U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 2001
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 333-68570
Cycle Country Accessories Corp.
(Exact Name of Small Business Issuer as Specified in Its Charter)
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Nevada 42-1523809
(State of incorporation) (I.R.S. Employer Identification No.)
2188 Highway 86
Milford, Iowa 51351
(Address of principal executive offices)
Registrant's telephone number: (712) 338-2701
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Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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 ----
The number of shares of the registrant's common stock, par value
$0.0001 per share, outstanding as of February 4, 2002 was 3,698,250
and there were 121 stockholders of record.
1
Cycle Country Accessories Corp. Index to Form 10-QSB
Part 1 Financial Information Page
----
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet - December 31,2001............2
Condensed Consolidated Statements of Income - Three Months Ended
December 31, 2001 and 2000.........................................3
Condensed Consolidated Statements of Cash Flows - Three Months
Ended December 31, 2001 and 2000...................................4
Notes to Condensed Consolidated Financial Statements...............5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................9
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K..................................12
Signatures.................................................................13
2
Part I. Financial Information
Item 1. Financial Statements
Cycle Country Accessories Corp. and Subsidiary
Condensed Consolidated Balance Sheet
December 31, 2001
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 572,980
Accounts receivable, net 1,297,323
Inventories 2,288,986
Taxes receivable 100,517
Deferred income taxes 83,843
Prepaid expenses and other 8,410
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Total current assets 4,352,059
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Property, plant, and equipment, net 2,451,713
Other assets 79,980
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Total assets $ 6,883,752
=============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 587,405
Accrued expenses 623,768
Income taxes payable 192,198
Accrued interest payable 4,714
Current portion of bank note payable 840,977
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Total current liabilities 2,249,062
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Long-Term Liabilities:
Bank note payable, less current portion 3,392,167
Deferred income taxes 28,483
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Total long-term liabilities 3,420,650
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Total liabilities 5,669,712
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Stockholders' Equity:
Preferred stock, $.0001 par value; 20,000,000 shares
authorized; no shares issued or outstanding -
Common stock, $.0001 par value; 100,000,000 shares
authorized; 3,698,250 shares issued and outstanding 370
Additional paid-in capital 994,641
Retained earnings 219,029
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Total stockholders' equity 1,214,040
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Total liabilities and stockholders' equity $ 6,883,752
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See accompanying notes to the condensed consolidated financial statements.
Page 2
3
Cycle Country Accessories Corp. and Subsidiary
Condensed Consolidated Statements of Income
Three Months Ended December 31, 2001 and 2000
(Unaudited)
2001 2000
-------------- ------------
Revenues:
Net sales $ 5,038,219 $ 4,103,050
Freight income 26,253 33,095
-------------- ------------
Total revenues 5,064,472 4,136,145
-------------- ------------
Cost of goods sold (3,526,021) (2,866,540)
-------------- ------------
Gross profit 1,538,451 1,269,605
-------------- ------------
Selling, general, and administrative
expenses (944,674) (775,782)
-------------- ------------
Income from operations 593,777 493,823
-------------- ------------
Other Income (Expense):
Interest expense (64,068) (452)
Interest income 1,495 8,137
Miscellaneous 2,681 31,838
-------------- ------------
Total other income (expense) (59,892) 39,523
-------------- ------------
Income before provision for
income taxes 533,885 533,346
-------------- ------------
Provision for income taxes as a
C corporation (192,198) -
-------------- ------------
Net income $ 341,687 $ 533,346
============== ============
Weighted average shares outstanding:
Basic 3,698,250 3,698,250
============== ============
Diluted 4,098,250 4,098,250
============== ============
Earnings per share:
Basic $ 0.09 $ 0.14
============== ============
Diluted $ 0.08 $ 0.13
============== ============
Pro forma net income data (1):
Net income reported $ 533,346
Provision for income taxes (192,005)
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Pro forma net income $ 341,341
============
Pro forma weighted average shares outstanding (1):
Basic 3,698,250
============
Diluted 4,098,250
============
Pro forma earnings per share (1):
Basic $ 0.09
============
Diluted $ 0.08
============
(1) The pro forma reflects the effect of the transaction in which all
of the outstanding stock of Cycle Country Accessories Corp. (an Iowa
corporation) was purchased by Cycle Country Accessories Corp. (a
Nevada corporation), a C corporation. As a result, Cycle Country
Accessories Corp. (an Iowa corporation) converted from an S corporation
to a C corporation and a provision for income taxes has been included
due to this conversion.
