UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K

 

 

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

SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2002

 

OR

 

o           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)

 

 

Registrant’s telephone number, including area code:

(502) 968-2020

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Securities registered pursuant to Section 12(g) of the Act:

None.

 

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     ý   No     o

 

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.     ý

 

Indicate by check mark whether the Registrant is an accelerated filer (as defined by Rule 12b.2 of the Act).  Yes  o    No  ý

 

Based upon the June 28, 2002 American Stock Exchange closing price of $1.01 per share, the aggregate market value of the Registrant’s outstanding common stock, $.001 par value, held by non-affiliates was approximately $6.55 million.

 

As of March 28, 2003 8,628,716 shares of the Registrant’s common stock, $.001 par value, were issued and outstanding.

 

Documents Incorporated by Reference

 

Portions of the Definitive Proxy Statement to be delivered to security holders for the 2003 annual meeting of stockholders to be held on May 1, 2003, are incorporated by reference into Items 10 through 13 of Part III of this Form 10-K.

 

 

PART I

 

Item 1.  Business

 

Overview

 

We design, manufacture, sell and install custom vinyl replacement windows for residential and retail commercial customers. We also sell and install replacement doors, textured coatings, vinyl siding, patio decks, patio enclosures, cabinet refacings, and bathroom and kitchen remodeling products, as well as residential roofing.

 

In April 1998, we acquired Thermo-Tilt Window Company, which was established in 1987. Since that time, we have acquired 12 retail and manufacturing businesses which had been in operation an average of approximately 11 years.  During 2000, we closed two manufacturing businesses and one retail business.  At December 31, 2002, we had 833 full-time employees and had facilities in 17 states, primarily in the Midwest and southern California. For calendar 2001, we generated consolidated revenues of approximately $90 million, and for calendar 2002, we generated consolidated revenues of approximately $86 million.

 

Our initial business plan focused on an aggressive acquisition program to build a vertically integrated company in the vinyl window business. We intended to aggressively develop in the manufacturing, retail, and finance segments.  We closed our finance subsidiary, two acquired manufacturing businesses and one acquired retail business in 2000.  Although we have scaled back on manufacturing and eliminated our finance subsidiary, we continue to search for strategic alliances and business development opportunities that may be beneficial to us in the manufacturing, retail and finance segments.

 

•                  We continue to work closely with all of our window manufacturers in the production of our current windows and in the development of windows using new technologies.

 

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•                  In October 2001, we formed a joint venture with Royal Group Technologies Limited, headquartered in Ontario, Canada, to manufacture leading edge thermoplastic extrusions.  The Compozit extrusions are stronger than vinyl, withstand weather and climate extremes, are impact resistant and can be produced in many colors.  The joint venture’s revenue approximated $2.5 million in 2002.  By the end of 2003, we intend to sell these extrusions exclusively at all of our retail locations.  We own 40% of the joint venture operation.

 

•                  We plan to introduce new or enhanced products and expand the market areas of our existing retail subsidiaries.

 

•                  We plan to work towards opening new retail offices in the South, Southwest and Midwest.  In 2002, we opened a Phoenix retail location and in 2003 intend to open new retail locations in the upper midwest and in the southeast.

 

•                  Since we continue to assist our customers in obtaining financing for about 60% of our sales, we intend to explore economically beneficial strategic alliances with the companies that provide financing to our customers.

 

Our custom vinyl replacement windows are manufactured by a combination of internal and external manufacturers.  Both are capable of supplying quality windows on a timely basis at competitive prices.

 

Because we did not have the available capital upon completion of our initial public offering in December 1999 to pursue our initial acquisition strategy, we shifted our growth focus to the retail segment and the introduction of new or enhanced products and product lines in addition to the development of new advertising and marketing programs that foster cross-selling of product lines to our existing customer bases.

