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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, 2004

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 18, 2005, 7,889,843 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, 2004, was $40,343,120.

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. ¨

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: Portions of the Registrant’s proxy statement pertaining to the Registrant’s 2005 annual meeting of stockholders are incorporated by reference into Part III of this report.

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TABLE OF CONTENTS

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PART I

BUSINESS

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 Installed Decks, The Home Depot Kitchen and Bathroom Refacing, Century 21 Home Improvements, Century 21 Cabinet Refacing, and under our Facelifters brand. Our home improvement products are marketed through a variety of sources including television, direct mail, marriage mail, magazines, newspaper inserts, home shows, selected neighborhood canvassing, and in-store displays at selected The Home Depot stores. Our home improvement operations include two reporting segments, the interior products segment and the exterior products segment. In our interior products segment, our product lines include kitchen and bathroom cabinetry and cabinet refacing products, countertops, replacement windows and patio doors. In our exterior products segment, our product line includes wood decks and related accessories.

We manufacture certain of our kitchen cabinet refacing products, bathroom cabinetry and custom countertops at our Charles City, Virginia facility. We operate 21 kitchen and bath sales and installation centers (three of which also provide replacement window products) in 12 states serving 15 major U.S. remodeling markets and maintain a marketing center in Boca Raton, Florida. We manufacture the components for our wood decks utilizing non-arsenic pressure treated lumber at our Woodbridge, Virginia, Glen Mills, Pennsylvania, Westboro, Massachusetts and Bridgeport, Connecticut facilities, which also serve as deck sales and installation centers.

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, 2004, we owned and serviced a RIO portfolio having a principal balance of approximately $41.0 million with a weighted average remaining term of approximately 106 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 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 remodeling contractors.

Since October 2003, our home improvement operations have engaged in an aggressive expansion program in connection with our agreements with The Home Depot. We believe our relationship with The Home Depot is a significant factor to the achievement of our business strategy and long-term growth. Our current business strategy is to become a principal vendor of wood decks, and kitchen and bath refacing products to The Home Depot in designated markets. During 2005 we intend to concentrate our efforts and to allocate our personnel and capital resources to continue the expansion of the roll out of wood decks, and kitchen and bath refacing products in designated The Home Depot stores.

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 National Market System under the symbol “USHS”. 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.

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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

In selected markets, we market and sell our wood decks and our kitchen and bathroom refacing solutions to The Home Depot customers. We currently offer our wood deck products and services in over 240 Mid-Atlantic and Northeastern The Home Depot stores. In October 2004, The Home Depot awarded us ten additional markets, primarily in the Midwest United States, in which we will sell, furnish and install our wood deck systems to The Home Depot customers. In support of our plan to expand our relationship with The Home Depot in these ten new markets, we entered into a Supply and Rebate Agreement (Supply Agreement) with Universal Forest Products, Inc. (Universal) whereby we granted a limited license to Universal to manufacture pre-engineered component deck parts and related accessory products for us. As a result of the Supply Agreement, it will not be necessary for us to open manufacturing plants to accomplish our roll out into these new markets. Additionally, in certain markets where we have existing interior products operations, or where expansion markets are common to both our interior and exterior products, which include Milwaukee, St. Louis and Minneapolis, we plan to leverage a single infrastructure for our products. Consequently, we believe that the Supply Agreement will substantially reduce our capital outlay and start up expenses in these new markets. We anticipate that our deck products and services will be offered to The Home Depot customers in approximately 485 The Home Depot stores by year end 2005.

We are also the exclusive provider of kitchen and bathroom refacing products and related installation services in approximately 323 The Home Depot stores in designated markets in California, Colorado, Michigan, Minnesota, Oregon and Washington. In September 2004, we expanded our kitchen refacing service agreement with The Home Depot to add the Phoenix, St. Louis, Las Vegas and Milwaukee markets (which comprise approximately 75 The Home Depot stores). We will begin offering our kitchen refacing products to The Home Depot customers in these markets in the first quarter of 2005. By the end of 2005, we anticipate that our kitchen refacing products and services will be available to customers in approximately 395 The Home Depot stores.

Our relationship with The Home Depot provides us with a significant 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 we have the opportunity to profitably grow sales of our wood decks, kitchen and bathroom refacing products. 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 through Strategic Acquisitions and Organic Growth

As we enter new markets under The Home Depot name, we may consider strategic acquisitions that will provide us sales, marketing, installation or manufacturing synergies, as well as additional products which we may be able to offer The Home Depot customers. 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.

Although our current business strategy is to dedicate our capital and human resources to grow our business through our relationship with The Home Depot, we may seek other opportunities to enter new markets where we do not service The Home Depot through strategic acquisitions and organic growth. 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.

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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. We believe this new strategy provides 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 our RIO portfolios. We executed on this strategy by entering into a $75 million secured credit facility that has enabled us to accumulate approximately $41.0 million of RIOs at December 31, 2004. 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.

Home Improvement Business

Products and Services

In our home improvement business, we manufacture or procure, design, sell and install custom quality, specialty home improvement products. Our specialty product lines include kitchen refacing, bathroom refacing, replacement windows and wood decks.

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, cabinet doors, drawers, drawer fronts, and drawer boxes are replaced, all hardware is replaced, and all exposed cabinet surfaces are covered with matching veneer or 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. Our cabinet refacing products, excluding wood doors and wood drawer fronts, 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: We purchase our replacement vinyl windows from unaffiliated non-branded suppliers and perform the installation services for our customers.

Wood Decks: We are an exclusive provider of wood decks and related accessories to The Home Depot customers in selected markets. We have developed a solution for the fabrication and installation of wood 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 to two days. 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 three regional sales, manufacturing and installation centers in Glen Mills, Pennsylvania, Westboro, Massachusetts and Bridgeport, Connecticut and a deck sales and installation center in Chicago, Illinois to support our wood deck sales to The Home Depot customers in these markets. 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:

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The following chart summarizes the percentage of our consolidated revenues that each of our product lines accounted for during the last three fiscal years.

