Management Overview

We believe that we are one of the largest wholesale distributors of replacement parts, accessories and supplies for recreational vehicles ("RVs"), and boats in North America. We supply more than 14,000 products and serve more than 12,000 customers throughout the United States and Canada, from 13 regional distribution centers in the United States and 4 regional distribution centers in Canada. Our sales are made primarily to retail parts and supplies stores, service and repair establishments and new and used RV and boat dealers ("After-Market Customers"). Our sales are affected primarily by (i) usage of RVs and boats by the consumers to whom After-Market Customers sell our products, because such usage affects the consumers' needs for an purchases of replacement parts, repair services and supplies, and (ii) sales of new RVs and boats, because consumers often "accessorize" their RVs and boats at the time of purchase.

Factors Generally Affecting Sales of RV and Boating Products

The usage and the purchase, by consumers, of RVs and boats depend, in large measure, upon the extent of discretionary income and credit available to consumers, the availability and prices of gasoline, prevailing interest rates and their confidence about economic conditions. As a result, recessionary conditions, a tightening of available credit or increases in prevailing interests rates and increases in gasoline prices often lead to declines in the purchase and, to a somewhat lesser extent, in the usage, of RVs and boats, because these conditions increase the consumers' costs of purchasing, and the costs and difficulties of using, their RVs and boats. Weather conditions also can affect our operating results, because unusually severe or extended winter weather conditions can reduce the usage of RVs and boats for periods extending beyond the ordinary winter months or to regions that ordinarily encounter milder winter weather conditions and can cause period-to-period fluctuations in our sales and financial performance. As a result, our sales and operating results can be, and in the past have been, affected by recessionary economic conditions, shortages in the supply or increases in the prices of gasoline, tightening in the availability of credit to consumers, increases in interest rates, and unusually adverse weather conditions. A combination of worsening economic conditions, increases in the prices of gasoline, and a tightening of consumer credit resulted in a significant decline in consumer confidence and adversely affected our operating results in fiscal 2008.

Overview of Operating Results -Three and Nine Months Ended September 30, 2008 vs. Three and Nine Months Ended September 30, 2007

Set forth below is financial data that provides a comparison of our results of operations for the three and nine months ended September 30, 2008 to the results of operations for the same respective periods of 2007. The data is presented in thousands of dollars (except for per share data).

                                                           Three Months Ended              Nine Months Ended
                                                             September 30,                    September30,
                                                         2008               2007           2008          2007
                                                          (Dollars in thousands, except per share amounts)
Net Sales                                           $       34,638       $    43,173    $  115,368     $ 137,638
Gross profit                                                 6,197             8,416        22,935        26,333
Selling, general and administrative expenses                 6,808             6,582        21,305        21,809
Operating income (loss)                                       (611 )           1,834         1,630         4,524
Earnings (loss) before income taxes                           (901 )           1,344           193         2,699
Income tax provision (benefit)                                (611 )             510          (228 )         992
Net earnings (loss)                                           (290 )             834           421         1,707
Net earnings (loss) per common share -diluted       $        (0.07 )     $      0.18    $     0.09     $    0.38

The operating and net losses, and the net loss per diluted share, in the three months ended September 30, 2008, and the declines in operating income and net earnings and net earnings per diluted share in the nine months ended September 30, 2008, were primarily attributable to a substantial decline in purchases and in the usage by consumers of RVs and boats which, in turn, led to declines in the demand for the products we sell. We believe that these declines were primarily due to increases in the price of gasoline to record levels, a worsening of economic conditions and a

tightening in the availability of consumer credit for purchases of RVs and boats, which has led to declines in consumer confidence and discretionary income.

