UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





**FORM
      10-Q**





(Mark
                One)**X**
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**For
                the
                quarterly period ended September 30, 2005Or**TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




For
                  the transition period from
              
              to


Commission
      File Number: 0-24804





Featherlite,
      Inc.


(Exact
      name of registrant as specified in its charter)





Minnesota
            41-1621676(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                Employer Identification No.)





Highways
      63 and 9, P.O. Box 320, Cresco, IA 52136


(Address
      of principal executive offices)





563-547-6000


(Registrant’s
      telephone number, including area code)




(Former
                name, former address and former fiscal year, if changed since last
                report)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes X  No
      ___





Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act).





Yes
      ___  No X





Indicate
      by check mark whether the registrant is a shell company (as defined by Rule
      12b-2 of the Exchange Act).





Yes
      ___  No X


APPLICABLE
      ONLY TO CORPORATE ISSUERS:





Indicate
      the number of shares outstanding of each of the issuer's classes of common
      stock, as of the latest practicable date.





10,997,365
      shares as of November 10, 2005


Table
          of Contents


**FEATHERLITE,
      INC.**


**INDEX**


**Form
      10-Q**


**Quarter
      ended September 30, 2005**






Page
                No.Index
            2Part
                I. Financial InformationItem
                1. Condensed Consolidated
                Financial Statements (Unaudited)Condensed
                Consolidated Balance Sheets
              September
                30,
                2005 and December 31, 2004
            3Condensed
                Consolidated Statements of Income
              Three
                Month and Nine Month Periods Ended September 30, 2005 and
                2004
            4Condensed
                Consolidated Statements of Cash
                Flows
              Three
                Month and Nine Month Periods Ended September 30, 2005 and
                2004
            5Notes
                to Condensed Consolidated Financial
                Statements
            6Item
                2.Management’s
                Discussion and Analysis of Financial Condition andResults
                of Operations
            13Item
                3.Quantitative
&
Qualitative
                Disclosures about
                Market Risk
            24Item
                4.Controls
                and Procedures
            25Part
                IIOther
                InformationItem
                6.Exhibits
            25Signatures
            25Exhibit
                Index
            26







**2**
 Table
          of Contents


Part
      I: FINANCIAL
      INFORMATION


**Item
      1:** **CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**


**Featherlite,
      Inc.**


**Condensed
      Consolidated Balance Sheets**


**(Unaudited)**


**(In
      thousands)**


**September
                30,**
            
            **December
                31,****ASSETS**
            
            **2005**
            
            **2004**Current
                assetsCash
            
            $
            179
            
            $
            179Receivables
            
            
            6,749
            
            
            4,781Refundable
                income taxes
            
            
            -
            
            
            497InventoriesRaw
                materials
            
            
            7,129
            
            
            7,491Work
                in
                process
            
            
            14,073
            
            
            15,362Finished
                trailers/motorcoaches
            
            
            24,182
            
            
            23,750Used
                trailers/motorcoaches
            
            
            15,774
            
            
            15,127Total
                inventories
            
            
            61,158
            
            
            61,730Leased
                promotional trailers
            
            
            1,603
            
            
            1,669Prepaid
                expenses
            
            
            823
            
            
            1,827Deferred
                tax
                asset
            
            
            1,274
            
            
            1,275Total
                current assets
            
            
            71,786
            
            
            71,958Property
                and equipment, net
            
            
            16,939
            
            
            16,003Other
                assets
            
            
            3,306
            
            
            4,252$
            92,031
            
            $
            92,213**LIABILITIES
                AND SHAREHOLDERS’ INVESTMENT**Current
                liabilitiesWholesale
                financing and other notes payable
            
            $
            19,606
            
            $
            22,106Current
                maturities of long-term debt
            
            
            1,766
            
            
            1,699Checks
                issued, not yet presented
            
            
            2,533
            
            
            2,900Motorcoach
                shell costs payable
            
            
            3,939
            
            
            7,277Accounts
                payable
            
            
            4,798
            
            
            4,323Accrued
                liabilities
            
            
            9,481
            
            
            9,124Customer
                deposits
            
            
            2,257
            
            
            2,698Total
                current liabilities
            
            
            44,380
            
            
            50,127Long-term
                debtBank
                line of credit
            
            
            6,505
            
            
            4,243Other
                long-term debt, net of current maturities
            
            
            10,586
            
            
            11,092Total
                long-term debt
            
            
            17,091
            
            
            15,335Deferred
                income taxes
            
            
            1,340
            
            
            1,340Deferred
                grant income
            
            
            34
            
            
            45Minority
                interest in subsidiary
            
            
            -
            
            
            3Commitments
                and contingenciesShareholders’
                investment
            
            
            29,186
            
            
            25,363$
            92,031
            
            $
            92,213


See
      notes
      to unaudited condensed consolidated financial statements


**3**
 Table
          of Contents


**Featherlite,
      Inc.**


**Condensed
      Consolidated Statements of Income**


**(Unaudited)**


**(In
      thousands, except for per share data)**





Three
                    Months Ended
                
                Nine
                    Months EndedSeptember
                    30,
                
                September
                    30,2005
                
                2004
                
                2005
                
                2004Net
                    sales
                
                $
                59,260
                
                $
                45,168
                
                $
                169,733
                
                $
                159,735Cost
                    of sales
                
                
                50,368
                
                
                38,221
                
                
                143,362
                
                
                135,027Gross
                    profit
                
                
                8,892
                
                
                6,947
                
                
                26,371
                
                
                24,708Selling
                    and administrative expenses
                
                
                6,610
                
                
                6,250
                
                
                18,901
                
                
                18,716Income
                    from operations
                
                
                2,282
                
                
                697
                
                
                7,470
                
                
                5,992Other
                    income (expense)Interest
                
                
                (675
                )
                
                (561
                )
                
                (2,011
                )
                
                (1,689
                )Other,
                    net
                
                
                66
                
                
                92
                
                
                305
                
                
                222Total
                    other expense
                
                
                (609
                )
                
                (469
                )
                
                (1,706
                )
                
                (1,467
                )Income
                    before income taxes
                
                
                1,673
                
                
                228
                
                
                5,764
                
                
                4,525Minority
                    interest in subsidiary loss
                
                
                24
                
                
                20
                
                
                24
                
                
                71Benefit
                    (Provision) for income taxes
                
                
                (645
                )
                
                692
                
                
                (2,200
                )
                
                (917
                )Net
                    income
                
                $
                1,052
                
                $
                940
                
                $
                3,588
                
                $
                3,679
  Net
                    income per share -Basic
                
                $
                0.10
                
                $
                0.09
                
                $
                0.33
                
                $
                0.34Diluted
                
                $
                0.09
                
                $
                0.08
                
                $
                0.31
                
                $
                0.32Average
                    common shares outstanding -Basic
                
                
                10,949
                
                
                10,839
                
                
                10,922
                
                
                10,817Diluted
                
                
                11,685
                
                
                11,713
                
                
                11,720
                
                
                11,530


See
      notes
      to unaudited condensed consolidated financial statements











**4**
 Table
          of Contents


**Featherlite,
      Inc.**


**Condensed
      Consolidated Statements of Cash Flows**


**(Unaudited)**


**(In
      thousands)**




**Nine
                Months Ended****September
                30,****2005**
            
            **2004**Cash
                provided by (used for) operating activitiesNet
                income
            
            $
            3,588
            
            $
            3,679Depreciation
                and amortization
            
            
            1,746
            
            
            1,711Other
                non cash adjustments, net
            
            
            17
            
            
            150Changes
                in other working capital items, net
            
            
            (2,137
            )
            
            35Net
                cash provided by operating activities
            
            
            3,214
            
            
            5,575Cash
                provided by (used for) investing activitiesPurchase
                of Sanford, Florida facility
            
            
            (5,441
            )
            
            -Purchases
                of other property and equipment
            
            
            (1,575
            )
            
            (1,436
            )Proceeds
                from equipment sales
            
            
            234
            
            
            99Net
                cash used for investing activities
            
            
            (6,782
            )
            
            (1,337
            )Cash
                provided by (used for) financing activitiesRepayment
                on trade creditor payment plan
            
            
            -
            
            
            (1,608
            )Proceeds
                from wholesale financing/bank line of credit
            
            
            209,118
            
            
            177,065Repayment
                of wholesale financing/bank line of credit
            
            
            (208,556
            )
            
            (179,560
            )Borrowings
                for Sanford facility repurchase
            
            
            5,280
            
            
            -Repayment
                of other short-term debt
            
            
            (799
            )
            
            (
                938
            )Proceeds
                from other long-term debt
            
            
            -
            
            
            52Repayment
                of other long-term debt
            
            
            (1,285
            )
            
            (1,404
            )Proceeds
                from issuance of common stock upon exercise of options
            
            
            177
            
            
            113Increase
                (decrease) in checks issued not yet presented
            
            
            (367)
            
            
            2,286Net
                cash provided by (used for) financing activities
            
            
            3,568
            
            
            (3,994
            )Net
                cash increase for period
            
            
            -
            
            
            244Cash
                balance, beginning of period
            
            
            179
            
            
            173Cash
                balance, end of period
            
            $
            179
            
            $
            417Supplemental
                disclosure- non cashTermination
                of capitalized lease obligation
            
            $
            4,434
            
            $
            -




See
      notes
      to unaudited condensed consolidated financial statements




**5**
 Table
          of Contents






FEATHERLITE,INC.


NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)





Note
      1:
      Basis of Presentation





The
      accompanying unaudited condensed consolidated financial statements of
      Featherlite, Inc. (“Company”) have been prepared, without audit, in accordance
      with the instructions of Form 10-Q and therefore do not include all information
      and footnotes necessary for a complete presentation of financial position,
      results of operations and cash flows in conformity with generally accepted
      accounting principles. Financial information as of December 31, 2004 has been
      derived from the audited consolidated financial statements of the Company,
      but
      does not include all disclosures required by accounting principles generally
      accepted in the United States of America.





The
      preparation of financial statements requires management to make decisions based
      upon estimates, assumptions, and factors it considers as relevant to the
      circumstances. Such decisions include the selection of applicable accounting
      principles and the use of judgment in their application, the results of which
      impact reported amounts and disclosures. The Company’s significant accounting
      policies with respect to these estimates are discussed more fully in its Annual
      Report on Form 10-K for the year ended December 31, 2004. Changes in economic
      conditions or other business circumstances may affect the outcomes of
      management’s estimates and assumptions. Accordingly, actual results could differ
      from those anticipated.





It
      is the
      opinion of management that the unaudited condensed consolidated financial
      statements include all adjustments, consisting of normal recurring accruals,
      necessary to fairly state the results of operations for the three and nine
      month
      periods ended September 30, 2005 and 2004. The results of interim periods may
      not be indicative of results to be expected for the year.





The
      unaudited condensed consolidated financial statements include the accounts
      of
      Featherlite, Inc., and its wholly owned subsidiaries, Featherlite Aviation
      Company and Featherlite Chemicals Holdings, LLC (FCH). FCH owns a 51 percent
      interest in Featherlite Chemicals LLC.





Certain
      prior year information has been reclassified to conform to the current year
      presentation. These reclassifications had no affect on net income or
      shareholders’ investment as previously reported.





Note
      2:
      Other Assets





Other
      assets included in the accompanying condensed consolidated balance sheets as
      of
      September 30, 2005 and December 31, 2004 are as follows (in
      thousands):





2005
            
            2004Aircraft
                held for resale
            
            $
            2,400
            
            $
            2,580Deposits
            
            
            532
            
            
            717Leased
                promotional trailers
            
            
            242
            
            
            637Advertising
                and promotion
            
            
            111
            
            
            174Deposit
                on building repurchase
            
            
            -
            
            
            106Other
            
            
            21
            
            
            38Total
            
            $
            3,306
            
            $
            4,252





There
      were no aircraft purchases or sales during the three-month and nine-month
      periods ended September 30, 2005 and 2004. The aircraft is recorded at estimated
      net realizable value.


**6**
 Table
          of Contents


Note
      3:
      Debt Financing Arrangements





***Wholesale
      Financing and Other Notes Payable*** :
      At
      September 30, 2005 and December 31, 2004, wholesale financing and other notes
      payable consisted of the following (in thousands):




2005
              
              2004GE
                  Commercial Distribution Finance Company (GE) $25 million wholesale
                  finance
                  agreement, interest rate of prime plus 0.25% when the prime is
                  less than
                  6.25%, otherwise prime
                (6.75%
                  at September 30, 2005 and 5.25% at December 31, 2004); secured
                  by financed
                  motorcoaches and other assets of the Company
              
              $
              18,592
              
              $
              19,426Regions
                  Bank (Regions) $3 million floor plan financing agreement, monthly
                  interest
                  at the prime rate plus 0.5% (7.25% at September 30, 2005 and 5.75%
                  at
                  December 31, 2004); secured by financed motorcoaches and Coachmen
                  trailers
              
              
              1,014
              
              
              1,880Note
                  payable with an insurance premium finance company
              
              
              0
              
              
              800$
              19,606
              
              $
              22,106




In
      July
      2005, Regions Bank extended the maturity of the floor plan borrowings on certain
      motorcoaches in an aggregate amount of $511,000 until December 31, 2006. At
      September 30, 2005, the Company was in compliance with the covenants contained
      in the financing agreements governing the above facilities and notes.





***Line
      of Credit:*** Under
      the terms of a Revolving Loan and Security Agreement, the Company has a $17
      million asset-based line of credit with U.S Bank. As of September 30, 2005
      the
      credit facility had outstanding borrowings of $6.5 million, outstanding letters
      of credit of $2.7 million and remaining borrowing availability of $7.8 million.
      Advance rates are based upon 70-85% of the Company’s eligible accounts
      receivable and 30-70% of the Company’s eligible inventory. Interest is equal to
      the prime rate. The Company was in compliance with all of the covenants of
      this
      credit agreement, which also covers the term notes included in “other long-term
      debt” as of September 30, 2005.




**Other
      Long-Term Debt** :
      Other
      long-term debt consisted of the following at September 30, 2005 and December
      31,
      2004 (in thousands):


2005
              
              2004U.S.
                  Bank term notes payable; interest at prime (6.75% at September
                  30, 2005
                  and 5.25% at December 31, 2004) payable in monthly installments
                  of
                  $106,000 plus interest; until October 31, 2008 when remaining balance
                  of
                  $115,000 then due; contains same collateral and covenant provisions
                  as
                  Revolving Loan and Security Agreement.
              
              $
              4,529
              
              $
              5,505Capitalized
                  lease of Sanford, Florida real estate; lease terminated in January
                  2005
              
              
              -
              
              
              4,434Mortgage
                  note with GE Commercial Finance Business Property Corporation on
                  Florida
                  real estate, with an annual interest rate of 6.49% and payable
                  over a 12
                  year term by monthly principal and interest payments of
                  $53,000.
              
              
              5,107
              
              
              -Bank
                  notes payable; interest at 6.5%; $26,600 payable monthly including
                  interest; balance of $2.4 million due May 2007; collateralized
                  by
                  aircraft
              
              
              2,643
              
              
              2,749Notes
                  and capitalized leases to banks and others, interest at average
                  of 6.0%,
                  payable in varying monthly installments through 2007; collateralized
                  by
                  real estate and vehicles
              
              
              73
              
              
              103Total
              
              
              12,352
              
              
              12,791Less
                  current maturities
              
              
              (1,766
              )
              
              (1,699
              )$
              10,586
              
              $
              11,092






**7**
 Table
          of Contents


*Termination
      of Capitalized Lease and Repurchase of Property* :


On
      January 21, 2005, the Company terminated its capitalized lease with GBNM
      Partnership on the Sanford Sales and Service facility, which had an unpaid
      balance of $4.4 million at December 31, 2004, and exercised its option to
      repurchase this facility for $5.4 million. This purchase was primarily financed
      with a mortgage in the amount of $5.3 million from GE Commercial Finance
      Business Property Corporation. The $200,000 difference between the terminated
      lease obligation carrying value and the net book value of the property was
      treated as a reduction in the purchase price of the repurchased facility. As
      this property was previously recorded as a capitalized lease, there has not
      been
      a significant increase in annual depreciation or interest expense as a result
      of
      this transaction.





Note
      4:
      Commitments and Contingencies





*Inventory
      Repurchase Agreements* -Pursuant
      to inventory floor plan financing arrangements available to Featherlite trailer
      dealers, the Company may be required, in the event of default by a financed
      dealer, to repurchase trailers from certain financial institutions or to
      reimburse the institutions for unpaid balances, including finance charges plus
      costs and expenses. The Company was contingently liable under these arrangements
      for a maximum of $17.0 million at September 30, 2005. During the nine months
      ended September 30, 2005, the Company made no repurchases under these
      arrangements. No reserve has been provided for this contingency because, in
      the
      opinion of management, there is sufficient historical evidence to support that
      the aggregate amount of such repurchases on an annual basis has been less than
      1
      percent of annual sales and the repossessed inventory has been resold to other
      dealers without a loss. The Company has no motorcoach dealers and has no
      repurchase obligations with respect to motorcoaches except as may arise from
      time to time as a result of litigation or related settlements in the ordinary
      course of business.




*Self
      Insurance* -
      The
      Company is partially self-insured for a portion of certain health benefit and
      workers’ compensation insurance claims. The Company’s maximum annual claim
      exposure under these programs varies as follows: for health claims there is
      an
      annual stop loss of $150,000 per claim but no aggregate loss limit. For workers
      compensation claims, there is a $250,000 per occurrence limit and an aggregate
      annual loss limit of $2.2 million. At September 30, 2005, $1.5 million and
      $0.6
      million was accrued for estimated unpaid workers compensation and health claims,
      respectively, and is classified in accrued liabilities in the unaudited
      condensed consolidated balance sheet. The Company has obtained irrevocable
      standby letters of credit in the amount of approximately $2.7 million in favor
      of the certain workers’ compensation claim administrators to guarantee
      settlement of claims they process. These letters of credit have reduced amounts
      available for borrowing under the U.S. Bank Credit Facility discussed in Note
      3.