See accompanying notes to the condensed consolidated financial statements.
Page 3
4
Cycle Country Accessories Corp. and Subsidiary
Condensed Consolidated Statements of Cash Flows
Three Months Ended December 31, 2001 and 2000
(Unaudited)
2001 2000
-------------- -----------
Cash Flows from Operating Activities:
Net income $ 341,687 $ 533,346
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 64,203 52,611
Inventory reserve 18,000 -
Gain on sale of equipment (1,324) -
(Increase) decrease in assets:
Accounts receivable, net (239,040) (349,018)
Inventories 331,728 284,783
Prepaid expenses and other 5,760 26,681
Increase (decrease) in liabilities:
Accounts payable (471,166) 100,809
Accrued expenses 323,231 128,577
Income taxes payable 192,198 -
Accrued interest payable 1,095 (1,230)
-------------- ------------
Net cash provided by operating activities 566,372 776,559
-------------- ------------
Cash Flows from Investing Activities:
Purchase of equipment (66,313) (83,793)
Proceeds from sale of equipment 6,200 -
Payment received on notes receivable - 1,000
-------------- ------------
Net cash used in investing activities (60,113) (82,793)
-------------- ------------
Cash Flows from Financing Activities:
Payments on bank note payable (207,368) -
Payments on short-term note payable - (100,000)
Distributions paid to stockholders as
an S corporation - (205,600)
-------------- ------------
Net cash used in financing activities (207,368) (305,600)
-------------- ------------
Net increase in cash and cash equivalents 298,891 388,166
Cash and cash equivalents, beginning of
period 274,089 368,797
-------------- ------------
Cash and Cash Equivalents, end of
period $ 572,980 $ 756,963
============== ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 62,973 $ 1,682
============== ============
Income taxes $ - $ -
============== ============
See accompanying notes to the condensed consolidated financial statements.
Page 4
5
Cycle Country Accessories Corp. and Subsidiary
Notes to Condensed Consolidated Financial Statements
Three Months Ended December 31, 2001 and 2000
(Unaudited)
1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial
statements for the three months ended December 31, 2001 and 2000,
respectively, have been prepared in accordance with generally
accepted accounting principles for interim financial information.
Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, 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 December 31,
2001 and 2000 are not necessarily indicative of the results to be
expected for the full year. These interim consolidated financial
statements should be read in conjunction with the September 30, 2001
consolidated financial statements and related notes included in the
Company's Annual Report on Form 10-KSB for the year ended September
30, 2001.
In November 2001, the Emerging Issues Task Force released Issue No.
01-09, Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor's Products) (EITF 01-09). Upon
adoption of EITF 01-09 on January 1, 2002, the Company will be
required to classify certain payments to its customers as a reduction
of sales. The Company currently classifies these payments as
selling, general, and administrative expenses in its consolidated
statements of income. Upon adoption of EITF 01-09, prior period
amounts of $253,048 and $189,417 as of the three months ended
December 31, 2001 and 2000, respectively, will be reclassified.
Because adoption of EITF 01-09 will solely result in reclassification
within the consolidated statements of income, there will be no impact
on the Company's financial condition, operating income, or net
income.
2. Inventories:
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out method. The major
components of inventories at December 31, 2001 are summarized as
follows:
Raw materials $ 1,152,755
Work in progress 28,086
Finished goods 1,108,145
--------------
Total inventories $ 2,288,986
==============
3. Accrued Expenses:
The major components of accrued expenses at December 31, 2001 are
summarized as follows:
Distributor rebate payable $ 421,073
Accrued salaries and related benefits 154,186
Accrued warranty expense 32,000
Royalties payable 16,509
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Total accrued expenses $ 623,768
==============
4. Earnings Per Share:
Basic earnings per share ("EPS") is calculated by dividing net income
by the weighted-average number of common 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 warrants to issue common stock were exercised.
