QUARTERLY REPORT FOR CYCLE COUNTRY ACCESSORIES CORP.ATC VENTURE GROUP INC.

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

FORM 10-Q

(Mark one)

(Mark one)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.
  
For the quarterly period ended DecemberMarch 31, 20112012
 
OR
  
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE 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.)

5929 Baker Road, Suite 400
Minnetonka, MN 55345
(Address (Address of principal executive offices)

P: (952) 215-3100
F: (952)215-3129
www.atcvg.com
(Registrant’s telephone number, facsimile number, and corporate website)

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the  Securities Exchange  Act during the past 12 months (or for such shorter period that the registrant was required to file such reports),  and (2) has been subject to such filing requirements for the past 90 days. Yes  x   No 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 such shorter period that the registrant was required to submit and post such files). Yes o 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 definition of “large accelerated filer” and “accelerated filer” and “smaller reporting 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

The number of shares of the registrant’s common stock, par value $0.0001 per share, outstanding as of May 15, 2012:2012; 7,090,662





 
 

 


Cycle Country Accessories Corp.ATC Venture Group Inc
Index to Form 10-Q 10-Q.

 Page
 
  
 
  
  
  
Condensed Consilidated Statements of Cash Flows - Six Months Ended March 31, 2012 and 2011 (Unaudited)5
  
  
  
  
  
  
  
  
Item 3. Defaults Upon Senior Securities2326
  
Item 4. Mine Safety Disclosures2326
  
Item 5. Other Information2326
  
  
 

 
2


Part I   Financial Information

Item 1.  Financial Statements

Cycle Country Accessories Corp.ATC Venture Group Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
 
 December 31,  September 30,  March 31,  September 30, 
 2011 (Unaudited)  2011  2012 (Unaudited)  2011 
Assets            
            
Current Assets            
Cash and cash equivalents $84,845  $25,185  $16,286  $25,185 
Accounts receivable, net  2,482,676   850,087   774,411   850,087 
Inventories  517,625   799,205   563,739   799,205 
Income taxes receivable  -   2,120   -   2,120 
Deferred income taxes  552,000   625,000   326,000   625,000 
Prepaid expenses and other  101,637   424,726   49,572   424,726 
Assets held for sale  58,910   930,338   448,910   1,320,338 
Total current assets  3,797,693   3,656,661   2,178,918   4,046,661 
                
Property, plant and equipment, net  8,830,021   8,971,158   8,301,401   8,581,158 
Other assets  736   1,479   141   1,479 
                
Total assets $12,628,450  $12,629,298  $10,480,460  $12,629,298 
                
                
Liabilities and Stockholders' Equity                
Current Liabilities:                
Disbursements in excess of bank balances $56,548  $108,757  $69,651  $108,757 
Accounts payable  2,093,558   1,818,906   1,206,555   1,818,906 
Accrued expenses  1,666,831   1,251,966   990,281   1,251,966 
Bank line of credit  647,040   3,643,600   930,400   3,643,600 
Current portion of notes payable  283,012   441,718 
Current Portion of Notes Payable   287,367    441,718  
Total current liabilities  4,746,989   7,264,947   3,484,284   7,264,947 
                
Long-Term Liabilities:                
Notes payable, less current portion  1,860,112   2,033,545   1,783,729   2,033,545 
Deferred income taxes  1,034,000   124,000   824,000   124,000 
                
Total long term liabilities  2,894,112   2,157,545   2,607,729   2,157,545 
Total liabilities  7,641,101   9,422,492   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   709   709 
Additional paid-in capital  12,636,252   12,518,814   12,636,252   12,518,814 
Accumulated deficit  (7,649,612)  (9,312,717)  (8,248,484)  (9,312,717)
                
Total stockholders' equity  4,987,349   3,206,806   4,388,477   3,206,806 
                
Total liabilities and stockholders' equity $12,628,450  $12,629,298  $10,480,460  $12,629,298 
See accompanying notes to the unaudited condensed consolidated financial statements.

Condensed Consolidated Statements of Operations
  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.




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.

   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.

ATC Venture Group Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flow
  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.
 


Condensed Consolidated Statements of Operations

       
  For the three months ended December 31, 
  2011 (Unaudited)  2010 (Unaudited) 
       
Revenue $571,803  $693,049 
Cost of goods sold  492,991   657,664 
         
          Gross profit  78,812   35,385 
         
Selling, general, and administrative expenses  113,133   183,792 
         
     Loss from operations  (34,321)  (148,407)
         
Other income (expense)        
         
     Interest expense, net  (10,960)  (14,812)
         
          Total other expense, net  (10,960)  (14,812)
         
Loss from continuing operations before income tax benefit  (45,281)  (163,219)
         
Income tax benefit  -   21,899 
         
     Net loss from continuing operations  (45,281)  (141,320)
         
Income (loss) from discontinued operations, net of tax  1,708,386   (167,760)
         
Net income (loss) $1,663,105  $(309,080)
         
         
         
Weighted average shares of common stock        
     Basic  7,090,662   8,030,474 
         
     Diluted  7,090,662   8,030,474 
         
Loss per basic and diluted share:        
    Continuing Operations  (0.01)  (0.01)
         
    Discontinued Operations  0.24   (0.02)
         
  $0.23  $(0.03)

See accompanying notes to the unaudited condensed consolidated financial statements.