 

The Replacement Window Industry

 

Sales of replacement windows have experienced substantial growth in recent years.  Three basic categories of windows comprise the replacement window market:  vinyl, wood and aluminum. We believe that vinyl windows require less maintenance and are more durable than either wood or aluminum windows and they provide greater energy efficiency than aluminum windows. Since prices for vinyl windows have become more competitive with wood window prices and the durability and energy efficiency of vinyl windows have improved, the demand for vinyl windows has significantly increased in recent years. Today, vinyl windows are the most popular replacement window. We believe that factors driving demand in the replacement window industry include:

 

•                  the aging existing housing stock;

 

•                  job and wage growth;

 

•                  consumer confidence levels;

 

•                  consumer credit conditions;

 

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•		interest rates;
•		demographic trends;
•		population migration between urban and suburban areas; and
•		demand for maintenance free products.

 

 

Growth Strategy

 

Our goal is to become a leader in the home improvement and replacement window industry by building a nationwide network of sales and installation subsidiaries principally through internal growth.

 

Integration Strategy

 

We believe that we can increase our growth through expansion of the markets of our current and acquired subsidiaries. We believe that our brand recognition and integrated management enhances the capability of our subsidiaries to further expand regional market share.  We intend to more thoroughly integrate the advertising and marketing programs of our regional subsidiaries into a national home-remodeling business over the next two years.  Beginning in 2000 and continuing through 2002, we changed the focus of our expansion strategy to growth of our current subsidiaries during the near future rather than expanding predominantly through acquisitions. Because of the unavailability of capital for acquisitions, we have suspended our pursuit of acquisitions.

 

Merchandising

 

Replacement Windows. We offer three lines of custom-made replacement vinyl windows. We previously offered four lines but have discontinued using the Thermal Industries window.  Each of our lines consists of a broad range of window options including awning, bay, bow, double hung, garden and slider replacement windows. We offer the Barricade, Thermal Line, and Great Lakes lines of windows tailored to fit the various remodeling and financial needs of our customers.  Our customers will generally spend in the range of $3,000 to $12,000 as installed depending upon the size of the residence.

 

Barricade Window. This line consists of our most expensive window products. We design and Winchester Industries, Inc., in Saltsburg, Pennsylvania, manufactures this line of replacement windows for energy performance, strength, security and low maintenance. The windows offer welded vinyl frames reinforced with aluminum in both their main frame and sash for added strength, and with one inch triple insulated glass with low-emissivity, Low-E coatings to reduce heat radiation through the glass and double steel cam locks for security.  Our Primax, Rolox and Thermo-Shield subsidiaries utilize the Barricade window.  In January 2002, we selected Winchester to design and build a new line of windows incorporating climate-resistant composite resin materials.  We will purchase the components used to manufacture these windows from our joint venture extrusion operation and expect to begin manufacture of this new line of windows in April 2003.

 

Thermal Line Window. Thermal Line is our sole manufacturing subsidiary located in Mandan, North Dakota.  We design and Thermal Line manufactures this line for high performance at affordable cost. A component of this line

 

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of replacement windows is Compozit, a vinyl substitute, which increases strength without the cost of aluminum reinforcement. The use of Compozit also permits the use of dark colors in extreme heat. The Compozit components used to manufacture these windows are being purchased from our joint venture extrusion operation.  This line of replacement windows contains double insulated glass and Low-E coatings.  Approximately 12% of Thermal Line’s sales are to Leingang, another ThermoView subsidiary, with the balance sold to external customers.  Thermal Line does not sell windows to other ThermoView subsidiaries.

 

Great Lakes Window.  Great Lakes, a subsidiary of Nortek, which is a large building material conglomerate, is one of the world’s largest producers of custom-made replacement windows.  Great Lakes, located in Toledo, Ohio, manufactures a diverse line of replacement products including bay windows, bow windows, garden windows and extra heavy duty patio doors with special enhanced insulating features available.  Great Lakes is noted for its innovative approach to product development.  Thomas Construction and ThermoView of California design, sell and install Great Lakes’ top of the line UNIFRAME product line.

 

Our windows offer the following features:

 

Energy Efficiency. One characteristic of our windows is their insulating qualities. Double- and triple-pane glass provides the R-values and U-values, measures of insulation for end-users. With regard to this double- and triple-pane glass, we incorporate state-of-the-art Low-E coatings. Low-E coatings allow the passage of light but selectively block infrared radiation. As a result, less heat escapes on cold days, and less heat enters on warm days. We further increase the insulation value of our windows by sandwiching a layer of argon, krypton and sulfur hexafluoride gas mixture between panes of glass.