*Litigation-* The
        Company, in the ordinary course of its business, is periodically named as
        a
        defendant in various legal actions. These actions are primarily product
        liability or workers’ compensation claims in which the Company is covered by its
        self-insurance program or third-party insurance (subject to applicable
        deductibles). The ultimate outcome of such claims cannot be ascertained or
        reasonably estimated at this time. However, it is the opinion of management,
        after consulting with legal counsel handling such matters, it is unlikely
        that
        the resolution of such suits will have a material adverse effect on the
        financial position of the Company or its operating results for any particular
        period.





*Aluminum
      and other purchase commitments* *-* **** The
      Company has not obtained any fixed price commitments from suppliers for any
      part
      of its expected aluminum requirements in 2005. In prior years the Company had
      obtained commitments for a substantial portion of its estimated production
      requirements to reduce the risk related to fluctuations in the cost of aluminum,
      the principal commodity used in the Company’s trailer segment. At September 30,
      2005, the Company had a firm commitment to purchase motorcoach shells in an
      aggregate amount of $3.6 million in 2005 and 2006, which the Company expects
      to
      fulfill.





**8**
 Table
          of Contents




*Warranty* -
      The
      Company is not a guarantor of any obligations that would require it to recognize
      a liability for the fair value of the underlying obligation at its inception.
      However, it does have product warranty liabilities that are provided for as
      described in Note 2 to the consolidated financial statements included in the
      Company’s 2004 annual report on Form 10-K. Following is a summary of the changes
      in these liabilities during the three and nine month periods ended September
      30,
      2005 and 2004 (in thousands):





--Three
                months--
            
            --
                Nine months---2005
            
            2004
            
            2005
            
            2004Balance
                beginning of period
            
            $
            1,283
            
            $
            1,266
            
            $
            1,221
            
            $
            1,225Provision
                for units sold during period
            
            
            498
            
            
            507
            
            
            1,306
            
            
            1,362Claims
                paid during the period
            
            
            (353
            )
            
            (514
            )
            
            (1,099
            )
            
            (1,328
            )Balance,
                end of period
            
            $
            1,428
            
            $
            1,259
            
            $
            1,428
            
            $
            1,259








*Operating
      leases* -
      The
      Company leases certain office and production facilities under various operating
      leases that expire at varying dates through 2011. Rent expense for the three
      month periods ended September 30, 2005 and 2004 was $272,000 and $313,000,
      respectively, and for the nine month periods ended September 30, 2005 and 2004,
      was $819,000 and $953,000, respectively. As of September 30, 2005, aggregate
      rental payments under these operating leases are estimated to be $1.1 million
      over the next 12 months.





*Sale/Contribution
      of property-* In
      the
      second quarter of 2005, the Company’s Board of Directors approved the
      sale/contribution of the Company’s idle manufacturing facility the
      City
      of Nashua, Iowa. This property, which has a net book value of approximately
      $380,000, will be sold to the City of Nashua for a cash payment of $125,000,
      with the balance of $255,000 recorded as a contribution. It is expected that
      the
      tax benefits to be received from this contribution, which has an appraised
      value
      of $990,000, will substantially offset the recorded amount of this contribution
      and there will be no significant impact on results of operations for the year.
      U.S. Bank has agreed to release its lien on this property and will not require
      a
      cash payment to reduce the related term note. This transaction will be recorded
      in the financial statements upon closing, which is expected to be completed
      in
      the fourth quarter of 2005.





**9**
 Table
          of Contents




Note
      5:
      Shareholders’ Investment





The
      components of shareholders’ investment are detailed as follows (in
      thousands):





Sept.
                30,
            
            Dec.
                31,2005
            
            2004Common
                stock - without par value;Authorized
                -40,000 shares;Issued
                -10,973
                shares at Sept. 30, 2005;10,865
                shares at Dec. 31, 2004
            
            $
            18,504
            
            $
            18,327Additional
                paid-in capital
            
            
            4,296
            
            
            4,238Retained
                earnings
            
            
            6,386
            
            
            2,798Total
                Shareholders’ investment
            
            $
            29,186
            
            $
            25,363





On
      April
      9, 2005, the Board of Directors approved a three-for-two split of the Company’s
      common stock with a proportional increase in the number of issued and
      outstanding shares. Each Featherlite shareholder of record as of the close
      of
      business on April 22, 2005 was entitled to participate in the split effective
      as
      of the close of business on May 4, 2005. All shares and per share amounts in
      this Form 10-Q have been restated to reflect the retroactive effect of the
      stock
      split.





Note
      6:
      Stock Option Plans




Under
      the
      Company’s 1994 Stock Option Plan (the 1994 Plan) the Company reserved 1.1
      million shares of common stock for issuance as options until July 31, 2004
      when
      the Plan terminated and the granting of options under the Plan ended. At the
      annual meeting in 2004, the shareholders approved the 2004 Equity Incentive
      Plan, which reserved 900,000 shares of common stock for issuance as options
      after that date. All options granted under the 1994 Plan remain in effect until
      the expiration date specified when granted.





At
      September 30, 2005 and December 31, 2004, respectively, an aggregate of
      1,073,651 options and 1,139,651 options were outstanding under these plans.
      These options were granted at prices ranging from $0.74-$4.07 per share, and
      are
      exercisable at various dates not to exceed 10 years from the date of grant.
      During the second quarter of 2005 and 2004, options were issued to the outside
      directors upon their election to purchase an aggregate of 18,000 shares of
      company stock in each year at a price of $4.07 and $3.05 per share,
      respectively, with a fair value of approximately $58,000 and $43,000,
      respectively, as determined by the Black-Scholes option pricing model and were
      charged to selling and administrative expense during the second quarter of
      2005
      and 2004, respectively. There were no options granted during the third quarter
      of 2005. During the three and nine month periods ended September 30, 2005,
      options totaling 24,000 and 108,000 shares were exercised, respectively, at
      average prices of $1.21 and $1.64 with $29,000 and $177,000, respectively,
      of
      proceeds received by the Company. There were no options forfeited during the
      three month and nine month periods ended September 30, 2005. ****


**10**
 Table
          of Contents


Note
      7:
      Net Income per Share




Following
      is a reconciliation of the weighted average shares outstanding, including the
      effect of the 3 for 2 stock split described in Note 5, which was used to
      determine basic and diluted net income per share for the three and nine month
      periods ended September 30, 2005 and 2004 (in thousands, except per share
      data):










Three
                months
            
            Nine
                months2005
            
            2004
            
            2005
            
            2004Net
                income
            
            $
            1,052
            
            $
            940
            
            $
            3,588
            
            $
            3,679Weighted
                average number of basic shares
              Outstanding
            
            
            10,949
            
            
            10,839
            
            
            10,922
            
            
            10,817Dilutive
                effect of
              Stock
                options
            
            
            593
            
            
            719
            
            
            646
            
            
            585Warrants
            
            
            142
            
            
            155
            
            
            152
            
            
            129Weighted
                average number of diluted shares outstanding
            
            
            11,685
            
            
            11,713
            
            
            11,720
            
            
            11,530Net
                income per share - basic
            
            $
            0.10
            
            $
            0.09
            
            $
            0.33
            
            $
            0.34Net
                income per share - diluted
            
            $
            0.09
            
            $
            0.08
            
            $
            0.31
            
            $
            0.32





A
      total
      of 44,000 shares at September 30, 2005 and no shares at September 30, 2004
      were
      excluded from the dilutive effect of stock options because the exercise price
      of
      the options was greater than the market value of the stock at those
      dates.





Note
      8:
      Segment Reporting





The
      Company has two principal business segments that manufacture and sell trailers
      and luxury motorcoaches and related parts, accessories and services to many
      different markets, including recreational, entertainment and agriculture.
“Corporate and other” in the table below includes the accounts of Featherlite
      Chemicals, LLC, unallocated aircraft operating costs, certain corporate
      officers’ salaries and other administration costs.





Management
      evaluates the performance of each segment based on income (loss) before income
      taxes. Management has a policy of not charging interest to the segments on
      intercompany borrowing balances and retains all interest expense related to
      the
      U.S. Bank line of credit in the “Corporate and other” segment.


