SB-2/A 1 sb2amnd.txt AMENDMENT 1 TO FORM SB-2 Registration No. 333-68570 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM SB-2/A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (Amendment Number 1) ---------------------- CYCLE COUNTRY ACCESSORIES CORP (Name of Small Business Issuer in its Charter) NEVADA 3714 42-1523809 ------------------------------- ------------------- ---------------- (State of Other Jurisdiction (Primary Standard (IRS Employer of Incorporation or Industrial Identification No.) Organization) Classification Code Number) 2188 Highway 86 Milford, Iowa 51351 (712) 338-2701 (Address and telephone number of principal executive offices and principal place of business) Ronald Hickman 2188 Highway 86 Milford, Iowa 51351 (712) 338-2701 (Name, address and telephone number of agent for service) Copies to: Van Stillman, Esq. James G. Dodrill II, Esq. Van Stillman, P.A. James G. Dodrill II, P.A. 1177 George Bush Blvd., Suite 308 3360 NW 53rd Circle Delray Beach, FL 33483 Boca Raton, FL 33496 (561) 330-9903 (561) 862-0529 ---------------------- Approximate date of proposed sale to the public: As soon as practicable after the effective date of this registration statement. ---------------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. (X) If this Form is filed to register additional securities for an offering pursuant to Rule 462 (b) under the Securities Act, check the following box and list the Securities Act registration statement number of earlier effective registration statement for the same offering. ( ) 1 If this Form is a post-effective amendment filed pursuant to Rule 462 (c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ( ). If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. ( ).
CALCULATION OF REGISTRATION FEE PROPOSED PROPOSED MAXIMUM MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO OFFERING AGGREGATE AMOUNT OF SHARES TO BE BE PRICE PER OFFERING REGISTRATION REGISTERED REGISTERED SHARE (1) PRICE FEE ______________________ ___________ _________ _________ ____________ Common Stock, $.0001 par value to be 3,625,000 $5.00 $18,125,000 $4,531.25 sold by selling shareholders Common Stock underlying certain 2,000,000 $4.00 $8,000,000 $2,000.00 currently unexercised warrants issued by the Company TOTAL 5,625,000 $26,125,000 $6,531.25 ---------------------- (1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457. -------------------------------------------
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state in which the offer or sale is not permitted. ii 2 PROPECTUS SUBJECT TO COMPLETION, DATED OCTOBER 26, 2001 5,625,000 Shares of Common Stock CYCLE COUNTRY ACCESSORIES CORP. The Offering: This is our initial public offering. We are registering a total of 5,625,000 shares of our common stock. Of this total: (a) 3,625,000 shares are being offered by selling shareholders and are being registered for sale at an estimated price of $5.00 per share. (b) 2,000,000 shares may be issued by us in connection with certain outstanding warrants which are exercisable at $4.00 per share. There is no established public market for our common stock and we have arbitrarily determined the offering price. Although we hope to be quoted on the OTC Bulletin Board, our common stock is not currently listed or quoted on any quotation service. There can be no assurance that our common stock will ever be quoted on any quotation service or that any market for our stock will ever develop. Proposed Trading Symbol: OTC Bulletin Board - "CCAC" _________________________________ Investing in our stock involves risks. You should carefully consider the Risk Factors beginning on page 8 of this prospectus. We have not authorized anyone else to provide you with different information. The common stock is not being offered in any state where the offer is not permitted. You should not assume that the information in this prospectus or any supplement is accurate as of any date other than the date on the front of those documents. ______________________ Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. _______________________ The information in this prospectus is not complete and may be changed. None of these securities may be sold until a registration statement filed with the Securities and Exchange Commission is effective. The prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. The date of this prospectus is October 26, 2001 3 TABLE OF CONTENTS PAGE Prospectus Summary 3 The Offering 4 Summary Financial Information 6 Risk Factors 7 Use of Proceeds 11 Determination of Offering Price 11 Dividend Policy 11 Dilution 12 Management's Discussion and Analysis of Financial Condition and Results of Operations 13 Business 18 Management 26 Principal Shareholders 29 Selling Shareholders 30 Certain Transactions 32 Description of Securities 33 Indemnification 35 Plan of Distribution 36 Legal Matters 37 Experts 37 Where You Can Find More Information 38 Index to Financial Statements F-1 As used in this prospectus, the terms "we," "us," "our," "the Company," and "Cycle Country" mean Cycle Country Accessories Corp., a Nevada corporation and Cycle Country Accessories Corp. an Iowa corporation (our predecessor corporation). The term "selling shareholders" means our shareholders who are offering to sell their shares of Cycle Country common stock that are being registered through this prospectus. The term "common stock" means our common stock, par value $0.0001 per share and the term "Shares" means the 5,625,000 shares of common stock being offered through this prospectus. 2 4 PROSPECTUS SUMMARY Because this is a summary, it does not contain all of the information that may be important to you. You should read the entire prospectus. You should consider the information set forth under "Risk Factors" and our financial statements and accompanying notes that appear elsewhere in this prospectus. Cycle Country Accessories Corp. We are one of the world's largest manufacturers of accessories for all terrain vehicles ("ATVs"). We manufacture a complete line of branded products, including snowplow blades, lawnmowers, spreader, sprayers, tillage equipment, winch mounts, utility boxes, wheel covers and an assortment of other ATV accessory products. These products custom fit essentially all ATV models from Honda, Yamaha, Kawasaki, Suzuki, Polaris, Arctic Cat and Bombardier. We design, engineer and assemble all accessory products at our headquarters and subcontract the manufacture of many original equipment components. In 2000 there were 800,000 ATVs sold worldwide, representing a 19.2% increase over 1999 according to ATV Magazine. According to ATV Magazine, of these 800,000 units, 75% were Utility ATVs, which we consider to be our target market. We estimate that we produce 50% of the Utility ATV accessories sold nationally. Additionally we estimate that we produce approximately 50% of the ATV accessories in the international markets to which we distribute. We were incorporated in Iowa in 1983, reincorporated in Nevada in 2001 and have sold our products to 16 distributors in the United States for the past 20 years. Additionally, we currently have 19 international distributors distributing our products to 35 countries. For the fiscal year ended September 30, 2000, we achieved revenues of approximately $12,800,000. Our principal office is located at 2188 Highway 86, Milford, Iowa 51351 (Telephone (712) 338-2701, fax (712) 338-2601). Our internet address is www.cyclecountry.com. 3 5 The Offering Securities Offered 5,625,000 shares of common stock. Of this amount, 3,625,000 shares are being offered by the selling shareholders; and 2,000,000 may be issued by us in connection with certain outstanding warrants; See"Description of Securities" Common Stock Outstanding, before offering 3,625,000 Common Stock Outstanding, after offering 5,625,000 Proposed OTC Bulletin Board Symbol CCAC Use of Proceeds We intend to use the proceeds from the sale of any of the shares underlying the warrants for retirement of short and long term debt at Bank Midwest and for general corporate purposes. We will not receive any proceeds from the sale of common stock by our selling shareholders. See "Use of Proceeds." Dividend Policy We do not intend to pay dividends on our common stock. We plan to retain any earnings for use in the operation of our business and to fund future growth. 4 6 Risk Factors The securities offered by this prospectus are highly speculative and very risky. We have described the material risks that we face below. Before you buy, consider the risk factors described and the rest of this prospectus. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this prospectus. Please refer to "Risks Associated with Forward-looking Statements" on page 11. 5 7 Summary Financial Information The following is a summary of our Financial Statements, which are included elsewhere in this prospectus. You should read the following data together with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of this prospectus as well as with our Financial Statements and the notes therewith.
Year ended Year ended Nine months Nine months September September ended June 30, ended June 30, 30, 2000 30, 1999 2001 2001 ---------- ---------- (unaudited) (unaudited) ----------- ----------- Statement of Operations Data: Total Revenue $12,779,471 $11,469,502 $10,004,436 $10,054,906 Gross Profit $ 3,641,309 $ 3,611,113 $ 3,073,108 $ 3,036,219 Net Income $ 1,020,776 $ 995,915 $ 1,009,423 $ 1,078,795 ----------- ----------- ----------- --_--------
As of As of September June 30, 2001 30,2000 (unaudited) Balance Sheet Data Cash and cash equivalents $ 368,797 $ 516,332 Total current assets $ 3,980,922 $ 3,618,832 Total assets $ 5,235,443 $ 4,878,377 Total current liabilities $ 991,502 $ 630,613 Total stockholders' equity $ 4,243,941 $ 4,247,764 Total liabilities and stockholders' equity $ 5,235,443 $ 4,878,377 6 8 RISK FACTORS The securities offered are highly speculative. You should purchase them only if you can afford to lose your entire investment in us. You should carefully consider the following risk factors, as well as all other information in this prospectus. Certain important factors may affect our actual results and could cause those results to differ significantly from any forward-looking statements made in this prospectus or otherwise made by us or on our behalf. For this purpose, any statements contained in this prospectus that are not statements of historical fact should be considered to be forward-looking statements. Words such as "may," "expect," "believe," "anticipate," "intend," "could," "estimate," or "continue" or the negatives of those words, identify forward- looking statements. These statements appear in a number of places in this prospectus and include statements as to our intent, belief or expectations. These forward-looking statements are subject to the risks detailed below or elsewhere in this prospectus, or detailed from time to time in our filings with the Securities and Exchange Commission. See "Risks Associated With Forward-Looking Statements" on page 10. Investors should assume that, even if not specifically stated within this document, if any of the following risks actually materialize, our business, financial condition or results of future operations could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment. Our revenues and earnings could be negatively affected if we cannot anticipate market trends, enhance existing products and achieve market acceptance of new products. Our ability to continue and expand the sales levels that we typically achieved in prior years is largely dependent on our ability to successfully anticipate and respond to changing consumer demands and trends in a timely manner. This includes introducing new or updated products at prices acceptable to customers. Our ability to maintain market acceptance and achieve further acceptance for our products will depend upon our ability to: - maintain a strong and favorable brand image; - maintain a reputation for high quality; and - continue to develop our network of distributors to sell our products both domestically and internationally. We can give you no assurance that the market for our products will continue to develop or that large demand for these products will be sustainable. In addition, we may incur significant costs in our attempt to maintain or increase market acceptance for our products. 7 9 Our sales are highly dependent on the effectiveness of our distributor networks. Our level of sales depends to a great extent upon the effectiveness of our distributor networks. We can offer no assurance that these distributors will continue to have the success they have historically. Our sales may be impacted by weather conditions. As a manufacturer of accessories for outdoor motorized equipment, our sales may be impacted by weather conditions. For example, lack of snowfall in any year in any particular region of the United States or Canada may adversely affect demand for our snow plow. There is no assurance that certain weather conditions would not have a material adverse effect on our sales. Our officers and directors are not required to continue as shareholders. We are registering all shares of our common stock that are currently outstanding. Additionally, there is no requirement that any of our officers and/or directors retain any of their shares of our common stock. Accordingly, there is no assurance that all or any of our officers and/or directors will continue to maintain an equity interest in the company. A large percentage of our sales are made to our three largest customers. Our three largest customers accounted for approximately 45% of our net sales in the year ending September 30, 2000. These three customers have represented a significant amount of our business every year for at least the past 16 years. The loss of any or all of these customers would have a material adverse impact on the results of our operations. We face product liability claims. Product liability claims are made against us from time to time. We currently carry $2 million in product liability insurance. Over the past seven years, we paid an aggregate of less than $30,000 in product liability claims, and the largest single judgment against us has been for $21,000. No assurance can be given that our historical claims record will not change or that material product liability claims against us will not be made in the future. Adverse determination of material product liability claims made against us could have a material adverse effect on our financial condition. Our products could contain defects creating product recalls and warranty claims that could materially adversely affect our future sales and profitability. Our products could contain unforeseen defects. These defects result in product recalls and warranty claims. A product recall could delay or halt production of the affected product until we are able to address the reasons for any defects. Recalls may also have a materially negative effect on our brand image and public perception of the affected product. This could materially adversely affect our future sales. Recalls or other defects would be costly and could require substantial expenditures. We offer a standard one-year warranty on all products except snow plows, on which we offer a limited life time warranty. Although we employ quality control procedures, a product is sometimes distributed which needs repair or replacement. Historically, product recalls have been administered through our distributors and have not had a material effect on our business. However, no assurance can be given that our 8 10 historical claims record will not change adversely as a result of our growth or otherwise. Unanticipated defects could also result in product liability litigation against us. Given the nature of our products, we have in the past and expect in the future to be subject to potential product liability claims that, in the absence of sufficient insurance coverage, could have a material adverse effect on us. Although we currently maintain liability insurance coverage, this coverage may not be adequate to cover all product liability claims. Any large product liability claim could materially adversely affect our ability to market our products. We face substantial competition. We face competition from various companies in each product line we offer. A number of our competitors are well financed and could develop innovative products that would reduce our market share. Additionally, as we expand our product offerings into new markets and into offering new products we will face additional competition. Competition in foreign markets may also be affected by duties, tariffs, taxes and the effect of various trade agreements, import restrictions and fluctuations in exchange rates. A recession could detrimentally affect our sales. Our sales are partially dependent on discretionary consumer spending, which may be affected by general economic conditions. A recessionary environment could result in a decrease in consumer spending in general, which could result in decreased spending in our markets directly or in the overall market for ATV's, either of which could have a material adverse effect on our business, operating results and financial condition. Additionally, factors that influence the general economic climate, such as consumer confidence levels, interest rates, employment trends and fuel availability and prices could also result in decreased spending in our markets. Because in the short term most of our operating expenses are relatively fixed, we may be unable to adjust spending sufficiently in a timely manner to compensate in the event of any unexpected sales shortfall. If we fail to make these adjustments quickly, our operating results and financial condition could be materially adversely affected. Your ownership will be diluted. The offering price per share is substantially in excess of the net tangible book value of our common stock. You will experience immediate and substantial dilution in the net tangible book value of your investment. In addition, we anticipate initiating a stock option plan. Issuance of securities pursuant to plan or otherwise may also dilute your ownership interest. See "Dilution." Our quarterly financial results may fluctuate significantly. Our quarterly operating results will likely fluctuate significantly in the future as a result of a variety of factors, some of which are outside our control. These factors include: * General economic and market conditions; * Pricing changes in the industry; * The amount and timing of orders from retailers; * The timing of shipments and new product introductions; * Manufacturing delays; * Seasonal variations in the sale of our products; * Product mix; and * Pricing changes in our products. Due to these factors, our quarterly operating results may fall below any market expectations that may arise. If this happens, the trading price of our common stock would likely decline, perhaps significantly. There has never been a market for our common stock. 9 11 Prior to this offering, there has been no public trading market for our common stock and there can be no assurances that a public trading market for the common stock will develop or, if developed, will be sustained. Although we hope to be accepted for quotations on the Over the Counter Bulletin Board, there can be no assurance that a regular trading market will develop for the common stock offered through this prospectus, or, if developed, that it will be maintained. There is no assurance of future dividends being paid. At this time we do not anticipate paying dividends in the future, but instead plan to retain any earnings for use in the operation of our business and to fund future growth. We are under no legal or contractual obligation to declare or to pay dividends, and the timing and amount of any future cash dividends and distributions is at the discretion of our Board of Directors and will depend, among other things, on our future after-tax earnings, operations, capital requirements, borrowing capacity, financial condition and general business conditions. Risks associated with forward looking statements. This prospectus contains certain forward-looking statements regarding management's plans and objectives for future operations, including plans and objectives relating to our planned marketing efforts and future economic performance. The forward-looking statements and associated risks set forth in this prospectus include or relate to: (1) our ability to obtain a meaningful degree of consumer acceptance for our products now and in the future, (2) our ability to market our products on a global basis at competitive prices now and in the future, (3) our ability to maintain brand-name recognition for our products now and in the future, (4) our ability to maintain an effective distributors network, (5) our success in forecasting demand for our services now and in the future, (6) our ability to maintain pricing and thereby maintain adequate profit margins, (7) our ability to achieve adequate intellectual property protection and (8) our ability to obtain and retain sufficient capital for future operations. 10 12 USE OF PROCEEDS We will not receive any proceeds from the sale of securities being offered by our selling shareholders. We intend to use the proceeds from the sale of any of the 2,000,000 shares underlying the warrants for retirement of any outstanding amounts of our $500,000 available line of credit (none outstanding at October 24, 2001; interest at prime plus 1.25% (6.75% at October 24,2001) and the $4.5 million term note ($4,440,512 outstanding at October 24, 2001; interest at prime plus .75% (6.25% at October 24, 2001) at Bank Midwest and for general corporate purposes; however, there can be no assurance that all or any portion of these shares will be sold. The proceeds of the $4.5 million term note were used to purchase all of the outstanding common stock of Cycle Country Accessories Corp. (Iowa) as further described on page 13. If all of the 2,000,000 shares of common stock offered by us are purchased at $4.00, we will receive gross proceeds of $8,000,000. The long-term debt carries an interest rate of Prime + .75%, which amounted to 6.25% as of October 24, 2001. The short-term debt carries an interest rate of Prime + 1.25%, which amount to 6.75% as of October 24, 2001. The long term debt was used for the purchase of our land, buildings and some of our equipment. If less than all of the 2,000,000 shares are acquired by exercise of the warrants, we will use any proceeds raised first for the retirement of debt at Bank Midwest then any remaining funds will be used for general corporate purposes. We expect to incur expenses of approximately $142,500 in connection with the registration of the shares. DETERMINATION OF OFFERING PRICE Prior to this offering, there has been no market for our common stock. The offering price of the shares was arbitrarily determined and bears no relationship to assets, book value, net worth, earnings, actual results of operations, or any other established investment criteria. Among the factors considered in determining the price were our historical sales levels, estimates of our prospects, the background and capital contributions of management, the degree of control which the current shareholders desired to retain, current conditions of the securities markets and other information. DIVIDEND POLICY It is our present policy not to pay cash dividends and to retain future earnings for use in the operations of the business and to fund future growth. Any payment of cash dividends in the future will be dependent upon the amount of funds legally available, our earnings, financial condition, capital requirements and other factors that the Board of Directors may think are relevant. 11 13 DILUTION As of June 30, 2001, the pro forma net tangible book value of our common stock was $948,127 or $0.26 per share of common stock outstanding. The net tangible book value of our common stock is calculated as the tangible assets less total liabilities of Cycle Country Accessories Corp. (an Iowa corporation). See "Management's Discussion and Analysis" and "Unaudited Pro Forma Financial Information" on page F-35 for a detailed explanation of the nature and terms of the transactions which have occurred and have been reflected in the calculation of the pro forma net tangible book value. Dilution per share represents the difference between the amount paid per share by purchasers in this Offering and the pro forma net tangible book value per share after the Offering. All shares of common stock in this offering are being issued by Cycle Country Accessories Corp. (a Nevada corporation). Subsequent to the transactions described in "Management's Discussion and Analysis" and "Unaudited Pro Forma Financial Information", Cycle Country Accessories Corp. (a Nevada corporation) will be the successor company to the business activities of Cycle Country Accessories Corp. (an Iowa corporation). After giving effect to the sale by us of 2,000,000 shares of common stock pursuant to the exercise of outstanding warrants and the application of the net proceeds thereof, the pro-forma net tangible book value of our common stock at June 30, 2001 would have been $948,127 or $1.59 per share. This represents an increase in our net tangible book value per share of $1.33 to our existing shareholders and an immediate dilution of $2.41 or 60% per share to the purchasers of our common stock. The following table illustrates this dilution on a per share basis: Exercise Price per share $ 4.00 Net Tangible Book Value per share before sale $ 0.26 Increase Per Share attributable to sale of these shares $ 1.33 Pro Forma Net Tangible Book Value after offering $ 1.59 Dilution per share to New Investors $ 2.41 The following table summarizes as of August 21, 2001, the number of shares purchased as a percentage of our total outstanding shares, the aggregate amount paid for these shares, the aggregate amount paid figured as a percentage of the total amount paid, and the average amount paid per share for these shares (see "Certain Transactions with Management and Others" for a description of these transactions). For purposes of this table, the sale to the public of these shares is assumed to have taken place on August 21, 2001.
