U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number: 333-68570
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Cycle Country Accessories Corp.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Nevada 42-1523809
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(State of incorporation) (I.R.S. Employer Identification No.)
2188 Highway 86, Milford, Iowa 51351
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(Address of principal executive offices)
(712) 338-2701
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(Issuer's telephone number)
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(Former name, former address and formal fiscal year, if changed since last
report)
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 August 13, 2002 was 3,918,250 and
there were 335 stockholders of record.
Transitional Small Business Disclosure Format (Check one): Yes__ No X
1
Cycle Country Accessories Corp.
Index to Form 10-QSB
Part 1 Financial Information Page
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Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet - June 30, 2002 ........2
Condensed Consolidated Statements of Income - Three Months
and Six Months Ended June 30, 2002 and 2001 .................3
Condensed Consolidated Statements of Cash Flows - Six Months
Ended June 30, 2002 and 2001 ................................5
Notes to Condensed Consolidated Financial Statements.........7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................13
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K............................18
Signatures...........................................................19
2
Part I. Financial Information
Item 1. Financial Statements
Cycle Country Accessories Corp. and Subsidiaries
Condensed Consolidated Balance Sheet
June 30, 2002
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 87,723
Accounts receivable, net 659,461
Inventories 3,081,455
Prepaid income taxes 57,161
Deferred income taxes 83,843
Prepaid expenses and other 56,817
------------
Total current assets 4,026,460
------------
Property, plant, and equipment, net 2,597,135
Intangible assets, net 280,046
Other assets 78,660
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Total assets $ 6,982,301
============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 524,842
Accrued expenses 179,032
Bank line of credit 500,000
Accrued interest payable 3,306
Due to related parties 2,761
Current portion of bank note payable 867,528
------------
Total current liabilities 2,077,469
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Long-Term Liabilities:
Bank note payable, less current portion 2,948,333
Deferred income taxes 28,483
------------
Total long-term liabilities 2,976,816
------------
Total liabilities 5,054,285
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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; 3,918,250 shares issued and outstanding 392
Additional paid-in capital 1,654,319
Retained earnings 273,305
------------
Total stockholders' equity 1,928,016
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Total liabilities and stockholders' equity $ 6,982,301
============
See accompanying notes to the condensed consolidated financial statements.
Page 2
3
Cycle Country Accessories Corp. and Subsidiaries
Condensed Consolidated Statements of Income
Three Months Ended June 30,
2002 2001
---------- ---------
(Unaudited) (Unaudited)
Revenues:
Net sales $ 2,256,472 $ 2,222,460
Freight income 29,919 24,420
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Total revenues 2,286,391 2,246,880
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Cost of goods sold (1,488,600) (1,635,450)
-------------- -----------
Gross profit 797,791 611,430
-------------- -----------
Selling, general, and administrative
expenses (600,447) (552,789)
-------------- -----------
Income from operations 197,344 58,641
-------------- -----------
Other Income (Expense):
Interest expense (64,741) -
Interest income 724 6,221
Miscellaneous 6,101 (6,274)
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Total other expense (57,916) (53)
-------------- -----------
Income before provision
for income taxes 139,428 58,588
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Provision for income taxes as a
C corporation (48,214) -
-------------- -----------
Net income $ 91,214 $ 58,588
============== ===========
Weighted average shares outstanding:
Basic 3,704,019 3,698,250
============== ===========
Diluted 3,704,019 4,098,250
============== ===========
Earnings per share:
Basic $ 0.03 $ 0.02
============== ===========
Diluted $ 0.03 $ 0.01
============== ===========
Pro forma net income data (1):
Net income reported $ 58,588
Provision for income taxes (31,199)
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Pro forma net income $ 27,389
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Pro forma weighted average shares outstanding (1):
Basic 3,698,250
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Diluted 4,098,250
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Pro forma earnings per share (1):
Basic $ 0.01
===========
Diluted $ 0.01
===========
(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 Subsidiaries
Condensed Consolidated Statements of Income
Six Months Ended June 30,
2002 2001
-------------- --------------
(Unaudited) (Unaudited)
Revenues:
Net sales $ 9,242,751 $ 9,605,894
Freight income 78,463 88,959
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Total revenues 9,321,214 9,694,853
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Cost of goods sold (6,530,651) (6,931,328)
-------------- --------------
Gross profit 2,790,563 2,763,525
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Selling, general, and administrative
expenses (2,009,215) (1,822,419)
-------------- --------------
Income from operations 781,348 941,106
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Other Income (Expense):
Interest expense (192,981) (452)
Interest income 5,011 28,197
Miscellaneous 25,314 40,572
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Total other income (expense) (162,656) 68,317
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Income before provision for
income taxes 618,692 1,009,423
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Provision for income taxes as a
