Note 1 - Organization and summary of significant accounting policies:

Organization - The Company was incorporated during November, 1973 under the laws of the state of Florida and operates as a manufacturer and distributor of products principally under the Star brite(r) brand to the marine, automotive and recreational vehicle aftermarkets.

Principles of consolidation - The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.

Revenue recognition - Revenue from product sales is recognized when persuasive evidence of a contract exists, delivery to customer has occurred, the sales price is fixed and determinable, and collectability of the related receivable is probable. Reported net sales are net of customer prompt pay discounts, contractual allowances, authorized customer returns, consumer rebates and other allowable deductions from our invoices. Cooperative advertising deductions, based on our customers' promotion of our products is recognized as an advertising cost and charged against operations as an operating expense. The Company follows the policy of reporting sales taxes as a net amount receipts and payments recorded in a liability account.

Collectability of accounts receivable - Included in the consolidated balance sheets as of December 31, 2008 and 2007 are allowances for doubtful accounts aggregating approximately $117,600 and $47,000, respectively. Such amounts are based on management's estimates of the creditworthiness of its customers, current economic conditions and other historical information. Consolidated bad debt expense charged against operations for the years ended December 31, 2008, and 2007 aggregated approximately $83,500 and $22,000 respectively.

Severe economic times are expected to increase the Company's risk related to sales and collection of accounts receivable. At the time of this filing we have incurred, in 2009, one customer filing for bankruptcy (Boater's World), representing a maximum risk of loss on unrecoverable receivables of approximately $210 thousand in total, approximately $69 thousand related to December 31, 2008 receivables, and 2008 sales of approximately $672 thousand. We do not know yet and cannot predict if we will be able to collect accounts receivable with more or less difficulty than in the past in our business. The Company's Management understands that the economic conditions in the industry may result in additional difficulties for our customers, but is unable to qualify this risk at this time.

Inventories - Inventories are primarily composed of raw materials and finished goods and are stated at the lower of cost, using the first-in, first-out method, or market.

Shipping and handling costs - All shipping and handling costs incurred by us are included in operating expenses on the statements of income. These costs totaled approximately $886,200 and $834,800 for the years ended December 31, 2008 and 2007 respectively.

Prepaid expenses - During the years ended December 31, 2008 and 2007 the Company introduced certain new products to its customers. In connection therewith, the Company produced new product collateral materials to be distributed over a period of time of approximately one year. Accordingly the Company follows the policy of SOP 93-7 (Reporting on Advertising Costs). At December 31, 2008 and 2007 the Company did not have any accumulated cost of collateral materials on hand.

Property, plant and equipment - Property, plant and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method.

Stock based compensation - The Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), "Shared Based Payment" ("SFAS No. 123R"), which requires the measurement and recognition of compensation cost for all share-based payment awards made to employees and directors based on estimated fair values.

Staff Accounting Bulletin No. 108 - In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" ("SAB No. 108"). This SAB provides guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB No. 108 establishes an approach that requires quantification of financial statement errors based on the effects on each of the Company's financial statements and related financial statement disclosures. The SAB permits existing public companies to record the cumulative effect of initially applying this approach in the first year ending after November 15, 2006 by recording the necessary correcting adjustments to the carrying values of assets and liabilities as of the beginning of that year with the offsetting adjustment recorded to the opening balance of retained earnings. Additionally, the use of the cumulative effect transition method requires detailed disclosure of the nature and amount of each individual error being corrected through the cumulative adjustment and how and when it arose. At December 31, 2007, the Company recorded an adjustment under SAB No. 108.

The transition provisions of SAB No. 108 permit the Company to adjust for the cumulative effect on retained earnings of immaterial errors relating to prior years. Such adjustments do not require previously filed reports with the SEC to be amended.

The Company adopted SAB No. 108 effective January 1, 2007. In accordance with the requirements of SAB No. 108, the Company has adjusted the opening retained earnings balance for 2007 in the accompanying consolidated financial statements for adoption of SFAS No. 123-R , in addition to the recording of a contingent legal liability.

