This discussion relates to Cycle Country Accessories Corp. and its consolidated subsidiaries (the "Company") and should be read in conjunction with our consolidated financial statements as of September 30, 2008, and the year then ended, and Management's Discussion and Analysis of Financial Condition and Results of Operations, both contained in our Annual Report on Form 10-KSB for the year ended September 30, 2008.

We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our financial statements. The discussion also provides information about the financial results of the various segments of our business to provide a better understanding of how those segments and their results affect the financial condition and results of operations of the Company as a whole. To the extent that our analysis contains statements that are not of a historical nature, these statements are forward-looking statements, which involve risks and uncertainties. See "Special Note Regarding Forward-Looking Statements" included elsewhere in this filing.

Critical Accounting Policies and Estimates

The Company's discussion and analysis of its financial condition and results of operations are based upon its Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates the estimates including those related to bad debts and inventories. The Company bases its estimates on historical experiences and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The Company believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Consolidated Financial Statements:

Accounts Receivable - Trade credit is generally extended to customers on a short-term basis. These receivables do not bear interest, although a finance charge may be applied to balances more than 30 days past due. Trade accounts receivable are carried on the books at their estimated collectible value. Individual trade accounts receivable are periodically evaluated for collectability based on past credit history and their current financial condition. Trade accounts receivable are charged against the allowance for doubtful accounts when such receivables are deemed to be uncollectible.

Allowance for Doubtful Accounts - The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowance may be required.

Inventories - The Company values its inventory at the lower of cost or market. Cost is determined using the weighted average cost method.

Reserve for Inventory - The Company records valuation reserves on its inventory for estimated excess and obsolete inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future product demand and market conditions. If future product demand or market conditions are less favorable than those projected by management, additional inventory reserves may be required.

Depreciation of Long-Lived Assets - The Company assigns useful lives for long-lived assets based on periodic studies of actual asset lives and the intended use for those assets. Any change in those assets lives would be reported in the statement of operations as soon as any change in estimate is determined.

Goodwill and Other Intangibles - Goodwill represents the excess of the purchase price over the fair value of the assets acquired. The Company accounts for goodwill in accordance with Statement of Financial Accounting Standard (SFAS) no. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 requires the use of a non- amortization approach to account for purchased goodwill and certain intangibles. Under the non-amortization approach, goodwill and certain intangibles are not amortized into results of operations, but instead are reviewed for impairment at least annually and written down and charged to results of operations in the periods in which the recorded value is determined to be greater than the fair value. The Company has reviewed the goodwill recorded at March 31, 2009 and found no impairment.

Accrued Warranty Costs - The Company records a liability for the expected cost of warranty-related claims as its products are sold. The Company provides a one-year warranty on all of its products except the snowplow blade, which has a limited lifetime warranty. The amount of the warranty liability accrued reflects the Company's estimate of the expected future costs of honoring its obligations under the warranty plan. The estimate is based on historical experiences and known current events. If future estimates of expected costs were to be less favorable, an increase in the amount of the warranty liability accrued may be required.

Accounting for Income Taxes - The Company is required to estimate income taxes in each of the jurisdictions in which it operates. This process involves estimating actual current tax exposure for the Company together with assessing temporary differences resulting from differing treatment of items, such as property, plant and equipment depreciation, for tax and accounting purposes. Actual income taxes could vary from these estimates due to future changes in income tax law or results from final tax exam reviews. At March 31, 2009, the Company assessed the need for a valuation allowance on its deferred tax assets. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based upon the historical operating profits and the near certainty regarding sufficient near term taxable income, management believes that there is no need to establish a valuation allowance. Should the Company determine that it would not be able to realize all or part of its net deferred tax assets in the future, a valuation allowance may be required.

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48 (FIN 48), "Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109." FIN 48 prescribes a comprehensive model for how companies should recognize, measure, present and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under FIN 48, tax positions are recognized in the Company's financial statements as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with tax authorities assuming full knowledge of the position and all relevant facts. These amounts are subsequently reevaluated and changes are recognized as adjustments to current period tax expense. FIN 48 also revised disclosure requirements to include an annual tabular roll forward of unrecognized tax benefits.

