FORM 10 - Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 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 1-7190
------
IMPERIAL INDUSTRIES, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 65-0854631
--------------------------------------------------------------------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1259 Northwest 21st Street, Pompano Beach, Florida 33069-4114
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 917-4114
--------------
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__
Indicate the number of shares of Imperial Industries, Inc. Common Stock
($.01 par value) outstanding as of August 1, 2003: 9,235,434
Total number of pages contained in this document: 29
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2003 and December 31, 2002 3
Consolidated Statements of Operations
Six Months and Three Months Ended June 30,
2003 and 2002 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2003 and 2002 5
Notes to Consolidated Financial Statements 7-17
Item 2. Management's Discussion and Analysis of Results
Of Operations and Financial Condition 18-24
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 25
Item 4. Controls and Procedures 26
Part II. OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings 27
Item 4. Submission of Matters to a Vote of
Security Holders 27
Item 6. Exhibits and Reports on Form 8 - K 28
Signatures 29
2
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, December 31,
2003 2002
------------ ------------
(unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 1,334,000 $ 1,609,000
Trade accounts receivable (less
allowance for doubtful accounts of
$500,000 and $477,000 at June 30, 2003
and December 31, 2002, respectively) 5,535,000 4,880,000
Inventories 4,038,000 3,613,000
Deferred income taxes 312,000 383,000
Other current assets 460,000 553,000
------------ ------------
Total current assets 11,679,000 11,038,000
------------ ------------
Property, plant and equipment, at cost 4,294,000 4,051,000
Less accumulated depreciation (2,274,000) (2,068,000)
------------ ------------
Net property, plant and equipment 2,020,000 1,983,000
------------ ------------
Deferred income taxes 509,000 509,000
------------ ------------
Other assets 170,000 177,000
------------ ------------
$ 14,378,000 $ 13,707,000
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Notes payable $ 6,050,000 $ 4,914,000
Current portion of long-term debt 463,000 690,000
Accounts payable 2,383,000 1,852,000
Obligation for Appraisal Rights -- 1,541,000
Payable to stockholders 262,000 262,000
Accrued expenses and other liabilities 442,000 347,000
------------ ------------
Total current liabilities 9,600,000 9,606,000
------------ ------------
Long-term debt, less current maturities 954,000 961,000
------------ ------------
Obligation for Appraisal Rights 568,000 --
------------ ------------
Commitments and contingencies (Note 10) -- --
------------ ------------
Stockholders' equity:
Common stock, $.01 par value; 40,000,000
shares authorized; 9,235,434 issued at June
30, 2003 and December 31, 2002, respectively $ 92,000 $ 92,000
Additional paid-in-capital 13,924,000 13,924,000
Accumulated deficit (10,760,000) (10,876,000)
------------ ------------
Total stockholders' equity 3,256,000 3,140,000
------------ ------------
$ 14,378,000 $ 13,707,000
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
3
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
------------------------------- ------------------------------
2003 2002 2003 2002
------------ ----------- ----------- -----------
Net Sales $19,160,000 $18,152,000 $10,198,000 $ 9,443,000
Cost of Sales 13,189,000 12,442,000 6,951,000 6,458,000
----------- ----------- ----------- -----------
Gross profit 5,971,000 5,710,000 3,247,000 2,985,000
Selling, general and
administrative expenses 5,669,000 5,172,000 2,922,000 2,710,000
----------- ----------- ----------- -----------
Operating income 302,000 538,000 325,000 275,000
----------- ----------- ----------- -----------
Other income (expense):
Interest expense (210,000) (268,000) (113,000) (136,000)
Miscellaneous income 95,000 172,000 29,000 115,000
----------- ----------- ----------- -----------
(115,000) (96,000) (84,000) (21,000)
----------- ----------- ----------- -----------
Income before taxes and cumulative
effect of change in accounting
principle for SFAS 142 187,000 442,000 241,000 254,000
Income tax expense (71,000) (289,000) (92,000) (223,000)
----------- ----------- ----------- -----------
Net income before cumulative effect
of change in accounting principle
for SFAS 142 116,000 153,000 149,000 31,000
Cumulative effect of change in
accounting principle for SFAS 142,
net of tax benefit - (789,000) - -
----------- ----------- ----------- -----------
Net income (loss) $ 116,000 $ (636,000) $ 149,000 $ 31,000
=========== =========== =========== ===========
Basic and diluted earnings per share
before cumulative effect of change
in accounting principle $ .01 $ .02 $ .02 $ -
Cumulative effect of change in
accounting principle - (.09) - -
----------- ----------- ----------- -----------
Basic and diluted earnings (loss)
per share $ .01 $ (.07) $ .02 $ -
=========== =========== =========== ===========
Weighted average shares outstanding 9,235,434 9,222,423 9,235,434 9,224,390
=========== =========== =========== ===========
Weighted average shares and
potentially dilutive shares outstanding 9,235,434 9,222,423 9,235,434 9,251,057
=========== =========== =========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
4
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended
June 30,
-----------------------------
2003 2002
----------- -----------
(Unaudited)
Cash flows from operating activities:
Net (loss) income $ 116,000 $ (636,000)
----------- -----------
Adjustments to reconcile net income to net cash (used in) provided by:
Cumulative effect of change in accounting principle -- 789,000
Depreciation 219,000 221,000
Amortization 19,000 14,000
Provision for doubtful accounts 111,000 112,000
Provision for income tax 71,000 289,000
Compensation expense-issuance of stock -- 4,000
(Gain)on disposal of property
and equipment (43,000) (2,000)
Other -- (6,000)
(Increase) decrease in:
Accounts receivable (766,000) (617,000)
Inventory (425,000) (161,000)
Prepaid expenses and other assets 81,000 (209,000)
Increase (decrease) in:
Accounts payable 531,000 (47,000)
Accrued expenses and other liabilities 95,000 (42,000)
----------- -----------
Total adjustments to net income (107,000) 345,000
----------- -----------
Net cash provided by (used in)
operating activities: 9,000 (291,000)
----------- -----------
Cash flows from investing activities:
Purchases of property, plant
and equipment (279,000) (172,000)
Proceeds received from sale of
property and equipment 66,000 30,000
----------- -----------
Net cash (used in) investing activities (213,000) (142,000)
----------- -----------
Cash flows from financing activities
Increase in notes payable
banks - net 1,136,000 923,000
Proceeds from issuance of long-term debt 203,000 111,000
Payment of Obligation for Appraisal Rights (973,000) --
Repayment of long-term debt (437,000) (415,000)
----------- -----------
Net cash (used in)provided by
financing activities (71,000) 619,000
----------- -----------
The accompanying notes are an integral part of the consolidated financial
statements.