Page 5
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Cycle Country Accessories Corp. and Subsidiary
Notes to Condensed Consolidated Financial Statements
Three Months Ended December 31, 2001 and 2000
(Unaudited)
4. Earnings Per Share, Continued:
The following is a reconciliation of the numerators and denominators
of the basic and diluted EPS computations for the three months ended
December 31, 2001 and 2000:
For the three months ended December 31, 2001
--------------------------------------------
Income Shares Per-share
(numerator) (denominator) amount
--------------- -------------- -------------
Basic EPS
Income available to common stockholders $ 341,687 3,698,250 $ 0.09
Effect of Dilutive Securities
Warrants - 400,000 -
--------------- -------------- -------------
Diluted EPS
Income available to common stockholders $ 341,687 4,098,250 $ 0.08
=============== ============== =============
For the three months ended December 31, 2000
--------------------------------------------
Income Shares Per-share
(numerator) (denominator) amount
--------------- -------------- -------------
Basic EPS
Income available to common stockholders $ 533,346 3,698,250 $ 0.14
Effect of Dilutive Securities
Warrants - 400,000 -
--------------- -------------- -------------
Diluted EPS
Income available to common stockholders $ 533,346 4,098,250 $ 0.13
=============== ============== =============
5. Income Taxes:
The Company converted to a C corporation effective August 21, 2001.
Prior to August 21, 2001, the Company had elected to be taxed under
the provisions of Subchapter S of the Internal Revenue Code. Under
these provisions, the stockholders reported their proportionate share
of the Company's income on their individual tax returns. Therefore,
no provision or liability for federal or state income taxes has been
included in the Condensed Consolidated Financial Statements prior to
August 21, 2001.
Page 6
7
Cycle Country Accessories Corp. and Subsidiary
Notes to Condensed Consolidated Financial Statements
Three Months Ended December 31, 2001 and 2000
(Unaudited)
6. Segment Information:
Segment information has been presented on a basis consistent with how
business activities are reported internally to management.
Management solely evaluates operating profit by segment by direct
costs of manufacturing its products without an allocation of indirect
costs. In determining the total revenues by segment, freight income
and sales discounts are not allocated to each of the segments for
internal reporting purposes. The Company has two operating segments
which assemble, manufacture, and sell a variety of products: ATV
Accessories and Plastic Wheel Covers. ATV Accessories is engaged in
the design, assembly, and sale of ATV accessories such as snowplow
blades, lawnmowers, spreaders, sprayers, tillage equipment, winch
mounts, and utility boxes. Plastic Wheel Covers manufactures and
sells injection-molded plastic wheel covers for vehicles such as golf
carts, lawnmowers, and light-duty trailers. 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-KSB for the year ended September
30, 2001. Sales of snowplow blades comprised approximately 81% and
79% of ATV Accessories revenues during the three months ended
December 31, 2001 and 2000, respectively. In addition, sales of
snowplow blades comprised approximately 76% and 73% of the Company's
consolidated total revenues during the three months ended December
31, 2001 and 2000, respectively.
The following is a summary of certain financial information related
to the two segments during the three months ended December 31, 2001 and 2000:
2001 2000
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Total revenues by segment
ATV Accessories $ 4,786,312 $ 3,798,821
Plastic Wheel Covers 423,122 417,624
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Total revenues by segment 5,209,434 4,216,445
Freight income 26,254 33,095
Sales allowances (171,216) (113,395)
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Total revenues $ 5,064,472 $ 4,136,145
============= =============
Operating profit by segment
ATV Accessories $ 1,850,060 $ 1,460,385
Plastic Wheel Covers 287,907 292,954
Freight income 26,254 33,095
Sales allowances (171,216) (113,395)
Factory overhead (454,554) (403,434)
Selling, general, and administrative (944,674) (775,782)
Interest income (expense), net (62,573) 7,685
Other income (expense), net 2,681 31,838
Provision for income taxes (192,198) -
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Net income $ 341,687 $ 533,346
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Page 7
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Cycle Country Accessories Corp. and Subsidiary
Notes to Condensed Consolidated Financial Statements
Three Months Ended December 31, 2001 and 2000
(Unaudited)
6. Segment Information, Continued:
The following is a summary of the Company's revenue in different
geographic areas during the three months ended December 31, 2001 and 2000:
2001 2000
-------------- --------------
United States of America $ 4,685,095 $ 3,966,199
Other countries 379,377 169,946
-------------- --------------
Total revenue $ 5,064,472 $ 4,136,145
============== ==============
As of December 31, 2001, all of the Company's long-lived assets are
located in the United States of America.