At the end of 2007, the Company re-evaluated its Black Scholes model and the adoption of SFAS No. 123 R and recorded an adjustment to the opening retained earnings of approximately $40,000. In addition under SAB No 108 the Company recorded an adjustment to record a contingent liability of approximately $30,000 to opening retained earnings. The adjustments had no impact on income tax expense.

The Company considers this adjustment to be immaterial as it did not impact the consolidated statements of operations and the adjustment was not material to the consolidated balance sheets in prior periods.

Use of estimates - The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates that affect the reported amount of assets, liabilities, revenues and expenses during the reporting period. Actual results could differ from those estimates.

Concentration of credit risk - Financial instruments that potentially subject the Company to concentration of credit risk consist primarily of accounts receivable. The Company's five largest customers represented approximately 58% and 51% of consolidated net revenues for the years ended December 31, 2008 and 2007, and 32% and 44% of consolidated accounts receivable at December 31, 2008 and 2007, respectively. The Company has a longstanding relationship with each of these entities and has always collected open receivable balances. However, the loss of any of these customers could have an adverse impact on the Company's operations (see Note 14).

Concentration of cash - At various times of the year and at December 31, 2008, the Company had a concentration of cash in one bank in excess of prevailing insurance offered through the Federal Deposit Insurance Corporation at such institution. Management does not consider the excess deposits to be a significant risk.

Fair value of financial instruments - The carrying amount of cash approximates its fair value. The fair value of long-term debt is based on current rates at which the Company could borrow funds with similar remaining maturities, and the carrying amount approximates fair value.

Impairment of long-lived assets - Potential impairments of long-lived assets are reviewed annually or when events and circumstances warrant an earlier review. In accordance with SFAS No. 144, impairment is determined when estimated future undiscounted cash flows associated with an asset are less than the asset's carrying value.

Income Taxes - Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry- forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

In assessing the ability to realize a portion of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making the assessment.

Effective January 1, 2007, the Company adopted Financial Accounting Standards Board ("FASB) Interpretation No. (FIN) 48, "Accounting for Uncertainty in Income Taxes" and FSP FIN 48-1, which amended certain provisions of FIN 48. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with SFAS No. 109, "Accounting for Income Taxes." FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 requires that the Company determine whether the benefits of the Company's tax positions are more likely than not of being sustained upon audit based on the technical merits of the tax position. The provisions of FIN 48 also provide guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure. The Company did not have any unrecognized tax benefits and there was no effect on the financial condition or results of operations for the twelve months ended December 31, 2007 as a result of implementing FIN 48, or FIN 48-1. In accordance with FIN 48 the Company adopted the policy of recognizing penalties in selling and administrative expenses and interest, if any, related to unrecognized tax positions as income tax expense. The tax years 2005-2008 remain subject to examinations by major tax jurisdictions.

Trademarks, trade names and patents - The Star brite trade name and trademark were purchased in 1980 for $880,000. The cost of such intangible assets was amortized on a straight-line basis over an estimated useful life of 40 years through December 31, 2001. Effective January 1, 2002 and pursuant to Statement of Financial Accounting Standards No. 142, the Company has determined that these intangible assets have indefinite lives and therefore we no longer recognize amortization expense. In addition, the Company owns two patents that it believes are valuable in limited product lines, but not material to its success or competitiveness in general. There are no capitalized costs of these two patents.

Translation of Canadian currency - The accounts of the Company's Canadian subsidiary are translated in accordance with Statement of Financial Accounting Standards No. 52, which requires that foreign currency assets and liabilities be translated using the exchange rates in effect at the balance sheet date. Results of operations are translated using the average exchange rate prevailing throughout the period. The effects of unrealized exchange rate fluctuations on translating foreign currency assets and liabilities into U.S. dollars are accumulated as the translation adjustment in shareholders' equity. Realized gains and losses from foreign currency transactions, if any, are included in net earnings of the period.

Earnings Per Share - The Company computes earnings per share in accordance with the provisions of SFAS No. 128, Earnings per share, which establishes standards for computing and presenting basic and diluted earnings per share. Basic earnings per share is computed by dividing net earnings available to common shareholders by the weighted average number of shares outstanding during the period. Diluted earnings per share is computed assuming the exercise of stock options under the treasury stock method and the related income taxes effects, if not anti-dilutive. For loss periods common share equivalents are excluded from the calculation, as their effect would be anti- dilutive. See Note 11 Earnings per share computation of basic and diluted number of shares.

