Registration No. [-----------] SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------------- 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 3,625,000 $5.00 $18,125,000 $4,531.25 sold by Selling Shareholders Common Stock underlying certain 2,000,000 $4.00 $8,000,000 $2,000.00 currently unexercised warrants issued by the Company TOTAL 5,625,000 $26,125,000 $6,531.25 - ---------------------- (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 August 28, 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. Of this total: (a) 3,625,000 shares are being offered by selling shareholders and (b) 2,000,000 shares may be issued by us in connection with certain outstanding warrants. We will not receive any proceeds from the sale of the shares by the selling stockholders. We will pay all expenses of registration incurred in connection with this offering, but any and all selling and other expenses incurred by security holders wishing to sell common stock will be paid by such selling stockholder. 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. You should only rely on the information incorporated by reference or provided in this prospectus or any supplement. 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 August 28, 2001 3 TABLE OF CONTENTS PAGE Prospectus Summary 4 The Offering 5 Summary Financial Information 7 Risk Factors 8 Use of Proceeds 12 Determination of Offering Price 12 Dividend Policy 12 Dilution 13 Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Business 17 Management 25 Principal Shareholders 27 Selling Shareholders 28 Certain Transactions 30 Description of Securities 31 Indemnification 33 Plan of Distribution 34 Legal Matters 35 Experts 35 Where You Can Find More Information 36 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 Special Note Regarding Forward-Looking Statements ------------------------------------------------- This memorandum contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed. Important factors that could cause our actual results to differ materially from projections include, but are not limited to, those discussed in "Risk Factors" and "Business," as well as those discussed elsewhere in this memorandum. We are not obligated to revise or update these forward-looking statements to reflect new events or circumstances. See "Risks Associated With Forward Looking Statements." 3 5 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"), manufacturing a complete line of branded product offerings such as 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. 4 6 The Offering Securities Offered 5,625,000 shares of common stock. Of this amount, 3,625,000 shares are being offered by the Selling Shareholders; and 2,000,000 may be issued by us in connection with certain outstanding warrants; See"Description of Securities" Common Stock Outstanding, before offering 3,625,000 Common Stock Outstanding, after offering 5,625,000 Proposed OTC Bulletin Board Symbol CCAC Use of Proceeds We intend to use the proceeds from the sale of any of the shares in connection with certain outstanding warrants that we sell for retirement of short and long term debt at Bank Midwest and for general corporate purposes. We will not receive any proceeds from the sale of Common Stock by our Selling Shareholders. 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. 5 7 Risk Factors The securities offered hereby are highly speculative and very risky. Some of these risk factors follow. Before you buy, consider the following risk factors and the rest of this prospectus. Additionally, the risks described below are not the only ones we face. Additional risks and uncertainties not presently known to us, that we currently deem immaterial or that are similar to those faced by other companies in our industry or business in general, may also impair our business operations. 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 11. 6 8 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 7 9 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 set forth elsewhere 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 11. 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 such 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 have characterized our operations in prior years is dependent to a large part on our ability to successfully anticipate and respond to changing consumer demands and trends in a timely manner, including the introduction of 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. 8 10 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. Although we believe that every ATV retailer in the United States is served by at least two of our distributors, we can make no assurances regarding how successful these distributors will be in selling our ATV accessories over the long-term. 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. We seek to minimize this potential effect by stressing pre-season sales to retailers. However, there is no assurance that certain weather conditions would not have a material adverse effect on our sales. 