ATV Accessories sales to major customers, which exceeded 10% of net
revenues, accounted for approximately 19.5%, 16.9%, 13.2%, and 10.7%
each of net revenues during the three months ended December 31, 2001,
and approximately 16.9%, 16.7%, and 15.0% each of net revenues during
the three months ended December 31, 2000. Plastic Wheel Covers did
not have sales to any individual customer greater than 10% of total
revenues during the three months ended December 31, 2001 or 2000.
Page 8
9
Impact of New Accounting Standards
As more fully described in Note 1 of the Notes to Condensed
Consolidated Financial Statements, on January 1, 2002, the Company is
required to adopt EITF 01-09. For a discussion of the impact of this
new accounting standard upon the Company, see Note 1.
Special Note Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (the "Reform
Act") provides a safe harbor for forward-looking statements made by
or on behalf of the Company. The Company and its representatives
may, from time to time, make written or verbal forward-looking
statements, including statements contained in the Company's filings
with the Securities and Exchange Commission and in its reports to
stockholders. Generally, the inclusion of the words "believe",
"expect", "intend", "estimate", "anticipate", "will", and similar
expressions identify statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934 and
that are intended to come within the safe harbor protection provided
by those sections.
All statements addressing operating performance, events, or
developments that the Company expects or anticipates will occur in
the future, including statements relating to sales growth, earnings
or earnings per share growth, and market share, as well as statements
expressing optimism or pessimism about future operating results (in
particular, statements under Part I, Item 2, Management's Discussion
and Analysis of Financial Condition and Results of Operations),
contain forward-looking statements within the meaning of the Reform
Act. The forward-looking statements are and will be based upon
management's then-current views and assumptions regarding future
events and operating performance, and are applicable only as of the
dates of such statements but there can be no assurance that the
statement of expectation or belief will result or be achieved or
accomplished. In addition, the Company undertakes no obligation to
update or revise any forward-looking statements, whether as a result
of new information, future events, or otherwise.
By their nature, all forward-looking statements involve risk and
uncertainties. Actual results may differ materially from those
contemplated by the forward-looking statements for a number of
reasons, including but not limited: competitive prices pressures at
both the wholesale and retail levels, changes in market demand,
changing interest rates, adverse weather conditions that reduce sales
at distributors, the risk of assembly and manufacturing plant
shutdowns due to storms or other factors, the impact of marketing and
cost-management programs, and general economic, financial and
business conditions.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following is a discussion and analysis of our results of
operations and our liquidity and capital resources and should be read
in conjunction with the Condensed Consolidated Financial Statements
and the related Notes thereto included elsewhere in this filing. 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. See "Special Note Regarding
Forward-Looking Statements" included elsewhere in this filing.
Additional risk factors are also identified in our annual report to
the Securities and Exchange Commission filed on Form 10-KSB and in
other SEC filings.
OVERALL RESULTS OF OPERATIONS - Three Months Ended December 31, 2001 and 2000
-----------------------------------------------------------------------------
Revenues for the three months December 31, 2001 increased $928,327,
or 22.4%, to $5,064,472 from $4,136,145 for the three months ended
December 31, 2000. Cost of goods sold increased $659,481, or 23.0%,
to $3,526,021 for the three months ended December 31, 2001 from
$2,866,540 for the three months ended December 31, 2000.
Additionally, gross profit as a percentage of revenue was 30.4% for
the first quarter ended December 31, 2001 compared to 30.7% for the
first quarter ended December 31, 2000. The increase in revenues
during the first quarter ended December 31, 2001 is mainly
attributable to an increase in unit sales volume of our mainstay
product, Snowplow Blades, and our Winches. The slight decrease of
0.3% in gross profit is primarily the result of a price increase
incurred in our ironworks, the main product component used in
assembly, and the establishment of an obsolescence reserve for the
Plastic Wheel Cover business segment. Both of these elements will be
factored into the Company's product pricing structure in the fall of
2002. These increases were offset, somewhat, by a reduction in rent
of approximately $56,000 that is included as part of the overhead
expenses allocated to cost of goods sold.
Page 9
10
Selling, general, and administrative expenses increased $168,892, or
21.8%, to $944,674 for the three months ended December 31, 2001 from
$775,782 for the three months ended December 31, 2000. The increase
in operating expenses is a result of additional spending of
approximately $47,000 in salaries, commissions and other related
benefits, approximately $64,000 in distributor rebates, increased
advertising of approximately $31,000, approximately $32,000 in
freight costs, and approximately $15,000 in office related expenses.