Shares Purchased Total Consideration Paid Average Price Number Percent Amount Percent per Share ------ ------- ------ ------- ------------- Existing Shareholders 3,625,000 64.45% $4,656,920 36.79% $1.28 New Investors 2,000,000 35.55% $8,000,000 63.21% $4.00 --------- ------ ---------- ------ ----- Total 5,625,000 100.00% $12,656,920 100.00% $2.25
12 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following is a discussion of our results of operations and our liquidity and capital resources. To the extent that our analysis contains statements that are not of a historical nature, these statements are forward-looking statements, which involve risks and uncertainties. See "Risks Associated With Forward Looking statements". The following should be read in conjunction with our Financial Statements and the related Notes included elsewhere in this prospectus. Overview -------- Cycle Country Accessories Corp. (a Nevada corporation) was incorporated in the state of Nevada on August 15, 2001 as a C corporation. The initial capitalization consisted of 3,625,000 shares of common stack. On August 21, 2001, we entered into an agreement to purchase all of the outstanding common stock of Cycle Country Accessories Corp. (an Iowa corporation) for $4,500,000 in cash and 1,375,000 shares of our common stock. Cycle Country Accessories Corp. (an Iowa corporation) was originally incorporated on August 8, 1983 and is headquartered in Milford, Iowa. Since both Companies are under common control by virtue of majority ownership and common management by the same three individuals, this transaction was accounted for in a manner similar to a pooling of interests. We used the proceeds from a $4,500,000 term note (the "Note") entered into with a commercial lender to purchase all of the outstanding common stock of Cycle Country Accessories Corp. (an Iowa corporation). The Note is collateralized by all of the Companies assets, is payable in monthly installments from September 2001 to July 2006, which includes principal and interest at prime + 0.75% (6.25% at October 24, 2001), with a final payment upon maturity on July 25, 2006. The monthly payment is $90,115 and is applied to interest first based on the interest rate in effect, with the balance applied to principal. The interest rate is adjusted daily. Additionally, any proceeds from the sale of stock received from the exercise of any of the 2,000,000 outstanding warrants shall be applied to any outstanding balance on the Note. At October 24, 2001, $4,440,512 was outstanding on the Note. On August 21, 2001, Cycle Country Accessories Corp. (an Iowa corporation) acquired its operating facility, which consisted of land and buildings with a fair value of $1,500,000, from certain stockholders. The consideration given was comprised of $300,000 in cash and 390,000 shares of common stock of Cycle Country Accessories Corp. (a Nevada corporation). On August 14, 2001, Cycle Country Accessories Corp. (an Iowa corporation) merged with Okoboji Industries Corporation. Since both Companies were owned and managed by the same three individuals, this transaction was also accounted for in a manner similar to a pooling of interests. As a result of the transactions described above, we are the Successor Company to the business activities of the aforementioned companies. We are the one of the world's largest manufacturers of accessories for all terrain vehicles ("ATVs"). We manufacture a complete line of branded products, including snowplow blades, lawnmowers, spreaders, sprayers, tillage equipment, winch mounts, utility boxes, wheel covers and an assortment of other ATV accessory products. These products custom fit essentially all ATV models from Honda, Yamaha, Kawasaki, Suzuki, Polaris, Arctic Cat and Bombardier. We design, engineer and assemble all accessory products at our headquarters and subcontract the manufacturer of many original equipment components. 13 15 We are recognized as a leader in the manufacturing of high quality ATV accessory products. This reputation has enabled us to develop key, long term relationships with ATV manufacturers and distributors. We have sold our products to 16 distributors in the United States for the past 20 years. The distributors call on and sell Cycle Country products to virtually every ATV dealer in North America. Similar strategic arrangements have also been developed internationally. We currently have 19 international distributors distributing our products to 35 countries. Additionally, we are the largest manufacturer of golf car hubcaps in the world. We estimate that we maintain 95% of the Original Equipment Manufacturer hubcap business. We have always sold directly to golf car manufactures and we believe that we have an excellent distribution network that reaches the after market throughout the United States, Europe and Asia. Results of Operations - Year ended September 30, 2000 vs Year ended September 30, 1999 ------------------------------------------------------------- OVERALL Revenues for the year ended September 30, 2000 increased $1,309,969, or 11.4%, to $12,779,471 from $11,469,502 for the year ended September 30, 1999. Cost of goods sold increased $1,279,773, or 16.3%, to $9,138,162 for the year ended September 30, 2000 from $7,858,389 for the corresponding period in fiscal 1999. Gross profit as a percentage of revenue was 28.5% in fiscal 2000 compared to 31.5% in fiscal 1999. Selling, general and administrative expenses decreased $66,849, or 2.5%, to $2,646,331 for the year ended September 30, 2000, from $2,713,180 for the corresponding period in fiscal 1999. The decrease in operating expenses is primarily the result of decreases of approximately $82,000 in sales & marketing rebates, approximately $21,000 in freight costs, approximately $12,000 in advertising, and approximately $10,000 in salaries & related benefits coupled with increases of approximately $25,000 in office expense & shipping supplies, approximately $20,000 in fuel costs and approximately $10,000 in vehicle repairs. Non-operating income decreased $72,184, or 73.7%, to $25,798 for the year ended September 30, 2000, from $97,982 for the corresponding period in fiscal 1999. The decrease is primarily due to decreases of approximately $25,000 in royalty income, approximately $27,000 in truck lease income and approximately $28,000 for the write-off of an investment of the Company during fiscal 2000 coupled with an increase of approximately $7,000 from gains on sale of equipment during fiscal 2000. BUSINESS SEGMENTS As more fully described in Note 15 to the Combined Financial Statements, the Company operates in two reportable business segments: ATV Accessories and Plastic Wheel Covers. The gross margins are vastly different in our two reportable business segments due to the fact that we assemble our ATV Accessories (i.e. we outsource the ironworks to our main supplier) and are vertically integrated in our Plastic Wheel Cover segment. ATV ACCESSORIES Revenues for the year ended September 30, 2000 increased $1,286,799, or 13.2%, to $11,022,322 from $9,735,523 for the year ended September 30, 1999. The increase was largely attributable to an increase in unit volume of our Snowplow Blades which accounted for approximately $880,000 of the increase in revenue of the ATV Accessories segment. Approximately $340,000 of the increase in revenue was caused by the introduction of a new product, an Electric Blade Lift, during fiscal 2000. The remaining increase is attributable to a general increase in product sales during the fiscal year. 14 16 Cost of goods sold increased $858,437, or 12.4%, to $7,764,895 for the year ended September 30, 2000 from $6,906,458 for the corresponding period in fiscal 1999. The increase is attributable to the increase in revenues during the same period. Gross profit as a percentage of revenue was 29.6% in fiscal 2000 compared to 29.1% in fiscal 1999. The increase in gross profit for fiscal 2000 was primarily due to raw material cost savings due to additional purchases during fiscal 2000. PLASTIC WHEEL COVERS Revenues for the year ended September 30, 2000 increased $142,703, or 7.7%, to $1,978,307 from $1,835,604 for the year ended September 30, 1999. The increase in revenue for the period was attributable to an increase in unit volume of plastic wheel covers sold. Cost of goods sold increased $239,288, or 36.1%, to $902,157 for the year ended September 30, 2000 from $662,869 for the corresponding period in fiscal 1999. The increase was attributable to the increase in revenue, a better allocation of manufacturing overhead between the ATV Accessories & Plastic Wheel Cover segments and additional work that needed to be performed on some plastic wheel covers during fiscal 2000. The additional work required during fiscal 2000 is not indicative of future costs and should not be a reoccurring cost in fiscal 2001. Gross profit as a percent of revenue was 54.4% in fiscal 2000 compared with 63.9% in fiscal 1999. The decrease in gross profit for fiscal 2000 was primarily due the increases in cost of goods sold as discussed above. GEOGRAPHIC REVENUE During fiscal 2000, revenue in the United States increased by $1,393,975, or 13.2%, to $11,989,031 for the year ended September 30, 2000 from $10,595,056 for the corresponding period in fiscal 1999. The increase in revenue is due to the large amount of snow received in the United States during fiscal 2000 which caused an increase in sales of Snow Plow Blades and other related equipment. Revenue from other countries decreased by $84,006 during fiscal 2000. The decrease in revenues is primarily due to fewer sales in the Central & South America region. Results of Operations - Nine months ended June 30, 2001 vs Nine months ended June 30, 2000 ------------------------------------------------------------------- OVERALL Revenues for the nine months ended June 30, 2001 remained relatively constant, decreasing less than 1%, or $50,470 to $10,004,436 from $10,054,906 for the nine months ended June 30, 2000. Cost of goods sold also held relatively constant, decreasing 1.2%, or $87,359 to $6,931,328 for the nine months ended June 30, 2001 from $7,018,687 for the corresponding period in fiscal 1999. Additionally, gross profit as a percentage of revenue was 30.7% for the nine months ended June 30, 2001 compared to 30.2% for the corresponding period in fiscal 1999. Selling, general and administrative expenses increased $168,864, or 8.6%, to $2,132,002 for the nine months ended June 30, 2001 from $1,963,138 for the corresponding period in fiscal 1999. The increase in operating expenses is primarily a result of additional spending of approximately $45,000 in professional fees, approximately $39,000 in advertising, approximately $37,000 in sales & marketing rebates, approximately $24,000 in insurance, approximately $20,000 each in travel costs and vehicle repairs, and approximately $15,000 in fuel costs coupled with a decrease of approximately $30,000 in freight costs. Non-operating income increased $62,603, or 1095.6%, to $68,317 for the nine months ended June 30, 2001, from $5,714 for the corresponding period in 1999. The increase is primarily due to increases of approximately $12,000 of interest income, approximately $32,000 of consulting income earned coupled with a decrease of approximately $9,000 in royalty income during the nine months ended June 30, 2001 and the write-off of an investment of the Company of approximately $28,000 during fiscal 2000. 15 17 ATV ACCESSORIES Revenues for the nine months ended June 30, 2001 remained relatively constant, increasing $30,860, or 0.4%, to $8,654,437 from $8,623,577 for the nine months ended June 30, 2000. Cost of goods sold decreased $146,240, or 2.4%, to $5,911,398 for the nine months ended June 30, 2001 from $6,057,638 for the corresponding period in fiscal 2000. The decrease is due to a decrease in material costs during the nine months ended June 30, 2001 as compared to the corresponding period in fiscal 2000. Gross profit as a percent of revenues was 31.7% for the nine months ended June 30, 2001 compared to 29.8% for the corresponding period in 2000. The increase in gross profit for the nine months ended June 30, 2001 was attributable to the factor discussed above. PLASTIC WHEEL COVERS Revenues for the nine months ended June 30, 2001 decreased by $87,825, or 5.6%, to $1,493,401 from $1,581,226 for the nine months ended June 30, 2000. The decrease in revenue was attributable to changes in current market conditions. Our new product will address the needs of the new market. Cost of goods sold increased $14,354, or 3.3%, to $448,451 for the nine months ended June 30, 2001 from $434,097 for the corresponding period in fiscal 2000. Gross profit as a percent of revenue was 70.0% for the nine months ended June 30, 2001 compared to 72.5% for the corresponding period in fiscal 2000. The decrease in gross profit for the nine months ended June 30, 2001 was attributable to lower unit volume which absorbs more manufacturing overhead on a per unit basis. GEOGRAPHIC REVENUE Revenue in the United States remained relatively constant, decreasing $41,145, or 0.4%, to $9,357,761 from $9,398,906 for the nine months ended June 30, 2000. Revenue from other countries also remained relatively constant, decreasing $9,325, or 1.4%, to $646,675 from $656,000 for the nine months ended June 30, 2000. Liquidity and Capital Resources Our primary source of liquidity has been cash generated by our operations. Cash and cash equivalents were $368,797 at September 30, 2000 compared to $516,332 as of June 30, 2001. Net working capital was $2,989,420 at September 30, 2000 compared to $2,988,219 at June 30, 2001. Inventories decreased from $2,791,317 at September 30, 2000 to $2,291,387 at June 30, 2001. The Company maintains a line of credit agreement with a commercial lender providing for borrowings for the lesser of $500,000 or 80% of eligible accounts receivable and 35% of eligible inventory. The line of credit agreement is dated August 21, 2001 and matures on August 25, 2002. The line of credit bears interest at the prime rate + 1.25%, is collateralized by all of the Companies assets. At September 30, 2000 and June 30, 2001, there were no amounts outstanding under this line of credit agreement. At September 30, 2000, we had a short-term note payable of $100,000 that has been subsequently repaid. As of June 30, 2001, we had no outstanding long-term or short-term debt. 16 18 Consistent with normal practice, management believes that the Company's operations are not expected to require significant capital expenditures during fiscal year 2001. Management believes that existing cash balances, cash flow to be generated from operating activities and available borrowing capacity under its line of credit agreement will be sufficient to fund operations, and capital expenditure requirements for at least the next twelve months. At this time management is not aware of any factors that would have a materially adverse impact on cash flow during this period. Forward Looking Statements Certain statements in this report are forward-looking statements within the meaning of the federal securities laws. Although the Company believes that the expectations reflected in its forward- looking statements are based on reasonable assumptions, there are risks and uncertainties that may cause actual results to differ materially from expectations. These risks and uncertainties include, but are not limited to, competitive pricing pressures at both the wholesale and retail levels, changes in market demand, changing interest rates, adverse weather conditions that reduce sales at distributors, the risk of assembly and manufacturing plant shutdowns due to storms or other factors, and the impact of marketing and cost- management programs. Recent Accounting Pronouncements SFAS No. 141, "Business Combinations", establishes financial accounting and reporting standards for business combinations and supercedes APB Opinion No. 16, "Business Combinations" and SFAS No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises". All business combinations in the scope of SFAS No. 141 are to be accounted for using the purchase method of accounting. Adoption of SFAS No. 141 is not expected to have a material effect on the Company, inasmuch as the Company has historically not participated in any business combinations. SFAS No. 142, "Goodwill and Other Intangible Assets", establishes financial accounting and reporting standards for acquired goodwill and other intangible assets and supercedes APB Opinion No. 17, "Intangible Assets". SFAS No. 142 establishes standards as to how intangible assets that are acquired (but not acquired in a business combination) should be accounted for in financial statements upon their acquisition. In addition, SFAS No. 142 establishes standards how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. Adoption of SFAS No. 142 is not expected to have a material effect on the Company, inasmuch as the Company has historically not had a material amount of intangible assets and no goodwill recorded in the financial statements. 17 19 BUSINESS GENERAL Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company) was incorporated in the state of Nevada on August 15, 2001 as a c corporation. On August 21, 2001, we entered into an agreement to purchase all of the outstanding common stock of Cycle Country Accessories Corp. (an Iowa corporation) (the Predecessor Company) for $4,500,000 in cash and 1,375,000 shares of our common stock. Cycle Country Accessories Corp. (an Iowa corporation) (the Predecessor Company) was originally incorporated on August 8, 1983 and is headquartered in Milford, Iowa. In addition, on August 14, 2001, Cycle Country Accessories Corp. (an Iowa corporation) (the Predecessor Company) merged with Okoboji Industries Corporation. Okoboji Industries Corporation manufactured the plastic wheel covers for what is considered our Plastic Wheel Cover segment. As a result of these transactions we are the Successor Company to the business of both companies. We are one of the world's largest manufacturers of accessories for all terrain vehicles ("ATVs"). We manufacture a complete line of branded products, including snowplow blades, lawnmowers, spreader, sprayers, tillage equipment, winch mounts, utility boxes, wheel covers and an assortment of other ATV accessory products. These products custom fit essentially all ATV models from Honda, Yamaha, Kawasaki, Suzuki, Polaris, Arctic Cat and Bombardier. We design, engineer and assemble all accessory products at our headquarters and subcontract the manufacturer of many original equipment components. Additionally, we recently made the decision to enter the Lawn and Garden industry. We are recognized as a leader in the manufacturing of high quality ATV accessory products. This reputation has enabled us to develop key, long term relationships with ATV manufacturers and distributors. We have sold our products to 16 distributors in the United States for the past 20 years. The distributors call on and sell Cycle Country products to virtually every ATV dealer in North America. Similar strategic arrangements have also been developed internationally. We currently have 19 international distributors distributing our products to 35 countries. Additionally, we are the largest manufacturer of golf car hubcaps in the world. We estimate that we maintain 95% of the original equipment manufacturer ("OEM") hubcap business. We have always sold directly to golf car manufacturers and we believe that we have an excellent distribution network that reaches the after market throughout the United States, Europe and Asia. Our three largest customers accounted for approximately 45% of our net sales in the year ending September 30, 2000. These three customers have represented a significant amount of our business every year for at least the past 16 years. While the percentage of total net sales these customers represent should decrease as our sales grow in other areas, such as Lawn and Garden, we do anticipate these customers will continue to represent a significant amount of our business. INDUSTRY OVERVIEW ATV Accessories: ---------------- In today's ATV market there are several OEMs competing for market share. Honda has been the world leader followed by Polaris, Yamaha, Kawasaki, Suzuki, Arctic Cat and Bombardier. According to ATV Magazine, in 2000 there were 800,000 ATV's sold worldwide. This represented a 19.2% increase over 1999. Of those 800,000 units 75% were Utility and 40% were Sport Quads. We consider the Utility Division to be our target market. Our market research tells us that the manufacturers of garden tractors and utility vehicles need accessories similar to those available in the ATV industry. We are currently working with some of these companies and expect to substantially expand that market in the very near future. In addition to our accessory line we manufacture several products under private label and we intend to expand on that market. 