5
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
-continued-
Six Months Ended
June 30,
-----------------------------
2003 2002
----------- -----------
(Unaudited)
Net (decrease) increase in cash and
cash equivalents $ (275,000) $ 186,000
Cash and cash equivalents beginning of period 1,609,000 1,368,000
----------- -----------
Cash and cash equivalents end of period $ 1,334,000 $ 1,554,000
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the six months for:
Interest $ 217,000 $ 242,000
=========== ===========
Non-cash transactions:
Issuance of 15,000 shares of common stock
to an employee of the Company
in 2002 $ -- $ 4,000
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
6
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) Interim Financial Statements
----------------------------
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and do
not include all of the information and footnotes required by auditing
standards generally accepted in the United States of America for
complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been
included. Operating results for the six months ended June 30, 2003 are
not necessarily indicative of the results that may be expected for the
year ended December 31, 2003. The significant accounting principles
used in the preparation of these unaudited interim consolidated
financial statements are the same as those used in the preparation of
the annual audited consolidated financial statements. These statements
should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2002.
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
The Company and its subsidiaries are primarily involved in the
manufacturing and sale of exterior and interior finish wall coatings
and mortar products for the construction industry, as well as the sale
of other building materials from other manufacturers. Sales of the
Company's products are made to customers primarily in Florida and
other parts of the Southeastern United States through distributors and
company-owned distribution facilities.
a) Basis of presentation
---------------------
The consolidated financial statements contain the accounts of the
Company and its wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
b) Concentration of Credit Risk
----------------------------
Concentration of credit risk with respect to trade accounts
receivable are limited due to the large number of entities comprising
the Company's customer base. Trade accounts receivable represent
amounts due from building materials dealers, contractors and
sub-contractors, located principally in the Southeastern United States
who have purchased products on an unsecured open account basis. At
June 30, 2003, accounts aggregating to
7
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
$686,000, or approximately 11% of total gross trade accounts
receivable, were deemed to be ineligible for borrowing purposes under
the Company's borrowing agreement with its commercial lender, compared
to $537,000, or approximately 10.0%, of total gross trade receivables
outstanding at December 31, 2002. (See Note (5)- Notes Payable). The
allowance for doubtful accounts at June 30, 2003 of $500,000 is
considered sufficient to absorb any losses which may arise from
uncollectible accounts receivable.
The Company places its cash with commercial banks. At June 30,
2003, the Company has cash balances with banks in excess of Federal
Deposit Insurance Corporation insured limits. Management believes the
credit risk related to these deposits is minimal.
c) Inventories
-----------
Inventories are stated at the lower of cost or market (net
realizable value), on a first-in, first-out basis. Finished goods
include the cost of raw materials, freight in, direct labor and
overhead.
d) Property, plant and equipment
-----------------------------
Property, plant and equipment is stated at cost, less accumulated
depreciation. Depreciation is computed on the straight-line basis over
the estimated useful lives of the depreciable assets. Expenditures for
maintenance and repairs are charged to expense as incurred, while
expenditures which extend the useful life of assets are capitalized.
Differences between the proceeds received on the sale of property,
plant and equipment and the carrying value of the assets on the date
of sale is credited to or charged against net income.
e) Income Taxes
------------
The Company utilizes the liability method for determining its
income taxes. Under this method, deferred taxes and liabilities are
recognized for the expected future tax consequences of events that
have been recognized in the consolidated financial statements or
income tax returns. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income in the
years in which temporary differences are expected to be realized or
settled; valuation allowances are provided against assets that are not
likely to be realized.
f) Earnings per share of stock
---------------------------
Basic earnings per share is computed by dividing net income, by
the weighted-average number of shares of common stock
8
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
f) Earnings per share of stock (continued)
---------------------------
outstanding each year. Diluted earnings per share is computed by
dividing net income by the weighted-average number of shares of common
stock and common stock equivalents outstanding during each year. (See
Note (9) - Earnings Per Share).
g) Cash and cash equivalents
-------------------------
The Company has defined cash and cash equivalents as those highly
liquid investments with original maturities of three months or less,
and are stated at cost. Included in cash and cash equivalents at both
June 30, 2003 and December 31, 2002 are short-term time deposits of
$123,000. Also included in cash and cash equivalents at June 30, 2003
and December 31, 2002 are $710,000 and $713,000,respectively, of
customer payments that are required to be remitted to the Company's
commercial lender upon their bank clearance under the terms of the
Company's line of credit. Such amounts will reduce the outstanding
balance on the line of credit, resulting in greater borrowing
availability.
h) Revenue recognition policy
--------------------------
Revenue from sales transactions, net of discounts and allowances,
is recorded upon delivery of inventory to the customer.
i) Stock based compensation
------------------------
The Company measures compensation expense related to the grant of
stock options and stock-based awards to employees in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," under which compensation
expense, if any, is generally based on the difference between the
exercise price of an option, or the amount paid for an award, and the
market price or fair value of the underlying common stock at the date
of the award.
Pursuant to SFAS No. 123, as amended by SFAS No. 148 "Accounting
for Stock-Based Compensation Transition and Disclosure" the Company
has elected to use the intrinsic value method of accounting for
employee awards, stock based compensation awards. Accordingly, the
Company has not recognized compensation expense for its
noncompensatory employee stock options.
