SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
Commission file number 1-7190
------
IMPERIAL INDUSTRIES, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 65-0854631
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1259 Northwest 21st Street, Pompano Beach, Florida 33069-1417
--------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 917-7665
--------------
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.01 par value
----------------------------
(Title of Class)
Indicate by check mark whether the registrant(1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. YES X NO _.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock of the Registrant held
by non-affiliates computed by reference to the average bid and asked price of
the registrant's Common Stock ($.01 par value) on March 19, 2004 is: $2,117,166
Number of shares of Imperial Industries, Inc. Common Stock ($.01 par
value) outstanding on March 19, 2004: 9,235,434
Documents Incorporated by Reference
Certain information required for Part III of this Report is
incorporated herein by reference to the Proxy Statement for the Registrant's
2004 Annual Meeting of Stockholders.
TABLE OF CONTENTS
PART I
Page
Item 1 Business 3
Item 2 Properties 10
Item 3 Legal Proceedings 11
Item 4 Submission of Matters to a Vote of Security Holders 12
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholders Matters 13
Item 6 Selected Financial Data 14
Item 7 Managements Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 7A Quantitative and Qualitative Disclosures about Market
Risk 31
Item 8 Financial Statements and Supplementary Data 32
Item 9 Changes in and Disagreement with Accountants on
Accounting and Financial Disclosure 59
Item 9A Controls and Procedures 59
PART III
Item 10 Directors and Executive Officers of the Registrant 60
Item 11 Executive Compensation 61
Item 12 Security Ownership of Certain Beneficial Owners and
Management 61
Item 13 Certain Relationships and Related Transactions 61
Item 14 Principal Accounting Fees and Services 61
PART IV
Item 15 Exhibits, Financial Statement Schedules and Reports
on Form 8-K 62
Signatures 64
2
PART I
Item 1. Business
Imperial Industries, Inc., (the "Company") is a
Delaware corporation, which through its predecessor
corporation has been in existence since 1968. The Company's
executive offices are located at 1259 Northwest 21st Street,
Pompano Beach, Florida 33069 and the telephone number at such
offices is (954) 917-7665.
Merger
------
In December 1998, the Company approved a plan merging
it into a wholly-owned subsidiary of the Company effective
December 31, 1998, (the "Merger"). Upon consummation of the
Merger, each share of common stock outstanding prior to the
Merger was automatically converted to one share of common
stock of the Company. Each share of preferred stock
outstanding prior to the Merger was converted, at the holder's
option, into either (a) $4.75 in cash and ten shares of the
Company's common stock, or (b) $2.25 in cash, and 8%
subordinated debenture, face value $8.00, and five shares of
the Company's common stock.
In accordance with the Merger, the Company issued
$984,962 of 8% Subordinated Debentures, 1,574,610 shares of
common stock and was obligated to pay $732,550 in cash to the
former preferred stockholders who did not elect dissenters'
rights. The Debentures were retired in 2001.
Holders representing 81,100 preferred shares elected
dissenters' rights under Delaware law. In April 2003, the
Company and the dissenting preferred stockholders reached a
settlement. In accordance with the settlement, the Company
paid the dissenting preferred stockholders $12.00 per share in
cash ($973,000) and issued a 5.6% promissory note for $10.00
per share ($811,000) due May 1, 2006. The principal balance of
the note would be reduced to $7.00 per share ($567,700) in the
event the Company prepays the note in full prior to November
1, 2004. On March 29, 2004, the Company prepaid $400,000 of
the principal on the Note. (See "Note 1" of Notes to
Consolidated Financial Statements.)
General
-------
The Company, through its subsidiaries, is engaged in
the manufacture and distribution of building materials to
building materials dealers and others located primarily in
Florida, Mississippi, Georgia and Alabama and to a lesser
extent, other states in the Southeastern part of the United
States, as well as foreign countries. The Company has three
manufacturing facilities for its products and ten distribution
outlets through which it markets certain of its
3
Item 1. Business (continued)
General (continued)
-------------------
manufactured products and other purchased products directly to
developers, builders, contractors, and sub-contractors.
The Company's business is directly related to the
level of activity in the new and renovation construction
market in the Southeast United States. The Company's products
are used by developers, general contractors and subcontractors
in the construction or renovation of residential, multi-family
and commercial buildings and swimming pools. Demand for new
construction is related to, among other things, population
growth. Population growth, in turn, is principally a function
of migration of new residents to the Company's markets. When
economic conditions reduce migration, demand for new
construction would be expected to decrease. Construction
activity is also affected by the size of the inventory of
available housing units, mortgage interest rates, availability
of financing and local government growth management policies.
The Company's operations are directly related to the general
economic conditions existing in the Southeastern part of the
United States.
The Company manufactures product through its
wholly-owned subsidiaries, Premix-Marbletite Manufacturing Co.
("Premix") and Acrocrete, Inc. ("Acrocrete"). The Company
distributes its own and complementary products through its
wholly-owned subsidiary, Just-Rite Supply, Inc. ("Just-Rite").
The manufacturing facilities primarily produce and distribute
stucco, roof tile mortar and plaster products, while the
distribution facilities expand the Company's product line by
distributing gypsum, roofing and insulation products, as well
as products manufactured by the Company.
Stucco products are applied as a finishing coat to
exterior surfaces and to swimming pools. Roof tile mortar is
used to adhere cement roof tiles to the roof. Plaster
customarily is used to finish interiors of structures.
Premix
------
Premix, together with its predecessors, has been in
business for over 40 years. The names "Premix" and
"Premix-Marbletite" are among the registered trademarks of
Premix. The Company believes the trade names of its
manufactured products represent a substantial benefit to the
Company because of industry recognition and brand preference.
Premix manufactures stucco, roof tile mortar, plaster and
swimming pool finishes. The products manufactured by Premix
basically are a combination of portland (or masonry) cement,
sand, lime, marble and a plasticizing agent and other
chemicals, including color-impregnating materials.
4
Item 1. Business (continued)
Premix (continued)
------------------
Premix products accounted for approximately 25%, 24%
and 22% of the Company's consolidated annual revenues in the
fiscal years ended December 31, 2003, 2002 and 2001,
respectively.
Premix has an exclusive license to manufacture and
sell a roof tile mortar product throughout the State of
Florida and certain foreign countries. To date, a majority of
all roof tile mortar sales have been derived from South
Florida. The Company has expanded its marketing efforts for
this product to other areas of Florida.
Acrocrete
---------
Acrocrete has manufactured synthetic acrylic stucco
products since 1988. The Company's trade name "Acrocrete" and
certain of its manufactured products are described by trade
names protected by registered trademarks. Acrocrete's
products, used principally for exterior wall coatings, broaden
and complement the range of products produced and sold by
Premix. Management believes acrylic stucco products have
certain advantages over traditional cementitious stucco
products for certain types of construction applications
because synthetic acrylic products provide a hard durable
finish with stronger color retention properties. Further,
acrylic stucco products have improved flexibility
characteristics, which minimizes the problems of cracking of
cement coating. Acrocrete's product system provides for energy
efficiency for both residential and commercial buildings.
For the fiscal years ended December 31, 2003, 2002
and 2001, Acrocrete's sales accounted for approximately 23%,
25% and 22%, respectively, of the Company's consolidated
annual revenues.
Just-Rite
---------
The Company's subsidiary Just-Rite owns and operates
the Company's wholesale distribution outlets. Prior to 2000
these outlets were operated through Acrocrete. During 2000,
Just-Rite acquired nine additional building distribution
outlets to diversify its product offering to the construction
market to include gypsum, roofing, masonry, insulation
products, as well as installation services beyond those
supported by the Company's manufacturing operation. Management
believes the acquired distribution outlets position the
Company to gain a greater market share for its manufactured
products through a more direct sales approach to the end-user
and to expand operations by distributing a wider range of
building materials to the construction industry that are
complementary to its existing product lines. In 2001, the
Company closed
5
Item 1. Business (continued)
Just-Rite (continued)
---------------------
three distribution outlets and eliminated installation
services being provided at two other distribution outlets
related to the acquired operations. In 2002, the Company
closed another distribution outlet associated with the
acquired operations and opened a new outlet in South Florida.
In 2003, an additional distribution outlet associated with the
acquired operations was closed.
For the fiscal years ended December 31, 2003,
2002,and 2001, Just-Rite's sales, excluding the sale of Premix
and Acrocrete products, accounted for approximately 52%, 51%
and 56% of the Company's consolidated annual revenues.
Acquisition Opportunities and Present Status
--------------------------------------------
The Company believes the gypsum, roofing and stucco
building products distribution industries are fragmented and
have the potential for consolidation in response to the
competitive disadvantages faced by smaller distributors.
Management believes that these industries are characterized by
a significant number of relatively small privately-owned,
local, relationship-based companies that emphasize service,
delivery and reliability, as well as competitive pricing and
breadth of product line to their customers. The competitive
environment for these distributors, in combination with the
desire for owners of certain of these distributors to gain
liquidity, provides an opportunity for expansion through
acquisition. The Company believes that opportunities exist for
a Company which has the ability to source and distribute
products effectively to serve the building materials industry
and to effect cost savings through economies of scale which
can be applied to companies that may be acquired in these
industries.
The Company's primary focus recently has been to
complete the integration of the distribution outlets acquired
in 2000 with its existing operations and to attempt to effect
cost savings and gain productivity in the consolidation of
these acquired operations. The Company has taken action to
improve operating performance in the Company's distribution
facilities through:(i) an approximate 32% reduction in
workforce (68 employees) in 2001; (ii) closure of three
under-performing distribution locations in Mississippi in
2001, one in Florida in 2002 and one in Alabama in 2003; (iii)
elimination of installation services at two other locations;
and (iv) development of a consolidated purchasing program in
an attempt to realize greater savings from the purchase and
resale of products. While the Company currently will emphasize
internal growth through gains in productivity of operations,
the Company believes there exists a number of possible
acquisition candidates. The Company presently is not seeking
any acquisitions and does not have any binding
6
Item 1. Business (continued)
Acquisition Opportunities and Present Status (continued)
--------------------------------------------------------
understanding, agreement or commitment regarding any potential
acquisition. The Company may pursue acquisitions in the future
if such acquisitions will enhance Company operations. In 2004,
the Company intends to seek financing to purchase equipment to
modernize its manufacturing facilities in an effort to gain
efficiencies and productivity in its manufacturing processes.
Suppliers
---------
Premix's raw materials and products are purchased
from approximately 35 suppliers. While seven suppliers account
for approximately 74% of Premix's purchases, Premix is not
dependent on any one supplier for its requirements. Equivalent
materials are readily available from other sources at similar
prices.
Acrocrete's raw materials are purchased from
approximately 30 suppliers, of which five account for
approximately 74% of Acrocrete's raw material purchases.
However, equivalent materials are available from several other
sources at similar prices and Acrocrete is not dependent on
any one supplier for its requirements.
The Just-Rite distribution outlets sell products of
many suppliers. Just-Rite purchases a significant amount of
its products through buying group organizations, companies
which consolidate product purchase orders from many
independent distributors and order product from various
vendors on the distributors' behalf to gain consolidated
purchasing efficiencies for each distributor. One such buying
organization accounted for approximately 28%, 23% and 25% of
Just-Rite purchases in 2003, 2002 and 2001. However, there are
other buying organizations in which the Company believes it
can obtain product at the same or similar prices.
Marketing and Sales
-------------------
The Company's marketing and sales strategy is to
create a profit center for the products it manufactures, as
well as enlarging its product offerings to include certain
complementary products and other building materials
manufactured by other companies. The complementary items are
purchased by the Company and held in inventory, together with
manufactured products, for sale to customers. Generally, sales
orders are filled out of existing inventory within several
days of receipt of the order. The total package sales approach
to the new and renovation construction markets is targeted at
both the end user of the Company's products, being primarily
the contractor or subcontractor, and the distributor,
principally building materials dealers who purchase products
from the Company and sell to the end-user, and in some
instances, to retail customers.
7
Item 1. Business (continued)
Marketing and Sales (continued)
-------------------------------
While the Company's manufactured sales have been
typically to distributors, the Company focuses marketing
efforts on the contractor/subcontractor end user to create a
brand preference for the Company's manufactured products. No
one distributor has accounted for 10% or more of total sales
during the past three years. The Company believes the loss of
any one distributor would not cause a material loss in sales
because the brand preference contractors and subcontractors
have developed for the Company's manufactured products
generally cause the user to seek a distributor who carries the
Company's products. The Company markets its products to
distributors through Company salesmen located in the
Southeastern United States who promote both Premix and
Acrocrete products. However, direct sales of the Company's
manufactured products and other building materials to end
users through Just-Rite accounted for approximately 24% of
total revenues in 2003.
The Company established its first distribution
facility in 1994 when it opened an outlet in Savannah, Georgia
to sell its Acrocrete products and certain complementary
products manufactured by other companies to the end user.
