The following should be read in conjunction with our unaudited financial statements for the three and six months ended June 30, 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 June 30, 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. As of June 30, 2009 we had completed the manufacture and installation of all custom order deck products.

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 garages. At June 30, 2009, we had completed the introduction of these products in 15 markets. We expect to complete the roll into 10 additional 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.

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 June 30, 2009 as compared to
the three months ended June 30, 2008:



                                                       (In Thousands)
                                                 Three months ended June 30,
                                                  2009                  2008
                                              $           %          $        %
        Revenues                            25,503      100.0      35,485   100.0
        Costs of remodeling contracts       11,196       43.9      16,561    46.7

        Gross Profit                        14,307       56.1      18,924    53.3

        Costs and expenses:
        Branch operations                    1,935        7.6       2,340     6.6
        Sales and marketing expense         10,378       40.7      12,563    35.4
        General and administrative           2,453        9.6       2,835     8.0
        Legal settlement                     1,500        5.9          -       -

        Operating income (loss)             (1,959 )     (7.7 )     1,186     3.3
        Interest expense                        36        0.1          44     0.1
        Other income                            30        0.1          32     0.1


        Income (loss) before income taxes   (1,965 )     (7.7 )     1,174     3.3
        Income tax expense (benefit)          (754 )     (3.0 )       454     1.3


        Net income (loss)                   (1,211 )     (4.7 )       720     2.0

Management's Summary of Results of Operations.

For the second quarter ended June 30, 2009, we had revenues of $25,503,000 as compared to $35,485,000 in the same quarter last year. Excluding revenues from deck products which we phased out in 2008, revenues declined $5,841,000 from $31,370,000 in the prior year second quarter.

Net loss for the second quarter 2009 was $1,211,000, or $0.17 per share. The loss in the period included a pre-tax charge of $1,500,000 related to a litigation settlement. Excluding the one time charge, net loss for second quarter 2009 was $286,000, or $0.04 per share as compared to net income of $720,000, or $0.09 per share in the second quarter 2008.

The loss in the current period reflects the prolonged weakness in the economy. 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, yielding a loss in the period.

New orders for the second quarter ended June 30, 2009 were $26,540,000 as compared to $34,390,000 in the same period last year. Excluding deck products, new orders declined 12.4% as compared to $30,280,000 in the same period last year. The decline in new orders principally reflects a reduction in the number of customer appointments and a decline in the number of customers approved for financing. 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 quarter 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. Prior to the second quarter 2008, an average of 93% of customers seeking financing for their home improvement project were approved for financing. In the second quarter 2009, the number of customers approved for financing declined to 83.6% from 86.7% in the second quarter 2008.

Our marketing costs increased from 21.8% of revenues in the second quarter last year to 25.2% in the second quarter 2009. The increase is principally the result of higher costs to acquire a customer through our in-store marketing program. Our in-store marketing program is our largest marketing lead generation source. During the second quarter 2009 we continued to implement strategic changes in our marketing initiatives as a result of the increasing cost of our third party in-store program. Our initiatives include expanding an employee based in-store program and scaling back our third-party in-store program in underperforming areas, targeting higher performing markets, and reallocating marketing resources to enhance our efforts in areas with our more experienced sales personnel and greater opportunity for consumer financing approval. Although we believe these actions will ultimately reduce our lead generation costs, our start up costs related to expanding our employee in-store program has resulted in higher costs in the second quarter. We are continuing to evaluate the effectiveness of our marketing programs with the goal of increasing new orders and reducing costs.

Outlook: Our business relies on consumer demand for home improvement products and services and the availability of financing for home improvement projects. We believe the long-term outlook for the home improvement industry and our business is favorable. We believe we are beginning to see positive macro economic signals, such as recent reports of improvement in the housing market, and we see positive signals in our business, with second quarter over first quarter improvements in new orders, sales closing rates and an increase in the number of customers approved for financing. These positive signals lead us to have confidence that the near term economic environment will improve and the long term outlook remains strong. Although we cannot predict the strength of a recovery in the home improvement industry, we expect further quarter over quarter improvement in the near term. However, we do not expect our cost control 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 June 30, 2009 declined 28.1% to $25,503,000 as compared to $35,485,000 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 June 30, 2009 from these new markets were $902,000 as compared to $192,000 in the prior year period.

