Registration No. 333-114713
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
(AMENDMENT NUMBER 1)
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
CYCLE COUNTRY ACCESSORIES CORP
(Name of Small Business Issuer in its Charter)
NEVADA 3714 42-1523809
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(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:
James G. Dodrill II, Esq.
James G. Dodrill II, P.A.
5800 Hamilton Way
Boca Raton, FL 33496
Tel. (561) 862-0529
Fax: (561) 861-0917
-----------------------
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. ( )
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. ( ).
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 issued to
certain selling
shareholder in
exchange for
preferred shares
and upon exercise
of outstanding
warrants 615,000 $5.53 $3,400,950 $431.93
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TOTAL 615,000 $3,400,950 $431.93
- ----------------------
(1) Estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457.
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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.
PROPECTUS
SUBJECT TO COMPLETION, DATED MAY 20, 2004
615,000 Shares of Common Stock
CYCLE COUNTRY ACCESSORIES CORP.
The Offering:
We are registering the resale of a total of up to 615,000 shares of our
common stock that may be acquired by the selling shareholder listed
herein in exchange for our outstanding preferred stock or upon exercise
of outstanding warrants. The shares of common stock registered under
this Prospectus may be offered by the selling shareholder, from time to
time in transactions on the open market, in negotiated transactions, or
otherwise at fixed prices or prices that may be changed, at market prices
prevailing at the time of the sale, at prices related to market prices
prevailing at the time of the sale, or at negotiated prices.
Our common stock is quoted on the American Stock Exchange. The last
sale price of our shares on April 21, 2004 was $5.53
American Stock Exchange - "ATC"
_________________________________
Investing in our stock involves risks. You should carefully
consider the Risk Factors beginning on page 8 of this prospectus.
We have not authorized anyone else to provide you with different
information. The common stock is not being offered in any state where
the offer is not permitted. You should not assume that the information
in this prospectus or any supplement is accurate as of any date other
than the date on the front of those documents.
______________________
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
_______________________
The 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 May 20, 2004
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 25
Management 35
Principal Shareholders 38
Selling Shareholder 39
Certain Transactions 40
Description of Securities 41
Indemnification 44
Plan of Distribution 45
Legal Matters 47
Experts 47
Where You Can Find More Information 48
Index to Financial Statements F-1
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 were incorporated in Iowa in 1983, reincorporated in Nevada in
2001. 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, oil filters and
oil coolers, baskets and an assortment of other ATV accessory products.
These products custom fit essentially all ATV models from Honda, Yamaha,
Kawasaki, Suzuki, Polaris, Arctic Cat and Bombardier. We design,
engineer and assemble all accessory products at our headquarters and
subcontract the manufacturer of many original equipment components.
We are recognized as a leader in the manufacturing of high quality
ATV accessory products. This reputation has enabled us to develop key,
long-term relationships with ATV manufacturers and distributors. We have
sold our products to 17 distributors in the United States for the past 22
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.
We are also 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.
Additionally, we have successfully entered into the lawn and garden
industry. 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 have identified several Cycle Country
accessories that can be used with lawn and garden tractors and utility
vehicles. We are working with several Lawn and Garden equipment
manufacturers to introduce these accessories into their product lines.
We have also designed several new accessories that are going to be
marketed only in the Lawn and Garden market. Cycle Country will
manufacture most of these products under the private label of the
manufacturer.
Our three largest customers accounted for approximately 42% of our
net sales in the year ended September 30, 2003. These three customers
have represented a significant amount of our business every year for at
least the past 17 years. While the percentage of total net sales these
customers represent should continue to 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.
For the fiscal year ended September 30, 2003, we achieved revenues
of approximately $13,900,000.
Our principal office is located at 2188 Highway 86, Milford, Iowa
51351 (Telephone (712) 338-2701, fax (712) 338-2601). Our internet
address is www.cyclecountry.com.
3
The Offering
Securities Offered We are registering the
resale of 615,000 shares
of common stock, all of
which are issuable upon
conversion of our
preferred stock or
exercise of outstanding
warrants; See
"Description of
Securities"
Common Stock Outstanding, before offering 3,956,047
Common Stock Outstanding, after offering (1) 4,571,047
American Stock Exchange Symbol ATC
Use of Proceeds We will not receive any
of the proceeds from the
sale of stock issued upon
conversion of any
preferred stock.
However, upon conversion
of all 2,000,000 shares
of the outstanding
preferred stock,
$1,905,015 of previously
restricted cash will be
made available for our
use for general corporate
purposes. We will also
receive proceeds from any
shares of common stock
issued upon the exercise
of outstanding warrants.
We may receive as much as
$160,000 from the
exercise of these
warrants and intend to
use any proceeds received
for general corporate
purposes. See "Use of
Proceeds."
Dividend Policy We do not intend to pay
dividends on our common
stock. We plan to retain
any earnings for use in
the operation of our
business and to fund
future growth.
(1) assumes the sale of all 615,000 shares we are offering.
4
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 11.
5
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 thereto.
Year ended Year ended Three months Three months
September 30, September 30, ended December ended December
2003 2002 31, 2003 31, 2002
------------- ------------- (unaudited) (unaudited)
-------------- --------------
Statement of Operations Data:
Total Revenue $13,891,993 $13,363,552 $5,643,856 $4,414,053
=========== =========== ========== ==========
Gross Profit $3,253,467 $3,495,557 $1,399,898 $1,098,780
========== ========== ========== ==========
Net Income $207,307 $308,841 $404,110 $193,280
======== ======== ======== ========
Net Income Available to
Common Stockholders $186,333 $308,841 $381,672 $193,280
======== ======== ======== ========
As of As of
September 30, December 31,
2003 2003
------------- ------------
(unaudited)
Balance Sheet Data
Cash and cash equivalents $215,551 $1,058,408
Total current assets $4,548,845 $4,898,821
Total assets $9,703,421 $10,018,629
Total current liabilities $2,356,756 $2,388,331
Total Stockholder' equity $4,103,151 $4,511,712
Total liabilities and
stockholder' equity $9,703,421 $10,018,629
6
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 11.
Investors should assume that, even if not specifically stated within
this document, if any of the following risks actually materialize, our
business, financial condition or results of future operations could be
materially and adversely affected. In 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.
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Our ability to continue and expand the sales levels that we
typically achieved in prior years is largely dependent on our ability to
successfully anticipate and respond to changing consumer demands and
trends in a timely manner. This includes introducing new or updated
products at prices acceptable to customers. Our ability to maintain
market acceptance and achieve further acceptance for our products will
depend upon our ability to:
- maintain a strong and favorable brand image;
- maintain a reputation for high quality; and
- continue to develop our network of distributors to sell
our products both domestically and internationally.
We can give you no assurance that the market for our
products will continue to develop or that large demand for these products
will be sustainable. In addition, we may incur significant costs in our
attempt to maintain or increase market acceptance for our products.
7
Our sales are highly dependent on the effectiveness of our distributor
networks.
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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.
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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 snowplows and related
products. 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.
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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.
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Our three largest customers accounted for approximately 42% of our
net sales in the year ending September 30, 2003. These three customers
have represented a significant amount of our business every year for at
least the past 17 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.
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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.
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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
8
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 lifetime warranty. Although we employ
quality control procedures, a product is sometimes distributed which
needs repair or replacement. Historically, product recalls have been
administered through our distributors and have not had a material effect
on our business. However, no assurance can be given that our 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.
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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.
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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.
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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:
9
* General economic and market conditions;
* Pricing changes in the industry;
* The amount and timing of orders from retailers;
* The timing of shipments and new product introductions;
* Manufacturing delays;
* Seasonal variations in the sale of our products;
* Product mix; and
* Pricing changes in our products.
Due to these factors, our quarterly operating results may fall below
any market expectations that may arise. If this happens, the trading
price of our common stock would likely decline, perhaps significantly.
There is no assurance of future dividends being paid.
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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.
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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.
(9) Our ability to absorb and/or pass on to our customers
increasing steel prices and surcharges occurring due to the
volatility in the steel markets now and in the future.
10
USE OF PROCEEDS
We will not receive any proceeds from the resale of the 615,000
shares of common stock being offered by our selling shareholder.
However, upon conversion of all 2,000,000 shares of the outstanding
preferred stock, $1,905,015 of previously restricted cash will be made
available for our use for general corporate purposes.
We will also receive proceeds to the extent that any of the shares
are acquired by the selling shareholder through the exercise of warrants.
We may receive up to a maximum of $160,000 from the exercise of the
warrants.
Any proceeds we receive will be used 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 615,000 shares of common stock.
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.
11
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 "Special Note Regarding Forward-Looking Statements". The following
should be read in conjunction with our Consolidated Financial Statements
and the related Notes included elsewhere in this filing.
Overview
Cycle Country Accessories Corp. (a Nevada corporation) was
incorporated in the State of Nevada on August 15, 2001 as a C
corporation. The initial capitalization consisted of 3,625,000 shares of
common 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 (see Note 10 to the Consolidated Financial Statements) entered into
with a commercial lender to purchase all of the outstanding common stock
of Cycle Country Accessories Corp. (an Iowa corporation). Additionally,
any proceeds from the sale of common stock received from the exercise of
any of the 2,000,000 outstanding warrants shall be applied to any
outstanding balance 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.
In March 2002, Jim Danbom, director, identified Perf-form Products, Inc.
as a potential acquisition. The acquisition was completed on March 11,
2002 for $462,100 in cash and 22,500 shares of the Company's common stock
for a total purchase price of approximately $528,800. Perf-form
Products manufactured, sold, and distributed 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 sales growth.
12
In June 2002, the Company identified Weekend Warrior, an acquisition
which closed in June of 2002. The purchase was made for 10,000 shares of
the Company's common stock. Weekend Warrior manufactured, sold, and
distributed a full line of heavy-duty agricultural equipment for the Lawn
and Garden and ATV industries; however, Weekend Warrior was inactive for
approximately two years preceding the acquisition. The Company's
technology and products allow many of the Weekend Warrior products to be
immediately useful in the Lawn and Garden applications.
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, spreaders, sprayers,
tillage equipment, winch mounts, utility boxes, baskets 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.
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 17 distributors in the United States for the past 23
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.
We are also 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
manufacturers and we believe that we have an excellent distribution
network that reaches the after market throughout the United States,
Europe and Asia.
Additionally, we have successfully entered into the lawn and garden
industry. 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 have identified several Cycle Country
accessories that can be used with lawn and garden tractors and utility
vehicles. We are working with several Lawn and Garden equipment
manufacturers to introduce these accessories into their product lines.
We have also designed several new accessories that are going to be
marketed only in the Lawn and Garden market. Cycle Country will
manufacture most of these products under the private label of the
manufacturer.
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its financial condition and
results of operations are based upon its Consolidated Financial
Statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The
preparation of these financial statements requires the Company to make
estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, the Company evaluates the
estimates including those related to bad debts and inventories. The
Company bases its estimates on historical experiences and on various
other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these
estimates.
13
The Company believes the following critical accounting policies
affect the more significant judgments and estimates used in the
preparation of the Consolidated Financial Statements:
Allowance for Doubtful Accounts - the Company maintains an allowance for
doubtful accounts for estimated losses resulting from the inability of
its customers to make required payments. If the financial condition of
the Company's customers were to deteriorate, resulting in an impairment
of their ability to make payments, additional allowance may be required.
Reserve for Inventory - the Company records valuation reserves on its
inventory for estimated excess and obsolete inventory equal to the
difference between the cost of inventory and the estimated market value
based upon assumptions about future product demand and market conditions.
If future product demand or market conditions are less favorable than
those projected by management, additional inventory reserves may be
required.
Depreciation of Long-Lived Assets - the Company assigns useful lives for
long-lived assets based on periodic studies of actual asset lives and the
intended use for those assets. Any change in those assets lives would be
reported in the statement of operations as soon as any change in estimate
is determined.
Accrued Warranty Costs - the Company records a liability for the
expected cost of warranty-related claims as its products are sold. The
Company provides a one-year warranty on all of its products except the
snowplow blade, which has a limited lifetime warranty. The amount of the
warranty liability accrued reflects the Company's estimate of the
expected future costs of honoring its obligations under the warranty
plan. The estimate is based on historical experiences and known current
events. If future estimates of expected costs were to be less favorable,
an increase in the amount of the warranty liability accrued may be
required.
Distributor Rebate Payable - the Company records a liability for the
expected cost of offering an annual rebate program to certain eligible
distributors. The rebate liability is calculated and recognized as
eligible ATV accessory products are sold based upon factors surrounding
the activity and prior experience of the eligible 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.
Accounting for Income Taxes - the Company is required to estimate income
taxes in each of the jurisdictions in which it operates. This process
involves estimating actual current tax exposure for the Company together
with assessing temporary differences resulting from differing treatment
of items, such as property, plant and equipment depreciation, for tax and
accounting purposes. Actual income taxes could vary from these estimates
due to future changes in income tax law or results from final tax exam
reviews. At September 30, 2003, the Company assessed the need for a
valuation allowance on its deferred tax assets. A valuation allowance is
provided when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Based upon the historical
operating profits and the near certainty regarding sufficient near term
taxable income, management believes that there is no need to establish a
valuation allowance. Should the Company determine that it would not be
able to realize all or part of its net deferred tax assets in the future,
a valuation allowance may be required.
14
Results of Operations - Year ended September 30, 2003 vs. Year ended
September 30, 2002
- ---------------------------------------------------------------------
OVERALL. Revenues for the year ended September 30, 2003 increased
$528,441, or 4%, to $13,891,993 from $13,363,552 for the year ended
September 30, 2002. Cost of goods sold increased $770,531, or 7.8%, to
$10,638,526 for the year ended September 30, 2003 from $9,867,995 for
fiscal 2002. Additionally, gross profit as a percentage of revenue was
23.4% for the year ended September 30, 2003 compared to 26.2% for fiscal
2002. The decrease in gross margin during fiscal 2003 of 2.8% is mainly
attributable to significant one-time adjustments of the cost of an
inventory sub-assembly part and to prepaid royalties, a long-lived asset,
related to our electric shift product, an increase in direct labor costs
in the Plastic Wheel Cover segment, and a decrease in the gross profit
margins of our snowplow blades, mowers, and our OEM business. Selling,
general and administrative expenses decreased $19,270, or 1%, to
$2,762,626 for the year ended September 30, 2003 from $2,781,896 for
fiscal 2002. The decrease in operating expenses is primarily a result of
reduced spending of approximately $44,000 in travel and meal expenses,
approximately $49,000 in salaries and wages, approximately $20,000 in
commissions, approximately $17,000 in show expenses, approximately
$16,000 in rent, approximately $14,000 in licenses and fees, and
approximately $14,000 in office, shipping supplies and postage. The
decreases were offset by increases of approximately $32,000 in
depreciation and amortization expense and $109,000 in professional fees.