Over the following several years the Company has
opened new distribution outlets and expanded its distribution
facilities into other parts of Florida, as well as Alabama and
Mississippi to gain market share through acquisitions and
start-ups. The Company currently has ten (10) distribution
outlets in Florida, Georgia, Mississippi and Alabama.
Each facility contains between approximately 4,000 to
29,000 square feet. The distribution facilities are designed
to promote product brand preference to the contractor and
sub-contractor, and also to improve service capabilities,
increase market share, increase profit margins from the sale
of the Company's products and to expand operations by
distributing a wide range of products to the construction
industry.
Seasonality
-----------
The sale of the Company's products in the
construction market for the Southeastern United States is
somewhat seasonal due in part to periods of adverse weather,
with a lower rate of sales historically occurring in the
period December through February compared to the rest of the
year. Primarily as a result of acquisitions consummated in
2000 located in Northwest Florida, Alabama and Mississippi,
management believes the Company's sales are more subject to
seasonal fluctuation than in previous periods.
8
Item 1. Business (continued)
Competition
-----------
The Company's business is highly competitive. Premix
and Acrocrete encounter significant competition from local,
independent firms, as well as regional and national
manufacturers of acrylic, cement and plaster products, most of
whom manufacture products similar to those of Premix and
Acrocrete. The Company's distribution outlets encounter
significant competition from local independent distributors as
well as regional and national distributor who sell similar
products. Many of these competitors are larger, more
established and better financed than the Company. The Company
believes it can compete with the other companies based upon
product performance and quality, customer service and prices
through maintaining lower overhead than larger national
companies.
Environmental Matters
---------------------
The Company is subject to various federal, state and
local environmental laws and regulation in the normal course
of its business. Although the Company believes that its
manufacturing, handling, using, selling and disposing of its
raw materials and products are in accord with current
environmental regulations, future developments could require
the Company to make unforeseen expenditures relating to
environmental matters. Increasingly strict environmental laws,
standards and environmental policies may increase the risk of
liability and compliance costs associated with the Company's
operations. Capital expenditures for this purpose have not
been material in past years, and expenditures for 2004 to
comply with existing laws and regulations are also not
expected to have a material effect on the Company's financial
position, results of operations or liquidity.
Employees
---------
The Company and its subsidiaries had 148 full time
employees as of December 31, 2003. The Company considers its
employee relations to be satisfactory. The Company's employees
are not subject to any collective bargaining agreement.
Available Information
---------------------
Copies of Imperial Industries, Inc.'s quarterly
reports on Form 10-Q, annual report on Form 10-K and current
reports on Form 8-K, and any amendments to the foregoing, will
be provided without charge to any shareholder submitting a
written request to the Secretary of the Company or by calling
954-917-7665. All of the Company's SEC filings are also
available on the Company's website at
www.imperialindustries.com as soon as reasonably practicable
after having been electronically filed or furnished to the
SEC. In addition, the Company's Code of Business Conduct is
9
Item 1. Business (continued)
Available Information (continued)
available at that website address and will be provided without
charge to any shareholder submitting a written request.
Additionally, materials the Company files with the
SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Information on the operation of the
Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site
(www.sec.gov) that contains reports, proxy and information
statements, and other information regarding issuers that file
electronically with the SEC.
Item 2. Properties
The Company and its subsidiaries conduct operations
from a total of 13 facilities in Florida, Georgia, Mississippi
and Alabama. The location and size of the Company's facilities
and the nature of the operations in which such facilities are
used, are as follows:
Approximate Owned/
Location Sq. Footage Leased Company
-------- ----------- ------ -------
Pompano Beach, FL 19,600 Leased Premix
Winter Springs, FL 26,000 Owned Premix
Kennesaw, GA 20,400 Leased Acrocrete
Tampa, FL 8,470 Owned Just-Rite
Jacksonville, FL 11,400 Leased Just-Rite
Norcross, GA 12,200 Leased Just-Rite
Dallas, GA 6,400 Leased Just-Rite
Rainbow City, AL 10,000 Leased Just-Rite
Destin, FL 7,680 Leased Just-Rite
Panama City Beach, FL 9,540 Leased Just-Rite
Tallahassee, FL 17,500 Leased Just-Rite
Gulfport, MS 28,800 Leased Just-Rite
Port St. Lucie, FL 4,000 Leased Just-Rite
The Just-Rite distribution outlets typically consist
of a warehouse building and supply yard for the inventory and
sale of products directly to the end user.
Except for the facility in Tallahassee, all leased
properties are leased from unaffiliated third parties. The
Tallahassee facility is leased from the former owner of
Tallahassee Gypsum Dealers, Inc., who sold her business to
Just-Rite in April 2000 and is currently an employee of the
Company.
Management believes that the Company's facilities and
equipment are well-maintained, in good operating condition and
sufficient for its present operating needs.
10
Item 3. Legal Proceedings
As of March 23, 2004, the Company's subsidiary
Acrocrete, together with other parties, are defendants in 56
lawsuits pending in various Southeastern states, brought by
homeowners, homeowner associations, contractors and
subcontractors, or their insurance companies, claiming
moisture intrusion damage as a result of the use of Exterior
Insulation Finish Wall Systems ("EIFS"), on single and
multi-family residences and one commercial project. The
Company's insurance carriers have accepted coverage under a
reservation of rights for 41 of these claims and are providing
a defense. Acrocrete expects its insurance carriers will
accept coverage for the other 15 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 EIFS are not restricted
to Acrocrete products used in an EIFS application, but rather
are an industry-wide issue. There never has 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 window, roof flashing, decking and the lack of
caulking.
As insurance markets for moisture intrusion type
coverage have all but disappeared, the Company was forced on
March 15, 2004 to renew its existing products liability
coverage with an exclusion for EIFS exposure. The Company's
management is evaluating the creation of a self insurance fund
for these types of claims, and believes that with existing
coverage covering all potential claims for goods sold prior to
March 15, 2004, that for the foreseeable future any uninsured
claims should not have a material adverse effect on the
Company's financial position. Sales of products used in EIFS
applications are believed to represent less than 20% of the
Company's revenues.
On June 15, 1999, the Company's subsidiary 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,
which as to Premix alleged that certain materials, purportedly
provided by Premix to the Developers/Contractor and used to
anchor balcony railings to the structure were defective.
Premix believes it has meritorious defenses to these claims.
The Company's insurance carrier has not made a decision
regarding coverage to date. Since the inception of this matter
in 1999 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
11
Item 3. Legal Proceedings (continued)
outcome of this litigation, however the Company believes
that its ultimate exposure, if any, is not material.
Premix, Acrocrete and Just-Rite are engaged in other
legal actions and claims arising in the ordinary course of its
business, none of which is believed to be material to the
Company.
On April 23, 1999, certain dissenting preferred
stockholders owning shares of the Company's preferred stock
filed a petition for appraisal in the Delaware Chancery Court
to determine the fair value of the shares at December 31,
1998, the effective date of the Company's Merger. On April 30,
2003, the Company reached a settlement with the dissenting
preferred stockholders. (See Note (1) of the Consolidated
Financial Statements.)
In March 2003, Just-Rite instituted litigation
against a former employee, employed at the Company's Gulfport,
Mississippi distribution facility, and others, due to alleged
violations by the employee of his non-compete agreements
related to the acquisition of the business at that location.
The litigation against the former employee seeks to enjoin
further violations of his non-compete agreement and for
damages resulting from such actions. In connection with the
litigation, Just-Rite discontinued payments on a promissory
note with a remaining balance in the aggregate amount of
$128,000, issued as partial consideration for the acquisition
of the Gulfport, Mississippi facility. The beneficial holders
of the promissory note (the former employee and the other
former owner) have initiated claims against Just-Rite for
payment of the obligation. In February 2004, the Court entered
an Order ruling that the former employee had violated the
terms of a preliminary injunction barring him from further
competing against Just-Rite and ordered that certain sanctions
be imposed.
The Company is aggressively defending all of the
lawsuits and claims described above, and while the Company
does not believe these claims will have a material adverse
effect on the Company's financial position, given the
uncertainty and unpredictability of litigation there can be no
assurance of this.
Item 4. Submission of Matters to a Vote of Security Holders
None.
12
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The Company's Common Stock is traded in the
over-the-counter market, and reported on the OTC Bulletin
Board. The following table sets forth the high and low bid
quotations of the Common Stock for the quarters indicated, as
reported by the National Quotation Bureau, Inc. Such
quotations represent prices between dealers and do not include
retail mark-up, mark-down, or commission, and may not
necessarily represent actual transactions.
Fiscal 2002 High Low
----------- ---- ---
First Quarter $.17 $.12
Second Quarter .26 .15
Third Quarter .22 .14
Fourth Quarter .16 .12
Fiscal 2003 High Low
----------- ---- ---
First Quarter $.15 $.13
Second Quarter .20 .15
Third Quarter .33 .16
Fourth Quarter .30 .17
The Company has not paid any cash dividends on its
Common Stock since 1980 and does not anticipate paying any in
the foreseeable future.
On March 19, 2004, the Common Stock was held by 1,831
stockholders of record.
As of March 19, 2004, the closing bid and asked
prices of the Common Stock was $.27 and $.35, respectively.
13
Item 6. Selected Financial Data
The following is a summary of selected financial data
(in thousands except as to per share amounts) for each of the
five years in the period ended December 31, 2003:
Statements of Operations Data Year Ended December 31,
----------------------------- ------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------------------------------------------------------------------
Net Sales $41,069 $36,504 $39,514 $40,730 $ 22,604
------------------------------------------------------------------------
Cost of sales 28,438 25,099 27,254 28,218 15,198
------------------------------------------------------------------------
Selling, general and administrative
expenses 11,457 10,564 11,367 10,985 5,932
------------------------------------------------------------------------
Interest expense (454) (531) (825) (806) (475)
------------------------------------------------------------------------
Impairment charge - (96) (238) - -
------------------------------------------------------------------------
Miscellaneous income, net 218 129 77 199 34
------------------------------------------------------------------------
Income (Loss) before income taxes
and cumulative effect of change in
accounting principle for SFAS 142 938 343 (93) 920 1,033
------------------------------------------------------------------------
Income tax (expense) benefit, net (298) (448) (128) (386) 187
------------------------------------------------------------------------
Cumulative effect of change in
accounting principle for SFAS 142 - (789) - - -
------------------------------------------------------------------------
Net income (loss) 640 (894) (221) 534 1,220
------------------------------------------------------------------------
Less: Provision for settlement
of appraisal rights obligation - (313) - - -
------------------------------------------------------------------------
Net income (loss) applicable to
common stockholders $ 640 $(1,207) $ (221) $ 534 $ 1,220
------------------------------------------------------------------------
Net income (loss) per share
applicable to common stockholders
Basic $ 0.07 $ (0.13) $ (0.02) $ 0.06 $ 0.15
------------------------------------------------------------------------
Diluted $ 0.07 $ (0.13) $ (0.02) $ 0.06 $ 0.15
------------------------------------------------------------------------
Number of shares used in computation
of income (loss) per share: Basic 9,235 9,229 9,214 8,936 8,199
------------------------------------------------------------------------
Diluted 9,290 9,229 9,214 9,070 8,390
------------------------------------------------------------------------
Balance Sheets Data As of December 31,
------------------- ------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------------------------------------------------------------------
Working capital $ 2,173 $ 1,432 $ 2,743 $ 1,607 $ 3,447
------------------------------------------------------------------------
Total assets $14,918 $13,707 $14,591 $16,792 $ 8,768
------------------------------------------------------------------------
Long term debt,
less current maturities $ 848 $ 961 $ 1,440 $ 1,402 $ 1,328
------------------------------------------------------------------------
Obligation for appraisal rights $ 568 $ 1,541 $ 1,140 $ 877 $ 877
------------------------------------------------------------------------
Common stock and other
stockholders' equity $ 3,780 $ 3,140 $ 4,343 $ 4,559 $ 3,514
------------------------------------------------------------------------
Current ratio 1.2 to 1 1.1 to 1 1.4 to 1 1.2 to 1 2.1 to 1
------------------------------------------------------------------------
14
Item 7. 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 its effect on the construction industry
are uncertain and cannot be predicted.
Special Note Regarding Forward-Looking Statements
-------------------------------------------------
This Form 10-K 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, the following: realization of tax benefits; impairment
of long-lived assets, including goodwill; the ability to
collect our account or note receivables when due or within a
reasonable period of time after they become due and payable;
the cost of capital including interest rates and related fees
and expenses may increase; the outcome of any current or
future litigation; the adequacy or availability of insurance
coverage for certain types of future product damage claims;
the competitive pressure in the industry; unexpected product
shortages; general economic and business conditions may be
less favorable than expected; the ability to implement and the
effectiveness of business strategy and development plans;
quality of management; business abilities and judgment of
personnel; availability of qualified personnel; changes in
accounting policies and practices, as may be adopted by
regulatory agencies as well as the Financial Accounting
Standards Board; 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. We cannot predict such risks nor can
we assess the impact, if any, of such risks on our business or
the extent to which any risk, or combination of
15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Special Note Regarding Forward-Looking Statements (continued)
-------------------------------------------------------------
risks may cause actual results to differ from those projected
in any forward-looking statements.
