The following should be read in conjunction with our unaudited financial statements for the three and nine months ended September 30, 2008 included herein, and our audited financial statements for the years ended December 31, 2007, 2006 and 2005, and the notes to these financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2007. Except for the historical information contained herein, certain matters set forth in this report are forward-looking statements that are based on management's current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and as expressed in such forward-looking statements.

Overview

We are engaged in the specialty product home improvement business. In our home improvement business, we manufacture or procure, design, sell and install custom quality, specialty home improvement products. Our principal product lines include kitchen and bathroom cabinet refacing products, wood and composite decks and related accessories. We manufacture certain of our kitchen and bath cabinet refacing products at our Charles City, Virginia facility. We manufacture wood deck products and accessories at our Woodbridge, Virginia facility. We also maintain a marketing center in Boca Raton, Florida.

Since October 2003 we have engaged in an aggressive expansion program with The Home Depot. In May 2006 we entered into a three year service provider agreement, or SPA, with The Home Depot. Among other items, the agreement provides that we may not enter into agreements or other arrangements with any The Home Depot competitors for the marketing, sales and installation of our products. Additionally, the agreement provides that we will not offer our products and installation services in any market under any trademarks or brands other than as approved by The Home Depot. Prior to the agreement, in addition to marketing our products under the nationally recognized brands "The Home Depot Kitchen and Bathroom Refacing" and "The Home Depot Installed Decks", we also marketed our products directly to consumers under our own Facelifters and Designer Deck brands. Our home improvement products are marketed through a variety of sources including direct mail, marriage mail, magazines, newspaper inserts and in-store displays at selected The Home Depot stores.

On February 28, 2008, we and The Home Depot mutually agreed to extend the termination date of the SPA to February 28, 2011 and to expand our kitchen cabinet refacing and countertop products into the Columbus, Cincinnati and Cleveland, Ohio, and Pittsburgh, Pennsylvania markets, encompassing approximately 96 The Home Depot stores. In the quarter ended June 30, 2008, we completed the opening of sales and installation centers in these markets. As a result of the addition of the Ohio and Pittsburgh markets, we are now the sole provider of kitchen cabinet refacing products and services to The Home Depot in the United States.

Also on February 28, 2008, we and The Home Depot mutually agreed to terminate the installed deck program under the SPA. As a result, effective February 29, 2008, we ceased receiving customer leads from The Home Depot for our deck products in the Midwest, Boston, Connecticut, Virginia Beach and Atlanta markets, and on October 15, 2008 we ceased receiving customer leads in our remaining deck markets, including Northern Virginia, Maryland, Philadelphia, New Jersey and New York. We will complete the installation of all pending deck orders for The Home Depot customers in these markets, and we will continue to honor our warranty service obligations to The Home Depot deck customers.

We had planned to return to marketing our deck products under our own Designer Deck brand in the Northern Virginia, Maryland, Philadelphia and New Jersey markets after the phase-out of our deck products in The Home Depot stores was completed. However, as a result of a number of factors, on November 11, 2008 we determined that upon completion of the existing deck orders we would cease offering deck products. We also intend to offer for sale our Woodbridge, Virginia deck manufacturing facility and equipment. Among other items, the factors we considered in making our decision included (i) our growth strategy to concentrate our resources on offering products that can be distributed across a wider geographic footprint of our strategic partner, The Home Depot, (ii) our expectation for continuing depressed demand for deck products as a result of the softness in the housing market, and (iii) the

immediate challenge and expense of reintroducing our Designer Deck brand as we enter the seasonal downturn for deck sales. In connection with our decision to cease offering deck products, we expect to incur charges of approximately $150,000 in the fourth quarter of 2008 related to increased depreciation of certain manufacturing equipment due to a change in the remaining estimated useful life, severance costs and other shutdown related expenses. We do not expect an impairment charge related to our Woodbridge manufacturing facility.

