- --------------------------------------------------------------------------------
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, 2003
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 by Rule 12b.2 of the Exchange Act). Yes [ ] No [X]
As of October 31, 2003, 8,628,716 shares of the Registrant's common stock,
$.001 par value, were issued and outstanding.
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THERMOVIEW INDUSTRIES, INC.
TABLE OF CONTENTS
Part I Financial Information
Item 1. Financial Statements..............................................1
Condensed Consolidated Balance Sheets.................................1
Condensed Consolidated Statements of Operations.......................2
Condensed Consolidated Statements of Cash Flows.......................3
Notes to Condensed Consolidated Financial Statements..................4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................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, Sept. 30, 2003
2002 (Unaudited)
------------- --------------
Assets
Current assets:
Cash and equivalents $ 2,179,887 $ 455,289
Restricted cash - 150,000
Receivables:
Trade 3,340,577 4,138,121
Other 346,272 363,915
Costs in excess of billings on
uncompleted contracts 589,458 587,411
Inventories 2,104,966 1,925,383
Prepaid expenses and other current assets 485,316 798,757
------------- --------------
Total current assets 9,046,476 8,418,876
Property and equipment, net 2,679,852 2,719,989
Other assets:
Goodwill, net 28,358,742 28,358,742
Other assets 408,094 463,903
------------- --------------
28,766,836 28,822,645
------------- --------------
Total assets $ 40,493,164 $ 39,961,510
============= ==============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 3,698,212 $ 3,933,500
Accrued expenses 2,663,889 2,917,155
Billings in excess of costs on
uncompleted contracts 654,338 643,384
Income taxes payable 93,950 65,602
Current portion of long-term debt 324,368 222,814
------------- --------------
Total current liabilities 7,434,757 7,782,455
Long-term debt 17,012,156 16,510,601
Preferred shares subject to mandatory redemption - 7,463,591
Other long-term liabilities 135,494 380,521
------------- --------------
Total liabilities $ 24,582,407 $ 32,137,168
Mandatorily redeemable preferred stock:
Series C, $.001 par value, 25,000 shares
authorized; none issued - -
Series D, $.001 par value, 1,500,000
shares authorized; 956,900 shares issued
and outstanding at December 31, 2002 5,547,875 -
Series E, $.001 par value, 500,000 shares
authorized; 336,600 shares issued and
outstanding at December 31, 2002 2,275,932 -
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; 8,628,716 shares issued
and outstanding at December 31, 2002 and at
September 30, 2003 8,628 8,628
Paid-in capital 63,799,703 64,531,209
Accumulated deficit (55,721,381) (56,715,495)
------------- --------------
Total stockholders' equity 8,086,950 7,824,342
------------- --------------
Total liabilities and stockholders' equity $ 40,493,164 $ 39,961,510
============ ==============
See accompanying notes.
1
ThermoView Industries, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
For the three months For the nine months
ended September 30, ended September 30,
---------------------- -------------------------
2002 2003 2002 2003
---- ---- ---- ----
Revenues $22,117,216 $19,307,308 $ 66,597,024 $53,613,176
Cost of revenues earned 11,349,514 9,723,653 33,330,767 27,423,951
----------- ----------- ----------- ------------
Gross profit 10,767,702 9,583,655 33,266,257 26,189,225
Selling, general and
administrative expenses 9,666,491 8,298,750 30,293,389 25,182,605
Unusual credit-gain on
conversion of debt to
warrants - - - (796,000)
Depreciation expense 241,886 192,186 769,015 605,929
Amortization expense 2,311 12,982 70,848 23,111
----------- ----------- ----------- ------------
Income from operations 857,014 1,079,737 2,133,005 1,173,580
Equity in earnings (loss) of
joint venture 16,284 4,535 48,564 (41,689)
Interest expense (680,424) (594,156) (2,000,870) (1,932,652)
Interest expense on mandatorily
redeemable preferred - (167,290) - (167,290)
Interest income 22,436 4,247 51,174 20,976
----------- ----------- ----------- ------------
Income (loss) before income
taxes 215,310 327,073 231,873 (947,075)
Income tax expense (benefit) (95,175) 34,809 (102,341) 47,038
----------- ----------- ----------- ------------
Income (loss) before cumulative
effect of an accounting change 310,485 292,264 334,214 (994,113)
Cumulative effect of an
accounting change--charge
for impairment of goodwill - - (30,000,000) -
----------- ----------- ----------- ------------
Net income (loss) 310,485 292,264 (29,665,786) (994,113)
Less non-cash Series D and E
preferred stock dividends (249,759) - (634,613) (472,494)
Plus benefit of redemption of
Series D stock - - - 796,000
----------- ----------- ----------- ------------
Net income (loss) attributable
to common stockholders $ 60,726 $ 292,264 $(30,300,399) $ (670,607)
=========== =========== =========== ============
Basic income (loss) per common share:
Income (loss) attributable
to common stockholders $ 0.01 $ 0.03 $ (0.03) $ (0.07)
Cumulative effect of an
accounting change - - (3.33) -
----------- ----------- ----------- ------------
Net income (loss) attributable
to common stockholders $ 0.01 $ 0.03 $ (3.36) $ (0.07)
=========== =========== =========== ============
Diluted income (loss) per common share:
Income (loss) attributable
to common stockholders $ 0.01 $ 0.03 $ (0.03) $ (0.07)
Cumulative effect of an
accounting change - - $ (3.33) -
----------- ----------- ----------- ------------
Net income (loss)
attributable to common
stockholders $ 0.01 $ 0.03 $ (3.36) $ (0.07)
=========== =========== =========== ============
See accompanying notes.