These forward-looking statements speak only as of the
date of this document. We do 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.
Critical Accounting Policies
----------------------------
The Company prepares its consolidated financial
statements in accordance with accounting principles generally
accepted in the United States of America, which require
management to make estimates and assumptions (see Note 2 to
the consolidated financial statements). As with all estimates
and assumptions, they are subject to an inherent degree of
uncertainty. Management bases these estimates and assumptions
on historical results and known trends as well as its
forecasts as to how these might change in the future. Actual
results could differ from these estimates and assumptions. The
Company believes that the following critical accounting
policies involve a higher degree of judgment and complexity.
Revenue Recognition and Related Expenses
----------------------------------------
The Company primarily recognizes sales based upon
shipment of products to its customers and has procedures in
place at each of its subsidiaries to ensure that an accurate
cut-off is obtained for each reporting period.
Provisions for the estimated costs for bad debt are
recorded in selling, general and administrative expense at the
end of each reporting period. The amounts recorded are
generally based upon the payment histories of customers while
also factoring in any changes in business conditions, such as
competitive conditions in the market and deterioration in the
economic condition of the construction industry, among other
things, which may affect customers' ability to pay. As a
result, significant judgment is required by the Company in
determining the appropriate amounts to record and such
judgments may prove to be incorrect in the future. The Company
believes that its procedures for estimating such amounts are
reasonable and historically have not resulted in material
adjustments in subsequent periods when estimates are adjusted
to the actual amounts. Misjudgments by the Company in
estimating its allowance for doubtful accounts could have a
material adverse affect on the Company's financial condition,
results of operations and cash flow.
16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Inventory Valuation
-------------------
The Company values inventories at the lower of cost
or market using the first-in, first-out (FIFO) method. The
Company will record provisions, as appropriate, to write- down
obsolete and excess inventory to estimated net realizable
value. The process for evaluating obsolete and excess
inventory often requires the Company to make subjective
judgments and estimates concerning future sales levels,
quantities and prices at which such inventory will be able to
be sold in the normal course of business. Accelerating the
disposal process or incorrect estimates of future sales
potential may cause the actual results to differ from the
estimates at the time such inventory is disposed or sold. The
Company believes that its procedures for estimating such
amounts are reasonable and historically have not resulted in
material adjustments in subsequent periods when the estimates
are adjusted to the actual amounts. However, if actual market
conditions are less favorable than those assumed by
management, additional inventory write-downs may be required.
As a result, the Company's financial condition, results of
operations and cash flow could be adversely affected.
Asset Impairment
----------------
The Company's review of long-lived assets and
goodwill requires the Company to initially estimate the
undiscounted future cash flow of these assets, whenever events
or changes in circumstance indicate that the carrying amount
of these assets may not be fully recoverable. If such analysis
indicates that a possible impairment may exist, the Company is
required to then estimate the fair value of the asset,
principally determined either by third party appraisals, sales
price negotiations or estimated discounted future cash flows,
which includes making estimates of the timing of the future
cash flows, discount rates and reflecting carrying degrees of
perceived risk.
The determination of fair value includes numerous
uncertainties. For example, in determining fair value of
goodwill utilizing discounted forecasted cash flows,
significant judgments are made concerning future purchased and
manufactured goods sale prices, operating, selling and
administrative costs, interest and discount rates,
technological changes, consumer demand, governmental
regulations and the effects of competition. The Company
believes that it has made reasonable estimates and judgments
in determining whether its long-lived assets and goodwill have
been impaired. However, if there is a material change in the
assumptions used in the Company's determination of fair values
or if there is a material change in the conditions or
circumstances influencing fair value, the Company could be
required to recognize a material non-cash impairment charge.
17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Income Taxes
------------
The Company accounts for income taxes using the
liability method in accordance with SFAS No. 109 "Accounting
for Income Taxes" ("SFAS No. 109"), which requires that the
deferred tax consequences of temporary differences between the
amounts recorded in the Company's Consolidated Financial
Statements and the amounts included in the Company's federal
and state income tax returns be recognized in the balance
sheet. As the Company generally does not file its income tax
returns until well after the closing process for the December
31, financial statements is complete, the amounts recorded at
December 31 reflect estimates of what the final amounts will
be when the actual income tax returns are filed for that
fiscal year. In addition, estimates are often required with
respect to, among other things, the appropriate state income
tax rates to use in the various states that the Company and
its subsidiaries are required to file, the potential
utilization of operating and capital loss carry-forwards for
both federal and state income tax purposes and valuation
allowances required, if any, for tax assets that may not be
realizable in the future. The Company believes that the
amounts recorded as deferred income tax assets will be
recoverable through future taxable income generated by the
Company. Although there can be no assurance that all
recognized deferred tax assets will be fully recovered, the
Company believes the procedures and estimates used in its
accounting for income taxes are reasonable and in accordance
with established tax law. The Company's anticipated profits
from future operations may be adversely affected by various
factors including, but not limited to, declines in customer
demand, increased competition, the deterioration in general
economic and business conditions, as well as many other
factors, including those noted under "Special Note Regarding
Forward-Looking Statements" and "Market Risks".
Overview
--------
The Company's net sales increased approximately 12.5%
in 2003 as compared to 2002. Demand for products sold by the
Company was strong in 2003 primarily due to strength in the
new housing and commercial construction markets in the
Company's trade area in the Southeastern United States and
market share gains in selected territories. Management expects
the strength in new construction activity to remain strong in
the Company's principal markets in 2004.
The Company's gross margins in 2003 were similar to
2002. Selling, general and administrative expenses were
adversely affected in 2003 by higher inflationary costs
related primarily to fuel costs and delivery expenses,
insurance expense and payroll costs. The Company expects these
costs will continue to rise in 2004.
18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Overview (continued)
--------------------
The Company had cash, cash equivalents and restricted
cash of $1,870,000 as of December 31, 2003. In 2003, the
Company increased its line of credit with its commercial
lender from $6,000,000 to $7,000,000 to partially fund a
$973,000 cash payment to former preferred stockholders in
connection with the settlement of appraisal rights litigation
and to finance increased working capital requirements because
of increased business. On March 29, 2004 the Company prepaid
$400,000 of the remaining $568,000 note due to the former
preferred stockholders. Management believes that available
liquidity plus expected operating cash flows will meet the
Company's regular cash needs in 2004, including the cash
requirements associated with its regular capital expenditures
program and the balance due on the note payable to the former
stockholders. In addition, the Company is presently evaluating
a plant modernization capital expenditure project for its
manufacturing facilities to enhance its manufacturing
efficiency and productivity. New financing would be required
for these capital expenditures, which is expected to aggregate
approximately $1,000,000. There can be no assurance that funds
would be available on terms acceptable to the Company, or
available at all, to fund this capital project.
Results of Operations
---------------------
Year Ended December 31, 2003 compared to 2002
---------------------------------------------
Net sales in 2003 increased $4,565,000, or
approximately 12.5% compared to 2002. The increase in sales is
principally due to growth in the sales of the Company's
manufactured products and increased sales at the Company's
distribution facilities, including $1,175,000, in 2003, in
increased sales generated from a new distribution facility
opened in the third quarter of 2002 in Port St. Lucie,
Florida. The increased sales of the new distribution facility
were in part offset by a sales reduction of approximately
$447,000 realized in 2002 from the Company's former Pensacola,
Florida distribution facility closed in the third quarter of
2002.
Gross profit as a percentage of net sales for 2003
was approximately 30.8% compared to 31.2% in 2002. Increases
in purchase discounts and vendor rebates resulting from
improved programs with its suppliers in 2003 were not
sufficient to offset cost increases of raw materials and the
adverse affect of higher insurance costs of $136,000
associated with manufacturing expenses included in cost of
sales during the year. The comparative gross profit margins
for 2003 and 2002 reflect similar competitive conditions in
the Company's markets for the sales of both its manufactured
and distributed products.
19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Year Ended December 31, 2003 compared to 2002 (continued)
---------------------------------------------------------
The Company is continuing its efforts 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 in 2003 were approximately 27.9%
compared to 28.9% in 2002. Selling, general and administrative
expenses increased $893,000 in 2003, or approximately 8.5%
compared to 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 $78,000
of the increase in expenses for 2003 compared to 2002. For the
year ended December 31, 2003 the remaining increase in
selling, general and administrative expenses of $825,000 was
primarily attributable to higher sales and inflationary cost
pressures which included a $189,000 increase in delivery and
fuel charges, a $127,000 increase in insurance expense, a
$89,000 increase in maintenance expenses, and a $386,000
increase in payroll costs. Increases in other operating
expenses, primarily those associated with the increase in
sales, accounted for the balance of the increase in operating
expenses in 2003.
In 2003, the Company closed an unprofitable
distribution facility in Foley, Alabama. The Foley operations
including estimated allowances for the termination of a lease
and disposal of inventory accounted for losses of
approximately $379,000 in 2003 compared to $174,000 in 2002.
In addition, the Company incurred losses of approximately
$36,000 in 2003 related to the completion of the disposition
of assets associated with a distribution facility closed in
2002.
Interest expense decreased $77,000 in 2003, or
approximately 14.5%, compared to 2002. The decrease in
interest expense in 2003 was primarily due to reduced
borrowing rates under the Company's interest bearing
obligations compared to 2002, principally the appraisal rights
obligations incurred as a result of a settlement completed on
April 30, 2003.
Miscellaneous income, net of expenses, increased
$89,000 in 2003, compared to 2002. The increase in
miscellaneous income in 2003 is attributed primarily to the
Company recognizing greater income for late charges on past
due accounts receivables and gains from the sale of certain
property and equipment.
20
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Year Ended December 31, 2003 compared to 2002 (continued)
---------------------------------------------------------
In 2003, the Company recognized income tax expense of
$298,000 compared to income tax expense (excluding tax impact
of goodwill impairment) of $448,000 for 2002.
After giving effect to the above factors, the Company
had net income of $640,000, or $.07 per fully diluted share,
for 2003, compared to a net loss of $105,000 in 2002 before
the cumulative effect of change in accounting principle (as
discussed below)of $789,000 and a provision for settlement of
appraisal rights obligation of $313,000.
The 2002 results were adversely impacted by a
$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 has no remaining goodwill on
its balance sheet at December 31, 2003 and 2002. 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 2002 financial
results as a cumulative change in accounting principle.
As a result of the non-cash goodwill impairment
charge and provision for settlement of appraisal rights
obligation, the Company incurred a net loss of $1,207,000, or
$.13 per fully diluted share, for 2002.
Year Ended December 31, 2002 compared to 2001
---------------------------------------------
Net sales in 2002 decreased $3,010,000, or
approximately 7.6% compared to 2001. The closure of certain
under-performing distribution facilities, and the elimination
of installation services and sale of gypsum wallboard at
certain locations during 2001, accounted for the greatest
amount of sales decline in 2002 compared to 2001. The closure
of the under-performing operations in 2001 represented
$2,054,000 of the sales decline, prior to giving any
consideration to the elimination of gypsum wallboard at
certain other locations, including the Company's distribution
facility in Pensacola, Florida, which was subsequently closed
in the third quarter of 2002. The closure of the Pensacola,
Florida facility accounted for the remainder of the decrease
in sales. Gross profit as a percentage of net sales for 2002
was approximately 31.2% compared to 31.0% in 2001. The
comparative gross profit margins for 2002 and 2001 reflect
similar competitive pressures in the Company's markets for the
sales of both its manufactured and distributed products. The
Company increased its sales force in early 2002 to
21
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Year Ended December 31, 2002 compared to 2001 (continued)
---------------------------------------------------------
further its efforts to build market share and to promote the
sales of its higher gross profit margin manufactured products
to the end-user and decrease reliance on sales of lower gross
profit margin gypsum products and other products purchased
from non-affiliated vendors.
Market prices for gypsum wallboard, a major product
line purchased and sold by the Company's distribution
facilities, were believed to be slightly higher in 2002
compared to the average prices realized in 2001. The trend of
lower gypsum wallboard pricing, which commenced in early 2000
and continued for six consecutive quarters through the first
six months of 2001, has rebounded from the historically low
levels reached during the third quarter ended September 30,
2001. During that quarter, certain manufacturers reduced
production of gypsum wallboard and a stronger demand for
gypsum wallboard resulted in increased gypsum prices in the
latter part of 2001, although at still significantly reduced
prices from historical levels prior to 2000. The Company is
unable to determine if the improvement in prices in 2002 will
trend higher or even be maintained at current levels, during
2003.