**11**
 Table
          of Contents


Information
      on business segment net sales, income (loss) before income taxes and
      identifiable assets are as follows for the three-month and nine month periods
      ended September 30, 2005 and 2004 (in thousands):




Trailers
            
            Motorcoaches
            
            Corporate
                and other
            
            Total**Three
                month period ended Sept. 30,**2005Net
                sales to unaffiliated customers
            
            $
            35,420
            
            $
            23,834
            
            $
            6
            
            $
            59,260Income
                (loss) before income taxes *
            
            
            2,994
            
            
            163
            
            
            (1,460
            )
            
            1,697Identifiable
                assets
            
            
            38,698
            
            
            50,868
            
            
            2,465
            
            
            92,0312004Net
                sales to unaffiliated customers
            
            $
            31,074
            
            $
            14,092
            
            $
            2
            
            $
            45,168Income
                (loss) before income taxes *
            
            
            2,293
            
            
            (1,310
            )
            
            (731
            )
            
            248Identifiable
                assets
            
            
            35,716
            
            
            49,721
            
            
            4,585
            
            
            90,022**Nine
                month period ended Sept. 30,**2005Net
                sales to unaffiliated customers
            
            $
            107,618
            
            $
            61,989
            
            $
            126
            
            $
            169,733Income
                (loss) before income taxes *
            
            
            8,363
            
            
            379
            
            
            (2,954
            )
            
            5,788Identifiable
                assets
            
            
            38,698
            
            
            50,868
            
            
            2,465
            
            
            92,0312004Net
                sales to unaffiliated customers
            
            $
            95,391
            
            $
            64,311
            
            $
            33
            
            $
            159,735Income
                (loss) before income taxes *
            
            
            7,567
            
            
            (19
            )
            
            (2,952
            )
            
            4,596Identifiable
                assets
            
            
            35,716
            
            
            49,721
            
            
            4,585
            
            
            90,022





*
      Minority interest in subsidiary loss of $24 and is included in “Corporate and
      Other” and in “Total” for both the three months and nine months ended September
      30, 2005, and losses of $20 and $71 are included in “Corporate and Other” and in
“Total” for the three months and nine months ended September 30, 2004.


**12**
 Table
          of Contents


Item
      2: MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS




The
      following discussion pertains to the Company's results of operations and
      financial condition for the three-month and nine-month periods ended September
      30, 2005 and 2004. For simplicity, the Company has rounded its results to the
      nearest $100,000 increment in the narratives discussing the Company’s operating
      results.





Results
      of Operations





**Three-month
      periods ended September 30, 2005 and 2004 (third quarter)**





The
      following table summarizes changes in the Company’s consolidated and segment
      results of operations (in millions) and as a percentage of net sales for the
      third quarter ended September 30, 2005 and 2004:




CONSOLIDATED
                DATA
            
            3rdQuarter
              2005
                vs. 2004
              Increase
              (Decrease)
            
            Percent
                of Net SalesAmount
              (mil)
            
            Percent
              Change
            
            2005
            
            2004Net
                Sales
            
            $
            14.1
            
            
            31.2
            %
            
            100.0
            %
            
            100.0
            %Gross
                Profit
            
            
            2.0
            
            
            28.0
            
            
            15.0
            
            
            15.4Selling
                and administrative expenses
            
            
            0.4
            
            
            5.8
            
            
            11.2
            
            
            13.8Income
                from operations
            
            
            1.6
            
            
            227.5
            
            
            3.8
            
            
            1.5Interest
                expense
            
            
            0.1
            
            
            20.3
            
            
            (1.1
            )
            
            (1.2
            )Other
                income (expense)
            
            
            0.1
            
            
            (28.3
            )
            
            0.1
            
            
            0.2Income
                before income taxes
            
            
            1.4
            
            
            633.8
            
            
            2.8
            
            
            0.5Provision
                for income taxes
            
            
            1.3
            
            
            NM
            
            
            (1.1
            )
            
            1.5Minority
                interest in subsidiary
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                income
            
            $
            0.2
            
            
            11.9
            
            
            1.8
            %
            
            2.1
            %





SEGMENT
                DATA
            
            3rdQuarter
              2005
                vs. 2004
              Increase
              (Decrease)
            
            Percent
                of Net SalesAmount
              (mil)
            
            Percent
              Change
            
            2005
            
            2004Net
                SalesTrailers
            
            $
            4.3
            
            
            14.0
            %
            
            59.8
            %
            
            68.8
            %Motorcoach
            
            
            9.8
            
            
            69.1
            
            
            40.2
            
            
            31.2Corporate
                and other
            
            
            -
            
            
            NM
            
            
            -
            
            
            -Income
                (loss) before income taxesTrailers
            
            $
            0.7
            
            $
            30.6
            
            
            5.1
            %
            
            5.1
            %Motorcoach
            
            
            1.4
            
            
            NM
            
            
            0.3
            
            
            (2.9
            )Corporate
                and other
            
            
            (0.7
            )
            
            (99.2
            )
            
            (2.5
            )
            
            (1.6
            )


*
      NM means
      change not quantitatively significant





On
      a
      consolidated basis, the Company’s net income for the third quarter ended
      September 30, 2005 was $1.1 million or $0.09 cents per diluted share, compared
      with net income of $0.9 million, or $0.08 cents per diluted share for the third
      quarter of 2004, which included $0.07 related to a nonrecurring tax benefit
      recorded in 2004. The increased third quarter net income results in 2005 were
      primarily a result of increased gross profit resulting from higher sales in
      both
      the trailer and motorcoach segments, as well as improved gross profit margin
      percentages in the motorcoach segment. These increases were partillay offset
      by
      higher selling, administrative and interest expenses.


**13**
 Table
          of Contents




Consolidated
      net sales for the third quarter of 2005 increased 31.2 percent to $59.3 million
      compared to net sales of $45.2 million for the third quarter of 2004. For the
      trailer segment, net sales of specialty trailers and transporters increased
      by
      14.8 percent ($4.9 million) in 2005 compared to the third quarter of 2004 even
      though total unit sales in 2005 decreased over 2004 by 3.3 percent. There were
      increases in unit sales in some product categories, while others decreased
      in
      unit volume. However, the impact of this net unit volume decrease was more
      than
      offset by an increase in the overall average net revenue per unit sold, which
      increased by 17.8 percent in 2005 compared to 2004. The average net revenue
      increase reflects both changes in mix among the various product categories
      as
      well as the favorable impact from the 5 percent price increase effective January
      1, 2005. Motorcoach segment net sales increased by 69.1 percent ($9.7 million)
      in the third quarter of 2005 compared to the same quarter of 2004, when sales
      activity was disrupted for significant periods due to hurricane activity in
      Florida. New unit sales increased by 150.0 percent as sales activity accelerated
      significantly during the quarter, but used unit sales decreased by 25.0 percent.
      While total unit sales volume decreased by 2.6 percent, the average net revenue
      per motorcoach unit sold in 2005 increased by 64.8 percent as compared with
      the
      same quarter of 2004 due an increase in the number of higher priced new units
      sold and a decrease in the number of lower priced used units sold. There were
      greater sales of used units in the third quarter of 2004 compared to 2005 due
      to
      sales promotions and other activities to reduce inventories in
      2004.





Consolidated
      gross profit margin increased by $2.0 million to $8.9 million for the third
      quarter of 2005 from $6.9 million for the same quarter in 2004 as the gross
      profit contributions of both the trailer and motorcoach segments increased.
      As a
      percentage of net sales, consolidated gross profit margin for the quarter was
      15.0 percent in 2005 compared to 15.4 percent in 2004. Total trailer segment
      gross profit increased by $0.6 million in 2005, as the result of a favorable
      product mix allowing for increased revenue and gross profit per unit in the
      third quarter of 2005 compared to the same quarter in 2004. Motorcoach segment
      total gross margin increased by $1.4 million in 2005, primarily the result
      of an
      increased sales volume of new units that had higher average selling prices
      and
      margins. This increase was partially offset by a reduction in the sales of
      lower
      margin used units. Motorcoach segment gross profit margin as a percentage of
      sales increased by 1.4 percentage points in the third quarter of 2005 compared
      to 2004.





Consolidated
      selling and administrative expenses increased by $0.4 million (5.7 percent)
      in
      the third quarter of 2005, to $6.6 million from $6.2 million in the third
      quarter of 2004. As a percentage of sales, these expenses decreased to
      11.2 **** percent
      in 2005 from 13.8 percent in 2004. Trailer segment expenses decreased by less
      than $0.1 million compared to 2004. Motorcoach segment expenses decreased $0.2
      million in 2005 compared to 2004. Corporate and other expenses increased by
      $0.6
      million in 2005 compared to the third quarter of 2004, primarily reflecting
      the
      accrual of executive management performance bonuses.





Consolidated
      interest expense increased **** by
      $0.1
      million **** in
      the
      third quarter of 2005 compared to the same quarter in 2004 as the result of
      higher interest rates in 2005 than in 2004. Other income, net, decreased by
      less
      than $0.1 million in the third quarter of 2005 compared to the same quarter
      in
      2004.





Minority
      interest in the Company’s 51 percent owned subsidiary’s loss was $24,000 in the
      third quarter of 2005 compared to $20,000 in the same quarter in 2004. This
      amount represents the equity interest of the 49 percent minority owned share
      of
      pre-tax losses in Featherlite Chemicals, LLC (FCC) that was formed in 2003
      to
      market car care products. The accompanying condensed consolidated statement
      of
      operations for the quarter includes the accounts of FCC, which reflected a
      total
      pre-tax operating loss of $50,000 for the third quarter of 2005 compared to
      a
      loss of $41,000 in 2004. This activity is being discontinued due to lack of
      profitable operations.