2
ThermoView Industries, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the nine months ended
September 30,
-----------------------------
2002 2003
---- ----
Operating activities
Net loss $ (29,665,786) $ (994,113)
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Cumulative effect of an accounting
change-charge related to
impairment of goodwill 30,000,000 -
Depreciation and amortization 839,863 629,040
Accretion of debt discount 637,873 564,480
Unusual credit - (796,000)
Equity in (income) loss of joint venture (48,564) 41,689
Other (190,000) 200,000
Changes in operating assets and liabilities 261,861 (280,080)
-------------- -------------
Net cash provided by (used in) operating activities 1,835,247 (634,984)
Investing activities
Payments for purchase of property and equipment (453,514) (465,429)
Other (37,589) (106,480)
-------------- -------------
Net cash used in investing activities (491,103) (571,909)
Financing activities
Increase in long-term debt 62,633 -
Increase in restricted cash - (150,000)
Payments of long-term debt (1,542,239) (367,705)
Proceeds from exercise of stock options 1,875 -
-------------- -------------
Net cash used in financing activities (1,477,731) (517,705)
-------------- -------------
Net decrease in cash and equivalents (133,587) (1,724,598)
Cash and equivalents at beginning of period 2,387,583 2,179,887
-------------- -------------
Cash and equivalents at end of period $ 2,253,996 $ 455,289
============== =============
See accompanying notes.
3
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(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, 2003, are not necessarily indicative of the results that may be
expected for the year ended December 31, 2003.
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, 2002.
2. Operating Results, Cash Flow and Goodwill
The Company reported losses and negative cash flow in the first two
quarters of 2003, and had a concern at the end of the second quarter that
operations needed to improve in the third quarter to avoid covenant violations,
cash flow problems and possibly the impairment of goodwill.
The Company reported a profit in the third quarter as well as positive cash
flow in the third quarter. As pertains to this quarter, the Company satisfied
all debt covenants, and the annual goodwill valuation at September 30, 2003
indicated that goodwill is not impaired.
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, 2002 and 2003,
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 after preferred stock dividends and before cumulative effect of
an accounting change for the nine-month periods ended September 30, 2002 and
2003, common share equivalents outstanding would be anti-dilutive. Accordingly,
basic and diluted earnings per share amounts are the same.
4
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
3. Income (Loss) per Common Share (Continued)
Weighted average shares outstanding for the periods in which there were
losses attributable to common stockholders were as follows:
Weighted Average
Period Shares Outstanding
-------------------------------------------- ------------------
For the nine months ended September 30, 2002 9,028,327
For the nine months ended September 30, 2003 9,190,059
A reconciliation of basic to diluted share amounts used in computing the
per share amounts for the three months ended September 30, 2002 and 2003 is as
follows:
Three Months
Ended September 30,
2002 2003
---- ----
Basic - weighted average shares outstanding 9,189,048 9,190,059
Dilutive effect of stock options and warrants 997,163 1,301,912
---------- ----------
Diluted - weighted average shares outstanding
and assumed conversions 10,186,211 10,491,971
========== ==========
A reconciliation of income (loss) before 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,
2002 2003 2002 2003
Income (loss) before
cumulative effect of
an accounting change $ 310,485 $ 292,264 $ 334,214 $(994,113)
Preferred stock dividends,
net of benefit of redemption (249,759) - (634,613) 323,506
--------- --------- --------- ---------
Income (loss) before cumulative
effect of an accounting change
attributable to common
stockholders $ 60,726 $ 292,264 $(300,399) $(670,607)
========= ========= ========= =========
4. Stock Option Information
Pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company has elected to account for its employee stock options under APB No. 25,
"Accounting for Stock Issued to Employees." Had compensation cost for employee
options been determined based on the fair value at the grant date consistent
with SFAS No. 123, the Company's net income (loss) and income (loss) per share
for the three months and nine months ended September 30 would have been as
follows:
5
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
4. Stock Option Information (Continued)
Three Months Nine Months
Ended September 30, Ended September 30,
2002 2003 2002 2003
Net income (loss):
As reported $ 310,485 $ 292,264 $(29,665,786) $ (994,113)
Pro forma 218,237 271,565 (29,924,699) (1,056,377)
Net income (loss) attributable
to common stockholders:
As reported 60,726 292,264 (30,300,399) (670,607)
Pro forma (31,522) 271,565 (30,559,312) (732,871)
Basic and diluted income (loss)
per common share:
Basic, As reported $ .01 $ .03 $ (3.36) $ (.07)
Diluted, As reported .01 .03 (3.36) (.07)
Basic, Pro forma - .03 (3.33) (.08)
Diluted, Pro forma - .03 (3.33) (.08)
The fair value of each option grant to employees was estimated on the date
of grant using the Black Scholes option-pricing model with the following
weighted average assumptions:
2002 2003
---- ----
Interest rate 3.59 2.82
Dividends - -
Expected volatility 1.62 1.12
Expected life in years 5 5
5. Long-term Debt and Mandatorily Redeemable Preferred Stock
On June 30, 2003, the Company restructured its long-term debt and preferred
stock. GE Equity holds Series A debt, Series C debt and other subordinated debt.
Under the restructuring agreements, GE Equity reduced the interest rate on both
series of debt from 10% to 8% and from 12% to 8% on the subordinated debt.
Additionally, GE Equity converted $1 million of the subordinated debt to 680,000
common stock warrants at 28 cents per share. These warrants are exercisable
through March 22, 2013 and were determined to have a fair value of $204,000.
ThermoView's debt maturities were extended by two years to June 30, 2006, and to
July 31, 2006 for the subordinated debt.
ThermoView's preferred stock holders also converted $1 million worth of
Series D preferred stock to 680,000 common stock warrants at 28 cents per share.