The Company adopted the provisions of FIN 48 on October 1, 2007. At March 31, 2009, no uncertain positions were identified. To the extent interest and penalties would be assessed by taxing authorities on any underpayment of income taxes, such amounts would be accrued and classified as a component of income tax expense on the condensed consolidated statement of income.

OVERALL RESULTS OF OPERATIONS

                         Three Months Ended March 31, 2009 and 2008
                      Three Months    Three Months    Increase      Increase
                     Ended Mar. 31,   Ended Mar. 31,  (Decrease)   (Decrease)
                        2009             2008          $             %
                     --------------------------------------------------------
Revenue              $   1,611,252    $   3,911,684    $(2,300,432)  (58.81%)
Cost of goods sold   $   1,692,352    $   2,374,966    $  (682,614)  (28.74%)
Gross profit         $    (81,100)    $   1,536,718    $(1,617,818) (105.28%)
Gross profit %              (.05%)            39.3%

OVERALL RESULTS OF OPERATIONS
                        Six Months Ended March 31, 2009 and 2008
                      Six Months    Six Months      Increase      Increase
                     Ended Mar 31,   Ended Mar 31,  (Decrease)   (Decrease)
                        2009             2008          $             %
                     --------------------------------------------------------
Revenue              $   5,944,867    $   8,913,242    $(2,968,375) (33.30%)
Cost of goods sold   $   4,609,930    $   5,361,194    $  (751,264) (14.01%)
Gross profit         $   1,334,937    $   3,552,048    $(2,217,111) (62.41%)
Gross profit %               22.5%            39.9%

The decrease in revenues for the six months ended March 31, 2009 was attributable to a broad decline in revenue from all of our segments and most all of our customers. The decline was most significant in the second quarter, with the sales decline in the first quarter of 13.4% and the second quarter of 58.81%. The general economic climate left a significant impact on our revenues. While the economy in general strongly contributed to the decline, the second quarter ending March 31, 2009 is also typically the tail-end of our seasonal sales cycle, exaggerating the decline. With the decline in the general economy, our distributors and dealers reduced their level of inventory during this seasonally slow sales period, pushing the carrying of that late-season inventory on to us. The decrease in overall gross profit as a percentage of revenue was attributable to high purchased material costs that carried over in our inventory from the spike last year in our raw material costs, as discussed in the September 30, 2008 Consolidated Financial Statements and related notes included in the Company's Annual Report on Form 10-KSB for the year ended September 30, 2008. Further, we took a substantial inventory adjustment identified in the physical inventory count at January 31, 2009. This was charged to cost of goods sold in the quarter ending March 31, 2009, resulting in an additional deterioration of our Gross Profit.

Three Months Three Months Increase Increase Ended Mar. 31, Ended Mar. 31, (Decrease) (Decrease) 2009 2008 $ %
Selling, general
and administrative
expenses $ 936,936 $ 1,162,675 $ (225,739) (19.4%)

Though the selling, general and administrative expenses decreased 19.4% overall compared to the prior year, as a percentage of revenue, these expenses were 58% for the three months ended March 31, 2009 compared to 30% for the three months ended March 31, 2008. The significant changes in operating expenses for the second quarter of fiscal 2009 as compared to the second quarter of fiscal 2008 were:

                                  Increase             Increase
                                 (Decrease)           (Decrease)
                                    $                     %

Salaries                         $   (28,709)           (9.3%)
Advertising                      $  (105,845)          (81.2%)
Commissions                      $   (29,278)          (68.2%)
Warranty                         $     6,079            31.5%
Other professional fees          $    25,501            37.5%

Salaries decreased for the three months ended March 31, 2009, as compared to the three months ended March 31, 2008. Advertising was cut substantially, dropping 81.2% for the quarter. The decrease in commission expense was a result of the decrease in revenues during the second quarter of fiscal 2009. Warranty expense increased for the three months ended March 31, 2009, as compared to the three months ended March 31, 2008. Other professional fees increased for the three months ended March 31, 2009, as compared to the three months ended March 31, 2008.

