segmentsrevenues.  This change was due to increases in wages paid to production employees.the strategic management decisions made for lean production.

Expenses

Our selling, general and administrative expenses were approximately $937,000 (restated)$647,000 and $989,000$240,000 for the three months ended June 30,March 31, 2012 and March 31, 2011, and June 30, 2010, respectively.
There were no materially
The significant changes in expenses for the three months ended June 30, 2011March 31, 2012 as compared to the three months ended June 30, 2010. The company is working hard to reduce its overall expenses, including efforts such as the reduction in professional services due to the conclusion of the Hancher fraud investigation and litigation, as well as savings from the discontinuation of unnecessary sales and marketing programs.March 31, 2011 were:
For the nine months ended June 30, 2011 and 2010, selling, general and administrative expenses were approximately $3,475,000 (restated) and $2,844,000, respectively.
The significant changes in expenses for the nine months ended June 30, 2011 as compared to the nine months ended June 30, 2010 were:
·  		Prior to allocation between segments, the two major changes in selling, general and administrative expenses for the three month period ending March 31, 2012 compared to the three month period ending March 31, 2011were as follows:

·  
Management compensation decreased approximately $300,000 due to elimination of redundancies and aligning compensation with key performance objectives

·  		�Wage expenseCompliance costs increased approximately $474,000 (restated)$200,000 due in part to chargescosts related to the hiringrestatements 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 expensesperiod data as disclosed 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.recent filings.
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21

Liquidity and Capital Resources

Overview

Cash and cash equivalents were $23,350$16,286 as of June 30, 2011March 31, 2012 compared to $28,939$25,185 as of September 30, 2010.2011.  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.

Working Capital

Net working capital deficit was a deficit of $1,668,253 (restated)$991,334 as of June 30, 2011March 31, 2012 compared to a surplus of $1,182,316 (restated)$3,218,286 as of September 30, 2010.2011.  The working capital ratio was 0.72 (restated).72 and 1.21 (restated).56 as of June 30, 2011March 31, 2012 and September 30, 2010,2011, respectively.

The following table summarizes the Company'sCompany’s sources and uses of cash and equivalents for the periods indicated:
 
 
 
 
 
 
Nine Months Ended June 30,
 
 
 
2011
(Unaudited)
 
2010
(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
 

  2012 (Unaudited)  2011 
       
Net cash provided by (used for) operating activities of continuing operations $16,695  $1,840,799 
Net cash used for investing activities of continuing operations  122,902   (73,430)
Net cash (used for) financing activities of continuing operations  (138,766)  (1,771,123)
  $(8,899) $104,882 
The Company'sCompany’s principal uses of cash are to pay operating expenses, acquire necessary equipment and to make debt service payments.  During the ninesix months ended June 30, 2011,March 31, 2012, the Company used cash to make principal payments of approximately $594,000$404,000 against long-term debt.debt and paid down approximately $2,713,000 on its lines of credit.

Capital Resources

Management believes that existing cash balances, cash flow to be generated from operating activities, 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.  The Company is not considering any major capital expendituresinvestment for at least the next sixthree months.

As of June 30, 2011March 31, 2012 and as of September 30, 2010,2011, the Company was in violation of its current ratio and term debt coverage ratio covenants in its loan agreements with its Lender. On January 17, 2011,lender.  As of March 20, 2012, the Company and its Lenderlender entered into the Seventh Amendment to thea Secured Credit Agreement and Waiver ("Amendment 7").Waiver.  Under the terms of Amendment 7,this Agreement, 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 December2011, March 31, 20102012 and the Company'sCompany’s anticipated noncompliance with the required ratio of current assets to current liabilities through October 1, 20112012 and further, to waive the Company'sCompany’s noncompliance with the Term Debt Coverage Ratio as of September 30, 2010 and December2011, March 31, 2010,2012, and the Company'sCompany’s anticipated noncompliance with the Term Debt Coverage Ratio through October 1, 2011.2012.
On March 31, 2011,
22

Management expects to be able to comply with the Company and its lender entered into an Eighth Amendment torequirements of the Secured Credit Agreement and Waiver ("Amendment 8"). Amendment 8 replaces Amendment 7 withhas begun the process to secure a Revolving Credit Agreementcommitment for funding from an asset-based lender. Management believes this is an appropriate financing vehicle for its operations and expects to have a positive impact on the Company’s working capital through fiscal year 2012.  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 30, 2012 could result in an amount not to exceed $2,000,000, which maturedthe lender foreclosing on August 1, 2011. See Note 10its security interest resulting in a significant disruption to the Condensed Consolidated Financial Statements for further explanation.Company’s operations.

Our continued existence is dependent upon or ability to generate cash and to market and sell our products successfully.  However, there are no assurances 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.

