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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

COMMISSION FILE NUMBER 0-18291

U.S. HOME SYSTEMS, INC.

(Name of Issuer Specified in Its Charter)

(214) 488-6300

(Issuer’s Telephone Number, Including Area Code)

Securities registered under Section 12 (b) of the Exchange Act:

None

Securities registered under Section 12 (g) of the Exchange Act:

$.001 Par Value Common Stock

(Title of Class)

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 ¨

As of March 17, 2004, 6,529,535 shares of the Issuer’s $.001 par value common stock were outstanding.

The aggregate market value of the shares of common stock held by non-affiliates of the Registrant computed by reference to the closing price as of the last business day of the Registrant’s most recently completed second fiscal quarter, June 30, 2003, was $36,200,179.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is an “accelerated filer” (as defined in Exchange Act Rule 12-b2). Yes ¨ No x

The following documents are incorporated by reference: None.

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PART I

BUSINESS

Overview

We are engaged in the manufacture, design, sale and installation of custom quality, specialty home improvement products, and we are a provider of financing services to customers of residential remodeling contractors throughout the United States. We had revenues of $78.6 million and net income of $1.5 million for the year ended December 31, 2003. Our home improvement segment reported revenues of $74.2 million and net income of $1.7 million and our consumer finance segment generated revenues of $4.3 million and a net loss of $180,000 for the year ended December 31, 2003.

Our principal offices are located at 750 State Highway 121 Bypass, Suite 170, Lewisville, Texas 75067, and our telephone number is (214) 488-6300. Our common stock is traded on the Nasdaq SmallCap Market under the symbol “USHS”.

On February 13, 2001, U.S. Home Systems, Inc., which was then known as U.S. Pawn, Inc., or U.S. Pawn, acquired U.S. Remodelers, Inc., or U.S. Remodelers, by merging its wholly-owned subsidiary with and into U.S. Remodelers with U.S. Remodelers surviving as our wholly owned subsidiary. The terms of the merger required that U.S. Pawn sell all of its pawnshop operations and settle all of its liabilities before the merger could be completed. Simultaneously with the completion of the merger, U.S. Pawn reincorporated in Delaware and changed its name to U.S. Home Systems, Inc. Following the merger, U.S. Home Systems, Inc. succeeded to the business of U.S. Remodelers.

Except as otherwise indicated by the context, references in this annual report to “we,” “us,” “our,” or the “Company” are to the combined business of U.S. Home Systems, Inc. and its subsidiaries. We have registered the “Facelifters,” “Designer Deck,” “Deck America,” “Cabinet Clad,” and “Invisanail” names as trademarks in the United States. This annual report includes trademarks other than those identified in this paragraph. The use of any such trademark herein is in an editorial form only and to the benefit of the owner thereof, with no intention of infringement of the trademark.

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 “may,” “will,” “could,” “should,” “believes,” “estimates,” “plans,” “expects,” “anticipates,” “predict,” “potential,” “intends,” or “continue,” or the negative of such terms or by discussions of strategy, future operating results or events. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks outlined in the “Risk Factors” section herein. These factors may cause our actual results to differ materially from any forward-looking statement.

We are engaged in two business segments, the home improvement business and the consumer finance business. Accordingly, our reportable segments have been determined based on the nature of the products offered to consumers.

The following should be read in conjunction with the 2003 financial results of each reporting segment as detailed in Note 3, “Information About Segments” in our consolidated financial statements included elsewhere herein.

Home Improvement

We manufacture or procure, design, sell and install a wide range of remodeling products through our home improvement segment.

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Kitchen, Bath and Windows. Our kitchen, bath and window product lines include replacement kitchen and bathroom cabinetry and cabinet refacing products, countertops, other related products utilized in kitchen and bathroom remodeling, and replacement windows. Our products are marketed directly to consumers through a variety of media sources under nationally recognized brands, The Home Depot At-Home Services, The Home Depot Cabinet Refacing, Century 21 Home Improvements, and Renewal by Andersen, and our brands, Facelifters and Cabinet Clad. We operate 19 kitchen, bath and window sales and installation centers in 12 states serving 14 major metropolitan areas and maintain a marketing center in Boca Raton, Florida. Our cabinet refacing products, custom countertops, and bathroom cabinetry are manufactured in our Charles City, Virginia facility.

Wood Decks. Our wood deck product lines include wood decks and related accessories. We believe that we are the only company in the United States that has developed and applied the concept of modular designed, pre-engineered, factory built, quality decks that are typically installed in one day. Our deck products are marketed directly to consumers through a variety of media sources, selected neighborhood canvassing programs, and in-store displays in The Home Depot stores where our products and services are sold. Our decks and installation services are marketed under our USA Deck-Designer Decks brand and The Home Depot At-Home Services brand. We operate five wood deck sales centers, three of which also serve as manufacturing facilities, which collectively serve seven Mid-Atlantic and Northeastern markets. We manufacture the components for our decks utilizing non-arsenic pressure-treated lumber at our Woodridge, Virginia, Glen Mills, Pennsylvania and Westboro, Massachusetts facilities.

Consumer Finance

We operate within a niche market of the home improvement consumer finance industry. We purchase retail installment obligations, or RIOs, from residential remodeling contractors throughout the United States including RIOs originated by our own home improvement operations. The availability of this financing program provides our home improvement operations with a consistent and reliable financing source and enables us to offer a broad range of credit products to our customers and other residential remodeling contractors. As of December 31, 2003, our RIO portfolio was approximately $35.5 million and our average RIO balance was approximately $6,500 with a weighted average maturity of 109 months.

In the first quarter of 2003, we changed our consumer finance business model to implement a strategy of holding RIOs rather than packaging them for sale to credit institutions. We believe this new strategy will provide us with greater earnings potential in the long-term, because we will earn finance charges for the life of the RIO, as opposed to the lesser, one-time premium that we previously earned upon the sale of the RIOs. To facilitate this change, in February 2003, we entered into a $75 million secured credit facility. The credit facility provides us with a capital source to expand our consumer finance business by increasing the amount of RIOs financed for customers of our existing residential remodeling contractors and by originating relationships with new contractors. Our new strategy will allow us the flexibility to offer sales-enhancing credit programs to our home improvement customers as well as the customers of our other residential remodeling contractors. The credit facility provides financing for 90% of the amount of eligible RIOs purchased, and we are required to provide the remaining 10%. Although our strategy is to hold RIOs, we may sell a portion of our RIOs, from time to time to obtain additional working capital or pay down amounts outstanding under our credit facility.

Our Business Strategies

Our objective is to grow our home improvement and consumer finance businesses. We intend to pursue this objective through the following business strategies:

Expand Our Product Distribution and Grow Our Business Through Our Relationship with The Home Depot

We market and sell our wood decks and our kitchen and bathroom refacing solutions to The Home Depot customers in selected markets. We will offer our wood deck products and services in over 240 Northeastern and

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Mid-Atlantic Home Depot stores. Under our kitchen cabinet refacing pilot program with The Home Depot, we will be the exclusive provider of kitchen cabinet refacing products and related installation services in over 220 stores in California, Oregon, Washington and Colorado. Under our bathroom refacing pilot program with The Home Depot, we will provide bathroom refacing products and related services in approximately 130 The Home Depot stores in the Los Angeles and San Diego, California and Denver, Colorado markets. Our relationship with The Home Depot provides us with a new distribution channel for our products. By combining the brand name recognition and distribution presence of The Home Depot with our manufacturing and installation programs, we believe that we have the opportunity to profitably grow sales of kitchen and bathroom refacing solutions. We will continue to seek opportunities to expand our relationship with The Home Depot into new geographic markets and to add new products in our The Home Depot distribution channel.

Build Market Share in New Markets

During the next 18 to 24 months, primarily based on our agreements with The Home Depot, we plan to expand our presence in the Mid-Atlantic and Northeastern states with our deck products and to further expand into California, Oregon, Washington and Colorado with our kitchen cabinet and bathroom refacing products. As we enter new markets under The Home Depot name, we may also look to offer other non-competing specialty home improvement products under our own brands. We will seek other opportunities to enter new markets where we do not service The Home Depot through strategic acquisitions or organic growth.

Grow Our Consumer Finance Segment

We recently changed our consumer finance business model to implement a strategy of holding RIOs that we purchase from residential remodeling contractors rather than packaging them for sale to credit institutions. This new strategy will provide us with the opportunity to earn finance charges for the life of the RIO, as opposed to the lesser, one-time premium that we previously earned upon the sale of the portfolios. We executed on this strategy by entering into a $75 million secured credit facility that has enabled us to accumulate approximately $35.5 million of RIOs at December 31, 2003. This credit facility will increase our ability to finance RIOs and originate relationships with new contractors. Our new strategy provides us with the flexibility to offer sales-enhancing credit programs to our home improvement customers as well as the customers of our existing residential remodeling contractors.