C corporation (222,729) -
-------------- --------------
Net income $ 395,963 $ 1,009,423
============== ==============
Weighted average shares outstanding:
Basic 3,700,255 3,698,250
============== ==============
Diluted 3,728,461 4,098,250
============== ==============
Earnings per share:
Basic $ 0.11 $ 0.27
============== ==============
Diluted $ 0.11 $ 0.25
============== ==============
Pro forma net income data (1):
Net income reported $ 1,009,423
Provision for income taxes (373,500)
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Pro forma net income $ 635,923
=============
Pro forma weighted average shares outstanding (1):
Basic 3,698,250
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Diluted 4,098,250
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Pro forma earnings per share (1):
Basic $ 0.17
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Diluted $ 0.16
=============
(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 4
5
Cycle Country Accessories Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30,
2002 2001
-------------- ------------
(Unaudited) (Unaudited)
Cash Flows from Operating Activities:
Net income $ 395,963 $ 1,009,423
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 209,221 166,379
Amortization 6,654 -
Inventory reserve 18,000 -
Gain on sale of equipment (17,010) -
(Increase) decrease in assets:
Accounts receivable, net 398,822 23,435
Inventories (310,176) 499,930
Prepaid income taxes (57,161) -
Taxes receivable 100,517 -
Prepaid expenses and other 8,673 (12,524)
Increase (decrease) in liabilities:
Accounts payable (533,729) (116,561)
Accrued expenses (57,005) (144,328)
Due to related party 2,761 -
Accrued interest payable (313) -
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Net cash provided by operating activities 165,217 1,425,754
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Cash Flows from Investing Activities:
Purchase of equipment (236,753) (240,698)
Acquisition of net assets - subsidiary (12,065) -
Proceeds from sale of equipment 21,886 22,079
Payment received on notes receivable - 46,000
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Net cash used in investing activities (226,932) (172,619)
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Cash Flows from Financing Activities:
Payments on bank note payable (624,651) -
Payments on short-term note payable - (100,000)
Net borrowings from bank line of credit 500,000 -
Distributions paid to stockholders as
an S corporation - (1,005,600)
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Net cash used in financing activities (124,651) (1,105,600)
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Net increase (decrease) in cash and
cash equivalents (186,366) 147,535
Cash and cash equivalents, beginning of
period 274,089 368,797
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Cash and Cash Equivalents, end of
period $ 87,723 $ 516,332
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See accompanying notes to the condensed consolidated financial statements.
Page 5
6
Cycle Country Accessories Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Nine Months Ended June 30,
2002 2001
-------------- ------------
(Unaudited) (Unaudited)
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 193,294 $ 1,682
============== ============
Income taxes $ 279,890 $ -
============== ============
Supplemental schedule of non-cash
investing and financing activities:
Acquisition of net assets -
subsidiary included in due to
related parties $ 516,700 $ -
============== ============
Increase in prepaid expenses
included in due to related parties $ 60,000 $ -
============== ============
Extinguishment of due to related
parties through issuance of
common stock $ 566,700 $ -
============== ============
Issuance of common stock for
payment of accrued bonus and
employee compensation $ 64,500 $ -
============== ============
Issuance of common stock for
acquisition of net assets of
Weekend Warrior $ 28,500 $ -
============== ============
See accompanying notes to the condensed consolidated financial statements.
Page 6
7
Cycle Country Accessories Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine Months Ended June 30, 2002 and 2001
(Unaudited)
1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial
statements for the three and nine months ended June 30, 2002 and 2001
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-QSB. 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. 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 June 30, 2002
and 2001 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 was required
to classify certain payments to its customers as a reduction of
sales. The Company previously classified these payments as selling,
general, and administrative expenses in its consolidated statements
of income. Upon adoption of EITF 01-09, $12,121 and $21,953 as of
the three months ended June 30, 2002 and 2001, respectively, and
$226,273 and $309,583 as of the nine months ended June 30, 2002 and
2001, respectively, were reclassified as a reduction in revenue.
Because adoption of EITF 01-09 solely resulted in reclassification
within the consolidated statements of income, there is no impact on
the Company's financial condition, operating income, or net income.
2. Acquisition of Assets:
On March 11, 2002, the Company entered into an asset purchase
agreement to purchase certain assets from Perf-form Products, Inc.
("Perf-form Products") for approximately $462,100 in cash and 22,500
shares of the Company's common stock for a total purchase price of
approximately $528,800. The shares of the Company's common stock
were valued at the market price on the date of acquisition. Perf-
form Products manufactures, sells, and distributes premium oil
filters and related products for the motorcycle and ATV industries.
As a result of the acquisition, the Company expects to be able to
provide Perf-form Products a much larger distribution channel through
it's existing distributor network in the United States and abroad;
thereby, allowing Perf-form Products to accelerate its growth.
The acquisition was accounted for under the purchase method of
accounting; accordingly, the purchase price has been allocated to
reflect the fair value of assets acquired at the date of acquisition.
