Registration No. 333-68570
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
(Amendment Number 2)
----------------------
CYCLE COUNTRY ACCESSORIES CORP
(Name of Small Business Issuer in its Charter)
NEVADA 3714 42-1523809
------------------------------- ------------------- ----------------
(State of Other Jurisdiction (Primary Standard (IRS Employer
of Incorporation or Industrial Identification No.)
Organization) Classification
Code Number)
2188 Highway 86
Milford, Iowa 51351
(712) 338-2701
(Address and telephone number of principal executive offices
and principal place of business)
Ronald Hickman
2188 Highway 86
Milford, Iowa 51351
(712) 338-2701
(Name, address and telephone number of agent for service)
Copies to:
Van Stillman, Esq. James G. Dodrill II, Esq.
Van Stillman, P.A. James G. Dodrill II, P.A.
1177 George Bush Blvd., Suite 308 3360 NW 53rd Circle
Delray Beach, FL 33483 Boca Raton, FL 33496
(561) 330-9903 (561) 862-0529
----------------------
Approximate date of proposed sale to the public:
As soon as practicable after the effective date of this registration
statement.
----------------------
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box. (X)
If this Form is filed to register additional securities for an
offering pursuant to Rule 462 (b) under the Securities Act, check the
following box and list the Securities Act registration statement
number of earlier effective registration statement for the same
offering. ( )
1
If this Form is a post-effective amendment filed pursuant to Rule
462 (c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ( ).
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. ( ).
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING AGGREGATE AMOUNT OF
SHARES TO BE BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED SHARE (1) PRICE FEE
______________________ ___________ _________ _________ ____________
Common Stock,
$.0001 par value to be 5,625,000 $5.00 $28,125,000 $7,031.25
sold by selling
shareholders
TOTAL 5,625,000 $28,125,000 $7,031.25
----------------------
(1) Estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457.
-------------------------------------------
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically
states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933 or until the registration statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission. We may
not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state in which
the offer or sale is not permitted.
ii
2
PROPECTUS
SUBJECT TO COMPLETION, DATED NOVEMBER 15, 2001
5,625,000 Shares of Common Stock
CYCLE COUNTRY ACCESSORIES CORP.
The Offering:
This is our initial public offering. We are registering a total
of 5,625,000 shares of our common stock all of which are being offered by
selling shareholders and are being registered for sale at an estimated price
of $5.00 per share.
There is no established public market for our common stock and we
have arbitrarily determined the offering price. Although we hope to
be quoted on the OTC Bulletin Board, our common stock is not currently
listed or quoted on any quotation service. There can be no assurance
that our common stock will ever be quoted on any quotation service or
that any market for our stock will ever develop.
Proposed Trading Symbol: OTC Bulletin Board - "CCAC"
_________________________________
Investing in our stock involves risks. You should carefully consider
the Risk Factors beginning on page 8 of this prospectus.
We have not authorized anyone else to provide you with different
information. The common stock is not being offered in any state where
the offer is not permitted. You should not assume that the information
in this prospectus or any supplement is accurate as of any date other
than the date on the front of those documents.
______________________
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities
or passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
_______________________
The information in this prospectus is not complete and may be
changed. None of these securities may be sold until a registration
statement filed with the Securities and Exchange Commission is
effective. The prospectus is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
The date of this prospectus is November 15, 2001
3
TABLE OF CONTENTS
PAGE
Prospectus Summary 3
The Offering 4
Summary Financial Information 6
Risk Factors 7
Use of Proceeds 11
Determination of Offering Price 11
Dividend Policy 11
Dilution 12
Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Business 18
Management 26
Principal Shareholders 29
Selling Shareholders 30
Certain Transactions 33
Description of Securities 34
Indemnification 36
Plan of Distribution 37
Legal Matters 38
Experts 38
Where You Can Find More Information 39
Index to Financial Statements F-1
As used in this prospectus, the terms "we," "us," "our," "the
Company," and "Cycle Country" mean Cycle Country Accessories Corp., a
Nevada corporation and Cycle Country Accessories Corp. an Iowa
corporation (our predecessor corporation). The term "selling
shareholders" means our shareholders who are offering to sell their
shares of Cycle Country common stock that are being registered through
this prospectus. The term "common stock" means our common stock, par
value $0.0001 per share and the term "Shares" means the 5,625,000
shares of common stock being offered through this prospectus.
2
4
PROSPECTUS SUMMARY
Because this is a summary, it does not contain all of the
information that may be important to you. You should read the entire
prospectus. You should consider the information set forth under "Risk
Factors" and our financial statements and accompanying notes that
appear elsewhere in this prospectus.
Cycle Country Accessories Corp.
We are one of the world's largest manufacturers of accessories for all
terrain vehicles ("ATVs"). We manufacture a complete line of branded
products, including snowplow blades, lawnmowers, spreader,
sprayers, tillage equipment, winch mounts, utility boxes, wheel covers
and an assortment of other ATV accessory products. These products
custom fit essentially all ATV models from Honda, Yamaha, Kawasaki,
Suzuki, Polaris, Arctic Cat and Bombardier. We design, engineer and
assemble all accessory products at our headquarters and subcontract
the manufacture of many original equipment components.
In 2000 there were 800,000 ATVs sold worldwide, representing a
19.2% increase over 1999 according to ATV Magazine. According to ATV
Magazine, of these 800,000 units, 75% were Utility ATVs, which we
consider to be our target market. We estimate that we produce 50% of
the Utility ATV accessories sold nationally. Additionally we estimate
that we produce approximately 50% of the ATV accessories in the
international markets to which we distribute.
We were incorporated in Iowa in 1983, reincorporated in Nevada in
2001 and have sold our products to 16 distributors in the United
States for the past 20 years. Additionally, we currently have 19
international distributors distributing our products to 35 countries.
For the fiscal year ended September 30, 2000, we achieved revenues of
approximately $12,800,000.
Our principal office is located at 2188 Highway 86, Milford, Iowa
51351 (Telephone (712) 338-2701, fax (712) 338-2601). Our internet
address is www.cyclecountry.com.
3
5
The Offering
Securities Offered 5,625,000 shares of
common stock all of
which are being
offered by the
selling shareholders;
See"Description of
Securities"
Common Stock Outstanding, before offering 3,625,000
Common Stock Outstanding, after offering(1) 5,625,000
Proposed OTC Bulletin Board Symbol CCAC
Use of Proceeds We will not receive any
proceeds from the sale of
common stock by our selling
shareholders. We will receive
proceeds to the extent that
any of the warrants are
exercised and intend to use
the proceeds from the exercise
of any of the warrants
for retirement of short and
long term debt
at Bank Midwest and for
general corporate purposes.
See "Use of Proceeds."
Dividend Policy We do not intend to pay
dividends on our common
stock. We plan to retain
any earnings for use in
the operation of our
business and to fund
future growth.
(1) Assumes the exercise of all 2,000,000 warrants.
4
6
Risk Factors
The securities offered by this prospectus are highly speculative and
very risky. We have described the material risks that we face below.
Before you buy, consider the risk factors described and the rest of this
prospectus. This prospectus also contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including the risks faced by us described below and
elsewhere in this prospectus. Please refer to "Risks Associated with
Forward-looking Statements" on page 10.
5
7
Summary Financial Information
The following is a summary of our Financial Statements, which are
included elsewhere in this prospectus. You should read the following
data together with the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of this
prospectus as well as with our Financial Statements and the notes
therewith.
Year ended Year ended Nine months Nine months
September September ended June 30, ended June 30,
30, 2000 30, 1999 2001 2001
---------- ---------- (unaudited) (unaudited)
----------- -----------
Statement of Operations Data:
Total Revenue $12,779,471 $11,469,502 $10,004,436 $10,054,906
Gross Profit $ 3,641,309 $ 3,611,113 $ 3,073,108 $ 3,036,219
Net Income $ 1,020,776 $ 995,915 $ 1,009,423 $ 1,078,795
----------- ----------- ----------- --_--------
As of As of
September June 30, 2001
30,2000 (unaudited)
Balance Sheet Data
Cash and cash equivalents $ 368,797 $ 516,332
Total current assets $ 3,980,922 $ 3,618,832
Total assets $ 5,235,443 $ 4,878,377
Total current liabilities $ 991,502 $ 630,613
Total stockholders' equity $ 4,243,941 $ 4,247,764
Total liabilities and stockholders' equity $ 5,235,443 $ 4,878,377
6
8
RISK FACTORS
The securities offered are highly speculative. You should purchase them
only if you can afford to lose your entire investment in us. You should
carefully consider the following risk factors, as well as all other
information in this prospectus.
Certain important factors may affect our actual results and could cause
those results to differ significantly from any forward-looking statements
made in this prospectus or otherwise made by us or on our behalf. For this
purpose, any statements contained in this prospectus that are not statements
of historical fact should be considered to be forward-looking statements.
Words such as "may," "expect," "believe," "anticipate," "intend," "could,"
"estimate," or "continue" or the negatives of those words, identify forward-
looking statements. These statements appear in a number of places in this
prospectus and include statements as to our intent, belief or expectations.
These forward-looking statements are subject to the risks detailed below or
elsewhere in this prospectus, or detailed from time to time in our filings
with the Securities and Exchange Commission. See "Risks Associated With
Forward-Looking Statements" on page 10.
Investors should assume that, even if not specifically stated
within this document, if any of the following risks actually
materialize, our business, financial condition or results of future
operations could be materially and adversely affected. In that case,
the trading price of our common stock could decline, and you may lose
all or part of your investment.
Our revenues and earnings could be negatively affected if we cannot
anticipate market trends, enhance existing products and achieve market
acceptance of new products.
Our ability to continue and expand the sales levels that we typically
achieved in prior years is largely dependent on our ability to successfully
anticipate and respond to changing consumer demands and trends in a timely
manner. This includes introducing new or updated products at prices
acceptable to customers. Our ability to maintain market acceptance and
achieve further acceptance for our products will depend upon our ability to:
- maintain a strong and favorable brand image;
- maintain a reputation for high quality; and
- continue to develop our network of distributors to sell our
products both domestically and internationally.
We can give you no assurance that the market for our
products will continue to develop or that large demand for these
products will be sustainable. In addition, we may incur significant
costs in our attempt to maintain or increase market acceptance for our
products.
7
9
Our sales are highly dependent on the effectiveness of our distributor
networks.
Our level of sales depends to a great extent upon the effectiveness
of our distributor networks. We can offer no assurance that these
distributors will continue to have the success they have historically.
Our sales may be impacted by weather conditions.
As a manufacturer of accessories for outdoor motorized equipment,
our sales may be impacted by weather conditions. For example, lack of
snowfall in any year in any particular region of the United States or
Canada may adversely affect demand for our snow plow. There is no assurance
that certain weather conditions would not have a material adverse effect
on our sales.
Our officers and directors are not required to continue as shareholders.
We are registering all shares of our common stock that are currently
outstanding. Additionally, there is no requirement that any of our officers
and/or directors retain any of their shares of our common stock.
Accordingly, there is no assurance that all or any of our officers and/or
directors will continue to maintain an equity interest in the company.
A large percentage of our sales are made to our three largest customers.
Our three largest customers accounted for approximately 45% of our net
sales in the year ending September 30, 2000. These three customers have
represented a significant amount of our business every year for at least
the past 16 years. The loss of any or all of these customers would have
a material adverse impact on the results of our operations.
We face product liability claims.
Product liability claims are made against us from time to time.
We currently carry $2 million in product liability insurance. Over
the past seven years, we paid an aggregate of less than $30,000 in
product liability claims, and the largest single judgment against us
has been for $21,000. No assurance can be given that our historical
claims record will not change or that material product liability
claims against us will not be made in the future. Adverse determination
of material product liability claims made against us could have a
material adverse effect on our financial condition.
Our products could contain defects creating product recalls and warranty
claims that could materially adversely affect our future sales and
profitability.
Our products could contain unforeseen defects. These defects result in
product recalls and warranty claims. A product recall could delay or halt
production of the affected product until we are able to address the reasons
for any defects. Recalls may also have a materially negative effect on our
brand image and public perception of the affected product. This could
materially adversely affect our future sales. Recalls or other defects
would be costly and could require substantial expenditures.
We offer a standard one-year warranty on all products except snow
plows, on which we offer a limited life time warranty. Although we
employ quality control procedures, a product is sometimes distributed
which needs repair or replacement. Historically, product recalls have
been administered through our distributors and have not had a material
effect on our business. However, no assurance can be given that our
8
10
historical claims record will not change adversely as a result of our
growth or otherwise.
Unanticipated defects could also result in product liability litigation
against us. Given the nature of our products, we have in the past and expect
in the future to be subject to potential product liability claims that, in
the absence of sufficient insurance coverage, could have a material adverse
effect on us. Although we currently maintain liability insurance coverage,
this coverage may not be adequate to cover all product liability claims.
Any large product liability claim could materially adversely affect our
ability to market our products.
We face substantial competition.
We face competition from various companies in each product line we
offer. A number of our competitors are well financed and could develop
innovative products that would reduce our market share. Additionally,
as we expand our product offerings into new markets and into offering
new products we will face additional competition. Competition in
foreign markets may also be affected by duties, tariffs, taxes and the
effect of various trade agreements, import restrictions and
fluctuations in exchange rates.
A recession could detrimentally affect our sales.
Our sales are partially dependent on discretionary consumer spending,
which may be affected by general economic conditions. A recessionary
environment could result in a decrease in consumer spending in general,
which could result in decreased spending in our markets directly or in the
overall market for ATV's, either of which could have a material adverse effect
on our business, operating results and financial condition. Additionally,
factors that influence the general economic climate, such as consumer
confidence levels, interest rates, employment trends and fuel availability
and prices could also result in decreased spending in our markets. Because
in the short term most of our operating expenses are relatively fixed, we
may be unable to adjust spending sufficiently in a timely manner to
compensate in the event of any unexpected sales shortfall. If we fail to
make these adjustments quickly, our operating results and financial condition
could be materially adversely affected.
Your ownership will be diluted.
The offering price per share is substantially in excess of the net
tangible book value of our common stock. You will experience immediate and
substantial dilution in the net tangible book value of your investment. In
addition, we anticipate initiating a stock option plan. Issuance of
securities pursuant to plan or otherwise may also dilute your ownership
interest. See "Dilution."
Our quarterly financial results may fluctuate significantly.
Our quarterly operating results will likely fluctuate significantly in
the future as a result of a variety of factors, some of which are outside
our control. These factors include:
* General economic and market conditions;
* Pricing changes in the industry;
* The amount and timing of orders from retailers;
* The timing of shipments and new product introductions;
* Manufacturing delays;
* Seasonal variations in the sale of our products;
* Product mix; and
* Pricing changes in our products.
Due to these factors, our quarterly operating results may fall below
any market expectations that may arise. If this happens, the trading price
of our common stock would likely decline, perhaps significantly.
There has never been a market for our common stock.
9
11
Prior to this offering, there has been no public trading market for
our common stock and there can be no assurances that a public trading market
for the common stock will develop or, if developed, will be sustained.
Although we hope to be accepted for quotations on the Over the Counter
Bulletin Board, there can be no assurance that a regular trading market will
develop for the common stock offered through this prospectus, or, if
developed, that it will be maintained.
There is no assurance of future dividends being paid.
At this time we do not anticipate paying dividends in the future,
but instead plan to retain any earnings for use in the operation of
our business and to fund future growth. We are under no legal or
contractual obligation to declare or to pay dividends, and the timing
and amount of any future cash dividends and distributions is at the
discretion of our Board of Directors and will depend, among other
things, on our future after-tax earnings, operations, capital
requirements, borrowing capacity, financial condition and general
business conditions.
Risks associated with forward looking statements.
This prospectus contains certain forward-looking statements
regarding management's plans and objectives for future operations,
including plans and objectives relating to our planned marketing
efforts and future economic performance. The forward-looking
statements and associated risks set forth in this prospectus include or
relate to:
(1) our ability to obtain a meaningful degree of consumer acceptance
for our products now and in the future,
(2) our ability to market our products on a global basis at competitive
prices now and in the future,
(3) our ability to maintain brand-name recognition for our products now
and in the future,
(4) our ability to maintain an effective distributors network,
(5) our success in forecasting demand for our services now and in the
future,
(6) our ability to maintain pricing and thereby maintain adequate profit
margins,
(7) our ability to achieve adequate intellectual property protection and
(8) our ability to obtain and retain sufficient capital for future
operations.
10
12
USE OF PROCEEDS
We will receive proceeds to the extent that any holder of a warrant
decides to exercise such warrant and intend to use the
proceeds from the exercise of any of the 2,000,000 warrants for
retirement of any outstanding amounts of our $500,000
available line of credit (none outstanding at October 24, 2001; interest
at prime plus 1.25% (6.75% at October 24,2001) and the $4.5 million term
note ($4,440,512 outstanding at October 24, 2001; interest at prime plus
.75% (6.25% at October 24, 2001) at Bank Midwest and for general corporate
purposes; however, there can be no assurance that all or any portion of
these shares will be sold. The proceeds of the $4.5 million term note were
used to purchase all of the outstanding common stock of Cycle Country
Accessories Corp. (Iowa) as further described in the Overview of Management's
Discussion and Analysis on page 14. If all of the
2,000,000 shares of common stock offered by us are purchased at $4.00,
we will receive gross proceeds of $8,000,000.
If less than all of the 2,000,000 warrants are exercised,
we will use any proceeds raised first for the retirement of debt at
Bank Midwest then any remaining funds will be used for general corporate
purposes.
We expect to incur expenses of approximately $142,500 in connection
with the registration of the shares.
DETERMINATION OF OFFERING PRICE
Prior to this offering, there has been no market for our common
stock. The offering price of the shares was arbitrarily determined and
bears no relationship to assets, book value, net worth, earnings,
actual results of operations, or any other established investment
criteria. Among the factors considered in determining the price were
our historical sales levels, estimates of our prospects, the
background and capital contributions of management, the degree of
control which the current shareholders desired to retain, current
conditions of the securities markets and other information.
DIVIDEND POLICY
It is our present policy not to pay cash dividends and to retain
future earnings for use in the operations of the business and to fund
future growth. Any payment of cash dividends in the future will be
dependent upon the amount of funds legally available, our earnings,
financial condition, capital requirements and other factors that the
Board of Directors may think are relevant.
11
13
DILUTION
As of June 30, 2001, the pro forma net tangible book value of our
common stock was $948,127 or $0.26 per share of common stock outstanding.
