- --------------------------------------------------------------------------------
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 September 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of October 31, 2002, 8,628,716 shares of the Registrant's common stock,
$.001 par value, were issued and outstanding.
- --------------------------------------------------------------------------------
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............................................12
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......18
Item 4. Controls and Procedures..........................................18
Part II Other Information
Item 1. Legal Proceedings................................................19
Item 2. Changes in Securities and Use of Proceeds........................20
Item 3. Defaults Upon Senior Securities..................................20
Item 4. Submission of Matters to a Vote of Security Holders..............20
Item 5. Other Information................................................20
Item 6. Exhibits and Reports on Form 8-K.................................20
- -----
Item 1. Financial Statements
ThermoView Industries, Inc.
Condensed Consolidated Balance Sheets
December 31, September 30,
2001 2002 (Unaudited)
------------- ----------------
Assets
Current assets:
Cash and equivalents ........................ $ 2,387,583 $ 2,253,996
Receivables:
Trade ..................................... 3,618,474 4,506,783
Other ..................................... 275,400 174,638
Costs in excess of billings on
uncompleted contracts ..................... 973,628 651,453
Inventories ................................. 1,749,917 2,050,512
Prepaid expenses and other current assets ... 907,881 632,347
------------ -------------
Total current assets ........................... 9,912,883 10,269,729
Property and equipment, net .................... 2,665,382 2,649,100
Other assets:
Goodwill, net ............................... 58,358,742 28,358,742
Other assets ................................ 263,138 272,525
------------ -------------
58,621,880 28,631,267
------------ -------------
Total assets ................................... $ 71,200,145 $ 41,550,096
============ =============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable ............................ $ 3,928,781 $ 4,303,012
Accrued expenses ............................ 2,617,533 3,135,949
Billings in excess of costs on...............
uncompleted contracts...................... 1,064,153 899,946
Income taxes payable ........................ 52,450 52,450
Current portion of long-term debt ........... 285,411 241,684
------------ -------------
Total current liabilities ...................... 7,948,328 8,633,041
Long-term debt ................................. 17,631,967 17,184,079
Other long-term liabilities .................... 368,918 145,955
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
$5,384,998 at September 30, 2002); 1,500,000
shares authorized; 956,900 shares issued and
outstanding at December 31, 2001 and
September 30, 2002.......................... 4,929,216 5,384,998
Series E, $.001 par value (aggregate redemption
amount and liquidation preference of
$2,013,677 at December 31, 2001 and
$2,192,508 at September 30, 2002); 500,000
shares authorized; 336,600 shares issued and
outstanding at December 31, 2001 and
September 30, 2002.......................... 2,013,677 2,192,508
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
8,628,716 shares issued and outstanding at
September 30, 2002.......................... 7,861 8,628
Paid-in capital ............................. 64,679,509 64,046,004
Accumulated deficit ......................... (26,379,331) (56,045,117)
------------ -------------
Total stockholders' equity ..................... 38,308,039 8,009,515
------------ -------------
Total liabilities and stockholders' equity ..... $ 71,200,145 $ 41,550,096
============ =============
See accompanying notes.