We will continue, on an exclusive basis, to offer our kitchen and bath refacing products to The Home Depot customers in the designated markets. At September 30, 2008, our home improvement business served The Home Depot in 42 markets covering 27 states. Our kitchen products are available in all 42 markets encompassing approximately 1,660 The Home Depot stores and 33 The Home Depot - Expo stores. Our bath products are currently offered in 16 markets which include approximately 523 stores. During the fourth quarter of 2008 we will expand the bath product offering into south Florida, including markets in Fort Lauderdale, Miami and Palm Beach County encompassing approximately 44 The Home Depot stores.

Since July 2008 we and The Home Depot have been testing a pilot program in the Dallas market to offer a new range of home storage organization products for bedroom closets and the garage. We are simultaneously introducing our closet organization systems with the garage systems as a total solution to the consumer for their home organization needs. We are currently working with The Home Depot to provide for a roll out of these products to be offered in markets where we currently offer our kitchen refacing products. We anticipate we will begin this roll out in the first quarter of 2009 and complete the roll out in the third quarter of 2009. In connection with this product category, during the second quarter of 2008 we purchased a 33.33% membership interest in Blue Viking Storage, LLC, a distributor of garage organizer systems and accessories. In conjunction with the membership interest, we entered into a marketing consulting agreement with Blue Viking in which Blue Viking will provide us sales and marketing consulting to support our entry and expansion into the garage and home storage industry.

Results of Operations

Results of operations for the three months ended September 30, 2008 as compared
to the three months ended September 30, 2007:



                                                                      (In Thousands)
                                                             Three months ended September 30,
                                                                 2008                  2007
                                                             $           %         $          %
Revenues                                                    34,982      100.0    34,249     100.0
Costs of remodeling contracts                               16,701       47.8    16,489      48.1

Gross Profit                                                18,281       52.2    17,760      51.9
Costs and expenses:
Branch operations                                            2,319        6.6     2,081       6.0
Sales and marketing expense                                 12,404       35.5    11,153      32.6
General and administrative                                   2,564        7.3     2,569       7.5

Operating income                                               994        2.8     1,957       5.7
Interest expense                                                44        0.0        54       0.1
Other income                                                    42        0.0       100       0.3

Income from continuing operations before income taxes          992        2.8     2,003       5.8
Income tax expense                                             392        1.1       767       2.2

Net income from continuing operations                          600        1.7     1,236       3.6
Net gain (loss) on discontinued operations, net of tax          -          -     (2,466 )    (7.2 )

Net income                                                     600        1.7    (1,230 )    (3.6 )

Management's Summary of Results of Operations.

New orders were $30,777,000 in the third quarter ended September 30, 2008, as compared with $30,952,000 in the third quarter ended September 30, 2007. New orders for deck products declined $2,585,000 in the third quarter 2008 as compared to the same quarter last year, reflecting the phase out of our deck product offering. Excluding deck products, new orders increased $2,410,000, or 9.0%. Approximately 52% of the increase, or $1,227,000 resulted from new markets we opened in 2008. The remaining increase, 48%, or $1,183,000, increased in markets that were opened greater than one year and principally resulted from an increase in the number of customer appointments for our kitchen and countertop products. We attribute the increase in the number of customer appointments to our in-store-marketing program that we initiated in June 2007. Our in-store marketing program involves staffing marketing promoters in select The Home Depot stores during certain times of the week. Marketing promoters network with The Home Depot's customers to generate customer interest in our products, answer consumer's questions about our products and schedule in-home presentations. We believe this program has proved to be an effective vehicle to penetrate the market and proactively generate prospective customer interest in our products and services.

Despite the success of our in-store marketing program, we believe that continuing economic pressures, including the softness in the housing market, uncertainty in the credit markets, rising unemployment and higher energy prices, have had an adverse affect on our generation of new orders and that these macro economic conditions will persist through the first half of 2009. Approximately 85% of our customers elect to utilize financing products provided through The Home Depot to fund their home improvement project. Customers must qualify under these programs to receive financing. During the current period, we have experienced a sharp increase in the number of customers who were declined financing for their home improvement project, thereby adversely impacting our new orders. During the third quarter 2008, approximately 82% of customers electing a financing product were approved as compared to 93% during the third quarter 2007.