The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair
value-recognition provisions of Financial Standards Board (FASB)
9
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
i) Stock based compensation (continued)
------------------------
Statement No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation:
Six Months Ended Three Months Ended
June 30, June 30,
------------------------ ----------------------
2003 2002 2003 2002
-------- --------- -------- -------
Net income (loss) available to
common stockholders, as reported $116,000 $(636,000) $149,000 $31,000
Deduct: Total stock-based employee
compensation expense determined
under fair-value-based method for
all awards, net of related tax effects (3,000) (13,000) (3,000) (5,000)
-------- --------- -------- -------
Pro-forma net income (loss) $113,000 $(649,000) $146,000 $26,000
======== ========= ======== =======
Income (loss) per share:
Basic as reported $ .01 $ (.07) $ .02 $ .00
Basic pro-forma $ .01 $ (.07) $ .02 $ .00
Diluted as reported $ .01 $ (.07) $ .02 $ .00
Diluted pro-forma $ .01 $ (.07) $ .02 $ .00
j) Accounting estimates
--------------------
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America, requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
k) Fair Value of Financial Instruments
-----------------------------------
The carrying amount of the Company's financial instruments
principally notes payable and obligation for appraisal rights,
approximates fair value based on discounted cash flows and because the
borrowing rates are similar to the current rates offered to the
Company.
l) Segment Reporting
-----------------
The Company has adopted SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. For the six month periods
ended June 30, 2003 and 2002, the Company has determined that it
continues to operate in a single operating segment.
10
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(3) Inventories
-----------
At June 30, 2003 and December 31, 2002 inventories consisted of:
2003 2002
---- ----
Raw Materials $ 561,000 $ 490,000
Finished Goods 3,278,000 2,856,000
Packaging materials 199,000 267,000
---------- ----------
$4,038,000 $3,613,000
========== ==========
(4) Goodwill and Other Intangible Assets
------------------------------------
Effective January 1, 2002 the Company adopted SFAS 141, "Business
Combinations," and SFAS 142, "Goodwill and Other Intangible Assets".
SFAS 141 was issued by the FASB in June 2001. SFAS 141 requires that
the purchase method of accounting be used for all business
combinations completed after June 30, 2001. SFAS 141 also specifies
the types of acquired intangible assets that are required to be
recognized and reported separately from goodwill and those acquired
intangible assets that are required to be included in goodwill. The
Company's adoption of this standard did not have any effect on its
accounting for prior business combinations.
SFAS 142 requires that goodwill no longer be amortized, but
instead be tested for impairment at least annually. SFAS 142 requires
recognized intangible assets to be amortized over their respective
estimated useful lives and reviewed for impairment in accordance with
SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets". Any recognized intangible assets determined to have an
indefinite useful life are not amortized, but instead tested for
impairment in accordance with the standard until its life is
determined to no longer be indefinite.
In the second quarter of 2002, the Company completed its SFAS 142
transitional impairment review and determined that the goodwill
("excess cost of investment over net assets acquired") of $1,272,000
associated with acquisitions of several distribution facilities in
2000 should be reduced to $0. The impairment was the result of the
under-performance of several of the acquired distribution facilities.
The fair value of the distribution reporting unit was determined using
the present value of expected future cash flows and other valuation
measures.
The $1,272,000 ($789,000 net of related tax benefit) non-cash
charge was reflected as a cumulative effect of an accounting change in
the Consolidated Statements of Operations for the quarter ended March
31, 2002. In accordance with SFAS 142 and SFAS 3, "Reporting
Accounting Changes in Interim Financial Statements" ("SFAS 3"), when a
transitional impairment loss for goodwill (cumulative effect type
accounting change) is measured in other than the first interim
reporting period, it is recognized in the
11
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(4) Goodwill and Other Intangible Assets (continued)
------------------------------------
first interim period irrespective of the period in which it is
measured.
(5) Notes Payable
-------------
At June 30, 2003 and December 31, 2002, notes payable represent
amounts outstanding under a $7,000,000 line of credit from a
commercial lender to the Company's subsidiaries. The line of credit is
collateralized by the subsidiaries' accounts receivable and inventory,
bears interest at prime rate plus 1/2% (4.50% at June 30, 2003),
expires June 19, 2004, and is subject to annual renewal.
At June 30, 2003, the line of credit limit available for
borrowing based on eligible receivables and inventory aggregated
$6,342,000, of which $6,050,000 was outstanding. The average amounts
outstanding for the six month periods ended June 30, 2003 and 2002
were $5,130,000 and $4,866,000, respectively.
(6) Long-Term Debt and Current Installments of Long-Term Debt
---------------------------------------------------------
Included in long-term debt at June 30, 2003, are three mortgage
loans, collateralized by real property, in the aggregate amount of
$622,000, less current installments aggregating $56,000.
During 2000, the Company acquired certain assets and assumed
certain liabilities of seven building materials distributors in which
it issued $850,000 uncollateralized 8% promissory notes as partial
consideration. At June 30, 2003, a remaining note payable of $128,000
was classified as a current liability.
Other long-term debt in the aggregate amount of $667,000, less
current installments of $279,000, relates principally to equipment
financing. The notes bear interest at various rates ranging from 3.10%
to 11.4%.
(7) Income Taxes
------------
At June 30, 2003, the net deferred tax asset of approximately
$821,000 consisted primarily of the tax effect of net operating loss
carryforwards and the goodwill written off. The operating loss
carryforwards of approximately $769,000 expire in varying amounts from
2005 through 2009.
In the six months ended June 30, 2003 and 2002, the Company
recognized income tax expense of $71,000 and tax benefits of $194,000,
respectively.
12
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(8) Capital Stock
-------------
(a) Common Stock
------------
At June 30, 2003, the Company had outstanding 9,235,434 shares of
common stock with a $.01 par value per share ("Common Stock"). The
holders of common stock are entitled to one vote per share on all
matters, voting together with the holders of preferred stock, if any.
In the event of liquidation, holders of common stock are entitled to
share ratably in all the remaining assets of the Company, if any,
after satisfaction of the liabilities of the Company and the
preferential rights of the holders of outstanding preferred stock, if
any.