1
ThermoView Industries, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
For the For the
three months ended nine months ended
September 30, September 30,
------------------------- ------------------------
2001 2002 2001 2002
---- ---- ---- ----
Revenues ................... $22,639,563 $22,117,216 $68,194,587 $66,597,024
Cost of revenues earned .... 11,385,551 11,349,514 33,692,913 33,330,767
----------- ----------- ----------- ------------
Gross profit ............... 11,254,012 10,767,702 34,501,674 33,266,257
Selling, general and
administrative expenses .. 9,961,395 9,666,491 31,383,561 30,293,389
Depreciation expense ....... 292,175 241,886 853,485 769,015
Amortization expense ....... 703,862 2,311 2,101,285 70,848
----------- ----------- ----------- ------------
Income from operations ..... 296,580 857,014 163,343 2,133,005
Equity in earnings of joint
venture .................. -- 16,284 -- 48,564
Interest expense ........... (618,549) (680,424) (2,305,079) (2,000,870)
Interest income ............ 16,255 22,436 46,094 51,174
----------- ----------- ----------- ------------
Income (loss) before income
taxes .................... (305,714) 215,310 (2,095,642) 231,873
Income tax expense (benefit) 2,000 (95,175) 73,600 (102,341)
----------- ----------- ----------- ------------
Income (loss) before extra-
ordinary item and cumula-
tive effect of an
accounting change ........ (307,714) 310,485 (2,169,242) 334,214
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) .......... (307,714) 310,485 4,980,867 (29,665,786)
Less non-cash Series D and
E preferred stock dividends (50,906) (249,759) (151,058) (634,613)
Plus benefit of Series D pre-
ferred stock redemption .. -- -- 397,350 --
----------- ----------- ----------- ------------
50,906 (249,759) 246,292 (634,613)
----------- ----------- ----------- ------------
Net income (loss) attributable
to common stockholders ... $ (358,620) $ 60,726 $ 5,227,159 $(30,300,399)
=========== =========== =========== ============
Basic income (loss) per
common share:
Income (loss) attributable
to common stockholders . $ (0.04) $ 0.01 $ (0.23) $ (0.03)
Extraordinary item ....... -- -- 0.86 --
Cumulative effect of an
accounting change ...... -- -- -- (3.33)
----------- ----------- ----------- ------------
Net income (loss)
attributable to common
stockholders ........... $ (0.04) $ 0.01 $ 0.63 $ (3.36)
=========== =========== =========== ============
Diluted income (loss) per
common share:
Income (loss) attributable
to common stockholders . $ (0.04) $ 0.01 $ (0.23) $ (0.03)
Extraordinary item ....... -- -- 0.86 --
Cumulative effect of an
accounting change ...... -- -- -- (3.33)
----------- ----------- ----------- ------------
Net income (loss)
attributable to common
stockholders ........... $ (0.04) $ 0.01 $ 0.63 $ (3.36)
=========== =========== =========== ============
See accompanying notes.
2
ThermoView Industries, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the nine months ended
September 30,
-----------------------------
2001 2002
---- ----
Operating activities
Net income (loss) .............................. $ 4,980,867 $(29,665,786)
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 ............... 2,954,770 839,863
Accretion of debt discount .................. 795,351 637,873
Other ....................................... -- (190,000)
Interest forgiven ........................... 360,000 --
Interest added to principal ................. 812,498 --
Changes in operating assets and liabilities . 96,268 213,297
------------ ------------
Net cash provided by operating activities ...... 2,849,645 1,835,247
Investing activities
Payments for purchase of property and equipment (406,940) (453,514)
Other .......................................... 167,274 (37,589)
------------ ------------
Net cash used in investing activities .......... (239,666) (491,103)
Financing activities
Increase in long-term debt ..................... 7,291,618 62,633
Payments of long-term debt ..................... (8,002,403) (1,542,239)
Redemption of Series D preferred stock ......... (100,000) --
Proceeds from issuance of warrants ............. 392,382 --
Proceeds from exercise of stock options ........ -- 1,875
Financing costs deferred or expensed ........... (222,621) --
------------ ------------
Net cash used in financing activities .......... (641,024) (1,477,731)
------------ ------------
Net increase (decrease) in cash and equivalents 1,968,955 (133,587)
Cash and equivalents at beginning of period .... 392,326 2,387,583
------------ ------------
Cash and equivalents at end of period .......... $ 2,361,281 $ 2,253,996
============ ============
See accompanying notes.
3
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 nine-month period ended
September 30, 2002, are not necessarily indicative of the results that may be
expected for the year ended December 31, 2002.
The new accounting standards issued but not effective as of September
30,2002, will not have a material effect on the financial statements.
Certain reclassifications have been made to the September 30, 2001,
financial statements to conform with September 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 nine-month periods ended September 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 three-month period ended
4
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)
3. Income (Loss) per Common Share (Continued)
September 30, 2001 and the nine-month periods ended September 30, 2001 and 2002,
common share equivalents outstanding would be anti-dilutive. Accordingly, basic
and diluted earnings per share amounts are the same.