Pursue and Successfully Integrate Strategic Acquisitions

We believe that an opportunity exists to acquire related and complementary businesses in the fragmented residential remodeling industry. The residential remodeling industry is characterized by a proliferation of small local competitors, a need for growth capital, and a potential for significant economies of scale. We will seek acquisition candidates that offer us entry into new markets, complementing or adding to our existing products and services, or providing us with additional distribution channels. We will also seek acquisition candidates that provide us with manufacturing, marketing and revenue synergies. Since 2001, we have made several acquisitions, the most significant of which were First Consumer Credit, Inc., or FCC, and USA Deck. We believe our expansion through acquisitions has been managed and controlled, and each acquisition has been effectively integrated into our operations.

Home Improvement Segment

Industry Overview

The majority of our operations fall under the broadly defined home improvement industry. According to the National Association of Home Builders, the remodeling industry is a highly fragmented $150 billion industry. A 2003 study by the Joint Center for Housing Studies of Harvard University states that there are more than 200,000 firms and 600,000 self-employed remodelers that derive most of their revenue from remodeling jobs. According to the 2003 Qualified Remodeler Top 500 list, we are the third largest remodeler in the United States in terms of revenue.

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We believe that remodeling and replacement activity most often occurs within the first year of purchase of a home and is impacted greatly by the age of the property. Consequently, increases in primary and secondary home ownership as well as increased housing turnover are two key economic factors driving the industry. Total annualized housing turnover, which is a combination of new home sales and existing home sales, has remained above 6,000,000 units for the past three years according to historical data published by Bloomberg. According to the US Census Bureau, this strength in the housing market has resulted in a home ownership rate of 68%.

Our Home Improvement Business

Products and Services. The following charts and discussion summarize our product lines and services, the brands under which our products are marketed and the percentage of our consolidated revenues that each of our product lines accounted for during the last three fiscal years.

Kitchen Refacing: Kitchen remodeling includes replacement kitchen cabinetry and kitchen cabinet refacing. Cabinet refacing is a remodeling technique in which existing cabinetry framework is retained but all exposed surfaces are changed. Under our cabinet refacing system, doors, drawers, drawer fronts, and drawer boxes are replaced, all hardware is replaced, and all exposed cabinet surfaces are covered with matching laminate. We also provide laminate and Corian countertops, matching valances, molding, replacement sinks, faucets, add-on or replacement cabinets, space organizers, lazy susans and slide-out shelving. All of our cabinet refacing products, with the exception of Corian countertops, sinks, hardware and faucets, are manufactured in our Charles City, Virginia facility. Cabinet refacing provides consumers with a lower-cost alternative to total cabinet replacement.

Bathroom Refacing: Our bathroom remodeling products include acrylic tub liners and wall surrounds, vanity cabinetry refacing and replacement vanity cabinets, bowls, faucets, commodes and shower doors. With the exception of the vanity cabinetry refacing and the replacement vanity cabinets, we purchase these bathroom remodeling products from unaffiliated suppliers and perform all installation services.

Replacement Windows: With the exception of the greater Los Angeles market, we purchase our replacement vinyl windows from unaffiliated non-branded suppliers and perform the installation services for our customers.

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In the greater Los Angeles area, we serve as the exclusive window replacement retailer on an installed basis for Renewal by Andersen, or RbA. The RbA windows are high quality replacement windows distributed by RbA retail partners in selected markets. We also sell patio doors for Renewal by Andersen.

Wood Decks: We are a provider of wood decks and related accessories. We have developed a solution for the fabrication and installation of decks and deck enclosures. We believe that we are the only U.S. company that has developed and applied the concepts of modular designed, pre-engineered, factory built, quality decks that are typically installed in one day. We operate a sales, manufacturing and lumber treatment facility in Woodbridge, Virginia and two additional wood deck sales centers collectively serving the Washington, D.C., Baltimore, Maryland; Philadelphia, Pennsylvania; and Richmond and Norfolk, Virginia markets. We also operate two regional sales, manufacturing and installation centers in Glen Mills, Pennsylvania and Westboro, Massachusetts to support our wood deck sales to The Home Depot At-Home Services customers in the greater Philadelphia area and central New Jersey region, and the greater Boston area. Our customers, including our The Home Depot customers, are able to choose from one of our 12 Designer Deck models or customize their own deck of choice.

The major components of a Designer Deck system include:

Marketing and Sales. We market our home improvement products through a variety of sources including television, direct mail, in-store displays, marriage mail, magazines, newspaper inserts, home shows, selected neighborhood canvassing and telemarketing. We maintain a marketing center in Boca Raton, Florida where we receive in-bound calls in response to our media advertising for kitchen, bathroom and replacement window products, and we make outbound calls to selected prospects who have requested to be contacted. Our marketing center personnel follow prepared scripts and schedule in-home sales presentations.

Although not contractually required to promote or advertise our products, The Home Depot is currently marketing our wood deck and kitchen cabinet refacing products by including them in its At-Home Services program. We provide in-store displays in each The Home Depot store, and in certain markets, we conduct neighborhood canvassing programs. Our deck installation program is advertised in The Home Depot stores on a full sized Designer Deck display with signage, including published pricing and deck details. Additionally, full color, extra large brochures and CD-Rom brochures detailing the 12 Designer Deck models and pricing are made available to The Home Depot consumers. We also provide a Designer Deck product catalog containing detailed information available at the “At-Home Services” kiosk in each store. In addition to this in-store marketing campaign, The Home Depot is supporting a comprehensive direct marketing campaign, which includes door-to-door visits and advertising in other forms of media. In connection with our kitchen and bathroom cabinet refacing pilot programs, we expect The Home Depot will include our products in similar advertising efforts.

Our sales representatives conduct their in-home sales presentation in accordance with our structured marketing programs. We utilize computer software to monitor responses and sales results of our sales staff, including tabulating results of in-home presentations on a daily basis. Such information provides data upon which we evaluate each direct sales representative’s performance. We continually strive to improve the rate at which our sales professionals convert appointments into sales orders.

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Manufacturing and Installation. We manufacture cabinet refacing, custom countertops, bathroom cabinetry and wood deck products and perform the installation of these products for our customers.

Kitchen, Baths and Windows: We manufacture our cabinet fronts, laminate countertops, and cabinets faced with high-pressure laminate or thermo foil at our 70,000 square foot facility in Charles City, Virginia. We purchase all other products from third-party suppliers.

With the exception of occasional warranty and other service work, independent contractors who meet our qualifications perform substantially all of our kitchen, bath and window installations. Contractors employ their own personnel and are required to maintain their own vehicles, equipment, tools, licenses, workers compensation coverage and general liability insurance. Contractors assume full financial risk in their performance of an installation and enter into a written agreement with us. We issue to our contractors a work order, which specifies all work to be performed pursuant to the sales agreement, for each of our remodeling projects. The contractor can then pick up all necessary materials for the project at our local branch office.

Kitchen, bath and window installations are generally completed within 55 days after a sales agreement is signed, and within three to five workdays from commencement of the installation. Upon completion, the contractor obtains a certificate of completion signed by the customer and returns all documentation and excess materials to us. We pay the contactor upon the satisfactory completion of each job. Fees paid by us to the contractor for an installation are based upon an amount negotiated between the contractor and us.

Wood decks: To serve our deck customers in the Mid-Atlantic region, we manufacture the components of our deck products at our 45,000 square foot facility in Woodbridge, Virginia. In October 2003, we opened our deck manufacturing center in Glen Mills, Pennsylvania to service The Home Depot customers in the greater Philadelphia area and central New Jersey region. The Glen Mills facility consists of approximately 25,000 square feet, of which 19,000 square feet is dedicated for our wood deck manufacturing operations, with 6,000 square feet utilized as our sales and administration office. In March we opened a 20,000 square foot deck sales and manufacturing center in Westboro, Massachusetts to serve our deck customers in the Boston, Massachusetts area. During the next 18 to 24 months we anticipate opening additional deck manufacturing centers as well as complementary deck sales facilities to support our roll-out in new markets contemplated by our agreement with The Home Depot.

We have developed a patented system for the fabrication and installation of high quality decks. Included in the manufacturing process are our patented factory built Wood-on-Wood understructure and foundation, our Invisanail deck flooring system, our railing systems manufactured to customers’ specifications and our pre-assembled stairway and accessories product lines. Our deck patents include “Invisanail,” a unique fastening system in which deck modules are nailed from underneath to prevent the checking and cracks that often mar top-nailed decks. In addition, the module deck components we fabricate drop into understructure notches, eliminating the need for metal joist hangers.

Our decks are installed by our employee installation crews, typically comprised of three members. All of our crew members are trained thoroughly prior to performing installations, including completing a seven-part training course covering all aspects of Designer Deck installation. Our unique system of deck manufacturing and installation reduces the need for highly skilled, custom deck carpenters. Rather, we emphasize training professional deck assemblers, a strategy that will enable us to expand into new geographic markets without the higher cost, and often scarcity, of skilled labor. Deck installations are typically completed within 60 days from the receipt of the order, and usually completed in one day upon commencement of the installation.