Selling, general and administrative expenses as a
percentage of net sales for 2002 were approximately 28.9%,
compared to 28.8% in 2001. Selling, general and administrative
expenses decreased $803,000, or approximately 7.1% in 2002,
compared to 2001. The decrease in expenses was primarily due
to a reduction in operating costs associated with closing
under-performing distribution locations and Company-wide
reductions in personnel costs to gain improved operating
efficiencies, all of which took place during 2001 and 2002.
During 2001, the Company took action to improve
operating performance of the Company's distribution locations
through: (i) an approximate 32% reduction in workforce; (ii)
closure of under-performing distribution locations in
Hattiesburg, Picayune and Pascagoula, Mississippi; (iii)
elimination of installation services at two additional
locations; and (iv) development of a consolidated purchasing
program in an attempt to realize greater savings from the
purchase and resale of products.
In 2002, the Company closed an additional
unprofitable distribution location in Pensacola, Florida. The
Pensacola operations, including estimated allowances for the
planned sale of its facility and disposal of inventory,
accounted for losses of approximately $374,000 (including a
$96,000 impairment charge representing the write-down of the
property held for sale) in 2002 compared to $221,000 in 2001.
In addition, the Company incurred losses of approximately
22
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Year Ended December 31, 2002 compared to 2001 (continued)
---------------------------------------------------------
$54,000 in 2002 related to the completion of the disposition
of assets associated with the distribution facilities closed
in 2001.
Interest expense decreased $294,000 in 2002, or
approximately 35.6%, compared to 2001. The decrease in
interest expense in 2002 was primarily due to a lower average
amount outstanding under the Company's line of credit as a
result of closing the distribution facilities in 2001, the
payment of the Company's debentures at December 31, 2001,
which had an effective annual interest rate of 16%, and lower
interest rates under its variable rate borrowings.
Miscellaneous income for 2002 included insurance
refunds of approximately $51,000 as a result of lower claims
than provided for in the underlying insurance policies.
After giving effect to the above factors, the Company
generated income before taxes, excluding the provisions for
settlement of appraisal rights litigation and the write-off of
goodwill, as discussed below, for 2002 of $343,000, compared
to a loss of $93,000 for 2001.
The net loss for 2002 includes the impact of a
$1,272,000 ($789,000 net of related deferred tax benefit)
non-cash goodwill impairment charge. The charge is related to
the Company's required adoption of Statement of Financial
Accounting Standards (SFAS) No. 142 "Goodwill and Other
Intangible Assets". The goodwill impairment charge is a one
time event and does not affect the operating results of the
Company. The Company doesn't have any remaining goodwill on
its balance sheet which may be impaired for future periods.
The impairment of goodwill is 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 its 2002 financial
results as a cumulative change in accounting principle.
In 2002, the Company recognized an income tax expense
of $448,000 (excluding tax impact of goodwill impairment),
compared to tax expense of $128,000 for 2001. Deferred income
tax expense in 2002 and 2001 is the result of the expiration
of unused net operating loss carryforwards.
In addition, in connection with the Company's
settlement in principle of its litigation with dissenting
preferred stockholders with appraisal rights, the Company
incurred a $313,000 increase in net loss available to common
stockholders in 2002. As a result of the above factors, the
Company had a net loss of $1,207,000 or $.13 per fully
23
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Year Ended December 31, 2002 compared to 2001 (continued)
---------------------------------------------------------
diluted share for 2002, compared to a net loss of $221,000 or
$.02 per share, for 2001.
Liquidity and Capital Resources
-------------------------------
As of December 31, 2003, the Company had cash and
cash equivalents of $1,870,000, which included customer
payments in the amount of $947,000 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.
Sources and Uses of Cash
------------------------
The Company's operations generated approximately
$362,000 of net cash from operations in 2003 compared to
$244,000 in 2002. The increase in cash flow in 2003 was
primarily attributable to net income of $640,000 in 2003
compared to a loss in 2002, and the favorable impact of
increases in accounts payable and accrued expenses, which more
than offset increases in accounts receivable and inventory
associated with increased sales. During 2003, the net
expenditures for investing activities were $307,000 compared
to $100,000 in 2002. The increases in expenditures in 2003
compared to 2002 were primarily the result of a greater amount
of purchases of equipment and vehicles to upgrade the
Company's manufacturing operations and improve the job-site
delivery capability to its customers. The Company is presently
considering a plant modernization program for its
manufacturing facilities which would require material capital
commitments.
During 2003, the Company derived net cash of
approximately $206,000 from its financing activities, compared
to $97,000 in 2002. In 2003, the Company increased its
borrowing under its line of credit by $1,556,000, compared to
an increased borrowing of $579,000 in 2002, and made principal
payments on other debt totaling $616,000. The increased line
of credit was primarily utilized to pay the cash settlement of
$973,000 for the appraisal rights obligation.
24
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Future Commitments and Funding Sources
--------------------------------------
At December 31, 2003, the Company's contractual cash
obligations, with initial or remaining terms in excess of one
year, were as follows:
Contractual Cash Payments due by Fiscal 2008 and
Obligations Total 2004 2005 2006 2007 Thereafter
------------------------------------------------------------------------------------------------------------------------
Long-term debt (a) $1,273,000 $ 425,000 $ 249,000 $ 116,000 $ 61,000 $422,000
Operating leases (a) $2,086,000 $1,019,000 $ 625,000 $ 234,000 $133,000 $ 75,000
----------------------------------------------------------------------------------------------
Total contractual
cash obligations $3,359,000 $1,444,000 $ 874,000 $ 350,000 $194,000 $497,000
----------------------------------------------------------------------------------------------
(a) See Notes 7 and 13 in the accompanying financial statements for additional
information regarding our debt and commitments.
At December 31, 2003, the Company had working capital
of approximately $2,173,000 compared to working capital of
$1,432,000 at December 31, 2002.
The Company's principal source of short-term
liquidity is existing cash on hand and the utilization of a
$7,000,000 line of credit with a 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 December 31, 2003, $6,470,000
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 $6,470,000) of approximately $6,803,000
at December 31, 2003.
Trade accounts receivable represent amounts due from
subcontractors, contractors and building materials dealers
located principally in Florida, Alabama, Mississippi and
Georgia who have purchased products on an unsecured open
account basis and through Company owned warehouse distribution
outlets. As of December 31, 2003, the Company owned and
operated ten distribution outlets. Accounts receivable, net of
allowance, at December 31, 2003 was $5,702,000 compared to
$4,880,000 at December 31, 2002. The increase in receivables
of $822,000, or approximately 16.8%, was primarily related to
increased sales in 2003 (12.5%), particularly sales for the
month of December 2003 as compared with December 2002, and
some slowness in payments by certain
25
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Liquidity and Capital Resources (continued)
-------------------------------------------
customers in 2003 compared to 2002. Inventories and accounts
payable increased $677,000 and $214,000, respectively, at
December 31, 2003 compared to 2002 due to the increased level
of business.
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. At December 31, 2003, the
Company had paid $685,000 of such cash amount. Amounts payable
to such stockholders at December 31, 2003 results from their
non-compliance with the condition for payments.
Holders representing 81,100 preferred shares elected
dissenters' rights under Delaware law. The Company recorded a
liability for each share owned by the dissenting preferred
stockholders based on the fair value of $2.25 in cash, an
$8.00 Subordinated Debenture and five shares of the Company's
common stock.
On April 30, 2003, the Company and the dissenting
preferred stockholders ("Dissenting Stockholder") 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. The principal balance of the Note would be
reduced to $7.00 per share ($567,700) in the event the Company
prepays the Note in full prior to November 1, 2004. If not
paid by November 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 its commercial lender. At December 31, 2003, 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 classified as a short-term liability. On March
29, 2004 the Company elected to prepay $400,000 on the Note.
At December 31, 2003, the Company has paid the
holders of the Subordinated Debentures tendering their bonds
$808,000. Amounts payable to stockholders at December 31, 2002
and 2003 on the Company's consolidated balance sheets includes
$213,000 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 $400,000 during the
next twelve months to upgrade and maintain its equipment and
26
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Liquidity and Capital Resources (continued)
-------------------------------------------
delivery fleet to support its distribution facilities and
improve customer service. The Company expects to finance
approximately $300,000 of these expenditures from various
lenders with the balance funded by cash derived from
operations.
Effective March 15, 2004 the Company was forced to
renew its products liability coverage with an exclusion for
EIFS exposure. Based on past experience for these types of
claims, the Company does not expect any of these types of
uninsured claims that may be alleged in the future to have a
material effect on the Company's financial position within the
next 18 to 24 months. Due to the uncertainty and
unpredictability of litigation there can be no assurances as
to when or if any future uninsured claims may be filed. See
"Item 3 Legal Proceedings".
The Company believes its cash on hand and the
maintenance of its borrowing arrangement with its commercial
lender will provide sufficient cash to meet current
obligations for its operations and support the cash
requirements of its regular capital expenditure program in
2004. The Company's regular capital expenditure program
consists of the routine replacement of equipment and delivery
fleet described above.
In addition, the Company is evaluating 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 its manufactured product lines and
enter new markets. The Company is assessing the merits and
assumptions of these alternative projects, and the completion
date of any such project, if adopted, is uncertain. The
Company is presently seeking funds to first commence the
capital project for modernization of its equipment at its
Winter Springs, Florida manufacturing facility. Management
believes the modernization project for the Winter Springs
manufacturing facility could represent approximately
$1,000,000 in capital expenditures. There can be no assurance
that funds would be available on terms acceptable to the
Company, if 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 maintain profitable
operations.
Recent Accounting Pronouncements
--------------------------------
In October 2001, the Financial Accounting Standards
Board issued "Accounting for the Impairment or Disposal of
Long-Lived Assets" (SFAS 144"), which is effective for fiscal
years
27
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Recent Accounting Pronouncements (continued)
--------------------------------------------
beginning after December 15, 2001. SFAS 144 addresses
accounting and reporting for the impairment or disposal of
long-lived assets. The Company's adoption of SFAS 144 on
January 1, 2002 did not have a material effect on its
consolidated financial statements.
In May 2002, the FASB issued SFAS No. 145,
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections". SFAS 145
rescinds the automatic treatment of gains or losses from
extinguishment of debt as extraordinary unless they meet the
criteria for extraordinary items as outlined in APB Opinion
No. 30, Reporting the Results of Operations, Reporting the
Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. In addition, SFAS 145 also requires
sale-leaseback accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback
transactions and makes various technical corrections to
existing pronouncements. The provisions of SFAS 145 related to
the rescission of FASB Statement 4 are effective for fiscal
years beginning after May 15, 2002, with early adoption
encouraged. All other provisions of SFAS 145 are effective for
transactions occurring after May 15, 2002, with early adoption
encouraged. The Company's adoption of SFAS 145 did not have a
material effect on its financial statements.
In June 2002, the FASB issued Statement No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities (SFAS 146) and nullifies EITF Issue No. 94-3. SFAS
146 requires that a liability for a cost associated with an
exit or disposal activity be recognized when the liability is
incurred, whereas EITF No. 94-3 had recognized the liability
at the date of an entity's commitment to an exit plan. The
adoption of SFAS 146 did not have a material effect on the
Company's consolidated financial statements.
In November 2002, the FASB issued Interpretation No.
45 ("FIN No. 45"), "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." FIN No. 45 clarifies and expands on
the existing disclosure requirements of guarantees. FIN No. 45
also requires recognition of a liability at fair value of a
company's obligations under certain guarantee contracts. The
disclosure requirements are effective for financial statements
of interim or annual periods ending after December 15, 2002.
The adoption of FIN No. 45 did not impact our consolidated
financial statements.
In April 2003, SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities" was
issued. SFAS No. 149 amends and clarifies accounting for
derivative
28
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Recent Accounting Pronouncements (continued)
--------------------------------------------
instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities under SFAS No.
133 SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003 and for hedging relationships
designated after June 30, 2003. The adoption of this statement
did not impact our consolidated financial statements.
In May 2003, the FASB issued SFAS No, 150,
"Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards for how companies classify and measure
certain financial instruments with characteristics of both
liabilities and equity. It requires companies to classify a
financial instrument that is within its scope as a liability
(or an asset in some circumstances). SFAS No. 150 is effective
immediately for financial instruments entered into or modified
after May 15, 2003 and in the first interim period after June
15, 2003 for all other financial instruments. The adoption of
this statement did not impact our consolidated financial
statements.
In December 2003, Financial Accounting Standards
Board Interpretation ("FIN") No. 46(R), "Consolidation of
Variable Interest Entities (revised December 2003)", was
issued. The interpretation revises FIN No. 146, "Consolidation
of Variable Interest Entities", to exempt certain entities
from the requirements of FIN No. 146. The interpretation
requires a company to consolidate a variable interest entity
("VIE"), as defined, when the company will absorb a majority
of the variable interest entity's expected losses, receive a
majority of the variable interest entity's expected residual
returns, or both. FIN No. 46(R) also requires consolidation of
existing, non-controlled affiliates if the VIE is unable to
finance its operations without investor support, or where the
other investors do not have exposure to the significant risks
and rewards of ownership. The interpretation applies
immediately to a VIE created or acquired after January 31,
2003. For a VIE acquired before February 1, 2003, FIN No.
46(R) applies in the first interim period ending after March
15, 2004. The adoption of this interpretation did not impact
our consolidated financial statements.