**14**
 Table
          of Contents


Consolidated
      income before taxes (IBT) increased by approximately $1.4 million in the third
      quarter of 2005 to $1.6 million compared to $0.2 million the same quarter in
      2004. This increase in 2005 compared to 2004 reflects increases of $0.7 million
      and $1.4 million in trailer and motorcoach segment IBT, respectively, partially
      offset by an increase of $0.7 million in corporate and other expenses for the
      reasons discussed above.





An
      income
      tax provision rate of approximately 38 percent was used in 2005 and 2004,
      reflecting the federal corporate tax rate and effective state tax rates
      estimated for each year. In addition, a non-recurring tax benefit of $0.8
      million was recognized in the third quarter of 2004 to eliminate a deferred
      tax
      asset valuation reserve because of the improvement in the Company’s operating
      results in 2004 and its improved outlook.








**Nine-month
      periods ended September 30, 2005 and 2004 (Nine months)**





The
      following table summarizes changes in the Company’s consolidated and segment
      results of operations (in millions) and as a percentage of net sales for the
      nine months ended September 30, 2005 and 2004:




CONSOLIDATED
                DATA
            
            Nine
                months
              2005
                vs. 2004
              Increase
              (Decrease)
            
            Percent
                of
              NetSalesAmount
              (mil)
            
            Percent
              Change
            
            2005
            
            2004Net
                sales
            
            $
            10.0
            
            
            6.3
            %
            
            100.0
            %
            
            100.0
            %Gross
                profit
            
            
            1.7
            
            
            6.7
            
            
            15.5
            
            
            15.5Selling
                and administrative expenses
            
            
            0.2
            
            
            1.0
            
            
            11.1
            
            
            11.7Income
                from operations
            
            
            1.5
            
            
            24.7
            
            
            4.4
            
            
            3.8Interest
                expense
            
            
            0.3
            
            
            19.1
            
            
            (1.2
            )
            
            (1.1
            )Other
                income (expense)
            
            
            0.1
            
            
            37.4
            
            
            0.2
            
            
            0.1Income
                before income taxes
            
            
            1.2
            
            
            27.4
            
            
            3.4
            
            
            2.8Provision
                for income taxes
            
            
            1.3
            
            
            139.9
            
            
            (1.3
            )
            
            (0.6
            )Minority
                interest in subsidiary
            
            
            0.0
            
            
            NM
            
            
            -
            
            
            -Net
                income
            
            $
            (0.1
            )
            
            (2.5
            )%
            
            2.1
            %
            
            2.3
            %





SEGMENT
                DATA
            
            Nine
                months
              2005
                vs. 2004
              Increase
                (Decrease)
            
            Percent
                of
              Net
                SalesAmount
              (mils)
            
            Percent
              Change
            
            2005
            
            2004Net
                SalesTrailers
            
            $
            12.2
            
            
            12.8
            %
            
            63.4
            %
            
            59.7
            %Motorcoaches
            
            
            (2.3
            )
            
            (3.6
            )
            
            36.5
            
            
            40.3Corporate
                and other
            
            
            0.1
            
            
            281.8
            
            
            0.1
            
            
            -Income
                (loss) before income taxesTrailers
            
            $
            0.8
            
            
            10.5
            %
            
            4.9
            %
            
            4.7
            %Motorcoach
            
            
            0.4
            
            
            NM
            
            
            0.2
            
            
            0.0Corporate
                and other
            
            
            -
            
            
            NM
            
            
            1.7
            
            
            1.8


*
      NM means
      change not quantitatively significant


**15**
 Table
          of Contents


On
      a
      consolidated basis, the Company’s net income for the nine months ended September
      30, 2005 was $3.6 million or $0.31 cents per diluted share, compared with net
      income of $3.7 million, or $0.32 cents per diluted share for the same period
      of
      2004, including in 2004 $0.07 cents related to a non-recurring income tax
      benefit. The non-recurrence of the 2004 tax benefit was substantially offset
      by
      increased sales and margin levels in the trailer division and coach division
      in
      2005.





Consolidated
      net sales for the first nine months of 2005 increased $10.0 million (6.3
      percent) to $169.7 million compared to net sales of $159.7 million for the
      first
      nine months of 2004. For the trailer segment, net sales of specialty trailers
      and transporters increased by 12.8 percent ($12.2 million) to $107.6 million
      compared to $95.4 million in the first nine months of 2004 as total unit sales
      in 2005 improved over 2004 by 4.9 percent. There were increased unit sales
      in
      almost all product categories in 2005 and the average net revenue per unit
      sold
      increased by 7.6 percent in 2005 compared to 2004. This increase reflects a
      change in the mix of products as well as the favorable impact of a price
      increase effective January 1, 2005. Motorcoach segment net sales decreased
      by
      3.6 percent over the same period of 2004 as total unit sales decreased by 29.4
      percent, with decreases of 2.7 percent and 39.4 percent in unit sales of new
      and
      used motorcoaches, respectively. While there was
      reduced customer traffic and sales at Company showrooms and events in the first
      six months of 2005 compared to 2004, there were strong sales increases in the
      third quarter of 2005 compared to 2004, which was adversely impacted by
      hurricane activity in Florida in the third quarter of 2004. The
      effect of these unit volume decreases was partially offset by a 36.6 percent
      increase in average net revenue per motorcoach unit sold due to the significant
      increase in higher priced new unit sales compared to lower priced used units
      sold. There were decreased sales of used units in the first nine months of
      2005
      compared to the same period in 2004 due to sales promotions and other activities
      to reduce inventories in 2004.





Consolidated
      gross profit margin increased by approximately $1.7 million to $26.4 million
      for
      the first nine months of 2005 from $24.7 million for the same period in 2004.
      As
      a percentage of net sales, consolidated gross profit margin for the nine month
      period was 15.5 percent in 2005, the same as in 2004. Both business segments
      contributed margin increases. The trailer division gross profit margin increased
      by $1.3 million due to margin added from increased sales, which resulted from
      a
      7.6 percent increase in average revenue per unit. This increase was partially
      offset by an increase in the average cost per unit of 8.6 percent due to higher
      cost of aluminum and other materials. The motorcoach division gross profit
      increased by $0.5 million in the first nine months of 2005 compared to 2004,
      as
      gross profit margin as a percentage of sales increased by 1.3 percentage points.
      This was the result of improved percentage margins that were realized on sales
      of new coaches due to higher average selling prices and the realization of
      reduced production costs due to efficiency improvements.





Consolidated
      selling and administrative expenses increased by $0.2 million in the first
      nine
      months of 2005, to $18.9 million, a 1.0 percent increase, from $18.7 million
      in
      the first nine months of 2004. As a percentage of sales, these expenses
      decreased to 11.1 **** percent
      in 2005 from 11.7 percent in 2004. Trailer segment expenses increased by $0.4
      million (4.0 percent) in 2005 compared to 2004 due primarily to increased
      marketing costs related to generating and maintaining a higher sales volume.
      Motorcoach segment expenses were unchanged in 2005 compared to 2004 but
      increased as a percent of sales due to decreased sales. Corporate selling and
      administrative expenses decreased by $0.2 million in the first nine months
      of
      2005 compared to 2004, primarily due to reduced FCC selling and administrative
      expenses as this activity is being discontinued.





Consolidated
      interest expense increased **** by
      $0.3
      million **** in
      the
      first nine months of 2005 compared to the same period in 2004 as the result
      of
      higher interest rates in


2005.
      Other income, net, increased by $0.1 million in
      the first nine months of 2005 compared to the same quarter in 2004 due to
      increased finance income.


**16**
 Table
          of Contents


Minority
      interest in the Company’s 51 percent owned subsidiary’s loss was $24,000 in the
      first nine months of 2005 compared to $71,000 in 2004. This amount represents
      the equity interest of the 49 percent minority owner’s share of pre-tax losses
      in Featherlite Chemicals, LLC (FCC) that was formed in 2003 to market car care
      products. The accompanying condensed consolidated statement of operations for
      the quarter includes the accounts of FCC, which reflected a total pre-tax
      operating loss of $50,000 for the first nine months of 2005 compared to a loss
      of $144,000 in 2004. This activity is being discontinued in the 2005 due to
      the
      lack of profitable operations.





Consolidated
      income before taxes (IBT) increased by approximately $1.2 million in the first
      nine months of 2005 to $5.8 million compared to $4.6 million in the same period
      in 2004. This increase reflects an increase of approximately $0.8 million in
      IBT
      in the trailer segment and increase of $0.4 million in IBT in the motorcoach
      segment.





Income
      taxes expense was $2.2 million for the first nine months of 2005 compared to
      $0.9 million in the same period of 2004. An income tax provision rate of
      approximately 38 percent was used in 2005 and 2004, reflecting the federal
      corporate tax rate and effective state tax rates estimated for each year. In
      addition, a tax benefit of $0.8 million was recognized in the third quarter
      of
      2004 to eliminate a deferred tax asset valuation reserve because of the
      improvement in the Company’s operating results in 2004 and its improved outlook.