Condensed Consolidated Statements of Cash Flows
  For the three months ended December 31, 
  2011 (Unaudited)  2010 (Unaudited) 
Cash Flows from Operating Activities from Continuing Operations: 
Net loss from continuing operations $(45,281) $(141,320)
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities: 
     Depreciation  16,116   31,550 
     Bad debt reserve  -   9,800 
     Share-based compensation  10,569   7,431 
     Deferred income taxes  -   (21,899)
     Change in:        
          Accounts receivable, net  (46,326)  49,243 
          Inventories  281,580   220,662 
          Income tax receivable  (300)  2,569 
          Prepaid expenses and other  -   219,631 
          Other assets  744   1,994 
          Accounts payable  274,651   806,822 
          Accrued expenses  365,283   (67,922)
         
Net cash provided by operating activities from continuing operations  857,036   1,118,561 
         
Cash Flows from Investing Activities:        
     Purchase of property, plant and equipment  -   (28,744)
         
Net cash used for investing activities in continuing operations  -   (28,744)
         
Cash Flows from Financing Activities:        
     Change in disbursements in excess of bank balances  (52,209)  (265,502)
     Payments on bank notes payable  (332,139)  (223,143)
     Bank line of credit, net  21,146   (506,002)
         
Net cash used for financing activities from continuing operations  (363,202)  (994,647)
         
Cash flows from Discontinued Operations:        
Cash provided by (used) for operating activities  (552,076)  7,344 
Cash provided by for investing activities  117,902   2,368 
Net cash (used for) provided by discontinued operations  (434,174)  9,712 
         
Net increase in cash and cash equivalents  59,660   104,882 
         
Cash and cash equivalents, beginning of period  25,185   28,939 
         
Cash and cash equivalents, end of period $84,845  $133,821 
See accompanying notes to the unaudited condensed consolidated financial statements.



Cycle Country Accessories Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flow
  Three months ending December 31, 
  2011 (Unaudited)  2010 (Unaudited) 
Supplemental disclosures of cash flow information:    
Cash paid during the period for:      
Interest $121,534  $93,922 
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 as all proceeds applied directly to outstanding debt $3,017,707  $- 
         
         
  $-  $- 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1. Summary of Significant Accounting Policies:

Basis of Presentation - The accompanying unaudited condensed consolidated financial statements for the three months ended DecemberMarch 31, 20112012 and 20102011 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’s financial position, results of operations, and cash flows for the periods presented.

The results of operations for the interim periods ended DecemberMarch 31, 20112012 and 20102011 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, 2011 consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2011.

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

The entities are collectively referred to as the “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 one distinct operating segment, Imdyne,Simonsen Iron Works Inc., which 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 in its owned building in Spencer, IA.

The Company records assets, liabilities, revenues and expenses associated with three 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 DecemberMarch 31, 2011,2012, the brand “Cycle Country” and the ATV Accessoriesaccessories division, as well as Perf-Form segment, were sold.  See Note 108 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.”

Under the trade name,The Company previously had two other reporting segments. The first, Plazco, the company manufactures, sells,manufactured, sold, and distributesdistributed injection-molded plastic products for vehicles such as golf cars and low-speed vehicles (LSVs).  The Company’s Perf-Form segmentother, perf-Form, the other, manufactured, sold, and distributed oil filters for the Powersports industry, including ATVs, UTVs, and Motorcycles.  As more fully disclosed in Note 8,9, in the previous fiscal year the Company concluded that these segments are not in the long-term strategic plans of the Company.

Upon the sale of the ATC Accessories divisionCompany and Perf-Form and theclassified them as discontinued operation of Plazco, the Company only has one remaining segment.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 arewere recorded net of sales discounts, returns and allowances.  Sales discounts, returns and allowances for continuing operations were approximately $14,000$25,000 and $8,000$321,000 for the three months ended DecemberMarch 31, 2012 and 2011, respectively.  For the six months ended March 31, 2012 and 2010, respectively.  Sales2011, sales discounts, returns and allowances were approximately $430,000 and $629,000.   Of these amounts, sales discounts, returns and allowances for discontinuedcontinuing operations were approximately $390,000totaled $25,000 and $300,000$71,000, respectively and $-0- and $250,000 for discontinuing operations, respectively, for the three monthsmonth periods ended DecemberMarch 31, 2012 and 2011.  For the six month periods ended March 31, 2012 and 2011, sales discounts, returns and 2010,allowances for continuing operations totaled $39,000 and $80,000, respectively and $391,000 and $550,000 for discontinuing operations, respectively.
7


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’s cash and cash equivalent balances may exceed amounts insured by the Federal Deposit Insurance Company.
 
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.
 


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” 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 2007.  The Company’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 September 30, 2011 or DecemberMarch 31, 20112012 and such uncertain tax positions as of each reporting date are insignificant.  The Company does not anticipate that the total unrecognized tax benefits will significantly change prior to DecemberMarch 31, 2012.2013.

Earnings (Loss) Per Share - Basic earnings (loss) per share (“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’s view of outcomes will change in the near term.

Use of Estimates —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 property, 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’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 (FASB) fair value hierarchy 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 identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).  The three 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 cash, accounts receivable, and accounts payable, short and long-term debt, and other working capital items approximate fair value at DecemberMarch 31, 2012 and September 30, 2011 due to the short maturity nature of these instruments.