The acquisition resulted in goodwill of approximately $41,700;
however, as discussed in Note 3, this goodwill recorded will not be
amortized as a result of SFAS No. 142 transition provisions.
The following table summarizes the estimated fair values of the
assets acquired at the date of acquisition:
At March 11, 2002
---------------------------
Inventory $ 147,065
Property and equipment 120,000
Trademark 100,000
Covenant not-to-compete agreement 70,000
Patent 50,000
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Total assets acquired $ 487,065
=============
The results of operations of the acquired business have been included
in the accompanying condensed consolidated financial statements from
the date of acquisition.
Page 7
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Cycle Country Accessories Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine Months Ended June 30, 2002 and 2001
(Unaudited)
2. Acquisition of Assets, Continued:
On June 13, 2002, the Company entered into an asset purchase
agreement to purchase certain assets from Weekend Warrior, Inc.
("Weekend Warrior") for 10,000 shares of the Company's common stock
for a total purchase price of approximately $28,500. The shares of
the Company's common stock were valued at the market price on the
date of acquisition. Weekend Warrior manufactures, sells, and
distributes a full line of heavy-duty agricultural equipment for the
Lawn and Garden and ATV industries. As a result of the acquisition,
the Company expects to be able to accelerate it's new product
introductions for the Lawn & Garden industry.
The acquisition was accounted for under the purchase method of
accounting; accordingly, the purchase price has been allocated to
reflect the fair value of assets acquired at the date of acquisition.
The following table summarizes the estimated fair values of the
assets acquired at the date of acquisition:
At June 13, 2002
---------------------------
Inventory $ 3,500
Trademark 9,000
Covenant not-to-compete agreement 8,000
Patent 8,000
-------------
Total assets acquired $ 28,500
=============
The results of operations of the acquired business have been included
in the accompanying condensed consolidated financial statements from
the date of acquisition.
3. Intangible Assets
Goodwill represents the excess of the purchase price over the fair
value of assets acquired. Goodwill arising from the Company's March
11, 2002 acquisition (see Note 2) is not being amortized in
accordance with Statement of Financial Accounting Standards No. 142
(SFAS No. 142), Goodwill and Other Intangible Assets.
SFAS No. 142 requires the use of a nonamortization approach to
account for purchased goodwill and certain intangibles. Under a
nonamortization approach, goodwill and certain intangibles would not
be amortized into results of operations, but instead would be
reviewed for impairment at least annually and written down and
charged to results of operations in the periods in which the recorded
value of goodwill and certain intangibles are determined to be
greater than their fair value.
The trademarks arising from the Company's March 11, 2002 and June 13,
2002 acquisitions (see Note 2) have been deemed to have an indefinite
life and as such will not be amortized. The covenant not-to-compete
agreements are being amortized over their estimated useful life (5
years for both) and the patents are being amortized over their
remaining useful life of 11 years and 12 years, respectively.
4. 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 June 30, 2002 are summarized as follows:
Raw materials $ 1,509,764
Work in progress 72,743
Finished goods 1,498,948
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Total inventories $ 3,081,455
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Page 8
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Cycle Country Accessories Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine Months Ended June 30, 2002 and 2001
(Unaudited)
5. Accrued Expenses:
The major components of accrued expenses at June 30, 2002 are
summarized as follows:
Accrued salaries and related benefits $ 114,204
Accrued warranty expense 42,000
Distributor rebate payable 12,121
Royalties payable 10,707
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Total accrued expenses $ 179,032
=============
6. 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.
7. 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.
The following is a reconciliation of the numerators and denominators
of the basic and diluted EPS computations for the three months and
nine months ended June 30, 2002 and 2001:
For the three months ended For the nine months ended
June 30, 2002 June 30, 2002
------------------------------- -----------------------------
Income Shares Per-share Income Shares Per-share
(numerator) (denominator) amount (Numerator) (denominator) amount
------------- ------------- --------- ---------- ------------- ---------
Basic EPS
Income available to common
stockholders $ 91,214 3,704,019 $ 0.03 $ 395,963 3,700,255 $ 0.11
Effect of Dilutive Securities
Warrants - - - - 28,206 -
------------- ------------- --------- ---------- ------------- ---------
Diluted EPS
Income available to common
stockholders $ 91,214 3,704,019 $ 0.03 $ 395,963 3,728,461 $ 0.11
============= ============= ========= ========== ============= =========
Page 9
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Cycle Country Accessories Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine Months Ended June 30, 2002 and 2001
(Unaudited)
7. Earnings Per Share, Continued:
For the three months ended For the nine months ended
June 30,2001 June 30, 2001
-------------------------------------- ----------------------------------
Income Shares Per-share Income Shares Per- share
(numerator) (denominator) amount (numerator) (Denominator) amount
------------ ------------- ---------- ----------- ------------- -----------
Basic EPS
Income available to common
stockholders $ 58,588 3,698,250 $ 0.02 $ 1,009,423 3,698,250 $ 0.27
Effect of Dilutive Securities
Warrants (1) - 400,000 - - 400,000 -
------------ ------------- ---------- ----------- ------------- -----------
Diluted EPS
Income available to common
stockholders $ 58,588 4,098,250 $ 0.01 $ 1,009,423 4,098,250 $ 0.25
============ ============= ========== =========== ============= ===========
(1) The calculation of the effect of dilutive securities assumes a
value of $5.00 for each share of the Company's common stock until
traded on the open market on February 11, 2002.
