Hello,

Is there a way to have a sidebar menu that displays K2 categories then when the category is hovered over it fly's out the k2 items within that category.

Thanks

Don't know whether this module Categories Treeview for K2 is suitable for you, although it is opening the items of a category on clicking the category node, but it can be modified to open on hover if you like it.

You can also do this with a custom K2 content module (or modules).
However you are looking into a semi-custom solution.