These warrants are exercisable through June 30, 2013 and were determined to have
a fair value of $204,000. Also, the Series D and E preferred stock holders
agreed to reduce the dividend rate on the remainder of the preferred holdings
from 12% to 8%, to defer cash dividends until the Series A and B debt is
retired, and to extend the date for mandatory redemption to August 31, 2006.
The restructured debt agreements require ThermoView to pay $100,000 toward
principal each month commencing July 2004, as well as monthly interest. It also
calls for payments of excess cash toward principal two times per year. Excess
cash is defined as amounts over $1 million at the two measurement dates.
6
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
5. Long-term Debt and Mandatorily Redeemable Preferred Stock (Continued)
Under terms of the restructured debt agreements, ThermoView must achieve
certain quarterly and/or trailing twelve month EBITDA levels as well as fixed
charge coverage ratios and current asset to current liability ratios. The first
measurement date was September 30, 2003. The Company satisfied all ratios as of
the first measurement date.
The holder of $1.2 million of notes in connection with obligations related
to guarantors of a bank revolving line of credit also agreed to extend the due
date of the notes from June 2004 to September 30, 2006.
The Financial Accounting Standards Board (FASB) issued SFAS 150,
"Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equities," effective for companies for the first interim period
beginning after June 15, 2003. The new rule requires accounting for some
financial instruments as liabilities, that under previous guidance were
accounted for as equity or between liabilities and equity ("mezzanine"). The
Company has previously reported mandatorily redeemable preferred stock series D
and E in prior periods in the mezzanine section of the balance sheet. With the
Company's adoption of this standard on July 1, 2003, the mandatorily redeemable
preferred stock of $7.5 million is included as a component of liabilities,
described as "preferred shares subject to mandatory redemption," as of September
30, 2003. Prior periods are not restated when SFAS 150 is applied.
Preferred shares subject to mandatory redemption is comprised of the
following:
Series D: Par value of $.001 with an aggregate redemption amount and
liquidation preference of $5,547,875 at December 31, 2002 and $5,001,584 at
September 30, 2003. Total shares authorized - 1,500,000 shares; shares
issued and outstanding 956,900 as of December 31, 2002 and at September 30,
2003. The date of the mandatory redemption is August 31, 2006.
Series E: Par value of $.001 with an aggregation redemption amount and
liquidation preference of $2,275,932 at December 31, 2002 and $2,462,043 at
September 30, 2003. The shares authorized - 500,000; shares issued and
outstanding - 336,600 as of December 31, 2002 and September 30, 2003. The
date of the mandatory redemption is August 31, 2006.
In addition, upon adoption of SFAS 150, dividends or other distributions on
mandatorily redeemable preferred stock are reported as interest expense on
mandatorily redeemable preferred stock in the statement of operations.
6. Segment Information
For the three month periods ended September 30, 2002 and 2003, 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
7
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
6. Segment Information (Continued)
California. The business units have been aggregated into two reportable
operating segments: manufacturing and retail.
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, 2002 facturing Retail Corporate Consolidated
- ------------------------ ---------- ------ --------- ------------
Revenues from external
customers $1,900,901 $20,216,315 $ - $22,117,216
Intersegment revenues 235,027 - - 235,027
Income (loss) from operations 261,209 1,212,228 (616,423) 857,014
Total assets 4,682,090 34,855,995 2,012,011 41,550,096
For the three months Manu-
ended September 30, 2003 facturing Retail Corporate Consolidated
- ------------------------ --------- ------ --------- ------------
Revenues from external
customers $1,653,051 $17,654,257 $ - $19,307,308
Intersegment revenues 294,010 - - 294,010
Income (loss) from operations 293,606 1,406,393 (620,262) 1,079,737
Total assets 3,826,397 35,244,869 890,243 39,961,510
For the nine months Manu-
ended September 30, 2002 facturing Retail Corporate Consolidated
- ------------------------ --------- ------ --------- ------------
Revenues from external
customers $4,716,183 $61,880,841 $ - $66,597,024
Intersegment revenues 709,041 - - 709,041
Income (loss) from operations 450,837 3,506,182 (1,824,014) 2,133,005
8
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
6. Segment Information (Continued)
For the nine months Manu-
ended September 30, 2003 facturing Retail Corporate Consolidated
- ------------------------ --------- ------ --------- ------------
Revenues from external
customers $3,984,235 $49,628,941 $ - $53,613,176
Intersegment revenues 680,711 - - 680,711
Unusual credit-gain on
conversion of debt to
warrants - - 796,000 796,000
Income (loss) from
operations 289,517 2,144,716 (1,260,653) 1,173,580
7. Contingencies and Commitments
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
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 filed a motion with the court to reconsider the September
30, 2002, ruling. On February 26, 2003, the Jefferson Circuit Court reversed the
previous judgment granted to ThermoView and awarded judgment to Clemmens against
ThermoView. ThermoView sought a reconsideration of the February 26, 2003 ruling.
