- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______.
Commission File Number 001-15469
THERMOVIEW INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 61-1325129
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
5611 Fern Valley Road 40228
Louisville, Kentucky (Zip Code)
(Address of principal executive offices)
(Registrant's telephone number, including area code, 502-968-2020)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of July 31, 2002, 8,625,716 shares of the Registrant's common stock,
$.001 par value, were issued and outstanding.
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THERMOVIEW INDUSTRIES, INC.
TABLE OF CONTENTS
Part I Financial Information
Item 1. Financial Statements..............................................1
Condensed Consolidated Balance Sheets.................................1
Condensed Consolidated Statements of Operations.......................2
Condensed Consolidated Statements of Cash Flows.......................3
Notes to Condensed Consolidated Financial Statements..................4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......17
Part II Other Information
Item 1. Legal Proceedings................................................18
Item 2. Changes in Securities and Use of Proceeds........................19
Item 3. Defaults Upon Senior Securities..................................19
Item 4. Submission of Matters to a Vote of Security Holders..............19
Item 5. Other Information................................................19
Item 6. Exhibits and Reports on Form 8-K.................................19
- -----
Item 1. Financial Statements
ThermoView Industries, Inc.
Condensed Consolidated Balance Sheets
December 31, June 30, 2002
Assets 2001 (Unaudited)
------------- -------------
Current assets:
Cash and equivalents ........................ $ 2,387,583 $ 2,775,980
Receivables:
Trade ..................................... 3,618,474 4,178,406
Other ..................................... 275,400 220,731
Costs in excess of billings on
uncompleted contracts ..................... 973,628 653,592
Inventories ................................. 1,749,917 1,827,947
Prepaid expenses and other current assets ... 907,881 881,926
------------ -------------
Total current assets ........................... 9,912,883 10,538,582
Property and equipment, net .................... 2,665,382 2,644,553
Other assets:
Goodwill, net ............................... 58,358,742 28,358,742
Other assets ................................ 263,138 215,188
------------ -------------
58,621,880 28,573,930
------------ -------------
Total assets ................................... $ 71,200,145 $ 41,757,065
============ =============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable ............................ $ 3,928,781 $ 3,877,933
Accrued expenses ............................ 2,617,533 2,985,889
Billings in excess of costs ................. 1,064,153 1,097,206
Income taxes payable ........................ 52,450 52,450
Current portion of long-term debt ........... 285,411 260,626
------------ -------------
Total current liabilities ...................... 7,948,328 8,274,104
Long-term debt ................................. 17,631,967 18,048,948
Other long-term liabilities .................... 368,918 159,352
Mandatorily redeemable preferred stock:
Series C, $.001 par value, 25,000 shares
authorized; none issued .................... -- --
Series D, $.001 par value (aggregate redemption
amount and liquidation preference of
$4,929,216 at December 31, 2001 and $5,213,918
at June 30, 2002); 1,500,000 shares authorized;
956,900 shares issued and outstanding at
December 31, 2001; 966,370 shares issued and
outstanding at June 30, 2002 ............... 4,929,216 5,213,918
Series E, $.001 par value (aggregate redemption
amount and liquidation preference of
$2,013,677 at December 31, 2001 and $2,113,829
at June 30, 2002); 500,000 shares authorized;
336,600 shares issued and outstanding at
December 31, 2001; 336,600 shares issued and
outstanding at June 30, 2002 ............... 2,013,677 2,113,829
Stockholders' equity:
Preferred stock, 2,975,000 shares authorized:
Series A, $.001 par value; none issued ..... -- --
Series B, $.001 par value; none issued ..... -- --
Common stock, $.001 par value; 25,000,000 shares
authorized; 7,861,702 shares issued and
outstanding at December 31, 2001 and 8,625,716
shares issued and outstanding at June 30, 2002 7,861 8,625
Paid-in capital ............................. 64,679,509 64,293,891
Accumulated deficit ......................... (26,379,331) (56,355,602)
------------ -------------
Total stockholders' equity ..................... 38,308,039 7,946,914
------------ -------------
Total liabilities and stockholders' equity ..... $ 71,200,145 $ 41,757,065
============ =============
See accompanying notes.
1
ThermoView Industries, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
For the three months ended For the six months ended
June 30, June 30,
------------------------- ------------------------
2001 2002 2001 2002
---- ---- ---- ----
Revenues ................... $23,678,603 $23,822,546 $45,555,024 $44,479,808
Cost of revenues earned .... 11,398,099 11,658,576 22,307,363 21,981,255
----------- ----------- ----------- ------------
Gross profit ............... 12,280,504 12,163,970 23,247,661 22,498,553
Selling, general and
administrative expenses .. 10,839,844 10,479,852 21,422,165 20,626,896
Depreciation expense ....... 280,336 253,747 561,310 527,129
Amortization expense ....... 701,200 33,890 1,397,423 68,537
----------- ----------- ----------- ------------
Income (loss) from
operations ............... 459,124 1,396,481 (133,237) 1,275,991
Equity in earnings of joint
venture .................. -- 19,096 -- 32,280
Interest expense ........... (615,118) (657,146) (1,686,530) (1,320,446)
Interest income ............ 13,867 13,059 29,839 28,738
----------- ----------- ----------- ------------
Income (loss) before income
taxes .................... (142,127) 771,490 (1,789,928) 16,563
Income tax expense (benefit) 38,500 (746) 71,600 (7,166)
----------- ----------- ----------- ------------
Income (loss) before extra-
ordinary item and cumula-
tive effect of an
accounting change ........ (180,627) 772,236 (1,861,528) 23,729
Extraordinary item--gain on
forgiveness of debt ...... -- -- 7,150,109 --
Cumulative effect of an
accounting change--charge
for impairment of goodwill -- -- -- (30,000,000)
----------- ----------- ----------- ------------
Net income (loss) .......... (180,627) 772,236 5,288,581 (29,976,271)
Less non-cash Series D and
E preferred stock dividends (50,353) (193,486) (100,152) (384,854)
Plus benefit of Series D pre-
ferred stock redemption .. 397,350 -- 397,350 --
----------- ----------- ----------- ------------
346,997 (193,486) 297,198 (384,854)
----------- ----------- ----------- ------------
Net income (loss) attributable
to common stockholders ... $ 166,370 $ 578,750 $ 5,585,779 $(30,361,125)
=========== =========== =========== ============
Basic income (loss) per
common share:
Income (loss) attributable
to common stockholders . $ 0.02 $ 0.06 $ (0.19) $ (0.04)
Extraordinary item ....... -- -- 0.86 --
Cumulative effect of an
accounting change ...... -- -- -- (3.35)
----------- ----------- ----------- ------------
Net income (loss)
attributable to common
stockholders ........... $ 0.02 $ 0.06 $ 0.67 $ (3.39)
=========== =========== =========== ============
Diluted income (loss) per
common share:
Income (loss) attributable
to common stockholders . $ 0.02 $ 0.06 $ (0.19) $ (0.04)
Extraordinary item ....... -- -- 0.86 --
Cumulative effect of an
accounting change ...... -- -- -- (3.35)
----------- ----------- ----------- ------------
Net income (loss)
attributable to common
stockholders ........... $ 0.02 $ 0.06 $ 0.67 $ (3.39)
=========== =========== =========== ============
See accompanying notes.
