The following should be read in conjunction with our unaudited financial statements for the three months ended March 31, 2009 included herein, and our audited financial statements for the years ended December 31, 2008, 2007 and 2006, and the notes to these financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2008. 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 custom kitchen and bathroom cabinet refacing products, laminate and solid-surface countertop products, and organizational storage systems for closets and garages. We market, sell and install our products and installed services exclusively through The Home Depot under a service provider agreement (SPA).

At March 31, 2009, 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. Our bath products are currently offered in 17 markets which include approximately 567 stores.

Last year, in the quarter ended June 30, 2008, we completed the opening of kitchen refacing sales and installation centers in Columbus, Cincinnati and Cleveland, Ohio, and Pittsburgh, Pennsylvania markets, encompassing approximately 96 The Home Depot stores.

In February 2008 we and The Home Depot agreed to terminate the installed deck program under the SPA. As a result, we began the transition to cease offering deck products. At March 31, 2009 we had one remaining deck order to complete the installation.

Also last year we and The Home Depot began testing a pilot program in the Dallas market to offer a new range of home storage organization products for closets and the garage. We are currently working to roll out offering these products in all markets where we currently offer our kitchen refacing products. At March 31, 2009, we had completed the introduction of these products in 8 markets. We expect to complete the roll out into the remaining markets in the third quarter of 2009.

In December 2008 we entered into a franchise agreement (the "Franchise Agreement") with Harris Research, Inc., a wholly owned subsidiary of The Home Depot. The five year Franchise Agreement allows us to market, sell and apply a wood kitchen cabinet and wood floor refinishing system through selected The Home Depot stores in the Boston, Massachusetts, Long Island, New York, and Philadelphia, Pennsylvania markets under the brand name N-Hance. The N-Hance wood renewal system utilizes a proprietary process involving the application of N-Hance cleaners, neutralizers, repair/fillers, coloring agents, sealers and finishes. We began marketing these products in the first quarter 2009.

During the first quarter, we have generated approximately $550,000 in new sales orders for our home organization and N-Hance products.

In September 2007 we sold the assets of our consumer finance subsidiary and exited the consumer finance business. As a result of the transaction, the financial operating results from this business have been classified as discontinued operations in our Consolidated Statements of Operations.

Results of Operations

Results of operations for the three months ended March 31, 2009 as compared to
the three months ended March 31, 2008:



                                                                    (In Thousands)
                                                             Three months ended March 31,
                                                               2009                 2008
                                                           $          %         $          %
Revenues                                                 26,170     100.0     31,947     100.0
Costs of remodeling contracts                            11,690      44.7     15,387      48.2

Gross Profit                                             14,480      55.3     16,560      51.8

Costs and expenses:
Branch operations                                         2,096       8.0      2,164       6.8
Sales and marketing expense                              11,181      42.7     11,706      36.6
General and administrative                                2,760      10.6      2,697       8.4

Operating loss                                           (1,557 )    (6.0 )       (7 )    0.00
Interest expense                                             38       0.1         41       0.1
Other income                                                 36       0.1         41       0.1

Loss from continuing operations before income taxes      (1,559 )    (6.0 )       (7 )    0.00
Income tax benefit                                         (599 )    (2.3 )       (2 )    0.00

Net loss from continuing operations                        (960 )    (3.7 )       (5 )    0.00
Net loss on discontinued operations, net of tax              -         -          -         -

Net loss                                                   (960 )    (3.7 )       (5 )    0.00

Management's Summary of Results of Operations.

For the first quarter ended March 31, 2009, we had a net loss of $960,000, or $0.13 per share as compared to a net loss of $5,000, or $0.00 per share in the first quarter ended March 31, 2008. The widening loss in the current period reflects the prolonged weakness in the economic environment. The underlying macro economic factors including the weak housing market, rising unemployment and tightness in the consumer credit markets have resulted in reduced availability of consumer financing and a lack of consumer confidence which has had an adverse impact on our generation of new orders and underutilization of our production capacity. Although we have made certain cost adjustments in our operations, the decline in new orders and revenues has deleveraged our operating infrastructure and increased our effective cost of marketing.

Excluding deck products, which we ceased offering in 2008, our new orders for the first quarter ended March 31, 2009 declined approximately 16.5% to $24,756,000 as compared to $29,630,000 in the same period last year. The decline in new orders principally reflects a reduction in the number of customers approved for financing and a decline in sales close rates. Approximately 85% of our customers elect to utilize financing products provided principally through The Home Depot to fund their home improvement project. Customers must qualify under these programs to receive financing. Since the second half of 2008 we experienced a sharp increase in the number of customers who were declined financing for their home improvement project, thereby adversely affecting our new orders. In the first quarter, the number of customers approved for financing declined to 79.8% from 90.6% in the first quarter last year. In addition, the economic environment has resulted in a lack of consumer confidence which has adversely affected our sales close rates. We are continuing to explore alternatives to expand the availability of credit to end customers.