Revenues for the three months ended September 30, 2008 increased 2.1% to $34,982,000 as compared to $34,249,000 in the three months ended September 30, 2007. Revenues from deck products declined $4,808,000 as compared to the prior year quarter reflecting the phase out of the product offering. Excluding deck products, revenues increased $5,541,000, or 21.6% to $31,178,000 in the third quarter 2008 as compared to $25,637,000 in the same quarter last year. Of this increase, revenues from markets that were opened in 2008 contributed $1,227,000 and revenues in markets opened greater than one year increased $4,314,000.

Net income from continuing operations was $600,000, or $0.08 per share in the third quarter 2008 as compared to $1,236,000, or $0.15 per share in the same quarter last year. The decline in profitability is principally the result of an increase in marketing expense. A substantial portion of our marketing expenses consist of fees we pay to The Home Depot on each sale and fees we pay in connection with our in-store marketing program. Our marketing cost to acquire a customer through our third party provider in-store marketing program has been higher than the cost of acquiring the customer without the utilization of the in-store program. The higher cost of the in-store program is a result of the combined fees we pay to our third party marketing firm and The Home Depot on each sale, and the effective fee rate of the program, which is impacted by among other items, sales close rates. During the third quarter of 2008, a higher percentage of our revenues were generated from our in-store marketing program as compared with the same quarter last year. Consequently, the combination of the higher cost of the in-store program and the increase of revenues generated from this medium resulted in higher marketing cost and reduced net margin. However, management believes that it is important to recognize that the in-store program has been effective at generating a greater quantity of customer leads than we had previously achieved without the program and that the program sourced a significant portion of the revenues we generated in the period.

Results of Operations - Detail Review

Revenues for the three months ended September 30, 2008 were $34,982,000 as compared to $34,249,000 in the three months ended September 30, 2007. In the second quarter of 2008, we opened kitchen refacing sales and installation centers in Columbus, Cincinnati and Cleveland, Ohio, and Pittsburgh, Pennsylvania. Revenues in the third quarter 2008 from these new markets were $1,227,000. Revenues in markets opened greater than one year declined $494,000 due principally to a decline of $4,808,000 in deck revenues.

                                                    (In Thousands)
                                             Three months           Increase
                                          ended September 30,      (decrease)
                                           2008          2007          $
         Markets opened prior to 2008   $    33,755    $ 34,249   $       (494 )
         Markets opened in 2008               1,227          -           1,227

         Total revenues                 $    34,982    $ 34,249   $        733

Revenues and new orders for the three months ended September 30, 2008 and 2007, and backlog of uncompleted orders at September 30, 2008 and 2007 attributable to each of our product lines were as follows (in thousands):

                                                                                         Backlog as of
                                               Revenues             New Orders           September 30,
                                            2008       2007       2008       2007       2008       2007
Kitchen refacing and countertops          $ 29,127   $ 22,690   $ 26,681   $ 23,965   $ 15,181   $ 15,346
Bathroom refacing                            2,030      2,947      2,195      2,710      1,296      1,830
Decks                                        3,804      8,612      1,692      4,277      3,353      5,153
Other                                           21         -         209         -         193         -

Total                                     $ 34,982   $ 34,249   $ 30,777   $ 30,952   $ 20,023   $ 22,329

Kitchen refacing and countertops - New orders for kitchen and countertop products increased $2,716,000 or 11.3%, to $26,681,000 in the third quarter 2008 from $23,965,000 in the third quarter 2007. The increase in new orders reflects $1,231,000 from new market expansions and an increase in the number of customer appointments generated from our in-store marketing program which we initiated in late June 2007. The in-store marketing program consists principally of staffing marketing promoters in select The Home Depot stores during certain times of the week to generate customer interest in our products, answer consumer's questions about our products and schedule in-home presentations.