On May 9, 2003, the Jefferson Circuit Court upheld the previous ruling in favor
of Clemmens, and entered a final appealable judgment which allowed Clemmens to
seek collection against ThermoView for the loss of collateral in the amount of
$500,000 plus interest at the rate of 10% annually beginning January 1, 2001
($137,500 through September 30, 2003). On May 19, 2003, ThermoView appealed the
judgment issued to Clemmens to the Kentucky Court of Appeals. On June 6, 2003,
ThermoView, with the guarantee of GE Capital Equity, posted a supercedeas bond
in the amount of $690,000 with the Jefferson Circuit Court to prevent Clemmens
from enforcing the judgment awarded to him during the pendency of the appeal of
this matter. In order to secure the supercedeas bond, ThermoView entered into an
agreement with GE Capital Equity to deposit funds monthly into a sinking fund to
serve as security for the amount of the supercedeas bond. Pursuant to this
agreement, ThermoView shall make payments of $50,000 monthly for the months of
July through December, 2003 and $30,000 monthly during the months January
through June, 2004 until the balance of the sinking fund is equal to the face
amount of the bond. At September 30, 2003, $150,000 is included on the
9
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
7. Contingencies and Commitments (Continued)
accompanying balance sheet as restricted cash. In addition, under the agreement,
ThermoView must make additional payments to the sinking fund such that the
balance of the sinking fund will be no less than $600,000 by June 30, 2004. In
consideration for the agreement, ThermoView has agreed to pay GE Capital Equity
Investments a fee of 2.5% of the face amount of the bond upon issuance and has
granted GE Capital Equity a first priority lien on its assets to secure any
amounts drawn on the bond. In the event that ThermoView prevails upon the appeal
and no amounts are drawn upon the bond, the balance of the sinking fund will be
applied to the Series A and B notes of ThermoView on a pro-rata basis. A
prehearing conference of the appeal was held August 28, 2003. ThermoView's
appellant brief is presently due November 24, 2003. Maxwell has not asserted a
claim for the loss of his collateral as of the date of filing of this report.
Maxwell could assert claims for the same amount as Clemmens. Management has
evaluated the potential loss associated with Clemmens' litigation and Maxwell's
unasserted claim and believes that the Company has recorded adequate liabilities
on its balance sheet as of September 30, 2003. While ThermoView believes that
the ultimate resolution of this Clemmens' matter on appeal will be favorable to
ThermoView, an adverse final determination of our position regarding this matter
could have a material adverse effect on our cash flow.
The Company is subject to other legal proceedings and claims which have
arisen in the ordinary course of its business and have not been finally
adjudicated. Although there can be no assurance as to the ultimate disposition
of these matters, it is the opinion of the Company's management, based upon the
information available at this time, that the expected outcome of these matters,
individually or in the aggregate, will not have a material adverse effect on the
results of operations and financial condition of the Company.
In March 2000, the Company entered into a license agreement with Research
Frontiers Incorporated (Research Frontiers), a Delaware corporation with
headquarters located in Woodbury, New York, for the non-exclusive rights to
market windows which utilize variable light transmission technology developed by
Research Frontiers. The agreement provides for the payment of a royalty of 5% of
the net selling price of the licensed products as defined in the agreement to
Research Frontiers for products sold by the Company that incorporate such
technology. Additionally, the Company has agreed to pay to Research Frontiers an
annual minimum royalty of $100,000 for 2003. The royalty is payable in cash or
shares of the Company's common stock at the Company's option.
8. Recently Enacted Accounting Standards
Financial Accounting Standard Board (FASB) recently issued two new
accounting standards, Statement 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities, and Statement 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equities,
both of which generally became effective in the quarter beginning July 1, 2003.
Adoption of Statement 149 did not have a material effect on the Company's
financial position, results of operations, or cash flows. The effects of
adoption Statement 150 are described in Note 5.
10
THERMOVIEW INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
(UNAUDITED)
8. Recently Enacted Accounting Standards (Continued)
In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. (FIN) 46, "Consolidation of Variable Interest Entities"
effective in quarters beginning October 1, 2003. The objective of interpretation
is to provide guidance on how to identify a variable interest entity (VIE) and
determine when the assets, liabilities non-controlling interests, and results of
operations of a VIE need to be included in a company's consolidated financial
statements. A company that holds variable interest in an entity will need to
consolidate the entity if the company's interest in the VIE is such that the
company will absorb a majority of the VIE's expected losses and/or receive a
majority of the entity's expected residual returns, if they occur. FIN 46 also
requires additional disclosures by primary beneficiaries and other significant
variable interest holders. The Company does not believe it is a primary
beneficiary of a VIE or holds any significant interests or involvement in a VIE
and does not expect the adoption of FIN 46 will have an impact on the Company's
consolidated financial statements.
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, adverse judgments to ThermoView, 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 our audited consolidated financial statements
contained in our Annual Report on Form 10-K for the year ended December 31,
2002. 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 exterior 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
installation is substantially complete. 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
when products are shipped. Gross profit in the manufacturing segment represents
12
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,
-------------------- --------------------
2002 2003 2002 2003
-------- -------- -------- ---------
(In thousands)
Revenues .......................... $ 22,117 $ 19,307 $ 66,597 $ 53,613
Cost of revenues earned ........... 11,349 9,723 33,331 27,424
-------- -------- -------- ---------
Gross profit ...................... 10,768 9,584 33,266 26,189
Selling, general and administrative
expenses ........................ 9,666 8,299 30,293 25,182
Unusual credit - gain on conversion
of debt to warrants ............. -- -- -- (796)
Depreciation expense .............. 243 192 769 606
Amortization expense .............. 2 13 71 23
-------- -------- -------- ---------
Income from operations ............ 857 1,080 2,133 1,174
Equity in earnings (loss) of joint
venture ......................... 16 4 49 (42)
Interest expense .................. (680) (594) (2,001) (1,933)
Interest expense on mandatory
redeemable preferred ............ -- (167) -- (167)
Interest income ................... 22 4 51 21
-------- -------- -------- ---------
Income (loss) before income taxes . 215 327 232 (947)
Income tax expense (benefit) ...... (95) 35 (102) 47
-------- -------- -------- ---------
Income (loss) before cumulative
effect of an accounting change .. 310 292 334 (994)
Cumulative effect of an accounting
change--charge for impairment of
goodwill ........................ -- -- (30,000) --
-------- -------- -------- ---------
Net income (loss) ................. 310 292 (29,666) (994)
Less non-cash Series D and E
preferred stock dividends ...... (249) -- (634) (472)
Plus benefit of Series D preferred
stock redemption................. -- -- -- 796
-------- -------- -------- ---------
Net income (loss) attributable to
common stockholders ............. $ 61 $ 292 $(30,300) $ (671)
======== ======== ========= =========
13
Three Months Ended September 30, 2003 Compared to September 30, 2002
Revenues. Revenues decreased from $22.1 million for the third quarter of
2002 to $19.3 million for the third quarter of 2003. The economy and new
telemarketing laws negatively impacted revenues in the third quarter. However,
progress is reflected in the following table:
Revenues
------------------------------
2002 2003 Difference
---- ---- ----------
(In thousands)
Second quarter $23,823 $18,113 $(5,710)
Third quarter 22,117 19,307 (2,810)
Gross Profit. Gross profit, which represents revenues less cost of revenues
earned, decreased from $10.8 million in the third quarter of 2002 to $9.6
million in the third quarter of 2003. The reduction in the amount of gross
profit is consistent with the reduced revenue discussed above. As a percentage
of revenues, gross profit increased from 48.7% in the third quarter of 2002 to
49.6% in the third quarter of 2003. This gross profit improvement results
primarily from the implementation of a modest price increase.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased from $9.7 million in the third quarter of 2002
to $8.3 million in the third quarter of 2003. Selling, general and
administrative expenses as a percentage of revenue decreased from 43.7% in the
third quarter of 2002 to 43.0% in the third quarter of 2003. The decrease in
selling, general and administrative expenses as a percentage of revenues in the
third quarter of 2003 results primarily from continued cost cutting, mainly
further personnel reductions.