The pro forma net tangible book value of our common stock is calculated as the
tangible assets less total liabilities of Cycle Country Accessories Corp. (a
Nevada corporation). See "Management's Discussion and Analysis" on page 13 and
"Unaudited Pro Forma Financial Information" on page F-35 for a detailed
explanation of the nature and terms of the transactions which have occurred and
have been reflected in the calculation of the pro forma net tangible book
value. Dilution per share represents the difference between the amount paid
per share by purchasers in this Offering and the pro forma net tangible book
value per share after the Offering. All shares of common stock in this
offering are being issued by Cycle Country Accessories Corp. (a Nevada
corporation). Subsequent to the transactions described in "Management's
Discussion and Analysis" and "Unaudited Pro Forma Financial Information",
Cycle Country Accessories Corp. (a Nevada corporation) will be the successor
company to the business activities of Cycle Country Accessories Corp. (an
Iowa corporation). After giving effect to the sale by us of 2,000,000 shares
of common stock pursuant to the exercise of outstanding warrants and the
application of the net proceeds thereof, the pro-forma net tangible book
value of our common stock at June 30, 2001 would have been $948,127 or $1.59
per share. This represents an increase in our net tangible book value per
share of $1.33 to our existing shareholders and an immediate dilution of
$2.41 or 60% per share to the purchasers of our common stock. The following
table illustrates this dilution on a per share basis:
Exercise Price per share $ 4.00
Net Tangible Book Value per share before sale $ 0.26
Increase Per Share attributable to sale of these shares $ 1.33
-------
Pro Forma Net Tangible Book Value after offering $ 1.59
-------
Dilution per share to New Investors $ 2.41
=======
The following table summarizes as of August 21, 2001, the number
of shares purchased as a percentage of our total outstanding shares,
the aggregate amount paid for these shares, the aggregate amount paid
figured as a percentage of the total amount paid, and the average
amount paid per share for these shares (see "Certain Transactions with
Management and Others" for a description of these transactions). For
purposes of this table, the sale to the public of these shares is
assumed to have taken place on August 21, 2001.
Shares Purchased Total Consideration Paid Average Price
Number Percent Amount Percent per Share
------ ------- ------ ------- -------------
Existing Shareholders 3,625,000 64.45% $ - 363 0.005% $ 0.0001
Existing Shareholders 2,000,000 35.55% $ 8,000,000 99.995% $ 4.00
--------- ------ ----------- ------ --------
Total 5,625,000 100.00% $ 8,000,363 100.00% $ 1.42
12
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following is a discussion of our results of operations
and our liquidity and capital resources. 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 "Risks Associated With Forward
Looking statements". The following should be read in conjunction
with our Financial Statements and the related Notes included
elsewhere in this prospectus.
Overview
--------
Cycle Country Accessories Corp. (a Nevada corporation)
was incorporated in the state of Nevada on August 15, 2001 as a C
corporation. The initial capitalization consisted of 3,625,000
shares of common stack. On August 21, 2001, we entered into an
agreement to purchase all of the outstanding common stock of
Cycle Country Accessories Corp. (an Iowa corporation) for
$4,500,000 in cash and 1,375,000 shares of our common stock.
Cycle Country Accessories Corp. (an Iowa corporation) was
originally incorporated on August 8, 1983 and is
headquartered in Milford, Iowa. Since both Companies are under
common control by virtue of majority ownership and common
management by the same three individuals, this transaction was
accounted for in a manner similar to a pooling of interests. We
used the proceeds from a $4,500,000 term note (the "Note")
entered into with a commercial lender to purchase all of the
outstanding common stock of Cycle Country Accessories Corp. (an
Iowa corporation). The Note is collateralized by all of the
Companies assets, is payable in monthly installments from
September 2001 to July 2006, which includes principal and
interest at prime + 0.75% (6.25% at October 24, 2001), with a
final payment upon maturity on July 25, 2006. The monthly
payment is $90,115 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 any of the
2,000,000 outstanding warrants shall be applied to any
outstanding balance on the Note. At October 24, 2001, $4,440,512
was outstanding on the Note.
On August 21, 2001, Cycle Country Accessories Corp. (an
Iowa corporation) acquired its operating facility, which
consisted of land and buildings with a fair value of $1,500,000,
from certain stockholders. The consideration given was comprised
of $300,000 in cash and 390,000 shares of common stock of Cycle
Country Accessories Corp. (a Nevada corporation). On August 14,
2001, Cycle Country Accessories Corp. (an Iowa corporation)
merged with Okoboji Industries Corporation. Since both Companies
were owned and managed by the same three individuals, this
transaction was also accounted for in a manner similar to a
pooling of interests.
As a result of the transactions described above, we are the
Successor Company to the business activities of the
aforementioned companies.
We are the one of the world's largest manufacturers of
accessories for all terrain vehicles ("ATVs"). We manufacture a
complete line of branded products, including snowplow blades,
lawnmowers, spreaders, sprayers, tillage equipment, winch mounts,
utility boxes, wheel covers and an assortment of other ATV
accessory products. These products custom fit essentially all
ATV models from Honda, Yamaha, Kawasaki, Suzuki, Polaris, Arctic
Cat and Bombardier. We design, engineer and assemble all
accessory products at our headquarters and subcontract the
manufacturer of many original equipment components.
13
15
We are recognized as a leader in the manufacturing of high
quality ATV accessory products. This reputation has enabled us
to develop key, long term relationships with ATV manufacturers
and distributors. We have sold our products to 16 distributors
in the United States for the past 20 years. The distributors
call on and sell Cycle Country products to virtually every ATV
dealer in North America. Similar strategic arrangements have
also been developed internationally. We currently have 19
international distributors distributing our products to 35
countries.
Additionally, we are the largest manufacturer of golf car
hubcaps in the world. We estimate that we maintain 95% of the
Original Equipment Manufacturer hubcap business. We have always
sold directly to golf car manufactures and we believe that we
have an excellent distribution network that reaches the after
market throughout the United States, Europe and Asia.
Results of Operations - Year ended September 30, 2000 vs Year
ended September 30, 1999
-------------------------------------------------------------
OVERALL Revenues for the year ended September 30, 2000
increased $1,309,969, or 11.4%, to $12,779,471 from $11,469,502
for the year ended September 30, 1999. Cost of goods sold increased
$1,279,773, or 16.3%, to $9,138,162 for the year ended September 30,
2000 from $7,858,389 for the corresponding period in fiscal 1999.
Gross profit as a percentage of revenue was 28.5% in fiscal 2000
compared to 31.5% in fiscal 1999. Selling, general and administrative
expenses decreased $66,849, or 2.5%, to $2,646,331 for the year
ended September 30, 2000, from $2,713,180 for the corresponding period
in fiscal 1999. The decrease in operating expenses is primarily
the result of decreases of approximately $82,000 in sales & marketing
rebates, approximately $21,000 in freight costs, approximately $12,000
in advertising, and approximately $10,000 in salaries & related benefits
coupled with increases of approximately $25,000 in office expense & shipping
supplies, approximately $20,000 in fuel costs and approximately $10,000 in
vehicle repairs. Non-operating income decreased $72,184, or 73.7%, to
$25,798 for the year ended September 30, 2000, from $97,982 for
the corresponding period in fiscal 1999. The decrease is
primarily due to decreases of approximately $25,000 in royalty
income, approximately $27,000 in truck lease income and
approximately $28,000 for the write-off of an investment of the
Company during fiscal 2000 coupled with an increase of
approximately $7,000 from gains on sale of equipment during
fiscal 2000.
BUSINESS SEGMENTS As more fully described in Note 15 to
the Combined Financial Statements, the Company operates in 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
supplier) and are vertically integrated in our Plastic Wheel
Cover segment.
ATV ACCESSORIES Revenues for the year ended September 30,
2000 increased $1,286,799, or 13.2%, to $11,022,322 from
$9,735,523 for the year ended September 30, 1999. The increase
was largely attributable to an increase in unit volume of our
Snowplow Blades which accounted for approximately $880,000 of the
increase in revenue of the ATV Accessories segment.
Approximately $340,000 of the increase in revenue was caused by
the introduction of a new product, an Electric Blade Lift, during
fiscal 2000. The remaining increase is attributable to a general
increase in product sales during the fiscal year.
14
16
Cost of goods sold increased $858,437, or 12.4%, to
$7,764,895 for the year ended September 30, 2000 from $6,906,458
for the corresponding period in fiscal 1999. The increase is
attributable to the increase in revenues during the same period.
Gross profit as a percentage of revenue was 29.6% in fiscal 2000
compared to 29.1% in fiscal 1999. The increase in gross profit
for fiscal 2000 was primarily due to raw material cost savings
due to additional purchases during fiscal 2000.
PLASTIC WHEEL COVERS Revenues for the year ended September
30, 2000 increased $142,703, or 7.7%, to $1,978,307 from
$1,835,604 for the year ended September 30, 1999. The increase
in revenue for the period was attributable to an increase in unit
volume of plastic wheel covers sold.
Cost of goods sold increased $239,288, or 36.1%, to
$902,157 for the year ended September 30, 2000 from $662,869 for
the corresponding period in fiscal 1999. The increase was
attributable to the increase in revenue, a better allocation of
manufacturing overhead between the ATV Accessories & Plastic
Wheel Cover segments and additional work that needed to be
performed on some plastic wheel covers during fiscal 2000. The
additional work required during fiscal 2000 is not indicative of
future costs and should not be a reoccurring cost in fiscal 2001.
Gross profit as a percent of revenue was 54.4% in fiscal 2000
compared with 63.9% in fiscal 1999. The decrease in gross profit
for fiscal 2000 was primarily due the increases in cost of goods
sold as discussed above.
GEOGRAPHIC REVENUE During fiscal 2000, revenue in the
United States increased by $1,393,975, or 13.2%, to $11,989,031
for the year ended September 30, 2000 from $10,595,056 for the
corresponding period in fiscal 1999. The increase in revenue is
due to the large amount of snow received in the United States
during fiscal 2000 which caused an increase in sales of Snow Plow
Blades and other related equipment. Revenue from other countries
decreased by $84,006 during fiscal 2000. The decrease in
revenues is primarily due to fewer sales in the Central & South
America region.
Results of Operations - Nine months ended June 30, 2001 vs Nine
months ended June 30, 2000
-------------------------------------------------------------------
OVERALL Revenues for the nine months ended June 30, 2001
remained relatively constant, decreasing less than 1%, or $50,470
to $10,004,436 from $10,054,906 for the nine months ended June
30, 2000. Cost of goods sold also held relatively constant, decreasing
1.2%, or $87,359 to $6,931,328 for the nine months ended June 30,
2001 from $7,018,687 for the corresponding period in fiscal 1999.
Additionally, gross profit as a percentage of revenue was
30.7% for the nine months ended June 30, 2001 compared to 30.2%
for the corresponding period in fiscal 1999. Selling, general and
administrative expenses increased $168,864, or 8.6%, to $2,132,002 for
the nine months ended June 30, 2001 from $1,963,138 for the corresponding
period in fiscal 1999. The increase in operating expenses is primarily a
result of additional spending of approximately $45,000 in professional fees,
approximately $39,000 in advertising, approximately $37,000 in sales &
marketing rebates, approximately $24,000 in insurance,
approximately $20,000 each in travel costs and vehicle repairs,
and approximately $15,000 in fuel costs coupled with a decrease of
approximately $30,000 in freight costs. Non-operating income increased
$62,603, or 1095.6%, to $68,317 for the nine months ended June 30, 2001,
from $5,714 for the corresponding period in 1999. The increase is primarily
due to increases of approximately $12,000 of interest income,
approximately $32,000 of consulting income earned coupled with a
decrease of approximately $9,000 in royalty income during the
nine months ended June 30, 2001 and the write-off of an
investment of the Company of approximately $28,000 during fiscal
2000.
15
17
ATV ACCESSORIES Revenues for the nine months ended June
30, 2001 remained relatively constant, increasing $30,860, or
0.4%, to $8,654,437 from $8,623,577 for the nine months ended
June 30, 2000.
Cost of goods sold decreased $146,240, or 2.4%, to
$5,911,398 for the nine months ended June 30, 2001 from
$6,057,638 for the corresponding period in fiscal 2000. The
decrease is due to a decrease in material costs during the nine
months ended June 30, 2001 as compared to the corresponding
period in fiscal 2000. Gross profit as a percent of revenues was
31.7% for the nine months ended June 30, 2001 compared to 29.8%
for the corresponding period in 2000. The increase in gross
profit for the nine months ended June 30, 2001 was attributable
to the factor discussed above.
PLASTIC WHEEL COVERS Revenues for the nine months ended
June 30, 2001 decreased by $87,825, or 5.6%, to $1,493,401 from
$1,581,226 for the nine months ended June 30, 2000. The decrease
in revenue was attributable to changes in current market conditions.
Our new product will address the needs of the new market.
Cost of goods sold increased $14,354, or 3.3%, to $448,451
for the nine months ended June 30, 2001 from $434,097 for the
corresponding period in fiscal 2000. Gross profit as a percent
of revenue was 70.0% for the nine months ended June 30, 2001
compared to 72.5% for the corresponding period in fiscal 2000.
The decrease in gross profit for the nine months ended June 30,
2001 was attributable to lower unit volume which absorbs more
manufacturing overhead on a per unit basis.
GEOGRAPHIC REVENUE Revenue in the United States remained
relatively constant, decreasing $41,145, or 0.4%, to $9,357,761
from $9,398,906 for the nine months ended June 30, 2000. Revenue
from other countries also remained relatively constant,
decreasing $9,325, or 1.4%, to $646,675 from $656,000 for the
nine months ended June 30, 2000.
Liquidity and Capital Resources
Our primary source of liquidity has been cash generated by
our operations.
Cash and cash equivalents were $368,797 at September 30,
2000 compared to $516,332 as of June 30, 2001. Net working
capital was $2,989,420 at September 30, 2000 compared to
$2,988,219 at June 30, 2001. Inventories decreased from
$2,791,317 at September 30, 2000 to $2,291,387 at June 30, 2001.
At September 30, 2000, we had a short-term note payable of
$100,000 that has been subsequently repaid. As of June 30, 2001,
we had no outstanding long-term or short-term debt.
On August 23, 2001, we received $4,500,000 from a term note at Bank
Midwest which was used to purchase all of the outstanding common stock
of Cycle Country Accessories Corp. (Iowa) as further described in the
Overview of Management's Discussion and Analysis on page 14. Thje $4.5 million
term note is collateralized by all of the company's assets, is payable in
monthly installments from September 2001 until July 2006, which includes
principal and interest at prime + 0.75% (6.25% at October 24, 2001), with
a final payment upon maturity on July 25, 2006. The monthly payment
of $90,115 is applied to interest first based on the interest rate in
effect, with the balance applied to principal. The interest rate is adjusted
daily. Any proceeds from the issuance of common stock received from the
exercise of the 2,000,000 warrants shall be applied to any outstanding balance
on the $4.5 million term note. At October 24, 2001, $4,440,512 was
outstanding on the $4.5 million term note.
The Company also maintains a line of credit agreement with
a commercial lender providing for borrowings for the lesser of
$500,000 or 80% of eligible accounts receivable and 35% of eligible
inventory. The line of credit agreement is dated August 21, 2001 and matures
on August 25, 2002. The line of credit bears interest at the prime
rate + 1.25%, is collateralized by all of the Companies assets. At
September 30, 2000 and June 30, 2001, and October 24, 2001, there were no
amounts outstanding under this line of credit agreement.
16
18
Consistent with normal practice, management believes that
the Company's operations are not expected to require significant
capital expenditures during fiscal year 2001. Management
believes that existing cash balances, cash flow to be generated
from operating activities and available borrowing capacity under
its line of credit agreement 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.
Forward Looking Statements
Certain statements in this report are forward-looking statements
within the meaning of the federal securities laws. Although the
Company believes that the expectations reflected in its forward-
looking statements are based on reasonable assumptions, there are
risks and uncertainties that may cause actual results to differ
materially from expectations. These risks and uncertainties include,
but are not limited to, competitive pricing 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, and the impact of marketing and cost-
management programs.
Recent Accounting Pronouncements
SFAS No. 141, "Business Combinations", establishes financial
accounting and reporting standards for business combinations and
supercedes APB Opinion No. 16, "Business Combinations" and SFAS No.
38, "Accounting for Preacquisition Contingencies of Purchased
Enterprises". All business combinations in the scope of SFAS No. 141
are to be accounted for using the purchase method of accounting.
Adoption of SFAS No. 141 is not expected to have a material effect on
the Company, inasmuch as the Company has historically not participated
in any business combinations.
SFAS No. 142, "Goodwill and Other Intangible Assets", establishes
financial accounting and reporting standards for acquired goodwill and
other intangible assets and supercedes APB Opinion No. 17, "Intangible
Assets". SFAS No. 142 establishes standards as to how intangible assets
that are acquired (but not acquired in a business combination) should
be accounted for in financial statements upon their acquisition.
In addition, SFAS No. 142 establishes standards how goodwill and other
intangible assets should be accounted for after they have been
initially recognized in the financial statements. Adoption of SFAS
No. 142 is not expected to have a material effect on the Company,
inasmuch as the Company has historically not had a material amount of
intangible assets and no goodwill recorded in the financial statements.
17
19
BUSINESS
GENERAL
Cycle Country Accessories Corp. (a Nevada corporation) (the Successor
Company) was incorporated in the state of Nevada on August 15, 2001 as a
C corporation. On August 21, 2001, we entered into an agreement to purchase
all of the outstanding common stock of Cycle Country Accessories Corp. (an
Iowa corporation) (the Predecessor Company) for $4,500,000 in cash and
1,375,000 shares of our common stock. Cycle Country Accessories Corp. (an
Iowa corporation) (the Predecessor Company) was originally incorporated on
August 8, 1983 and is headquartered in Milford, Iowa. In addition, on
August 14, 2001, Cycle Country Accessories Corp. (an Iowa corporation)
(the Predecessor Company) merged with Okoboji Industries Corporation.
Okoboji Industries Corporation manufactured the plastic wheel covers for
what is considered our Plastic Wheel Cover segment. As a result of these
transactions we are the Successor Company to the business activities of both
companies.
We are one of the world's largest manufacturers of accessories for all
terrain vehicles ("ATVs"). We manufacture a complete line of branded
products, including snowplow blades, lawnmowers, spreader, sprayers, tillage
equipment, winch mounts, utility boxes, wheel covers and an assortment of
other ATV accessory products. These products custom fit essentially all
ATV models from Honda, Yamaha, Kawasaki, Suzuki, Polaris, Arctic Cat and
Bombardier. We design, engineer and assemble all accessory products at
our headquarters and subcontract the manufacturer of many original
equipment components. Additionally, we recently made the decision to
enter the Lawn and Garden industry.
We are recognized as a leader in the manufacturing of high
quality ATV accessory products. This reputation has enabled us to
develop key, long term relationships with ATV manufacturers and
distributors. We have sold our products to 16 distributors in the
United States for the past 20 years. The distributors call on and
sell Cycle Country products to virtually every ATV dealer in North
America. Similar strategic arrangements have also been developed
internationally. We currently have 19 international distributors
distributing our products to 35 countries.