 

High Quality Frames. Our windows incorporate fusion-welded corners, and our Barricade line includes an internal aluminum support system. This structure enhances the durability of the windows and prevents warping problems.

 

Custom Design. We custom design windows in varying dimensions through the Thermal Line manufacturing subsidiary for Leingang and through unrelated third-party manufacturers for the balance of the retail subsidiaries. This process involves the retro-fitting of existing homes with custom-made, energy efficient, vinyl-clad windows.

 

Installation Service. Some of our subsidiaries use only their employees for installation of our replacement windows. Others subcontract with crews that work exclusively for us. Generally, we complete installation within the same or the second day of commencing installation.

 

Low Maintenance Product. Our windows require little or no external maintenance due to the vinyl materials used. The tilt-in feature of our windows eases their cleaning.

 

Competitive Pricing. We believe that, with increased sales volume, we can reduce purchased product costs through purchasing and distribution channels that will benefit the customer and create a competitor advantage over the small, fragmented competition.

 

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Replacement Doors. We offer custom-made insulated steel doors with wood-grain embossed finishes in 36 styles and sliding glass doors in six variations.

 

•                  The steel doors range in price from $750 to $3,000 per door as installed depending upon the styles, hardware and art-glass options and wood grain finishings chosen.

 

•                  The sliding glass doors range in price from $1,500 to $3,000 per door as installed.

 

Energy Efficiency, Design, And Installation. Our sliding glass doors and insulated steel doors that contain glass have the same energy efficiency characteristics as our vinyl replacement windows. We custom design and install our sliding glass doors and insulated steel doors in a similar fashion to our vinyl replacement windows.

 

Home Textured Coatings. We offer home textured coatings for residential use, the cost of which ranges approximately from $8,000 to $15,000 per residence as installed. Home textured coating is a paint and service that usually takes seven days to complete. The process involves four coats of primer and two finish coats, together with a trenching operation to prevent ground moisture penetration and patching and repairs of the surface to be coated.

 

Installation Service. Both employee and exclusive subcontractor painters provide the home textured coatings to our customers.

 

Product Guarantee. The manufacturer of the product, Textured Coatings of America, Inc., provides a limited lifetime warranty to the owner of the home against chipping, flaking and peeling of its product.

 

Vinyl Siding. We offer vinyl siding in several colors and styles. Our customers will generally spend in the range of $2,800 to $10,000 as installed depending upon the size of the residence. The average time for installation is seven days and generally the vinyl siding is maintenance free.

 

Cabinet Refacings. We offer kitchen cabinet refacings in a number of designs which range in cost to our customer from $3,000 to $10,000 per kitchen as installed and generally take one day to complete.

 

Kitchen And Bathroom Remodeling. We offer kitchen and bathroom remodeling through four of our subsidiaries. We estimate the cost to our customer for kitchen remodeling to range from $3,000 to $20,000. Generally, remodeling takes one week to complete. We charge our customers for bathroom remodeling from $3,000 to $8,000 per residence as installed.

 

Patio Decks And Patio Enclosures. We offer patio decks and patio enclosures with single- or double-pane glass as a less expensive alternative to room additions. Most sales involve single-pane glass together with a modular roof. Generally, installation takes three days, and the cost to our customer ranges from $8,000 to $18,000 as installed depending on the size and options chosen.

 

Retail Businesses. ThermoView’s retail segment consists of the following businesses:

 

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Thomas Construction, Inc. Thomas Construction, Inc., founded in 1981 and headquartered in Earth City, Missouri, designs, sells and installs replacement and new construction windows, siding, patio enclosures, kitchen and bathroom remodeling, roofing and various other home improvement products in Illinois and Missouri. Thomas had 244 employees as of December 31, 2002. Stephen C. Townzen, an employee of the business for 16 years, manages its operations.

 

ThermoView Industries, Inc., of California. (formerly Five Star Builders now combined with American Home Remodeling, Inc.) ThermoView of California, founded in 1992 and headquartered in San Diego, California, designs, sells and installs replacement and new construction windows, siding, patio enclosures, kitchen and bathroom remodeling, textured exterior coatings, and various other home improvement products in California. ThermoView of California had 167 employees as of December 31, 2002.  Robert E. Graham, an employee of the business for 9 years, manages its operations.