Competition. We face significant competition in our respective markets. Reputation, price, workmanship and level of service are among the differentiating factors within the industry. We compete with numerous home improvement contractors and home center retailers in each of the markets in which we operate, including Sears, Sam’s Warehouse Club and Lowe’s and, in some markets, The Home Depot. As we implement our business

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strategy, we anticipate that we will face greater competition from home center retailers who have significantly more capital resources than we have. Increased competition could result in pricing pressures, fewer customer orders, reduced gross margins, loss of market share and decreased demand for our products and services. In addition to home improvement contractors and home centers, competition for our deck products comes from other wood deck producers, both pressure treated and other types, as well as non-wood alternatives, such as composites and plastics.

Raw Materials. We are not dependant upon a single source for our principal raw materials, and such raw materials have, historically, been readily available. Raw materials used in the manufacturing and installation process, including solid surface countertops, are purchased from several suppliers at prices that are periodically negotiated. We believe that such materials are, and will continue to be, available from numerous suppliers at competitive prices. We purchase lumber utilized in our lumber treatment and deck manufacturing facility in Woodbridge, Virginia, and pre-treated lumber for our Glen Mills, Pennsylvania and Westboro, Massachusetts facilities from local suppliers at current market prices which are subject to price fluctuations. We believe that we will be able to purchase an adequate supply of non-arsenic treated lumber from local suppliers at competitive prices in the new markets we enter pursuant to the roll-out of our deck program with The Home Depot.

Warranties. For our kitchen and bath products, in addition to the manufacturers warranty for defective materials, we provide each customer a one-year limited warranty covering workmanship and, under certain of our agreements, a limited warranty covering defective materials. For our window products, in addition to the manufacturers warranty for defective materials, we provide a warranty for labor. We require each of our independent contractors to correct defective workmanship for a 12-month period.

For our deck products, we provide a one-year warranty covering defective workmanship, a three-year warranty on structure and a limited lifetime warranty against rot, decay and termites.

Historically, we have not experienced significant warranty claims.

Customer Payment. Our customers pay for their home improvement products and services upon completion of the project. Payments are made in cash, by personal check, or credit cards, or by financing arranged by us.

Seasonality. Our business is subject to seasonal trends. We typically face reduced demand for our home improvement products during the fourth quarter holiday season, which negatively impacts our first quarter revenues and results of operations. Our business may also be adversely affected by extreme weather conditions in the markets that we serve.

Our Material Agreements

The Home Depot Relationship

In August 2003, we entered into a one-year pilot program with The Home Depot to be the exclusive provider of kitchen cabinet refacing products and related installation services in over 220 The Home Depot stores in designated markets in California, Oregon, Washington and Colorado. We provide in-store displays of our products and services, employees to man the in-store displays, training to The Home Depot sales personnel for marketing of our products and services, and we will follow up sales leads with in-home visits to potential customers. We provide the products, labor and installation services necessary to complete customer orders generated by The Home Depot sales leads. Although not required by the terms of the agreement, The Home Depot assists us with the marketing of our kitchen cabinet refacing products and services by including them in its At-Home Services marketing program and provides us with sales leads generated by our in-store displays and The Home Depot marketing programs. Sales contracts generated with The Home Depot customer leads are between the customer and The Home Depot. However, the agreement requires us to make necessary repairs to address any customer complaints or warranty claims. We share with The Home Depot a percentage of the gross

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revenues collected from customers as payment for our products and services in this program. During the term of the program, we are not allowed to enter into any similar agreements with specified competitors of The Home Depot. The pilot program may be terminated by either party with thirty days’ written notice upon a breach by either party of any obligation under the pilot program agreement if such breach is not remedied within 30 days. Unless the pilot program agreement is terminated or extended, it will automatically renew on a month-to-month basis.

In February 2004, we entered into a one-year pilot program with The Home Depot whereby we will provide custom designed, installed bathtub liners and wall surrounds and related services to approximately 130 The Home Depot stores. The terms of our bathroom refacing pilot program agreement are similar to our kitchen refacing pilot program agreement with The Home Depot, except that (1) the percentage of the gross revenues we receive from the sale of our bathroom refacing products and services in this program is slightly higher than as provided in our kitchen refacing program with The Home Depot and (2) the bathroom refacing pilot program does not provide that we will be the exclusive provider to The Home Depot in the designated markets of our bathroom products and services.

In August 2003, as a result of the successful completion of a pilot program with The Home Depot in selected Mid-Atlantic markets, we amended our wood deck sales and installation agreement with The Home Depot to extend the term of the agreement to October 2005 and to add new markets. Pursuant to the agreement, we sell, furnish and install wood deck systems to The Home Depot customers in over 240 The Home Depot stores in the metropolitan areas of Washington, D.C., Baltimore, Maryland, Richmond and Norfolk, Virginia, Boston, Massachusetts, Hartford, Connecticut and the states of New Jersey and Pennsylvania. The Home Depot has taken primary responsibility for the marketing of our decks to its in-store customers. We follow up sales leads generated by our in-store displays and The Home Depot marketing programs with in-home visits to potential customers. We manufacture and install our decks for The Home Depot customers in the designated markets. All sales, contracts, refunds and credits are handled in accordance with The Home Depot’s systems and procedures. However, the agreement requires us to make necessary repairs to address any customer complaints or warranty claims. We share with The Home Depot a percentage of the gross revenues generated by the sale of our products and services in this program. The portion of the gross revenues to which The Home Depot is entitled in this program increases slightly during the first 18 months that we are active in a designated The Home Depot market and will thereafter be fixed for the remainder of the term. We are not allowed to sell or install wood deck products for other retailers, or under the name or trademark of other retailers, without The Home Depot’s consent. The agreement automatically renews for additional one year terms. Either party may terminate the agreement at any time by giving the other party not less than sixty days written notice of intent to terminate as of January 1 of the calendar year following the date of the notice.

Century 21 Agreement

In March 1997, we entered into a license agreement with TM Acquisition Corp., granting us the exclusive right to use certain “CENTURY 21” trademarks in connection with our marketing, selling, furnishing and installation of kitchen cabinet refacing products and services in certain designated markets. The agreement expires in March 2007 unless earlier terminated pursuant to the terms of the agreement, which includes our failure to meet minimum revenue requirements as described in the agreement. As compensation for the use of the trademarks, we are obligated to pay TM Acquisition Corp. a fee based upon our sales of kitchen cabinet refacing products and services in the specified territory. We do not expect that this agreement will be renewed when it expires in 2007.

Renewal by Andersen Agreement

In September 2001, we entered into a retailer agreement with Renewal by Andersen Corporation to be the exclusive retailer of Renewal by Andersen brand products in the Los Angeles market under the trade name “Renewal by Andersen of Los Angeles.” Pursuant to the agreement, we have opened two showrooms in the

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Los Angeles area. Only Renewal by Andersen brand products are allowed to be shown in our showrooms. The agreement expires on December 31, 2006, subject to earlier termination, which includes our failure to substantially meet specified sales and customer satisfaction commitments and goals. During the term of the agreement we are not permitted to participate in or acquire a beneficial interest in any business that engages in the manufacture, sale, promotion, installation or servicing of window or patio doors within our designated Los Angeles market area.

Consumer Finance Segment

Industry Overview

The home improvement consumer finance industry occupies a niche market that involves extending credit to customers of residential remodeling contractors. Many regional and local banks and other entities extend this type of credit to consumers through various credit programs. Our consumer finance business competes with three general groups of home improvement financing providers: regional and local banks; larger national financial institutions; and specialty/niche companies.

Regional and Local Banks: Regional and local banks represent the largest of the three groups and tend to focus on highly qualified, solid “A” rated customers as measured by the customer’s credit score.

Larger National Financial Institutions: GE Credit and Key Funding, a division of Key Bank, are the major national players in this category. The interest rates for these credit products are usually higher than many of the other products in the industry, but are attractive because they are easy to obtain and use.

Specialty/Niche Companies: This category of companies, which includes us, offers a variety of credit products that focus upon a specific segment of the home improvement financing market either by varying rates, product structure, customers, or security. A majority of these companies act as brokers in these transactions by buying the retail installment obligations, or RIOs, from the contractors and then reselling them to other financial institutions. This was the model that we employed prior to implementing our current strategy of buying and holding the RIOs.

Our Consumer Finance Business

General. We purchase RIOs from residential remodeling contractors throughout the United States, including RIOs originated by our own home improvement operations. The availability of this financing program provides our home improvement operations with a consistent and reliable source for our customers’ financing needs and enables us to offer a broad range of credit products to our customers and residential remodeling contractors that we believe may not otherwise be available to them from traditional financing sources.