The increase in professional fees is due to a few significant one-time
expenses the Company incurred during fiscal 2003 to strengthen and
solidify its financial position in the long term. The expenses included
an $85,000 closing fee related to the preferred stock financing agreement
completed in June, 2003, a $54,000 application and listing fee paid to
the American Stock Exchange upon approval of our stock for trading on
their Exchange, and approximately $20,000 paid in extra legal and
accounting fees related to both of these projects. While impacting
current operating income, the benefits realizable to the Company in the
long term from the successful completion of both of these projects are
significant. Non-operating income (expense) decreased $58,709, or 25.8%,
to $(168,708) for the year ended September 30, 2003, from $(227,417) for
fiscal 2002. The decrease is primarily due to a decrease of
approximately $63,000 of interest expense.
BUSINESS SEGMENTS As more fully described on page F-29, the Company
operates three reportable business segments: ATV Accessories, Plastic
Wheel Covers, and Lawn and Garden. The gross margins are vastly
different in our three reportable business segments due to the fact that
we assemble our ATV Accessories (i.e. we outsource the ironworks to our
main product supplier), we are vertically integrated in our Plastic Wheel
Cover segment, and we utilize a single-step distribution method for our
Lawn and Garden segment.
ATV ACCESSORIES Revenues for the year ended September 30, 2003
increased $518,009, or 4.5%, to $12,112,067 from $11,594,058 for the year
ended September 30, 2002. The increase is mainly attributable to
increased sales of our core products and OEM products during fiscal 2003
versus fiscal 2002 as evidenced by increased snowplow blade (our mainstay
product) sales of approximately $290,000, increased mower unit sales of
approximately $71,000, increased basket sales of approximately $109,000,
and increased sales of OEM (Original Equipment Manufacturer) products of
approximately $201,000. Management has been working closely with the
OEMs to develop products that fit their needs and enhance their products.
Sales continue to increase with current OEM customers and we are
continuing to work with new OEM customers to develop and produce products
for them. Deliveries of our snowplow blades to our distributors
continued strong throughout the third and fourth quarters as significant
late season order deliveries went well into April and significant new
season order deliveries began in late May. In fiscal 2002 deliveries for
snowplow blades ended in January and significant deliveries did not
15
resume until the fourth quarter of fiscal 2002. Sales of our mowers for
fiscal 2003 have exceeded fiscal 2002 levels as new retail price points
and redesigned components have re-established our significant share of
this market. Our new steel mesh baskets that can easily mount to any ATV
rack system and have a multitude of uses account for the increase in our
basket sales. Also contributing to the increase in revenues for fiscal
2003 were increased sales of our Perf-form premium oil filter and oil
cooler products, which we acquired during the second quarter of fiscal
2002, of approximately $170,000. Decreased sales of winches and winch
mounts of approximately $235,000 and electric lift systems of
approximately $77,000 offset some of the increases realized above.
Cost of goods sold increased $777,996, or 9.8%, to $8,711,962 for
the year ended September 30, 2003 from $7,933,966 for fiscal 2002. Gross
profit as a percent of revenues was 28.1% for fiscal 2003 compared to
31.6% for the corresponding period in 2002. The decrease in gross profit
for the year ended September 30, 2003 as compared to the corresponding
period in fiscal 2002 is primarily due to significant one-time
adjustments of the cost of an inventory sub-assembly part and to prepaid
royalties, a long-lived asset, related to our electric shift product and
a decrease in the gross profit margins of our snowplow blades, mowers,
and our OEM business. The decrease in the gross profit margin of our
snowplow blades and mowers is the result of actions taken by our
management team to address market concerns and to strengthen our position
as the leader in accessories for the ATV. A new standard snowplow blade
configuration was implemented in the first quarter of fiscal 2003 that
increases its durability, features, and use but maintains its competitive
pricing. In the fourth quarter of fiscal 2003 we realized increased
margins on our snowplow blades as planned pricing increases went into
effect at the start of the fourth quarter. OEM gross profits went down
as a larger proportion of less profitable products were sold in fiscal
2003 as compared to fiscal 2002. As additional OEM products for current
and new OEM customers enter into the sales mix, the gross margins are
expected to increase going forward. The adjustments to an inventory sub-
assembly item and the prepaid royalties asset account caused significant
additional expense to be incurred in fiscal 2003 as these two items were
determined to have values that were too high given management's
assessment of the market for the Company's electric shift product to
which both of these assets relate to.
PLASTIC WHEEL COVERS Revenues for the year ended September 30, 2003
decreased $255,562, or 12.1%, to $1,849,391 from $2,104,953 for the year
ended September 30, 2002. The decrease is attributable to changes in
current market conditions as last fiscal year golf cart OEM customers
purchased record high numbers of wheel covers while the current fiscal
year of 2003 has seen a return to normal ordering levels by our golf cart
OEM customers. Our continual research into new products and improved
processes, such as the clear coating we now utilize and the metalizing
process soon to be implemented, will allow us to continue to address the
needs of the markets our products sell in.
Cost of goods sold decreased $79,295, or 9%, to $800,911 for the
year ended September 30, 2003 from $880,206 for fiscal 2002. Gross
profit as a percent of revenue was 56.7% for the year ended September 30,
2003 compared to 58.2% for the corresponding period in fiscal 2002. The
decrease in gross profit for the year ended September 30, 2003 was
attributable to increased production staffing required to incorporate the
protective coating process. However, in the third and fourth quarters of
fiscal 2003 gross profit increased over the same periods of fiscal 2002
as improvements in production methods reduced material waste, increased
output, and reduced labor hours needed to meet production requirements.
Management expects these improved gross margins to continue.
16
GEOGRAPHIC REVENUE During fiscal 2003, revenue in the United States
increased $522,260, or 4.3%, to $12,721,018 from $12,198,758 for the year
ended September 30, 2002. Revenue from other countries increased $6,181,
or 0.5%, to $1,170,975 for fiscal 2003 from $1,164,794 for the year ended
September 30, 2002. The increase during the fiscal year 2003 in U.S.
revenue is due to a general increase across all regions previously
serviced in the United States of America. The slight increase during the
fiscal year 2003 in revenue from other countries is due to an increase of
sales in Europe that was offset by a decrease of sales in Canada.
Results of Operations - Year ended September 30, 2002 vs. Year ended
September 30, 2001
- ---------------------------------------------------------------------
OVERALL. Revenues for the year ended September 30, 2002 increased
$505,382, or 3.9%, to $13,363,552 from $12,858,170 for the year ended
September 30, 2001. Cost of goods sold increased $610,452, or 6.6%, to
$9,867,995 for the year ended September 30, 2002 from $9,257,543 for
fiscal 2001. Additionally, gross profit as a percentage of revenue was
26.2% for the year ended September 30, 2002 compared to 28.0% for fiscal
2001. The decrease in gross margin during fiscal 2002 of 1.8% is mainly
attributable to an increase in direct labor costs and material costs due
to the addition of a new coating process in the Plastic Wheel Cover
segment, which was offset by a slight increase in the ATV Accessory
segment gross margin as new sales from our Perf-form oil filter and oil
cooler products improved this margin. Selling, general and
administrative expenses increased $258,711, or 10.3%, to $2,781,896 for
the year ended September 30, 2002 from $2,523,185 for fiscal 2001. The
increase in operating expenses is primarily a result of additional
spending of approximately $56,000 in professional fees, approximately
$72,000 in advertising and promotions, approximately $21,000 in
insurance, approximately $47,000 in depreciation and amortization,
approximately $25,000 in office and shipping supplies and postage,
approximately $24,000 in wages, payroll taxes and related benefits,
approximately $14,000 in shop supplies, approximately $42,000 in
commissions, and approximately $20,000 in warranty costs coupled with a
decrease of approximately $10,000 in repairs and maintenance costs and
$77,000 in building rent. Non-operating income (expense) decreased
$268,616 to $(227,417) for the year ended September 30, 2002, from
$41,199 for fiscal 2001. The decrease is primarily due to an increase of
approximately $221,000 of interest expense, a decrease of approximately
$26,000 of interest income and approximately $32,000 decrease due to a
one-time consulting fee that was earned during fiscal 2001. These
decreases were offset by an increase of approximately $16,000 in gains on
sale of equipment and approximately $7,000 in truck lease income during
the year ended September 30, 2002.
BUSINESS SEGMENTS As more fully described on page F-29, the Company
operated two reportable business segments in fiscal 2002: 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, 2002
increased $457,667, or 4.1%, to $11,594,058 from $11,136,391 for the year
ended September 30, 2001. The increase is attributable to an increase in
unit volume of our winches and winch mounts of approximately $295,000,
electric blade lift systems of approximately $113,000, and products for
John Deere of approximately $176,000. These unit volume increases were
offset by decreases in unit volume of our snowplow blades of
approximately $95,000 and our mowers of approximately $456,000. Also
contributing to the increase in revenues for fiscal 2002 were new sales
of our Perf-form premium oil filter and oil cooler products, which we
acquired during the second quarter of fiscal 2002, of approximately
$439,000.
17
Cost of goods sold increased $32,184, or 0.4%, to $7,933,966 for the
year ended September 30, 2002 from $7,901,782 for fiscal 2001. The
slight increase is due to a change in the mix of products sold in fiscal
2002 as compared to fiscal 2001 as described above. Gross profit as a
percent of revenues was 31.6% for fiscal 2002 compared to 29.0% for the
corresponding period in 2001. The increase in gross profit for the year
ended September 30, 2002 was attributable to the increase in new sales of
our Perf-form products which have a higher margin and ironwork material
costs which were generally held to fiscal 2001 costs or slightly reduced
on a majority of our ATV Accessory products for fiscal 2002.
PLASTIC WHEEL COVERS Revenues for the year ended September 30, 2002
increased $120,947, or 6.1%, to $2,104,953 from $1,984,006 for the year
ended September 30, 2001. The increase in revenue was attributable to
changes in current market conditions as sales to Original Equipment
Manufacturers increased significantly in fiscal 2002. Another factor
that contributed to the increase was the implementation of a new coating
method, similar to the coating method used for automotive paint, which
improves the wheel cover's durability and useful life. For fiscal 2003
our planned new product introductions and improvements will continue to
address the needs of this market.
Cost of goods sold increased $236,181, or 36.7%, to $880,206 for the
year ended September 30, 2002 from $644,025 for fiscal 2001. Gross
profit as a percent of revenue was 58.2% for the year ended September 30,
2002 compared to 67.5% for the corresponding period in fiscal 2001. The
decrease in gross profit for the year ended September 30, 2002 was
attributable to increases in production labor and the implementation of
the new protective coating process as described above.
GEOGRAPHIC REVENUE During fiscal 2002, revenue in the United States
increased $177,566, or 1.5%, to $12,198,758 from $12,021,192 for the year
ended September 30, 2001. Revenue from other countries increased
$327,816, or 39.2%, to $1,164,794 from $836,978 for the year ended
September 30, 2001. The increase during the fiscal year 2002 in U.S.
revenue is due to a general increase across all regions previously
serviced in the United States of America. The increase during the fiscal
year 2002 in revenue from other countries is due to an increase of sales
in Canada and Europe.
OVERALL - Three Months Ended December 31, 2003 and 2002
- -------------------------------------------------------
Revenues for the three months ended December 31, 2003 increased
$1,229,803, or 27.9%, to $5,643,856 from $4,414,053 for the three months
ended December 31, 2002. Cost of goods sold increased $928,685, or
28.0%, to $4,243,958 for the three months ended December 31, 2003 from
$3,315,273 for the three months ended December 31, 2002. Additionally,
gross profit as a percentage of revenue was 24.8% for the first quarter
ended December 31, 2003 compared to 24.9% for the first quarter ended
December 31, 2002. The increase in revenues during the first quarter
ended December 31, 2003 is mainly attributable to an increase in sales of
our mainstay product, snowplow blades of approximately $1,041,000. Also
contributing to the increased revenues were increases in our OEM product
sales of approximately $138,000, which consists of sales to John Deere,
Land Pride and our other OEM customers, increased sales of our Weekend
Warrior lawn and garden products of approximately $102,000, increased
sales of our three-point hitch systems of approximately $39,000, and
increased sales of our rack mounted cargo boxes and wire mesh baskets of
approximately $37,000. These increases in sales were offset by decreased
sales of our plastic wheel covers of approximately $33,000 and an
increase in the distributor rebate program expense, which is netted
against sales, of approximately $68,000. The increase in revenues can be
18
attributed to increased sales among all United States distributors.
Sales to our United States distributors during the first quarter of
fiscal 2004 were very strong, providing us with one of the best first
quarters in recent Company history. The Company's second quarter is
shaping up to also produce strong sales results as orders from our U.S.
distributors continue to be strong as truckload deliveries are scheduled
through the last week in February 2004, and shipments of OEM products are
also scheduled to increase. Gross profit remained constant as gross
profit was 24.8% for the three months ended December 31, 2003 compared to
24.9% for the three months ended December 31, 2002.
Selling, general, and administrative expenses decreased $10,173, or
1.4%, to $733,027 for the three months ended December 31, 2003 from
$743,200 for the three months ended December 31, 2002. Decreases in
operating expenses were approximately $35,800 in advertising and
approximately $22,500 in research and development costs. These decreases
were offset by increases in licenses and fees of approximately $12,900,
in fuel and fuel taxes of approximately $15,400, and in commissions
expense of approximately $12,000.
Interest and miscellaneous income increased approximately $2,000
from the first quarter of fiscal 2003 to the first quarter of fiscal
2004. The increase is primarily due to an increase in interest income
earned during the first three months of fiscal 2003 versus the first
three months of fiscal 2002. Interest expense decreased approximately
$16,100 to $43,552 for the three months ended December 31, 2003 from
$59,658 for the three months ended December 31, 2002. Interest expense
over the remaining quarters of fiscal 2003 should remain constant or
decline slightly as the principal balance is continually reduced on the
bank notes and interest rates remain relatively stable.
We anticipate that our revenues for each of the remaining quarters
of fiscal 2004 will exceed the actual results of fiscal 2003. We also
anticipate that each quarter's net income will improve over the same
respective quarter of fiscal 2003 as management's continuous efforts to
address seasonality issues, expand into new markets, increase products
produced for OEM's, and strengthen the market-leading positions of our
current products continue to provide financial results. Our introduction
of new OEM products and continued strong sales of our mainstay winter
products, combined with orders for our Rough Cut and Quicksilver mowers
that has production quantities scheduled to be one of the largest in
recent company history, will account for a majority of the improved
quarterly fiscal 2004 revenue levels. Weekend Warrior and Perf-form will
also continue to provide the company opportunities for strong sales and
profits in quarters that traditionally have been weak due to the
seasonality of the ATV accessories market. We are continually addressing
the seasonality of the ATV accessories market with our increased sales
and marketing efforts to our existing distributors, our focus on new
distributors in untapped geographic locations, and continuing to expand
our presence in new markets, such as lawn and garden. We foresee
selling, general and administrative expenses remaining relatively
consistent as a percentage of revenues during the remainder of fiscal
2004 as we maintain our increased usage of existing manufacturing
capacity of our operating facility from increased production of new and
existing products while maintaining a consistent level of administrative
support.
