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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED MARCH 31, 2003

COMMISSION FILE NUMBER 0-18291

U.S. HOME SYSTEMS, INC.

(Name of Small Business Issuer Specified in Its Charter)

(214) 488-6300

(Issuer’s Telephone Number, Including Area Code)

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Applicable Only to Corporate Issuers

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $0.001 Par Value, 6,504,371 shares as of May 10, 2003.

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INDEX

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ITEM 1. Financial Statements

U.S. Home Systems, Inc.

Consolidated Balance Sheets

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U.S. Home Systems, Inc.

Consolidated Statements of Operations

(unaudited)

See accompanying notes.

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U.S. Home Systems, Inc.

Consolidated Statements of Stockholders’ Equity

(unaudited)

See accompanying notes.

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U.S. Home Systems, Inc.

Consolidated Statements of Cash Flows

(unaudited)

See accompanying notes.

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U.S. Home Systems, Inc.

Notes to Consolidated Financial Statements

(unaudited)

March 31, 2003

1. Organization and Basis of Presentation

U.S. Home Systems, Inc. (the “Company” or “U.S. Home”) is engaged in the manufacture, design, sale and installation of custom quality specialty home improvement products, and providing consumer financing services to the home improvement and remodeling industry.

On June 1, 2002, the Company completed an acquisition of certain assets of Reface, Inc. Reface is a Norfolk, Virginia-based home improvement business specializing in kitchen and bath remodeling.

On November 30, 2002, the Company acquired all of the outstanding capital stock of Deck America, Inc., (“DAI”) a privately held Woodbridge, Virginia based home improvement specialist providing patented solutions for the fabrication, sale and installation of decks and deck enclosures. In connection with the acquisition, the Company also acquired DAI’s manufacturing, warehousing and office facilities from an affiliate of DAI.

The accompanying interim consolidated financial statements of the Company and its subsidiaries as of March 31, 2003 and for the three-month period ending March 31, 2003 and 2002 are unaudited; however, in the opinion of management, these interim financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position, results of operations and cash flows. These financial statements should be read in conjunction with the consolidated annual financial statements and notes thereto included in the Company’s Annual Report on Form-10K for the year ended December 31, 2002.

2. Summary of Significant Accounting Policies

The Company’s accounting policies, which are in compliance with accounting principles generally accepted in the United States, require it to apply methodologies, estimates and judgments that have significant impact on the results reported in the Company’s financial statements. The Company’s annual report on Form 10-K includes a discussion of those policies that management believes are critical and require the use of complex judgment in their application. Since the date of that Form 10-K, there have been no material changes to the Company’s critical accounting policies or the methodologies or assumptions applied under them.

Finance Receivables Held For Sale

Finance receivables held for sale consist of consumer retail installment obligations (“RIO’s”) purchased from select remodeling contractors, with an anticipated average term of 100 months. The RIO’s are generally secured by the consumers residential real estate. RIO’s held for sale are typically held less than three months before portfolios of RIO’s are accumulated and sold. The Company has a limited credit risk associated with certain sales of the RIO’s. Finance receivables held for sale are carried at the lower of cost or estimated market value as determined by outstanding purchase commitments from investors. At March 31, 2003, the Company had no RIO’s for sale.

Finance Receivables Held For Investment

Finance receivables held for investment consist of RIO’s purchased from select remodeling contractors, with an anticipated average term of 100 months. Finance receivables held for investments are stated at the amount of the unpaid obligations, reduced by unearned interest, and an allowance for loan losses, as applicable. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to recover all amounts due according to the terms of the RIO. The accrual of interest on RIO’s is discontinued when it is considered impaired, generally when the loan is 90 days or more past due. A loan is placed back on the accrual status when both interest and principal are current. There were no loans considered impaired or on non-accrual as of March 31, 2003 and December 31, 2002.

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U.S. Home Systems, Inc.

Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies (continued)

An allowance for loan loss is established through a provision for loan losses charged against income. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the RIO’s in light of historical experience and adverse situations that may effect the obligors ability to repay. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Loans deemed to be uncollectible are charged against the allowance when management believes that the payments cannot be recovered or recovered from other sources. Subsequent recoveries, if any, are credited to the allowance. Allowance for loan losses on Finance Receivables Held For Investment at March 31, 2003 and December 31, 2002 was immaterial at both dates.

Accounts Receivable

Accounts receivable consist of amounts due from individuals, credit card sponsors, and financial institutions. Because of the diverse customer base, there are no concentrations of credit risk. The Company provides for estimated losses of uncollectible accounts. Allowance for bad debt was $126,664 and $63,059 at March 31, 2003 and December 31, 2002, respectively.

Inventory

Inventory (consisting of raw materials and work-in-process) is carried at the lower of cost (determined by the first-in, first-out method) or market. Inventories are recorded net of allowance for unusable, slow-moving and obsolete raw materials and work in progress. Reserves for slow-moving parts range from 0% for active parts with sufficient forecasted demand up to 100% for excess parts with insufficient demand or obsolete parts. Amounts in work in progress relate to costs expended on firm orders and are not generally subject to obsolescence.

Goodwill

Goodwill is accounted for in accordance with Financial Accounting Standards Board Statement No. 141, “Business Combinations” and Statement No. 142, “Goodwill and Other Intangibles”. In accordance with these statements, goodwill is not amortized to expense. However, the Company is required to analyze goodwill for impairment on a periodic basis. The Company has determined that its goodwill is not impaired.

Revenue Recognition

Contract revenue is recognized upon completion and acceptance of each home improvement contract. Cost of goods sold represents the costs of direct materials and labor associated with installations and manufacturing costs. Shipping and handling costs are expensed as incurred and included in cost of goods sold.

The Company recognizes revenues from sales of portfolios of RIO’s upon each portfolio sale equal to the sale amount less the cost of the purchased portfolio. During the period in which the Company is holding or accumulating portfolios of RIO’s, the Company earns finance charges on the outstanding balance of the RIO. Finance charges earned on RIO’s is included in Other Revenues as earned. Fees earned for collection and servicing of certain portfolios of RIO’s sold, are also included in Other Revenues.

Marketing

The Company’s marketing consists of a variety of media sources including television, direct mail, marriage mail, magazines, newspaper inserts, canvassing and telemarketing. The Company expenses all marketing costs as incurred. Marketing expenses were approximately $3,222,000 and $2,150,000 for the three-month periods ended March 31, 2003 and 2002, respectively.

