Executive-Level Overview

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.

For the third quarter of 2009, Cycle Country Accessories Corp. reported a net loss of $5,540,424, or $1.04 per share on a diluted basis The Company suffered a substantial decline in sales, both for the third quarter and for the year-to-date through the third quarter. Sales for the third quarter 2009 totaled $1,220,692, a decrease of 64.81% from the third quarter of 2008 sales of $3,469,258.

By comparison, the 2008 third quarter net loss was $370,361, or $.06 per share on a diluted basis and the year-to-date for 2008 after three quarters had a net income of $596,096, or $.10 per share on a diluted basis. For the year-to-date period in 2009, sales totaled $7,165,560, a decrease of 42.13% from the same period of 2008 sales of $12,382,500.

Overview for the Three Months Ended June 30, 2009 and 2008  (Unaudited)



                                      Three Months     Three Months
                                          Ended            Ended          Increase       Increase
                                        June 30,         June 30,        (Decrease)     (Decrease)
                                          2009             2008              $              %

Total revenue by Segment
CCAC ATV                              $     607,165    $   2,591,518    $ (1,984,353 )      (76.57 )%
Plazco                                $     256,309    $     488,960    $   (232,651 )      (47.58 )%
Perf-Form                             $     112,382    $      94,397    $     17,985         19.05 %
Imdyne                                $     282,392    $     529,094    $   (246,701 )      (57.99 )%

Total Revenue by Segment              $   1,258,248    $   3,703,969    $  2,445,721        (66.03 )%

Freight Income                        $      21,234    $      14,729    $      6,505         44.16 %
Sales Discounts & Allowances          $     (58,789 )  $    (249,439 )  $    190,650         76.43 %

Total Combined Revenue                $   1,220,692    $   3,469,258    $  2,248,866        (64.81 )%

Operating profit (loss) by Segment
CCAC ATV                              $     169,421    $   1,056,330    $   (886,909 )      (83.96 )%
Plazco                                $     152,224    $     299,460    $   (147,235 )      (49.17 )%
Perf-Form                             $      46,639    $      20,828    $     25,810        123.92 %
Imdyne                                $     103,371    $      99,067    $      4,304          4.34 %

Total Profit By Segment               $     471,655    $   1,475,685    $  1,104,030        (74.81 )%

Freight Income                        $      21,234    $      14,729    $      6,505         44.16 %
Sales Disc. & Allow.                  $     (58,789 )  $    (249,439 )  $    190,650         76.43 %
Factory Overhead                      $  (1,092,357 )  $    (624,206 )  $   (468,150 )      (75.00 )%
Sales, Gen. & Admin.                  $  (5,833,308 )  $  (1,156,992 )  $ (4,676,316 )     (404.18 )%
Interest Income/Exp.                  $     (76,582 )  $     (88,467 )  $     11,885         13.43 %
Other Inc/Exp, Net                    $      44,150    $      40,816    $      3,334          8.17 %
Income Taxes                          $     983,572    $     217,513    $    766,058        352.19 %
Net Income (Loss)                     $  (5,540,424 )  $    (370,361 )  $ (5,170,063 )    (1395.96 )%

Overview for the Nine Months Ended June 30, 2009 and 2008  (Unaudited)



                                      Nine Months     Nine Months
                                         Ended           Ended          Increase       Increase
                                        June 30,        June 30,       (Decrease)     (Decrease)
                                          2009            2008             $              %

Total revenue by Segment

CCAC ATV                              $  5,876,952    $  9,660,682    $ (3,783,729 )      (39.17 )%
Plazco                                $    545,468    $  1,470,435    $   (924,967 )      (62.90 )%
Perf-Form                             $    211,345    $    257,925    $    (46,580 )      (18.06 )%
Imdyne                                $    855,405    $  1,642,906    $   (787,501 )      (47.93 )%

Total Revenue by Segment              $  7,489,170    $ 13,031,948    $  5,542,778        (42.53 )%

Freight Income                        $     73,812    $     58,038    $     15,774         27.17 %
Sales Discounts & Allowances          $   (397,422 )  $   (707,486 )  $    310,065         43.83 %

