FORWARD-LOOKING INFORMATION
The Company may from time to time make written or oral "forward-looking statements" including statements contained in this report and in other communications by the Company, which are made in good faith by the Company pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include statements of the Company's plans, objectives, expectations, estimates and intentions, which are subject to change based on various important factors (some of which are beyond the Company's control). The following factors, in addition to others not listed, could cause the Company's actual results to differ materially from those expressed in forward looking statements: the strength of the domestic and local economies in which the Company conducts operations, the impact of current uncertainties in global economic conditions and the ongoing financial crisis affecting the domestic and foreign banking system and financial markets, including the impact on the Company's suppliers and customers, changes in client needs and consumer spending habits, the impact of competition and technological change on the Company, the Company's ability to manage its growth effectively, including its ability to successfully integrate any business which it might acquire, and currency fluctuations. All forward-looking statements in this report are based upon information available to the Company on the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.

CRITICAL ACCOUNTING POLICIES
The following discussion and analysis of financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The Company's significant accounting policies are more fully described in Note 2 of the Notes to Consolidated Financial Statements. Certain accounting estimates are particularly important to the understanding of the Company's financial position and results of operations and require the application of significant judgment by the Company's management or can be materially affected by changes from period to period in economic factors or conditions that are outside the control of management. The Company's management uses their judgment to determine the appropriate assumptions to be used in the determination of certain estimates. Those estimates are based on historical operations, future business plans and projected financial results, the terms of existing contracts, the observance of trends in the industry, information provided by customers and information available from other outside sources, as appropriate. The following discusses the Company's critical accounting policies and estimates.

Estimates. Operating results may be affected by certain accounting estimates. The most sensitive and significant accounting estimates in the financial statements relate to customer rebates, valuation allowances for deferred income tax assets, obsolete and slow moving inventories, potentially uncollectible accounts receivable, and accruals for income taxes. Although the Company's management has used available information to make judgments on the appropriate estimates to account for the above matters, there can be no assurance that future events will not significantly affect the estimated amounts related to these areas where estimates are required. However, historically, actual results have not been materially different than original estimates.

Allowance for doubtful accounts. The Company provides an allowance for doubtful accounts based upon a review of outstanding accounts receivable, historical collection information and existing economic conditions. The allowance for doubtful accounts represents estimated uncollectible accounts receivables associated with potential customer defaults on contractual obligations, usually due to potential insolvencies. The allowance includes amounts for certain customers where a risk of default has been specifically identified. In addition, the allowance includes a provision for customer defaults based on historical experience. The Company actively monitors its accounts receivable balances and its historical experience of annual accounts receivable write offs has been negligible.

Customer Rebates. Customer rebates and incentives are a common practice in the office products industry. We incur customer rebate costs to obtain favorable product placement, to promote sell-through of products and to maintain competitive pricing. Customer rebate costs and incentives, including volume rebates, promotional funds, catalog allowances and slotting fees, are accounted for as a reduction to gross sales. These costs are recorded at the time of sale and are based on individual customer contracts. Management periodically reviews accruals for these rebates and allowances, and adjusts accruals when appropriate.

Obsolete and Slow Moving Inventory. Inventories are stated at the lower of cost, determined on the first-in, first-out method, or market. A reserve is established to adjust the cost of inventory to its net realizable value. Inventory reserves are recorded for obsolete or slow moving inventory based on assumptions about future demand and marketability of products, the impact of new product introductions and specific identification of items, such as discontinued products. These estimates could vary significantly from actual requirements if future economic conditions, customer inventory levels or competitive conditions differ from expectations.

Income Taxes. Deferred tax liabilities or assets are established for temporary differences between financial and tax reporting bases and are subsequently adjusted to reflect changes in tax rates expected to be in effect when the temporary differences reverse. A valuation allowance is recorded to reduce deferred tax assets to an amount that is more likely than not to be realized.

