Registration No. 333-______
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 of (Primary Standard Industrial (IRS Employer
Incorporation or Organization) Classification Code Number) Identification No.)
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
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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
TITLE OF EACH CLASS MAXIMUM MAXIMUM
OF AMOUNT TO OFFERING AGGREGATE AMOUNT OF
SHARES TO BE BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED SHARE <F1> PRICE FEE
- ------------------- ---------- ---------- ---------- -------------
Common Stock,
$.0001 par value to be sold 500,000 $3.00 $1,500,000 $138.00
by selling shareholders
TOTAL 500,000 $1,500,000 $138.00
- ----------------------
<FN>
<F1>
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457.
-------------------------------------------
</FN>
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.
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PROPECTUS
SUBJECT TO COMPLETION, DATED JULY 3, 2002
500,000 Shares of Common Stock
CYCLE COUNTRY ACCESSORIES CORP.
The Offering:
We are registering a total of 500,000 shares of our common stock,
155,000 of which are being offered by selling shareholders at an
estimated price of $3.00 per share and 345,000 of which we are offering
at a price of $3.00 per share.
Our common stock is quoted on the OTC Bulletin Board. The average
of the closing bid and ask price of our shares the day of this
filing was $2.935.
OTC Bulletin Board - "CYCY"
_________________________________
Investing in our stock involves risks. You should carefully
consider the Risk Factors beginning on page 7 of this prospectus.
We have not authorized anyone else to provide you with different
information. The common stock is not being offered in any state where
the offer is not permitted. You should not assume that the information
in this prospectus or any supplement is accurate as of any date other
than the date on the front of those documents.
______________________
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
_______________________
The 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 July 3, 2002
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TABLE OF CONTENTS
Page
----
Prospectus Summary 3
The Offering 4
Summary Financial Information 6
Risk Factors 7
Use of Proceeds 11
Determination of Offering Price 11
Dividend Policy 11
Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Business 21
Management 29
Principal Shareholders 32
Selling Shareholders 33
Certain Transactions 34
Description of Securities 35
Indemnification 38
Plan of Distribution 39
Legal Matters 41
Experts 41
Where You Can Find More Information 42
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
shareholder which is offering to sell its 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 500,000 shares of common stock being offered through
this prospectus.
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4
PROSPECTUS SUMMARY
Because this is a summary, it does not contain all of the
information that may be important to you. You should read the entire
prospectus. You should consider the information set forth under "Risk
Factors" and our financial statements and accompanying notes that appear
elsewhere in this prospectus.
Cycle Country Accessories Corp.
We are one of the world's largest manufacturers of accessories for
all terrain vehicles ("ATVs"). We manufacture a complete line of branded
products , including snowplow blades, lawnmowers, spreader, sprayers,
tillage equipment, winch mounts, utility boxes, wheel covers and an
assortment of other ATV accessory products. These products custom fit
essentially all ATV models from Honda, Yamaha, Kawasaki, Suzuki, Polaris,
Arctic Cat and Bombardier. We design, engineer and assemble all
accessory products at our headquarters and subcontract the manufacture of
many original equipment components. Additionally, we recently made the
decision to enter the Lawn and Garden industry.
In 2001 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, 2001, we achieved revenues of approximately
$13,300,000.
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.
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5
The Offering
Securities Offered 500,000 shares of common
stock. Of this amount,
155,000 are being offered
by the selling shareholders
and 345,000 are being offered
by us; See "Description of
Securities"
Common Stock Outstanding, before offering 3,918,250
Common Stock Outstanding, after offering <F1> 4,263,250
OTC Bulletin Board Symbol CYCY
Use of Proceeds We will not receive any
proceeds from the sale of
the 155,000 shares of
common stock by our
selling shareholders. We
will receive proceeds
from the 345,000 shares
of common stock being
sold by us and
intend to use the
proceeds from the sale
for construction of a new
facility for expansion of
our operations, for
reduction of short and
long term debt at Bank
Midwest and for general
corporate purposes. See
"Use of Proceeds."
Dividend Policy We do not intend to pay
dividends on our common
stock. We plan to retain
any earnings for use in
the operation of our
business and to fund
future growth.
<FN>
<F1>
(1) assumes the sale of all 345,000 shares we are offering.
</FN>
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6
Risk Factors
The securities offered by this prospectus are highly speculative and
very risky. We have described the material risks that we face below.
Before you buy, consider the risk factors described and the rest of this
prospectus. This prospectus also contains forward-looking statements
that involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking statements as
a result of certain factors, including the risks faced by us described
below and elsewhere in this prospectus. Please refer to "Risks
Associated with Forward-looking Statements" on page 10.
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7
Summary Financial Information
The following is a summary of our Financial Statements, which are
included elsewhere in this prospectus. You should read the following
data together with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section of this prospectus as well
as with our Financial Statements and the notes therewith.
Year Ended Year ended Six months Six months
September September ended March ended March
30, 2001 30, 2000 31, 2002 31, 2001
-------- -------- (unaudited) (unaudited)
----------- ------------
Statement of Operations Data:
Total Revenue $13,313,826 $12,779,471 $ 7,034,823 $ 7,447,973
=========== =========== =========== ===========
Gross Profit $ 4,056,283 $ 3,641,309 $ 1,992,772 $ 2,152,095
=========== =========== =========== ===========
Net Income $ 1,174,001 $ 1,020,776 $ 304,749 $ 950,835
=========== =========== =========== ===========
As of As of
September March 31, 2002
30,2001 (unaudited)
--------- --------------
Balance Sheet Data
Cash and cash equivalents $ 274,089 $ 108,021
Total current assets $4,169,249 $ 4,420,611
Total assets $6,704,068 $ 7,312,953
Total current liabilities $2,174,242 $ 2,933,577
Total shareholders' equity $ 872,346 $ 1,177,103
Total liabilities and shareholders' equity $6,704,068 $ 7,312,953
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RISK FACTORS
The securities offered are highly speculative. You should purchase
them only if you can afford to lose your entire investment in us. You
should carefully consider the following risk factors, as well as all
other information in this prospectus.
Certain important factors may affect our actual results and could
cause those results to differ significantly from any forward-looking
statements made in this prospectus or otherwise made by us or on our
behalf. For this purpose, any statements contained in this prospectus
that are not statements of historical fact should be considered to be
forward-looking statements. Words such as "may," "expect," "believe,"
"anticipate," "intend," "could," "estimate," or "continue" or the
negatives of those words, identify forward-looking statements. These
statements appear in a number of places in this prospectus and include
statements as to our intent, belief or expectations. These forward-
looking statements are subject to the risks detailed below or elsewhere
in this prospectus, or detailed from time to time in our filings with the
Securities and Exchange Commission. See "Risks Associated With Forward-
Looking Statements" on page 10.
Investors should assume that, even if not specifically stated within
this document, if any of the following risks actually materialize, our
business, financial condition or results of future operations could be
materially and adversely affected. In that case, the trading price of our
common stock could decline, and you may lose all or part of your
investment.
Our revenues and earnings could be negatively affected if we cannot
anticipate market trends, enhance existing products and achieve market
acceptance of new products.
Our ability to continue and expand the sales levels that we
typically achieved in prior years is largely dependent on our ability to
successfully anticipate and respond to changing consumer demands and
trends in a timely manner. This includes introducing new or updated
products at prices acceptable to customers. Our ability to maintain
market acceptance and achieve further acceptance for our products will
depend upon our ability to:
- maintain a strong and favorable brand image;
- maintain a reputation for high quality; and
- continue to develop our network of distributors to sell
our products both domestically and internationally.
We can give you no assurance that the market for our
products will continue to develop or that large demand for these products
will be sustainable. In addition, we may incur significant costs in our
attempt to maintain or increase market acceptance for our products.
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9
Our sales are highly dependent on the effectiveness of our distributor
networks.
Our level of sales depends to a great extent upon the effectiveness
of our distributor networks. We can offer no assurance that these
distributors will continue to have the success they have historically.
Our sales may be impacted by weather conditions.
As a manufacturer of accessories for outdoor motorized equipment,
our sales may be impacted by weather conditions. For example, lack of
snowfall in any year in any particular region of the United States or
Canada may adversely affect demand for our snow plow. There is no
assurance that certain weather conditions would not have a material
adverse effect on our sales.
Our officers and directors are not required to continue as shareholders.
There is no requirement that any of our officers and/or
directors retain any of their shares of our common stock. Accordingly,
there is no assurance that all or any of our officers and/or
directors will continue to maintain an equity interest in the company.
A large percentage of our sales are made to our three largest customers.
Our three largest customers accounted for approximately 43% of our
net sales in the year ending September 30, 2001. These three customers
have represented a significant amount of our business every year for at
least the past 16 years. The loss of any or all of these customers would
have a material adverse impact on the results of our operations.
We face product liability claims.
Product liability claims are made against us from time to time. We
currently carry $2 million in product liability insurance. Over the past
seven years, we paid an aggregate of less than $30,000 in product
liability claims, and the largest single judgment against us has been for
$21,000. No assurance can be given that our historical claims record
will not change or that material product liability claims against us will
not be made in the future. Adverse determination of material product
liability claims made against us could have a material adverse effect on
our financial condition.
Our products could contain defects creating product recalls and warranty
claims that could materially adversely affect our future sales and
profitability.
Our products could contain unforeseen defects. These defects could
result in product recalls and warranty claims. A product recall could
delay or halt production of the affected product until we are able to
address the reasons for any defects. Recalls may also have a materially
negative effect on our brand image and public perception of the affected
product. This could materially adversely affect our future sales. Recalls
or other defects would be costly and could require substantial
expenditures.
We offer a standard one-year warranty on all products except snow
plows, on which we offer a limited life time warranty. Although we
employ quality control procedures, a product is sometimes distributed
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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
historical claims record will not change adversely as a result of our
growth or otherwise.
Unanticipated defects could also result in product
liability litigation against us. Given the nature of our products, we
have in the past and expect in the future to be subject to potential
product liability claims that, in the absence of sufficient insurance
coverage, could have a material adverse effect on us. Although we
currently maintain liability insurance coverage, this coverage may not be
adequate to cover all product liability claims. Any large product
liability claim could materially adversely affect our ability to market
our products.
We face substantial competition.
We face competition from various companies in each product line we
offer. A number of our competitors are well financed and could develop
innovative products that would reduce our market share. Additionally, as
we expand our product offerings into new markets and into offering new
products we will face additional competition. Competition in foreign
markets may also be affected by duties, tariffs, taxes and the effect of
various trade agreements, import restrictions and fluctuations in
exchange rates.
A recession could detrimentally affect our sales.
Our sales are partially dependent on discretionary consumer
spending, which may be affected by general economic conditions. A
recessionary environment could result in a decrease in consumer spending
in general, which could result in decreased spending in our markets,
directly or in the overall market for ATV's, either of which could have a
material adverse effect on our business, operating results and financial
condition. Additionally, factors that influence the general economic
climate, such as consumer confidence levels, interest rates, employment
trends and fuel availability and prices could also result in decreased
spending in our markets. Because in the short term most of our operating
expenses are relatively fixed, we may be unable to adjust spending
sufficiently in a timely manner to compensate in the event of any
unexpected sales shortfall. If we fail to make these adjustments
quickly, our operating results and financial condition could be
materially adversely affected.
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.
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11
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 is no assurance of future dividends being paid.
At this time we do not anticipate paying dividends in the future,
but instead plan to retain any earnings for use in the operation of our
business and to fund future growth. We are under no legal or contractual
obligation to declare or to pay dividends, and the timing and amount of
any future cash dividends and distributions is at the discretion of our
Board of Directors and will depend, among other things, on our future
after-tax earnings, operations, capital requirements, borrowing capacity,
financial condition and general business conditions.
Risks associated with forward looking statements.
This prospectus contains certain forward-looking statements regarding
management's plans and objectives for future operations, including plans
and objectives relating to our planned marketing efforts and future
economic performance. The forward-looking statements and associated risks
set forth in this prospectus include or relate to:
(1) our ability to obtain a meaningful degree of consumer
acceptance for our products now and in the future,
(2) our ability to market our products on a global basis at
competitive prices now and in the future,
(3) our ability to maintain brand-name recognition for our products
now and in the future,
(4) our ability to maintain an effective distributors network,
(5) our success in forecasting demand for our services now and in
the future,
(6) our ability to maintain pricing and thereby maintain adequate
profit margins,
(7) our ability to achieve adequate intellectual property
protection and
(8) our ability to obtain and retain sufficient capital for future
operations.
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USE OF PROCEEDS
We will not receive any proceeds from the sale of the 155,000 shares
of common stock being offered by our selling shareholders.
We will receive proceeds to the extent that we are able to sell any
of the 345,000 shares of common stock we are offering.
The proceeds will be used for construction of a new facility for
expansion of our operations, for reduction of outstanding amounts on our
$500,000 line of credit ($450,000 outstanding on June 26, 2002) and the
$4.5 million term note ($3,815,861 outstanding on June 26, 2002);
interest at prime plus .75% (6% at June 26, 2002) 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.
We expect to incur expenses of approximately $15,000 in connection
with the registration of the shares.
DETERMINATION OF OFFERING PRICE
The price at which the shares may actually be sold by the selling
shareholder will be determined by the market price of our common stock as
of the date of sale.
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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following is a discussion of our results of operations and our
liquidity and capital resources. To the extent that our analysis
contains statements that are not of a historical nature, these statements
are forward-looking statements, which involve risks and uncertainties.
See "Risks Associated With Forward Looking statements". The following
should be read in conjunction with our Financial Statements and the
related Notes included elsewhere in this prospectus.
Cycle Country Accessories Corp. (a Nevada corporation) was
incorporated in the state of Nevada on August 15, 2001 as a C
corporation. The initial capitalization consisted of 3,625,000 shares of
common stock. On August 21, 2001, we entered into an agreement to
purchase all of the outstanding common stock of Cycle Country Accessories
Corp. (an Iowa corporation) for $4,500,000 in cash and 1,375,000 shares
of our common stock. Cycle Country Accessories Corp. (an Iowa
corporation) was originally incorporated on August 8, 1983 and is
headquartered in Milford, Iowa. Since both Companies are under common
control by virtue of majority ownership and common management by the same
three individuals, this transaction was accounted for in a manner similar
to a pooling of interests. We used the proceeds from a $4,500,000 term
note (the "Note") entered into with a commercial lender to purchase all
of the outstanding common stock of Cycle Country Accessories Corp. (an
Iowa corporation). The Note is collateralized by all of the Companies
assets, is payable in monthly installments from September 2001 to July
2006, which includes principal and interest at prime + 0.75% (6.75% at
September 30, 2001), with a final payment upon maturity on July 25, 2006.
The variable interest rate can never exceed 9% or be lower than 6%. The
monthly payment is $90,155 and is applied to interest first based on the
interest rate in effect, with the balance applied to principal. The
interest rate is adjusted daily. Additionally, any proceeds from the
sale of stock received from the exercise of any of the 2,000,000
outstanding warrants shall be applied to any outstanding balance on the
Note. At September 30, 2001, $4,440,512 was outstanding on the Note.
On August 21, 2001, Cycle Country Accessories Corp. (an Iowa
corporation) acquired its operating facility, which consisted of land and
building with a fair value of $1,500,000, from certain shareholders. The
consideration given was comprised of $300,000 in cash and 390,000 shares
of common stock of Cycle Country Accessories Corp. (a Nevada
corporation). On August 14, 2001, Cycle Country Accessories Corp. (an
Iowa corporation) merged with Okoboji Industries Corporation. Since both
Companies were owned and managed by the same three individuals, this
transaction was also accounted for in a manner similar to a pooling of
interests.