Total Combined Revenue                $  7,165,560    $ 12,382,500    $  5,216,940        (42.13 )%

Operating Profit (loss) by Segment

CCAC ATV                              $  2,608,142    $  5,293,933    $ (2,685,791 )      (50.73 )%
Plazco                                $    326,349    $    800,851    $   (474,502 )      (59.25 )%
Perf-Form                             $     63,223    $     91,858    $    (28,635 )      (31.17 )%
Imdyne                                $    293,757    $    618,685    $   (324,928 )      (52.52 )%

Total Profit By Segment               $  3,291,471    $  6,805,327    $  3,513,856        (51.63 )%

Freight Income                        $     73,812    $     58,038    $     15,774         27.17 %
Sales Disc. & Allow.                  $   (397,422 )  $   (707,486 )  $    310,065         43.83 %
Factory Overhead                      $ (2,291,180 )  $ (1,987,062 )  $   (304,118 )      (15.30 )%
Sales, general & Admin.               $ (7,654,227 )  $ (3,344,376 )  $ (4,309,850 )     (128.87 )%
Interest Income (Expense), Net        $   (262,263 )  $   (240,544 )  $    (21,719 )       (9.03 )%
Other Income (Expense), Net           $    126,930    $    356,843    $   (229,913 )      (64.43 )%
Income Taxes                          $  1,205,000    $   (344,643 )  $  1,549,643         449.6 %
Net Income (Loss)                     $ (5,907,879 )  $    596,096    $ (6,503,976 )      (1091. )%

While the challenging economic environment continued to be a headwind in the quarter, the company remained focused on strategy and worked hard to execute its business plans. The Company's overall sales decline, though significant, resulted from overall economic conditions that were beyond our control. The response to those challenges has taken time to show their effect. The internal reorganization and cost-cutting initiatives started by the new management team accelerated through the quarter, substantially reducing our overhead and allowing us to minimize our exposure during this economic downturn. At the same time, our new product initiatives have also accelerated through the quarter, providing us with new products that we anticipate enhancing our competitive position as the dominant player in the powersports accessories market.

Looking ahead to the fourth quarter of fiscal 2009, management is cautiously projecting a slight 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. 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 responsive level of customer and administrative support.

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 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. Trade accounts receivable are carried on the books at their estimated collectible value.

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.

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

Inventory Reserve- 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.

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.

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. Because of continued net losses and decreases in the market capitalization, the Company completed another review for goodwill impairment and recorded an impairment loss of $4,980,146 in the third quarter 2009 related to the 2005 acquisition of Simonsen Iron Works. The write-down is largely dictated by the estimated fair value of the Company being less than its carrying value, and a significant decrease in our market capitalization.

Accrued Warranty Costs- The Company records a liability for the expected cost of warranty-related claims as its products are sold.

Accounting for Income Taxes- The Company is required to estimate income taxes in each of the jurisdictions in which it operates. At June 30, 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 June 30, 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 consolidated financial statements.

Subsequent Events - The Company has evaluated subsequent events through August 19, 2009, the date which the financial statements were available to be issued.

OVERALL RESULTS OF OPERATIONS

Revenue

The decrease in revenues for the three months ended June 30, 2009 was a continuation of the steep decline we experienced in the second fiscal quarter. The second and third fiscal quarters are our seasonally slowest periods. With the decline in the general economy, our distributors and dealers have continued to reduce their level of inventory during this seasonally slow sales period, pushing the carrying of inventory on to us. Sales of all discretionary consumer products have fallen off hard this year Since our products are discretionary, we have experienced a similar decline in sales.

Similarly, the decrease in revenues for the nine months ended June 30, 2009 was attributable to a broad decline in revenue from all of our segments and most all of our customers. Compounding our comparative decline to last year is the fact that we front-loaded sales last year with very aggressive sales discounts to buy market share, just as the economy started to collapse in the fall of 2008.

The decrease in overall gross profit both for the quarter and for the year-to-date, as a percentage of revenue, was attributable to the effect of lower sales spread over higher fixed manufacturing costs. We have taken significant steps to reduce those costs, accelerating our efforts in the last quarter. We anticipate that those savings will be reflected even greater in the fourth quarter of 2009 and beyond.