Additionally, we are the largest manufacturer of golf car hubcaps
in the world. We estimate that we maintain 95% of the original
equipment manufacturer ("OEM") hubcap business. We have always sold
directly to golf car manufacturers and we believe that we have an
excellent distribution network that reaches the after market throughout
the United States, Europe and Asia.
Our three largest customers accounted for approximately 45% of our
net sales in the year ending September 30, 2000. These three customers
have represented a significant amount of our business every year for at
least the past 16 years. While the percentage of total net sales these
customers represent should decrease as our sales grow in other areas, such
as Lawn and Garden, we do anticipate these customers will continue to
represent a significant amount of our business.
INDUSTRY OVERVIEW
ATV Accessories:
----------------
In today's ATV market there are several OEMs competing for market
share. Honda has been the world leader followed by Polaris, Yamaha,
Kawasaki, Suzuki, Arctic Cat and Bombardier. According to ATV
Magazine, in 2000 there were 800,000 ATV's sold worldwide. This
represented a 19.2% increase over 1999. Of those 800,000 units 75%
were Utility and 40% were Sport Quads. We consider the Utility
Division to be our target market.
Our market research tells us that the manufacturers of garden
tractors and utility vehicles need accessories similar to those
available in the ATV industry. We are currently working with some of
these companies and expect to substantially expand that market in the
very near future. In addition to our accessory line we manufacture
several products under private label and we intend to expand on that
market.
18
20
Wheel Covers:
-------------
The golf car industry continues to expand each year and is
currently dominated by E-Z-Go, Club Car and Yamaha. Global, Par Car
and a few other OEM's compete for the remainder of the market. We
estimate that we maintain 95% of the OEM hubcap business and are the
largest manufacturer of golf car hubcaps in the world. We have always
sold directly to all the golf car manufacturers and we have an
excellent distribution network throughout the United States, Europe
and Asia to reach the after market.
COMPANY HISTORY
Cycle Country's market research has been a continued work in
process for the past 20 years and that work still continues today.
Our success was accomplished by constant market research and a constant
effort to adjust to the changes in the industry. When we started in the
ATV accessory industry, ATV's were much smaller. They were small 3-wheeled
vehicles with two-wheel drive. Today they are powerful 4-wheel drive
vehicles capable of doing many more tasks. The ATV industry falls within
both recreational and machinery industry depending on the product and
consumer. In 2000, approximately 800,000 units were sold worldwide and
there are approximately 3 million units on the market today. Prospective
ATV buyers lean toward a new purchase because of the strides manufacturers
have made in product development. Partly due to our line of utility
products the ATV manufacturers have focused their efforts to incorporate
four wheel drive and making larger ATV's for greater hauling and work
capacity.
The idea for our business was born in 1981 when Jim Danbom
recognized that an ATV could be used to plow snow. He manufactured
and sold 100 snow plow kits that year. He sold more the next year and
then in 1983 decided to incorporate. The business has grown every
year since. Now in addition to snowplows Cycle Country manufactures
and sells a full range of farm products designed for the new and more
powerful ATV's. These products include mowers, sprayers, 3-point
hitch, moldboard plow, disc harrow, furrower, cultivator, rake, row
planter, and seeder. We also manufacture winch mounts, chains, gun
racks, and a very unique 5th wheel trailer.
Over the last several years, we have expanded into manufacturing
injected molded wheel covers primarily for the golf cart industry. We
are now crossing over into the lawn & garden industry with some
current products as well as creating new items specifically for that
industry.
PRODUCTS
ATV Accessories
---------------
We offer a complete line of ATV accessories. Our products
enhance the functionality and versatility of the ATV. The ATV was
initially designed as a recreational vehicle but is rapidly becoming a
multi-purpose vehicle serving both recreational and utility functions.
19
21
Our products help ATV owners perform many of their utility needs. We
estimate that approximately 75% of all the ATV's currently sold are
for these utility functions. We offer a standard one-year warranty on
all products except snow plows, on which we offer a limited life time
warranty.
Seven manufacturers dominate the ATV industry. We manufacture
accessories for all of the major manufacturer's ATV models.
We manufacture our products from high-quality parts produced by
local metal fabricators and metal stampers, with final assembly and
packaging performed at our headquarters. The following lists the
major ATV accessory products and their proportion of total sales of
the ATV accessory segment for the year ending September 30, 2000, which
approximates 86% of total company sales: (a) Blades: 66%, (b) Mowers: 9%,
(c) Winches and Winch Mounting Kits: 7%, (d) Tillage Equipment: 3%,
(e) Sprayers: 3%, (f) Spreaders: 2%. "Other" products comprise the
remaining 10% of our sales.
Our major ATV accessory products include:
Blades.
We manufacture three sizes of steel straight blades which include
a 42", 48" and 60" models. We also offer a 52" State Plow, a Power
"V" blade and a 60" plastic blade. Standard blade configuration
features a universal manual lift or a universal electric lift. The
blades can also be lifted with a winch.
Winches and Winch Mounts.
We offer a complete line of electric winches and winch mounts to
fit all ATV models. Models include 1,500 and 2,000 pound capacity
winches.
Mowers.
We offer two mowing systems, the "Quicksilver 54 Finish Cut" mower
and the "Rough Cut" mower. The Quicksilver 54 is a 54" finish cut mower
that can be mounted to the front of an ATV or towed behind any tractor or
ATV. It is powered by a 10.5 horsepower engine by Briggs & Stratton. The
Rough Cut is a 48" mower that is designed to cut thick weeds and overgrown
brush. It's powered by a 12.5 horsepower engine by Briggs & Stratton, and
is pulled behind the ATV. The Rough Cut offers an offset hitch, which
allows mowing to the left, right or directly behind the ATV.
Tillage Equipment.
We manufacture a three-point hitch that transforms the ATV into a
small working tractor. The three-point hitch is designed to fit on
most four-wheel drive ATVs. The hitch is effective because it locks
in the rear suspension and has built-in float to provide the smooth
operation of attached implements. The three-point hitch meets
engineering standards for zero category hitches. The hitch design
allows the use of implements such as cultivators, moldboard plow, disc
harrow, furrower, rake, one row planter and a rear blade. We
manufacture and sell all of these implements.
20
22
Sprayers.
We offer two styles of sprayers. The first is rack-mounted on
the ATV and the other is trailer mounted. Rack-mounted sprayers are
offered in both 15 and 25-gallon sizes. There are three different
models of rear-mounted sprayers available depending on spraying needs:
Econo Spot, Deluxe and Ag-Commercial. Trailer mounted sprayers are
offered in 25 and 55 gallon sizes. Both the rack-mounted sprayers and
the trailer-mounted sprayers can be purchased with either a 43" or
120" spray boom.
Spreaders.
We offer a 100-pound capacity hopper for front or rear mounting.
This product is used for spreading everything from fertilizer to seed.
Other.
Additionally, we offer a wide array of products such as tire
chains, rack boxes, CV boot guards, spotlights, trailers, gun racks
and bed lift kits for select utility vehicles. We also recently
entered the lawn & garden market, and are currently working with
several OEM's to design a new line of accessories for small tractors.
We are also pursuing retail outlets as markets for these products as
well. The response that we have experienced suggests that this market
will expand at an accelerated rate. Sales of these products are
expected to begin in the third quarter of fiscal 2001 and we believe
that this market will represent sales increases in excess of $1
million annually for the next three years.
Wheel Covers
------------
We are a leading producer of injection-molded plastic specialty
vehicle wheel covers for vehicles such as golf cars, riding lawn
mowers and light duty trailers. This segment represents approximately
14% of our total sales. Wheel cover products include 6", 8" and 10"
sizes offered in a variety if color options in both hot-stamped or
metalized options.
PRODUCT DEVELOPMENT
We have remained competitive and grown over the past years by designing
and marketing new products continually. We employ an experienced staff
of three product design professionals that work with CAD/CAM technology
in the design of new products. This R&D group serves two primary functions:
product retrofitting and new product design. Retrofitting of existing
products accounts for roughly 50 percent of the engineers' time. Management
considers the engineering group a critical factor to the company's future and
current success.
21
23
New products introduced in 1999 included: the Work Power 2000
universal blade system, electric blade lift, 52" State Plow and
agricultural rake. New products introduced in 2000 included: the
Light Force plastic snow blade, Grablight, Quicksilver 54 mower, front
and rear steel mesh baskets and a new rear drop steel mesh basket.
Management feels that adding new products for the ATV accessory market
is a key to continued growth.
There are no products presently being developed that will require
a material investment of our resources.
PATENTS AND TRADEMARKS
We maintain trademarks for all of our product names. In
addition, we maintain patents for wheel covers, 3-point hitches, Snow
Mobile Chariot, rack utility boxes, work power lift system, rub block
on work power lift, grablight and the 5th wheel trailer.
SUPPLIERS
During the year ended September 30, 2000 we purchased approximately
$4,554,000 of goods from Simonsen Iron Works, Inc., our largest supplier who
does the majority of our iron works. This represented approximately 59%
of our raw goods purchases during that year. In order to reduce the
possibility of any adverse consequence of this concentration, over the
past two years we have begun using additional suppliers.
MARKETING - CHANNELS OF DISTRIBUTION:
ATV Accessories:
----------------
Domestic Distribution
We distribute our products domestically through 16 distributors
that specialize in motorcycle and ATV accessories. These distributors
are either regional or national. We believe that virtually every ATV
dealer in the United States is served by at least two of these
distributors. Because of this overlap we believe that we would
experience a minimal decline in sales if any one of our distributors
decided to stop selling our products. Most of these distributors have
been customers of Cycle Country since we first began selling ATV
accessories. Our most recent distributor was added approximately four
years ago.
During the Year ended September 30, 2000, domestic accessory sales
represent approximately 93% of our total ATV Accessory sales. For 2000
our largest distributor accounted for 24% of our domestic accessory sales
and our five largest distributors accounted for 74% of our domestic
accessory sales.
22
24
We are currently negotiating with lawn & garden equipment
manufacturers regarding the development of a product line similar to
the one offered for the ATV market. We are also working with national
retail outlets for potential distribution.
International Distribution
We are rapidly expanding our international distributor network.
There are currently 19 distributors that sell our products in 35
countries. This department is in its 5th year of existence and has
provided us with a profitable expansion of the ATV Accessory segment
of business. We were recognized as the Iowa Small Business Exporter
of the year in 1997 and received the Governor's Export Award in that
same year.
International accessory sales represent approximately 7% of our
total ATV Accessory sales. We believe that the international market
will be a significant contributor to our long-term sales growth.
Wheel Covers:
-------------
We market wheel covers to virtually all golf car manufacturers.
We estimate we provide approximately 90% of all wheel covers sold to
these golf car manufacturers. Sales to these golf car OEMs are made
directly by our sales force.
We also market our wheel covers to golf courses and golf car
dealers through an extensive network of golf equipment distributors.
Management estimates that this distributor network allows us to
achieve an 80% market share of the golf car after market wheel cover
sales.
Sales and Promotion
ATV Accessories:
----------------
We employ a sales force of five people to market our ATV
products. Our primary method of penetrating the market of ATV dealers
is to leverage the sales work to the representatives employed by our
distributors. These representatives call on every ATV dealer in the
United States and each of the 35 countries represented by our
distributors. We view our job as educating these representatives so
they can effectively sell our product line.
Each year we produce a catalog of our entire product line and
make a new video that demonstrates the applicability of our products.
Distributors are allowed unlimited quantities of these sales tools.
Sales programs such as an early order program that allows for a
discount off of distributor price and an annual rebate incentive based
on achievement of predefined sales targets are utilized to promote the
product line throughout the year.
Our representatives exhibit at several international trade shows
each year in conjunction with our distributors. These representatives
also travel to each of our domestic distributors each year to
23
25
demonstrate new products and address concerns that may arise. In
addition, we attend the Dealernews International Powersports Dealer
Expo to demonstrate our new products to our distributors as well as
ATV dealers.
Golf Market:
------------
The primary means we use to sell our wheel covers is to attend
semi-annual golf industry trade shows and produce a brochure for
distribution to interested parties. Distributor representatives
assist in after market sales.
Advertising
We advertise our ATV Accessories in national trade magazines,
professionally developed videos, annual catalog, magazine and
television advertising campaigns. Additionally we have an internet
site located at: www.cyclecountry.com.
COMPETITION
We are one of the largest ATV accessory manufacturers in the world.
Management estimates that we maintain a 50% market share in the
domestic ATV accessories market, with the next largest
manufacturer, Cambridge Metal and Plastics having an estimated 20%
share of the domestic market. Management also estimates that we
control approximately 50% of the international ATV market in the
countries in which we distribute. Additionally, management estimates
that we control 90% market share of the OEM golf car hubcap market and
80% of the golf car aftermarket.
As with any industry we are faced with competition. However, due
to our aggressive marketing and innovative product line, we maintain
the largest market share in the ATV Utility Accessory Market as well
as the wheel cover market. With our recent entry into the lawn &
garden market, our goal is to achieve a leading market share in that
market.
However, the markets for all of our products are competitive.
We expect the markets for our products to become even more competitive
if and when more companies enter them and offer competition in price,
support, additional value added services, and quality, among other factors.
LEGAL PROCEEDINGS
At times we are involved in various lawsuits in the ordinary
course of business. These lawsuits primarily involve claims for
damages arising out of the use of our products. As of the date of
this prospectus, we are not a party to any material legal proceedings,
other than two product liability cases, both of which involve a failed
winch switch. We currently carry two million dollars of product
liability insurance. Our attorneys for each case have informed us that
they do not anticipate any judgment exceeding our insurance coverage.
24
26
EMPLOYEES
As of the date of this prospectus we have 58 full-time employees,
including 33 in production, 5 in sales, 4 in administration, 10
general office, 3 in research and development and 3 drivers. We
presently have no labor union contract between us and any union and we
do not anticipate unionization of our personnel in the foreseeable
future. We believe our relationship with our employees is good. From
time to time, we hire part time employees, ranging from a minimum of 1
to a maximum of 5.
DESCRIPTION OF PROPERTY
Our principal office facility is a modern 78,000 square foot
facility located at 2188 Highway 86, Milford, Iowa, which is located
on 10 acres at the intersection of two major highways which allows for
easy entry and exit for truck traffic. This property is zoned light
industrial and will support an additional 74,000 square foot building
expansion. We own this facility and it is used as collateral for our Bank
Midwest loan. Additionally, we lease one storage building in Sioux
Rapids, Iowa, which is 35 miles from our principal facility on a month
to month lease at $500.00 per month.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND/FINANCIAL DISCLOSURE.
We have had no disagreements with our accountants on accounting
and financial disclosure.
25
27
MANAGEMENT
Directors and Executive Officers
Our directors, executive officers and key employees are as follows:
Director
Name Age Position Since
---- --- -------- ---------
Ron Hickman 51 President and Director 2001
Dick Downing 51 Vice President of Engineering -
Marie Matthieson 39 Vice President of Manufacturing -
Ken Horner 54 Vice President of Marketing -
Richard Wagner 75 Director 2001
Jim Danbom 58 Director 2001
L.G. Bob Hancher Jr. 48 Director 2001
Richard J. Groeneweg 55 Director 2001
Richard A. Wagner has served on various Boards throughout his career.
Mr. Wagner retired as President-CEO of Beneficial Finance as well as
serving on the Board of Directors. Mr. Wagner was employed by
Beneficial Finance from 1948-1982. He acted as a consultant and was on
the Board of First plus Financial from 1989 - 1996. Since 1996 Mr.
Wagner currently has operated a consulting business in the financial
field. Mr. Wagner will participate on the audit, compensation and
operations committees of the board. Mr. Wagner is currently serving a
two year term, which will end in 2003.
Jim Danbom was our founder and served as our president from 1981 to
2001. Mr. Danbom will lead the Operations and Planning committees of
the board. He has successfully created numerous businesses in his 25
year career. Having successfully created our products at Cycle
Country, Mr. Danbom will now focus on acquisitions and new product
development. Mr. Danbom is currently serving a three year term which
will end in 2004.
L.G. Bob Hancher Jr. has served as Chief Financial Officer of Commerce
Street Venture Group since 2000. Mr. Hancher graduated from Iowa
University in 1974. He served as Field Auditor and Territory Manager
of Shell Oil Co from 1974 to 1978 and the Director of Marketing of
Raynor Garage from 1978 to 1988. In 1993, Mr. Hancher co-founded, and
is now a past President of International Sports Management, leaving in
2000 to co-found Commerce Street Venture Group. Mr. Hancher will
participate on the compensation and audit committees of the board. Mr.
Hancher is currently serving a three-year term, which will end in 2004
Richard J. Groeneweg has served as the President of Residential
Resources Inc. since 1991. Residential Resources is an asset backed
lender specializing in the area of Bond securitization and IPO and
Pre-IPO work. Mr. Groeneweg, a native Iowan will participate on the
audit and compensation and planning committees. Mr. Groeneweg is
currently serving a two-year term, which will end in 2003.
Ron Hickman, who became our President on August 1, 2001, has been a
CPA for 25 years, and was our accountant from our inception until he
took a position as General Manager for us in 1996. Mr. Hickman will
be on the Operations and Planning committees of the company.
Mr. Hickman is currently serving a three-year term, which will end in
2004.
26
28
Directors' Remuneration
Our directors are presently not compensated for serving on the
board of directors.
Executive Compensation
Employment Agreements
We have entered into employment agreements with certain of our
key executive as follows:
We entered into an employment agreement with Ron Hickman, our
President, effective August 1, 2001 for a period of five years under
which we have hired him to continue as our President. The agreement
calls for Mr. Hickman to receive an annual income of $150,000 per year
plus a bonus equal to three percent (3%) of our net income before
taxes. The agreement also provides for Mr. Hickman to receive
standard benefits such as health insurance coverage, sick and vacation
time and use of an automobile.
We entered into an employment agreement with Jim Danbom, our
former President effective August 1, 2001 for a period of a minimum of
three years under which we have hired him to continue as a consultant
on an "as needed" basis. The agreement calls for Mr. Danbom to
receive an annual income of $75,000 per year and to receive standard
benefits such as health insurance coverage, sick and vacation time and
use of an automobile.
Summary Compensation Table
The following table sets forth the total compensation paid to or
accrued for the year ended December 31, 2000, 1999 and 1998 to our
Chief Executive Officer and our other most highly compensated executive
officers who were serving as executive officers at the end of our last
fiscal year.