Marketing and Sales

Our home improvement products are marketed under nationally recognized brands such as The Home Depot Installed Decks, The Home Depot Kitchen and Bathroom Refacing, Century 21 Home Improvements, Century 21 Cabinet Refacing, and under our Facelifters brand.

The following chart summarizes the brands under which our products are marketed.

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 and selected neighborhood canvassing. We maintain a marketing center in Boca Raton, Florida where we receive in-bound calls in response to our media advertising for kitchen and bathroom 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.

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Although not contractually required to promote or advertise our products, The Home Depot is currently marketing our products by including them in its “You Can Do It. We Can Help” program. We provide in-store displays in each The Home Depot store including full color brochures. In addition to this in-store marketing campaign, we also conduct neighborhood canvassing programs and advertising in other forms of media.

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 sales representative’s performance. We continually strive to improve the rate at which our sales professionals convert appointments into sales orders.

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, including cabinet doors, drawers, drawer fronts and laminate countertops, and cabinets faced with high-pressure laminate or thermo foil at our facility in Charles City, Virginia. Certain components, including wood cabinet doors, wood drawer fronts, Corian countertops, sinks, hardware and faucets, acrylic tub liners and wall surrounds, and vinyl replacement windows, are purchased from third-party suppliers.

With the exception of our operations in California, and occasional warranty and other service work, independent contractors who meet our qualifications perform most 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. 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. In our California operations, we utilize employee installation crews.

Kitchen, bath and window installations are generally completed within 55 to 60 days after a sales agreement is signed, and within three to five workdays from commencement of the installation. Upon completion, the installation crew obtains a certificate of completion signed by the customer and returns all documentation and excess materials to us. We pay the installer upon receipt of the completion certificate for each job. Fees paid by us to subcontractors for an installation are based upon an amount negotiated between the contractor and us. We have specific pay rates for our employee installation crews.

Wood decks: To serve our deck customers in selected The Home Depot markets, we manufacture the components of our deck products at our manufacturing facilities located in Woodbridge, Virginia, Glen Mills, Pennsylvania, Westboro, Massachusetts and Bridgeport, Connecticut.

In September 2004, we granted to Universal Forest Products, or Universal, a limited license to manufacture pre-engineered component deck parts and related accessory products to support our expansion into The Home Depot markets in the Midwest United States. We anticipate that our agreement with Universal will substantially reduce the capital outlay required to expand our deck operations in the new The Home Depot markets. We also intend to purchase pre-engineered deck component parts from Universal to support, on an as needed basis, sales of decks to The Home Depot customers in our other The Home Depot markets.

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

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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 enables 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 two days 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 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 specialty or franchise wood deck contractors, both pressure treated and other types, as well as non-wood alternatives, such as composites and plastics.

Raw Materials

We are not dependent 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, Westboro, Massachusetts and Bridgeport, Connecticut 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 bathroom products, in addition to the manufacturer’s 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.

Customer Payment

Our customers, including The Home Depot, pay for their home improvement products and services upon completion of the project. Except for The Home Depot, payments are made in cash, by personal check, or credit cards, or by financing facilitated by FCC. The Home Depot pays us by check. FCC does not facilitate financing for The Home Depot customers.

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Seasonality

Our business is subject to seasonal trends. The generation of sales orders for our kitchen, bath and replacement window products typically declines in the last six weeks of the year during the holiday season, which negatively impacts our first quarter revenues and net income. The generation of sales orders for our wood deck products typically declines in the last quarter of the year through the first two months of the following year, which negatively impacts our fourth and first quarter revenues and net income, respectively.

Extreme weather conditions in the markets we serve occasionally impact our revenues and net income.

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 approximately 240 The Home Depot stores in designated markets in California, Colorado, Oregon and Washington. In May 2004, we amended our kitchen products agreement with The Home Depot to extend the term to May 2006 and to add approximately 83 stores to this program in designated markets in Michigan and Minnesota. In September 2004, we expanded our kitchen cabinet refacing service agreement with The Home Depot to add the Phoenix, St. Louis, Las Vegas and Milwaukee markets (which comprise approximately 75 The Home Depot stores). We will begin offering our kitchen refacing products to The Home Depot customers in these markets in the first quarter of 2005. By the end of 2005, we anticipate that our kitchen refacing products and services will be available to customers in approximately 395 The Home Depot stores. During the term of the program, we are not allowed to enter into any similar agreements with specified competitors of The Home Depot. The agreement 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 it such breach is not remedied within 30 days. Unless the 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 in the Los Angeles and San Diego, California and Denver Colorado markets. In May 2004 we amended this agreement with the Home Depot to extend the term to May 2006 and to add approximately 193 stores to this program in designated markets in California, Colorado, Michigan, Minnesota, Oregon and Washington. The terms of our bathroom refacing agreement are similar to our kitchen refacing agreement with The Home Depot, except that the marketing fee which The Home Depot receives in this program is slightly higher than as provided in our kitchen refacing program with The Home Depot. Our bathroom refacing pilot program provides that we will be the exclusive provider to The Home Depot customers in the designated stores of our bathroom products and services.