**Outlook**





As
      a
      result of the strong sales activity in the first three quarters, and in
      particular the third quarter ended September 30, 2005, the Company is optimistic
      about the level of sales for the fourth quarter of 2005. At September 30, 2005,
      the trailer order backlog was $16.7 million compared to $17.6 million at
      December 31, 2004 and $17.0 million at September 30, 2004. At September 30,
      2005, the motorcoach backlog was $7.8 million compared to $7.7 million at
      December 31, 2004 and $3.3 million at September 30, 2004. While trailer backlog
      has decreased slightly from September 30, 2004 and December 31, 2004, order
      levels have remained strong in 2005 and have been filled from finished
      inventory. Management expects this will continue. The motorcoach backlog is
      essentially unchanged from December 31, 2004 to September 30, 2005 and has
      increased from September 30, 2004. The Company has recently experienced an
      increased level of demand for new coaches, with new coach inventories decreasing
      by $4.9 million during the three month period ended September 30, 2005. While
      fluctuations in motorcoach backlog and inventory levels will occur with
      variations in customer preferences in buying completed coaches rather than
      ordering custom coaches for future delivery, management expects that demand
      for
      new coaches to continue to be relatively strong in the fourth quarter of 2005.
      To date, the Company has not seen an impact on order levels as a result of
      increased gasoline prices or the hurricanes in the south. If these factors
      or
      future events harm the general economy, the Company may experience reduced
      demand for its products. There is continuing focus by the Company on the sales
      and marketing related activities that have been effective in increasing sales
      in
      the past, but there is no assurance they will be successful in generating orders
      sufficient to meet management’s expectations.





The
      Company believes its name recognition and close affiliation with the motorsports
      industry will continue to have a positive impact on its sales of specialty
      trailers, transporters and luxury motorcoaches. With more than 75 percent of
      its
      revenue from end users in motorsports and leisure and entertainment categories,
      which also includes equestrian events, and with its strong position in the
      livestock trailer market, the Company believes it is strategically
      well-positioned to continue to benefit from these markets. The Company intends
      to continue introducing new models and models with enhanced features. It also
      continues to expand its trailer dealer organization in unserved or underserved
      markets.


**17**
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          of Contents


**Liquidity
      and Capital Resources**





***General***





The
      Company’s liquidity is primarily affected by its cash flow from operations
      together with changes in amounts available to borrow on its approved lines
      of
      credit with U.S. Bank and GE. During the nine months ended September 30, 2005,
      the Company’s operating activities provided net cash of $3.2 million, as net
      income and non-cash depreciation and amortization charges provided 5.3 million
      and working capital changes used $2.1 million. At September 30, 2005, the
      Company had approximately $10.5 million available to borrow under its credit
      lines compared to $9.5 million at December 31, 2004, an increase of $1.0 million
      as availability under both lines increased due to changes in eligible
      receivables and inventories.





The
      Company’s liquidity can be measured by two key indicators, its current ratio and
      its ratio of debt to shareholders’ investment. The Company’s ratio of current
      assets to current liabilities was 1.62 to 1 at September 30, 2005, compared
      with
      a ratio of 1.44 to 1 at December 31, 2004. **** This
      ratio has improved as a result of operating and cash flow improvements. The
      ratio of total debt to shareholders’ investment decreased to 1.32 to 1 at
      September 30, 2005 from 1.54 to 1 at December 31, 2004. This ratio improved
      as
      stockholders’ investment increased during 2005 as a result of additional net
      income for the year.





To
      maintain an efficient level of trailer production, increased expenditures for
      working capital items have been and may continue to be required from time to
      time to support production levels in excess of sales. Production levels in
      excess of new order levels during the last six months of 2004 and first nine
      months of 2005 have resulted in the growth of finished trailer inventories
      by
      $5.0 million, including $2.3 million in 2005. During the third quarter of 2005
      production levels have more closely approximated orders, with finished trailer
      inventories growing by only $0.2 million. It is the Company’s expectation that a
      substantial portion of these additional trailers will be sold to dealers in
      the
      coming months. However, there is no assurance this will occur, which could
      adversely impact the liquidity of the Company.





To
      maintain a level motorcoach production schedule, production may begin on coaches
      before an order has been received from a specific buyer. As of September 30,
      2005, approximately 56 percent of the coaches in production and to be completed
      over the next four months have not been sold to specific customers as compared
      to 79 percent at September 30, 2004 and 70 percent at December 31, 2004. For
      the
      nine months ended September 30 2005, total units sold exceeded units produced
      and new coach inventory decreased by $1.5 million. While it is the Company’s
      expectation that substantially all of these motorcoaches will be sold to
      specific customers, there is no assurance this will occur. Accordingly, this
      could adversely impact the liquidity of the Company.





During
      the fourth quarter of 2005, the Company has scheduled payments for debt
      principal and interest, expiring motorcoach shell consignment agreements, and
      other fixed obligations that will require cash flows of $6.5 million in addition
      to amounts required to cover checks not yet presented for payment, which at
      September 30, 2005 was $2.5 million. At September 30, 2005 the Company had
      availability on its credit lines of approximately $10.5 million. Additional
      payments may be required for the commitments and contingencies referred to
      in
      Note 4 of the unaudited condensed consolidated financial statements included
      in
      this quarterly report on Form 10-Q. These payments are expected to be funded
      by
      cash generated from operations, including reductions in receivable and inventory
      levels, as well as availability on existing lines of credit.


**18**
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          of Contents




***Credit
      Facilities and Other Financing Activities***





The
      following, read in conjunction with Note 3 to the condensed unaudited
      consolidated financial statements included in this quarterly report on Form
      10-Q, is a summary of the Company’s agreements with its principal
      lenders:





1.
      The
      Company’s Amended and Restated Loan Agreement with U.S. Bank is in an aggregate
      amount of $27.8 million, including $17.0 million in an asset-based revolving
      credit commitment, $8.1 million in term loans on existing real estate and
      equipment and $2.7 million as a term loan for new equipment purchases. As of
      September 30, 2005, asset-based availability on the revolving credit line was
      $17.0 million with outstanding borrowings of $6.5 million, outstanding letters
      of credit of $2.7 million and remaining borrowing availability of $7.8 million.
      The $8.1 million term notes are repayable over varying terms ending October
      31,
      2008 with aggregate monthly principal payments of $98,000 plus interest until
      maturity. Monthly principal payments are required on the outstanding principal
      balance on the new equipment term loan based on a 60 month amortization schedule
      and will be determined as borrowings are made on this note with the unpaid
      balance due on October 31, 2008. The Company was in compliance with all the
      covenants of this agreement at September 30, 2005.








2.
      The
      Company’s Amended Wholesale Financing Agreement with GE provides for aggregate
      financing of $25 million on new and used motorcoaches held as inventory by
      the
      Company. As of September 30, 2005, the aggregate availability under this
      agreement based upon motorcoach inventory levels and composition was $21.3
      million with $18.6 million outstanding and $2.7 million available to borrow.
      The
      Company was in compliance with all the covenants of this agreement at September
      30, 2005.








3.
      In
      2003, the Company entered into a Floor Plan Financing Agreement with Regions
      Bank, for aggregate financing of $3.0 million to fund 100 percent of the cost
      of
      new motorcoaches purchased for resale from Foretravel, the manufacturer. During
      2004, the Agreement was amended to provide for use of this line to also fund
      purchases of travel trailers from Coachmen, Inc. As of September 30, 2005,
      $1.0
      million was outstanding under this agreement, of which approximately $0.8
      million was due in the third quarter as a result of the expiration of the
      allowable period the coaches may be financed. Regions extended the maturity
      date
      of the flooring on these coaches over a period ending in December 2006. The
      Company was in compliance with the financial covenants of this agreement at
      September 30.





4.
      The
      Company’s motorcoach shell manufacturer provides shells to the Company on a four
      month consignment basis. Payment is required at the time a motorcoach is sold
      or
      at the end of the consignment period, whichever occurs first. At September
      30,
      2005, the amount due the Company’s shell manufacturer for consigned shells was
      $3.9 million and there were no shells with an expired consignment
      term.





5.
      On
      January 21, 2005, the Company entered into a Mortgage Agreement with GE
      Commercial Finance Business Property Corporation (GE Property) whereby the
      Company borrowed the funds to purchase for $5.3 million the Sanford, Florida
      property it uses as a sales and service center for the motorcoach division.
      The
      mortgage note matures on February 1, 2017, bears interest at 6.49 percent per
      annum and requires monthly principal and interest payments of $52,874. Prior
      to
      entering into this agreement, the Company was using this property under the
      terms of a lease agreement and it was recorded on the Company’s balance sheet as
      a capital lease obligation.  The unamortized balance of the obligation
      ($4.4 million) was cancelled upon termination of the lease and purchase of
      the
      building from the lessor.


