|                                              |   | 2008   |   |   | 2007   |   | 2006   |   |   | 2005   |   |   | 2004   |   |
|---------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Net      sales                                    |   | $      | 53,839 |   |   | $      | 59,308 |   | $      | 64,748 |   |   | $      | 60,774 |   |   | $ | 51,535 |   |
| Gross      margin                                 |   | $      | 8,356  |   |   | $      | 9,866  |   | $      | 10,349 |   |   | $      | 6,893  |   |   | $ | 9,804 |   |
| Operating      earnings (loss)                    |   | $      | 582    |   |   | $      | 546    |   | $      | 1,095  |   |   | $      | (2,745 | ) |   | $ | 1,052 |   |
| Net      earnings (loss)                          |   | $      | 204    |   |   | $      | 195    |   | $      | 343    |   |   | $      | (2,996 | ) |   | $ | 1,068 |   |
|                                              |   | $      |   |   |   | $      |   |   | $      |   |   |   | $      |   |   |   | $ |   |   |
| Basic      net earnings (loss) per common share   |   | $      | 0.02   |   |   | $      | 0.02   |   | $      | 0.03   |   |   | $      | (0.30  | ) |   | $ | 0.12 |   |
| Diluted      net earnings (loss) per common share |   | $      | 0.02   |   |   | $      | 0.02   |   | $      | 0.03   |   |   | $      | (0.30  | ) |   | $ | 0.12 |   |
|                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      assets                                 |   | $      | 25,848 |   |   | $      | 26,601 |   | $      | 30,187 |   |   | $      | 29,077 |   |   | $ | 28,478 |   |
| Long-term      liabilities                        |   | $      | 5,185  |   |   | $      | 6,709  |   | $      | 9,234  |   |   | $      | 8,187  |   |   | $ | 3,168 |   |
| Working      capital                              |   | $      | 17,302 |   |   | $      | 18,376 |   | $      | 18,863 |   |   | $      | 16,626 |   |   | $ | 14,244 |   |

|                | 2008      Prices | 2007      Prices |
|---------------------|------------------|------------------|
|                | High             | Low              | High | Low |
| Quarter      ended: |             |             |   |   |
| March      31       | $1.81            | $1.27            | $4.40 | $2.72 |
| June      30        | $1.88            | $1.19            | $3.33 | $2.76 |
| September      30   | $1.75            | $0.95            | $3.10 | $1.95 |
| December      31    | $1.09            | $0.35            | $2.62 | $1.42 |

----

| ·   | The      Company was profitable with net earnings of $204,000 or $0.02 per share      compared to $195,000 or $0.02 per share in 2007. The prior year period      included other income of $338,000 made up of $278,000 from non recurring      foreign exchange gains and $60,000 of miscellaneous  items. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Excluding      the non recurring foreign exchange gains, the fiscal 2008 net earnings of      $204,000 were an improvement of $287,000 over the fiscal 2007 net earnings      in spite of a sales decline of $5.5 million or 9  percent. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The      reason for this increase in net earnings was the very effective expense      control in which operating expenses were reduced by 18 percent or $1.6      million and interest expense was reduced by 48 percent or over $325,000.      This more than offset the loss of margin of $1.5 million caused by the      sales decline. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | It      is important to note that management did not reduce the engineering,      research and development expenses as management regards this as an      investment in the company’s future and essential to its future      prospects. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The      Company’s Balance Sheet strengthened considerably with the generation of      $1.5 million of cash flow. Bank debt declined to $5.2 million from $6.7      million at year end 2007. This resulted in a reduction of interest expense      in the year of over $325,000 or 48 percent. The Company’s debt/equity      ratio was reduced to 37 percent from 49 percent at year end 2007. The      positive cash flow was due to an inventory reduction of $1.1 million and a      further dividend received of $120,000 as a result of closing our Malaysian      joint venture in 2007. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Wells-Gardner’s      2008 sales declined by 9 percent to $53.8 million from $59.3 million in      the prior year. The sales decline was primarily due to the major slowdown      in the global slot machine market. Many industry experts believe that 2008      was one of the slowest years in recent history for gaming      machines. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | LCD      sales continue to drive our business and the Company sold almost 87,000      LCDs in 2008 an increase of 23 percent over 70,000 sold in      2007. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The      Company received its first two granted LCD patents. We have another 8 LCD      patents filed. This is a continuation of our push to broaden the scope of      our Intellectual Property (IP). |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | LCD      manufacturing in Mainland China and the US, primarily for the gaming      industry. |
|--------------------|----------------------------------------------------------------------------------------------|