                                                    (In Thousands)
                                             Three months         Increase
                                            ended June 30,       (decrease)
                                            2009       2008          $
           Markets opened prior to 2008   $ 24,601   $ 35,293   $    (10,692 )
           Markets opened in 2008              902        192            710

           Total revenues                 $ 25,503   $ 35,485   $     (9,982 )

Revenues and new orders for the three months ended June 30, 2009 and 2008, and backlog of uncompleted orders at June 30, 2009 and 2008 attributable to each of our product lines were as follows (in thousands):

                              Revenues              New Orders           Backlog as of June 30,
                         2009          2008       2009       2008         2009            2008
Kitchen refacing and
countertops            $ 22,847      $ 28,675   $ 23,437   $ 28,043   $     11,224    $     17,628
Bathroom refacing         1,977         2,663      2,074      2,211            942           1,132
Decks                       (26 )       4,115         -       4,110             -            5,464
Organization systems        538            32        860         26            638               4
N-Hance                     167            -         169         -             136              -

Total                  $ 25,503      $ 35,485   $ 26,540   $ 34,390   $     12,940    $     24,228

Kitchen refacing and countertops - New orders for kitchen and countertop products declined $4,606,000 or 16.4%, to $23,437,000 in the second quarter 2009 from $28,043,000 in the second quarter 2008. The decline in new orders is principally due to a decline in the number of customer appointments and a reduction in the number of customers approved for financing. Management believes that these results reflect the prolonged weakness in the economy which has resulted in a lack of consumer confidence adversely affecting consumer demand. 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 quarter of 2008 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. In the second quarter 2009, the number of customers approved for financing kitchen and countertop products declined to 82.7% from 86.6% in the second quarter 2008. However, the number of customers approved for financing in the second quarter 2009 improved from 78.8% in the first quarter 2009.

Revenues from kitchen refacing and countertop products declined $5,828,000 or 20.3%, to $22,847,000 in the second quarter 2009 from $28,675,000 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, reflecting the weak economic environment.

Bathroom refacing - New orders for bath products were $2,074,000 in the second quarter 2009 as compared with $2,211,000 in the second quarter last year. The decrease is principally due to lower sales closing rates.

Revenues from bathroom refacing products decreased 25.8% to $1,977,000 in the second quarter 2009 from $2,663,000 in the second 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 second quarter.

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 issued $26,000 in price refunds on customer orders which were completed in prior periods.

Organization Systems - New orders for organization systems products were $860,000 in the second quarter 2009 as compared to $26,000 in the same period last year, and revenues were $538,000 and $32,000, respectively. Commencing in January 2009 we began to roll out the offering of home storage organization systems products in certain markets where we currently offer our kitchen refacing products. As of June 30, 2009, we offered organization system products in 15 markets.

Gross profit in the second quarter 2009 was $14,307,000 or 56.1% of revenues as compared with $18,924,000, or 53.3% of revenues in the second 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 129 basis points improvement resulting from favorable product mix and 151 basis points improvement principally from the combination of recent price increases and cost reductions.

Branch operating expenses were $1,935,000 and $2,340,000 for the second 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. The decline in branch operating expenses is due to cost reductions.

Marketing expenses were $6,416,000 or 25.2% of revenues in the second quarter 2009 as compared with $7,719,000, or 21.8% of revenues in the second 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 and employee based in-store marketing program.

We generate a substantial portion of our customer leads through our in-store program. In our in-store marketing program, we utilize both an independent marketing firm and our employees to staff The Home Depot stores. In connection with our third party in-store marketing provider, we pay them a commission fee on each customer lead they generate that results in a new sales order. If certain performance criteria are met, a bonus is payable to them, and if the criteria are not met, a refund is due us which reduces the effective rate of the program.

During the fourth quarter of 2008, we initiated an employee based in-store marketing program in selected markets to supplement our third party in-store 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, during the first and second quarters of 2009, we significantly expanded our employee based program, including targeting higher performing markets and scaling back our third party in-store marketing program in underperforming markets. Although we believe these actions will ultimately reduce our lead generation costs, our start up costs and start up inefficiencies have resulted in higher costs in the second quarter.

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 incur costs to employ our staff, or we pay a commission fee to our third party in-store marketing provider, in addition to the fee we pay to The Home Depot on each sale, and
(ii) our sales closing efficiencies are generally lower on customer leads sourced through our in-store marketing program than our other lead generation sources thereby increasing the effective cost of the program.

Marketing expense in dollar terms declined in the second quarter 2009 from the same quarter last year principally due to lower fees paid to The Home Depot which resulted from the lower revenues in current period. Marketing expense as a percentage of revenues increased in the second quarter 2009 as compared to the same quarter last year resulting from increased costs associated with our employee based in-store program and an increase in the commission rate we pay our third party in-store provider (which became effective January 1, 2009).

Sales expenses, which consist primarily of sales commissions and bonuses, sales manager salaries, sales materials, travel and recruiting expenses were $3,962,000, or 15.5% of revenues for the second quarter 2009 as compared to $4,844,000, or 13.6% of revenues in the prior year second quarter. Sales expense in dollar terms decreased largely due to lower sales commissions and bonuses on reduced revenues as compared to the prior year period.

General and administrative expenses were $2,453,000, or 9.6% of revenues, for the second quarter ended June 30, 2009, as compared to $2,835,000, or 8.0% of revenues in the same quarter last year. The decrease in general and administrative expenses reflects no executive bonus accrual as a result of the current period operating loss and reduced expenditures resulting from cost control measures.