                     Three Months    Three Months    Increase      Increase
                     Ended Mar 31,   Ended Mar 31,  (Decrease)    (Decrease)
                        2009             2008          $             %
                     --------------------------------------------------------
Interest and
miscellaneous
income                 $   3,920      $    41,874     $ (37,954)   (90.06%)
Gain on sale of assets $  41,498      $    42,157     $    (659)    (1.56%)
Interest expense       $ 101,634      $    80,111     $  21,523    (26.87%)

The decrease in interest and miscellaneous income was due to a decrease in interest income of approximately $7,000 and a decrease in other income of approximately $31,000. The interest expense increase of approximately $21,523 for the three months ended March 31, 2009 as compared to the three months ended March 31, 2008 was due to the Company receiving a loan for new manufacturing equipment.

Six Months Six Months Increase Increase Ended Mar 31, Ended Mar 31, (Decrease) (Decrease) 2009 2008 $ %
Selling, general
and administrative
expenses $ 1,820,919 $ 2,187,927 $ (367,008) (16.8%)

Though the selling, general and administrative expenses decreased 16.8% overall compared to the prior year, as a percentage of revenue, these expenses were 31% for the six months ended March 31, 2009 compared to 25% for the three months ended March 31, 2008. The significant changes in operating expenses for the first two quarters of fiscal 2009 as compared to the same period of fiscal 2008 were:

                                  Increase             Increase
                                 (Decrease)           (Decrease)
                                    $                     %

Salaries                         $   (39,974)           (6.7%)
Advertising                      $  (190,325)           (82.5%)
Commissions                      $   (56,527)           (67.2%)
Warranty                         $     2,204             5.4%
Other professional fees          $   (49.099)          (27.7%)
Lease expense                    $    21,239             30.6%

Salaries decreased for the six months ended March 31, 2009, as compared to the six months ended March 31, 2008. Advertising was cut substantially, dropping 82.5% for the six month period. The decrease in commission expense was a result of the decrease in revenues during the first two quarters of fiscal 2009 in the ATV Accessories business segment. Warranty expense increased for the six months ended March 31, 2009, as compared to the six months ended March 31, 2008. Other professional fees decreased for the six months ended March 31, 2009, as compared to the six months ended March 31, 2008, due to the removal of consulting work related to the Company's Sarbanes-Oxley Act compliance initiatives. The increase in lease expense was due to the sale and subsequent leasing back of the Company's Milford facility, as described elsewhere in this filing.

                     Six Months    Six Months      Increase      Increase
                     Ended Mar 31,   Ended Mar 31, (Decrease)    (Decrease)
                        2009             2008          $             %
                     --------------------------------------------------------
Interest and
miscellaneous
income                 $    4,579      $    53,299     $   (48,720)  (91.41%)
Gain on sale of assets $   79,714      $   280,589     $  (200,875)  (71.59%)

The decrease in interest and miscellaneous income was primarily due to a decrease in interest income of approximately $15,000 and a decrease in other income of approximately $31,000. The gain on sale of assets decrease of approximately $200,000 for the six months ended March 31, 2009 as compared to the six months ended March 31, 2008 was due to the Company having sold its Milford facility and certain other assets in the prior year. Interest expense increased as the Company received a loan for new manufacturing equipment.

Interest expense on our long-term debt will decrease in the third quarter of fiscal 2009 as the principal balances continue to decrease under fixed rate notes going forward. However, management anticipates the seasonal use of our line of credit will increase our interest expense on a quarter-to-quarter basis, but not on a year-over-year basis.