| ·   | Distributing      Wells-Gardner’s and other manufacturers’ parts to casinos throughout North      America and Central America, South America, Europe, South East Asia      including Macau,  Middle East and  Africa.. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Servicing      game parts for casinos in NorthAmerica |
|--------------------|-------------------------------------------------------|

| ·   | Refurbishing      and selling used gaming equipment to customers  worldwide |
|--------------------|-----------------------------------------------------------------------------|

----

| Payments      Due In year Ending December 31, |   |   |   |   |
|-----------------------------------------------|--------|--------|--------|--------|
|                                          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (in      $000’s)                        |   | Total  |   |   | 2009 |   |   | 2010 |   |   | 2011 |   |   | 2012 |   |   | 2013 |   |   |   | 2014 | + |
| Note      Payable (Note 4)                    |   | $      | 5,185  |   |   | $ | --- |   |   | $ | 5,185 |   |   | $ | --- |   |   | $ | --- |   |   | $ | --- |   |   | $ | --- |   |
| Operating      Leases (Note 11)               |   | $      | 2,896  |   |   | $ | 808 |   |   | $ | 698 |   |   | $ | 600 |   |   | $ | 590 |   |   | $ | 200 |   |   | $ | --- |   |
|                                          |   | $      | 8,081  |   |   | $ | 808 |   |   | $ | 5,883 |   |   | $ | 600 |   |   | $ | 590 |   |   | $ | 200 |   |   | $ | --- |   |

----

|                                                                                |   | 2008   |   |   | 2007   |   |
|-------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|
| ASSETS                                                                              |   |   |   |   |   |   |
| Current      Assets:                                                                |   |   |   |   |   |   |
| Cash                                                                                |   | $      | 184    |   |   | $      | 299 |   |
| Accounts      receivable, net of allowances of $160 in 2008 & $154 in      2007 |   |   | 6,289  |   |   |   | 6,021 |   |
| Accounts      receivable, subcontractor                                             |   |   | 4,811  |   |   |   | 4,026 |   |
| Inventory                                                                           |   |   | 11,786 |   |   |   | 12,913 |   |
| Prepaid      expenses & other assets                                            |   |   | 913    |   |   |   | 1,306 |   |
| Total      current assets                                                           |   | $      | 23,983 |   |   | $      | 24,565 |   |
|                                                                                |   |   |   |   |   |   |   |   |
| Property,      Plant & Equipment (at cost):                                     |   |   |   |   |   |   |   |   |
| Leasehold      improvements                                                         |   |   | 389    |   |   |   | 389 |   |
| Machinery,      equipment & software                                            |   |   | 8,612  |   |   |   | 8,912 |   |
| less:      Accumulated depreciation & amortization                              |   |   | (8,528 | )      |   |   | (8,778 | ) |
| Property,      plant & equipment, net                                           |   | $      | 473    |   |   | $      | 523 |   |
|                                                                                |   |   |   |   |   |   |   |   |
| Other      Assets:                                                                  |   |   |   |   |   |   |   |   |
| Investment      in joint venture                                                    |   |   | 8      |   |   |   | 129 |   |
| Deferred      Tax Asset, net                                                        |   |   | 55     |   |   |   | 55 |   |
| Goodwill                                                                            |   |   | 1,329  |   |   |   | 1,329 |   |
| Total      other assets                                                             |   | $      | 1,392  |   |   | $      | 1,513 |   |
| Total      Assets                                                                   |   | $      | 25,848 |   |   | $      | 26,601 |   |
|                                                                                |   |   |   |   |   |   |   |   |
| LIABILITIES & SHAREHOLDERS'      EQUITY                                         |   |   |   |   |   |   |   |   |
| Current      Liabilities:                                                           |   |   |   |   |   |   |   |   |
| Accounts      payable                                                               |   |   | 1,794  |   |   |   | 1,628 |   |
| Accounts      payable, subcontractor                                                |   |   | 3,822  |   |   |   | 3,426 |   |
| Accrued      expenses                                                               |   |   | 1,066  |   |   |   | 1,135 |   |
| Total      current liabilities                                                      |   | $      | 6,682  |   |   | $      | 6,189 |   |
|                                                                                |   |   |   |   |   |   |   |   |
| Long-Term      Liabilities:                                                         |   |   |   |   |   |   |   |   |
| Note      payable                                                                   |   |   | 5,185  |   |   |   | 6,709 |   |
| Total      long-term liabilities                                                    |   | $      | 5,185  |   |   | $      | 6,709 |   |
| Total      Liabilities                                                              |   | $      | 11,867 |   |   | $      | 12,898 |   |
|                                                                                |   |   |   |   |   |   |   |   |
| Shareholders'      Equity:                                                          |   |   |   |   |   |   |   |   |
| Common      shares:                                                                 |   |   |   |   |   |   |   |   |
| $1      par value; 25,000,000 shares authorized;                                    |   |   |   |   |   |   |   |   |
| 10,348,965      shares issued and outstanding at December 31, 2008                  |   |   |   |   |   |   |   |   |
| 10,327,222      shares issued and outstanding at December 31, 2007                  |   |   | 10,349 |   |   |   | 9,835 |   |
| Capital      in excess of par value                                                 |   |   | 6,007  |   |   |   | 6,503 |   |
| Accumulated      deficit                                                            |   |   | (2,204 | )      |   |   | (2,408 | ) |
| Unearned      compensation                                                          |   |   | (171   | )      |   |   | (227 | ) |
| Total      Shareholders' Equity                                                     |   | $      | 13,981 |   |   | $      | 13,703 |   |
| Total      Liabilities & Shareholders’ Equity                             |   | $      | 25,848 |   |   | $      | 26,601 |   |