 

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

Note 2. 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 reduction in utility below carrying value, management would reduce the Company’s inventory to a new cost basis through a lower of cost or market adjustment.  Details on historical adjustments to inventory can be found in the Company’s most recent 10-K filing.
 

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

The major components of inventories are as follows:

  December 31, 2011 (Unaudited)  September 30, 2011 
       
Raw Material
 
$
188,903
  
$
382,452
 
Work in Process
  
98,244
   
77,961
 
Finished Goods
  
380,478
   
488,792
 
Inventory Reserve
  
(150,000
)
  
(150,000
)
Total Inventories
 
$
517,625
  
$
799,205
 
  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 materials,material, work in process, and finished goods.  Management has evaluated the Company’s inventory reserve based on historical experience and current economic conditions and determined that an inventory reserve of approximately $150,000 at DecemberMarch 31, 20112012 and September 30, 2011 was appropriate.  It is reasonably possible the inventory reserve will change in the near future.


Note 3. Line of Credit:

On September 22, 2011, the Company entered into a Secured Credit Agreement (“Line of Credit Four”) with the Lender.  This line increasesincreased 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 “Kolpin Sale”).  Line of Credit Four required the Company to repay a portion of the amountamounts 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 DecemberMarch 31, 2012 and September 30, 2011, the balance due under Line of Credit Four agreement was $647,040$930,400 and $3,643,600, respectively.

The Line of Credit contains 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 distributors without the consent of the Lender.  As of and for the three months ended DecemberMarch 31, 2012 and September 30, 2011, the Company was not in compliance with some of its covenants with the Lender.  On March 20, 2012, for all notes and lines of credit, the lender agreed to waive the covenant noncompliance by the Company.

 

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

Note 4.  Long-Term Debt:

Long-termLong- term debt consists of the following:

  December 31,  September 30, 
  2011 (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.
 
$
2,083,124
  
$
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.  Note was paid in full during the three months ended December 31, 2011.
  
-
   
261,718
 
         
Note -  Spencer Area Jobs Trust due in full March 2014, forgivable in full if the Company maintans required job levels.
  
60,000
   
60,000
 
         
Total
  
2,143,124
   
2,475,263
 
Less current maturities
  
(283,012
)
  
(441,718
)
Net
 
$
1,860,112
  
$
2,033,545
 
  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 

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

On March 20, 2012, for all notes and lines of credit, the lender agreed to waive the covenant noncompliance by the Company retroactively to September 30, 2011 and including the periods ending December 31, 2011 and March 31, 2012.2011.

On April 29, 2011, the Company entered into an agreement with the Spencer Area Jobs Trust (the “Trust”).  Under the terms of this agreement, the Trust advanced $60,000 to the Company under a loan which is forgivable if the Company employs no less than seventy full time employees as ofpeople on February 28, 2014.  If the Company does not employ seventy full-time employees at thatfull time people, the amount of the loan forgiven will equal $850 for each employment position filled.person employed retained.  The Company will extinguish this debt amount, if any, upon notice from the Trust.
 
 
 

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

Note 5. Earnings (Loss) Per Share:

The Company incurred net income of $1,663,105 for the three months ended December 31, 2011 and a net loss of  $309,080 for the three months ended December 31, 2010.  There were no common stock equivalents for the three and six months ended DecemberMarch 31, 20112012 or 2010.2011.

The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations:

 For the three months ended For the three months ended  For the three months ended   For the three months ended   
 December 31, 2011 (Unaudited) December 31, 2010  March 31, 2012 (Unaudited)   March 31, 2011 (Unaudited)   
                          
   Weighted     Weighted      Weighted     Weighted   
 Loss Average Shares Per share Loss Average Shares Per share  Net Income (Loss) Average Shares Per share Net Loss Average Shares Per share 
 (numerator) (denominator) amount (numerator) (denominator) amount  (numerator) (denominator) amount (numerator) (denominator) amount 
Basic and Diluted EPS
                          
Loss from continuing operations
 
$
(45,281
)
 
7,090,662
 
$
(0.01
)
 
$
(141,320
)
 
8,030,474
 
$
(0.01
)
 
$
(600,055
)
 
7,090,662
 
$
(0.08
)
 
$
(230,982
)
 
6,990,662
 
$
(0.03
)
                          
Net income/loss from discontinued operations
 
$
1,708,386
 
7,090,662
 
$
0.24
 
$
(167,760
)
 
8,030,474
 
$
(0.02
)
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
)

ATC Venture Group Inc
Notes to Condensed Consolidated Financial Statements

Note 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.

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 vesting schedule of the agreement.

For the three months ended DecemberMarch 31, 2012 and 2011, respectively,$-0- and 2010, $77,645 and $48,292, respectively, were$38,156 was recognized as total executive stock based compensation expense.  This expenseDuring the six months ended March 31, 2012, as all previously unrecognized stock based compensation was allocated $6,988 continuing operationsrecognized on December 31, 2011. For the six months ended March 31, 2012 and $70,6572011, respectively, $77,645 and $86,448 was recognized as total executive stock based compensation expense.  Due to discontinued operations for the three months endedwithin 3 years was $0 and $135,121 at March 31, 2012 and 2011, respectively.