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
29
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Goodwill and Other Intangible Assets (continued)
------------------------------------------------
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. If goodwill
amortization had not been recorded in 2001 and 2000, the
Company's net (loss) income would have been ($180,000) and
$563,000, respectively, with no impact on earnings per share.
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 is 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 is reflected as a cumulative effect of an
accounting change in the accompanying Consolidated Statements
of Operations for the year ended December 31, 2002.
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 and availability of raw
materials and products purchased for resale, as well as
consumer confidence. Downturns in the market that the Company
serves or in the economy 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 and operating
results.
30
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Market Risks (continued)
------------------------
The Company's first quarter revenues and, to a lesser
extent, the Company's 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.
Weather conditions such as heavy rain or snow, will generally
preclude customers from installing the Company's products on
job sites. Because much of the Company's overhead and expense
remains relatively fixed throughout the year, the Company's
profits and operating results also tend to be lower and less
favorable during the first and fourth quarters.
Exposure to Interest Rates
--------------------------
The Company had two variable rate mortgages totaling
$387,000 at December 31, 2003. The mortgages bear interest at
prime plus 1% and were due October 2004 as of December 31,
2003. The Company recently refinanced these obligations and
they are now due in March, 2009. 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.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable.
31
Item 8. Financial Statement and Supplementary Data
CONSOLIDATED FINANCIAL STATEMENTS: Page
----
Report of Independent Certified Public
Accountants 33
Consolidated Balance Sheets 34
Consolidated Statements of Operations 35
Consolidated Statements of Changes in
Stockholders' Equity 36
Consolidated Statements of Cash Flows 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Merger 39
2. Description of Business and Summary of
Significant Accounting Policies 40
3. Inventories 47
4. Property, Plant and Equipment 47
5. Notes Payable 47
6. Accrued Expenses and Other Liabilities 48
7. Long-Term Debt 48
8. Income Taxes 49
9. Capital Stock 50
10. Miscellaneous Income 52
11. Earnings (Loss) Per Common Share 53
12. Related Party Transactions 54
13. Commitments and Contingencies 54
14. Impairment Charge 56
15. Obligation for Appraisal Rights 57
Schedule II - Valuation and Qualifying Accounts 58
All other schedules have been omitted because they are not
required, are not applicable or the information is included in the consolidated
financial statements or notes thereto.
32
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Imperial Industries, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a) (1) on page 62 present fairly, in all material
respects, the financial position of Imperial Industries, Inc. and its
subsidiaries (the "Company") at December 31, 2003 and 2002, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2003 in conformity with accounting principals generally
accepted in the United States of America. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item 15(a) (2)
on page 62 presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. These financial statements and the financial statement schedule are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements and the financial statement schedule
based on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United State of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed in Note 2(p) to the Consolidated Financial Statements, effective
January 1, 2002, the Company changed its method of accounting for goodwill in
accordance with Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets.
PRICEWATERHOUSECOOPERS LLP
Miami, Florida
March 29, 2004
33
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31,
Assets 2003 2002
------ --------------------------------------
Current assets:
Cash and cash equivalents $ 1,870,000 $ 1,609,000
Trade accounts receivable (less
allowance for doubtful accounts of
$556,000 and $477,000 at December 31,
2003 and 2002, respectively) 5,702,000 4,880,000
Inventories 4,290,000 3,613,000
Deferred income taxes 157,000 383,000
Other current assets 444,000 553,000
--------------------------------------
Total current assets 12,463,000 11,038,000
--------------------------------------
Property, plant and equipment, at cost 4,228,000 4,051,000
Less accumulated depreciation (2,397,000) (2,068,000)
--------------------------------------
Net property, plant and equipment 1,831,000 1,983,000
--------------------------------------
Deferred income taxes 470,000 509,000
--------------------------------------
Other assets 154,000 177,000
--------------------------------------
$ 14,918,000 $13,707,000
--------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 6,470,000 $ 4,914,000
Current portion of long-term debt 425,000 690,000
Accounts payable 2,066,000 1,852,000
Obligation for Appraisal Rights 568,000 1,541,000
Payable to stockholders 261,000 262,000
Accrued expenses and other liabilities 478,000 340,000
Income taxes payable 22,000 7,000
--------------------------------------
Total current liabilities 10,290,000 9,606,000
--------------------------------------
Long-term debt, less current maturities 848,000 961,000
--------------------------------------
Commitments and contingencies (Note 13) - -
--------------------------------------
Stockholders' equity:
Common stock, $.01 par value at December 31, 2003
and 2002; 40,000,000 shares authorized;
9,235,434 and 9,235,434 issued at
December 31, 2003 and 2002, respectively 92,000 92,000
Additional paid-in-capital 13,924,000 13,924,000
Accumulated deficit (10,236,000) (10,876,000)
--------------------------------------
Total stockholders' equity 3,780,000 3,140,000
--------------------------------------
$ 14,918,000 $13,707,000
--------------------------------------
The accompanying notes are an integral part of the
consolidated financial statements.
34
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Year Ended December 31,
-------------------------------------------------------
2003 2002 2001
-------------------------------------------------------
Net sales $ 41,069,000 $36,504,000 $39,514,000
Cost of sales 28,438,000 25,099,000 27,254,000
-------------------------------------------------------
Gross profit 12,631,000 11,405,000 12,260,000
Selling, general and
administrative expenses 11,457,000 10,564,000 11,367,000
Impairment charge -- 96,000 238,000
-------------------------------------------------------
Operating income 1,174,000 745,000 655,000
-------------------------------------------------------
Other (expense) income:
Interest expense (454,000) (531,000) (825,000)
Miscellaneous income, net 218,000 129,000 77,000
-------------------------------------------------------
(236,000) (402,000) (748,000)
-------------------------------------------------------
Income (loss) before income taxes
and cumulative effect of change in
accounting principle for SFAS 142 938,000 343,000 (93,000)
-------------------------------------------------------
Income tax expense:
Current (33,000) (7,000) (12,000)
Deferred (265,000) (441,000) (116,000)
-------------------------------------------------------
(298,000) (448,000) (128,000)
-------------------------------------------------------
Income (Loss) before cumulative
effect of change in accounting
principle for SFAS 142 $ 640,000 $ (105,000) $ (221,000)
-------------------------------------------------------
Cumulative effect of change in
accounting principle for SFAS 142,
net of deferred tax benefit of $483,000
(Note 2) - (789,000) -
-------------------------------------------------------
Net income (loss) 640,000 (894,000) (221,000)
Less: Provision for settlement of
appraisal rights obligation - (313,000) -
-------------------------------------------------------
Net income (loss) available to
common stockholders $ 640,000 $(1,207,000) $ (221,000)
=======================================================
Basic and diluted income (loss) earnings per
share before cumulative effect of change
in accounting principle $ 0.07 $ (0.01) $ (0.02)
Cumulative effect of change in accounting
principle $ - $ (0.09) $ -
-------------------------------------------------------
0.07 (0.10) (0.02)
Basic and diluted income (loss) earnings per
share before provision for settlement
of appraisal rights litigation
Less: Provision for settlement of appraisal
rights obligation - (0.03) -
-------------------------------------------------------
Basic and diluted income (loss) earnings
per share before cumulative effect of
change in accounting principle $ 0.07 $ (0.13) $ 0.02
=======================================================
The accompanying notes are an integral part of the
consolidated financial statements.
35
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 2003, 2002 and 2001
Common Stock Additional
------------------------------- paid-in Accumulated Treasury
Shares Amount capital deficit stock Total
----------------- ------------- ------------------ --------------------------------- ---------------
Balance at January 1, 2001 9,205,434 92,000 13,915,000 (9,448,000) - 4,559,000
Issuance of common stock 15,000 - 5,000 - - 5,000
Net loss - - - (221,000) - (221,000)
----------------- ------------- ------------------ --------------------------------- ---------------
Balance at December 31, 2001 9,220,434 92,000 13,920,000 (9,669,000) - 4,343,000
----------------- ------------- ------------------ --------------------------------- ---------------
Issuance of Common Stock 15,000 - 4,000 - - 4,000
Provision for settlement of
appraisal rights obligation - - - (313,000) - (313,000)
Net loss - - - (894,000) - (894,000)
----------------- ------------- ------------------ --------------------------------- ---------------
Balance at December 31, 2002 9,235,434 92,000 13,924,000 (10,876,000) - 3,140,000
----------------- ------------- ------------------ --------------------------------- ---------------
Net income - - - 640,000 - 640,000
----------------- ------------- ------------------ --------------------------------- ---------------
Balance at December 31, 2003 $9,235,434 $92,000 $13,924,000 $(10,236,000) $ - $3,780,000
----------------- ------------- ------------------ --------------------------------- ---------------
The accompanying notes are an integral part of the
consolidated financial statements.
36
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended December 31,
------------------------------------------------
2003 2002 2001
------------------------------------------------
Cash flows from operating activities:
Net income (loss) $ 640,000 $ (894,000) $ (221,000)
------------------------------------------------
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Cumulative effect of change in accounting principle - 789,000 -
Depreciation 481,000 464,000 525,000
Amortization 36,000 28,000 71,000
Write-down of goodwill - - 238,000
Debt issue discount - - 59,000
Provision for doubtful accounts 318,000 268,000 375,000
Provision for writedown of assets 11,000 96,000 61,000
Provision for deferred income taxes 265,000 441,000 116,000
(Gain) loss on disposal of fixed assets (48,000) 5,000 32,000
Compensation expenses - issuance of stock - 4,000 5,000
(Increase) decrease in:
Accounts receivable (1,140,000) (729,000) 72,000
Inventory (677,000) 194,000 580,000
Prepaid expenses and other assets 109,000 (331,000) (302,000)
Increase (decrease) in:
Accounts payable 214,000 (54,000) (358,000)
Interest on obligation for appraisal rights - 88,000 88,000
Accrued expenses and other liabilities 138,000 (125,000) (145,000)
Income taxes payable 15,000 -- (11,000)
------------------------------------------------
Total adjustments to net income (loss) (278,000) 1,138,000 1,406,000
------------------------------------------------
Net cash (used in) provided by
operating activities 362,000 244,000 1,185,000
------------------------------------------------
Cash flows from investing activities
Purchase of property, plant
and equipment (380,000) (142,000) (92,000)
Payment on notes payable A&R acquisitions - - (100,000)
Proceeds received from sale of property
and equipment 26,000 42,000 80,000
Proceeds received from insurance settlement 47,000 - -
------------------------------------------------
Net cash used in investing
activities (307,000) (100,000) (112,000)
------------------------------------------------
- continued -
The accompanying notes are an integral part of the
consolidated financial statements.
37
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(continued)
Year Ended December 31,
-------------------------------------------------
2003 2002 2001
-------------------------------------------------
Cash flows from financing activities
Increase (decrease) in notes payable
banks - net 1,556,000 579,000 (768,000)
Payable to stockholders (1,000) (24,000) -
Payment of obligation for appraisal rights (973,000) - -
Proceeds from issuance of long-term debt 240,000 246,000 748,000
Repayment of long-term debt (616,000) (704,000) (1,538,000)
-------------------------------------------------
Net cash provided by (used in)
financing activities 206,000 97,000 (1,558,000)
-------------------------------------------------
Net increase (decrease) in cash
and cash equivalents 261,000 241,000 (485,000)
Cash and cash equivalents,
beginning of year 1,609,000 1,368,000 1,853,000
-------------------------------------------------
Cash and cash equivalents, end of year $ 1,870,000 $1,609,000 $1,368,000
-------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 446,000 $ 455,000 $ 692,000
-------------------------------------------------
Cash paid during the year for income taxes 17,000 10,000 30,000
-------------------------------------------------
Non-cash transactions:
Issuance of 15,000, shares of common
stock to an employee of the Company in
each of 2002 and 2001 - 4,000 $ 5,000
Capital lease obligations 48,000 51,000 43,000
Asset acquisitions financed 193,000 202,000 715,000
Reclassification of property, plant and equipment
to other current assets (See Note 14) $ 13,000 $ 240,000 $ -
-------------------------------------------------
The accompanying notes are an integral part of the
consolidated financial statements.
38
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Merger
Effective December 31, 1998, (the "Effective Date"), the
Company merged into a wholly-owned subsidiary, (the "Merger"). At
the Effective Date, each share of the Company's $.10 par value
common stock outstanding before the Merger was converted into one
share of $.01 par value common stock. Also at the Effective Date,
300,121 outstanding shares of preferred stock, with a carrying
value of $3,001,000 were retired and $4,292,000 of accrued
dividends on such shares were eliminated.