 

Primax Window Company. Primax Window Company, founded in 1981 and headquartered in Louisville, Kentucky, sells and installs vinyl replacement windows and doors as well as bathroom remodeling in Indiana, Kentucky and Ohio.  George Jenkins, a former principal of Primax, managed its operations until December 31, 2002.  As of January 1, 2003, George Jenkins holds the position of Executive Vice President of Sales Development.  Commencing January 1, 2003, Primax has been divided into two divisions.  Joe Beisler will manage the East Division and Doug Miles will manage the West Division.  George Jenkins has been in the business 19 years, Joe Beisler 17 years, and Doug Miles 18 years.  We merged the operations of Thermo-Tilt Window Company in Owensboro, Kentucky, into the Primax business in 2000.  ThermoView of Missouri, Inc. (formerly NuView) with continuing operations in Decatur Illinois, and St. Louis, Missouri (Bath Fitter product line only) was integrated into Primax commencing February, 2001.  Primax, including the integrated businesses, had 163 employees as of December 31, 2002.

 

The Thermo-Shield Companies. Thermo-Shield, founded in 1984 and headquartered in Wheeling, Illinois, sells, and installs replacement windows,  siding and cabinet refacings in Illinois.  Operations in Michigan, Arizona, Wisconsin and Indiana were closed.  Thermo-Shield had 22 employees as of December 31, 2002.  Jerry Gentile, an employee of the business for 8 years, manages its operations.

 

The Rolox Companies. The Rolox Companies, founded in 1973 and headquartered in Kansas City, Kansas, sell and install vinyl replacement windows, steel doors, storm siding and bathroom remodeling in Arkansas, Iowa, Kansas, Missouri, Nebraska and Oklahoma. Rolox had 95 employees as of December 31, 2002. Robert L. Cox II, a former principal of Rolox for 18 years, manages its operations.

 

Leingang Siding And Window, Inc. Leingang Siding and Window, Inc., founded in 1991 and headquartered in Mandan, North Dakota, sells and installs quality exterior remodeling products such as premium replacement windows, steel, vinyl and seamless steel siding, asphalt and  cedar roofs, soffit and fascia, doors, awning, seamless gutters and cabinet refacing in North Dakota and South Dakota. Leingang had 81 employees as of December 31, 2002.  John Frohlich, an employee of the business for 19 years, manages its operations.

 

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Manufacturing

 

Initially, our goal was to vertically integrate our replacement window sales, installation and manufacturing functions. In 2000, we decided to close two of our three acquired manufacturers because of operating losses.  We decided to rely more heavily on unrelated third-party manufacturing with a significant reduction in our own manufacturing. Consequently, we offer three lines of custom-made replacement vinyl windows.  Our Thermal Line Windows plant in North Dakota manufactures one line, and the other two lines are manufactured by unaffiliated third parties: Winchester Industries, Inc., located in Saltsburg, Pennsylvania, and Great Lakes Window, Inc., located in Toledo, Ohio.

 

Low-Tech Manufacturing Process. The process of manufacturing custom replacement windows consists of measuring, cutting and assembling glass and extruded vinyl “lineal” components to create windows that match customer specifications. For those windows that we continue to manufacture in our own facility, we have invested in sophisticated machinery to create an assembly line environment designed to further automate the production process. A summary of the assembly of a vinyl replacement window is as follows:

 

•                  we receive orders from customers and enter the desired dimensions of the windows into a computer;

 

•                  through the use of a proprietary computer program, we map the dimensions of multiple windows onto a large sheet of glass in the configuration that will maximize the number of windows to be cut from each sheet, thereby minimizing waste;

 

•                  once the glass is cut, we wash it and coat the edges with an insulating material that will separate the two or three layers of glass panes and create the desired air-tight seal around the window;

 

•                  while cutting the glass, another procedure measures and cuts vinyl “lineals” according to the specifications of the window types and dimensions required by the order;

 

•                  the cut and processed lineals then move to a welding area, where we weld the four sides together and complete any final fabricating attachments;

 

•                  we then send the completed sash to the glass insertion area, where we insert the window panes into the proper sash units; and

 

•                  all of the major components of the window arrive at the final assembly area concurrently to produce the finished product.