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. Accordingly, we believe such level of insurance is adequate. We do not believe that the outcome of any pending product liability litigation will have a material adverse effect on our operations. However, 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 could give rise to 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 9 11 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. Although we estimate that we presently sell approximately 50% of the ATV accessories sold in United States we do continue to 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. 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, the issuance of securities pursuant to our anticipated stock option 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. 10 12 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 hereby, 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: (i) our ability to obtain a meaningful degree of consumer acceptance for our products now and in the future, (ii) our ability to market our products on a global basis at competitive prices now and in the future, (iii) our ability to maintain brand-name recognition for our products now and in the future, (iv) our ability to maintain an effective distributors network, (v) our success in forecasting demand for our services now and in the future, (vi) our ability to maintain pricing and thereby maintain adequate profit margins, (vii) our ability to achieve adequate intellectual property protection and (viii) our ability to obtain and retain sufficient capital for future operations. 11 13 USE OF PROCEEDS We will not receive any proceeds from the sale of securities being offered by our Selling Shareholders. We intend to use the proceeds from the sale of any of the 2,000,000 shares underlying the Warrants for retirement of short and long term debt 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. 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 shares are acquired by exercise of the Warrants, 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 $142,531 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. 12 14 DILUTION As of June 30, 2001, the pro forma net tangible book value of our Common Stock was $547,627 or $0.15 per share of Common Stock outstanding. The net tangible book value of our Common Stock is the tangible assets less total liabilities. 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. 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 approximately $8,547,627 or $1.52 per share. This represents an increase in our net tangible book value per share of $1.37 to our existing shareholders and an immediate dilution of $2.48 or 62% 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 $ 0.15 Increase Per Share attributable to sale of these shares $ 1.37 Pro Forma Net Tangible Book Value after offering $ 1.52 Dilution per share to New Investors $ 2.48 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 such shares, the aggregate amount paid figured as a percentage of the total amount paid, and the average amount paid per share for such 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% $4,656,920 36.79% 	$1.28 New Investors 2,000,000 35.55% $8,000,000 63.21% $4.00 --------- ------ ---------- ------ ----- Total 5,625,000 100.00% $12,656,920 100.00% $2.25 13 15 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 such analysis contains statements that are not of a historical nature, such 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. is a Nevada corporation that was originally incorporated on August 8, 1983 as an Iowa company under the name Cycle Country Accessories Corp., and is headquartered in Milford, Iowa. We are one of the world's largest manufacturers of accessories for all terrain vehicles ("ATVs"), manufacturing a complete line of branded product offerings such as 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. 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 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. The increase was largely attributable to an increase of approximately $880,000 in sales of Snowplow Blades and the introduction of a new product, an Electric Blade Lift, during fiscal 2000 which resulted in approximately $340,000 of additional sales. The remaining increase is attributable to a general increase in product sales during the fiscal year. 14 16 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. The decline in gross profit for fiscal year 2000 was primarily due to additional production costs to convert an older snowplow blade model to a newer model's specifications. In addition, the sales price of the older blade model was reduced to sell the remaining older models resulting in a lower margin. 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. This decrease in operating expenses is primarily the result of decreased sales & marketing rebates, advertising and freight costs during fiscal 2000. 