2
ThermoView Industries, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the six months ended
June 30,
-----------------------------
2001 2002
---- ----
Operating activities
Net income (loss) .............................. $ 5,288,581 $(29,976,271)
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Extraordinary item--gain on forgiveness
of debt ................................... (7,150,109) --
Cumulative effect of an accounting change--
charge related to impairment of goodwill ... -- 30,000,000
Depreciation and amortization ............... 1,958,733 595,666
Accretion of debt discount .................. 597,675 395,357
Other ....................................... -- (190,000)
Interest forgiven ........................... 360,000 --
Interest added to principal ................. 543,749 --
Changes in operating assets and liabilities . 254,042 99,195
------------ ------------
Net cash provided by operating activities ...... 1,852,671 923,947
Investing activities
Payments for purchase of property and equipment (274,342) (367,911)
Other .......................................... 133,258 (17,107)
------------ ------------
Net cash used in investing activities .......... (141,084) (385,018)
Financing activities
Increase in long-term debt ..................... 7,291,618 86,247
Payments of long-term debt ..................... (7,878,905) (236,779)
Redemption of Series D preferred stock ......... (10,000) --
Proceeds from issuance of warrants ............. 392,382 --
Financing costs deferred or expensed ........... (222,621) --
------------ ------------
Net cash used in financing activities .......... (427,526) (150,532)
------------ ------------
Net increase in cash and equivalents ........... 1,284,061 388,397
Cash and equivalents at beginning of period .... 392,326 2,387,583
------------ ------------
Cash and equivalents at end of period .......... $ 1,676,387 $ 2,775,980
============ ============
See accompanying notes.
3
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
ThermoView Industries, Inc. ("ThermoView" or "the Company"), have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions in Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals), considered necessary for
a fair presentation have been included. ThermoView's business is subject to
seasonal variations. The demand for replacement windows and related home
improvement products is generally lower during the winter months due to
inclement weather. Demand for replacement windows is generally higher in the
second and third quarters. Operating results for the six-month period ended June
30, 2002, are not necessarily indicative of the results that may be expected for
the year ended December 31, 2002.
Certain reclassifications have been made to the June 30, 2001, financial
statements to conform with June 30, 2002, classifications. The reclassifications
have no effect on previously reported net income attributable to common
stockholders.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001.
2. Inventories
Inventories consist principally of components for the manufacturing of
windows such as glass, vinyl and other composites, as well as parts and supplies
for retail operations.
3. Income (Loss) per Common Share
Income (loss) per common share is calculated in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." The
Company calculates basic earnings per common share using the weighted average
number of shares outstanding for the period. The weighted average number of
shares outstanding for the six-month periods ended June 30, 2001 and 2002,
includes shares related to a stock purchase warrant that can be exercised for
nominal cash consideration. Outstanding shares for purposes of determining
diluted earnings per common share includes the weighted average number of shares
outstanding for basic earnings per share, plus the diluted effect of any common
share equivalents such as options or warrants in the calculation. As the Company
recorded losses before preferred stock dividends, extraordinary item, and
cumulative effect of an accounting change for the six-month periods ended June
30, 2001 and 2002, common share equivalents outstanding would be anti-dilutive.
Accordingly, basic and diluted earnings per share amounts are the same.
4
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
3. Income (Loss) per Common Share (Continued)
Weighted average shares outstanding for the periods in which there were
losses attributable to common stockholders were as follows:
Weighted Average Shares
Period Outstanding
-------------------------------------- -----------
For the six months ended June 30, 2001 8,293,870
For the six months ended June 30, 2002 8,946,634
A reconciliation of basic to diluted share amounts used in computing the
per share amounts for the three months ended June 30, 2001 and 2002 is as
follows:
Three Months
Ended June 30,
2001 2002
---- ----
Basic - weighted average shares outstanding 8,299,870 9,130,375
Dilutive effect of stock options and warrants 1,588,652 1,006,625
--------- ---------
Diluted - weighted average shares outstanding
and assumed conversions 9,888,522 10,137,000
========= ==========
A reconciliation of income (loss) before extraordinary item and cumulative
effect of an accounting change attributable to common stockholders used in
computing the per share amounts for the three and six months ended June 30, are
as follows:
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2001 2002 2001 2002
---- ---- ---- ----
Income (loss) before extraordinary
item and cumulative effect of an
accounting change $(180,627) $ 772,236 $(1,861,528) $ 23,729
Preferred stock dividends, net of
benefit of redemption 346,997 (193,486) 297,198 (384,854)
--------- ---------- ------------ ----------
Income before extraordinary item
and cumulative effect of an
accounting change attributable
to common stockholders $ 166,370 $ 578,750 $(1,564,330) $(361,125)
========= ========== ============ ==========
4. Goodwill
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 is effective for the Company as of January 1,
2002. Under the new rules, goodwill and indefinite lived intangible assets are
no longer amortized and will be reviewed annually for impairment. Intangible
assets that are not deemed to have an indefinite life will continue to be
amortized over their useful lives.
SFAS No. 142 uses a two step process to measure potential impairment. In
the first step, the fair values of the Company's reporting units are compared to
the units' carrying amounts. If the fair value of a reporting unit exceeds its
5
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
4. Goodwill (Continued)
carrying cost, goodwill is not considered impaired. If the carrying cost exceeds
fair value, a second step is used to determine the amount of impairment. The
second step determines the implied fair value of goodwill for a reporting unit
by applying the estimated fair value to the tangible and separately identifiable
intangible assets and liabilities of the reporting unit, with any remaining
amount considered goodwill.
The Company completed the first step analysis under the requirements of the
standard and determined that goodwill was impaired. Fair values of the Company's
reporting units were determined using a capitalized cash flow technique. The
Company used an outside valuation firm to assist in developing the primary
assumptions, such as projected cash flows and capitalization rates and to
perform the valuation to apply to the reporting units. The Company defined
reporting unit below the segment level.
The Company next evaluated its tangible and unidentifiable intangible
assets and liabilities to estimate their fair values. Management determined that
the fair value of tangible assets and liabilities did not differ significantly
from book value, and that the Company's intangible assets do not have separately
identifiable value, nor do they have measurable value if sold in conjunction
with tangible assets.
As a result of the analysis, a charge for impairment of goodwill of $30
million was recorded in the first quarter of 2002 as the cumulative effect of
adopting this change in accounting.
In future periods goodwill must be evaluated at least once per year, and
more frequently under certain conditions. Goodwill impairment in future periods,
if any, will be charged to continuing operations. The Company's method of
determining goodwill impairment is particularly dependent upon operating cash
flow.