Expenses

For the three months ending June 30, 2009, our selling, general and administrative expenses decreased 22.2% overall compared to the prior year. However, as a percentage of revenue, these expenses were 73.7% for the three months ended June 30, 2009 compared to 33.3% for the three months ended June 30, 2008 due to a substantial drop in revenue. The significant changes in operating expenses for the third quarter of fiscal 2009 as compared to the third quarter of fiscal 2008 were:

† Salaries decreased for the three months ended June 30, 2009, as compared to the three months ended June 30, 2008, as we cut overhead to react to the declining revenue.

† Advertising was cut substantially, dropping 67.8% for the quarter.

† The decrease in commission expense was a result of the decrease in revenues during the third quarter of fiscal 2009.

† Warranty expense decreased for the three months ended June 30, 2009, as compared to the three months ended June 30, 2008.

† Other professional fees increased for the three months ended June 30, 2009, as compared to the three months ended June 30, 2008, primarily due to the transitional costs resulting from the change in both our legal and accounting professional service firms.

† The increase in interest and miscellaneous income was due to an increase in royalty and other income of approximately $2,500 and a decrease in interest income, dividends and penalties of approximately $1,200.

† Interest expense decreased approximately $17,000 for the three months ended June 30, 2009 as compared to the three months ended June 30, 2008. This was due primarily to the decrease in the balances of our term notes as those notes continue to be aggressively paid down.

For the nine months ending June 30, 2009, our selling, general and administrative expenses decreased 18.6% overall compared to the prior year. The significant changes in operating expenses for the first three quarters of fiscal 2009 as compared to the same period of fiscal 2008 were:

† Salaries decreased for the nine months ended June 30, 2009, as compared to the nine months ended June 30, 2008, as mentioned above.

† Advertising was cut substantially as the Company did not renew poorly performing marketing and advertising strategies from prior years, dropping 77.7% for the nine month period.

† The decrease in commission expense was a result of the decrease in revenues during the first three quarters of fiscal 2009.

† Warranty expense increased for the nine months ended June 30, 2009, as compared to the nine months ended June 30, 2008.

† Other professional fees decreased for the nine months ended June 30, 2009, as compared to the nine months ended June 30, 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.

† The decrease in interest and miscellaneous income was primarily due to a decrease in interest income of approximately $17,500 and a decrease in other income of approximately $30,600.

† The gain on sale of assets decrease of approximately $200,000 for the nine months ended June 30, 2009 as compared to the nine months ended June 30, 2008 was due to the Company having sold its Milford facility and certain other assets in the prior year.

† Interest expense increased for the current nine month period as compared to the prior year because the Company added new debt to finance some new manufacturing equipment within the past 12 months.

† Interest expense on our long-term debt is expected to decrease in the fourth quarter of fiscal 2009 as we expect the principal balances to 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.

BUSINESS SEGMENTS

As more fully described above in Note 4 to the Condensed Consolidated Financial Statements included elsewhere in this filing, the Company operates four reportable business segments.

Cycle Country ATV Accessories is vertically integrated and utilizes a two-step distribution method. We are vertically integrated in our Plazco segment and utilize both direct and two-step distribution methods. Perf-Form utilizes both direct and two-step distribution methods, and our Contract Manufacturing segment deals directly with other OE manufacturers and businesses in various industries.

The decrease in our Cycle Country ATV Accessories segment's revenue for the third quarter and nine months 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 has been previously discussed. Year-to-date, our Cycle Country ATV Accessories revenue for the combined three quarters of fiscal 2009 showed less of a decline than the third quarter alone, as discussed above. We averaged a 39.17% decline in revenues for the three quarters due to inventory cutbacks by the distributors and dealers in our industry.

The decrease in Plazco's 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.

Perf-Form showed a growth of 19.5% for the three months ending June 30, 2009 based on improving markets for replacement parts. As fewer new ATV, motorcycle and other powersport units are sold, repair and maintenance sales increase for the older units. Perf-Form's oil filter products are positioned to take advantage of that trend. For the nine months ended June 30, 2009, our 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.