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U.S. Home Systems, Inc.

Notes to Consolidated Financial Statements

2. Summary of Significant Accounting Policies (continued)

Stock Compensation

The Company accounts for stock options on the intrinsic value method in accordance with the terms of Accounting Principles Board No. 25, Accounting for Stock Issued to Employees, (APB No. 25). Under APB No. 25, if the exercise price of an option award is equal to or greater than the market price of the underlying stock on the grant date, then the Company records no compensation expense for its stock option awards. Pro forma information regarding net income and earnings per share is required by Statement of Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation, SFAS No. 123 and has been determined as if the Company had accounted for its stock options under the fair value method of that statement. The pro forma impact of applying SFAS 123 in the three months ended March 31, 2003 and 2002 will not necessarily be representative of the pro forma impact in future periods.

In the three-month period ended March 31, 2003, the Company issued options to certain employees to purchase 112,315 shares of the Company’s common stock.

Recent Accounting Pronouncements

The Financial Accounting Standards Board issued SFAS No. 143, Accounting for Asset Retirement Obligations, effective for fiscal years beginning after June 15, 2002, and SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which is effective for exit or disposal activities initiated after December 31, 2002. The Company adopted these two statements effective January 1, 2003. There was no effect on the financial statements related to this adoption.

Reclassifications

Certain reclassifications have been made to conform the prior year amounts to the current year presentation.

3. Information About Segments

The Company is engaged in two lines of business, the specialty product home improvement business and the consumer financing business. Accordingly, the Company’s reportable segments have been determined based on the nature of products offered to consumers.

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U.S. Home Systems, Inc.

Notes to Consolidated Financial Statements

3. Information About Segments (Continued)

The Company’s home improvement segment is engaged, through direct consumer marketing, in the design, sales, manufacturing, and installation of custom quality specialty home improvement products. The Company’s product lines include replacement kitchen cabinetry, kitchen cabinet refacing and countertop products utilized in kitchen remodeling, bathroom refacing and related products utilized in bathroom remodeling, wood decks and deck enclosures, and replacement windows. The Company operates sales and installation centers in 17 major metropolitan areas in the United States and manufactures its own cabinet refacing, custom countertops, bathroom cabinetry products and wood decks and deck enclosures.

The Company’s products are marketed under nationally recognized brands such as Century 21 Home Improvements, Renewal By Andersen and Home Depot “At Home Services”, as well as the Company’s own brands, “Facelifters^SM”, “Cabinet Clad^SM” and “USA Deck”. The Company has a license agreement with TM Acquisition Corp. (TM) and HFS Licensing Inc. (HFS) pursuant to a master license agreement between Century 21 Real Estate Corporation and each of TM and HFS (collectively, the “Licensor”). The license agreement provides for the Company to market, sell and install kitchen and bathroom remodeling products and replacement windows in specific geographic territories using the service marks and trademarks “CENTURY 21^™ Cabinet Refacing” and “CENTURY 21^™ Home Improvements”.

The Company also has an agreement with Renewal by Andersen (RbA), a wholly-owned subsidiary of the Andersen Corporation. The Andersen agreement provides for the Company to be the exclusive window replacement retailer on an installed basis for RbA in the greater Los Angeles area, including the counties of Los Angeles, Orange, Riverside, San Bernardino, San Diego, Santa Barbara and Ventura. In February 2002, the Company began operating in the southern California market under its agreement with RbA.

The Company markets its deck and deck enclosure products in the Washington, D.C. metropolitan area, including Baltimore, Maryland, and northern Virginia. On October 17, 2002, USA Deck entered into an agreement with the Home Depot^® to sell, furnish and install pre-engineered Designer Deck^® systems to Home Depot’s retail customers in certain markets, including the metropolitan areas of Washington D.C., Baltimore, Maryland, Richmond and Norfolk, Virginia. Under the agreement, USA Deck provides several pre-designed deck models under the Home Depot “At Home Services” brand to approximately 74 Home Depot stores.

The Company’s consumer finance business, which is conducted through it wholly owned subsidiary First Consumer Credit, Inc. (“FCC”), purchases consumer retail installment obligations contracts (“RIO’s”) from select remodeling contractors, including RIO’s generated by the Company’s home improvement operations. During the three-month period ended March 31, 2003 and March 31, 2002, FCC purchased approximately $2,568,000 and $793,000 of RIO’s from the Company’s home improvement operations, respectively.

Until February 2003, when FCC entered into the Credit Facility (see Note 6 – Credit Facilities), FCC sold portfolios of RIO’s to financial institutions and insurance companies under negotiated purchase commitments. In most cases, the Company retained the collection and servicing of these accounts on behalf of the purchaser. The acquisition, sale and servicing of the RIO’s generates both a one-time fee income and recurring income. Subsequent to entering into the Credit Facility, FCC changed its business model from selling, to financing portfolios of RIO’s. The ability to purchase and finance RIO’s provides FCC with earnings from finance charges for the life of the RIO, as opposed to a lesser, one-time origination fee it formerly earned.

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U.S. Home Systems, Inc.

Notes to Consolidated Financial Statements

3. Information About Segments (Continued)

The Company maintains discrete financial information of each segment in accordance with generally accepted accounting principles. The following presents certain financial information of the Company’s segments for the three-month periods ended March 31, 2003 and 2002, respectively:

4. Acquisitions

The Company’s acquisitions have been accounted for as purchases in accordance with Financial Accounting Standards Board Statement No. 141, “Business Combinations” and Statement No. 142, “Goodwill and Other Intangibles”. Operations of the acquired businesses are included in the accompanying consolidated financial statements from their respective dates of acquisition.

On June 1, 2002, the Company completed an acquisition of certain assets of Reface, Inc., a Virginia based home improvement company specializing in kitchen and bathroom remodeling.

On November 30, 2002, the Company acquired all of the outstanding capital stock of Deck America, Inc., (“DAI”) a privately-held Woodbridge, Virginia based home improvement specialist providing patented solutions for the fabrication, sale and installation of decks and deck enclosures.

The following unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2002 gives effect to the acquisition of Deck America as if it occurred January 1, 2002.

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U.S. Home Systems, Inc.