In August 2003, as a result of the 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. On October 5, 2004, we further amended our deck agreement with The Home Depot to add ten additional markets, primarily in the Midwest United States, in which we will sell, furnish and install wood deck systems to The Home Depot customers. We began offering our deck products to The Home Depot customers in the Chicago-Milwaukee-Madison market in January 2005 and expect the rollout in the other nine markets to be completed by year end 2005. We anticipate that our deck products and services will be available to The Home Depot customers in approximately 485 The Home Depot stores by year end 2005. Additionally, the amended agreement provides that our subsidiary, USA Deck, will be the exclusive provider of wood deck products and installation services for The Home Depot in the markets served by USA Deck. We have agreed to refrain from offering our wood deck products in any The Home Depot markets, including markets which our products are not currently being sold, to

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other retailers, or other parties, or under the name or trademarks of any other party, without The Home Depot’s consent. Our deck 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.

Although not required by the terms of our agreements, The Home Depot assists us with the marketing of our products and services by including them in its marketing programs and by providing us with sales leads generated by our in-store displays and The Home Depot marketing programs. We also provide in-store displays of our products and services, and training to The Home Depot sales personnel for marketing of our products and services, and we follow up sales leads with in-home visits to potential customers. Sales contracts generated with The Home Depot customer leads are between the customer and The Home Depot. However, we provide the products, labor and installation services necessary to complete customer orders generated by The Home Depot sales leads and we are required to make necessary repairs to address any customer complaints or warranty claims. Each of our The Home Depot agreements provides that The Home Depot will receive a marketing fee, similar to a sales commission, based upon a specified percentage of the gross revenues collected from customers as payment for our products and services. We record this fee as a marketing expense in our financial statements.

The Universal Forest Products License Agreement. In 2003, we entered into a Proprietary Information Licensing Agreement, or the Licensing Agreement, with Universal Forest Products, Inc., or Universal. The seven year Licensing Agreement provided Universal the exclusive use of certain of our intellectual property including manufacturing and installation methods, deck design methods, marketing and sales methods, trademarks, and the right to fabricate and manufacture decks under our patents. The Licensing Agreement was limited to certain geographical markets in which Universal provides wood deck solutions to The Home Depot customers pursuant to a separate agreement between Universal and The Home Depot. The Licensing Agreement required Universal to pay us royalties based upon Universal’s sales from these products. During the second through seventh year of the Licensing Agreement, Universal agreed to pay us a guaranteed minimum royalty if certain annual sales of deck products were not obtained by Universal. In addition, Universal paid us an up-front licensing assistance fee of $150,000.

On September 27, 2004, Universal and we mutually agreed to terminate the Licensing Agreement. Pursuant to the termination provisions, Universal paid us a termination fee of $25,000. Effective with termination of the Licensing Agreement, we recognized as other revenues the remaining unamortized balance of the initial licensing fee.

The Universal Forest Products Supply Agreement. In September 2004, we entered into a Supply and Rebate Agreement, or the Supply Agreement, with Universal whereby we granted a limited license to Universal to manufacture pre-engineered component deck parts and related accessory products for us. Either party may terminate the Supply Agreement by giving the other party 30 days’ written notice of its election to terminate.

Universal agreed to rebate to us annually an amount equal to 1% of our purchases of deck products and to pay us an advance of $75,000 against future rebates which will be credited against the advance until actual rebates equal the advance. If the Supply Agreement is terminated by us prior to our having earned the rebate advance, the unearned portion shall be repaid to Universal.

We believe that the Supply Agreement will eliminate the need to build and equip a manufacturing facility required by us to expand our deck operations in The Home Depot markets which we will enter in 2005. We also intend to purchase pre-engineered deck component parts from Universal to support, on an as needed basis, sales of decks to The Home Depot customers in certain markets currently being served by us.

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 and bathroom refacing products and services, and

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replacement window 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 royalty based upon our sales of our products and services in the specified markets. We do not expect that this agreement will be renewed when it expires in 2007.

The Renewal by Andersen Corporation Relationship. On September 26, 2001, we entered into a retailer agreement, or the Retailer Agreement, with Renewal by Andersen Corporation, or RbA, to be the exclusive retailer of RbA brand window and patio door products in the Los Angeles market under the trade name “Renewal by Andersen of Southern California.” The agreement was scheduled to expire on December 31, 2006, subject to earlier termination in accordance with its terms. On November 11, 2004, we and RbA mutually agreed to terminate the Retailer Agreement to be effective as of December 31, 2004. In light of our current business strategy to become a principal vendor of wood decks, and kitchen and bath refacing products to The Home Depot, we believe that the sale and installation of RbA window and patio doors in a single designated market is not compatible with our current business and growth strategy.

We have agreed that for a period of two years from the completion date of an RbA product installation for a customer, we will perform (or have others perform) any services necessary to fulfill our installation warranty for our RbA customers. Except for our two-year service obligation for which we have accrued $25,000, neither we nor RbA shall have any liability to the other party for any compensation, loss recoupment or damage, asserted on any basis, as a result of the termination of the RbA Agreement.

As a result of the termination of the RbA agreement, our consolidated financial statements for all prior periods have been adjusted to reflect the RbA operating results as a discontinued operation. For the years ended December 31, 2004, 2003 and 2002, sales of RbA products were $4,859,000, $4,611,000 and $2,142,000, respectively.

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 rather than packaging them for sale to credit institutions. We expect this 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 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. The credit facility also provides 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.

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

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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 that 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.

Prior to obtaining the credit facility, we typically held RIOs for less than three months before selling our portfolio of RIOs to financial institutions under negotiated purchase commitments, We earned a one-time premium upon each sale and, in most cases, retained the collection and servicing of the RIOs for the purchaser. Although our strategy is to now hold RIOs for the remaining term 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.

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. We currently buy and hold RIOs, collecting finance charges and servicing them for the life of the RIO.

Portfolio Characteristics

At December 31, 2004, we owned and serviced a RIO portfolio having a principal balance of approximately $41.0 million. Approximately $30.1 million, or 73% of our RIO portfolio, was secured by the underlying residential property and the remaining 27% of the portfolio is unsecured. Of the $41.0 million portfolio, approximately $7.3 million was originated by our own home improvement operations. As of December 31, 2004, the weighted average credit score for our portfolio was 660 and our average RIO balance was approximately $6,296 with a weighted average maturity of 106 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. In addition, 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.