----

|                                                 |   | 2008       |   | 2007       |   | 2006       |
|------------------------------------------------------|--------|------------|--------|------------|--------|------------|
| Net      sales                                       | $      | 53,839     | $      | 59,308     | $      | 64,748     |
| Cost      of sales                                   |   | 45,483     |   | 49,442     |   | 54,399     |
| Gross      margin                                    |   | 8,356      |   | 9,866      |   | 10,349     |
| Engineering,      selling & administrative       |   | 7,774      |   | 9,320      |   | 9,254      |
| Operating      earnings                              |   | 582        |   | 546        |   | 1,095      |
| Other      (income) expense:                         |   |       |   |       |   |       |
| Interest                                             |   | 356        |   | 683        |   | 806        |
| Joint      Venture income                            |   | (3)        |   | (24)       |   | (32)       |
| Other      income (Primarily currency gains in 2007) |   | 0          |   | (314)      |   | (10)       |
| Earnings      before income tax                      |   | 229        |   | 201        |   | 331        |
| Income      tax expense (benefit)                    |   | 25         |   | 6          |   | (12)       |
| Net      earnings                                    | $      | 204        | $      | 195        | $      | 343        |
|                                                 |   |       |   |       |   |       |
| Basic      net earnings per common share             | $      | 0.02       | $      | 0.02       | $      | 0.03       |
|                                                 |   |       |   |       |   |       |
| Diluted      net earnings per common share           | $      | 0.02       | $      | 0.02       | $      | 0.03       |
|                                                 |   |       |   |       |   |       |
| Basic      common shares outstanding                 |   | 10,349,778 |   | 10,309,114 |   | 10,121,336 |
| Diluted      common shares outstanding               |   | 10,349,778 |   | 10,342,076 |   | 10,164,182 |