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 decreased royalty and truck lease income and the write-off of an investment of the Company during fiscal 2000. Results of Operations - Nine months ended June 30, 2001 vs Nine months ended June 30, 2000 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 during the nine months ended June 30, 2001 is primarily a result of additional spending on advertising, vehicle repairs, professional fees and increases in insurance and fuel 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 increased interest income, consulting income earned during the nine months ended June 30, 2001 and the write-off of an investment of the Company during fiscal 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 $2,998,219 at 15 17 June 30, 2001. Inventories decreased from $2,791,317 at September 30, 2000 to $2,291,387 at June 30, 2001. The Company maintains a line of credit agreement with Bank of America, N.A. providing for borrowings up to $500,000. The line of credit agreement is dated February 1, 1999 and matures on February 1, 2002. The line of credit bears interest at the prime rate + .75%, is collateralized by accounts receivable, inventory and equipment. At September 30, 2000 and June 30, 2001, there were no amounts outstanding under this line of credit agreement. 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. 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 combined with any funds raised by the exercise of the outstanding Warrants 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 such 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. 16 18 BUSINESS GENERAL Cycle Country Accessories Corp. is a Nevada corporation that was originally incorporated on August 8, 1983 as an Iowa company under the name Cycle Country Accessories Corp., and is headquartered in Milford, Iowa. We are one of the world's largest manufacturers of accessories for all terrain vehicles ("ATVs"), manufacturing a complete line of branded product offerings such as 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 manufactures and we believe that we have an excellent distribution network that reaches the after market throughout the United States, Europe and Asia. 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 are in need of accessories such as 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. 17 19 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. It is indisputable that we are one of the largest and most successful ATV accessory manufacturers in the world. This 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. It is because we recognized those changes as they were happening and adjusted our product line to maximize the use of the ATV that we have had the success that we have today. 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 and 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 manufacturer 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 car 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. 18 20 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. A 10.5 horsepower Briggs & Stratton engine powers it. 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 Briggs & Stratton engine, is pulled behind the ATV and 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. 19 21 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 realized tremendous growth 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. 20 22 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 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. 21 23 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 22 24 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. Furthermore, we expect the markets for our products to become increasingly 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. 23 25 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. 24 26 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. 25 27 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. 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 President 1999 165,467 0 0 0 0 0 2,293 1998 165,467 0 0 0 0 0 1,920 Ronald Hickman, 2000 100,000 0 500 0 0 0 6,469 General Manager 1999 100,000 130,500 0 0 0 0 5,616 1998 100,000 154,178 0 0 0 0 5,946 Stock Option Grants in the past fiscal year We have not issued any grants of stock options in the past fiscal year. 26 28 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 of Shares Before After Beneficial Owner Owned Offering Offering (1) - ---------------- --------- -------- -------- Ron Hickman 272,500 7.52% 0% Jim Danbom 813,750 22.45% 0% Jan Danbom 813,750 22.45% 0% Commerce Street Venture Group 381,250 10.52% 0% The Go Co. 381,250 10.52% 0% Scenic Ventures 250,000 6.90% 0% Magellan Capital Man 250,000 6.90% 0% First Equity Partners 209,000 5.77% 0% 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. 27 29 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 813,750 22.45 813,750 0 * Jim Danbom (2) 813,750 22.45 813,750 0 * Ron Hickman (3) 272,500 7.52 272,500 0 * Commerce Street 381,250 10.52 381,250 0 * Venture Group The Go Co. 381,250 10.52 381,250 0 * Scenic Ventures LLC 250,000 6.90 250,000 0 * First Equity Partners 209,000 5.77 209,000 0 * LLC Magellan Capital 250,000 6.90 250,000 0 * Management, Inc. Dennis Severson 99,000 2.73 99,000 0 * Mike Hoeppner 90,000 2.48 90,000 0 * Exec Land Services Inc. 9,000 * 9,000 0 * Dennis Patterson 3,000 * 3,000 0 * Charterbridge Financial 7,500 * 7,500 0 * Services Inc. Madison & Wall 20,000 * 20,000 0 * Mark Albrant (4) 500 * 500 0 * Billy Andersen (4) 500 * 500 0 * Ronald Anderson (4) 500 * 500 0 * Robyn Burtis (4) 500 * 500 0 * Larry Bush (4) 500 * 500 0 * Bradley Danbom (4) 500 * 500 0 * Suzanna Dandy (4) 500 * 500 0 * John De Ruyter (4) 500 * 500 0 * Richard Downing (4) 500 * 500 0 * Joseph Feuerhelm (4) 500 * 500 0 * Kathy Feuerhelm (4) 500 * 500 0 * Gregory Fink (4) 500 * 500 0 * Brian Gosch (4) 500 * 500 0 * Francene Grover (4) 500 * 500 0 * Diane Guthrie (4) 500 * 500 0 * Will Hesse (4) 500 * 500 0 * Bradley Hickman (4) 500 * 500 0 * Ken Horner (4) 500 * 500 0 * Joseph Justice (4) 500 * 500 0 * Richard Kain (4) 500 * 500 0 * 28 30 Jeffery Kennedy (4) 500 * 500 0 * Corey Kimmet (4) 500 * 500 0 * Robert Knaack (4) 500 * 500 0 * John Laird (4) 500 * 500 0 * Dennis Leach (4) 500 * 500 0 * Kathleen Lewis (4) 500 * 500 0 * David Lindemann (4) 500 * 500 0 * Bonnie Manwarren (4) 500 * 500 0 * Marie Matthiesen (4) 500 * 500 0 * Chadron Moffitt (4) 500 * 500 0 * Karen Mortenson (4) 500 * 500 0 * Donna Nelson (4) 500 * 500 0 * Sharon Orwig (4) 500 * 500 0 * Heidi Payne (4) 500 * 500 0 * Jenny Pick (4) 500 * 500 0 * Janice Pohlman (4) 500 * 500 0 * Eric Rasmussen (4) 500 * 500 0 * Michael Schweitzer (4) 500 * 500 0 * Adam Sparks (4) 500 * 500 0 * Rickey Steuben (4) 500 * 500 0 * Tim Swalve (4) 500 * 500 0 * Mark Swanson (4) 500 * 500 0 * Michael Taylor (4) 500 * 500 0 * Roland Taylor (4) 500 * 500 0 * Harlen Tesch (4) 500 * 500 0 * Jonathan Thompson (4) 500 * 500 0 * Paula Von Holdt (4) 500 * 500 0 * Jim Welle (4) 500 * 500 0 * Brett Wulff (4) 500 * 500 0 * Ray Yaw (4) 500 * 500 0 * Total 3,625,000 3,625,000 0 _______________________ * Indicates less than 1% 1) Assumes that 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. 2) Mr. Danbom was formerly our President. 3) Mr. Hickman is currently our President. 4) Current employee. 29 31 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. 30 32 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 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 $0.001 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. 31 33 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. 32 34 INDEMNIFICATION Article 11 of our Articles of Incorporation includes certain provisions permitted by the Nevada Revised Statutes ("Nevada Law"), 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. 33 35 PLAN OF DISTRIBUTION We are registering shares of our Common Stock that may be issued upon exercise of Warrants previously issued by us. 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; - - short sales; - - 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 34 36 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. 35 37 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 7 World Trade Center, New York, New York 10048, and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 at prescribed rates during regular business hours. 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. 36 38 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY 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 Unaudited Pro Forma Financial Information: Unaudited Pro Forma Balance Sheet - June 30, 2001.................F-24 Unaudited Pro Forma Statement of Income - Year ended September 30, 2000...............................................F-26 Unaudited Pro Forma Statement of Income - Nine months ended June 30, 2001....................................................F-27 F-1 39 Independent Auditors' Report ---------------------------- To The Board of Directors And Stockholders of Cycle Country Accessories Corp. and Affiliated Entity: We have audited the accompanying combined balance sheet of Cycle Country Accessories Corp. and Affiliated Entity (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 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 40 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY Combined Balance Sheets June 30, September 30, 2001 Assets 2000 (unaudited) ------ ------------- ----------- Current Assets: Cash and cash equivalents $ 368,797 516,332 Accounts receiveable - trade 777,667 754,232 Inventories 2,791,317 2,291,387 Prepaid expenses 34,918 52,790 Other receivables 8,223 4,091 ------------- ----------- Total current assets 3,980,922 3,618,832 Property and equipment, net 1,032,928 1,085,168 Other assets 175,593 174,377 Notes receivable from stockholder 46,000 - ------------- ----------- Total assets $ 5,235,443 4,878,377 ============= =========== Liabilities and Stockholders' Equity ------------------------------------ Current liabilities; Accounts payable $ 630,052 513,491 Accrued expenses 261,450 117,122 Short-term note payable 100,000 - ----------- ---------- Total current liabilities 991,502 630,613 Stockholders' equity Common stock 25,600 25,600 Additional paid-in capital 14,116 14,116 Retained earnings 4,204,225 4,208,048 ----------- ---------- Total stockholders' equity 4,243,941 4,247,764 ----------- ---------- Total liabilities and stockholders' $ 5,235,443 4,878,377 equity =========== ========== See accompanying notes to the combined financial statements. F-3 41 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY 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 Income Data (unaudited) 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: Basic and diluted (unaudited) 3,625,000 3,625,000 3,625,000 3,625,000 ============ =========== ============ ============= Pro forma earnings per share: Basic and diluted (unaudited) $ 0.18 0.17 0.18 0.19 ============ =========== ============ ============= See