Results of Operations

NINE MONTHS YEAR-TO-DATE 2008 v. 2007

As a result of worldwide credit issues, we had been unable to liquidate our auction rate securities aggregating $3.9 million. However, due to a series of events, beginning in July and ending in November 2008, we have sold all $3.9 million auction rate securities at par value. Our next filing will show higher cash and cash equivalents, and no short-term investments, reflecting the liquidation of these securities.

On August 14, 2008 we acquired 100% of the common stock of Bowman Beauty and Barber Supply, Inc. ("Bowman"), a distributor in Wilmington, NC. We believe that this acquisition will prove to be a synergistic fit with our other operations since we already own another barber supply business, and another of our subsidiaries buys from some of the same vendors as the barber supply companies. We have already effected lower prices from some vendors as a result of improved, consolidated purchasing, and we anticipate that we will be able to continue this trend. We also have been able to selectively increase selling prices in our barber supply businesses. We anticipate that the acquisition of Bowman, despite being unprofitable prior to our ownership, will add to shareholder value going forward. In both the three-and nine-month periods ended September 30, 2008, the following results of Bowman have been included in our consolidated results:

              Revenue                                        $  410
              Cost of revenue                                   246
              Gross profit                                      164
              Selling, general and administrative expenses      131
              Operating income                                   33
              Interest expense                                    1
              Income before income taxes                     $   32

The following table sets forth the percentage year-to-year changes for the third quarter and the nine months ended September 30, 2008. The table exhibits the changes with and without the Bowman results.

Variances versus Prior Year              Third Qtr.                     Year-to-Date
(in thousands)                                  Excluding                       Excluding
                               As Reported      Bowman          As Reported     Bowman
Revenue                        $         (180 ) $        (590 ) $      (1,618 ) $      (2,028 )
Cost of revenue                          (111 )          (357 )        (1,210 )        (1,456 )
Gross profit                              (69 )          (233 )          (408 )          (572 )
Selling, general and
administrative expenses                   130              (1 )          (406 )          (537 )
Operating income               $         (199 ) $        (232 ) $          (2 ) $         (35 )

Note that the increase in the Company's Selling, General and Administrative expenses in the third quarter was due to the normal operating expenses associated with the Bowman operations from August 14 until September 30, 2008.

Operating income for the first nine months of 2008 approximated that in the comparable period of 2007.

While revenue decreased approximately 10.0%, the percentage gross margin improved and operating expenses were lower than those in the comparable period of the prior year. Revenue in 2008 included $0.4 million related to Bowman Beauty and Barber Supply, Inc.("Bowman"), acquired on August 14, 2008.

On a pro forma basis, assuming that the acquisition of Bowman had occurred at January 1, 2008 and 2007, revenue would have declined approximately 13.0% in the nine-month period ended September 30, 2008 compared to the comparable period in 2007.

Revenue in the Distributors Segment, which accounted for approximately 76% of total revenue in the nine-month period ended September 30, 2008, held steady relative to the same period in 2007. Revenue in the Brands Segment decreased by 32.0% as this smaller segment is more vulnerable to current economic conditions experienced by a majority of retailers nationwide. The Brands segment contains sales largely to people most impacted by the current economic conditions in the U.S. This trend could continue until the economy recovers. Additionally, sales of amenity items in the Brands Segment declined due to shortfalls in sales to a major hotel.

Operating results in both the Brands and the Distributors Segments were comparable from year-to-year. Segment operating results are affected by overhead allocations that are based on revenue contributed by each segment. The Distributors Segment showed an operating loss principally because we allocate corporate overhead to our segments based on revenue. Consequently a larger share of corporate overhead was charged to the Distributors segment compared to the Brands Segment. Bowman's operating results were not significant in the nine-month period of either year.

Our selling, general and administrative expenses declined 6.0%, due to reductions in payroll and related costs, professional fees, insurance and a continued focus on cost reduction in all areas; these cost reductions, combined with higher gross margins, accounted for savings which offset the effect of the volume shortfall.

We anticipate that the continuing slowdown of the U.S. economy will affect our business adversely in the future. Revenue is likely to decline from 2007 levels and profitability may be impacted adversely. We also anticipate that cost increases on items purchased from the Far East, principally for our Distributors Segment, will continue to put pressure on margins. China's elimination of its tax credit for business has contributed to higher costs for us. Cost increases have also resulted from oil-based products such as plastic and from fuel surcharges.