8. 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, utility boxes, and oil filters. 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 27% and 38% of ATV Accessories revenues during the
three months ended June 30, 2002 and 2001, respectively, and
approximately 64% and 67% of ATV Accessories revenues during the nine
months ended June 30, 2002 and 2001, respectively. In addition,
sales of snowplow blades comprised approximately 20% and 30% of the
Company's consolidated total revenues during the three months ended
June 30, 2002 and 2001, respectively, and approximately 55% and 60%
of the Company's consolidated total revenues during the nine months
ended June 30, 2002 and 2001, respectively. Sales of mowers
comprised approximately 17% and 26% of ATV accessories revenues
during the three months ended June 30, 2002 and 2001, respectively,
and approximately 5% and 10% of ATV accessories revenues during the
nine months ended June 30, 2002 and 2001, respectively. In addition,
sales of mowers comprised approximately 12% and 20% of consolidated
total revenues during the three months ended June 30, 2002 and 2001,
respectively. Sales of oil filters comprised approximately 11% of
ATV accessories revenues during the three months ended June 30, 2002
and less than 10% in all other periods presented. Sales of winches
comprised approximately 12% of ATV accessories revenues during the
three months ended June 30, 2002 and approximately 10% of ATV
accessories revenues during the nine months ended June 30, 2002 and
less than 10% in all other periods presented.
Page 10
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Cycle Country Accessories Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine Months Ended June 30, 2002 and 2001
(Unaudited)
8. Segment Information, Continued:
The following is a summary of certain financial information related
to the two segments during the three months and nine months ended
June 30, 2002 and 2001:
Three months ended June 30, Nine months ended June 30,
2002 2001 2002 2001
------------- --------------- ------------- ------------
Total revenues by segment
ATV Accessories $ 1,697,227 $ 1,714,790 $ 7,800,224 $ 8,331,668
Plastic Wheel Covers 591,901 558,636 1,686,178 1,506,587
------------- --------------- ------------- -------------
Total revenues by segment 2,289,128 2,273,426 9,486,402 9,838,255
Freight income 29,919 24,420 78,463 88,959
Sales allowances (32,656) (50,966) (243,651) (232,361)
------------- --------------- ------------- -------------
Total revenues $ 2,286,391 $ 2,246,880 $ 9,321,214 $ 9,694,853
============= =============== ============= =============
Operating profit by segment
ATV Accessories $ 767,655 $ 636,789 $ 3,020,088 $ 2,985,971
Plastic Wheel Covers 401,498 369,943 1,166,689 1,081,893
Freight income 29,919 24,420 78,463 88,959
Sales allowances (32,656) (50,966) (243,651) (232,361)
Factory overhead (368,625) (368,757) (1,231,026) (1,160,937)
Selling, general, and
administrative (600,447) (552,788) (2,009,215) (1,822,419)
Interest income (expense),net (64,017) 5,899 (187,970) 27,745
Other income (expense), net 6,101 (5,952) 25,314 40,572
Provision for income taxes (48,214) - (222,729) -
------------ -------------- --------------- --------------
Net income (loss) $ 91,214 $ 58,588 $ 395,963 $ 1,009,423
============ ============== =============== ==============
The following is a summary of the Company's revenue in different
geographic areas during the three months and nine months ended June
30, 2002 and 2001:
Three months ended June 30, Nine months ended March 31,
2002 2001 2002 2001
------------ -------------- ------------- ----------
United States of America $ 2,046,608 $ 1,974,062 $ 8,476,348 $ 9,036,704
Other countries 239,783 272,818 844,866 658,149
------------ -------------- ------------- -----------
Total revenue $ 2,286,391 $ 2,246,880 $ 9,321,214 $ 9,694,853
============ ============== ============= ===========
As of June 30, 2002, 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 14.7% of net revenues during
the three months ended June 30, 2002, and approximately 15.5% and
11.1% each of net revenues during the three months ended June 30,
2001. Plastic Wheel Covers did not have sales to any individual
customer greater than 10% of net revenues during the three months
ended June 30, 2002 or 2001.
ATV Accessories sales to major customers, which exceeded 10% of net
revenues, accounted for approximately 17.2% and 15% each of net
revenues during the nine months ended June 30, 2002, and
approximately 17%, 15.6%, and 11.4% each of net revenues during the
nine months ended June 30, 2001. Plastic Wheel Covers did not have
sales to any individual customer greater than 10% of net revenues
during the nine months ended June 30, 2002 or 2001.