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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 with over 100 home improvement contractors, which generally supply a consistent flow of RIO purchase opportunities. We plan to further expand our core business by developing new relationships with additional home improvement and remodeling contractors.

Competition

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 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.

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, building permits, 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

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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, 2004, we had approximately 648 employees, including 39 employees engaged in marketing activities, 189 sales representatives, 192 manufacturing and installation employees, and 178 management and administrative personnel.

Risks Factors

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

Since October 2003, our home improvement operations have engaged in an aggressive expansion program in connection with our agreements with The Home Depot. We believe our relationship with The Home Depot is a significant factor to the achievement of our business strategy and long-term growth. Our current business strategy is to become a principal vendor of wood decks, and kitchen and bath refacing products to The Home Depot in designated markets. During 2005 we intend to concentrate our efforts and to allocate our personnel and capital resources to continue the expansion of the roll out of wood decks, and kitchen and bath refacing products in designated The Home Depot stores.

During the year ended December 31, 2004 approximately 42% of our home improvement revenues were attributable to sales under our agreements with The Home Depot of which 20% of our revenues were attributable to sales and installations of wood decks, 21% were derived from kitchen cabinet refacing product sales and 1% were related to the sale of bath refacing products and services.

Our wood deck agreement with The Home Depot 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. 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 that the capital investment in our wood deck manufacturing, sales and installation facilities in support of expansion of our The Home Depot relationship would be impaired, which may require a write-down of assets.

Pursuant to our kitchen and bath refacing agreements with The Home Depot, we will continue to expand the offering of our products in new The Home Depot markets in 2005. In order to meet the requirements of these expansion programs, we will need to establish additional sales and installation centers to support our roll-out in these new markets. If these agreements are cancelled or not renewed at the end of their term, 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 agreements. 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 agreements are cancelled or not renewed at the end of their term our investment in additional sales centers may be impaired, which may require a write-down of assets.

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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. Lower than anticipated revenues from our agreements with The Home Depot could result from an inadequate supply of prospective customer leads or reduced demand for our products. The Home Depot is not contractually required to promote or advertise our products. If we are unable to secure a sufficient quantity of prospective customers, or if sales are less than anticipated due to reduced demand for our products and services, our revenues, net income and liquidity could be adversely effected. Additionally, 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 could result in less than anticipated sales levels.

Higher than anticipated expenses from the roll-out into new The Home Depot markets could result from various factors, including increased or higher than anticipated labor costs, 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 our obligations of our roll-out programs or take advantage of future opportunities The Home Depot may present to us.

Our failure to obtain a significant number of customer leads under our relationship with The Home Depot would negatively impact our revenues and earnings

Our home improvement operations are characterized by the need to continuously generate prospective customer leads. Historically, we have generated all our customer leads through our internal marketing efforts. Although not required by the terms of our agreements, The Home Depot assists us with the marketing of our products and services by including them in its marketing programs and by providing us with customer leads generated by our in-store displays and The Home Depot marketing programs. We provide the in-store displays of our products and services, and training to The Home Depot sales personnel for marketing of our products and services, and we follow up customer leads with in-home visits to potential customers. As part of our strategy to grow our business with The Home Depot, our revenues and income are largely dependent on our, and The Home Depot’s, marketing programs to generate prospective customer leads. While management is optimistic about the success of our current programs, and new programs we will develop, there can be no assurances that our, or The Home Depot’s, marketing programs will produce a sufficient quantity and quality of prospective customer leads. The failure to obtain a sufficient number of customer leads would have a material adverse impact on our revenues and earnings.

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 engage and retain 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 engage and retain qualified installers may impede our ability to timely complete our home improvement projects which could reduce our revenues and impair our relationships with our customers and strategic partners.

If our agreement with Century 21 is terminated, we would lose a distribution channel for our products which could result in decreased revenues and net income

We market a portion of our kitchen and bath products to consumers under a license agreement with a subsidiary of Century 21 Real Estate Corporation. During the year ended December 31, 2004, approximately 33% of our home improvement revenues were derived from sales of home improvement products and services under the Century 21 brand names.

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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. Century 21 may terminate the 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. Additionally, if this agreement is terminated or not renewed, we may not be able to reduce expenses rapidly enough to offset any decrease in revenues that we experience. Our inability to replace this strategic partner 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

In 2003, we changed the business model of our consumer finance segment to a strategy of holding R1Os 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, the 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 in 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

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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 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.

If additional capital is not available to us, we may not be able to take advantage of additional growth opportunities

We may have additional opportunities to grow our relationships with strategic partners, including The Home Depot, which may require us to seek additional capital to fund these new business opportunities. We may be unable to obtain additional capital or, if available, we may not be able to obtain such capital on favorable terms. If capital is not available to us, we may not be able to expand our relationship with our strategic partners or be able to take advantage of additional growth opportunities, including acquisitions.

If we raise additional capital it could diminish the rights of existing stockholders and may reduce our net income

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

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 could be disrupted, and we may experience a reduction in revenue 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,

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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,

Seasonal factors and material shortages or price increases can reduce our revenues and net income

Our business is subject to seasonal trends. The generation of sales orders for our home improvement products typically declines in the last six weeks of the year during the holiday season, which negatively impacts our first quarter revenues and net income. Extreme weather conditions in the markets 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:

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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.

Special Note Regarding Forward-Looking Statements

Except for historical information, this Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can identify forward-looking statements by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue,” or the negative of such terms or other comparable terminology. These statements are only predictions and relate to future events or our future financial performance. Actual events or results may differ materially. These statements include, but are not limited to, statements concerning:

In evaluating these forward looking 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.