On July 19, 2002 at the Company's Annual Meeting of Shareholders,
the Company's Shareholders approved a proposal for a one for five
reverse common stock split ("Reverse Stock Split"). Pursuant to the
terms of the proposal, the Reverse Stock Split was to become effective
upon filing an appropriate certificate with the Secretary of State of
Delaware. Notwithstanding the approval of the Reverse Stock Split, the
Board of Directors reserved the right, without further action by the
Shareholders, to delay implementation of the Reverse Stock Split for
up to 12 months or to elect not to proceed with the Reverse Stock
Split if at any time prior to the filing of such certificate with the
State of Delaware, the Board of Directors, in its sole discretion,
determined that it was no longer in the best interests of the Company
and its stockholders.
In July, 2003 the Board of Directors determined it was in the
best interest of the Company not to proceed with the Reverse Stock
Split.
(b) Preferred Stock
---------------
The authorized preferred stock of the Company consists of
5,000,000 shares, $.01 par value per share. The preferred stock is
issuable in series, each of which may vary, as determined by the Board
of Directors, as to the designation and number of shares in such
series, the voting power of the holders thereof, the dividend rate,
redemption terms and prices, the voluntary and involuntary liquidation
preferences, and the conversion rights and sinking fund requirements,
if any, of such series. At June 30, 2003 and December 31, 2002, there
were no shares of preferred stock outstanding.
(c) Warrants
--------
At June 30, 2003, the Company had warrants outstanding to
purchase 150,000 shares of the Company's common stock (the
"Warrants"). Each Warrant entitles the holder to purchase one share at
$.38 per share until December 31, 2003.
13
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(8) Capital Stock (continued)
-------------
(d) Stock Option Plans
------------------
The Company has two stock option plans, the Directors' Stock
Option Plan (the "Directors Plan") and the 1999 Employee Stock Option
Plan (the "Employee Plan")(collectively, the "1999 Plans"). The 1999
Plans provide for options to be granted at generally no less than the
fair market value of the Company's Common stock at the grant date.
Options granted under the 1999 Plans have a term of up to 10 years and
are exercisable six months form the grant date. The 1999 Plans are
administered by the Compensation and Stock Option Committee (the
"Committee"), which is comprised of three outside directors. The
Committee determines who is eligible to participate and the number of
shares for which options are to be granted. A total of 600,000 and
200,000 shares are reserved for issuance under the Employee and
Directors' Plans, respectively.
During the six months ended June 20, 2003 the Company granted
options to 22 employees to purchase 150,000 shares at $.18 per share
for a five year period under the Employee Plan. As of June 30, 2003,
options for 210,000 shares were available for future grants under the
Employee Plan. No shares are currently available for future grant
under the Directors' Plan.
14
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(9) Earnings Per Share
------------------
Below is a reconciliation between basic and diluted earnings per
common share under FAS 128 for the six months and three months ended
June 30, 2003 and 2002 (in thousands except per share amounts):
Six Months
---------------------------------------------------------------
2003 2002
------------------------------ -------------------------------
Income Shares Per Share Loss Shares Per Share
------ ------ --------- ----- ------ ---------
Net income (loss) $ 116 -- -- $(636) -- --
Basic earnings (loss)
per share $ 116 9,235 $ .01 $(636) 9,222 $ (.07)
----- ----- ------- ----- ----- -------
Effect of dilutive
securities:
Options/Warrants $ -- -- $ -- $ -- -- $ --
----- ----- ---- ----- ----- ----
Diluted earnings (loss)
per common share $ 116 9,235 $ .01 $(636) 9,222 $ (.07)
----- ----- ------- ----- ----- -------
Three Months
---------------------------------------------------------------
2003 2002
------------------------------ -------------------------------
Income Shares Per Share Income Shares Per Share
----- ------ --------- ------ ------ ---------
Net income $ 149 -- -- $ 31 -- --
Basic earnings
per share $ 149 9,235 $ .02 $ 31 9,224 $ .00
----- ----- ------- ----- ----- ---------
Effect of dilutive
securities:
Options/Warrants $ -- -- $ -- $ -- 27 $ --
----- ----- ------- ----- ----- ---------
Diluted earnings
per common share $ 149 9,235 $ .02 $ 31 9,251 $ .00
----- ----- ------- ----- ----- ---------
For the six months ended June 30, 2003 and 2002, 740,000 and
550,000 options and warrants were excluded from the diluted earnings
per share computations, respectively, because they were anti-dilutive.
For the quarter ended June 30, 2003 and 2002, 740,000 and 390,000
options and warrants were excluded from the diluted earnings per share
computations, respectively, because they were anti-dilutive.
(10) Commitments and Contingencies
-----------------------------
(a) Contingencies
-------------
As of August 1, 2003, the Company's subsidiary, Acrocrete, Inc.,
together with other parties are defendants in 49 lawsuits pending in
various Southeastern states, brought by homeowners, homeowners
associations, contractors and subcontractors, or their
15
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(10) Commitments and Contingencies (continued)
-----------------------------
(a) Contingencies (continued)
-------------
insurance companies, claiming moisture intrusion damages on single and
multi-family residences. The Company's insurance carriers have
accepted coverage under a reservation of rights for 46 of these claims
and are providing a defense. The Company expects its insurance
carriers will accept coverage for the other 3 recently filed lawsuits.
Acrocrete is vigorously defending all of these cases and believes it
has meritorious defenses, counter-claims and claims against third
parties. Acrocrete is unable to determine the exact extent of its
exposure or outcome of this litigation.
The allegations of defects in synthetic stucco wall systems are
not restricted to Acrocrete products, but rather are an industry-wide
issue. There has never been any defect proven against Acrocrete. The
alleged failure of these products to perform has generally been linked
to improper application and the failure of adjacent building materials
such as windows, roof flashing, decking and the lack of caulking.