BUSINESS SEGMENTS
- -----------------
As more fully described on page F-38, the Company operates three
reportable business segments: ATV Accessories, Plastic Wheel Covers, and
Lawn and Garden. The gross margins are vastly different in our three
19
reportable business segments due to the fact that we assemble our ATV
accessories (i.e. we outsource the ironworks to our main product
supplier), we are vertically integrated in our Plastic Wheel Cover
segment, and we utilize a single-step distribution method for our Lawn
and Garden segment.
ATV ACCESSORIES - Three Months Ended December 31, 2003 and 2002
- ---------------------------------------------------------------
Revenues for the three months ended December 31, 2003 increased
$1,217,890, or 29.8%, to $5,301,118 from $4,083,228 for the three months
ended December 31, 2002. The increase is mainly attributable to an
increase in sales of our snowplow blades, OEM products, and three-point
hitch systems as discussed above (See OVERALL RESULTS OF OPERATIONS).
Cost of goods sold for the three months ended December 31, 2003
increased $892,198, or 31.2%, to $3,752,491 from $2,860,293 for the three
months ended December 31, 2002. Gross profit as a percent of revenues
was 29.2% for the three months ended December 31, 2003 compared to 30.0%
for the three months ended December 31, 2002. The decrease in gross
profit for the three months ended December 31, 2003 as compared to the
corresponding period in fiscal 2003 was mainly attributable to a slight
increase in material and direct labor costs relative to the prior fiscal
year in our snowplow blades as the extremely high demand for our snowplow
blades caused us to maximize current vendors' capacities and utilize
additional vendors for our steel fabrication and raw material needs and
incur the extra expense of overtime put in by our production employees.
Projecting that the high demand for our snowplow blades and other winter
products will continue in the years ahead, management has entered into
discussions with its primary vendors to implement year-round production
of snowplow blades to build an inventory level adequate enough to fulfill
orders during the peak winter product season without incurring the added
expenses of labor overtime and alternate source vendors. Year-round
production of our snowplow blades will also allow us to more efficiently
incorporate and plan production time and resources for OEM products as we
see this market continuing to expand and requiring more of our production
capacity year-round as well.
PLASTIC WHEEL COVERS - Three Months Ended December 31, 2003 and 2002
- --------------------------------------------------------------------
Revenues for the three months ended December 31, 2003 decreased
$33,034, or 7.2%, to $424,957 from $457,991 for the three months ended
December 31, 2002. The decrease is attributable to changes in current
market conditions as the first quarter of fiscal year 2003 saw golf cart
distributors and dealers purchasing higher numbers of wheel covers than
during the first quarter of fiscal 2004. The decrease in sales to golf
cart distributors and dealers was offset somewhat by sales to OEM golf
cart customers that increased during the first quarter of fiscal 2004 as
compared to the first quarter of fiscal 2003. We believe sales will
increase during the second and third quarters of fiscal 2004 as these
quarters are traditionally the prime quarters for the golf industry.
Management is working to expand the application and use of its wheel
covers beyond the golf markets by working with various OEM's in varying
markets to fill a specialized need and to re-establish the Company as a
source for quality plastic injection molded products. The initial
results of these efforts should be realized during the 3rd and 4th quarters
of fiscal 2004.
Cost of goods sold for the three months ended December 31, 2003
increased $8,085, or 4.2%, to $200,365 from $192,280 for the three months
ended December 31, 2002. Gross profit as a percent of revenue was 52.9%
for the three months ended December 31, 2003 compared to 58.0% for the
three months ended December 31, 2002. The decrease in gross profit
during the three months ended December 31, 2003 as compared to the three
months ended December 31, 2002 was attributable to increased material
costs as raw plastic costs increased 6% from the first quarter of fiscal
20
2003 to the first quarter of fiscal 2004 and the amount of clear coat
compound applied to each wheel was increased to meet higher durability
standards set by management. Offsetting some of the increase in material
costs was a reduction in direct labor incurred for the three months ended
December 31, 2003 compared to the same three months ended December 31,
2002 as procedures for the clear coating process became set and changes
to other labor-related procedures increased efficiency.
LAWN AND GARDEN - Three Months Ended December 31, 2003 and 2002
- ---------------------------------------------------------------
This is a new business segment created during fiscal 2003 by
management to monitor and manage the expansion of our products into the
lawn and garden industry. This segment contains our Weekend Warrior
products which feature pull-behind and 3-point implements designed and
built for garden tractors and ATVs. As growth in the lawn and garden
industry continues, this will allow the Company to address the
seasonality of our ATV accessory products by providing sales in quarters
traditionally slow in our main ATV Accessories business segment.
Revenues for the three months ended December 31, 2003 were $102,410
against cost of goods sold of $61,314. Gross profit as a percent of
revenue was 40.1% for the three months ended December 31, 2003. As this
is a new business segment created in the second quarter of fiscal 2003,
there was no activity in the first quarter of fiscal 2003 to compare
first quarter fiscal 2004 results to.
GEOGRAPHIC REVENUE - Three Months Ended December 31, 2003 and 2002
- ------------------------------------------------------------------
During the three months ended December 31, 2003, revenue in the
United States of America increased $1,132,939, or 27.8%, to $5,203,737
from $4,070,798 for the three months ended December 31, 2002. Revenue
from other countries increased $96,864, or 28.2%, to $440,119 for the
three months ended December 31, 2003 from $343,255 for the three months
ended December 31, 2002. The increase during the three months ended
December 31, 2003 in U.S. revenue is due to a general increase across all
regions previously serviced in the United States of America and in other
countries is due to an increase of sales in Europe and Asia.
Liquidity and Capital Resources
- -------------------------------
Our primary source of liquidity has been cash generated by our
operations and borrowings under our bank line of credit.
At December 31, 2003, we had $1,058,408 in cash and cash
equivalents, compared to $215,551 at September 30, 2003. Until required
for operations, our policy is to invest any excess cash reserves in bank
deposits, money market funds, and certificates of deposit. Net working
capital was $2,510,490 at December 31, 2003 compared to $2,192,089 at
September 30, 2003. The change in working capital is primarily due to
the following: inventories decreased by $360,936, or 11.9%, to $2,663,797
at December 31, 2003 from $3,024,733 at September 30, 2003, prepaid
expenses decreased by $51,356, or 77.7%, to $14,749 at December 31, 2003
from $66,105 at September 30, 2003, accrued expenses increased by
$315,313, or 76.9%, to $725,178 at December 31, 2003 from $409,865 at
September 30, 2003, accounts payable decreased by $105,615, or 10.1%, to
$936,431 at December 31, 2003 from $1,042,046 at September 30, 2003, and
the bank line of credit decreased $420,000, or 100%, to $-0- at December
31, 2003 from $420,000 at September 30, 2003.
On June 25, 2003, the Company and its commercial lender amended the
original secured credit agreement dated August 21, 2001. Under the terms
of the amended secured credit agreement, the Company entered into a note
21
payable for $1,500,000 ("Note One") and a second note payable for
$2,250,000 ("Note Two") with the commercial lender, replacing the single,
original note entered into under the original secured credit agreement.
The Notes are collateralized by all of the Company's assets, are payable
in monthly installments from July 2003 until June 2018 for Note One and
until June 2008 for Note Two, which include principal and interest at
prime + 0.25% (4.5% at December 31, 2003) for Note One and principal and
interest at prime + 0.625% (4.625% at December 31, 2003) for Note Two,
with a final payment upon maturity on June 25, 2018 for Note One and June
25, 2008 for Note Two. The variable interest rate can never exceed 9.5%
or be lower than 4.5% for Note One and can never exceed 8.5% or be lower
than 4.5% for Note Two. The monthly payment is $11,473 and $42,324 for
Note One and Note Two, respectively, 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 Notes or the Line of
Credit described below. At December 31, 2003, $1,465,416 and $2,047,466
for Note One and Note Two, respectively, were outstanding on the Notes.
At December 31, 2002, $3,385,589 was outstanding on the Note entered into
under the original secured credit agreement.
Under the terms of the amended secured credit agreement noted above,
the Company has a Line of Credit for the lesser of $1,000,000 or 80% of
eligible accounts receivable and 35% of eligible inventory. The original
secured credit agreement noted above had a line of credit for the lesser
of $500,000 or 80% of eligible accounts receivable and 35% of eligible
inventory. In the fourth quarter of fiscal 2002, the Line of Credit
under the original secured credit agreement was increased to the lesser
of $1,000,000 or 80% of eligible accounts receivable and 35% of eligible
inventory. The Line of Credit bears interest at prime plus 0.75% (4.75%
at December 31, 2003) and is collateralized by all of the Company's
assets. The variable interest rate can never exceed 7% or be lower than
4.75%. The Line of Credit matures on December 31, 2004. At December 31,
2003 and 2002, $-0- and $420,000, respectively, was outstanding on the
Line of Credit.
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 except as may be required by the preferred shares
issued in June of 2003 and discussed below. At December 31, 2003, the
Company met all of the required financial ratios.
On June 11, 2003, the Company entered into and closed upon a
financing agreement whereby the Company's newly authorized preferred
stock was issued in exchange for restricted cash. The restricted cash
will be made available to the Company for use for general corporate
purposes upon the conversion of the preferred stock or with prior written
approval of the preferred stockholder (which cannot be unreasonably
withheld). The preferred stock is convertible into the Company's common
shares based on an annually set conversion price computed as the average
of the five lowest closing prices of the common stock for the twenty-two
trading days prior to each anniversary date. Upon an event of default,
the preferred stock investment may be reclassified as a debt obligation
of the Company. This new series of preferred stock is cumulative and
convertible with dividends computed on a simple interest per annum basis
using the current prime interest rate plus 0.5% (4.5% at December 31,
2003) and are to be paid prior to any dividends being paid or declared on
the Company's common stock. The Company has 2,000,000 shares of $0.0001
par value preferred stock authorized and 2,000,000 shares issued and
outstanding at December 31, 2003.
22
Consistent with normal practice, management believes that the
Company's operations are not expected to require significant capital
expenditures during fiscal year 2004. Management believes that existing
cash balances, cash flow to be generated from operating activities and
available borrowing capacity under its line of credit agreement will be
sufficient to fund operations, and capital expenditure requirements for
at least the next twelve months. At this time management is not aware of
any factors that would have a materially adverse impact on cash flow
during this period.
Special Note Regarding Forward-Looking Statements
- -------------------------------------------------
The Private Securities Litigation Reform Act of 1995 (the "Reform
Act") provides a safe harbor for forward-looking statements made by or on
behalf of the Company. The Company and its representatives may, from
time to time, make written or verbal forward-looking statements,
including statements contained in the Company's filings with the
Securities and Exchange Commission and in its reports to Shareholder.
Generally, the inclusion of the words "believe", "expect", "intend",
"estimate", "anticipate", "will", and similar expressions identify
statements that constitute "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934 and that are intended to come within
the safe harbor protection provided by those sections.
All statements addressing operating performance, events, or
developments that the Company expects or anticipates will occur in the
future, including statements relating to sales growth, earnings or
earnings per share growth, and market share, as well as statements
expressing optimism or pessimism about future operating results (in
particular, statements under Part II, Item 6, Management's Discussion and
Analysis of Financial Condition and Results of Operations), contain
forward-looking statements within the meaning of the Reform Act. The
forward-looking statements are and will be based upon management's then-
current views and assumptions regarding future events and operating
performance, and are applicable only as of the dates of such statements
but there can be no assurance that the statement of expectation or belief
will result or be achieved or accomplished. In addition, the Company
undertakes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events, or
otherwise.
By their nature, all forward-looking statements involve risk and
uncertainties. Actual results may differ materially from those
contemplated by the forward-looking statements for a number of reasons,
including but not limited: competitive prices pressures at both the
wholesale and retail levels, changes in market demand, changing interest
rates, adverse weather conditions that reduce sales at distributors, the
risk of assembly and manufacturing plant shutdowns due to storms or other
factors, the impact of marketing and cost-management programs, and
general economic, financial and business conditions.
Recent Accounting Pronouncements
- --------------------------------
In May 2003, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity", ("FAS 150"). FAS 150
clarifies the accounting for certain financial instruments with
characteristics of both liabilities and equity and requires that those
instruments be classified as liabilities in statements of financial
position. Previously, many of those financial instruments were
classified as equity. FAS 150 is effective for financial instruments
entered into or modified after May 31, 2003 and otherwise is effective at
23
the beginning of the first interim period beginning after June 15, 2003.
As we did not have any of these financial instruments, the adoption of
FAS 150 did not have an impact on our consolidated financial statements.
In January 2003, the FASB issued FIN No. 46, "Consolidation of
Variable Interest Entities", ("FIN 46"). FIN 46 clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," to certain entities in which equity investors do
not have the characteristics of a controlling financial interest or do
not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. FIN 46 applies immediately to variable interest entities
(VIE's) created after January 31, 2003, and to variable interest entities
in which an enterprise obtains an interest after that date. It applies
in the first fiscal year or interim period beginning after June 15, 2003,
to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003.
The Company has not identified any VIE's for which it is the primary
beneficiary or has significant involvement.
In December 2003, the FASB issued FIN No. 46 (revised December
2003), "Consolidation of Variable Interest Entities" ("FIN 46-R") to
address certain FIN 46 implementation issues. The effective dates and
impact of FIN 46 and FIN 46-R are as follows:
(i) For special purpose entities (SPE's) created prior to February 1,
2003, the Company must apply either the provisions of FIN 46 or early
adopt the provisions of FIN 46-R at the end of the first interim or
annual reporting period ending after December 15, 2003.
(ii) For non-SPE's created prior to February 1, 2003, the Company is
required to adopt FIN 46-R at the end of the first interim or annual
reporting period ending after March 15, 2004.
(iii) For all entities, regardless of whether a SPE, that were
created subsequent to January 31, 2003, the provisions of FIN 46 were
applicable for variable interests in entities obtained after January
31, 2003. The Company is required to adopt FIN 46-R at the end of the
first interim or annual reporting period ending after March 31, 2004.
The adoption of the provisions applicable to SPE's and all other
variable interests obtained after January 31, 2003 did not have a
material impact on the Company's consolidated financial statements. The
Company is currently evaluating the impact of adopting FIN 46-R
applicable to non-SPE's created prior to February 1, 2003, but does not
expect a material impact.
In December 2003, the Staff of the Securities and Exchange
Commission ("SEC" or "the Staff") issued Staff Accounting Bulletin
("SAB") 104, Revenue Recognition, which superseded SAB 101, Revenue
Recognition in Financial Statements. SAB 104's primary purpose is to
rescind accounting guidance in SAB 101 related to multiple element
revenue arrangements, superseded as a result of the issuance of Emerging
Issues Task Force Issue 00-21, Accounting for Revenue Arrangements with
Multiple Deliverables which was effective for revenue arrangements
entered into in fiscal periods beginning after June 15, 2003. The
provisions of SAB 104 did not have a material impact on our consolidated
financial statements.
24
BUSINESS
GENERAL
Cycle Country Accessories Corp. (a Nevada corporation) 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) 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. In addition, on August 14, 2001, Cycle
Country Accessories Corp. (an Iowa corporation) 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 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, oil filters and oil
coolers, baskets and an assortment of other ATV accessory products.