In connection with the elimination of the preferred stock, the
Company was required to pay cash of $733,000, of which $685,000
has been paid as of December 31, 2003. In addition, the Company
issued $985,000 face value of 8% Debentures due December 31, 2001
with a fair value of $808,000, and 1,574,610 shares of $.01 par
common stock with a fair value of $630,000 based on the market
price of $.40 per share of the Company's common stock at the
Effective Date. At December 31, 2003, the Company paid $808,000 of
the $985,000 to Debenture holders who had tendered their bonds as
required by such instruments. Amounts payable to stockholders at
December 31, 2002 and 2003 on the Company's consolidated balance
sheets includes $213,000 payable to former debenture holders who
have not yet tendered their Debentured as required by the terms of
such instrument.
Holders of 81,100 shares of preferred stock (the "Dissenting
Stockholders"), with a carrying value of $811,000, elected to
exercise their appraisal rights, pursuant to Delaware law. A trial
for the appraisal rights was held in the Chancery Court of
Delaware in June 2002. In February 2003, the Company and the
Dissenting Stockholders reached a settlement in principle. As of
December 31, 2002, the Company recorded $1,541,000 in the
accompanying consolidated balance sheet as an estimate for the
obligation for appraisal rights based on the estimated fair value
of the settlement.
On April 30, 2003, the Company and the Dissenting Stockholders
finalized the settlement. 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 (the "Note")for
$10.00 per share ($811,000) due May 1, 2006. The principal balance
of the Note would be reduced to $7.00 per share ($567,700) in the
event the Company repays the Note in full prior to November 1,
2004. At December 31, 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 is
classified as a current liability in the accompanying consolidated
balance sheets. On March 29, 2004 the Company paid $400,000
related to the Note.
In connection with the Merger, all then outstanding stock
purchase warrants were automatically converted into warrants with
identical terms exercisable for shares of the Company's common
stock.
39
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(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 finishing wall
coatings and mortar products for the construction industry, as
well as the purchasing and sale of other building materials from
other manufacturers. Sales of the Company's products are made to
customers primarily in Florida and 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
--------------------------------
Concentrations 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 form building materials dealers, contractors
and subcontractors, located principally in the Southeastern United
States who have purchased products on an unsecured open account
basis. At December 31, 2003, accounts aggregating $537,000, or
approximately 8.6% of total gross trade accounts receivable were
deemed to be ineligible for borrowing purposes under the Company's
borrowing agreement with its commercial lender. See Note (5). The
allowance for doubtful accounts at December 31, 2003 of $556,000
is considered sufficient to absorb any losses which may arise from
uncollectible accounts receivable.
The Company places its cash with commercial banks. At December
31, 2003, the Company had 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.
40
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(2) Description of Business and Summary of Significant Accounting Policies
(continued)
(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 at the date of sale is credited
or charged to net income.
(e) Excess Cost of Investment Over Net Assets Acquired and
Other Intangible Assets
--------------------------------------------------------------
Licenses, trademarks and deferred financing costs are
amortized on the straight-line basis over the estimated useful
lives of the licenses and trademarks, or over the term of the
related financing. Excess cost of investment over net assets
acquired was amortized using the straight-line method over 40
years until December 31, 2001 and was net of $57,000 accumulated
amortization at December 31, 2001. (See Note 2 (n) Recent
Accounting Pronouncements and Note 2 (o) Goodwill and Other
Intangible Assets).
(f) 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.
(g) Earnings per share of common stock
--------------------------------------
Basic earnings per common share is computed by dividing net
income, by the weighted-average number of shares of common stock
outstanding each year. Diluted earnings per common share is
computed by dividing net income applicable to common stockholders
by the weighted-average number of shares of common stock and
common stock equivalents outstanding during each year. (See Note
(11) - Earnings Per Common Share).
41
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(2) Description of Business and Summary of Significant Accounting Policies
(continued)
(h) Cash and cash equivalents
-----------------------------
The Company defines 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 December 31, 2003 and 2002 are short-term time
deposits of $123,000 and $122,000, respectively. Also included in
cash and cash equivalents at December 31, 2003 and 2002 are
$947,000 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 when remitted to the lender will reduce the
outstanding balance of the line of credit, resulting in greater
borrowing availability.
(i) Revenue recognition policy
------------------------------
Revenue from sales transactions, net of discounts and
allowances, is recorded upon delivery of inventory to the
customer.
(j) Purchase rebates
--------------------
The Company has an arrangement with a buying group
organization providing for inventory purchase rebates ("vendor
rebates") based principally upon achievement of certain volume
purchasing levels during the year. The Company accrues the
estimated receipt of vendor rebates as part of its cost of sales
for products sold based on progress towards earning the vendor
rebates taking into consideration cumulative purchases throughout
the year. Substantially all vendor rebate receivables are
collected within three months immediately following fiscal
year-end. While management believes the Company will continue to
receive consideration from the buying group in 2004 and
thereafter, there can be no assurance that the buying group will
continue to provide comparable amounts of vendor rebates in the
future.
(k) 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 (See Note 9).
42
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(2) Description of Business and Summary of Significant Accounting Policies
(continued)
(k) Stock based compensation (continued)
----------------------------------------
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)
Statement No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation (in thousands, except per share
amounts):
Year Ended December 31
2003 2002 2001
--------------------------------------
Net income (loss) available to common
stockholders, as reported $ 640 $(1,207) $ (221)
Deduct: Total stock-based employee
compensation expense determined
under fair-value-based method for
all awards, net of related tax effects (12) (31) (62)
--------------------------------------
Pro forma net income (loss) $ 628 $(1,238) $ (283)
======================================
Earnings (loss) per share:
Basic as reported $ 0.07 $ (0.13) $(0.02)
Basic pro forma $ 0.07 $ (0.13) $(0.03)
Diluted as reported $ 0.07 $ (0.13) $(0.02)
Diluted pro forma $ 0.07 $ (0.13) $(0.03)
(l) 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.
43
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(2) Description of Business and Summary of Significant Accounting Policies
(continued)
(m) Fair Value of Financial Instruments
---------------------------------------
The carrying amounts of the Company's financial instruments
principally notes payable, debentures, obligation for appraisal
rights and long-term debt, approximate fair value based on
discounted cash flows and because the borrowing rates are similar
to the current rates available to the Company.
(n) Segment Reporting
---------------------
The Company adopted SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. For the years ended
December 31, 2003, 2002 and 2001, the Company determined that it
operated in a single operating segment.
(o) Recent Accounting Pronouncements
------------------------------------
In October 2001, the Financial Accounting Standards Board
issued "Accounting for the Impairment of Disposal of Long-Lived
Assets" (SFAS 144"), which is effective for fiscal years beginning
after December 15, 2001. SFAS 144 addresses accounting and
reporting for the impairment or disposal of long-lived assets.
This statement superseded SFAS 121, "Accounting for the Impairment
of Long-Lived Assets to be Disposed Of". The Company's adoption of
SFAS 144 on January 1, 2002 did not have a material effect on its
consolidated financial statements.
In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections". SFAS 145 rescinds the automatic
treatment of gains or losses from extinguishment of debt as
extraordinary unless they meet the criteria for extraordinary
items as outlined in APB Opinion No. 30, Reporting the Results of
Operations, Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions. In addition, SFAS 145 also requires
sale-leaseback accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback
transactions and makes various technical corrections to existing
pronouncements. The provisions of SFAS 145 related to the
rescission of FASB Statement 4 are effective for fiscal years
beginning after May 15, 2002, with early adoption encouraged. All
other provisions of SFAS 145 are effective for transactions
occurring after May 15, 2002, with early adoption encouraged. The
Company's adoption of SFAS 145 did not have a material effect on
its financial statements.
In June 2002, the FASB issued Statement No. 146, Accounting
for Costs Associated with Exit or Disposal Activities (SFAS 146)
and nullifies EITF Issue No. 94-3. SFAS 146 requires that a
44
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(2) Description of Business and Summary of Significant Accounting Policies
(continued)
(o) Recent Accounting Pronouncements (continued)
------------------------------------------------
liability for a cost associated with an exit or disposal activity
be recognized when the liability is incurred, whereas EITF No.
94-3 had recognized the liability at the date of an entity's
commitment to an exit plan. The adoption of SFAS 146 did not have
a material effect on the Company's consolidated financial
statements.
In November 2002, the FASB issued Interpretation No. 45 ("FIN
No. 45"), "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others." FIN No. 45 clarifies and expands on he existing
disclosure requirements for guarantees. FIN No. 45 also requires
recognition of a liability at fair value of a company's
obligations under certain guarantee contracts. The disclosure
requirements are effective for financial statements of interim or
annual periods ending after December 15, 2002. The adoption of FIN
No. 45 did not impact our consolidated financial statements.
In April 2003, SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities" was issued. SFAS
No. 149 amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities under SFAS No. 133
SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003 and for hedging relationships designated after
June 30, 2003. The adoption of this statement did not impact our
consolidated financial statements.
In May 2003, the FASB issued SFAS No, 150, "Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity." SFAS No. 150 establishes standards for
how companies classify and measure certain financial instruments
with characteristics of both liabilities and equity. It requires
companies to classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). SFAS No.
150 is effective immediately for financial instruments entered
into or modified after May 15, 2003 and in the first interim
period after June 15, 2003 for all other financial instruments.
The adoption of this statement did not impact our consolidated
financial statements.
In December 2003, Financial Accounting Standards Board
Interpretation ("FIN") No. 46(R), "Consolidation of Variable
Interest Entities (revised December 2003)", was issued. The
interpretation revises FIN No. 146, "Consolidation of Variable
Interest Entities", to exempt certain entities from the
requirements of FIN No. 146. The interpretation requires a company
to consolidate a variable interest entity ("VIE"), as
45
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(2) Description of Business and Summary of Significant Accounting Policies
(continued)
(o) Recent Accounting Pronouncements (continued)
------------------------------------------------
defined, when the company will absorb a majority of the variable
interest entity's expected losses, receive a majority of the
variable interest entity's expected residual returns, or both. FIN
No. 46(R) also requires consolidation of existing, non-controlled
affiliates if the VIE is unable to finance its operations without
investor support, or where the other investors do not have
exposure to the significant risks and rewards of ownership. The
interpretation applies immediately to a VIE created or acquired
after January 31, 2003. For a VIE acquired before February 1,
2003, FIN No. 46(R) applies in the first interim period ending
after March 15, 2004. The adoption of this interpretation did not
impact our consolidated financial statements.
(p) 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 until its life is determined to
no longer be indefinite. If goodwill amortization had not been
recorded in 2001, net (loss) would have been $(180,000) with no
impact on earnings per share.
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, net of amortization, 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
46
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(p) Goodwill and Other Intangible Assets (continued)
----------------------------------------------------
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 accompanying Consolidated Statements of Operations
for the year ended December 31, 2002.
(3) Inventories
At December 31, 2003 and 2002, inventories consist of:
2003 2002
---- ----
Raw materials $ 667,000 $ 490,000
Finished goods 3,353,000 2,856,000
Packaging materials 270,000 267,000
----------- ------------
$4,290,000 $ 3,613,000
----------- ------------
(4) Property, Plant and Equipment
A summary of the cost of property, plant and equipment at
December 31, 2003 and 2002 is as follows:
Estimated
useful life
2003 2002 (years)
-------------------- -------------------- -------------------
Land 151,000 $ 151,000 ---
Buildings and
improvements 641,000 632,000 10 - 40
Machinery and equipment 2,074,000 1,860,000 3 - 20
Vehicles 1,024,000 1,051,000 2 - 8
Furniture and Fixtures 338,000 357,000 3 - 12
-------------------- --------------------
$4,228,000 $4,051,000
-------------------- --------------------
The net book value of property, plant and equipment pledged as
collateral under notes payable and various long-term debt
agreements aggregated $1,378,000 and $1,976,000 at December 31,
2003 and 2002, respectively. See "Note 7."
(5) Notes Payable
At December 31, 2003 and 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 plus 1/2% (4.50% at December
31, 2003), expires June 19, 2004, and is subject to annual
renewal. The weighted average effective interest rate on the line
of
47
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(5) Notes Payable (continued)
credit was 5.08%. 5.80%, and 8.36% during years ended December 31,
2003, 2002 and 2001, respectively.
At December 31, 2003, the line of credit limit available for
borrowing based on eligible receivables and inventory aggregated
$6,803,000, of which $6,470,000 was outstanding. The average
amounts outstanding during 2003 and 2002 were $5,623,000, and
$4,782,000, respectively. The maximum amounts outstanding at any
month-end during 2003 and 2002 were $6,470,000 and $5,537,000,
respectively.