On June 15, 1999, Premix was served with a complaint captioned
Mirage Condominium Association, Inc. v. Premix, In the Eleventh
Judicial Circuit In and For Miami-Dade County, Florida, Case No:
97-27544 (CA-11). The lawsuit raises a number of allegations against
12 separate defendants involving alleged construction defects. The
lawsuit originally alleged a claim against Premix for third-party
beneficiary breach of contract. This claim was voluntarily dismissed
on the eve of a hearing on Premix's dispositive Motion for Summary
Judgment. A third amended complaint was filed against Premix for
breach of a statutory implied warranty. Plaintiff has alleged that
certain materials, purportedly provided by Premix to the
developers/contractor and used to anchor balcony railings to the
structure were defective. After the third amended complaint was filed,
the contractor filed a cross claim against Premix for indemnification,
breach of implied warranty and product liability. Premix believes it
has meritorious defenses to these claims. The Company's insurance
carrier has not made a decision regarding coverage to date. In the
interim, the insurance carrier has retained defense counsel on behalf
of Premix and is paying defense costs. Premix expects the insurance
carrier to eventually accept coverage. As discovery is not yet
completed, Premix is unable to determine the exact extent of its
exposure or the outcome of this litigation.
The Company's subsidiaries are engaged in other legal actions and
claims arising in the ordinary course of its business, none of which
are believed to be material to the Company.
16
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(10) Commitments and Contingencies (continued)
-----------------------------
(b) Lease Commitments
-----------------
At June 30, 2003, the Company has certain property, plant and
equipment under long-term operating leases. The Company will pay
aggregate annual rent of approximately $1,091,000 for its current
operating leases. The leases expire at various dates ranging from
August 31, 2003 to August 31, 2009. Comparable properties at
equivalent rentals are available for replacement of these facilities
if any leases are not extended. The Company does not expect to incur
any material relocation expenses.
(11) Recent Events - Obligation for Appraisal Rights
-----------------------------------------------
On April 30, 2003, the Company and former holders of 81,100
shares of Preferred Stock who elected appraisal rights in connection
with the Company's 1998 Merger ("Dissenting Stockholders") reached a
settlement (the "Settlement"). In accordance with the Settlement, the
Company paid the Dissenting Stockholders $12.00 per share in cash
($973,200) and issued a 5.6% promissory note (the "Note") for $10.00
per share ($811,000) due May 1, 2006, with such Note reduced to $7.00
per share ($567,700) in the event the Company prepays the Note in full
prior to November 1, 2004. If the note is not paid in full prior to
November 1, 2004, the interest rate will increase from 5.6% to 8.0%.
The Company satisfied the cash due at closing from cash on hand and
borrowings from its amended line of credit with it commercial lender
based on an increase to its inventory borrowing base. At June 30, 2003
and December 31, 2002, based on management's intention to prepay the
Note in full prior to November 1, 2004, the appraisal rights
obligation was recorded at $567,700 and $1,541,000, respectively. As a
result of the completion of the settlement, the $567,700 Obligation
for Appraisal Rights was classified as a long-term liability at June
30, 2003.
17
Item 2 Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
General
-------
The Company's business is related primarily to the level of
construction activity in the Southeastern United States, particularly
the states of Florida, Georgia, Mississippi and Alabama. The majority
of the Company's products are sold to contractors, subcontractors and
building materials dealers located principally in these states who
provide building materials for the construction of residential,
commercial and industrial buildings and swimming pools. The level of
construction activity is subject to population growth, inventory of
available housing units, government growth policies and construction
funding, among other things. Although general construction activity
has remained strong in the Southeastern United States during the last
several years, the duration of recent economic conditions and the
magnitude of their effect on the construction industry are uncertain
and cannot be predicted.
Special Note Regarding Forward-Looking Statements
-------------------------------------------------
This Form 10-Q contains certain forward looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995
with respect to the financial condition, results of operations and
business of the Company, and its subsidiaries, including statements
made under Management's Discussion and Analysis of Financial Condition
and Results of Operations. These forward looking statements involve
certain risks and uncertainties. No assurance can be given that any of
such matters will be realized. Factors that may cause actual results
to differ materially from those contemplated by such forward looking
statements include, among others, many of which are beyond the
Company's control, the following: realization of tax benefits;
impairment of long-lived assets, including goodwill; the ability to
collect account or note receivables when due or within a reasonable
period of time after they become due and payable; the outcome of
litigation; the competitive pressure in the industry; general economic
and business conditions; the ability to implement and the
effectiveness of business strategy and development plans; quality of
management; business abilities and judgment of personnel; changes in
accounting policies and practices, as may be adopted by regulatory
agencies as well as the Financial Accounting Standards Board;
availability of qualified personnel; and labor and employee benefit
costs.
These risks are not exhaustive. The Company operates in a
continually changing business environment, and new risks emerge from
time to time. The Company cannot predict such risks nor can the
Company assess the impact, if any, of such risks on its business or
the extent to which any risk, or combination of risks may cause actual
results to differ from those projected in any forward-looking
statements.
18
Item 2 Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations (continued)
---------------------
Special Note Regarding Forward-Looking Statements (continued)
-------------------------------------------------
These forward-looking statements speak only as of the date of
this document. The Company does not undertake any obligation to update
or revise any of these forward-looking statements to reflect events or
circumstance occurring after the date of this document or to reflect
the occurrence of unanticipated events.
Results of Operations
---------------------
Six Months and Three Months Ended June 30, 2003 Compared to 2002
----------------------------------------------------------------
Net Sales for the six months and three months ended June 30, 2003
increased $1,008,000 and $755,000, or approximately 5.6% and 8.0%
compared to the same periods in 2002. The increase in sales is
principally due to growth from the sales of the Company's manufactured
products and increased sales of the Company's distribution facilities
including $673,000 and $327,000, for the six months and second quarter
of 2003, in net sales derived from a new distribution facility opened
in the third quarter of 2002 in Port St. Lucie, Florida. The
additional sales of the new distribution facility were offset by a
sales reduction of approximately $301,000 and $75,000 for the six
months and second quarter of 2003, in comparison to the same periods
in 2002, realized from the Company's Gulfport, Mississippi
distribution facility and the reduction in sales realized from the
Pensacola distribution facility closed in the third quarter of 2002.