Revenues declined 18.1% to $26,170,000 as compared to $31,947,000 in the prior year quarter. Revenues in markets opened greater than one year declined $6,755,000, $2,118,000 of which is due to discontinuing the offering of deck products.

Our marketing costs increased from 21.7% of revenues in the first quarter last year to 27.6% in the first quarter 2009. The increase is principally the result of higher costs in our in-store marketing program. Our in-store marketing program is our largest marketing lead generation source. In January 2009 we incurred an increase in the

rate payable to our third party in-store provider. Additionally, during the first quarter 2009 an increasing percentage of our customer leads were generated through the in-store program. However, our sales close rates on this medium, which are nominally lower than other lead generation sources, declined further in the first quarter 2009. The net effect has resulted in increasing the effective cost of our marketing investment.

We are continuing to evaluate the effectiveness of our marketing programs, including our in-store program. During the first quarter we began to implement some strategic changes in our marketing initiatives with the goal of increasing new orders and reducing costs. Our initiatives involve making adjustments in our in-store marketing program, including targeting higher performing markets and scaling back our third-party program in underperforming areas, and we are reallocating marketing resources to enhance our efforts in areas with more experienced sales personnel and greater opportunity for consumer financing approval. We believe these actions will result in reduced marketing costs in the second quarter 2009.

Outlook:Our business relies on consumer demand for home improvement products and services and the availability of financing for home improvement projects. Although we believe the long-term outlook for the home improvement industry and our business is favorable, we expect the weakness in the current economic environment to prevail in the first half of 2009. We cannot predict if current market conditions will deteriorate further or the timing or strength of a recovery in the home improvement industry. Consequently, management does not expect a meaningful change in revenues in the second quarter 2009. Despite our cost control actions, we do not expect the cost savings associated with these actions to offset the impact of continued demand weakness and continued higher costs to acquire customers. Management will continue to address the operating environment to focus on its marketing strategy, and as necessary, continue to make cost adjustments to support its long-term objectives.

Results of Operations - Detail Review

Revenues for the three months ended March 31, 2009 declined 18.1% to $26,170,000 as compared to $31,947,000 in the prior year quarter. 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 quarter ended March 31, 2009 from these new markets were $978,000. Revenues in markets opened greater than one year declined $6,755,000, $2,118,000 of which is due to discontinuing the offering of deck products.

                                                    (In Thousands)
                                             Three months         Increase
                                            ended March 31,      (decrease)
                                            2009       2008          $
           Markets opened prior to 2008   $ 25,192   $ 31,947   $     (6,755 )
           Markets opened in 2008              978         -             978

           Total revenues                 $ 26,170   $ 31,947   $     (5,777 )

Revenues and new orders for the three months ended March 31, 2009 and 2008, and backlog of uncompleted orders at March 31, 2009 and 2008 attributable to each of our product lines were as follows (in thousands):

                                           Revenues              New Orders            Backlog as of March 31,
                                        2009       2008       2009         2008         2009             2008
Kitchen refacing and countertops      $ 24,069   $ 27,341   $ 22,458     $ 27,228   $      10,634    $      18,258
Bathroom refacing                        1,663      2,156      1,745        2,367             845            1,585
Decks                                      277      2,395        (72 )      3,624              10            5,469
Organization Systems                       112         55        370           35             316               11
Other                                       49         -         183           -              134               -

Total                                 $ 26,170   $ 31,947   $ 24,684     $ 33,254   $      11,939    $      25,323

Kitchen refacing and countertops - New orders for kitchen and countertop products declined $4,770,000 or 17.5%, to $22,458,000 in the first quarter 2009 from $27,228,000 in the first quarter 2008. The decline in new orders principally reflects a 21% decline in sales close rates and a reduction in the number of customers approved for financing. Management believes that the economic environment has resulted in a lack of consumer confidence which has adversely affected our sales close rates. In addition, approximately 85% of our customers elect to utilize financing products provided principally through The Home Depot to fund their home improvement project. Customers must qualify under these programs to receive financing. Since the second half of 2008 we experienced a sharp increase in the number of customers who were declined financing for their home improvement project, thereby adversely impacting our new orders. In the first quarter 2009, the number of customers approved for financing declined to 78.8% from 90.4% in the first quarter 2008.

Revenues from kitchen refacing and countertop products declined $3,272,000 or 12.0%, to $24,069,000 in the first quarter 2009 from $27,341,000 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, therefore revenues in a given quarter are largely dependent on the backlog of uncompleted orders at the beginning of a quarter. The decrease in revenues principally reflects lower backlog of orders at the beginning of the period as compared to the beginning of the same period last year, as well as lower new orders in the current period, partially offset by reduced installation cycle time. As a result of the lower amount of orders, we have excess installation capacity which has allowed us to reduce our installation cycle to 45 days in the first quarter of 2009.