Weighted average shares outstanding for the periods in which there were
losses attributable to common stockholders were as follows:
Weighted Average
Period Shares Outstanding
--------------------------------------------- -------------------
For the three months ended September 30, 2001 8,305,804
For the nine months ended September 30, 2001 8,297,892
For the nine months ended September 30, 2002 9,028,327
A reconciliation of basic to diluted share amounts used in computing the
per share amounts for the three months ended September 30, 2002 is as follows:
Basic - weighted average shares outstanding 9,189,048
Dilutive effect of stock options and warrants 997,163
----------
Diluted - weighted average shares outstanding
and assumed conversions 10,186,211
==========
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 nine months ended September
30, are as follows:
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2001 2002 2001 2002
---- ---- ---- ----
Income (loss) before extraordinary
item and cumulative effect of an
accounting change $(307,714) $ 310,485 $(2,169,242) $ 334,214
Preferred stock dividends, net of
benefit of redemption (50,906) (249,759) 246,292 (634,613)
--------- ---------- ------------ ----------
Income (loss) before extraordinary
item and cumulative effect of an
accounting change attributable
to common stockholders $(358,620) $ 60,726 $(1,922,950) $(300,399)
========= ========== ============ ==========
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.
5
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 31, 2002
(UNAUDITED)
4. Goodwill (Continued)
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
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 identifiable 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 identifiable 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 of the amount to be attributable to goodwill, 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. During October 2002, management determined that the Company would not
achieve previously disclosed EBITDA guidance and issued revised guidance. As a
result of the lower than expected EBITDA, management revisited their prior
goodwill evaluation, taking into account the lower anticipated cash flows, and
concluded that goodwill was not impaired.
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 Nine Months
Ended September 30, Ended September 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 $(358,620) $ 60,726 $(1,922,950) $(300,399)
Add back goodwill amortization 668,300 - 1,996,174 -
-------- -------- ----------- ----------
Adjusted income (loss) before
extraordinary item and cumula-
tive effect of an accounting
change attributable to common
stockholders $309,680 $ 60,726 $ 73,224 $(300,399)
======== ======== =========== ==========
6
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 31, 2002
(UNAUDITED)
4. Goodwill (Continued)
Three Months Nine Months
Ended September 30, Ended September 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 $ (.04) $ .01 $ (0.23) $ (.03)
Add back goodwill amortization .08 - .24 -
-------- -------- ------------ ----------
Adjusted income (loss) before
extraordinary item and cumula-
tive effect of an accounting
change attributable to common
stockholders $ .04 $ .01 $ .01 $ (.03)
======== ======== ============ ==========
Diluted income (loss) per share:
Income (loss) before extraordinary
item and cumulative effect of an
accounting change attributable to
common stockholders as reported $ (.04) $ .01 $ (.23) $ (.03)
Add back goodwill amortization .08 - .24 -
-------- -------- ------------ ----------
Adjusted income (loss) before
extraordinary item and cumula-
tive effect of an accounting
change attributable to common
stockholders $ .04 $ .01 $ .01 $ (.03)
======== ======== ============ ==========
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 September 30, 2002
after impairment write-off $ 1,470,563 $ 26,888,179 $ 28,358,742
============ ============= =============
5. Segment Information
For the three month periods ended September 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
SEPTEMBER 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 nine months ended September
30, was as follows:
For the three months Manu-
ended September 30, 2001 facturing Retail Corporate Consolidated
- ------------------------ ---------- ----------- ---------- ------------
Revenues from external customers $2,011,178 $20,597,090 $ 31,295 $22,639,563
Intersegment revenues 324,172 - - 324,172
Income (loss) from operations 267,205 740,490 (711,115) 296,580
Total assets 6,758,946 62,239,048 2,524,062 71,522,056
For the three months Manu-
ended September 30, 2002 facturing Retail Corporate Consolidated
- ------------------------ ---------- ----------- ---------- ------------
Revenues from external customers $1,900,901 $20,121,597 $ 94,718 $22,117,216
Intersegment revenues 235,027 - - 235,027
Income (loss) from operations 261,209 1,117,510 (521,705) 857,014
Total assets 4,682,090 34,855,995 2,012,011 41,550,096
For the nine months Manu-
ended September 30, 2001 facturing Retail Corporate Consolidated
- ------------------------ ---------- ----------- ---------- ------------
Revenues from external customers $5,123,143 $62,988,447 $ 82,997 $68,194,587
Intersegment revenues 743,434 - - 743,434
Income (loss) from operations 342,946 2,001,157 (2,180,760) 163,343
For the nine months Manu-
ended September 30, 2002 facturing Retail Corporate Consolidated
- ------------------------ ---------- ----------- ---------- ------------
Revenues from external customers $4,716,183 $61,603,571 $ 277,270 $66,597,024
Intersegment revenues 709,041 - - 709,041
Income (loss) from operations 450,837 3,228,912 (1,546,744) 2,133,005
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
8
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)
6. Contingencies and Commitments (Continued)
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 as the oral argument of this matter is scheduled for November 19,
2002. Although ThermoView continues to believe that the claims are without merit
and intends to vigorously defend the suit, an unfavorable final disposition of
this matter 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
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. Following the initial discovery phase, Clemmens sought a judicial
9
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)
6. Contingencies and Commitments (Continued)
determination that ThermoView's March 2001 assignment of the underlying debt
relieved him of a contractual obligation to refrain from asserting a claim of
repayment until the debt was ultimately satisfied. On September 30, 2002, the
Jefferson Circuit Court issued an order of summary judgment stating that
Clemmens could not assert a claim for repayment until the debt was ultimately
satisfied. Clemmens has filed a motion to reconsider the September 30, 2002
ruling. Our management believes that no payment should be made for loss of
guarantor collateral and we continue to assert our legal position. An
unfavorable determination of our position regarding this matter could have a
material adverse effect on our cash flow.