On December 31, 2011, and $7,244 to continuing operations and $41,048 to discontinued operations forconcurrent with the year ended December 31, 2010.triggering event detailed in related contracts.  Remaining unrecognized executive stock based compensation expense expected to be recognized within three years was approximately $-0- and $175,000 at December 31, 2011 and 2010, respectively.

In the three months ended December 31, 2011, and concurrent with the 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 basedstock-based compensation expense was recognized during the three months endedas of December 31, 2011.
11


Director Stock Based Compensation

For the three months ended DecemberMarch 31, 2012 and 2011, $-0- and 2010, $39,793 and $1,249,$1,519, respectively, were recognized as total director stock based compensation expense. This expense was allocated $3,581 to continuing operations and $36,212 to discontinued operations forFor the threesix months ended DecemberMarch 31, 2012 and 2011, $39,793 and $187 to continuing operations and $1,062 to discontinued operations for the three months ended December 31, 2010.$2,768, respectively, were recognized as total director stock based compensation expense.   Unrecognized executive stock based compensation expense remaining was approximately $-0- and $17,000$15,124 at DecemberMarch 31, 20112012 and 2010,2011, respectively.

Subsequent to the year-end, and concurrent with the execution and completion of the Asset Purchase Agreement more fully disclosed in the Company’s 8-K filing dated September 1, 2011, the 50,000 restricted shares of Mr. Paul DeShaw, Mr. Lance Morgan and Mr. John P. Bohn were released from restriction and forfeiture.  All previously unrecognized director stock based compensation expense was expensed during the three months ended December 31, 2011.

Note 7. Going Concern:


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

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 DecemberMarch 31, 2011,2012, the Company generatedincurred a net gain (loss) of approximately
$1,663,000 of net income.599,000 and $1,064,000, respectively.  As of DecemberMarch 31, 2011,2012, the Company had an accumulated deficit of approximately $7,650,000.$8,248,000.  As discussed in Note 5,4, as of DecemberMarch 31, 2011,2012, the Company was in violation of covenants with its lender, a waiver for which was received.  If the Company is unable to generate profits and unable to continue to obtain financing or renew existing financing for its working capital requirements, it may have to curtail its business sharply or cease business altogether.  These unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or the amounts and classification of liabilities that might be necessary in the event the Company does not continue as a going concern.

The Company expects the existing cash balances, cash flow generated from operating activities, and the available borrowing capacity under the revolving line of credit 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 8 – Sale of Segment

On December 31, 2011, the brand “Cycle Country” and the ATV Accessoriesaccessories division were sold to Kolpin Outdoors, Inc. (“Kolpin”) for a sale price of up to $8,000,000, subject to certain adjustments.  $3,017,707 paid at closing with remaining funds contingent on future production and other terms.  Revenue will beA 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.  This agreement was fully executed onThe transaction closed effective December 31, 2011, as fully disclosed in the Company’s 8-K filing dated January 6, 2012.  Financial statement impacts for the sale were as follows for the three months ended December 31, 2011:

Balance Sheet
   
Property, plant, equipment, net
 $143,913 
Inventory
  702,905 
Intangibles, net
  34,416 
Total assets sold
  881,234 
     
Proceeds from sale applied directly to outstanding debt
  3,017,707 
     
Gain on sale
 $2,136,473 
12

There has been a recent dispute relating to the payment of a portion of the deferred and contingent purchase price due to the Company under the asset purchase agreement.  No portion of these contingent and deferred payments were recorded as revenuerecognized as of DecemberMarch 31, 2011.2012.

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 “ATC Venture Group Inc.” It alsoand changed the name of its subsidiary from “Cycle Country Accessories Corporation” to “Simonsen Iron Works Inc.”

On November 3, 2011, the Perf-Form segment was sold for $25,000.  Financial statement impacts of this sale were as follows for the three month period ending December 31, 2011:

Inventory sold $10,419 
Proceeds from sale  25,000 
Gain on sale $14,581 
 
Inventory Sold
  10,419 
Proceeds from sale
 $20,000 
Gain on sale
 $9,581 
Note 9 – Discontinued Operations

In the year ended September 30, 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 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.

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 1, 2011. Since this Product Line (ATV) was sold subsequent to September 30, 2011, it has been included in discontinued operations for all years presented.

13

See Note 8 for information on sales of the Perf-FormPerf-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, Perf-Form and Plazco and are as follows:

 For the three months ended December 31, 2011 (Unaudited) 
         For the three months ended March 31, 2012 (Unaudited) 
 ATV Plazco Perf-Form Total  Plazco Total 
Revenue
              
Sales- general
 
$
5,867,629
 
$
63,558
 
$
60
 
$
5,931,247
  
$
11,085
 
$
11,085
 
Discounts, returns & allowances
 
(387,777
)
 
(3,278
)
 
-
 
(391,055
)
 
-
 
-
 
Freight income
  
6,405
  
-
  
-
  
6,405
   
-
  
-
 
Total revenue
 
5,486,257
 
60,280
 
60
 
5,546,597
  
11,085.00
 
11,085.00
 
Cost of goods sold
  
3,606,302
  
35,387
  
(156
)
  