27
29
Annual Compensation
Name and Other Restricted Securities All
Principal Annual Stock Underlying LTIP Other
Position Year Salary Bonus Compensation Awards Options Payouts Compensation
--------- ---- ------ ----- ------------ ---------- ---------- ------- ------------
Jim Danbom 2000 165,467 0 0 0 0 0 1,818(1)
President
1999 165,467 0 0 0 0 0 2,293(2)
1998 165,467 0 0 0 0 0 1,920(3)
Ronald Hickman, 2000 100,000 0 500(4) 0 0 0 6,469(5)
General Manager
1999 100,000 130,500 0 0 0 0 5,616(6)
1998 100,000 154,178 0 0 0 0 5,946(7)
(1) Comprised entirely of health insurance.
(2) Comprised entirely of health insurance.
(3) Comprised entirely of health insurance.
(4) Christmas bonus
(5) Comprised of $1,444 value of personal use of company auto and $5,025
paid for health insurance.
(6) Comprised of $1,510 value of personal use of company auto and $4,448
paid for health insurance.
(7) Comprised of $1,498 value of personal use of company auto and $4,448
paid for health insurance.
Stock Option Grants in the past fiscal year
We have not issued any grants of stock options in the past fiscal
year.
28
30
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding beneficialownership
of our common stock as of the date of this prospectus and as adjusted to
reflect the sale of all 3,625,000 shares which may potentially be sold
in connection with this registration statement, by (i) those shareholders
known to be the beneficial owners of more than five percent of the voting
power of our outstanding capital stock, (ii) each director, and (iii) all
executive officers and directors as a group:
Number of Percent Percent
Name and Address of Shares Before After
Beneficial Owner Owned Offering Offering (1)
---------------- --------- -------- --------
Ron Hickman 272,500 7.52% 0%
c/o Cycle Country Accessories Corp.
2188 Highway 86
Milford, Iowa 51351
Jim Danbom 813,750 22.45% 0%
106 Channel Court
Marco Island, FL 34145
Jan Danbom 813,750 22.45% 0%
106 Channel Court
Marco Island, FL 34145
Commerce Street Venture Group 381,250 10.52% 0%
10401 North Meridian St., Suite 300
Indianapolis, IN 46290
Go Company, LLC. 381,250 10.52% 0%
304 Lakeway Blvd.
Tool, TX 75413
Scenic Ventures, LLC 250,000 6.90% 0%
4562 Anderson Co. Rd. #404
Palestine, TX 75803
Magellan Capital Management, Inc. 250,000 6.90% 0%
9940 Glenburr Court
Fishers, IN 46038
First Equity Partners, LLC 209,000 5.77% 0%
614 East Commerce Street
Fairfield, TX 75840
All Directors and Officers 1,087,750 30.00% 0%
as a Group (8 Persons)
_____________
* Less than 1%
(1) Assumes the sale of all shares offered hereunder.
29
31
SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
ownership of our common stock by selling shareholders as of August 21,
2001. Unless otherwise indicated, none of the selling shareholders
has or had a position, office or other material relationship with us
within the past three years.
Ownership of Shares of Number of Ownership of Shares of
Common Stock Prior to Shares Common Stock After
Offering Offered Offering (1)
-------- ------------
Selling Shareholder Shares(1) Percentage Hereby Shares Percentage
------------------- --------- ---------- ------ ------ ----------
Jan Danbom (2) 1,223,125 21.74 1,223,125 0 *
Jim Danbom (3) 1,223,125 21.74 1,223,125 0 *
Ron Hickman (4) 450,000 8.00 450,000 0 *
Commerce Street 594,000 10.56 594,000 0 *
Venture Group (5)
Go Company LLC. (6) 594,000 10.56 594,000 0 *
Scenic Ventures LLC(7) 375,000 6.66 375,000 0 *
First Equity Partners 351,000 6.24 351,000 0 *
LLC (8)
Magellan Capital 460,000 8.18 460,000 0 *
Management, Inc. (9)
Dennis Severson (10) 148,500 2.64 148,500 0 *
Mike Hoeppner (11) 135,000 2.40 135,000 0 *
Exec Land Services
Inc. (12) 13,500 * 13,500 0 *
Dennis Patterson (13) 4,500 * 4,500 0 *
Charterbridge Financial 8,250 * 8,250 0 *
Services Inc. (14)
Madison & Wall 20,000 * 20,000 0 *
Mark Albrant (15) 500 * 500 0 *
Billy Andersen (15 500 * 500 0 *
Ronald Anderson (15) 500 * 500 0 *
Robyn Burtis (15) 500 * 500 0 *
Larry Bush (15) 500 * 500 0 *
Bradley Danbom (15) 500 * 500 0 *
Suzanna Dandy (15) 500 * 500 0 *
John De Ruyter (15) 500 * 500 0 *
Richard Downing (15) 500 * 500 0 *
Joseph Feuerhelm (15) 500 * 500 0 *
Kathy Feuerhelm (15) 500 * 500 0 *
Gregory Fink (15) 500 * 500 0 *
Brian Gosch (15) 500 * 500 0 *
Francene Grover (15) 500 * 500 0 *
Diane Guthrie (15) 500 * 500 0 *
Will Hesse (15) 500 * 500 0 *
Bradley Hickman (15) 500 * 500 0 *
Ken Horner (15) 500 * 500 0 *
Joseph Justice (15) 500 * 500 0 *
Richard Kain (15) 500 * 500 0 *
30
32
Jeffery Kennedy (15) 500 * 500 0 *
Corey Kimmet (15) 500 * 500 0 *
Robert Knaack (15) 500 * 500 0 *
John Laird (15) 500 * 500 0 *
Dennis Leach (15) 500 * 500 0 *
Kathleen Lewis (15) 500 * 500 0 *
David Lindemann (15) 500 * 500 0 *
Bonnie Manwarren (15) 500 * 500 0 *
Marie Matthiesen (15) 500 * 500 0 *
Chadron Moffitt (15) 500 * 500 0 *
Karen Mortenson (15) 500 * 500 0 *
Donna Nelson (15) 500 * 500 0 *
Sharon Orwig (15) 500 * 500 0 *
Heidi Payne (15) 500 * 500 0 *
Jenny Pick (15) 500 * 500 0 *
Janice Pohlman (15) 500 * 500 0 *
Eric Rasmussen (15) 500 * 500 0 *
Michael Schweitzer (15) 500 * 500 0 *
Adam Sparks (15) 500 * 500 0 *
Rickey Steuben (15) 500 * 500 0 *
Tim Swalve (15) 500 * 500 0 *
Mark Swanson (15) 500 * 500 0 *
Michael Taylor (15) 500 * 500 0 *
Roland Taylor (15) 500 * 500 0 *
Harlen Tesch (15) 500 * 500 0 *
Jonathan Thompson (15) 500 * 500 0 *
Paula Von Holdt (15) 500 * 500 0 *
Jim Welle (15) 500 * 500 0 *
Brett Wulff (15) 500 * 500 0 *
Ray Yaw (15) 500 * 500 0 *
Total 5,625,000 5,625,000 0
_______________________
* Indicates less than 1%
1) Assumes that all warrants are exercised and all shares
are sold pursuant to this offering and that
no other shares of common stock are acquired or disposed of by the
selling shareholders prior to the termination of this offering.
Because the selling shareholders may sell all, some or none of their
shares or may acquire or dispose of other shares of common stock, no
reliable estimate can be made of the aggregate number of shares that
will be sold pursuant to this offering or the number or percentage
of shares of common stock that each shareholder will own upon
completion of this offering.
31
33
2) Includes warrants to purchase 409,375 shares of common stock that
may be acquired at an exercise price of $4.00 per share commencing 120
days following the date of this prospectus.
3) Mr. Danbom was formerly our President. Includes warrants to
purchase 409,375 shares of common stock that may be acquired at an
exercise price of $4.00 per share commencing 120 days following the
date of this prospectus.
4) Mr. Hickman is currently our President. Includes warrants to
purchase 177,500 shares of common stock that may be acquired at an
exercise price of $4.00 per share commencing 120 days following the
date of this prospectus.
5) Includes warrants to purchase 212,750 shares of common stock that
may be acquired at an exercise price of $4.00 per share commencing 120
days following the date of this prospectus.
6) Includes warrants to purchase 212,750 shares of common stock that
may be acquired at an exercise price of $4.00 per share commencing 120
days following the date of this prospectus.
7) Includes warrants to purchase 125,000 shares of common stock that
may be acquired at an exercise price of $4.00 per share commencing 120
days following the date of this prospectus.
8) Includes warrants to purchase 142,000 shares of common stock that
may be acquired at an exercise price of $4.00 per share commencing 120
days following the date of this prospectus.
9) Includes warrants to purchase 210,000 shares of common stock that
may be acquired at an exercise price of $4.00 per share commencing 120
days following the date of this prospectus.
10) Includes warrants to purchase 49,500 shares of common stock that
may be acquired at an exercise price of $4.00 per share commencing 120
days following the date of this prospectus.
11) Includes warrants to purchase 45,000 shares of common stock that
may be acquired at an exercise price of $4.00 per share commencing 120
days following the date of this prospectus.
12) Includes warrants to purchase 4,500 shares of common stock that
may be acquired at an exercise price of $4.00 per share commencing 120
days following the date of this prospectus.
13) Includes warrants to purchase 1,500 shares of common stock that
may be acquired at an exercise price of $4.00 per share commencing 120
days following the date of this prospectus.
14) Includes warrants to purchase 750 shares of common stock that
may be acquired at an exercise price of $4.00 per share commencing 120
days following the date of this prospectus.
15) Current employee.
32
34
CERTAIN TRANSACTIONS
In August 2000 we entered into a $100,000 note payable agreement with
Land Mark Leasing, Inc., which is wholly owned by stockholders of Cycle
Country and is controlled by Jim Danbom, our former President. This note
accrued interest at 6.6% and was repaid with interest within 90 days.
During the nine months ended June 30, 2001, consulting fees of
approximately $31,600 were paid to the Company by Land Mark Leasing, Products,
Inc. Land Mark Products, Inc. is owned 10% by the stockholders of Cycle
Country. (unaudited)
We previously leased certain facilities from Jim Danbom, our former President
and Jan Danbom, his wife under operating lease agreements, which obligated us
for monthly lease payments of $25,320 per month through October 31, 2006 and
$4,000 per month through September 30, 2004. We purchased the building and
land that these leases pertained to on August 21, 2001.
In May 1996 we entered into a $30,000 note receivable with a stockholder.
This note accrued interest at 6.36% annually. As of September 30, 2000
there was an outstanding amount of $18,500 due under this note. All
amounts due under this note were repaid as of June 30, 2000.
In August 1995 we entered into a $30,000 note receivable with a stockholder.
This note accrued interest at 5.73% annually. As of September 30, 2000
there was an outstanding amount of $27,500 due under this note. All
amounts due under this note were repaid as of June 30, 2000.
33
35
DESCRIPTION OF SECURITIES
General
Our authorized capital stock consists of 100,000,000 shares of
common stock, par value $0.0001 per share, and 20,000,000 shares of
preferred stock, par value $.0001 per share. As of the date of this
prospectus, 3,625,000 shares of common stock and no shares of
preferred stock were outstanding. The transfer agent for our common
stock is Atlas Stock Transfer of Salt Lake City, Utah.
Common Stock
We are authorized to issue 100,000,000 shares of our common
stock, $0.0001 par value, of which 3,625,000 shares are issued and
outstanding as of the date of this prospectus. The issued and
outstanding shares of common stock are fully paid and non-assessable.
Except as provided by law or our certificate of incorporation with
respect to voting by class or series, holders of common stock are
entitled to one vote on each matter submitted to a vote at a meeting
of shareholders.
Subject to any prior rights to receive dividends to which the
holders of shares of any series of the preferred stock may be
entitled, the holders of shares of common stock will be entitled to
receive dividends, if and when declared payable from time to time by
the board of directors, from funds legally available for payment of
dividends. Upon our liquidation or dissolution, holders of shares of
common stock will be entitled to share proportionally in all assets
available for distribution to such holders.
Preferred Stock
The board of directors has the authority, without further action
by our shareholders, to issue up to 20,000,000 shares of preferred
stock, par value $.0001 per share, in one or more series and to fix
the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares
constituting any series or the designation of such series. No shares
of preferred stock are currently issued and outstanding. The issuance
of preferred stock could adversely affect the voting power of holders
of common stock and could have the effect of delaying, deferring or
preventing a change of our control.
Warrants
Certain shares of common stock offered by Cycle Country Accessories
Corp. (a Nevada corporation) on August 21, 2001 had warrants attached. We
presently have 2,000,000 warrants outstanding. Each warrant entitles the
holder thereof to purchase one share of common stock at a price per share
of $4.00 beginning 120 days following the effectiveness of this registration
statement and ending on August 21, 2004. Each unexercised warrant is
redeemable by us at a redemption price of $0.0001 per warrant at any time,
upon 30 days written notice to holders thereof, if (a) our common stock is
traded on NASDAQ or listed on an exchange and (b) the Market Price (defined
as the average closing bid price for twenty (20) consecutive trading
days) equals or exceed 120% of the exercise price.
34
36
Pursuant to applicable federal and state securities laws, in the
event a current prospectus is not available, the warrant holders may
be precluded from exercising the warrants and we would be precluded
from redeeming the warrants. There can be no assurance that we will
not be prevented by financial or other considerations from maintaining
a current prospectus. Any warrant holder who does not exercise prior
to the redemption date, as set forth in our notice of redemption, will
forfeit the right to purchase the common stock underlying the
warrants, and after the redemption date or upon conclusion of the
exercise period, any outstanding warrants will become void and be of
no further force or effect, unless extended by our Board of Directors.
The number of shares of common stock that may be purchased with
the warrants is subject to adjustment upon the occurrence of certain
events, including a dividend distribution to our shareholders or a
subdivision, combination or reclassification or our outstanding shares
of common stock. The warrants do not confer upon holders any voting or
any other rights as our shareholders.
We may at any time, and from time to time, extend the exercise
period of the warrants, provided that written notice of such extension
is given to the warrant holders prior to the expiration date then in
effect. Also, we may reduce the exercise price of the warrants for
limited periods or through the end of the exercise period if deemed
appropriate by the Board of Directors. Any extension of the term
and/or reduction of the exercise price of the warrants will be subject
to compliance with Rule 13e-4 under the Exchange Act including the
filing of a Schedule 14E-4. Notice of any extension of the exercise
period and/or reduction of the exercise price will be given to the
warrant holders. We do not presently contemplate any extension of the
exercise period or any reduction in the exercise price of the
warrants. The warrants are also subject to price adjustment upon the
occurrence of certain events including subdivisions or combinations of
our common stock.
Market for Common Equity and Related Stockholder Matters
There is no established public market for our common stock and we
have arbitrarily determined the offering price. Although we hope to
be quoted on the OTC Bulletin Board, our common stock is not currently
listed or quoted on any quotation service. There can be no assurance
that our common stock will ever be quoted on any quotation service or
that any market for our stock will ever develop or, if developed, will
be sustained.
As of August 21, 2001, there were 64 shareholders of record of our
common stock and a total of 3,625,000 shares outstanding. All 3,625,000
shares are being registered in this offering and accordingly there are
no outstanding shares at this time that would be subject to Rule 144.
35
37
INDEMNIFICATION
Article 11 of our Articles of Incorporation includes certain
provisions permitted by the Nevada Revised Statutes, which provides for
indemnification of directors and officers against certain liabilities.
Pursuant to our Articles of Incorporation, our officers and directors are
indemnified, to the fullest extent available under Nevada Law, against
expenses actually and reasonably incurred in connection with threatened,
pending or completed proceedings, whether civil, criminal or administrative,
to which an officer or director is, was or is threatened to be made a party
by reason of the fact that he or she is or was one of our officers,
directors, employees or agents. We may advance expenses in connection
with defending any such proceeding, provided the indemnitee undertakes
to repay any such amounts if it is later determined that he or she was
not entitled to be indemnified by us.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions or otherwise,
we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the
Securities Act and is therefore, unenforceable.
36
38
PLAN OF DISTRIBUTION
We are registering shares of our common stock that may be issued
upon exercise of warrants previously issued by us. Any shares that we
issue upon the exercise of warrants will be sold at a price of $4.00 per
share. In addition to the named selling shareholders in this prospectus,
any individual acquiring shares of our common stock through such a warrant
exercise and who subsequently sells such common stock is considered a
selling shareholder.
The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their
shares of common stock on any stock exchange, market or trading facility
on which the shares are then traded or in private transactions. These sales
may be at fixed or negotiated prices. The Selling Stockholders may use any
one or more of the following methods when selling shares:
- ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
- block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
- purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
- an exchange distribution in accordance with the rules of the
applicable exchange;
- privately negotiated transactions;
- broker-dealers may agree with the Selling Stockholders to sell a
specified number of such shares at a stipulated price per share;
- a combination of any such methods of sale; and
- any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under
the Securities Act, if available, rather than under this prospectus.
In order to comply with the securities laws of certain states, if
applicable, the shares may be sold only through registered or licensed
brokers or dealers. In addition, in certain states, the shares may
not be sold unless they have been registered or qualified for sale in
such state or an exemption from such registration or qualification
requirement is available and complied with.
The Selling Stockholders may also engage in short sales against
the box, puts and calls and other transactions in our securities or
derivatives of our securities and may sell or deliver shares in connection
with these trades. The Selling Stockholders may pledge their shares to
their brokers under the margin provisions of customer agreements. If a Selling
37
39
Stockholder defaults on a margin loan, the broker may, from time to time,
offer and sell the pledged shares.
Broker-dealers engaged by the Selling Stockholders may arrange
for other brokers-dealers to participate in sales. Broker-dealers may
receive commissions or discounts from the Selling Stockholders (or, if
any broker-dealer acts as agent for the purchaser of shares, from the
purchaser) in amounts to be negotiated. The Selling Stockholders do
not expect these commissions and discounts to exceed what is customary
in the types of transactions involved.
The Selling Stockholders and any broker-dealers or agents that
are involved in selling the shares may be deemed to be "underwriters"
within the meaning of the Securities Act in connection with such
sales. In such event, any commissions received by such broker-dealers
or agents and any profit on the resale of the shares purchased by them
may be deemed to be underwriting commissions or discounts under the
Securities Act.
We will pay all of the expenses incident to the registration,
offering and sale of the shares to the public, but will not pay
commissions and discounts, if any, of underwriters, broker-dealers or
agents, or counsel fees or other expenses of the selling shareholders.
We have also agreed to indemnify the selling shareholders and related
persons against specified liabilities, including liabilities under the
Securities Act.
We have advised the selling shareholders that while they are
engaged in a distribution of the shares included in this prospectus
they are required to comply with Regulation M promulgated under the
Securities Exchange Act of 1934, as amended. With certain exceptions,
Regulation M precludes the selling shareholders, any affiliated
purchasers, and any broker-dealer or other person who participates in
such distribution from bidding for or purchasing, or attempting to
induce any person to bid for or purchase any security which is the
subject of the distribution until the entire distribution is complete.