The income (loss) before extraordinary item and cumulative effect of an
accounting change attributable to common stockholders as reconciled in Note 3
adjusted to a comparable basis for goodwill amortization is as follows:
Three Months Six Months
Ended June 30, Ended June 30,
------------------ ----------------------
2001 2002 2001 2002
---- ---- ---- ----
Income (loss) before extraordinary
item and cumulative effect of an
accounting change attributable to
common stockholders as reported
in Note 3 $166,370 $578,750 $(1,564,330) $(361,125)
Add back goodwill amortization 664,809 - 1,327,874 -
-------- -------- ----------- ---------
Adjusted income (loss) before
extraordinary item and cumula-
tive effect of an accounting
change attributable to common
stockholders $831,179 $578,750 $ (236,456) $(361,125)
======== ======== =========== ==========
6
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
4. Goodwill (Continued)
Three Months Six Months
Ended June 30, Ended June 30,
------------------ ----------------------
2001 2002 2001 2002
---- ---- ---- ----
Basic income (loss) per share:
Income (loss) before extraordinary
item and cumulative effect of an
accounting change attributable to
common stockholders as reported $ .02 $ .06 $ (0.19) $ (.04)
Add back goodwill amortization .08 - .16 -
-------- -------- ------------ ----------
Adjusted income (loss) before
extraordinary item and cumula-
tive effect of an accounting
change attributable to common
stockholders $ .10 $ .06 $ (.03) $ (.04)
======== ======== ============ ==========
Diluted income (loss) per share:
Income (loss) before extraordinary
item and cumulative effect of an
accounting change attributable to
common stockholders as reported $ .02 $ .06 $ (.19) $ (.04)
Add back goodwill amortization .06 - .16 -
-------- -------- ------------ ----------
Adjusted income (loss) before
extraordinary item and cumula-
tive effect of an accounting
change attributable to common
stockholders $ .08 $ .06 $ (.03) $ (.04)
======== ======== ============ ==========
Information regarding goodwill by segment is as follows:
Manufacturing Retail
Segment Segment Total
Carrying amount of goodwill
at December 31, 2001 $ 4,017,782 $ 54,340,960 $ 58,358,742
Impairment write-off (2,547,219) (27,452,781) (30,000,000)
------------ ------------- -------------
Goodwill at June 30, 2002
after impairment write-off $ 1,470,563 $ 26,888,179 $ 28,358,742
============ ============= =============
5. Segment Information
For the three month periods ended June 30, 2001 and 2002, the Company's
business units had separate management teams and infrastructures that operate
primarily in the vinyl replacement windows, doors and related home improvement
products industry in various states in the Midwest and in Southern California.
The business units have been aggregated into two reportable operating segments:
manufacturing and retail.
7
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
5. Segment Information (Continued)
Manufacturing
The manufacturing segment includes the businesses that manufacture and sell
vinyl replacement windows to the Company's retail segment and to unaffiliated
customers.
Retail
The retail segment includes the businesses that design, sell and install
vinyl replacement windows, doors and related home improvement products to
commercial and retail customers.
Segment information for the three months and six months ended June 30, was
as follows:
For the three months Manu-
ended June 30, 2001 facturing Retail Corporate Consolidated
------------------- ---------- ----------- ---------- ------------
Revenues from external customers $1,833,713 $21,809,469 $ 35,421 $23,678,603
Intersegment revenues 275,215 - - 275,215
Income (loss) from operations 214,844 892,411 (648,131) 459,124
Total assets 6,930,494 63,158,157 1,816,084 71,904,735
For the three months Manu-
ended June 30, 2002 facturing Retail Corporate Consolidated
------------------- ---------- ----------- ---------- ------------
Revenues from external customers $1,783,383 $21,937,489 $ 101,674 $23,822,546
Intersegment revenues 315,628 - - 315,628
Income (loss) from operations 342,240 1,567,761 (513,520) 1,396,481
Total assets 4,447,014 33,999,403 3,310,649 41,757,065
For the six months Manu-
ended June 30, 2001 facturing Retail Corporate Consolidated
------------------- ---------- ----------- ---------- ------------
Revenues from external customers $3,111,965 $42,391,358 $ 51,701 $45,555,024
Intersegment revenues 419,262 - - 419,262
Income (loss) from operations 75,741 1,260,669 (1,469,647) (133,237)
For the six months Manu-
ended June 30, 2002 facturing Retail Corporate Consolidated
------------------- ---------- ----------- ---------- ------------
Revenues from external customers $2,815,282 $41,481,974 $ 182,552 $44,479,808
Intersegment revenues 474,014 - - 474,014
Income (loss) from operations 189,628 2,111,402 (1,025,038) 1,275,991
6. Contingencies and Commitments
On March 3, 2000, Pro Futures Bridge Capital Fund, L.P. and Bridge Capital
Partners, Inc. Defined Benefit Pension Plan filed an action titled PRO FUTURES
BRIDGE CAPITAL FUND, L.P. V. THERMOVIEW INDUSTRIES, INC., ET AL., Civil Action
8
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
6. Contingencies and Commitments (Continued)
No. 00CV0559 (Colo. Dist. Ct., March 3, 2000) against ThermoView, its directors,
certain officers, an employee and a stockholder alleging breach of contract,
common law fraud, fraudulent misstatements and omissions in connection with the
sale of securities, negligent misrepresentations and breach of fiduciary duty.
These claims are in connection with the mandatory conversion of ThermoView's 10%
Series A convertible preferred stock, held by the two funds, into common stock
upon completion of the initial public offering in December 1999, and purchases
by the two funds of ThermoView's common stock from ThermoView stockholders. The
funds are seeking rescission of their purchases of the series A preferred stock
in the amount of $3,250,000, plus interest and unspecified damages in connection
with their purchases of the common stock. ThermoView filed a notice to dismiss
certain claims and an answer denying liability on the remainder of the clams.
ThermoView also exercised an election for the removal of the action to the US
District Court of Colorado, and the matter was designated by the US District
Court as Civil Action No. 00-B-722. Pro Futures filed a motion to remand the
action back to the original venue. The Court rendered an opinion which dismissed
certain named individuals due to lack of personal jurisdiction in Colorado
courts and retained venue within the US District Court. In December 2001, the
Court granted summary judgment dismissing all defendants. In January 2002, Pro
Futures filed a notice of appeal to the Court's decision and the Court has yet
to rule on the appeal. Although ThermoView continues to believe that the claims
are without merit and intends to vigorously defend the suit, we cannot predict
the outcome of the matter, however, it could have a material adverse effect on
our results of operations and cash flow. No amounts have been provided in the
accompanying consolidated financial statements for this matter.
On August 1, 2001, Scott Ferguson filed a civil action styled Scott
Ferguson v. ThermoView Industries, Inc., et. al., Civil Action No. 01-CI-005295
(Jefferson Circuit Court, August 1, 2001) seeking damages resulting from an
investment in Series A preferred stock. This suit alleges claims similar to the
claims advanced by ProFutures Bridge Capital Fund, L.P. and Bridge Capital
Partners, Inc. Defined Benefit Pension Plan, in their action detailed above. By
agreement of the parties, the claims will be held in abeyance until final
resolution of the ProFutures matter. Our management believes that we have
adequate defense to this litigation, and in the event of an adverse outcome to
us, we do not believe that the loss would have a material adverse effect on us.
