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 12,000 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"). Ours sales to our Aftermarket Customers are affected primarily by (i) the usage of RVs and boats by the consumers, because such usage affects their need for and their purchases of replacement parts, repair services and supplies from our Aftermarket Customers, 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 available to them, their confidence about future economic conditions and the availability of credit that consumers often use to finance the purchase of RVs and boats, each of which can affect the willingness and ability of consumers to use and purchase RVs and boats. As a result, recessionary conditions or a tightening in the availability or increases in the costs of borrowings often lead consumers to reduce their purchases and, to a lesser extent, their usage, of RVs and boats and, therefore, their purchases of the products that we sell. Additionally, increase in the prices and shortages in the supply of gasoline can lead to declines in the usage and purchases of RVs and boats, because these conditions increase the costs and the difficulties of using 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.

These same conditions, in turn, affect the willingness and ability of Aftermarket Customers to purchase the products that we sell. If Aftermarket Customers lose confidence in future economic conditions or have difficulty obtaining or affording financing they use to fund their working capital requirements, they are more likely to reduce their purchases of the products we sell in order to reduce their inventories and their operating costs. By contrast, when the economy is strong and financing is readily available, Aftermarket Customers are more willing to increase their product purchases in order to be able to meet demand from consumers.

As a result, our sales and operating results can be, and in the past have been, affected by recessionary economic conditions, tightening in the availability and increases in the costs of consumer and business financing, shortages in the supply and increases in the prices of gasoline and unusually adverse weather conditions.

Overview of Operating Results - First Quarter 2009 vs. First Quarter 2008



                                                            Three Months Ended March 31,
                                                       2009             2008         2009 vs. 2008
                                                             Amounts                   % change
                                                      (Dollars in thousands,
                                                      except per share data)
Net sales                                          $     23,198       $  39,468              (41.2 )%
Gross profit                                              4,323           7,912              (45.5 )%
Selling, general and administrative expenses              5,536           8,198              (32.5 )%
Operating loss                                           (1,213 )          (286 )           (324.1 )%
Interest expense                                            140             402              (65.2 )%
Loss before income taxes                                 (1,276 )          (837 )            (52.5 )%
Income tax provision (benefit)                             (388 )            13                N/M
Net loss                                           $       (888 )     $    (850 )             (4.5 )%
Net loss per common share - basic and diluted      $      (0.20 )     $   (0.19 )             (5.3 )%

We generally incur losses in the first quarter of the year, primarily due to the seasonality of our business, as the purchase and usage of RVs and boats declines during the winter months. However, our results of operations in the quarter ended March 31, 2009 were impacted to a much greater extent by the economic recession and the credit crisis in the United States which reduced confidence in the economy among, discretionary spending by, and the availability of credit to consumers and our Aftermarket Customers who, due to these conditions, significantly reduced their purchases of the products we sell. As a result, as the above table indicates, net sales declined by $16.3 million, or 41.2%, in the first quarter of 2009 as compared to the same quarter of 2008, which predated the onset of the adverse effects of the economic recession and credit crisis. In anticipation of the effects that these conditions were likely to have on our net sales in the coming quarters, in the third quarter of 2008 we began implementing a cost reduction program designed to reduce our costs of sales and our selling, general and administrative (SG&A) expenses. As a result of that program, which included workforce reductions and reductions in compensation and in selling and other operating expenses, we were able to reduce our costs of sales by $12.7 million, or 40.2%, and our SG&A expenses by $2.7 million, or 32.5%, in the quarter ended March 31, 2009, as compared to the same quarter of 2008. However, those cost savings were not sufficient to fully offset the effects of the decline in net sales on our operating results. Consequently, we incurred an operating loss of $1.2 million, and a pretax loss of $1.3 million, in this year's first quarter, as compared to an operating loss of $286,000 and a pretax loss of $837,000 in the first quarter of 2008. However, our net loss for this year's first quarter increased only by $38,000, or 4.5%, to $888,000, or $0.20 per diluted share, from a net loss of $850,000, or $0.19 per diluted share, in the first quarter of 2008, as a result of an income tax benefit of $388,000 recorded for this year's first quarter, as compared to income tax expense of $13,000 in the same quarter of 2008.