In the first quarter of 2003, we changed our consumer finance business model to implement a strategy of holding RIOs we purchase from pre-approved residential remodeling contractors and those originated by our home improvement operations rather than packaging them for sale to credit institutions. We expect this new strategy will provide us with greater earnings potential in the long-term, because we will earn finance charges for the life of the RIOs, as opposed to the lesser, one-time premium that we previously earned upon the sale of the RIOs. To facilitate this change, in February 2003, we entered into a $75 million secured credit facility. The credit facility provides us with a capital source to further expand our consumer finance business by increasing the amount of RIOs financed for existing residential remodeling contractors and by originating relationships with new contractors. Our new strategy will allow us the flexibility to offer sales-enhancing credit programs to our home improvement customers as well as the customers of our residential remodeling contractors. The credit facility provides financing for 90% of the amount of eligible RIOs purchased, and we are required to provide the remaining 10%. The credit facility is secured by the RIOs. We only purchase RIOs for owner-occupied single family and multi-family units. We do not purchase loans associated with commercial properties. Although our

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strategy is to hold RIOs, we may sell a portion of our RIOs from time to time to obtain additional working capital or pay down our credit facility.

Our credit facility restricts us from purchasing RIOs from home improvement contractors unless the contractors meet certain eligibility standards as specified in our credit facility. The RIOs we purchase must also meet certain minimum credit and other underwriting criteria as provided in our credit facility. Additionally, we must provide our lender with a monthly statement reporting the amount of secured and unsecured RIOs, charge offs, delinquencies and other portfolio characteristics. We believe our compliance with the underwriting, collection and reporting requirements under our credit facility coupled with our internal credit and collection policies provides us with adequate controls to effectively manage credit risks relating to our RIO portfolio.

Underwriting and Credit Policies. Prior to approving the purchase of each RIO, we utilize underwriting criteria primarily based upon a customer’s credit score as reflected on reports issued by several credit reporting agencies. In addition to a customer’s credit and bankruptcy scores, we evaluate job stability, time in residence and, if a secured RIO, property value.

We utilize credit scores generated by several credit reporting agencies as a credit evaluation tool. The credit score allows financial institutions to make credit-related decisions based on the likelihood that the credit obligations of a borrower will be paid as expected. The credit score is a predictive measure that represents the probability that a borrower will timely repay the credit obligation over a given time period and is primarily based on the individual borrower’s credit history.

Although we may have a security interest in the customer’s property, we primarily rely on the creditworthiness of the customer. Our unsecured RIO customers are subject to more stringent underwriting standards and require higher credit scores than our secured RIO customers.

Upon receipt of a RIO application from an approved contractor, we thoroughly review all items for accuracy. The customer and the contractor sign a certificate confirming completion of the project and satisfaction of the customer with the associated residential improvement work. We contact every applicant via telephone to independently confirm contract terms and successful project completion.

Service and Collection. We historically negotiated commitments with banks, insurance companies and other financial institutions for the sale of our RIO portfolios. For one of the purchasers we provided, for a fee, collection and servicing of these accounts on behalf of the purchaser. We currently buy and hold RIOs, collecting finance charges and servicing them for the life of the RIO.

Portfolio Characteristics. At December 31, 2003, we owned and serviced a RIO portfolio of approximately $35.5 million. During 2003, we have experienced $172,000 in loan losses and at December 31, 2003, we had 13 delinquent accounts of 31 days or greater with an aggregate balance of $106,217. At December 31, 2003, the weighted average credit score for our portfolio was 658. We are prohibited under our credit facility from purchasing an unsecured RIO with a credit score less than 640 or a secured RIO with a credit score of less than 580. Our $35.5 million RIO portfolio consists of approximately 75% of secured RIOs and 25% of unsecured RIOs. Approximately $9.0 million of the $35.5 million portfolio was originated by our own home improvement operations.

As of December 31, 2003, our average RIO balance was approximately $6,500 with a weighted average maturity of 109 months. Our credit facility prohibits us from purchasing a secured RIO with a principal balance of more than $50,000 or a term longer than 240 months or an unsecured RIO with a balance of more than $20,000 or term longer than 180 months.

Marketing and Sales. Sales representatives conduct our principal consumer finance marketing and sales activities. We call on prospective contractors and participate in industry trade shows. We maintain relationships

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with over 100 home improvement contractors, which generally supply a consistent flow of RIO purchase opportunities. With our current personnel, we believe we have the capacity to handle approximately 20% more RIOs than our current portfolio level. We plan to further expand our core business by developing new relationships with additional home improvement and remodeling contractors.

Competition. The principal competition in our home improvement consumer finance business comes from regional and local banks, large national financial institutions and specialty companies. Some of our competitors have substantially greater resources than we do.

Environmental and Government Regulations

Generally, our activities and the activities of our sales representatives and contractors are subject to various federal and state laws and regulations and municipal ordinances relating to, among other things, in-home sales, consumer credit financing, advertising, the licensing of home improvement contractors, zoning regulations, environmental protection, safety and health. For example, purchasers of our products in an in-home setting are often afforded under Federal Trade Commission rules and various state consumer protection statutes relating to door-to-door sales, a “cooling off” period of three or more business days in which to rescind their transaction. We are also subject to various state and federal laws related to telemarketing, including the National Do Not Call Registry which is part of the Federal Trade Commission Telemarketing Sales Rule and the Federal Communication’s Telephone Consumer Protection Act. We have procedures designed to comply with such laws and regulations. We do not anticipate any difficulty in complying with applicable federal, state or local laws and regulations relating to our home improvement business operations.

Our consumer finance business is subject to various federal and state credit and lending regulations governing installment sales and credit transactions, relating to, among other things, required permits and licenses, usury, restrictions on amount of credit transaction fees charged to consumers, allowance for cancellation by consumers for a stated period of time after the credit transaction, required delivery to consumers of detailed information of the terms of the credit transaction and written disclosures to consumers of their legal rights and remedies for breach by lender or its assigns of applicable federal and state credit and lending statutes and regulations. Our consumer finance operations are subject to, for example, the Consumer Credit Protection Act, Truth In Lending Act, Real Estate Settlement Procedures Act, the Equal Credit Opportunity Act, the Home Owners Equity Protection Act and regulations issued by the Board of Governors of the Federal Reserve System. The RIOs we purchase are also subject to the statutes and regulations relating to consumer credit sales existing in the state in which the RIO originated. Depending on the coverage afforded consumer credit sales within a state’s regulatory framework, and the structure of the credit transaction, we may also be subject to certain states’ small loan or mortgage lending statutes. We have procedures designed to comply with such laws and regulations. We do not anticipate any difficulty in complying with applicable federal, state or local laws and regulations relating to our consumer finance business.

Employees

At December 31, 2003, we had approximately 675 employees, including 128 employees engaged in marketing activities, 187 sales representatives, 202 manufacturing and installation employees, and 158 management and administrative personnel.

Risks Factors

Termination of our initiatives with The Home Depot would reduce our revenues, net income and available liquidity.

A significant component of our growth strategy includes growing our business with The Home Depot, including our agreement to sell our wood deck products in The Home Depot stores as part of their At-Home Services program. In August 2003, we amended our wood deck sales and installation agreement with The Home

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Depot to add new markets and to extend the term of the agreement to October 2005. Pursuant to the amended agreement, we will sell, furnish and install wood deck systems to The Home Depot customers in certain Mid-Atlantic and Northeastern states. We anticipate that during the next 18 to 24 months we will establish additional wood deck manufacturing and installation centers as well as complementary wood deck sales facilities to support our roll-out in new markets contemplated by this agreement. During the year ended December 31, 2003, approximately 24% of our total revenues were derived from wood deck sales of which approximately 50% were attributable to sales under our agreement with The Home Depot.

This agreement may be terminated by either party on January 1st of each year upon 60 days prior notice, and may be terminated by The Home Depot on 60 days’ notice if we fail to comply with certain service standards under the agreement. The Home Depot is not contractually required to promote or advertise our products. If this agreement is terminated prior to the end of its term or is not renewed at the end of its term, whether as a result of our failure to fulfill our obligations under the agreement or The Home Depot’s decision to change its business strategy, our net income and liquidity may be reduced because our revenues from this program would not be realized at anticipated levels and those revenues may not be sufficient to meet expenses incurred in connection with the roll-out. Additionally, we would be required to focus our wood deck sales efforts on new distribution channels, and it is likely the capital investment in our wood deck sales, manufacturing and installation facilities in support of expansion of our The Home Depot relationship would be impaired, which may require a write-down of assets.

In August 2003 we entered into a one-year pilot program with The Home Depot as the exclusive provider of kitchen cabinet refacing products and installation services for over 220 The Home Depot stores in designated markets in California, Oregon, Washington and Colorado. In February 2004, we entered into a one-year pilot program with The Home Depot to provide our bathroom refacing products and installation services for approximately 130 The Home Depot stores in the Los Angeles and San Diego, California and Denver, Colorado markets. In order to meet the requirements of these pilot programs, we will need to establish additional sales and installation centers in California, Washington and Colorado to support our roll-out in these new markets. If we do not enter into longer term agreements with The Home Depot at the end of these one-year pilot programs, we would be required to seek alternative channels of distribution for our kitchen cabinet and bathroom refacing products and installation services in the markets covered by these pilot programs. Additionally, our net income and liquidity may be reduced because our anticipated revenues from these programs would likely not be realized at anticipated levels and may not be sufficient to cover expenses incurred in connection with these programs. If these pilot programs do not result in longer term agreements, our investment in additional sales centers in California, Washington and Colorado may be impaired, which may require a write-down of assets. During the year ended December 31, 2003, approximately 50% of our total revenues were derived from kitchen cabinet refacing product sales of which less than 1% were attributable to sales under our kitchen refacing agreement with The Home Depot.