----

|                                             |   |   |   |   | Capital      In |   |   |        |   |   |         |   |   | Total         |   |
|--------------------------------------------------|--------|--------|--------|--------|-----------------|--------|--------|-------------|--------|--------|--------------|--------|--------|---------------|--------|
|                                             |   | Common |   |   | Excess      Of  |   |   | Accumulated |   |   | Unearned     |   |   | Shareholders' |   |
|                                             |   | Shares |   |   | Par      Value  |   |   | Deficit     |   |   | Compensation |   |   | Equity        |   |
| December      31, 2005                           |   | $      | 8,644  |   |            | $      | 7,008  |        |   | $      | (2,945       | )      |   | $             | (264   | ) |   |  $ | 12,443 |   |
|                                             |   |   |   |   |            |   |   |        |   |   |         |   |   |          |   |   |   |   |   |   |
| Net      earnings                                |   |   |   |   |            |   |   |        |   |   | 343          |   |   |          |   |   |   |   | 343 |   |
| Stock      dividend issued                       |   |   | 436    |   |            |   | (436   | )           |   |   |         |   |   |          |   |   |   |   | 0 |   |
| Issuance      / forfeiture of stock awards (net) |   |   | 21     |   |            |   | 4      |        |   |   |         |   |   |          | (29    | ) |   |   | (4 | ) |
| FAS      123R Option compensation                |   |   |   |   |            |   | 11     |        |   |   |         |   |   |          |   |   |   |   | 11 |   |
| Shares      issued from stock purchase plan      |   |   | 3      |   |            |   | 4      |        |   |   |         |   |   |          |   |   |   |   | 6 |   |
| Stock      options exercised                     |   |   | 151    |   |            |   | 165    |        |   |   |         |   |   |          |   |   |   |   | 316 |   |
| Amortization      of unearned compensation       |   |   |   |   |            |   |   |        |   |   |         |   |   |          | 92     |   |   |   | 92 |   |
| December      31, 2006                           |   | $      | 9,255  |   |            | $      | 6,755  |        |   | $      | (2,603       | )      |   | $             | (201   | ) |   | $ | 13,207 |   |
|                                             |   |   |   |   |            |   |   |        |   |   |         |   |   |          |   |   |   |   |   |   |
| Net      earnings                                |   |   |   |   |            |   |   |        |   |   | 195          |   |   |          |   |   |   |   | 195 |   |
| Stock      dividend issued                       |   |   | 467    |   |            |   | (467   | )           |   |   |         |   |   |          |   |   |   |   | 0 |   |
| Issuance      / forfeiture of stock awards (net) |   |   | 31     |   |            |   | 85     |        |   |   |         |   |   |          | (116   | ) |   |   | 0 |   |
| FAS      123R Option compensation                |   |   |   |   |            |   | 3      |        |   |   |         |   |   |          |   |   |   |   | 3 |   |
| Stock      options exercised                     |   |   | 82     |   |            |   | 127    |        |   |   |         |   |   |          |   |   |   |   | 209 |   |
| Amortization      of unearned compensation       |   |   |   |   |            |   |   |        |   |   |         |   |   |          | 90     |   |   |   | 90 |   |
| December      31, 2007                           |   | $      | 9,835  |   |            | $      | 6,503  |        |   | $      | (2,408       | )      |   | $             | (227   | ) |   | $ | 13,704 |   |
|                                             |   |   |   |   |            |   |   |        |   |   |         |   |   |          |   |   |   |   |   |   |
| Net      earnings                                |   |   |   |   |            |   |   |        |   |   | 204          |   |   |          |   |   |   |   | 204 |   |
| Stock      dividend issued                       |   |   | 493    |   |            |   | (493   | )           |   |   |         |   |   |          |   |   |   |   | 0 |   |
| Issuance      / forfeiture of stock awards (net) |   |   | 20     |   |            |   | (3     | )           |   |   |         |   |   |          | (17    | ) |   |   | 0 |   |
| Amortization      of unearned compensation       |   |   |   |   |            |   |   |        |   |   |         |   |   |          | 74     |   |   |   | 74 |   |
| December      31, 2008                           |   | $      | 10,349 |   |            | $      | 6,007  |        |   | $      | (2,204       | )      |   | $             | (171   | ) |   | $ | 13,981 |   |