Due to the impact of the recession and credit crisis on our business and results of operations, we plan to implement additional measures to further reduce our costs of sales and SG&A expenses during the remainder of 2009. Due to the inherent uncertainties about the ultimate severity and duration of the recession and credit crisis, however, it is not possible to predict, with any assurance, whether those measures will enable us to return the Company to profitability in the current year.

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 at which we expect to be able to sell our inventories and the amounts of available tax loss and tax credit carryforwards and 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 expected impact on our financial performance, and those judgments and assumptions are, in turn, based on current information available to us. If those conditions or trends 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 these 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 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 and 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.

Our 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 allowance 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 products for return.

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 sometimes 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 accounts receivable, 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.

Reserve for Excess, Slow-Moving and Obsolete Inventory. We are a wholesale distributor, and not a manufacturer of products and, therefore, all of our inventory consists of finished goods. 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 economic and market conditions and trends. If there is an economic downturn or a decline in sales, causing inventories of some product lines to accumulate, it may become necessary for us 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 we operate, usually these 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. Our reserves for excess and obsolete inventory were $2,145,000 and $2,359,000 at March 31, 2009 and 2008, respectively. That reduction in the amount of the inventory allowance was attributable to inventory reductions we made at our distribution centers in response to the decline in sales that has resulted from the economic recession and credit crisis.

Allowance for Deferred Income Taxes. We record as a "deferred tax asset" on our balance sheet an amount equal to the tax credit and tax loss carryforwards and tax deductions ("tax benefits") that are available to us to offset or reduce our income tax liability in future periods. Under applicable federal and state income tax laws and regulations, such tax benefits will expire if not used within specified periods of time. Accordingly, the ability to use our deferred tax asset depends on the taxable income that we generate during those time periods. At least once a year, we make estimates of future taxable income that we believe we are likely to generate during those future periods. If we conclude, on the basis of those estimates and the aggregate amount of the tax benefits available to us, that it is more likely than not that we will be able to fully utilize those tax benefits prior to their expiration, we recognize the deferred tax asset in full on our balance sheet. On the other hand, if we conclude on the basis of those estimates and the aggregate amount of the tax benefits available to us that it is more likely than not that we will be unable to utilize those tax benefits in their entirety prior to their expiration, then, we would establish (or increase any existing) valuation allowance to reduce the deferred tax asset on our balance sheet to the amount that we believe we will be able to utilize. That reduction is implemented by recognizing a non-cash charge that would have the effect of increasing the provision, or reducing any credit, for income taxes that would be recorded in our statement of operations. At March 31, 2009, the aggregate amount of our net deferred tax asset was approximately $3,350,000. There is no assurance, however, that we will be able to use this deferred tax asset in full as this will depend on the amount of taxable income we generate in future periods. As a result, it could become necessary for us to increase the valuation allowance in the future.

Long-Lived Assts and Intangible 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 the 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. This statement establishes accounting standards for recording in a company's financial statements transactions in which an entity exchanges its equity instruments for goods or services. In the case of the Company, SFAS 123R applies primarily to transaction in which we obtain employee services for share-based payments, such as stock option grants under our stock incentive plans. 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. Our stock option compensation expense for the three months ended March 31, 2009 and March 31, 2008, were $63,100 and $65,000, respectively.