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PROPERTIES

We currently operate 21 kitchen and bath sales and installation centers (three of which also provide replacement window products) in 12 states serving 15 major metropolitan areas in the United States and maintain a marketing center in Boca Raton, Florida. We manufacture certain of our kitchen cabinet refacing products, bathroom cabinetry and custom countertops at our Charles City, Virginia facility. We also operate six wood deck sales centers, four 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, Boston, Massachusetts, Bridgeport, Connecticut and Chicago, Illinois markets. In addition to our Woodbridge, Virginia deck manufacturing facility, we maintain regional wood deck sales, manufacturing and installation centers in Glen Mills, Pennsylvania, Westboro, Massachusetts and Bridgeport, Connecticut. 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 our 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 traded on the Nasdaq SmallCap Market from May 10, 1989 until June 24, 2004 when our common stock began trading on the Nasdaq National Market. Our common stock was traded under the symbol “USPN” from May 10, 1989 until February 14, 2001. On February 15, 2001, we affected a one share for four shares reverse split of our common stock and changed our symbol to “USHS”. On March 18, 2005, the last reported sales price for our common stock was $6.06 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 the Nasdaq SmallCap Market until June 24, 2004 and thereafter by Nasdaq National Market.

As of March 18, 2005, there were 7,889,843 shares of our common stock outstanding held by approximately 169 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.

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, 2004, 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.

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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, 2004, 2003 and 2002, and the notes to these financial statements included therein. Operations of all acquired businesses are included in the accompanying consolidated financial statements from their respective dates of acquisition. Except for the historical information contained herein, certain matters set forth in this report are forward-looking statements that are based on management’s current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and as expressed in such forward-looking statements 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 Installed Decks, The Home Depot Kitchen and Bathroom Refacing, Century 21 Home Improvements, Century 21 Cabinet Refacing and under our Facelifters brand. Our home improvement products are marketed through a variety of sources including television, direct mail, marriage mail, magazines, newspaper inserts, home shows, selected neighborhood canvassing, and in-store displays at selected The Home Depot stores. Our home improvement operations include two reporting segments, the interior products segment and the exterior products segment. In our interior products segment, our principal product lines include kitchen and bathroom cabinetry and cabinet refacing products and countertops. In our exterior products segment, our product line includes wood decks and related accessories. We began offering wood deck products in November 2002 when we acquired USA Deck.

We manufacture certain of our kitchen cabinet refacing products, bathroom cabinetry and custom countertops at our Charles City, Virginia facility. We operate 21 kitchen and bath sales and installation centers (three of which also provide replacement window products) in 12 states serving 15 major U.S. remodeling markets and maintain a marketing center in Boca Raton, Florida. We manufacture the components for our wood decks utilizing non-arsenic pressure treated lumber at our Woodbridge, Virginia, Glen Mills, Pennsylvania, Westboro, Massachusetts and Bridgeport, Connecticut facilities, which also serve as deck sales and installation centers.

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, 2004, we owned and serviced a RIO portfolio having a principal balance of approximately $41.0 million and our average RIO balance was approximately $6,296 with a weighted average remaining term of approximately 106 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 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 remodeling contractors.

Since October 2003, our home improvement operations have engaged in an aggressive expansion program in connection with our agreements with The Home Depot. We believe our relationship with The Home Depot is a significant factor to the achievement of our business strategy and long-term growth. Our current business strategy is to become a principal vendor of wood decks, and kitchen and bath refacing products to The Home Depot in designated markets. In support of our business strategy, in June 2004, we completed a secondary public offering of our common stock.

In September 2001, we entered into a Retailer Agreement with RbA to be the exclusive retailer of RbA brand window and patio door products in the Los Angeles market under the trade name “Renewal by Andersen of

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Southern California.” We commenced operations under the Retailer Agreement in February 2002. As a result of our business strategy to expand our business with The Home Depot, we believe that the sale and installation of RbA window and patio doors in a single designated market is not compatible with our current business and growth strategy. In November 2004, we and RbA agreed to terminate the Retailer Agreement effective December 31, 2004. As a result of the termination of the RbA agreement, our consolidated financial statements for all prior periods have been adjusted to reflect the RbA operating results as a discontinued operation.

During 2005, we intend to concentrate our efforts and to allocate our personnel and capital resources to continue the expansion of the roll out of wood decks, and kitchen and bath refacing products in designated The Home Depot stores.

Results of Operations

Results of operations for the year ended December 31, 2004 as compared to the year ended December 31, 2003

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Consolidated revenues were $88,766,000 for the year ended December 31, 2004, as compared to $73,948,000 for the year ended December 31, 2003. Net loss from continuing operations was $946,000, or $0.13 per diluted share, for the year ended December 31, 2004 as compared to net income of $1,492,000, or $0.22 per diluted share, for the year ended December 31, 2003.

Management’s Summary of Results of Operations

During 2004, in our home improvement operations, we accelerated the opening of sales and manufacturing facilities in certain markets to serve The Home Depot customers. Opening sales and manufacturing facilities in new markets requires expenditures for facilities improvements, machinery, furniture and fixtures, and other expenses, and requires funding operating losses during the initial months following the opening of a facility. Our expected operating losses in these new operations were greater than we anticipated due to numerous challenges as are more fully described below. Consequently, while we achieved our plan to expand into new markets with The Home Depot, our revenue growth was insufficient to cover our increased operating expenses, resulting in an operating loss for the year.

In our consumer finance business, we grew our revenues and reduced our operating loss as compared to the prior year. However, during 2004, the refinancing environment limited the growth of our portfolio of RIOs and resulting revenues. Recent interest rate changes, which we expected would reduce refinancing, have had a nominal affect on the number of early payoffs of RIOs we are experiencing. Additionally, the interest rate environment resulted in a reduction in our finance margin in 2004 as compared to 2003.