accompanying notes to the combined financial statements. F-4 42 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY 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 Distribution 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 Distribution 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 Distribution 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 43 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY 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 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 970,194 765,484 1,424,558 709,369 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 (Increase) decrease in S corporation tax deposit (27,254) 116,851 1,196 (27,254) Purchase of investments (25,000) - - - Issuance of notes receivable - (230,703) - - ----------- ----------- ----------- ------------ Net cash used in investing activities (373,910) (38,585) (171,423) (294,691) See accompanying notes to the combined financial statements. F-6 44 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY 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 45 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY 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 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. Sales were recorded net of sales allowances 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 allowances of approximately $232,000 and $231,000 respectively (unaudited). (d) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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. (e) 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. F-8 46 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (1) Summary of Significant Accounting Policies, Continued (f) Inventories Inventories are valued at the lower of cost or market. Cost is determined using the first-in, first-out method. (g) 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. (h) 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. (i) Investment in Golden Rule (Bermuda) Ltd. The investment in Golden Rule (Bermuda) Ltd. stock was originally recorded at cost. This investment is accounted for under the equity method of accounting. (j) 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. (k) Warranty Costs Estimated costs related to product warranties are accrued as products are sold and are included in accrued expenses in the accompanying combined financial statements. F-9 47 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (1) Summary of Significant Accounting Policies, Continued (l) Income Taxes Effective August 1, 1994, Cycle Country has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code. 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. The S corporation tax deposit, which is included in other assets in the accompanying combined financial statements, represents an estimated tax deposit due to the timing difference between the Company's and the stockholders' year ends. (m) 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). (n) 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). (o) 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). F-10 48 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (1) Summary of Significant Accounting Policies, Continued (o) Concentration of Credit Risk, Continued 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 receivables is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to reduce credit risk. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends, and other information. In the opinion of management of the Company, no allowance is deemed necessary at September 30, 2000 and June 30, 2001 (unaudited). (p) 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. (q) 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. F-11 49 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (1)	Summary of Significant Accounting Policies, Continued (r) 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). (s) 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 ============= ========== F-12 50 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (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 ============= =========== (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 ============= =========== F-13 51 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (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 48,880 48,860 Investment in Golden Rule (Bermuda) Ltd. 25,000 25,000 ------------- --------- Total other assets $ 175,593 174,377 ============= ========== (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 - ============ =========== F-14 52 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (7)	Accrued Expenses 	The major components of accrued expenses are summarized as follows: June 30, September 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 expense 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). (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 secured 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)	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. F-15 53 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (11)	Non-Operating Income 	Non-operating income consisted of the following: Years ended Nine months 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 - - Truck lease 1,516 28,711 - - Other 1,238 0 1,493 1,734 -------- -------- ------------ ------------- Total income 59,098 99,462 68,759 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 ========= ======== ============ ============ (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). F-16 54 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are 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 ============= ========== 	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% F-17 55 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY 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 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% 	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). F-18 56 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (15)	Segment Information 	Segment information has been presented on a basis consistent with how business activities are reported internally to management. 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, 58% and 57% of the Company's combined total revenues in each of the nine month periods ended June 30, 2001 and 2000, respectively (unaudited). 	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 allowances (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-19 57 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY 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 790,440 874,446 645,675 656,000 ------------ ----------- ----------- ----------- Total revenue $12,779,471 11,469,502 10,004,436 10,054,906 F-20 58 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY 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. isowned 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-21 59 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (18)	Subsequent Events (Unaudited) Om August 14, 2001, Cycle Country and Okoboji Industries merged. On August 21, 2001, the Company acquired its operating facilities, which was previously leased from two of its stockholders, for $300,000 in cash and 390,000 shares of common stock in Cycle Country Accessories Corp. (an Iowa 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. F-22 60 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 organization and formation of Cycle Country Accessories Corp. (a Nevada corporation) (2) the acquisition of the Company's leased facility (land and building) from certain selling stockholders; and (3) the purchase by Cycle Country Accessories Corp. (a Nevada corporation) of all the outstanding common stock of Cycle Country Accessories Corp. (an Iowa corporation). The Unaudited Pro Forma Balance Sheet presents the consolidated financial position of Cycle Country Accessories Corp. (a Nevada corporation) and Cycle Country Accessories Corp. (an Iowa corporation) as of June 30, 2001 assuming that the proposed transactions had occurred as of October 1, 1999. Such pro forma information is based upon the historical balance sheet data of Cycle Country Accessories Corp. (an Iowa corporation) 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 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 included elsewhere in this registration statement. F-23 61 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY Unaudited Pro Forma Balance Sheet June 30, 2001 Pro Forma -------------------------- Cycle Country Accessories Organization Corp. land acquisition and and stock Cycle Country Affiliated purchase Accessories Corp., Assets Entity adjustments as adjusted ------ ------------- ---------------- ------------------ Current Assets: Cash and cash equivalents $ 516,332 363 (A) 317,212 (300,000) (B) 4,500,000 (D) (4,500,000) (E) 100,517 (F) Accounts receiveable - trade 754,232 754,232 Inventories 2,791,387 2,291,387 Prepaid expenses and other 56,881 56,881 ------------ ----------- Total current assets 3,618,832 3,419,712 Investment in Cycle Country Accessories Corp. - 4,500,000 (E) - (4,500,000) (G) Property and equipment, net 1,085,168 1,500,000 (B) 2,557,168 (28,000) (C) Other assets 174,377 (100,517) (F) 73,860 ------------ ----------- Total assets $ 4,878,377 5,750,740 ============ =========== Liabilities and Stockholders' Equity ------------------------------------ Current liabilities; $ 630,613 630,613 Income taxes payable - 372,500 (H) 372,500 Long-term note payable - 4,500,000 (D) 4,500,000 ------------ ----------- Total liabilities 630,613 5,503,740 Stockholders' equity Preferred stock: Cycle Country Accessories Corp. (Nevada) - - Common Stock Cycle Country Accessories Corp. (Nevada) - 363 (A) 363 Cycle Country Accessories Corp. (Iowa) 25,600 25,600 (G) - Additional paid-in capital 14,116 1,200,000 (B) 1,200,000 (14,166) (G) Retained earnings (accumulated deficit) 4,208,048 (28,000) (C) (652,736) (4,460,284) (G) (372,500) (H) ------------ ----------- Total stockholders' equity 4,247,764 547,627 ------------ ----------- Total liabilities and stockholders' equity $ 4,878,377 6,050,740 ============ =========== See Notes to Unaudited Pro Forma Balance Sheet on page F-25 F-24 62 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY Unaudited Pro Forma Balance Sheet, Continued June 30, 2001 Notes to Unaudited Pro Forma Balance Sheet: Organization of Cycle Country Accessories Corp. (a Nevada