As a result of the transactions described above, we are the
Successor Company to the business activities of the aforementioned
companies.
We are the one of the world's largest manufacturers of accessories
for all terrain vehicles ("ATVs"). We manufacture a complete line of
branded products, including snowplow blades, lawnmowers, spreaders,
sprayers, tillage equipment, winch mounts, utility boxes, wheel covers
and an assortment of other ATV accessory products. These products custom
fit essentially all ATV models from Honda, Yamaha, Kawasaki, Suzuki,
Polaris, Arctic Cat and Bombardier. We design, engineer and assemble all
accessory products at our headquarters and subcontract the manufacturer
of many original equipment components. Additionally, we recently made the
decision to enter the Lawn and Garden industry.
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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 90% 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, 2001 vs Year ended
September 30, 2000
OVERALL. Revenues for the year ended September 30, 2001 increased
$534,355, or 4.2%, to $13,313,826 from $12,779,471 for the year ended
September 30, 2000. Cost of goods sold increased $119,381, or 1.3%, to
$9,257,543 for the year ended September 30, 2001 from $9,138,162 for
fiscal 2000. Additionally, gross profit as a percentage of revenue was
30.5% for the year ended September 30, 2001 compared to 28.5% for fiscal
2000. The increase in gross margin during fiscal 2001 of 2% is mainly
attributable to an increase in unit sales volume of our most profitable
product, Snowplow Blades, as well as operational labor efficiencies in
our Plastic Wheel Cover segment and a slight decrease of manufacturing
overhead costs as a percentage of sales (8.3% of sales in fiscal 2001
versus 8.4% of sales in fiscal 2000). Selling, general and
administrative expenses increased $332,510, 12.6%, to $2,978,841 for the
year ended September 30, 2001 from $2,646,331 for fiscal 2000. The
increase in operating expenses is primarily a result of additional
spending of approximately $79,000 in professional fees, approximately
$67,000 in advertising and promotions, approximately $89,000 in sales &
marketing rebates, approximately $38,000 in insurance, approximately
$25,000 in travel costs, approximately $21,000 each in vehicle repairs
and depreciation, and approximately $15,000 in research and development
costs coupled with a decrease of approximately $18,000 in freight costs
and $15,000 in building rent. Non-operating income increased $15,401, or
59.7%, to $41,199 for the year ended September 30, 2001, from $25,798 for
fiscal 2000. The increase is primarily due to increases of approximately
$10,000 of interest income, approximately $32,000 of consulting income
earned and approximately $34,000 of interest expense coupled with a
decrease of approximately $14,000 in royalty income and approximately
$10,000 in gains on sale of equipment during the year ended September 30,
2001 and the write-off of an investment of the Company of approximately
$28,000 during fiscal 2000.
BUSINESS SEGMENTS As more fully described in Note 17 to the
Consolidated Financial Statements, the Company operates two reportable
business segments: ATV Accessories and Plastic Wheel Covers. The gross
margins are vastly different in our two reportable business segments due
to the fact that we assemble our ATV Accessories (i.e. we outsource the
ironworks to our main product supplier) and are vertically integrated in
our Plastic Wheel Cover segment.
ATV ACCESSORIES Revenues for the year ended September 30, 2001
increased $569,725, or 5.2%, to $11,592,047 from $11,022,322 for the year
ended September 30, 2000. The increase is attributable to an increase in
unit volume of our Snowplow Blades.
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15
Cost of goods sold increased $136,887, or 1.8%, to $7,901,782 for
the year ended September 30, 2001 from $7,764,895 for fiscal 2000. The
increase is due to an increase in material costs during fiscal 2001 as
compared to fiscal 2000. Gross profit as a percent of revenues was 31.8%
for fiscal 2001 compared to 29.6% for the corresponding period in 2000.
The increase in gross profit for the year ended September 30, 2001 was
attributable to the increase in unit sales volume of our most profitable
product, the Snowplow Blade as discussed above.
PLASTIC WHEEL COVERS Revenues for the year ended September 30, 2001
remained relatively constant, increasing $5,699, or 0.3%, to $1,984,006
from $1,978,307 for the year ended September 30, 2000. The slight
increase in revenue was attributable to changes in current market
conditions. Our new product will address the needs of the new market.
Cost of goods sold decreased $258,131, or 28.6%, to $644,026 for the
year ended September 30, 2001 from $902,157 for fiscal 2000. Gross
profit as a percent of revenue was 67.5% for the year ended September 30,
2001 compared to 54.4% for the corresponding period in fiscal 2000. The
increase in gross profit for the year ended September 30, 2001 was
attributable to raw material price savings and labor efficiencies
obtained in the production process.
GEOGRAPHIC REVENUE During fiscal 2001, revenue in the United States
increased $487,817, or 4.1%, to $12,476,848 from $11,989,031 for the year
ended September 30, 2000. Revenue from other countries increased
$46,538, or 5.9%, to $836,978 from $790,440 for the year ended September
30, 2000.
OVERALL - Six Months Ended March 31, 2002 and 2001
Revenues for the six months March 31, 2002 decreased $413,150, or
5.5%, to $7,034,823 from $7,447,973 for the six months ended March
31, 2001. Cost of goods sold decreased $253,827, or 4.8%, to
$5,042,051 for the six months ended March 31, 2002 from $5,295,878
for the six months ended March 31, 2001. Additionally, gross profit
as a percentage of revenue was 28.3% for the six months ended March
31, 2002 compared to 28.9% for the six months ended March 31, 2001.
The decrease in revenues during the six months ended March 31, 2002
is mainly attributable to a decrease in unit sales volume of our
mainstay product, Snowplow Blades, in the second quarter of fiscal
2002 as compared to the second quarter of fiscal 2001 which was
caused, in part, by a milder winter and less precipitation this
fiscal quarter than the same quarter of fiscal 2001 across the entire
country. The second quarter of fiscal 2001 also had unusually high
sales of blade products as our distributors ordered late in the
quarter to achieve rebate program goals, which did not occur in the
fiscal 2002 second quarter as the distributors achieved program goals
earlier. When large orders occur at a season-end, such as occurred
in the second quarter fiscal 2001, the inventory that is sold is
considered to be for the following season. Although this effects the
quarter sales, when a late season surge in orders does not occur it
means less inventory must be moved at the retail level and leads to
new orders early at the start of the following season. The decrease
was also attributable to a later than usual start on our mower
production and sales. The slight decrease of 0.6% in gross profit is
primarily the result of the establishment of an obsolescence reserve
for the Plastic Wheel Cover business segment and the mix of slightly
more lower-profit products that made up the sales for the six months
ended March 31, 2002 versus the six months ended March 31, 2001.
These factors were offset, somewhat, by a reduction in rent of
approximately $108,000 that is included as part of the overhead
expenses allocated to cost of goods sold.
Selling, general, and administrative expenses increased $139,137, or
11.0%, to $1,408,768 for the six months ended March 31, 2002 from
$1,269,631 for the six months ended March 31, 2001. The increase in
operating expenses is a result of additional spending of approximately
$52,000 in salaries, commissions and other related benefits,
approximately $48,000 in increased advertising, approximately $50,000 in
legal and accounting costs, and approximately $37,000 in office related
expenses. The increases were offset by a reduction in rent expense of
approximately $65,000 due to the Company acquiring its operating facility
(which consisted of land and building) from certain shareholders that was
previously leased under an operating lease during the fourth quarter of
fiscal 2001.
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Interest and miscellaneous income decreased approximately $45,320
from the first six months of fiscal 2001 to the first six months of 2002.
The decrease is primarily due to a one-time consulting fee of
approximately $31,600 that was earned during the first six months of
fiscal 2001 and approximately $17,690 reduction in interest income earned
during the first six months of fiscal 2002 versus the first six months of
fiscal 2001. Interest expense increased $127,788 to $128,240 for the six
months ended March 31, 2002 from $452 for the first six months ended
March 31, 2001 due to the Company entering into a bank note payable for
$4,500,000 in the fourth quarter of fiscal 2001. As compared to the
first six months of 2002, interest expense over the remaining six months
of fiscal 2002 should decrease slightly as the principal balance is
continually reduced on the bank note and interest rates remain relatively
low.
The provision for income taxes increased 100% to $174,515 for the
six months ended March 31, 2002 from $0 for the six months ended March
31, 2001. The increase is due to the Company converting to a C
corporation effective August 21, 2001. This conversion requires the
Company to make the applicable federal and state income tax payments.
Prior to August 21, 2001, the Company had elected to be taxed under the
provisions of Subchapter S of the Internal Revenue Code, which requires
the shareholders to report their proportionate share of the Company's
income on their individual tax returns. Therefore, prior to August 21,
2001, no provision or liability for federal or state income taxes has
been included in the Company's Condensed Consolidated Financial
Statements.
We anticipate our revenues to increase during the third and fourth
quarters of fiscal 2002 as product inventories within the network of
distribution and market channels are relatively low, which
historically leads to increased orders and sales activity. Other
factors contributing to our projection of increased third and fourth
quarter revenues include the successful development and incorporation
of new products, re-engineering of our mainstay products, and the
successful acquisition of Perf-Form and its premium oil products for
motorcycles and ATV's. The seasonality of the ATV accessories market
is a factor that we are continually addressing with increased sales
and marketing efforts to our existing distributors, our focus on new
distributors in untapped geographic locations, and expansion into new
markets, such as lawn and garden. We also foresee selling, general
and administrative expenses remaining consistent or decreasing
slightly as a percent of revenues during the remainder of fiscal 2002
through increased usage of existing manufacturing capacity of our
operating facility from increased production of new and existing
products.
ATV ACCESSORIES - Six Months Ended March 31, 2002 and 2001
Revenues for the six months ended March 31, 2002 decreased $513,881,
or 7.8%, to $6,102,997 from $6,616,878 for the six months ended March 31,
2001. The decrease is mainly attributable to a decrease in unit volume
of our Snowplow Blade and our mowers as discussed above (See OVERALL
RESULTS OF OPERATIONS).
Cost of goods sold for the six months ended March 31, 2002 decreased
$417,132, or 9.8%, to $3,850,564 from $4,267,696 for the six months
ended March 31, 2001. Gross profit as a percent of revenues was
36.9% for the six months ended March 31, 2002 compared to 35.5% for
the corresponding period in fiscal 2001. The slight increase in
gross profit for the six months ended March 31, 2002 as compared to
the corresponding period in fiscal 2001was attributable to a decrease
in our rebate program expense, which was offset somewhat by changes
in the mix of products sold as discussed above (See OVERALL RESULTS
OF OPERATIONS).
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PLASTIC WHEEL COVERS - Six Months Ended March 31, 2002and 2001
Revenues for the six months ended March 31, 2002 increased $146,326,
or 15.4%, to $1,094,277 from $947,951 for the six months ended March 31,
2001. The increase is attributable to changes in current market
conditions. Our new product and process will address the needs of the
new market.
Cost of goods sold for the six months ended March 31, 2002 increased
$93,084, or 39.4%, to $329,085 from $236,001 for the six months ended
March 31, 2001. Gross profit as a percent of revenue was 69.9% for the
six months ended March 31, 2002 compared to 75.1% for the corresponding
period in fiscal 2001. The increase in cost of goods and the decrease in
gross profit during the six months ended March 31, 2002 as compared to
the corresponding period in fiscal 2001 were directly attributable to an
increase in our inventory reserve for some potentially excess and/or
obsolete plastic wheel covers and was offset, somewhat, with operational
efficiencies. This potential excess/obsolescence is due to the
development of new production methods and technology of a higher quality
product that will position us well for the expanding golf cart industry.
GEOGRAPHIC REVENUE - Six Months Ended March 31, 2002 and 2001
During the six months ended March 31, 2002, revenue in the United
States of America decreased $632,902, or 9.0%, to $6,429,740 from
$7,062,642 for the six months ended March 31, 2001. Revenue from other
countries increased $219,752, or 57.0%, to $605,083 from $385,331 for
the six months ended March 31, 2001. The decrease during the six months
ended March 31, 2002 in U.S. revenue is due to a general decrease across
all regions previously serviced in the United States of America. The
increase during the six months ended March 31, 2002 in revenue from other
countries is due to an increase of sales in Canada and Europe
OVERALL - Three Months Ended March 31, 2002 and 2001
Revenues for the three months March 31, 2002 decreased $1,341,477, or
40.5%, to $1,970,351 from $3,311,828 for the three months ended March 31,
2001. Cost of goods sold decreased $913,308, or 37.6%, to $1,516,030 for
the three months ended March 31, 2002 from $2,429,338 for the three months
ended March 31, 2001. Additionally, gross profit as a percentage of
revenue was 23.1% for the second quarter ended March 31, 2002 compared
to 26.6% for the second quarter ended March 31, 2001. The decrease in
revenues during the second quarter ended March 31, 2002 is mainly
attributable to a decrease in unit sales volume of our mainstay product,
Snowplow Blades, as compared to the second quarter of fiscal 2001, which had
one of the highest unit sales of blades in recent history. The decrease was
also attributable to a later than usual start on our mower production and
sales. The slight decrease of 3.5% in gross profit is primarily the result of
a price increase incurred in our ironworks, the main product component used in
assembly, and an increase in direct labor and factory overhead. These
elements will be factored into the Company's product pricing structure
in the fall of 2002. These increases were offset, somewhat, by a reduction in
rent of approximately $53,000 that is included as part of the overhead
expenses allocated to cost of goods sold.
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Selling, general, and administrative expenses decreased $29,754, or
0.1%, to $464,094 for the three months ended March 31, 2002 from $493,848
for the three months ended March 31, 2001. Increases in operating expenses
of approximately $17,000 in advertising, approximately $48,000 in
legal and accounting costs, and approximately $17,000 in office related
expenses were offset by a reduction in freight costs of approximately $33,900,
approximately $12,000 in insurance, and a reduction in rent expense of
approximately $35,000 due to the Company acquiring its operating facility
(which consisted of land and building) from certain shareholders that was
previously leased under an operating lease during the fourth quarter of
fiscal 2001.
Interest and miscellaneous income decreased approximately $9,500 from the
second quarter of fiscal 2001 to the second quarter of 2002. The decrease is
due to a reduction of $11,047 in interest income earned during the second
quarter of fiscal 2002 versus the second quarter of fiscal 2001. Interest
expense increased 100% to $64,172 for the three months ended March 31, 2002
from $0 for the first three months ended March 31, 2001 due to the Company
entering into a bank note payable for $4,500,000 in the fourth quarter of
fiscal 2001. As compared to the second quarter of 2002, interest expense
over the remaining quarters of fiscal 2002 should decrease slightly as the
principal balance is continually reduced on the bank note and interest rates
remain relatively low.
The provision for income taxes decreased 100% to show a refund of $17,683
for the second quarter ended March 31, 2002 from $0 for the second quarter
ended March 31, 2001. The change is due to the Company converting to a C
corporation effective August 21, 2001. This conversion requires the Company
to make the applicable federal and state income tax payments. Prior to August
21, 2001, the Company had elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code, which requires the shareholders to
report their proportionate share of the Company's income on their individual
tax returns. Therefore, prior to August 21, 2001, no provision or liability
for federal or state income taxes has been included in the Company's Condensed
Consolidated Financial Statements.