Depreciation Expense. Depreciation expense decreased from $242,000 in the
third quarter of 2002 to $192,000 in the third quarter of 2003, reflecting a
fairly constant amount of property and equipment.
Interest Expense. Interest expense decreased from $680,000 in 2002 to
$594,000 in 2003. This decrease in interest expense results from debt
retirements during the last half of 2002, conversion of $1,000,000 of debt to
warrants in the first half of 2003, and a reduction in interest rates in
connection with restructuring debt at June 30, 2003. The decrease was partially
offset by interest recognized in 2003 on obligations related to guarantors of a
bank revolving line of credit.
Starting July 1, 2003, dividends on mandatorily redeemable preferred stock
are reported as interest expense (see Note 5 for effect of Statement 150). For
the quarter ended September 30, 2003, interest expense on mandatorily redeemable
preferred was $167,290.
Income Tax 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 2002 or 2003. Income
tax expense in the third quarter of 2003 relates to state taxes.
Non-Cash Dividends. Non-cash dividends in the third quarter of 2002
represent accrued dividends on the Series D and E preferred stock. For the
14
quarter ended September 30, 2003, non-cash dividends are reported as interest
expense on mandatorily redeemable preferred (see Note 5 for effect of Statement
150).
Nine Months Ended September 30, 2003 Compared to September 30, 2002
Revenues. Revenues decreased from $66.6 million for the first nine months
of 2002 to $53.6 million for the first nine months of 2003. Revenues during the
first nine months of 2003 were negatively impacted by severe winter weather in
our Midwest markets in the first quarter, rain in our Southern California
market, the sluggish economy, the events in Iraq, and new telemarketing laws.
All of our retail operations and our manufacturing operation reported less
revenues in the first nine months of 2003 compared to 2002.
Gross Profit. Gross profit, which represents revenues less cost of revenues
earned, decreased from $33.3 million in the first nine months of 2002 to $26.2
million in the first nine months of 2003. The reduction in the amount of gross
profit is consistent with the reduced revenue discussed above. As a percentage
of revenues, gross profit decreased from 50.0% in the first nine months of 2002
to 48.8% in the first nine months of 2003. This decrease results primarily
because certain installation costs at our subsidiaries are fixed and these fixed
costs are more significant relative to the lower volumes in the first nine
months of 2003 compared to the first nine months of 2002.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased from $30.3 million in the first nine months of
2002 to $25.2 million in the first nine months of 2003. Selling, general and
administrative expenses as a percentage of revenue increased from 45.5% in the
first nine months of 2002 to 47.0% in the first nine months of 2003. The
increase in selling, general and administrative expenses as a percentage of
revenues in the first nine months of 2003 results primarily from the fixed
nature of certain expenses relative to the lower volumes. Despite increase in
selling, general and administrative expenses as a percent of revenue, the
Company has reduced these expenses by $5 million through purchasing programs and
focused cost cutting.
Unusual Credit. The unusual credit of $796,000 in 2003 represents a gain
from converting $1 million of debt to 680,000 common stock warrants issued at 28
cents per share.
Depreciation Expense. Depreciation expense decreased from $769,000 in the
first nine months of 2002 to $606,000 in the first nine months of 2003,
reflecting a fairly constant amount of property and equipment.
Interest Expense. Interest expense was relatively constant for the nine
month periods.
Starting July 1, 2003, dividends on mandatorily redeemable preferred stock
are reported as interest expense (see Note 5 for effect of Statement 150). For
the nine months ended September 30, 2003, interest expense on mandatorily
redeemable preferred was $167,290.
Income Tax 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
15
assets, and no deferred income taxes have been recorded in 2002 or 2003. Income
tax expense in the first nine months of 2003 relates to state taxes.
Non-Cash Dividends. Non-cash dividends in the first nine months of 2002 and
the first six months of 2003 represent accrued dividends on the Series D and E
preferred stock. For the quarter ended September 30, 2003, non-cash dividends
are reported as interest expense on mandatorily redeemable preferred (see Note 5
for effect of Statement 150).
Benefit of Series D Preferred Stock Redemption. The benefit of $796,000 in
2003 represents a gain on redemption of $1 million of Series D stock in exchange
for 680,000 common stock warrants issued at 28 cents per share.