 

Because we assemble our windows on a made-to-order basis utilizing a just-in-time inventory system, we do not maintain a large finished goods inventory at our manufacturing plant. We typically deliver finished products to our customers. Service personnel complete the installation and servicing of the product at the customer’s home. Integration of our sales, shipping, installation and service operations enables us to provide a complete window or door installation service for customers. The average time between the execution of a customer sales contract and completion of installation is approximately 4 to 6 weeks.

 

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Suppliers. Thermal Line Windows, our manufacturing subsidiary, purchases its extrusions from our joint venture extrusion operation.  Extrusions constitute the largest portion of our raw materials costs, accounting for approximately 30%-40% of our window.  We primarily purchase glass from Cardinal Glass.  Glass constitutes approximately 10%-15% of our window content.

 

With the increased emphasis on unrelated third-party manufacturing, our reliance upon other suppliers may lessen depending upon the suppliers of the unrelated third-party manufacturers. Additionally, unrelated third-party vendors have manufactured our products other than replacement windows since our inception. We have relied on one or two third party vendors for the manufacture of each of our products to provide us with manufacturing consistency and volume discounts.

 

Manufacturing Businesses. ThermoView’s sole manufacturing subsidiary is Thermal Line Windows, Inc.

 

Thermal Line Windows, Inc., formerly Thermal Line Windows, L.L.P., founded in 1996 and headquartered in Mandan, North Dakota, manufactures Compozit replacement and new construction windows and doors for residential and commercial use for sale in Colorado, Idaho, Iowa, Kansas, Minnesota, Montana, Nebraska, North Dakota, South Dakota, Wisconsin and Wyoming. Thermal Line Windows, Inc. had 52 employees as of December 31, 2002.  Dennis Buchholz, an employee of the business for 12 years, manages its operations.  Approximately 12% of Thermal Line’s sales are to Leingang with the balance being to external customers.

 

Sales And Marketing

 

Each one of our subsidiaries has its own sales staff.  We pay members of our sales staff on a commission basis and on the profitability of the subsidiary for which they work.

 

We have a centralized advertising group for major media efforts such as direct mail, but each subsidiary also maintains its own advertising and promotions staff for activities best handled locally.  An advertising committee comprised of subsidiary managers is headed by Rod Thomas.  Its purpose is to oversee and implement company-wide marketing programs and to explore, develop, and test new methods of advertising and marketing.

 

Our marketing approach varies from subsidiary to subsidiary and also varies based upon the geographic market area.

 

Advertising.  We generally give each subsidiary discretion to choose the most effective form of advertising for its geographic market.  Each subsidiary can advertise locally or take advantage of our national advertising program, with the objective of achieving the most effective use of each subsidiary’s advertising budget.

 

We utilize a number of methods to create opportunities for direct contact with potential customers, including renting space at local fairs and manning kiosks in shopping malls.  Other advertising and promotion media used to acquire bona-fide sales leads include direct mail, television spots, newspaper inserts, ads in home lifestyle magazines, internet-based advertising, neighborhood canvassing and telemarketing.

 

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While the form of media may vary, each advertising message carries an attractive offer to homeowners who may be considering a home improvement.  The offer can include an opportunity to enter our Home Improvement Sweepstakes, discounts on selected home improvement projects if purchased during a specific time frame, customer financing and seasonal savings.

 

Telemarketing.  A majority of our retail subsidiaries solicit customers through an internally-managed telemarketing system.  Through the use of  predictive dialing systems (an automated system that calls multiple phone numbers and directs those calls to operators), we have increased efficiency while reducing the costs associated with telemarketing.  Special care is taken to politely provide helpful information about our products and services to homeowners when telemarketing.

 

In-Home Demonstration.  When a sales representative receives an expression of interest from a potential customer, he or she will then arrange for an in-home demonstration at the customer’s residence.  We have developed a ten-step procedure for in-home sales presentations, which features a free, no-obligation design and estimate of the work being considered by the homeowner.  Furthermore, our sales staff is taught, that they have limited discretion to negotiate on price.  We pay our sales staff solely on a commission basis to provide for maximum incentives.

