Skyler is standing in an extremely manly fashion with his thumbs tucked inside the waistband of his wetsuit, which is already peeled down off his torso. If it's peeled down any more, this show will be on cable. Zoe gives Michael an incomprehensible, slang-filled pep talk, and Skyler and Michael go off to look at the beach. We see someone wipe out dramatically (to the sound of a Wilhelm Scream, which always makes me happy), and Michael flinches a little but still seems willing to go out into the water. Back at KITT, Billy has this thing where he envies Sarah for being able to both operate computers (like him) and go outside (like the cool kids). Then KITT reports hat the tracking signal is less than 100 yards away, so off they zoom.
Michael and Skyler are out in the ocean and having ex-army chat. Skyler talks in ocean metaphors and I think what's happening here is that Michael is pretending that he wants to get into the illegal weapon smuggling business. A giant wave shows up and Skyler hits Michael with a backfist. Skyler surfs away and Michael asks KITT how to stand up on a surfboard. KITT's advice ("Just stand up") is not all that useful, and Michael wipes out almost immediately. Nice undercover work!
At the beach, Sarah and Billy have followed Skyler to a beat-up RV, while Zoe helps Michael stagger to his feet. KITT turns on the X-Ray, Infrared and Penetrating Radar. What, is he going to give the RV cancer? Oh, I kid. He's just seeing through walls. And using a parabolic microphone. It turns out that Skyler's crew has Agent MacGuffin's wife. The picture and audio cut out, which makes Sarah freak out a little. KITT gently suggests that she could try getting out of the car and looking through a window to see what's happening. Then he says the windows are too high for her, so Billy has to do it. What? They can't find her a box somewhere?
Billy creeps up to the RV in an incredibly conspicuous fashion and gets caught by Skyler but escapes. He tells Sarah, and then the rest of the cast, that he saw Knight Industries technology. Sarah's father (you remember, Bruce Davison -- I'm sure his character has a name, but since he only gets two lines per episode and there are like 50 other regulars, it's hard to keep track of) tells us that it's a next-generation stealth missile that can modify its attack profile based on its target. Billy points out that there's a chip in them that's supposed to recognize friendly targets, so it shouldn't have shot at KITT, anyway. There's more talk about what to do, and Alex pulls everyone back to HQ so we take a break for the "KITT drives into the hangar" scene that someone thinks is awesome.