In August 2002, ThermoView received information from the Missouri Attorney
General regarding numerous alleged violations of the Missouri Do Not Call
statutes by one of its subsidiaries. ThermoView has investigated the alleged
violations and has provided a preliminary response in its defense to the
Missouri Attorney General. No enforcement action has been filed to date. While
the Attorney General may assert a claim, the ultimate liability cannot now be
determined. Based upon the facts available, ThermoView management believes that
the disposition of this matter will not have a material adverse effect on the
financial condition of the Company.
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.
10
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(UNAUDITED)
7. Stockholders' Equity (Continued)
In the third quarter of 2002, the Company issued 3,000 shares of its common
stock upon the exercise of stock options issued at $.625 per share.
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 September 30, 2002, the Company retired $325,000 of Series A
and B senior debt. This brings the total debt retired to date in 2002, to
$1,525,000.
11
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.
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
and to unaffiliated customers. Our manufacturing segment recognizes revenues
12
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 nine months
ended September 30, ended September 30,
-------------------- ------------------
2001 2002 2001 2002
-------- -------- -------- ---------
(In thousands)
Revenues .......................... $ 22,640 $ 22,117 $ 68,195 $ 66,597
Cost of revenues earned ........... 11,386 11,349 33,693 33,331
-------- -------- -------- ---------
Gross profit ...................... 11,254 10,768 34,502 33,266
Selling, general and administrative
expenses ........................ 9,961 9,666 31,384 30,293
Depreciation expense .............. 292 243 854 769
Amortization expense .............. 704 2 2,101 71
-------- -------- -------- ---------
Income from operations ............ 297 857 163 2,133
Equity in earnings of joint venture -- 16 -- 49
Interest expense .................. (619) (680) (2,305) (2,001)
Interest income ................... 16 22 46 51
-------- -------- -------- ---------
Income (loss) before income taxes . (306) 215 (2,096) 232
Income tax expense (benefit) ...... 2 (95) 73 (102)
-------- -------- -------- ---------
Income (loss) before extraordinary
item and cumulative effect of an
accounting change ............... (308) 310 (2,169) 334
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) ................. (308) 310 4,981 (29,666)
Less non-cash Series D and E
preferred stock dividends ...... (51) (249) (151) (634)
Plus benefit of Series D preferred
stock redemption ................ -- -- 397 --
-------- -------- -------- ---------
(51) (249) 246 (634)
-------- -------- -------- ---------
Net income (loss) attributable to
common stockholders ............. $ (359) $ 61 $ 5,227 $(30,300)
======== ======== ======== =========
13
Three Months Ended September 30, 2002 Compared to September 30, 2001
Revenues. Revenues decreased from $22.6 million in the third quarter of
2001 to $22.1 million in the third quarter of 2002. This revenue decrease is due
primarily to fluctuations in revenues of our retail subsidiaries. We expected
stronger performance in the third quarter of 2002, but a soft economy and
tighter lending restrictions on our customers by outside financial institutions
impacted our performance. Management has been diligently searching for and has
secured alternative consumer lending sources to address the tighter lending
restrictions on ThermoView's customers. Thomas Construction, our St. Louis
retail subsidiary, reported $430,000 more revenue in the third 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 $306,000 more revenue in the third quarter of 2002 compared
to the same period in 2001 due to a new Orange County branch. Leingang, our
North Dakota retail subsidiary, reported $291,000 more revenue in the third
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 $741,000 less revenue in the third 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 $606,000 less revenue in the third 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 $11.3 million in the third quarter of 2001 to $10.8
million in the third quarter of 2002. As a percentage of revenues, gross profit
decreased from 49.7% for the quarter ended September 30, 2001, to 48.7% for the
quarter ended September 30, 2002. The lower gross profit percentage in the
quarter ended September 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 $10.0 million in the quarter ended
September 30, 2001 to $9.7 million in the same quarter of 2002. Selling, general
and administrative expenses as a percentage of revenues decreased from 44.0% in
the third quarter of 2001, to 43.7% in the third quarter of 2002. The decrease
in selling, general and administrative expenses in the third 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 $292,000 in the
third quarter of 2001 to $242,000 in the third quarter of 2002, reflecting
relatively constant levels of property and equipment.