The decrease in sales at the Gulfport facility is believed to be
primarily a result of increased competition due to the alleged
violation of a non-compete agreement of a former employee at that
location. The Company has commenced litigation against the former
employee to enjoin further violations and for damages resulting from
such actions.
Gross profit as a percentage of net sales for the six months and
second quarter of 2003 was approximately 31.2% and 31.8% compared to
31.5% and 31.6% in the same periods in 2002. The slight decrease in
gross profit margins for the first six months of 2003 was principally
due to lower gross profit margins realized from sales generated from
the Company's distribution facilities in the first quarter of the
year. The lower gross profit margins derived from the Company's
distribution facilities were primarily attributable to more intense
competitive conditions in several of the Company's trade areas in
2003, as compared to 2002, particularly the Gulfport, Mississippi
trade area. The slight improvement in gross profit margins in the
second quarter of 2003 was primarily due to a lower cost of sales of
the Company's manufactured products because certain fixed
manufacturing costs were absorbed by the increase in sales of such
products. In addition, the Company derived slightly higher gross
profit
19
Item 2 Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations (continued)
---------------------
Six Months and Three Months Ended June 30, 2003 Compared to 2002
----------------------------------------------------------------
(continued)
margins in the second quarter from the sales generated by the
Company's distribution facilities compared to the first quarter of
2003 due to some improvement in competitive pricing pressures in
certain market areas.
The Company is continuing to emphasize the sales of its higher
gross profit margin manufactured products through its distribution
facilities and other distributors and to decrease reliance on sales of
products purchased from other manufacturers. The Company increased its
sales force during 2002 to further promote the sales of its
manufactured products to the end-user.
Selling, general and administrative expenses as a percentage of
net sales for the six months and second quarter of 2003 were
approximately 29.6% and 28.7% compared to 28.5% and 28.7% in 2002.
Selling, general and administrative expenses increased $497,000 and
$212,000, in the six months and second quarter of 2003, or
approximately 9.6% and 7.8% compared to the same periods in 2002. The
newly opened Port St. Lucie distribution facility, net of the effect
of the expenses associated with the Pensacola facility closed in 2002,
accounted for $93,000 and $65,000 of the increase in expenses for the
six months and second quarter comparable periods, respectively. For
the six months ended June 30, 2003 the remaining increase in selling,
general and administrative expenses of $404,000 was primarily
attributable to inflationary cost pressures resulting in a $41,000
increase in insurance expense, a $78,000 increase in delivery and fuel
charges, and a $106,000 increase in payroll costs. (The Company's
total payroll costs increased 1.8% and 1.7% in the six months and
second quarter of 2003, compared to 2002.) In addition, the Company
incurred a $93,000 increase in legal fees in the first six months of
2003 compared to 2002, due in part to the commencement of litigation
against a former employee for violations of his non-compete agreement
as discussed above. Such expenses accounted for $147,000 of the
increase in expenses from the 2002 to 2003 second quarter periods as
follows: $21,000 for insurance expense, $25,000 in delivery and fuel
charges, $58,000 in payroll costs and $43,000 in legal fees. Increases
in other operating expenses, primarily those associated with the
increase in sales, accounted for the balance of the increase in
operating expenses for the six months of 2003.
Interest expense decreased $58,000 and $23,000 in the six months
and second quarter of 2003, or approximately 21.6% and 16.9%, compared
to the same periods in 2002. The decrease in interest expense in 2003
was primarily due to reduced rates under the Company's interest
bearing obligations compared to
20
Item 2 Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations (continued)
---------------------
Six Months and Three Months Ended June 30, 2003 Compared to 2002
----------------------------------------------------------------
(continued)
2002, principally the appraisal rights obligations as a result of
a settlement completed on April 30, 2003.
Miscellaneous income, net of expenses, decreased $77,000 and
$86,000 in the six months and second quarter of 2003, compared to the
same periods in 2002. The decrease in miscellaneous income is
attributed primarily to the Company recognizing income of
approximately $91,000 and $84,000,for the six months and second
quarter of 2002, respectively for insurance refunds as a result of
lower claims than provided for in the underlying insurance policies.
In the six months and second quarter of 2003, the Company
recognized income tax expense of $71,000 and $92,000, compared to
income tax benefits of $194,000 and income tax expense of $223,000,
for the same periods in 2002.
After giving effect to the above factors, the Company had net
income of $116,000 and $149,000, or $.01 and $.02 per fully diluted
share, for the six months and second quarter of 2003, compared to net
income (before the cumulative effect of change in accounting principle
as discussed below)of $153,000 and $31,000, or $.02 and $.00 per
share, for the first six months and second quarter of
2002,respectively.
The first six month 2002 results were adversely impacted by
$1,272,000 ($789,000 net of related deferred tax benefit) non-cash
goodwill impairment charge. The charge was related to the Company's
required adoption of Statement of Financial Accounting Standards
(SFAS) No. 142 "Goodwill and Other Intangible Assets". The Company
doesn't have any remaining goodwill on its balance sheet which may be
impaired for future periods. The impairment of goodwill was
attributable to the under-performance of the Company's distribution
operations associated with the acquisition of certain building
materials distributors in 2000. In accordance with SFAS No. 142, the
Company reflected this impairment charge in the first quarter 2002
financial results as a cumulative change in accounting principle.
As a result of the non-cash goodwill impairment charge, the
Company incurred a net loss of $636,000, or $.07 per fully diluted
share, for the six months ended June 30,2002.
Liquidity and Capital Resources
-------------------------------
Sources and Uses of Cash
------------------------
In the first six months of 2003, net cash used by operating
activities included the benefit of an increase in accounts payables of
$531,000 compared to a decrease of
21
Item 2 Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations (continued)
---------------------
Liquidity and Capital Resources (continued)
-------------------------------
$47,000 in the same period in 2002. The increase in accounts payable
in 2003 partially offset an increase in accounts receivable and
inventory of $1,191,000, compared to an increase of $778,000 in 2002,
primarily because of sales increases in 2003 compared to 2002. The
increase in accounts payable was the principal reason operations
provided $9,000 in cash in the first six months of 2003, compared to
using $291,000 in operating activities in 2002.