Notes to Consolidated Financial Statements

5. Inventory

Inventory consisted of the following:

6. Credit Facilities

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

On February 11, 2003, FCC entered into a $75 million credit facility agreement (the “Credit Facility”) with Autobahn Funding Company LLC (“Autobahn”) as the lender, and DZ Bank AG Deutsche Zentral-Genossenschafsbank, Frankfurt AM Main (“DZ Bank”) as the Agent. FCC Acceptance Corporation (“FCCA”), a wholly owned subsidiary of FCC, is the borrower under the Credit Facility and FCCA will purchase RIO portfolios from FCC. The $75 million Credit Facility is a five-year program funded out of DZ-Banks’ conduit, Autobahn, pursuant to which Autobahn funds loans made to FCCA through the issuance of commercial paper. DZ Bank provides a standby liquidity facility necessary for Autobahn to issue the commercial paper. The Credit Facility is restricted to the purchase and financing of RIO’s, and is secured by the RIO’s purchased under the Credit Facility. FCC is the servicer under the Credit Facility.

Subject to the $75 million credit limit, the maximum advance under the Credit Facility is 90% of the amount of eligible RIO’s. In the event that an RIO ceases to be an eligible RIO, FCCA is required to pay down the line of credit in an amount by which the outstanding borrowings do not exceed the maximum advance rate applied to the outstanding balance of the eligible RIO’s. Among other provisions, the Credit Facility provides that (i) each advance under the facility will be an amount not less than $250,000 and will be funded by the issuance of commercial paper at various terms with interest payable at the rate of the Agent’s then current commercial paper rate plus 2.5%, and (ii) if the Excess Spread, as that term is defined in the Credit Facility, is less than a specified level, FCCA is required to deposit funds into a sinking fund account, or purchase specified rate caps or other interest rate hedging instruments, to hedge to the extent possible the interest rate exposure of the lender. The Credit Facility contains various representations, warranties and covenants as is customary in a commercial transaction of this nature. The Company has guaranteed to FCCA, the lender and Agent the performance by FCC of its obligations and duties under the Credit Facility in the event of fraud, intentional misrepresentation or intentional failure to act by FCC.

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U.S. Home Systems, Inc.

Notes to Consolidated Financial Statements

6. Credit Facilities (continued)

The Company had outstanding borrowings of $3,510,000 under the Credit Facility at March 31, 2003. The Company has not been required to make a sinking fund deposit or purchase any interest rate hedge instrument at March 31, 2003. Pursuant to the terms of the Credit Facility, the Company was required to pay the Agent’s fees and expenses, including a structuring fee in the amount $375,000, to complete the transaction. Including these fees, transaction costs were approximately $790,000 and are being amortized to interest expense over the term of the agreement.

FCC also has a revolving line of credit with a financial institution that allows borrowings up to $5,000,000. The proceeds from the line of credit are utilized to purchase RIO’s from remodeling contractors. Borrowings and required payments under the revolving line of credit are based upon an asset formula involving the outstanding principal balance of RIO’s. FCC is required to pay down the line of credit upon the sale of RIO’s, or if the borrowing base is less than the outstanding principal balance of eligible RIO’s. Prior to entering into the Credit Facility in February 2003, FCC typically held RIO’s for less than three months before selling portfolios of RIO’s to unrelated financial institutions or insurance companies; therefore any outstanding balance under the revolving line of credit was classified as a current liability. Subsequent to entering into the Credit Facility, FCC typically holds RIO’s 30 days and then transfers RIO portfolios to its subsidiary FCCA, refinancing the borrowing under the credit line by utilizing the Credit Facility. The Company has, therefore, classified its outstanding obligation under the line of credit as a long-term obligation. Interest on the line of credit is payable monthly at LIBOR plus 2.6%. The line of credit, as amended, matures June 1, 2003 at which time any outstanding principal and accrued interest is due and payable, however the Company plans to renew the credit facility upon its maturity. The line of credit is secured by substantially all of the assets of FCC and the Company is guarantor. The Company had outstanding borrowings of $3,480,329 and $2,720,662 under the line of credit at March 31, 2003 and December 31, 2002, respectively.

The Company’s subsidiary, U.S. Remodelers, has an agreement (the “Loan Agreement”) with a financial institution consisting of a secured term note (the “Term Note”), and a revolving credit facility that allows borrowings up to $600,000 (the “Revolving Credit Facility”). Borrowings and required payments under the Revolving Credit Facility are based upon an asset formula involving accounts receivable and inventory. At March 31, 2003 the Company had outstanding borrowings of $500,000 under the Revolving Credit Facility and, based upon the terms of the agreement, had a borrowing capacity of $100,000. No amount was outstanding at December 31, 2002. The Revolving Credit Facility, as amended, matures June 1, 2003 at which time any outstanding principal and accrued interest is due and payable. The Company plans to renew the line of credit upon its maturity. Interest on the Revolving Credit Facility, as amended, is payable monthly at LIBOR plus 2.6%. The Loan Agreement is secured by substantially all of the assets of U.S. Remodelers, and the Company is guarantor.

In connection with the acquisition of DAI (see Note 4), the Company’s subsidiary USA Deck, Inc. purchased DAI’s warehousing, manufacturing and office facilities. USA Deck obtained a mortgage in the amount of $2,125,000 from GE Capital Business Asset Funding. The mortgage is secured by the property. Among other provisions, (i) interest on the mortgage is 7.25%, (ii) the mortgage is subject to a prepayment premium, and (iii) the mortgage is guaranteed by the Company.

The Company’s credit facilities contain covenants, which among other matters, (i) limit the Company’s ability to incur indebtedness, merge, consolidate and sell assets; (ii) require the Company to satisfy certain ratios related to tangible net worth, debt to cash flows and interest coverage, and (iii) limit the payment of cash dividends on common stock.

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U.S. Home Systems, Inc.

Notes to Consolidated Financial Statements

7. Commitments and Contingencies

Off Balance Sheet Credit Risk

The Company’s consumer financing business has several agreements with a certain financial institution for the purchase of RIO portfolios. Each agreement represents a separate commitment from the financial institution as to the aggregate amount of RIO’s that may be purchased under that agreement, as well as the terms of any credit loss risk to each of the parties. In certain of these agreements, the Company deposits a portion of the proceeds of the portfolio sale, usually 0.5% of the principal balance of RIO’s purchased, into a restricted bank account, to offset the institutions credit risk in its purchased portfolio (the “Hold Back Reserve”). If credit losses exceed certain thresholds over specified periods of time, the Company must reimburse the financial institution for the excess credit losses, up to a specified maximum as defined in the agreement, and conversely, if credit losses are less than specified thresholds over certain periods of time, the financial institution releases the Hold Back Reserve to the Company, and is required to reimburse the Company for credit losses less than the specified thresholds, up to a specified maximum. The Company routinely reviews the credit loss experience of the RIO’s underlying these agreements with the financial institution. The Company has estimated that at March 31, 2003, the maximum liability for credit losses under these agreements is $300,000. However, based on current estimates of expected losses, the Company has established an accrual for credit losses of approximately $104,000 at March 31, 2003.