Amortization Expense. Amortization expense decreased from $704,000 in the
third quarter of 2001 to $2,000 in the third quarter of 2002. This decrease
resulted from the adoption of the new accounting standard relating to goodwill.
14
Interest Expense. Interest expense increased from $619,000 in the third
quarter of 2001 to $680,000 in the third 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.
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 third quarter of 2001 relates to state income taxes.
Income tax benefit in the third quarter of 2002 relates to some state tax
refunds.
Non-Cash Dividends. Non-cash dividends in the third quarter of 2001
represent accrued dividends on the Series E preferred stock. Non-cash dividends
in the third quarter of 2002 represent accrued dividends on the Series D and E
preferred stock.
Nine Months Ended September 30, 2002 Compared to September 30, 2001
Revenues. Revenues decreased from $68.2 million in the first nine months of
2001 to $66.6 million in the same period of 2002. This revenue decrease of $1.6
million is due primarily to fluctuations in revenues of our retail subsidiaries.
Thomas Construction, our St. Louis retail subsidiary, reported $918,000 more
revenue in the first nine months 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 $648,000 more revenue in the
first nine months of 2002 compared to the same period in 2001 due to a new
Orange County branch. Leingang, our North Dakota retail subsidiary, reported
$1.3 million more revenue in the first nine months 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 $2.6 million less
revenue in the first nine months 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 $1.3 million less
revenue in the first nine months 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 $34.5 million in the first nine
months of 2001 to $33.3 million in the first nine months of 2002. As a
percentage of revenues, gross profit decreased from 50.6% in the first nine
months of 2001 to 50.0% in the first nine months of 2002. The lower gross profit
percentage in the first nine months 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 $31.4 million in the first nine months of
2001 to $30.3 million in the first nine months of 2002. Selling, general and
administrative expenses as a percentage of revenues decreased from 46.0% in the
first nine months of 2001, to 45.5% in the first nine months of 2002. The
decrease in selling, general and administrative expenses in the first nine
15
months 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 $854,000 in the
first nine months of 2001 to $769,000 in the first nine months of 2002,
reflecting relatively constant levels of property and equipment.
Amortization Expense. Amortization expense decreased from $2.1 million in
the first nine months of 2001 to $71,000 in the first nine months of 2002. This
decrease results from the adoption of the new accounting standard relating to
goodwill.
Interest Expense. Interest expense decreased from $2.3 million in the first
nine months of 2001 to $2.0 million in the first nine months 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 nine months of 2001 relates to state income taxes.
Income tax benefit in the first nine months of 2002 relates to some state tax
refunds.
Extraordinary Item. The extraordinary item in the first nine months 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 nine months of 2001
represent accrued dividends on the Series E preferred stock. Non-cash dividends
in the first nine months 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 nine months of 2001.
Liquidity And Capital Resources
As of September 30, 2002, we had cash and equivalents of $2.3 million,
working capital of $1.6 million, $17.2 million of long-term debt, net of current
maturities, and $7.6 million of mandatorily redeemable preferred stock. Our
operating activities for the nine months ended September 30, 2001, provided $2.8
million of cash. Our operating activities for the nine months ended September
30, 2002, provided $1.8 million of cash.