ATV ACCESSORIES - Three Months Ended March 31, 2002 and 2001
Revenues for the three months ended March 31, 2002 decreased $1,501,372,
or 53.3%, to $1,316,685 from $2,818,057 for the three months ended March 31,
2001. The decrease is mainly attributable to a decrease in unit volume of
our Snowplow Blade and mowers as discussed above (See OVERALL RESULTS OF
OPERATIONS).
Cost of goods sold for the three months ended March 31, 2002 decreased
$1,014,949, or 52.6%, to $914,312 from $1,929,261 for the three months ended
March 31, 2001. Gross profit as a percent of revenues was 30.6% for the three
months ended March 31, 2002 compared to 31.5% for the corresponding period
in fiscal 2001. The slight decrease in gross profit for the three months
ended March 31, 2002 as compared to the corresponding period in fiscal 2001
was attributable to increased prices of raw materials during the quarter as
discussed above (See OVERALL RESULTS OF OPERATIONS).
PLASTIC WHEEL COVERS - Three Months Ended March 31, 2002 and 2001
Revenues for the three months ended March 31, 2002 increased $140,828, or
26.5%, to $671,155 from $530,327 for the three months ended March 31, 2001.
The increase is attributable to changes in current market conditions. Our new
product and process will address the needs of the new market.
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Cost of goods sold for the three months ended March 31, 2002 increased
$82,539, or 74.1%, to $193,870 from $111,331 for the three months ended March
31, 2001. Gross profit as a percent of revenue was 71.1% for the three
months ended March 31, 2002 compared to 79.0% for the corresponding period
in fiscal 2001. The increase in cost of goods and the decrease in gross profit
during the three months ended March 31, 2002 as compared to the corresponding
period in fiscal 2001 were directly attributable to an increase in direct
labor and factory overhead caused by increased market demands and changes in
production methods. The development of new production methods and technology
of a higher quality product will position us well for the expanding golf cart
industry.
GEOGRAPHIC REVENUE - Three Months Ended March 31, 2002 and 2001
During the three months ended March 31, 2002, revenue in the United States
of America decreased $1,351,798, or 43.7%, to $1,744,645 from $3,096,443 for
the three months ended March 31, 2001. Revenue from other countries increased
$10,321, or 4.8%, to $225,706 from $215,385 for the three months ended March
31, 2001. The decrease during the three months ended March 31, 2002 in U.S.
revenue is due to a general decrease across all regions previously serviced
in the United States of America. The increase during the three months ended
March 31, 2002 in revenue from other countries is due to an increase of sales
in Canada.
Liquidity and Capital Resources
Our primary source of liquidity has been cash generated by our
operations and by the net borrowings of $450,000 under our line of credit.
At March 31, 2002, we had $108,021 in cash and cash equivalents,
compared to $274,089 at September 30, 2001. Until required for
operations, our policy is to invest any excess cash reserves in bank
deposits, money market funds, and certificates of deposit. Net working
capital was $1,487,034 at March 31, 2002 compared to $1,995,007 at
September 30, 2001. The change in working capital is primarily due to
the following: inventories increased by $460,319, or 17.4%, to $3,099,053
at March 31, 2002 from $2,638,714 at September 30, 2001, accounts
receivable decreased by $158,704, or 15.0%, to $899,579 at March 31, 2002
from $1,058,283 at September 30, 2001, accounts payable decreased by
$620,718, or 58.6%, to $437,853 at March 31, 2002 from $1,058,571 at
September 30, 2001 and the bank line of credit increased 100% to $500,000
at March 31, 2002 from $0 at September 30, 2001.
On August 21, 2001, under the terms of a secured credit agreement,
the Company entered into a note payable for $4,500,000 (the "Note") with
a commercial lender. The Note is collateralized by all of the Company's
assets, is payable in monthly installments from September 2001 until July
2006, which included principal and interest at prime + 0.75% (6.0% at
March 31, 2002), with a final payment upon maturity on July 25, 2006.
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The variable interest rate can never exceed 9% or be lower than 6%. The
monthly payment is $90,155 and is applied to interest first based on the
interest rate in effect, with the balance applied to principal. The
interest rate is adjusted daily. Additionally, any proceeds from the
sale of stock received from the exercise of warrants shall be applied to
any outstanding balance on the Note or the Line of Credit described
below. At March 31, 2002, $4,027,794 was outstanding on the Note.
Under the terms of the secured credit agreement noted above, the
Company has a Line of Credit for the lesser of $500,000 or 80% of
eligible accounts receivable and 35% of eligible inventory. The Line of
Credit bears interest at prime plus 1.25% (6.0% at March 31, 2002), and
is collateralized by all of the Company's assets. The Line of Credit
matures August 25, 2002. At March 31, 2002, $500,000 was outstanding on
the Line of Credit.
Consistent with normal practice, management believes that the
Company's operations are not expected to require significant capital
expenditures during the remainder of fiscal 2002. Management believes
that existing cash balances, cash flow to be generated from operating
activities and available borrowing capacity under its Line of Credit will
be sufficient to fund operations, and capital expenditure requirements
for at least the next twelve months. At this time management is not
aware of any factors that would have a materially adverse impact on cash
flow during this period.
Forward Looking Statements
Certain statements in this report are forward-looking statements
within the meaning of the federal securities laws. Although the Company
believes that the expectations reflected in its forward-looking
statements are based on reasonable assumptions, there are risks and
uncertainties that may cause actual results to differ materially from
expectations. These risks and uncertainties include, but are not limited
to, competitive pricing pressures at both the wholesale and retail
levels, changes in market demand, changing interest rates, adverse
weather conditions that reduce sales at distributors, the risk of
assembly and manufacturing plant shutdowns due to storms or other
factors, and the impact of marketing and cost-management programs.
Recent Accounting Pronouncements
In November 2001, the Emerging Issues Task Force released Issue No. 01-09,
Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor's Products) (EITF 01-09). Upon adoption of EITF 01-09
on January 1, 2002, the Company was required to classify certain payments to
its customers as a reduction of sales. The Company previously classified
these payments as selling, general, and administrative expenses in its
consolidated statements of income. Upon adoption of EITF 01-09, prior
period amounts of $214,152 and $287,630 as of the six months ended March
31, 2002 and 2001, respectively, were reclassified. Because adoption of
EITF 01-09 solely resulted in reclassification within the consolidated
statements of income, there is no impact on the Company's financial condition,
operating income, or net income.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting
for Derivative Investments and Hedging Activities, which establishes
accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. The statement also requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133, as extended by SFAS No.
137 and amended by SFAS No. 138, was effective for the Company on January 1,
2001. Historically, the Company has not entered into derivatives contracts
to hedge existing risks or for speculative purposes. Accordingly, adoption
of SFAS No. 133 had no effect on its financial position or results of
operations.
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In June 2001, the FASB issued SFAS No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method of accounting, and broadens the criteria for recording
intangible assets separate from goodwill. Recorded goodwill and intangibles
will be evaluated against this new criteria and may result in certain
intangibles being subsumed into goodwill, or alternatively, amounts initially
recorded as goodwill may be separately identified and recognized apart from
goodwill. SFAS No. 142 requires the use of a non-amortization approach to
account for purchased goodwill and certain intangibles. Under a
non-amortization approach, goodwill and certain intangibles will not be
amortized into results of operations, but instead would be reviewed for
impairment and written down and charged to results of operations only in the
periods in which the recorded value of goodwill and certain intangibles is
more than its fair value. The provisions of each statement which apply to
goodwill and intangible assets acquired prior to June 30, 2001 was adopted
by the Company on January 1, 2002. Accordingly, adoption of these
statements had no effect on its financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses
accounting and reporting for the impairment and disposal of long-lived
assets disposed of after December 15, 2001. SFAS No. 144 supersedes SFAS
No. 121 and the accounting and reporting provisions of Accounting
Principals Board (APB) Opinion No. 30, and amends Accounting Research
Bulletin (ARB) No. 51 to eliminate the exception to consolidation for a
subsidiary. SFAS No. 144 establishes a single accounting model
for long-lived assets to be disposed of by sale. The Company does not
expect the adoption of this statement to have material effect on its
financial statements.
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BUSINESS
GENERAL
Cycle Country Accessories Corp. (a Nevada corporation) (the
Successor Company) was incorporated in the state of Nevada on August 15,
2001 as a C corporation. On August 21, 2001, we entered into an
agreement to purchase all of the outstanding common stock of Cycle
Country Accessories Corp. (an Iowa corporation) (the Predecessor Company)
for $4,500,000 in cash and 1,375,000 shares of our common stock. Cycle
Country Accessories Corp. (an Iowa corporation) (the Predecessor Company)
was originally incorporated on August 8, 1983 and is headquartered in
Milford, Iowa. In addition, on August 14, 2001, Cycle Country
Accessories Corp. (an Iowa corporation) (the Predecessor Company) merged
with Okoboji Industries Corporation. Okoboji Industries Corporation
manufactured the plastic wheel covers for what is considered our Plastic
Wheel Cover segment. As a result of these transactions we are the
Successor Company to the business of both companies.
We are the one of the world's largest manufacturers of accessories
for all terrain vehicles ("ATVs"). We manufacture a complete line of
branded products, including snowplow blades, lawnmowers, 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 90% of the original equipment
manufacturer ("OEM") hubcap business. We have always sold directly to
golf car manufacturers and we believe that we have an excellent
distribution network that reaches the after market throughout the United
States, Europe and Asia.
Our three largest customers accounted for approximately 43% of our
net sales in the year ended September 30, 2001. These three customers
have represented a significant amount of our business every year for at
least the past 16 years. While the percentage of total net sales these
customers represent should decrease as our sales grow in other areas,
such as Lawn and Garden, we do anticipate these customers will continue
to represent a significant amount of our business.
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INDUSTRY OVERVIEW
ATV Accessories:
----------------
In today's ATV market there are several OEMs competing for market
share. Honda has been the world leader followed by Polaris, Yamaha,
Kawasaki, Suzuki, Arctic Cat and Bombardier. According to ATV Magazine,
in 2000 there were 800,000 ATV's sold worldwide. This represented a
19.2% increase over 1999. Of those 800,000 units 75% were Utility and
40% were Sport Quads. We consider the Utility Division to be our target
market.
Our market research tells us that the manufacturers of garden
tractors and utility vehicles need accessories similar to those available
in the ATV industry. We are currently working with some of these
companies and expect to substantially expand that market in the very near
future. In addition to our accessory line we manufacture several
products under private label and we intend to expand on that market.
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 90% of the OEM hubcap business and are the largest manufacturer
of golf car hubcaps in the world. We have always sold directly to all
the golf car manufacturers and we have an excellent distribution network
throughout the United States, Europe and Asia to reach the after market.
COMPANY HISTORY
Cycle Country's market research has been a continued work in process
for the past 20 years and that work still continues today. Our success
was accomplished by constant market research and a constant effort to
adjust to the changes in the industry. When we started in the ATV
accessory industry ATV's were much smaller. They were small 3-wheeled
vehicles with two-wheel drive. Today they are powerful 4-wheel drive
vehicles capable of doing many more tasks. The ATV industry falls within
both recreational and machinery industry depending on the product and
consumer. In 2000, approximately 800,000 units were sold worldwide and
there are approximately 3 million units on the market today. Prospective
ATV buyers lean toward a new purchase because of the strides
manufacturers have made in product development. Partly due to our line
of utility products the ATV manufacturers have focused their efforts to
incorporate four wheel drive and making larger ATV's for greater hauling
and work capacity.
The idea for our business was born in 1981 when Jim Danbom
recognized that an ATV could be used to plow snow. He manufactured and
sold 100 snow plow kits that year. He sold more the next year and then
in 1983 decided to incorporate. The business has grown every year since.
Now in addition to snowplows, Cycle Country manufactures and sells a full
range of farm products designed for the new and more powerful ATV's.
These products include mowers, sprayers, 3-point hitch, moldboard plow,
disc harrow, furrower, cultivator, rake, row planter, and seeder. We
also manufacture winch mounts, chains, gun racks, and a very unique 5th
wheel trailer.
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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. 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 lifetime
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 ended September 30, 2001, which
approximates 85% of total company segment sales: (a) Blades: 71%, (b)
Mowers: 8%, (c) Winches and Winch Mounting Kits: 6%, (d) Tillage
Equipment: 3%, (e) Sprayers: 3%, (f) Spreaders: 1%. "Other" products
comprise the remaining 8% of our sales.
Our major ATV accessory products include:
Blades.
We manufacture four sizes of steel straight blades which include a
42", 48", 60" and 72" models. We also offer a 52" State Plow, a Power
"V" blade and a 60" plastic blade. Standard blade configuration features
a universal manual lift or a universal electric lift. The blades can
also be lifted with a winch.
Winches and Winch Mounts.
We offer a complete line of electric winches and winch mounts to fit
all ATV models. Models include 1,500 and 2,000 pound capacity winches.
Mowers.
We offer two mowing systems, the "Quicksilver 54 Finish Cut" mower
and the "Rough Cut" mower. The Quicksilver 54 is a 54" finish cut mower
that can be mounted to the front of an ATV or towed behind any tractor or
ATV. It is powered by a 10.5 horsepower engine by Briggs & Stratton.
The Rough Cut is a 48" mower that is designed to cut thick weeds and
overgrown brush. It's powered by a 12.5 horsepower engine by Briggs &
Stratton and is pulled behind the ATV. The Rough Cut offers an offset
hitch, which allows mowing to the left, right or directly behind the ATV.
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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.
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
rack-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 began 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 15% of
our total segment sales. Wheel cover products include 6", 8" and 10"
sizes offered in a variety of color options in both hot-stamped or
metalized options.
PRODUCT DEVELOPMENT
We have remained competitive and grown over the past years by
designing and marketing new products continually. We employ an
experienced staff of three product design professionals that work with
CAD/CAM technology in the design of new products. This R&D group serves
two primary functions: product retrofitting and new product design.
Retrofitting of existing products accounts for roughly 50 percent of the
engineers' time. Management considers the engineering group a critical
factor to the company's future and current success.
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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. New products introduced
in 2001 included: the Work Power 1500 winch, universal 3 point frame,
and a 72" heavy duty blade for utility vehicles. 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, Snowmobile
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, 2001, we purchased approximately
$4,839,000 of goods from Simonsen Iron Works, Inc., our largest supplier
who does the majority of our ironworks. This represented approximately
63% 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, 2001, Domestic accessory sales
represent approximately 93% of our total ATV Accessory sales. For 2001,
our largest distributor accounted for 22% of our domestic accessory sales
and our five largest distributors accounted for 74% of our domestic
accessory sales.
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.
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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 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.
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Golf Market:
------------
The primary means we use to sell our wheel covers is to attend semi-
annual golf industry trade shows and produce a brochure for distribution
to interested parties. Distributor representatives assist in after
market sales.
Advertising
We advertise our ATV Accessories in national trade magazines,
professionally developed videos, annual catalog, magazine and television
advertising campaigns. Additionally we have an Internet site located at:
www.cyclecountry.com.
- --------------------
COMPETITION
We are one of the largest ATV accessory manufacturers in the world.
Management estimates that we maintain a 50% market share in the domestic
ATV accessories market, with the next largest manufacturer, Cambridge
Metal and Plastics having an estimated 20% share of the domestic market.
Management also estimates that we control approximately 50% of the
international ATV market in the countries in which we distribute.
Additionally, management estimates that we control 90% market share of
the OEM golf car hubcap market and 80% of the golf car aftermarket.