Litigation

The Company is currently not a party to any legal proceedings.

Employment Agreements

The Company has employment agreements with certain of its officers and key employees with terms which range from one to three years. The agreements generally provide for annual salaries and for salary continuation for a specified number of months under certain circumstances, including a change in control of the Company.

8. Other Income (Expense), Net

Other income (expense), net consisted of the following for the three-month periods ended March 31, 2003 and 2002, respectively:

In March 2003, USA Deck entered into a licensing agreement with Universal Forest Products, Inc. The licensing agreement is for a period of seven years and provides Universal the exclusive use of certain of USA Deck’s intellectual property including manufacturing and installation methods, deck design methods, marketing and sales methods, trademarks, and the right to fabricate and manufacture decks under USA Deck’s patents. The agreement is limited to certain geographical markets in which Universal provides wood deck solutions to Home Depot customers pursuant to a separate agreement between Universal and Home Depot. The licensing agreement requires Universal to pay USA Deck an initial licensing fee and ongoing royalties based upon Universal’s sales from these products. In the three-month period ended March 31, 2003, other income includes $37,500 of licensing fees from the licensing agreement.

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U.S. Home Systems, Inc.

Notes to Consolidated Financial Statements

9. Earnings Per Share

The following table sets forth the computation of earnings per share:

Outstanding stock options to purchase 235,915 shares of the Company’s common stock at March 31, 2003 were not included in the calculation of earnings per share because of their inclusion would have been anti-dilutive.

10. Subsequent Events

On May 5, 2003, the Company entered into a Business Advisory, Stockholder and Financial Community Relations Agreement (the “Advisory Agreement”) with Bibicoff & Associates, Inc., a Sherman Oaks, California based firm (“Bibicoff”). Bibicoff has been engaged by the Company to provide, on a non-exclusive basis, representation of the Company in the area of stockholder relations and business advisory services (“Services”). The Services may include preparation and assistance with investor presentations, introduction to capital conferences, the identification and evaluation of financing transactions and introductions to broker/dealers, research analysts and investment bankers. The agreement is for a one-year term and the Company.

Also on May 5, 2003, the Company entered into a Stock Purchase Agreement with Bibicoff. Pursuant to the Stock Purchase Agreement, Bibicoff purchased in a private transaction 50,000 restricted shares of the Company’s common stock (the “Shares”) for $275,000 or $5.50 per share. The purchase price was paid by delivering to the Company $50.00 in cash and a Promissory Note payable to the Company in the principal amount of $274,950. Interest under the Promissory Note is payable quarterly at the one-year London Interbank Offered Rate (LIBOR). The Promissory Note is due and payable on May 1, 2005 or 60 calendar days after the effective date of a registration statement which includes the Shares, whichever date shall first occur. The Note is secured with the Shares. Additionally, Harvey Bibicoff, the President of Bibicoff, has personally guaranteed the payment of the Note.

The Stock Purchase Agreement further provides for the right of the Company to repurchase the Shares for $5.55 per share or an aggregate of $277,500 at any time and for any reason until January 31, 2004 when the option will expire. As consideration for the grant of the option by Bibicoff to the Company, the Company paid to Bibicoff $0.20 per share or an aggregate of $10,000 for the option. The Stock Purchase Agreement contains warranties and representations by Bibicoff and the Company consistent with a private securities transaction. There were no brokers or underwriters involved in this transaction and no commissions or finder’s fees were paid.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Except for the historical information contained herein, certain matters set forth in this report are forward-looking statements that reflect management’s current views, which can be identified by the use of terms such as “believes”, “estimates”, “plans”, “expects”, “anticipates”, and “intends” or by discussions of strategy, future operating results or events. These forward-looking statements are subject to risks and uncertainties that may cause the Company’s actual results, performance or achievements to differ materially from historical results or those anticipated. Many of the risks and uncertainties are beyond the control of the Company, and, in many cases, the Company cannot predict all of the risks and uncertainties that could cause its actual results, performance or achievements to differ materially from those anticipated.

General

U.S. Home Systems, Inc. is engaged in the manufacture, design, sale and installation of custom quality specialty home improvement products, and providing consumer financing services to the home improvement and remodeling industry.

The Company’s objective is to become an industry leader as a specialty-product home improvement business. Management plans to accomplish this objective through a combination of acquisitions and organic growth, deeper market penetration through expansion of its product offering, increasing its channels of distribution, and directly providing financing to the Company’s customers, as well as providing financing to third party contractors engaged in the home improvement business.

On May 31, 2002, the Company completed an acquisition of certain assets of Reface, Inc. Reface is a Norfolk, Virginia-based home improvement business specializing in kitchen and bath remodeling.

On November 30, 2002, the Company acquired Deck America, Inc., a privately-held Woodbridge, Virginia based home improvement specialist providing patented solutions for the fabrication, sale and installation of decks and deck enclosures.

Operations of the acquired business are included in the accompanying consolidated financial statements from their respective dates of acquisition.

The following should be read in conjunction with the Company’s unaudited financial statements for the three-month period ending March 31, 2003 included herein, and the Company’s audited financial statements for year ended December 31, 2002, 2001 and 2000, and the notes to the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

Critical Accounting Policies

The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 2 to the Consolidated Financial Statements included elsewhere herein includes a summary of the significant accounting policies and methods used by the Company in the preparation of its financial statements. The Company believes the following critical accounting policies affect its more significant estimates and assumptions used in the preparation of its consolidated financial statements.

Allowance for Doubtful Accounts

The Company provides an allowance for doubtful accounts receivable based upon specific identification of problem accounts, expected future default rates and historical default rates. If the financial condition of the Company’s customers were to deteriorate, resulting in impairment in their ability to make payments, additional allowances may be required.