Liquidity and Capital Resources
As of September 30, 2003, we had cash and equivalents of $455,000, a
working capital of $636,000, $16.5 million of long-term debt, net of current
maturities, and $7.5 million of preferred stock subject to mandatory redemtion.
Our operating activities for the nine months ended September 30, 2002,
provided $1.8 million of cash. Our operating activities for the nine months
ended September 30, 2003, used $635,000 of cash.
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. The use of $572,000 of cash for investing activities for the nine
months ended September 30, 2003, related primarily to the acquisition of
property and equipment.
We used $1.5 million in cash for financing activities in the nine months
ended September 30, 2002, primarily for repayment of debt. We used $518,000 of
cash for financing activities in the nine months ended September 30, 2003 for
repayment of debt and for establishing a sinking fund.
We reported losses and negative cash flow in the first two quarters of
2003, and had a concern at the end of the second quarter that operations needed
to improve in the third quarter to avoid covenant violations, cash flow problems
and possibly the impairment of goodwill.
We reported a profit in the third quarter as well as positive cash flow in
the third quarter. We satisfied all debt covenants, and the annual goodwill
valuation at September 30, 2003, indicated goodwill is not impaired.
Our cash flow could be negatively impacted by an adverse final
determination in the Nelson E. Clemmens' litigation. The adverse judgment could
result in our requirement to pay $500,000 plus 10% interest accrued from January
1, 2001 until paid. We have recorded $500,000 as long-term debt on our balance
sheet, and have accrued interest amounting to $100,000 through September 30,
2003. We have appealed the latest decision.
On June 30, 2003, we restructured our long-term debt and preferred stock.
GE Equity holds Series A debt, Series C debt and other subordinated debt. Under
the restructuring agreements, GE Equity reduced the interest rate on both series
of debt from 10% to 8% and from 12% to 8% on the subordinated debt.
Additionally, GE Equity converted $1 million of the subordinated debt to 680,000
16
common stock warrants at 28 cents per share. These warrants are exercisable
through March 22, 2013 and were determined to have a fair value of $204,000.
ThermoView's debt maturities were extended by two years to June 30, 2006, and to
July 31, 2006 for the subordinated debt.
ThermoView's preferred stock holders also converted $1 million worth of
Series D preferred stock to 680,000 common stock warrants at 28 cents per share.
These warrants are exercisable through June 30, 2013 and were determined to have
a fair value of $204,000. Also, the Series D and E preferred stock holders
agreed to reduce the dividend rate on the remainder of the preferred holdings
from 12% to 8%, to defer cash dividends until the Series A and B debt is
retired, and to extend the date for mandatory redemption to August 31, 2006.
The restructured debt agreements require ThermoView to pay $100,000 toward
principal each month commencing July 2004, as well as monthly interest. It also
calls for payments of excess cash toward principal two times per year. Excess
cash is defined as amounts over $1 million at the two measurement dates.
Under terms of the restructured debt agreements, ThermoView must achieve
certain quarterly and/or trailing twelve month EBITDA levels as well as fixed
charge coverage ratios and current asset to current liability ratios. The first
measurement date was September 30, 2003. We satisfied all ratios as of the first
measurement date.
The holder of $1.2 million of notes in connection with obligations related
to guarantors of a bank revolving line of credit also agreed to extend the due
date of the notes from June 2004 to September 30, 2006.
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 December 31, 2002 and September 30, 2003, we are not in default
under any of our debt arrangements.
While revenues continue to be lower than the previous year and economic and
regulatory issues continue to challenge us, 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; and
o integrating more thoroughly the advertising and marketing programs of
our regional subsidiaries into a national home-remodeling business.
17
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 through December 2003 because of the Clemmens litigation
described in Part II, Item 1, Legal Proceedings. Although we believe that we
will prevail upon appeal of the claim, an adverse outcome in this action could
have a material adverse effect on our cash flow.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
In June 2003, we restructured our debt and all of our debt continues to be
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
As of September 30, 2003, an evaluation was carried out under the
supervision and with the participation of ThermoView's management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934). Based on their evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that ThermoView's
disclosure controls and procedures are, to the best of their knowledge,
effective to ensure that information required to be disclosed by ThermoView in
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms. Subsequent to September 30, 2003, our Chief
Executive Officer and Chief Financial Officer have concluded that there were no
significant changes in ThermoView's internal controls or in other factors that
could significantly affect our internal controls.
18
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
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
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 filed a motion with the court to reconsider the September
30, 2002, ruling. On February 26, 2003, the Jefferson Circuit Court reversed the
previous judgment granted to ThermoView and awarded judgment to Clemmens against
ThermoView. ThermoView sought a reconsideration of the February 26, 2003 ruling.