These products custom fit essentially all ATV models from Honda, Yamaha,
Kawasaki, Suzuki, Polaris, Arctic Cat and Bombardier. We design,
engineer and assemble all accessory products at our headquarters and
subcontract the manufacturer of many original equipment components.
We are recognized as a leader in the manufacturing of high quality
ATV accessory products. This reputation has enabled us to develop key,
long-term relationships with ATV manufacturers and distributors. We have
sold our products to 17 distributors in the United States for the past 23
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.
We are also 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.
Additionally, we have successfully entered into the lawn and garden
industry. 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 have identified several Cycle Country
accessories that can be used with lawn and garden tractors and utility
vehicles. We are working with several Lawn and Garden equipment
manufacturers to introduce these accessories into their product lines.
We have also designed several new accessories that are going to be
marketed only in the Lawn and Garden market. Cycle Country will
manufacture most of these products under the private label of the
manufacturer.
Our three largest customers accounted for approximately 42% of our
net sales in the year ended September 30, 2003. These three customers
have represented a significant amount of our business every year for at
least the past 17 years. While the percentage of total net sales these
customers represent should continue to 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.
25
INDUSTRY OVERVIEW
ATV Accessories:
In today's ATV market there are several OEM's competing for market
share. Honda has been the world leader followed by Polaris, Yamaha,
Kawasaki, Suzuki, Arctic Cat and Bombardier. According to the Motorcycle
Industry Council, in 2002 there were 929,000 ATV's sold worldwide. This
represented a 7.1% increase over 2001. In 2000, ATV Magazine reported
that of the 800,000 units sold in that year 75% were Utility and 40% were
Sport Quads. We consider the Utility Division to be our target 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.
Lawn and Garden:
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 have identified several Cycle Country
accessories that can be used with lawn and garden tractors and utility
vehicles. We are working with several Lawn and Garden equipment
manufacturers to introduce these accessories into their product lines.
We have also designed several new accessories that are going to be
marketed only in the Lawn and Garden market. Cycle Country will
manufacture most of these products under the private label of the
manufacturer. We anticipate that 5% of our sales will be derived from
the lawn and garden industry in the next year and will increase to 10% of
sales over the next couple of years.
COMPANY HISTORY
Cycle Country's market research has been a continued work in process
for the past 22 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 2002, approximately 929,000 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.
26
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 snowplow 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, plastic cargo boxes,
steel mesh baskets, a rear hitch, and a very unique 5th wheel trailer.
Over the last several years, we have expanded into manufacturing
injected molded wheel covers primarily for the golf car industry. We are
now crossing over into the lawn & garden industry with some current
products as well as creating new items specifically for that industry.
Our acquisition last year of Weekend Warrior, with its garden utility
attachments, has provided us with new products and new markets within the
lawn and garden industry that will allow us to accelerate our growth in
this industry. Another acquisition last year, Perf-form, Inc., has
provided the Company with a new line of premium oil filters and oil
cooler products that fit very well into our current marketing and
distribution channels and provides us the opportunity to expand into the
motorcycle 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 snowplow blades, 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, 2003, which
approximates 80% of total company segment sales: (a) Blades: 63%, (b)
Winches and Winch Mounting Kits: 6%, (c) Mowers: 5%, (d) Tillage
Equipment: 2%, (e) Sprayers: 3%, (f) Spreaders: 1%. "Other" products
comprise the remaining 20% of our sales and comprises some of the
following: OEM products (including John Deere and Land Pride): 9%, Perf-
form oil filters and oil coolers: 5%, electric blade lift system: 2%,
trailers: 2%, plastic cargo boxes and steel mesh baskets: 2%.
27
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 52" and 60" State Plows, a
Power "Vee" blade and a 48" and 60" plastic blade. Our standard blade
configuration features a universal manual lift or a universal electric
lift. The blades can also be lifted with a winch. All of our blades
come standard with heavy-duty skids, heavy-duty trip springs, and a
limited lifetime warranty.
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.
Both mowers are also available with Honda engines.
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. We have two three-point hitch models, one meets
engineering standards for category zero hitches and the other meets
engineering standards for category one 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, cargo boxes,
28
steel mesh baskets, and bed lift kits for select utility vehicles.
Through acquisitions last year we have added a branded product line to
our ATV accessories segment, Perf-form Products, a line of premium oil
filters and oil coolers for motorcycles and ATVs. The Perf-form
products have performed well this past year and we believe there still is
great growth potential to be realized.
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 13% 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 and
metalized options.
Lawn and Garden
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 have identified several Cycle Country
accessories that can be used with lawn and garden tractors and utility
vehicles. We are working with several Lawn and Garden equipment
manufacturers to introduce these accessories into their product lines.
We have also designed several new accessories that are going to be
marketed only in the Lawn and Garden market. Additionally, through
acquisitions last year we have added a branded product line to our lawn
and garden segment, Weekend Warrior, a line of heavy-duty garden utility
attachments for ATVs and tractors that has allowed us to accelerate our
introductions into this market and expand our product offerings. We are
pursuing retail outlets as markets for our lawn and garden products as
well. We believe that this market will represent significant sales
increases each year for the next three years. This segment represents
approximately 2% of our total segment sales. Products include a 64"
tandem disc, 60" cultivator, and three-point tillage equipment.
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 four 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.
New products introduced in 2003 included: a redesigned 5th wheel
trailer, an all-metalized turbine wheel cover, and a variety of private
label blades, racks, brush guards, winch mounts, and bed lifts for lawn
and garden and utility vehicle original equipment manufacturers (OEM's),
such as John Deere and Land Pride. New products introduced in 2002
included: front and rear steel mesh baskets, a rear drop steel mesh
basket, the Rester and Relaxer plastic cargo boxes with a back rest and
full seat, respectively, the Hovel cab enclosure, heated hand grips, a
category one three-point hitch, and a 2000 pound winch.
There are no products presently being developed that will require a
material investment of our resources.
29
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, the 5th wheel trailer, Perf-form oil filter, and
the Weekend Warrior universal tow frame.
SUPPLIERS
During the year ended September 30, 2003, we purchased approximately
$5,113,000 of goods from Simonsen Iron Works, Inc., our largest supplier
who does the majority of our ironworks. This represented approximately
58% of our raw goods purchases during that year. Our relationship with
Simonsen Iron Works has been a key to the success of our Company as
working with this vendor allows us to maintain the highest quality parts
at the most economical cost. While we anticipate this vendor will
continue to supply a majority of our ironwork, we recognize the need to
reduce the possibility of any adverse consequence of this concentration
so over the past three years we have begun using additional suppliers
where practical.
MARKETING - CHANNELS OF DISTRIBUTION:
ATV Accessories:
Domestic Distribution
We distribute our products domestically through 17 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 during fiscal 2003.
During the year ended September 30, 2003, domestic accessory sales
represent approximately 90% of our total ATV Accessory sales. For 2003,
our largest distributor accounted for 24% of our domestic accessory sales
and our five largest distributors accounted for 74% of our domestic
accessory sales.
In cooperation with John Deere and Land Pride, we have developed
several products that are now being sold as accessories for John Deere
lawn and garden equipment and Land Pride utility vehicles. We intend to
expand our associations with John Deere and Land Pride in the future as
well as to seek new opportunities with other similar OEM's.
International Distribution
We distribute our products internationally through 19 distributors
that sell our products in 35 countries. This department is in its 8th
year of existence and has provided us with a profitable expansion of the
30
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 10% 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 OEM's 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.
Lawn and Garden:
We market our lawn and garden accessories mainly by working with
lawn and garden equipment and utility vehicle equipment manufacturers to
introduce our accessories into their product lines. We also, through our
Weekend Warrior products, sell to national retail outlets and lawn and
garden dealers. As this segment is a fairly new market for us we will
continue to pursue opportunities with OEM's and direct-to-market
distribution opportunities.
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.
31
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.
Lawn and Garden
We utilize a sales force of three people to market our lawn and
garden products. Our primary method of penetrating the market of OEM's
is to make direct contact with potential manufacturers or to follow up on
leads brought to us through our advertising or current OEM customers.
Our sales force also contacts national, regional, and local retail
outlets.
Each year we produce a catalog of our entire product line and make a
new video that demonstrates the applicability of our products. Our
retail outlet customers are allowed unlimited quantities of these sales
tools.
Our sales people exhibit at several regional and national trade
shows each year. They also travel to each OEM or retail outlet customer
to demonstrate our products and address concerns that may arise.
Advertising
We advertise our ATV and lawn and garden accessories in national
trade magazines, professionally developed videos, annual catalog,
magazine and television advertising campaigns. Additionally we have
three Internet sites located at: www.cyclecountry.com , www.Perf-form.com,
and www.weekend-warrior.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 hubcap
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.
32
EMPLOYEES
As of March 31, 2004, we have 70 full-time employees, including 45
in production, 5 in sales, 4 in administration, 8 general office, 5 in
research and development and 3 drivers. We presently have no labor union
contract between any union and us and we do not anticipate unionization
of our personnel in the foreseeable future. We believe our relationship
with our employees is good. From time to time, we hire part time
employees, ranging from a minimum of 1 to a maximum of 6.
DESCRIPTION OF PROPERTY
Our principal office facility is a modern 106,000 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 51,000 square foot building expansion. We
own this facility and it is used as collateral for our loan with the
commercial lender. In February of 2003, construction was completed on a
28,000 square foot building expansion that added needed floor space for
our production areas and warehousing needs. The Company relocated the
Perf-form operations to the Milford facility in March of 2003.
LEGAL PROCEEDINGS
At times we are involved in lawsuits in the ordinary course of
business. These lawsuits primarily involve claims for damages arising out
of the use of our products. As of the date of this filing, we are not a
party to any material legal proceedings. We currently carry two million
dollars of product liability insurance.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND/FINANCIAL
DISCLOSURE.
(a) Dismissal of Independent Accountant.
(i) On January 16, 2004, the Board of Directors of Cycle Country
Accessories Corp. (the "Company") unanimously dismissed Tedder, James,
Worden & Associates, P.A. ("Tedder") as the Company's independent
accountant.
(ii) The reports of Tedder regarding the Company's financial
statements for the fiscal years ended September 30, 2003, 2002 and 2001
did not contain any adverse opinion or disclaimer of opinion and were not
modified as to uncertainty, audit scope or accounting principles.
(iii) In connection with Tedder's audits of the Company for the
fiscal years ended September 30, 2003, 2002 and 2001, and during the
period from September 30, 2003 through January 19, 2004 there were no
disagreements with Tedder on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or
procedure, that, if not resolved to the satisfaction of Tedder, would
have caused it to make reference thereto in its reports regarding the
Company's financial statements for such years.
33
(iv) The Company has requested that Tedder furnish it with a letter
addressed to the Securities and Exchange Commission stating whether it
agrees with the above statements and, if it does not agree, the respects
in which it does not agree. A copy of such letter, dated January 22,
2004, is filed as Exhibit 16 to the Form 8-K dated January 22, 2004.
(b) Engagement of Independent Accountant.
(i) On January 16, 2004, the Board of Directors of the Company
engaged Henjes, Conner, Williams, and Grimsley, L.L.P ("Henjes") as its
independent accountant.
(ii) During the fiscal years ended September 30, 2003, 2002 and
2001, and during the subsequent interim period prior to such engagement,
the Company did not consult Henjes regarding the application of
accounting principles to a specific completed or contemplated transaction
or regarding the type of audit opinion that might be rendered by Henjes
on the Company's financial statements, and Henjes did not provide any
written or oral advice that was an important factor considered by the
Company in reaching a decision as to any such accounting, auditing or
financial reporting issue.
We have had no disagreements with our accountants on accounting and
financial disclosure.
34
MANAGEMENT
Directors and Executive Officers
Our directors, executive officers and key employees are as follows:
Name Age Position Director Since
- ------------------------------------------------------------------------------
Ron Hickman 53 Chief Executive Officer, 2001
President and Director
Dave Davis 38 Chief Financial Officer -
Marie Matthiesen 41 Vice President of -
Manufacturing
F.L. (Skip) Miller 63 Director 2001
Jim Danbom 60 Director 2001
L.G. (Bob) Hancher Jr. 50 Director 2001
Rod Simonson 48 Director 2001
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
F.L. Skip Miller was President of Armstrong Wheels from 1970 until 1998.
Then in 1999 from his Chief Executive Officer position, Mr. Miller
consummated the company's highly lucrative buy-out from the international
conglomerate GKN Wheels. The selling of Armstrong Wheels for an
impressive premium price was largely based on his ability to build the
company with consistent double-digit annual growth. Mr. Miller
participates on the Audit and Operations committees of the board. Mr.
Miller is currently serving a three-year term, which will end in 2006.
Jim Danbom was our founder and served as our president from 1981 to 2001.
Mr. Danbom will lead the Operations and Planning committees of the board.
He has successfully created numerous businesses in his 26 year career.
Having successfully created our products at Cycle Country, Mr. Danbom
will now focus on acquisitions and new product development while serving
on the Operations and Planning committees. Mr. Danbom is currently
serving a three-year term, which will end in 2006.
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 participates on the
Planning and Audit committees of the board. Mr. Hancher is currently
serving a three-year term, which will end in 2006
Rod Simonson became a franchisee for Piccadilly Circus Pizza, Inc. in
1980 by owning and operating 1 of the 5 restaurants under the company's
umbrella. Shortly thereafter, Mr. Simonson purchased the parent company
and became President of Piccadilly. By 1987, the company became Land Mark
35
Products, Inc., the licensing company for Piccadilly Circus Pizza. Under
his leadership, the company evolved from several sit-down pizzerias to a
complete turnkey operational partner in convenience stores, malls,
hotels, amusement parks and video stores. Today, there are over 800
locations primarily in convenience stores throughout 42 states in the
Continental U.S. Mr. Simonson is serving on the Planning and Audit
committees of the board. Mr. Simonson is currently serving a three-year
term, which will end in 2006.
Ron Hickman, who became our President on August 1, 2001, has been a CPA
for 27 years, and was our accountant from our inception until he took a
position as General Manager for us in 1996. Mr. Hickman is on the
Operations and Planning committees of the company. Mr. Hickman is
currently serving a three-year term, which will end in 2006.
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
executives as follows:
We entered into an employment agreement with Ron Hickman, our
President, effective August 1, 2001 for a period of five years under
which we have hired him to continue as our President. The agreement
calls for Mr. Hickman to receive an annual income of $150,000 per year
plus a bonus equal to three percent (3%) of our net income before taxes.
The agreement also provides for Mr. Hickman to receive standard benefits
such as health insurance coverage, sick and vacation time and use of an
automobile.
We entered into an employment agreement with Jim Danbom, our former
President, effective August 1, 2001 for a period of a minimum of three
years under which we have hired him to continue as a consultant on an "as
needed" basis. The agreement calls for Mr. Danbom to receive an annual
income of $75,000 per year and to receive standard benefits such as
health insurance coverage, sick and vacation time and use of an
automobile.