On November 19, 2001, Nelson E. Clemmens, former director and president of
the Company, filed an action titled Nelson E. Clemmens v. ThermoView Industries,
Inc., Civil Action No. 01-CI-07901 (Jefferson Circuit Court, November 19, 2001)
against ThermoView alleging subrogation and indemnity rights associated with Mr.
Clemmens' loss of guaranty collateral to PNC Bank, N.A. These claims are in
connection with the April 2000 amendment to ThermoView's previous bank debt with
PNC Bank, in which Stephen A. Hoffmann, Richard E. Bowlds, Nelson E. Clemmens
and Douglas I. Maxwell, III guaranteed $3,000,000 of our PNC Bank debt. In
January 2001, PNC seized the collateral pledged as security by the guarantors
for the loan guaranty. In March 2001, ThermoView reached settlements with
Messrs. Bowlds and Hoffmann for any claims that they may hold against us
9
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
6. Contingencies and Commitments (Continued)
regarding their loss of assets in connection with the guaranty. We did not reach
a settlement with Messrs. Clemmens and Maxwell with regard to guarantees of
$1,000,000. The Clemmens suit seeks to determine the respective rights and
duties of the parties concerning the loss of collateral. Our management believes
that no payment should be made for loss of guarantor collateral and we have
filed a motion for summary judgment in defense of our legal position. An
unfavorable determination of our position regarding this matter could have a
material adverse effect on our cash flow.
The Company is subject to other legal proceedings and claims which have
arisen in the ordinary course of its business and have not been finally
adjudicated. Although there can be no assurance as to the ultimate disposition
of these matters, it is the opinion of the Company's management, based upon the
information available at this time, that the expected outcome of these matters,
individually or in the aggregate, will not have a material adverse effect on the
results of operations and financial condition of the Company.
In March 2000, the Company entered into a license agreement with Research
Frontiers Incorporated (Research Frontiers), a Delaware corporation with
headquarters located in Woodbury, New York, for the non-exclusive rights to
market windows which utilize variable light transmission technology developed by
Research Frontiers. The agreement provides for the payment of a royalty of 5% of
the net selling price of the licensed products as defined in the agreement to
Research Frontiers for products sold by us that incorporate such technology.
Additionally, the Company has agreed to pay to Research Frontiers an annual
minimum royalty of $37,500 for 2002 and $100,000 for 2003. The royalty is
payable in cash or shares of the Company's common stock at the Company's option.
7. Stockholders' Equity
In the first quarter of 2002, the Company issued 539,742 shares of common
stock upon the cashless exercise of a stock purchase warrant issued in
connection with the Series C preferred stock.
In the second quarter of 2002, the Company issued 224,272 shares of common
stock upon the cashless exercise of a stock purchase warrant issued in
connection with the Series C preferred stock.
The first and second quarter issuances completed the cashless exercise of
the 1,100,000 warrants outstanding related to the Series C preferred stock.
In January 2002, options were granted to purchase 60,000 shares of common
stock at $.87 per share. In April 2002, options were granted to purchase 50,000
shares at $1.02 per share.
8. Subsequent Events
Subsequent to June 30, 2002, the Company retired $1.2 million of Series A
and B senior debt.
10
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
This report on Form 10-Q contains statements which constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "estimates,"
"will," "should," "plans" or "anticipates" or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy.
Readers are cautioned that any such forward-looking statements are not
guarantees of future performance and involve significant risks and
uncertainties, and that actual results may vary materially from those in the
forward-looking statements as a result of any number of factors, most of which
are beyond the control of management. These factors include operating losses,
continued and increased expenses, non-cash dividends and interest related to our
financings, and restrictions imposed by our senior and subordinated debt.
Although we believe that the expectations and assumptions reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements.
The following should be read in conjunction with the response to Part I,
Item 1. of this Report and the Company's audited consolidated financial
statements contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 2001. Any capitalized terms used but not defined in this Item
have the same meaning given to them in the Form 10-K.
Overview
We design, manufacture, sell and install custom vinyl replacement windows
for residential and retail commercial customers. We also sell and install
replacement doors, home textured coatings, vinyl siding, patio decks, patio
enclosures, cabinet refacings and kitchen and bathroom remodeling products, as
well as residential roofing.
Business Segments
Our subsidiaries have separate management teams and infrastructures and
operate in two reportable operating segments: retail and manufacturing. Key Home
Credit, ThermoView's finance subsidiary, was closed in July 2000 since expanding
the subsidiary would have required considerable capital. Accordingly, financial
services is no longer considered a segment.
Retail. Our retail segment consists of our subsidiaries that design, sell
and install custom vinyl replacement windows, doors and related home improvement
products to commercial and retail customers. Our retail segment derives its
revenues from the sale and installation of thermal replacement windows, storm
windows and doors, patio decks, patio enclosures, vinyl siding and other home
improvement products. Our retail segment recognizes revenues on the completed
contract method. A contract is considered complete when the home improvement
product has been installed. Gross profit in the retail segment represents
revenues after deducting product and installation labor costs.
Manufacturing. Our manufacturing segment consists of our subsidiary that
manufactures and sells vinyl replacement windows to one of our retail companies
11
and to unaffiliated customers. Our manufacturing segment recognizes revenues
when products are shipped. Gross profit in the manufacturing segment represents
revenues after deducting product costs (primarily glass, vinyl and hardware),
window fabrication labor and other manufacturing expenses.
Historical Results Of Operations
For the three months For the six months
ended June 30, ended June 30,
-------------------- ------------------
2001 2002 2001 2002
-------- -------- -------- ---------
(In thousands)
Revenues .......................... $ 23,678 $ 23,823 $ 45,555 $ 44,480
Cost of revenues earned ........... 11,398 11,659 22,307 21,981
-------- -------- -------- ---------
Gross profit ...................... 12,280 12,164 23,248 22,499
Selling, general and administrative
expenses ........................ 10,840 10,480 21,423 20,627
Depreciation expense .............. 280 254 561 527
Amortization expense .............. 701 34 1,397 69
-------- -------- -------- ---------
Income (loss) from operations ..... 459 1,396 (133) 1,276
Equity in earnings of joint venture -- 19 -- 32
Interest expense .................. (615) (657) (1,687) (1,320)
Interest income ................... 14 13 30 29
-------- -------- -------- ---------
Income (loss) before income taxes . (142) 771 (1,790) 17
Income tax expense (benefit) ...... 39 (1) 71 (7)
-------- -------- -------- ---------
Income (loss) before extraordinary
item and cumulative effect of an
accounting change ............... (181) 772 (1,861) 24
Extraordinary item - gain on
forgiveness of debt.............. -- -- 7,150 --
Cumulative effect of an accounting
change--charge for impairment of
goodwill ........................ -- -- -- (30,000)
-------- -------- -------- ---------
Net income (loss) ................. (181) 772 5,289 (29,976)
Less non-cash Series D and E
preferred stock dividends ...... (50) (193) (100) (385)
Plus benefit of Series D preferred
stock redemption ................ 397 -- 397 --
-------- -------- -------- ---------
347 (193) 297 (385)
-------- -------- -------- ---------
Net income (loss) attributable to
common stockholders ............. $ 166 $ 579 $ 5,586 $(30,361)
======== ======== ======== =========
12
Three Months Ended June 30, 2002 Compared to June 30, 2001
Revenues. Revenues increased from $23.7 million in the second quarter of
2001 to $23.8 million in the second quarter of 2002. This revenue increase is
due primarily to fluctuations in revenues of our retail subsidiaries. Thomas
Construction, our St. Louis retail subsidiary, reported $635,000 more revenue in
the second quarter of 2002 compared to the same period in 2001 due to improved
subsidiary management focus on marketing. ThermoView of California, our Southern
California retail subsidiary, reported $291,000 more revenue in the second
quarter of 2002 compared to the same period in 2001 due to a new Orange County
branch. Leingang, our North Dakota retail subsidiary, reported $728,000 more
revenue in the second quarter of 2002 compared to the same period in 2001 due to
significant backlog caused by a severe hailstorm in June 2001. Thermo-Shield,
our Chicago retail subsidiary, reported $949,000 less revenue in the second
quarter of 2002 compared to the same period in 2001. This subsidiary continues
to be underperforming following a change in its lead generation strategy and
change in subsidiary management. ThermoView's management is closely monitoring
this subsidiary in an effort to improve its performance. Rolox, our Kansas City,
Missouri, retail subsidiary reported $646,000 less revenue in the second quarter
of 2002 compared to the same period in 2001. This subsidiary eliminated a
customer sales incentive program in 2002 and experienced staff turnover which
had an adverse impact on revenues.