Regulation M also prohibits any bids or purchases made in order to
stabilize the price of a security in connection with the distribution
of that security. All of the foregoing may affect the marketability
of the shares offered hereby in this prospectus.
LEGAL MATTERS
The Law Office of L. Van Stillman, P.A. of Delray Beach, Florida
will give an opinion for us regarding the validity of the common stock
offered in this prospectus.
EXPERTS
The financial statements as of September 30, 2000 and for the
years ended September 30, 2000 and 1999 included in this prospectus
have been so included in reliance on the report of Tedder, James,
Worden & Associates, P.A., independent accountants, given on the
authority of said firm as experts in auditing and accounting.
38
40
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement under the Securities Act
with respect to the securities offered hereby with the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549. This prospectus, which is
a part of the registration statement, does not contain all of the
information contained in the registration statement and the exhibits
and schedules thereto, certain items of which are omitted in accordance
with the rules and regulations of the Commission. For further
information with respect to Cycle Country Accessories Corp. and the
securities offered hereby, reference is made to the registration
statement, including all exhibits and schedules thereto, which may be
inspected and copied at the public reference facilities maintained by
the Commission at 450 Fifth Street, N. W., Room 1024, Washington, D. C.
20549, and at its Regional Offices located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 at prescribed rates
during regular business hours. You may obtain information on the operation
of the public reference facilities by calling the Commission at
1-800-SEC-0330. Also, the SEC maintains an Internet site that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the Commission at http://www.sec.gov.
Statements contained in this prospectus as to the contents of any contract
or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or document filed as an
exhibit to the registration statement, each such statement being qualified
in its entirety by such reference. We will provide, without charge upon
oral or written request of any person, a copy of any information
incorporated by reference herein. Such request should be directed to us
at Cycle Country Accessories Corp., 2188 Highway 86, Milford, Iowa 51351
Attention: Ronald Hickman, President.
Following the effectiveness of this registration statement, we
will file reports and other information with the Commission. All of
such reports and other information may be inspected and copied at the
Commission's public reference facilities described above. The
Commission maintains a web site that contains reports, proxy and
information statements and other information regarding issuers that
file electronically with the Commission. The address of such site is
http://www.sec.gov. In addition, we intend to make available to our
shareholders annual reports, including audited financial statements,
unaudited quarterly reports and such other reports as we may determine.
39
41
CYCLE COUNTRY ACCESSORIES CORP. AND
AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Table of Contents
_________________
Independent Auditors' Report..............................................F-2
Combined Financial Statements:
Combined Balance Sheets - September 30, 2000 and
June 30, 2001 (unaudited).........................................F-3
Combined Statements of Income - Years ended September 30, 2000
and 1999 and Nine months ended June 30, 2001 and 2000
(unaudited).......................................................F-4
Combined Statements of Stockholders' Equity - Years ended
September 30, 2000 and 1999 and Nine months ended
June 30, 2001 and 2000 (unaudited)................................F-5
Combined Statements of Cash Flows - Years ended September 30, 2000
and 1999 and Nine months ended June 30, 2001 and 2000
(unaudited).......................................................F-6
Notes to Combined Financial Statements....................................F-8
CYCLE COUNTRY ACCESSORIES CORP.
(a Nevada corporation)
(The Successor Company)
Independent Auditors' Report.............................................F-26
Financial Statements:
Balance Sheet - August 23, 2001......................................F-27
Statement of Income - For the period from inception
(August 15, 2001) to August 23, 2001.............................F-28
Statement of Stockholders' Equity - For the period from inception
(August 15, 2001) to August 23, 2001.............................F-29
Statement of Cash Flows - For the period from inception
(August 15, 2001) to August 23, 2001.............................F-30
Notes to Financial Statements............................................F-31
Unaudited Pro Forma Financial Information:
Unaudited Pro Forma Balance Sheet - June 30, 2001....................F-36
Unaudited Pro Forma Statement of Income - Year ended
September 30, 2000...............................................F-38
Unaudited Pro Forma Statement of Income - Nine months ended
June 30, 2001....................................................F-39
F-1
41
Independent Auditors' Report
----------------------------
To the Board of Directors and Stockholders of
Cycle Country Accessories Corp. and
Affiliated Entity (an Iowa corporation):
We have audited the accompanying combined balance sheet of Cycle
Country Accessories Corp. and Affiliated Entity (an Iowa corporation)
(the Predecessor Company) (the "Company") as of September 30, 2000,
and the related combined statements of income, stockholders' equity,
and cash flows for the years ended September 30, 2000 and 1999. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above
present fairly, in all material respects, the financial position of
Cycle Country Accessories Corp. and Affiliated Entity (an Iowa
corporation) (the Predecessor Company) as of September 30, 2000, and
the results of their operations and their cash flows for the years
ended September 30, 2000 and 1999 in conformity with accounting
principles generally accepted in the United States of America.
TEDDER, JAMES, WORDEN & ASSOCIATES, P.A.
June 14, 2001
Orlando, Florida
F-2
42
CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Combined Balance Sheets
June 30,
June 30, 2001
September 30, 2001 Pro Forma
Assets 2000 (unaudited) (unaudited)
------ ------------- ----------- -------------
Current Assets:
Cash and cash equivalents $ 368,797 516,332 317,212
Accounts receiveable - trade 777,667 754,232 754,232
Inventories 2,791,317 2,291,387 2,291,387
Prepaid expenses 34,918 52,790 52,790
Other receivables 8,223 4,091 4,091
------------- ----------- --------------
Total current assets 3,980,922 3,618,832 3,419,712
Property and equipment, net 1,032,928 1,085,168 2,585,168
Other assets 175,593 174,377 73,860
Notes receivable from stockholder 46,000 - -
------------- ----------- --------------
Total assets $ 5,235,443 4,878,377 6,078,740
============= =========== ==============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities;
Accounts payable $ 630,052 513,491 513,491
Accrued expenses 261,450 117,122 117,122
Short-term note payable 100,000 - -
Current portion of note payable - - 711,611
----------- ---------- -------------
Total current liabilities 991,502 630,613 1,342,224
Note payable, less current portion - - 3,788,389
----------- ---------- -------------
Total liabilities 991,502 630,613 5,120,613
Stockholders' equity
Common stock 25,600 25,600 363
Additional paid-in capital 14,116 14,116 1,200,000
Retained earnings (accumulated deficit) 4,204,225 4,208,048 (252,236)
----------- ---------- -------------
Total stockholders' equity 4,243,941 4,247,764 948,127
----------- ---------- -------------
Total liabilities and stockholders' $ 5,235,443 4,878,377 6,078,740
equity =========== ========== =============
(1) The pro forma reflects the effect of the subsequent events in which (a) the Company acquired its
operating facility, which consisted of land and buildings with a fair value of $1,500,000, from
certain shareholders, and (b) the purchase of all of the Company's outstanding common stock by
Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company) for $4,500,000 in
Cash and 1,375,000 shares of common stock of Cycle Country Accessories Corp. (a Nevada Corporation)
(the Successor Company) (see Note 19).
See accompanying notes to the combined financial statements.
F-3
43
CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Combined Statements of Income
Nine months ended June 30,
Year ended September 30, 2001 2000
2000 1999 (unaudited) (unaudited)
----------- ----------- ------------ -------------
Net Sales $12,675,699 11,308,792 9,915,477 9,973,314
Freight income 103,772 160,710 88,959 81,592
------------ ----------- ------------ -------------
Total revenue 12,779,471 11,469,502 10,004,436 10,054,906
Cost of goods sold (9,138,162) (7,858,389) (6,931,328) (7,018,687)
------------ ----------- ------------ -------------
Gross Profit 3,641,309 3,611,113 3,073,108 3,063,219
Selling, general
and administrative
expenses (2,646,331) (2,713,180) (2,132,002) (1,963,138)
------------ ----------- ------------ -------------
Income from operations 994,978 897,933 941,106 1,073,081
Non-operating income, net 25,798 97,982 68,317 5,714
------------ ----------- ------------ -------------
Net income $ 1,020,776 995,915 1,009,423 1,078,795
============ =========== ============ =============
Pro Forma Net Income Data (unaudited)(1):
Net income reported $ 1,020,776 995,915 1,009,423 1,078,795
Provision for income taxes (377,700) (368,500) (373,500) (399,200)
------------ ----------- ------------ -------------
Pro forma net income 643,076 627,415 635,923 679,595
============ =========== ============ =============
Pro forma weighted average shares outstanding(1):
Basic and diluted (unaudited) 3,625,000 3,625,000 3,625,000 3,625,000
============ =========== ============ =============
Pro forma earnings per share(1):
Basic and diluted (unaudited) $ 0.18 0.17 0.18 0.19
============ =========== ============ =============
(1) The pro forma reflects the effect of the subsequent event in which all of
the outstanding common stock of Cycle Country Accessories Corp. (an Iowa
corporation)(the Predecessor Company) was purchased by Cycle Country
Accessories Corp. (a Nevada corporation)(the Successor Company), a C
corporation. As a result, Cycle Country Accessories Corp. (an Iowa
corporation)(the Predecessor Company) converted from a S corporation
to a C corporation and a provision for income taxes has been included.
See accompanying notes to the combined financial statements.
F-4
44
CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Combined Statements of Stockholders' Equity
Years ended September 30, 2000 and 1999 and Nine months ended June 30,2001
(Nine months ended June 30, 2001 unaudited)
Common Common
stock stock Additional
(Cycle (Okoboji paid-in Retained
Country) Industries) capital earnings Total
-------- ----------- ---------- ---------- ----------
Balances at September 30, 1998 $ 5,600 20,000 14,116 3,224,334 3,264,050
Net income - - - 995,915 995,915
Distributions paid - - - (519,800) (519,800)
-------- ----------- ----------- ----------- -----------
Balance at September 30, 1999 5,600 20,000 14,116 3,700,449 3,740,165
Net income - - - 1,020,776 1,020,776
Distributions paid - - - (517,000) (517,000)
-------- ----------- ----------- ----------- -----------
Balance at September 30, 2000 5,600 20,000 14,116 4,204,225 4,243,941
Net income (unaudited) - - - 1,009,423 1,009,423
Distributions paid (unaudited) - - - (1,005,600) (1,005,600)
-------- ----------- ----------- ----------- -----------
Balances at June 30, 2001
(unaudited) $ 5,600 20,000 14,116 4,208,048 4,247,764
======== =========== =========== =========== ===========
See accompanying notes to combined financial statements.
F-5
45
CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Combined Statement of Cash Flows
Nine months ended June 30,
Years ended September 30, 2001 2000
2000 1999 (unaudited) (unaudited)
----------- ----------- ------------ ------------
Cash flows from operating activities:
Net income $ 1,020,776 995,915 1,009,423 1,078,795
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 205,770 200,816 166,379 155,445
Write-off of investment in Visionaire Corp. 28,473 - - 28,473
Gain on sale of equipment (10,761) (3,959) - -
Write-off of intangible asset 4,111 514 - 386
(Increase) decrease in assets:
Accounts receivable - trade 61,947 112,022 23,435 181,902
Inventories (347,787) (123,697) 499,930 (620,288)
Prepaid expenses (493) (37,995) (17,852) (18,555)
Other receivables 6,721 22,856 4,132 6,091
S corporation tax deposit (27,254) 116,851 1,196 (27,254)
Increase (decrease) in liabilities:
Accounts payable (26,159) (312,380) (116,561) 11,333
Accrued expenses 27,596 (88,608) (144,328) (114,213)
----------- ----------- ----------- ------------
Net cash provided by operating activities 942,940 882,335 1,425,754 682,115
Cash flows from investing activities:
Purchase of property and equipment (345,356) (301,336) (240,698) (278,437)
Proceeds from sale of equipment 21,200 8,400 22,079 9,500
Payments received on notes receivable 2,500 368,203 46,000 1,500
Purchase of investments (25,000) - - -
Issuance of notes receivable - (230,703) - -
----------- ----------- ----------- ------------
Net cash used in investing activities (346,656) (155,436) (172,619) (267,437)
See accompanying notes to the combined financial statements.
F-6
46
CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Combined Statements of Cash Flow, Continued
Nine months ended June 30,
Years ended September 30, 2001 2000
2000 1999 (unaudited) (unaudited)
----------- ----------- ------------ ------------
Cash flows from financing activities:
Proceeds from short-term note payable 100,000 - - -
Payments on short-term note payable - - (100,000) -
Repayment of loan from stockholders - (242,500) - -
Distributions paid to stockholders (517,000) (519,800) (1,005,600) (292,000)
----------- ----------- ------------ ------------
Net cash used in financing activities (417,000) (762,300) (1,105,600) (292,000)
Net increase (decrease) in cash and cash
equivalents 179,284 (35,401) 147,535 122,678
Cash and cash equivalents - beginning of period 189,513 224,914 368,797 189,513
----------- ----------- ------------ ------------
Cash and cash equivalents - end of period $ 368,797 189,513 516,332 312,191
=========== =========== ============ ============
Supplimental disclosures of cash flow information:
Cash paid during the period for:
Interest $ - 16,566 1,682 -
=========== =========== ============ ============
See accompanying notes to the combined financial statements.
F-7
47
CYCLE COUNTRY ACCESSORIES CORP.
AND AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Notes to Combined Financial Statements
(Items referring to June 30, 2001 and 2000 are Unaudited)
(1) Summary of Significant Accounting Policies
__________________________________________
(a) Reporting Entity and Principles of Combination
The combined financial statements of Cycle Country Accessories
Corp. and Affiliated Entity (the "Company") include the
accounts of Cycle Country Accessories Corp. ("Cycle Country")
and Okoboji Industries Corp. ("Okoboji Industries"), entities
owned and managed by the same individuals (i.e. under common
control). Cycle Country was incorporated in the state of Iowa
in 1983 and currently operates as a Subchapter S corporation.
Okoboji Industries was incorporated as a Subchapter S
corporation in the state of Iowa in 1987. All significant
intercompany accounts and transactions have been eliminated in
combination.
(b) Nature of Business
The Company is primarily engaged in the design, assembly, sale
and distribution of accessories for all terrain vehicles
("ATVs") to various dealers and wholesalers throughout the
United States of America, Canada, Mexico, South America,
Europe, and the Pacific area. Additionally, the Company
manufactures, sells, and distributes injection-molded plastic
wheel covers for vehicles such as golf carts, lawn mowers, and
light-duty trailers. The Company's headquarters and assembly
plant are located in Milford, Iowa.
(c) Revenue Recognition
Revenue is recognized when the product is shipped to dealers,
wholesalers, or other customers and risk of loss transfers to
an unrelated third party. Certain costs associated with the
shipping and handling of products to customers are billed to
the customer and included as freight income in the
accompanying combined statements of income. Royalty income
earned in connection with the rights to sell a product
developed by the Company is recognized as earned and included
in non-operating income in the accompanying combined
statements of income.
Sales were recorded net of sales discounts of approximately
$325,000 and $262,000 in fiscal 2000 and 1999, respectively.
During the nine months ended June 30, 2001 and 2000, sales
were recorded net of sales discounts of approximately $232,000
and $231,000 respectively (unaudited).
F-8
48
CYCLE COUNTRY ACCESSORIES CORP.
AND AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Notes to Combined Financial Statements
(Items referring to June 30, 2001 and 2000 are Unaudited)
(1) Summary of Significant Accounting Policies, Continued
_____________________________________________________
(d) Cost of Goods Sold
The components of cost of goods sold in the accompanying
combined statements of income include all direct materials and
direct labor associated with the assembly and/or manufacturing
of the company's products. In addition, an allocation of factory
overhead costs is included in cost of goods sold.
(e) Allowances
The Company provides appropriate provisions for uncollectible
accounts and credit for returns based upon factors surrounding
the credit risk and activity of specific customers, historical
trends, and other information. In the opinion of management
of the Company, no provisions are deemed necessary for
uncollectible accounts or credit for returns at September 30,
2000 and June 30, 2001 (unaudited).
(f) Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(g) Cash and Cash Equivalents
The Company considers all short-term investments with an
original maturity of three months or less when purchased to be
cash equivalents.
(h) Inventories
Inventories are valued at the lower of cost or market. Cost
is determined using the first-in, first-out method.
(i) Property and Equipment
Property and equipment are carried at cost less accumulated
depreciation. Depreciation is provided over the estimated
useful lives of the assets by using the straight-line and
accelerated methods. Routine maintenance and repairs are
charged to expense as incurred. Major replacements and
improvements are capitalized. Gains or losses are credited or
charged to income upon disposition.
F-9
49
CYCLE COUNTRY ACCESSORIES CORP.
AND AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Notes to Combined Financial Statements
(Items referring to June 30, 2001 and 2000 are Unaudited)
(1) Summary of Significant Accounting Policies, Continued
_____________________________________________________
(j) Impairment of Long-Lived Assets
The Company evaluates its long-lived assets for financial
impairment as events or changes in circumstances indicate that
the carrying value of a long-lived asset may not be fully
recoverable. The Company evaluates the recoverability of
long-lived assets by measuring the carrying amount of the
assets against their estimated undiscounted future cash flows.
If such evaluations indicate that the future undiscounted cash
flows of certain long-lived assets are not sufficient to
recover the carrying value of such assets, the assets are
adjusted to their fair values.
(k) Investment in Golden Rule (Bermuda) Ltd.
The investment in Golden Rule (Bermuda) Ltd. stock is recorded
at cost due to less than 20% ownership.
(l) Investment in Visionaire Corp.
The investment in Visionaire Corp. was accounted for under the
cost method. During fiscal 2000, the Company's investment in
Visionaire Corp., which was purchased during fiscal 1996, was
deemed worthless by management and was written off.
(m) Accrued Warranty Costs
Estimated future costs related to product warranties are
accrued as products are sold based on prior experience and
known current events and are included in accrued expenses in
the accompanying combined financial statements. Accrued
warranty costs have historically been sufficient to cover
actual costs incurred.
(n) Income Taxes
Effective August 1, 1994, Cycle Country has elected to be
taxed under the provisions of Subchapter S of the Internal
Revenue Code ("IRC"). Under these provisions, the
stockholders will report 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 combined financial statements. An S
corporation may elect to use a taxable year other than the required
calendar year. However, due to this election the company must
make "required payments" to reflect the estimated tax deferral
the stockholders receive throughthe use of a fiscal tax year. The
S corporation tax deposit, which is included in other assets in
the accompanying combined financial statements, represents the
"required deposits" paid by the Company to compensate the U.S.
Government for taxes the stockholders would have paid had the
Company used a calendar year-end. Effective August 21, 2001,
the Company's S corporation tax status was terminated. When
the Company's final S corporation tax return is filed, the
Company will receive a refund of the "required payments" tax
deposit.