Critical Accounting Policies and Estimates

General

In accordance with accounting principles generally accepted in the United States of America ("GAAP"), we record most of our assets at the lower of cost or fair value. In the case of some of our assets, principally accounts receivable, inventories and deferred income taxes, we make adjustments to their cost or fair values to arrive at what we expect to be able to collect on outstanding accounts receivables, the amounts for which we expect to be able to sell our inventories and the amounts of available tax deductions that we will be able to use to reduce our future income tax liability. Those adjustments are made on the basis of a number of different factors, including judgments or assumptions we make regarding economic and market conditions and trends and their impact on our financial performance, and those judgments and assumptions are, in turn, based on current information available to us. If those trends or conditions were to change in ways that we did not expect, then based on our assessment of how those changes will affect the prospects for realizing the values at which we have recorded these assets, we may be required, pursuant to GAAP, to further adjust the carrying values at which we record these assets for financial reporting purposes. Any resulting downward adjustments are commonly referred to as "write-downs" of the assets affected by the changed conditions.

It is our practice to establish reserves or allowances against which we are able to charge any downward adjustments or "write-downs" to those assets. Examples include an allowance established for uncollectible accounts receivable (sometimes referred to as "bad debt reserves") and an allowance for inventory obsolescence. The amounts at which those allowances are established and maintained are based on our historical experience and also on our assumptions and judgments about economic or market conditions or trends or any other factors that could affect the values at which we had recorded such assets. Those allowances are periodically increased to replenish the allowances following write-downs of uncollectible accounts or to take account of increased risks due to changes in economic or market conditions or trends. Increases in the allowances are effectuated by charges to income or increases in expense in our statements of operations in the periods when those allowances are increased. As a result, our judgments or assumptions about market or economic conditions or trends and about their effects on our financial performance can and will affect not only the amounts at which we record these assets on our balance sheet, but also our results of operations.

The decisions as to the timing of (i) adjustments or write-downs of this nature and (ii) the increases we make to our reserves, also require subjective evaluations or assessments about the effects and duration of changes in economic or market conditions or trends. For example, it is difficult to predict whether events or changes in economic or market conditions, such as increasing gasoline prices or interest rates or economic slowdowns, will be of short or long-term duration, and it is not uncommon for it to take some time after the onset of such changes, for their full effects on our business to be recognized. Therefore, management makes such estimates based upon the information available at that time and reevaluates and adjusts its reserves and allowances for potential write-downs on a quarterly basis.

Under GAAP, most businesses also must make estimates or judgments regarding the periods during which sales are recorded and also the amounts at which they are recorded. Those estimates and judgments will depend on such factors as the steps or actions that a business must take to complete a sale of products or to perform services for a customer and the circumstances under which a customer would be entitled to return the products or reject or adjust the payment for services rendered to it. Additionally, in the case of a business that grants its customers contractual rights to return products sold to them, GAAP requires that a reserve or allowance be established for product returns by means of a reduction in the amount at which its sales are recorded, based primarily on the nature, extensiveness and duration of those rights and its historical return experience.

In making our estimates and assumptions we follow GAAP and accounting practices applicable to our business that we believe will enable us to make fair and consistent estimates of the carrying value of those assets and to establish adequate reserves or allowances for downward adjustments in those values that we may have to make in future periods.

Critical Accounting Policies

Set forth below is a summary of the accounting policies that we believe are material to an understanding of our financial condition and the results of operations that are discussed below.

Revenue Recognition and the Allowance for Product Returns. We recognize revenue from the sale of a product upon its shipment to the customer. Shipping and handling costs that are billed to our customers are included in revenue in accordance with EITF No. 00-10. We provide our customers with limited rights to return products that we sell to them. We establish an allowance for potential returns which reduces the amounts of our reported sales. We estimate the allowanced based on historical experience with returns of like products and current economic and market conditions and trends, which can affect the level at which customers submit product returns.