Bathroom refacing - New orders for bath products were $1,745,000 in the first quarter 2009 as compared with $2,367,000 in the first quarter last year. The decrease is principally due to fewer customer leads and lower sales close rates.

Revenues from bathroom refacing products decreased 22.9% to $1,663,000 in first quarter 2009 from $2,156,000 in the first quarter 2008. 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 first quarter and lower orders in the current period.

Decks -We discontinued offering deck products in 2008. The decline in orders and revenues is a result of the phase out of the deck products in The Home Depot stores. During the current period we had customer cancellations of $72,000 which is reflected as negative orders in the table above.

Gross profit in the first quarter 2009 was $14,480,000 or 55.3% of revenues as compared with $16,560,000, or 51.8% of revenues in the first quarter last year. Gross profit in dollar terms declined principally due to lower revenues. However, the increase in gross profit as a percentage of revenues reflects 135 basis points improvement resulting from favorable product mix and 287 basis points improvement from the combination of recent price increases and cost reductions.

Branch operating expenses were $2,096,000 and $2,164,000 for the first quarter 2009 and 2008, 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.

Marketing expenses were $7,215,000 or 27.6% of revenues in the first quarter 2009 as compared with $6,921,000, or 21.7% of revenues in the first quarter 2008. Marketing expenses consist primarily of marketing fees we pay to The Home Depot on each sale, commissions we pay on each sale in which the customer lead was originated by our third party in-store marketing provider, advertising, and personnel and facility costs related to maintaining our marketing center.

In our in-store marketing program we primarily 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. 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. Our marketing cost to acquire a customer through our in-store marketing program is higher than when the customer is referred to us directly from The Home Depot. The higher cost is a result of two factors: (i) we pay a fee to both our third party marketing firm and The Home Depot on each sale, and (ii) our sales closing efficiencies are lower under the third party provider program than our other lead generation sources thereby increasing the effective fee rate of the program.

Although the in-store program has generated a substantial portion of our customer leads in the first quarter of 2009 and 2008, the overall effective cost of the program has increased as a result of an increase in the

commission rate we pay our in-store provider (which became effective January 1, 2009) and declining sales close rates. During the fourth quarter of 2008, we initiated an employee based in-store marketing program in selected markets to supplement our third party provider and to establish a presence in a greater number of The Home Depot stores. However, as a result of the increasing cost of our third party in-store program in certain markets, we are making adjustments and expanding our employee based program in these markets. We plan to continue to expand our employee model into additional The Home Depot stores. We are continuing to evaluate the effectiveness of the in-store program as well as utilizing media and direct mail where we believe our expenditures will provide an appropriate return.

Sales expenses, which consist primarily of sales commissions and bonuses, sales manager salaries, sales materials, travel and recruiting expenses were $3,966,000, or 15.2% of revenues for the first quarter 2009 as compared to $4,785,000, or 15.0% of revenues in the prior year first quarter. The decrease in sales expense is primarily due to lower sales commissions and bonuses on reduced revenues as compared to the prior year period.

General and administrative expenses were $2,760,000, or 10.6% of revenues, for the first quarter ended March 31, 2009, as compared to $2,697,000, or 8.4% of revenues in the same quarter last year. The increase in general and administrative expenses is principally due to an increase in legal fees of $75,000.

Liquidity and Capital Resources

We have historically financed our liquidity needs through cash flows from operations, borrowing under bank credit agreements and proceeds from the sale of common stock. At March 31, 2009, we had approximately $9,170,000 in cash and cash equivalents and $2,061,000 in investments in marketable securities. Working capital at March 31, 2009 was $15,145,000 as compared to $16,375,000 at December 31, 2008.

Cash used in operations was approximately $385,000 in the three months ended March 31, 2009 as compared to $3,264,000 in the same period last year. During the three months ended March 31, 2009 we utilized $112,000 for capital expenditures principally consisting of machinery, equipment, computer hardware and software and furniture and fixtures. Interest earnings from our investment in a tax free bond fund are reinvested into the fund to purchase additional investments. The tax free bond fund investment is reported in the caption "Marketable Securities" on our Consolidated Balance Sheets.

On March 13, 2008, the Board of Directors authorized the repurchase of the Company's outstanding stock up to $2 million. Any repurchase under our stock repurchase program may be made in the open market at such times and such prices as we may determine appropriate. During the three months ended March 31, 2009 we repurchased 26,097 shares at a cost of approximately $52,000. Cumulative repurchases through March 31, 2009 were 338,350 shares at a cost of approximately $1,026,000.