Reclassifications - Certain items in the accompanying consolidated financial statements for the years ended December 31, 2007 have been reclassified to conform to the 2008 presentation.

                               2008            2007
                               ----            ----
Raw materials               $3,254,212      $3,247,359
Finished goods               3,541,908       2,821,861
                            -----------     -----------
                             6,796,120       6,069,220
Inventory reserves          (  231,211)     (   75,563)
                            -----------     -----------
Inventory, net              $6,564,909      $5,993,657
                            ===========     ===========

At December 31, 2008 and 2007 and for the years then ended, approximately $231,000 and $76,000 respectively is reflected in the accompanying consolidated financial statements as a reserve for slow moving inventory.

The Company implemented a program with one of its customers to alter the manner in which it transacts business. The Company manages the inventory levels at this customer's warehouses and will be paid as the products are sold by such customer. This program was initiated in the 3rd quarter 2008 and was fully implemented in November 2008. The total sales credit issued initially to the customer was approximately $300,000. The inventories managed at this customer's warehouses amounted to approximately $146,000 at December 31, 2008.

                                         Estimated
                                         Useful Life           2008         2007
                                           Years
                                       -------------      -----------    ----------
Land                                                       $  278,325    $  278,325
Building                                 30 years           4,389,154     4,389,154
Manufacturing and warehouse equipment    6-20 years         6,592,558     6,367,884
Office equipment and furniture           3-5 years            525,734       509,496
Construction in process                                        71,929        21,079
Leasehold improvement                    10-15 years          122,644       122,644
                                                          -----------    -----------
                                                           11,980,344    11,688,582

Less accumulated depreciation                               6,199,949     5,452,770
                                                          -----------    -----------

Total property, plant and equipment, net                   $5,780,395    $6,235,812

Depreciation expense for the years ended December 31, 2008 and 2007, which includes amortization of capitalized lease assets, amounted to $787,460 and $785,064 respectively.

A substantial amount of the Company's assets are at its Kinpak facilities in Alabama. At December 31, 2008 and 2007 approximately $5,625,000 and $6,062,000 respectively of net property, plant, and equipment were at the Kinpak facilities.

During February 1996, the Company purchased the assets of Kinpak, Inc. In order to finance the expansion contemplated by the purchase, the Company entered into an agreement with the City of Montgomery, Alabama, to issue Industrial Development Bonds. The Alabama facility expansion consisted of an additional building, which was completed during October 1997, bringing the facility, at that time, to approximately 110,000 square feet. Such facility serves as the Company's primary manufacturing and distribution center.

During the year ended December 31, 2002, the Company entered into an agreement with the City of Montgomery to issue an additional series Industrial Development Bonds aggregating $3,500,000 to finance the construction of an additional 70,000 square feet of warehousing and manufacturing space and the related equipment requirements. Such project was substantially completed during 2003.

Management has considered the impact of the loss sustained for the years ended December 31, 2007 and 2008 in Kinpak in order to determine if a permanent impairment of value of these assets has been experienced. The underlying reasons for the loss are not viewed as permanent in nature and management does not believe that a permanent impairment has been realized. Accordingly, no adjustment has been made.

Obligations for future payments attributable to these capitalized leases are discussed in Note 5, below.

Note 4 - Note payable, bank:

The primary sources of our liquidity are our operations and short-term borrowings from Regions Bank pursuant to a revolving line of credit aggregating $6 million. During 2002, the Company secured a revolving line of credit, which provides a maximum of $6 million financing of working capital from the commercial bank providing the financing for the expansion discussed in Notes 3 and 5. The line carried interest based on the 30 day LIBOR rate plus 275 basis points (approximately 6.0% at December 31, 2007) payable monthly, and was collateralized by the Company's inventory, trade receivables, and intangible assets.