Looking ahead to the third and fourth quarters of fiscal 2009, management is cautiously projecting a rebound in revenues and margins as new products and effective marketing initiatives continue to be the focus of management and the entire Company. The Company anticipates gross profit margins will be within the range of 20% to 25% of revenue. Management has, and will, continue to seek out and implement production efficiencies and cost reduction initiatives wherever possible and will pass as much of the net input costs increases on to its customers as possible. Remaining competitive in the markets we are in and maintaining our strong market shares within those markets may hinder management's ability to pass on the full amount of our net input costs increases. We project selling, general and administrative expenses during the remainder of fiscal 2009 to be 25-30% of total revenue as we continue our focus on cost reduction initiatives, launching new products and maximizing internal efficiencies, all while maintaining a consistent level of administrative support.

BUSINESS SEGMENTS

As more fully described in Note 9 to the Condensed Consolidated Financial Statements included elsewhere in this filing, the Company operates four reportable business segments: ATV Accessories, Plastic Wheel Covers, Weekend Warrior, and Contract Manufacturing. ATV accessories is vertically integrated and utilizes a two-step distribution method, we are vertically integrated in our Plastic Wheel Cover segment and utilize both direct and two-step distribution methods, Weekend Warrior utilizes a single-step distribution method, and our Contract Manufacturing segment deals directly with other OE manufacturers and businesses in various industries.

ATV ACCESSORIES

ATV ACCESSORIES - Three Months Ended March 31, 2009 and 2008

                      Three Months    Three Months    Increase      Increase
                     Ended Mar 31,   Ended Mar 31,   (Decrease)    (Decrease)
                        2009             2008          $             %
                     --------------------------------------------------------
Revenue              $   1,175,325    $ 3,050,823     $ (1,875,498)  (61.48%)
Cost of goods sold   $     905,881    $ 1,231,108     $   (325,227)  (26.42%)
Gross profit         $     269,444    $ 1,819,715     $ (1,550,271)  (85.19%)
Gross profit %               22.9%          59.6%

ATV ACCESSORIES - Six Months Ended March 31, 2009 and 2008

                      Six Months    Six Months       Increase      Increase
                     Ended Mar 31,   Ended Mar 31,   (Decrease)    (Decrease)
                        2009             2008          $             %
                     --------------------------------------------------------
Revenue              $   5,269,787    $ 7,275,502     $ (2,005,715)  (27.57%)
Cost of goods sold   $   2,831,067    $ 2,982,983     $   (151,916)    5.10%
Gross profit         $   2,438,720    $ 4,292,519     $ (1,853,799)  (43.19%)
Gross profit %               46.2%          58.9%

The decrease in ATV Accessories revenue for the second quarter of fiscal 2009 reflects the general decline in sales of our industry compared to the prior year, as has been previously discussed. The decrease in gross profit as a percentage of revenue, which was mainly attributable to an increase in raw material costs as has been previously discussed. Remaining competitive in the ATV Accessory market and maintaining our strong market share within this market may hinder management's ability to pass on the full amount of our net input costs increases. Year-to-date, our ATV Accessories revenue for the combined two quarters of fiscal 2009 showed less of a decline than the second quarter alone, as discussed above. We averaged a 27.57% decline in revenues for both quarters.

PLASTIC WHEEL COVERS

PLASTIC WHEEL COVERS - Three Months Ended March 31, 2009 and 2008

                      Three Months    Three Months    Increase      Increase
                     Ended Mar 31,   Ended Mar 31,   (Decrease)    (Decrease)
                        2009             2008          $             %
                     --------------------------------------------------------
Revenue              $   180,042      $   400,770      $ (220,728)   (55.08%)
Cost of goods sold   $    75,386      $   200,479      $ (125,093)   (62.40%)
Gross profit         $   104,656      $   200,291      $  (95,635)   (47.74%)
Gross profit %             58.1%            49.9%

PLASTIC WHEEL COVERS - Six Months Ended March 31, 2009 and 2008

                      Six Months    Six Months        Increase      Increase
                     Ended Mar 31,   Ended Mar 31,   (Decrease)    (Decrease)
                        2009             2008          $             %
                     --------------------------------------------------------
Revenue              $   289,159      $   821,458      $ (532,299)   (64.80%)
Cost of goods sold   $   115,035      $   369,672      $ (254,637)   (68.88%)
Gross profit         $   174,124      $   451,786      $ (277,662)   (61.46%)
Gross profit %             60.2%            54.9%

The decrease in Wheel Cover revenues can be attributed to a decrease in sales to OEMs. Just as the ATV Accessory market is down across the industry, so too is the golf and the lawn & garden accessory sector. Management is also pursuing and evaluating new markets that our plastics division can produce parts for to further broaden and grow this business segments revenue.