Revenues from kitchen refacing and countertop products increased $6,437,000 or 28.4%, to $29,127,000 in the third quarter 2008 from $22,690,000 in the same period last year. We generally complete the installation of a new order in approximately 60 days from the date of the order and therefore revenues in a given quarter are largely dependent on the backlog of uncompleted orders at the beginning of a quarter. The increase in revenues as compared to the prior year third quarter is partially due to higher backlog of orders at the beginning of the third quarter 2008 as compared to the backlog of orders entering the third quarter of 2007 ($17,628,000 at June 30, 2008 as compared to $14,070,000 at June 30, 2007). In addition, an increase of new orders in the current period combined with increased manufacturing and installation capacity contributed to the revenue increase. Our backlog of orders for kitchen and countertop products at September 30, 2008 was $15,181,000 as compared with $15,346,000 at September 30, 2007.

Bathroom refacing - New orders for bath products were $2,195,000 in the third quarter 2008 as compared with $2,710,000 in the third quarter last year. Management attributes the decline in bath product new orders to the Company's promotional emphasis on its kitchen products.

Revenues from bathroom refacing products decreased $917,000 or 31.1% to $2,030,000 in third quarter 2008 from $2,947,000 in the third quarter 2007. The decline in revenues reflected lower backlog of uncompleted orders at the beginning of the current quarter than at the beginning of the prior year third quarter ($1,132,000 at June 30, 2008 as compared to $2,067,000 at June 30, 2007). Our backlog of orders for bath products at September 30, 2008 was $1,296,000 as compared with $1,830,000 at September 30, 2007.

Decks - New orders for deck products were $1,692,000 in the third quarter 2008 as compared with $4,277,000 in the third quarter last year. Revenues for deck products were $3,804,000 in the third quarter 2008 as compared to $8,612,000 in the third quarter 2007. The decline in orders and revenues is a result of the phase out of the deck products in The Home Depot stores.

Gross profit in the third quarter 2008 was $18,281,000 or 52.2% of revenues as compared with $17,760,000, or 51.9% of revenues in the third quarter last year. The increase in gross profit reflected $397,000 from higher volume and $281,000, or 80 basis points, from favorable product mix, offset by $157,000, or 30 basis points, in higher cost of goods principally associated with our deck product line. In February 2008 we implemented certain changes in our deck products design which has increased the amount of steel hardware components utilized in our deck understructure. Additionally, hardware component prices have sharply increased due to global increases in steel prices. The higher materials usage and material prices have resulted in lower deck product gross profit margins. In May 2008 we implemented a price increase on our deck products.

Branch operating expenses were $2,319,000 and $2,081,000 for the third quarter 2008 and 2007, respectively. Branch operating expenses are primarily comprised of fixed costs associated with each of our sales and installation centers, including rent, telecommunications, branch administration salaries and supplies. Branch operating expenses increased $138,000 as a result of the expansion of our operations in new markets opened in 2008. The remaining increase of $100,000 is principally due to increased wages and benefits expenses.

Marketing expenses were $7,911,000, or 22.6% of revenues in the third quarter 2008 as compared with $6,741,000, or 19.7% of revenues in the third quarter 2007. Marketing expenses consist primarily of marketing fees we pay to The Home Depot on each sale, commissions on each sale associated with our in-store marketing program, advertising, and personnel and facility costs related to maintaining our marketing center.

In June 2007 we initiated a new in-store marketing program. Concurrent with the expansion of the in-store program we reduced our media and direct mail advertising expenditures. In our in-store program we utilize an independent marketing firm to staff The Home Depot stores and we pay a commission fee on each customer lead generated under the program that results in a new sales order. The commission fee is expensed to marketing expense when the related contract revenues are recognized. If certain performance criteria are met, a bonus is payable to the marketing firm, and if the criteria are not met, a bonus is payable to us. In the second quarter 2008, we extended the program with our third party provider as well as initiated our own employee-based program in selected The Home Depot stores.

Our marketing cost to acquire a customer through our third party provider in-store marketing program has been higher than the cost of acquiring the customer without the utilization of the in-store program. However, the program has been effective at generating a greater quantity of customer leads than we have previously achieved without the program. The higher cost is a result of the combined fees we pay to our third party marketing firm and The Home Depot on each sale, and the effective rate of the program after the bonus, which is impacted by among other items, sales close rates.

The increase in marketing expenditures as a percentage of revenues reflects an increase in the mix of our business which is generated from our in-store program at a higher effective cost. We are continuing to evaluate the effectiveness of the in-store program.