This financing matured on May 31, 2008, and was renewed for three years. Such line matures May 31, 2011, bears interest at the 30 Day LIBOR plus 250 basis points (approximately 3.6% at December 31, 2008) and is secured by our trade receivables, inventory, and intangible assets. The terms, including required financial covenants relating to maintaining minimum working capital levels, maintaining stipulated debt to tangible net worth and adhering to debt coverage ratios, and collaterals were substantially unchanged. We are required to maintain a minimum working capital of $1.5 million and meet certain other financial covenants during the term of the agreement. At December 31, 2008 and 2007 the Company was in compliance with all financial covenants of the loan agreement.

As of December 31, 2008 and 2007 the Company was obligated to its commercial lender under this arrangement in the amounts of $2,800,000 and $1,750,000 respectively. The average outstanding loan balances at the years ended December 31, 2008 and 2007 were approximately $2,415,000 and $2,380,000; interest incurred for the years ended December 31, 2008 and 2007 were approximately $121,000, and $170,000, respectively.

Note 5 - Long-term debt:

The Company is obligated pursuant to capital leases financed through Industrial Development Bonds. Such obligations were incurred during 1997 and 2002 in connection with building and equipment expansion at the Company's Alabama manufacturing and distribution facility. Both bear interest at tax-free rates that adjust weekly. At December 31, 2008, $1,105,000 and $2,720,000 were outstanding attributable to the 1997 and 2002 series, respectively. During the years ended December 31, 2008, and 2007, interest rates ranged between 1.5% and 8.6%, and 3.6% and 4.3% annually, respectively. At December 31, 2007, $1,445,000 and $2,840,000 were outstanding attributable to the 1997 and 2002 series, respectively. During the year ended December 31, 2007 interest rates ranged between 3.7% and 4.3%. Interest expense for 2008 and 2007 were approximately $138,000 and $184,000, respectively. Principal and accrued interest retiring the underlying bonds are payable quarterly through March 2012 and July 2017 for the 1997 and 2002 series, respectively.

Repayment of the bonds is guaranteed by a Letter of Credit issued by the Company's primary commercial bank. Security for the Letter of Credit is a priority first mortgage on the Kinpak facility and manufacturing equipment. On September 26th and October 6th, 2008 the Company was notified by its primary commercial bank, that both the 1997 and 2002 series bonds were being tendered. There has been no default on these bonds by the Company. It is the understanding of the Company that due to the tight credit markets, these bonds were tendered. As a result the Company has been temporarily obligated to its primary commercial bank, for a few weeks during the fourth quarter 2008, until the credit markets improved sufficiently to remarket these bonds. The interest rate on the loans during this period was prime rate plus 2% or 7%.

During 2008 and 2007, the Company, through its subsidiary, Kinpak Inc., was obligated pursuant to various capital lease agreements covering equipment utilized in the Company's Alabama plant. Such obligations, aggregating approximately $60,680 and $60,540 at December 31, 2008, and 2007 respectively, have varying maturities through 2012 and carry interest rates ranging from 7% to 12% for both years.

On April 12, 2005 the Company entered into a financing obligation with Regions Bank whereby the bank advanced the Company $500,000 to finance equipment acquisitions at the Kinpak facility. Such obligation is due in monthly installments of principal aggregating approximately $8,300 plus interest. The outstanding balance and interest rate on this obligation at December 31, 2008 and 2007 were approximately $133,000 and $233,000 respectively. Interest rate is calculated at LIBOR plus 2.5% per annum, respectively 3.6% at December 31, 2008 and 6.0% at December 31, 2007, through the maturity on April 15, 2010. Interest incurred for 2008 and 2007 was approximately $10,000 and $27,000 respectively.

The composition of these obligations at December 31, 2008 and 2007 were as follows:

                                        2008          2007           2008            2007
                                      --------      --------      ----------     ----------
Industrial Development Bonds          $460,000      $460,000      $3,365,000     $3,825,000
Notes payable                           99,996        99,996          33,352        133,348
Capitalized equipment leases            24,541        29,910          36,139         30,630
                                      --------      --------      ----------     ----------
                                      $584,537      $589,906      $3,434,491     $3,988,978

Required principal payment obligations attributable to the foregoing are tabulated below:

Year ending December 31,

2009               $  584,537
2010                  508,685
2011                  473,857
2012                  451,949
2013                  440,000
Thereafter          1,560,000
                   ----------
Total              $4,019,028
                   ==========