On May 9, 2003, the Jefferson Circuit Court upheld the previous ruling in favor
of Clemmens, and entered a final appealable judgment which allowed Clemmens to
seek collection against ThermoView for the loss of collateral in the amount of
$500,000 plus interest at the rate of 10% annually beginning January 1, 2001
($137,500 through September 30, 2003). On May 19, 2003, ThermoView appealed the
judgment issued to Clemmens to the Kentucky Court of Appeals. On June 6, 2003,
ThermoView, with the guarantee of GE Capital Equity, posted a supercedeas bond
in the amount of $690,000 with the Jefferson Circuit Court to prevent Clemmens
from enforcing the judgment awarded to him during the pendency of the appeal of
this matter. In order to secure the supercedeas bond, ThermoView entered into an
agreement with GE Capital Equity to deposit funds monthly into a sinking fund to
serve as security for the amount of the supercedeas bond. Pursuant to this
agreement, ThermoView shall make payments of $50,000 monthly for the months of
July through December, 2003 and $30,000 monthly during the months January
through June, 2004 until the balance of the sinking fund is equal to the face
amount of the bond. At September 30, 2003, $150,000 is included on the
accompanying balance sheet as restricted cash. In addition, under the agreement,
ThermoView must make additional payments to the sinking fund such that the
balance of the sinking fund will be no less than $600,000 by June 30, 2004. In
consideration for the agreement, ThermoView has agreed to pay GE Capital Equity
Investments a fee of 2.5% of the face amount of the bond upon issuance and
granted GE Capital Equity a first priority lien on its assets to secure any
amounts drawn on the bond. In the event that ThermoView prevails upon the appeal
and no amounts are drawn upon the bond, the balance of the sinking fund will be
applied to the Series A and B notes of ThermoView on a pro-rata basis. A
prehearing conference to discuss the potential resolution of the issues on
appeal was held on August 28, 2003. ThermoView's appellant brief is presently
19
due November 24, 2003. Maxwell has not asserted a claim for the loss of his
collateral as of the date of filing of this report. Maxwell could assert claims
for the same amount as Clemmens. Management has evaluated the potential loss
associated with Clemmens' litigation and Maxwell's unasserted claim and believes
that ThermoView has recorded adequate liabilities on its balance sheet as of
September 30, 2003. While ThermoView believes that the ultimate resolution of
this Clemmens' matter on appeal will be favorable to ThermoView, an adverse
final determination of our position regarding this matter could have a material
adverse effect on our cash flow.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
On November 12, 2003, ThermoView issued a press release reporting financial
results for the third quarter and announcing the resignation of Ronald L.
Carmicle as a director effective November 10, 2003. The press release is filed
herewith as Exhibit 99.1.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
See Index to Exhibits.
(b) Reports on Form 8-K.
(1) On September 3, 2003, ThermoView filed a Form 8-K under Item 5. Other
Events and Regulation FD Disclosure reporting the resignation of James
J. TerBeest as Chief Financial Officer.
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 13, 2003 By: /s/ Charles L. Smith
--------------------------------------
Charles L. Smith,
Chief Executive Officer
(principal executive officer)
Date: November 13, 2003 By: /s/ Jeffrey L. Fisher
-----------------------------------------
Jeffrey L. Fisher,
Chief Financial Officer
(principal financial and accounting officer)
22
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibits
31.3 -- Rule 13a-14(a) Certification of Charles L. Smith for the Form 10-Q
for the quarter ended September 30, 2003.
31.4 -- Rule 13a-14(a) Certification of Jeffrey L. Fisher for the Form 10-Q
for the quarter ended September 30, 2003.
32.2 -- 18 U.S.C. Section 1350 Certifications of Charles L. Smith and
Jeffrey L. Fisher for the Form 10-Q for the quarter ended September
30, 2003.
99.1 -- News Release of ThermoView Industries, Inc. announcing third
quarter financial results dated November 12, 2003.
22
CERTIFICATION Exhibit 31.3
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 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
report;
3) Based on my knowledge, the financial statements and other financial
information included in this 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 report;
4) The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures; and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Signature and Title: /s/ Charles L. Smith Date: November 13, 2003
----------------------- -----------------------
Chief Executive Officer
A signed original of this written statement required by Section 906 of the
Sarbanes-Oxley Act of 2002 has been provided to ThermoView Industries, Inc. and
will be retained by ThermoView Industries, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.
23
CERTIFICATION Exhibit 31.4
I, Jeffrey L. Fisher, certify that:
1) I have reviewed this quarterly report on Form 10-Q of ThermoView
Industries, Inc.;
2) Based on my knowledge, this 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
report;
3) Based on my knowledge, the financial statements and other financial
information included in this 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 report;
4) The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures; and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Signature and Title: /s/ Jeffrey L. Fisher Date: November 13, 2003
------------------------ ---------------------------
Chief Financial Officer
A signed original of this written statement required by Section 906 of the
Sarbanes-Oxley Act of 2002 has been provided to ThermoView Industries, Inc. and
will be retained by ThermoView Industries, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.
24
Exhibit 32.2
Charles L. Smith and Jeffrey L. Fisher, being the Chief Executive Officer
and Chief Financial Officer, respectively, of ThermoView Industries, Inc.,
hereby certify as of this 13th day of November, 2003, that the Form 10-Q for the
Quarter ended September 30, 2003, 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/ Jeffrey L. Fisher
--------------------------------------
Jeffrey L. Fisher,
Chief Financial Officer
26
Exhibit 99.1
Wednesday November 12, 9:25 am ET
ThermoView Industries Inc.
Reports Income for Third Quarter 2003
LOUISVILLE, Ky., Nov. 12 /PRNewswire-FirstCall/ -- ThermoView Industries
Inc. (Amex: THV - News), which designs, manufactures and markets home
improvements under the brand name "THV: America's Home Improvement Company,"
today reported financial results for the third quarter and nine months ending
September 30, 2003.
Third quarter 2003 revenues were $19.3 million, compared to year-ago
quarterly revenues of $22.1 million. The net income attributable to common
stockholders was $292,264 or 3 cents per basic and diluted share. That compares
to a net income related to common stockholders of $60,726, or 1 cent per basic
and diluted share for the third quarter of 2002.
Revenues for the first nine months of 2003 were $53.6 million, compared to
revenues of $66.6 million for the first nine months of 2002. The net loss
attributable to common stockholders was $670,607 or 7 cents per basic and
diluted share, for the first nine months of 2003 after a $796,000 unusual gain
related to converting $1 million of debt to 680,000 common stock warrants and a
$796,000 benefit from redeeming $1 million of the Series D preferred stock for
another 680,000 common stock warrants. That compares to a net loss attributable
to common stockholders for the first nine months of 2002 of $30.3 million, or
$3.36 per share, including a $30 million ($3.33 per share) non- cash charge for
writing off impaired goodwill.