The increases were offset by a reduction in rent expense of
approximately $30,000 due to the Company acquiring its operating
facility (which consisted of land and building) from certain
stockholders that was previously leased under an operating lease
during the fourth quarter of fiscal 2001.
Interest and miscellaneous income decreased approximately $35,800
from the first quarter of fiscal 2001 to the first quarter of 2002.
The decrease is primarily due to a one-time consulting fee of
approximately $31,600 that was earned during the first quarter of
fiscal 2001 and approximately $6,600 reduction in interest income
earned during the three months of fiscal 2002 versus the first three
months of fiscal 2001. Interest expense increased $63,616 to $64,068
for the three months ended December 31, 2001 from $452 for the first
three months ended December 31, 2000 due to the Company entering into
a bank note payable for $4,500,000 in the fourth quarter of fiscal
2001. As compared to the first quarter of 2002, interest expense
over the remaining quarters of fiscal 2002 should decrease slightly
as the principal balance is continually reduced on the bank note and
interest rates remain relatively low.
The provision for income taxes increased 100% to $192,198 for the
first quarter ended December 31, 2001 from $0 for the first quarter
ended December 31, 2000. The increase is due to the Company
converting to a C corporation effective August 21, 2001. This
conversion requires the Company to make the applicable federal and
state income tax payments. Prior to August 21, 2001, the Company had
elected to be taxed under the provisions of Subchapter S of the
Internal Revenue Code, which requires the stockholders to report
their proportionate share of the Company's income on their individual
tax returns. Therefore, prior to August 21, 2001, no provision or
liability for federal or state income taxes has been included in the
Company's Condensed Consolidated Financial Statements.
We anticipate our revenues to continue at the current rate through
much of the second quarter of fiscal 2002 with a decrease in the late
second quarter and most of the third quarter of fiscal 2002 due to
lack of demand for our main product, the Snowplow Blade. However,
the seasonality of the ATV accessories market is continually being
addressed with our increased sales and marketing efforts to our
existing distributors, our focus on new distributors in untapped
geographic locations, and expansion into new markets, such as lawn
and garden. Selling, general and administrative expenses we foresee
remaining consistent or decreasing slightly as a percent of revenues
during the remainder of fiscal 2002 through increased usage of
existing manufacturing capacity of our operating facility from
increased production of new and existing products.
BUSINESS SEGMENTS
-----------------
As more fully described in Note 6 to the Condensed Consolidated
Financial Statements included elsewhere in this filing, the Company
operates two reportable business segments: ATV Accessories and
Plastic Wheel Covers. The gross margins are vastly different in our
two reportable business segments due to the fact that we assemble our
ATV accessories (i.e. we outsource the ironworks to our main product
supplier) and we are vertically integrated in our Plastic Wheel Cover
segment.
ATV ACCESSORIES - Three Months Ended December 31, 2001 and 2000
---------------------------------------------------------------
Revenues for the three months ended December 31, 2001 increased
$987,491, or 26.0%, to $4,786,312 from $3,798,821 for the three
months ended December 31, 2000. The increase is mainly attributable
to an increase in unit volume of our Snowplow Blade and Winch/Winch
Mount Kits as discussed above (See OVERALL RESULTS OF OPERATIONS).
Cost of goods sold for the three months ended December 31, 2001
increased $597,816, or 25.6%, to $2,936,252 from $2,338,436 for the
three months ended December 31, 2000. Gross profit as a percent of
revenues was 38.7% for the three months ended December 31, 2001
compared to 38.4% for the corresponding period in fiscal 2001. The
slight increase in gross profit for the three months ended December
31, 2001 as compared to the corresponding period in fiscal 2001was
attributable to the increase in unit sales of our most profitable
product, the Snowplow Blade, which was offset somewhat by increasing
prices of raw materials during the quarter as discussed above (See
OVERALL RESULTS OF OPERATIONS).
Page 10
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PLASTIC WHEEL COVERS - Three Months Ended December 31, 2001 and 2000
--------------------------------------------------------------------
Revenues for the three months ended December 31, 2001 remained
relatively constant, increasing $5,498, or 1.3%, to $423,122 from
$417,624 for the three months ended December 31, 2000. The small
increase is attributable to changes in current market conditions.