Intangible Assets and Goodwill. Intangible assets with finite useful lives are recorded at cost upon acquisition and amortized over the term of the related contract, if any, or useful life, as applicable. Intangible assets held by the Company with finite useful lives include patents and trademarks. Patents and trademarks are amortized over their estimated useful life. The weighted average amortization period for intangible assets at December 31, 2008 was 14 years. The Company periodically reviews the values recorded for intangible assets to assess recoverability from future operations whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. During 2008, the net book value of the Company's intangible assets increased to $1,934,219 as of December 31, 2008, from $1,747,708 as of December 31, 2007.

Accounting for Stock-Based Compensation. The Company accounts for stock-based compensation in accordance with the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") No. 123R. Share Based Payments ("SFAS 123R"). The Company uses the Black-Scholes option - pricing model, which involves certain subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them ("expected term"), the estimated volatility of the Company's common stock price over the expected term ("volatility") and the number of options for which vesting requirements will not be completed ("forfeitures"). Changes in the subjective assumptions can materially affect estimates of fair value stock-based compensation, and the related amount recognized on the consolidated statements of operations. Refer to Note 11 "Stock Option Plans" in the Notes to Consolidated Financial Statements in this report for a more detailed discussion of the effects of SFAS 123R on the Company's results of operations and financial condition.

RESULTS OF OPERATIONS 2008 COMPARED WITH 2007

NET SALES

Net sales increased by $5,546,007 or 9% (8% in constant currency) in 2008 to $68,719,012 compared to $63,173,005 in 2007. The U.S. segment sales increased by $4,847,000 or 10% in 2008 compared to 2007. Sales in Canada remained relatively constant in U.S. dollars but declined 3% in local currency in 2008 compared to 2007. European sales increased by $733,000 or 12% (4% in local currency) in 2008 compared to 2007.

The increase in sales in the U.S. segment is principally the result of market share gains in all channels of distribution and market acceptance of new anti-microbial school scissors, rulers and math kits and iPoint pencil sharpeners. Sales of other new products included a new family of KleenEarth recycled scissors, the UltraSmooth(TM) spring-assisted scissors and the new Clauss(TM) high performance ExtemeEdge(TM) titanium shears. Net sales in Canada were negatively impacted by the soft demand in the overall office products market as a result of a slow down in the economy. The 4% sales increase in Europe was mainly due to higher sales of manicure items to a major European retailer and expansion in the office trade channel.

GROSS PROFIT

Gross profit was 40% of net sales in 2008 compared to 42% of net sales in 2007. The gross margin decline in 2008 was primarily due to strong growth in a highly competitive school market.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses were $20,778,093 in 2008 compared to $19,741,166 in 2007, an increase of $1,036,927. SG&A expenses were 30% of net sales in 2008 compared to 31% in 2007. Higher sales commission and freight costs associated with higher sales amounted to $200,000 of the increase. Other major contributors to the increase in SG&A expenses were the costs associated with the addition of sales, marketing and logistic personnel.

OPERATING INCOME

Operating income was $6,878,794 in 2008, compared to $6,751,764 in 2007, an increase of $127,030. Operating income in the U.S. segment declined by approximately $100,000 due to higher personnel related costs. Operating income increased in Canada by $52,000 or 7% due to improved gross margins mainly as the result of strong buying power of the Canadian dollar. The European operating loss decreased by approximately $175,000 mainly due to sales growth and improved gross margins as a result of a better product mix.

INTEREST EXPENSE, NET

Interest expense for 2008 was $395,548, compared to $655,466 for 2007, a decrease of $259,898. The decrease in interest expense was primarily the result of lower average interest rates under the Company's bank revolving loan agreement.

OTHER INCOME, NET

Net other income was $192,855 in 2008 compared to $206,357 in 2007. Net other income in 2008 included a gain on the sale of our Bridgeport property of approximately $265,000, offset by losses from foreign currency transactions.

INCOME TAX

The effective tax rate in 2008 was 33%, compared to 36% in 2007. The decrease in the effective tax rate for the year ended December 31, 2008 was primarily caused by a higher proportion of earnings in foreign tax jurisdictions with a lower tax rate.