Debt under the Company's credit facilities consisted of the following:

                                                             March 31,      December 31,
                                                               2009             2008
Frost Term loan                                             $ 1,113,329    $    1,133,330
Mortgage payable in monthly principal and interest
payments of $19,398 through January 1, 2018                   1,515,191         1,545,556
Other                                                            65,028            66,004

Total Long-Term Debt                                          2,693,548         2,744,890
Less Current Portion                                            219,335           214,254

Long-Term Portion                                           $ 2,474,213    $    2,530,636

The Term Loan is payable in monthly principal payments of $6,667 plus accrued interest until February 10, 2011, at which time any outstanding principal and accrued interest is due and payable. Interest is payable on the unpaid balance at the London Interbank Offered Rate, or LIBOR, plus 2.0% (3.23% at March 31, 2009 and 3.18% at December 31, 2008).

We also have a mortgage on our Woodbridge, Virginia deck warehousing, manufacturing and office facilities. The mortgage is secured by this property. Interest on the mortgage is 7.25% per annum and the mortgage is subject to a prepayment premium. The mortgage is payable in monthly principal and interest payments of $19,398

through January 1, 2018. In connection with the Company's decision to cease offering deck products, the Company is offering for sale its Woodbridge facility. Upon sale, the Company's mortgage on the building will be retired using the proceeds from the sale.

We have a line of credit under our loan agreement with Frost National Bank (the "Borrowing Base Line of Credit"). The Borrowing Base Line of Credit, as amended, allows borrowings up to $4 million for working capital. Borrowings and required payments under the Borrowing Base Line of Credit are based upon an asset formula involving accounts receivable and inventory. At March 31, 2009 we had no balance outstanding under the Borrowing Base Line of Credit, and had a borrowing capacity of approximately $3,800,000. The Borrowing Base Line matures May 2, 2010, at which time any outstanding principal and accrued interest is due and payable.

Our credit facilities contain covenants, which among other matters, (i) limit our ability to incur indebtedness, merge, consolidate and sell assets;
(ii) require us to satisfy certain ratios related to tangible net worth and liquidity; and (iii) limit us from making any acquisition which requires in any fiscal year $1.0 million cash or $2.0 million of cash and non-cash consideration. We are in compliance with all restrictive covenants at March 31, 2009.

In connection with our agreement with The Home Depot, we will open sales and installation centers as we enter new markets. Opening these facilities requires expenditures for facility improvements, machinery, furniture and fixtures, inventory, product displays, sales kits and requires cash to fund operating losses during the initial months following the opening of a facility. In addition, our initiatives in 2009 with The Home Depot included the introduction of additional products in markets we serve. Introducing additional products requires expenditures customarily associated with rolling out products in new territories.

We believe we will be successful in executing our initiatives and that we will have sufficient cash and borrowing capacity under our credit facilities to meet our anticipated working capital needs for our current operations over the next twelve months and that such capacity will be adequate to fund the expansion of our operations under our agreement with The Home Depot for the next 12-18 months. However, if we need additional capital to execute our business strategy or fund our operations, we may have to issue equity or debt securities. If we issue additional equity securities, the ownership percentage of our stockholders will be reduced. If we borrow money, we may incur significant interest charges which could reduce our net income. Holders of debt or preferred securities may have rights, preferences or privileges senior to those of existing holders of our common stock. However, additional financing may not be available to us, or if available, such financing may not be on favorable terms.

Critical Accounting Policies

For a discussion of our critical accounting policies, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies" included in our Annual Report on Form 10-K for the year ended December 31, 2008. Except as noted below, there have been no material changes to the critical accounting policies discussed in our Annual Report on Form 10-K for the year ended December 31, 2008.

In February 2008, Financial Accounting Standards Board ("FASB") issued FASB Staff Position ("FSP") FAS 157-2, "Effective Date of FASB Statement No. 157", which delayed the effective date of Statement of Financial Accounting Standard ("SFAS") No. 157 for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed in the financial statements on a nonrecurring basis. The FSP partially deferred the effective date of SFAS 157 to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years for items within the scope of this FSP. The Company applied the provisions of SFAS 157 to nonfinancial assets and nonfinancial liabilities beginning January 1, 2009. The adoption did not have a material effect on the Company's results of operations or financial position.

Recent Accounting Pronouncements

In April 2009, the FASB issued FSP No. FAS 107-1, Interim Disclosures about Fair Value of Financial Instruments. FSP 107-1 requires disclosures about fair value of financial instruments for interim reporting periods as well as in annual financial statements. FSP 107-1 will be effective for us for the quarter ending June 30, 2009. The Company expects to adopt this FSP for the quarter ending June 30, 2009 and does not expect the adoption of this FSP to have a material impact on its consolidated financial statements.

On April 9, 2009, the FASB issued FASB Staff Position FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have . . .