Gross Profit. Gross profit, which represents revenues less cost of revenues
earned, decreased from $12.3 million in the second quarter of 2001 to $12.2
million in the second quarter of 2002. As a percentage of revenues, gross profit
decreased from 51.9% for the quarter ended June 30, 2001, to 51.1% for the
quarter ended June 30, 2002. The lower gross profit percentage in the quarter
ended June 30, 2002, resulted from increased installation labor costs, increased
insurance costs and increased other costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased from $10.8 million in the quarter ended June
30, 2001 to $10.5 million in the same quarter of 2002. Selling, general and
administrative expenses as a percentage of revenues decreased from 45.8% in the
second quarter of 2001, to 44.0% in the second quarter of 2002. The decrease in
selling, general and administrative expenses in the second quarter of 2002
represents a concerted effort by management to reduce corporate and field
expenses. We have reduced salary expense, phone expense and various other
administrative costs.
Depreciation Expense. Depreciation expense decreased from $280,000 in the
second quarter of 2001 to $254,000 in the second quarter of 2002, reflecting
relatively constant levels of property and equipment.
Amortization Expense. Amortization expense decreased from $701,000 in the
second quarter of 2001 to $34,000 in the second quarter of 2002. This decrease
resulted from the adoption of the new accounting standard relating to goodwill.
Interest Expense. Interest expense increased from $615,000 in the second
quarter of 2001 to $657,000 in the second quarter of 2002. This increase results
from additional amounts of debt owed to GE Equity related to their agreement to
defer interest payments in 2001.
13
Income Tax (Expense) Benefit. Due to operating losses, management concluded
that it is more likely than not that our deferred tax assets will not be
realized. Accordingly, we established a valuation allowance against all deferred
tax assets, and no deferred income taxes have been recorded in 2001 or 2002.
Income tax expense in the second quarter of 2001 relates to state income taxes.
Income tax benefit in the second quarter of 2002 relates to some minor state tax
refunds.
Non-Cash Dividends. Non-cash dividends in the second quarter of 2001
represent accrued dividends on the Series E preferred stock. Non-cash dividends
in the second quarter of 2002 represent accrued dividends on the Series D and E
preferred stock.
Benefit of Series D Stock Redemption. We redeemed 99,470 shares of Series D
preferred stock with a carrying amount of $497,350 for $100,000 from the prior
owners of an acquired business. We have reflected the excess of the carrying
amount over the consideration given of $397,350 as a benefit of Series D
redemption in the second quarter of 2001.
Six Months Ended June 30, 2002 Compared to June 30, 2001
Revenues. Revenues decreased from $45.6 million in the first six months of
2001 to $44.5 million in the same period of 2002. This revenue decrease of $1.1
million is due primarily to fluctuations in revenues of our retail subsidiaries.
Thomas Construction, our St. Louis retail subsidiary, reported $488,000 more
revenue in the first half of 2002 compared to the same period in 2001 due to
improved subsidiary management focus on marketing. ThermoView of California, our
Southern California retail subsidiary, reported $341,000 more revenue in the
first half of 2002 compared to the same period in 2001 due to a new Orange
County branch. Leingang, our North Dakota retail subsidiary, reported $989,000
more revenue in the first half of 2002 compared to the same period in 2001 due
to significant backlog caused by a severe hailstorm in June 2001. Thermo-Shield,
our Chicago retail subsidiary, reported $1,814,000 less revenue in the first
half of 2002 compared to the same period in 2001. This subsidiary continues to
be underperforming following a change in its lead generation strategy and change
in subsidiary management. ThermoView's management is closely monitoring this
subsidiary in an effort to improve its performance. Rolox, our Kansas City,
Missouri, retail subsidiary reported $690,000 less revenue in the first half of
2002 compared to the same period in 2001. This subsidiary eliminated a customer
sales incentive program in 2002 and experienced staff turnover which had an
adverse impact on revenues.
Gross Profit. Gross profit decreased from $23.2 million in the first half
of 2001 to $22.5 million in the first half of 2002. As a percentage of revenues,
gross profit decreased from 51.0% in the first half of 2001 to 50.6% in the
first half of 2002. The lower gross profit percentage in the first half of 2002
resulted from increased installation labor costs, increased insurance costs and
increased other costs.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased from $21.4 million in the first half of 2001
to $20.6 million in the first half of 2002. Selling, general and administrative
expenses as a percentage of revenues decreased from 47.0% in the first half of
2001, to 46.4% in the first half of 2002. The decrease in selling, general and
14
administrative expenses in the first half of 2002 represents a concerted effort
by management to reduce corporate and field expenses. We have reduced salary
expense, phone expense, and various other administrative costs.
Depreciation Expense. Depreciation expense decreased from $561,000 in the
first half of 2001 to $527,000 in the first half of 2002, reflecting relatively
constant levels of property and equipment.
Amortization Expense. Amortization expense decreased from $1.4 million in
the first half of 2001 to $69,000 in the first half of 2002. This decrease
results from the adoption of the new accounting standard relating to goodwill.
Interest Expense. Interest expense decreased from $1.7 million in the first
half of 2001 to $1.3 million in the first half of 2002. This decrease results
from the reduction of interest related to the elimination of nearly $7.0 million
of debt during the first quarter of 2001 in connection with a debt
restructuring, a 2% reduction in the stated interest rate on $10 million of our
debt, and extended maturity dates on some of our debt which reduced the monthly
amounts of accretion of debt discount.
Income Tax Expense. Due to operating losses, management concluded that it
was more likely than not that deferred tax assets will not be realized.