As with any industry we are faced with competition. However, due to
our aggressive marketing and innovative product line, we maintain the
largest market share in the ATV Utility Accessory Market as well as the
wheel cover market. With our recent entry into the lawn & garden market,
our goal is to achieve a leading market share in that market.
However, the markets for all of our products are competitive. We
expect the markets for our products to become even more competitive if
and when more companies enter them and offer competition in price,
support, additional value added services, and quality, among other
factors.
LEGAL PROCEEDINGS
At times we are involved in various lawsuits in the ordinary course
of business. These lawsuits primarily involve claims for damages arising
out of the use of our products. As of June 26, 2002 we are a party to
one product liability case, which involved a failed winch switch. We
carry two million dollars of product liability insurance. Our attorneys
have informed us that they do not anticipate any judgment exceeding our
insurance coverage. As of June 26, 2002 the Company was also involved in
a case relating to an allegation of patent infringement. The claim is in
the preliminary phases. The amount of liability, if any, from the claim
cannot be determined with certainty; however, management is of the
opinion that the outcome will not have a material adverse effect on the
financial position or operations of the Company.
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EMPLOYEES
As of June 26, 2002 we have 61 full-time employees, including 41 in
production, 4 in sales, 4 in administration, 6 in general office, 4 in
research and development and 2 truck drivers. We presently have no labor
union contract between the Company and any union and we do not anticipate
unionization of our personnel in the foreseeable future.
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.
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MANAGEMENT
Directors and Executive Officers
Our directors, executive officers and key employees are as follows:
Name Age Position Since
- ---- --- -------- -----
Ron Hickman 51 Principal Executive Officer, President 2001
and Director
Marie Matthiesen 40 Vice President of Manufacturing -
David J. Davis 36 Principal Finance Officer and Principal -
Accounting Officer
Ken Horner 54 Vice President of Marketing -
Jim Danbom 58 Director 2001
L.G. Bob Hancher Jr. 48 Director 2001
F.L. Miller 62 Director 2002
Rod Simonson 47 Director 2002
Audit Committee - Bob Hancher, Skip Miller, Rod Simonsen
Compensation Committee - Ron Hickman, Jim Danbom, Bob Hancher
Operations Committee - Ron Hickman, Jim Danbom, Skip Miller
Planning Committee - Jim Danbom, Ron Hickman, Rod Simonsen
Jim Danbom was our founder and served as our president from 1981 to 2001.
Mr. Danbom will serve on the Operations, Planning and Compensation 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
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, Planning and Compensation committees of the board. Mr.
Hickman is currently serving a three-year term, which will end in 2004.
F.L. Skip Miller, joined the board with extensive Corporate experience,
Having successfully sold his wheel company, Armstrong Rim and Wheel,
after 28 years to GKN, a conglomerate. Mr. Miller is currently President
of Aero Race Wheels. He brings 30 years experience to the board.
Mr. Miller will serve on the Audit and Operations committees of the
board. His term will end in 2005.
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Rod Simonson became a franchisee for Piccadilly Circus Pizza, Inc. in
1980. He purchased the parent company shortly thereafter, and
became President of Piccadilly Circus Pizza, Inc.
In 1987, the company became Land Mark Products, Inc., the licensing
company for Piccadilly Circus Pizza. There are presently over 800
locations, primarily in convenience stores, in 42 states across the
country. Mr. Simonson will serve on the Audit and Planning committees
of the board. His term will expire in 2005.
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.
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Summary Compensation Table
The following table sets forth the total compensation paid to or
accrued for the year ended December 31, 2001, 2000 and 1999 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 2001 134,325 0 500(6) 0 0 0 2,481(2)
President(1)
2000 165,468 0 500(6) 0 0 0 1,818(2)
1999 165,468 0 500(6) 0 0 0 2,293(3)
Ronald Hickman,
President (3) 2001 117,808 500(6) 3,348(4)
1,913(2)
General Mgr (5) 2000 100,000 0 500(6) 0 0 0 5,025(4)
1,444(2)
1999 100,000 130,500 500(6) 0 0 0 4,017(4)
1,510(2)
<FN>
<F1>
(1) Jim Danbom served as our President until August 21, 2001.
</FN>
<FN>
<F2>
(2) Comprised entirely of Auto Expense Reimbursement.
</FN>
<FN>
<F3>
(3) Ron Hickman became our President and Principal Executive
Officer on August 21, 2001.
</FN>
<FN>
<F4>
(4) Comprised entirely of Health Insurance.
</FN>
<FN>
<F5>
(5) Ron Hickman became our General Manager on October 1, 1995 and
served in that capacity until August 21, 2001.
</FN>
<FN>
<F6>
(6) Comprised entirely of Christmas Bonus.
</FN>
Stock Option Grants in the past fiscal year
We have not issued any grants of stock options in the past fiscal year.
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PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding beneficial
ownership of our common stock as of the date of this prospectus and as
adjusted to reflect the sale of all 500,000 shares which may potentially
be sold in connection with this registration statement, by (i) those
shareholders known to be the beneficial owners of more than five percent
of the voting power of our outstanding capital stock, (ii) each director,
and (iii) all executive officers and directors as a group:
Number of Percent Percent
Name and Address of Shares Before After
Beneficial Owner Owned Offering Offering (1)
- ---------------- --------- -------- --------
Ron Hickman 280,500 7.16% 6.58%
c/o Cycle Country Accessories Corp.
2188 Highway 86
Milford, Iowa 51351
Jim Danbom 823,750 21.02% 19.32%
106 Channel Court
Marco Island, FL 34145
Jan Danbom 813,750 20.77% 19.09%
106 Channel Court
Marco Island, FL 34145
Commerce Street Venture Group 381,250 9.73% 8.94%
10401 North Meridian St., Suite 300
Indianapolis, IN 46290
All Directors and Officers 1,216,080 31.04% 28.53%
as a Group (8 Persons)
_____________
* Less than 1%
(1) Assumes the sale of all shares offered hereunder.
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SELLING SHAREHOLDER
The shares of common stock offered hereby were originally issued
by us in a private placement in connection with the acquisition of assets
from Go Company, LLC. The selling shareholder, which term includes Go
Company, LLC. and any of its pledgees, donees or their successors, may
from time to time offer and sell pursuant to this prospectus any or all
of the common stock offered hereby.
The following table sets forth information as of June 26, 2002,
with respect to the selling shareholder and the common stock beneficially
owned by the selling shareholder that may be offered pursuant to this
prospectus. Such information has been obtained from the selling
shareholder. The selling shareholder does not have, and within the past
three years has not had, any position, office or other material
relationship with us or any of our predecessors or affiliates other than
as a result of the ownership of the shares of common stock acquired in
connection with the sale of assets to us. Because the selling shareholder
may offer all, some or none of the common stock pursuant to this
prospectus, no estimate can be given as to the amount of the common stock
that will be held by the selling shareholder upon completion of this
offering.
Number of Shares of
Common Stock
-------------------
Beneficially Owned After
Selling shareholder Owned <F1> Offered Hereby the Offering <F2>
- --------------------------- ------------- -------------- -----------------
Go Company, LLC. 155,000 155,000 0
- -----------------
<FN>
<F1>
(1)
This registration statement shall also cover any additional shares
of our common stock which become issuable in connection with the
shares registered for sale hereby by reason of any stock dividend,
stock split, recapitalization or other similar transaction effected
without the receipt of consideration which results in an increase in
the number of outstanding shares of our common stock.
</FN>
<FN>
<F2>
(2) Assumes the sale of all shares offered hereby.
</FN>
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CERTAIN TRANSACTIONS
In August 2000, we entered into a $100,000 note payable agreement
with Land Mark Leasing, Inc., which is wholly owned by
shareholders 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 Products, Inc. Landmark
Products Inc. was owned 10% by the shareholders of Cycle Country.
(unaudited). This ownership was liquidated on October 2, 2001.
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
shareholder. 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, 2001.
In August 1995 we entered into a $30,000 note receivable with a
shareholder. 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, 2001.
In March of 2002, Jim Danbom, director, identified Per-Form, Inc.
as a potential acquisition. The company was purchased on
March 11, 2002 for approximately $462,100 in cash and 22,500 shares of
the company's common stock for a total purchase price of $528,800.
Additionally the company purchased inventory of approximately
$75,000.
In June of 2002, the company identified Weekend Warrior, an
acquisition which closed in June of 2002. The purchase was made
for 10,000 shares of stock. The company's technology and products
allow many of the Weekend Warrior products to be immediately useful in
the Lawn and Garden applications.
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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, 3,918,250 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 3,918,250 shares are issued and outstanding
as of the date of this prospectus. The issued and outstanding shares of
common stock are fully paid and non-assessable. Except as provided by law
or our certificate of incorporation with respect to voting by class or
series, holders of common stock are entitled to one vote on each matter
submitted to a vote at a meeting of shareholders.
Subject to any prior rights to receive dividends to which the
holders of shares of any series of the preferred stock may be entitled,
the holders of shares of common stock will be entitled to receive
dividends, if and when declared payable from time to time by the board of
directors, from funds legally available for payment of dividends. Upon
our liquidation or dissolution, holders of shares of common stock will be
entitled to share proportionally in all assets available for distribution
to such holders.
Preferred Stock
The board of directors has the authority, without further action by
our shareholders, to issue up to 20,000,000 shares of preferred stock,
par value $.0001 per share, in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption,
liquidation preferences and the number of shares constituting any series
or the designation of such series. No shares of preferred stock are
currently issued and outstanding. The issuance of preferred stock could
adversely affect the voting power of holders of common stock and could
have the effect of delaying, deferring or preventing a change of our
control.
Warrants
Certain shares of common stock offered by Cycle Country Accessories
Corp. (a Nevada corporation) on August 21, 2001 had warrants attached.
We presently have 2,000,000 warrants outstanding. Each warrant entitles
the holder thereof to purchase one share of common stock at a price per
share of $4.00 beginning March 28, 2002 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.
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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.
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Market for Common Equity and Related shareholder Matters
Our common stock has been listed on the NASDAQ OTC Electronic
Bulletin Board sponsored by the National Association of Securities
Dealers, Inc. under the symbol "CYCY" since February 4, 2002. On July 3,
2002, the closing bid price as reported by the Electronic Bulletin Board
was $2.90 and the closing ask price was $2.97.
The following table sets forth the high and low bid prices for the
common stock as reported on the Electronic Bulletin Board for each quarter
since February 4, 2002, when the company stock began trading, for the
periods indicated. Such information reflects inter-dealer prices
without retail mark-up, mark down or commissions and may not
represent actual transactions.
COMMON STOCK
QUARTER TRADE
HIGH
LOW
- ----------------------------------------------
1st Quarter 2002 5.75
2.40
- ----------------------------------------------
2nd Quarter 2002 4.07
2.20
As of June 30, 2002, there were 335 shareholders of record of our
common stock and a total of 3,918,250 shares outstanding.
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INDEMNIFICATION
Article 11 of our Articles of Incorporation includes certain
provisions permitted by the Nevada Revised Statutes, which provides for
indemnification of directors and officers against certain liabilities.
Pursuant to our Articles of Incorporation, our officers and directors are
indemnified, to the fullest extent available under Nevada Law, against
expenses actually and reasonably incurred in connection with threatened,
pending or completed proceedings, whether civil, criminal or
administrative, to which an officer or director is, was or is threatened
to be made a party by reason of the fact that he or she is or was one of
our officers, directors, employees or agents. We may advance expenses in
connection with defending any such proceeding, provided the indemnity
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.
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PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sale of the 155,000
shares of common stock offered by the Selling Shareholder under this
prospectus. We will receive proceeds to the extent that we are able
to sell any of the 345,000 shares of common stock that we are offering.
The common stock may be sold from time to time to purchasers:
- directly by the selling shareholder; or
- through underwriters, broker-dealers or agents who may receive
compensation in the form of discounts, concessions or commissions
from the selling shareholder or the purchasers of the common stock.
The selling shareholder and any such broker-dealers or agents who
participate in the distribution of the common stock may be deemed to be
"underwriters." As a result, any profits on the sale of the common stock
by the selling shareholder and any discounts, commissions or concessions
received by any such broker-dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act. If the
selling shareholder was to be deemed an underwriter, the selling
shareholder may be subject to certain statutory liabilities of,
including, but not limited to, Sections 11, 12 and 17 of the Securities
Act and Rule 10b-5 under the Exchange Act. If the common stock is sold
through underwriters or broker-dealers, the selling shareholder will be
responsible for underwriting discounts or commissions or agent's
commissions.
The common stock may be sold in one or more transactions at:
- fixed prices;
- prevailing market prices at the time of sale;
- varying prices determined at the time of sale; or
- negotiated prices.
These sales may be effected in transactions:
- on any national securities exchange or quotation service on which
the common stock may be listed or quoted at the time of the sale,
including the Nasdaq National Market;
- in the over-the-counter market; or
- otherwise than on such exchanges or services or in the over-the-
counter market.
These transactions may include block transactions or crosses.
Crosses are transactions in which the same broker acts as an agent on
both sides of the trade.
To our knowledge, there are currently no plans, arrangements or
understandings between the selling shareholder and any underwriter,
broker-dealer or agent regarding the sale of the common stock by the
selling shareholder. The selling shareholder might not sell any or all of
the common stock offered pursuant to this prospectus. The selling
shareholder might instead transfer, devise or gift the common stock by
other means not described in this prospectus. In addition, any shares of
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41
common stock covered by this prospectus that qualify for sale pursuant to
Rule 144 of the Securities Act may be sold under Rule 144 rather than
pursuant to this prospectus.
The selling shareholder and any other person participating in
such distribution will be subject to the Exchange Act. The Exchange Act
rules include, without limitation, Regulation M, which may limit the
timing of purchases and sales of any of the common stock by the selling
shareholder and any other such person. In addition, Regulation M under
the Exchange Act may restrict the ability of any person engaged in the
distribution of the common stock to engage in market-making activities
with respect to the underlying common stock being distributed for a
period of up to five business days prior to the commencement of such
distribution. This may affect the marketability of the common stock and
the ability of any person or entity to engage in market-making activities
with respect to the common stock.
We agreed with the selling shareholder to keep the registration
statement of which this prospectus constitutes a part effective until the
earlier of:
- Such time as the selling shareholder may sell all of the shares
held by it without registration pursuant to Rule 144 under the
Securities Act within a three-month period;
- Such time as all of the shares have been sold by the selling
shareholder; or
We have agreed to pay substantially all of the expenses
incidental to the registration, offering and sale of the common stock to
the public other than commissions, fees and discounts of underwriters,
brokers, dealers and agents.
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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, 2001 and for the years
ended September 30, 2001 and 2000 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.
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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 Office located
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661 at prescribed rates during regular business hours. You may obtain
information on the operation of the public reference facilities by calling
the Commission at 1-800-SEC-0330. Also, the SEC maintains an Internet
site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the Commission
at http://www.sec.gov. Statements contained in this prospectus as to the
contents of any contract or other document are not necessarily complete,
and in each instance reference is made to the copy of such contract or
document filed as an exhibit to the registration statement, each such
statement being qualified in its entirety by such reference. We will
provide, without charge upon oral or written request of any person, a copy
of any information incorporated by reference herein. Such request should
be directed to us at Cycle Country Accessories Corp., 2188 Highway 86,
Milford, Iowa 51351 Attention: Ronald Hickman, President.