Critical Accounting Policies and Estimates

The Company's discussion and analysispreparation of its financial condition and results of operations are based upon its condensed consolidatedour financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statementsAmerica, requires the Companyus to make judgments and estimates that may have a significant impact upon the portrayal of our financial condition and results of operations.  We believe that of our significant accounting policies, the following require estimates and judgmentsassumptions that require complex, subjective judgements by management that can materially impact the portrayal of our financial condition and results of operations, useful lives of fixed assets; impairment of long-lived asset, valuation of inventory, deferred taxes and warranties and allowance for doubtful accounts.   These significant accounting principles are more fully described in Managements Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies in our Annual Report on Form 10-K for the year needed September 30, 2011.
30

 
23
that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates the estimates including those related to bad debts, inventory valuations of long lived assets and the recoverability of fraud expense. The Company bases its estimates on historical experiences and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
Allowance for Doubtful Accounts
The Company recognizes revenue when title and risk of ownership have passed to the buyer. Allowances for doubtful accounts are estimated based on estimates of losses related to customer accounts receivable balances. Estimates are developed by using standard quantitative measures based on historical losses, adjusting for current economic conditions and, in some cases, evaluating specific customer accounts for risk of loss. The establishment of reserves requires the use of judgment and assumptions regarding the potential for losses on receivable balances. Though the Company considers these balances adequate and proper, changes in economic conditions in specific markets in which the Company operates and any specific customer collection issues the Company identifies could have a favorable or unfavorable effect on required reserve balances.
Inventories
Inventories are stated at the lower of cost or market using the weighted average method. Cost includes materials, labor, and manufacturing overhead related to the purchase and production of inventories. Management regularly reviews inventory quantities on hand, future product demand and the estimated utility of inventory. If the review indicates a reduction in utility below carrying value, management would reduce the Company's inventory to a new cost basis through a charge to cost of goods sold.
Deferred Taxes
The Company records a valuation allowance to reduce its deferred tax assets to the amount that is more likely than not to be realized. While the Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event the Company were to determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period such determination was made. Likewise, should the Company determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax assets long lived asset valuation would increase income in the period such determination was made.
Stock-Based Compensation
The Company accounts for stock-based compensation on a fair value basis. The estimated grant date fair value of each stock-based award is recognized in expense over the requisite service period (generally the vesting period).
ItemITEM 3. Quantitative and Qualitative Disclosure aboutAbout Market Risk

As a smaller reporting company, the Company is not required to provide this information.

ItemITEM 4.  Controls and Procedures

Disclosure Controls and Procedures

Based on management'smanagement’s evaluation (with the participation of our former Chief Executive Officer and Chief Financial Officer) as of the end of the period covered by this report, our former Chief Executive Officer and Chief Financial Officer have concluded that the Company'sCompany’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the ExchangedExchange 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 SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer as appropriate to allow timely decisions regarding required disclosures.

Subsequent to the evaluation made in connection with the Original Filing, and in connection with the restatement and filing of our priorrecent 2010 Form 10-K/A and 2011 10Q/A’s for the first three quarters, our management, including our current Chief Executive Officer and Chief Financial Officer, re-evaluated the effectiveness of the design and operation of our disclosure controls and procedures and concluded that, because of the material weakness in our internal control over financial reporting of the Company'sCompany’s stock-based compensation plans and customer incentive programs, our disclosure controls and procedures continued to be ineffective as of June 30, 2011. Notwithstanding the material weaknesses discussed below, our management, including our current Chief Executive Officer and Chief FinancialMarch 31, 2012.  
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Officer, has concluded that the consolidated financial statements included in our recent 10-K/A present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.
Changes in Internal Control over Financial Reporting

Our management, including our principal executive officer and principal financial officer, have reviewed and evaluated any changes in our internal control over financial reporting that occurred as of June 30, 2011.March 31, 2012. Our management is in the process of addressing the above material weakness as updated above, and is utilizinghas utilized the services of an outside accounting firm to assist with this process. Additionally, on April 1, 2012, we hired VP of Finance and Administration. 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 effectivelyeffectively.

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Part II - Other Information

ItemITEM 1.  Legal Proceedings

Please refer to the disclosure set forth in Note 2 to our Condensed Consolidated Financial Statements included in this report.

ItemITEM 1A.  Risk Factors

Please refer to the discussion of risk factors included in the Company'sCompany’s annual report on Form 10-K/A10-K for the fiscal year ended September 30, 2010.2011.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.

ITEM 3. Defaults Upon Senior Securities
None.

ITEM 4. Mine Safety Disclosures
None.

ITEM 5. Other Information
None.

ItemITEM 6.  Exhibits
(10.1) Settlement Agreement with Lowell G. Hancher Jr. dated May 9, 2011 (previously filed)
(31.1)  Certification of Principal Executive andOfficer 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 Principal 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.

(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.
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SignaturesSignatures

In accordance with Section 13 or 15(d) of the Securities Exchange Act, the registrant caused this amendmentreport to be signed on its behalf by the undersigned, thereunto duly authorized, on April 16,May 17, 2012.

 ATC Venture Group Inc
CYCLE COUNTRY ACCESSORIES CORP.
By:/s/ Robert Davis
Robert Davis
Chief Executive Officer

In 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 DavisChief Financial Officer, Chief Operating Officer, Chief Executive Officer, Treasurer, Secretary and Director
May 17, 2012
Robert Davis
(principal executive, financial and accounting officer)

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