Accounts Receivable and the Allowance for Doubtful Accounts.In the normal course of business we extend 30 day payment terms to our customers and, due to the seasonality of our business, during late fall and winter we grant payment terms of longer duration to those of our customers that have good credit records. We regularly review our customers' accounts and estimate the amount of, and establish an allowance for, uncollectible accounts receivables in each reporting period. The amount of the allowance is based on several factors, including the age of unpaid amounts, a review of significant past due accounts, and current economic and market trends that can affect the ability of our customers to keep their accounts current. Estimates of uncollectible amounts are reviewed periodically to determine if the allowance should be increased, and any increases are recorded in the accounting period in which the events or circumstances that require such increases become known. For example, if the financial condition of customers or economic or market conditions were to deteriorate, adversely affecting their ability to make payments to us on a timely basis, increases in the allowance may be required. Since the allowance is increased or replenished by recording a charge which is included in, and has the effect of increasing, selling, general and administrative expenses, an increase in the allowance will reduce income in the period when the increase is recorded.

Inventory and Reserve for Excess and Obsolete Inventory. We are a wholesale distributor, and not a manufacturer of products and, therefore, all of our inventory consist of finished good. Inventories are valued at the lower of cost (first-in, first-out) or net realizable value and that value is reduced by an allowance for excess and slowing-moving or obsolete inventories. The amount of the allowance is determined on the basis of historical experience with different product lines, estimates or assumptions concerning future economic and market conditions and estimates of future sales. If there is an economic downtown or a decline in sales, causing inventories of some product lines to accumulate, it may become necessary to increase the allowance. Other factors that can require increases in the allowance or inventory write downs are reductions in pricing or introduction of new or competitive products by manufacturers, however, due to the relative maturity of the markets in which the company operates, usually theses are not significant factors. Increases in this allowance also will cause a decline in operating results as such increases are effectuated by charges against income. At September 30, 2008 and December 31, 2007, our reserve for excess and obsolete inventory was $1,795,000 and $2,570,000, respectively.

Allowance for Deferred Income Taxes. We record as a "deferred tax asset" on our balance sheet tax deductions that can be applied in future periods to offset or reduce our future income tax liability. At September 30, 2008, the aggregate amount of that deferred tax asset was approximately $2.3 million. Under applicable federal and state income tax laws and regulations, tax deductions will expire if not used within specified periods of time. Accordingly, the ability to use this deferred tax asset depends on the taxable income that we are able to generate during those time periods. We have made a judgment, based on historical experience and current and anticipated market and economic conditions and trends, that it is more likely than not that we will be able to generate taxable income in future years sufficient to fully use the deferred tax asset that is recorded in our financial statements However, if due to future events or circumstances, such as an economic downturn that might adversely affect our operating results, we subsequently come to a different conclusion regarding our ability to fully utilize this asset, we would create a valuation allowance in order to reduce the amount at which we record the deferred tax asset. The creation of such an allowance would be effectuated by an increase in the provision (or a reduction in the credit) for income taxes in our statement of income, which would have the effect of reducing our income in the fiscal period in which such provision is recorded. We have determined that, as of September 30, 2008, no valuation allowance was required.

Long-lived Assets. Long-lived assets are reviewed for possible impairment at least annually or if and when events or changes in circumstances indicate that the carrying value of those assets may not be recoverable in full, based on standards established by SFAS No. 142, by comparing the fair value of the long-lived asset to its carrying amount.

Foreign Currency Translation. The financial position and results of operations of our foreign subsidiaries are measured using local currency as the functional currency. Assets and liabilities of each foreign subsidiary are translated into U.S. dollars at the rate of exchange in effect at then end of each reporting period. Revenues and expenses are translated into U.S. dollars at the average exchange rate for the reporting period. Foreign currency translation gains and losses not impacting cash flows are credited to or charged against other comprehensive earnings. Foreign currency translation gains and losses arising from cash transactions are credited to or charged against current earnings.

Stock Based Compensation. We adopted the provisions of Financial Accounting Standards Board Statement ("SFAS") No. 123R, Share-Based Payment ("SFAS 123R") effective on January 1, 2006. SFAS 123R established standards in accounting for transactions in which an entity exchanges its equity instruments for goods or services, such as the options issued under the Company's Equity Incentive Plan. SFAS 123R provides for, and we elected to adopt, the modified prospective method for applying SFAS 123R. Under that method, we began recognizing compensation costs on January 1, 2006 for the fair value of (i) all share based award grants made on or after such date and (ii) the portion of pre-existing awards for which the requisite service had not been rendered as of January 1, 2006, in each case based on the grant-date fair value of those awards calculated under SFAS 123R for pro forma disclosures.