                                          2008          2007
                                        --------      --------
Income tax provision:
     Federal - current                  $291,132      $200,260
             - deferred                    -              -
     State                                 -              -
                                        --------      --------
     Total                              $291,132      $200,260
                                        ========      ========

The reconciliation of income tax provision at the statutory rate to the reported income tax expense is as follows:

                                                2008                  2007
                                       --------------------      -----------------
Income Taxes at statutory rate         $     151,317    34%      $   314,602   34%
Increase (reduction) in Income Taxes
  resulting from:
  Share based compensation                    50,276    11%          100,300   11%
  Change in deferred taxes and
    valuation allowance                      118,407    27%      (   382,237) (41%)
  Other - permanent adjustments -
    State Taxes                                  -                    50,892    6%
  Other - permanent adjustments               12,051     2%          116,703   13%
  Tax credits and prior year taxes     (      40,919)   (9%)              -
                                       --------------  -----     -----------  -----
                                       $     291,132    65%      $   200,260   22%
                                       ==============  =====     ===========  =====

For the year 2007 the Company used available tax loss carryovers available to offset current taxable income aggregating approximately none for federal taxes and approximately $218,000 for state tax purposes, expiring in various years through 2026.

The Company's deferred tax asset and liability accounts consisted of the following at December 31:

                                             2008            2007
                                       -------------      -----------
Deferred tax assets:
  Depreciation of property and
    equipment                          $         -        ($    9,666)
  Reserves for bad debts, inventory
    and other accruals                 (     203,710)     (    43,891)
  Net operating loss carryforwards               -        (    11,990)

Deferred tax liabilities:
  Depreciation of property and
    equipment                                199,643              -
                                       --------------     ------------
                                       (       4,067)     (    65,547)

Less Valuation Allowance                       4,067           65,547
                                       --------------     ------------
Net deferred taxes                     $         -        $       -
                                       ==============     ============

The Company has provided for a valuation allowance against the deferred tax asset, as there is no assurance that the company will generate future taxable income to derive benefit from all or a part of the deferred tax assets at the time when such tax assets would become current. The change in the valuation allowance was an increase of approximately $61,500 and a decrease of $382,200 in 2008 and 2007, respectively.

Note 7 - Related party transactions:

At December 31, 2008 and 2007, the Company had amounts receivable from and payable to affiliated companies, which are directly or beneficially owned by the Company's president, aggregating on a net basis to a receivable of approximately $911,000 and $109,000, respectively. Such amounts result from sales to the affiliates, allocations of management fees incurred by the Company on the affiliates' behalf, and funds advanced to or from the Company.

Sales to such affiliates were sold at cost of material and labor plus a profit covering manufacturing overhead costs. In addition, the affiliates are charged for their allocable share of administrative expenses of the Company. The sales and transfers to affiliates aggregated approximately $1,208,000 and $732,000 during the years ended December 31, 2008, and 2007, respectively; allocable administrative fees aggregated $275,000 and $333,000 respectively for such periods.

Such transactions were made in the ordinary course of business but were not made on substantially the same terms and conditions as those prevailing at the same time for comparable transactions with other customers. Management believes that the sales transactions did not involve more than normal credit risk or present other unfavorable features.

A subsidiary of ours currently uses the services of an entity that is owned by our president to conduct product research and development. Such entity received $30,000 per year during the years ended December 31, 2008 and 2007 under such relationship.

Mr. Kolisch, a Director of the Company, sources most of the Company's insurance needs at an arm's length competitive basis.

Note 8 - Commitments

On May 1, 1998, the Company entered into a ten year lease for approximately 12,700 square feet of office and warehouse facilities in Fort Lauderdale, Florida from an entity owned by certain officers of the Company. The lease required a minimum rental of 94,800 plus applicable taxes for the first year and provides for a maximum 2% increase on the anniversary of the lease throughout the term, which has been waived through December 31, 2007. Additionally, the landlord was entitled to its pro-rata share of all taxes, assessments, and any other expenses that arise from ownership.