----

|                                                                      |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|---------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Cash      flows from operating activities:                                |   |   |   |   |   |   |   |   |   |
| Net      earnings                                                         |   | $      | 204    |   |   | $      | 195    |   |   | $ | 343 |   |
| Adjustments      to reconcile net earnings to net                         |   |   |   |   |   |   |   |   |   |   |   |   |
| cash      provided by (used in) operating activities:                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Depreciation      and amortization                                        |   |   | 171    |   |   |   | 444    |   |   |   | 517 |   |
| Bad      debt expense                                                     |   |   | 31     |   |   |   | 79     |   |   |   | 214 |   |
| Amortization      of unearned compensation                                |   |   | 74     |   |   |   | 90     |   |   |   | 90 |   |
| Share      of earnings of joint venture                                   |   |   | (2     | )      |   |   | (30    | )      |   |   | (32 | ) |
| Retained      earnings dividend from Joint Venture                        |   |   | 0      |   |   |   | 770    |   |   |   | 0 |   |
| Deferred      income tax                                                  |   |   | 0      |   |   |   | (55    | )      |   |   | 0 |   |
| Changes      in current assets & liabilities:                         |   |   |   |   |   |   |   |   |   |   |   |   |
| Accounts      receivable, net                                             |   |   | (299   | )      |   |   | 1,082  |   |   |   | (2,293 | ) |
| Inventory                                                                 |   |   | 1,127  |   |   |   | 905    |   |   |   | (1,087 | ) |
| Prepaid      expenses & other                                         |   |   | 393    |   |   |   | (145   | )      |   |   | 121 |   |
| Accounts      payable, net                                                |   |   | 166    |   |   |   | (453   | )      |   |   | (1,813 | ) |
| Due      to/from subcontractor in 2008 & 2007 / affiliates in    2006 |   |   | (389   | )      |   |   | (1,301 | )      |   |   | 2,520 |   |
| Accrued      expenses                                                     |   |   | (69    | )      |   |   | 284    |   |   |   | 103 |   |
| Net      cash provided by (used in) operating activities                  |   | $      | 1,407  |   |   | $      | 1,865  |   |   | $ | (1,317 | ) |
|                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      flows provided by (used in) investing activities:               |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital      dividend from Joint Venture                                  |   |   | 123    |   |   |   | 507    |   |   |   | 0 |   |
| Additions      to property, plant & equipment, net                    |   |   | (121   | )      |   |   | (94    | )      |   |   | (59 | ) |
| Net      cash provided by (used in) investing activities                  |   | $      | $2     |   |   | $      | 413    |   |   | $ | (59 | ) |
|                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      flows from financing activities:                                |   |   |   |   |   |   |   |   |   |   |   |   |
| (Repayments)      Borrowings from note payable                            |   |   | (1,524 | )      |   |   | (2,525 | )      |   |   | 1,047 |   |
| Proceeds      from stock issued, options exercised                        |   |   |   |   |   |   |   |   |   |   |   |   |
| &      employee stock purchase plan                                   |   |   | 0      |   |   |   | 212    |   |   |   | 331 |   |
| Net      cash (used in) provided by financing activities                  |   |   | (1,524 | )      |   | $      | (2,313 | )      |   | $ | 1,378 |   |
|                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      (decrease) increase in cash                                      |   |   | (115   | )      |   |   | (35    | )      |   |   | 2 |   |
| Cash      at beginning of year                                            |   |   | 299    |   |   |   | 334    |   |   |   | 332 |   |
| Cash      at end of year                                                  |   | $      | 184    |   |   | $      | 299    |   |   | $ | 334 |   |
|                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |
| Supplemental      cash flows disclosure:                                  |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      taxes paid                                                    |   | $      | 33     |   |   | $      | 15     |   |   | $ | 2 |   |
| Interest      paid                                                        |   | $      | 356    |   |   | $      | 683    |   |   | $ | 806 |   |

----

----

----

|                          |   | December      31, |   |
|-------------------------------|--------|-------------------|--------|
| (in      $000's)              |   | 2008              |   |   | 2007 |   |   | 2006 |   |
| Raw      materials            |   | $                 | 3,706  |   |   | $ | 4,525 |   |   | $ | 4,053 |   |
| Work      in progress         |   | $                 | 52     |   |   | $ | 580 |   |   | $ | 309 |   |
| Intransit      finished goods |   | $                 | 1,593  |   |   | $ | 1,521 |   |   | $ | 1,927 |   |
| Finished      goods           |   | $                 | 6,435  |   |   | $ | 6,287 |   |   | $ | 7,529 |   |
| Total                         |   | $                 | 11,786 |   |   | $ | 12,913 |   |   | $ | 13,818 |   |