16
The use of $240,000 of cash for investing activities for the nine months
ended September 30, 2001, related to the acquisition of $407,000 of property and
equipment offset by collection of finance receivables. The use of $491,000 of
cash for investing activities for the nine months ended September 30, 2002
related primarily to the acquisition of property and equipment.
Financing activities for the nine months ended September 30, 2001, used
$641,000 of cash. The financing activities primarily relate to the debt
restructuring that occurred in March 2001. We used $1.5 million in cash for
financing activities in the nine months ended September 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 September 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.
o expanding our retail segment
o offering new technologically improved products to our customers
o integrating more thoroughly the advertising and marketing programs of
our regional subsidiaries into a national home-remodeling business
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. In
October 2002, we opened a new retail sales office in Phoenix, Arizona, and are
working to open two new retail offices in Nebraska or Iowa and in a southern
state in 2003. Also, we have and are investing in the development of Alter-Lite
light-control windows and a new line of climate resistant, highly durable
17
Compozit(TM) windows. In addition, we intend to more thoroughly integrate the
advertising and marketing programs our regional subsidiaries into a national
home-remodeling business over the next two years. These various initiatives we
expect will require cash from $300,000 to $400,000 in the next twelve months.
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 through September 30, 2002, and retired another $325,000 subsequent to
September 30, 2002. We do not intend to make any further substantial debt
retirements in 2002.
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.
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, Clemmens, or Missouri Attorney General 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.
Item 4. Controls And Procedures
ThermoView management, including the Chief Executive Officer and Chief
Financial Officer, within 90 days of the filing of this Form 10-Q, have
conducted an evaluation of the effectiveness of disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14c. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer have concluded that the
disclosure controls and procedures are effective in ensuring that all material
information required to be filed in this quarterly report has been made known to
them in a timely fashion. There have been no significant changes in internal
controls, or in factors that could significantly affect internal controls,
subsequent to the date the Chief Executive Officer and Chief Financial Officer
completed their evaluation.
18
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 as the oral argument of this matter is scheduled for November 19,
2002. Although ThermoView continues to believe that the claims are without merit
and intends to vigorously defend the suit, an unfavorable final disposition of
this matter 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
ThermoView, 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. 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
19
Messrs. Bowlds and Hoffmann for any claims that they may hold against us
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. Following the initial discovery phase, Clemmens sought a judicial
determination that ThermoView's March 2001 assignment of the underlying debt
relieved him of a contractual obligation to refrain from asserting a claim of
repayment until the debt was ultimately satisfied. On September 30, 2002, the
Jefferson Circuit Court issued an order of summary judgment stating that
Clemmens could not assert a claim for repayment until the debt was ultimately
satisfied. Clemmens has filed a motion to reconsider the September 30, 2002
ruling. Our management believes that no payment should be made for loss of
guarantor collateral and we continue to assert our legal position. An
unfavorable determination of our position regarding this matter could have a
material adverse effect on our cash flow.
In August 2002, ThermoView received information from the Missouri Attorney
General regarding numerous alleged violations of the Missouri Do Not Call
statutes by one of our subsidiaries. ThermoView has investigated the alleged
violations and has provided a preliminary response in its defense to the
Missouri Attorney General. No enforcement action has been filed to date. While
the Attorney General may assert a claim, the ultimate liability cannot now be
determined. Based upon the facts available, ThermoView management believes that
the disposition of this matter will not have a material adverse effect on our
financial condition.
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
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
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: November 14, 2002 By: /s/ Charles L. Smith
-----------------------------------------
Charles L. Smith,
Chief Executive Officer
(principal executive officer)
Date: November 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 November, 2002, that the Form 10-Q for the
Quarter ended September 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
CERTIFICATION
I, Charles L. Smith, certify that:
1) I have reviewed this quarterly report on Form 10-Q of ThermoView
Industries, Inc.;
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Signature and Title: /s/ Charles L. Smith Date: November 14, 2002
--------------------------------- ------------------
Chief Executive Officer
22
CERTIFICATION
I, James J. TerBeest, certify that:
1) I have reviewed this annual report on Form 10-K of ThermoView Industries,
Inc.;
2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Signature and Title: /s/ James J. TerBeest Date: November 14, 2002
------------------------ -----------------
Chief Financial Officer
23
INDEX TO EXHIBITS
Exhibit Description of Exhibits
Number
24