THIRD QUARTER 2008 v. 2007

Revenue declined 3.0% from the comparable period in 2007; Bowman revenue was $0.4 million in 2008 and $-0- in 2007. Revenue in the Distributors Segment was 2.0% higher than that in the third quarter of 2007; revenue in the smaller Brands Segment was 19.0% less than that in the comparable period in 2007. The Brands Segment contains sales largely to people most impacted by the current economic conditions in the U.S.

On a pro forma basis, assuming that the acquisition of Bowman had occurred at July 1, 2008 and 2007, revenue would have declined approximately 11.0% in the three-month period ended September 30, 2008 compared to the comparable period in 2007.

Operating expenses were higher than those in the third quarter of 2007 primarily due to the acquisition of Bowman operations for the period from August 14, 2008 to September 30, 2008. These normal operating expenses approximated $130,000.

The increase in finished goods inventory in 2008 resulted primarily from seasonal inventory build up. Additionally, higher costs from the Far East and oil-related products in general contributed to the increase in inventory.

Restated 2007 interim financial statements

As disclosed in our Form 8-K and Form 10-QSB filings for various interim periods in 2007, a former manager misstated the results of operations at one our subsidiaries for the first six months of 2007. His actions resulted in the unintentional issuance of erroneous results by us for the first two quarters of 2007. We detected the results of the manager's actions and corrected the previously filed results in the third quarter Form 10-QSB for 2007. This subsidiary's corrected results are included in these financial statements. We amended originally reported revenue, net income and net income per share for the second quarter and year-to-date 2007. Relative to originally reported results in the second quarter of 2007, revenue, net income and net income per share were reduced by $242,000, $35,000 and $0.01 per share, respectively. Relative to originally reported results for the six months ended June 30, 2007, revenue, net income and net income per share were reduced by $504,000, $82,000 and $0.02 per share, respectively. The misstatements have been corrected and 2007 financial statements in this filing have been adjusted to the proper results.

Liquidity and Capital Resources

As of September 30, 2008, we had cash and cash equivalents of approximately $4.5 million; however, in the fourth quarter we liquidated $3.2 million of our short-term investments (auction rate securities) at par. Had this sale of securities occurred at the end of the third quarter, our cash and cash equivalents would have been $7.7 million at September 30, 2008.

Our long-term debt, net of restricted cash of $0.3 million, increased to $0.5 million due to debt issued and assumed in connection with the acquisition of Bowman.

Cash and cash equivalents declined by $0.5 million between December 31, 2007 and September 30, 2008. The decrease was due to 1) an outlay of $0.5 million in the third quarter related to the purchase of the stock of Bowman Beauty and Barber Supply, Inc. and 2) a temporary, seasonal increase in inventory principally in the Distributors segment. Offsetting these two items was an increase in cash of $0.8 million from the sale of short-term investments.

We have adequate liquidity and do not foresee the need for additional capital for day-to-day operations.

Our cash balance will vary with growth or decline in operating income and changes, if any, in dividends and non-cash working capital. Our cash flow will also benefit from the utilization of net operating loss carryforwards eliminating or reducing future federal income tax payments. At December 31, 2007, we had approximately $2.9 million (before taxes) of net operating loss carryforwards to offset future taxable income.

In 2004, we paid a dividend of $2.00, or about $9.0 million. This caused a significant, one-time, reduction in cash. Since 2004, cash and cash equivalents have grown steadily.

Cash is driven by operating income which we endeavor to manage by 1) keeping expenses low, 2) competitively bidding purchases and freight costs, 3) developing new products, 4) searching out new markets or expanding existing markets through new product offerings to existing customers, 5) updating technology in critical customer service areas, 6) reducing purchases by utilizing existing inventory when possible, 7) increasing selling prices to the extent possible and 8) centralizing administrative functions. Capital expenditures are generally not significant for daily operations.

As the overall economy expands and contracts, or as we gain or lose customers, our cash flow will vary because we have, especially in the Brands Segment, high variable gross margins, and an increase or decrease in this segment could be significant to overall results. We expect a softening of demand in 2008 due to deteriorating economic conditions and a possible reduction in operating income. Cash and cash equivalents may be adversely impacted by these events. Cash may also be used to acquire other related businesses.

We have no off-balance sheet financing arrangements.