----

----

|                                  |   |    |    |   |                  |   |   | Weighted      average |   | Aggregate |
|---------------------------------------|--------|---------|---------|--------|-----------------------|--------|--------|-----------------------|--------|-----------|
|                                  |   |    |    |   | Weighted      average |   |   | Remaining             |   | Intrinsic |
|                                  |   | Options |    |   | exercise      price   |   |   | Contractual      Life |   | Value     |
| Outstanding      at beginning of year |   |    | 131,361 |   |                  | $      | 2.08   |                  |   |      |   |   |
| Granted                               |   |    | 0       |   |                  | $      | -      |                  |   |      |   |   |
| Forfeited                             |   |    | (64,499 | )      |                  | $      | 2.32   |                  |   |      |   |   |
| Exercised                             |   |    | 0       |   |                  | $      | -      |                  |   |      |   |   |
| Outstanding,      December 31, 2008   |   |    | 66,862  |   |                  | $      | 1.85   |                  |   |      | 2.2 |   |   |
|                                  |   |    |    |   |                  |   |   |                  |   |      |   |   |   |
| Exercisable,      December 31, 2008   |   |    | 66,862  |   |                  | $      | 1.85   |                  |   |      | 2.2 |   | 0 |

|                                |   |   |    |   | Weighted      average |   |
|-------------------------------------|--------|--------|---------|--------|-----------------------|--------|
|                                |   |   |    |   | Grant      Date       |   |
|                                |   | Shares |    |   | Fair      Value       |   |
| Unvested      at December 31, 2007  |   |   | 131,449 |   |                  | $      | 2.67 |   |
| Granted                             |   |   | 42,000  |   |                  | $      | 1.66 |   |
| Vested                              |   |   | (48,820 | )      |                  | $      | 1.44 |   |
| Forfeited                           |   |   | (19,668 | )      |                  | $      | 4.10 |   |
| Outstanding,      December 31, 2008 |   |   | 104,961 |   |                  | $      | 2.73 |   |

----

|                             |   | December      31, |   |
|----------------------------------|--------|-------------------|--------|
| (in      $000's)                 |   | 2008              |   |   | 2007 |   |
| Payroll      & related costs |   | $                 | 142    |   |   | $ | 123 |   |
| Sales      commissions           |   | $                 | 54     |   |   | $ | 85 |   |
| Warranty                         |   | $                 | 183    |   |   | $ | 200 |   |
| Other      accrued expenses      |   | $                 | 687    |   |   | $ | 727 |   |
| Total                            |   | $                 | 1,066  |   |   | $ | 1,135 |   |

|                         | Year      Ended December 31, |
|------------------------------|------------------------------|
| Warranty      Reserve:  | 2008                         | 2007 |
| Beginning      Balance       | $                            | 200 | $ | 206 |
| Additions                    | $                            | 334 | $ | 336 |
| Payments                     | $                            |  (351) | $ |  (342) |
| Balance      at end of year  | $                            | 183 | $ | 200 |

| (in      $000's)                                                  |   | 2008  |   | 2007  |   | 2006        |
|-------------------------------------------------------------------|--------|-------|--------|-------|--------|-------------|
| Computed      expected tax expense                                | $      | 70    | $      | 66    | $      |  117   |
| State      income tax expense, net of Federal tax effect          | $      | 10    | $      | 9     | $      | 16          |
| Distribution      from Joint Venture                              | $      | 48    | $      | 368   | $      | -           |
| Reduction      of valuation allowance                             | $      | 0     | $      | (55)  | $      | -           |
| Other,      net  (primarily permanent differences)      | $      | 92    | $      | (87)  | $      | 30          |
| Change      in valuation allowance (regarding utilization of NOL) | $      | (195) | $      | (295) | $      |  (175) |
| Income      Tax Expense (Benefit)                                 | $      | 25    | $      | 6     | $      |  (12)  |