On July 17, 2009, we entered into a Stipulation and Settlement Agreement in settlement of a certain class action lawsuit pending against us in the United States District Court for the Central District of California-Western Division. The settlement is subject to, among other things, preliminary and final court approval. Barring any unusual developments, we expect the settlement and approval process to be completed within a 4 to 6 month period. As of June 30, 2009, we have recorded a liability for the settlement of $1,500,000.

Results of operations for the six months ended June 30, 2009 as compared to the six months ended June 30, 2008:

                                                                    (In Thousands)
                                                               Six months ended June 30,
                                                               2009                  2008
                                                           $           %          $        %
Revenues                                                 51,673      100.0      67,432   100.0
Costs of remodeling contracts                            22,885       44.3      31,948    47.4

Gross Profit                                             28,788       55.7      35,484    52.6

Costs and expenses:
Branch operations                                         4,031        7.8       4,504     6.7
Sales and marketing expense                              21,559       41.7      24,269    35.6
General and administrative                                5,213       10.1       5,532     8.2
Legal settlement                                          1,500        2.9          -       -

Operating income (loss)                                  (3,515 )     (6.8 )     1,179     1.7
Interest expense                                             75        0.1          84     0.1
Other income                                                 66        0.1          72     0.1

Income (loss) from continuing operations before income
taxes                                                    (3,524 )     (6.8 )     1,167     1.7
Income tax expense (benefit)                             (1,353 )     (2.6 )       452     0.7

Net income (loss) from continuing operations             (2,171 )     (4.2 )       715     1.0
Net loss on discontinued operations, net of tax              -          -           -       -

Net income (loss)                                        (2,171 )     (4.2 )       715     1.0

Management's Summary of Results of Operations.

For the six months ended June 30, 2009, revenues declined 23.4% to $51,673,000 as compared to $67,432,000 in the prior year period. 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 six months ended June 30, 2009 from these new markets were $1,880,000 as compared to $192,000 in the prior year period. Excluding revenues from deck products, revenues declined $9,500,000 from $60,922,000 in the six months ended June 30, 2008.

We had a net loss of $2,171,000, or $0.30 per share as compared to net income of $715,000, or $0.09 per share in the six months ended June 30, 2009 and 2008, respectively. The loss in the six months ended June 30, 2009 included a $1,500,000 pre-tax charge related to a litigation settlement agreement. Excluding this one time charge, net loss in the six months ended June 30, 2009 was $1,247,000, or $0.17 per share. The loss in the current period reflects the impact of the prolonged weakness in the economic environment.

Excluding deck products, which we ceased offering in 2008, our new orders for the six months ended June 30, 2009 declined approximately 14.4% to $51,296,000 as compared to $59,910,000 in the same period last year. The decline in new orders principally reflects the weakness in consumer demand resulting from the weak economic environment. As compared to the prior year period, we experienced a 9% decline in the number of customer appointments, an 8% decline in customers approved for financing and an 11% decline in sales close rates.

Our marketing costs increased from 21.7% of revenues to 26.4% in the six months ending June 30, 2008 and 2009, respectively. 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. 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, during the first and second quarters of 2009 we significantly expanded our employee based program, including targeting higher performing markets and scaling back our third party program in underperforming markets. Although we believe these actions will ultimately reduce our lead generation costs, our start up costs and start up inefficiencies have resulted in higher costs in the current year period.

Results of Operations - Detail Review

Revenues for the six months ended June 30, 2009 declined 23.4% to $51,673,000 as compared to $67,432,000 in the prior year period. 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 six months ended June 30, 2009 from these new markets were $1,880,000 as compared to $192,000 in the prior year period. Excluding revenues from deck products, revenues declined $9,500,000 from the six months ended June 30, 2008.

                                                    (In Thousands)
                                              Six months          Increase
                                            ended June 30,       (decrease)
                                            2009       2008          $
           Markets opened prior to 2008   $ 49,793   $ 67,240   $    (17,447 )
           Markets opened in 2008            1,880        192          1,688

           Total revenues                 $ 51,673   $ 67,432   $    (15,759 )

Revenues and new orders for the six months ended June 30, 2009 and 2008, and backlog of uncompleted orders at June 30, 2009 and 2008 attributable to each of our product lines were as follows (in thousands):

                                           Revenues               New Orders            Backlog as of June 30,
                                        2009       2008       2009          2008         2009            2008
Kitchen refacing and Countertops      $ 46,916   $ 56,016   $ 45,895      $ 55,272   $     11,224    $     17,628
Bathroom refacing                        3,640      4,819      3,819         4,578            942           1,132
Decks                                      251      6,510        (72 )       7,734             -            5,464
Organization systems                       650         87      1,230            60            638               4
N-Hance                                    216         -         352            -             136              -
. . .