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 sell 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 warranty reserves for these products of $395,000 and $542,000 at March 31, 2009 and 2008, respectively. 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 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

The following table sets forth and compares our net sales (in thousands of dollars) for the three months ended March 31, 2009 and 2008:

Three Months Ended March 31, Amounts % (Decrease) 2009 2008 2009 vs. 2008 $ 23,198 $39,468 (41.2)%

The decline in net sales during the first quarter of 2009 was due to an industry-wide slowdown in purchases and usage of RVs and boats. That slowdown was primarily attributable to the economic recession which resulted in declines in both discretionary income and in confidence regarding future economic conditions among consumers and Aftermarket Customers, and the credit crisis which has made it far more difficult for consumers to obtain consumer credit to finance their purchases of, and the costs of using, their RVs and boats, and for Aftermarket Customers to obtain business financing to fund their working capital requirements, which include purchases of the products we sell.

Gross Profit and Gross Margin

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 and warehouse and distribution costs, which include warehouse labor costs and freight charges. Gross margin is gross profits stated as a percentage of net sales.

The following table compares our gross profits and gross margin in the quarters ended March 31, 2009 and 2008.

                                         Three Months Ended
                                              March 31,
                                         2009             2008
                                       (Dollars in thousands)
                      Gross profit   $       4,323       $ 7,912
                      Gross margin            18.6 %        20.0 %

The decrease in our gross margin in the first quarter of 2009, as compared to the first quarter of 2008, was primarily due to the sharp decline in our net sales in this year's first quarter. As a result of that decline, as a percentage of net sales, our fixed warehouse costs increased, despite our implementation of a number of measures to reduce our costs of sales. Also contributing to the decrease in our gross profit and profit margin in the first quarter of 2009 was a weakening of the Canadian dollar, as compared to the U.S. dollar, in the fourth quarter of 2008 and the first quarter of 2009, which increased in the costs to our Canadian subsidiary of purchasing products from suppliers in the United States, from which it purchases most of its products.

The measures we took to reduce our costs of sales include (i) workforce reductions among, and reductions in the compensation being paid to, distribution center employees, (ii) the replacement of the Company's annual dealer show, that was to have been held in February 2009, with a much less costly on-line virtual dealer show, (iii) the introduction of additional lower-cost Coast branded products to increase our gross margin, (iv) reductions in freight costs, discounts and volume rebates, and (v) reductions in rent and square footage under lease at our distribution centers.

Selling, General and Administrative Expenses



                                                         Three Months Ended
                                                              March 31,
                                                         2009             2008
                                                       (Dollars in thousands)
      Selling, general and administrative expenses   $       5,536       $ 8,198
      As a percentage of net sales                            23.9 %        20.8 %

We were able to reduce our selling, general and administrative ("SG&A") expenses in absolute dollars in the quarter ended March 31, 2009 by $2,662,000, or 32.5%, as compared to the corresponding period of 2008, by reducing a number of such expenses, including compensation expense, through a combination of workforce and salary reductions, and sales and marketing expenses, in anticipation of the effect of the economic recession and credit crisis on our net sales. Due to the decrease in net sales, however, these expenses increased to 23.9% of net sales in this year's first quarter as compared to 20.8% of net sales in the same quarter of 2008.

Other Expense

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



                                                Three Months Ended
                                                     March 31,
                                                2009              2008
                                              (Dollars in thousands)
             Other expense
             Interest expense               $        140         $  402
             Other                                   (77 )          149

             Total                          $         63         $  551
             As a percentage of net sales           (0.3 )%        (1.4 )%

The largest component of other (income) expense is the interest expense that we incur on borrowings. To a lesser extent, other (income) expense also includes foreign currency gains or losses and gains or losses on disposal of assets. Interest expense decreased by $262,000 or 65% in the three months ended March 31, 2009, as compared to the same three months of 2008. This decrease was primarily the result of reductions in our average outstanding borrowings and decreases in the rates of interest charged on borrowings under on our bank line of credit during the first quarter this year as compared to the first quarter last year. The interest rate on our bank borrowings is tied to market rates of interest and the interest rate decreases in this year's first quarter were due to a decline in market rates of interest as a result of interest rate reductions . . .