During the first six months of 2003, net expenditures for
investing activities were $213,000 compared to $142,000 in 2002. The
on-going purchase of equipment to up-grade the Company's manufacturing
equipment and to improve its distribution capabilities accounted for
the majority of the expenditures for each period.
During the six months ended June 30, 2003, the line of credit
balance increased approximately $1,136,000 due to funding a
significant portion of the $973,000 cash settlement paid to the
Appraisal Rights holders on April 30, 2003 and to meet the Company's
increased working capital needs associated with increased sales during
the period. The Company also made a net reduction to long-term debt
totaling $234,000 during the first six months of 2003. As a result of
the foregoing factors, the Company used net cash of $71,000 for
financing activities in the first six months of 2003.
Future Commitments and Funding Sources
--------------------------------------
As of June 30, 2003, the Company had cash and cash equivalents of
$1,334,000, which included customer payments in the amount of $710,000
that are required to be remitted to the Company's commercial lender
upon their bank clearance under the terms of the Company's line of
credit. Upon remittance of such amount, the outstanding balance of the
line of credit will be reduced by such amount and will increase the
availability for future borrowing under the line. The Company has
implemented a cash management program in an attempt to gain a more
rapid clearance of customer payments deposited in its bank accounts.
At June 30, 2003, the Company's contractual cash obligations,
with initial or remaining terms in excess of one year, remained
generally unchanged compared to December 31, 2002 except for the
Appraisal Rights Obligations. See Notes 6, 10 and 11 in the
accompanying financial statements for additional information regarding
the Company's commitments.
As of June 30, 2003, the Company had working capital of
approximately $2,079,000 compared to working capital of $1,432,000 at
December 31, 2002. The increase in working capital was primarily
attributable to the reclassification of $568,000 of the appraisal
rights obligation from a short-term
22
Item 2 Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations (continued)
---------------------
Liquidity and Capital Resources (continued)
-------------------------------
liability at December 31, 2002 to a long-term liability at June 30,
2003. In addition, during the six months ended June 30, 2003, the
Company sold a former distribution facility property and repaid a
$199,000 mortgage obligation classified as a short-term liability at
December 31, 2002.
The Company's principal source of short-term liquidity is
existing cash on hand and the utilization of a line of credit with its
commercial lender. The maturity date of the line of credit is June 19,
2004, subject to annual renewal. Premix, Acrocrete and Just-Rite
borrow on the line of credit, based upon and collateralized by, their
eligible accounts receivable and inventory. Generally, accounts not
collected within 120 days are not eligible accounts receivable under
the Company's borrowing agreement with its commercial lender. At June
30, 2003, $6,050,000 had been borrowed against the line of credit.
Based on eligible receivables and inventory, the Company had, under
its line of credit, total available borrowing, (including the amount
outstanding of $6,050,000) of approximately $6,342,000 at June 30,
2003.
Trade accounts receivable represent amounts due from
subcontractors, contractors and building materials dealers located
principally in Florida, Mississippi, Georgia and other Southeastern
States who have purchased products on an unsecured open account basis
and through Company owned warehouse distribution outlets. As of June
30, 2003, the Company owned and operated eleven distribution
facilities. Accounts receivable, net of allowance, at June 30, 2003
was $5,535,000 compared to $4,880,000 at December 31, 2002. The
increase in receivables of $655,000, or approximately 13.4%, was
primarily related to a 14.2% sales increase in the second quarter of
2003 compared to the fourth quarter of 2002.
As a result of the consummation of the December 31, 1998 merger,
the Company agreed to pay $733,000 in cash to its former preferred
stockholders. As of June 30, 2003, the Company had paid $685,000 of
such cash amount. Amounts payable to such stockholders at June 30,
2003 results from their non-compliance with the condition for
payments.
Holders representing 81,100 preferred shares elected dissenters'
rights, rather than accept the Company's payment proposal in the
December 31, 1998 merger. The Company recorded a liability for each
share based on the fair value of $2.25 in cash, and $8.00 Subordinated
Debenture and five shares of the Company's common stock since that is
the consideration the dissenting holders would have received if they
did not perfect their dissenters' rights under the law. Dissenting
stockholders filed a petition for appraisal rights in the Delaware
Chancery Court on April 23, 1999. A trial for the appraisal rights was
held in the Chancery Court of Delaware in June 2002.
23
Item 2 Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations (continued)
---------------------
Liquidity and Capital Resources (continued)
-------------------------------
On April 30, 2003, the Company and the dissenting stockholders
reached a settlement prior to the trial court issuing a ruling. In
accordance with the settlement, the Company paid the holders of
appraisal rights $12.00 per share in cash ($973,200) and issued a 5.6%
Promissory Note for $10.00 per share ($811,000) due May 1, 2006, with
such Note to be reduced to $7.00 per share ($567,700) in the event the
Company prepays the Note in full prior to November 1, 2004. The
Company satisfied the cash due at closing from cash on hand and
borrowings from its amended line of credit with its commercial lender.
At June 30, 2003, based on management's intention to prepay the Note
in full prior to November 1, 2004, the appraisal rights obligation was
recorded in the amount of $567,700 and was classified as a long-term
liability.
As of June 30, 2003, the Company has paid the holders of the
Subordinated Debentures tendering their bonds $808,000. Amounts
payable to stockholders at June 30, 2003 on the Company's consolidated
balance sheets includes $214,000 payable to former debenture holders
who have not yet tendered their Debentures as required by the terms of
such instrument.
The Company presently is focusing its efforts on enhancing
customer service, increasing operating productivity through reducing
costs and expenses and improving working capital. The Company expects
to incur various capital expenditures aggregating approximately
$300,000 during the next twelve months to upgrade and maintain its
equipment and delivery fleet to support operations and improve
customer service. The Company expects to finance approximately
$200,000 of these expenditures from various lenders, with the balance
funded by cash derived from operations.
The Company believes its cash on hand, the maintenance of its
amended line of credit and new equipment financing arrangements will
provide sufficient cash to meet its current obligations for its
operations and support the cash requirements of its current capital
expenditure programs in 2003.