Sales expenses, which consist primarily of sales commissions and bonuses, sales manager salaries, sales materials, travel and recruiting expenses were $4,493,000, or 12.9% of revenues for the third quarter 2008 as compared to $4,412,000 or 12.9% of revenues in the prior year third quarter. The increase in sales expense is primarily due to higher commissions on increased revenues as compared to the prior year period and increased costs related to new sale and installation centers opened in 2008.

General and administrative expenses were $2,563,000, or 7.3% of revenues, for the third quarter ended September 30, 2008, as compared to $2,569,000, or 7.5% of revenues in the same quarter last year. General and administrative expenses reflected an increase in legal fees of $161,000 offset by a workers' compensation insurance refund of $117,000, a reduction in consulting fees of $40,000 and reduced stock compensation of $22,000.

Results of Operations

Results of operations for the nine months ended September 30, 2008 as compared
to the nine months ended September 30, 2007:



                                                                     (In Thousands)
                                                             Nine months ended September 30,
                                                                 2008                 2007
                                                            $             %       $          %
Revenues                                                  102,414       100.0   93,934     100.0
Costs of remodeling contracts                              48,649        47.5   44,265      47.1

Gross Profit                                               53,765        52.5   49,669      52.9
Costs and expenses:
Branch operations                                           6,823         6.7    5,907       6.3
Sales and marketing expense                                36,673        35.8   31,966      34.0
General and administrative                                  8,096         7.9    7,373       7.9

Operating income                                            2,173         2.1    4,423       4.7
Interest expense                                              128         0.1      153       0.2
Other income                                                  115         0.1      370       0.4

Income from continuing operations before income taxes       2,160         2.1    4,640       4.9
Income tax expense                                            844         0.8    1,795       1.9

Net income from continuing operations                       1,316         1.3    2,845       3.0
Net gain (loss) on discontinued operations, net of tax         (1 )       0.0   (2,742 )    (2.9 )

Net income                                                  1,315         1.3      103       0.1

Management's Summary of Results of Operations.

New orders increased 1.3% to $98,421,000 in the nine months ended September 30, 2008 as compared with $97,172,000 in the nine months ended September 30, 2007. Although new orders increased in the aggregate, new orders for deck products declined $10,292,000 due to the phase out of offering our deck products in The Home Depot stores. Excluding new orders for deck products in all markets, new orders were $88,994,000 in the nine months ended September 30, 2008 as compared with $77,453,000 in the same period last year, an increase of 14.9%. The increase resulted from an increase in the number of customer appointments for our kitchen and countertop products and new markets we opened in the second quarter of 2008. We attribute the increase in the number of customer appointments to our in-store-marketing program that we initiated in June 2007. New markets opened in 2008 contributed $2,210,000 in new orders in the nine months ended September 30, 2008.

Revenues for the nine months ended September 30, 2008 increased $8,480,000 or 9.0% to $102,414,000 as compared to $93,934,000 in the nine months ended September 30, 2007. Revenues from deck products declined $6,768,000 as compared to the prior year period reflecting the phase out of the product offering. Excluding deck products, revenues increased $15,248,000, or 19.8% to $92,100,000 in the nine months ended September 30, 2008 as compared to $76,852,000 in the same period last year. Of this increase, revenues from markets that were opened in 2008 contributed $1,419,000 and revenues in markets opened greater than one year increased $13,829,000.

Net income from continuing operations was $1,316,000, or $0.17 per diluted share, in the nine months ended September 30, 2008 as compared with $2,845,000 or $0.34 per diluted share in the nine months ended September 30, 2007. Our business is characterized by the need to continuously generate prospective customer leads. Although we increased our revenues, a substantial portion of our sales and marketing expenses are variable and increased as a result of the increased revenues. Marketing expenses consist principally of fees we pay to The Home Depot on each sale and fees we pay in connection with our in-store marketing program. However, our marketing cost to acquire a customer through our third party provider in-store marketing program has been higher than the cost of acquiring the customer without the utilization of the in-store program. The higher cost of the in-store program is a result of the combined fees we pay to our third party marketing firm and The Home Depot on each sale, and the . . .