18 20 Wheel Covers: ------------- The golf car industry continues to expand each year and is currently dominated by E-Z-Go, Club Car and Yamaha. Global, Par Car and a few other OEM's compete for the remainder of the market. We estimate that we maintain 95% of the OEM hubcap business and are the largest manufacturer of golf car hubcaps in the world. We have always sold directly to all the golf car manufacturers and we have an excellent distribution network throughout the United States, Europe and Asia to reach the after market. COMPANY HISTORY Cycle Country's market research has been a continued work in process for the past 20 years and that work still continues today. Our success was accomplished by constant market research and a constant effort to adjust to the changes in the industry. When we started in the ATV accessory industry, ATV's were much smaller. They were small 3-wheeled vehicles with two-wheel drive. Today they are powerful 4-wheel drive vehicles capable of doing many more tasks. The ATV industry falls within both recreational and machinery industry depending on the product and consumer. In 2000, approximately 800,000 units were sold worldwide and there are approximately 3 million units on the market today. Prospective ATV buyers lean toward a new purchase because of the strides manufacturers have made in product development. Partly due to our line of utility products the ATV manufacturers have focused their efforts to incorporate four wheel drive and making larger ATV's for greater hauling and work capacity. The idea for our business was born in 1981 when Jim Danbom recognized that an ATV could be used to plow snow. He manufactured and sold 100 snow plow kits that year. He sold more the next year and then in 1983 decided to incorporate. The business has grown every year since. Now in addition to snowplows Cycle Country manufactures and sells a full range of farm products designed for the new and more powerful ATV's. These products include mowers, sprayers, 3-point hitch, moldboard plow, disc harrow, furrower, cultivator, rake, row planter, and seeder. We also manufacture winch mounts, chains, gun racks, and a very unique 5th wheel trailer. Over the last several years, we have expanded into manufacturing injected molded wheel covers primarily for the golf cart industry. We are now crossing over into the lawn & garden industry with some current products as well as creating new items specifically for that industry. PRODUCTS ATV Accessories --------------- We offer a complete line of ATV accessories. Our products enhance the functionality and versatility of the ATV. The ATV was initially designed as a recreational vehicle but is rapidly becoming a multi-purpose vehicle serving both recreational and utility functions. 19 21 Our products help ATV owners perform many of their utility needs. We estimate that approximately 75% of all the ATV's currently sold are for these utility functions. We offer a standard one-year warranty on all products except snow plows, on which we offer a limited life time warranty. Seven manufacturers dominate the ATV industry. We manufacture accessories for all of the major manufacturer's ATV models. We manufacture our products from high-quality parts produced by local metal fabricators and metal stampers, with final assembly and packaging performed at our headquarters. The following lists the major ATV accessory products and their proportion of total sales of the ATV accessory segment for the year ending September 30, 2000, which approximates 86% of total company sales: (a) Blades: 66%, (b) Mowers: 9%, (c) Winches and Winch Mounting Kits: 7%, (d) Tillage Equipment: 3%, (e) Sprayers: 3%, (f) Spreaders: 2%. "Other" products comprise the remaining 10% of our sales. Our major ATV accessory products include: Blades. We manufacture three sizes of steel straight blades which include a 42", 48" and 60" models. We also offer a 52" State Plow, a Power "V" blade and a 60" plastic blade. Standard blade configuration features a universal manual lift or a universal electric lift. The blades can also be lifted with a winch. Winches and Winch Mounts. We offer a complete line of electric winches and winch mounts to fit all ATV models. Models include 1,500 and 2,000 pound capacity winches. Mowers. We offer two mowing systems, the "Quicksilver 54 Finish Cut" mower and the "Rough Cut" mower. The Quicksilver 54 is a 54" finish cut mower that can be mounted to the front of an ATV or towed behind any tractor or ATV. It is powered by a 10.5 horsepower engine by Briggs & Stratton. The Rough Cut is a 48" mower that is designed to cut thick weeds and overgrown brush. It's powered by a 12.5 horsepower engine by Briggs & Stratton, and is pulled behind the ATV. The Rough Cut offers an offset hitch, which allows mowing to the left, right or directly behind the ATV. Tillage Equipment. We manufacture a three-point hitch that transforms the ATV into a small working tractor. The three-point hitch is designed to fit on most four-wheel drive ATVs. The hitch is effective because it locks in the rear suspension and has built-in float to provide the smooth operation of attached implements. The three-point hitch meets engineering standards for zero category hitches. The hitch design allows the use of implements such as cultivators, moldboard plow, disc harrow, furrower, rake, one row planter and a rear blade. We manufacture and sell all of these implements. 20 22 Sprayers. We offer two styles of sprayers. The first is rack-mounted on the ATV and the other is trailer mounted. Rack-mounted sprayers are offered in both 15 and 25-gallon sizes. There are three different models of rear-mounted sprayers available depending on spraying needs: Econo Spot, Deluxe and Ag-Commercial. Trailer mounted sprayers are offered in 25 and 55 gallon sizes. Both the rack-mounted sprayers and the trailer-mounted sprayers can be purchased with either a 43" or 120" spray boom. Spreaders. We offer a 100-pound capacity hopper for front or rear mounting. This product is used for spreading everything from fertilizer to seed. Other. Additionally, we offer a wide array of products such as tire chains, rack boxes, CV boot guards, spotlights, trailers, gun racks and bed lift kits for select utility vehicles. We also recently entered the lawn & garden market, and are currently working with several OEM's to design a new line of accessories for small tractors. We are also pursuing retail outlets as markets for these products as well. The response that we have experienced suggests that this market will expand at an accelerated rate. Sales of these products are expected to begin in the third quarter of fiscal 2001 and we believe that this market will represent sales increases in excess of $1 million annually for the next three years. Wheel Covers ------------ We are a leading producer of injection-molded plastic specialty vehicle wheel covers for vehicles such as golf cars, riding lawn mowers and light duty trailers. This segment represents approximately 14% of our total sales. Wheel cover products include 6", 8" and 10" sizes offered in a variety if color options in both hot-stamped or metalized options. PRODUCT DEVELOPMENT We have remained competitive and grown over the past years by designing and marketing new products continually. We employ an experienced staff of three product design professionals that work with CAD/CAM technology in the design of new products. This R&D group serves two primary functions: product retrofitting and new product design. Retrofitting of existing products accounts for roughly 50 percent of the engineers' time. Management considers the engineering group a critical factor to the company's future and current success. 21 23 New products introduced in 1999 included: the Work Power 2000 universal blade system, electric blade lift, 52" State Plow and agricultural rake. New products introduced in 2000 included: the Light Force plastic snow blade, Grablight, Quicksilver 54 mower, front and rear steel mesh baskets and a new rear drop steel mesh basket. Management feels that adding new products for the ATV accessory market is a key to continued growth. There are no products presently being developed that will require a material investment of our resources. PATENTS AND TRADEMARKS We maintain trademarks for all of our product names. In addition, we maintain patents for wheel covers, 3-point hitches, Snow Mobile Chariot, rack utility boxes, work power lift system, rub block on work power lift, grablight and the 5th wheel trailer. SUPPLIERS During the year ended September 30, 2000 we purchased approximately $4,554,000 of goods from Simonsen Iron Works, Inc., our largest supplier who does the majority of our iron works. This represented approximately 59% of our raw goods purchases during that year. In order to reduce the possibility of any adverse consequence of this concentration, over the past two years we have begun using additional suppliers. MARKETING - CHANNELS OF DISTRIBUTION: ATV Accessories: ---------------- Domestic Distribution We distribute our products domestically through 16 distributors that specialize in motorcycle and ATV accessories. These distributors are either regional or national. We believe that virtually every ATV dealer in the United States is served by at least two of these distributors. Because of this overlap we believe that we would experience a minimal decline in sales if any one of our distributors decided to stop selling our products. Most of these distributors have been customers of Cycle Country since we first began selling ATV accessories. Our most recent distributor was added approximately four years ago. During the Year ended September 30, 2000, domestic accessory sales represent approximately 93% of our total ATV Accessory sales. For 2000 our largest distributor accounted for 24% of our domestic accessory sales and our five largest distributors accounted for 74% of our domestic accessory sales. 22 24 We are currently negotiating with lawn & garden equipment manufacturers regarding the development of a product line similar to the one offered for the ATV market. We are also working with national retail outlets for potential distribution. International Distribution We are rapidly expanding our international distributor network. There are currently 19 distributors that sell our products in 35 countries. This department is in its 5th year of existence and has provided us with a profitable expansion of the ATV Accessory segment of business. We were recognized as the Iowa Small Business Exporter of the year in 1997 and received the Governor's Export Award in that same year. International accessory sales represent approximately 7% of our total ATV Accessory sales. We believe that the international market will be a significant contributor to our long-term sales growth. Wheel Covers: ------------- We market wheel covers to virtually all golf car manufacturers. We estimate we provide approximately 90% of all wheel covers sold to these golf car manufacturers. Sales to these golf car OEMs are made directly by our sales force. We also market our wheel covers to golf courses and golf car dealers through an extensive network of golf equipment distributors. Management estimates that this distributor network allows us to achieve an 80% market share of the golf car after market wheel cover sales. Sales and Promotion ATV Accessories: ---------------- We employ a sales force of five people to market our ATV products. Our primary method of penetrating the market of ATV dealers is to leverage the sales work to the representatives employed by our distributors. These representatives call on every ATV dealer in the United States and each of the 35 countries represented by our distributors. We view our job as educating these representatives so they can effectively sell our product line. Each year we produce a catalog of our entire product line and make a new video that demonstrates the applicability of our products. Distributors are allowed unlimited quantities of these sales tools. Sales programs such as an early order program that allows for a discount off of distributor price and an annual rebate incentive based on achievement of predefined sales targets are utilized to promote the product line throughout the year. Our representatives exhibit at several international trade shows each year in conjunction with our distributors. These representatives also travel to each of our domestic distributors each year to 23 25 demonstrate new products and address concerns that may arise. In addition, we attend the Dealernews International Powersports Dealer Expo to demonstrate our new products to our distributors as well as ATV dealers. Golf Market: ------------ The primary means we use to sell our wheel covers is to attend semi-annual golf industry trade shows and produce a brochure for distribution to interested parties. Distributor representatives assist in after market sales. Advertising We advertise our ATV Accessories in national trade magazines, professionally developed videos, annual catalog, magazine and television advertising campaigns. Additionally we have an internet site located at: www.cyclecountry.com. COMPETITION We are one of the largest ATV accessory manufacturers in the world. Management estimates that we maintain a 50% market share in the domestic ATV accessories market, with the next largest manufacturer, Cambridge Metal and Plastics having an estimated 20% share of the domestic market. Management also estimates that we control approximately 50% of the international ATV market in the countries in which we distribute. Additionally, management estimates that we control 90% market share of the OEM golf car hubcap market and 80% of the golf car aftermarket. As with any industry we are faced with competition. However, due to our aggressive marketing and innovative product line, we maintain the largest market share in the ATV Utility Accessory Market as well as the wheel cover market. With our recent entry into the lawn & garden market, our goal is to achieve a leading market share in that market. However, the markets for all of our products are competitive. We expect the markets for our products to become even more competitive if and when more companies enter them and offer competition in price, support, additional value added services, and quality, among other factors. LEGAL PROCEEDINGS At times we are involved in various lawsuits in the ordinary course of business. These lawsuits primarily involve claims for damages arising out of the use of our products. As of the date of this prospectus, we are not a party to any material legal proceedings, other than two product liability cases, both of which involve a failed winch switch. We currently carry two million dollars of product liability insurance. Our attorneys for each case have informed us that they do not anticipate any judgment exceeding our insurance coverage. 24 26 EMPLOYEES As of the date of this prospectus we have 58 full-time employees, including 33 in production, 5 in sales, 4 in administration, 10 general office, 3 in research and development and 3 drivers. We presently have no labor union contract between us and any union and we do not anticipate unionization of our personnel in the foreseeable future. We believe our relationship with our employees is good. From time to time, we hire part time employees, ranging from a minimum of 1 to a maximum of 5. DESCRIPTION OF PROPERTY Our principal office facility is a modern 78,000 square foot facility located at 2188 Highway 86, Milford, Iowa, which is located on 10 acres at the intersection of two major highways which allows for easy entry and exit for truck traffic. This property is zoned light industrial and will support an additional 74,000 square foot building expansion. We own this facility and it is used as collateral for our Bank Midwest loan. Additionally, we lease one storage building in Sioux Rapids, Iowa, which is 35 miles from our principal facility on a month to month lease at $500.00 per month. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND/FINANCIAL DISCLOSURE. We have had no disagreements with our accountants on accounting and financial disclosure. 25 27 MANAGEMENT Directors and Executive Officers Our directors, executive officers and key employees are as follows: Director Name Age Position Since ---- --- -------- --------- Ron Hickman 51 President and Director 2001 Dick Downing 51 Vice President of Engineering - Marie Matthieson 39 Vice President of Manufacturing - Ken Horner 54 Vice President of Marketing - Richard Wagner 75 Director 2001 Jim Danbom 58 Director 2001 L.G. Bob Hancher Jr. 48 Director 2001 Richard J. Groeneweg 55 Director 2001 Richard A. Wagner has served on various Boards throughout his career. Mr. Wagner retired as President-CEO of Beneficial Finance as well as serving on the Board of Directors. Mr. Wagner was employed by Beneficial Finance from 1948-1982. He acted as a consultant and was on the Board of First plus Financial from 1989 - 1996. Since 1996 Mr. Wagner currently has operated a consulting business in the financial field. Mr. Wagner will participate on the audit, compensation and operations committees of the board. Mr. Wagner is currently serving a two year term, which will end in 2003. Jim Danbom was our founder and served as our president from 1981 to 2001. Mr. Danbom will lead the Operations and Planning committees of the board. He has successfully created numerous businesses in his 25 year career. Having successfully created our products at Cycle Country, Mr. Danbom will now focus on acquisitions and new product development. Mr. Danbom is currently serving a three year term which will end in 2004. L.G. Bob Hancher Jr. has served as Chief Financial Officer of Commerce Street Venture Group since 2000. Mr. Hancher graduated from Iowa University in 1974. He served as Field Auditor and Territory Manager of Shell Oil Co from 1974 to 1978 and the Director of Marketing of Raynor Garage from 1978 to 1988. In 1993, Mr. Hancher co-founded, and is now a past President of International Sports Management, leaving in 2000 to co-found Commerce Street Venture Group. Mr. Hancher will participate on the compensation and audit committees of the board. Mr. Hancher is currently serving a three-year term, which will end in 2004 Richard J. Groeneweg has served as the President of Residential Resources Inc. since 1991. Residential Resources is an asset backed lender specializing in the area of Bond securitization and IPO and Pre-IPO work. Mr. Groeneweg, a native Iowan will participate on the audit and compensation and planning committees. Mr. Groeneweg is currently serving a two-year term, which will end in 2003. Ron Hickman, who became our President on August 1, 2001, has been a CPA for 25 years, and was our accountant from our inception until he took a position as General Manager for us in 1996. Mr. Hickman will be on the Operations and Planning committees of the company. Mr. Hickman is currently serving a three-year term, which will end in 2004. 26 28 Directors' Remuneration Our directors are presently not compensated for serving on the board of directors. Executive Compensation Employment Agreements We have entered into employment agreements with certain of our key executive as follows: We entered into an employment agreement with Ron Hickman, our President, effective August 1, 2001 for a period of five years under which we have hired him to continue as our President. The agreement calls for Mr. Hickman to receive an annual income of $150,000 per year plus a bonus equal to three percent (3%) of our net income before taxes. The agreement also provides for Mr. Hickman to receive standard benefits such as health insurance coverage, sick and vacation time and use of an automobile. We entered into an employment agreement with Jim Danbom, our former President effective August 1, 2001 for a period of a minimum of three years under which we have hired him to continue as a consultant on an "as needed" basis. The agreement calls for Mr. Danbom to receive an annual income of $75,000 per year and to receive standard benefits such as health insurance coverage, sick and vacation time and use of an automobile. Summary Compensation Table The following table sets forth the total compensation paid to or accrued for the year ended December 31, 2000, 1999 and 1998 to our Chief Executive Officer and our other most highly compensated executive officers who were serving as executive officers at the end of our last fiscal year. 27 29 Annual Compensation
Name and Other Restricted Securities All Principal Annual Stock Underlying LTIP Other Position Year Salary Bonus Compensation Awards Options Payouts Compensation --------- ---- ------ ----- ------------ ---------- ---------- ------- ------------ Jim Danbom 2000 165,467 0 0 0 0 0 1,818(1) President 1999 165,467 0 0 0 0 0 2,293(2) 1998 165,467 0 0 0 0 0 1,920(3) Ronald Hickman, 2000 100,000 0 500(4) 0 0 0 6,469(5) General Manager 1999 100,000 130,500 0 0 0 0 5,616(6) 1998 100,000 154,178 0 0 0 0 5,946(7) (1) Comprised entirely of health insurance. (2) Comprised entirely of health insurance. (3) Comprised entirely of health insurance. (4) Christmas bonus (5) Comprised of $1,444 value of personal use of company auto and $5,025 paid for health insurance. (6) Comprised of $1,510 value of personal use of company auto and $4,448 paid for health insurance. (7) Comprised of $1,498 value of personal use of company auto and $4,448 paid for health insurance.