(6) Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities at December 31, 2003
and 2002 are summarized as follows:
2003 2002
------------------ -----------------
Employee compensation related items $161,000 $164,000
Taxes, other than income taxes 161,000 118,000
Product warranty 57,000 15,000
Interest 22,000 7,000
Other 77,000 36,000
------------------ -----------------
$478,000 $340,000
------------------ -----------------
(7) Long-Term Debt
Long-term debt of the Company is as follows:
2003 2002
------------------- ------------------
Uncollateralized note issued for acquisition,
interest at 8% per annum, originally scheduled
to mature on September 2003. (A) $ 128,000 $ 164,000
Mortgage note payable, interest at prime + 1% principal and interest payable
monthly in the amount of approximately $1,127, with a balloon payment of
approximately $137,000
due March 10, 2009. (B) 207,000 233,000
Mortgage note payable, interest at prime + 1%, principal payments of $800 plus
interest payable monthly, with a balloon payment of
approximately $76,000 due March 10, 2009. (B) 125,000 134,000
Mortgage note payable, interest at prime + 1%, principal payments of $1,678 plus
interest payable monthly, with a balloon payment of
approximately $160,000 due March 10, 2009. (B) 262,000 282,000
48
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(7) Long-Term Debt (continued)
2003 2002
------------------- ------------------
Mortgage note payable, interest at 8 3/4%, principal and interest payable
monthly in the amount of approximately $2,415, was paid
in 2003. - 202,000
Equipment notes payable, interest at various rates ranging from 0.0% to 11.40%,
per annum, principal and interest payable monthly expiring at various dates
through October
2007. 551,000 636,000
------------------- ------------------
1,273,000 1,651,000
Less current maturities (425,000) (690,000)
------------------- ------------------
$ 848,000 $ 961,000
------------------- ------------------
(A) Note payments have been suspended pending the outcome of
litigation. See Note 13.
(B) Effective March 10, 2004 the Company refinanced these obligations
in accordance with the terms set forth above.
As of December 31, 2003, long-term debt matures as follows:
Year ended
December 31, Amount
----------------------------- -------------
2004 $ 425,000
2005 249,000
2006 116,000
2007 61,000
2008 and thereafter 422,000
-------------
$1,273,000
-------------
(8) Income Taxes
The deferred tax asset of $627,000 and $892,000, at December
31, 2003 and 2002, respectively, consist of the tax effect of the
following:
2003 2002
--------------- -------------
Net operating loss carryforwards $ 88,000 $ 292,000
Goodwill amortization 470,000 510,000
Other 69,000 90,000
--------------- -------------
$ 627,000 $ 892,000
--------------- -------------
The Company has net operating losses of approximately $232,000
that will expire in varying amounts from 2011 through 2014.
49
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(8) Income Taxes (continued)
The deferred tax asset net decrease of $265,000 for 2003 was
primarily due to the use of net operating loss carry forwards. The
ultimate realization of the remaining deferred tax assets is
largely dependent on the Company's ability to generate sufficient
future taxable income.
The current income tax expense represents state taxes and
alternative minimum taxes payable for the years ended December 31,
2003, 2002 and 2001.
A reconciliation of the Federal statutory rate to the
effective tax is as follows:
Year Ended December 31,
---------------------------------------
2003 2002 2001
---------------------------------------
U.S. statutory rate 35% (35%) (35%)
Expiring net operating losses 0% 29% 0%
Reversal of 1999 items 0% 0% 173%
Other (3%) 2% 0%
---------------------------------------
Effective rate 32% (4%) 138%
---------------------------------------
(9) Capital Stock
(a) Common Stock
----------------
At December 31, 2003 and 2002, 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.
In 2002 and 2001, the Company issued 15,000 shares of common
stock each year as incentive compensation to an employee pursuant
to the terms of an employment agreement associated with a 2000
acquisition.
(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
50
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(9) Capital Stock (continued)
(b) Preferred Stock (continued)
-------------------------------
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 December 31,
2003, 2002 and 2001, there were no shares of preferred stock
outstanding.
(c) Warrants
------------
At December 31, 2002 and 2001, the Company had warrants
outstanding to purchase 150,000 shares of the Company's common
stock issued to its investment banker for financial advisory
services in connection with the Merger (the "Investment Banker
Warrants"). The Investment Banker Warrants expired December 31,
2003.
(d) Stock Option Plans
----------------------
The Company has two stock option plans, the Directors' Stock
Option Plan and the 1999 Employee Stock Option 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 stock at the grant date. Options granted under the 1999
Plans have a term of up to 10 years and are exercisable six months
from the grant date. The 1999 Plans are administered by the
Compensation and Stock Option Committee (the "Committee"), which
is comprised of three 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 were
reserved for issuance under the Employee and Directors' Plans,
respectively. As of December 31, 2003, options for 210,000 shares
were available for future grants under the 1999 Employee Plan. All
shares available for issuance under the Director's Plan are
subject to outstanding options.
A summary of the activity and status of our stock option plans
was as follows:
Weighted Average Number of Options
Exercise Price Years Ended
Per Share December 31,
------------------------------------------ -------------------------------------
2003 2002 2001 2003 2002 2001
------------------------------------------ -------------------------------------
Outstanding Options - Beginning of year $ 0.37 $ 0.41 $ 0.57 440,000 400,000 245,000
Options Granted $ 0.18 $ 0.22 $ 0.21 150,000 80,000 185,000
Options Exercised $ - $ - $ - - - -
Options Cancelled $ - $ - $ - - (40,000) (30,000)
-------------------------------------
Options Outstanding - End of Year $ 0.32 $ 0.37 $ 0.41 590,000 440,000 400,000
-------------------------------------
Options Exercisable - End of Year $ 0.32 $ 0.37 $ 0.57 590,000 440,000 215,000
-------------------------------------
51
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
Information with respect to outstanding and exercisable stock
options at December 31, 2003 was as follows:
Options Outstanding Options Exercisable
-------------------------------- ---------------------------
Exercise Price Shares Weighted Weighted Weighted
Average Average Average
Remaining Life Exercise Exercise
(Years) Price (A) Shares Price
---------------------------------------------------------------------------------------------
$ 0.18 150,000 4.38 $ 0.18 150,000 $ 0.18
$ 0.20 120,000 2.87 $ 0.20 120,000 $ 0.20
$ 0.22 80,000 3.38 $ 0.22 80,000 $ 0.22
$ 0.24 45,000 2.71 $ 0.24 45,000 $ 0.24
$ 0.57 195,000 0.96 $ 0.57 195,000 $ 0.57
-------------- -------------------------------------------
Total 590,000 $ 0.32 590,000 $ 0.32
-------------- -------------------------------------------
(A) All options were granted at market price and no compensation cost
has been recognized in connection with these options.
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 stock-based compensation awards.
Accordingly, the Company has not recognized compensation expense
for its noncompensatory employee stock option awards.
The weighted average fair value of the Company's Options
granted during 2003, 2002 and 2001 were $.13, $.18 and $.15 per
share, respectively, at the date of grant. The fair value of the
Options was estimated using the Black-Scholes option pricing model
with the following weighted average assumptions for 2003, 2002 and
2001; no expected dividend yield; expected volatility of 103%,
130% and 112%; risk free interest rate of 2.3%, 4.8% and 5.9%; and
an expected option life of four years for each period.
(10) Miscellaneous income
A summary of miscellaneous income (expense) for the years
ended December 31, 2003, 2002 and 2001 is as follows:
2003 2002 2001
-----------------------------------------------------
Interest income $ 3,000 $ 4,000 $10,000
Insurance premium dividends 57,000 51,000 36,000
Late charge income 114,000 56,000 39,000
Gain (loss) on disposal of property,
plant and equipment 38,000 (5,000) (32,000)
Other, net 6,000 23,000 24,000
-----------------------------------------------------
$218,000 $129,000 $77,000
=====================================================
52
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(11) Earnings (Loss) Per Common Share
Below is a reconciliation between basic and diluted earnings
(loss) per common share under SFAS 128 for the years ended
December 31, 2003, 2002 and 2001 (in thousands except per share
amounts):
2003 2002 2001
------------------------------------------------------------------------------------------------
Income Shares Per Share Loss Shares Per Share Loss Shares Per Share
------------------------------------------------------------------------------------------------
Basic earnings (loss):
Income (loss) before cumulative
effect of change in accounting
principle for SFAS 142 $640 9,235 $0.07 $ (105) 9,229 $(0.01) $(221) 9,214 $(0.02)
Cumulative effect of change in
accounting principle for
SFAS 142, net of tax benefit $ - - $ - $ (789) 9,229 $(0.09) $ - -
------------------------------------------------------------------------------------------------
Net income (loss) $640 9,235 $0.07 $ (894) 9,229 $(0.10) $(221) 9,214 $(0.02)
Less: Provision for settlement
of appraisal rights obligation $ - - $ - (313) 9,229 (0.03) $ - - $ -
------------------------------------------------------------------------------------------------
Net income (loss) available to
common stockholders $640 9,235 $0.07 $(1,207) 9,229 $(0.13) $(221) 9,214 $(0.02)
================================================================================================
Effect of Dilutive Securities:
Options - 55 - - - - - - -
Diluted earnings (loss):
Income (loss) before cumulative
effect of change in accounting
principle for SFAS 142 $640 9,290 $0.07 $ (105) 9,229 $(0.01) $(221) 9,214 $(0.02)
Cumulative effect of change in
accounting principle for
SFAS 142, net of tax benefit $ - - $ - $ (789) 9,229 $(0.09) $ - - $ -
------------------------------------------------------------------------------------------------
Net income (loss) $640 9,290 $0.07 $ (894) 9,229 $(0.10) $(221) 9,214 $(0.02)
Less: Provision for settlement
of appraisal rights obligation $ - - $ - (313) 9,229 $(0.03) - - $ -
------------------------------------------------------------------------------------------------
Net income (loss)available to
common stockholders $640 9,290 $0.07 $(1,207) 9,229 $(0.13) $(221) 9,214 $(0.02)
================================================================================================
Options and warrants to purchase 345,000, 590,000, and 550,000 shares of
common stock as of December 31, 2003, 2002 and 2001, respectively, were not
included in the computation of diluted earnings per share for the respective
years because the exercise price of the options was greater than the average
market price of the Corporation's common stock.
53
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(12) Related Party Transactions
The Company and its subsidiaries paid legal fees of
approximately $193,000, $78,000 and $275,000 in 2003, 2002 and
2001, respectively, to a law firm with which two directors,
including the Company's Chairman of the Board are affiliated. Such
fees were primarily for services rendered by members and
associates of such law firm other than the two directors. In
addition, the Company paid annual lease payments of $94,000 for
use of a distribution facility in each of 2003, 2002 and 2001, to
the former owner of a business acquired by the Company's
subsidiary, who is currently employed by the Company.
(13) Commitments and Contingencies
(a) Contingencies
-----------------
As of March 23, 2004, the Company's subsidiary
Acrocrete, together with other parties, are defendants in 56
lawsuits pending in various Southeastern states, brought by
homeowners, homeowner associations, contractors and
subcontractors, or their insurance companies, claiming
moisture intrusion damage as a result of the use of Exterior
Insulation Finish Wall Systems ("EIFS"), on single and
multi-family residences. The Company's insurance carriers have
accepted coverage under a reservation of rights for 41 of
these claims and are providing a defense. Acrocrete expects
its insurance carriers will accept coverage for the other 15
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 EIFS are not restricted
to Acrocrete products used in an EIFS application, but rather
are an industry-wide issue. There never has 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 window, roof flashing, decking and the lack of
caulking.
As insurance markets for moisture intrusion type
coverage have all but disappeared, the Company was forced on
March 15, 2004 to renew its existing products liability
coverage with an exclusion for EIFS exposure. The Company's
management is evaluating the creation of a self insurance fund
for these types of claims, and believes that with existing
coverage covering all potential claims for goods sold prior to
March 15, 2004, that for the foreseeable future any uninsured
claims should not have a material adverse
54
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(13) Commitments and Contingencies
(a) Contingencies (continued)
-----------------------------
effect on the Company's financial position. Sales of products
used in EIFS applications are believed to represent less than
20% of the Company's revenues.
On June 15, 1999, the Company's subsidiary 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,
which as to Premix alleged that certain materials, purportedly
provided by Premix to the Developers/Contractor and used to
anchor balcony railings to the structure were defective.
Premix believes it has meritorious defenses to these claims.
The Company's insurance carrier has not made a decision
regarding coverage to date. Since the inception of this matter
in 1999 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, however the Company believes that its ultimate
exposure, if any, is not material.
Premix, Acrocrete and Just-Rite are engaged in other
legal actions and claims arising in the ordinary course of its
business, none of which is believed to be material to the
Company.
On April 23, 1999, certain dissenting preferred
stockholders owning shares of the Company's preferred stock
filed a petition for appraisal in the Delaware Chancery Court
to determine the fair value of the shares at December 31,
1998, the effective date of the Company's Merger. On April 30,
2003, the Company reached a settlement with the dissenting
preferred stockholders. (See Note (1) of the Consolidated
Financial Statements.)