**19**
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          of Contents


***Certain
      Other Obligations***





As
      described in Note 4 to the condensed unaudited consolidated financial statements
      included in this annual report on Form 10-Q, the Company is subject to a number
      of commitments and contingencies that may affect its liquidity.








***Statement
      of Cash Flows***





Following
      is a discussion of the principal components of the Company’s cash flow for the
      nine months ended September 30, 2005, as reflected in the condensed consolidated
      statements of cash flow:




Operating
      activities generated net cash of $3.2 million. The Company’s net income of $3.6
      million included non-cash depreciation and amortization of $1.7 million. These
      funds were used to finance $2.1 million used in changes in working capital
      items. Net changes in receivables, inventories and prepaid assets provided
      cash
      of $0.8 million including: $0.5 million in inventory reductions, decreases
      in
      leased trailers of $0.5 million and reductions in prepaid expenses of $1.3
      million, partially offset by increases of $1.5 million in receivables. Net
      changes in accounts payable, accrued liabilities and other current liabilities
      used net cash of $2.9 million. Changes in these liabilities included, among
      other items: a decrease of $3.3 million in motorcoach shells payable as work
      in
      process decreased; a $0.5 million increase in trade accounts payables due to
      increased terms from trade creditors; a decrease of $0.4 million in customer
      deposits and a $0.4 million increase in accrued liabilities.





The
      Company’s investing activities used cash of $6.8 million, principally for the
      purchase the Sanford Sales and Service facility for $5.4 million. As discussed
      below, the purchase was fully financed by mortgage borrowings. Other purchases
      of plant and equipment items totaled $1.6 million and have been financed with
      cash provided by operating activities.





The
      Company’s financing activities provided net cash of $3.6 million, including a
      $5.3 million mortgage note on the Sanford facility and net borrowings in
      wholesale financing and line of credit borrowings of $0.6 million. These
      borrowings were offset by payments of $2.1 million on other short and long-term
      debt. Proceeds from the exercise of stock options provided cash of $0.2 million
      and checks issued but not presented for payment decreased by $0.4 million.
      Borrowings on the U.S. Bank line of credit are used to fund these checks as
      they
      are presented for payment at the bank.





The
      Company believes that its current sources of liquidity will be sufficient to
      fund continued operations and capital requirements for the next twelve months.
      As described above, the Company has agreements with its two major lenders to
      continue funding for the remainder of 2005 and 2006, assuming ongoing compliance
      with applicable covenants. ****





For
      the
      foreseeable future, the Company does not plan to pay dividends but instead
      will
      follow the policy of reinvesting any earnings in order to finance the expansion
      and development of its business. The Company is a party to certain loan
      agreements that prohibit the payment of dividends without the lenders’
consent.


**20**
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          of Contents


**Forward-looking
      Information and Risks**





We
      have
      made, and may continue to make, various written or verbal forward-looking
      statements with respect to our business, including statements contained in
      this
      quarterly report on Form 10-Q, other filings with the Securities and Exchange
      Commission, and reports to stockholders.





The
      Private Securities Litigation Reform Act of 1995 provides a safe harbor for
      forward-looking statements made by us or on our behalf. Forward-looking
      statements are those involving the outcome of future events that are based
      upon
      current expectations, estimates, forecasts and projections as well as the
      current beliefs and assumptions of our management. Any statement that is not
      a
      historical fact, including any statement regarding estimates, projections,
      future trends and the outcome of events that have not occurred, is a
      forward-looking statement.





The
      words
“believe,” “estimate,” “expect,” “intend,” “may,” “could,” “will,” “plan,”
“anticipate’” and similar words and expressions are intended to identify
      forward-looking statements. Forward-looking statements speak only as of the
      date
      made, are based on current expectations, are inherently uncertain and should
      be
      viewed with caution. The Company makes no commitment to update any
      forward-looking statement or to disclose any facts, events, or circumstances
      after the date hereof that may affect the accuracy of any forward-looking
      statement, other than as required by law.




Forward-looking
      statements cannot be guaranteed and actual results may vary materially due
      to
      the uncertainties and risks, known and unknown, associated with such statements.
      Featherlite wishes to caution readers that the factors discussed below in “Risk
      Factors,”, among others, in some cases have affected, and in the future could
      affect, Featherlite’s actual results and could cause Featherlite’s actual
      consolidated results to differ materially from those expressed in any
      forward-looking statements made by, or on behalf of, Featherlite.





**Risk
      Factors**





**The
      Company may not be able to increase prices sufficiently to cover increases
      in
      cost of aluminum and other costs.** Prices
      of aluminum, the principal commodity used in the Company’s trailer segment, and
      which represented approximately 16 percent of consolidated cost of sales in
      2005, fluctuate daily in the open market. The Company purchases substantial
      amounts of aluminum extrusions from a number of major suppliers, including
      Alcoa
      Extrusions, Inc., Indalex, Inc. and Midwest Aluminum and the majority of its
      sheet metal from two large suppliers, Ryerson Tull and Aluminum Line Products
      Co. The Company has not engaged in hedging or the purchase and sale of future
      contracts other than contracts for delivery to fill its own needs. In the past,
      the Company has had contracts with certain of the above suppliers to fill a
      substantial portion of its projected needs for aluminum for the forthcoming
      year
      at fixed prices. The
      Company has not obtained such contracts for 2005 and is purchasing aluminum
      to
      meet its production requirements at current market prices for aluminum. If
      the
      cost of aluminum in 2005 continues to increase significantly and the Company
      cannot increase its product prices sufficiently to cover aluminum and other
      cost
      increases, its results of operations may suffer. The Company implemented a
      price
      increase on its aluminum trailers effective on January 1, 2005 to help offset
      increased aluminum costs it is currently experiencing, but there can be no
      assurance the price increase will be sufficient or that increased sales prices
      will not harm demand.




**21**
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          of Contents





**Changes in customer discretionary spending may cause our sales volume and
      product mix to fluctuate.** A
      large
      portion of our sales involve discretionary spending by our customers, and may
      be
      delayed or cancelled in times of economic uncertainty. The industries in which
      we operate are competitive, and we face continued pressure to increase selling
      prices to reduce the impact on margins of increasing aluminum and other
      materials costs, labor rate and overhead costs related to
      the
      expanded production facilities and organization to support expected increases
      in
      sales. Our product mix from period to period can have an important impact on
      our
      gross profit since products include varying combinations of material and labor
      costs. While we experienced significant sales growth in 2004 and modest gains
      in
      2005, a return to a static or declining growth rate in the overall demand for
      our products may harm our sales and hinder our ability to maintain operating
      results and our liquidity





**The
      Company may not be able to maintain compliance with, or obtain future waivers
      for non-compliance with, various restrictive covenants under its credit
      facilities.** Each
      of
      the Company’s long-term financing agreements contains affirmative and
      restrictive covenants. The Company was in compliance with all of these covenants
      during 2004 and as September 30, 2005, but has required waivers of compliance
      for certain covenants in 2003 and certain prior years (as discussed more fully
      in Note 8 to the consolidated financial statements included in the Company’s
      annual report on Form 10-K). Although management believes it will be able to
      maintain compliance with these covenants in 2005 and beyond, violations could
      occur allowing the lenders their option to accelerate payment of the debt.





**The
      Company’s motorcoach credit facility availability could be reduced.** Advance
      rates under the Company’s financing arrangement with GE have been based on 90
      percent of the cost of eligible new motorcoach inventory and 70 percent of
      the
      defined value of eligible used motorcoach inventory. On February 22, 2005 the
      agreement was amended as follows: (i) there will be a 1.5 percent per month
      reduction in amounts borrowed on a used coach when it has been financed more
      than 360 days and all financing will be due in full on day 720; and (ii) after
      360 days new units will be converted to used financing at an advance rate of
      70
      percent versus 90 percent and 1.5 percent per month curtailments will begin
      on
      day 721 until day 1,080 when all financing on the unit will be due in full.
      As
      of February 22, 2005, the Company had borrowings of $2.2 million which were
      repaid to GE as a result of the revised advance rates. Future aggregate
      availability under this agreement could be reduced if the Company is unable
      to
      sell certain new or used coaches before the financing expires under this amended
      agreement. This may require the Company to use financing available from its
      other credit line or to obtain additional financing from other sources. There
      can be no assurance such financing will be available.




**The
      value of the Company’s motorcoach inventory fluctuates.** The
      Company takes trade-ins on both new and used motorcoach sales. These trade-in
      units are marketed on a retail basis to other customers. In the three years
      ended December 31, 2004, the Company experienced a significant decline in the
      market value of trade-in units and certain non-current new models and wrote
      down
      the carrying value of the used inventory by $0.5 million, $1.4 million and
      $0.6
      million in 2004, 2003 and 2002, respectively, in order to facilitate their
      sale.
      There have been no significant write-downs required in 2005. **** There
      is
      a risk that additional write-downs of this inventory will occur if these
      trade-in units are not sold at current selling prices, which could adversely
      impact the Company’s future operating results and reduce the capital advances
      available under its credit facility with GE.