Stock Option Grants in the past fiscal year We have not issued any grants of stock options in the past fiscal year. 28 30 PRINCIPAL SHAREHOLDERS The following table sets forth information regarding beneficialownership of our common stock as of the date of this prospectus and as adjusted to reflect the sale of all 3,625,000 shares which may potentially be sold in connection with this registration statement, by (i) those shareholders known to be the beneficial owners of more than five percent of the voting power of our outstanding capital stock, (ii) each director, and (iii) all executive officers and directors as a group: Number of Percent Percent Name and Address of Shares Before After Beneficial Owner Owned Offering Offering (1) ---------------- --------- -------- -------- Ron Hickman 272,500 7.52% 0% c/o Cycle Country Accessories Corp. 2188 Highway 86 Milford, Iowa 51351 Jim Danbom 813,750 22.45% 0% 106 Channel Court Marco Island, FL 34145 Jan Danbom 813,750 22.45% 0% 106 Channel Court Marco Island, FL 34145 Commerce Street Venture Group 381,250 10.52% 0% 10401 North Meridian St., Suite 300 Indianapolis, IN 46290 Go Company, LLC. 381,250 10.52% 0% 304 Lakeway Blvd. Tool, TX 75413 Scenic Ventures, LLC 250,000 6.90% 0% 4562 Anderson Co. Rd. #404 Palestine, TX 75803 Magellan Capital Management, Inc. 250,000 6.90% 0% 9940 Glenburr Court Fishers, IN 46038 First Equity Partners, LLC 209,000 5.77% 0% 614 East Commerce Street Fairfield, TX 75840 All Directors and Officers 1,087,750 30.00% 0% as a Group (8 Persons) _____________ * Less than 1% (1) Assumes the sale of all shares offered hereunder. 29 31 SELLING SHAREHOLDERS The following table sets forth certain information with respect to the ownership of our common stock by selling shareholders as of August 21, 2001. Unless otherwise indicated, none of the selling shareholders has or had a position, office or other material relationship with us within the past three years.
Ownership of Shares of Number of Ownership of Shares of Common Stock Prior to Shares Common Stock After Offering Offered Offering (1) -------- ------------ Selling Shareholder Shares(1) Percentage Hereby Shares Percentage ------------------- --------- ---------- ------ ------ ---------- Jan Danbom 813,750 22.45 813,750 0 * Jim Danbom (2) 813,750 22.45 813,750 0 * Ron Hickman (3) 272,500 7.52 272,500 0 * Commerce Street 381,250 10.52 381,250 0 * Venture Group Go Company LLC. 381,250 10.52 381,250 0 * Scenic Ventures LLC 250,000 6.90 250,000 0 * First Equity Partners 209,000 5.77 209,000 0 * LLC Magellan Capital 250,000 6.90 250,000 0 * Management, Inc. Dennis Severson 99,000 2.73 99,000 0 * Mike Hoeppner 90,000 2.48 90,000 0 * Exec Land Services Inc. 9,000 * 9,000 0 * Dennis Patterson 3,000 * 3,000 0 * Charterbridge Financial 7,500 * 7,500 0 * Services Inc. Madison & Wall 20,000 * 20,000 0 * Mark Albrant (4) 500 * 500 0 * Billy Andersen (4) 500 * 500 0 * Ronald Anderson (4) 500 * 500 0 * Robyn Burtis (4) 500 * 500 0 * Larry Bush (4) 500 * 500 0 * Bradley Danbom (4) 500 * 500 0 * Suzanna Dandy (4) 500 * 500 0 * John De Ruyter (4) 500 * 500 0 * Richard Downing (4) 500 * 500 0 * Joseph Feuerhelm (4) 500 * 500 0 * Kathy Feuerhelm (4) 500 * 500 0 * Gregory Fink (4) 500 * 500 0 * Brian Gosch (4) 500 * 500 0 * Francene Grover (4) 500 * 500 0 * Diane Guthrie (4) 500 * 500 0 * Will Hesse (4) 500 * 500 0 * Bradley Hickman (4) 500 * 500 0 * Ken Horner (4) 500 * 500 0 * Joseph Justice (4) 500 * 500 0 * Richard Kain (4) 500 * 500 0 * 30 32 Jeffery Kennedy (4) 500 * 500 0 * Corey Kimmet (4) 500 * 500 0 * Robert Knaack (4) 500 * 500 0 * John Laird (4) 500 * 500 0 * Dennis Leach (4) 500 * 500 0 * Kathleen Lewis (4) 500 * 500 0 * David Lindemann (4) 500 * 500 0 * Bonnie Manwarren (4) 500 * 500 0 * Marie Matthiesen (4) 500 * 500 0 * Chadron Moffitt (4) 500 * 500 0 * Karen Mortenson (4) 500 * 500 0 * Donna Nelson (4) 500 * 500 0 * Sharon Orwig (4) 500 * 500 0 * Heidi Payne (4) 500 * 500 0 * Jenny Pick (4) 500 * 500 0 * Janice Pohlman (4) 500 * 500 0 * Eric Rasmussen (4) 500 * 500 0 * Michael Schweitzer (4) 500 * 500 0 * Adam Sparks (4) 500 * 500 0 * Rickey Steuben (4) 500 * 500 0 * Tim Swalve (4) 500 * 500 0 * Mark Swanson (4) 500 * 500 0 * Michael Taylor (4) 500 * 500 0 * Roland Taylor (4) 500 * 500 0 * Harlen Tesch (4) 500 * 500 0 * Jonathan Thompson (4) 500 * 500 0 * Paula Von Holdt (4) 500 * 500 0 * Jim Welle (4) 500 * 500 0 * Brett Wulff (4) 500 * 500 0 * Ray Yaw (4) 500 * 500 0 * Total 3,625,000 3,625,000 0 _______________________
* Indicates less than 1% 1) Assumes that all shares are sold pursuant to this offering and that no other shares of common stock are acquired or disposed of by the selling shareholders prior to the termination of this offering. Because the selling shareholders may sell all, some or none of their shares or may acquire or dispose of other shares of common stock, no reliable estimate can be made of the aggregate number of shares that will be sold pursuant to this offering or the number or percentage of shares of common stock that each shareholder will own upon completion of this offering. 2) Mr. Danbom was formerly our President. 3) Mr. Hickman is currently our President. 4) Current employee. 31 33 CERTAIN TRANSACTIONS In August 2000 we entered into a $100,000 note payable agreement with Land Mark Leasing, Inc., which is wholly owned by stockholders of Cycle Country and is controlled by Jim Danbom, our former President. This note accrued interest at 6.6% and was repaid with interest within 90 days. During the nine months ended June 30, 2001, consulting fees of approximately $31,600 were paid to the Company by Land Mark Leasing, Products, Inc. Land Mark Products, Inc. is owned 10% by the stockholders of Cycle Country. (unaudited) We previously leased certain facilities from Jim Danbom, our former President and Jan Danbom, his wife under operating lease agreements, which obligated us for monthly lease payments of $25,320 per month through October 31, 2006 and $4,000 per month through September 30, 2004. We purchased the building and land that these leases pertained to on August 21, 2001. In May 1996 we entered into a $30,000 note receivable with a stockholder. This note accrued interest at 6.36% annually. As of September 30, 2000 there was an outstanding amount of $18,500 due under this note. All amounts due under this note were repaid as of June 30, 2000. In August 1995 we entered into a $30,000 note receivable with a stockholder. This note accrued interest at 5.73% annually. As of September 30, 2000 there was an outstanding amount of $27,500 due under this note. All amounts due under this note were repaid as of June 30, 2000. 32 34 DESCRIPTION OF SECURITIES General Our authorized capital stock consists of 100,000,000 shares of common stock, par value $0.0001 per share, and 20,000,000 shares of preferred stock, par value $.0001 per share. As of the date of this prospectus, 3,625,000 shares of common stock and no shares of preferred stock were outstanding. The transfer agent for our common stock is Atlas Stock Transfer of Salt Lake City, Utah. Common Stock We are authorized to issue 100,000,000 shares of our common stock, $0.0001 par value, of which 3,625,000 shares are issued and outstanding as of the date of this prospectus. The issued and outstanding shares of common stock are fully paid and non-assessable. Except as provided by law or our certificate of incorporation with respect to voting by class or series, holders of common stock are entitled to one vote on each matter submitted to a vote at a meeting of shareholders. Subject to any prior rights to receive dividends to which the holders of shares of any series of the preferred stock may be entitled, the holders of shares of common stock will be entitled to receive dividends, if and when declared payable from time to time by the board of directors, from funds legally available for payment of dividends. Upon our liquidation or dissolution, holders of shares of common stock will be entitled to share proportionally in all assets available for distribution to such holders. Preferred Stock The board of directors has the authority, without further action by our shareholders, to issue up to 20,000,000 shares of preferred stock, par value $.0001 per share, in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and the number of shares constituting any series or the designation of such series. No shares of preferred stock are currently issued and outstanding. The issuance of preferred stock could adversely affect the voting power of holders of common stock and could have the effect of delaying, deferring or preventing a change of our control. Warrants Certain shares of common stock offered by Cycle Country Accessories Corp. (a Nevada corporation) on August 21, 2001 had warrants attached. We presently have 2,000,000 warrants outstanding. Each warrant entitles the holder thereof to purchase one share of common stock at a price per share of $4.00 beginning 120 days following the effectiveness of this registration statement and ending on August 21, 2004. Each unexercised warrant is redeemable by us at a redemption price of $0.001 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. 33 35 Pursuant to applicable federal and state securities laws, in the event a current prospectus is not available, the warrant holders may be precluded from exercising the warrants and we would be precluded from redeeming the warrants. There can be no assurance that we will not be prevented by financial or other considerations from maintaining a current prospectus. Any warrant holder who does not exercise prior to the redemption date, as set forth in our notice of redemption, will forfeit the right to purchase the common stock underlying the warrants, and after the redemption date or upon conclusion of the exercise period, any outstanding warrants will become void and be of no further force or effect, unless extended by our Board of Directors. The number of shares of common stock that may be purchased with the warrants is subject to adjustment upon the occurrence of certain events, including a dividend distribution to our shareholders or a subdivision, combination or reclassification or our outstanding shares of common stock. The warrants do not confer upon holders any voting or any other rights as our shareholders. We may at any time, and from time to time, extend the exercise period of the warrants, provided that written notice of such extension is given to the warrant holders prior to the expiration date then in effect. Also, we may reduce the exercise price of the warrants for limited periods or through the end of the exercise period if deemed appropriate by the Board of Directors. Any extension of the term and/or reduction of the exercise price of the warrants will be subject to compliance with Rule 13e-4 under the Exchange Act including the filing of a Schedule 14E-4. Notice of any extension of the exercise period and/or reduction of the exercise price will be given to the warrant holders. We do not presently contemplate any extension of the exercise period or any reduction in the exercise price of the warrants. The warrants are also subject to price adjustment upon the occurrence of certain events including subdivisions or combinations of our common stock. Market for Common Equity and Related Stockholder Matters There is no established public market for our common stock and we have arbitrarily determined the offering price. Although we hope to be quoted on the OTC Bulletin Board, our common stock is not currently listed or quoted on any quotation service. There can be no assurance that our common stock will ever be quoted on any quotation service or that any market for our stock will ever develop or, if developed, will be sustained. As of August 21, 2001, there were 64 shareholders of record of our common stock and a total of 3,625,000 shares outstanding. All 3,625,000 shares are being registered in this offering and accordingly there are no outstanding shares at this time that would be subject to Rule 144. 34 36 INDEMNIFICATION Article 11 of our Articles of Incorporation includes certain provisions permitted by the Nevada Revised Statutes, which provides for indemnification of directors and officers against certain liabilities. Pursuant to our Articles of Incorporation, our officers and directors are indemnified, to the fullest extent available under Nevada Law, against expenses actually and reasonably incurred in connection with threatened, pending or completed proceedings, whether civil, criminal or administrative, to which an officer or director is, was or is threatened to be made a party by reason of the fact that he or she is or was one of our officers, directors, employees or agents. We may advance expenses in connection with defending any such proceeding, provided the indemnitee undertakes to repay any such amounts if it is later determined that he or she was not entitled to be indemnified by us. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore, unenforceable. 35 37 PLAN OF DISTRIBUTION We are registering shares of our common stock that may be issued upon exercise of warrants previously issued by us. Any shares that we issue upon the exercise of warrants will be sold at a price of $4.00 per share. In addition to the named selling shareholders in this prospectus, any individual acquiring shares of our common stock through such a warrant exercise and who subsequently sells such common stock is considered a selling shareholder. The Selling Stockholders and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are then traded or in private transactions. These sales may be at fixed or negotiated prices. The Selling Stockholders may use any one or more of the following methods when selling shares: - ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; - block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; - purchases by a broker-dealer as principal and resale by the broker-dealer for its account; - an exchange distribution in accordance with the rules of the applicable exchange; - privately negotiated transactions; - broker-dealers may agree with the Selling Stockholders to sell a specified number of such shares at a stipulated price per share; - a combination of any such methods of sale; and - any other method permitted pursuant to applicable law. The Selling Stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus. In order to comply with the securities laws of certain states, if applicable, the shares may be sold only through registered or licensed brokers or dealers. In addition, in certain states, the shares may not be sold unless they have been registered or qualified for sale in such state or an exemption from such registration or qualification requirement is available and complied with. The Selling Stockholders may also engage in short sales against the box, puts and calls and other transactions in our securities or derivatives of our securities and may sell or deliver shares in connection with these trades. The Selling Stockholders may pledge their shares to their brokers under the margin provisions of customer agreements. If a Selling 36 38 Stockholder defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares. Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The Selling Stockholders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved. The Selling Stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. We will pay all of the expenses incident to the registration, offering and sale of the shares to the public, but will not pay commissions and discounts, if any, of underwriters, broker-dealers or agents, or counsel fees or other expenses of the selling shareholders. We have also agreed to indemnify the selling shareholders and related persons against specified liabilities, including liabilities under the Securities Act. We have advised the selling shareholders that while they are engaged in a distribution of the shares included in this prospectus they are required to comply with Regulation M promulgated under the Securities Exchange Act of 1934, as amended. With certain exceptions, Regulation M precludes the selling shareholders, any affiliated purchasers, and any broker-dealer or other person who participates in such distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of the distribution until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the shares offered hereby in this prospectus. LEGAL MATTERS The Law Office of L. Van Stillman, P.A. of Delray Beach, Florida will give an opinion for us regarding the validity of the common stock offered in this prospectus. EXPERTS The financial statements as of September 30, 2000 and for the years ended September 30, 2000 and 1999 included in this prospectus have been so included in reliance on the report of Tedder, James, Worden & Associates, P.A., independent accountants, given on the authority of said firm as experts in auditing and accounting. 37 39 WHERE YOU CAN FIND MORE INFORMATION We have filed a registration statement under the Securities Act with respect to the securities offered hereby with the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. This prospectus, which is a part of the registration statement, does not contain all of the information contained in the registration statement and the exhibits and schedules thereto, certain items of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to Cycle Country Accessories Corp. and the securities offered hereby, reference is made to the registration statement, including all exhibits and schedules thereto, which may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N. W., Room 1024, Washington, D. C. 20549, and at its Regional Offices located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 at prescribed rates during regular business hours. You may obtain information on the operation of the public reference facilities by calling the Commission at 1-800-SEC-0330. Also, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission at http://www.sec.gov. Statements contained in this prospectus as to the contents of any contract or other document are not necessarily complete, and in each instance reference is made to the copy of such contract or document filed as an exhibit to the registration statement, each such statement being qualified in its entirety by such reference. We will provide, without charge upon oral or written request of any person, a copy of any information incorporated by reference herein. Such request should be directed to us at Cycle Country Accessories Corp., 2188 Highway 86, Milford, Iowa 51351 Attention: Ronald Hickman, President. Following the effectiveness of this registration statement, we will file reports and other information with the Commission. All of such reports and other information may be inspected and copied at the Commission's public reference facilities described above. The Commission maintains a web site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Commission. The address of such site is http://www.sec.gov. In addition, we intend to make available to our shareholders annual reports, including audited financial statements, unaudited quarterly reports and such other reports as we may determine. 