|                           |                                                                   | December      31:                    |
|--------------------------------|------------------------------------------------------------------------|--------------------------------------|
| (in      $000's)               |                                                                   | 2008                                 |   | 2007 |   | 2006 |
| Deferred      tax assets:      |                                                                   |                                 |   |   |   |   |
|                           | Allowance      for doubtful accounts                                   | $                                    | 62 | $ | 60 | $ | 98 |
|                           | Warranty      reserve                                                  | $                                    | 71 | $ | 78 | $ | 79 |
|                           | Inventory      reserve                                                 | $                                    | 1,061 | $ | 833 | $ | 747 |
|                           | Property,      plant, equipment and software, principally depreciation | $                                    | 15 | $ | 0 | $ | - |
|                           | Net      operating loss carryforwards                                  | $                                    | 2,095 | $ | 2,468 | $ | 2,939 |
|                           | Alternative      minimum tax credit carryforwards                      | $                                    | 74 | $ | 74 | $ | 62 |
|                           | General      business credit carryforwards                             | $                                    | 129 | $ | 129 | $ | 129 |
|                           | Other                                                                  | $                                    | 75 | $ | 101 | $ | 91 |
|                           |                                                                   | Total      gross deferred tax assets | $ | 3,582 | $ | 3,743 | $ | 4,145 |
|                           |                                                                   | Less      valuation allowance        |   | $ | (3,166) | $ | (3,361) | $ | (3,711) |
|                           |                                                                   | Total      deferred tax assets       |   | $ | 416 | $ | 382 | $ | 434 |
| Deferred      tax liabilities: |                                                                   |                                 |   |   |   |   |   |
|                           | Property,      plant, equipment and software, principally depreciation | $                                    | 0 | $ | 6 | $ | 129 |
|                           | Goodwill                                                               |                                 |   | $ | 361 | $ | 321 | $ | 305 |
|                           |                                                                   | Total      deferred tax liabilities  |   | $ | 361 | $ | 327 | $ | 434 |
| Net      deferred taxes        |                                                                   |                                 | $ | 55 | $ | 55 | $ | - |

----

| (in      $000's except for per share data)               |   | 2008   |   |   | 2007   |   |   | 2006   |   |
|----------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Basic      earnings (loss) per common share:             |   |   |   |   |   |   |   |   |   |
| Net      earnings (loss)                                 |   | $      | 204    |   |   | $      | 195    |   |   | $ | 343 |   |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average      common shares outstanding          |   |   | 10,350 |   |   |   | 10,309 |   |   |   | 10,121 |   |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic      net earnings (loss) per common share          |   | $      | 0.02   |   |   | $      | 0.02   |   |   | $ | 0.03 |   |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted      earnings (loss) per common share:           |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      earnings (loss)                                 |   | $      | 204    |   |   | $      | 195    |   |   | $ | 343 |   |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average      common shares outstanding          |   |   | 10,350 |   |   |   | 10,309 |   |   |   | 10,121 |   |
| Add:  Effect      of dilutive stock options    |   |   | 0      |   |   |   | 33     |   |   |   | 43 |   |
| Adjusted      weighted-average common shares outstanding |   |   | 10,350 |   |   |   | 10,342 |   |   |   | 10,164 |   |
|                                                     |   |   |   |   |   |   |   |   |   |   |   |   |
| Diluted      net earnings (loss) per common share        |   | $      | 0.02   |   |   | $      | 0.02   |   |   | $ | 0.03 |   |

----

| Years      ending |   |             |
|-------------------|--------|------------------|
| December      31  |   | (in      $000's) |
| 2009              | $      | 808              |
| 2010              | $      | 698              |
| 2011              | $      | 600              |
| 2012              | $      | 590              |
| Thereafter        | $      | 200              |
|              | $      | 2,896            |