Accordingly, we established a valuation allowance against all deferred tax
assets, and no deferred income taxes have been recorded in 2001 or 2002. Income
tax expense in the first half of 2001 relates to state income taxes. Income tax
benefit in the first half of 2002 relates to some minor state tax refunds.
Extraordinary Item. The extraordinary item in the first half of 2001
represents a gain on forgiveness of debt in connection with the restructuring of
debt in March 2001. The $7.2 million extraordinary gain is net of expenses and
net of $82,000 of value assigned to common stock purchase warrants issued in
connection with the settlement reached with our former senior lender, PNC Bank.
Non-Cash Dividends. Non-cash dividends in the first half of 2001 represent
accrued dividends on the Series E preferred stock. Non-cash dividends in the
first half of 2002 represent accrued dividends on the Series D and E preferred
stock.
Benefit of Series D Stock Redemption. We redeemed 99,470 shares of Series D
preferred stock with a carrying amount of $497,350 for $100,000 from the prior
owners of an acquired business. We have reflected the excess of the carrying
amount over the consideration given of $397,350 as a benefit of Series D
redemption in the first half of 2001.
Liquidity And Capital Resources
As of June 30, 2002, we had cash and equivalents of $2.8 million, working
capital of $2.3 million, $18.0 million of long-term debt, net of current
maturities, and $7.3 million of mandatorily redeemable preferred stock. Our
operating activities for the six months ended June 30, 2001, provided $1.9
million of cash. Our operating activities for the six months ended June 30,
2002, provided $924,000 of cash.
The use of $141,000 of cash for investing activities for the six months
ended June 30, 2001, related to the acquisition of $274,000 of property and
15
equipment offset principally by collection of finance receivables. The use of
$385,000 of cash for investing activities for the six months ended June 30, 2002
related primarily to the acquisition of property and equipment.
Financing activities for the six months ended June 30, 2001, used $428,000
of cash. The financing activities primarily relate to the debt restructuring
that occurred in March 2001. We used $151,000 in cash for financing activities
in the six months ended June 30, 2002, primarily for repayment of debt.
Under our financing arrangements, substantially all of our assets are
pledged as collateral. We are required to maintain certain financial ratios and
to comply with various other covenants and restrictions under the terms of the
financing agreements, including restrictions as to additional financings, the
payment of dividends and the incurrence of additional indebtedness. In
connection with waiving defaults at June 30, 2000, PNC Bank required us to repay
$5 million of our $15 million credit facility with them by December 27, 2000. We
were unable to make the required December 27, 2000 payment, violated various
other covenants, and were declared in default by PNC Bank in early January 2001.
The declaration of default by PNC Bank also served as a condition of default
under the senior subordinated promissory note to GE Equity. GE Equity and a
group of our officers and directors in March 2001 purchased the PNC note, and
all defaults relating to the GE Equity note and the purchased PNC Bank note were
waived.
If we default in the future under our debt arrangements, the lenders can,
among other items, accelerate all amounts owed and increase interest rates on
our debt. An event of default could result in the loss of our subsidiaries
because of the pledge of our ownership in all of our subsidiaries to the
lenders. As of June 30, 2002, we are not in default under any of our debt
arrangements.
We believe that our cash flow from operations will allow us to meet our
anticipated needs during at least the next 12 months for:
o debt service requirements;
o working capital requirements;
o planned property and equipment capital expenditures.
We also believe in the longer term that cash will be sufficient to meet our
needs. However, we do not expect to continue our acquisition program soon. We
have decided, for now, to focus on improving the profitability of our existing
operations and expanding the market areas of our retail subsidiaries.
On or before our debt matures in 2004, we anticipate either extending the
term of our current financing or refinancing it. Management retired $1.2 million
of debt subsequent to June 30, 2002, and intends to further retire debt by
internally generated cash in 2002 (in the range of $2 million to $2.5 million),
but will keep adequate levels of cash on hand for working capital purposes.
We do not expect annual capital expenditures for the next three years to
significantly vary from amounts reported for the last three years, which have
been in the range of $500,000 to $900,000 annually.
16
Pending Litigation
ThermoView does not anticipate any significant adverse effect on our
results of operations or cash flow through December 2002 because of the Pro
Futures, Ferguson or Clemmens litigation described in Part II, Item 1, Legal
Proceedings. Although ThermoView believes the claims in these lawsuits are
without merit and intends to vigorously defend the suits, an adverse outcome, in
the Pro Futures or the Clemmens actions could have a material adverse effect on
our results of operations and cash flow.
Item 3. Quantitative And Qualitative Disclosures About Market Risk
In March 2001, we restructured our debt and, as a result, all of our debt
is fixed rate debt. Interest rate changes would result in gains or losses in the
market value of our fixed-rate debt due to the differences between the current
market interest rates and the rates governing these instruments. With respect to
our fixed-rate debt currently outstanding, a 10% change in interest rates (for
example, from 10% to 11%) would not have resulted in a significant change in the
fair value of our fixed-rate debt.
17
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
On March 3, 2000, Pro Futures Bridge Capital Fund, L.P. and Bridge Capital
Partners, Inc. Defined Benefit Pension Plan filed an action titled Pro Futures
Bridge Capital Fund, L.P. V. ThermoView Industries, Inc., et al., Civil Action
No. 00CV0559 (Colo. Dist. Ct., March 3, 2000) against ThermoView, its directors,
certain officers, a former employee and a stockholder alleging breach of
contract, common law fraud, fraudulent misstatements and omissions in connection
with the sale of securities, negligent misrepresentations and breach of
fiduciary duty. These claims are in connection with the mandatory conversion of
ThermoView's 10% Series A convertible preferred stock, held by the two funds,
into common stock upon completion of the initial public offering in December
1999, and purchases by the two funds of ThermoView common stock from ThermoView
stockholders. The funds are seeking rescission of their purchases of the Series
A preferred stock in the amount of $3,250,000, plus interest and unspecified
damages in connection with their purchases of the common stock. ThermoView filed
a notice to dismiss certain claims and an answer denying liability in the
remainder of the claims. ThermoView also exercised an election for the removal
of the action to the United States District Court of Colorado in Civil Action
No. 00-B-722. In December 2001, the Court dismissed all claims against
ThermoView by the grant of summary judgment. In January 2002, ProFutures filed a
notice to appeal the Court's grant of summary judgment in the United States
Court of Appeals for the Tenth Circuit. The Court of Appeals has yet to rule on
this appeal. Although ThermoView continues to believe that the claims are
without merit and intends to vigorously defend the suit, we cannot predict the
outcome of the matter, however, it could have a material adverse effect on our
results of operations and cash flow. No amounts have been provided in the
accompanying consolidated financial statements for this matter.