Page 11
12
9. Commitments and Contingencies:
Legal Matters
The Company is involved in two separate claims relating to an
allegation of patent infringement and one claim relating to alleged
product liability. The claims are in the preliminary phases. The
amount of liability, if any, from the claims cannot be determined
with certainty; however, management is of the opinion that the
outcomes will not have a material adverse effect on the consolidated
financial position or operations of the Company.
Registration Statement
On July 25, 2002, the Company filed a Registration Statement on Form
SB-2 (Amendment No. 1) with the Securities and Exchange Commission
("SEC") which registered a total of 500,000 shares of our common stock, 155,000
of which are being offered by a selling shareholder at an estimated price
of $3.00 per share and 345,000 of which the Company is offering at a price
of $3.00 per share. The proceeds will be used for construction of a new
facility for expansion of our operations and reduction of short and long
term debt. The Registration Statement was declared effective by the
SEC on July 25, 2002, File No. 333-92002.
10. New Accounting Standards
As more fully described in Note 1 of the Notes to Condensed
Consolidated Financial Statements, on January 1, 2002, the Company
was required to adopt EITF 01-09. For a discussion of the impact of
this new accounting standard upon the Company, see Note 1.
In June 2001, the FASB issued SFAS No. 141, Business Combinations,
and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141
requires business combinations initiated after June 30, 2001 to be
accounted for using the purchase method of accounting, and broadens
the criteria for recording intangible assets separate from goodwill.
Recorded goodwill and intangibles will be evaluated against this new
criteria and may result in certain intangibles being subsumed into
goodwill, or alternatively, amounts initially recorded as goodwill
may be separately identified and recognized apart from goodwill.
SFAS No. 142 requires the use of a non-amortization approach to
account for purchased goodwill and certain intangibles. Under a non-
amortization approach, goodwill and certain intangibles will not be
amortized into results of operations, but instead would be reviewed
for impairment and written down and charged to results of operations
only in the periods in which the recorded value of goodwill and
certain intangibles is more than its fair value. The provisions of
each statement which apply to goodwill and intangible assets acquired
prior to June 30, 2001 was adopted by the Company on January 1, 2002.
Accordingly, adoption of these statements had no material effect on its
financial position or results of operations.
Page 12
13
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 June 30, 2002 and 2001
-------------------------------------------------------------------------
Revenues for the three months ended June 30, 2002 increased $39,511,
or 1.8%, to $2,286,391 from $2,246,880 for the three months ended
June 30, 2001. Cost of goods sold decreased $146,850, or 9.0%, to
$1,488,600 for the three months ended June 30, 2002 from $1,635,450
for the three months ended June 30, 2001. Additionally, gross profit
as a percentage of revenue was 34.9% for the third quarter ended June
30, 2002 compared to 27.2% for the third quarter ended June 30, 2001.
The increase in revenues during the third quarter ended June 30, 2002
is mainly attributable to a change in the mix of products sold during
the third quarter of fiscal 2002 versus the third quarter of fiscal
2001. Decreased Snowplow Blade (our mainstay product) unit sales of
approximately $204,000 and decreased mower unit sales of
approximately $164,000 were offset by increases in our Plastic Wheel
Cover sales of approximately $33,000, ATV accessories sales to
Original Equipment Manufacturers (OEMs) of approximately $96,000 and
sales of our recently acquired Perf-Form premium oil products of
approximately $180,000 for the three months ended June 30, 2002 as
compared to the three months ended June 30, 2001. The decrease in
our mainstay product, Snowplow Blades, during the third quarter ended
June 30, 2002 from the third quarter ended June 30, 2001 primarily
was the result of, in part, a milder winter and less precipitation
during the second fiscal quarter of 2002 than the same quarter of
fiscal 2001 across the entire country. The second quarter of fiscal
2001 also had unusually high sales of blade products as our
distributors ordered late in the quarter to achieve rebate program
goals, which did not occur in the fiscal 2002 second quarter as the
distributors achieved program goals earlier. When large orders occur
at a season-end, such as occurred in the second quarter fiscal 2001,
the inventory that is sold is considered to be for the following
season. Although this effects the quarter sales, when a late season
surge in orders does not occur it means less inventory must be moved
at the retail level and leads to increased new orders early at the
start of the following season. The decrease in revenues was also
attributable to a decline in our production of mowers and sales. The
increase of 7.7% in gross profit is primarily the result of lower
material costs and manufacturing input costs realized in our Plastic
Wheel Cover segment through gains in more efficient use of labor and
better manufacturing processes and the increased gross margins
contributed by our premium oil filter products. Another factor in
the increased gross profit is the reduction in rent of approximately
$58,000 that is included as part of the overhead expenses allocated
to cost of goods sold.