On May 1, 2008, the Company renewed for ten years the existing lease with unchanged conditions. The lease still requires a minimum rental of $94,800 plus applicable taxes for the first year and provides for a maximum 2% increase on the anniversary of the lease throughout the term. Additionally, the landlord is entitled to reimbursement of all taxes, assessments, and any other expenses that arise from ownership. The landlord reserves the right under the agreement to review the terms of the lease at 3, 6 and 9 year intervals in order to make modifications for market conditions Total rent charged to operations during the years ended December 31, 2008, and 2007 amounted to approximately $100,500 each year.

The Company had entered into a corporate guaranty of a mortgage note obligation of such affiliate. The obligation aggregated approximately $274,000 at December 31, 2007, primarily secured by the real estate leased to the Company. The property was refinanced in the 2nd quarter 2008, without a corporate guaranty.

The following is a schedule of minimum future rentals on the non- cancelable operating leases.

Twelve month period ending December 31,

2009         $101,828
2010          103,864
2011          105,942
2012          108,061
2013          110,222
Thereafter    503,407
           -----------
           $1,033,324

Note 9 - Stock options:

During 1992, the Company adopted an incentive stock option plan covering 200,000 shares of its common stock.

During 1994, the Company adopted a non-qualified employee stock option plan covering 400,000 shares of its common stock (this plan has expired and no further awards can be made under its provisions).

During 2002, the Company adopted a qualified employee incentive stock option plan and a non-qualified stock option plan covering 400,000 and 200,000 shares of its common stock, respectively.

During 2007, the Company adopted a qualified employee stock option plan covering 400,000 shares of its common stock.

During 2008, the Company adopted a qualified employee incentive stock option plan and a non-qualified stock option plan covering 400,000 and 200,000 shares of its common stock, respectively.

The following schedules reflect the status of outstanding options under the Company's four stock option qualified and non-qualified plans as of December 31, 2008, and 2007.

Year-end December 31, 2008:
              Date          Options      Exercisable   Exercise     Expiration       Wt. Av.
    Plan      granted      outstanding     options       price         date       remaining life
 --------    ----------    ----------    -----------  --------     -------------- --------------
 Non Plan    03/25/1999       231,000       231,000      0.76         03/24/2009          -
     1994    10/26/2004       154,500       131,325      1.05         10/25/2009         .8
     2002    03/02/2004       137,000       130,150      1.62         03/01/2009         .2
     2002    11/06/2006       133,000        53,200      0.93         11/08/2011        2.9
     2007    05/17/2007       162,500        44,250      1.66         05/16/2012        4.1
     2007    10/08/2007         2,000           400      1.87         10/07/2012        3.8
     2007    12/17/2007       156,500        30,700      1.32         12/16/2007        4.0
     2008    08/25/2008       159,500         -           .97         08/21/2013        4.6
   2002NQ    10/22/2002        35,000        35,000      1.26         10/22/2012        3.8
   2002NQ    06/20/2003        30,000        30,000      1.03         06/20/2013        4.5
   2002NQ    05/25/2004        40,000        40,000      1.46         05/25/2014        5.4
   2002NQ    04/03/2006        30,000        30,000      1.08         04/03/2016        7.3
   2002NQ    12/17/2007        50,000        50,000      1.32         12/16/2017        9.0
                            ---------      --------                                    ----
                            1,321,000       806,025                                     2.8
                            =========      ========                                    ====




Year-end December 31, 2007:
               Date          Options     Exercisable   Exercise   Expiration       Wt. Av.
    Plan      granted      outstanding     options       price       date      remaining life
 --------   ----------       -------    ------------  --------     ------------ --------------
 Non Plan   03/25/1999       231,000        231,000      0.76      03/24/2009        1.2
     1994   10/26/2004       154,500         92,700      1.05      10/25/2009        1.8
     2002   03/02/2004       137,000         82,200      1.62      03/01/2009        1.2
     2002   11/06/2006       133,000         26,600      0.93      11/08/2011        3.9
     2007   05/17/2007       162,500          -          1.68      05/16/2012        4.4
     2007   10/08/2007         2,000          -          1.87      10/07/2012        4.8
     2007   12/17/2007       156,500          -          1.32      12/16/2007          5
   2002NQ   10/22/2002        35,000         35,000      1.26      10/22/2012        4.8
   2002NQ   06/20/2003        30,000         30,000      1.03      06/20/2013        5.5
   2002NQ   05/25/2004        40,000         40,000      1.46      05/25/2014        6.4
   2002NQ   04/03/2006        30,000         30,000      1.08      04/03/2016        8.3
   2002NQ   12/17/2007        50,000         50,000      1.32      12/16/2017         10
                           ---------       --------                                 ----
                           1,161,500        617,500                                  3.5
                           =========       ========                                 ====