Warranty Costs. We generally do not independently warrant the products that we distribute. Instead, in almost all cases, the manufacturers of the products that we distribute warrant the products and allow us to return defective products, including those that have been returned to us by our customers. However, we began selling a line of portable and standby generators under a product supply arrangement which obligates us to provide warranty services for these products and to share the costs of providing those services with the manufacturer. The duration of the warranty for these products is a period of 24 months following the sale of the product to a retail customer. We established a reserve for possible warranty claims on these products, the amounts of which were approximately $555,000 at September 30, 2008 and $553,000 at December 31, 2007. In the event that the assumptions and estimates on which the amount of the reserve was determined later prove to be incorrect due to increases in the number or the dollar amounts of the warranty claims we receive, it could become necessary for us to increase the reserve by means of a charge to our income. Increases in sales of these products in the future also may require us to increase our warranty reserve.

Results of Operations

Net Sales



          Three Months Ended September 30,       Nine Months Ended September 30,
              Amounts            % Change            Amounts           % Change
          2008        2007     2008 vs. 2007     2008       2007     2008 vs. 2007
                                       (Unaudited)

The decreases in net sales during the three and nine months ended September 30, 2008 were due primarily to a continuing slowdown in purchases and usage for RVs and boats and, therefore, also in purchases of the products we sell. That slowdown, we believe, was primarily attributable to a further downturn in the economy, a tightening in the availability of consumer credit needed to purchase RVs and boats, and record-high gasoline prices, all of which led to declines in consumer confidence and discretionary spending in both the three and nine months ended September 30, 2008.

Gross Margin



                                  Three Months                 Nine Months
                              Ended September 30,          Ended September 30,
                               2008           2007          2008           2007
                                               (In thousands)
             Gross Profit   $    6,197       $ 8,416     $    22,935     $ 26,333
             Gross Margin         17.9 %        19.5 %          19.9 %       19.1 %

Gross profit is calculated by subtracting the cost of products sold from net sales. Cost of products sold consists primarily of the amounts paid to manufacturers and suppliers for the products that we purchase for resale, inbound freight charges, merchandise receiving, handling and storage costs, and out-bound freight charges. Gross margin is gross profit stated as a percentage of net sales.

As the table above indicates, in the quarter ended September 30, 2008 our gross margin declined as compared to the same quarter months of 2007. That decrease was primarily due to the effect of fixed warehouse costs on reduced sales levels and higher out-bound freight costs. On the other hand, in the nine months ended September 30, 2008, our gross margin increased as compared to the same nine months of 2007. That increase was due primarily to (i) prices increases implemented on selected products, (ii) the strengthening of the Canadian dollar, which enabled our Canadian subsidiary, which purchases products from suppliers in the Untied States, to improve its margins, and (iii) a change in the mix of products sold to a greater proportion of higher-margin products sourced from Asia. These factors more than offset the effect on our gross margin of increase in freight and warehouse costs in the nine months ended September 30, 2008.

Selling, General and Administrative Expenses



                                                      Three Months                   Nine Months
                                                  Ended September 30,            Ended September 30,
                                                   2008           2007           2008            2007
                                                                    (In thousands)
Selling, general and administrative expenses    $    6,808       $ 6,582      $    21,305      $ 21,809
As a percentage of net sales                          19.6 %        15.2 %           18.5 %        15.8 %