Selling, general, and administrative expenses increased $47,658, or
8.6%, to $600,447 for the three months ended June 30, 2002 from
$552,789 for the three months ended June 30, 2001. Increases in
operating expenses of approximately $21,000 in research and
development costs, approximately $22,000 in depreciation expense,
approximately $11,000 in insurance costs, approximately $10,000 in
warranty expense, approximately $8,000 in machine repair expenses,
approximately $6,000 in show expenses, and approximately $8,400 in
licenses and fees were offset by a reduction in legal and accounting
expenses of approximately $30,000, and a reduction in rent expense of
approximately $13,000 due to the Company acquiring its operating
facility during the fourth quarter of fiscal 2001 (which consisted of
land and building) from certain stockholders that was previously
leased.
Interest and miscellaneous income increased approximately $6,880 from
the third quarter of fiscal 2001 to the third quarter of 2002. The
increase is due to an increase in miscellaneous income of $12,375
during the third quarter of fiscal 2002 versus the third quarter of
fiscal 2001 which was offset by a reduction of $5,497 in interest
income earned during the same period. Interest expense increased
100% to $64,741 for the three months ended June 30, 2002 from $0 for
the first three months ended June 30, 2001 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 third quarter of 2002,
interest expense over the fourth quarter of fiscal 2002 should remain
approximately the same as interest that is paid on the Company's bank
line of credit will likely offset the reduced interest charges
realized by the principal balance continually being reduced on the
bank note.
Page 13
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The income tax expense increased 100% to $48,214 for the third
quarter ended June 30, 2002 from $0 for the third quarter ended June
30, 2001. The change 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.
OVERALL RESULTS OF OPERATIONS - Nine months Ended June 30, 2002 and 2001
------------------------------------------------------------------------
Revenues for the nine months June 30, 2002 decreased $373,639, or
3.8%, to $9,321,214 from $9,694,853 for the nine months ended June
30, 2001. Cost of goods sold decreased $400,677, or 5.8%, to
$6,530,651 for the nine months ended June 30, 2002 from $6,931,328
for the nine months ended June 30, 2001. Additionally, gross profit
as a percentage of revenue was 29.9% for the nine months ended June
30, 2002 compared to 28.5% for the nine months ended June 30, 2001.
The decrease in blade products sales of approximately $709,000 for
the nine months ended June 30, 2002 as compared to the nine months
ended June 30, 2001 and the decrease in mower sales of approximately
$496,000 for the nine months ended June 30, 2002 as compared to the
nine months ended June 30, 2001 have been offset, somewhat, by
increased sales of ATV accessories to Original Equipment
Manufacturers (OEMs) of approximately $96,000, increased Plastic
Wheel Cover sales of approximately $174,000, increased sales of our
winch products of approximately $239,000, and new sales of our
premium oil filter products of approximately $220,000 for the nine
months ended June 30, 2002 as compared to the nine months ended June
30, 2001. The decrease in revenues during the nine months ended June
30, 2002 is mainly attributable to a decrease in unit sales volume of
our mainstay product, Snowplow Blades, in the second and third
quarters of fiscal 2002 as compared to the same period of fiscal 2001
which was caused, in part, by a milder winter and less precipitation
during the second fiscal quarter than the same quarter of fiscal 2001
across the entire country. The second quarter of fiscal 2001 also
had unusually high sales of blade products as our distributors
ordered late in the quarter to achieve rebate program goals, which
did not occur in the fiscal 2002 second quarter as the distributors
achieved program goals earlier. When large orders occur at a season-
end, such as occurred in the second quarter fiscal 2001, the
inventory that is sold is considered to be for the following season.
Although this effects the quarter sales, when a late season surge in
orders does not occur it means less inventory must be moved at the
retail level and leads to increased new orders early at the start of
the following season. The decrease in revenues was also attributable
to a decline in our production of mowers and sales. The slight
increase of 1.4% in gross profit as a percentage of revenue is
primarily the result of increased gross margins being contributed by
our premium oil filter products and reduced costs of goods sold in
our Plastic Wheel Cover segment through improved efficiencies in
manufacturing processes and technologies. The reduction in rent of
approximately $166,000 that is included as part of the overhead
expenses allocated to cost of goods sold also contributed to the
increase in gross profit.
Selling, general, and administrative expenses increased $186,796, or
10.3%, to $2,009,215 for the nine months ended June 30, 2002 from
$1,822,419 for the nine months ended June 30, 2001. The increase in
operating expenses is a result of additional spending of
approximately $82,000 in research and development costs,
approximately $36,000 in salaries, commissions and other related
benefits, approximately $71,000 in increased advertising,
approximately $25,000 in legal and accounting costs, approximately
$12,000 in warranty expense, approximately $13,000 in licenses and
fees, and approximately $37,000 in office related expenses. The
increases were offset by a reduction in rent expense of approximately
$95,000 due to the Company acquiring its operating facility during
the fourth quarter of fiscal 2001 (which consisted of land and
building) from certain stockholders that was previously leased.