In addition to the foregoing, on March 25, 1999, the Company granted two officers a five-year option for 115,500 shares each, as adjusted for the Company's stock dividend distributions of 2000 and 2002, at an exercise price of $.758 representing the market price at the time of grant. Such grants were awarded in consideration of a loan to the Company in the amount of $400,000 from an affiliated company in which they are each 50% co-shareholders. During 2004, the underlying loan was modified to extend the maturity date and, accordingly, the options were extended for an additional five years expiring March 25, 2009.

As of December 31, 2008, the number of options outstanding and the number of shares available for grant under each Stock Options qualified and non-qualified plan options is presented below:

                                          Options Available
Plan              Options Outstanding         for Grant
----------         ---------------         --------------
 NON-PLAN:          231,000 shares           N/A
 1994 PLAN          154,500 shares           None
 2002 PLAN          270,000 shares           None
 2007 PLAN          321,000 shares          79,000 shares
 2008 PLAN          159,500 shares         240,500 shares
 2002 PLAN NQ       185,000 shares           None
 2008 PLAN NQ          None                200,000 shares
                  ----------------         --------------
 Total            1,321,000 shares         519,500 shares
                  ================         ==============

A summary of the Company's stock options as of December 31, 2008, and 2007, and changes during the years ending on these dates, is presented below:

                                    2008                        2007
                              Shares   Weighted Average     Shares  Weighted Average
                                       Exercise Price               Exercise Price
                           ----------  ----------------   ---------  ---------------
Options outstanding
beginning of the year         930,500      $1.31            714,500     $1.22

Options granted               159,500       0.97            373,000      0.97
Options exercised                   -          -           -145,000         -
Options forfeited or expired        -          -            -12,000         -

Options outstanding at     ----------     ------         ----------    ------
end of the year             1,090,000      1.26             930,500      1.31

Non Plan Options              231,000      0.76             231,000      0.76
                           ----------     ------         ----------    -------
               Totals       1,321,000      $1.17          1,161,500     $1.05
                           ==========     ======         ==========    =======

Stock options are granted annually to selective executives, key employees, directors and others pursuant to the terms of the Company's various plans. Such grants are made at the discretion of the Board of Directors. Qualified options typically have a five-year life with vesting occurring at 20% per year on a cumulative basis with forfeiture at the end of the option, if not exercised. Non qualified options granted to outside Directors have a 10 year life and are immediately exercisable. Compensation cost recognized during the year ended December 31, 2008 and 2007 attributable to stock options amounted to approximately $130,500 and $147,000, respectively.

The fair value of each option grant was estimated using the Black-Scholes option pricing model with the following assumptions for the years 2008 and 2007; risk free rate ranging from 3.57% to 4.88%, no dividend yield for all years, expected life from three years to five years and volatility of approximately 100.0% to 108.0%.

As of December 31, 2008, and 2007 there was approximately $389,732 and $241,672 of unrecognized compensation cost related to unvested share based compensation arrangements. That cost will be charged against operations as the respective options vest through December, 2013.

Note 10 - Major customers

The Company has one major customer, West Marine, Inc., with sales in excess of 10% of consolidated net revenue for the years ended December 31, 2008 and 2007. Sales to this customer represented approximately 38%, and 43% of consolidated net revenues for such periods, respectively.