WEEKEND WARRIOR

WEEKEND WARRIOR - Three Months Ended March 31, 2009 and 2008

                      Three Months    Three Months    Increase      Increase
                     Ended Mar 31,   Ended Mar 31,   (Decrease)    (Decrease)
                        2009             2008          $             %
                     --------------------------------------------------------
Revenue              $     25,134     $     37,139     $ (12,005)    (32.33%)
Cost of goods sold   $     21,991     $      9,689     $  12,302     126.97%
Gross profit         $      3,143     $     27,450     $ (24,305)    (88.55%)
Gross profit %              12.5%            73.9%

WEEKEND WARRIOR - Six Months Ended March 31, 2009 and 2008

                      Six Months    Six Months       Increase      Increase
                     Ended Mar 31,   Ended Mar 31,  (Decrease)    (Decrease)
                        2009             2008          $             %
                     --------------------------------------------------------
Revenue              $     98,963     $    117,207     $ (18,244)   (15.57%)
Cost of goods sold   $     82,379     $     51,487     $  30,892     60.00%
Gross profit         $     16,584     $     65,720     $ (49,136)   (74.76%)
Gross profit %              16.7%            56.0%

The decrease in revenues was attributable to a decrease in sales to national retail customers. The decrease in gross profit is due to higher input costs and inventory adjustments.

CONTRACT MANUFACTURING

CONTRACT MANUFACTURING - Three Months Ended March 31, 2009 and 2008

                      Three Months    Three Months    Increase      Increase
                     Ended Mar 31,   Ended Mar 31,   (Decrease)    (Decrease)
                        2009             2008          $             %
                     --------------------------------------------------------
Revenue              $   276,415      $   657,919      $(381,504)    (57.99%)
Cost of goods sold   $   190,016      $   401,215      $(211,199)    (52.64%)
Gross profit         $    86,399      $   256,704      $(170,305)    (66.34%)
Gross profit %             31.2%            39.0%

CONTRACT MANUFACTURING - Six Months Ended March 31, 2009 and 2008

                      Six Months    Six Months       Increase      Increase
                     Ended Mar 31,   Ended Mar 31,   (Decrease)    (Decrease)
                        2009             2008          $             %
                     --------------------------------------------------------
Revenue              $   573,014      $ 1,113,812      $(540,798)    (48.55%)
Cost of goods sold   $   382,629      $   594,195      $(211,566)    (35.60%)
Gross profit         $   190,385      $   519,617      $(329,232)    (63.36%)
Gross profit %             33.2%            46.6%

The decrease in revenue was due to a decrease in business with current customers. With the economy tightening overall, many of our contract manufacturing customers' demand dropped off substantially. In particular, our largest contract manufacturing customer overbought a significant quantity of product in the previous fiscal year, in anticipation of cancelling their relationship with us, due to a deterioration in the relationship with the previous management of Cycle Country. The current management and sales team were able to resurrect the relationship, but the customer will still need most of, if not all of, our fiscal year to work off the excess inventory before needing more. This customer in now developing additional products for us to manufacture, in addition to the already approved products. With ample production capacity and unique fabrication and painting capabilities, management believes that increasing the fabrication of parts and the manufacture of products to other OE manufacturers and businesses will provide the Company with a significant source of revenue in quarters traditionally slow for our main ATV Accessories business segment. Gross margin decreased as a percentage of revenue as significant increases in the costs of raw steel impacted the cost of materials for the quarter ended March 31, 2009.

GEOGRAPHIC REVENUE

GEOGRAPHIC REVENUE - Three Months Ended March 31, 2009 and 2008

GEOGRAPHIC REVENUE - Six Months Ended March 31, 2009 and 2008