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Inventory

Inventory (consisting of raw materials and work-in-process) is carried at the lower of cost (determined by the first-in, first-out method) or market. The Company provides a reserve for lower of cost or market and excess, obsolete and slow moving inventory based on specific identification of problem inventory products, expected sales volume, historical sales volume and trends in pricing. If any estimates were to change, additional reserves may be required.

Finance Receivables Held for Sale

Finance receivables held for sale are carried at the lower of cost or market. The carrying amounts of finance receivables held for sale typically approximate fair value due to the short period of time they are held by the Company (i.e. three months or less). However, if the Company’s ability to sell finance receivables at favorable terms was to deteriorate, a lower of cost or market reserve may be required.

Finance Receivables Held for Investment and Loan Losses

Finance receivables held for investments are carried at the amount of the unpaid obligations, reduced by unearned interest, and an allowance for loan losses, as applicable. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to recover all amounts due according to the terms of the RIO. The accrual of interest on RIO’s is discontinued when it is considered impaired, generally when the loan is 90 days or more past due. A loan is placed back on accrual status when both interest and principal are current. There were no loans considered impaired or on non-accrual as of March 31, 2003 and December 31, 2002.

An allowance for loan loss is established through a provision for loan losses charged against income. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the RIO’s in light of historical experience and adverse situations that may effect the obligors ability to repay. Loans deemed to be uncollectible are charged against the allowance when management believes that the payments cannot be recovered or recovered from other sources. Subsequent recoveries, if any, are credited to the allowance. If the Company’s loss experience were to deteriorate, additional reserves may be required.

Goodwill

The purchase price allocations related to the Company’s acquisitions were performed in accordance with Financial Accounting Standards Board Statement No. 141, “Business Combinations” and Statement No. 142, “Goodwill and Other Intangibles”. In accordance with these statements, goodwill is not amortized to expense, however the Company is required to analyze goodwill for impairment on a periodic basis.

Credit Loss Reserves

The Company has several agreements with a certain financial institution for the purchase of consumer retail installment obligation (“RIO”) portfolios. Each agreement represents a separate commitment from the financial institution as to the aggregate amount of RIO’s that may be purchased under that agreement, as well as the terms of any credit loss risk to each of the parties. In certain of these agreements, if credit losses exceed certain thresholds over specified periods of time, the Company must reimburse the financial institution for the excess credit losses, up to a specified maximum as defined in the agreement, and conversely, if credit losses are less than specified thresholds over certain periods of time, the financial institution is required to reimburse the Company for credit losses less than the specified thresholds, up to a specified maximum. The Company routinely reviews the credit loss experience underlying these agreements with the financial institution. The Company has estimated that at March 31, 2003, the maximum liability for credit losses under these agreements is $300,000. However, based on current estimates of expected losses, the Company has established an accrual for credit losses of approximately $104,000 at March 31, 2003. If credit losses were to exceed current estimates, additional reserves may be required.

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Results of Operations

Comparison of three-month period ended March 31, 2003 to the three-month period ended March 31, 2002

To assist in understanding the Company’s consolidated operating results, the following table indicates the percentage relationship of various income and expense items included in the Statement of Operations for the three-month period ended March 31, 2003 and 2002, respectively. The table includes a summary of the Company’s financial results by segment.

SUMMARY:

Consolidated revenues were $14,706,000 in the three-month period ended March 31, 2003 as compared to $9,956,000 for the three-month period ended March 31, 2002. Net loss for the three-month period ending March 31, 2003 was $575,000 as compared to $10,000 in the prior year period. The increase in the Company’s net loss from the prior year period is principally the results of three factors: a change in the business model in the Company’s consumer finance business; a loss in the Company’s recently acquired deck business; and increased operating costs.

Consumer Finance, Change of Business Model—The Company’s consumer finance business, which is conducted through its wholly owned subsidiary First Consumer Credit, Inc. (“FCC”), purchases consumer retail installment obligations contracts (“RIO’s) from select remodeling contractors, including RIO’s generated by the Company’s home improvement operations. On February 11, 2003, FCC entered into a $75 million credit facility agreement (the “Credit Facility”) with Autobahn Funding Company LLC (“Autobahn”) as the lender, and DZ Bank AG Deutsche Zentral-Genossenschafsbank, Frankfurt AM Main (“DZ Bank”) as the Agent. The Credit Facility provides FCC the ability to purchase and finance retail installment obligations (“RIO’s”) from remodeling contractors, and earn continuing finance charges over the life of the RIO’s.

Prior to entering into the Credit Facility, FCC typically held RIO’s for less than three months before selling portfolios of RIO’s to banks and insurance companies under negotiated purchase commitments. FCC earned a one-time premium upon each sale. In most cases, FCC retained the collection and servicing of these

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accounts on behalf of the purchaser. FCC currently provides servicing on nearly 4,000 of these accounts, operating in 36 states within the continental United States.

Subsequent to entering into the Credit Facility, FCC changed its business model from selling, to financing portfolios of RIO’s. The ability to purchase and finance RIO’s provides FCC with earnings from finance charges for the life of the RIO, as opposed to a lesser, one-time origination fee it formerly earned. However, this change in FCC’s business model adversely effects FCC’s profitability in the short-term due to FCC’s forgoing the initial one-time origination fee it earned upon selling a portfolio, but earning finance charges over the life of the portfolio, typically a three to five year period. Consequently, until FCC has accumulated a sufficient amount of financed RIO’s, and finance charges earned on the RIO portfolio reaches a sufficient level, FCC’s earnings will be adversely affected. During the three-month period ended March 31, 2003, FCC recorded a pre-tax loss of $183,000 as compared to pre-tax income of $280,000 in the three months ended March 31, 2002. Management believes that FCC will return to profitability in the first quarter of 2004, and that FCC’s long-term profitability will be greater than what could be expected under its prior business model due to the continuing income stream from the greater amount of finance charges earned. Additionally, management believes the Credit Facility will provide FCC an opportunity to reach a greater number of contractors thereby creating substantial long-term earnings growth from financing sources.

Deck business operating loss—The Company’s deck business currently operates in the Washington, D.C. metropolitan area, including Baltimore, Maryland, and northern Virginia. During the months of January and February, the market area experienced severe winter weather conditions. While the Company was able to meet its objectives as to the amount of new orders received during the period, the harsh weather conditions adversely effected the Company’s ability to complete installations and generate revenues, thereby resulting in a net loss for the three-month period ended March 31, 2003. The Company’s backlog of deck orders at March 31, 2003 increased approximately 187% from its December 31, 2002 level.