RESULTS OF OPERATIONS 2007 COMPARED WITH 2006

NET SALES

Net sales increased by $6,310,013 or 11% (10% in constant currency) in 2007 to $63,173,005, compared to $56,862,992 in 2006. The U.S. segment sales increased by $4,419,000 or 10% in 2007 compared to 2006. Sales increased in Canada by $784,000 or 11% (5% in local currency). European sales increased by $1,107,000 or 21% (11% in local currency) in 2007 compared to 2006.

The increase in sales in the U.S. segment was principally the result of sales of new products, including the iPoint electric pencil sharpener and market share gains. Additionally, the Company expanded its product line, including rotary paper trimmers with a major office superstore. Sales of other new products included the UltraSmooth(TM) spring-assisted scissors and the new Clauss(TM) high performance ExtemeEdge(TM) titanium shears. The sales increase in Canada was mainly due to sales of the new iPoint electric pencil sharpeners, other new office products and further penetration into the Canadian retail segment. The 21% sales increase in Europe was mainly due to higher sales of manicure items to a major European retailer and expansion in the office trade channel.

GROSS PROFIT

Gross profit was 42% of net sales in 2007 compared to 43% of net sales in 2006. The gross margin decline in 2007 was due to greater sales of lower margin products, increased raw material and labor costs in China and higher costs as the result of the appreciation of the Chinese currency against the U.S. dollar. Costs also increased due to the reduction of an export tax credit in China.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses were $19,741,166 in 2007 compared with $17,869,753 in 2006, an increase of $1,871,413. SG&A expenses were 31% of net sales in both 2007 and 2006. Higher sales commission and freight costs associated with higher sales amounted to $420,000. Other major contributors to the increase in SG&A expenses were the costs associated with the addition of sales, marketing and logistic personnel and consulting costs associated with the Company's compliance with Section 404 of the Sarbanes Oxley Act. Additionally, in 2006, there was a one-time benefit related to settlement of a lawsuit.

OPERATING INCOME

Operating income was $6,751,764 in 2007, compared with $6,713,020 in 2006, an increase of $38,744. Operating income in the U.S. segment declined by approximately $500,000 due to higher personnel related costs, increased consulting costs associated with the Company's compliance with Section 404 of the Sarbanes Oxley Act (approximately $200,000) and a one time benefit related to settlement of a lawsuit in 2006 (approximately $200,000). Operating income increased in Canada by $147,000 or 25%. The European operating loss decreased by approximately $400,000 mainly due to sales growth and improved gross margins as a result of lower packaging and airfreight expenses.

INTEREST EXPENSE, NET

Interest expense for 2007 was $655,466, compared with $615,500 for 2006, a $39,966 increase. The increase in interest expense was primarily the result of higher borrowings under the Company's bank revolving loan agreement.

OTHER INCOME, NET

Net other income was $206,357 in 2007, compared to $251,557 in 2006.

INCOME TAX

The effective tax rate in 2007 was 36%, compared to 39% in 2006. The effective tax rate improved mainly due to the lower losses in Europe in 2007, as compared to 2006 for which there is no recorded tax benefit because losses in Europe cannot be utilized to offset earnings in other countries.

OFF-BALANCE SHEET TRANSACTIONS

The Company did not engage in any off-balance sheet transactions during 2008.

LIQUIDITY AND CAPITAL RESOURCES

The recent global economic crisis has had a negative impact on all of the markets into which the Company sells its products. As demand has declined, our customers have been negatively affected, which, has negatively impacted the Company. Management believes that the recent slowdown in customer orders could continue as its customers take action, including adjusting inventory levels to match current demand, to deal with this economic crisis. Management also has taken necessary actions to adjust its cost structure as a response to the slow down in demand and in anticipation of future decline. To date, the Company does not believe that it has excess inventory issues, potentially unrecoverable accounts receivable balances or supply issues with its third party manufacturers as a result of the current economic crisis.