Following the effectiveness of this registration statement, we will
file reports and other information with the Commission. All of such
reports and other information may be inspected and copied at the
Commission's public reference facilities described above. The Commission
maintains a web site that contains reports, proxy and information
statements and other information regarding issuers that file
electronically with the Commission. The address of such site is
http://www.sec.gov. In addition, we intend to make available to our
shareholders annual reports, including audited financial statements,
unaudited quarterly reports and such other reports as we may determine.
42
44
CYCLE COUNTRY ACCESSORIES CORP.
AND SUBSIDIARY
Table of Contents
-----------------
Independent Auditors' Report................................. F-2
Consolidated Financial Statements:
Consolidated Balance Sheet............................... F-3
Consolidated Statements of Income........................ F-4
Consolidated Statements of shareholders' Equity.......... F-5
Consolidated Statements of Cash Flows.................... F-6
Notes to Consolidated Financial Statements................... F-8
Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet - March 31, 2002........ F-28
Condensed Consolidated Statements of Income - Three Months
and Six Months Ended March 31, 2002 and 2001................. F-29
Condensed Consolidated Statements of Cash Flows - Six Months
Ended March 31, 2002 and 2001 ............................... F-31
Notes to Condensed Consolidated Financial Statements......... F-32
F-1
45
Independent Auditors' Report
----------------------------
To the Board of Directors and shareholders of
Cycle Country Accessories Corp. and Subsidiary:
We have audited the accompanying consolidated balance sheet of
Cycle Country Accessories Corp. and Subsidiary (the "Company") as
of September 30, 2001, and the related consolidated statements of
income, shareholders' equity, and cash flows for the years ended
September 30, 2001 and 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Cycle Country Accessories Corp. and Subsidiary as of
September 30, 2001, and the results of their operations and their
cash flows for the years ended September 30, 2001 and 2000 in
conformity with accounting principles generally accepted in the
United States of America.
TEDDER, JAMES, WORDEN & ASSOCIATES, P.A.
November 28, 2001
Orlando, Florida
F-2
46
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARY
Consolidated Balance Sheet
September 30, 2001
Assets 2001
------ ----
Current assets:
Cash and cash equivalents $ 274,089
Accounts receivable - trade, net 1,058,283
Inventories 2,638,714
Taxes receivable 100,517
Deferred income taxes 83,843
Prepaid expenses and other 13,803
-----------
Total current assets 4,169,249
Property, plant, and equipment, net 2,454,479
Other assets 80,340
-----------
Total assets $ 6,704,068
===========
Liabilities and shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 1,058,571
Accrued expenses 304,156
Current portion of bank note payable 811,515
----------
Total current liabilities 2,174,242
Bank note payable, less current portion 3,628,997
Deferred income taxes 28,483
----------
Total liabilities 5,831,722
shareholders' equity:
Common stock 363
Additional paid-in capital 994,641
Accumulated deficit (122,658)
----------
Total shareholders' equity 872,346
Total liabilities and shareholders' equity $ 6,704,068
==========
See accompanying notes to the consolidated financial statements.
F-3
47
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARY
Consolidated Statements of Income
For the years ended September 30, 2001 and 2000
2001 2000
---- ----
Net sales $13,204,449 12,675,699
Freight income 109,377 103,772
----------- -----------
Total revenue 13,313,826 12,779,471
Cost of goods sold (9,257,543) (9,138,162)
----------- -----------
Gross profit 4,056,283 3,641,309
Selling, general and administrative expenses (2,978,841) (2,646,331)
----------- -----------
Income from operations 1,077,442 994,978
Non-operating income, net 41,199 25,798
----------- -----------
Income before provision for income taxes 1,118,641 1,020,776
Income tax benefit 55,360 -
----------- -----------
Net income $1,174,001 1,020,776
=========== ===========
Weighted average shares outstanding:
Basic 3,625,000 3,625,000
Diluted 4,025,000 4,025,000
Earnings per share:
Basic $ 0.32 0.28
Diluted $ 0.29 0.25
See accompanying notes to the consolidated financial statements.
F-4
48
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARY
Consolidated Statements of shareholders' Equity
Years ended September 30,2001 and 2000
Common Common
stock stock Common
(Cycle (Cycle stock Additional
Country- Country- (Okoboji paid-in Retained
Iowa) Nevada) Industries) capital earnings Total
-------- -------- ----------- ---------- ---------- ----------
Balances at September 30, 1999,
as previously reported $ 5,600 - 20,000 14,116 3,700,449 3,740,165
Merger of Cycle Country-Iowa
and Okoboji Industries 20,000 - (20,000) - - -
Issuance of 3,625,000 shares of
common stock of Cycle Country-
Nevada - 363 - - - 363
Purchase of all outstanding
common stock of Cycle
Country-Iowa (25,600) - - (14,116) (4,460,284) (4,500,000)
-------- ------- ---------- ---------- ----------- -----------
Balances at September 30, 1999,
as restated - 363 - - (759,835) (759,472)
Net income - - - - 1,020,776 1,020,776
Distributions paid as an
S Corporation - - - - (517,000) (517,000)
-------- ------- ---------- ---------- ----------- -----------
Balances at September 30, 2000 - 363 - - (256,059) (255,696)
Net income - - - - 1,174,001 1,174,001
Distributions paid as an
S Corporation - - - - (1,040,600) (1,040,600)
Value assigned in acquisition of
land and building - - - 994,641 - 994,641
-------- ------- ---------- ---------- ----------- -----------
Balances at September 30, 2001 $ - 363 - 994,641 (122,658) 872,346
======== ======= ========== ========== =========== ===========
See accompanying notes to the consolidated financial statements.
F-5
49
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the years ended September 30, 2001 and 2000
2001 2000
---- ----
Cash flows from operating activities:
Net income $1,174,001 1,020,776
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 227,820 205,770
Inventory reserve 45,000 -
Provision for uncollectible accounts 10,000 -
Deferred income taxes (55,360) -
Gain on sale of equipment (974) (10,761)
Write-off of investment in Visionaire Corp. - 28,473
Write-off of intangible asset - 4,111
(Increase) decrease in assets:
Accounts receivable - trade, net (290,616) 61,947
Inventories 107,603 (347,787)
Taxes receivable (100,517) -
Prepaid expenses and other 29,701 6,228
Other assets 95,253 (27,254)
Increase (decrease) in liabilities:
Accounts payable 428,519 (26,159)
Accrued expenses 42,706 27,596
--------- --------
Net cash provided by operating activities 1,713,136 942,940
Cash flows from investing activities:
Purchase of property, plant, and equipment (696,335) (345,356)
Proceeds from sale of property, plant, and equipment 42,579 21,200
Payments received on notes receivable 46,000 2,500
Purchase of investments - (25,000)
--------- --------
Net cash used in investing activities (607,756) (346,656)
See accompanying notes to the consolidated financial statements.
F-6
50
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
2001 2000
---- ----
Cash flows from financing activities:
Payments on bank note payable $ (59,488) -
Proceeds from short-term note payable - 100,000
Payments on short-term note payable (100,000) -
Distributions paid to shareholders as an S corporation (1,040,600) (517,000)
----------- ---------
Net cash used in financing activities (1,200,088) (417,000)
Net increase (decrease) in cash and cash
equivalents (94,708) 179,284
Cash and cash equivalents - beginning of year 368,797 189,513
----------- ---------
Cash and cash equivalents - end of year $ 274,089 368,797
=========== =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 32,349 -
=========== =========
Income taxes $ - -
=========== =========
Supplemental schedule of non-cash financing and investing
activities:
Non-cash transaction incurred during the year for:
Purchase of all of the outstanding stock of
Cycle Country-Iowa $4,500,000 -
=========== =========
Value assigned in acquisition of land and building $ 994,641 -
=========== =========
See accompanying notes to the consolidated financial statements.
F-7
51
CYCLE COUNTRY ACCESSORIES CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2001 and 2000
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) Reporting Entity and Principles of Consolidation
------------------------------------------------
The consolidated financial statements include the
accounts of Cycle Country Accessories Corp. (a Nevada
corporation) ("Cycle Country (Nevada)") and its wholly-
owned subsidiary, Cycle Country Accessories Corp. (an
Iowa corporation) ("Cycle Country (Iowa)") (collectively,
the "Company"). All significant intercompany accounts
and transactions have been eliminated in consolidation.
(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 distributors, 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
distributors, dealers, wholesalers, or other customers
and risk of loss transfers to an unrelated third party.
Certain costs associated with the shipping and handling
of products to customers are billed to the customer and
included as freight income in the accompanying consolidated
statements of income. Royalty income earned in connection
with the rights to sell a product developed by the Company
is recognized as earned and included in non-operating income
in the accompanying consolidated statements of income. Sales
were recorded net of sales discounts of approximately $372,000
and $325,000 in fiscal 2001 and 2000, respectively.
(d) Cost of Goods Sold
------------------
The components of cost of goods sold in the accompanying
consolidated statements of income include all direct
materials and direct labor associated with the assembly
and/or manufacturing of the Company's products. In
addition, an allocation of factory overhead costs is
included in cost of goods sold.
F-8
52
CYCLE COUNTRY ACCESSORIES CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(e) Allowances
----------
The Company provides appropriate provisions for uncollectible
accounts and credit for returns based upon factors surrounding
the credit risk and activity of specific customers, historical
trends, and other information. In the opinion of management of
the Company, no provision is deemed necessary for credit for
returns at September 30, 2001. The provision for uncollectible
accounts of $10,000 at September 30, 2001 reflects management's
best estimate of future uncollectible accounts.
(f) Use of Estimates
----------------
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
(g) Cash and Cash Equivalents
-------------------------
The Company considers cash on hand, deposits in banks,
and short-term investments with an original maturity of
three months or less when purchased to be cash and cash
equivalents.
(h) Inventories
-----------
Inventories are valued at the lower of cost or market.
Cost is determined using the first-in, first-out method.
(i) Property, Plant, and Equipment
------------------------------
Property, plant, 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. When assets
are sold or retired, the related cost and accumulated
depreciation are removed from the accounts and gains or losses
from dispositions are credited or charged to income.
F-9
53
CYCLE COUNTRY ACCESSORIES CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(j) Impairment of Long-Lived Assets
-------------------------------
The Company evaluates its long-lived assets for financial
impairment as events or changes in circumstances indicate
that the carrying value of a long-lived asset may not be
fully recoverable. The Company evaluates the recoverability
of long-lived assets by measuring the carrying amount of the
assets against their estimated undiscounted future cash flows.
If such evaluations indicate that the future undiscounted cash
flows of certain long-lived assets are not sufficient to recover
the carrying value of such assets, the assets are adjusted to their
fair values.
(k) Investment in Golden Rule (Bermuda) Ltd.
----------------------------------------
The investment in Golden Rule (Bermuda) Ltd. stock is recorded at
cost due to less than 20% ownership.
(l) Investment in Visionaire Corp.
------------------------------
The investment in Visionaire Corp. was accounted for under the
cost method. During fiscal 2000, the Company's investment in
Visionaire Corp., which was purchased during fiscal 1996, was
deemed worthless by management and was written off.
(m) Warranty Costs
--------------
Estimated future costs related to product warranties are
accrued as products are sold based on prior experience
and known current events and are included in accrued
expenses in the accompanying consolidated balance sheets.
Accrued warranty costs have historically been sufficient
to cover actual costs incurred.
(n) Income Taxes
------------
Effective August 21, 2001, the Company accounts for
income taxes utilizing the asset and liability method.
This approach requires the recognition of deferred tax
assets and liabilities for the expected future tax
consequences attributable to temporary differences
between the financial statement carrying amounts of
existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are
expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes
the enacted date.
F-10
54
CYCLE COUNTRY ACCESSORIES CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(n) Income Taxes, Continued
-----------------------
Prior to August 21, 2001, Cycle Country had elected to be
taxed under the provisions of Subchapter S of the Internal
Revenue Code ("IRC"). Under these provisions, the shareholders
reported their proportionate share of the Company's income on
their individual tax returns. Therefore, no provision or
liability for federal or state income taxes had been included in
the consolidated financial statements prior to August 21, 2001.
An S corporation may elect to use a fiscal tax year. However,
due to this election, the Company must make "required payments"
to reflect the estimated tax deferral the shareholders receive
through the use of a fiscal tax year. The S corporation tax
deposit represents the "required payments" paid by the Company
to compensate the U.S. government for the taxes the shareholders
would have paid had the Company used a calendar year-end. Effective
August 21, 2001, the Company's S corporation tax status was
terminated (see Note 2). When the Company's final S corporation
tax return is filed, the Company will receive a refund of the
"required payments" tax deposit of $100,517, which is classified
as taxes receivable at September 30, 2001 in the accompanying
consolidated balance sheet.
(o) Distributor Rebate Payable
--------------------------
The Company offers an annual rebate program (the "Program") for
its ATV accessory distributors. The Program provides for a 7%
rebate on purchases of certain eligible products during the
Program period if certain pre-determined cumulative purchase
levels are obtained. The Program rebate is provided to the
applicable distributors as a credit against future purchases of
the Company's products. The Program rebate liability is
calculated and recognized as eligible products are sold based
upon factors surrounding the activity and prior experience of
specific distributors and is included in accrued expenses in
the accompanying consolidated balance sheet. The distributor
rebate expense totaled approximately $456,000 and $366,000 in
fiscal 2001 and 2000, respectively.
The distributor rebate expense, which is currently included in
selling, general, and administrative expenses in the accompanying
consolidated financial statements, may be required to be
reclassified as a reduction of sales once a final consensus
regarding all of the issues outlined in EITF 00-22, Accounting
for "Points" and Certain Other Time-Based or Volume-Based Incentive
Offers, and Offers for Free Products or Services to be Delivered
in the Future, have been issued by the Emerging Issues Task Force.
F-11
55
CYCLE COUNTRY ACCESSORIES CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(p) Earnings Per Share
------------------
Basic earnings per share ("EPS") is calculated by
dividing net income by the weighted-average number of
common shares outstanding during the reporting period.
Diluted EPS is computed in a manner consistent with that
of basic EPS while giving effect to the potential
dilution that could occur if warrants to issue common
stock were exercised.
(q) Advertising
-----------
Advertising consists primarily of television, videos,
newspaper and magazine advertisements, product brochures
and catalogs, and trade shows. All costs are expensed as
incurred. Advertising expense totaled approximately
$366,000 and $312,000 in fiscal 2001 and 2000, respectively,
and is included in selling, general, and administrative
expenses in the accompanying consolidated statements of income.
(r) Research and Development Costs
------------------------------
Research and development costs are expensed as incurred.
Research and development costs incurred during fiscal
2001 and 2000 totaled approximately $137,000 and $131,000,
respectively, and are included in selling, general, and
administrative expenses in the accompanying consolidated
statements of income.
(s) Shipping and Handling Costs
---------------------------
Shipping and handling costs represent costs associated
with shipping products to customers and handling finished
goods. Shipping and handling costs incurred totaled
approximately $206,000 and $224,000 in fiscal 2001 and
2000, respectively, and are included in selling, general,
and administrative expenses in the accompanying consolidated
statements of income.
F-12
56
CYCLE COUNTRY ACCESSORIES CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
-----------------------------------------------------
(t) Concentration of Credit Risk
----------------------------
Financial instruments which potentially subject the
Company to concentrations of credit risk consist
principally of cash and trade accounts receivable. The
Company places its cash with high credit quality
financial institutions. At various times throughout
fiscal 2001 and 2000 and at September 30, 2001, cash
balances held at some financial institutions were in
excess of federally insured limits.