Interior Products – During the second and third quarters of 2004, we opened new kitchen and bath sales and installation centers in San Diego, Sacramento and San Francisco, California, Seattle, Washington and Minneapolis, Minnesota. Additionally, we converted our Detroit, Michigan, Richmond and Virginia Beach, Virginia kitchen and bath centers, which we had operated under our brands, to service The Home Depot stores in their respective markets. Also during this period, we completed the roll out of our bath product line to selected The Home Depot stores in Los Angeles, California, Denver, Colorado and Portland, Oregon, where we had begun offering kitchen refacing products to The Home Depot customers in late 2003. In the aggregate, during the second and third quarters of 2004, we rolled out kitchen and bath refacing products to approximately 194 The Home Depot stores. As of December 31, 2004, our kitchen and bath refacing products and services are available to The Home Depot customers in approximately 320 stores.

We believe that a newly opened kitchen and bath center should achieve breakeven revenue levels between the fourth to sixth month of operation. The achievement of breakeven revenues is largely a function of recruiting and training a qualified sales and installation staff, coupled with receiving a sufficient quantity of customer leads and achieving our normal cycle time of 55 - 60 days to complete new sales orders, as well as start-up and ongoing infrastructure costs. In contrast, a kitchen and bath center that has been converted from a previous brand affiliation to service The Home Depot will continue to complete installations of sales orders which it has in its backlog while it retrains its staff, thereby minimizing the financial impact of the transition. Furthermore, we believe that to be effective in our expansion program, we must properly time the opening of new centers so as to cover and fund new center operating losses with maturing centers operating income.

As expected, in the aggregate, our kitchen and bath centers which were opened during the second and third quarters of 2004 incurred an operating loss for the year ended December 31, 2004. However, our expected operating losses in our California centers were greater than we anticipated because we had encountered difficulties in recruiting a sufficient number of qualified subcontractor installers, and consequently we were unable to achieve our normal cycle time of 55 – 60 days to complete sales orders. In addition, due to the long cycle times, we encountered customer cancellations as we were unable to timely meet customer needs. Had we been able to achieve our normal cycle time, the increased revenues would have reduced the impact of the start-up losses from the newly opened centers. As a solution to our California installation issues, in October 2004, management implemented a plan to establish an employee-based installation workforce and increased installer

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labor pay rates. We believe that an adequate supply of labor is available on an employee basis as opposed to a limited number of qualified subcontractors. We also believe that increased labor rates will attract a greater number of qualified installers. We anticipate that qualified subcontractors will, from time to time, supplement our employee workforce.

During the fourth quarter 2004, as a result of implementing the employee workforce in California, we have significantly improved the timeliness of completing sales orders. However, the increases in labor rates in our California markets, as well as the costs of training and equipping the employee workforce, reduced our fourth quarter gross profit margins. We have implemented an increase in our selling prices in our California markets effective January 1, 2005. We are continuing to add to our workforce and anticipate that we will be fully staffed by the end of the first quarter 2005.

In September 2004, The Home Depot and we agreed to further expand our relationship to add kitchen refacing products in the Phoenix, St. Louis, Las Vegas and Milwaukee markets (which comprise approximately 75 The Home Depot stores). We expect to begin offering our kitchen refacing products to The Home Depot customers in these markets in the first quarter of 2005. By the end of 2005, we anticipate our kitchen refacing products and services will be available to customers in approximately 395 The Home Depot stores.

On November 11, 2004, we and Renewal by Andersen (RbA) agreed to terminate our Retailer Agreement to be effective as of December 31, 2004. In light of our current business strategy to become a principal vendor of kitchen and bath refacing products and wood decks to The Home Depot, we do not believe that the sale and installation of RbA window and patio doors in a single designated market is compatible with our current business and growth strategy. During 2005, we intend to concentrate our efforts and to allocate our personnel and capital resources to our program with The Home Depot. We believe in 2005 we will achieve sufficient increases in revenues through the continued implementation of our programs with The Home Depot to offset the decreased revenues as a result of the termination of our RbA agreement. For the years ended December 31, 2004 and 2003, revenues from installation of RbA products were $4,859,000 and $4,611,000, respectively.

After the effective date of the termination of the Retailer Agreement, and for a period of two years from the date of the completion of an installation of RbA windows or patio doors, we will perform (or have others perform) any services necessary to fulfill our installation warranty. We plan to utilize our Costa Mesa and Torrance, California RbA products facilities for our kitchen and bath products programs with The Home Depot.

Exterior Products – In connection with our expansion program with The Home Depot, in February 2004 we opened a new deck manufacturing facility in Westboro, Massachusetts, and in July of 2004, we opened a new deck manufacturing facility in Bridgeport, Connecticut. Combined with our manufacturing facility in Glen Mills, Pennsylvania, which we opened in October 2003, and our original manufacturing facility in Woodbridge, Virginia, our deck products and services are available to customers in approximately 240 The Home Depot stores located in the metropolitan areas of Washington D.C., Baltimore, Maryland, Richmond and Norfolk, Virginia, Philadelphia, Pennsylvania, Boston, Massachusetts, Hartford, Connecticut, and the states of New Jersey and Pennsylvania.

Opening sales and manufacturing facilities in new markets requires expenditures for facilities improvements, machinery, furniture and fixtures, and other expenses, and requires funding operating losses during the initial months following the opening of a facility. We believe that a newly opened deck manufacturing facility should achieve breakeven revenue levels between the sixth and ninth month of operation. Achieving breakeven revenues is largely a function of recruiting and training qualified sales, installation and factory production personnel, coupled with receiving a sufficient quantity of customer leads and achieving our cycle time to complete installations of new sales orders, as well as start-up and ongoing infrastructure costs. Similar to our kitchen and bath centers, we believe that to be effective in our expansion program, we must properly time the opening of new deck facilities in order to cover and fund new facility operating losses with maturing facilities operating income.