In addition, the Company has commenced to evaluate various types
of alternative capital projects to expand and enhance its
manufacturing capabilities to more effectively serve its customer
base, to gain production efficiencies and provide the opportunity to
broaden it manufactured product lines and enter new markets. At this
date, the Company is assessing the merits and assumptions of these
alternative projects and it is unclear if any such project, if deemed
to have merit, could be fully completed within the next twelve months.
Furthermore, there can be no assurances that the assumptions and
expected benefits upon which the Company were to base the rationale
for its future capital expenditures
24
Item 2 Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations (continued)
---------------------
Liquidity and Capital Resources (continued)
-------------------------------
would be realized, or that funds would be available on terms
acceptable to the Company, or available at all, to fund these capital
projects.
The ability of the Company to maintain and improve its long-term
liquidity is primarily dependent on the Company's ability to
successfully achieve and maintain profitable operations.
Item 3 Market Risks
------------
Residential and Commercial Construction Activity
------------------------------------------------
The Company's sales depend heavily on the strength of residential
and commercial construction activity in the Southeastern United
States. The strength of these markets depends on many factors beyond
the Company's control. Some of these factors include interest rates,
employment levels, availability of credit, prices of raw materials and
consumer confidence. Downturns in the markets that the Company serves,
or in the economy generally, could have a material adverse effect on
the Company's operating results and financial condition. Reduced
levels of construction activity may result in intense price
competition among building materials suppliers, which may adversely
affect the Company's gross margins.
The Company's first quarter revenues and, to a lesser extent, its
fourth quarter revenues are typically adversely affected by winter
construction cycles and weather patterns in colder climates as the
level of activity in the new construction and home improvement markets
decreases. Because much of the Company's overhead and expenses remain
relatively fixed throughout the year, Company profits also tend to be
lower during the first and fourth quarters.
Exposure to Interest Rates
--------------------------
The Company has two variable rate mortgages totaling $350,000 at
June 30, 2003. The mortgages bear interest at prime plus 1% and are
due October 2004. In addition, the Company's $7,000,000 line of credit
from a commercial lender bears an interest rate of prime plus 1/2%. A
significant increase in the prime rate could have a material adverse
effect on the Company's operating results and financial condition.
25
Item 4 Controls and Procedures
-----------------------
Evaluation of Disclosure Controls and Procedures
------------------------------------------------
Within 90 days prior to the filing date of this Quarterly Report,
the Company carried out an evaluation, under the supervision and with
the participation of the Company's management, including the Company's
Chief Executive Officer/Chief Financial Officer, of the effectiveness
of the design and operation of the Company's disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934). Based upon that evaluation, the
Chief Executive Officer/Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective in ensuring
that information required to be disclosed in the reports the Company
files and submits under the Securities Exchange Act of 1934 are
recorded, processed, summarized and reported as and when required.
Changes in Internal Controls
----------------------------
There were no significant changes in the Company's internal
controls or in other factors that could significantly affect such
internal controls subsequent to the date of the evaluation described
in the paragraph above, including any corrective action with regard to
significant deficiencies and material weaknesses.
26
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
PART II. Other Information
Item 1. Legal Proceedings
-----------------
See notes to Consolidated Financial Statements, Note 10 (a), set
forth in Part I Financial Information.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company held its 2003 Annual Meeting of Shareholders on May
29, 2003 (the "Annual Meeting").
At the Annual Meeting, the Company's shareholders voted on the
election of Class II directors. Two Class II directors were elected at
the Annual Meeting with the votes as indicated below:
For Withhold
--- --------
Milton J. Wallace 7,069,351 87,900
Morton L. Weinberger 7,068,814 88,437
27
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
PART II. Other Information - continued
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibit No. Description
----------- -----------
2.1 Agreement and Plan of Merger, by and between Imperial Industries, Inc.
and Imperial Merger Corp. dated October 12, 1998 (Incorporated by
reference to Form S-4 Registration Statement, Exhibit 2).
3.1 Certificate of Incorporation of the Company, (Incorporated by
reference to Form S-4 Registration Statement, Exhibit 3.1).
3.2 Amendment to Certificate of Incorporation of the Company (Incorporated
by reference to Form 10-K dated December 31, 2001, Exhibit 3.2).
3.3 By-Laws of the Company, (Incorporated by reference to Form S-4
Registration Statement, Exhibit 3.2).
10.1 Consolidating, Amended and Restated Financing Agreement by and between
Congress Financial Corporation and Premix-Marbletite Manufacturing
Co., Acrocrete, Inc. and Just-Rite Supply, Inc. dated January 28,
2000. (Incorporated by reference to Form 10-K dated December 31, 1999,
File No. 1-7190, Exhibit 10-1).
10.2 Employee Stock Option Plan (Incorporated by reference to Form 10-K
dated December 31, 2000, Exhibit 10.4).
10.3 Directors Stock Option Plan (Incorporated by reference to Form 10-K
dated December 31, 2000, Exhibit 10.5).
10.4 Form of Promissory Note issued in Settlement of Preferred Stock
Dissenters Rights. (Incorporated by reference to Form 10-Q dated March
31, 2003, Exhibit 10.4)
10.5 Amendment No. 3 to Consolidating, Amended and Restated Financing
Agreement by and between Congress Financial Corporation and
Premix-Marbletite Manufacturing Co., Acrocrete, Inc. and Just-Rite
Supply, Inc. dated April 22, 2003. (Incorporated by reference to Form
10-Q dated March 31, 2003, Exhibit 10.5)
31.1 Certification Pursuant to Rule 15-d-14(a)
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
-------------------
None.
28
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed on it
behalf by the undersigned thereunto duly authorized.
IMPERIAL INDUSTRIES, INC.
By: /S/ Howard L. Ehler, Jr.
-------------------------
Howard L. Ehler, Jr.
Principal Executive Officer/
Chief Financial Officer
By: /S/ Betty Jean Murchison
-------------------------
Betty Jean Murchison
Chief Accounting Officer/
Assistant Vice President
August 12, 2003
29