Summary Compensation Table
The following table sets forth the total compensation paid to or
accrued for the fiscal years ended September 30, 2003, 2002, and 2001 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
Other Restricted Securities All
Name and Fiscal Annual Stock Underlying LTIP Other
Principal Position Year Salary Bonus Compensation Awards Options Payouts Compensation
- ---------------------------------------------------------------------------------------------------------------------
Ronald Hickman,
President 2003 150,000 12,772 500<F1> 0 0 0 7,106<F6>
2002 150,000 15,000 500<F1> 0 0 0 7,476<F3>
2001 104,808 30,000 500<F1> 0 0 0 6,469<F2>
Jim Danbom
Past President 2003 75,000 0 500<F1> 0 0 0 8,175<F7>
2002 75,000 0 500<F1> 0 0 0 8,044<F5>
2001 156,817 0 0 0 0 0 1,818<F4>
- ---------------------------------------------------------------------------------------------------------------------
<FN>
<F1>
(1) Christmas bonus.
</FN>
<FN>
<F2>
(2) Comprised of $1,444 value of personal use of company
auto and $5,025 paid for health insurance.
</FN>
<FN>
<F3>
(3) Comprised of $1,913 value of personal use of company
auto and $5,563 paid for health insurance.
</FN>
<FN>
<F4>
(4) Comprised entirely of value of personal use of
company auto.
</FN>
<FN>
<F5>
(5) Comprised of $2,481 value of personal use of company
auto and $5,563 paid for health insurance.
</FN>
<FN>
<F6>
(6) Comprised of $1,634 value of personal use of company
auto and $5,472 paid for health insurance.
</FN>
<FN>
<F7>
(7) Comprised of $2,703 value of personal use of company
auto and $5,472 paid for health insurance.
</FN>
36
Stock Option Grants in the past fiscal year
We have not issued any grants of stock options in the past fiscal year.
37
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 issuance of all 615,000 shares which may
potentially be [sold/issued] in connection with this registration
statement, by (i) those Shareholder 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 Owned Owned
Beneficial Owner Owned Before Offering After Offering
- ------------------- --------- --------------- --------------
Ron Hickman 272,812 7.06% 6.11%
c/o Cycle Country
Accessories Corp.
2188 Highway 86
Milford, Iowa 51351
Jim Danbom 741,775 18.78% 16.25%
106 Channel Court
Marco Island, FL 34145
Jan Danbom 700,775 17.74% 15.35%
106 Channel Court
Marco Island, FL 34145
Commerce Street Venture 360,000 9.12% 7.89%
Group
17322 Westfield Park Rd
Westfield, IN 46074
All Directors and Officers 1,067,717 27.04% 23.39%
as a Group (6 Persons)
38
SELLING SHAREHOLDER
On June 11, 2003, the Company entered into and closed upon a
financing agreement whereby the Company's newly authorized preferred
stock was issued in exchange for restricted cash. The restricted cash
will be made available to the Company for use for general corporate
purposes upon the conversion of the Preferred Stock or with prior written
approval of the preferred stockholder (which cannot be unreasonably
withheld).
The preferred stock is convertible into the Company's common shares
based on an annually set conversion price computed as the average of the
five lowest closing prices of the common stock for the twenty-two trading
days prior to each anniversary date. The conversion price as of the most
recent anniversary date is $3.93 per share. Upon an event of default,
the preferred stock may be reclassified as a debt obligation of the
Company.
The following table sets forth the name of each person who is
offering shares of common stock by this prospectus, the number of shares
of common stock beneficially owned by each person, the number of shares
of common stock that may be sold in this offering and the number of
shares of common stock each person will own after the offering, assuming
they sell all of the shares offered.
Common Shares Percentage Shares to be Shares owned Percentage
Name Shares owned Before Offering Sold in Offering After Offering After Offering
- --------------------------------------------------------------------------------------------------------------------
Laurus Master Fund, Ltd.(1) 615,000 (2) 4.99% (2) 615,000 0(3) 0(3)
(1) Laurus Master Fund, Ltd is a Cayman Islands Company. Laurus Capital
Management, LLC is the investment manager for Laurus Master Fund, Ltd.
The directors of Laurus Capital Management, LLC are David and Eugene Grin.
By virture of their position as directors of Laurus Capital Management, LLC,
Messers. Grin share voting and dispositive power over these securities.
(2) Includes the shares of our common stock issuable to Laurus Master
Fund, Ltd, upon conversion of its preferred stock and 40,000 shares
issuable upon the exercise of its warrants. 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. Laurus has contractually agreed to limit its beneficial ownership
by restricting the conversion or exercise of all Cycle Country securities
held by Laurus. Laurus has agreed that none of the Cycle Country
securities held by Laurus may be converted or exercised to the extent
that conversion or exercise of those securities would result in Laurus,
together with its affiliates, beneficially owning in excess of 4.99% of
the number of shares of our common stock outstanding at that time. Laurus
may cause this 4.99% limitation to expire by providing us 75 days advance
notice of its intention to do so. This 4.99% limitation does not preclude
conversion of the Preferred Stock or exercise of the Warrants over time,
so long as Laurus' beneficial ownership of our common stock, together
with its affiliates, does not exceed the limitation amount at any time.
This 4.99% limitation automatically becomes void upon an event of default
relating to the Preferred Stock.
(3) Assumes the sale of all shares offered hereby.
39
CERTAIN TRANSACTIONS
In March 2002, Jim Danbom, director, identified Perf-form, Inc.
as a potential acquisition. The acquisition was completed 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 approximately $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 the Company's common stock. The Company's
technology and products allow many of the Weekend Warrior
products to be immediately useful in the Lawn and Garden
applications.
40
DESCRIPTION OF SECURITIES
General
Our authorized capital stock consists of 100,000,000 shares of
common stock, par value $0.0001 per share, 20,000,000 shares of preferred
stock, par value $0.0001 per share and an additional series of 2,000,000
shares of preferred stock, par value $0.0001 per share.. As of the date
of this prospectus, 3,956,047 shares of common stock and 2,000,000 shares
of the newly authorized 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 3,956,047 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
On June 11, 2003, the Company entered into and closed upon a
financing agreement whereby the Company's newly authorized preferred
stock was issued in exchange for restricted cash. The restricted cash
will be made available to the Company for use for general corporate
purposes upon the conversion of the Preferred Stock. The preferred stock
is convertible into the Company's common shares based on an annually set
conversion price computed as the average of the five lowest closing
prices of the common stock for the twenty-two trading days prior to each
anniversary date. Upon an event of default, the preferred stock may be
reclassified as a debt obligation of the Company. This new series of
preferred stock is cumulative and convertible with dividends computed on
a simple interest per annum basis using the current prime interest rate
plus 0.5% (4.5% at September 30, 2003) and are to be paid prior to any
dividends being paid or declared on the Company's common stock. The
Company has 2,000,000 shares of $0.0001 par value preferred stock
authorized and 2,000,000 shares issued and outstanding at September 30,
2003 and as of the date of this prospectus.
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 of such 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
41
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.
On June 9, 2003 the Company issued warrants to purchase 40,000
shares of the Company's common shares. The holder is entitled to
purchase the common shares at an exercise price per share of $4.00 ending
on June 9, 2010.
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 Shareholder 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 Shareholder.
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.
42
Market for Common Equity and Related Shareholder Matters
Our common stock was approved for listing on the American Stock
Exchange under the symbol: ATC effective June 19, 2003. Prior to June 19,
2003, our common stock was approved for quotation on the National
Association of Securities Dealers OTC Bulletin Board under the symbol:
CYCY. The table below sets forth the reported high and low bid prices
for the periods indicated. The bid prices shown during the period our
stock was on the OTC Bulletin Board reflect quotations between dealers,
without adjustment for markups, markdowns or commissions, and may not
represent actual transactions in the Company's securities.
High Low
------ ------
FY 2003
Fourth Quarter $5.00 $4.50
Third Quarter $5.00 $3.30
Second Quarter $3.72 $3.05
First Quarter $4.14 $2.12
FY 2002
Fourth Quarter $3.15 $2.20
Third Quarter $4.07 $2.20
Second Quarter $5.75 $2.40
First Quarter See (a)
(a) The Company consummated an initial public offering of its Common
Stock, par value $0.0001 per share pursuant to a registration statement
declared effective by the Commission on November 28, 2001, File No. 333-
68570 ("Registration Statement"). The stock commenced trading on the OTC
Bulletin Board on February 5, 2002.
As of April 19, 2004, there were approximately 806 holders of record
of Common Stock inclusive of those brokerage firms and/or clearing houses
holding the Company's Common Stock in street name for their clientele
(with each such brokerage house and/or clearing house being considered as
one holder).
The Company has never paid a dividend on its common stock. It is
the Company's present policy to retain all earnings to provide funds for
the future growth of the Company.
43
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.
44
PLAN OF DISTRIBUTION
We are registering shares of our common stock that may be issued
upon conversion of some or all of our preferred shares or upon exercise
of certain outstanding warrants.
The selling shareholder and any of its pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their
common shares on any stock exchange, market or trading facility on which
the shares are traded or in private transactions. These sales may be at
fixed or negotiated prices. The selling shareholder may use any one or
more of the following methods when selling shares:
* ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
* block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
* purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
* an exchange distribution in accordance with the rules of the
applicable exchange;
* privately negotiated transactions;
* short sales;
* broker-dealers may agree with the selling shareholder to sell a
specified number of such shares at a stipulated price per share;
* a combination of any such methods of sale; and
* any other method permitted pursuant to applicable law.
The selling shareholder may also engage in short sales against the
box, puts and calls and other transactions in our securities or
derivatives of our securities and may sell or deliver shares in
connection with these trades. The selling shareholder may pledge their
shares to their brokers under the margin provisions of customer
agreements. If a selling shareholder defaults on a margin loan, the
broker may, from time to time, offer and sell the pledged shares.
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.
45
Broker-dealers engaged by the selling shareholder may arrange for
other brokers-dealers to participate in sales. Broker-dealers may
receive commissions or discounts from the selling shareholder (or, if any
broker-dealer acts as agent for the purchaser of shares, from the
purchaser) in amounts to be negotiated. The selling shareholder does not
expect these commissions and discounts to exceed what is customary in the
types of transactions involved.
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.
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
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; or
- - Such time as all of the shares have been sold by the
selling shareholder.
We are required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel
to the selling shareholder. We have agreed to indemnify the selling
shareholder against certain losses, claims, damages and liabilities,
including liabilities under the Securities Act.
46
LEGAL MATTERS
The Law Office of James G. Dodrill, P.A. of Boca Raton, 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, 2003 and for the years
ended September 30, 2003 and 2002 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.
47
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
Shareholder annual reports, including audited financial statements,
unaudited quarterly reports and such other reports as we may determine.
48
CYCLE COUNTRY ACCESSORIES CORP.
AND SUBSIDIARIES
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-7
Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet - December 31, 2003 F-32
Condensed Consolidated Statements of Income - Three
Months Ended December 31, 2003 and 2002 F-33
Condensed Consolidated Statements of Cash Flows - Three
Months Ended December 31, 2003 and 2002 F-34
Notes to Condensed Consolidated Financial Statements F-35
TEDDER, JAMES, WORDEN & ASSOCIATES, P.A.
CERTIFIED PUBLIC ACCOUNTANTS & BUSINESS ADVISORS
AN INDEPENDENTLY OWNED MEMBER OF THE RSM MCGLADREY NETWORK
Independent Auditors' Report
----------------------------
To the Board of Directors and Stockholders of
Cycle Country Accessories Corp. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Cycle
Country Accessories Corp. and Subsidiaries (the "Company") as of
September 30, 2003 and 2002, and the related consolidated statements of
income, stockholders' equity, and cash flows for the years then ended.
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 Subsidiaries as of September 30, 2003 and
2002, and the results of their operations and their cash flows for the
years then ended in conformity with accounting principles generally
accepted in the United States of America.
/s/ Tedder, James, Worden & Associates, P.A.
Orlando, Florida
January 13, 2004
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2003 and 2002
Assets 2003 2002
------ ---- ----
Current assets:
Cash and cash equivalents $ 215,551 $ 207,162
Accounts receivable - trade, net 1,080,854 1,086,672
Inventories 3,024,733 2,967,285
Taxes receivable 89,507 184,624
Deferred income taxes 72,095 76,251
Prepaid expenses and other 66,105 62,349
----------- -----------
Total current assets 4,548,845 4,584,343
Property, plant, and equipment, net 2,930,878 2,558,328
Restricted cash 1,901,898 -
Intangible assets, net 217,093 233,238
Goodwill 41,700 41,700
Other assets 63,007 79,459
----------- -----------
Total assets $ 9,703,421 $ 7,497,068
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 1,042,046 $ 1,108,344
Accrued expenses 409,865 420,811
Bank line of credit 420,000 400,000
Current portion of bank notes payable 484,845 890,580
---------- -----------
Total current liabilities 2,356,756 2,819,735
Bank note payable, less current portion 3,147,109 2,712,701
Deferred income taxes 96,405 51,788
---------- -----------
Total liabilities 5,600,270 5,584,224
Stockholders' equity:
Preferred stock 200 -
Common stock 395 395
Additional paid-in capital 3,730,039 1,726,266
Retained earnings (deficit) 372,517 186,183
---------- -----------
Total stockholders' equity 4,103,151 1,912,844
---------- -----------
Total liabilities and stockholders' equity $ 9,703,421 $ 7,497,068
========== ===========
See accompanying notes to the consolidated financial statements.
F-2
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Consolidated Statements of Income
For the years ended September 30, 2003 and 2002
2003 2002
---- ----
Net sales $13,737,342 $13,257,895
Freight income 154,651 105,657
----------- -----------
Total revenue 13,891,993 13,363,552
Cost of goods sold (10,638,526) (9,867,995)
----------- -----------
Gross profit 3,253,467 3,495,557
Selling, general and administrative expenses (2,762,626) (2,781,896)
----------- -----------
Income from operations 490,841 713,661
Non-operating income (expense), net (168,708) (227,417)
----------- -----------
Income before provision for income taxes 322,133 486,244
Income tax expense 114,826 177,403
----------- -----------
Net income $ 207,307 $ 308,841
Dividends on preferred stock 20,974 -
----------- -----------
Net income available to common stockholders $ 186,333 308,841
=========== ===========
Weighted average shares of common
stock outstanding:
Basic 3,951,290 3,757,261
Diluted 4,460,196 3,757,261
Earnings per common share:
Basic $ 0.05 0.08
Diluted $ 0.05 0.08
See accompanying notes to the consolidated financial statements.