"ThermoView's third quarter performance is a consequence of operational
efficiencies and the restructure of our debt late in the second quarter," said
Charles L. Smith, CEO and President of ThermoView. Smith continued, "ThermoView
is now poised for a bottom line return to shareholders as our focus transitions
to improving top-line growth. In addition to the recently announced additions to
our management staff, we will continue to work diligently to assemble a
top-flight management team to lead our focus on revenue growth. We are
optimistic that these efforts, along with an improving economy, will result in
improved financial results for our shareholders."
In other developments, ThermoView Chairman Stephen A. Hoffmann announced
the resignation of Ronald L. Carmicle as a member of the Board of Directors
effective November 10, 2003. Mr. Carmicle has served as a ThermoView director
since February 2000. "Ron Carmicle has been a tremendous asset to ThermoView
during his tenure as a director. On behalf of everyone at ThermoView, I would
like to express to Ron our gratitude for the contributions that he has made to
our organization. We wish him nothing but the best in his future endeavors,"
said Hoffmann.
ThermoView's November 20 conference call and webcast
ThermoView will hold a webcast at 2:00 p.m. EST on November 20, 2003 to
allow securities analysts and shareholders the opportunity to hear management
discuss the company's quarterly results. Live audio of the conference call can
be accessed from http://www.thv.com, or
http://www.vcall.com/CEPage.asp?ID=84355. First time listeners should visit
www.vcall.com in advance to download and install any necessary audio software.
26
About ThermoView Industries, Inc.
ThermoView is a national company that designs, manufactures, markets and
installs high-quality replacement windows and doors as part of a full-service
array of home improvements for residential homeowners. ThermoView markets home
improvements in 16 Midwest and Western states under well-known regional home
center brands that include Thomas, Primax, Rolox, Leingang and ThermoView. All
of these brands are consolidating under a national brand, "THV, America's Home
Improvement Company." ThermoView's common stock is listed on the American Stock
Exchange under the ticker symbol "THV." Additional information is available at
http://www.thv.com.
Safe harbor statement
Statements in this news release that are not descriptions of historical
facts are forward-looking statements that are subject to risks and
uncertainties. Words such as "expect," "intends," "believes," "plans,"
"anticipates" and "likely" also identify forward-looking statements. All
forward-looking statements are based on current facts and analyses. Actual
results may differ materially from those currently anticipated due to a number
of factors including, but not limited to our history of operating losses,
anticipated future losses, competition, future capital needs, the need for
market acceptance, dependence upon third parties, disruption of vital
infrastructure, general economic downturn and intellectual property rights. All
forward-looking statements are made pursuant to the Securities Litigation Reform
Act of 1995. Additional information on factors that may affect the business and
financial results of the Company can be found in filings of the Company with the
Securities and Exchange Commission.
Contact:
Jeffrey L. Fisher
Chief Financial Officer
ThermoView Industries, Inc.
502-968-2020
27
ThermoView Industries, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
For the three months For the nine months
ended September 30, ended September 30,
---------------------- -------------------------
2002 2003 2002 2003
---- ---- ---- ----
Revenues $22,117,216 $19,307,308 $ 66,597,024 $53,613,176
Cost of revenues earned 11,349,514 9,723,653 33,330,767 27,423,951
----------- ----------- ----------- ------------
Gross profit 10,767,702 9,583,655 33,266,257 26,189,225
Selling, general and
administrative expenses 9,666,491 8,298,750 30,293,389 25,182,605
Unusual credit-gain on
conversion of debt to
warrants - - - (796,000)
Depreciation expense 241,886 192,186 769,015 605,929
Amortization expense 2,311 12,982 70,848 23,111
----------- ----------- ----------- ------------
Income from operations 857,014 1,079,737 2,133,005 1,173,580
Equity in earnings (loss) of
joint venture 16,284 4,535 48,564 (41,689)
Interest expense (680,424) (594,156) (2,000,870) (1,932,652)
Interest expense on mandatorily
redeemable preferred - (167,290) - (167,290)
Interest income 22,436 4,247 51,174 20,976
----------- ----------- ----------- ------------
Income (loss) before income
taxes 215,310 327,073 231,873 (947,075)
Income tax expense (benefit) (95,175) 34,809 (102,341) 47,038
----------- ----------- ----------- ------------
Income (loss) before cumulative
effect of an accounting change 310,485 292,264 334,214 (994,113)
Cumulative effect of an
accounting change--charge
for impairment of goodwill - - (30,000,000) -
----------- ----------- ----------- ------------
Net income (loss) 310,485 292,264 (29,665,786) (994,113)
Less non-cash Series D and E
preferred stock dividends (249,759) - (634,613) (472,494)
Plus benefit of redemption of
Series D stock - - - 796,000
----------- ----------- ----------- ------------
Net income (loss) attributable
to common stockholders $ 60,726 $ 292,264 $(30,300,399) $ (670,607)
=========== =========== =========== ============
Basic income (loss) per common share:
Income (loss) attributable
to common stockholders $ 0.01 $ 0.03 $ (0.03) $ (0.07)
Cumulative effect of an
accounting change - - (3.33) -
----------- ----------- ----------- ------------
Net income (loss) attributable
to common stockholders $ 0.01 $ 0.03 $ (3.36) $ (0.07)
=========== =========== =========== ============
Diluted income (loss) per common share:
Income (loss) attributable
to common stockholders $ 0.01 $ 0.03 $ (0.03) $ (0.07)
Cumulative effect of an
accounting change - - $ (3.33) -
----------- ----------- ----------- ------------
Net income (loss)
attributable to common
stockholders $ 0.01 $ 0.03 $ (3.36) $ (0.07)
=========== =========== =========== ============
See accompanying notes.
28