The decrease in Imdyne's revenue was due to a decrease in business with current customers. As the economy has continued to tighten, many of our contract manufacturing customers' demand dropped off substantially. Though our margins increased for the three month period ending June 30, 2009, they were slightly lower overall for the nine month period.

For the nine months ended June 30, 2009, the Company experienced decreased revenue in both the U.S. markets, as well as internationally. The decrease in revenue in the U.S. was discussed above, and the decrease in other countries was primarily due to a decrease of sales in Europe, which is experiencing a similar general economic downturn as the United States.

Liquidity and Capital Resources

Overview

Cash flows provided by operating activities of continuing operations, built-up cash balances, and borrowings under our bank line of credit provided us with a significant source of liquidity during the first nine months of fiscal 2009.

Cash and cash equivalents were $147,472 as of June 30, 2009, compared to $194,576 as of September 30, 2008. Until required for operations, our policy is to invest any excess cash reserves in bank deposits, money market funds, and certificates of deposit after first repaying any built up balance on our bank line of credit.

In the nine months ended June 30, 2009, we made approximately $164,000 in capital expenditures, received approximately $7,000 from the sale of capital equipment, and paid approximately $601,800 of long-term debt principal. By the end of fiscal 2009, management expects total capital expenditures to be approximately $200,000 for the year.

Working Capital

Net working capital was $3,596,486 at June 30, 2009, compared to $5,531,103 at September 30, 2008. The decrease in working capital was primarily due to the net loss incurred.

Liquidity and Capital Resources



                                Balance
                             June 30, 2009        Balance         Increase/        Percent
                              (Unaudited)       Sep 30, 2008      (Decrease)       Change
Cash and cash
Equivalents                 $       147,472    $      194,576    $    (47,104 )        (24.2 )%
Accounts receivable         $       453,684    $    2,935,647    $ (2,481,964 )        (84.5 )%
Inventories                 $     4,177,851    $    5,110,499    $   (932,648 )        (18.2 )%
Prepaid expenses            $       138,827    $      209,617    $   (131,313 )        (62.6 )%
Deferred income tax         $       558,000    $      345,920    $    212,080           61.3 %
Accounts payable            $       150,287    $      577,278    $   (426,991 )       (284.1 )%
Accrued expenses            $       566,852    $      721,211    $    154,359         (21.40 )%
Bank line of credit         $       820,000    $    1,000,000    $   (180,000 )        (18.0 )%
Current portion of Bank
notes payable               $       844,701    $      811,053    $     33,648            4.1 %
Current portion of
deferred gain               $       166,524    $      166,524    $          -            0.0 %

Long-Term Debt

On May 13, 2008, the Company and its commercial lender modified the original secured credit agreement dated August 21, 2001. Under the terms of the amendment, Note One and Note Two were modified to change their fixed interest rates from 7.375% per annum to 6.125% per annum. The Notes, going forward, are payable in monthly installments of principal and interest from May 2008 until April 2018, for Note One, and until April 2011, for Note Two. The interest rate is fixed for Note Two and is fixed for Note One until April 2011, after which the interest rate will be reset to prime + 0.50% every 60 months. However, the interest rate for Note One can never exceed 10.5% or be lower than 5.5%. The monthly payment is $33,449 and $42,049 for Note One and Note Two, respectively. At June 30, 2009 and September 30, 2008, $2,498,466 and $2,889,085, respectively, were outstanding for Note One and $1,088,541 and $1,197,751 respectively, were outstanding for Note Two. Additionally, any proceeds from the sale of stock received from the exercise of warrants are to be applied to any outstanding balance on the Notes or the Line of Credit described below. As of June 30, 2009, the Company failed to meet one of its debt covenants with its lender. Though the Company fell below the covenant for term debt coverage, the Company has received a waiver from its lender for this technical violation.

On May 13, 2008, the Company and its commercial lender entered into an additional note payable agreement. Under the terms of this Note, the Note is payable in monthly installments from May 2008 until April 2013, which includes principal and interest, with a final payment upon maturity on April 25, 2013. . . .