F-3
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended September 30, 2003 and 2002
Additional
Preferred Common paid-in Retained
Stock Stock capital earnings Total
-------- -------- ----------- ---------- ---------
Balances at September 30, 2001 - 363 994,641 (122,658) 872,346
Net income - - - 308,841 308,841
Issuance of common stock for repayment
of due to related parties - 19 566,681 - 566,700
Issuance of common stock to employees
for compensation - 12 136,445 - 136,457
Issuance of common stock for acquisition
of net assets of Weekend Warrior - 1 28,499 - 28,500
--------- ---------- --------- ----------- ------------
Balances at September 30, 2002 - 395 1,726,266 186,183 1,912,844
Net income - - - 207,307 207,307
Issuance of preferred stock 200 - 1,982,800 - 1,983,000
Issuance of common stock for payment
of dividends on preferred stock - 1 20,973 (20,974) -
Cancellation of common stock previously
issued and outstanding - (1) - 1 -
--------- ---------- --------- ----------- ------------
Balances at September 30, 2003 $ 200 395 3,730,039 372,517 4,103,151
========== ========== ========= =========== ============
See accompanying notes to the consolidated financial statements.
F-4
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended September 30, 2003 and 2002
2003 2002
---- ----
Cash flows from operating activities:
Net income $ 207,307 308,841
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 307,484 281,753
Non-cash fund management fee 85,000 -
Deferred income taxes 48,773 30,897
Amortization 20,813 11,762
Gain on sale of equipment (15,829) (17,010)
Inventory reserve (10,000) 41,000
(Increase) decrease in assets:
Accounts receivable - trade, net 5,818 (28,389)
Inventories (47,448) (219,006)
Taxes receivable 95,117 (84,107)
Prepaid expenses and other (3,756) 1,461
Other assets 41,452 881
Increase (decrease) in liabilities:
Accounts payable (66,298) 49,773
Accrued expenses (10,946) 253,105
--------- ---------
Net cash provided by operating activities 657,487 630,961
Cash flows from investing activities:
Deposits into restricted cash account (1,901,898) -
Purchase of property, plant, and equipment (685,216) (270,478)
Payment of patent costs (4,668) -
Acquisition of net assets - subsidiary - (12,065)
Proceeds from sale of property, plant, and equipment 21,011 21,886
--------- ---------
Net cash used in investing activities (2,570,771) (260,657)
Cash flows from financing activities:
Proceeds from issuance of preferred stock 1,898,000 -
Payments on bank notes payable (706,776) (837,231)
Net borrowings from bank line of credit 755,439 400,000
Payment of loan costs (25,000) -
----------- ------------
Net cash provided by (used in) financing activities 1,921,673 (437,231)
----------- ------------
Net increase (decrease) in cash and cash equivalents 8,389 (66,927)
Cash and cash equivalents - beginning of year 207,162 274,089
----------- ------------
Cash and cash equivalents - end of year $ 215,551 207,162
=========== ============
See the accompanying notes to the consolidated financial statements.
F-5
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
For the years ended September 30, 2003 and 2002
2003 2002
------- -------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest, net of amounts capitalized $ 193,572 256,419
=========== ==========
Income taxes $ 1,900 331,130
=========== ==========
Supplemental schedule of non-cash financing and investing
activities:
Non-cash transaction incurred during the year for:
Conversion of bank line of credit to bank notes
payable $ 735,439 -
=========== ==========
Issuance of common stock for payment of dividends
on preferred stock $ 20,974 -
=========== ==========
Issuance of common stock for repayment of due to
related parties $ - 566,700
=========== ==========
Acquisition of net assets - subsidiary with funds
advanced by related parties $ - 516,700
=========== ==========
Issuance of common stock for payment of
employee compensation $ - 106,457
=========== ==========
Increase in prepaid expenses advanced by related party $ - 50,000
=========== ==========
Issuance of common stock for payment of accrued officer
bonus $ - 30,000
=========== ==========
Issuance of common stock for acquisition of net assets
of Weekend Warrior $ - 28,500
=========== ==========
See accompanying notes to the consolidated financial statements.
F-6
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2003 and 2002
(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 subsidiaries, Cycle
Country Accessories Corp. (an Iowa corporation) ("Cycle Country
(Iowa)"), Perf-Form, Inc. (an Iowa corporation) ("Perf-Form"),
and Cycle Country Accessories Subsidiary Corp. (a Nevada
corporation) ("Cycle Country Sub. Corp.") (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. The Company had a second assembly
plant located in Big Lake, Minnesota until February 2003, at
which time the operations were relocated to the assembly plant in
Milford, Iowa.
(c) Revenue Recognition
The Company ships products to its customers predominantly by its
internal fleet and to a lesser extent by third party carriers.
The Company recognizes revenues from product sales when title to
the products is passed to the distributors, dealers, wholesalers,
or other customers and risk of loss transfers to an unrelated
third party, which occurs at the point of destination for
products shipped by the Company's internal fleet and at the point
of shipping for products shipped by third party carriers.
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 and allowances of approximately $476,000 and
$441,000 in fiscal 2003 and 2002, respectively.
F-7
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
(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.
(e) Allowances
The Company provides appropriate provisions for uncollectible
accounts and credit for returns based upon numerous factors,
including past transaction history with customers, their credit
worthiness, and other information. Initially, the Company
estimates a provision for uncollectible accounts as a percentage
of net sales based on historical bad debt experience and on a
quarterly basis, the Company writes-off uncollectible
receivables. This estimate is periodically adjusted when the
Company becomes aware of a specific customer's inability to meet
its financial obligations (e.g. bankruptcy filing) or as a
result of changes in the overall aging of accounts receivable.
While the Company has a large customer base that is
geographically dispersed, a slowdown in markets in which the
Company operates may result in higher than expected
uncollectible accounts, and therefore, the need to revise
estimates for bad debts. To the extent historical experience is
not indicative of future performance or other assumptions used
by management do not prevail, the provision for uncollectible
accounts could differ significantly, resulting in either higher
or lower future provisions for uncollectible accounts. In the
opinion of management of the Company, no provision is deemed
necessary for credit for returns at September 30, 2003 or 2002.
The provision for uncollectible accounts of $10,000 at September
30, 2003 and 2002 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.
F-8
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
(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) Restricted Cash
The Company has approximately $1,902,000 in restricted cash and
it serves as collateral for the preferred stock issued by the
Company during fiscal 2003 (see Note 12(b)). The restricted
cash can be used for general corporate purposes (in the ordinary
course of business and consistent with past practices) as
approved by the holders of the preferred stock.
(i) Inventories
Inventories are carried at the lower of cost or market. The
cost is determined using the first-in, first-out method. The
Company evaluates its inventory value at the end of each quarter
to ensure that it is carried at the lower of cost or market.
This evaluation includes an analysis of its physical inventory
results, a review of potential obsolete and slow-moving stock
based on historical product sales and forecasted sales, and an
overall consolidated analysis of potential excess inventory. To
the extent historical physical inventory results are not
indicative of future results and if future events impact, either
favorably or unfavorably, the salability of the Company's
products or its relationship with certain key vendors, the
Company's inventory reserves could differ significantly,
resulting in either higher or lower future inventory provisions.
During the fourth quarter of fiscal 2003, the Company determined
that one of its sub-assembly components had incurred a permanent
decline in market value. As a result, the Company wrote-off
approximately $84,500 to reflect this decline in market value.
(j) 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. Interest costs on borrowings used in
connection with the construction of major facilities are
capitalized. The capitalized interest is recorded as part of
the asset to which it relates and is depreciated over the
asset's estimated useful life.
F-9
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
(j) Property, Plant, and Equipment, Continued
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.
(k) Goodwill and Other 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 3) is not being
amortized in accordance with Statement of Financial Accounting
Standards ("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.
Other intangible assets are stated at cost and consist of
trademarks, covenant not-to-compete agreements, and patents.
The trademarks arising from the Company's March 11, 2002 and
June 13, 2002 acquisitions (see Note 3) have been deemed to have
an indefinite life and as such will not be amortized. The
covenant not-to-compete agreements are being amortized over
their estimated useful lives (5 years for both) and the patents
are being amortized over their remaining useful lives of 11
years and 12 years, respectively, at the date of acquisition.
(l) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company's long-lived assets, including property, plant, and
equipment, are reviewed for possible impairment whenever events
or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount
of an asset to future net cash flows (undiscounted and without
interest charges) expected to be generated by the asset. If
these projected cash flows are less than the carrying amount, an
impairment loss is recognized based on the fair value of the
asset less any costs of disposition. Assets to be disposed of
are reported at the lower of the carrying amount or fair value
less costs to sell.
F-10
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
(m) Investment in Golden Rule (Bermuda) Ltd.
The investment in Golden Rule (Bermuda) Ltd. stock is recorded
at cost due to less than 20% ownership.
(n) 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.
(o) Income Taxes
The Company accounts for income taxes utilizing the asset and
liability method. This approach requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enacted
date.
(p) 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 sheets. The distributor
rebate expense totaled approximately $490,000 and $408,000 in
fiscal 2003 and 2002, respectively and is recorded as a
reduction of sales in the accompanying consolidated financial
statements.
F-11
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
(q) Earnings Per Share
Basic earnings per share ("EPS") is calculated by dividing net
income available to common stockholders 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 and
the preferred stock was converted. Preferred stock dividends
are added back to income since these would not be paid if the
preferred stock was converted to common stock.
(r) Advertising
Advertising consists primarily of television, videos, newspaper
and magazine advertisements, product brochures and catalogs, and
trade shows. All costs are expensed as incurred or when first
utilized. Advertising expense totaled approximately $430,000
and $438,000 in fiscal 2003 and 2002, respectively, and is
included in selling, general, and administrative expenses in the
accompanying consolidated statements of income.
(s) Research and Development Costs
Research and development costs are expensed as incurred.
Research and development costs incurred during fiscal 2003 and
2002 totaled approximately $128,000 and $178,000, respectively,
and are included in selling, general, and administrative
expenses in the accompanying consolidated statements of income.
(t) 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
$244,000 and $202,000 in fiscal 2003 and 2002, respectively, and
are included in selling, general, and administrative expenses in
the accompanying consolidated statements of income.
(u) 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 2003 and 2002 and at September 30, 2003 and
2002, cash balances held at a financial institution were in
excess of federally insured limits.
F-12
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
(u) Concentration of Credit Risk, Continued
The majority of the Company's sales are credit sales which are
made primarily to customers whose ability to pay is dependent
upon the industry economics prevailing in the areas where they
operate; 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.
(v) 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 late summer and
fall (the Company's fourth and first 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 usually have the
opposite effect.
(w) Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, accounts
receivable, taxes receivable, accounts payable and accrued
expenses approximates their fair values because of the short-
term nature of these instruments. The fair value of the
Company's bank notes payable and line of credit are assumed to
approximate the recorded value because there have not been any
significant changes in specific circumstances since the notes
payable and line of credit were originally recorded.
F-13
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Continued
(x) Recent Accounting Pronouncements
In May 2003, the FASB issued SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity. This Statement establishes accounting
standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities
and equity. It requires certain financial instruments that were
previously classified as equity to be classified as assets or
liabilities. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. Adoption of SFAS No. 150
did not have a material effect on the Company's consolidated
financial position or results of operation.
(2) Organization, Merger, Acquisitions of Common Stock of Cycle Country
(Iowa) and Operating Facility and Initial Public Offering
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).
F-14
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Organization, Merger, Acquisitions of Common Stock of Cycle Country
(Iowa) and Operating Facility and Initial Public Offering, Continued
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 stockholders. The operating
facility was previously leased from those stockholders. 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.
On August 29, 2001, the Company filed a Registration Statement on
Form SB-2 with the Securities and Exchange Commission ("SEC") to
register a total of 5,625,000 shares of common stock, 2,000,000
shares of which relate to warrants (see Note 12(a)). The
Registration Statement on Form SB-2 (Amendment No. 3) was declared
effective by the SEC on November 28, 2001, File No. 333-68570.
(3) 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. One of the Company's stockholders paid
$450,000 of the cash consideration and another stockholder provided
the 22,500 shares of the Company's common stock used in the
acquisition. Both of these stockholders were subsequently
reimbursed with shares of the Company's common stock. The shares of
the Company's common stock issued both to effect the acquisition and
reimburse the stockholders were valued at the market price on the
date of acquisition. Perf-form Products manufactured, sold, and
distributed 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 sales growth.
F-15
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Acquisition of Assets, Continued
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 $41,700;
however, this goodwill recorded will not be amortized as a result of
the adoption of SFAS No. 142.
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 consolidated financial statements from
the date of acquisition.
On June 13, 2002, the Company entered into an asset purchase
agreement to purchase certain assets from Weekend Warrior, Inc.
("Weekend Warrior") for 10,000 shares of the Company's common stock
for a total purchase price of approximately $28,500. The shares of
the Company's common stock were valued at the market price on the
date of acquisition. Weekend Warrior manufactured, sold, and
distributed a full line of heavy-duty agricultural equipment for the
Lawn and Garden and ATV industries; however, Weekend Warrior was
inactive for approximately two years preceding the acquisition. As
a result of the acquisition, the Company expects to be able to
accelerate it's new product introductions for the Lawn & Garden
industry.
The acquisition was accounted for under the purchase method of
accounting; accordingly, the purchase price has been allocated to
reflect the fair value of assets acquired at the date of
acquisition.
The following table summarizes the estimated fair values of the
assets acquired at the date of acquisition at June 13, 2002:
Trademark $ 9,000
Covenant not-to-compete agreement 8,000
Patent 8,000
Inventory 3,500
----------------
Total assets acquired $ 28,500
================
F-16
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Acquisition of Assets, Continued
The results of operations of the acquired business have been
included in the accompanying consolidated financial statements from
the date of acquisition.
Assuming the fiscal 2002 acquisitions of Perf-form Products and
Weekend Warrior had occurred on October 1, 2000, the consolidated
results of operations on a pro forma basis for fiscal 2002 would
have been approximately as follows:
Revenue $ 13,588,000
Net income 344,000
Earnings per share - basic 0.09
Earnings per share - diluted 0.09
(4) Inventories
The components of inventories at September 30 are summarized as
follows:
2003 2002
-------------- ------------
Raw materials $ 1,596,414 1,362,821
Work in progress 133,513 151,508
Finished goods 1,294,806 1,452,956
-------------- ------------
Total inventories $ 3,024,733 2,967,285
============== ============
(5) Prepaid Expenses and Other
Prepaid expenses and other at September 30 consisted of the
following:
2003 2002
-------------- ------------
Prepaid insurance $ 65,405 40,045
Prepaid promotion - 15,000
Prepaid royalty 700 2,000
Prepaid rent - 5,304
-------------- ------------
Total prepaid expenses and other $ 66,105 62,349
============== ============
F-17
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Acquired Intangible Assets
Acquired intangible assets consist of the following:
As of September 30, 2003
------------------------
Weighted-
average
amortization Gross Carrying Accumulated
period Amount Amortization
-------------- ------------ ------------
Amortized intangible assets:
Covenant not-to-compete agreements 5 $ 78,000 24,433
Patents 11.1 62,668 8,142
----------- ----------
140,668 32,575
----------- ----------
Unamortized intangible assets:
Trademarks 109,000
-----------
Total acquired intangible assets $ 249,668
===========
As of September 30, 2002
------------------------
Weighted-
average
amortization Gross Carrying Accumulated
period Amount Amortization
-------------- ------------ ------------
Amortized intangible assets:
Covenant not-to-compete agreements 5 $ 78,000 8,833
Patents 11.1 58,000 2,929
----------- ----------
136,000 11,762
----------- ----------
Unamortized intangible assets:
Trademarks 109,000
-----------
Total acquired intangible assets $ 245,000
===========
Amortization expense totaled $20,813 and $11,762 during fiscal 2003 and
2002, respectively.