corporation) ---------------------------------------------------------------------- (A) Issuance of 3,625,000 shares of $.0001 par value common stock. Acquisition of Land and Building -------------------------------- (B) Acquisition of operating facility for $300,000 and 390,000 shares of common stock of Cycle Country Accessories Corp. (an Iowa corporation) from stockholders. (C) Increase in accumulated depreciation resulting from increased basis of building acquired from stockholders in (B). Stock Purchase of Cycle Country Accessories Corp. (an Iowa corporation) ----------------------------------------------------------------------- (D) Proceeds from $4,500,000 note payable from a commercial bank maturing on July 25, 2006 and bearing interest at prime + .75% (7.5% at June 30, 2001). (E) Purchase of all outstanding shares of common stokc of Cycle Country Accessories Corp. (an Iowa corporation) for $4,500,000. (F) Refund of S corporation tax deposit upon conversion to C corporation status. (G) Elimination of the investment account in consolidation. (H) Required accrual of income taxes payable due to conversion to C corporation status. F-25 63 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY Unaudited Pro Forma Statement of Income For the year ended September 30, 2000 Pro Forma -------------------------- Cycle Country Accessories Organization Corp. land acquisition and and stock Cycle Country Affiliated purchase Accessories Corp., Entity 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 3,854,599 Selling, general and administrative expenses (2,646,331) (14,200) (A) (2,545,081) ------------- -------------- 115,450 (B) Income from operations 994,978 1,023,876 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 - (378,700) (D) (378,700) ------------- -------------- Net income $ 1,020,776 645,176 ============= ============== Weighted average shares outstanding Basic and diluted 3,625,000 ============== Earnings per share: 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 ($380,000) acquired based on estimated useful life of 30 years. (B) Reduction of operating lease expense relating to adjustment (A). 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 August 13, 2006. (D) Required income tax provision due to conversion to C corporation status. F-26 64 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY Unaudited Pro Forma Statement of Income For the nine months ended September 30, 2000 Pro Forma -------------------------- Cycle Country Accessories Organization Corp. land acquisition and and stock Cycle Country Affiliated purchase Accessories Corp., Entity 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 (expense), 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 Basic and diluted 3,625,000 ============== Earnings per share: 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 ($380,000) acquired based on estimated useful life of 30 years. (B) Reduction of operating lease expense relating to adjustment (A). 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 August 13, 2006. (D) Required income tax provision due to conversion to C corporation status. F-27 65 	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. 	TABLE OF CONTENTS Page Prospectus Summary.................... 4 Cycle Country Accessories Corp. The Offering.......................... 5 Summary Financial Data................ 7 Risk Factors.......................... 8 Use of Proceeds....................... 12 Determination of Offering Price....... 12 Dividend Policy....................... 12 5,625,000 SHARES Dilution.............................. 13 Management's Discussion and Analysis.. 14 Business.............................. 17 Management............................ 25 Principal Shareholders................ 27 Selling Shareholders.................. 28 Certain Transactions.................. 30 Description of Securities............. 32 ---------- Indemnification....................... 33 PROSPECTUS Plan of Distribution.................. 34 ---------- Legal Matters......................... 35 Experts............................... 35 Where You Can Find More Information........................... 36 Financial Statements.................. F-1 - ------------------------------------------- August 28, 2001 66 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 ("Nevada Law"), 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 $ 6,531 Legal fees and expenses $ 75,000 Accounting fees and expenses $ 56,000 Miscellaneous $ 5,000 Total $142,531 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 67 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 68 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. 23.2 Consent of L. Van Stillman (included in Exhibit 5.1) 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 69 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 70 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 August 24, 2001. 					CYCLE COUNTRY ACCESSORIES CORP. By: /s/ Ron Hickman ---------------- Ron Hickman 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 August 24, 2001. By: /s/ Ron Hickman President and Director --------------- 	Ron Hickman By: /s/ Marie Matthiesen Treasurer Principal Accounting Officer ------------------------------ Marie Matthiesen 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 71