Increased operating costs—In addition to new operations, the Company incurred increased operating costs principally related to the activities of a public company, including legal, accounting, and investor relations expenses, as well as increases in its salaries, insurance and benefits expenses.

DETAILED REVIEW:

Revenues from the Company’s home improvement segment were $14,210,000 in the three months ended March 31, 2003 as compared to $9,037,000 in the prior year period. The increase in home improvement revenues reflects higher backlog at the beginning of the period, increased new sales order input in all of the Company’s product lines during the period, and the addition of the Company’s recently acquired deck business. However, revenues in the deck operations were adversely effected by harsh winter weather conditions which prevented the completion of deck installations.

New sales orders during the three months ended March 31, 2003 were $17,871,000, including approximately $4,954,000 in the deck operations, as compared to $10,837,000 in the three months ended March 31, 2002. Backlog at March 31, 2003 was approximately $11,790,000 as compared to $8,124,000 at December 31, 2002.

Revenues from the consumer finance segment were $496,000 for the three months ended March 31, 2003 as compared to $919,000. The decline in revenues is a result of the change in the Company’s consumer finance business model in February 2003.

Gross profit for the home improvement segment was $7,362,000, or 51.8% of related segment revenues for the three months ended March 31, 2003 as compared to $4,979,000, or 55.1% of revenues in the prior year period. The decrease in home improvement gross profit margin as a percentage of revenues is primarily due to the addition of deck products to the product mix. Deck products have a lower margin than the other products sold by the Company.

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All expenses associated with consumer finance segment, including costs of acquiring, servicing, and financing RIO portfolios, are included in operating expenses and consequently gross profit from consumer financing operations is equal to its revenues.

Consolidated operating expenses were approximately $8,729,000, or 59.4% of consolidated revenues for the three months ended March 31, 2003, as compared to $5,885,000, or 59.1% of revenues in the prior year period. Operating expenses consist of branch operating expenses, sales and marketing expenses, license fees and general and administrative expenses.

Branch operating expense includes costs associated with each of the Company’s local home improvement branch facilities including rent, telecommunications, branch administration salaries and supplies. Branch operating expenses were $607,000, or 4.3% of segment revenues, as compared to $398,000, or 4.4% of segment revenues for the three months ended March 31, 2003 and 2002, respectively. The increase in branch operating expenses principally reflects the Company’s increased operations from acquisitions, entry into new markets and RbA.

The Company’s home improvement operations are characterized by the need to continuously generate prospective customer leads, and in this respect, marketing and selling expenses constitute a substantial portion of the overall operating expense. Principal marketing activities related to home improvement operations are conducted through a variety of media sources including television, direct mail, marriage mail, magazines, newspaper inserts, canvassing, home shows and telemarketing.

Marketing expenses for home improvement operations were approximately $3,222,000, or 22.7% of segment revenues in the three months ended March 31, 2003, as compared to $2,145,000, or 23.7% of revenues for the prior year period. The increase in marketing spending reflects the addition of the Company’s deck business, planned increased advertising expenditures in the remainder of the Company’s operations, and an increase in cost to acquire a new customer as a result of changes in the Company’s marketing media mix. However, the reduction of marketing expense as a percentage of segment revenues principally reflects improved operating performance in the Company’s RbA operations and the addition of the deck business, which generally has a lower marketing cost to revenue ratio than the Company’s other home improvement operations. The Company’s deck business recently entered into an agreement with the Home Depot^® to sell, furnish and install pre-engineered Designer Deck^® systems to Home Depot’s retail customers in certain markets. Under the agreement, USA Deck provides several pre-designed deck models under the Home Depot “At Home Services” brand to approximately 74 Home Depot stores. Management believes that the Company’s agreement with the Home Depot will continue to reduce USA Decks effective marketing cost.

In the Company’s normal operating cycle, marketing costs, which are expensed as incurred, can precede the completion of sales orders by up to three months. In this respect, since revenues are recognized upon completion of each sales order, marketing expenses as a percentage of revenues will generally be higher in periods of increasing backlog of uncompleted sales orders. Except for the Company’s deck operations, the increase in backlog of uncompleted sales orders was approximately the same as the increase in backlog experienced in the prior year period, and consequently marketing expense as a percentage of revenue was unaffected for these operations.

Marketing expenditures are generally concurrent with the securing of new sales orders, and therefore management believes that a better measurement of the Company’s effective marketing cost relates to its new orders generated. In this respect, marketing expenses were 18.1% of new sales orders in the three months ended March 31, 2003 as compared to 19.8% in the prior year period. The decrease in marketing expenses as a percentage of new sales orders is principally due to the addition of the deck business and improved sales efficiencies.

Sales expenses, which consist primarily of sales commissions, sales manager salaries, travel and recruiting expenses associated with the home improvement segment, were $2,313,000, or 16.3% of segment revenues for the three months ended March 31, 2003, as compared to $1,718,000, or 19.0% of revenues in the

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prior year period. The increase in sales expenses in dollar terms is principally the result of the sales commissions on higher revenues, and growth in the Company’s operations, including recent acquisitions.

License fees were $181,000, or 1.3% of home improvement segment revenues for the three months ended March 31, 2003, as compared to $187,000, or 2.1% of segment revenues in the prior year. The decrease in license fees as a percentage of segment revenues is due to the lower mix of segment revenues sold under the Century 21-license agreement.

General and administrative expenses were approximately $2,406,000, or 16.4% of consolidated revenues for the three months ended March 31, 2003, as compared to $1,437,000, or 14.4% of revenues in the prior year period. The increase in general and administrative expenses reflects $753,000 related to the Company’s deck business which was acquired in November 2002. In addition to new operations, the Company incurred increased costs related to professional fees (legal and public accounting), insurance, benefits, and investor relations expenses.

Other income (expense) consists primarily of interest expense offset by interest income. Interest expense increased from the prior year period principally resulting from borrowing under a line of credit utilized by the finance segment to purchase RIO portfolios.

Liquidity and Capital Resources of The Company

The Company has historically financed its liquidity needs through a variety of sources including proceeds from the sale of common and preferred stock, borrowing under bank credit agreements, and cash flows from operations. At March 31, 2003, the Company had $2,502,000 in cash.

Cash generated from operations was $1,106,000 for the three months ended March 31, 2003, including $1,645,000 generated from the sale of RIO portfolios. The Company utilized approximately $521,000 for operating activities in the prior year three-month period.

