Cautionary Note about Forward Looking Statements.

Certain matters discussed in this Form 10-Q are "forward-looking statements." The Company intends these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because they include phrases such as the Company "expects," "believes," "anticipates" or other words of similar meaning. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to risks and uncertainties which could cause actual results or outcomes to differ materially from those currently anticipated. Factors that could affect actual results or outcomes include the matters described under the caption "Risk Factors" in Item 1A of Form 10-K for the year ended September 30, 2011. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of this filing. The Company assumes no obligation to update such forward-looking statements to reflect subsequent events or circumstances.

Executive-Level Overview

This discussion relates to Cycle Country Accessories Corp. and its consolidated subsidiary (the "Company") and should be read in conjunction with our consolidated financial statements as of September 30, 2011, and the fiscal 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-K for the fiscal year ended September 30, 2011.

We intend for this discussion to provide the reader with information that will assist in understanding our condensed consolidated financial statements, the changes in certain key items in those condensed consolidated financial statements from period to period, and the primary factors that accounted for those changes, as well as how certain accounting principles affect our condensed consolidated 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.

The economic environment is showing signs of improvement and one turnaround plan has shown strong signs as well. The Company has remained focused on strategy and working hard to execute its business plans. The response to those challenges has taken time to show its effect. The internal reorganization and initiatives started by the new management team in early 2011 have eliminated unprofitable and or unnecessary aspects of the business, which allowed us to focus our efforts on our core customers receiving core products from our core people.

Looking ahead to the balance of fiscal 2012, 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 at least 25% of revenue by the end of the fiscal year.

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 by the end of fiscal 2012 to continue decline as we continue our focus on cost reduction initiatives and focusing on internal efficiencies, all while maintaining a responsive and courteous customer service standard. Our goals for showing greater improvement are likely to not be achieved until the end of the fiscal year due to efficiencies lost during the transition between old product lines and expansion of our contract manufacturing.

Overview for the Three Months Ended December 31, 2011 and 2010 (Unaudited)

The following is a summary of the results of operations for the three months
ended December 31, 2011 and December 31, 2010 (Unaudited):

                                     For the three months ended December 31, 2011              For the three months ended December 31, 2010
                                                     (Unaudited)                                                (Unaudited)
                                 Continuing          Discontinued                           Continuing         Discontinued
                                 Operations           Operations             Total          Operations          Operations             Total
STATEMENT OF OPERATIONS
Sales                           $     571,803       $     5,546,597       $  6,118,400     $    693,049       $     3,544,257       $  4,237,306
Cost of goods sold                    492,991             3,641,533          4,134,524          657,664             2,813,064          3,470,728
Gross profit                           78,812             1,905,064          1,983,876           35,385               731,193            766,578

Sales, general & admin                113,133             1,277,209          1,390,342          183,792               943,050          1,126,842
Income (Loss) from operations         (34,321 )             627,855            593,534         (148,407 )            (211,857 )         (360,264 )

Other income (expense)                (10,960 )           2,115,531          2,104,571          (14,812 )             (80,004 )          (94,816 )
Net income (loss) pre tax             (45,281 )           2,743,386          2,698,105         (163,219 )            (291,861 )         (455,080 )

Net income (loss)               $     (45,281 )     $     1,708,386       $  1,663,105     $   (102,419 )     $      (167,760 )     $   (309,080 )

For the three months ended December 31, 2011, the Company reported a net profit of $1,663,105, or 27.18% of total revenue. This compares to the three months ending December 31, 2010 during which the Company recorded net loss of $309,080 or (7.3%) of total revenue. Total revenues for the period increased approximately 30.74% over the same period in fiscal year 2010. Continuing operating sales decreased for the three month period ended December 31, 2011 to $571,803 as compared to the three month period ended December 31, 2010 with continuing operating sales of $693,049. This decrease was due to the gap between transition out of discontinued activities and the transition in of new activities. Other income increased due to the $2,136,473 gain on sale of the ATV Accessories segment. Continuing operating sales were down due to segment declining projects below profit goals. Furthermore, profitability of operating segment was down due to efficiencies temporarily lost in transition between discontinued operations and expansion of operating division.

BUSINESS SEGMENTS

The following is a summary of the results of operations by segment for the three
months ended December 31, 2011 and December 31, 2010 (Unaudited):

                                     For the three months ended December 31, 2011              For the three months ended December 31, 2010
                                                     (Unaudited)                                                (Unaudited)
                                 Continuing          Discontinued                           Continuing         Discontinued
                                 Operations           Operations             Total          Operations          Operations             Total

Total revenue by segment
CCAC ATV                        $           -       $    5,486,257       $   5,486,257     $          -       $     3,441,588       $  3,441,588
Plazco                                      -               60,280              60,280                -                73,846             73,846
Perf-Form                                   -                   60                  60                -                28,823             28,823
Imdyne                                571,803                    -             571,803          693,049                     -            693,049
Total revenue by segment        $     571,803       $    5,546,597       $   6,118,400     $    693,049       $     3,544,257       $  4,237,306