Our new product and process will address the needs of the new market.
Cost of goods sold for the three months ended December 31, 2001
increased $10,545, or 8.5%, to $135,215 from $124,670 for the three
months ended December 31, 2000. Gross profit as a percent of revenue
was 68.0% for the three months ended December 31, 2001 compared to
70.1% for the corresponding period in fiscal 2001. The increase in
cost of goods and the decrease in gross profit during the three
months ended December 31, 2001 as compared to the corresponding
period in fiscal 2001 were directly attributable to an increase in
our inventory reserve for some potentially excess and/or obsolete
plastic wheel covers and was offset, somewhat, with operational
efficiencies. This potential excess/obsolescence is due to the
development of new production methods and technology of a higher
quality product that will position us well for the expanding golf
cart industry.
GEOGRAPHIC REVENUE - Three Months Ended December 31, 2001 and 2000
------------------------------------------------------------------
During the three months ended December 31, 2001, revenue in the
United States of America increased $718,896, or 18.1%, to $4,685,095
from $3,966,199 for the three months ended December 31, 2000.
Revenue from other countries increased $209,431, or 123.2%, to
$379,377 from $169,946 for the three months ended December 31, 2000.
The increase during the three months ended December 31, 2001 in U.S.
revenue is due to a general increase across all regions previously
serviced in the United States of America and in other countries is
due to an increase of sales in Canada.
Liquidity and Capital Resources
Our primary source of liquidity has been cash generated by our
operations.
At December 31, 2001, we had $572,980 in cash and cash equivalents,
compared to $274,089 at September 30, 2001. Until required for
operations, our policy is to invest any excess cash reserves in bank
deposits, money market funds, and certificates of deposit. Net
working capital was $2,102,990 at December 31, 2001 compared to
$1,995,007 at September 30, 2001. The change in working capital is
primarily due to the following: inventories decreased by $349,728, or
13.3%, to $2,288,986 at December 31, 2001 from $2,638,714 at
September 30, 2001 and accounts receivable increased by $239,040, or
22.6%, to $1,297,323 at December 31, 2001 from $1,058,283 at
September 30, 2001.
On August 21, 2001, under the terms of a secured credit agreement,
the Company entered into a note payable for $4,500,000 (the "Note")
with a commercial lender. The Note is collateralized by all of the
Company's assets, is payable in monthly installments from September
2001 until July 2006, which included principal and interest at prime
+ 0.75% (6.0% at December 31, 2001), with a final payment upon
maturity on July 25, 2006. The variable interest rate can never
exceed 9% or be lower than 6%. The monthly payment is $90,155 and is
applied to interest first based on the interest rate in effect, with
the balance applied to principal. The interest rate is adjusted
daily. Additionally, any proceeds from the sale of stock received
from the exercise of warrants shall be applied to any outstanding
balance on the Note or the Line of Credit described below. At
December 31, 2001, $4,233,144 was outstanding on the Note.
Under the terms of the secured credit agreement noted above, the
Company has a Line of Credit for the lesser of $500,000 or 80% of
eligible accounts receivable and 35% of eligible inventory. The Line
of Credit bears interest at prime plus 1.25% (6.0% at December 31,
2001), and is collateralized by all of the Company's assets. The
Line of Credit matures August 25, 2002. There are no outstanding
borrowings under the Line of Credit at December 31, 2001.
Consistent with normal practice, management believes that the
Company's operations are not expected to require significant capital
expenditures during the remainder of fiscal 2002. Management
believes that existing cash balances, cash flow to be generated from
operating activities and available borrowing capacity under its Line
of Credit will be sufficient to fund operations, and capital
expenditure requirements for at least the next twelve months. At
this time management is not aware of any factors that would have a
materially adverse impact on cash flow during this period.
Page 11
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Part II - Other Information
Item 1.
There are no reportable events for Item 1 through Item 5.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three
month period ended December 31, 2001.
Page 12
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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CYCLE COUNTRY ACCESSORIES CORP.
Dated: February 12, 2002 By: /s/ Ronald C. Hickman
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Ronald C. Hickman
Principal Executive Officer,
President and Director
Dated: February 12, 2002 By: /s/ David J. Davis
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David J. Davis
Principal Finance Officer and
Principal Accounting Officer
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