3,641,533
   
2,342
  
2,342
 
              
Gross profit
 
$
1,879,955
 
$
24,893
 
$
216
 
$
1,905,064
  
$
8,743
 
 
8,743
 
Selling, general, and administrative expenses
 
1,277,209
 
Interest expense, net
       
106,320
 
Gain on sale of segments and other assets
 
(2,221,851
)
Income tax expense
           
1,035,000
 
         
Net income from discontinued operations
     
$
1,708,386
 
         
         
       
0.907
 
         
       
0.845710297
 
 
For the three months ended December 31, 2010 (Unaudited)
 
         
 
ATV
 
Plazco
 
Perf-Form
 
Total
 
Revenue
         
Sales- general
 
3,718,693
 
77,553
 
28,867
 
3,825,113
 
Discounts, returns & allowances
 
(295,343
)
 
(4,098
)
 
(197
)
 
(299,638
)
Freight income
  
18,238
  
391
  
153
  
18,782
 
Total revenue
 
3,441,588.00
 
73,846.00
 
28,823.00
 
3,544,257.00
 
Cost of goods sold
  
2,713,103
  
63,416
  
36,545
  
2,813,064
 
         
Gross profit (loss)
 
728,485
 
10,430
 
(7,722
)
 
731,193
 
              
Selling, general, and administrative expenses
Selling, general, and administrative expenses
 
943,050
    
7,322
 
Interest expense, net
       
83,937
    
453
 
Loss on sale of assets
       
23,142
 
Other income
       
(27,075
)
Income tax benefit
           
(124,101
)
Other (income) expense, net
   
(217
)
              
 
Net loss from discontinued operations
     
$
(167,760
)
     
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 
 
1416

 


  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 six month periods ended March 31, 2012, the Company recorded income tax expense of $0 and $1,035,000 respectively.  The income tax expense (benefit)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 months ending Decembermonth period ended March 31, 2011 and 2010 consists2012 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 the following:
  December 31,  December 31, 
  2011  2010 
Change in tax allowance  57,000   - 
Deferred tax expense (benefit)  984,000   (146,000)
Total tax expense (benefit) $1,035,000  $(146,000)
         
Deferred tax assets and liabilities as of DecemberMarch 31, 20112012 and September 30, 2011, are comprised of the following:deferred tax asset valuation allowance was $465,000 and $200,000, respectively.
 
  December 31,  September 30, 
  2011  2011 
Deferred Tax Assets:      
Capitalized fees $33,000  $33,000 
Accrued expenses  205,000   227,000 
Allowance for uncollectible accounts  26,000   26,000 
Charitable contributions  -   15,000 
NOL carryforward  1,227,000   2,137,000 
State NOL carryforward  31,000   68,000 
Business credit carryforward  239,000   187,000 
Total Deferred Assets  1,761,000   2,693,000 
         
Deferred Tax Liability:        
Property and equipment  (1,992,000)  (1,992,000)
Less valuation allowance allowance  (251,000)  (200,000)
Net Deferred Tax Asset (Liability) $(482,000) $501,000 
         
15

  December 31,  September 30, 
  2011  2010 
Current Assets $552,000  $625,000 
Long-Term Liabilities  (1,034,000)  (124,000)
Net Deferred Tax Asset (Liability) $(482,000) $501,000 
         

TheFor the three month and six month periods ended March 31, 2011, the Company recorded an income tax provisionbenefit of $1,035,000approximately $674,000 and $846,000, respectively.  Of these benefit amounts, $550,376 and $661,892 was recorded net within discontinued operations for the three monthsmonth and six month periods ended DecemberMarch 31, 2011, is included in discontinued operations. For the three months ended December 31, 2010, $124,101 of the tax benefit was included in discontinued operations.  The remaining $21,899 was a benefit for continuing operations.respectively.


 

Cautionary Note about Forward Looking Statements.

Certain matters discussed in this Form 10-Q are “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. These forward-looking statements can generally be identified as such because they include phrases such as the Company “expects,” “believes,” “anticipates” or other words of similar meaning. Similarly, statements that describe the Company’s future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to 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” in Item 1A of Form 10-K for the year ended September 30, 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 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”) and should be read in conjunction with our consolidated financial statements as of September 30, 2011, and the fiscal year then ended, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, both contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 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.

The economic environment is showing signs of improvement and one turnaround plan has shown strong signs as well.  The Company has remained focused on strategy and working hard to execute its business plans.  The response to those challenges has taken time to show its effect.  The internal reorganization and initiatives started by the new management team in early 2011 have eliminated unprofitable and or unnecessary aspects of the business, which allowed us to focus our efforts on our core customers receiving core products from our core people.

Looking ahead to the balance of fiscal 2012, management is cautiously projecting a slight rebound in revenues and margins as new products and effective marketing initiatives continue to be the focus of management and the entire Company.  The Company anticipates gross profit margins will be within the range of at least 25% of revenue by the end of the fiscal year.

Management has, and will continue to seek out and implement production efficiencies and cost reduction initiatives wherever possible. We project selling, general and administrative expenses by the end of fiscal 2012 to continue decline as we continue our focus on cost reduction initiatives and focusing on internal efficiencies, all while maintaining a responsive and courteous customer service standard.  Our goals for showing greater improvement are likely to not be achieved until the end of the fiscal year due to efficiencies lost during the transition between old product lines and expansion of our contract manufacturing.
 