F-10
50
CYCLE COUNTRY ACCESSORIES CORP.
AND AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Notes to Combined Financial Statements
(Items referring to June 30, 2001 and 2000 are Unaudited)
(1) Summary of Significant Accounting Policies, Continued
_____________________________________________________
(o) Distributor Rebate Payable
The Company offers an annual rebate program (the "Program")
for its ATV accessory distributors. The Program provides for
a 7% rebate on purchases of certain eligible products during
the Program period if certain pre-determined purchase levels
are obtained. The rebate is provided to the applicable
distributor as a credit against future purchases of the Company's
products. The rebate liability is calculated and
recognized as eligible products are sold based upon factors
surrounding the activity and prior experience of specific
distributors and is included in accrued expenses in the
accompanying combined financial statements. The distributor
rebate expense totaled approximately $366,000 and $448,000 in
fiscal 2000 and 1999, respectively and are included in
selling, general, and administrative expenses in the
accompanying combined statements of income. During the nine
months ended June 30, 2001 and 2000, the distributor rebate
expense totaled approximately $310,000 and $272,000,
respectively (unaudited).
(p) Pro Forma Earnings Per Share
Basic earnings per share is calculated by dividing net income
by the weighted-average common shares outstanding during the
reporting period. Diluted earnings per share is computed in a
manner consistent with that of basic earnings per share while
giving effect to all potentially dilutive common shares
outstanding during the reporting period. There were no
potentially dilutive common shares outstanding during the
years ended September 30, 2000 and 1999. Additionally, during
the nine months ended June 30, 2001 and 2000, there were no
potentially dilutive common shares outstanding (unaudited).
(q) Advertising
Advertising consists primarily of television, videos,
newspaper and magazine advertisements, product brochures and
catalogs, and trade shows. All costs are expensed as incurred.
Advertising expense totaled approximately $312,000 and
$324,000 in fiscal 2000 and 1999, respectively. During the
nine months ended June 30, 2001 and 2000, advertising expense
totaled approximately $242,000 and $203,000, respectively
(unaudited).
F-11
51
CYCLE COUNTRY ACCESSORIES CORP.
AND AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Notes to Combined Financial Statements
(Items referring to June 30, 2001 and 2000 are Unaudited)
(1) Summary of Significant Accounting Policies, Continued
_____________________________________________________
(r) Research and Development Costs
Research and development costs are expensed as incurred.
Research and development costs incurred during fiscal 2000 and
1999 totaled approximately $197,000 and $146,000,
respectively. During the nine months ended June 30, 2001 and
2000, research and development costs totaled approximately
$127,000 and $140,000, respectively (unaudited).
(s) Shipping and Handling Costs
Shipping and handling costs represent costs associated with
shipping products to customers and handling finished goods.
Shipping and handling costs incurred totaled approximately
$224,000 and $246,000 in fiscal 2000 and 1999, respectively,
and are included in selling, general, and administrative
expenses in the accompanying combined statements of income.
During the nine months ended June 30, 2001 and 2000, shipping
and handling costs incurred totaled approximately $160,000 and
$190,000, respectively (unaudited).
(t) Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and
trade accounts receivable. The Company places its cash with
high credit quality financial institutions. At various times
throughout fiscal 2000 and 1999 and at September 30, 2000,
cash balances held at some financial institutions were in
excess of federally insured limits. At various times
throughout the nine months ended June 30, 2001 and 2000, and
at June 30, 2001, cash balances held at some financial
institutions were in excess of federally insured limits
(unaudited).
Almost all of the Company's sales are credit sales which are
primarily to customers whose ability to pay is dependent upon
the industry economics prevailing in these areas; however,
concentrations of credit risk with respect to trade accounts
receivable is limited due to generally short payment terms.
The Company also performs ongoing credit evaluations of its
customers to reduce credit risk.
F-12
52
CYCLE COUNTRY ACCESSORIES CORP.
AND AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Notes to Combined Financial Statements
(Items referring to June 30, 2001 and 2000 are Unaudited)
(1) Summary of Significant Accounting Policies, Continued
_____________________________________________________
(u) Seasonality and Weather
The ATV accessories market is seasonal as retail sales of snow
plow equipment are generally higher in the fall and winter,
and sales of farm and garden equipment are generally higher in
the spring and summer. Accordingly, demand for the Company's
snow plow equipment is generally higher in the fall and early
winter (the Company's first and second fiscal quarters) as
distributors build inventories in anticipation of the winter
season, and demand for the Company's farm and garden and golf
equipment is generally highest in the late winter and spring
(the Company's second and third fiscal quarters) as
distributors build inventories in anticipation of the spring
season. Demand for snow plow, farm and garden and golf
equipment is significantly affected by weather conditions.
Unusually cold winters or hot summers increase demand for
these aforementioned products. Mild winters and cool summers
have the opposite effect.
(v) Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses approximates
fair value because of the short maturity of those instruments.
The fair value of notes receivable and notes payable are
assumed to approximate the recorded value because there have
not been any significant changes in specific circumstances
since the notes were originally recorded.
(w) Quarterly Presentation and Adjustments
The accompanying unaudited combined financial statements as of
June 30, 2001 and for the nine months ended June 30, 2001 and
2000 have been prepared in accordance with accounting
principles generally accepted in the United States of America
for interim financial information. In the opinion of
management, all adjustments, consisting of normal recurring
adjustments necessary for a fair presentation of (a) the
results of operations for the nine months ended June 30, 2001
and 2000, (b) the financial position at June 30, 2001, and (c)
cash flows for the nine months ended June 30, 2001 and 2000,
have been included. Operating results for the nine months
ended June 30, 2001 are not necessarily indicative of the
results that may be expected for the year ended September 30,
2001 (unaudited).
F-13
53
CYCLE COUNTRY ACCESSORIES CORP.
AND AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Notes to Combined Financial Statements
(Items referring to June 30, 2001 and 2000 are Unaudited)
(1) Summary of Significant Accounting Policies, Continued
_____________________________________________________
(x) Reclassifications
Certain prior periods' balances have been reclassified to
conform with the current year financial statement
presentation. These reclassifications had no impact on
previously reported results of operations or stockholders'
equity.
(2) Inventories
___________
The major components of inventories are summarized as follows:
June 30,
September 30, 2001
2000 (unaudited)
_______________ ___________
Raw materials $ 1,225,297 1,129,169
Work in progress 57,719 26,222
Finished goods 1,508,301 1,135,996
_______________ ___________
Total inventories $ 2,791,317 2,291,387
_______________ ___________
_______________ ___________
(3) Prepaid Expenses
________________
Prepaid expenses consisted of the following:
June 30,
September 30, 2001
2000 (unaudited)
______________ ___________
Prepaid insurance $ 21,418 42,290
Prepaid royalty 13,000 10,500
Prepaid rent 500 -
______________ ___________
Total prepaid expenses $ 34,918 52,790
______________ ___________
______________ ___________
F-14
54
CYCLE COUNTRY ACCESSORIES CORP.
AND AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Notes to Combined Financial Statements
(Items referring to June 30, 2001 and 2000 are Unaudited)
(4) Property and Equipment
______________________
Property and equipment, their estimated useful lives, and related
accumulated depreciation are summarized as follows:
Range
of lives June 30,
in September 30, 2001
years 2000 (unaudited)
________ _______________ ___________
Shop equipment 7 $ 1,124,046 1,180,173
Vehicles 3 - 7 631,897 702,953
Tooling and dies 7 570,795 638,382
Office equipment 3 - 7 382,290 398,126
Leasehold improvements 7 - 39 256,696 264,709
________ _______________ ___________
2,965,724 3,184,343
Less accumulated depreciation (1,932,796) (2,099,175)
Total property and equipment $ 1,032,928 1,085,168
_______________ ___________
_______________ ___________
(5) Other Assets
____________
The major components of other assets are summarized as follows:
June 30,
September 30, 2001
2000 (unaudited)
_____________ ___________
S Corporation tax deposit $ 101,713 100,517
Prepaid royalty - long-term 48,880 48,860
Investment in Golden Rule (Bermuda) Ltd. 25,000 25,000
_____________ ___________
Total other assets $ 175,593 174,377
_____________ ___________
_____________ ___________
F-15
55
CYCLE COUNTRY ACCESSORIES CORP.
AND AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Notes to Combined Financial Statements
(Items referring to June 30, 2001 and 2000 are Unaudited)
(6) Notes Receivable from Stockholder
_________________________________
Notes receivable from stockholder consisted of the following:
June 30,
September 30, 2001
2000 (unaudited)
_____________ ___________
Note receivable - stockholder, interest
rate of 5.73%, principal and interest
due on demand $ 27,500 -
Note receivable - stockholder, interest
rate of 6.36%, principal and interest
due on May 30, 2002 18,500 -
_____________ ___________
Total notes receivable from
stockholder $ 46,000 -
_____________ ___________
_____________ ___________
(7) Accrued Expenses
________________
The major components of accrued expenses are summarized as follows:
June 30,
September 30, 2001
2000 (unaudited)
_____________ ___________
Distributor rebate payable $ 98,473 21,953
Accrued salaries and related benefits 71,162 68,169
Profit sharing contribution payable 55,000 -
Accrued warranty costs 27,000 27,000
Royalties payable 8,585 -
Accrued interest expense 1,230 -
_____________ ___________
Total accrued expenses $ 261,450 117,122
_____________ ___________
_____________ ___________
(8) Short-term Note Payable
_______________________
During fiscal 2000, the Company entered into a $100,000 note
payable agreement (the "Note") with Land Mark Leasing, Inc. The
Note is unsecured, bears interest at 6.6% and is due on demand.
At September 30, 2000, $100,000 was outstanding on the Note.
There are no outstanding borrowings in connection with the Note at
June 30, 2001 (unaudited).
F-16
56
CYCLE COUNTRY ACCESSORIES CORP.
AND AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Notes to Combined Financial Statements
(Items referring to June 30, 2001 and 2000 are Unaudited)
(9) Bank Line of Credit
___________________
The Company maintains a $500,000 line of credit agreement (the
"Line of Credit") with Bank of America, N.A. that is dated
February 1, 1999, and matures on February 1, 2002. The Line of
Credit bears interest at Bank of America, N.A. prime rate minus
.75%, is collateralized by accounts receivable, inventory, and
equipment of the Company, and is guaranteed by the three
stockholders of the Company. There are no outstanding borrowings
under the Line of Credit at September 30, 2000. Additionally, no
amount was outstanding under the Line of Credit at June 30, 2001
(unaudited).
(10) Non-Operating Income
____________________
Non-operating income consisted of the following:
Nine months
Years ended ended June 30,
September 30, 2001 2000
2000 1999 (unaudited) (unaudited)
___________ ______ ___________ ___________
Income:
Royalties $ 23,450 48,375 7,520 16,500
Interest 22,133 18,417 28,197 15,953
Gain on sale of equipment 10,761 3,959 - -
Consulting fees - - 31,559 -
Truck lease 1,516 28,711 - -
Other 1,238 - 1,493 1,734
___________ ______ ______ ______
Total income 59,098 99,462 68,769 34,187
___________ _______ _______ _______
Expense:
Write-off of investment in
Visionaire Corp. (28,473) - - (28,473)
Interest (1,230) (1,480) (452) -
Other (3,597) - - -
___________ _______ _______ ________
Total expense (33,300) (1,480) (452) (28,473)
___________ _______ _______ ________
Total non-operating
income, net $ 25,798 97,982 68,317 5,714
___________ _______ _______ ________
___________ _______ _______ ________
F-17
57
CYCLE COUNTRY ACCESSORIES CORP.
AND AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Notes to Combined Financial Statements
(Items referring to June 30, 2001 and 2000 are Unaudited)
(11) Common Stock
____________
Cycle Country has 20,000 shares of $1 par value common stock
authorized and 5,600 shares issued and outstanding at September
30, 2000 and 1999. Okoboji Industries has 10,000 shares of $10
par value common stock authorized and 2,000 shares issued and
outstanding at September 30, 2000 and 1999.
(12) Pension and Profit Sharing Plan
_______________________________
The Company has a qualified defined contribution profit sharing
plan (the "Plan") covering all eligible employees with a specific
period of service. The contribution is discretionary with the
Board of Directors. The total contribution to the Plan by the
Company for the years ended September 30, 2000 and 1999 was
$55,000 and $50,000, respectively. For the nine months ended June
30, 2001 and 2000, no amounts were contributed by the Company to
the Plan (unaudited).
(13) Operating Leases
________________
Cycle Country has committed to a non-cancelable operating lease on
operating facilities with rent of $25,320 per month which expires
October 31, 2006. In addition, Okoboji Industries has committed
to a non-cancelable operating lease on operating facilities with
rent of $4,000 per month which expires September 30, 2004. The
following is a schedule of future minimum rental commitments, by
year and in the aggregate, to be paid under non-cancelable
operating leases with initial or remaining terms in excess of one
year:
June 30,
September 30, 2001
2000 (unaudited)
_____________ ____________
2001 $ 351,840 -
2002 351,840 351,840
2003 351,840 351,840
2004 351,840 351,840
2005 303,840 315,840
2006 and thereafter 329,160 405,120
_____________ ____________
Total $ 2,040,360 1,776,480
_____________ ____________
_____________ ____________
F-18
58
CYCLE COUNTRY ACCESSORIES CORP.
AND AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Notes to Combined Financial Statements
(Items referring to June 30, 2001 and 2000 are Unaudited)
(13) Operating Leases, Continued
___________________________
Total lease expense amounted to $351,840 during both fiscal 2000
and 1999. For each of the nine-month periods ended June 30, 2001
and 2000, lease expense amounted to $263,880 (unaudited).
Subsequent to June 30, 2001, the Company acquired the above-
mentioned operating facilities (see note 18) (unaudited).
(14) Business Concentrations
_______________________
At September 30, 2000, customers with the three largest
outstanding accounts receivable balances totaled approximately
$374,000 or 48% of the gross accounts receivable. At September
30, 2000, the outstanding accounts receivable balances of
customers that exceeded 10% of gross accounts receivable are as
follows:
% of Gross
Accounts Accounts
Customer Receivable Receivable
________ __________ __________
A $ 194,800 25%
B 92,600 12%
C 86,200 11%
Sales to the Company's three major customers, which exceeded 10%
of net sales, accounted for approximately 18.7%, 15.1%, and 11.1%
each of net sales in fiscal 2000 and approximately 17.9%, 13.8%,
and 10.7% each of net sales in fiscal 1999.
At June 30, 2001, customers with the two largest outstanding
accounts receivable balances totaled approximately $358,000 or 47%
of the gross accounts receivable (unaudited). At June 30, 2001,
the outstanding accounts receivable balances of customers that
exceeded 10% of gross accounts receivable are as follows
(unaudited):
% of Gross
Accounts Accounts
Customer Receivable Receivable
________ __________ __________
D $ 279,500 37%
E 78,200 10%
F-19
59
CYCLE COUNTRY ACCESSORIES CORP.
AND AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Notes to Combined Financial Statements
(Items referring to June 30, 2001 and 2000 are Unaudited)
(14) Business Concentrations, Continued
__________________________________
Sales to the Company's three major customers, which exceeded 10%
of net sales, accounted for approximately 16.6%, 15.3%, and 11.1%
each of net sales in the nine months ended June 30, 2001
(unaudited) and approximately 15.7%, 15.5%, and 12.4% each of net
sales in the nine months ended June 30, 2000 (unaudited).
The Company believes it has adequate sources for the supply of raw
materials and components for its production requirements. The
Company's suppliers are located primarily in the state of Iowa.
The Company has a policy of strengthening its supplier
relationships by concentrating its purchases for particular parts
over a limited number of suppliers in order to maintain quality
and cost control and to increase the suppliers' commitment to the
Company. The Company relies upon, and expects to continue to rely
upon, several single source suppliers for critical components.
During fiscal 2000 and 1999, the Company purchased approximately
$4,554,000 and $4,170,000, respectively, of raw materials from one
vendor, which represented approximately 59% and 63% of materials
used in products sold during the respective years. During the
nine months ended June 30, 2001 and 2000, the Company purchased
approximately $3,297,000 and $3,746,000, respectively, of raw
materials from one vendor, which represented approximately 57% and
64% of materials used in products sold during the respective nine-
month periods (unaudited).
(15) 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 segments are the same as those described in note 1. Sales of
snowplow blades comprised approximately 66% of ATV Accessories
revenues in both fiscal 2000 and 1999, and 57% and 56% of the
Company's combined total revenues in fiscal 2000 and 1999,
respectively. Sales of snowplow blades comprised approximately
67% and 66% of ATV Accessories revenues in the nine months ended
June 30, 2001 and 2000, respectively, and 58% and 57% of the
Company's combined total revenues in the nine month periods ended
June 30, 2001 and 2000, respectively (unaudited).
F-20
60
CYCLE COUNTRY ACCESSORIES CORP.
AND AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Notes to Combined Financial Statements
(Items referring to June 30, 2001 and 2000 are Unaudited)
(15) Segment Information, Continued
______________________________
The following is a summary of certain financial information
related to the two segments:
June 30,
September 30, 2001 2000
2000 1999 (unaudited) (unaudited)
____ ____ ___________ ___________
Total revenues by segment
-------------------------
ATV Accessories $ 11,022,322 9,735,523 8,654,437 8,623,577
Plastic Wheel Covers 1,978,307 1,835,604 1,493,401 1,581,226
_____________ ___________ ___________ ___________
Total revenues by segment 13,000,629 11,571,127 10,147,838 10,204,803
Freight income 103,772 160,710 88,959 81,592
Sales discounts (324,930) (262,335) (232,361) (231,489)
_____________ ___________ ___________ ___________
Total combined revenue $ 12,779,471 11,469,502 10,004,436 10,054,906
_____________ ___________ ___________ ___________
_____________ ___________ ___________ ___________
Operating profit by segment
---------------------------
ATV Accessories $ 3,257,427 2,829,065 2,743,039 2,565,939
Plastic Wheel Covers 1,076,150 1,172,735 1,044,950 1,147,129
Factory overhead (692,268) (390,687) (714,881) (676,849)
Selling, general, and
administrative (2,646,331) (2,713,180) (2,132,002) (1,963,138)
Interest income (expense), net 20,903 16,937 27,745 15,953
Other income (expense), net 4,895 81,045 40,572 (10,239)
_____________ ___________ ___________ ___________
Net income $ 1,020,776 995,915 1,009,423 1,078,795
____________ ___________ ___________ ___________
____________ ___________ ___________ ___________
F-21
61
CYCLE COUNTRY ACCESSORIES CORP.