38 40 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company) Table of Contents _________________ Independent Auditors' Report..............................................F-2 Combined Financial Statements: Combined Balance Sheets - September 30, 2000 and June 30, 2001 (unaudited).........................................F-3 Combined Statements of Income - Years ended September 30, 2000 and 1999 and Nine months ended June 30, 2001 and 2000 (unaudited).......................................................F-4 Combined Statements of Stockholders' Equity - Years ended September 30, 2000 and 1999 and Nine months ended June 30, 2001 and 2000 (unaudited)................................F-5 Combined Statements of Cash Flows - Years ended September 30, 2000 and 1999 and Nine months ended June 30, 2001 and 2000 (unaudited).......................................................F-6 Notes to Combined Financial Statements....................................F-8 CYCLE COUNTRY ACCESSORIES CORP. (a Nevada corporation) (The Successor Company) Independent Auditors' Report.............................................F-26 Financial Statements: Balance Sheet - August 23, 2001......................................F-27 Statement of Income - For the period from inception (August 15, 2001) to August 23, 2001.............................F-28 Statement of Stockholders' Equity - For the period from inception (August 15, 2001) to August 23, 2001.............................F-29 Statement of Cash Flows - For the period from inception (August 15, 2001) to August 23, 2001.............................F-30 Notes to Financial Statements............................................F-31 Unaudited Pro Forma Financial Information: Unaudited Pro Forma Balance Sheet - June 30, 2001....................F-36 Unaudited Pro Forma Statement of Income - Year ended September 30, 2000...............................................F-38 Unaudited Pro Forma Statement of Income - Nine months ended June 30, 2001....................................................F-39 F-1 41 Independent Auditors' Report ---------------------------- To the Board of Directors and Stockholders of Cycle Country Accessories Corp. and Affiliated Entity (an Iowa corporation): We have audited the accompanying combined balance sheet of Cycle Country Accessories Corp. and Affiliated Entity (the "Company") (an Iowa corporation) (the Predecessor Company) as of September 30, 2000, and the related combined statements of income, stockholders' equity, and cash flows for the years ended September 30, 2000 and 1999. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Cycle Country Accessories Corp. and Affiliated Entity (an Iowa corporation) (the Predecessor Company) as of September 30, 2000, and the results of their operations and their cash flows for the years ended September 30, 2000 and 1999 in conformity with accounting principles generally accepted in the United States of America. TEDDER, JAMES, WORDEN & ASSOCIATES, P.A. June 14, 2001 Orlando, Florida F-2 42 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company)
Combined Balance Sheets June 30, June 30, 2001 September 30, 2001 Pro Forma Assets 2000 (unaudited) (unaudited) ------ ------------- ----------- ------------- Current Assets: Cash and cash equivalents $ 368,797 516,332 317,212 Accounts receiveable - trade 777,667 754,232 754,232 Inventories 2,791,317 2,291,387 2,291,387 Prepaid expenses 34,918 52,790 52,790 Other receivables 8,223 4,091 4,091 ------------- ----------- -------------- Total current assets 3,980,922 3,618,832 3,419,712 Property and equipment, net 1,032,928 1,085,168 2,585,168 Other assets 175,593 174,377 73,860 Notes receivable from stockholder 46,000 - - ------------- ----------- -------------- Total assets $ 5,235,443 4,878,377 6,078,740 ============= =========== ============== Liabilities and Stockholders' Equity ------------------------------------ Current liabilities; Accounts payable $ 630,052 513,491 513,491 Accrued expenses 261,450 117,122 117,122 Short-term note payable 100,000 - - Current portion of note payable - - 711,611 ----------- ---------- ------------- Total current liabilities 991,502 630,613 1,342,224 Note payable, less current portion - - 3,788,389 ----------- ---------- ------------- Total liabilities 991,502 630,613 5,120,613 Stockholders' equity Common stock 25,600 25,600 363 Additional paid-in capital 14,116 14,116 1,200,000 Retained earnings (accumulated deficit) 4,204,225 4,208,048 (252,236) ----------- ---------- ------------- Total stockholders' equity 4,243,941 4,247,764 948,127 ----------- ---------- ------------- Total liabilities and stockholders' $ 5,235,443 4,878,377 6,078,740 equity =========== ========== ============= (1) The pro forma reflects the effect of the subsequent events in which (a) the Company acquired its operating facility, which consisted of land and buildings with a fair value of $1,500,000, from certain shareholders, and (b) the purchase of all of the Company's outstanding common stock by Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company) for $4,500,000 in Cash and 1,375,000 shares of common stock of Cycle Country Accessories Corp. (a Nevada Corporation) (the Successor Company) (see Note 19).
See accompanying notes to the combined financial statements. F-3 43 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company) Combined Statements of Income
Nine months ended June 30, Year ended September 30, 2001 2000 2000 1999 (unaudited) (unaudited) ----------- ----------- ------------ ------------- Net Sales $12,675,699 11,308,792 9,915,477 9,973,314 Freight income 103,772 160,710 88,959 81,592 ------------ ----------- ------------ ------------- Total revenue 12,779,471 11,469,502 10,004,436 10,054,906 Cost of goods sold (9,138,162) (7,858,389) (6,931,328) (7,018,687) ------------ ----------- ------------ ------------- Gross Profit 3,641,309 3,611,113 3,073,108 3,063,219 Selling, general and administrative expenses (2,646,331) (2,713,180) (2,132,002) (1,963,138) ------------ ----------- ------------ ------------- Income from operations 994,978 897,933 941,106 1,073,081 Non-operating income, net 25,798 97,982 68,317 5,714 ------------ ----------- ------------ ------------- Net income $ 1,020,776 995,915 1,009,423 1,078,795 ============ =========== ============ ============= Pro Forma Income Data (unaudited) Net income reported $ 1,020,776 995,915 1,009,423 1,078,795 Provision for income taxes (377,700) (368,500) (373,500) (399,200) ------------ ----------- ------------ ------------- Pro forma net income 643,076 627,415 635,923 679,595 ============ =========== ============ ============= Pro forma weighted average shares outstanding: Basic and diluted (unaudited) 3,625,000 3,625,000 3,625,000 3,625,000 ============ =========== ============ ============= Pro forma earnings per share: Basic and diluted (unaudited) $ 0.18 0.17 0.18 0.19 ============ =========== ============ =============
See accompanying notes to the combined financial statements. F-4 44 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company) Combined Statements of Stockholders' Equity Years ended September 30, 2000 and 1999 and Nine months ended June 30,2001 (Nine months ended June 30, 2001 unaudited)
Common Common stock stock Additional (Cycle (Okoboji paid-in Retained Country) Industries) capital earnings Total -------- ----------- ---------- ---------- ---------- Balances at September 30, 1998 $ 5,600 20,000 14,116 3,224,334 3,264,050 Net income - - - 995,915 995,915 Distributions paid - - - (519,800) (519,800) -------- ----------- ----------- ----------- ----------- Balance at September 30, 1999 5,600 20,000 14,116 3,700,449 3,740,165 Net income - - - 1,020,776 1,020,776 Distributions paid - - - (517,000) (517,000) -------- ----------- ----------- ----------- ----------- Balance at September 30, 2000 5,600 20,000 14,116 4,204,225 4,243,941 Net income (unaudited) - - - 1,009,423 1,009,423 Distributions paid (unaudited) - - - (1,005,600) (1,005,600) -------- ----------- ----------- ----------- ----------- Balances at June 30, 2001 (unaudited) $ 5,600 20,000 14,116 4,208,048 4,247,764 ======== =========== =========== =========== ===========
See accompanying notes to combined financial statements. F-5 45 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company) Combined Statement of Cash Flows
Nine months ended June 30, Years ended September 30, 2001 2000 2000 1999 (unaudited) (unaudited) ----------- ----------- ------------ ------------ Cash flows from operating activities: Net income $ 1,020,776 995,915 1,009,423 1,078,795 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 205,770 200,816 166,379 155,445 Write-off of investment in Visionaire Corp. 28,473 - - 28,473 Gain on sale of equipment (10,761) (3,959) - - Write-off of intangible asset 4,111 514 - 386 (Increase) decrease in assets: Accounts receivable - trade 61,947 112,022 23,435 181,902 Inventories (347,787) (123,697) 499,930 (620,288) Prepaid expenses (493) (37,995) (17,852) (18,555) Other receivables 6,721 22,856 4,132 6,091 S corporation tax deposit (27,254) 116,851 1,196 (27,254) Increase (decrease) in liabilities: Accounts payable (26,159) (312,380) (116,561) 11,333 Accrued expenses 27,596 (88,608) (144,328) (114,213) ----------- ----------- ----------- ------------ Net cash provided by operating activities 942,940 882,335 1,425,754 682,115 Cash flows from investing activities: Purchase of property and equipment (345,356) (301,336) (240,698) (278,437) Proceeds from sale of equipment 21,200 8,400 22,079 9,500 Payments received on notes receivable 2,500 368,203 46,000 1,500 Purchase of investments (25,000) - - - Issuance of notes receivable - (230,703) - - ----------- ----------- ----------- ------------ Net cash used in investing activities (346,656) (155,436) (172,619) (267,437)
See accompanying notes to the combined financial statements. F-6 46 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company) Combined Statements of Cash Flow, Continued
Nine months ended June 30, Years ended September 30, 2001 2000 2000 1999 (unaudited) (unaudited) ----------- ----------- ------------ ------------ Cash flows from financing activities: Proceeds from short-term note payable 100,000 - - - Payments on short-term note payable - - (100,000) - Repayment of loan from stockholders - (242,500) - - Distributions paid to stockholders (517,000) (519,800) (1,005,600) (292,000) ----------- ----------- ------------ ------------ Net cash used in financing activities (417,000) (762,300) (1,105,600) (292,000) Net increase (decrease) in cash and cash equivalents 179,284 (35,401) 147,535 122,678 Cash and cash equivalents - beginning of period 189,513 224,914 368,797 189,513 ----------- ----------- ------------ ------------ Cash and cash equivalents - end of period $ 368,797 189,513 516,332 312,191 =========== =========== ============ ============ Supplimental disclosures of cash flow information: Cash paid during the period for: Interest $ - 16,566 1,682 - =========== =========== ============ ============
See accompanying notes to the combined financial statements. F-7 47 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company) Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (1) Summary of Significant Accounting Policies __________________________________________ (a) Reporting Entity and Principles of Combination The combined financial statements of Cycle Country Accessories Corp. and Affiliated Entity (the "Company") include the accounts of Cycle Country Accessories Corp. ("Cycle Country") and Okoboji Industries Corp. ("Okoboji Industries"), entities owned and managed by the same individuals (i.e. under common control). Cycle Country was incorporated in the state of Iowa in 1983 and currently operates as a Subchapter S corporation. Okoboji Industries was incorporated as a Subchapter S corporation in the state of Iowa in 1987. All significant intercompany accounts and transactions have been eliminated in combination. (b) Nature of Business The Company is primarily engaged in the design, assembly, sale and distribution of accessories for all terrain vehicles ("ATVs") to various dealers and wholesalers throughout the United States of America, Canada, Mexico, South America, Europe, and the Pacific area. Additionally, the Company manufactures, sells, and distributes injection-molded plastic wheel covers for vehicles such as golf carts, lawn mowers, and light-duty trailers. The Company's headquarters and assembly plant are located in Milford, Iowa. (c) Revenue Recognition Revenue is recognized when the product is shipped to dealers, wholesalers, or other customers and risk of loss transfers to an unrelated third party. Certain costs associated with the shipping and handling of products to customers are billed to the customer and included as freight income in the accompanying combined statements of income. Royalty income earned in connection with the rights to sell a product developed by the Company is recognized as earned and included in non-operating income in the accompanying combined statements of income. Sales were recorded net of sales discounts of approximately $325,000 and $262,000 in fiscal 2000 and 1999, respectively. During the nine months ended June 30, 2001 and 2000, sales were recorded net of sales discounts of approximately $232,000 and $231,000 respectively (unaudited). F-8 48 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company) Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (1) Summary of Significant Accounting Policies, Continued _____________________________________________________ (d) Allowances The Company provides appropriate provisions for uncollectible accounts and credit for returns based upon factors surrounding the credit risk and activity of specific customers, historical trends, and other information. In the opinion of management of the Company, no provisions are deemed necessary for uncollectible accounts or credit for returns at September 30, 2000 and June 30, 2001 (unaudited). (e) 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) Cash and Cash Equivalents The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. (g) Inventories Inventories are valued at the lower of cost or market. Cost is determined using the first-in, first-out method. (h) Property and Equipment Property and equipment are carried at cost less accumulated depreciation. Depreciation is provided over the estimated useful lives of the assets by using the straight-line and accelerated methods. Routine maintenance and repairs are charged to expense as incurred. Major replacements and improvements are capitalized. Gains or losses are credited or charged to income upon disposition. F-9 49 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company) Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (1) Summary of Significant Accounting Policies, Continued _____________________________________________________ (i) Impairment of Long-Lived Assets The Company evaluates its long-lived assets for financial impairment as events or changes in circumstances indicate that the carrying value of a long-lived asset may not be fully recoverable. The Company evaluates the recoverability of long-lived assets by measuring the carrying amount of the assets against their estimated undiscounted future cash flows. If such evaluations indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values. (j) Investment in Golden Rule (Bermuda) Ltd. The investment in Golden Rule (Bermuda) Ltd. stock is recorded at cost due to less than 20% ownership. (k) Investment in Visionaire Corp. The investment in Visionaire Corp. was accounted for under the cost method. During fiscal 2000, the Company's investment in Visionaire Corp., which was purchased during fiscal 1996, was deemed worthless by management and was written off. (l) Accrued Warranty Costs Estimated future costs related to product warranties are accrued as products are sold based on prior experience and known current events and are included in accrued expenses in the accompanying combined financial statements. Accrued warranty costs have historically been sufficient to cover actual costs incurred. (m) Income Taxes Effective August 1, 1994, Cycle Country has elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code ("IRC"). Under these provisions, the stockholders will report their proportionate share of the Company's income on their individual tax returns. Therefore, no provision or liability for federal or state income taxes has been included in the combined financial statements. The S corporation tax deposit, which is included in other assets in the accompanying combined financial statements, represents an estimated tax deposit paid by the Company due to the timing difference between the Company's and the stockholders' year ends as required by the IRC. F-10 50 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company) Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (1) Summary of Significant Accounting Policies, Continued _____________________________________________________ (n) Distributor Rebate Payable The Company offers an annual rebate program (the "Program") for its ATV accessory distributors. The Program provides for a 7% rebate on purchases of certain eligible products during the Program period if certain pre-determined purchase levels are obtained. The rebate liability is calculated and recognized as eligible products are sold based upon factors surrounding the activity and prior experience of specific distributors and is included in accrued expenses in the accompanying combined financial statements. The distributor rebate expense totaled approximately $366,000 and $448,000 in fiscal 2000 and 1999, respectively and are included in selling, general, and administrative expenses in the accompanying combined statements of income. During the nine months ended June 30, 2001 and 2000, the distributor rebate expense totaled approximately $310,000 and $272,000, respectively (unaudited). (o) Pro Forma Earnings Per Share Basic earnings per share is calculated by dividing net income by the weighted-average common shares outstanding during the reporting period. Diluted earnings per share is computed in a manner consistent with that of basic earnings per share while giving effect to all potentially dilutive common shares outstanding during the reporting period. There were no potentially dilutive common shares outstanding during the years ended September 30, 2000 and 1999. Additionally, during the nine months ended June 30, 2001 and 2000, there were no potentially dilutive common shares outstanding (unaudited). (p) Advertising Advertising consists primarily of television, videos, newspaper and magazine advertisements, product brochures and catalogs, and trade shows. All costs are expensed as incurred. Advertising expense totaled approximately $312,000 and $324,000 in fiscal 2000 and 1999, respectively. During the nine months ended June 30, 2001 and 2000, advertising expense totaled approximately $242,000 and $203,000, respectively (unaudited). F-11 51 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company) Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (1) Summary of Significant Accounting Policies, Continued _____________________________________________________ (q) Research and Development Costs Research and development costs are expensed as incurred. Research and development costs incurred during fiscal 2000 and 1999 totaled approximately $197,000 and $146,000, respectively. During the nine months ended June 30, 2001 and 2000, research and development costs totaled approximately $127,000 and $140,000, respectively (unaudited). (r) Shipping and Handling Costs Shipping and handling costs represent costs associated with shipping products to customers and handling finished goods. Shipping and handling costs incurred totaled approximately $224,000 and $246,000 in fiscal 2000 and 1999, respectively, and are included in selling, general, and administrative expenses in the accompanying combined statements of income. During the nine months ended June 30, 2001 and 2000, shipping and handling costs incurred totaled approximately $160,000 and $190,000, respectively (unaudited). (s) Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and trade accounts receivable. The Company places its cash with high credit quality financial institutions. At various times throughout fiscal 2000 and 1999 and at September 30, 2000, cash balances held at some financial institutions were in excess of federally insured limits. At various times throughout the nine months ended June 30, 2001 and 2000, and at June 30, 2001, cash balances held at some financial institutions were in excess of federally insured limits (unaudited). Almost all of the Company's sales are credit sales which are primarily to customers whose ability to pay is dependent upon the industry economics prevailing in these areas; however, concentrations of credit risk with respect to trade accounts receivable is limited due to generally short payment terms. The Company also performs ongoing credit evaluations of its customers to reduce credit risk. F-12 52 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company) Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (1) Summary of Significant Accounting Policies, Continued _____________________________________________________ (t) Seasonality and Weather The ATV accessories market is seasonal as retail sales of snow plow equipment are generally higher in the fall and winter, and sales of farm and garden equipment are generally higher in the spring and summer. Accordingly, demand for the Company's snow plow equipment is generally higher in the fall and early winter (the Company's first and second fiscal quarters) as distributors build inventories in anticipation of the winter season, and demand for the Company's farm and garden and golf equipment is generally highest in the late winter and spring (the Company's second and third fiscal quarters) as distributors build inventories in anticipation of the spring season. Demand for snow plow, farm and garden and golf equipment is significantly affected by weather conditions. Unusually cold winters or hot summers increase demand for these aforementioned products. Mild winters and cool summers have the opposite effect. (u) Fair Value of Financial Instruments The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates fair value because of the short maturity of those instruments. The fair value of notes receivable and notes payable are assumed to approximate the recorded value because there have not been any significant changes in specific circumstances since the notes were originally recorded. (v) Quarterly Presentation and Adjustments The accompanying unaudited combined financial statements as of June 30, 2001 and for the nine months ended June 30, 2001 and 2000 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of (a) the results of operations for the nine months ended June 30, 2001 and 2000, (b) the financial position at June 30, 2001, and (c) cash flows for the nine months ended June 30, 2001 and 2000, have been included. Operating results for the nine months ended June 30, 2001 are not necessarily indicative of the results that may be expected for the year ended September 30, 2001 (unaudited). F-13 53 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company) Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (1) Summary of Significant Accounting Policies, Continued _____________________________________________________ (w) Reclassifications Certain prior periods' balances have been reclassified to conform with the current year financial statement presentation. These reclassifications had no impact on previously reported results of operations or stockholders' equity. (2) Inventories ___________ The major components of inventories are summarized as follows: June 30, September 30, 2001 2000 (unaudited) _______________ ___________ Raw materials $ 1,225,297 1,129,169 Work in progress 57,719 26,222 Finished goods 1,508,301 1,135,996 _______________ ___________ Total inventories $ 2,791,317 2,291,387 _______________ ___________ _______________ ___________ (3) Prepaid Expenses ________________ Prepaid expenses consisted of the following: June 30, September 30, 2001 2000 (unaudited) ______________ ___________ Prepaid insurance $ 21,418 42,290 Prepaid royalty 13,000 10,500 Prepaid rent 500 - ______________ ___________ Total prepaid expenses $ 34,918 52,790 ______________ ___________ ______________ ___________ F-14 54 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company) Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (4) Property and Equipment ______________________ Property and equipment, their estimated useful lives, and related accumulated depreciation are summarized as follows: Range of lives June 30, in September 30, 2001 years 2000 (unaudited) ________ _______________ ___________ Shop equipment 7 $ 1,124,046 1,180,173 Vehicles 3 - 7 631,897 702,953 Tooling and dies 7 570,795 638,382 Office equipment 3 - 7 382,290 398,126 Leasehold improvements 7 - 39 256,696 264,709 ________ _______________ ___________ 2,965,724 3,184,343 Less accumulated depreciation (1,932,796) (2,099,175) Total property and equipment $ 1,032,928 1,085,168 _______________ ___________ _______________ ___________ (5) Other Assets ____________ The major components of other assets are summarized as follows: June 30, September 30, 2001 2000 (unaudited) _____________ ___________ S Corporation tax deposit $ 101,713 100,517 Prepaid royalty - long-term 48,880 48,860 Investment in Golden Rule (Bermuda) Ltd. 25,000 25,000 _____________ ___________ Total other assets $ 175,593 174,377 _____________ ___________ _____________ ___________ F-15 55 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company) Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (6) Notes Receivable from Stockholder _________________________________ Notes receivable from stockholder consisted of the following: June 30, September 30, 2001 2000 (unaudited) _____________ ___________ Note receivable - stockholder, interest rate of 5.73%, principal and interest due on demand $ 27,500 - Note receivable - stockholder, interest rate of 6.36%, principal and interest due on May 30, 2002 18,500 - _____________ ___________ Total notes receivable from stockholder $ 46,000 - _____________ ___________ _____________ ___________ (7) Accrued Expenses ________________ The major components of accrued expenses are summarized as follows: June 30, September 30, 2001 2000 (unaudited) _____________ ___________ Distributor rebate payable $ 98,473 21,953 Accrued salaries and related benefits 71,162 68,169 Profit sharing contribution payable 55,000 - Accrued warranty costs 27,000 27,000 Royalties payable 8,585 - Accrued interest expense 1,230 - _____________ ___________ Total accrued expenses $ 261,450 117,122 _____________ ___________ _____________ ___________ (8) Short-term Note Payable _______________________ During fiscal 2000, the Company entered into a $100,000 note payable agreement (the "Note") with Land Mark Leasing, Inc. The Note is unsecured, bears interest at 6.6% and is due on demand. At September 30, 2000, $100,000 was outstanding on the Note. There are no outstanding borrowings in connection with the Note at June 30, 2001 (unaudited). F-16 56 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company) Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (9) Bank Line of Credit ___________________ The Company maintains a $500,000 line of credit agreement (the "Line of Credit") with Bank of America, N.A. that is dated February 1, 1999, and matures on February 1, 2002. The Line of Credit bears interest at Bank of America, N.A. prime rate minus .75%, is collateralized by accounts receivable, inventory, and equipment of the Company, and is guaranteed by the three stockholders of the Company. There are no outstanding borrowings under the Line of Credit at September 30, 2000. Additionally, no amount was outstanding under the Line of Credit at June 30, 2001 (unaudited). (10) Non-Operating Income ____________________ Non-operating income consisted of the following:
Nine months Years ended ended June 30, September 30, 2001 2000 2000 1999 (unaudited) (unaudited) ___________ ______ ___________ ___________ Income: Royalties $ 23,450 48,375 7,520 16,500 Interest 22,133 18,417 28,197 15,953 Gain on sale of equipment 10,761 3,959 - - Consulting fees - - 31,559 - Truck lease 1,516 28,711 - - Other 1,238 - 1,493 1,734 ___________ ______ ______ ______ Total income 59,098 99,462 68,769 34,187 ___________ _______ _______ _______ Expense: Write-off of investment in Visionaire Corp. (28,473) - - (28,473) Interest (1,230) (1,480) (452) - Other (3,597) - - - ___________ _______ _______ ________ Total expense (33,300) (1,480) (452) (28,473) ___________ _______ _______ ________ Total non-operating income, net $ 25,798 97,982 68,317 5,714 ___________ _______ _______ ________ ___________ _______ _______ ________
F-17 57 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company) Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (11) Common Stock ____________ Cycle Country has 20,000 shares of $1 par value common stock authorized and 5,600 shares issued and outstanding at September 30, 2000 and 1999. Okoboji Industries has 10,000 shares of $10 par value common stock authorized and 2,000 shares issued and outstanding at September 30, 2000 and 1999. (12) Pension and Profit Sharing Plan _______________________________ The Company has a qualified defined contribution profit sharing plan (the "Plan") covering all eligible employees with a specific period of service. The contribution is discretionary with the Board of Directors. The total contribution to the Plan by the Company for the years ended September 30, 2000 and 1999 was $55,000 and $50,000, respectively. For the nine months ended June 30, 2001 and 2000, no amounts were contributed by the Company to the Plan (unaudited). (13) Operating Leases ________________ Cycle Country has committed to a non-cancelable operating lease on operating facilities with rent of $25,320 per month which expires October 31, 2006. In addition, Okoboji Industries has committed to a non-cancelable operating lease on operating facilities with rent of $4,000 per month which expires September 30, 2004. The following is a schedule of future minimum rental commitments, by year and in the aggregate, to be paid under non-cancelable operating leases with initial or remaining terms in excess of one year: June 30, September 30, 2001 2000 (unaudited) _____________ ____________ 2001 $ 351,840 - 2002 351,840 351,840 2003 351,840 351,840 2004 351,840 351,840 2005 303,840 315,840 2006 and thereafter 329,160 405,120 _____________ ____________ Total $ 2,040,360 1,776,480 _____________ ____________ _____________ ____________ F-18 58 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company) Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (13) Operating Leases, Continued ___________________________ Total lease expense amounted to $351,840 during both fiscal 2000 and 1999. For each of the nine-month periods ended June 30, 2001 and 2000, lease expense amounted to $263,880 (unaudited). Subsequent to June 30, 2001, the Company acquired the above- mentioned operating facilities (see note 18) (unaudited). (14) Business Concentrations _______________________ At September 30, 2000, customers with the three largest outstanding accounts receivable balances totaled approximately $374,000 or 48% of the gross accounts receivable. At September 30, 2000, the outstanding accounts receivable balances of customers that exceeded 10% of gross accounts receivable are as follows: % of Gross Accounts Accounts Customer Receivable Receivable ________ __________ __________ A $ 194,800 25% B 92,600 12% C 86,200 11% Sales to the Company's three major customers, which exceeded 10% of net sales, accounted for approximately 18.7%, 15.1%, and 11.1% each of net sales in fiscal 2000 and approximately 17.9%, 13.8%, and 10.7% each of net sales in fiscal 1999. At June 30, 2001, customers with the two largest outstanding accounts receivable balances totaled approximately $358,000 or 47% of the gross accounts receivable (unaudited). At June 30, 2001, the outstanding accounts receivable balances of customers that exceeded 10% of gross accounts receivable are as follows (unaudited): % of Gross Accounts Accounts Customer Receivable Receivable ________ __________ __________ D $ 279,500 37% E 78,200 10% F-19 59 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company) Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (14) Business Concentrations, Continued __________________________________ Sales to the Company's three major customers, which exceeded 10% of net sales, accounted for approximately 16.6%, 15.3%, and 11.1% each of net sales in the nine months ended June 30, 2001 (unaudited) and approximately 15.7%, 15.5%, and 12.4% each of net sales in the nine months ended June 30, 2000 (unaudited). The Company believes it has adequate sources for the supply of raw materials and components for its production requirements. The Company's suppliers are located primarily in the state of Iowa. The Company has a policy of strengthening its supplier relationships by concentrating its purchases for particular parts over a limited number of suppliers in order to maintain quality and cost control and to increase the suppliers' commitment to the Company. The Company relies upon, and expects to continue to rely upon, several single source suppliers for critical components. During fiscal 2000 and 1999, the Company purchased approximately $4,554,000 and $4,170,000, respectively, of raw materials from one vendor, which represented approximately 59% and 63% of materials used in products sold during the respective years. During the nine months ended June 30, 2001 and 2000, the Company purchased approximately $3,297,000 and $3,746,000, respectively, of raw materials from one vendor, which represented approximately 57% and 64% of materials used in products sold during the respective nine- month periods (unaudited). (15) Segment Information ___________________ Segment information has been presented on a basis consistent with how business activities are reported internally to management. Management solely evaluates operating profit by segment by direct costs of manufacturing its products without an allocation of indirect costs. In determining the total revenues by segment, freight income and sales discounts are not allocated to each of the segments for internal reporting purposes. The Company has two operating segments which assemble, manufacture, and sell a variety of products: ATV Accessories and Plastic Wheel Covers. ATV Accessories is engaged in the design, assembly, and sale of ATV accessories such as snowplow blades, lawnmowers, spreaders, sprayers, tillage equipment, winch mounts, and utility boxes. Plastic Wheel Covers manufactures and sells injection-molded plastic wheel covers for vehicles such as golf carts, lawnmowers, and light-duty trailers. The significant accounting policies of the segments are the same as those described in note 1. Sales of snowplow blades comprised approximately 66% of ATV Accessories revenues in both fiscal 2000 and 1999, and 57% and 56% of the Company's combined total revenues in fiscal 2000 and 1999, respectively. Sales of snowplow blades comprised approximately 67% and 66% of ATV Accessories revenues in the nine months ended June 30, 2001 and 2000, respectively, and 58% and 57% of the Company's combined total revenues in the nine month periods ended June 30, 2001 and 2000, respectively (unaudited). F-20 60 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company) Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (15) Segment Information, Continued ______________________________ The following is a summary of certain financial information related to the two segments:
June 30, September 30, 2001 2000 2000 1999 (unaudited) (unaudited) ____ ____ ___________ ___________ Total revenues by segment ------------------------- ATV Accessories $ 11,022,322 9,735,523 8,654,437 8,623,577 Plastic Wheel Covers 1,978,307 1,835,604 1,493,401 1,581,226 _____________ ___________ ___________ ___________ Total revenues by segment 13,000,629 11,571,127 10,147,838 10,204,803 Freight income 103,772 160,710 88,959 81,592 Sales discounts (324,930) (262,335) (232,361) (231,489) _____________ ___________ ___________ ___________ Total combined revenue $ 12,779,471 11,469,502 10,004,436 10,054,906 _____________ ___________ ___________ ___________ _____________ ___________ ___________ ___________ Operating profit by segment --------------------------- ATV Accessories $ 3,257,427 2,829,065 2,743,039 2,565,939 Plastic Wheel Covers 1,076,150 1,172,735 1,044,950 1,147,129 Factory overhead (692,268) (390,687) (714,881) (676,849) Selling, general, and administrative (2,646,331) (2,713,180) (2,132,002) (1,963,138) Interest income (expense), net 20,903 16,937 27,745 15,953 Other income (expense), net 4,895 81,045 40,572 (10,239) _____________ ___________ ___________ ___________ Net income $ 1,020,776 995,915 1,009,423 1,078,795 ____________ ___________ ___________ ___________ ____________ ___________ ___________ ___________
F-21 61 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company) Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (15) Segment Information, Continued ______________________________
June 30, September 30, 2001 2000 2000 1999 (unaudited) (unaudited) ____ ____ ___________ ___________ Identifiable assets ------------------- ATV Accessories $3,819,709 3,479,166 3,387,975 3,969,396 Plastic Wheel Covers 562,669 518,962 515,113 533,125 __________ _________ _________ _________ Total identifiable assets 4,382,378 3,998,128 3,903,088 4,502,521 Corporate and other assets 853,065 632,102 975,289 811,624 __________ _________ _________ _________ Total assets $5,235,443 4,630,230 4,878,377 5,314,145 __________ _________ _________ _________ __________ _________ _________ _________ Depreciation by segment ----------------------- ATV Accessories $ 85,162 74,503 70,093 63,162 Plastic Wheel Covers 40,565 38,962 38,765 30,463 Corporate and other 80,043 87,351 57,521 61,820 __________ _________ _________ _______ Total depreciation $ 205,770 200,816 166,379 155,445 __________ _________ _________ _______ __________ _________ _________ _______ Capital expenditures by ----------------------- segment ------- ATV Accessories $ 167,585 109,171 98,094 135,306 Plastic Wheel Covers 78,951 139,752 62,839 53,777 Corporate and other 98,820 52,413 79,765 89,354 __________ _________ _________ _______ Total capital expenditures $ 345,356 301,336 240,698 278,437 __________ _________ _________ _______ __________ _________ _________ _______ The following is a summary of the Company's revenue in different geographic areas: Years ended Nine months ended June 30, September 30, 2001 2000 2000 1999 (unaudited) (unaudited) ____ ____ ___________ ___________ United States $ 11,989,031 10,595,056 9,357,761 9,398,906 Other countries 790,440 874,446 646,675 656,000 _____________ __________ __________ __________ Total revenue $ 12,779,471 11,469,502 10,004,436 10,054,906 _____________ __________ __________ __________ _____________ __________ __________ __________