**The
      Company begins motorcoach production before customer orders are
      received.** To
      maintain a level production schedule, production often begins on motorcoaches
      before orders have been received from specific buyers. As of September 30,
      2005
      and 2004, approximately 56 percent and 79 percent, respectively, of the coaches
      in production and to be completed over the next four had not been sold to
      specific customers. While it is the Company’s expectation that substantially all
      of these motorcoaches will be sold to specific customers before production
      is
      completed, or shortly thereafter, there is no assurance this will occur. If
      the
      motorcoaches are not sold according to expectations, the Company may have to
      reduce selling prices which would harm its profitability. Further, if the sale
      periods for motorcoaches are substantially longer than expected, capital
      advances available under the Company's credit facility with GE will be reduced
      and liquidity may be harmed.




**22**
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          of Contents


**We
      may not
      have the capital resources to maintain pace with technology improvements.** To
      remain
      competitive, the Company is required from time to time to make capital
      expenditures for machinery to remain competitive and to improve operating
      efficiencies and output. While the Company does not currently anticipate
      significant capital expenditures will be required in the near future, the
      Company may not have sufficient liquidity and may not be able to obtain
      additional financing for such required capital expenditures as necessary.
      Failure to keep pace with technological improvements in manufacturing trailers
      and motorcoaches could lead to reduced competitiveness and increased cost and
      production inefficiencies. The occurrence of any of these events could further
      harm our liquidity and results of operations.





**The
      Company relies upon one supplier for motorcoach shells and one vendor for
      special graphics** . **** There
      is
      a risk related to the loss or interruption in the supply of bus conversion
      shells from the Company’s sole supplier of these shells. The Company purchases
      all of its bus conversion shells from Prevost Car Company, which is owned by
      Volvo Bus Corporation. The Company also uses one subcontractor to provide paint
      and graphic design work to meet customer specifications on certain custom
      trailers and specialty transporters. In the event Prevost is unable to deliver
      motorcoach shells to the Company or the subcontractor is unable to provide
      its
      services on a timely basis, the Company’s revenues and profits could be
      adversely affected.





**We
      purchase our aluminum from a limited number of vendors** .
      We may
      have difficulty receiving our requirements for aluminum (our principal raw
      material component in the trailer division) if we lose one of our major
      suppliers of aluminum. In the past, this risk has been relatively nominal as
      there have been alternate sources of supply. In recent years, however, the
      number of alternate sources of supply has been reduced due to mergers within
      the
      aluminum industry. Also, additional time may be required to replace an extruded
      aluminum supplier due to the fact that dies are required and would have to
      be
      made. The Company routinely tries to keep at least three suppliers of each
      shape
      so it has a backup supplier if necessary. However, if the number of suppliers
      of
      aluminum is further reduced, or if the Company is otherwise unable to obtain
      its
      aluminum requirements on a timely basis and on favorable terms, the Company’s
      operations may be harmed.




**Startup
      operations may have adverse impact on operating results** .
      As
      discussed in Note 5 to the consolidated financial statements included in the
      Company’s annual report on Form 10-K, in October 2003, the Company reopened a
      facility in Pryor, Oklahoma as a sales and service center. The Company sustained
      losses of about $255,000, $660,000 and $124,000 in restarting and operating
      this
      facility in the nine months ended September 30, 2005 and the years 2004 and
      2003, respectively. In the event the facility cannot generate sufficient income
      to absorb the annual lease cost and other costs of operation by December 31,
      2005, the Company may be required to accrue additional costs related to this
      facility. Also, the Company is a 51 percent owner in a company (FCC) that sells
      car care products as discussed in Note 1 to the condensed unaudited consolidated
      financial statements. The Company has invested $197,000 in this entity in 2004
      and 2003 and has absorbed total losses of $194,000 in those years. For the
      nine
      months ended September 30, 2005, FCC had a loss of $49,000. The Company has
      decided to exit this business and expects to complete the dissolution in the
      fourth quarter of 2005. Expected inventory losses of $50,000 have been reserved
      in the third quarter of 2005 and any additional cash outlays are expected to
      be
      insignificant.


**23**
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**Our
      success largely depends on the continued service of our management team and
      key
      personnel** .
      If one
      or more of these individuals, particularly Conrad D. Clement, our President
      and
      Chief Executive Officer, were to resign or otherwise terminate their employment
      with us, we could experience a loss of sales, industry affiliations, vendor
      relationships and management resources.




**The
      market price of our common stock has been, and we expect will continue to be,
      subject to substantial volatility and small float** .
      The
      market price of our common stock may decline regardless of our operating
      performance or prospects. Factors affecting our market price include:


•
              our
                  ability to continue to demonstrate sufficient capital liquidity
                  to remain
                  solvent;•
              Our
                  ability to manufacture and market a favorable mix of products that
                  results
                  in favorable gross profit margins;•
              Our
                  ability to continue to manage our costs and achieve manufacturing
                  efficiencies;•
              trends
                  and events affecting our consumers’ disposable income available for
                  recreational activities and consumer confidence generally;•
              variations
                  in our operating results and whether we achieve key business targets;•
              changes
                  in general economic, political and stock market
                  conditions.






ITEM
      3.  QUANTITATIVE
      & QUALITATIVE DISCLOSURES ABOUT MARKET RISK





*Commodity
      Risk*




The
      Company is exposed to market risks related to changes in the cost of aluminum.
      Aluminum is a commodity that is traded daily on the commodity markets and
      fluctuates in price. The average Midwest delivered cash price per pound for
      ingot aluminum during the three years ended December 31, 2004, as reported
      to
      the Company by its suppliers was $0.85 in 2004 **,** $0.68 in
      2003, and $0.65 in 2002. The current average aluminum cost per pound for 2005
      delivery is $0.89 for the first nine months of 2005. The Company’s cost of
      aluminum, which was approximately 16 percent of consolidated cost of sales
      in
      2005, varies from these market prices due to vendor processing charges, timing
      of purchases, and contractual commitments with suppliers for specific prices
      and
      other factors. In 2004, the Company obtained commitments from suppliers to
      provide, at an agreed upon fixed price, more than 90 percent of its anticipated
      requirements for 2004, which reduced substantially the risk of aluminum cost
      fluctuations for the year. The Company has not yet obtained such commitments
      for
      2005 or 2006.  In
      the
      event the Company elects to enter into fixed-price aluminum contracts, there
      is
      a potential risk of loss related to such contracts if there is a substantial
      drop in the actual cost of aluminum in relation to the contract price, which
      would affect the competitive price of the Company’s products.





The
      Company initiated a price increase for substantially all trailer products other
      than interior packages that were invoiced after December 31, 2004 unless they
      were ordered and in backlog at December 31, 2004. Management believes this
      price
      increase will cover the higher aluminum costs in 2005 but may not cover other
      cost increases as well. If the cost of aluminum increases significantly above
      current levels and the Company cannot increase its product prices sufficiently
      to cover such increases, the Company’s results of operations may be harmed.
      Based upon 2004 annual pounds used, a price increase for aluminum of $0.01
      per
      pound would reduce the Company’s future annual net income by approximately
      $130,000.


**24**
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*Interest
      Rate Risk*





The
      Company is exposed to market risks related to changes in U.S. and international
      interest rates. Approximately $33 million of the Company’s debt bears interest
      at a variable rate. An interest rate increase by one percentage point would
      reduce the Company’s future annual net income by approximately $204,000 at
      current debt levels.




Item
      4. CONTROLS
      AND PROCEDURES





(a)  Evaluation
      of disclosure controls and procedures. After evaluating the effectiveness of
      the
      design and operation of Company’s “disclosure controls and procedures” pursuant
      to Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act)
      as
      of the end of the period covered by this report, our chief executive officer
      and
      chief financial officer, with the participation of the Company’s management,
      have concluded that the Company’s disclosure controls and procedures are
      effective to ensure that information that is required to be disclosed by the
      Company in reports that it files under the Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in the rules of the
      Securities Exchange Commission.





(b)
      Changes in internal controls. There were no changes in our internal control
      over
      financial reporting that occurred during the period covered by this quarterly
      report that have materially affected, or are reasonably likely to materially
      affect the Company’s internal control over financial reporting.








**PART
      II. OTHER INFORMATION**





Item
      6.  EXHIBITS





See
      Exhibit Index on page following signatures.








**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.





FEATHERLITE,
      INC.


(Registrant)





**Featherlite,
                Inc.**Date: November
                10, 2005
              By:
              /s/ Conrad
                D.
                ClementPresident
&
                CEO


**Featherlite,
                Inc.**Date: November
                10, 2005
              By:
              /s/ Jeffery
                A. MasonChief
                Financial Officer




**25**
 Table
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**EXHIBIT
      INDEX**


Form
      10-Q


Quarter
      ended September 30, 2005





Exhibit
      No.         Description








**31.1**
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.**31.2**
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.**32.1**
            Certification
                of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002.**32.2**
            Certification
                of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002.