 

Customer Payment

 

As of December 31, 2002 for approximately 40% of our sales, customers pay in cash upon completion of installation of our products. For the remaining 60% of sales, customers pay for the products under installment or conditional sales contracts. In these sales, a customer contracts to pay the retail sales price, plus a finance charge, in equal installments over a predetermined period of time. A security interest or chattel mortgage collateralizes the purchased goods. We currently assign all of these contracts to unaffiliated local and national financial institutions, in return for the cash sales price of the products involved, upon execution of a certificate of completion by a customer after completion of installation.

 

Competition

 

Vinyl Replacement Windows And Doors. The vinyl replacement window and door industry is highly competitive. The industry is significantly fragmented at both the manufacturing level and at the retail level. Most of our retail competitors are smaller than us and to an extent consist of local lumber and home improvement dealers. We also compete with larger home improvement chain store operations such as Home Depot, Lowes and Scotty’s. These stores, which usually sell windows with limited warranties and without in-house installation services, have significantly greater financial and operating resources and greater name recognition than we have. Additional competitors include Champion Windows, Pacesetters and the Sears Group.

 

Brands in the window industry with the highest name recognition include Andersen Corporation, Pella Corporation and Marvin Windows. These companies primarily compete in the new construction segment of the window market. While these companies also produce replacement windows, they currently sell a relatively small percentage of their products for replacement applications. Furthermore, these companies generally emphasize wood windows rather than vinyl and market their products primarily to higher-end homeowners.

 

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Home Textured Coatings. The competitors for our textured coating products include small remodelers and painting contractors who use the textured coating product or other painting products. We are not aware of a significantly large company that competes with us directly in the installation of textured coating.

 

Vinyl Siding. We compete in the sale and installation of our vinyl siding with PaceSetters, Champion Windows and the Sears Group.

 

Cabinet Refacings And Kitchen And Bathroom Remodeling. Our principal competitors include PaceSetters and the Sears Group. In addition, smaller remodelers and contractors in each of the regions in which we engage in the cabinet refacing and kitchen and bathroom remodeling businesses compete with us.

 

Patio Decks And Patio Enclosures. Our competition in the installation of patio decks and patio enclosures includes PaceSetters and a number of smaller remodelers and contractors in each of the regions in which we install patio decks and patio enclosures.

 

Government Regulations

 

Our business is subject to various federal, state and local laws, regulations and ordinances relating to, among other things, in-home sales, telemarketing, consumer financing, retail installment sales, advertising, the licensing of home improvement independent contractors, OSHA standards, building and zoning, consumer protection and environmental protection and regulations relating to the disposal of other solid wastes. Some jurisdictions require us to secure a license as a contractor. In addition, some jurisdictions require us to obtain a building permit for each installation. We are also subject to federal, state and local laws and regulations, which, among other things, regulate our advertising, warranties and disclosures to customers. Although we believe that we are currently in compliance in all material respects with these laws and regulations, existing or new laws or regulations applicable to our business in the future may materially adversely affect our results of operations.

 

Intellectual Property

 

We do not have any material patents related to our products. Two of our subsidiaries have sales and installation processes that they consider trade secrets. These subsidiaries protect these trade secrets by requiring their employees to enter into confidentiality agreements. We have filed for a trademark with the U.S. Patent and Trademark Office under the name “ThermoView.”

 

Employees

 

As of December 31, 2002 we had 833 full-time employees. With the exception of some employees of Thermal Line Windows, none of our employees are subject to a collective bargaining agreement. The employees at Thermal Line are members of the United Steel Workers of America, and are working under a three-year contract expiring February 1, 2004.  We have never experienced a work stoppage, and we consider our relations with our employees to be satisfactory.

 

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Our employees typically receive an hourly wage or salary and are generally eligible for bonuses, except for our sales staff who we pay on a commission basis. Our compensation system is directly related to profitability and accordingly compensation expense increases and decreases as sales and profits fluctuate. We emphasize incentive compensation, including cash bonus arrangements and various other incentive programs which offer our personnel an opportunity for additional earnings and benefits.