Lower than anticipated revenues or higher than anticipated costs associated with our agreements with The Home Depot could reduce our net income and available liquidity and limit our ability to further expand our relationship with The Home Depot.

Lower than anticipated revenues or higher than anticipated expenses associated with our roll-out into new markets under our agreements with The Home Depot could reduce our net income and liquidity. Factors that could result in lower than anticipated revenues from our agreements with The Home Depot include less than anticipated demand for our products and unanticipated delays in implementing the roll-out into new markets due to factors that may include difficulties in attracting and training an adequate work force. Higher than anticipated costs from the roll-out into new The Home Depot markets could result from factors including increased or higher than anticipated real estate costs for new sales and manufacturing facilities, or higher than anticipated expenses for machinery, equipment, furniture and fixtures, product displays or inventory. If we are unable to maintain adequate liquidity, we may not be able to completely meet the obligations of our roll-out programs or to take advantage of future opportunities The Home Depot may present to us.

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Difficulties in meeting our installation staffing needs could impair our ability to complete projects on time, which could in turn hurt customer relationships and reduce revenues.

To fulfill our growth expectations, we must retain and train a sufficient number of qualified installers. Historically, during periods of strong economic growth and low unemployment, we experience greater difficulty in meeting our installation needs. Our inability to retain qualified installers may impede our ability to timely complete our home improvement projects which could reduce our revenues and hurt our relationships with our customers and strategic partners.

Our failure to secure additional financing to fully fund our expansion plans with The Home Depot could result in termination of one or more of our agreements with The Home Depot which would reduce our revenues, net income and available liquidity.

Although we believe that we will have sufficient cash and borrowing capacity under our credit facilities to meet our anticipated working capital needs for the next 12 months, we will need additional financing to fully fund our projected future expansion with The Home Depot. Additional financing may not be available to us or, if available, such financing may not be on favorable terms. Our failure to obtain additional financing may cause our roll-out programs to proceed at a slower pace than projected which could result in termination of one or more of our agreements with The Home Depot causing a decrease in our revenues, net income and liquidity. Additionally, the capital investment in our sales, manufacturing and installation facilities in support of our The Home Depot roll-out programs could be impaired, which may require a write-down of assets.

If we raise additional capital through the issuance of equity securities or new borrowing, the rights of existing stockholders could be diminished and it may reduce our net income.

If we issue additional equity securities, the ownership percentage of our stockholders would be reduced. If we borrow money, we may incur significant interest charges which could reduce our net income. Holders of debt or preferred securities may have rights, preferences or privileges senior to those of existing holders of our common stock.

We depend on agreements with others and termination or non-renewal of these agreements could result in decreased revenues and net income.

We market a significant portion of our kitchen, bath and window products to consumers under a license agreement with a subsidiary of Century 21 Real Estate Corporation and an agreement with Renewal by Andersen, a subsidiary of Andersen Corporation. During the year ended December 31, 2003, approximately 37% of our total revenues were derived from sales of home improvement products and services under Century 21 brand names. During the year ended December 31, 2003, approximately 8% of our total revenues were derived from sales of windows and patio doors of which 78% were attributable to sales under our agreement with Renewal by Andersen.

The license agreement with Century 21, which terminates in 2007, gives us the right to market, sell and install certain products in specific territories under the “Century 21 Home Improvements” and “Century 21 Cabinet Refacing” brand names. Our agreement with Renewal by Andersen, which terminates in December 2006, gives us the right to exclusively distribute Renewal by Andersen windows and patio door products in the greater Los Angeles, California area. Century 21 and Renewal by Andersen may each terminate its respective agreement with us if we do not meet certain sales goals. If our license agreement with Century 21 is terminated or not renewed, we would lose a distribution channel and be required to market kitchen and bath cabinet refacing and related products under our own brand names or enter into agreements with other strategic partners. If our agreement with Renewal by Andersen is terminated or not renewed, we would be unable to market Andersen windows or patio doors, which could result in a decrease in our revenues. Additionally if one of these agreements is terminated or not renewed, we may not be able to reduce expenses rapidly enough to offset any decrease in

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revenues that we experience. Our inability to replace these strategic partners or our failure to successfully market our products under our brand names in the designated markets could result in a decrease in our revenues and net income.

Our failure to obtain necessary capital to fund our consumer finance business could result in a decrease in our revenues.

We recently changed the business model of our consumer finance segment to a strategy of holding RIOs rather than bundling them for sale to credit institutions. To provide the capital for the execution of this strategy, in February 2003, we obtained a five-year, $75 million secured credit facility. The credit facility provides financing for 90% of the amount of eligible RIOs purchased, and we are required to provide the remaining 10%. If this credit facility is terminated or not renewed, we may not be able to obtain other sources of capital. Additionally, our buy and hold strategy depends in part on our ability to fund the 10% of eligible RIOs as required under our credit facility. We may not have sufficient reserves or access to capital to meet this funding obligation. If we are unable to obtain sufficient capital to fund our buy and hold strategy, or if we do not have the capital to meet our 10% funding requirement, we will have to change our consumer finance business model which may result in decreased revenues.

If we do not effectively manage interest rate risk in our consumer finance business net income we realize from that business would be likely to decrease.

We borrow money from institutions in order to purchase RIOs from residential remodeling contractors as well as those originated by our own home improvement operations. The difference between the rates we pay to borrow money and the rates we earn on our RIOs affects our earnings and the value of our assets and liabilities. Accordingly, our consumer finance business is sensitive to interest rate movements that affect this spread. If the interest rates we pay on our borrowings increase to a greater extent than the rates our customers pay to us, or if the interest rates that we charge customers are reduced to a greater extent than the interest rates we pay on our borrowings, our net income from our consumer finance business would likely decrease.

Our failure to effectively manage underwriting and collection controls in our consumer finance business or properly reserve for loan losses could reduce our net income.

We purchase RIOs from residential remodeling contractors throughout the United States, including RIOs originated by our home improvement operations. We utilize underwriting criteria primarily based upon a prospective customer’s credit score as reflected on reports issued by several credit reporting agencies. We establish loan loss reserves to take into account potential credit losses based in part on our knowledge of our customers and our historical experience. If our loan losses were to increase, a higher level of reserves may be required. Additionally, increased reserves will be required as our portfolio of RIOs increases. Our failure to actively and effectively manage our underwriting and collection controls for our consumer finance business could result in higher than expected defaults under our portfolio of RIOs, which could reduce our liquidity. Higher default rates would also require us to increase our loan loss reserves, which would reduce our net income.

We may be unable to efficiently integrate acquisitions into our business, which could result in less than anticipated revenues or net income from such acquisitions.

Our business strategy includes pursuing strategic acquisitions that will complement or expand our business. Acquisitions involve risks including lower than anticipated earnings and cash flows, unforeseen liabilities relating to or arising out of the acquisition, quality problems related to the acquired assets, adverse personnel relations, loss of customers because of change of identity, deterioration in local economic conditions and other risks affecting the acquired entity. The process of integrating acquired entities into our business will require management time and our financial resources. We may experience disruptions and incur unexpected expenses in

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integrating acquisitions. Future acquisitions could also result in potentially dilutive issuances of equity securities, the incurrence of debt, contingent liabilities in the form of earn-outs or other contingent compensation, or other items, any of which could adversely affect our business. Any such acquisitions may not enhance our business, results of operations, cash flows or financial condition. Difficulties in integrating acquisitions may result in less than anticipated revenues and net income from such acquisitions.

Failure to retain experienced senior management could impair our business.

The success of our current business strategy depends to a significant extent on the continued services and experience of our executive officers and senior management team. Although we have entered into employment agreements with all of our executive officers and senior management, those agreements do not ensure their continued employment with us. If for any reason our executive officers or senior management do not continue to be active in management, our business operations could be disrupted which may cause a reduction in our revenues or net income.

We may experience greater competition from large home center retailers which could result in decreased demand for our products and services, pricing pressure and reduced gross margins.

We compete with large home center retailers in each of the markets in which we operate, including Sears, Sam’s Warehouse Club and Lowe’s and, in some markets, The Home Depot. Many of these retailers currently offer competing products and services and may look to expand their ability to provide remodeling services directly to their customers. As we implement our business strategy, we anticipate that we will face greater competition from these home center retailers who have significantly more capital resources than we have. Increased competition could result in pricing pressures, fewer customer orders, reduced gross margins, loss of market share and decreased demand for our products and services.

Our failure to comply with laws and regulations could significantly disrupt our business, increase our legal expenses and reduce our net income.