F-18
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(6) Acquired Intangible Assets, Continued
The estimated future amortization expense for each of the five
succeeding years is as follows:
Year ending September 30,
- -------------------------
2004 $ 20,813
2005 20,813
2006 20,813
2007 11,979
2008 5,213
(7) Property, Plant, and Equipment
Property, plant, and equipment, their estimated useful lives, and
related accumulated depreciation at September 30 are summarized as
follows:
Range
of lives
in
years 2003 2002
-------- ---------- ----------
Land - $ 380,000 380,000
Building 15-40 1,717,857 1,133,471
Plant equipment 7 1,523,242 1,353,755
Tooling and dies 7 670,507 662,969
Vehicles 3-7 638,899 640,151
Office equipment 3-7 335,524 466,870
---------- ----------
5,266,029 4,637,216
Less accumulated depreciation (2,335,151) (2,200,060)
---------- ----------
2,930,878 2,437,156
Construction-in-process - 121,172
---------- ----------
Total property and equipment $2,930,878 2,558,328
========== ==========
Interest costs of approximately $23,000 were capitalized during the
year ended September 30, 2003.
F-19
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(8) Other Assets
The components of other assets at September 30 are summarized as
follows:
2003 2002
---------- ------------
Prepaid royalty - long-term $ 13,900 $ 54,459
Unamortized loan costs 24,107 -
Investment in Golden Rule
(Bermuda), Ltd. 25,000 25,000
---------- ------------
Total other assets $ 63,007 $ 79,459
========== ============
During the fourth quarter of fiscal 2003, management of the Company
determined that the prepaid royalty was not fully recoverable due to
less than anticipated sales of a certain product. As a result,
approximately $39,500 of the prepaid royalty's carrying value was
reduced and is included in royalty expense in the accompanying
consolidated statements of income.
(9) Accrued Expenses
The components of accrued expenses at September 30 are summarized as
follows:
2003 2002
-------------- -------------
Distributor rebate payable $ 215,145 193,765
Accrued salaries and related benefits 120,113 142,937
Accrued warranty expense 39,000 54,156
Accrued real estate tax 27,573 27,090
Accrued fund management fees 5,834 -
Accrued interest expense 2,200 2,863
-------------- ------------
Total accrued expenses $ 409,865 420,811
============== ============
F-20
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Bank Notes Payable
On June 25, 2003, the Company and it's commercial lender amended the
original secured credit agreement dated August 21, 2001. Under the
terms of the amended secured credit agreement, the Company entered
into a note payable for $1,500,000 ("Note One") and a second note
payable for $2,250,000 ("Note Two") with the commercial lender,
replacing the single, original note entered into under the original
secured credit agreement. The Notes are collateralized by all of
the Company's assets, are payable in monthly installments from July
2003 until June 2018 for Note One and until June 2008 for Note Two,
which include principal and interest at prime + 0.25% (4.5% at
September 30, 2003) for Note One and principal and interest at prime
+ 0.625% (4.625% at September 30, 2003) for Note Two, with a final
payment upon maturity on June 25, 2018 for Note One and June 25,
2008 for Note Two. The variable interest rate can never exceed 9.5%
or be lower than 4.5% for Note One and can never exceed 8.5% or be
lower than 4.5% for Note Two. The monthly payment is $11,473 and
$42,324 for Note One and Note Two, respectively, 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 Notes or the Line of Credit described below. At September 30,
2003, $1,482,717 and $2,149,237 for Note One and Note Two,
respectively, were outstanding on the Notes. At September 30, 2002,
$3,603,281 was outstanding on the Note entered into under the
original secured credit agreement.
Under the terms of the amended secured credit agreement noted above,
the Company has a Line of Credit for the lesser of $1,000,000 or 80%
of eligible accounts receivable and 35% of eligible inventory. The
original secured credit agreement noted above had a line of credit
for the lesser of $500,000 or 80% of eligible accounts receivable
and 35% of eligible inventory. In the fourth quarter of fiscal
2002, the Line of Credit under the original secured credit agreement
was increased to the lesser of $1,000,000 or 80% of eligible
accounts receivable and 35% of eligible inventory. The Line of
Credit bears interest at prime plus 0.75% (4.75% at September 30,
2003) and is collateralized by all of the Company's assets. The
variable interest rate can never exceed 7% or be lower than 4.75%.
The Line of Credit matures on December 31, 2004. At September 30,
2003 and 2002, $420,000 and $400,000, respectively, was outstanding
on the Line of Credit. As of September 30, 2003, $580,000 is
available on the Line of Credit.
F-21
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Bank Notes Payable, Continued
Future maturities of long-term debt are as follows:
Year ending September 30,
- -------------------------
2004 $ 484,845
2005 508,697
2006 533,723
2007 559,982
2008 459,876
Thereafter 1,084,831
--------------
$ 3,631,954
==============
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 except as
may be required by the preferred stock issued in June of 2003 (see
Note 12 (b)). The Company was in noncompliance with the minimum
working capital requirement at December 31, 2002 and March 31, 2003,
as well as the term debt coverage ratio at March 31, 2003 and
September 30, 2003, and has requested and received waivers from the
commercial lender for the respective noncompliance in the first,
second and fourth quarters of fiscal 2003.
F-22
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Income Taxes
The provision for income taxes for the years ended September 30,
2003 and 2002 consists of the following:
2003 2002
Current tax provision
Federal $ 62,313 145,302
State 3,740 1,204
---------- ---------
66,053 146,506
---------- ---------
Deferred tax provision
Federal 46,011 29,861
State 2,762 1,036
---------- ---------
48,773 30,897
---------- ---------
Total income tax benefit $ 114,826 177,403
========== =========
Deferred tax assets and liabilities at September 30, are
comprised of the following:
2003 2002
Deferred tax assets: ---------- --------
Inventory reserve $ 26,843 30,376
Accrued vacation 19,676 19,128
Accrued warranty 13,775 4,218
Accrued bonus 5,318 3,875
Allowance for uncollectable accounts 3,532 3,533
Deferred profit 2,951 15,121
---------- --------
Total deferred assets 72,095 76,251
---------- --------
Deferred tax liability:
Depreciation (96,405) (51,788)
---------- ---------
Net deferred tax asset (liability) $ (24,310) 24,463
========== =========
F-23
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Income Taxes, Continued
These amounts are included in the accompanying consolidated balance
sheets at September 30 under the following captions:
2003 2002
------------ ----------
Current assets $ 72,095 76,251
Non-current assets (96,405) (51,788)
------------ ----------
Net deferred tax asset (liability) $ (24,310) 24,463
============ ==========
No valuation allowance has been provided for these deferred tax
assets at September 30, 2003 or 2002 as full realization of these
assets is more likely than not.
A reconciliation of the income tax provision (benefit) computed by
applying the federal statutory rate for the year ended September 30,
2003 and 2002 is as follows:
2003 2002
Federal statutory tax $ 109,526 34.0% 165,323 34.0%
Change in effective tax rate (5,792) (1.8) 5,975 1.2
Non deductible expenses 6,801 2.1 4,687 1.0
State and local income taxes, net of
federal tax benefit 4,291 1.3 1,418 0.3
---------- ---- ---------- -------
Total income tax provision (benefit) $ 114,826 35.6 177,403 36.5
========== ==== ========== =======
(12) Stockholders' Equity
(a) Common Stock
The Company has 100,000,000 shares of $0.0001 par value common
stock authorized and 3,949,337 and 3,953,000 shares issued and
outstanding at September 30, 2003 and 2002, respectively. Of
the 3,949,337 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 at $4.00 per share beginning March 28, 2002 and ending
August 21, 2004. The Company has the right, under certain
circumstances, to redeem any unexercised warrants at $0.0001 per
share.
F-24
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Stockholders' Equity, Continued
(b) Preferred Stock
The Company has 20,000,000 shares of $0.0001 par value preferred
stock authorized and no shares issued and outstanding at
September 30, 2003 and 2002, respectively. 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.
In the event of any dissolution or liquidation of the Company,
whether voluntary or involuntary, the holders of shares of
preferred stock described above 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 stockholders.
On June 11, 2003, the Company entered into and closed upon a
financing agreement whereby the Company's newly authorized
preferred shares were issued in exchange for restricted cash.
The preferred shares are convertible into the Company's common
shares based on an annually set conversion price computed as the
average of the five lowest closing prices of the common stock
for the twenty-two trading days prior to each anniversary date.
The restricted cash investment will be made available to the
Company for use for general corporate purposes with the approval of the
preferred stockholder. Upon an event of default,
the investment may be reclassified as a debt obligation of the
Company. This new series of preferred shares requires dividends
computed on a simple interest per annum basis using the current
prime interest rate plus 0.5% (4.5% at September 30, 2003).
Such dividends are cumulative, and are payable in cash or the
Company's common stock at the holders option and are to be paid
prior to any dividends being paid or declared on the Company's
common stock. The Company has 2,000,000 shares of $0.0001 par
value preferred stock authorized and 2,000,000 shares issued and
outstanding at September 30, 2003.
(c) Registration Statement
On July 3, 2002, the Company filed a Registration Statement on
Form SB-2 with the SEC to register a total of 500,000 shares of
common stock, 155,000 shares of which were offered by a selling
stockholder and 345,000 shares of which were offered by the
Company. As of September 30, 2003, 304,913 of the 345,000
shares of common stock offered by the Company are not issued nor
outstanding. The Registration Statement on Form SB-2 (Amendment
No. 1) was declared effective by the SEC on July 25, 2002, File
No. 333-92002.
F-25
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) 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, 2003 and 2002:
For the year ended September 30, 2003
-------------------------------------
Income Shares Per-share
(numerator) (denominator) amount
----------- ------------- ---------
Basic EPS
Income available to common
stockholders $ 186,333 3,951,290 $ 0.05
=========
Effect of Dilutive Securities
Convertible preferred stock 20,974 508,906
---------- ---------
Diluted EPS
Income available to common
stockholders and assumed
conversions $ 207,307 4,460,196 $ 0.05
========== ========= =========
For the year ended September 30, 2002
-------------------------------------
Income Shares Per-share
(numerator) (denominator) amount
----------- ------------- ---------
Basic EPS
Income available to common
stockholders $ 308,841 3,757,261 $ 0.08
Effect of Dilutive Securities
Warrants - - -
---------- --------- ---------
Diluted EPS
Income available to common
stockholders $ 308,841 3,757,261 $ 0.08
========== ========= =========
F-26
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(14) Non-Operating Income (Expense)
Non-operating income (expense) for the years ended September 30,
2003 and 2002 consisted of the following:
2003 2002
------------- -----------
Income:
Gain on sale of equipment $ 15,829 17,010
Truck lease - 6,979
Interest 6,296 5,884
Royalties 220 1,560
Other 1,855 20
------------ -----------
Total income 24,200 31,453
------------ -----------
Expense:
Interest (192,908) (255,663)
Other - (3,207)
------------ ----------
Total expense (192,908) (258,870)
------------ ----------
Total non-operating expense, net $ (168,708) (227,417)
============ ==========
(15) Pension and Profit Sharing Plan
The Company had a qualified defined contribution profit sharing plan
(the "Plan") covering all eligible employees with a specific period
of service which was terminated during fiscal 2003. The
contributions were discretionary with the Board of Directors. There
were no contributions to the Plan by the Company during the years
ended September 30, 2003 or 2002.
F-27
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(16) Business Concentrations
At September 30, 2003, customers with the two largest outstanding
accounts receivable balances totaled approximately $424,900 or 39%
of the gross accounts receivable. At September 30, 2003, the
outstanding accounts receivable balances of customers that exceeded
10% of gross accounts receivable are as follows:
Percent of gross
Customer Accounts receivable accounts receivable
- --------- ------------------- -------------------
A $ 247,300 23%
B 177,600 16%
At September 30, 2002, customers with the two largest outstanding
accounts receivable balances totaled approximately $322,000 or 29%
of the gross accounts receivable. At September 30, 2002, the
outstanding accounts receivable balances of customers that exceeded
10% of gross accounts receivable are as follows:
Percent of gross
Customer Accounts receivable accounts receivable
- --------- ------------------- -------------------
A $ 173,400 16%
B 148,500 13%
Sales to the Company's major customers, which exceeded 10% of net
sales, accounted for approximately 18.4% and 14.9% each of net sales
in fiscal 2003 and approximately 21.0% and 13.5% each of net sales
in fiscal 2002.
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 2003
and 2002, the Company purchased approximately $5,113,000 and
$4,691,000, respectively, of raw materials from one vendor, which
represented approximately 58% of materials used in products sold
during each year.
F-28
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
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 and allowances are not allocated
to each of the segments for internal reporting purposes. The
Company has three operating segments which assemble, manufacture,
and sell a variety of products: ATV Accessories, Plastic Wheel
Covers, and Lawn and Garden. ATV Accessories is engaged in the
design, assembly, and sale of ATV accessories such as snowplow
blades, lawnmowers, oil filters, 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 and light-duty trailers. Lawn and
Garden is engaged in the design, assembly, and sale of lawn and
garden accessories through our Weekend Warrior subsidiary. These
lawn and garden accessories include lawnmowers, spreaders, sprayers,
and tillage equipment. The significant accounting policies of the
operating segments are the same as those described in Note 1. Sales
of snowplow blades comprised approximately 63% of ATV Accessories
revenues during each year. Sales of snowplow blades comprised
approximately 55% of the Company's consolidated total revenues
during each year.
The following is a summary of certain financial information related
to the two segments:
2003 2002
---------------- -------------
Total revenues by segment
ATV Accessories $ 12,112,067 11,594,058
Plastic Wheel Covers 1,849,391 2,104,953
Lawn and Garden 251,576 -
---------------- -------------
Total revenues by segment 14,213,034 13,699,011
Freight income 154,651 105,657
Sales discounts and allowances (475,692) (441,116)
---------------- ------------
Total combined revenue $ 13,891,993 13,363,552
================ ============
F-29
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(17) Segment Information, Continued
2003 2002
--------------- ------------
Operating profit by segment
ATV Accessories $ 3,400,105 3,660,092
Plastic Wheel Covers 1,048,480 1,224,747
Lawn and Garden 99,206 -
Freight income 154,651 105,657
Sales allowances (475,692) (441,116)
Factory overhead (973,283) (1,053,823)
Selling, general, and administrative (2,762,626) (2,781,896)
Interest income (expense), net (186,612) (249,779)
Other income (expense), net 17,904 22,362
Income tax (expense) benefit (114,826) (177,403)
--------------- ------------
Net income $ 207,307 308,841
=============== ============
Identifiable assets
ATV Accessories $ 5,241,099 5,300,596
Plastic Wheel Covers 784,851 824,066
Lawn and Garden 153,166 -
--------------- ------------
Total identifiable assets 6,179,116 6,124,662
Corporate and other assets 3,524,305 1,372,406
--------------- ------------
Total assets $ 9,703,421 7,497,068
=============== ============
Depreciation by segment
ATV Accessories $ 96,675 93,766
Plastic Wheel Covers 100,029 94,822
Lawn and Garden 1,807 -
Corporate and other 108,973 93,165
--------------- ------------
Total depreciation $ 307,484 281,753
=============== ============
Capital expenditures by segment
ATV Accessories $ 293,944 156,156
Plastic Wheel Covers 141,025 124,835
Lawn and Garden 11,688 -
Corporate and other 317,753 113,690
--------------- ------------
Total capital expenditures $ 764,410 394,681
=============== ============
F-30
CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(17) Segment Information, Continued
The following is a summary of the Company's revenue in different
geographic areas during the years ended September 30, 2003 and 2002:
2003 2002
------------ ------------
United States $ 12,721,018 12,198,758
Other countries 1,170,975 1,164,794
------------ ------------
Total revenue $ 13,891,993 13,363,552
============ ============
As of September 30, 2003 and 2002, all of the Company's long-lived
assets are located in the United States of America. During fiscal
2003 and 2002, ATV Accessories had sales to individual customers
which exceeded 10% of total revenues as described in Note 17.