Gross profit (loss) by segment
CCAC ATV                        $           -       $    1,879,955       $   1,879,955     $          -       $       728,485       $    728,485
Plazco                                      -               24,893              24,893                -                10,430             10,430
Perf-Form                                   -                  216                 216                -                (7,722 )           (7,722 )
Imdyne                                 78,812                    -              78,812           35,385                     -             35,385
Gross profit                           78,812            1,905,064           1,983,876           35,385               731,193            766,578

Sales, general & admin                113,133            1,277,209           1,390,342          183,792               943,050          1,126,842
Interest expense, net                  10,960              106,320             117,280           14,812                83,937             98,749
(Gain) loss on sale of assets               -           (2,221,851 )        (2,221,851 )              -                23,142             23,142
Other (inc)/exp, net                        -                    -                   -                -               (27,075 )          (27,075 )
Income tax expense (benefit)                -            1,035,000           1,035,000          (21,899 )            (124,101 )         (146,000 )

Net income (loss)               $     (45,281 )     $    1,708,386       $   1,663,105     $   (141,320 )     $      (167,760 )     $   (309,080 )

As of December 31, 2011, the Company operates one reportable business segment, as compared to four segments at December 31, 2010. Two segments were sold in the three month period ending December 31, 2011 and one is classified as discontinued operations.

Revenue

Revenue increased approximately 44.39% or $,1881,904 for the three months ended December 31, 2011 as compared to the three months ended December 31, 2010 in the Cycle Country ATV Accessories segment. This increase was due to the successful in sale and production prior to the close of the sale on the segment.

Net revenue for the Plazco segment decreased by approximately 18.37% or $13,566 for the three months ended December 31, 2011 as compared to the three months ended December 31, 2010. This decrease was due to the continual reduction of effort in a discontinuing operation.

Revenue for the Perf-Form segment decreased approximately $28,763 for the three months ended December 31, 2011 from the three months ended December 31, 2010. This decrease was due to the sale of the segment. See note 8 for additional information on sale.

Other income increased to $2,221,851 for the three months ended December 31, 2011 compared to a loss of $23,142 for the three months ended December 31, 2010. This increase can be attributed to the gain on sale of the assets of these discontinued segments on December 31, 2011, of $2,143,979.

The Imdyne segment reported sales of approximately $571,803 and $693,049 for the three months ended December 31, 2011 and December 31, 2010, respectively. This decrease was due to strategic reduction of low profit customers. Profitability results from this change are expected by fourth quarter of fiscal 2012.

Cost of Goods Sold

The following table details components of direct costs of goods sold by segment
as a percentage of sales:

                                     For the three months ended December 31,
                                         2011                       2010
                                        Imdyne                     Imdyne
      Materials                                58.11 %                    50.86 %
      Direct labor                              7.20 %                     6.59 %
      Applied overhead                         17.79 %                    19.55 %
      Subcontract                               0.42 %                     1.17 %
      Mfg variance                              5.09 %                     3.99 %
      Unapplied overhead                       -3.84 %                     8.21 %
      Other                                     1.46 %                     4.52 %
      Total costs of goods sold                86.22 %                    94.89 %



                                                      For the three months ended December 31, 2011
                                              ATV             Plazco          Perf-Form       Total Disc Ops
Materials                                       50.88 %          12.43 %         4933.33 %              50.52 %
Direct labor                                     4.50 %           4.88 %          520.00 %               4.51 %
Applied overhead                                12.47 %          24.30 %         1480.00 %              12.61 %
Subcontract                                      0.25 %           9.84 %          175.00 %               0.35 %
Mfg variance                                     0.31 %           8.00 %            0.00 %               0.40 %
Unapplied overhead                              -3.14 %          -2.37 %         -326.67 %              -3.13 %
Other                                            0.45 %           1.62 %        -7041.67 %               0.39 %
Total costs of goods sold                       65.73 %          58.70 %         -260.00 %              65.65 %



                                                       For the three months ended December 31, 2010
                                               ATV             Plazco           Perf-Form        Total Disc Ops
Materials                                        49.73 %           25.68 %            35.14 %              49.11 %
Direct labor                                      4.66 %            6.70 %            18.59 %               4.82 %
Applied overhead                                 14.12 %           25.59 %            51.06 %              14.66 %
Subcontract                                       0.99 %           11.57 %             7.11 %               1.26 %
Mfg variance                                      0.43 %            7.53 %             3.03 %               0.60 %
Unapplied overhead                                7.30 %            7.31 %            11.75 %               7.34 %
Other                                             1.60 %            1.49 %             0.11 %               1.59 %
Total costs of goods sold                        78.83 %           85.88 %           126.79 %              79.37 %

The cost of materials as a percentage of revenue increased for total discontinued operations and decreased for Imdyne. The cost of material for the Cycle Country ATV Accessories segment increased from approximately 49.7% for the three months ended December 31, 2010 to approximately 50.9% for the three months ended December 31, 2011. The Plazco segment decreased in material costs to 12.4% of net revenue for the three months ended December 31, 2011 from 25.7% for the three months ended December 31, 2010.