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 help further reduce
credit risk.
(u) Seasonality and Weather
-----------------------
The ATV accessories market is seasonal as retail sales of
snowplow 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 snowplow equipment is generally
higher in the fall and early winter (the Company's first
and second fiscal quarters) as distributors and dealers
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 and dealers build inventories in
anticipation of the spring season. Demand for snowplow,
farm and garden and golf equipment is significantly
affected by weather conditions. Unusually cold winters
or hot summers increase demand for these aforementioned
products. Mild winters and cool summers have the
opposite effect.
(v) Fair Value of Financial Instruments
-----------------------------------
The carrying amount of cash and cash equivalents,
accounts receivable, taxes receivable, accounts payable
and accrued expenses approximates fair value because of
the short maturity of those instruments. The fair value
of the bank note payable is assumed to approximate the
recorded value because there have not been any significant
changes in specific circumstances since the note was
originally recorded.
(w) 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 shareholders'
equity.
F-13
57
CYCLE COUNTRY ACCESSORIES CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(2) Organization, Merger and Acquisitions of Common Stock of Cycle
--------------------------------------------------------------
Country (Iowa) and Operating Facility
-------------------------------------
Cycle Country (Iowa) was incorporated in the state of Iowa in
1983 and operated as a Subchapter S corporation until August
21, 2001. Okoboji Industries Corp. ("Okoboji Industries"),
an entity owned and managed by the same individuals as Cycle
Country (Iowa) (i.e. under common control), was incorporated
in the state of Iowa in 1987 and operated as a Subchapter S
corporation until August 14, 2001.
On August 14, 2001, Cycle Country (Iowa) and Okoboji
Industries merged. Okoboji Industries manufactured the
plastic wheel covers for what is considered the Company's
Plastic Wheel Cover segment (see Note 17). Since both Cycle
Country (Iowa) and Okoboji Industries were entities under
common control, this transaction has been accounted for in a
manner similar to a pooling of interests.
Cycle Country (Nevada) was incorporated in the state of
Nevada on August 15, 2001 as a C corporation. On August 21,
2001, Cycle Country (Nevada) acquired all of the outstanding
common stock of Cycle Country (Iowa) for $4,500,000 in cash
and 1,375,000 shares of common stock of Cycle Country
(Nevada). Since both Cycle Country (Nevada) and Cycle
Country (Iowa) were under common control by virtue of
majority ownership and common management by the same three
individuals, this transaction has been accounted for in a
manner similar to a pooling of interests. Prior to August
21, 2001, Cycle Country (Nevada) did not engage in any
activities other than those incidental to its formation,
acquiring debt financing and the pending acquisition of all
of the outstanding common stock of Cycle Country (Iowa).
Also on August 21, 2001, the Company acquired its operating
facility, which consisted of land and building with an
appraised value of $1,500,000, from certain shareholders.
The operating facility was previously leased from those
shareholders. The consideration given was comprised of
$300,000 in cash and 390,000 shares of common stock of Cycle
Country (Nevada). The land and building were recorded at
their fair value of $1,500,000 which included leasehold
improvements with a net book value of approximately $205,000
which were previously purchased and capitalized by Cycle
Country (Iowa).
As a result of the transactions described above, Cycle
Country (Nevada) is the Successor Company to the business
activities of Cycle Country (Iowa) and Okoboji Industries
and, effective August 21, 2001, the S corporation tax status
of Cycle Country (Iowa) was terminated. The financial
statements presented include the accounts of Cycle Country
(Nevada), Cycle Country (Iowa), and Okoboji Industries for
both periods.
F-14
58
CYCLE COUNTRY ACCESSORIES CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) Inventories
-----------
The major components of inventories at September 30, 2001 are
summarized as follows:
Raw materials $ 1,122,365
Work in progress 23,020
Finished goods 1,493,329
------------
Total inventories $ 2,638,714
============
(4) Prepaid Expenses and Other
--------------------------
Prepaid expenses and other at September 30, 2001 consisted of
the following:
Prepaid insurance $ 7,195
Prepaid royalty 3,300
Other 3,308
-----------
Total prepaid expenses and other $ 13,803
===========
(5) Other Assets
------------
The major components of other assets at September 30, 2001
are summarized as follows:
Prepaid royalty - long-term $ 55,340
Investment in Golden Rule Bermuda, Ltd. 25,000
------------
Total other assets $ 80,340
============
F-15
59
CYCLE COUNTRY ACCESSORIES CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(6) Property, Plant, and Equipment
------------------------------
Property, plant, and equipment, their estimated useful lives,
and related accumulated depreciation at September 30, 2001
are summarized as follows:
Range
of
lives
in
years
-----
Land - $ 380,000
Building 30 1,132,127
Shop equipment 7 1,172,656
Tooling and dies 7 636,471
Vehicles 3 - 7 599,750
Office equipment 3 - 7 401,424
------------
4,322,428
Less accumulated depreciation (1,958,955)
------------
2,363,473
Construction-in-process 91,006
------------
Total property and equipment $ 2,454,479
============
During fiscal 2001, the Company acquired its operating facility which
consisted of land and building from certain shareholders that was
previously leased under operating leases (see Notes 2 and 15).
(7) Accrued Expenses
----------------
The major components of accrued expenses at September 30, 2001 are
summarized as follows:
Distributor rebate payable $ 168,026
Accrued salaries and related benefits 100,511
Accrued warranty expense 32,000
Accrued interest expense 3,619
-----------
Total accrued expenses $ 304,156
===========
F-16
60
CYCLE COUNTRY ACCESSORIES CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(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.
(see Note 18). The Note was unsecured, bore interest at 6.6%
and was due on demand. At September 30, 2000, $100,000 was
outstanding on the Note. The Note was repaid during fiscal
2001 and at September 30, 2001, no amounts are outstanding
under this Note.
(9) Bank Note Payable
-----------------
On August 21, 2001, under the terms of a secured credit
agreement, the Company entered into a note payable for
$4,500,000 (the "Note") with a commercial lender. The Note
is collateralized by all of the Company's assets, is payable
in monthly installments from September 2001 until July 2006,
which includes principal and interest at prime + 0.75% (6.75%
at September 30, 2001), with a final payment upon maturity on
July 25, 2006. The variable interest rate can never exceed
9% or be lower than 6%. The monthly payment is $90,155 and
is applied to interest first based on the interest rate in
effect, with the balance applied to principal. The interest
rate is adjusted daily. Additionally, any proceeds from the
sale of stock received from the exercise of warrants (see
Note 11a) shall be applied to any outstanding balance on the
Note or the Line of Credit described below. At September 30,
2001, $4,440,512 was outstanding on the Note.
Under the terms of the secured credit agreement noted above,
the Company has a Line of Credit for the lesser of $500,000
or 80% of eligible accounts receivable and 35% of eligible
inventory. The Line of Credit bears interest at prime plus
1.25% (7.25% at September 30, 2001) and is collateralized by
all of the Company's assets. The Line of Credit matures on
August 25, 2002. There are no outstanding borrowings under
the Line of Credit at September 30, 2001.
Future maturities of long-term debt are as follows:
Year ending September 30,
-------------------------
2002 $ 811,515
2003 863,288
2004 923,396
2005 987,690
2006 854,623
----------
$4,440,512
==========
F-17
61
CYCLE COUNTRY ACCESSORIES CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(9) Bank Note Payable, Continued
----------------------------
In addition, the secured credit agreement contains conditions
and covenants that prevent or restrict the Company from
engaging in certain transactions without the consent of the
commercial lender and require the Company to maintain certain
financial ratios, including term debt coverage and maximum
leverage. In addition, the Company is required to maintain a
minimum working capital and shall not declare or pay any
dividends or any other distributions.
(10)Income Taxes
------------
During fiscal 2000 and for the period from October 1, 2000,
to August 21, 2001, the Company had elected to be taxed as an
S corporation (see Note 1n). Therefore, no provision or
liability for federal or state income taxes has been included
in the consolidated financial statements for fiscal 2000 and
for the period October 1, 2000, to August 20, 2001. Effective
August 21, 2001, the Company's S corporation tax status was
terminated (see Note 2).
The benefit for income taxes consists of the following:
Current tax provision (benefit)
Federal $ -
State -
---------
-
---------
Deferred tax benefit
Federal (44,085)
State (11,275)
---------
(55,360)
---------
Total income tax benefit $(55,360)
=========
F-18
62
CYCLE COUNTRY ACCESSORIES CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(10)Income Taxes, Continued
-----------------------
Deferred tax assets and liabilities at September 30, 2001, are
comprised of the following:
Deferred tax assets:
Inventory reserve $ 17,676
Accrued vacation 16,833
Deferred profit 15,084
Accrued warranty 12,570
Accrued bonus 11,784
Net operating loss 5,968
Allowance for uncollectible accounts 3,928
---------
Total deferred assets 83,843
---------
Deferred tax liability:
Depreciation (28,483)
---------
Net deferred tax asset $ 55,360
=========
These amounts are included in the accompanying consolidated
balance sheet at September 30, 2001 under the following captions:
Current assets $ 83,843
Non-current liabilities (28,483)
---------
Net deferred tax asset $ 55,360
=========
No valuation allowance has been provided for these deferred
tax assets at September 30, 2001 as full realization of these
assets is more likely than not.
F-19
63
CYCLE COUNTRY ACCESSORIES CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(10)Income Taxes, Continued
-----------------------
A reconciliation of the income tax benefit computed by applying
the federal statutory rate is as follows:
Federal statutory tax $ 380,338 34.0%
Tax on income earned as S corporation (392,201) (35.1)
State and local income taxes, net of
federal tax benefit 3,475 0.3
Nondeductible expenses 968 0.1
Cumulative prior year deferred tax
liability (47,940) (4.3)
---------- -------
Total income tax benefit $ (55,360) (5.0)%
========== =======
(11)shareholders' Equity
--------------------
(a) Common Stock
------------
The Company has 100,000,000 shares of $0.0001 par value
common stock authorized and 3,625,000 shares issued
and outstanding at September 30, 2001. Of the 3,625,000
shares of common stock outstanding, 2,000,000 of these
shares of common stock have warrants attached which
entitles the holder to purchase one share of common stock
per warrant beginning 120 days following the effectiveness
of a registration statement and ending August 21, 2004.
The Company has the right, under certain circumstances, to
redeem any unexercised warrants at $0.0001 per share. Cycle
Country (Nevada) was organized and incorporated during fiscal
2001 as further described in Note 2; therefore, no common
stock of the Nevada corporation was authorized, issued or
outstanding at September 30, 2000.
(b) Preferred Stock
---------------
The Company has 20,000,000 shares of $0.0001 par value
preferred stock authorized and no shares issued and
outstanding at September 30, 2001. The Board of
Directors is authorized to adopt resolutions providing
for the issuance of preferred shares and the establishment
of preferences and rights pertaining to the shares being
issued, including dividend rates. Cycle County (Nevada)
was organized and incorporated during fiscal 2001 as further
described in Note 2; therefore, no preferred stock of the
Nevada corporation was authorized, issued or outstanding at
September 30, 2000.
F-20
64
CYCLE COUNTRY ACCESSORIES CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(11)shareholders' Equity
--------------------
In the event of any dissolution or liquidation of the
Company, whether voluntary or involuntary, the holders
of shares of preferred stock shall be paid the full amounts
of which they shall be entitled to receive before any
holders of common stock shall be entitled to receive, pro
rata, any remaining assets of the Company available for
distribution to its shareholders.
(12)Earnings Per Share
------------------
The following is a reconciliation of the numerators and
denominators of the basic and diluted EPS computations for
the years ended September 30, 2001 and 2000:
For the year ended September 30, 2001
-------------------------------------
Income Shares Per-share
(numerator) (denominator) amount
----------- ------------- ---------
Basic EPS
Income available to common
shareholders $1,174,001 3,625,000 $ 0.32
Effect of Dilutive Securities
Warrants - 400,000 -
---------- --------- ---------
Diluted EPS
Income available to common
shareholders $1,174,001 4,025,000 $ 0.29
========== ========= =========
F-21
65
CYCLE COUNTRY ACCESSORIES CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(12)Earnings Per Share, Continued
-----------------------------
For the year ended September 30, 2000
-------------------------------------
Income Shares Per-share
(numerator) (denominator) amount
----------- ------------- ---------
Basic EPS
Income available to common
shareholders $1,020,776 3,625,000 $ 0.28
Effect of Dilutive Securities
Warrants - 400,000 -
---------- --------- ---------
Diluted EPS
Income available to common
shareholders $1,020,776 4,025,000 $ 0.25
========== ========= =========
(13)Non-Operating Income
--------------------
Non-operating income for the years ended September 30, 2001
and 2000 consisted of the following:
2001 2000
---- ----
Income:
Interest $32,204 $22,133
Consulting fees 31,559 -
Royalties 9,670 23,450
Gain on sale of equipment 974 10,761
Truck lease - 1,516
Other 1,530 1,238
------- -------
Total income 75,937 59,098
------- -------
F-22
66
CYCLE COUNTRY ACCESSORIES CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(13)Non-Operating Income, Continued
-------------------------------
Expense:
Interest (34,738) (1,230)
Write-off of investment in
Visionaire Corp. - (28,473)
Other - (3,597)
-------- --------
Total expense (34,738) (33,300)
-------- --------
Total non-operating income, net $41,199 25,798
(14)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 year ended
September 30, 2000 was $55,000 and no contribution was made
during fiscal 2001.
(15)Operating Leases
----------------
Cycle Country had committed to a non-cancelable operating
lease on its operating facilities with rent of $25,320 per
month which was to expire October 31, 2006. In addition,
Okoboji Industries had committed to a non-cancelable
operating lease on its operating facilities with rent of
$4,000 per month which was to expire September 30, 2004.
Total lease expense amounted to approximately $313,000 and
$352,000 during fiscal 2001 and 2000, respectively.
During fiscal 2001, the Company acquired the above-mentioned
operating facilities and cancelled the remaining term of the
operating leases (see Note 2). No penalties were incurred by
the Company in connection with the cancellation of the
operating leases relating to the acquired land and building.
F-23
67
CYCLE COUNTRY ACCESSORIES CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(16)Business Concentrations
-----------------------
At September 30, 2001, customers with the three largest
outstanding accounts receivable balances totaled approximately
$635,000 or 59% of the gross accounts receivable. At September 30,
2001, 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 $257,900 24%
B 255,200 24%
C 122,200 11%
Sales to the Company's three major customers, which exceeded
10% of net sales, accounted for approximately 16.9%, 15.0%,
and 11.4% each of net sales in fiscal 2001, and approximately
18.7%, 15.1%, and 11.1% each of net sales in fiscal 2000.
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 2001 and 2000, the Company purchased approximately
$4,839,000 and $4,554,000, respectively, of raw materials from
one vendor, which represented approximately 63% and 61% of materials
used in products sold during the respective years.
F-24
68
CYCLE COUNTRY ACCESSORIES CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(17)Segment Information
-------------------
Segment information has been presented on a basis consistent
with how business activities are reported internally to
management. Management solely evaluates operating profit by
segment by direct costs of manufacturing its products without
an allocation of indirect costs. In determining the total
revenues by segment, freight income and sales discounts are
not allocated to each of the segments for internal reporting
purposes. The Company has two operating segments which
assemble, manufacture, and sell a variety of products: ATV
Accessories and Plastic Wheel Covers. ATV Accessories is
engaged in the design, assembly, and sale of ATV accessories
such as snowplow blades, lawnmowers, spreaders, sprayers,
tillage equipment, winch mounts, and utility boxes. Plastic
Wheel Covers manufactures and sells injection-molded plastic
wheel covers for vehicles such as golf carts, lawnmowers, and
light-duty trailers. The significant accounting policies of
the operating segments are the same as those described in
Note 1. Sales of snowplow blades comprised approximately 71%
and 66% of ATV Accessories revenues in fiscal 2001 and 2000,
respectively. Sales of snowplow blades comprised approximately
62% and 57% of the Company's consolidated total revenues in
fiscal 2001 and 2000, respectively.