 
Overview for the Three Months Ended DecemberMarch 31, 20112012 and 20102011 (Unaudited)

The following is a summary of the results of operations for the three months ended DecemberMarch 31, 2012 and March 31, 2011 and December 31, 2010 (Unaudited):

  For the three months ended December 31, 2011 (Unaudited)  For the three months ended December 31, 2010 (Unaudited) 
  Continuing Operations  Discontinued Operations  Total  Continuing Operations  Discontinued Operations  Total 
STATEMENT OF OPERATIONS                
Sales $571,803  $5,546,597  $6,118,400  $693,049  $3,544,257  $4,237,306 
Cost of goods sold  492,991   3,641,533   4,134,524   657,664   2,813,064   3,470,728 
Gross profit  78,812   1,905,064   1,983,876   35,385   731,193   766,578 
                         
Sales, general & admin  113,133   1,277,209   1,390,342   183,792   943,050   1,126,842 
Income (Loss) from operations  (34,321)  627,855   593,534   (148,407)  (211,857)  (360,264)
                         
Other income (expense)  (10,960)  2,115,531   2,104,571   (14,812)  (80,004)  (94,816)
Net income (loss) pre tax  (45,281)  2,743,386   2,698,105   (163,219)  (291,861)  (455,080)
                         
Net income (loss) $(45,281) $1,708,386  $1,663,105  $(102,419) $(167,760) $(309,080)
  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 DecemberMarch 31, 2011,2012, the Company reported a net profitloss of $1,663,105,$598,870 or 27.18%(30.61%) of total revenue. This compares to the three months ending DecemberMarch 31, 20102011 during which the Company recorded net loss of $309,080$1,351,711 or (7.3%(204.74%) of total revenue. Total revenues for the period increased approximately 30.74% over the same period in fiscal year 2010.  Continuing operating sales decreasedfrom continuing operations more than doubled for the three month periodmonths ended DecemberMarch 31, 2011 to $571,803  as2012 compared to the three month periodmonths ended DecemberMarch 31, 2010 with continuing2011.  This increase represents the build-up of the new lead operating sales of $693,049.  This decrease was due to the gap between transition outsegment and wrap-up of discontinued activities andoperations. Profitability was still lagging in the transition in of new activities.  Other income increased due to the $2,136,473 gain on sale of the ATV Accessories segment.  Continuing operating sales were down due to segment declining projects below profit goals.  Furthermore, profitability of operating segment was downthree months ended March 31, 2011 due to efficiencies temporarily lost in transition between discontinued operations and expansion of operating division.the contract manufacturing subsidiary.
 

BUSINESS SEGMENTS

The following is a summary of the results of operations by segment for the three months ended December 31, 2011 and December 31, 2010 (Unaudited):

  For the three months ended December 31, 2011 (Unaudited)  For the three months ended December 31, 2010 (Unaudited) 
  Continuing Operations  Discontinued Operations  Total  Continuing Operations  Discontinued Operations  Total 
                   
Total revenue by segment                  
CCAC ATV $-  $5,486,257  $5,486,257  $-  $3,441,588  $3,441,588 
Plazco  -   60,280   60,280   -   73,846   73,846 
Perf-Form  -   60   60   -   28,823   28,823 
Imdyne  571,803   -   571,803   693,049   -   693,049 
Total revenue by segment $571,803  $5,546,597  $6,118,400  $693,049  $3,544,257  $4,237,306 
                         
Gross profit (loss) by segment                     
CCAC ATV $-  $1,879,955  $1,879,955  $-  $728,485  $728,485 
Plazco  -   24,893   24,893   -   10,430   10,430 
Perf-Form  -   216   216   -   (7,722)  (7,722)
Imdyne  78,812   -   78,812   35,385   -   35,385 
Gross profit  78,812   1,905,064   1,983,876   35,385   731,193   766,578 
                         
Sales, general & admin  113,133   1,277,209   1,390,342   183,792   943,050   1,126,842 
Interest expense, net  10,960   106,320   117,280   14,812   83,937   98,749 
(Gain) loss on sale of assets  -   (2,221,851)  (2,221,851)  -   23,142   23,142 
Other (inc)/exp, net  -   -   -   -   (27,075)  (27,075)
Income tax expense (benefit)  -   1,035,000   1,035,000   (21,899)  (124,101)  (146,000)
                         
Net income (loss) $(45,281) $1,708,386  $1,663,105  $(141,320) $(167,760) $(309,080)

As of December 31, 2011, the Company operates one reportable business segment, as compared to four segments at December 31, 2010.  Two segments were sold in the three month period ending December 31, 2011 and one is classified as discontinued operations.
Revenue

Revenue increased approximately 44.39% or $,1881,904 for the three months ended December 31, 2011 as compared to the three months ended December 31, 2010 in the Cycle Country ATV Accessories segment. This increase was due to the successful in sale and production prior to the close of the sale on the segment.

Net revenue for the Plazco segment decreased by approximately 18.37% or $13,566 for the three months ended December 31, 2011 as compared to the three months ended December 31, 2010.  This decrease was due to the continual reduction of effort in a discontinuing operation.

Revenue for the Perf-Form segment decreased approximately $28,763 for the three months ended December 31, 2011 from the three months ended December 31, 2010.  This decrease was due to the sale of the segment.  See note 8 for additional information on sale.