F-22 62 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company) Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (15) Segment Information, Continued ______________________________ As of September 30, 2000 and 1999 and June 30, 2001 and 2000 (unaudited), all of the Company's long-lived assets are located in the United States of America. During fiscal 2000 and 1999 and during the nine months ended June 30, 2001 and 2000 (unaudited), ATV Accessories had sales to individual customers which exceeded 10% of total revenues as described in note 14. Plastic Wheel Covers did not have sales to any individual customer greater than 10% of total revenues during fiscal 2000 and 1999 or during the nine months ended June 30, 2001 and 2000 (unaudited). (16) Related Party Transactions __________________________ The Company was owed $46,000 at September 30, 2000 by a stockholder of the Company. At June 30, 2001, the Company was owed $0 by a stockholder of the Company (unaudited). Land Mark Leasing, Inc., which the Company owed $100,000 at September 30, 2000, is wholly owned by the stockholders of Cycle Country. At June 30, 2001, there were no amounts outstanding to Land Mark Leasing, Inc. (unaudited). During the nine months ended June 30, 2001, consulting fees of approximately $31,600 were paid to the Company by Land Mark Products, Inc. Land Mark Products, Inc. is owned 10% by the stockholders of Cycle Country (unaudited). The Company leases certain facilities from two of its stockholders under operating lease agreements, which obligate the Company for monthly lease payments of $25,320 per month through October 31, 2006 and $4,000 per month through September 30, 2004 (see notes 13 and 18). (17) Commitments and Contingencies _____________________________ Legal Matters The Company is a defendant in a number of claims relating to matters arising in the ordinary course of its business. Management believes these claims are insured and subject to varying deductibles. The amount of liability, if any, from the claims cannot be determined with certainty; however, management is of the opinion that the outcome of the claims will not have a material adverse impact on the combined financial position of the Company. F-23 63 CYCLE COUNTRY ACCESSORIES CORP. AND AFFILIATED ENTITY (an Iowa corporation) (The Predecessor Company) Notes to Combined Financial Statements (Items referring to June 30, 2001 and 2000 are Unaudited) (18) Subsequent Events (Unaudited) _____________________________ On August 14, 2001, Cycle Country and Okoboji Industries merged. Since both Cycle Country and Okoboji Industries are entities under common control (see Note 1), this transaction will be accounted for in a manner similar to a pooling of interests. On August 21, 2001, the Company acquired its operating facilities, which were previously leased from two of its stockholders, for $300,000 in cash and 390,000 shares of common stock in Cycle Country Accessories Corp. (a Nevada corporation). The land and building had an appraised value of $1.5 million. Additionally, no penalties were incurred by the Company in connection with the cancellation of the operating leases relating to the land and building. On August 21, 2001, the stockholders of the Company entered into an agreement to sell all of the common stock of the Company (see Note 19). F-24 64 (19) Pro Forma Financial Information (Unaudited) ___________________________________________ Combined Balance Sheets ----------------------- The pro forma financial information presented as of June 30, 2001 give effect to (a) the acquisition of Cycle Country Accessories Corp.'s (an Iowa corporation) (the Predecessor Company) operating facility, which consists of land and buildings with a fair value of $1,500,000, from certain stockholders. The consideration given is comprised of $300,000 in cash and 390,000 shares of common stock of Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company); and (b) the purchase by Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company) of all the outstanding common stock of Cycle Country Accessories Corp. (an Iowa corporation) (the Predecessor Company) for $4,500,000 in cash and 1,375,000 shares of common stock of Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company). A term note in the amount of $4,500,000 from a commercial lender was entered into by Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company) to finance the purchase of all of the outstanding shares of Cycle Country Accessories Corp. (an Iowa corporation) (the Predecessor Company). Combined Statements of Income ----------------------------- The pro forma financial information presented for the years ended September 30, 2000 and 1999 and the nine months ended June 30, 2001 and 2000 give effect to the purchase by Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company) of all the outstanding common stock of Cycle Country Accessories Corp. (an Iowa corporation) (the Predecessor Company) for $4,500,000 in cash and 1,375,000 shares of common stock of Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company). As a result of the aforementioned purchase of all of the outstanding common stock of Cycle Country Accessories Corp. (an Iowa corporation) (the Predecessor Company) by Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company), which is a C corporation, Cycle Country Accessories Corp. (an Iowa corporation) (the Predecessor Company) converted from a S corporation to a C corporation. A provision for income taxes has been added due to this conversion from a S corporation to a C corporation. Earnings Per Share ------------------ The 3,625,000 shares of common stock outstanding for all periods presented represents the initial capitalization of Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company) after its formation. F-25 65 Independent Auditors' Report ____________________________ To the Board of Directors and Stockholders of Cycle Country Accessories Corp. (a Nevada corporation): We have audited the accompanying balance sheet of Cycle Country Accessories Corp. (a Nevada corporation) (the "Company") as of August 23, 2001, and the related statements of income, stockholders' equity, and cash flows for the period from inception (August 15, 2001) to August 23, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cycle Country Accessories Corp. (a Nevada corporation) as of August 23, 2001, and the results of its operations and its cash flows for the period from inception (August 15, 2001) to August 23, 2001 in conformity with accounting principles generally accepted in the United States of America. TEDDER, JAMES, WORDEN & ASSOCIATES, P.A. October 23, 2001 Orlando, Florida F-26 66 CYCLE COUNTRY ACCESSORIES CORP. (a Nevada corporation) (The Successor Company) Balance Sheet August 23, 2001 Assets ------ Current assets Cash $ 4,500,363 ============= Liabilities and Stockholders' Equity ------------------------------------ Current liabilities Current portion of note payable $ 777,389 Note payable, less current portion 3,722,611 ------------- Total liabilities 4,500,000 Stockholders' equity 363 ------------- Total liabilities and stockholders' equity $ 4,500,000 ============= See accompanying notes to the financial statements. F-27 67 CYCLE COUNTRY ACCESSORIES CORP. (a Nevada corporation) (The Successor Company) Statement of Income From the period from inception (August 15, 2001) to August 23, 2001 No activity has occurred from inception (August 15, 2001) to August 23, 2001 See accompanying notes to the financial statements. F-28 68 CYCLE COUNTRY ACCESSORIES CORP. (a Nevada corporation) (The Successor Company)
Statement of Stockholders' Equity From the period from inception (August 15, 2001) to August 23, 2001 Additional Preferred Common paid-in Retained stock stock capital earnings Total --------- ------ ---------- -------- ----- Balances at August 15, 2001 $ - - - - - Issuance of 3,625,000 shares of common stock - 363 - - 363 --------- ------ ---------- -------- ----- Balances at August 23, 2001 $ - 363 - - 363 ========= ====== ========== ======== =====
See accompanying notes to the financial statements. F-29 69 CYCLE COUNTRY ACCESSORIES CORP. (a Nevada corporation) (The Successor Company) Statement of Cash Flows From the period from inception (August 15, 2001) to August 23, 2001 Cash flows from financing activities Proceeds from note payable $ 4,500,000 Proceeds from issuance of common stock 363 ------------- Net cash provided by financing activities $ 4,500,363 Increase in cash 4,500,363 Cash - August 15, 2001 - ------------- Cash - August 23, 2001 $ 4,500,363 ============= See accompanying notes to the financial statements. F-30 70 CYCLE COUNTRY ACCESSORIES CORP. (a Nevada Corporation) (The Successor Company) Notes to Financial Statements _____________________________ (1) Summary of Significant Accounting Policies __________________________________________ (a) Reporting Entity and Nature of Operations Cycle Country Accessories Corp. (the "Company") (a Nevada corporation) (the Successor Company) was incorporated in the state of Nevada on August 15, 2001 as a C corporation. The Company had no activities for the period from inception (August 15, 2001) to August 23, 2001 other than those activities related to the formation of the Company and acquiring debt financing (see Note 2). (b) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (c) Income Taxes The Company accounts for income taxes utilizing the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enacted date. (d) Earnings Per Share Basic earnings per share is calculated by dividing net income by the weighted-average common shares outstanding during the reporting period. Diluted earnings per share is computed in a manner consistent with that of basic earnings per share while giving effect to all potentially dilutive common shares outstanding during the reporting period. There were no potentially dilutive common shares outstanding during the period from inception (August 15, 2001) to August 23, 2001. F-31 71 CYCLE COUNTRY ACCESSORIES CORP. (a Nevada Corporation) (The Successor Company) Notes to Financial Statements _____________________________ (1) Summary of Significant Accounting Policies, Continued _____________________________________________________ (e) Fair Value of Financial Instruments The carrying amount of cash approximates fair value because of its short maturity. The fair value of the note payable is assumed to approximate the recorded value because there have not been any significant changes in specific circumstances since the note payable was originally recorded. (2) Note Payable ____________ On August 21, 2001, under the terms of a secured credit agreement, the Company and the Predecessor Company (see Note 4) entered into a note payable for $4,500,000 (the "Note") with a commercial lender. The proceeds from the Note were received by the Company on August 23, 2001. The Note is collateralized by all of the Companies' assets, is payable in monthly installments from September 2001 until July 2006, which includes principal and interest at prime + 0.75% (7.25% at August 23, 2001), with a final payment upon maturity on July 25, 2006. The monthly payment is $90,115 and is applied to interest first based on the interest rate in effect, with the balance applied to principal. The interest rate is adjusted daily. Additionally, any proceeds from the sale of stock received from the exercise of warrants (see Note 3) shall be applied to any outstanding balance on the $4,500,000 note payable. At August 23, 2001, $4,500,000 was outstanding on the Note. Under the terms of the secured credit agreement noted above, the Company and the Predecessor Company have a Line of Credit for the lesser of $500,000 or 80% of eligible accounts receivable and 35% of eligible inventory. The Line of Credit bears interest at prime plus 1.25% (7.75% at August 23, 2001) and is collateralized by all of the Companies' assets. The Line of Credit matures on August 25, 2002. There are no outstanding borrowings under the Line of Credit at August 23, 2001. F-32 72 CYCLE COUNTRY ACCESSORIES CORP. (a Nevada Corporation) (The Successor Company) Notes to Financial Statements _____________________________ (2) Note Payable, Continued _______________________ In addition, the secured credit agreement contains conditions and covenants that prevent or restrict the Company from engaging in certain transactions without the consent of the lender and require the Company to maintain certain financial ratios, including a term dept coverage and maximum leverage. In addition, the Company is required to maintain a minimum working capital. Future maturities of long-term debt subsequent to August 23, 2001 are as follows: Year ending September 30, _________________________ 2001 $ 60,564 2002 784,976 2003 843,994 2004 906,944 2005 975,639 Thereafter 927,883 Thereafter -------------- $ 4,500,000 ============== (3) Stockholders' Equity ____________________ (a) Common Stock The Company has 100,000,000 shares of $0.0001 par value common stock authorized and 3,625,000 shares issued and outstanding at August 23, 2001. Of the 3,625,000 shares of common stock outstanding, 2,000,000 of these shares of common stock have warrants attached which entitles the holder to purchase one share of common stock per warrant beginning 120 days following the effectiveness of a registration statement (see Note 5) and ending August 21, 2004. The Company has the right, under certain circumstances, to redeem any unexercised warrants at $0.0001 per share. F-33 73 CYCLE COUNTRY ACCESSORIES CORP. (a Nevada Corporation) (The Successor Company) Notes to Financial Statements _____________________________ (3) Stockholders' Equity, continued ________________________________ (b) Preferred Stock The Company has 20,000,000 shares of $0.0001 par value preferred stock authorized and no shares issued and outstanding at August 23, 2001. The Board of Directors is authorized to adopt resolutions providing for the issuance of preferred shares and the establishment of preferences and rights pertaining to the shares being issued, including the dividend rates. In the event of any dissolution or liquidation of the Company, whether voluntary or involuntary, the holders of shares of preferred stock shall be paid the full amountsof which they shall be entitled to receive before any holders of common stock shall be entitled to receive, pro rata, any remaining assets of the Company available for distribution to its shareholders. (4) Commitment On August 21, 2001, the Company entered into an agreement to purchase all of the outstanding common stock of Cycle Country Accessories Corp. (an Iowa corporation) (the Predecessor Company) for $4,500,000 in cash and 1,375,000 shares of common stock of Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company). Since both the Company and Cycle Country Accessories Corp. (an Iowa corporation) (the Predecessor Company) are under common control by virtue of majority ownership and common management by the same three individuals, this transaction will be accounted for in a manner similar to a pooling of interests. (4) Subsequent Events (Unaudited) _____________________________ On August 24, 2001, the transaction described in Note 4 was consummated and the $4,500,000 in cash and 1,375,000 shares of common stock of the Company were exchanged for all of the outstanding common stock of Cycle Country Accessories Corp. (an Iowa corporation) (the Predecessor Company.) On August 28, 2001, the Company filed a Registration Statement on Form SB-2 with the Securities and Exchange Commission. F-34 74 Unaudited Pro Forma Financial Information _________________________________________ The following Unaudited Pro Forma Balance Sheet as of June 30, 2001 and the Unaudited Pro Forma Statements of Income for the year ended September 30, 2000 and the nine months ended June 30, 2001 give effect to (1) the acquisition of Cycle Country Accessories Corp.'s (an Iowa corporation) (the Predecessor Company) operating facility, which consists of land and buildings with a fair value of $1,500,000, from certain stockholders. The consideration given is comprised of $300,000 in cash and 390,000 shares of common stock of Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company); and (2) the purchase by Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company) of all the outstanding common stock of Cycle Country Accessories Corp. (an Iowa corporation) (the Predecessor Company) for $4,500,000 in cash and 1,375,000 shares of common stock of Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company). A term note in the amount of $4,500,000 from a commercial lender was entered into by Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company) to finance the purchase of all of the outstanding shares of Cycle Country Accessories Corp. (an Iowa corporation) (the Predecessor Company). As a result of the purchase of all of the outstanding common stock of Cycle Country Accessories Corp. (an Iowa corporation) (the Predecessor Company) by Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company), which is a C corporation, Cycle Country Accessories Corp. (an Iowa corporation) (the Predecessor Company) converted from a S corporation to a C corporation. The Unaudited Pro Forma Balance Sheet presents the pro forma consolidated financial position of Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company) and Cycle Country Accessories Corp. (an Iowa corporation) (the Predecessor Company) as of June 30, 2001 assuming that the proposed transactions had occurred as of June 30, 2001. Such pro forma information is based upon the historical balance sheet data of Cycle Country Accessories Corp. (an Iowa corporation) (the Predecessor Company) and Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company) as of that date. The Unaudited Pro Forma Statement of Income gives effect to the proposed transactions for the year ended September 30, 2000 and for the nine months ended June 30, 2001 as if the transaction had been consummated on October 1, 1999. The Unaudited Pro Forma Financial Information has been prepared by the Company based on the historical combined financial statements of Cycle Country Accessories Corp. and Affiliated Entity (an Iowa corporation) (the Predecessor Company) and Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company) included elsewhere in this registration statement. The Unaudited Pro Forma Financial Information is presented for illustrative purposes only and does not purport to indicate the results that would have been obtained if the transactions had occurred on the dates indicated or to project those that will be realized in the future. These Unaudited Pro Forma Financial Statements should be read in conjunction with the historical combined financial statements of Cycle Country Accessories Corp. and Affiliated Entity (an Iowa corporation) (the Predecessor Company) and Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company) included elsewhere in this registration statement. F-35 75 CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARY Unaudited Pro Forma Balance Sheet June 30, 2001