On February 11, 2003, the Company’s consumer finance unit, First Consumer Credit, Inc., entered into a $75 million credit facility agreement (the “Credit Facility”) with Autobahn as the lender, and DZ Bank as the Agent. The Credit Facility provides FCC the ability to purchase and finance retail installment obligations from remodeling contractors, and earn continuing finance charges over the life of the RIO’s. FCCA, a wholly owned, single purpose subsidiary of FCC, is the borrower under the Credit Facility and FCCA will purchase RIO portfolios from FCC. The Credit Facility is a five-year program funded out of DZ-Banks’ conduit, Autobahn, pursuant to which Autobahn will fund loans made to FCCA through the issuance of commercial paper. DZ Bank provides a standby liquidity facility necessary for Autobahn to issue the commercial paper. The Credit Facility is restricted to the purchase and financing of RIO’s, and is secured by the RIO’s purchased under the Credit Facility. FCC is the servicer under the Credit Facility. The Company has guaranteed to FCCA, the lender and Agent the performance by FCC of its obligations and duties under the Credit Facility in the event of fraud, intentional misrepresentation or intentional failure to act by FCC. Among other provisions, and providing that no event of default has occurred and is continuing, the Credit Facility provides that (i) subject to the $75 million credit limit, the maximum advance under the Credit Facility is 90% of the amount of eligible RIO’s (ii) in the event that an RIO ceases to be an eligible RIO, FCCA is required to pay down the line of credit in an amount by which the outstanding borrowings do not exceed the maximum advance rate applied to the outstanding balance of the eligible RIO’s, (iii) each advance under the facility will be an amount not less than $250,000 and will be funded by the issuance of commercial paper at various terms with interest payable at the rate of the Agent’s then current commercial paper rate plus 2.5%, and (iv) if the Excess Spread, as that term is defined in the Credit Facility, is less than a specified level, FCCA is required to deposit funds into a sinking fund account, or purchase specified rate caps or other interest rate hedging instruments, to hedge to the extent possible the interest rate exposure of the lender. Pursuant to the terms of the Credit Facility, the Company was required to pay the Agent’s fees and expenses, including a structuring fee in the amount $375,000, to complete the transaction. Including these fees, transaction costs were approximately $790,000 and are being amortized to interest expense over the term of the agreement. The Credit Facility contains representations, warranties and covenants as is customary in a commercial transaction of this nature.

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Prior to entering into the Credit Facility, FCC typically held RIO’s for less than three months before selling portfolios of RIO’s to banks and insurance companies under negotiated purchase commitments. FCC earned a one-time premium upon each sale. In most cases, FCC retained the collection and servicing of these accounts on behalf of the purchaser. FCC currently provides servicing on nearly 4,000 of these accounts, operating in 36 states within the continental United States.

Subsequent to entering into the Credit Facility, FCC changed its business model from selling, to financing portfolios of RIO’s. The ability to purchase and finance RIO’s provides FCC with earnings from finance charges for the life of the RIO, as opposed to a lesser, one-time origination fee it formerly earned. However, this change in FCC’s business model adversely effects FCC’s profitability and cash flow in the short-term due to FCC’s forgoing the initial one-time origination fee it earned upon selling a portfolio, but earning finance charges over the life of the portfolio, typically a three to five year period. Consequently, until FCC has accumulated a sufficient amount of financed RIO’s, and finance charges earned on the RIO portfolio reaches a sufficient level, FCC’s earnings and cash flows will be adversely affected. During the three-month period ended March 31, 2003, FCC recorded a pre-tax loss of $183,000 as compared to pre-tax income of $280,000 in the three months ended March 31, 2002. Management believes that FCC will return to profitability in the first quarter of 2004, and that FCC’s long-term profitability will be greater than what could be expected under its prior business model due to the continuing income stream from the greater amount of finance charges earned.

The Company had outstanding borrowings of $3,510,000 under the Credit Facility at March 31, 2003. The Company has not been required to make a sinking fund deposit or purchase any interest rate hedge instrument at March 31, 2003.

FCC also has a revolving line of credit with a financial institution that allows borrowings up to $5,000,000. The proceeds from the line of credit are utilized to purchase RIO’s from remodeling contractors. Borrowings and required payments under the revolving line of credit are based upon an asset formula involving the outstanding principal balance of RIO’s. FCC is required to pay down the line of credit upon the sale of RIO’s, or if the borrowing base is less than the outstanding principal balance of eligible RIO’s. Prior to entering into the Credit Facility in February 2003, FCC typically held RIO’s for less than three months before selling portfolios of RIO’s to unrelated financial institutions or insurance companies; therefore any outstanding balance under the revolving line of credit was classified as a current liability. Subsequent to entering into the Credit Facility, FCC typically holds RIO’s 30 days and then sells RIO portfolios to its subsidiary FCCA, refinancing the borrowing under the credit line by utilizing the Credit Facility; therefore the Company has classified its outstanding obligation under the line of credit as a long-term obligation. Interest on the line of credit is payable monthly at LIBOR plus 2.6%. The line of credit, as amended, matures June 1, 2003 at which time any outstanding principal and accrued interest is due and payable, however the Company plans to renew the credit facility upon its maturity. The line of credit is secured by substantially all of the assets of FCC and the Company is guarantor. The Company had outstanding borrowings of $3,480,329 and $2,720,662 under the line of credit at March 31, 2003 and December 31, 2002, respectively.

The Company’s subsidiary, U.S. Remodelers, has an agreement (the “Loan Agreement”) with a financial institution consisting of a secured term note (the “Term Note”), and a revolving credit facility that allows borrowings up to $600,000 (the “Revolving Credit Facility”). Borrowings and required payments under the Revolving Credit Facility are based upon an asset formula involving accounts receivable and inventory. At March 31, 2003 the Company had outstanding borrowings of $500,000 under the Revolving Credit Facility and, based upon the terms of the agreement, had a borrowing capacity of $100,000. No amount was outstanding at December 31, 2002. The Revolving Credit Facility, as amended, matures June 1, 2003 at which time any outstanding principal and accrued interest is due and payable. The Company plans to renew the line of credit upon its maturity. Interest on the Revolving Credit Facility, as amended, is payable monthly at LIBOR plus 2.6%. The Loan Agreement is secured by substantially all of the assets of U.S. Remodelers, and the Company is guarantor.