Interest and miscellaneous income decreased approximately $38,400
from the first nine months of fiscal 2001 to the first nine months of
fiscal 2002. The decrease is primarily due to a one-time consulting
fee of approximately $31,600 that was earned during the first nine
months of fiscal 2001 and approximately $23,000 reduction in interest
income earned during the first nine months of fiscal 2002 versus the
first nine months of fiscal 2001. The decrease in interest income is
mainly due to the Company having less surplus cash available to
invest during the nine months ended June 30, 2002 as compared to the
nine months ended June 30, 2001. Interest expense increased $192,529
to $192,981 for the nine months ended June 30, 2002 from $452 for the
first nine months ended June 30, 2001 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 nine months of 2002, interest
expense over the remaining three months of fiscal 2002 should remain
approximately the same as interest that is paid on the Company's bank
line of credit will likely offset the reduced interest charges
realized by the principal balance continually being reduced on the
bank note.
Page 14
15
The provision for income taxes increased 100% to $222,729 for the
nine months ended June 30, 2002 from $0 for the nine months ended
June 30, 2001. 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 increase during the fourth quarter of
fiscal 2002 as product inventories within the network of distribution
and market channels are relatively low, which historically leads to
increased orders and sales activity. Other factors contributing to
our projection of increased fourth quarter revenues include the
successful development and incorporation of new products, re-
engineering of our mainstay products, and the successful acquisition
of Perf-Form and its premium oil products for motorcycles and ATV's.
The seasonality of the ATV accessories market is a factor that we are
continually addressing with 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. We also foresee selling, general and administrative
expenses remaining consistent or decreasing slightly as a percent of
revenues during the final quarter of fiscal 2002 through increased
usage of existing manufacturing capacity of our operating facilities
from increased production of new and existing products.
BUSINESS SEGMENTS
-----------------
As more fully described in Note 8 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 June 30, 2002 and 2001
-----------------------------------------------------------
Revenues for the three months ended June 30, 2002 decreased $17,563,
or 1.0%, to $1,697,227 from $1,714,790 for the three months ended
June 30, 2001. The slight decrease is mainly attributable to a
change in the mix of products sold as discussed above (See OVERALL
RESULTS OF OPERATIONS).
Cost of goods sold for the three months ended June 30, 2002 decreased
$148,429, or 13.8%, to $929,572 from $1,078,001 for the three months
ended June 30, 2001. Gross profit as a percent of revenues was 45.2%
for the three months ended June 30, 2002 compared to 37.1% for the
corresponding period in fiscal 2001. The increase in gross profit
for the three months ended June 30, 2002 as compared to the
corresponding period in fiscal 2001 was attributable to a lower rebate
program expense of approximately $9,800 and increased gross margins
contributed by sales of the Company's recently acquired Perf-Form
premium oil filter products.
PLASTIC WHEEL COVERS - Three Months Ended June 30, 2002 and 2001
----------------------------------------------------------------
Revenues for the three months ended June 30, 2002 increased $33,265,
or 6.0%, to $591,901 from $558,636 for the three months ended June
30, 2001. The increase is attributable to changes in current market
conditions. The introduction of our new product and successful
implementation of our new manufacturing process has also contributed
to the increased revenues and will address the needs of the new
market as well.
Cost of goods sold for the three months ended June 30, 2002 increased
$1,710, or 1.0%, to $190,403 from $188,693 for the three months ended
June 30, 2001. Gross profit as a percent of revenue was 67.8% for
the three months ended June 30, 2002 compared to 66.2% for the
corresponding period in fiscal 2001. The slight increase in gross
profit during the three months ended June 30, 2002 as compared to the
corresponding period in fiscal 2001 was directly attributable to
reduced raw material and manufacturing input costs created by changes
in production methods. The continual development of new production
methods and technology to produce a higher quality product will
position us well for the expanding golf cart industry.
GEOGRAPHIC REVENUE - Three Months Ended June 30, 2002 and 2001
--------------------------------------------------------------
During the three months ended June 30, 2002, revenue in the United
States of America increased $72,546, or 3.7%, to $2,046,608 from
$1,974,062 for the three months ended June 30, 2001. Revenue from
other countries decreased $33,035, or 12.1%, to $239,783 from
$272,818 for the three months ended June 30, 2001. The increase
during the three months ended June 30, 2002 in U.S. revenue is due to
a general increase across all regions previously serviced in the
United States of America. The decrease during the three months ended
June 30, 2002 in revenue from other countries is due to a decrease of
sales in Canada.