Pro Forma -------------------------- Cycle Country Cycle Country Cycle Country Accessories Accessories Accessories Corp. Corp. Land acquisition Corp., and (a Nevada and stock (a Nevada corporation) Affiliated Corporation) purchase (Sucessor) Assets Entity (Successor) adjustments as adjusted ------ ------------- -------------- ----------------- ---------------------- Current Assets: Cash and cash equivalents $ 516,332 4,500,363 (300,000) (A) 317,212 (4,500,000) (B) 100,517 (C) Accounts receiveable - trade 754,232 - 754,232 Inventories 2,291,387 - 2,291,387 Prepaid expenses and other 56,881 - 56,881 ------------ --------- ---------- Total current assets 3,618,832 4,500,363 3,419,712 Investment in Cycle Country Accessories Corp. (Nevada) - - 4,500,000 (B) - (4,500,000) (D) Property and equipment, net 1,085,168 - 1,500,000 (A) 2,585,168 Other assets 174,377 - (100,517) (C) 73,860 ------------ --------- ----------- Total assets $ 4,878,377 4,500,363 6,078,740 ============ ========= =========== Liabilities and Stockholders' Equity ------------------------------------ Current liabilities; $ 630,613 - 630,613 Long-term note payable - 4,500,000 4,500,000 ------------ --------- ----------- Total liabilities 630,613 4,500,000 5,130,513 Stockholders' equity Preferred stock: Cycle Country Accessories Corp. (Nevada) - - - Common Stock Cycle Country Accessories Corp. (Nevada) - 363 363 Cycle Country Accessories Corp. (Iowa) 25,600 - (25,600) (D) - Additional paid-in capital 14,116 - 1,200,000 (A) 1,200,000 (14,166) (D) Retained earnings (accumulated deficit) 4,208,048 - (4,460,284) (D) (252,236) ------------ --------- ----------- Total stockholders' equity 4,247,764 363 948,127 ------------ --------- ----------- Total liabilities and stockholders' equity $ 4,878,377 4,500,363 6,078,740 ============ ========= ===========
See Notes to Unaudited Pro Forma Balance Sheet on page F-37 F-36 76 CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARY Unaudited Pro Forma Balance Sheet, Continued June 30, 2001 Notes to Unaudited Pro Forma Balance Sheet: Acquisition of Land and Building -------------------------------- (A) Acquisition of Cycle Country Accessories Corp.'s (an Iowa corporation) (the Predecessor Company) operating facility, which consists of land and buildings with a fair value of $1,500,000 for $300,000 in cash and 390,000 shares of common stock in Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company) from certain stockholders of Cycle Country Accessories Corp. (an Iowa corporation) (the Predecessor Company). Purchase of Cycle Country Accessories Corp.'s (an Iowa corporation) (the Predecessor Company) Common Stock ------------------------------------------------------------------------ (B) Purchase of all the outstanding shares of common stock of Cycle Country Accessories Corp. (an Iowa corporation) (the Predecessor Company) for $4,500,000 in cash and 1,375,000 shares of common stock of Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company). This transaction will be accounted for in a manner similar to a pooling of interests because both of the Companies were under common control by virtue of majority stock ownership and management beign controlled by the same three individuals. (C) Upon conversion to C corporation status, the Company will receive $100,517 from the U.S. Government. The S corporation tax deposit will no longer be required when the Company converts to C Corporation status. (D) Elimination of the investment account in consolidation. F-37 77 CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARY Unaudited Pro Forma Statement of Income For the year ended September 30, 2000
Pro Forma -------------------------- Cycle Country Accessories Cycle Country Cycle Country Corp. and Accessories Accessories Corp., Affiliated Corp. Land acquisition (a Nevada Entity (an (a Nevada and stock corporation) Iowa corporation) corporation) purchase (Successor) (Predecessor) (Successor) adjustments as adjusted ------------- ---------------- ---------------- ----------------- Net Sales $12,675,699 - 12,675,699 Freight income 103,772 - 103,772 ------------- ---------------- ----------------- Total revenue 12,779,471 - 12,779,471 Cost of goods sold (9,138,162) - (23,150) (A) (8,924,912) ------------- ---------------- ----------------- 236,400 (B) Gross profit 3,641,309 - 3,854,559 Selling, general and administrative expenses (2,646,331) - (14,200) (A) (2,545,081) ------------- ---------------- ----------------- 115,400 (B) Income from operations 994,978 - 1,309,478 Non-operating income, net 25,798 - (311,400) (C) (285,602) ------------- ---------------- ----------------- Income before provision for income taxes 1,020,776 - 1,023,876 Income tax provision - - (372,500) (D) (378,700) ------------- ---------------- ----------------- Net income $ 1,020,776 - 645,176 ============= ================ ================= Weighted average shares outstanding (E): Basic and diluted 3,625,000 ================= Earnings per share (F): Basic and diluted $ 0.18 =================
Notes to Unaudited Pro Forma Statement of Income Acquisition of Land and Building -------------------------------- (A) Additional annual depreciation expense resulting from increased basis of building acquired of $1,120,000 (based on appraised value and as discussed in adjustment (A) on page F-37) based on estimated useful life of 30 years. Depreciation expense has been allocated between cost of sales and selling, general and administrative based on relative square footage occupied. (B) Elimination of operating lease expense as a result of the acquisition of the related land and buildings (operating facility) as discussed in adjustment (A) on page F-37. This adjustment is based on a monthly lease expense of $29,320 in connection with the current operating leases on the operating facility. Rent expense is allocated between cost of sales and selling, general and administrative expense based on relative square footage occupied. Stock Purchase of Cycle Country Accessories Corp. (an Iowa corporation) ----------------------------------------------------------------------- (C) Annual interest charges on $4,500,000 of prime + 0.75% (7.5% at June 30, 2001) note payable obtained in connection with the stock purchase maturing on July 25, 2006. The note is payable in monthly installments over 60 months. (D) Required income tax provision due to conversion to C corporation status as a result of the purchase of Cycle Country Accessories Corp.'s (an Iowa corporation) (he Predecessor Company) by Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company) as discussed in adjustment B on page F-37. Calculation of Earnings Per Share --------------------------------- (E) The 3,625,000 shares used in the calculation of basic and diluted earnings per share were issued in connection with the formation of Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company). F-38 78 CYCLE COUNTRY ACCESSORIES CORP. AND SUBSIDIARY Unaudited Pro Forma Statement of Income For the nine months ended September 30, 2000
Pro Forma -------------------------- Cycle Country Accessories Cycle Country Cycle Country Corp. and Accessories Accessories Corp., Affiliated Corp. Land acquisition (a Nevada Entity (an (a Nevada and stock corporation) Iowa corporation) corporation) purchase (Successor) (Predecessor) (Successor) adjustments as adjusted ----------------- -------------- -------------- ------------------ Net Sales $ 9,915,477 - 9,915,477 Freight income 88,959 - 88,959 ------------- -------------- ------------------ Total revenue 10,004,436 - 10,004,436 Cost of goods sold (6,931,328) - (17,350) (A) (6,771,378) ------------- -------------- ------------------ 177,300 (B) Gross profit 3,073,108 - 3,233,058 Selling, general and administrative expenses (2,132,002) - (10,650) (A) (2,056,052) ------------- -------------- ------------------ 86,600 (B) Income from operations 941,106 - 1,177,006 Non-operating income, net 68,317 - (239,000) (C) (170,683) ------------- -------------- ------------------ Income before provision for income taxes 1,009,423 1,006,323 Income tax provision - - (372,500) (D) (372,500) ------------- -------------- ------------------ Net income $ 1,009,423 - 633,823 ============= ============== ================== Weighted average shares outstanding (E): Basic and diluted 3,625,000 ================== Earnings per share (F): Basic and diluted $ 0.18 ==================
Notes to Unaudited Pro Forma Statement of Income Acquisition of Land and Building -------------------------------- (A) Additional annual depreciation expense resulting from increased basis of building acquired of $1,120,000 (based on appraised value and as discussed in adjustment (A) on page F-37) based on estimated useful life of 30 years. Depreciation expense has been allocated between cost of sales and selling, general and administrative based on relative square footage occupied. (B) Elimination of operating lease expense as a result of the acquisition of the related land and buildings (operating facility) as discussed in adjustment (A) on page F-37. This adjustment is based on a monthly lease expense of $29,320 in connection with the current operating leases on the operating facility. Rent expense is allocated between cost of sales and selling, general and administrative expense based on relative square footage occupied. Stock Purchase of Cycle Country Accessories Corp. (an Iowa corporation) ----------------------------------------------------------------------- (C) Annual interest charges on $4,500,000 of prime + 0.75% (7.5% at June 30, 2001) note payable obtained in connection with the stock purchase maturing on July 25, 2006. The note is payable in monthly installments over 60 months. (D) Required income tax provision due to conversion to C corporation status as a result of the purchase of Cycle Country Accessories Corp.'s (an Iowa corporation) (he Predecessor Company) by Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company) as discussed in adjustment B on page F-37. Calculation of Earnings Per Share --------------------------------- (E) The 3,625,000 shares used in the calculation of basic and diluted earnings per share were issued in connection with the formation of Cycle Country Accessories Corp. (a Nevada corporation) (the Successor Company). F-39 79 No dealer, salesman or other person is authorized to give any information or to make any representations not contained in this prospectus in connection with the offer made hereby, and, if given or made, such information or representations must not be relied upon as having been authorized by Cycle Country. This prospectus does not constitute an offer to sell or a solicitation to an offer to buy the securities offered hereby to any person in any state or other jurisdiction in which such offer or solicitation would be unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that the information contained herein is correct as of any time subsequent to the date hereof. Until ________ __, 2002 (90 days after the date of this prospectus) all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. TABLE OF CONTENTS Page Prospectus Summary.................... 3 Cycle Country Accessories Corp. The Offering.......................... 4 Summary Financial Data................ 6 Risk Factors.......................... 7 Use of Proceeds....................... 11 Determination of Offering Price....... 11 Dividend Policy....................... 11 5,625,000 SHARES Dilution.............................. 12 Management's Discussion and Analysis.. 13 Business.............................. 18 Management............................ 26 Principal Shareholders................ 29 Selling Shareholders.................. 30 Certain Transactions.................. 32 Description of Securities............. 33 ---------- Indemnification....................... 35 PROSPECTUS Plan of Distribution.................. 36 ---------- Legal Matters......................... 37 Experts............................... 37 Where You Can Find More Information........................... 38 Financial Statements.................. F-1 ------------------------------------------- October 26, 2001 80 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS Article 11 of our Articles of Incorporation includes certain provisions permitted by the Nevada Revised Statutes, which provides for indemnification of directors and officers against certain liabilities. Pursuant to our Articles of Incorporation, our officers and directors are indemnified, to the fullest extent available under Nevada Law, against expenses actually and reasonably incurred in connection with threatened, pending or completed proceedings, whether civil, criminal or administrative, to which an officer or director is, was or is threatened to be made a party by reason of the fact that he or she is or was one of our officers, directors, employees or agents. We may advance expenses in connection with defending any such proceeding, provided the indemnitee undertakes to repay any such amounts if it is later determined that he or she was not entitled to be indemnified by us. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore, unenforceable. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION We estimate that expenses in connection with this registration statement will be as follows: SEC registration fee $ 6,531 Legal fees and expenses $ 75,000 Accounting fees and expenses $ 56,000 Miscellaneous $ 5,000 Total $142,531 ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES The following information is furnished with regard to all securities sold by Cycle Country Accessories Corp. within the past three years that were not registered under the Securities Act. The issuances described hereunder were made in reliance upon the exemptions from registration set forth in Section 4(2) of the Securities Act relating to sales by an issuer not involving any public offering. None of the foregoing transactions involved a distribution or public offering. II-1 81 Date Name # of Shares Total Price ---- ---- ----------- ----------- 10/1/1999 Ronald Hickman 152 $54,178 10/1/1998 Ronald Hickman 152 $54,178 ITEM 27. EXHIBITS Exhibit Number Description -------------- ----------- 3.1 Articles of Incorporation of Cycle Country Accessories Corp. 3.2 Bylaws of Cycle Country Accessories Corp. 4.1 Specimen certificate of the Common Stock of Cycle Country Accessories Corp. 4.2 Specimen certificate of the Warrants of Cycle Country Accessories Corp. 5.1 Opinion of Law Office of L. Van Stillman, P.A. as to legality of securities being registered 10.1 Stock Purchase Redemption Agreement entered into on August 21, 2001 by and between Cycle Country Accessories Corporation (an Iowa Corporation), the holders and record owners of all of the outstanding shares of Cycle Country Accessories Corporation (an Iowa Corporation) and Cycle Country Accessories Corp. (a Nevada Corporation) and parent of Cycle Country Accessories Corporation (an Iowa Corporation). 10.2 Secured Credit Agreement by and between Cycle Country Accessories Corp. (a Nevada Corporation) and Cycle Country Accessories Corporation (an Iowa Corporation) as Borrowers and Bank Midwest, Minnesota Iowa, N.A. as Lender dated as of August 21, 2001. 10.3 Employment Agreement with Ronald Hickman 10.4 Employment Agreement with Jim Danbom 10.5 Lease of Business Property entered into November 21, 1985 between Double J Building and Cycle Country Accessories Corporation (an Iowa corporation). 10.6 Lease of Business Property entered into August 1, 1994 between Double J Building and Okoboji Industries. II-2 82 10.7 Cycle Country Accessories Corp. Pension and Profit Sharing Plan 10.8 Promissory Note dated July 24, 2000 with Landmark Leasing 10.9 Promissory Note dated May 30, 1996 with Okoboji Industries 10.10 Promissory Note dated August 7, 1995 with Okoboji Industries 23.1 Consent of Tedder, James, Worden & Associates, P.A. regarding Cycle Country Accessories Corp. (an Iowa corporation) 23.2 Consent of L. Van Stillman (included in Exhibit 5.1) 23.3 Consent of Tedder, James, Worden & Associates, P.A. regarding Cycle Country Accessories Corp. (a Nevada corporation) ITEM 28. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy and as expressed in the Act and is, therefore, unenforceable. The Company hereby undertakes to: (1) File, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to: i. Include any prospectus required by Section 10(a)(3) of the Securities Act; ii. Reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement. iii. Include any additional or changed material information on the plan of distribution. (2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering. (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. (4) For determining any liability under the Securities Act, treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A II-3 83 and contained in a form of prospectus filed by the Company under Rule 424(b)(1) or (4) or 497(h) under the Securities Act as part of this registration statement as of the time the Commission declared it effective. (5) For determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and that offering of the securities at that time as the initial bona fide offering of those securities. (6) Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised by the Securities and Exchange Commission that such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by one of our directors, officers or controlling persons in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-4 84 Signatures In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable ground to believe that it meets all of the requirements for filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Milford state of Iowa, on October 26, 2001. CYCLE COUNTRY ACCESSORIES CORP. By: /s/ Ron Hickman ---------------- Ron Hickman Principal Executive Officer, President and Director In accordance with the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities indicated on October 26, 2001. By: /s/ Ron Hickman Principal Executive Officer, --------------- President and Director Ron Hickman By: /s/ Marie Matthiesen Treasurer, Principal Financial -------------------- Officer and Principal Accounting Marie Matthiesen Officer By: /s/ Richard Wagner Director ------------------ Richard Wagner By: /s/ Jim Danbom Director -------------- Jim Danbom By: /s/ L.G. Hancher Jr. Director -------------------- L.G. Hancher Jr. By: /s/ Richard J. Groeneweg Director ------------------------ Richard J. Groeneweg II-5 85