A 25-year-old man was spotted by a local fisherman in the water near Dobroyd Head at Balgowlah Heights shortly before 4.50am on Saturday.
He was rescued by surf lifesavers on jet-skis and taken to Little Manly Beach where he told police his boat flipped during a test drive, throwing him, his 49-year-old friend and a dog into the water.
The pair launched the 12-foot runabout from Tunks Park boat ramp at Northbridge about 9pm the previous evening, before running into rough seas and capsizing around 3am.
The dog was washed away but both men clung to the boat for hours before the 49-year-old man drifted away.
The 49-year-old man, who has no fixed address, is still missing as a major air, sea and land search continues.
Veale said the two men had known each other for about two years, and the 49-year-old was interested in buying the boat from his younger friend.
There were no life jackets, lights or safety gear on board when the pair set off, but search and rescue teams are not giving up hope of finding the missing fisherman alive.
His friend is recovering at home after being treated for hypothermia and injuries to his wrist.