Selling, general and administrative ("SG&A") expenses consist primarily of selling and marketing costs, administrative labor and other administrative expenses, professional fees, insurance premiums, provisions made for uncollectible accounts and stock based compensation expense. SG&A expenses, expressed as a percentage of net sales, increased in both the three and nine month periods ended September 30, 2008 primarily as a result of the decline in net sales in each of those periods. In absolute dollars, SG&A expenses increased by $226,000 or 3.4% in the three months ended September 30, 2008, due primarily to (i) provisions made, in the third quarter of 2008, to increase the allowance for uncollectible accounts in response to worsening economic and market conditions that have increased the risk of customer payment defaults, and (ii) the incurrence of cancellation fees as a result of a decision by the Company to cancel its annual dealer trade show, scheduled for February 2009, in order to reduce trade show related selling and marketing expenses that would otherwise have to be incurred in the fourth quarter of 2008 and the first quarter of 2009. The decision to cancel the dealer trade show was made in furtherance of the Company's objective to bring costs more into line with revenues. However, in its place, the Company will be conducting a "virtual" online dealer trade show in the first quarter of 2009. In the nine months ended September 30, 2008, SG&A expenses decreased, in absolute dollars, by $504,000 or 2.3%, as compared to the same nine months of 2007, due primarily to cost reductions implemented during the first six months of 2008, which more than offset the increase in SG&A expenses in this year's third quarter.

Other Expense

Other expense consists primarily of interest expense that we incur on borrowings
and, to a lesser extent, foreign currency gains or losses and gains or losses on
disposal of assets.



                                          Three Months                 Nine Months
                                      Ended September 30,          Ended September 30,
                                       2008           2007          2008           2007
                                                       (In thousands)
     Other Income (Expense)
     Interest income (expense)      $     (323 )     $  (485 )   $    (1,182 )   $ (1,723 )
     Interest income (expense)              33            (5 )          (255 )       (102 )

     Total                          $     (290 )     $  (490 )   $    (1,437 )   $ (1,825 )
     As a percentage of net sales          0.8 %         1.1 %           1.3 %        1.3 %

The decreases in other expense in the three months and nine months ended September 30, 2008, as compared to the same respective periods of 2008, were primarily the result of reductions in our average outstanding borrowings and a decrease in the average rate of interest charged on borrowings under our bank line of credit during the first nine months of this year, as compared to the same period last year. The interest rate on our bank borrowings is tied to market rates of interest and the decrease in that interest rate was due to a decline in market rates of interest that were primarily attributable to interest rate reductions implemented by the Board of Governors of the Federal Reserve System in an effort to head off the downturn in the economy and increase the availability of credit. The increase in other expense to $255,000 in the nine months ended September 30, 2008 was primarily due to a foreign currency exchange loss and, to a lesser extent, a loss on the disposal of software, in that nine month period.

Income Tax Provision (Benefit)



                                           Three Months                 Nine Months
                                       Ended September 30,          Ended September 30,

The amount of income tax that we pay is affected primarily by the amount of our expenses that are not deductible for income tax purposes and by the fact that income generated by our foreign subsidiaries is subject to varying rates of tax that differ from the tax rate that determines our U.S. income taxes. The income tax benefits of $611,000 and $228,000 for the three and nine months ended September 30, 2008, respectively, were primarily attributable to a $319,000 California income tax credit we received, under a state jobs program, due to the relocation of one of our distribution centers to an area experiencing a relatively high rate of unemployment.

Financial Condition, Liquidity and Capital Resources

We finance our working capital requirements for our operations primarily with borrowings under a long-term revolving bank credit facility and internally generated funds. Under the terms of that revolving credit facility, which expires in May 2010, we may borrow up to the lesser of (i) $50,000,000 during the period from March through July, and from $40,000,000 during the period from August through February, of each year, or (ii) an amount equal to 80% of eligible accounts receivable and between 50% to 55% of eligible inventory. Interest on the revolving credit facility is payable at the bank's prime rate or, at the Company's option but subject to certain limitations, at the bank's LIBOR rate, plus 2.00 percent. Our revolving credit line agreement requires us to maintain certain financial covenants. At September 30, 2008 we were in compliance with all such covenants.

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