Plastic Wheel Covers did not have sales to any individual customer
greater than 10% of total revenues during fiscal 2003 and 2002.
(18) 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 $99,400 and
$179,800 as of September 30, 2003 and 2002, respectively.
F-31
Cycle Country Accessories Corp. and Subsidiaries
Condensed Consolidated Balance Sheet
December 31, 2003
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 1,058,408
Accounts receivable, net 1,089,772
Inventories 2,663,797
Deferred income taxes 72,095
Prepaid expenses and other 14,749
-------------
Total current assets 4,898,821
-------------
Property, plant, and equipment, net 2,896,216
Restricted cash 1,905,015
Intangible assets, net 214,863
Goodwill 41,700
Other assets 62,014
-------------
Total assets $ 10,018,629
=============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 936,431
Accrued expenses 725,178
Income taxes payable 233,721
Accrued interest payable 2,300
Current portion of bank notes payable 490,701
-------------
Total current liabilities 2,388,331
-------------
Long-Term Liabilities:
Bank notes payable, less current portion 3,022,181
Deferred income taxes 96,405
-------------
Total long-term liabilities 3,118,586
-------------
Total liabilities 5,506,917
-------------
Stockholders' Equity:
Preferred stock, $.0001 par value; 20,000,000 shares
authorized; no shares issued or outstanding -
Preferred stock, $.0001 par value; 2,000,000 shares
authorized; 2,000,000 shares issued and outstanding 200
Common stock, $.0001 par value; 100,000,000 shares
authorized; 3,956,047 shares issued and outstanding 396
Additional paid-in capital 3,756,927
Retained earnings 754,189
-------------
Total stockholders' equity 4,511,712
-------------
Total liabilities and stockholders' equity $ 10,018,629
=============
See accompanying notes to the condensed consolidated financial statements.
F-32
Cycle Country Accessories Corp. and Subsidiaries
Condensed Consolidated Statements of Income
Three Months Ended December 31,
2003 2002
-------------- --------------
(Unaudited) (Unaudited)
Revenues:
Net sales $ 5,596,235 $ 4,384,927
Freight income 47,621 29,126
-------------- -------------
Total revenues 5,643,856 4,414,053
-------------- -------------
Cost of goods sold (4,243,958) (3,315,273)
-------------- -------------
Gross profit 1,399,898 1,098,780
-------------- -------------
Selling, general, and administrative
expenses (733,027) (743,200)
-------------- -------------
Income from operations 666,871 355,580
-------------- -------------
Other Income (Expense):
Interest expense (43,552) (59,658)
Interest income 6,450 890
Miscellaneous 1,653 5,188
-------------- -------------
Total other income (expense) (35,449) (53,580)
-------------- -------------
Income before provision for
income taxes 631,422 302,000
-------------- -------------
Provision for income taxes (227,312) (108,720)
-------------- -------------
Net income 404,110 193,280
Dividends on preferred stock 22,438 -
-------------- -------------
Net income available to common
stockholders $ 381,672 $ 193,280
============== =============
Weighted average shares of common
stock outstanding:
Basic 3,955,344 3,953,000
============== =============
Diluted 4,675,710 3,953,000
============== =============
Earnings per common share:
Basic $ 0.10 $ 0.05
============== =============
Diluted $ 0.09 $ 0.05
============== =============
See accompanying notes to the condensed consolidated financial statements.
F-33
Cycle Country Accessories Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Three Months Ended December 31,
2003 2002
-------------- -----------
(Unaudited) (Unaudited)
Cash Flows from Operating Activities:
Net income $ 404,110 $ 193,280
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 84,208 73,892
Amortization 5,203 5,504
Inventory reserve (37,340) -
Gain on sale of equipment (1,552) (3,652)
(Increase) decrease in assets:
Accounts receivable, net (8,918) (77,205)
Inventories 398,276 59,314
Taxes receivable 89,507 -
Prepaid expenses and other 49,376 13,606
Increase (decrease) in liabilities:
Accounts payable (105,614) (61,559)
Accrued expenses 321,963 207,656
Income taxes payable 233,721 106,820
Accrued interest payable 100 476
-------------- -----------
Net cash provided by operating activities 1,433,040 517,832
-------------- -----------
Cash Flows from Investing Activities:
Purchase of equipment (49,546) (358,903)
Deposits into restricted cash (3,117) -
Proceeds from sale of equipment 1,552 3,652
-------------- -----------
Net cash used in investing activities (51,111) (355,251)
-------------- -----------
Cash Flows from Financing Activities:
Payments on bank note payable (119,072) (217,692)
Net payments on bank line of credit (420,000) -
-------------- -----------
Net cash used in financing activities (539,072) (217,692)
-------------- -----------
Net increase (decrease) in cash and
cash equivalents 842,857 (55,111)
Cash and cash equivalents, beginning of
period 215,551 207,162
-------------- -----------
Cash and Cash Equivalents, end of
period $ 1,058,408 $ 152,051
============== ===========
See accompanying notes to the condensed consolidated financial statements.
F-34
Cycle Country Accessories Corp. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Three Months Ended December 31,
2003 2002
-------------- ------------
(Unaudited) (Unaudited)
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 43,452 $ 59,182
============== =============
Income taxes $ (95,916) $ 1,900
============== =============
Supplemental schedule of non-cash financing activities:
Issuance of common stock for
payment of employee compensation $ 4,450 $ -
============== =============
Issuance of common stock for
payment of dividends on preferred
stock $ 22,438 $ -
============== =============
See accompanying notes to the condensed consolidated financial statements.
F-35
Cycle Country Accessories Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended December 31, 2003 and 2002
(Unaudited)
1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial
statements for the three months ended December 31, 2003 and 2002 have
been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial
information and pursuant to the rules and regulations of the
Securities and Exchange Commission for Form 10-QSB. Accordingly,
they do not include all the information and footnotes required by
accounting principles generally accepted in the United States of
America for complete financial statements. In the opinion of
management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments, consisting only of
normal recurring accruals, considered necessary for a fair
presentation of the Company's financial position, results of
operations, and cash flows for the periods presented.
The results of operations for the interim periods ended December 31,
2003 and 2002 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, 2003
consolidated financial statements and related notes included in the
Company's Annual Report on Form 10-KSB for the year ended September
30, 2003.
2. Inventories:
Inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out method. The major
components of inventories at December 31, 2003 are summarized as
follows:
Raw materials $ 1,697,514
Work in progress 78,389
Finished goods 887,894
--------------
Total inventories $ 2,663,797
==============
3. Accrued Expenses:
The major components of accrued expenses at December 31, 2003 are
summarized as follows:
Distributor rebate payable $ 484,967
Accrued salaries and related benefits 161,802
Accrued warranty expense 39,000
Accrued real estate tax 27,573
Royalties payable 11,836
--------------
Total accrued expenses $ 725,178
==============
F-36
Cycle Country Accessories Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended December 31, 2003 and 2002
(Unaudited)
4. Earnings Per Share:
Basic earnings per share ("EPS") is calculated by dividing net income
by the weighted-average number of common shares outstanding during
the period. Diluted EPS is computed in a manner consistent with that
of basic EPS while giving effect to the potential dilution that could
occur if warrants to issue common stock were exercised and the
preferred stock was converted. Preferred stock dividends are added
back to income since these would not be paid if the preferred stock
were converted to common stock.
The following is a reconciliation of the numerators and denominators
of the basic and diluted EPS computations for the three months ended
December 31, 2003 and 2002:
For the three months ended December 31, 2003
--------------------------------------------
Income Shares Per-share
(numerator) (denominator) amount
--------------- -------------- -------------
Basic EPS
Income available to common stockholders $ 381,672 3,955,344 $ 0.10
============
Effect of Dilutive Securities
Convertible preferred stock 22,438 508,906
Warrants - 211,460
--------------- ------------
Diluted EPS
Income available to common stockholders $ 404,110 4,675,710 $ 0.09
============== ============ ============
For the three months ended December 31, 2002
--------------------------------------------
Income Shares Per-share
(numerator) (denominator) amount
------------- ------------- -------------
Basic EPS
Income available to common stockholders $ 193,280 3,953,000 $ 0.05
============
Effect of Dilutive Securities
Warrants - -
------------- ------------
Diluted EPS
Income available to common stockholders $ 193,280 3,953,000 $ 0.05
============= ============ ============
F-37
Cycle Country Accessories Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended December 31, 2003 and 2002
(Unaudited)
5. 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 three operating
segments that assemble, manufacture, and sell a variety of products:
ATV Accessories, Plastic Wheel Covers, and Lawn and Garden. ATV
Accessories is engaged in the design, assembly, and sale of ATV
accessories such as snowplow blades, lawnmowers, spreaders, sprayers,
tillage equipment, winch mounts, utility boxes, and oil filters.
Plastic Wheel Covers manufactures and sells injection-molded plastic
wheel covers for vehicles such as golf carts and light-duty trailers.
Lawn and Garden is engaged in the design, assembly, and sale of lawn
and garden accessories through our Weekend Warrior subsidiary. These
lawn and garden accessories include lawnmowers, spreaders, sprayers,
and tillage equipment. 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, 2003. Sales of snowplow
blades comprised approximately 76% and 73% of ATV Accessories
revenues during the three months ended December 31, 2003 and 2002,
respectively. In addition, sales of snowplow blades comprised
approximately 71% and 67% of the Company's consolidated total
revenues during the three months ended December 31, 2003 and 2002,
respectively. Sales of Original Equipment Manufacturer (OEM)
products, including John Deere and Land Pride, comprised
approximately 10% and 10% of ATV accessories revenues during the
three months ended December 31, 2003 and 2002, respectively. In
addition, sales of Original Equipment Manufacturer (OEM) products,
including John Deere and Land Pride, comprised approximately 10% and
9% of consolidated total revenues during the three months ended
December 31, 2003 and 2002, respectively. Sales of wheel covers
comprised approximately 8% and 10% of consolidated total revenues
during the three months ended December 31, 2003 and 2002,
respectively.
The following is a summary of certain financial information related
to the three segments during the three months ended
December 31, 2003 and 2002:
2003 2002
------------ ------------
Total revenues by segment
ATV Accessories $ 5,301,118 $ 4,083,228
Plastic Wheel Covers 424,957 457,991
Lawn and Garden 102,410 -
------------ ------------
Total revenues by segment 5,828,485 4,541,219
Freight income 47,621 29,126
Sales allowances (232,250) (156,292)
------------ ------------
Total revenues $ 5,643,856 $ 4,414,053
============ ============
Operating profit by segment
ATV Accessories $ 1,548,627 $ 1,222,935
Plastic Wheel Covers 224,592 265,711
Lawn and Garden 41,096 -
Freight income 47,621 29,126
Sales allowances (232,250) (156,292)
Factory overhead (229,870) (262,700)
Selling, general, and administrative (732,945) (743,200)
Interest income (expense), net (37,102) (58,768)
Other income (expense), net 1,653 5,188
Provision for income taxes (227,312) (108,720)
------------ ------------
Net income $ 404,110 $ 193,280
============ ============
F-38
Cycle Country Accessories Corp. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended December 31, 2003 and 2002
(Unaudited)
5. Segment Information, Continued:
The following is a summary of the Company's revenue in different
geographic areas during the three months ended
December 31, 2003 and 2002
2003 2002
------------------ ------------------
United States of America $ 5,203,737 $ 4,070,798
Other countries 440,119 343,255
------------------ -------------------
Total revenue $ 5,643,856 $ 4,414,053
================== ==================
As of December 31, 2003, 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 total
net revenues, accounted for approximately 24.7%, 15.1%, and 10.0%
each of total net revenues during the three months ended December 31,
2003, and approximately 18.4%, 16.4%, and 11.8% each of total net
revenues during the three months ended December 31, 2002. Plastic
Wheel Covers did not have sales to any individual customer greater
than 10% of total net revenues during the three months ended December
31, 2003 or 2002.
F-39
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 August 18, 2004 (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 11 615,000 SHARES
Management's Discussion and
Analysis 12
Business 25
Management 35
Principal Shareholder 38
selling shareholder 39
Certain Transactions 40
Description of Securities 41
Indemnification 44 PROSPECTUS
Plan of Distribution 45
Legal Matters 47
Experts 47
Where You Can Find More
Information 48
Financial Statements F-1
May 20, 2004
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 $ 432
Legal fees and expenses $ 7,500
Accounting fees and expenses $ 5,000
Miscellaneous* $ 2,068
-----------
Total $ 15,000
*estimate
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 11, 2003 Laurus Master Fund, Ltd. 2,000,000 preferred $2,000,000
June 26, 2002 Go Company, LLC 155,000 common $450,000*
* The shares were issued in lieu of cash for repayment of
$450,000 advanced from Go Company in connection with the
registrant's acquisition of Perf-form, Inc.
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.*
5.1 Opinion of The Law Office of James G.
Dodrill II, P.A. as to legality of securities being registered
10.1 Securities Purchase Agreement entered into
by and among Cycle Country Accessories
Corp., Cycle Country Accessories Corp.
Subsidiary and Laurus Master Fund, Ltd. as
of June 11, 2003.
10.2 Registration Rights Agreement entered into
by and among Cycle Country Accessories Corp
and Laurus Master Fund, Ltd. as of June 11, 2003.
10.3 Warrant issued to Laurus Master Fund, Ltd. on June 9, 2003
23.1 Consent of Tedder, James, Worden &
Associates, P.A. regarding Cycle Country
Accessories Corp. (a Nevada corporation)
23.2 Consent of The Law Office of James G.
Dodrill II, P.A. (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).
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.
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 May 20, 2004
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 May 20, 2004.
By: /s/ Ron Hickman Principal Executive Officer,
--------------------- President and
Ron Hickman Director
By: /s/ David Davis Principal Financial Officer
---------------------- and
David Davis Principal Accounting Officer
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