During 2008, working capital remained essentially constant compared to 2007 primarily due to a 15% increase in inventory offset by a 17% decrease in accounts receivables. The increase in inventory was in anticipation of product demand and an increase in customer specific inventory. Given the lengthy lead times associated with product availability and customer requirements for complete and on-time delivery, the Company's management decided to increase inventory levels. Inventory turnover, calculated using a twelve month average inventory balance, decreased to 2.0 in 2008 from 2.1 in 2007. Receivables decreased as a result of a sales decline in the fourth quarter of 2008. The average number of days sales outstanding in accounts receivable was 64 days in 2008 and 66 days in 2007.

The Company's working capital, current ratio and long-term debt to equity ratio follow:

                                                   2008            2007
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Working Capital                                $29,819,680     $29,377,847
Current Ratio                                         4.38            4.46
Long-Term Debt to Equity Ratio                       51.3%           44.2%

On June 23, 2008, the Company modified its revolving loan agreement (the "Modified Loan Agreement") with Wachovia Bank. The Modified Loan Agreement amended certain provisions of the original revolving loan agreement. The amendments include (a) an increase in the maximum borrowing amount from $15 million to $20 million; (b) an extension of the maturity date of the loan from June 30, 2009 to June 30, 2010; (c) a decrease in the interest rate to LIBOR plus 7/8% (from LIBOR plus 1.0%) and (d) modification of certain covenant restrictions. Funds borrowed under the Modified Loan Agreement are used for working capital, general operating expenses, share repurchases and certain other purposes.

As of December 31, 2008, $11,719,000 was outstanding and $8,281,000 was available for borrowing under the Modified Loan Agreement.

Total debt in 2008 increased by $1,563,097, compared to total debt at December 31, 2007.

Under the provisions of the Modified Loan Agreement, the Company, among other things, is restricted with respect to outside borrowings, investments and mergers. Further, the Modified Loan Agreement requires the Company to maintain specific amounts of tangible net worth, a specified debt service coverage ratio and a fixed charge coverage ratio. The Company was in compliance with all financial covenants under the Modified Loan Agreement as of and through December 31, 2008, and believes it will be able to continue to comply with these covenants for the remainder of the term of the credit facility.

Capital expenditures during 2008 and 2007 were $742,429 and $672,913, respectively, which were, in part, financed with debt. Capital expenditures in 2009 are not expected to differ materially from recent years.

The Company believes that cash generated from operating activities, together with funds available under its current loan agreement, are expected, under current conditions, to be sufficient to finance the Company's planned operations for the next twelve months.

RECENTLY ISSUED ACCOUNTING STANDARDS

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, "Fair Value Measurements." This statement, which became effective January 1, 2008, defines fair value, establishes a framework for measuring fair value and expands disclosure requirements regarding fair value measurements. The FASB has provided a one-year deferral for the implementation of FASB 157 for other non-financial assets and liabilities. The adoption did not have an effect on the Company's financial statements.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities; Including an Amendment of FASB Statement No. 115" ("SFAS 159"). SFAS 159 gives entities the option to measure eligible items at fair value at specified dates. Unrealized gains and losses on the eligible items for which the fair value option has been elected should be reported in earnings. SFAS 159 is effective for the Company's 2008 fiscal year beginning January 1, 2008. The adoption of SFAS 159 did not have a material effect on the Company's financial statements.

In December 2007, the FASB issued SFAS No. 141 (R), Business Combinations ("SFAS
141(R)"), and SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements ("SFAS 160"). SFAS 141 (R) requires an acquirer to measure identifiable assets acquired, liabilities assumed and any noncontrolling interest an acquired business at their fair values on the acquisition date, with goodwill being measured and recorded at the excess of the amount paid over the net identifiable assets acquired. SFAS 160 clarifies that a noncontrolling interest in a subsidiary should be reported as equity in the consolidated financial statements. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS 141 (R) and SFAS 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. The Company expects that the adoption of SFAS 141(R) and SFAS 160 will not have a material effect on its financial statements.