In March 2003, Just-Rite instituted litigation against a
former employee, employed at the Company's Gulfport,
Mississippi distribution facility, and others, due to alleged
violations by the employee of his non-compete agreements
related to the acquisition of the business at that location.
The litigation against the former employee seeks to enjoin
further violations of his non-compete agreement and for
damages resulting from such actions. In connection with the
litigation, Just-Rite discontinued payments on a promissory
note with a remaining balance in the aggregate amount of
$128,000, issued as partial consideration for the acquisition
55
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(13) Commitments and Contingencies
(a) Contingencies (continued)
-----------------------------
of the Gulfport, Mississippi facility. The beneficial holders
of the promissory note (the former employee and the other
former owner) have initiated claims against Just-Rite for
payment of the obligation. In February 2004, the Court entered
an order ruling that the former employee had violated the
terms of a preliminary injunction barring him from his further
competing against Just-Rite and ordered that certain sanctions
be imposed.
The Company is aggressively defending all of the lawsuits and
claims described above, and while the Company does not believe
these claims will have a material adverse effect on the
Company's financial position, given the uncertainty and
unpredictability of litigation there can be no assurance of
this.
(b) Lease Commitments
---------------------
At December 31, 2003 certain property, plant and equipment
were leased by the Company under long-term leases. Future
minimum lease commitments as of December 31, 2003, for all
noncancellable leases are as follows:
December 31,
2004 $1,019,000
2005 625,000
2006 234,000
2007 133,000
2008 and thereafter 75,000
----------
$2,086,000
Rental expense incurred for operating leases were approximately
$1,152,000, $1,096,000 and $1,242,000, for the three years ended
December 31, 2003, 2002 and 2001, respectively.
(14) Impairment Charges
In 2002, the Company closed an under-performing distribution
facility. As a result of closing this facility, the Company
recorded an impairment charge of $96,000 to write-down the
carrying value of the property held for sale to $240,000, its
estimated realizable value. The property has been reclassified
from property, plant and equipment to other current assets (asset
held for sale) in the accompanying December 31, 2002 balance
sheet.
During 2001, the Company reviewed its long-lived assets and
goodwill for which there were indications of possible impairment.
The assets the Company reviewed were primarily those
56
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(continued)
(14) Impairment Charges (continued)
associated with the Company's distribution operations acquired in
2000, since the Company experienced losses from certain of these
operations, closed several locations, restructured operations and
made changes to management. Based on these reviews, the Company
recorded an impairment charge of $238,000 in the fourth quarter of
2001. This charge represented a write-down of the excess cost of
investment over net assets acquired related to the January 1, 2000
and May 1, 2000 acquisitions. The fair values of the goodwill were
primarily based on the Company's estimates of discounted future
cash flows.
(15) Obligation for Appraisal Rights
(a) 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. The principal balance of the
Note would be 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 of the Settlement
from cash on hand and borrowings from its amended line of
credit with its commercial lender based on an increase to its
inventory borrowing base. At December 31, 2003 and 2002, based
on management's intention to prepay the Note in full prior to
November 1, 2004, the appraisal right obligation was recorded
at $567,700 and $1,541,000, respectively, on the accompanying
consolidated balance sheets. As a result of the completion of
the Settlement, the $567,700 Obligation for Appraisal Rights
was classified as a short-term liability at December 31, 2003.
On March 29, 2004 the Company paid $400,000 related to
the Note.
In 2002, the Company recognized a $313,000 increase
in net loss available to common stockholders as a result of
reaching a settlement in principle with the Dissenting
Stockholders in February 2003. The $313,000 loss was due to the
excess of the $1,541,000 settlement over the $1,228,000 carrying
value of the obligation at the time of settlement, including
accrued interest of $351,000.
57
Schedule II
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 2003, 2002 and 2001
Charged to
Balance Charged to other
beginning of cost and accounts- Deductions - Balance at end
Description period expenses describe describe of period
-----------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2003:
Reserves and allowances deducted
from asset accounts;
Allowance for doubtful accounts:
Trade $ 477,000 $318,000 $ - $ 239,000 (A) $ 556,000
------------------------------------------------------------------------------------
Year Ended December 31, 2002:
Reserves and allowances deducted
from asset accounts;
Allowance for doubtful accounts:
Trade $ 453,000 $268,000 $ - $ 244,000 (A) $ 477,000
------------------------------------------------------------------------------------
Year Ended December 31, 2001:
Reserves and allowances deducted
from asset accounts;
Allowance for doubtful accounts:
Trade $ 400,000 $375,000 $ - $ 322,000 (A) $ 453,000
------------------------------------------------------------------------------------
(A) Uncollectable accounts written off, net of recoveries.
58
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
Item 9A. Controls and Procedures
a. Evaluation of disclosure controls and procedures
---------------------------------------------------
The Company has established disclosure controls and
procedures to ensure that material information relating to the
Company, including its consolidated subsidiaries, is made
known to the officer who certify the Company's financial
reports, as well as to other members of senior management and
the Board of Directors.
The Company's management, under the supervision of
the Company's Chief Executive Officer ("CEO")/Chief Financial
Officer ("CFO"), has evaluated the effectiveness of the
Company's disclosure controls and procedures as defined in
Securities and Exchange Commission ("SEC") Rule 13a-15(e) as
of the end of the period covered by this report. Management
has concluded that the Company's disclosure controls and
procedures are effective to ensure that information the
Company is required to disclose in reports that it files or
submits under the Securities Exchange Act is communicated to
management, including the CEO/CFO, as appropriate, to allow
timely decisions regarding required disclosure and is
recorded, processed, summarized, and reported within the time
periods specified in the SEC's rules and forms.
b. Changes in internal controls.
--------------------------------
There were no significant changes in the Company's
internal controls or in other factors that could significantly
affect the Company's internal controls subsequent to the
Evaluation Date.
59
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding the Company's Board of
Directors appearing under the caption "Election of Directors"
and "Board of Directors and its Committees" in the Company's
Proxy Statement for its 2004 Annual Meeting of Stockholders is
hereby incorporated by reference.
The following table sets forth certain information with
respect to the executive officers of the Company:
Name Age Position With Company
---- --- ---------------------
Howard L. Ehler, Jr. 60 Principal Executive Officer,
Executive Vice President and
Secretary
Gary J. Hasbach 59 President, Premix, Acrocrete
and Just-Rite
Betty J. Murchison 64 Chief Accounting Officer,
Assistant Vice President
Subject to certain contractual rights, each officer
serves at the discretion of the board of directors.
Howard L. Ehler, Jr. Mr. Ehler has been Principal
Executive Officer of the Company since March 1990 and
Executive Vice President, Chief Financial Officer and
Secretary of the Company since April 1988. Prior thereto he
was Vice President, Chief Financial Officer and Assistant
Secretary of the Company for over five years.
Gary J. Hasbach. Mr. Hasbach has been President of
Premix and Acrocrete since March 2001, and President of
Just-Rite, since February 2000. Prior thereto, he had been
Executive Vice President of Sales and Marketing for Premix and
Acrocrete since January 1, 1999. Mr. Hasbach was formerly
President of Premix and Acrocrete form September 1990 to May
1996.
Betty J. Murchison. Ms. Murchison has been the
Company's Chief Accounting Officer since June 1995.
Reports Pursuant to Section 16 (a) of the Securities and
Exchange Act of 1934
--------------------------------------------------------
The Company's officers and directors are required to
file Forms 3, 4 and 5 with the Securities and Exchange
Commission in accordance with Section 16 (a) of the Securities
Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder. Based solely on a review
of such reports furnished to the Company as required by Rule
16a-3 (e), in 2003 no officer or director filed any report
untimely, or failed to file a required report.
60
PART III
Code of Business Conduct and Ethics
Information regarding the Company's Business Conduct
and Ethics is included in the Company's Proxy Statement for
its 2004 Annual Meeting of Stockholders and is hereby
incorporated by reference.
Item 11. Executive Compensation
Information appearing under the caption "Executive
Compensation" in the Company's Proxy Statement for its 2004
Annual Meeting of Stockholders is hereby incorporated by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information setting forth the security ownership of
certain beneficial owners and management appearing under the
caption "Stock Ownership" in the Company's Proxy Statement for
its 2004 Annual Meeting of Stockholders is hereby incorporated
by reference.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and
related transactions appearing under the caption "Certain
Transaction" in the Company's Proxy Statement for its 2004
Annual Meeting of Stockholders is hereby incorporated by
reference.
Item 14. Principal Accounting Fees and Services
Information regarding principal accounting fees and
services appearing under the caption "Independent Certified
Public Accountant" in the Company's Proxy Statement for its
2004 Annual Meeting of Stockholders is hereby incorporated by
reference.
61
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. and 2. The consolidated financial statements and
supplemental financial statement schedule
See Part II, Item 8. Financial Statements and
Supplementary Data for an index of the Corporation's
consolidated financial statements and supplementary data
schedule.
3. EXHIBITS
-----------
Certain of the following exhibits, designated with an asterisk (*), are filed
herewith. The exhibits not so designated have been filed previously with the
Commission, and are incorporated herein by reference to the documents indicated
in parentheses following the descriptions of such exhibits.
Exhibit No. Description
2.1 Agreement and Plan of Merger, by and between Imperial Industries, Inc.
and Imperial Merger Corp. dated October 12, 1998 (Form S-4 Registration
Statement, Exhibit 2).
2.2 Asset Purchase Agreement entered into as of December 31, 1999 between
Just-Rite Supply, Inc., Imperial Industries, Inc., A&R Supply, Inc.,
A&R Supply of Foley, Inc., A&R of Destin, Inc., Ronald A. Johnson, Rita
E. Ward and Jaime E. Granat (Form 8-K dated January 19, 2000, File No.
1-7190, Exhibit 2.1).
2.3 Asset Purchase Agreement dated June 5, 2000 between Just-Rite Supply,
Inc., Imperial Industries, Inc., A&R Supply of Mississippi, Inc., A&R
Supply of Hattiesburg, Inc., Ronald A. Johnson, Dennis L. Robertson and
Richard Williamson, (Form 8-K dated June 13, 2000, File No. 1-7190,
Exhibit 2.1.
3.1 Certificate of Incorporation of the Company, (Form S-4 Registration
Statement, Exhibit 3.1).
3.2 Amendment to Certificate of Incorporation of the Company.
3.2 By-Laws of the Company, (Form S-4 Registration Statement, Exhibit 3.2).
4.1 Form of Common Stock Purchase Warrant issued to Auerbach, Pollak &
Richardson, Inc., (Form S-4 Registration Statement, Exhibit 4.1).
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.
62
Item 15. Exhibits, Financial Statement Schedules and Reports of Form 8-K
(continued)
3. EXHIBITS
(continued)
10.2 Employment Agreement dated July 26, 1993 between Howard L. Ehler, Jr.
and the Company. (Form 8-K dated July 26, 1993)
10.3 License Agreement between Bermuda Roof Company and Premix-Marbletite
Manufacturing Co., (Form S-4 Registration Statement, Exhibit 10.5).
10.4 Employee Stock Option Plan (Annual Report on Form 10-K for the year
ended December 31, 2000).
10.5 Directors Stock Option Plan (Annual Report on Form 10-K for the year
ended December 31, 2000).
*14.1 Imperial Industries, Inc. Code of Business Conduct.
*21 Subsidiaries of the Company.
*31 Certification of the Company's Chief Executive Officer/Chief Financial
Officer pursuant to Rule 13a - 14(a).
*32 Certification of the company's Chief Executive Officer/Chief Financial
Officer pursuant to Section 1350.
(b) Reports on Form 8-K:
A Form 8-K was filed on November 12, 2003 announcing the
issuance of a press release setting forth a summary of the
Company's sales and operating results for the third quarter
and nine months ended September 30, 2003.
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
IMPERIAL INDUSTRIES, INC.
March 29, 2004 By: /s/ Howard L. Ehler, Jr.
-----------------------------
Howard L. Ehler, Jr.
Executive Vice President/
Principal Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of
1934, this Report has been signed below by the following persons and behalf
of the Registrant and in the capacities and on the dated indicated.
/s/ Daniel Ponce Chairman of the Board of March 29, 2004
-------------------- Directors
S. Daniel Ponce
/s/ Lisa M. Brock Director March 29, 2004
------------------
Lisa M. Brock
/s/ Milton J. Wallace Director March 29, 2004
-----------------------
Milton J. Wallace
/s/ Morton L. Weinberger Director March 29, 2004
------------------------
Morton L. Weinberger
/s/ Howard L. Ehler, Jr. Director, Executive Vice March 29, 2004
-------------------------- President, Principal
Howard L. Ehler, Jr. Executive Officer, Chief
Financial Officer and
Secretary
/s/ Betty J. Murchison Assistant Vice President March 29, 2004
------------------------ and Chief Accounting
Betty J. Murchison Officer