Page 15
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ATV ACCESSORIES - Nine months Ended June 30, 2002 and 2001
----------------------------------------------------------
Revenues for the nine months ended June 30, 2002 decreased $531,444,
or 6.4%, to $7,800,224 from $8,331,668 for the nine months ended June
30, 2001. The decrease is mainly attributable to a decrease in unit
volume sales of our Snowplow Blade as discussed above (See OVERALL
RESULTS OF OPERATIONS).
Cost of goods sold for the nine months ended June 30, 2002 decreased
$565,561, or 10.6%, to $4,780,136 from $5,345,697 for the nine months
ended June 30, 2001. Gross profit as a percent of revenues was 38.7%
for the nine months ended June 30, 2002 compared to 35.8% for the
corresponding period in fiscal 2001. The increase in gross
profit for the nine months ended June 30, 2002 as compared to the
corresponding period in fiscal 2001 was attributable to a decrease in
our rebate program expense and a decrease in the rent expense
included in overhead expenses allocated to cost of goods sold.
PLASTIC WHEEL COVERS - Nine months Ended June 30, 2002 and 2001
---------------------------------------------------------------
Revenues for the nine months ended June 30, 2002 increased $179,591,
or 11.9%, to $1,686,178 from $1,506,587 for the nine months ended
June 30, 2001. The increase is attributable to changes in current
market conditions. The introduction of our new product and successful
implementation of our new manufacturing process has also contributed
to the increased revenues and will address the needs of the new
market as well.
Cost of goods sold for the nine months ended June 30, 2002 increased
$94,795, or 22.3%, to $519,489 from $424,694 for the nine months
ended June 30, 2001. Gross profit as a percent of revenue was 69.2%
for the nine months ended June 30, 2002 compared to 71.8% for the
corresponding period in fiscal 2001. The increase in cost of goods
and the decrease in gross profit during the nine months ended June
30, 2002 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 continual development of new
production methods and technology to produce a higher quality product
that will position us well for the expanding golf cart industry. The
increase in cost of goods sold was also attributable to increased
labor and overhead costs incurred during the second quarter of fiscal
2002 as a result of increased market demand.
GEOGRAPHIC REVENUE - Nine months Ended June 30, 2002 and 2001
-------------------------------------------------------------
During the nine months ended June 30, 2002, revenue in the United
States of America decreased $560,356, or 6.2%, to $8,476,348 from
$9,036,704 for the nine months ended June 30, 2001. Revenue from
other countries increased $186,717, or 28.4%, to $844,866 from
$658,149 for the nine months ended June 30, 2001. The decrease
during the nine months ended June 30, 2002 in U.S. revenue is due to
a general decrease across all regions previously serviced in the
United States of America, as discussed previously (See OVERALL
RESULTS OF OPERATIONS). The increase during the nine months ended
June 30, 2002 in revenue from other countries is due to an increase
of sales in Canada and Europe.
Liquidity and Capital Resources
Our primary source of liquidity has been cash generated by our
operations and borrowings under our bank line of credit.
At June 30, 2002, we had $87,723 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 $1,948,991 at June 30, 2002 compared to
$1,995,007 at September 30, 2001. The change in working capital is
primarily due to the following: inventories increased by $442,741, or
16.8%, to $3,081,455 at June 30, 2002 from $2,638,714 at September
30, 2001, accounts receivable decreased by $398,822, or 37.7%, to
$659,461 at June 30, 2002 from $1,058,283 at September 30, 2001,
accounts payable decreased by $533,729, or 50.4%, to $524,842 at June
30, 2002 from $1,058,571 at September 30, 2001 and the bank line of
credit increased 100% to $500,000 at June 30, 2002 from $0 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 June 30, 2002), 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 June 30, 2002,
$3,815,861 was outstanding on the Note.
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17
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 June 30, 2002),
and is collateralized by all of the Company's assets. The Line of
Credit matures September 1, 2003. At June 30, 2002, $500,000 was
outstanding on the Line of Credit. On August 7, 2002, the bank
increased the Company's borrowing capacity $500,000 to a total of
$1,000,000 under the Company's Line of Credit. The additional
borrowing capacity is available to the Company until May 1, 2003. As
of August 13, 2002, none of the additional $500,000 borrowing
capacity had been utilized.
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.
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.
Page 17
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Part II - Other Information
Item 1. Legal Proceedings
The Company is involved in two separate claims relating to an
allegation of a patent infringement and one claim relating to alleged
product liability. The claims are in the preliminary phases. The
amount of liability, if any, from the claims cannot be determined
with certainty; however, management is of the opinion that the
outcomes will not have a material adverse effect on the consolidated
financial position or operations of the Company.
THERE ARE NO REPORTABLE EVENTS FOR ITEM 2 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 June 30, 2002.
Page 18
19
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: August 14, 2002 By: /s/ Ronald C. Hickman
----------------------
Ronald C. Hickman
Principal Executive Officer,
President and Director
Dated: August 14, 2002 By: /s/ David J. Davis
----------------------
David J. Davis
Principal Finance Officer and
Principal Accounting Officer
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