On August 1, 2001, Scott Ferguson filed a civil action styled Scott
Ferguson v. ThermoView Industries, Inc., et. al., Civil Action No. 01-CI-005295
(Jefferson Circuit Court, August 1, 2001) seeking damages resulting from an
investment in Series A preferred stock. This suit alleges claims similar to the
claims advanced by ProFutures Bridge Capital Fund, L.P. and Bridge Capital
Partners, Inc. Defined Benefit Pension Plan, in their action detailed above. By
agreement of the parties, the claims will be held in abeyance until final
resolution of the ProFutures matter. Our management believes that we have
adequate defense to this litigation, and in the event of an adverse outcome to
us, we do not believe that the loss would have a material adverse effect on us.
On November 19, 2001, Nelson E. Clemmens, former director and president of
the Company, filed an action titled Nelson E. Clemmens v. ThermoView Industries,
Inc., Civil Action No. 01-CI-07901 (Jefferson Circuit Court, November 19, 2001)
against ThermoView alleging subrogation and indemnity rights associated with Mr.
Clemmens' loss of guaranty collateral to PNC Bank, N.A. These claims are in
connection with the April 2000 amendment to ThermoView's previous bank debt with
PNC Bank, in which Stephen A. Hoffmann, Richard E. Bowlds, Nelson E. Clemmens
and Douglas I. Maxwell, III guaranteed $3,000,000 of our PNC Bank debt. In
January 2001, PNC seized the collateral pledged as security by the guarantors
for the loan guaranty. In March 2001, ThermoView reached settlements with
Messrs. Bowlds and Hoffmann for any claims that they may hold against us
18
regarding their loss of assets in connection with the guaranty. We did not reach
a settlement with Messrs. Clemmens and Maxwell with regard to guarantees of
$1,000,000. The Clemmens suit seeks to determine the respective rights and
duties of the parties concerning the loss of collateral. Our management believes
that no payment should be made for loss of guarantor collateral and we have
filed a motion for summary judgment in defense of our legal position. An
unfavorable determination of our position regarding this matter could have a
material adverse effect on our cash flow.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
a. ThermoView held its annual meeting of stockholders on April 25, 2002, at
10:00 a.m., eastern daylight time, at the Louisville Marriott East, 1903
Embassy Square Boulevard, Louisville, Kentucky.
b. At the annual meeting, stockholders elected three individuals as Class III
members of our Board of Directors.
Broker Non
Name For Against Withheld Abstentions Votes
---- --- ------- -------- ----------- ----------
Robert L. Cox 7,031,260 334 0 0 0
Stephen A. Hoffmann 6,872,592 334 158,334 0 0
Charles L. Smith 7,015,390 334 15,536 0 0
The following directors remained on the Board of Directors as Class I and
Class II directors immediately after the annual meeting:
Class I Class II
------- --------
Ronald L. Carmicle J. Sherman Henderson, III
Raymond C. Dauenhauer Rodney H. Thomas
Bruce C. Merrick George T. Underhill, III
c. Not applicable.
d. Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Stock option grant awarded to Charles L. Smith.
(b) Reports on Form 8-K.
(1) On May 2, 2002, ThermoView filed a Form 8-K reporting a change in
certifying accountants. On April 25, 2002, the Board of Directors of
ThermoView, on the recommendation of the Audit Committee, dismissed
Arthur
19
Andersen LLP and engaged Crowe, Chizek and Company LLP as ThermoView's
independent certifying accountants for the year ended December 31,
2002.
Arthur Andersen LLP was notified of their dismissal on April 25, 2002.
The reports of Arthur Andersen LLP on the ThermoView's consolidated
financial statements for the period ended December 31, 2001, did not
contain any adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope, or accounting
principles.
During the period ended December 31, 2001, and the subsequent interim
period preceding the dismissal of Arthur Andersen LLP on April 25,
2002, there were no disagreements with Arthur Andersen LLP on any
matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures which, if not resolved to
the satisfaction of Arthur Andersen LLP, would have caused the firm to
make reference to the matter of the disagreement in their reports.
During the period ended December 31, 2001, and the subsequent interim
period preceding the dismissal of Arthur Andersen LLP on April 25,
2002, no reportable events occurred in connection with the
relationship between Arthur Andersen LLP and ThermoView.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ThermoView Industries, Inc.
Date: August 14, 2002 By: /s/ Charles L. Smith
------------------------------------
Charles L. Smith,
Chief Executive Officer
(principal executive officer)
Date: August 14, 2002 By: /s/ James J. TerBeest
------------------------------------
James J. TerBeest,
Chief Financial Officer
(principal financial and
accounting officer)
Charles L. Smith and James J. TerBeest, being the Chief Executive Officer
and Chief Financial Officer, respectively, of ThermoView Industries, Inc.,
hereby certify as of this 14th day of August, 2002, that the Form 10-Q for the
Quarter ended June 30, 2002, fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information
contained in the Form 10-Q fairly presents, in all material respects, the
financial condition and results of operations of ThermoView Industries, Inc.
By: /s/ Charles L. Smith
------------------------------------
Charles L. Smith,
Chief Executive Officer
By: /s/ James J. TerBeest
------------------------------------
James J. TerBeest,
Chief Financial Officer
21
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibits
10.109 -- Stock option grant awarded to Charles L. Smith.
22
Exhibit 10.109
THERMOVIEW INDUSTRIES, INC.
2000 STOCK OPTION PLAN
INCENTIVE STOCK OPTION
(NON-TRANSFERABLE)
OPTION CERTIFICATE
ThermoView Industries, Inc., a Delaware corporation ("Company"), pursuant
to action of the Board and in accordance with the ThermoView Industries, Inc.
2000 Stock Option Plan ("Plan"), hereby grants an Incentive Stock Option
("Option") to Charles L. Smith ("Employee") to purchase from the Company 50,000
shares of Stock, at an Option Price of $1.02 per share, which Option is subject
to all of the terms and conditions set forth in this Option Certificate and in
the Plan. This Option is effective as of April 12, 2002 ("Option Grant Date").
THERMOVIEW INDUSTRIES, INC.
By: /s/ James J. TerBeest
-----------------------------------------
Title: Chief Financial Officer
-----------------------------------------
TERMS AND CONDITIONS
ss.1. Plan. This Option is subject to all the terms and conditions set
forth in the Plan and this Option Certificate, and all of the terms defined in
the Plan shall have the same meaning herein when such terms start with a capital
letter. This Option is intended to satisfy the requirements of ss. 422 of the
Code. However, to the extent that this Option, when aggregated with all other
"incentive stock options" (within the meaning of ss. 422 of the Code) granted to
Employee under stock option plans maintained by ThermoView, a Subsidiary or
Parent Corporation exceeds the $100,000 limit in ss. 7.2 of the Plan, this
Option shall be treated as an NQO to the extent required by law. A copy of the
Plan will be made available to Employee upon written request to the Chief
Financial Officer of the Company.
ss. 2. Order of Exercise. The exercise of this Option shall not be affected
by the exercise or non-exercise of any other option (without regard to whether
such option constitutes an "incentive stock option" within the meaning of ss.
422 of the Code).
ss. 3. Date Exercisable. This Option shall become exercisable in accordance
with the attached vesting schedule on any normal business day of the Company
occurring on or after the first date set forth in the attached vesting schedule
and before the date this Option expires under ss. 4.