Our business activities and the activities of our sales representatives and contractors are subject to various federal and state laws and regulations and municipal ordinances relating to, among other things, in-home sales, consumer credit financing, advertising, the licensing of home improvement contractors, permitting and zoning regulations. For example, purchasers of our products in an in-home setting are often afforded under Federal Trade Commission rules and various state consumer protection statutes relating to door-to-door sales, a “cooling off” period of three or more business days in which to rescind their transaction. Our telemarketing activities are subject to various state and federal regulations, including the National Do Not Call Registry which is part of the Federal Trade Commission Telemarketing Sales Rule and the Federal Communication Commission’s Telephone Consumer Protection Act. We are also subject to various federal and state credit and lending regulations governing installment sales and credit transactions, including for example, the Consumer Credit Protection Act, Truth in Lending Act, Real Estate Settlement Procedures Act, the Equal Credit Opportunity Act, Home Owners Equity Protection Act and regulations issued by the Board of Governors of the Federal Reserve System. Violations of any of these or other laws and regulations could result in suspension or revocation of our license to do business in a state, monetary fines, public relations problems or increased regulatory scrutiny and cause us to incur significant legal and other expenses, which could reduce our net income.

Adoption of new laws and regulations affecting our consumer finance business could reduce our revenues and net income.

Congress, the states and other governmental bodies in the jurisdictions in which we operate may enact new laws and regulations, or amend existing laws and regulations, relating to consumer credit financing protection, debtor relief, collection activities, and consumer privacy. Such laws and regulations could make it more difficult or expensive for us to purchase or collect our RIOs and could also limit the finance charges and fees that we may charge our customers or impose new disclosure requirements relating to pricing and other terms. As a result, new laws or regulations or changes in existing laws or regulations could reduce our revenues and net income.

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Seasonal factors can reduce our revenues and net income.

Our business is subject to seasonal trends. We typically face reduced demand for our home improvement products during the fourth quarter holiday season which negatively impacts our first quarter revenues and net income. Extreme weather conditions in the markets that we serve sometimes negatively impact our revenues and net income. Additionally, should a significant shortage or price increase of a particular material, such as lumber, occur, such conditions could hurt our ability to complete sales orders, result in higher prices and lower margins on our products and ultimately reduce our revenues and net income.

Our common stock price may be subject to wide fluctuations, which could result in substantial losses for our stockholders.

Our common stock price could be subject to wide fluctuations in response to a number of factors and these fluctuations could result in substantial losses for our stockholders. Factors that could cause our stock price to fluctuate include:

The stock market in general, and securities listed on the Nasdaq Stock Markets in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to operating performance. These broad market and industry fluctuations may materially reduce the market price of our common stock, regardless of our operating performance.

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PROPERTIES

We operate 19 kitchen, bath and window sales and installation centers in 12 states serving 14 major metropolitan areas in the United States and maintain a marketing center in Boca Raton, Florida. We manufacture our kitchen cabinet refacing products, bathroom cabinetry and custom countertops at our Charles City, Virginia facility. We also operate five wood deck sales centers, three of which also serve as manufacturing facilities, that collectively serve the Philadelphia, Pennsylvania, Washington, D.C., Baltimore, Maryland, Richmond and Norfolk, Virginia, central New Jersey and Boston, Massachusetts markets. In addition to our Woodbridge, Virginia deck manufacturing facility, we maintain two regional wood deck sales, manufacturing and installation centers in Glen Mills, Pennsylvania and Westboro, Massachusetts. We maintain our consumer finance business operations in Dallas, Texas and our corporate office in Lewisville, Texas.

We lease all our properties, except for the Woodbridge, Virginia facility, which we own. Our manufacturing facility at Charles City, Virginia, is under a capital lease with a 15-year term with an option to purchase the property at the end of the term for nominal consideration. All of our leases, other than the Charles City facility, are for terms of five years or less.

LEGAL PROCEEDINGS

We are subject to various legal proceedings and claims that arise in the ordinary course of business. We do not believe the amount of ultimate liability with respect to these actions will materially affect our financial position or results of operations.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of the Company’s stockholders during the fourth quarter of the fiscal year covered by this report.

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PART II

MARKET FOR COMMON EQUITY AND RELATED

STOCKHOLDER MATTERS AND DIVIDEND POLICY

Our common stock has traded on the Nasdaq SmallCap Market since May 10, 1989. Our common stock was traded under the symbol “USPN” from May 10, 1989 until February 14, 2001. On February 15, 2001, we effected a one share for four shares reverse split of our common stock and changed our symbol to “USHS”. On March 17, 2004, the last reported sales price for our common stock was $11.20 per share.

The following table sets forth, for the quarters indicated, the range of closing high and low sales prices of our common stock as reported by Nasdaq SmallCap Market. We have applied to list our common stock for trading on the Nasdaq National Market under the symbol “USHS”.

As of March 17, 2004, there were 6,529,535 shares of our common stock outstanding held by approximately 170 stockholders of record.

We have never declared or paid any cash dividends on our common stock. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently intend to retain future earnings, if any, to finance operations and the expansion of our business.

Transfer Agent and Registrar

The Transfer Agent for our common stock is Corporate Stock Transfer, Denver, Colorado.

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SELECTED FINANCIAL DATA

The following table provides selected historical consolidated financial data for the periods ended and as of the dates indicated. The selected historical consolidated statement of operations data and consolidated balance sheet data presented below for the five most recent fiscal years ended December 31, 2003, have been derived from our audited consolidated financial statements. The historical results are not necessarily indicative of the results to be expected in any future period. You should read the selected consolidated financial data presented below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with our consolidated financial statements and the related notes appearing elsewhere in this annual report.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATION

The following should be read in conjunction with our audited financial statements for years ended December 31, 2003, 2002 and 2001, and the notes to these financial statements included therein. Operations of all acquired business are included in the accompanying consolidated financial statements from their respective dates of acquisition. The discussion contains 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 as a result of a number of factors, including those described under the caption “Business – Risk Factors” and elsewhere in this report.

Overview

We are engaged in two lines of business, the home improvement business and the consumer finance business. In our home improvement business, we manufacture or procure, design, sell and install custom quality, specialty home improvement products. These products are marketed under nationally recognized brands such as The Home Depot At-Home Services, Century 21 Home Improvements, and Renewal by Andersen, and under our own brands, Facelifters, Cabinet Clad and USA Deck-Designer Deck. Our product lines include kitchen and bathroom cabinetry and cabinet refacing products, countertops, wood decks and deck related accessories, replacement windows and patio doors. We manufacture our kitchen cabinet refacing products, bathroom cabinetry and custom countertops at our Charles City, Virginia facility. We operate 19 kitchen, bath and window sales and installation centers in 12 states serving 14 major U.S. remodeling markets and maintain a marketing center in Boca Raton, Florida. We also operate five wood deck sales centers, three of which also serve as manufacturing facilities, which collectively serve seven Northeastern and Mid-Atlantic markets. We manufacture the components for our decks utilizing non-arsenic pressure treated lumber at our Woodbridge, Virginia, Glen Mills, Pennsylvania and Westboro, Massachusetts facilities. Our principal marketing activities are conducted through a variety of sources including television, direct mail, marriage mail, magazines, newspaper inserts, home shows, selected neighborhood canvassing, telemarketing and in-store displays.

Our consumer finance business purchases retail installment obligations, or RIOs, from residential remodeling contractors throughout the United States, including RIOs originated by our own home improvement operations. As of December 31, 2003, our average RIO balance was approximately $6,500 with a weighted average maturity of approximately 109 months. We do not purchase RIOs that have a principal balance of more than $50,000 or a term longer than 240 months. The availability of this financing program enables us to offer a broad range of credit products to our customers that may not otherwise be available to them from traditional home improvement financing sources.

Our objective is to grow our home improvement and consumer finance businesses. Since 2001, we have taken significant actions to accomplish our objective, including:

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Results of Operations

Results of operations for the year ended December 31, 2003 as compared to the year ended December 31, 2002.

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Our consolidated revenues increased 56.3% to $78,559,000 in the year ended December 31, 2003, as compared to $50,276,000 in the year ended December 31, 2002. The increase in revenues occurred in our home improvement operations reflecting the addition of our deck product line in November 2002, and increased new orders in our other product lines.

Consolidated net income was $1,528,000 in the year ended December 31, 2003, as compared to $1,036,000 in the prior year period. The increase in net income is attributable to our home improvement operations principally reflecting higher revenues. Net income from home improvement operations in the year ended December 31, 2003 was $1,708,000 as compared to $222,000 in the prior year period. For the year ended December 31, 2003, net loss in the consumer finance segment was $180,000 as compared to net income of $814,000 in the prior year period. The decline in our income in our consumer finance business is primarily due to a change in our business model in February 2003, from packaging and selling RIOs to holding them for the life of the obligations.

Home Improvement Segment

Revenues from our home improvement operations increased $28,154,000, or 61%, to $74,222,000 in the year ended December 31, 2003, from $46,068,000 in the year ended December 31, 2002.