Other income increased to $2,221,851 for the three months ended December 31, 2011 compared to a loss of $23,142 for the three months ended December 31, 2010.  This increase can be attributed to the gain on sale of the assets of these discontinued segments on December 31, 2011, of $2,143,979.

 
BUSINESS SEGMENTS

The Imdynefollowing is a summary of the results of operations for the six months ended March 31, 2012 and March 31, 2011 (Unaudited):

  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 six months ended March 31, 2012, the Company reported net income of $1,064,235 or 42.09% of revenue. This compares to the six months ending March 31, 2011 during which the Company recorded net loss of $1,660,790 or (122.72%) of revenue. Net income increased as well.  The majority of these changes relate to a $2,143,979 gain on sale of the ATV segment, reportedas this sale spiked revenues in the first quarter of fiscal year 2012.  Operating sales were down due to segment declining projects below profit goals.

As of March 31, 2012, the Company operates four reportable business segments, two segments were sold in in the six month period ended March 31, 2012 and one that is held in discontinued operations.
Simonson Iron Works Inc., on wholly-owned subsidiary is engaged in contract manufacturing for original equipment manufacturers (OEM's) and other businesses in various industries. 
Revenue

Revenue increased approximately $571,803 and $693,049196% or $1,300,000 for the three months ended DecemberMarch 31, 2012 as compared to the three months ended March 31, 2011 in the Simonsen 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 to 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 ATV Accessories segment and December 31, 2010, respectively.  This decrease waspartially due to strategic reductionelimination of low profit customers.  Profitability results from this change are expected by fourth quarterless profitable activities.

Cost of Goods Sold

The following table details components of direct costs of goods sold by segment as a percentage of sales:

 Simonsen Ironworks Inc. 
 For the Three Months Ended  For the Six Months Ended 
 For the three months ended December 31,  June 30,  June 30, 
 2011  2010  2012 (Unaudited)  2011 (Unaudited)  2012 (Unaudited)  2011 Unaudited 
 Imdyne  Imdyne             
Materials  58.11%  50.86%  69.90%  64.26%  66.58%  59.63%
Direct labor  7.20%  6.59%  7.74%  7.66%  7.62%  7.13%
Applied overhead  17.79%  19.55%
Mfg variance  -3.03%  1.04%  -1.20%  1.56%
Subcontract  0.42%  1.17%  0.54%  1.19%  0.51%  1.18%
Mfg variance  5.09%  3.99%
Unapplied overhead  -3.84%  8.21%
Other  1.46%  4.52%
Total costs of goods sold  86.22%  94.89%
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%
  For the three months ended December 31, 2011 
  ATV  Plazco  Perf-Form  Total Disc Ops 
Materials  50.88%  12.43%  4933.33%  50.52%
Direct labor  4.50%  4.88%  520.00%  4.51%
Applied overhead  12.47%  24.30%  1480.00%  12.61%
Subcontract  0.25%  9.84%  175.00%  0.35%
Mfg variance  0.31%  8.00%  0.00%  0.40%
Unapplied overhead  -3.14%  -2.37%  -326.67%  -3.13%
Other  0.45%  1.62%  -7041.67%  0.39%
Total costs of goods sold  65.73%  58.70%  -260.00%  65.65%

  For the three months ended December 31, 2010 
  ATV  Plazco  Perf-Form  Total Disc Ops 
Materials  49.73%  25.68%  35.14%  49.11%
Direct labor  4.66%  6.70%  18.59%  4.82%
Applied overhead  14.12%  25.59%  51.06%  14.66%
Subcontract  0.99%  11.57%  7.11%  1.26%
Mfg variance  0.43%  7.53%  3.03%  0.60%
Unapplied overhead  7.30%  7.31%  11.75%  7.34%
Other  1.60%  1.49%  0.11%  1.59%
Total costs of goods sold  78.83%  85.88%  126.79%  79.37%
The cost of materials as a percentage of revenue increased for Simonsen Ironworks Inc., while total discontinued operations and decreased for Imdyne.  The costcosts of materialgoods sold for the Cycle Country ATV Accessories segment increased from approximately 49.7% for the three months ended December 31, 2010 to approximately 50.9% for the three months ended December 31, 2011.  The Plazco segment decreased in material costs to 12.4% of net revenue for the three months ended December 31, 2011 from 25.7% for the three months ended December 31, 2010.  

Materials as a percentage of sales for Imdyne also increased 7.2% for the three months ended December 31, 2011, compared to the three months ended December 31, 2010.

Direct labor as a percentage of sales increased for Imdyne and Perf-Form segments.  These increases are attributed to lost efficiencies during the transitional period.  The other two segments were not as impacted due to their sale in the three months ended December 31, 2011.

Manufacturing overhead as a percentage of sales increased for the Perf-Form segment but decreased for the other segments.  Total manufacturing overhead applied decreased as a percentage of sales by 2.36% approximately after burden allocation for the three months ended December 31, 2011 as comparedrevenues.  This change was due to the three months ended December 31, 2010.strategic management decisions made for lean production.

Expenses

Our selling, general and administrative expenses were approximately $1,390,000$647,000 and $1,130,000$240,000 for the three months ended DecemberMarch 31, 20112012 and December 30, 2010,March 31, 2011, respectively.