The Company's top five customers represented approximately 58% and 51%, of consolidated net revenues for the years ended December 31, 2008 and 2007 and 32% and 44% of consolidated trade receivables for the years ended December 31, 2008 and 2007 at the balance sheet date for the years then ended, respectively. The Company enjoys good relations with these customers. However, the loss of any of these customers could have an adverse impact on the Company's operations (see note 14). The Company has included in the consolidated balance sheet as of December 31, 2008 an additional allowance for doubtful accounts aggregating approximately $69,000 to reflect risks related to bankruptcy filings occurred in 2009 before this filing. The recession is expected to increase the Company's risk related to sales and collection of accounts receivable. At the time of this filing we have incurred in 2009 one customer filing for bankruptcy (Boater's World), representing a maximum risk of loss on unrecoverable receivables of approximately $210 thousand in total, approximately $69 thousand related to December 31, 2008 receivables, and 2008 sales of approximately $672 thousand.

Note 11 - Earnings per share:

Earnings per share are reported pursuant to the provisions of Statement of Financial Standards No. 128. Accordingly, basic earnings per share reflects the weighted average number of shares outstanding during the year, and diluted shares adjusts that figure by the additional hypothetical shares that would be outstanding if all exercisable outstanding common stock equivalents with an exercise price below the current market value of the underlying stock were exercised. Common stock equivalents consist of stock options and warrants. The following tabulation reflects the number of shares utilized to determine basic and diluted earnings per share for the years ended December 31, 2008 and 2007:

                                                 2008          2007
                                               ---------     ---------
Basic weighted-average common shares
outstanding                                    7,814,466     7,690,191

Dilutive effect of stock plans, other
options & conversion rights                          -       1,136,068
                                               ---------     ---------
Dilutive weighted-average shares outstanding   7,814,466     8,826,259
                                               =========     =========

Note 12 - Shareholders' equity:

During the years ended December 31, 2008 and 2007 the Company granted 15,000 and 105,500 shares of restricted common stock, respectively to certain executives, key employees and others as a component of annual compensation. Charges to operations attributable to such awards aggregated approximately $17,400 and $148,000 for each period, respectively.

During October 2007 certain employees of the Company exercised stock options scheduled to expire during the respective current year covering 145,000 shares of its common stock respectively. The aggregate exercise price of such transactions amounted to approximately $191,000 and is reflected in the accompanying financial statements as common stock and additional paid-in capital.

Compensation costs recognized during the years ended December 31, 2008 and 2007 attributable to stock options amounted to $130,472 and $146,984, respectively and is reflected in the accompanying financial statements as increase in additional paid-in capital.

In 2007, the Company made certain revisions in the valuation of stock option grants that vested in 2006. The revised valuation resulted in an increase in compensation expense of $40,200, reflected in the accompanying financial statements as 2007 increase in additional paid-in capital.

In accordance with the requirements of SAB No. 108, the Company has recorded an adjustment in the amount of $70,200 decreasing opening retained earnings balance as of January 1, 2007 in the accompanying consolidated financial statements, to correct errors in the accounting of share-based compensation and contingent legal liabilities in 2006.

Note 13 - Restatements to the Consolidated Financial Statements

Year ended December 31, 2007: the Company adopted SEC Staff Accounting Bulletin No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" (SAB No. 108), effective January 1, 2007. In accordance with the requirements of SAB No. 108, the Company has recorded an adjustment in the amount of $70,200 to the opening retained earnings balance as of January 1, 2007 in the accompanying consolidated financial statements, to correct errors in the accounting of share-based compensation and contingent legal liabilities in 2006.

In 2007, the Company made certain revisions in the valuation of stock option grants that vested in 2006. The revised valuation resulted in an increase in compensation expense of $40,200 for 2006. Also in 2007, the Company discovered that a liability in the amount of $30,000 for legal costs incurred in 2006 should have been recorded as of December 31, 2006 under the criteria of Statement of Financial Accounting Standards No. 5. There was no corporate tax effect for the adjustments due to the Company's tax position in 2006.

The cumulative effect of the adjustment above on the opening balances of the balance sheet is as follows, as of January 1, 2007:

                                                          Liabilities and
                                                           Shareholders'
                                         Assets               Equity
                                       -------------      ----------------
Balance Sheet accounts, as
adjusted Increase (Decrease)           $      -           $       -

 Retained earnings   -                                             70,472
 Additional Paid in Capital                               (        40,200)
 Accrued Liabilities                                      (        30,272)
                                       -------------      ----------------
                                       $      -           $       -
      Total                            =============      ================