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The initial phase of our deck expansion program with The Home Depot was essentially completed in July 2004 with the opening of our Bridgeport, Connecticut manufacturing plant. For the year ended December 31, 2004, we incurred a net loss in our exterior products segment of approximately $1.8 million. The net loss in the period was significantly greater than we anticipated and is principally due to an inadequate supply of customer leads and an erosion of our gross profit margins. Specifically, we believe the following factors significantly contributed to the erosion of our gross profit margins and net loss in the period:

In October 2004 we increased our deck selling prices in all of our The Home Depot markets and we implemented certain cost reduction programs, including work force reductions and re-assignment of certain personnel. Management is currently evaluating the effectiveness of these actions and is reviewing other alternatives and additional actions to return our deck operations to profitability, including marketing and sales programs to increase customer leads, re-building the deck product sales force, consolidation of certain operations and evaluating methods to increase manufacturing synergies across the markets we serve. During the fourth quarter and the first quarter of the calendar year, we experience a normal seasonal decline in our exterior products business. Consequently, we expect to incur an operating loss in the first quarter 2005 in our exterior products segment. If our cost reduction programs are not successful or if we are unable to generate a sufficient quantity of customer leads and new sales orders in the first quarter and early second quarter of 2005, it would be likely that we would incur operating losses in the second quarter of 2005 in our exterior products segment.

Also in October 2004, The Home Depot and we agreed to further expand our wood deck program to add ten additional markets, primarily in the Midwest United States. In support of our plan to expand our relationship with The Home Depot in these ten new markets, we entered into a Supply and Rebate Agreement (Supply Agreement) with Universal Forest Products, Inc. (Universal) whereby we granted a limited license to Universal to manufacture pre-engineered component deck parts and related accessory products for us. As a result of the Supply Agreement, we do not believe it will be necessary for us to open manufacturing plants to accomplish our roll out into these new markets. Additionally, in certain markets where we have existing interior products operations, or where expansion markets are common to both our interior and exterior products, which include

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Milwaukee, St. Louis and Minneapolis, we plan to leverage a single infrastructure for our products. Consequently, we believe that the Supply Agreement will substantially reduce our capital outlay, start up expenses and time required to breakeven in the new markets.

We anticipate that we will begin offering our deck products to The Home Depot customers in the greater Chicago, Milwaukee and Madison markets in the first quarter 2005. Contingent upon our successful roll out of these markets, we will begin the roll out of our deck products into the Minneapolis and St. Louis markets.

Additionally, our amended wood deck agreement with The Home Depot provides that we will be the exclusive provider of wood deck products and installation services for The Home Depot in the markets we serve. We have agreed to refrain from offering our wood deck products in any The Home Depot markets, including markets in which our products are not currently being sold, to other retailers, or other parties, or under the name or trademarks of any other party, without The Home Depot’s consent. Upon completion of this expansion program, our deck products and services will be available to The Home Depot customers in approximately 485 The Home Depot stores.

Consumer Finance – 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.

In our consumer finance business, we grew our revenues and reduced our operating loss as compared to the prior year. For the year ended December 31, 2004, revenues from our consumer finance segment were $5,865,000, as compared to $4,337,000 in the prior year period. Net loss for the finance segment was $75,000 for the year ended December 31, 2004 as compared to $180,000 in the prior year period.

Our revenue growth principally reflects a 13% increase (approximately $4.7 million) in our portfolio of RIOs which was $40.2 million at December 31, 2004 as compared to $35.5 million at December 31, 2003. However, during 2004, the refinancing environment limited the growth of our portfolio of RIOs and resulting revenues. Recent interest rate changes, which we expected would reduce refinancing, have had a nominal affect on the number of early payoffs of RIOs we are experiencing. Additionally, these interest rate changes have resulted in an increase in our cost of funds in our credit lines which we use to finance the purchase of RIOs.

As expected, in 2004 we have increased our provision for loan losses on our RIO portfolio. As our portfolio grows, we anticipate that increasing levels of reserves for losses will be required.

Home Improvement Operations – Detailed Review

New sales orders for home improvement products were $86,551,000 for the year ended December 31, 2004, an increase of 18.5% from $73,069,000 for the year ended December 31, 2003. The increase in new sales orders as compared with the prior year is principally due to the growth of our kitchen and bath programs with The

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Home Depot. New sales orders in our interior products segment increased 25.4% in fiscal 2004 as compared with fiscal 2003. New sales orders in our exterior products segment increased approximately 1.1% during fiscal 2004 as compared with fiscal 2003.

Our backlog of uncompleted sales orders at December 31, 2004 and 2003 is as follows (in thousands):

Revenues from our home improvement operations increased $13,290,000, or 19.1%, to $82,901,000 for the year ended December 31, 2004, from $69,611,000 for the year ended December 31, 2003.

Revenues attributable to each of our product lines are as follows (in thousands):

Revenues from kitchen refacing and wood deck products increased principally due to the growth of our programs with The Home Depot, which accounted for approximately 42% of our home improvement revenues for the year ended December 31, 2004. Other revenues of $263,000 for the year ended December 31, 2004, and $22,000 for the year ended December 31, 2003 represent royalty fees and consulting fees which we received pursuant to our intellectual property licensing and consulting agreements with third parties.