The following is a summary of certain financial information
related to the two segments:
2001 2000
---- ----
Total revenues by segment
-------------------------
ATV Accessories $11,592,047 11,022,322
Plastic Wheel Covers 1,984,006 1,978,307
------------ -----------
Total revenues by segment 13,576,053 13,000,629
Freight income 109,377 103,772
Sales allowances (371,604) (324,930)
------------ -----------
Total combined revenue $13,313,826 12,779,471
============ ===========
Operating profit by segment
---------------------------
ATV Accessories $ 3,690,265 3,257,427
Plastic Wheel Covers 1,339,980 1,076,150
Factory overhead (973,962) (692,268)
Selling, general, and
administrative (2,978,841) (2,646,331)
Interest income (expense), net (2,534) 20,903
Other income (expense), net 43,733 4,895
Income tax benefit 55,360 -
------------ -----------
Net income $ 1,174,001 1,020,776
============ ===========
F-25
69
CYCLE COUNTRY ACCESSORIES CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(17)Segment Information, Continued
------------------------------
2001 2000
---- ----
Identifiable assets
-------------------
ATV Accessories $4,585,656 3,602,845
Plastic Wheel Covers 825,130 762,576
---------- ---------
Total identifiable assets 5,410,786 4,365,421
Corporate and other assets 1,293,281 870,385
---------- ---------
Total assets $6,704,067 5,235,806
========== =========
Depreciation by segment
-----------------------
ATV Accessories $ 65,775 54,244
Plastic Wheel Covers 92,578 80,782
Corporate and other 69,467 70,744
---------- ---------
Total depreciation $ 227,820 205,770
========== =========
Capital expenditures by segment
ATV Accessories $ 857,385 119,928
Plastic Wheel Covers 247,371 114,134
Corporate and other 586,220 111,294
---------- -------
Total capital expenditures $1,690,976 345,356
========== =======
The following is a summary of the Company's revenue in different
geographic areas during the years ended September 30, 2001 and 2000:
2001 2000
---- ----
United States $12,476,848 11,989,031
Other countries 836,978 790,440
----------- ----------
Total revenue $13,313,826 12,779,471
=========== ==========
As of September 30, 2001 and 2000, all of the Company's long-
lived assets are located in the United States of America.
During fiscal 2001 and 2000, ATV Accessories had sales to
individual customers which exceeded 10% of total revenues as
described in Note 16. Plastic Wheel Covers did not have
sales to any individual customer greater than 10% of total
revenues during fiscal 2001 and 2000.
F-26
70
CYCLE COUNTRY ACCESSORIES CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
(18)Related Party Transactions
--------------------------
The Company was owed $46,000 at September 30, 2000 on a note
receivable by a shareholder of the Company. The note receivable
was repaid to the Company during fiscal 2001.
Land Mark Leasing, Inc., which the Company owed $100,000 at
September 30, 2000 under a short-term note payable, is wholly
owned by the shareholders of Cycle Country. The short-term
note payable was repaid by the Company during fiscal 2001.
During the year ended September 30, 2001, consulting fees of
approximately $31,600 were paid to the Company by Land Mark
Products, Inc. Land Mark Products, Inc. is owned 10% by the
shareholders of Cycle Country.
Through August 20, 2001, the Company leased certain facilities
from two of its shareholders under operating lease agreements,
which obligated 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 Note 15).
(19)Commitments and Contingencies
-----------------------------
(a) Letters of Credit
-----------------
Letters of credit are purchase guarantees that ensure the
Company's payment to third parties in accordance with
specified terms and conditions which amounted to approximately
$186,200 as of September 30, 2001.
(b) Legal Matters
-------------
The Company is a defendant in two 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
consolidated financial position of the Company.
(c) Registration Statement
----------------------
On November 15, 2001, the Company filed a Registration
Statement on Form SB-2 (Amendment No. 2) with the Securities
and Exchange Commission ("SEC"). The Registration Statement
was declared effective by the SEC on November 28, 2001, File
No. 333-68570.
F-27
71
Cycle Country Accessories Corp. and Subsidiaries
Condensed Consolidated Balance Sheet
March 31, 2002
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 108,021
Accounts receivable, net 899,579
Inventories 3,099,033
Taxes receivable 100,517
Deferred income taxes 83,843
Prepaid expenses and other 129,618
------------
Total current assets 4,420,611
------------
Property, plant, and equipment, net 2,552,644
Intangible assets, net 260,478
Other assets 79,220
------------
Total assets $ 7,312,953
============
Liabilities and shareholders' Equity
Current Liabilities:
Accounts payable $ 437,853
Due to related parties 576,700
Accrued expenses 561,710
Bank line of credit 500,000
Accrued interest payable 3,311
Current portion of bank note payable 854,003
------------
Total current liabilities 2,933,577
------------
Long-Term Liabilities:
Bank note payable, less current portion 3,173,791
Deferred income taxes 28,483
------------
Total long-term liabilities 3,202,274
------------
Total liabilities 6,135,851
------------
shareholders' Equity:
Preferred stock, $.0001 par value; 20,000,000 shares
authorized; no shares issued or outstanding -
Common stock, $.0001 par value; 100,000,000 shares
authorized; 3,698,250 shares issued and outstanding 370
Additional paid-in capital 994,641
Retained earnings 182,091
------------
Total shareholders' equity 1,177,102
------------
Total liabilities and shareholders' equity $ 7,312,953
============
See accompanying notes to the condensed consolidated financial statements.
F-28
72
Cycle Country Accessories Corp. and Subsidiaries
Condensed Consolidated Statements of Income
Three Months Ended March 31,
2002 2001
---------- ---------
(Unaudited) (Unaudited)
Revenues:
Net sales $ 2,201,108 $ 3,469,801
Freight income 22,291 31,444
-------------- -----------
Total revenues 2,223,399 3,501,245
-------------- -----------
Cost of goods sold (1,516,030) (2,429,338)
-------------- -----------
Gross profit 707,369 1,071,907
-------------- -----------
Selling, general, and administrative
expenses (717,142) (683,265)
-------------- -----------
Income (loss) from operations (9,773) 388,642
-------------- -----------
Other Income (Expense):
Interest expense (64,172) -
Interest income 2,792 13,839
Miscellaneous 16,532 15,008
-------------- -----------
Total other income (expense) (44,848) 28,847
-------------- -----------
Income (loss) before provision
for income taxes (54,621) 417,489
-------------- -----------
Provision for income taxes as a
C corporation 17,683 -
-------------- -----------
Net income (loss) $ (36,938) $ 417,489
============== ===========
Weighted average shares outstanding:
Basic 3,698,250 3,698,250
============== ===========
Diluted 3,856,938 4,098,250
============== ===========
Earnings per share:
Basic $ (0.01) $ 0.11
============== ===========
Diluted $ (0.01) $ 0.10
============== ===========
Pro forma net income data (1):
Net income reported $ 417,489
Provision for income taxes (150,296)
-----------
Pro forma net income $ 267,193
===========
Pro forma weighted average shares outstanding (1):
Basic 3,698,250
===========
Diluted 4,098,250
===========
Pro forma earnings per share (1):
Basic $ 0.07
===========
Diluted $ 0.07
===========
(1) The pro forma reflects the effect of the transaction in which all
of the outstanding stock of Cycle Country Accessories Corp. (an Iowa
corporation) was purchased by Cycle Country Accessories Corp. (a
Nevada corporation), a C corporation. As a result, Cycle Country
Accessories Corp. (an Iowa corporation) converted from an S
corporation to a C corporation and a provision for income taxes has
been included due to this conversion.
See accompanying notes to the condensed consolidated financial statements.
F-29
73
Cycle Country Accessories Corp. and Subsidiaries
Condensed Consolidated Statements of Income
Six Months Ended March 31,
2002 2001
-------------- --------------
(Unaudited) (Unaudited)
Revenues:
Net sales $ 6,986,279 $ 7,383,434
Freight income 48,544 64,539
-------------- --------------
Total revenues 7,034,823 7,447,973
-------------- --------------
Cost of goods sold (5,042,051) (5,295,878)
-------------- --------------
Gross profit 1,992,772 2,152,095
-------------- --------------
Selling, general, and administrative
expenses (1,408,768) (1,269,630)
-------------- --------------
Income from operations 584,004 882,465
-------------- --------------
Other Income (Expense):
Interest expense (128,240) (452)
Interest income 4,287 21,976
Miscellaneous 19,213 46,846
-------------- --------------
Total other income (expense) (104,740) 68,370
-------------- --------------
Income before provision for
income taxes 479,264 950,835
-------------- --------------
Provision for income taxes as a
C corporation (174,515) -
-------------- --------------
Net income $ 304,749 $ 950,835
============== ==============
Weighted average shares outstanding:
Basic 3,698,250 3,698,250
============== ==============
Diluted 3,982,839 4,098,250
============== ==============
Earnings per share:
Basic $ 0.08 $ 0.26
============== ==============
Diluted $ 0.08 $ 0.23
============== ==============
Pro forma net income data (1):
Net income reported $ 950,835
Provision for income taxes (342,301)
-------------
Pro forma net income $ 608,534
=============
Pro forma weighted average shares outstanding (1):
Basic 3,698,250
=============
Diluted 4,098,250
=============
Pro forma earnings per share (1):
Basic $ 0.16
=============
Diluted $ 0.15
=============
(1) The pro forma reflects the effect of the transaction in which all
of the outstanding stock of Cycle Country Accessories Corp. (an Iowa
corporation) was purchased by Cycle Country Accessories Corp. (a
Nevada corporation), a C corporation. As a result, Cycle Country
Accessories Corp. (an Iowa corporation) converted from an S
corporation to a C corporation and a provision for income taxes has
been included due to this conversion.
See accompanying notes to the condensed consolidated financial statements.
F-30
74
Cycle Country Accessories Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Six Months Ended March 31,
2002 2001
-------------- ------------
(Unaudited) (Unaudited)
Cash Flows from Operating Activities:
Net income $ 304,749 $ 950,835
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 133,062 112,047
Amortization 1,222 -
Inventory reserve 18,000 -
Gain on sale of equipment (17,010) (8,778)
(Increase) decrease in assets:
Accounts receivable, net 158,704 (53,609)
Inventories (331,254) 182,715
Prepaid expenses and other (54,688) (20,127)
Increase (decrease) in liabilities:
Accounts payable (620,718) (226,610)
Accrued expenses 261,173 231,518
Accrued interest payable (308) (1,230)
-------------- -----------
Net cash provided by (used in)
operating activities (147,068) 1,166,761
-------------- -----------
Cash Flows from Investing Activities:
Purchase of equipment (116,103) (194,033)
Acquisition of net assets - subsidiary (12,065) -
Proceeds from sale of equipment 21,886 22,079
Payment received on notes receivable - 1,000
-------------- -----------
Net cash used in investing activities (106,282) (170,954)
-------------- -----------
Cash Flows from Financing Activities:
Payments on bank note payable (412,718) -
Payments on short-term note payable - (100,000)
Net borrowings from bank line of credit 500,000 -
Distributions paid to shareholders as
an S corporation - (1,005,600)
-------------- ------------
Net cash provided by (used in)
financing activities 87,282 (1,105,600)
-------------- ------------
Net decrease in cash and cash equivalents (166,068) (109,793)
Cash and cash equivalents, beginning of
period 274,089 368,797
-------------- ------------
Cash and Cash Equivalents, end of
period $ 108,021 $ 259,004
============== ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 128,548 $ 1,682
============== ============
Income taxes $ 196,970 $ -
============== ============
Supplemental schedule of non-cash
investing and financing activities:
Acquisition of net assets -
subsidiary included in due to
related parties $ 516,700 $ -
============== ============
Increase in prepaid expenses -
included in due to related parties $ 60,000 $ -
============== ============
See accompanying notes to the condensed consolidated financial statements.
F-31
75
Cycle Country Accessories Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six Months Ended March 31, 2002 and 2001
(Unaudited)
1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial
statements for the three and six months ended March 31, 2002 and 2001,
have been prepared in accordance with generally
accepted accounting principles for interim financial information.
Accordingly, they do not include all the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the accompanying
unaudited condensed consolidated financial statements contain all
adjustments, consisting only of normal recurring accruals, considered
necessary for a fair presentation of the Company's financial
position, results of operations, and cash flows for the periods
presented.
The results of operations for the interim periods ended March 31,
2002 and 2001 are not necessarily indicative of the results to be
expected for the full year. These interim consolidated financial
statements should be read in conjunction with the September 30, 2001
consolidated financial statements and related notes included in the
Company's Annual Report on Form 10-KSB for the year ended September
30, 2001.
In November 2001, the Emerging Issues Task Force released Issue No.
01-09, Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor's Products) (EITF 01-09). Upon
adoption of EITF 01-09 on January 1, 2002, the Company was required
to classify certain payments to its customers as a reduction of
sales. The Company previously classified these payments as selling,
general, and administrative expenses in its consolidated statements
of income. Upon adoption of EITF 01-09, $(38,896) and $98,213 as of
the three months ended March 31, 2002 and 2001, respectively, and
$214,152 and $287,630 as of the six months ended March 31, 2002 and
2001, respectively, were reclassified as a reduction (increase)
in revenue. Because adoption of EITF 01-09 solely resulted in
reclassification within the consolidated statements of income,
there is no impact on the Company's financial condition, operating
income, or net income.
2. Acquisition of Assets
On March 11, 2002, the Company entered into an asset purchase
agreement to purchase certain assets from Perf-form Products, Inc.
("Perf-form Products") for approximately $462,100 in cash and 22,500
shares of the Company's common stock for a total purchase price of
approximately $528,800. The shares of the Company's common stock
were valued at the market price on the date of acquisition. Perf-
form Products manufactures, sells, and distributes premium oil
filters and related products for the motorcycle and ATV industries.
As a result of the acquisition, the Company expects to be able to
provide Perf-form Products a much larger distribution channel through
it's existing distributor network in the United States and abroad;
thereby, allowing Perf-form Products to accelerate its growth.
The acquisition was accounted for under the purchase method of
accounting; accordingly, the purchase price has been allocated to
reflect the fair value of assets acquired at the date of acquisition.
The acquisition resulted in goodwill of approximately $41,700;
however, as discussed in Note 3, this goodwill recorded will not be
amortized as a result of SFAS No. 142 transition provisions.
The following table summarizes the estimated fair values of the
assets acquired at the date of acquisition:
At March 11, 2002
---------------------------
Inventory $ 147,065
Property and equipment 120,000
Trademark 100,000
Covenant not-to-compete agreement 70,000
Patent 50,000
-------------
Total assets acquired $ 487,065
=============
The results of operations of the acquired business have been included
in the accompanying condensed consolidated financial statements from the date
of acquisition.