Revenues attributable to each of our product lines are as follows ($000):

Percentage of home improvement revenues attributable to our major brands are as follows:

The increase in revenues includes $18,297,000 from our wood deck product line which we acquired in November 2002, and an increase of $9,875,000, or 21.9%, in our kitchen, bath and window products. Other revenues of $22,000 in the year ended December 31, 2003 represent licensing fees which we received pursuant to our intellectual property licensing agreement with a third party.

Revenues increased in each of our product lines reflecting higher new sales orders during the period as well as higher average selling prices resulting from an increase in general price levels. Home improvement segment new sales orders in the year ended December 31, 2003, were $77,201,000, an increase of 59% from $48,520,000 in the prior year period. We believe the increase in new sales orders is principally attributable to increased

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marketing expenditures, enhanced marketing programs, improved sales efficiencies and orders for wood deck products. Our backlog of uncompleted sales orders was $11,124,000 at December 31, 2003, as compared to $8,124,000 at December 31, 2002. The increase in backlog is attributable to the corresponding increase in sales orders and the acquisition of our wood deck product line.

Gross profit for the home improvement segment was $39,079,000, or 52.7% of segment revenues for the year ended December 31, 2003, as compared to $24,776,000, or 53.8% of revenues in the prior year period. The decrease in home improvement gross profit margin as a percentage of revenues is primarily due to a higher mix of revenues from lower margin products, principally bath remodeling, replacement window and wood deck products. We believe our lower margin products will continue to comprise a significant percentage of our future revenues.

Branch operating expense includes cost associated with each of our sales and installation centers including rent, telecommunications, branch administration salaries and supplies. Branch operating expenses were $2,596,000, or 3.5% of segment revenues, as compared to $1,995,000, or 4.3% of segment revenues, for the year ended December 31, 2003 and 2002, respectively. The increase in branch operating expenses principally reflects our increased operations from acquisitions, entry into new markets and our RbA operations.

Marketing expenses for home improvement operations were approximately $14,006,000, or 18.9% of segment revenues in the year ended December 31, 2003, as compared to $9,311,000, or 20.2% of revenues for the prior year period. The increase in marketing expenditures principally reflects the addition of our wood deck product, marketing fees associated with our The Home Depot programs and planned increased advertising expenditures for our other product lines. As part of our new marketing programs, we have decreased our dependence on telemarketing and have increased our utilization of other media sources including direct mail, television, and newspaper inserts. While the media sources we utilize are generally more costly per customer lead than telemarketing, we believe that the increased cost of lead generation is more than offset by improved sales efficiencies from these sources.

We believe a better measurement of our effective marketing cost is to relate marketing expenditures to new orders generated in the period. This is because, in our normal operating cycle, marketing costs can precede the completion of sales orders by up to three months. We recognize revenue upon completion of installation and acceptance of each sales order, but expense marketing costs as incurred. Since our normal cycle time to complete installations is generally 55 – 60 days from the date a sale is made, the marketing expenditure will precede the recognition of the associated revenue. However, marketing expenditures are generally concurrent with the securing of new sales orders. Marketing expenses were 18.1% of new sales orders in the year ended December 31, 2003, as compared to 19.2% in the prior year period. The decrease in marketing expenses as a percentage of new sales orders is principally due to lower marketing costs associated with our wood deck product line acquired in November 2002, and improved sales efficiencies in our other products.

Sales expenses, which consist primarily of sales commissions, sales manager salaries, travel and recruiting expenses, were $11,141,000, or 15.0% of segment revenues for the year ended December 31, 2003, as compared to $8,376,000, or 18.2% of revenues in the prior year period. The increase in sales expenses is principally the result of the sales commissions on higher revenues, and growth in our operations, including recent acquisitions. Sales expenses decreased as a percentage of revenues primarily due to a lower average rate of commission resulting from our mix of products sold.

We have a license agreement with Century 21 Real Estate Corporation which allows us to market our kitchen, bath and window products under the Century 21 Home Improvements brand in specified territories. The license agreement requires us to pay fees to Century 21 based on our related revenues. License fees were $953,000, or 1.3% of home improvement segment revenues for the year ended December 31, 2003, as compared to $826,000, or 1.8% 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.

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General and administrative expenses were approximately $7,402,000, or 10.0% of segment revenues for the year ended December 31, 2003, as compared to $3,875,000, or 8.4% of revenues in the prior year period. General and administrative expenses include $1,130,000 and $979,000 of corporate overhead costs allocated to the segment for the years ended December 31, 2003 and 2002, respectively. Corporate general and administrative expenses are allocated to each of our reporting segments based on management’s estimate of the costs attributable, or time spent, on each of our segments. The increase in general and administrative expenses reflects $2,781,000 from the addition of our deck business which was acquired in November 2002, increased employee related expenses including salaries, bonuses, payroll taxes and benefits ($282,000), and higher corporate overhead allocated costs ($152,000) principally related to corporate salaries and professional fees including legal, public accounting and investor relations expenses.

Consumer Finance Segment

Our consumer finance business purchases consumer retail installment obligation contracts, or RIOs, from remodeling contractors, including RIOs generated by our home improvement operations. In February 2003, we changed the business model of our finance business to holding portfolios of RIOs rather than packaging them for sale to credit institutions. We expect this new strategy will provide us with greater earnings potential in the long term since we will earn finance charges for the life of the RIO, as opposed to a lesser, one-time premium we previously earned upon sale of the portfolios. To facilitate this change, in February 2003, we secured a $75 million credit facility. The credit facility is restricted to the purchase and financing of RIOs. Although our strategy is now to hold RIOs for the remaining life of the obligation, we may sell a portion of our RIOs from time to time as we deem necessary to obtain additional working capital or to pay down our credit facility.

Prior to entering into the credit facility, we typically held RIOs for less than three months before selling portfolios of RIOs to banks and insurance companies under negotiated purchase commitments. We earned a one-time premium upon each sale. In certain cases, we provided, for a fee, collection and servicing of these accounts on behalf of the purchaser.

The change in our business model adversely affects our profitability in the short-term due to our forgoing the initial one-time origination fee we earned upon selling a portfolio. Until we have accumulated a sufficient amount of financed RIOs, and finance charges earned on the RIO portfolio reach a sufficient level, our earnings will be adversely affected.

During 2003, in two separate transactions, FCC purchased two portfolios of RIOs from Bank One, N.A. (“Bank One”) for an aggregate purchase price of $24,821,000, including accrued interest of $218,000 and an aggregate premium of $847,000. Also on June 5, 2003, FCC sold approximately $5,000,000 of the RIOs purchased from Bank One to a third party to pay down its credit facility and for additional working capital. FCC purchased the portfolios from Bank One in order to accelerate its return to profitability following its business model change. The purchased RIOs had previously been sold to Bank One by FCC under its prior loan purchase and servicing agreements with no contemplation or intent at the time of sale to repurchase the loans. Pursuant to the terms of the FCC purchase agreement, FCC and Bank One agreed to terminate the loan purchase and servicing agreements between the parties.

For the year ended December 31, 2003, revenues from our consumer finance segment were $4,337,000, as compared to $4,208,000 in the prior year period. Revenues were comprised of the following ($000):

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The increase, or decrease, in each of our revenue components for the year ended December 31, 2003, as compared to the prior year period, reflects the change in our business model. The effect of holding RIOs, as compared to selling portfolios of RIOs, has resulted in an increase in interest income, and a decrease in revenues from loan portfolio sales, The decrease in servicing and collection fees reflects the termination of the servicing agreement with Bank One and as a result, we do not anticipate any further servicing income.

Interest expense incurred on financing the purchase of RIOs was $1,116,000 for the year ended December 31, 2003, as compared to $145,000 in the prior year period. In the prior year period, portfolios of RIOs were generally held less than three months before they were packaged and sold.

Our portfolio of RIOs held at December 31, 2003 and 2002 were as follows:

Provision for loan losses was $559,000 in the year ended December 31, 2003. Changes in the allowance for loan losses for the years ended December 31, 2003, 2002 and 2001 were as follows:

At December 31, 2003, scheduled maturities of RIOs are as follows:

We utilize a $5.0 million revolving line of credit and a $75 million credit facility to purchase RIO’s. At December 31, 2003, we had approximately $32,317,000 outstanding under these lines of credit. The weighted average interest rate paid under these lines in 2003 was 3.7%. At December 31, 2003, interest rates on our RIO portfolio range from 6.0% to 16.5% with a weighted average interest rate of 14.4%.

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General and administrative expenses were approximately $2,935,000, or 67.7%, of finance segment revenues for the year ended December 31, 2003, as compared to $2,703,000, or 64.2%, of segment revenues in the prior year period. General and administrative expenses include costs associated with underwriting, collection and servicing our RIO portfolio, general administration of the finance segment operations and approximately $300,000 and $205,000 of corporate overhead allocated to the finance segment for the years ended December 31, 2003 and 2002, respectively. Excluding allocated overhead, personnel expenses, including salary, wages, bonus, benefits and payroll taxes, accounted for approximately 57% and 63% of general and administrative expenses for the year ended December 31, 2003 and 2002, respectively. The increase in general and administrative expenses is principally attributable to professional fees (legal and public accounting), insurance, licensing costs and employee benefits.