 

FORWARD-LOOKING STATEMENTS

 

Some of the statements under “Business,” “Legal Proceedings,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and elsewhere in this Form 10-K constitute forward-looking statements. These statements involve risks and uncertainties about ThermoView and its business, including, among other things:

 

•                  the successful implementation of our business plan and growth including access to adequate capital;

 

•                  our ability to successfully integrate our past acquisitions; and

 

•                  anticipated economic and demographic trends affecting the replacement window industry generally, and our business in particular.

 

Specific factors which could cause our actual results to differ materially from those expressed or implied by forward-looking statements include those risk factors listed below.

 

In some cases, you can identify forward-looking statements by words such as “may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of such terms or other comparable language.

 

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.

 

Risk Factors

 

You should carefully consider the following risk factors in addition to the other information and financial data contained elsewhere in this Form 10-K.

 

Risks Related To The Market For Our Common Stock

 

We may not pay cash dividends on the common stock in the foreseeable future

 

Our debt documents preclude us from paying dividends on our common stock. Additionally, the terms of our Series D and Series E preferred stock prevent us from paying dividends on our common stock as long as the Series D and Series E preferred stock is outstanding. We anticipate using future earnings for our operations. Accordingly, it is unlikely that we will pay dividends on the common stock in the foreseeable future.

 

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Future dilution may occur from exercise of options and warrants

 

Future dilution may occur from option and warrant exercises.  Currently, we have options and warrants to purchase in the aggregate 4,792,664 shares of our common stock.  Some of these options and warrants contain an exercise price below the current market price for the common stock.  Additionally, many of these options and warrants contain registration rights.

 

Risks Related To Our Operations

 

We have a history of operating losses

 

We have incurred a net loss attributable to common stockholders before gain on forgiveness of debt for each year we have had consolidated operations.  If we cannot increase our revenues and control our costs, we may not achieve profitability. If we do achieve profitability, we may be unable to sustain or increase profitability on a quarterly or annual basis in the future due to decreased demand for our products, increases in expenses or unprofitable acquisitions. Our continuing losses and failure to become profitable could result in the bankruptcy of ThermoView and the complete loss in the value of our common stock.

 

Cash and non-cash dividends and interest related to financings will increase our losses or reduce potential net income

 

We will suffer losses or reductions in future potential net income as a result of the 12% dividends on our Series D and Series E preferred stock and the 10% to 12% stated interest on our debt. Also, fees and expenses and the amortization and accretion of the discounts on the debt related to detachable stock warrants issued in connection with the debt will contribute to our losses or lower potential future income.

 

Fluctuations in our quarterly operating results may cause a drop in our stock price

 

Our operating results are unpredictable and may fluctuate on a quarterly basis due to the markets for our products or our operating problems. These fluctuations may cause a decrease in the price of our common stock. You should not rely on our results of operations during any quarter as an indication of our results for a full year or any other quarter.

 

Our debt documents impose restrictions on us and limit our operations

 

Our debt requires us to comply with affirmative and negative covenants. We must maintain various financial ratios and our lenders may restrict us from incurring other debt. We cannot pay dividends on our common stock while our debt is outstanding. We are also subject to other restrictions, including restrictions pertaining to additional borrowings, significant corporate transactions and management changes. In the past, and most recently in March 2003, we have had our lenders waive our non-compliance with covenants and, in some instances, adjust the covenants to avoid future non-compliance. We may require lender waivers in the future.  However, we cannot assure that lenders will grant any future waiver requests.

 

In January 2001, we defaulted under our term loan with PNC Bank.  GE Capital Equity Investments, Inc. (GE Equity) and an investor group consisting

 

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principally of ThermoView directors and officers waived payment and other defaults upon purchase of the term loan from PNC Bank.  Consequently, GE Equity and the investor group under the restructured term loan could, among other items, accelerate all amounts owed to them and increase the interest rate on the borrowings, if we default under our debt documents. In the event of acceleration of our debt, ThermoView would be unable to pay the amounts due which could result in the bankruptcy of ThermoView as an enterprise. Under 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 our lenders.