Materials as a percentage of sales for Imdyne also increased 7.2% for the three months ended December 31, 2011, compared to the three months ended December 31, 2010.

Direct labor as a percentage of sales increased for Imdyne and Perf-Form segments. These increases are attributed to lost efficiencies during the transitional period. The other two segments were not as impacted due to their sale in the three months ended December 31, 2011.

Manufacturing overhead as a percentage of sales increased for the Perf-Form segment but decreased for the other segments. Total manufacturing overhead applied decreased as a percentage of sales by 2.36% approximately after burden allocation for the three months ended December 31, 2011 as compared to the three months ended December 31, 2010.

Expenses

Our selling, general and administrative expenses were approximately $1,390,000 and $1,130,000 for the three months ended December 31, 2011 and December 30, 2010, respectively.

The significant changes in expenses for the three months ended December 31, 2011 as compared to the three months ended December 31, 2010 were:

· Severance expense increased approximately $150,000 due to terminations and related costs incurred in the three months ended December 31 2011, compared to the three months ended December 31, 2010.

· Stock compensation expense increased, as all previously unrecognized stock comp became recognizable at December 31, 2011 upon the sale of the ATV Accessories segment, as this was a vesting triggering event in the stock compensation agreements.

· Commission expense increased approximately $190,000 due to the change in the management compensation structure focusing on variable pay based on performance goals for the three months ended December 31, 2011 compared to the three months ended December 31, 2010.

· Professional fees increased approximately $60,000 due, in part, to fees associated with SEC filing requirements, and legal and audit expenses involved with the restatements filed in April 2012 that were worked on extensively in the three months ended December 31, 2011.

Liquidity and Capital Resources

Overview

Cash and cash equivalents were $84,845 as of December 31, 2011 compared to $25,185 as of September 30, 2011. 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.

Working Capital

Net working capital deficit was $861,295 as of December 31, 2011 compared to
$3,608,286 as of September 30, 2011.  The working capital ratio was .86 and .53
as of December 31, 2011 and September 30, 2011, respectively.

The following table summarizes the Company's sources and uses of cash and cash
equivalents for the three months ended December 31:

                                                                                          2010
                                                                2011 (Unaudited)      (Unaudited)

Net cash provided by operating activities of continuing
operations                                                     $          857,036     $  1,118,561
Net cash used for investing activities of continuing
operations                                                                      -          (28,744 )
Net cash used for financing activities of continuing
operations                                                               (363,202 )       (994,647 )
Net cash provided by (used for) discontinued operations                  (434,174 )          9,712
                                                               $           59,660     $    104,882

The Company's principal uses of cash are to pay operating expenses, acquire necessary equipment and to make debt service payments. During the three months ended December 31, 2011, the Company used cash to make principal payments of approximately $330,000 against long-term debt and paid down approximately $2,995,000 on its lines of credit.

Capital Resources

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 normal operations and capital expenditure requirements for the next twelve months. The Company is not considering any major capital investment for at least the next three months.

As of December 31, 2011 and as of September 30, 2011, the Company was in violation of its current ratio and term debt coverage ratio covenants in its loan agreements with its lender. As of March 20, 2012, the Company and its lender entered into a Secured Credit Agreement and Waiver. Under the terms of this Agreement, the lender agreed to waive the noncompliance by the Company with the required ratio of current assets to current liabilities as of December 31, 2011 and the Company's anticipated noncompliance with the required ratio of current assets to current liabilities through October 1, 2012 and further, to waive the Company's noncompliance with the Term Debt Coverage Ratio as of September 30, 2011, December 31, 2011, and the Company's anticipated noncompliance with the Term Debt Coverage Ratio through October 1, 2012.

Management expects to be able to comply with the requirements of the Secured Credit Agreement and has begun the process to secure a commitment for funding from an asset-based lender. Management believes this is an appropriate financing vehicle for its operations and expects to have a positive impact on the Company's working capital through fiscal year 2012. Further, this funding will help to continue the stabilization and turnaround of the Company while facilitating continued growth. The failure to obtain a replacement lender by June 30, 2012 could result in the lender foreclosing on its security interest resulting in a significant disruption to the Company's operations.

Our continued existence is dependent upon or ability to generate cash and to market and sell our products successfully. However, there are no assurances whatsoever that we will be able to borrow further funds from our lender or that we will increase our revenues and/or control our expenses to a level sufficient to provide positive cash flow.

Critical Accounting Policies and Estimates

The preparation of our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, requires us to make judgments and estimates that may have a significant impact upon the portrayal of our financial condition and results of operations. We believe that of our significant accounting policies, the following require estimates and assumptions that require complex, subjective judgments by management that can materially impact the portrayal of our financial condition and results of operations: useful lives of fixed assets; impairment of long-lived assets; valuation of and deferral tax assets, and inventory; and allowance for doubtful accounts. These significant accounting principles are more fully described in "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies" in our Annual Report on Form 10-K for the year ended September 30, 2011.