AND AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Notes to Combined Financial Statements
(Items referring to June 30, 2001 and 2000 are Unaudited)
(15) Segment Information, Continued
______________________________
June 30,
September 30, 2001 2000
2000 1999 (unaudited) (unaudited)
____ ____ ___________ ___________
Identifiable assets
-------------------
ATV Accessories $3,819,709 3,479,166 3,387,975 3,969,396
Plastic Wheel Covers 562,669 518,962 515,113 533,125
__________ _________ _________ _________
Total identifiable assets 4,382,378 3,998,128 3,903,088 4,502,521
Corporate and other assets 853,065 632,102 975,289 811,624
__________ _________ _________ _________
Total assets $5,235,443 4,630,230 4,878,377 5,314,145
__________ _________ _________ _________
__________ _________ _________ _________
Depreciation by segment
-----------------------
ATV Accessories $ 85,162 74,503 70,093 63,162
Plastic Wheel Covers 40,565 38,962 38,765 30,463
Corporate and other 80,043 87,351 57,521 61,820
__________ _________ _________ _______
Total depreciation $ 205,770 200,816 166,379 155,445
__________ _________ _________ _______
__________ _________ _________ _______
Capital expenditures by
-----------------------
segment
-------
ATV Accessories $ 167,585 109,171 98,094 135,306
Plastic Wheel Covers 78,951 139,752 62,839 53,777
Corporate and other 98,820 52,413 79,765 89,354
__________ _________ _________ _______
Total capital expenditures $ 345,356 301,336 240,698 278,437
__________ _________ _________ _______
__________ _________ _________ _______
The following is a summary of the Company's revenue in different geographic areas:
Years ended Nine months ended June 30,
September 30, 2001 2000
2000 1999 (unaudited) (unaudited)
____ ____ ___________ ___________
United States $ 11,989,031 10,595,056 9,357,761 9,398,906
Other countries 790,440 874,446 646,675 656,000
_____________ __________ __________ __________
Total revenue $ 12,779,471 11,469,502 10,004,436 10,054,906
_____________ __________ __________ __________
_____________ __________ __________ __________
F-22
62
CYCLE COUNTRY ACCESSORIES CORP.
AND AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Notes to Combined Financial Statements
(Items referring to June 30, 2001 and 2000 are Unaudited)
(15) Segment Information, Continued
______________________________
As of September 30, 2000 and 1999 and June 30, 2001 and 2000
(unaudited), all of the Company's long-lived assets are located in
the United States of America. During fiscal 2000 and 1999 and
during the nine months ended June 30, 2001 and 2000 (unaudited),
ATV Accessories had sales to individual customers which exceeded
10% of total revenues as described in note 14. Plastic Wheel
Covers did not have sales to any individual customer greater than
10% of total revenues during fiscal 2000 and 1999 or during the
nine months ended June 30, 2001 and 2000 (unaudited).
(16) Related Party Transactions
__________________________
The Company was owed $46,000 at September 30, 2000 by a
stockholder of the Company. At June 30, 2001, the Company was
owed $0 by a stockholder of the Company (unaudited).
Land Mark Leasing, Inc., which the Company owed $100,000 at
September 30, 2000, is wholly owned by the stockholders of Cycle
Country. At June 30, 2001, there were no amounts outstanding to
Land Mark Leasing, Inc. (unaudited).
During the nine months ended June 30, 2001, consulting fees of
approximately $31,600 were paid to the Company by Land Mark
Products, Inc. Land Mark Products, Inc. is owned 10% by the
stockholders of Cycle Country (unaudited).
The Company leases certain facilities from two of its stockholders
under operating lease agreements, which obligate the Company for
monthly lease payments of $25,320 per month through October 31,
2006 and $4,000 per month through September 30, 2004 (see notes 13
and 18).
(17) Commitments and Contingencies
_____________________________
Legal Matters
The Company is a defendant in a number of claims relating to
matters arising in the ordinary course of its business.
Management believes these claims are insured and subject to
varying deductibles. The amount of liability, if any, from the
claims cannot be determined with certainty; however, management is
of the opinion that the outcome of the claims will not have a
material adverse impact on the combined financial position of the
Company.
F-23
63
CYCLE COUNTRY ACCESSORIES CORP.
AND AFFILIATED ENTITY
(an Iowa corporation)
(The Predecessor Company)
Notes to Combined Financial Statements
(Items referring to June 30, 2001 and 2000 are Unaudited)
(18) Subsequent Events (Unaudited)
_____________________________
On August 14, 2001, Cycle Country and Okoboji Industries merged.
Since both Cycle Country and Okoboji Industries are entities under
common control (see Note 1), this transaction will be accounted
for in a manner similar to a pooling of interests.
On August 21, 2001, the Company acquired its operating facilities,
which were previously leased from two of its stockholders, for
$300,000 in cash and 390,000 shares of common stock in Cycle
Country Accessories Corp. (a Nevada corporation). The land and
building had an appraised value of $1.5 million. Additionally, no
penalties were incurred by the Company in connection with the
cancellation of the operating leases relating to the land and
building.
On August 21, 2001, the stockholders of the Company entered into
an agreement to sell all of the common stock of the Company (see
Note 19).
F-24
64
(19) Pro Forma Financial Information (Unaudited)
___________________________________________
Combined Balance Sheets
-----------------------
The pro forma financial information presented as of June 30, 2001 give effect
to (a) the acquisition of Cycle Country Accessories Corp.'s (an Iowa
corporation) (the Predecessor Company) operating facility, which consists of
land and buildings with a fair value of $1,500,000, from certain stockholders.
The consideration given is comprised of $300,000 in cash and 390,000 shares of
common stock of Cycle Country Accessories Corp. (a Nevada corporation) (the
Successor Company); and (b) the purchase by Cycle Country Accessories Corp.
(a Nevada corporation) (the Successor Company) of all the outstanding common
stock of Cycle Country Accessories Corp. (an Iowa corporation) (the Predecessor
Company) for $4,500,000 in cash and 1,375,000 shares of common stock of Cycle
Country Accessories Corp. (a Nevada corporation) (the Successor Company). A
term note in the amount of $4,500,000 from a commercial lender was entered into
by Cycle Country Accessories Corp. (a Nevada corporation) (the Successor
Company) to finance the purchase of all of the outstanding shares of Cycle
Country Accessories Corp. (an Iowa corporation) (the Predecessor Company).
Combined Statements of Income
-----------------------------
As a result of the purchase of all of the outstanding common stock of Cycle
Country Accessories Corp. (an Iowa corporation) (the Predecessor Company) by
Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company),
which is a C corporation, Cycle Country Accessories Corp. (an Iowa
corporation) (the Predecessor Company) converted from a S corporation to a C
corporation. (see Note 18) A provision for income taxes has been included due
to this conversion from a S corporation to a C corporation.
Earnings Per Share
------------------
The 3,625,000 shares of common stock outstanding for all periods presented
represents the initial capitalization of Cycle Country Accessories Corp. (a
Nevada corporation) (the Successor Company) after its formation. The 390,000
shares of common stock of Cycle Country Accessories Corp. (a Nevada
corporation)(the Successor Comany) issued in connection with the acquistion
of Cycle Country Accessories Corp.'s (an Iowa corporation)(the Predecessor
Company) operating facility from certain existing stockholders and 1,375,000
shares of common stock of Cycle Country Accessories Corp. (a Nevada
corporation)(the Successor Company) issued in connection with the acquisition
of all of the outstanding common stock of Cycle Country Accessories Corp. (an
Iowa corporation) (the Predecessor Company) are included in the 3,625,000
shares of common stock used in the calculation of basic and diluted earnings
per share.
F-25
65
Independent Auditors' Report
____________________________
To the Board of Directors and Stockholders of
Cycle Country Accessories Corp.
(a Nevada corporation):
We have audited the accompanying balance sheet of Cycle Country
Accessories Corp. (a Nevada corporation) (the Successor Company)
(the "Company") as of August 23, 2001, and the related statements
of income, stockholders' equity, and cash flows for the period
from inception (August 15, 2001) to August 23, 2001.
These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Cycle
Country Accessories Corp. (a Nevada corporation) as of August 23,
2001, and the results of its operations and its cash flows for the
period from inception (August 15, 2001) to August 23, 2001 in
conformity with accounting principles generally accepted in the United
States of America.
TEDDER, JAMES, WORDEN & ASSOCIATES, P.A.
October 23, 2001
Orlando, Florida
F-26
66
CYCLE COUNTRY ACCESSORIES CORP.
(a Nevada corporation)
(The Successor Company)
Balance Sheet
August 23, 2001
Assets
------
Current assets
Cash $ 4,500,363
=============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities
Current portion of note payable $ 777,389
Note payable, less current portion 3,722,611
-------------
Total liabilities 4,500,000
Stockholders' equity 363
-------------
Total liabilities and stockholders' equity $ 4,500,000
=============
See accompanying notes to the financial statements.
F-27
67
CYCLE COUNTRY ACCESSORIES CORP.
(a Nevada corporation)
(The Successor Company)
Statement of Income
From the period from inception (August 15, 2001) to August 23, 2001
No activity has occurred from inception (August 15, 2001) to August 23, 2001
See accompanying notes to the financial statements.
F-28
68
CYCLE COUNTRY ACCESSORIES CORP.
(a Nevada corporation)
(The Successor Company)
Statement of Stockholders' Equity
From the period from inception (August 15, 2001) to August 23, 2001
Additional
Preferred Common paid-in Retained
stock stock capital earnings Total
--------- ------ ---------- -------- -----
Balances at August 15, 2001 $ - - - - -
Issuance of 3,625,000 shares
of common stock - 363 - - 363
--------- ------ ---------- -------- -----
Balances at August 23, 2001 $ - 363 - - 363
========= ====== ========== ======== =====
See accompanying notes to the financial statements.
F-29
69
CYCLE COUNTRY ACCESSORIES CORP.
(a Nevada corporation)
(The Successor Company)
Statement of Cash Flows
From the period from inception (August 15, 2001) to August 23, 2001
Cash flows from financing activities
Proceeds from note payable $ 4,500,000
Proceeds from issuance of common stock 363
-------------
Net cash provided by financing activities $ 4,500,363
Increase in cash 4,500,363
Cash - August 15, 2001 -
-------------
Cash - August 23, 2001 $ 4,500,363
=============
See accompanying notes to the financial statements.
F-30
70
CYCLE COUNTRY ACCESSORIES CORP.
(a Nevada Corporation)
(The Successor Company)
Notes to Financial Statements
_____________________________
(1) Summary of Significant Accounting Policies
__________________________________________
(a) Reporting Entity and Nature of Operations
Cycle Country Accessories Corp. (the "Company") (a Nevada
corporation) (the Successor Company) was incorporated in the
state of Nevada on August 15, 2001 as a C corporation. The
Company had no activities for the period from inception
(August 15, 2001) to August 23, 2001 other than those
activities related to the formation of the Company and
acquiring debt financing (see Note 2).
(b) Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(c) Income Taxes
The Company accounts for income taxes utilizing the asset and
liability method. This approach requires the recognition of
deferred tax assets and liabilities for the expected future
tax consequences attributable to temporary differences between
the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enacted date.
(d) Earnings Per Share
Basic earnings per share is calculated by dividing net income
by the weighted-average common shares outstanding during the
reporting period. Diluted earnings per share is computed in a
manner consistent with that of basic earnings per share while
giving effect to all potentially dilutive common shares
outstanding during the reporting period. There were no
potentially dilutive common shares outstanding during the
period from inception (August 15, 2001) to August 23, 2001.
F-31
71
CYCLE COUNTRY ACCESSORIES CORP.
(a Nevada Corporation)
(The Successor Company)
Notes to Financial Statements
_____________________________
(1) Summary of Significant Accounting Policies, Continued
_____________________________________________________
(e) Fair Value of Financial Instruments
The carrying amount of cash approximates fair value because of
its short maturity. The fair value of the note payable is
assumed to approximate the recorded value because there have
not been any significant changes in specific circumstances
since the note payable was originally recorded.
(2) Note Payable
____________
On August 21, 2001, under the terms of a secured credit agreement,
the Company and the Predecessor Company (see Note 4) entered into
a note payable for $4,500,000 (the "Note") with a commercial
lender. The proceeds from the Note were received by the Company on
August 23, 2001. The Note is collateralized by all of the Companies'
assets, is payable in monthly installments from September 2001
until July 2006, which includes principal and interest at prime +
0.75% (7.25% at August 23, 2001), with a final payment upon
maturity on July 25, 2006. The monthly payment is $90,115 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 (see Note 3) shall be
applied to any outstanding balance on the $4,500,000 note payable.
At August 23, 2001, $4,500,000 was outstanding on the Note.
Under the terms of the secured credit agreement noted above, the
Company and the Predecessor Company have 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% (7.75% at August 23, 2001) and is collateralized by all
of the Companies' assets. The Line of Credit matures on August
25, 2002. There are no outstanding borrowings under the Line of
Credit at August 23, 2001.
F-32
72
CYCLE COUNTRY ACCESSORIES CORP.
(a Nevada Corporation)
(The Successor Company)
Notes to Financial Statements
_____________________________
(2) Note Payable, Continued
_______________________
In addition, the secured credit agreement contains conditions and
covenants that prevent or restrict the Company from engaging in certain
transactions without the consent of the lender and require the
Company to maintain certain financial ratios, including a term dept
coverage and maximum leverage. In addition, the Company is required
to maintain a minimum working capital.
Future maturities of long-term debt subsequent to August 23, 2001
are as follows:
Year ending September 30,
_________________________
2001 $ 60,564
2002 784,976
2003 843,994
2004 906,944
2005 975,639
Thereafter 927,883
Thereafter --------------
$ 4,500,000
==============
(3) Stockholders' Equity
____________________
(a) Common Stock
The Company has 100,000,000 shares of $0.0001 par value common
stock authorized and 3,625,000 shares issued and outstanding
at August 23, 2001. Of the 3,625,000 shares of common stock
outstanding, 2,000,000 of these shares of common stock
have warrants attached which entitles the holder to
purchase one share of common stock per warrant beginning 120
days following the effectiveness of a registration statement
(see Note 5) and ending August 21, 2004 at an exercise price of
$4. The Company has the right, under certain circumstances, to
redeem any unexercised warrants at $0.0001 per share. No value
has been ascribed to the warrants since the proceeds from the
sale of the 3,625,000 shares of common stock amounted to $363
and any ascribed value would not be material.
F-33
73
CYCLE COUNTRY ACCESSORIES CORP.
(a Nevada Corporation)
(The Successor Company)
Notes to Financial Statements
_____________________________
(3) Stockholders' Equity, continued
________________________________
(b) Preferred Stock
The Company has 20,000,000 shares of $0.0001 par value preferred
stock authorized and no shares issued and outstanding at
August 23, 2001. The Board of Directors is authorized to adopt
resolutions providing for the issuance of preferred shares and
the establishment of preferences and rights pertaining to the
shares being issued, including the dividend rates.
In the event of any dissolution or liquidation of the Company,
whether voluntary or involuntary, the holders of shares
of preferred stock shall be paid the full amountsof which
they shall be entitled to receive before any holders of common
stock shall be entitled to receive, pro rata, any remaining assets
of the Company available for distribution to its shareholders.
(4) Commitment
On August 21, 2001, the Company entered into an agreement to
purchase all of the outstanding common stock of Cycle Country
Accessories Corp. (an Iowa corporation) (the Predecessor Company)
for $4,500,000 in cash and 1,375,000 shares of common stock of
Cycle Country Accessories Corp. (a Nevada corporation) (the
Successor Company). Since both the Company and Cycle Country
Accessories Corp. (an Iowa corporation) (the Predecessor Company)
are under common control by virtue of majority ownership and common
management by the same three individuals, this transaction will be
accounted for in a manner similar to a pooling of interests.
(4) Subsequent Events (Unaudited)
_____________________________
On August 24, 2001, the transaction described in Note 4 was consummated
and the $4,500,000 in cash and 1,375,000 shares of common stock of the
Company were exchanged for all of the outstanding common stock of Cycle
Country Accessories Corp. (an Iowa corporation) (the Predecessor
Company.)
On August 28, 2001, the Company filed a Registration Statement on
Form SB-2 with the Securities and Exchange Commission.
F-34
74
Unaudited Pro Forma Financial Information
_________________________________________
The following Unaudited Pro Forma Balance Sheet as of June 30, 2001
and the Unaudited Pro Forma Statements of Income for the year ended
September 30, 2000 and the nine months ended June 30, 2001 give effect
to (1) the acquisition of Cycle Country Accessories Corp.'s (an Iowa
corporation) (the Predecessor Company) operating facility,
which consists of land and buildings with a fair value of $1,500,000,
from certain stockholders. The consideration given is comprised of
$300,000 in cash and 390,000 shares of common stock of Cycle Country
Accessories Corp. (a Nevada corporation) (the Successor Company); and
(2) the purchase by Cycle Country Accessories Corp. (a Nevada corporation)
(the Successor Company) of all the outstanding common stock of Cycle
Country Accessories Corp. (an Iowa corporation) (the Predecessor
Company) for $4,500,000 in cash and 1,375,000 shares of common stock
of Cycle Country Accessories Corp. (a Nevada corporation) (the
Successor Company). A term note in the amount of $4,500,000 from a
commercial lender was entered into by Cycle Country Accessories Corp.
(a Nevada corporation) (the Successor Company) to finance the purchase
of all of the outstanding shares of Cycle Country Accessories Corp.
(an Iowa corporation) (the Predecessor Company). As a result of the
purchase of all of the outstanding common stock of Cycle Country
Accessories Corp. (an Iowa corporation) (the Predecessor Company) by
Cycle Country Accessories Corp. (a Nevada corporation) (the Successor
Company), which is a C corporation, Cycle Country Accessories Corp.
(an Iowa corporation) (the Predecessor Company) converted from a S
corporation to a C corporation.
The Unaudited Pro Forma Balance Sheet presents the pro forma consolidated
financial position of Cycle Country Accessories Corp. (a Nevada
corporation) (the Successor Company) and Cycle Country Accessories
Corp. (an Iowa corporation) (the Predecessor Company) as of June 30,
2001 assuming that the proposed transactions had occurred as of June
30, 2001. Such pro forma information is based upon the historical
balance sheet data of Cycle Country Accessories Corp. (an Iowa
corporation) (the Predecessor Company) and Cycle Country Accessories
Corp. (a Nevada corporation) (the Successor Company) as of that date.
The Unaudited Pro Forma Statement of Income gives effect to the
proposed transactions for the year ended September 30, 2000 and for
the nine months ended June 30, 2001 as if the transaction had been
consummated on October 1, 1999.