Results of Operations for the year ended December 31, 2002 as compared to the year ended December 31, 2001.

Our consolidated revenues were $50,276,000 in the year ended December 31, 2002, as compared to $40,487,000 in the year ended December 31, 2001. Our consolidated net income was $1,036,000 in the year ended December 31, 2002, as compared to $1,727,000 in the prior year period. The decline in our consolidated net income from the prior year period occurred in the home improvement segment and resulted from a combination of factors, including; (1) increases in operating costs and start-up losses in our new operations; (2) a decline in the home improvement segment gross profit margin principally resulting from the mix of products sold; and (3) the operating cycle in which marketing costs are expensed and revenues are recognized.

In February 2002, we commenced operations under our agreement with RbA, and in June 2002, we opened our first RbA showroom in Torrance, California. During the first quarter of 2002, we incurred approximately $325,000 in costs for the RbA operation, including advertising, sales and management personnel expenses, and general operating expenses. We had no revenues in the first quarter period to offset these start up costs. Subsequent to the first quarter, we experienced a number of issues relating to our start-up operations for our RbA

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project, including delays in obtaining the necessary materials to complete customer orders, engaging a sufficient number of qualified installers, and delays in completing our Torrance showroom facility. As a result, the RbA operations incurred an operating loss of $812,000 in the year ended December 31, 2002.

In May 2002, we began operating in the Milwaukee, Wisconsin market, and also acquired the operations of Reface, Inc, a home improvement company operating in the Richmond and Virginia Beach, Virginia markets. During the year ended December 31, 2002, we incurred an operating loss of approximately $50,000 from these operations.

In 2001, replacement window, patio doors and bathroom remodeling revenues accounted for approximately 14% of home improvement revenues, as compared to approximately 23% of revenues for 2002. Our sales of solid surface countertops increased significantly in 2002 as compared to the prior year. Replacement window, patio door, bathroom remodeling and solid surface countertop products generally have lower margins than our other products. Since sales of our lower gross profit margin products increased in 2002 as compared to 2001, gross profit margin declined in 2002. In an effort to increase our overall gross profit margin, in January 2003 we increased the prices of certain of our products.

We recognize revenue upon completion of installation of each sales order. In our normal operating cycle, we complete new sales orders within 55 to 60 days from the date an order is received. The operating cycle is slightly longer in our replacement window product line.

Our marketing costs are expensed as incurred and revenues are not recognized until completion of sales orders. Since our marketing expenses can precede the completion of sales orders by up to three months, in periods in which our backlog of uncompleted orders increases significantly due to increased marketing activities, our net income is adversely affected.

In 2002, our home improvement segment expanded its operations in the Milwaukee, Richmond, Virginia Beach and Westchester markets, and through our agreement with RbA, in southern California. Excluding our deck operations which were acquired on November 30, 2002, new sales orders were $47,541,000 for 2002, an increase of 23% from $38,610,000 in 2001. Backlog of sales orders to be installed for these operations increased $2,524,000, or 54.4%, to $7,161,000 at December 31, 2002, as compared to $4,637,000 at December 31, 2001. Including our deck product line, backlog of sales orders at December 31, 2002 was $8,124,000.

Home Improvement Segment

Revenues from our home improvement segment were $46,068,000 in 2002, an increase of approximately 16% from $39,694,000 in the prior year period. The increase in home improvement revenues reflects $5,028,000 from new operations and an increase of $1,346,000 in the same operations as compared to the prior year. Revenue increases principally resulted from increased sales order volume in our bathroom refacing and replacement windows products and higher average selling prices for all of our products.

Revenues attributable to each of our product lines are as follows ($000):

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Percentage of home improvement revenues attributable to our major brands are as follows:

Gross profit for the home improvement segment was $24,776,000, or 53.8% of related segment revenues for 2002, as compared to $22,392,000, or 56.4% of segment revenues in the prior year period. The decrease in home improvement gross profit margin as a percentage of revenues is primarily due to a higher mix of lower margin products sold, principally bath and windows products, and an increase in operating costs resulting from start up operations and production management expenses related to our RbA operations.

Branch operating expenses were $1,995,000, or 4.3% of segment revenues, as compared to $1,478,000, or 3.7% of segment revenues, for 2002 and 2001, respectively. The increase in branch operating expenses principally reflects increased operations from acquisitions, our entry into new markets and our RbA operations.

Marketing expenses for home improvement operations were approximately $9,311,000, or 20.2% of segment revenues in 2002, as compared to $7,582,000, or 19.1% of revenues for the prior year period. Marketing expenses were 19.3% of new sales orders in 2002, as compared to 19.6% in the prior year.

The increase of marketing expense as a percentage of segment revenues is principally due to our operating cycle and timing in which marketing costs are expensed and revenues are recognized. In addition, we have reduced our telemarketing activities and increased our utilization of other media sources to generate prospective customer leads. The media sources we utilize are generally more costly than telemarketing activities and result in an increase in the cost to acquire a new customer. However, we believe these media sources generally result in higher sales efficiencies than telemarketing. As a result of these sales efficiencies, marketing costs as a percentage of new sales orders declined as compared to the prior year.

Sales expenses were $8,376,000, or 18.2% of segment revenues for 2002, as compared to $6,293,000, or 15.9% of segment revenues in the prior year period. The increase in the dollar amount of sales expenses is principally the result of increased sales commissions on higher revenues, and growth in our operations. The increase in sales expenses as a percentage of segment revenues is principally due to increases in sales personnel costs and sales management salaries.

License fees were $826,000, or 1.8% of segment revenues for 2002, as compared to $875,000, or 2.2% of segment revenues in the prior year. The decrease in license fees is due to a lower amount of our sales under the Century 21-brand.

General and administrative expenses were approximately $3,875,000 or 8.4% of segment revenues for 2002, as compared to $3,516,000 or 8.9% of segment revenues in the prior year period. General and administrative expenses include $979,000 and $764,000 of corporate overhead allocated to the segment for the years ended December 31, 2002 and 2001, respectively. In addition to new operations, we incurred increased costs related to insurance, benefits, travel and investor relations expenses.

Consumer Finance Segment

We established our consumer finance business following our acquisition of FCC in October 2001.

Revenues from this segment were $4,208,000 for 2002, including $3,187,000 from portfolio sales and $1,021,000 from servicing fees and interest income earned on finance receivables. Revenues in the prior year period were $793,000, reflecting revenues from the date of the acquisition through the end of 2001.

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General and administrative expenses were $2,703,000 for 2002 and $602,000 for 2001, reflecting expenses of the business from the date of acquisition through the end of 2001. General and administrative expenses include costs associated with underwriting, collection and servicing of RIOs, and general administration of the finance segment operations and administrative expenses include $205,000 and $59,000 of corporate overhead allocated to the segment for the years ended December 31, 2002 and 2001, respectively. Excluding allocated overhead, personnel expenses, including salary, wages, bonus, benefits and payable taxes accounted for approximately 63% of general and administrative expenses for the year ended December 31, 2002.

Off-balance Sheet Arrangements

Our consumer finance business purchases consumer retail installment obligations, or RIOs, from remodeling contractors. Prior to changing our business model in February 2003, we negotiated commitments with banks, insurance companies, and other financial institutions for the sale of our RIO portfolios. We had several agreements with Bank One for the purchase of RIO portfolios. Each agreement represented a separate commitment from Bank One as to the aggregate amount of RIOs 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, we deposited a portion of the proceeds of the portfolio sale, usually 0.5% of the principal balance of RIOs purchased, into a restricted bank account, to offset the institution’s credit risk in its purchased portfolio (the “Hold Back Reserve”). If credit losses exceeded certain thresholds over specified periods of time, we were required to reimburse the financial institution for the excess credit losses, up to a specified maximum as defined in the agreement. Conversely, if credit losses were less than specified thresholds over certain periods of time, Bank One released the Hold Back Reserve and was required to reimburse us for the amount of credit losses less than the specified thresholds, up to a specified maximum.

We routinely reviewed the credit loss experience of the RIOs underlying these agreements with Bank One. During the year ended December 31, 2002, approximately $40,000 of credit losses were charged against the reserve. We estimated that at December 31, 2002, the maximum liability for credit losses under these agreements is $300,000. However, based on our estimates of expected losses, we established an accrual for credit losses of approximately $104,000 at December 31, 2002.

On June 5, 2003, in support of our business model change, we purchased a portfolio of RIOs from Bank One. The RIOs purchased had previously been sold by us to Bank One. Pursuant to the terms of the purchase agreement, the parties agreed to terminate all prior purchasing and servicing agreements and no further obligations exist between the parties. The release of the Hold Back Reserve and the reserve for “off-balance sheet credit risk” were included in the calculation of the purchase price of the purchased RIO portfolio.

Liquidity and Capital Resources