----

|                                       |   | 2008   |   |
|--------------------------------------------|--------|--------|--------|
| (in      $000's except per share data)     |   | First  |   |   | Second |   |   | Third |   |   | Fourth |   |
| Net      sales                             |   | $      | 14,916 |   |   | $ | 14,525 |   |   | $ | 11,283 |   |   | $ | 13,115 |   |
| Gross      margin                          |   | $      | 2,441  |   |   | $ | 2,332 |   |   | $ | 1,686 |   |   | $ | 1,896 |   |
| Net      earnings (loss)                   |   | $      | 199    |   |   | $ | 170 |   |   | $ | (184 | ) |   | $ | 19 |   |
| Basic      net earnings (loss) per share   |   | $      | 0.02   |   |   | $ | 0.02 |   |   | $ | (0.02 | ) |   | $ | 0.00 |   |
| Diluted      net earnings (loss) per share |   | $      | 0.02   |   |   | $ | 0.02 |   |   | $ | (0.02 | ) |   | $ | 0.00 |   |
|                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                       |   | 2007   |   |
| (in      $000's except per share data)     |   | First  |   |   | Second |   |   | Third |   |   | Fourth |   |
| Net      sales                             |   | $      | 15,980 |   |   | $ | 15,129 |   |   | $ | 14,524 |   |   | $ | 13,675 |   |
| Gross      margin                          |   | $      | 2,968  |   |   | $ | 2,600 |   |   | $ | 2,444 |   |   | $ | 1,854 |   |
| Net      (loss) earnings                   |   | $      | 321    |   |   | $ | 161 |   |   | $ | 34 |   |   | $ | (321 | ) |
| Basic      net (loss) earnings per share   |   | $      | 0.03   |   |   | $ | 0.02 |   |   | $ | 0.00 |   |   | $ | (0.03 | ) |
| Diluted      net (loss) earnings per share |   | $      | 0.03   |   |   | $ | 0.02 |   |   | $ | 0.00 |   |   | $ | (0.03 | ) |

----

----

| BOARD      OF DIRECTORS                             | EXECUTIVE      OFFICERS                      |
|-----------------------------------------------------|----------------------------------------------|
|                                                |                                         |
| Anthony      Spier                                  | Anthony      Spier                           |
| Chairman,      President                            | Chairman,      President                     |
| &      Chief Executive Officer                  | &      Chief Executive Officer           |
|                                                |                                         |
| Marshall L. Burman                                  | James F. Brace                               |
| Counsel      to Wildman, Harrold, Allen & Dixon | Executive      Vice President, Secretary,    |
|                                                | Treasurer      & Chief Financial Officer |
| Merle      H. Banta                                 |                                         |
| Chairman      & Chief Executive Officer         |                                         |
| BHH      Management, Inc.                           |                                         |
|                                                |                                         |
| Frank      R. Martin                                |                                         |
| Attorney                                            |                                         |
| Righeimer,      Martin & Cinquino, P.C.         |                                         |

| CORPORATE      INFORMATION                                                                                                                                                                                                                      |                      |                           |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------|--------------------------------|
|                                                                                                                                                                                                                                            |                      |                           |
| ANNUAL MEETING                                                                                                                                                                                                                                  |                      | BANKER                         |
| The      Annual Meeting of Shareholders will take place at 10:00 a.m. on Tuesday,      May 12, 2009 at the corporate offices of the Company.                                                                                                    |                      | Wells      Fargo Bank N.A.     |
|                                                                                                                                                                                                                                            | Milwaukee,      Wisconsin |
|                                                                                                                                                                                                                                            |                      |                           |
| FORM 10-K                                                                                                                                                                                                                                       |                      | AUDITOR                        |
| A      copy of the Company’s annual report on Form 10-K, as filed with the      Securities and Exchange Commission, is available without charge upon      written request to James F. Brace at the corporate offices of the      Company. |                      | Blackman      Kallick, LLP     |
|                                                                                                                                                                                                                                            | Chicago,      Illinois    |
|                                                                                                                                                                                                                                            |                      |                           |
| TRANSFER AGENT                                                                                                                                                                                                                                  |                      | COUNSEL                        |
| BNY      Mellon Shareowner Services                                                                                                                                                                                                             |                      | Levenfeld      Pearlstein, LLC |
| P.O.      Box 358015                                                                                                                                                                                                                            |                      | Chicago,      Illinois         |
| Pittsburgh,      PA  15252-8015                                                                                                                                                                                                       |                      |                           |
| or                                                                                                                                                                                                                                              |                      |                           |
| 480      Washington Boulevard                                                                                                                                                                                                                   |                      |                           |
| Jersey      City, NJ  07310-1900                                                                                                                                                                                                      |                      |                           |
| Telephone:      1-800-853-4967                                                                                                                                                                                                                  |                      |                           |
| Web:      www.bnymellon.com/sharehowner/isd                                                                                                                                                                                                     |                      |                           |

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