 

Our inability to refinance a portion of our debt could increase our expenses

 

The majority of our long term debt is due on March 31, 2004. If we are unable to restructure the due date of this debt prior to May 15, 2003, the debt would be considered as a current obligation for financial reporting purposes. We would not have the ability to satisfy the outstanding indebtedness by March 31, 2004 and, as a result, our independent accountants could issue a qualified opinion regarding our financial condition. The issuance of a qualified opinion from our independent accountants could significantly increase the expense of registering our common stock for public trading. We have obligations to register certain shares of common stock associated with previously issued options and warrants upon demand of the holder.

 

Our operations and future direction will suffer from the loss of our key executive

 

If we were to lose the service of Charles L. Smith without an adequate replacement, we will suffer from a lack of leadership in our future financial planning and operations management. The departure or death of Mr. Smith, in spite of our key person life insurance on his life, will not replace the lost leadership he provides. This management gap would cause potential revenue reduction and operating cost increases.

 

Anti-takeover provisions affecting us could prevent or delay a change of control, discourage takeover bids and cause the market price of our common stock to fall

 

Provisions of our restated certificate of incorporation and bylaws and provisions of applicable Delaware law may discourage, delay or prevent a merger or other change of control that a stockholder may consider favorable. Our Board of Directors has the authority to issue up to 5,000,000 shares of our preferred stock and to determine the price and the terms, including preferences and voting rights, of those shares without stockholder approval. To date, we have issued and outstanding 956,900 shares of Series D preferred stock and 336,600 shares of Series E preferred stock. Additionally, we have a classified Board of Directors whereby directors serve staggered three-year terms. Our Certificate of Incorporation requires a supermajority vote of the common stockholders to remove or modify this staggered board. Furthermore, we require advance notice for stockholder proposals and director nominations. These items could:

 

•                  have the effect of delaying, deferring or preventing a change of control of ThermoView;

 

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•                  discourage bids for our common stock at a premium over the market price; or

 

•                  cause the market price of our common stock to fall.

 

We are subject to Delaware laws that could delay, deter or prevent a change of control of ThermoView. One of these laws prohibits us from engaging in a business combination with any interested stockholder for a period of three years from the date the person became an interested stockholder, unless conditions are met.

 

Risks Related To The Replacement Window Industry

 

With the greater name recognition and resources of some of our competitors, we may lose potential revenue

 

A limited number of our competitors have longer operating histories, greater name recognition, larger customer bases and greater financial, technical and marketing resources than we do. These resources may allow them to respond more quickly than we can to new or emerging technologies and changes in customer requirements. It may also allow them to devote greater resources than we can to the development, promotion and sale of their products. Our competitors may also engage in more extensive research and development, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies. Increased competition in addition to our present lack of capital could cause a decrease in our potential revenue and potential income, and the deterioration in our financial position and the value of our common stock.

 

The market for our products is highly competitive and it is very fragmented at the manufacturing and retail levels. We expect competition to continue to increase because our markets pose no substantial barriers to entry. To the extent one of our competitors undertakes a consolidation program, our competition would increase further.

 

We may suffer lost potential revenue from our inability to satisfy current and future governmental regulations

 

Government regulations related to in-home sales, telemarketing and consumer financing may prevent us from engaging in business in some jurisdictions. Consequently, we will lose potential customers and revenue from these areas.

 

Risks Related To Litigation

 

Pending litigation against ThermoView is fully described under Part III of this Form 10-K.  Although we intend to vigorously defend the Clemmens suit, an adverse outcome in this action could have a material adverse effect on our cash flow.

 

We are subject to other legal proceedings and claims which have arisen in the ordinary course of our 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 our management, based upon the information available at this time, that the expected outcome of these matters,

 

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individually or in the aggregate, will not have a material adverse effect on our financial position, results of operations, or cash flows.

 

Item 2.  Properties

 

The following lists our property locations having in excess of 6,000 square feet. We lease all of our facilities. In many cases, we lease the property, at market rates, from the former owners of the subsidiaries which operate on the property.

 

ThermoView or Subsidiary as Lessee		Property Address		Property Description and Use		Lease Expiration Date (Exclusive of Renewal Options)
Retail Subsidiaries:
Leingang Siding and Window, Inc.*		2601 Twin City Drive Mandan, ND  58554		16,000 sq. ft. Office/Warehouse		December 2006
Primax Window Co.