The maximum number of shares of Stock which may be purchased by exercise of
this Option on any such day shall equal the excess, if any, of (a) the total
number of shares of Stock subject to this Option on the Option Grant Date, as
adjusted in accordance with ss. 14 of the Plan, and with respect to which this
23
Option is vested, over (b) the number of shares of Stock which have previously
been purchased by exercise of this Option, as adjusted in a manner consistent
with ss. 14 of the Plan.
If at the time Employee intends to exercise any rights under this Option,
Employee is an officer or is filing ownership reports with the Securities and
Exchange Commission under Section 16(a) of the Exchange Act then Employee should
consult with the Company before Employee exercises such rights because there may
be additional restrictions upon the exercise of such rights.
ss. 4. Life of Option. The Option shall expire when exercised in full;
provided, however, the Option (to the extent not exercised in full) also shall
expire immediately and automatically on the earlier of (a) the date which is the
tenth anniversary of the Option Grant Date, (b) the date which is the fifth
anniversary of the Option Grant Date, if Employee is a Ten Percent Shareholder
on the Option Grant Date and the Option is an "incentive stock option" (within
the meaning of ss. 422 of the Code), (c) except in the case of death or
Disability of Employee, the date (i) which is the second anniversary after
Employee is terminated at the initiative of the Company for any reason except
"good cause," as such term is defined in ss. 4.1 below or (ii) the date which is
the first anniversary after Employee resigns at Employee's own initiative for
any reason or (iii) the date which is the 90th day after Employee is terminated
at the initiative of the Company for "good cause" (d) the one year anniversary
of the date Employee's employment terminates due to death or Disability.
Employee shall be Disabled for purposes of the Plan if Employee meets the
definition of disability set forth under the Company's long term disability
plan, as amended from time to time. The Company shall determine whether
Employee's employment terminates due to Disability.
ss. 4.1 For purposes of this Option, "good cause" for termination of
Employee's employment shall exist only if (a) Employee is convicted of, pleads
guilty to, or confesses to any act of fraud, misappropriation or embezzlement or
to any felony, (b) Employee has engaged in a dishonest or disloyal act resulting
in material damage or prejudice to the Company or (c) Employee has engaged in
conduct or activities materially damaging or prejudicial to the property,
business or reputation of the Company.
ss. 5. Method of Exercise of Option. Employee may (subject to ss. 3, ss. 4,
ss. 11, ss. 12, ss. 13 and ss. 16) exercise this Option in whole or in part
(before the date this Option expires) on any normal business day of the Company
by (1) delivering the Option Certificate to the Company at its principal place
of business together with written notice of the exercise of this Option and (2)
simultaneously paying to the Company the Option Price. The payment of such
Option Price shall be made either in cash, by check acceptable to the Company,
or by delivery to the Company of certificates (properly endorsed) for shares of
Stock registered in Employee's name, or in any combination of such cash, check,
and Stock which results in payment in full of the Option Price. Stock which is
so tendered as payment (in whole or in part) of the Option Price shall be valued
at its Fair Market Value on the date this Option is exercised.
ss. 6. Delivery. The Company's delivery of Stock pursuant to the exercise
of this Option (as described inss.5) shall discharge the Company of all of its
duties and responsibilities with respect to this Option.
24
ss. 7 Adjustment. The Board shall have the right to make such adjustments
to this Option as described underss.14 of the Plan.
ss. 8. Nontransferable. This Option shall not be transferable by Employee
except by his will or by the laws of descent and distribution, and rights
granted under this Option shall be exercisable during Employee's lifetime only
by Employee. If this Option is exercisable after the death of Employee, the
person or persons to whom this Option is transferred by will or by the laws of
descent and distribution shall be treated as the Employee under this Option
Certificate.
ss. 9. Termination of Employment. Neither the Plan, this Option nor any
related material shall give Employee the right to continue in employment with
the Company or any affiliate of the Company or shall adversely affect the right
of the Company or affiliate terminate Employee's employment with or without
cause at any time.
ss. 10. Shareholder Status. Employee shall have no rights as a shareholder
with respect to any shares of Stock under this Option until such shares have
been duly issued and delivered to Employee, and no adjustment shall be made for
dividends of any kind or description whatsoever or for distributions of other
rights of any kind or description whatsoever respecting such Stock except as
expressly set forth in the Plan.
ss. 11. Other Laws. The Company shall have the right to refuse to issue or
transfer any Stock under this Option if the Company acting in its absolute
discretion determines that the issuance or transfer of such Stock might violate
any applicable law or regulation, and any payment tendered in such event to
exercise this Option shall be promptly refunded to Employee.
ss. 12. Securities Registration. Employee may be requested by the Company
to hold any shares of Stock received upon the exercise of this Option for
personal investment and not for purposes of resale or distribution to the public
and Employee shall, if so requested by the Company, deliver a certified
statement to that effect to the Company as a condition to the transfer of such
Stock to Employee. Employee may be requested by the Company to deliver a
certified statement to the Company that he or she will not sell or offer to sell
any shares of Stock received upon the exercise of this Option unless a
registration statement shall be in effect with respect to such Stock under the
Securities Act of 1933, as amended, and the applicable state securities laws, or
unless he or she shall furnish to the Company an opinion, in form and substance
satisfactory to the Company, of legal counsel acceptable to the Company, that
such registration is not required. Certificates representing shares of Stock
received upon the exercise of this Option may bear an appropriate restrictive
legend reflecting the foregoing.
ss. 13. Other Conditions. Employee shall (as a condition to the exercise of
this Option) enter into any agreement or make any representations required by
the Company related to the Stock to be acquired pursuant to the exercise of this
Option, including any agreement which restricts the transfer of Stock acquired
pursuant to the exercise of this Option and provides for the repurchase of such
Stock by the Company under certain circumstances.
ss. 14. Tax Withholding. The Company shall have the right to withhold or
retain from any payment to Employee (whether or not such payment is made
pursuant to this Option) or take such other action as is permissible under the
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Plan which the Company deems necessary or appropriate to satisfy any income or
other tax withholding requirements as a result of the exercise of this Option.
ss. 15. Governing Law. The Plan and this Option shall be governed by the
laws of the State of Delaware.
ss. 16. Modification, Amendment, and Cancellation. The Company shall have
the right unilaterally to modify, amend, or cancel this Option in accordance
with the terms of the Plan, and, in particular, shall have the right under ss.
15 of the Plan to cancel this Option as of any date before the effective date of
a sale or other corporate transaction described in ss. 15 of the Plan.
ss. 17. Binding Effect. This Option shall be binding upon the Company and
Employee and their respective heirs, executors, administrators and successors.
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OPTION EXERCISE FORM
(To be executed by Employee to
exercise the rights to purchase Stock
evidenced by the foregoing Option)
TO: THERMOVIEW INDUSTRIES, INC.
The undersigned hereby exercises the right to purchase __________ shares of
Stock covered by the attached Option in accordance with the terms and conditions
thereof, and herewith makes payment of the Option Price for such shares in full.
____________________________________________
Signature
____________________________________________
____________________________________________
Address
- -
--------- -------- ----------------
Social Security Number
Dated: _________________
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