The Unaudited Pro Forma Financial Information has been prepared by the
Company based on the historical combined financial statements of Cycle
Country Accessories Corp. and Affiliated Entity (an Iowa corporation)
(the Predecessor Company) and Cycle Country Accessories Corp. (a
Nevada corporation) (the Successor Company) included elsewhere in this
registration statement. The Unaudited Pro Forma Financial Information
is presented for illustrative purposes only and does not purport to
indicate the results that would have been obtained if the transactions
had occurred on the dates indicated or to project those that will be
realized in the future. These Unaudited Pro Forma Financial
Statements should be read in conjunction with the historical combined
financial statements of Cycle Country Accessories Corp. and Affiliated
Entity (an Iowa corporation) (the Predecessor Company) and Cycle
Country Accessories Corp. (a Nevada corporation) (the Successor
Company) included elsewhere in this registration statement.
F-35
75
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARY
Unaudited Pro Forma Balance Sheet
June 30, 2001
Pro Forma
--------------------------
Cycle Country Cycle Country Cycle Country
Accessories Accessories Accessories
Corp. Corp. Land acquisition Corp.,
and (a Nevada and stock (a Nevada corporation)
Affiliated Corporation) purchase (Sucessor)
Assets Entity (Successor) adjustments as adjusted
------ ------------- -------------- ----------------- ----------------------
Current Assets:
Cash and cash equivalents $ 516,332 4,500,363 (300,000) (A) 317,212
(4,500,000) (B)
100,517 (C)
Accounts receiveable - trade 754,232 - 754,232
Inventories 2,291,387 - 2,291,387
Prepaid expenses and other 56,881 - 56,881
------------ --------- ----------
Total current assets 3,618,832 4,500,363 3,419,712
Investment in Cycle Country
Accessories Corp. (Nevada) - - 4,500,000 (B) -
(4,500,000) (D)
Property and equipment, net 1,085,168 - 1,500,000 (A) 2,585,168
Other assets 174,377 - (100,517) (C) 73,860
------------ --------- -----------
Total assets $ 4,878,377 4,500,363 6,078,740
============ ========= ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities; $ 630,613 - 630,613
Long-term note payable - 4,500,000 4,500,000
------------ --------- -----------
Total liabilities 630,613 4,500,000 5,130,513
Stockholders' equity
Preferred stock:
Cycle Country Accessories Corp. (Nevada) - - -
Common Stock
Cycle Country Accessories Corp. (Nevada) - 363 363
Cycle Country Accessories Corp. (Iowa) 25,600 - (25,600) (D) -
Additional paid-in capital 14,116 - 1,200,000 (A) 1,200,000
(14,166) (D)
Retained earnings (accumulated deficit) 4,208,048 - (4,460,284) (D) (252,236)
------------ --------- -----------
Total stockholders' equity 4,247,764 363 948,127
------------ --------- -----------
Total liabilities and stockholders' equity $ 4,878,377 4,500,363 6,078,740
============ ========= ===========
See Notes to Unaudited Pro Forma Balance Sheet on page F-37
F-36
76
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARY
Unaudited Pro Forma Balance Sheet, Continued
June 30, 2001
Notes to Unaudited Pro Forma Balance Sheet:
Acquisition of Land and Building
--------------------------------
(A) Acquisition of Cycle Country Accessories Corp.'s (an Iowa corporation)
(the Predecessor Company) operating facility, which consists of land
and buildings with a fair value of $1,500,000 for $300,000 in cash and
390,000 shares of common stock in Cycle Country Accessories Corp.
(a Nevada corporation) (the Successor Company) from certain
stockholders of Cycle Country Accessories Corp. (an Iowa corporation)
(the Predecessor Company).
Purchase of Cycle Country Accessories Corp.'s (an Iowa corporation) (the
Predecessor Company) Common Stock
------------------------------------------------------------------------
(B) Purchase of all the outstanding shares of common stock of Cycle
Country Accessories Corp. (an Iowa corporation) (the Predecessor
Company) for $4,500,000 in cash and 1,375,000 shares of common stock
of Cycle Country Accessories Corp. (a Nevada corporation) (the
Successor Company). This transaction will be accounted for in a
manner similar to a pooling of interests because both of the Companies
were under common control by virtue of majority stock ownership and
management beign controlled by the same three individuals.
(C) Upon conversion to C corporation status, the Company will receive
$100,517 from the U.S. Government. The S corporation tax deposit
will no longer be required when the Company converts to C Corporation
status.
(D) Elimination of the investment account in consolidation.
F-37
77
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARY
Unaudited Pro Forma Statement of Income
For the year ended September 30, 2000
Pro Forma
--------------------------
Cycle Country
Accessories Cycle Country Cycle Country
Corp. and Accessories Accessories Corp.,
Affiliated Corp. Land acquisition (a Nevada
Entity (an (a Nevada and stock corporation)
Iowa corporation) corporation) purchase (Successor)
(Predecessor) (Successor) adjustments as adjusted
------------- ---------------- ---------------- -----------------
Net Sales $12,675,699 - 12,675,699
Freight income 103,772 - 103,772
------------- ---------------- -----------------
Total revenue 12,779,471 - 12,779,471
Cost of goods sold (9,138,162) - (23,150) (A) (8,924,912)
------------- ---------------- -----------------
236,400 (B)
Gross profit 3,641,309 - 3,854,559
Selling, general and administrative expenses (2,646,331) - (14,200) (A) (2,545,081)
------------- ---------------- -----------------
115,400 (B)
Income from operations 994,978 - 1,309,478
Non-operating income, net 25,798 - (311,400) (C) (285,602)
------------- ---------------- -----------------
Income before provision for income taxes 1,020,776 - 1,023,876
Income tax provision - - (372,500) (D) (378,700)
------------- ---------------- -----------------
Net income $ 1,020,776 - 645,176
============= ================ =================
Weighted average shares outstanding (E):
Basic and diluted 3,625,000
=================
Earnings per share (F):
Basic and diluted $ 0.18
=================
Notes to Unaudited Pro Forma Statement of Income
Acquisition of Land and Building
--------------------------------
(A) Additional annual depreciation expense resulting from increased
basis of building acquired of $1,120,000 (based on appraised value
and as discussed in adjustment (A) on page F-37) based on estimated
useful life of 30 years. Depreciation expense has been allocated
between cost of sales and selling, general and administrative
based on relative square footage occupied.
(B) Elimination of operating lease expense as a result of the acquisition
of the related land and buildings (operating facility) as discussed in
adjustment (A) on page F-37. This adjustment is based on a monthly
lease expense of $29,320 in connection with the current operating
leases on the operating facility. Rent expense is allocated between
cost of sales and selling, general and administrative expense based
on relative square footage occupied.
Stock Purchase of Cycle Country Accessories Corp. (an Iowa corporation)
-----------------------------------------------------------------------
(C) Annual interest charges on $4,500,000 of prime + 0.75% (7.5% at
June 30, 2001) note payable obtained in connection with the stock
purchase maturing on July 25, 2006. The note is payable in monthly
installments over 60 months.
(D) Required income tax provision due to conversion to C corporation
status as a result of the purchase of Cycle Country Accessories
Corp.'s (an Iowa corporation) (he Predecessor Company) by Cycle
Country Accessories Corp. (a Nevada corporation) (the Successor
Company) as discussed in adjustment B on page F-37.
Calculation of Earnings Per Share
---------------------------------
(E) The 3,625,000 shares of common stock used in the calculation of basic
and diluted earnings per share were issued in connection with the
formation of Cycle Country Accessories Corp. (a Nevada corporation)
(the Successor Company). The 390,000 shares of common stock of Cycle
Country Accessories Corp. (a Nevada corporation)(the Successor
Company) issued in connection with the acquisition of Cycle Country
Accessories Corp.'s (an Iowa corporation)(the Predecessor company)
operating facility from certain existing stockholders and the
1,375,000 shares of common stock of Cycle Country Accessories Corp.
(a Nevada corporation)(the Successor Company) issued in connection
with the acquisition of all of the outstanding common stock of Cycle
Country Accessories Corp. (an Iowa corporaiton)(the Predecessor
Company) are included in the 3,625,000 shares of common stock used
in the calculation of basic and diluted earnings per share.
F-38
78
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARY
Unaudited Pro Forma Statement of Income
For the nine months ended September 30, 2000
Pro Forma
--------------------------
Cycle Country
Accessories Cycle Country Cycle Country
Corp. and Accessories Accessories Corp.,
Affiliated Corp. Land acquisition (a Nevada
Entity (an (a Nevada and stock corporation)
Iowa corporation) corporation) purchase (Successor)
(Predecessor) (Successor) adjustments as adjusted
----------------- -------------- -------------- ------------------
Net Sales $ 9,915,477 - 9,915,477
Freight income 88,959 - 88,959
------------- -------------- ------------------
Total revenue 10,004,436 - 10,004,436
Cost of goods sold (6,931,328) - (17,350) (A) (6,771,378)
------------- -------------- ------------------
177,300 (B)
Gross profit 3,073,108 - 3,233,058
Selling, general and administrative expenses (2,132,002) - (10,650) (A) (2,056,052)
------------- -------------- ------------------
86,600 (B)
Income from operations 941,106 - 1,177,006
Non-operating income, net 68,317 - (239,000) (C) (170,683)
------------- -------------- ------------------
Income before provision for income taxes 1,009,423 1,006,323
Income tax provision - - (372,500) (D) (372,500)
------------- -------------- ------------------
Net income $ 1,009,423 - 633,823
============= ============== ==================
Weighted average shares outstanding (E):
Basic and diluted 3,625,000
==================
Earnings per share (F):
Basic and diluted $ 0.18
==================
Notes to Unaudited Pro Forma Statement of Income
Acquisition of Land and Building
--------------------------------
(A) Additional annual depreciation expense resulting from increased
basis of building acquired of $1,120,000 (based on appraised value
and as discussed in adjustment (A) on page F-37) based on estimated
useful life of 30 years. Depreciation expense has been allocated
between cost of sales and selling, general and administrative
based on relative square footage occupied.
(B) Elimination of operating lease expense as a result of the acquisition
of the related land and buildings (operating facility) as discussed in
adjustment (A) on page F-37. This adjustment is based on a monthly
lease expense of $29,320 in connection with the current operating
leases on the operating facility. Rent expense is allocated between
cost of sales and selling, general and administrative expense based
on relative square footage occupied.
Stock Purchase of Cycle Country Accessories Corp. (an Iowa corporation)
-----------------------------------------------------------------------
(C) Annual interest charges on $4,500,000 of prime + 0.75% (7.5% at
June 30, 2001) note payable obtained in connection with the stock
purchase maturing on July 25, 2006. The note is payable in monthly
installments over 60 months.
(D) Required income tax provision due to conversion to C corporation
status as a result of the purchase of Cycle Country Accessories
Corp.'s (an Iowa corporation) (he Predecessor Company) by Cycle
Country Accessories Corp. (a Nevada corporation) (the Successor
Company) as discussed in adjustment B on page F-37.
Calculation of Earnings Per Share
---------------------------------
(E) The 3,625,000 shares of common stock used in the calculation of basic
and diluted earnings per share were issued in connection with the
formation of Cycle Country Accessories Corp. (a Nevada corporation)
(the Successor Company). The 390,000 shares of common stock of Cycle
Country Accessories Corp. (a Nevada corporation)(the Successor
Company) issued in connection with the acquisition of Cycle Country
Accessories Corp.'s (an Iowa corporation)(the Predecessor company)
operating facility from certain existing stockholders and the
1,375,000 shares of common stock of Cycle Country Accessories Corp.
(a Nevada corporation)(the Successor Company) issued in connection
with the acquisition of all of the outstanding common stock of Cycle
Country Accessories Corp. (an Iowa corporaiton)(the Predecessor
Company) are included in the 3,625,000 shares of common stock used
in the calculation of basic and diluted earnings per share.
F-39
79
No dealer, salesman or other
person is authorized to give any
information or to make any
representations not contained in
this prospectus in connection with
the offer made hereby, and, if
given or made, such information or
representations must not be relied
upon as having been authorized by
Cycle Country. This prospectus
does not constitute an offer to
sell or a solicitation to an offer
to buy the securities offered
hereby to any person in any state
or other jurisdiction in which such
offer or solicitation would be
unlawful. Neither the delivery of
this Prospectus nor any sale made
hereunder shall, under any
circumstances, create any
implication that the information
contained herein is correct as of
any time subsequent to the date
hereof.
Until ________ __, 2002 (90 days
after the date of this prospectus)
all dealers that effect transactions
in these securities, whether or not
participating in this offering, may
be required to deliver a prospectus.
This is in addition to the dealer's
obligation to deliver a prospectus
when acting as underwriters and with
respect to their unsold allotments
or subscriptions.
TABLE OF CONTENTS
Page
Prospectus Summary.................... 3 Cycle Country Accessories Corp.
The Offering.......................... 4
Summary Financial Data................ 6
Risk Factors.......................... 7
Use of Proceeds....................... 11
Determination of Offering Price....... 11
Dividend Policy....................... 11 5,625,000 SHARES
Dilution.............................. 12
Management's Discussion and Analysis.. 13
Business.............................. 18
Management............................ 26
Principal Shareholders................ 29
Selling Shareholders.................. 30
Certain Transactions.................. 33
Description of Securities............. 34 ----------
Indemnification....................... 36 PROSPECTUS
Plan of Distribution.................. 37 ----------
Legal Matters......................... 38
Experts............................... 38
Where You Can Find More
Information........................... 39
Financial Statements.................. F-1
-------------------------------------------
November 15, 2001
80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 11 of our Articles of Incorporation includes certain
provisions permitted by the Nevada Revised Statutes, which provides for
indemnification of directors and officers against certain liabilities.
Pursuant to our Articles of Incorporation, our officers and directors are
indemnified, to the fullest extent available under Nevada Law, against
expenses actually and reasonably incurred in connection with threatened,
pending or completed proceedings, whether civil, criminal or administrative,
to which an officer or director is, was or is threatened to be made a party
by reason of the fact that he or she is or was one of our officers,
directors, employees or agents. We may advance expenses in connection
with defending any such proceeding, provided the indemnitee undertakes
to repay any such amounts if it is later determined that he or she was
not entitled to be indemnified by us.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions or otherwise,
we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the
Securities Act and is therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We estimate that expenses in connection with this registration
statement will be as follows:
SEC registration fee $ 7,031
Legal fees and expenses $ 75,000
Accounting fees and expenses $ 56,000
Miscellaneous $ 5,000
Total $143,031
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following information is furnished with regard to all securities
sold by Cycle Country Accessories Corp. within the past three years that
were not registered under the Securities Act. The issuances described
hereunder were made in reliance upon the exemptions from registration
set forth in Section 4(2) of the Securities Act relating to sales by an
issuer not involving any public offering. None of the foregoing
transactions involved a distribution or public offering.
II-1
81
Date Name # of Shares Total Price
---- ---- ----------- -----------
10/1/1999 Ronald Hickman 152 $54,178
10/1/1998 Ronald Hickman 152 $54,178
ITEM 27. EXHIBITS
Exhibit Number Description
-------------- -----------
3.1 Articles of Incorporation of Cycle Country
Accessories Corp.
3.2 Bylaws of Cycle Country Accessories Corp.
4.1 Specimen certificate of the Common Stock of Cycle
Country Accessories Corp.
4.2 Specimen certificate of the Warrants of Cycle
Country Accessories Corp.
5.1 Opinion of Law Office of L. Van Stillman, P.A. as
to legality of securities being registered
10.1 Stock Purchase Redemption Agreement entered into on
August 21, 2001 by and between Cycle Country
Accessories Corporation (an Iowa Corporation), the
holders and record owners of all of the outstanding
shares of Cycle Country Accessories Corporation
(an Iowa Corporation) and Cycle Country Accessories
Corp. (a Nevada Corporation) and parent of Cycle
Country Accessories Corporation (an Iowa Corporation).
10.2 Secured Credit Agreement by and between Cycle Country
Accessories Corp. (a Nevada Corporation) and Cycle
Country Accessories Corporation (an Iowa Corporation)
as Borrowers and Bank Midwest, Minnesota Iowa, N.A. as
Lender dated as of August 21, 2001.
10.3 Employment Agreement with Ronald Hickman
10.4 Employment Agreement with Jim Danbom
10.5 Lease of Business Property entered into November
21, 1985 between Double J Building and Cycle Country
Accessories Corporation (an Iowa corporation).
10.6 Lease of Business Property entered into August 1, 1994
between Double J Building and Okoboji Industries.
II-2
82
10.7 Cycle Country Accessories Corp. Pension and Profit
Sharing Plan
10.8 Promissory Note dated July 24, 2000 with Landmark
Leasing
10.9 Promissory Note dated May 30, 1996 with Okoboji
Industries
10.10 Promissory Note dated August 7, 1995 with Okoboji
Industries
23.1 Consent of Tedder, James, Worden & Associates, P.A.
regarding Cycle Country Accessories Corp. (an Iowa
corporation)(the Predecessor Company)
23.2 Consent of L. Van Stillman (included in Exhibit 5.1)
23.3 Consent of Tedder, James, Worden & Associates, P.A.
regarding Cycle Country Accessories Corp. (a Nevada
corporation)(the Successor Company)
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the Company pursuant to the
foregoing provisions, or otherwise, the Company has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy and as expressed in the Act
and is, therefore, unenforceable.
The Company hereby undertakes to:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
i. Include any prospectus required by Section 10(a)(3) of
the Securities Act;
ii. Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the registration
statement.
iii. Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at
that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(4) For determining any liability under the Securities Act,
treat the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
II-3
83
and contained in a form of prospectus filed by the Company under
Rule 424(b)(1) or (4) or 497(h) under the Securities Act as part
of this registration statement as of the time the Commission
declared it effective.
(5) For determining any liability under the Securities Act,
treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities
offered in the registration statement, and that offering of the
securities at that time as the initial bona fide offering of
those securities.
(6) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to our
directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised by the
Securities and Exchange Commission that such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by us of expenses incurred or paid by one of
our directors, officers or controlling persons in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of our
counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by us is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
II-4
84
Signatures
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable ground to believe that it
meets all of the requirements for filing on Form SB-2 and authorized
this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Milford state
of Iowa, on November 14, 2001.
CYCLE COUNTRY ACCESSORIES CORP.
By: /s/ Ron Hickman
----------------
Ron Hickman
Principal Executive Officer,
President and Director
In accordance with the requirements of the Securities Act of 1933,
this registration statement has been signed by the following persons in
the capacities indicated on November 14, 2001.
By: /s/ Ron Hickman Principal Executive Officer,
--------------- President and Director
Ron Hickman
By: /s/ Marie Matthiesen Treasurer, Principal Financial
-------------------- Officer and Principal Accounting
Marie Matthiesen Officer
By: /s/ Richard Wagner Director
------------------
Richard Wagner
By: /s/ Jim Danbom Director
--------------
Jim Danbom
By: /s/ L.G. Hancher Jr. Director
--------------------
L.G. Hancher Jr.
By: /s/ Richard J. Groeneweg Director
------------------------
Richard J. Groeneweg
II-5
85