The significant changes in expenses for the three months ended DecemberMarch 31, 20112012 as compared to the three months ended DecemberMarch 31, 20102011 were:

·  Severance expense increased approximately $150,000 duePrior to terminationsallocation between segments, the two major changes in selling, general and related costs incurred inadministrative expenses for the three months ended Decembermonth period ending March 31, 2011,2012 compared to the three months ended Decembermonth period ending March 31, 2010.2011were as follows:

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

·  Compliance costs increased approximately $200,000 due to costs related to restatements of prior period data as all previously unrecognized stock comp became recognizable at December 31, 2011 upon the sale of the ATV Accessories segment, as this was a vesting triggering eventdisclosed in the stock compensation agreements.recent filings.

 
 
2021

 
·  Commission expense increased approximately $190,000 due to the change in the management compensation structure focusing on variable pay based on performance goals for the three months ended December 31, 2011 compared to the three months ended December 31, 2010.

·  Professional fees increased approximately $60,000 due, in part, to fees associated with SEC filing requirements, and legal and audit expenses involved with the restatements filed in April 2012 that were worked on extensively in the three months ended December 31, 2011.

Liquidity and Capital Resources

Overview

Cash and cash equivalents were $84,845$16,286 as of DecemberMarch 31, 20112012 compared to $25,185 as of September 30, 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 $861,295$991,334 as of DecemberMarch 31, 20112012 compared to $3,608,286$3,218,286 as of September 30, 2011.  The working capital ratio was .86.72 and .53.56 as of DecemberMarch 31, 20112012 and September 30, 2011, respectively.

The following table summarizes the Company’s sources and uses of cash and cash equivalents for the three months ended December 31:periods indicated:

  2011 (Unaudited)  2010 (Unaudited) 
       
Net cash provided by operating activities of continuing operations $857,036  $1,118,561 
Net cash used for investing activities of continuing operations  -   (28,744)
Net cash used for financing activities of continuing operations  (363,202)  (994,647)
Net cash provided by (used for) discontinued operations  (434,174)  9,712 
  $59,660  $104,882 
  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’s principal uses of cash are to pay operating expenses, acquire necessary equipment and to make debt service payments.  During the threesix months ended DecemberMarch 31, 2011,2012, the Company used cash to make principal payments of approximately $330,000$404,000 against long-term debt and paid down approximately $2,995,000$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 investment for at least the next three months.

As of DecemberMarch 31, 20112012 and as of September 30, 2011, the Company was in violation of its current ratio and term debt coverage ratio covenants in its loan agreements with its lender.  As of March 20, 2012, the Company and its lender entered into a Secured Credit Agreement and Waiver.  Under the terms of this Agreement, the lender agreed to waive the noncompliance by the Company with the required ratio of current assets to current liabilities as of DecemberSeptember 30, 2011, March 31, 20112012 and the Company’s anticipated noncompliance with the required ratio of current assets to current liabilities through October 1, 2012 and further, to waive the Company’s noncompliance with the Term Debt Coverage Ratio as of September 30, 2011, DecemberMarch 31, 2011,2012, and the Company’s anticipated noncompliance with the Term Debt Coverage Ratio through October 1, 2012.
 
 

Management expects to be able to comply with the requirements of the Secured Credit Agreement and has begun the process to secure a commitment 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 the lender foreclosing on its security interest resulting in a significant disruption to the 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 preparation of our financial statements which have been prepared in accordance with accounting principles generally accepted in the United States of America, requires us 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 assumptions that require complex, subjective judgmentsjudgements by management that can materially impact the portrayal of our financial condition and results of operations:operations, useful lives of fixed assets; impairment of long-lived assets;asset, valuation of inventory, deferred taxes and deferral tax assets, and inventory;warranties and allowance for doubtful accounts.   These significant accounting principles are more fully described in “Management’sManagements Discussion and Analysis of Financial Condition and Results of Operations—Operations - Critical Accounting Policies”Policies in our Annual Report on Form 10-K for the year endedneeded September 30, 2011.
 


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

ITEM 4.  Controls and Procedures

Disclosure Controls and Procedures

Based on management’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’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 Exchange 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 recent 2010 Form 10-K/A and 2011 Form 10-Q/10Q/A’s for the first three quarters, our management, including our current Chief Executive Officer and Chief Financial Officer, evaluatedre-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’s stock-based compensation plans and customer incentive programs, our disclosure controls and procedures continued to be ineffective as of DecemberMarch 31, 2011.2012.  

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 DecemberMarch 31, 2011.2012. Our management is in the process of addressing the above material weakness and has utilized the services of an outside accounting firm to assist with this process. Additionally, on April 1, 2012, we hired a 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 effectively.


ITEM 1.  Legal Proceedings

Please refer to the disclosure set forth in Note 12 to our Condensed Consolidated Financial Statements included in this report.

ITEM 1A.  Risk Factors

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


(31.1)  Certification of Principal Executive Officer pursuant to Rule 13a-14 or 15d-14 of the Securities Exchange Act of 1934, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.

(31.2)  Certification of 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 Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on May 15, 201217, 2012.

 CYCLE COUNTRY ACCESSORIES CORP. ATC Venture Group Inc 
     
  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 Signature Title Date
     
/s/ Robert Davis Chief Financial Officer, Chief Operating Officer, Chief Executive Officer, Treasurer, Secretary and Director May 15,17, 2012
Robert Davis (principal executive, financial and accounting officer)  

 
2526