In 2003, USA Deck entered into a Proprietary Information Licensing Agreement (Licensing Agreement) with Universal Forest Products, Inc. (Universal). The seven year Licensing Agreement provided Universal the exclusive use of certain of USA Deck’s intellectual property including manufacturing and installation methods, deck design methods, marketing and sales methods, trademarks, and the right to fabricate and manufacture decks under USA Deck’s patents. The Licensing Agreement is limited to certain geographical markets in which Universal provides wood deck solutions to The Home Depot customers pursuant to a separate agreement between Universal and The Home Depot. The Licensing Agreement required Universal to pay USA Deck royalties based upon Universal’s sales from these products. In addition, Universal paid USA Deck an up-front licensing assistance fee of $150,000 which was being recognized as other revenues over the term of the related agreement.

On September 27, 2004, Universal and USA Deck mutually agreed to terminate the Licensing Agreement. Pursuant to the termination provisions, Universal paid USA Deck a termination fee of $25,000. Effective with

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termination of the Licensing Agreement, the Company recognized as other revenues the remaining unamortized balance of the initial licensing fee. For year ended December 31, 2004, the Company recorded approximately $159,000 for royalty and license fees under the agreement, including the termination fee.

In February 2004, USA Deck entered into a licensing agreement with Outback Installations, Inc. (“Outback”). The licensing agreement is for a period of seven years and provides Outback the exclusive use of certain of USA Deck’s intellectual property including manufacturing and installation methods, deck design methods, marketing and sales methods, trademarks, and the right to fabricate and manufacture decks under USA Deck’s patents. The agreement is limited to certain geographical markets in which Outback provides wood deck solutions to The Home Depot customers pursuant to a separate agreement between Outback and The Home Depot. The licensing agreement requires Outback to pay USA Deck royalties based upon Outback’s sales from these products. In addition, Outback and USA Deck entered into a one-year consulting agreement whereby USA Deck will provide consulting to Outback for the commercial manufacturing of the related products. Outback paid USA Deck a fee of $125,000 related to the consulting agreement, which is being recognized in other revenues as we satisfy our obligations over the term of the consulting agreement. For the year ended December 31, 2004, the Company recognized approximately $104,000 in consulting fees under the agreement.

The amount and percentage of home improvement revenues attributable to our major brands for the year ended December 31, 2004 and 2003 are as follows:

Gross profit for home improvement operations was $38,986,000 or 47.0% of home improvement revenues for the year ended December 31, 2004, as compared to $36,965,000, or 53.1% of home improvement revenues in the prior year period.

Gross profit margin in our interior products segment was 54.2% of related revenues for the year ended December 31, 2004, as compared to 56.5% of related revenues in the prior year period. Gross profit margins were adversely effected by the combination of longer cycle times to complete sales orders in our California operations which resulted in insufficient revenues to cover our higher operating costs from our recently opened kitchen and bath sales and installation centers, and higher raw material prices. Raw material prices for various materials utilized in our kitchen and bath products have increased since the beginning of the year.

Gross profit margin in our exterior products segment was 26.5% of related revenues for the year ended December 31, 2004, as compared to 44.1% of related revenues for the year ended December 31, 2003. Gross profit margins were adversely affected by insufficient revenues to cover our increased operating costs and by significant increases in lumber prices.

Branch operating expenses, which are primarily comprised of fixed costs associated with each of our interior products sales and installation centers, include rent, telecommunications, branch administration salaries and supplies. Branch operating expenses were $3,118,000, as compared to $2,139,000 for the year ended December 31, 2004 and 2003, respectively. The increase in branch operating expenses principally reflects our increased operations and new facilities associated with our kitchen and bath programs with The Home Depot.

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Marketing expenses for home improvement operations were approximately $16,097,000, or 19.4% of home improvement revenues for the year ended December 31, 2004, as compared to $13,219,000, or 19.0% of home improvement revenues for the year ended December 31, 2003. The increase in marketing expenditures principally reflects marketing fees associated with our The Home Depot programs and planned increased advertising expenditures in our other brands. Marketing expenses for our interior products were $12,861,000, or 21.0% of related revenues, for the year ended December 31, 2004 as compared to $10,132,000, or 20.2% of related revenues, in 2003. The increase in marketing expense as a percent of revenue in our interior products segment is principally due to an increase in lead acquisition costs in our Century 21 and Facelifters brands. Marketing expenses for our exterior products were $3,236,000, or 15.0% of related revenues, and $3,087,000, or 16.0% of related revenues, for the year ended December 31, 2004 and 2003, respectively.

Sales expenses for home improvement operations, which consist primarily of sales commissions, sales manager salaries, travel and recruiting expenses, were $12,069,000, or 14.6% of home improvement revenues for the year ended December 31, 2004, as compared to $10,411,000, or 15.0% of home improvement revenues in the prior year period. The increase in sales expenses is the result of the sales commissions on higher revenues, and increased recruiting, training and sales management costs principally related to the expansion of our programs with The Home Depot. Selling expenses for our interior products were $9,886,000 for the year ended December 31, 2004 as compared to $8,837,000 in 2003. Selling expenses for our exterior products were $2,183,000 and $1,574,000 for the year ended December 31, 2004 and 2003, respectively.

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 $812,000 for the year ended December 31, 2004, as compared to $953,000 in the prior year period.

General and administrative expenses for home improvement operations were $8,078,000, or 9.7% of home improvement revenues for the year ended December 31, 2004, as compared to $7,327,000, or 10.5% of home improvement revenues in the prior year period. General and administrative expenses include $1,146,000 and $1,130,000 of corporate overhead costs allocated to home improvement operations for the year ended December 31, 2004 and 2003, 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.

Consumer Finance Segment

For the year ended December 31, 2004, revenues from our consumer finance segment were $5,865,000, as compared to $4,337,000 in the prior year period. Revenues were comprised of the following (in thousands):

Interest expense incurred on financing the purchase of RIOs was $1,754,000 for the year ended December 31, 2004, as compared to $1,116,000 in the prior year period.

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Finance receivables held for investment consisted of the following: