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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, 2002

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 13, 2003, 6,453,371 shares of the Issuer’s $.001 par value common stock were outstanding and the aggregate market value of the shares held by non-affiliates was approximately $28,368,359 based upon a closing sales price of $6.09 per share of Common Stock on the Nasdaq SmallCap Market.

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

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

The Issuer’s revenue for its most recent fiscal year was $50,275,683.

The following documents are incorporated by reference: Certain portions of the Issuer’s Definitive Proxy Statement (“Proxy Statement”) for the Annual Meeting of Stockholders which will be filed with the Commission no later than 120 days after the close of the fiscal year ended December 31, 2002 are incorporated in this Form 10-K in Part III-Items 10,11 12 and 13.

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PART I

ITEM 1. BUSINESS

General

U.S. Home Systems, Inc. (the “Company” or “U.S. Home”) is engaged in the manufacture, design, sale and installation of custom quality specialty home improvement products, and providing consumer financing services to the home improvement and remodeling industry. The Company’s principal offices are located at 750 State Highway 121 Bypass, Suite 170, Lewisville, Texas 75067, and its telephone number is (214) 488-6300. As used herein, the term “Company” includes U.S. Home Systems, Inc. and its subsidiaries. The Company’s common stock is traded on the Nasdaq Small Cap Market under its symbol “USHS”.

On February 13, 2001 U.S. Home Systems, Inc., formerly known as U.S. Pawn, Inc. (“U.S. Pawn”) completed a merger (the “Merger”) of a newly created subsidiary of the Company with and into U.S. Remodelers, Inc. (“U.S. Remodelers”) a Delaware corporation, with U.S. Remodelers surviving as a wholly owned subsidiary of the Company. U.S. Remodelers has been engaged in the manufacture, design, sale and installation of quality specialty home improvement products since 1997. The Merger was subject to, among other conditions, the prior sale of U.S. Pawn’s pawnshop operations and the settlement of all its liabilities, which was completed on February 1, 2001. In connection with the Merger, U.S. Pawn reincorporated in Delaware and changed its name to U.S. Home Systems, Inc. Following the Merger, the Company succeeded to the business of U.S. Remodelers.

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

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

Recent Acquisitions

In July 2001, the Company acquired certain assets of Cabinet Clad, L.L.C. Cabinet Clad is a Detroit, Michigan based specialty product home improvement business specializing in kitchen remodeling, including replacement kitchen cabinetry, kitchen cabinet refacing, countertops and replacement windows.

In October 2001, the Company acquired all of the outstanding capital stock of First Consumer Credit, Inc. (“FCC”), a Dallas-based consumer finance company specializing in the home improvement and remodeling industry. In connection with the acquisition, a newly created subsidiary of the Company was merged with and into FCC, with FCC surviving as a wholly owned subsidiary of the Company.

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

On November 30, 2002, the Company acquired all of the outstanding capital stock of Deck America, Inc., (“DAI”) a privately-held Woodbridge, Virginia based home improvement specialist providing patented solutions for the fabrication, sale and installation of decks and deck enclosures. In connection with the acquisition, the Company also acquired DAI’s manufacturing, warehousing and office facilities from an affiliate of DAI. The DAI acquisition was consummated by merging DAI into USA Deck, Inc. (formerly known as Remodelers Credit Corporation), a wholly owned Delaware subsidiary of the Company, with USA Deck as the surviving corporation.

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Segments

The following should be read in conjunction with the 2002 financial results of each reporting segment as detailed in Note 3, “Information About Segments” in the Company’s Consolidated Financial Statements included elsewhere herein.

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

Home Improvement Segment

General Information

The Company is engaged, through direct consumer marketing, in the manufacture, design, sale and installation of custom quality specialty home improvement products. The Company’s home improvement product lines include replacement kitchen cabinetry, kitchen cabinet refacing and countertop products utilized in kitchen remodeling, bathroom refacing and related products utilized in bathroom remodeling, wood decks, deck enclosures and replacement windows. The Company operates sales and installation centers in 15 major metropolitan areas in the United States. The Company manufactures its own cabinet refacing, custom countertops, and bathroom cabinetry products in its Virginia-based manufacturing facility, and has a wood treatment and deck fabrication facility in Woodbridge, VA.

Kitchen cabinet refacing is a remodeling technique in which existing cabinetry framework is retained but all exposed surfaces are changed. Under the Company’s cabinet refacing system, doors, drawers, drawer fronts and drawer boxes are replaced, and all exposed cabinet surfaces are covered with matching laminate. In addition, laminate and solid surface countertops, matching valances, molding, replacement sinks, faucets, cabinet drawer boxes, add-on or replacement cabinets, space organizers, lazy susans and slide-out shelving can be provided by the Company. The Company’s bathroom remodeling products include acrylic tub liners and wall surrounds, vanity cabinetry refacing and replacement vanity cabinets, bowls, faucets, commodes and shower doors. The Company purchases replacement windows and bathroom shower doors, acrylic tub liners and wall surround products from unaffiliated suppliers. The Company’s wood decks and deck enclosures consist of non-arsenic high pressure treated wood. The non-arsenic treated wood contains no chromate copper arsenate (C.C.A.), a chemical which is used to treat wood and in which the EPA has required to be phased out by the end of next year. The Company’s patented system for the fabrication and installation of high quality decks include “Invisinail”, a unique fastening system in which deck modules are nailed from underneath to prevent the checking and cracks that often mar top-nailed decks.

Direct Marketing and Sales

The Company’s products are marketed under nationally recognized brands such as Century 21 Home Improvements, Renewal By Andersen and Home Depot “At Home Services”, as well as the Company’s own brands, “Facelifters^SM”, “Cabinet Clad^SM” and “USA Deck”. The Company has a license agreement with TM Acquisition Corp. (TM) and HFS Licensing Inc. (HFS) pursuant to a master license agreement between Century 21 Real Estate Corporation and each of TM and HFS (collectively, the “Licensor”). The license agreement provides for the Company to market, sell and install kitchen and bathroom remodeling products and replacement windows in specific geographic territories using the service marks and trademarks “CENTURY21^™ Cabinet Refacing” and “CENTURY 21^™ Home Improvements”. The license agreement is for a period of 10 years ending in 2007. The license agreement may be terminated by the Company upon 90 days written notice. The license agreement may be terminated by the Licensor if the Company is negligent in the performance of its services, becomes insolvent or bankrupt, or fails to comply with any material provisions of the license agreement. In the event the Licensor were to cancel the license agreement, the Company believes that these products could be independently marketed by the Company in these territories; however, the cancellation of the license agreement could have an adverse effect on the business of the Company.

The Company also has an agreement with Renewal by Andersen (RbA), a wholly-owned subsidiary of the Andersen Corporation. The Andersen agreement provides for the Company to be the exclusive window replacement retailer on an installed basis for RbA in the greater Los Angeles area, including the counties of

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Los Angeles, Orange, Riverside, San Bernardino, San Diego, Santa Barbara and Ventura. The agreement is for a period of five years and provides the Company with the option to renew the agreement for an additional five years. In February 2002, the Company began operating in the southern California market under its agreement with RbA.

The Company markets its deck and deck enclosure products in the Washington, D.C. metropolitan area, including Baltimore, Maryland, and northern Virginia. On October 17, 2002, USA Deck entered into an agreement with The Home Depot^® to sell, furnish and install pre-engineered Designer Deck^® systems to Home Depot’s retail customers in certain markets, including the metropolitan areas of Washington D.C., Baltimore, Maryland, Richmond and Norfolk, Virginia. Under the agreement, the Company’s subsidiary, USA Deck, will provide several pre-designed deck models under the Home Depot “At Home Services” brand to approximately 70 Home Depot stores.

The Company’s principal marketing activities are conducted through a variety of sources including television, direct mail, marriage mail, magazines, newspaper inserts, home shows, canvassing and telemarketing. The Company maintains a call-center in Boca Raton, Florida at which it receives in-bound calls in response to its media advertising for kitchen, bathroom and replacement window products, and makes outbound calls to selected prospects. The Company’s call-center personnel follow prepared scripts and schedule in-home sales presentations. Outbound calls are made to homeowners whose demographic profile fall within certain criteria, including age and income of the homeowner, home value, age of home and length of residency.

To maintain the efficiency of its marketing, the Company uses it’s internally developed computer software to monitor responses and sales. Sales representatives utilize the Company’s in-home sales presentation and sales kit, which includes a presentation book, photos, video materials, sample products and other sales materials. Results of in-home presentations are tabulated on a daily basis. Such information provides data upon which the Company evaluates each direct sales representative’s performance in such areas as sales as a percentage of in-home presentations, cancellation rates and average dollar amounts of sales.

Manufacturing, Purchasing, Material and Installation

Kitchen and Bathroom Remodeling, and Replacement Windows. The Company manufactures cabinet fronts, countertops, and cabinets that are faced with high-pressure laminate or thermo foil in its manufacturing facility in Charles City, Virginia. The Company has acquired “state-of-the-art” equipment enabling the Company to manufacture thermo foil cabinet doors and drawer fronts. Raw materials used in the manufacturing and installation process, including solid surface countertops, are purchased from several suppliers at prices that are negotiated periodically. Management believes such materials are available from numerous suppliers at competitive prices.

The Company purchases replacement kitchen cabinetry, replacement windows, bathroom shower doors, acrylic tub liners and wall surround products from unaffiliated suppliers. The Company negotiates purchase prices periodically. Management believes such materials are available from numerous suppliers at competitive prices. The Company’s replacement windows sold under the Renewal By Andersen brand are purchased directly from RbA.

Except for some warranty and other service work, contractors who meet the Company’s qualifications perform substantially all of the Company’s installations. Contractors employ their own personnel and are required to maintain their own vehicles, equipment, tools, licenses, workers compensation coverage and general liability insurance. Contractors assume full financial risk in their performance of an installation and enter into a written agreement with the Company. Contractors obtain a work order, which specifies all work to be performed pursuant to the sales agreement, and materials at the Company’s branch office. Installations are generally completed within 55 days after a sales agreement is signed, and three to five workdays from commencement of the installation. Upon completion, the contractor obtains a certificate of completion from the customer and returns all documentation and excess materials to the Company. The contractor is paid by the Company upon presentation of an invoice to the Company and satisfactory completion of each job. Fees paid by the Company to the contractor for an installation are based upon an amount negotiated between the Company and the contractor. When new construction and remodeling are on the rise, engaging a sufficient number of contractors becomes more challenging, however, the Company believes that there are an adequate number of qualified contractors available to the Company in the areas it does business.

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Deck and Deck Enclosures. The Company provides its own non-arsenic high pressure treated wood in its state-of-the-art wood treatment facility which is conveniently located adjacent to its deck fabrication facility. Raw materials utilized in the fabrication of decks and deck enclosures are purchased from unaffiliated suppliers. Management believes such materials are available from numerous suppliers at competitive prices.

Installation of decks and deck enclosures is performed by the Company’s highly trained employees. Installations are generally completed within 60 days after a sales agreement is signed. Installation is generally completed within two days once installation has commenced. The Company provides all the necessary materials, equipment and tools to complete installations. Employee installers are paid on a specified rate scale. The Company believes it is competitive in its wage rates and considers its relationship with its employees to be good.

Competition

The remodeling industry is highly fragmented. Management believes that there are more than 200,000 companies registered as remodeling businesses nationwide. According to Qualified Remodeler, a leading industry publication, there are approximately 60 remodeling companies in the industry that generate annual revenues in excess of $10 million, and only 4 companies that generate annual revenues in excess of $100 million.

Although the Company believes it is one of the largest enterprises engaged in the direct marketing of in-home sales and installation of kitchen cabinet, bathroom refacing products, wood deck and deck enclosures, the Company competes with numerous contractors in each of its 17 geographic territories, with reputation, price, workmanship and services being the principal competitive factors. The Company provides its customers with a full range of services, including in-home design, professional installation, financing and post-sale service. The market is primarily served by small home improvement contractors who typically do not offer in-home design or have access to financing, or large home center retailers, including Sears, Home Depot and Lowes, some of which offer similar products and services directly to consumers or through licensees, or recommend other contractors to complete installations.

Seasonality

The Company’s business is subject to seasonal fluctuations and extreme winter weather conditions. In addition, recruiting of contractors to perform the Company’s installation becomes more difficult when new construction and remodeling is on the rise.

Warranties

The Company provides each customer with a limited warranty covering defective materials and workmanship. The Company requires its contractors to correct defective workmanship for a 12-month period. To date, the Company has not experienced significant warranty claims.

Customer Payment

The Company’s customers pay for their home improvement products and services upon completion of the work. Payments are made in cash, by personal check, on MasterCard, Visa or Discovery cards, or by financing arranged by the Company.

Employees

At December 31, 2002, the Company either employed or had representing its products, on a full or part-time basis, approximately 558 associates, including 160 employees engaged in marketing activities, 169 sales representatives, 175 manufacturing and installation employees, and 54 management and administrative personnel. In addition, the Company has working arrangements with over 150 independent contracting companies. The Company believes that labor relations with its employees have been good in the past and does not expect this relationship to change.

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Government Regulations

Generally, the Company’s activities and the activities of its 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 financing, advertising, the licensing of home improvement contractors, zoning regulations, environmental protection, safety and health. The Company’s operations are also subject to a Federal Trade Commission rule, which provides for a “cooling off” period for in-home sales. This rule requires an in-home seller to inform the buyer of his right to cancel the transaction at any time prior to midnight of the third business day after the date of the sales transaction. All states have a similar version of this rule. Many states have (but the states in which the Company currently conducts retail business have not) supplemented this rule by extending the time period in which the buyer may cancel. The Company’s call-center operations are also subject to various laws related to telemarketing. The Company has procedures designed to comply with such laws and regulations. The Company does not anticipate any difficulty in complying with applicable federal, state or local laws and regulations relating to it business operations.

Consumer Finance Segment

General Information

The Company is engaged, through its wholly owned subsidiary, First Consumer Credit, Inc., in providing consumer financing to the home improvement and remodeling industry. FCC enables qualified contractors to originate a broad range of credit products that are not otherwise available to contractors utilizing only traditional sources for home improvement financing.

FCC purchases retail installment obligations (“RIO’s”) from select remodeling contractors, including RIO’s originated by the Company’s home improvement operations. Prior to entering into the Credit Facility on February 11, 2003 (as discussed below), once FCC had accumulated a portfolio of RIO’s, FCC sold these portfolios to banks and insurance companies under negotiated purchase commitments, and received a one-time premium upon each sale. In most cases, FCC retained the collection and servicing of these accounts on behalf of the purchaser and receives a monthly servicing fee from the purchaser. FCC currently provides servicing on nearly 4,400 of these accounts, operating in 36 states within the continental United States. Prior to February 11, 2003, FCC sold all of its RIO portfolios to two purchasers, a financial institution and an insurance company. The Company believes that multiple sources exist for the sale of retail installment obligation portfolios.

FCC has limited credit risks associated with certain of its portfolio sales to a financial institution. In this respect, if credit losses exceed certain thresholds over specified periods of time, FCC must reimburse the financial institution for the excess credit losses, up to a specified maximum, and conversely, if credit losses are less than specified thresholds over certain periods of time, the financial institution is required to reimburse FCC for credit losses less than the specified thresholds, up to a specified maximum.

2003 Credit Facility

In February 2003, FCC entered into a $75 million credit facility agreement with Autobahn Funding Company LLC (“Autobahn”), as the lender and DZ Bank AG Deutsche Zentral-Genossenschafsbank, Frankfurt AM Main (“DZ Bank”), as the Agent (the “Credit Facility”). FCC Acceptance Corporation (“FCCA”), a wholly owned subsidiary of FCC, is the borrower under the Credit Facility and FCCA will purchase RIO portfolios from FCC. The Credit Facility will provide financing for 90% of the amount of eligible RIO’s purchased, and FCC will provide the remaining 10%. The credit facility is secured by the RIO’s.

Under the Credit Facility, FCC will finance RIO’s purchased from contractors providing FCC with earnings from finance charges for the life of the RIO, as opposed to a lesser, one-time premium it previously earned upon sale of the portfolios. Additionally, the Credit Facility will allow FCC to reach a greater number of contractors, as well as provide its contractor customers, including the Company, with additional credit programs, thereby creating substantial growth opportunity for FCC.

However, the change in the FCC’s business model, from selling to financing portfolios of RIO’s, will adversely affect FCC’s profitability in the short term. In this respect, FCC will forgo the initial one-time

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premium it earned upon selling a portfolio, and FCC will earn finance charges over the life of the portfolio, typically a three to five year period. Finance charges are expected to be significantly higher than the one-time premium previously earned. Consequently, until FCC has accumulated a sufficient amount of financed RIO’s, and finance charges earned on the RIO portfolios reach a sufficient level, FCC’s earnings will be adversely affected. As a result, the Company may be required to seek additional financing to fund FCC’s operations. Although the Company has no agreements or commitments for additional financing, management believes that the Company will be able to secure the financing, if needed, through the issuance of equity securities or debt obligations. However, there can be no assurance that additional financing will be available, or if available, that such financing will be on favorable terms. The failure of the Company to secure additional financing, if needed, could impair FCC’s ability to fully utilize the available funds under the Credit Facility, as well as restrict FCC’s ability to purchase RIO’s, which would have an adverse impact on FCC’s results of operations. The Company believes FCC can reach profitability in the first quarter of 2004.

Line of Credit

FCC has a revolving line of credit with a financial institution that allows borrowings up to $5,000,000. The proceeds from the line of credit are utilized to purchase RIO’s. FCC typically holds RIO’s a minimal period of time before portfolios are accumulated and sold. Upon sale of the portfolio, the line of credit is repaid. Borrowings and required payments under the revolving line of credit are based upon an asset formula involving the outstanding principal balance of RIO’s. The revolving line of credit is not affected by the Credit Facility as portfolios of RIO’s will be sold to FCCA under the Credit Facility. The Company believes that the existing line of credit is sufficient for FCC’s operations. The revolving line of credit, as amended, matures April 1, 2003, however the Company plans to renew the line upon its maturity.

Marketing and Sales

FCC’s principal marketing and sales activities are conducted by sales representatives. FCC calls upon prospective contractors, participates in several industry trade shows and places a limited amount of advertising, typically through related trade publications.

Competition

FCC operates in a niche segment of the home improvement consumer finance industry. FCC competes with numerous financial institutions, including local and regional banks, and other financial lending sources such as Key Funding and Mill Creek Bank (formerly known an Conseco), most of which are much larger and have significantly more resources than the Company.

Employees

At December 31, 2002, FCC employed approximately 28 associates. The Company believes that labor relations with its employees have been good in the past and does not expect this relationship to change.

Government Regulations

Generally, FCC’s activities are subject to various federal and state credit and lending regulations governing installment sales and credit transactions, including the Truth In Lending Act, Real Estate Settlement Procedures Act and the Home Owners Equity Protection Act. The Company has procedures designed to comply with such laws and regulations. The Company does not anticipate any difficulty in complying with applicable federal, state or local laws and regulations relating to it business operations.

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ITEM 2. PROPERTIES

Except for USA Deck’s facilities, all of the other Company’s facilities are leased, and in most cases, management expects that leases currently in effect will be renewed or replaced by other leases of a similar nature and term. The Company’s manufacturing facility at Charles City, Virginia is under a capital lease with a 15-year lease term and an option to purchase the property at the end of the lease term for nominal consideration. All of the Company’s leases, other than the Charles City, Virginia facility, are for terms of five years or less. The following describes the location of the Company’s facilities:

ITEM 3. LEGAL PROCEEDINGS

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

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

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PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company’s Common Stock was traded on the Nasdaq SmallCap Market (“NASDAQ”) under the symbol “USPN” from May 10, 1989 until February 14, 2001. On February 15, 2001, in connection with the Merger, the Company effected a one share for four shares reverse split of its common stock and changed its symbol to “USHS”. On March 13, 2003, the closing sales price for the Company’s Common Stock was $6.09 per share.

The following table sets forth for the quarters indicated, the range of closing high and low sales prices of the Company’s Common Stock as reported by NASDAQ and are adjusted for the one share for four share reverse stock split of February 15, 2001.

As of March 8, 2003, the Company had approximately 200 stockholders of record. The Company has not declared any dividends on its Common Stock to date. The Company has not paid any cash dividends on its common stock in 2002, 2001 and 2000. The Company intends to retain all of its earnings to its operations and does not anticipate paying cash dividends for the foreseeable future. Any decision made by the Board of Directors to declare dividends on its common stock in the future will depend on its future earnings, capital requirements, financial condition and other factors deemed relevant by the Board.

Transfer Agent and Registrar

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

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ITEM 6. SELECTED FINANCIAL DATA

The following selected consolidated financial data of the Company are derived from information contained in the Company’s consolidated financial statements. The selected consolidated financial and operating data presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Company’s Consolidated Financial Statements and notes thereto included elsewhere in this report. For additional information about business combinations, see Note 4 and Note 5 to the Consolidated Financial Statements.