F-32
76
Cycle Country Accessories Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six Months Ended March 31, 2002 and 2001
(Unaudited)
3. Intangible Assets
Goodwill represents the excess of the purchase price over the fair
value of assets acquired. Goodwill arising from the Company's March
11, 2002 acquisition (see Note 2) is not being amortized in
accordance with Statement of Financial Accounting Standards No. 142
(SFAS No. 142), Goodwill and Other Intangible Assets.
SFAS No. 142 requires the use of a nonamortization approach to
account for purchased goodwill and certain intangibles. Under a
nonamortization approach, goodwill and certain intangibles would not
be amortized into results of operations, but instead would be
reviewed for impairment at least annually and written down and
charged to results of operations in the periods in which the recorded
value of goodwill and certain intangibles are determined to be
greater than their fair value.
The trademark has been deemed to have an indefinite life and as such
will not be amortized. The covenant not-to-compete agreement is
being amortized over its estimated useful life (5 years) and the
patent is being amortized over its remaining useful life of 11 years.
4. Inventories:
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out method. The major
components of inventories at March 31, 2002 are summarized as
follows:
Raw materials $ 1,519,383
Work in progress 46,651
Finished goods 1,532,999
-------------
Total inventories $ 3,099,033
=============
5. Accrued Expenses:
The major components of accrued expenses at March 31, 2002 are
summarized as follows:
Distributor rebate payable $ 382,177
Accrued salaries and related benefits 136,869
Accrued warranty expense 32,000
Royalties payable 10,664
-------------
Total accrued expenses $ 561,710
=============
6. Income Taxes:
The Company converted to a C corporation effective August 21, 2001.
Prior to August 21, 2001, the Company had elected to be taxed under
the provisions of Subchapter S of the Internal Revenue Code. Under
these provisions, the shareholders reported their proportionate share
of the Company's income on their individual tax returns. Therefore,
no provision or liability for federal or state income taxes has been
included in the Condensed Consolidated Financial Statements prior to
August 21, 2001.
7. Earnings Per Share:
Basic earnings per share ("EPS") is calculated by dividing net income
by the weighted-average number of common shares outstanding during
the period. Diluted EPS is computed in a manner consistent with that
of basic EPS while giving effect to the potential dilution that could
occur if warrants to issue common stock were exercised.
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77
Cycle Country Accessories Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six Months Ended March 31, 2002 and 2001
(Unaudited)
7. Earnings Per Share, Continued:
The following is a reconciliation of the numerators and denominators
of the basic and diluted EPS computations for the three months and
six months ended March 31, 2002 and 2001:
For the three months ended For the six months ended
March 31, 2002 March 31, 2002
------------------------------- -----------------------------
Income Shares Per-share Income Shares Per-share
(numerator) (denominator) amount (Numerator) (denominator) amount
------------- ------------- --------- ---------- ------------- ---------
Basic EPS
Income available to common
shareholders $ (36,938) 3,698,250 $ (0.01) $ 304,749 3,698,250 $ 0.08
Effect of Dilutive Securities
Warrants - 158,688 - - 284,589 -
------------- ------------- --------- ---------- ------------- ---------
Diluted EPS
Income available to common
shareholders $ (36,938) 3,856,938 $ (0.01) $ 304,749 3,982,839 $ 0.08
============= ============= ========= ========== ============= =========
For the three months ended For the six months ended
March 31, 2001 March 31, 2001
-------------------------------------- ----------------------------------
Income Shares Per-share Income Shares Per- share
(numerator) (denominator) amount (numerator) (Denominator) amount
------------ ------------- ---------- ----------- ------------- -----------
Basic EPS
Income available to common
shareholders $ 417,849 3,698,250 $ 0.11 $ 950,835 3,698,250 $ 0.26
Effect of Dilutive Securities
Warrants (1) - 400,000 - - 400,000 -
------------ ------------- ---------- ----------- ------------- -----------
Diluted EPS
Income available to common
shareholders $ 417,849 4,098,250 $ 0.10 $ 950,835 4,098,250 $ 0.23
============ ============= ========== =========== ============= ===========
(1) The calculation of the effect of dilutive securities assumes a value of
$5.00 for each share of the Company's common stock until traded on the
open market on February 11, 2002.
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78
Cycle Country Accessories Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six Months Ended March 31, 2002 and 2001
(Unaudited)
8. Segment Information:
Segment information has been presented on a basis consistent with how
business activities are reported internally to management.
Management solely evaluates operating profit by segment by direct
costs of manufacturing its products without an allocation of indirect
costs. In determining the total revenues by segment, freight income
and sales discounts are not allocated to each of the segments for
internal reporting purposes. The Company has two operating segments
which assemble, manufacture, and sell a variety of products: ATV
Accessories and Plastic Wheel Covers. ATV Accessories is engaged in
the design, assembly, and sale of ATV accessories such as snowplow
blades, lawnmowers, spreaders, sprayers, tillage equipment, winch
mounts, and utility boxes. Plastic Wheel Covers manufactures and
sells injection-molded plastic wheel covers for vehicles such as golf
carts, lawnmowers, and light-duty trailers. The significant
accounting policies of the operating segments are the same as those
described in Note 1 to the Consolidated Financial Statements of the
Company's Annual Report on Form 10-KSB for the year ended September
30, 2001. Sales of snowplow blades comprised approximately 51% and
72% of ATV Accessories revenues during the three months ended March 31,
2002 and 2001, respectively and approximately 76% and 78% of ATV Accessories
revenues during the six months ended March 31, 2002 and 2001, respectively.
In addition, sales of snowplow blades comprised approximately 36% and 62%
of the Company's consolidated total revenues during the three months
ended March 31, 2002 and 2001, respectively and approximately 66% and
69% of the Company's consolidated total revenues during the six months
ended March 31, 2002 and 2001, respectively.
The following is a summary of certain financial information related
to the two segments during the three months and six months ended
March 31, 2002 and 2001:
Three months ended March 31, Six months ended March 31,
2002 2001 2002 2001
------------- --------------- ------------- ------------
Total revenues by segment
ATV Accessories $ 1,569,733 $ 3,007,474 $ 6,102,997 $ 6,616,878
Plastic Wheel Covers 671,155 530,327 1,094,277 947,951
------------- --------------- ------------- -------------
Total revenues by segment 2,240,888 3,537,801 7,197,274 7,564,829
Freight income 22,290 31,444 48,544 64,539
Sales allowances (39,779) (68,000) (210,995) (181,395)
------------- --------------- ------------- -------------
Total revenues $ 2,223,399 $ 3,501,245 $ 7,034,823 $ 7,447,973
============= =============== ============= =============
Operating profit by segment
ATV Accessories $ 655,421 $ 1,078,213 $ 2,252,433 $ 2,349,182
Plastic Wheel Covers 477,284 418,996 765,191 711,950
Freight income 22,290 31,444 48,544 64,539
Sales allowances (39,779) (68,000) (210,995) (181,395)
Factory overhead (407,847) (388,746) (862,401) (792,180)
Selling, general, and
administrative (717,142) (683,265) (1,408,768) (1,269,631)
Interest income (expense),net (61,380) 14,161 (123,953) 21,846
Other income (expense), net 16,532 14,686 19,213 46,524
Provision for income taxes 17,683 - (174,515) -
------------ -------------- --------------- --------------
Net income (loss) $ (36,938) $ 417,489 $ 304,749 $ 950,835
============ ============== =============== ==============
F-35
79
Cycle Country Accessories Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Six Months Ended March 31, 2002 and 2001
(Unaudited)
8. Segment Information, Continued:
The following is a summary of the Company's revenue in different
geographic areas during the three months and six months ended March
31, 2002 and 2001:
Three months ended March 31, Six months ended March 31,
2002 2001 2002 2001
------------ -------------- ------------- ----------
United States of America $ 1,997,693 $ 3,285,860 $ 6,429,740 $ 7,062,642
Other countries 225,706 215,385 605,083 385,331
------------ -------------- ------------- -----------
Total revenue $ 2,223,399 $ 3,501,245 $ 7,034,823 $ 7,447,973
============ ============== ============= ===========
As of March 31, 2002, all of the Company's long-lived assets are
located in the United States of America.
ATV Accessories sales to major customers, which exceeded 10% of net
revenues, accounted for approximately 24.3% of net
revenues during the three months ended March 31, 2002, and
approximately 19.9%, 13.5%, and 13.5% each of net revenues during the
three months ended March 31, 2001. Plastic Wheel Covers did not have
sales to any individual customer greater than 10% of net revenues
during the three months ended March 31, 2002 or 2001.
ATV Accessories sales to major customers, which exceeded 10% of net
revenues, accounted for approximately 19.8%, 15.1%, and 10% each of
net revenues during the six months ended March 31, 2002, and
approximately 18.6%, 15.6%, 13.1% and 11.2% each of net revenues during the
six months ended March 31, 2001. Plastic Wheel Covers did not have
sales to any individual customer greater than 10% of net revenues
during the six months ended March 31, 2002 or 2001.
9. Contingencies:
Legal Matters
The Company is involved in a claim relating to an allegation of patent
infringement. The claim is in the preliminary phases. The amount of
liability, if any, from the claim cannot be determined with
certainty; however, management is of the opinion that the outcome
will not have a material adverse effect on the consolidated financial
position or operations of the Company.
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80
10. New Accounting Standards
As more fully described in Note 1 of the Notes to Condensed
Consolidated Financial Statements, on January 1, 2002, the Company
was required to adopt EITF 01-09. For a discussion of the impact of
this new accounting standard upon the Company, see Note 1.
In June 2001, the FASB issued SFAS No. 141, Business Combinations,
and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141
requires business combinations initiated after June 30, 2001 to be
accounted for using the purchase method of accounting, and broadens
the criteria for recording intangible assets separate from goodwill.
Recorded goodwill and intangibles will be evaluated against this new
criteria and may result in certain intangibles being subsumed into
goodwill, or alternatively, amounts initially recorded as goodwill
may be separately identified and recognized apart from goodwill.
SFAS No. 142 requires the use of a non-amortization approach to
account for purchased goodwill and certain intangibles. Under a non-
amortization approach, goodwill and certain intangibles will not be
amortized into results of operations, but instead would be reviewed
for impairment and written down and charged to results of operations
only in the periods in which the recorded value of goodwill and
certain intangibles is more than its fair value. The provisions of
each statement which apply to goodwill and intangible assets acquired
prior to June 30, 2001 was adopted by the Company on January 1, 2002.
Accordingly, adoption of these statements had no effect on its
financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS No. 144 addresses
accounting and reporting for the impairment and disposal of long-
lived assets disposed of after December 15, 2001. SFAS No. 144
supersedes SFAS No. 121 and the accounting and reporting provisions
of Accounting Principals Board (APB) Opinion No. 30, and amends
Accounting Research Bulletin (ARB) No. 51 to eliminate the exception
to consolidation for a subsidiary. SFAS No. 144 establishes a single
accounting model for long-lived assets to be disposed of by sale.
The Company does not expect the adoption of this statement to have
material effect on its financial statements.
F-37
81
No dealer, salesman or other
person is authorized to give any
information or to make any
representations not contained in
this prospectus in connection with
the offer made hereby, and, if
given or made, such information or
representations must not be relied
upon as having been authorized by
Cycle Country. This prospectus
does not constitute an offer to
sell or a solicitation to an offer
to buy the securities offered
hereby to any person in any state
or other jurisdiction in which such
offer or solicitation would be
unlawful. Neither the delivery of
this prospectus nor any sale made
hereunder shall, under any
circumstances, create any
implication that the information
contained herein is correct as of
any time subsequent to the date
hereof.
Until _________ __, 2002 (90 days
after the date of this prospectus)
all dealers that effect
transactions in these securities,
whether or not participating in
this offering, may be required to
deliver a prospectus . This is in
addition to the dealer's obligation
to deliver a prospectus when acting
as underwriters and with respect to
their unsold allotments or
subscriptions.
- --------------------------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary.................... 3 Cycle Country Accessories Corp.
The Offering.......................... 4
Summary Financial Data................ 6
Risk Factors.......................... 7
Use of Proceeds....................... 11
Determination of Offering Price....... 11
Dividend Policy....................... 11 500,000 SHARES
Management's Discussion and Analysis.. 12
Business.............................. 21
Management ........................... 29
Principal Shareholders................ 32
Selling Shareholder................... 33
Certain Transactions.................. 34 -----------------
Description of Securities............. 35
Indemnification ...................... 38 PROSPECTUS
Plan of Distribution.................. 39
Legal Matters......................... 41 -----------------
Experts............................... 41
Where You Can Find More
Information........................... 42
Financial Statements...................F-1
- ------------------------------------------
July 3, 2002
82
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 11 of our Articles of Incorporation includes
certain provisions permitted by the Nevada Revised Statutes,
which provides for indemnification of directors and officers
against certain liabilities. Pursuant to our Articles of
Incorporation, our officers and directors are indemnified, to the
fullest extent available under Nevada Law, against expenses
actually and reasonably incurred in connection with threatened,
pending or completed proceedings, whether civil, criminal or
administrative, to which an officer or director is, was or is
threatened to be made a party by reason of the fact that he or
she is or was one of our officers, directors, employees or
agents. We may advance expenses in connection with defending any
such proceeding, provided the indemnitee undertakes to repay any
such amounts if it is later determined that he or she was not
entitled to be indemnified by us.
Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to our directors, officers
and controlling persons pursuant to the foregoing provisions or
otherwise, we have been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in the
Securities Act and is therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We estimate that expenses in connection with this
registration statement will be as follows:
SEC registration fee $ 200
Legal fees and expenses $ 7,500
Accounting fees and expenses $ 5,000
Miscellaneous* $ 2,300
----------
Total $ 15,000
*estimate
II-1
83
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.
Date Name # of Shares Total Price
- ---- ---- ----------- ------------
June 26,2 2002 Go Company, LLC 155,000 $450,000*
* The shares were issued in lieu of cash for repayment of $450,000
advanced from Go Company in connection with the company's acquisition
of Per-Form, Inc.
II-2
84
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, 2985 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.*
10.7 Cycle Country Accessories Corp. Pension and
Profit Sharing Plan.*
II-3
85
10.8 Promissory Note dated July 24, 2000 with
Landmark Leasing. *
10.9 Promissory Note dated May 30, 1996 with
Okoboji Industries.*
10.10 Promissory Note dated August 7, 1995 with
Okoboji Industries.*
23.1 Consent of Tedder, James, Worden &
Associates, P.A. regarding Cycle Country
Accessories Corp. (a Nevada corporation)
23.2 Consent of L. Van Stillman (included in
Exhibit 5.1)
* previously filed in connection with the company's registration
statement on Form SB-2 (and amendments thereto) filed August 29,
2001 (file number 333-68570).
II-4
86
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 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-5
87
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 July 2, 2002.
CYCLE COUNTRY ACCESSORIES CORP.
By: /s/ Ron Hickman
-----------------------
Ron Hickman
Principal Executive Officer,
President and Director
In accordance with the requirements of the Securities Act of
1933, this registration statement has been signed by the following
persons in the capacities indicated on July 2, 2002.
By: /s/ Ron Hickman Principal Executive Officer, President and
-------------------- Director
Ron Hickman
By: /s/ Dave Davis Principal Financial Officer and
------------------------- Principal Accounting Officer
Dave Davis
By: /s/ Jim Danbom Director
-------------------------
Jim Danbom
By: /s/ L.G. Hancher Jr. Director
-------------------------
L.G. Hancher Jr.
By: /s/ F. L. Miller Director
-------------------------
F. L. Miller
By: /s/ Rod Simonson Director
------------------------
Rod Simonson
88