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The Company’s credit facilities contain covenants, which among other matters, (i) limit the Company’s ability to incur indebtedness, merge, consolidate and sell assets; (ii) require the Company to satisfy certain ratios related to tangible net worth, debt to cash flows and interest coverage, and (iii) limit the payment of cash dividends on common stock.

The Company’s consumer financing business has several agreements with a certain financial institution for the purchase of RIO portfolios. Each agreement represents a separate commitment from the financial institution as to the aggregate amount of RIO’s that may be purchased under that agreement, as well as the terms of any credit loss risk to each of the parties. In certain of these agreements, the Company deposits a portion of the proceeds of the portfolio sale, usually 0.5% of the principal balance of RIO’s purchased, into a restricted bank account, to offset the institutions credit risk in its purchased portfolio (the “Hold Back Reserve”). If credit losses exceed certain thresholds over specified periods of time, the Company must reimburse the financial institution for the excess credit losses, up to a specified maximum as defined in the agreement, and conversely, if credit losses are less than specified thresholds over certain periods of time, the financial institution releases the Hold Back Reserve to the Company, and is required to reimburse the Company for credit losses less than the specified thresholds, up to a specified maximum. The Company periodically reviews the credit loss experience underlying these agreements with the financial institution. The Company has estimated that at March 31, 2003, the maximum liability for credit losses under these agreements is $300,000. However, based on current estimates of expected losses, the Company has established an accrual for credit losses of approximately $104,000 at March 31, 2003.

Although the Company believes that it will have sufficient cash and borrowing capacity under its credit facilities to meet its anticipated working capital needs for the next twelve months, the Company believes that it will need additional financing to fund its growth strategy, including acquisitions. There can be no assurance that additional financing will be available, or if available, that such financing will be on favorable terms. Any such failure to secure additional financing, if needed, could impair the Company’s ability to achieve its growth strategy. There can be no assurance that the Company will have sufficient funds or successfully achieve its plans to a level that will have a positive effect on its results of operations or financial condition. The ability of the Company to execute its growth strategy is contingent upon sufficient capital as well as other factors, including its ability to further increase consumer awareness of its products by advertising, its ability to consummate acquisitions of complimentary businesses, general economic and industry conditions, its ability to recruit, train and retain a qualified sales staff, and other factors, many of which are beyond the control of the Company. Even if the Company’s revenues and earnings grow rapidly, such growth may significantly strain the Company’s management and its operational and technical resources. If the Company is successful in obtaining greater market penetration with its products, the Company will be required to deliver increasing volumes of its products to its customers on a timely basis at a reasonable cost to the Company. No assurance can be given that the Company can meet increased product demand or that the Company will be able to satisfy increased production demands on a timely and cost- effective basis. There can be no assurance that the Company’s growth strategy will be successful, and if one or more of the component parts of the Company’s growth strategy is unsuccessful, there can be no assurance that such lack of success will not have a material adverse effect on the Company’s financial condition.

Additionally, since the maximum advance under the Credit Facility is 90% of the amount of eligible RIO’s, and because of the expected adverse impact on FCC’s short-term earnings and cash flows, the Company may be required to seek additional financing to fund FCC’s operations. The Company is currently reviewing alternatives for the additional financing, including the Company’s available borrowing capacity under its existing revolving credit facility with a financial institution. Although the Company has no agreements or commitments for additional financing, management believes that the Company will be able to secure the financing, if needed, through the issuance of equity securities or debt obligations. However, there can be no assurance that additional financing will be available, or if available, that such financing will be on favorable terms. The failure of the Company to secure additional financing, if needed, could impair FCC’s ability to fully utilize the available funds under the Credit Facility, as well as restrict FCC’s ability to purchase RIO’s, which would have an adverse impact on FCC’s results of operations.

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Recent Accounting Pronouncements

The Financial Accounting Standards Board issued SFAS No. 143, Accounting for Asset Retirement Obligations, effective for fiscal years beginning after June 15, 2002, and SFAS No. 146, Accounting for Costs Associated with Exit on Disposal Activities, which is effective for exit or disposal activities initiated after December 31, 2002. The Company adopted these statements effective January 1, 2003. There was no effect on the financial statements related to this adoption.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is subject to a minimal amount of financial market risks from changes in short-term interest rates as a portion of the Company’s debt contains interest rates which vary with interest rate changes in the prime rate or LIBOR. Based on our current aggregate variable debt level, we believe that these rates would have to increase significantly for the resulting adverse impact on our interest expense to be material to our results of operations.

However, in February 2003, the Company’s finance subsidiary entered into a $75 million credit facility to finance the purchase of RIO’s. The Credit Facility requires each advance under the facility will be an amount not less than $250,000 and will be funded by the issuance of commercial paper at various terms with interest payable at the rate of the Agent’s then current commercial paper rate plus 2.5%. Consequently, in the future, the Company’s exposure to these market risks will increase with the anticipated increase in the level of our variable rate debt. The RIO’s underlying the Credit Facility contain fixed-rate interest terms. If the Excess Spread, as that term is defined in the Credit Facility, is less than a specified level, the Company is required to deposit funds into a sinking fund account, or purchase specified rate caps or other interest rate hedging instruments, to hedge to the extent possible the interest rate exposure of the lender.

ITEM 4. Controls and Procedures

Within 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective. Disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed in the Company’s periodic reports to the SEC is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

There have been no significant changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date we carried out this evaluation.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to these actions will not materially affect the financial position or results of operations of the Company.

ITEM 2. Changes In Securities and Use of Proceeds

There were no changes in securities during the three-month period ended March 31, 2003.

ITEM 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the three-month period ended March 31, 2003.

ITEM 6. Exhibits and Reports on Form 8K

On February 5, 2003, the Company filed a report on Form 8-K/A reporting the acquisition of Deck America, Inc. and providing financial statements and exhibits related thereto.

On February 26, 2003, the Company filed a report on Form 8-K reporting that on February 11, 2003 the Company’s consumer finance unit, FCC, entered into a $75 million credit facility agreement with Autobahn as the lender, and DZ Bank as the Agent. The terms of the Credit Facility are more particularly described in Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation in this report on Form 10-Q.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on May 14, 2003 on its behalf by the undersigned, thereto duly authorized.

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Certifications

I, Murray H. Gross, certify that:

Date: May 14, 2003

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I, Robert A. DeFronzo, certify that:

Date: May 14, 2003

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