FORM 10 - Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 1-7190
------
IMPERIAL INDUSTRIES, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 65-0854631
-------- ----------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1259 Northwest 21st Street, Pompano Beach, Florida 33069-4114
-------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 917-4114
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).
YES [ ] No [X]
Indicate the number of shares of Imperial Industries, Inc. Common Stock
($.01 par value) outstanding as of November 3, 2003: 9,235,434
Total number of pages contained in this document: 32
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2003 and December 31, 2002 3
Consolidated Statements of Operations
Nine Months and Three Months Ended September 30,
2003 and 2002 4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2003 and 2002 5
Notes to Consolidated Financial Statements 7-17
Item 2. Management's Discussion and Analysis of Results 18-24
Of Operations and Financial Condition
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 25
Item 4. Controls and Procedures 25
Part II. OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings 27
Item 6. Exhibits and Reports on Form 8 - K 28
Signatures 30
2
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, December 31,
2003 2002
------------ ------------
(unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 1,627,000 $ 1,609,000
Trade accounts receivable (less
allowance for doubtful accounts of
$547,000 and $477,000 at September 30, 2003
and December 31, 2002, respectively) 5,926,000 4,880,000
Inventories 4,299,000 3,613,000
Deferred income taxes 176,000 383,000
Other current assets 443,000 553,000
------------ ------------
Total current assets 12,471,000 11,038,000
------------ ------------
Property, plant and equipment, at cost 4,252,000 4,051,000
Less accumulated depreciation (2,311,000) (2,068,000)
------------ ------------
Net property, plant and equipment 1,941,000 1,983,000
------------ ------------
Deferred income taxes 509,000 509,000
------------ ------------
Other assets 163,000 177,000
------------ ------------
$ 15,084,000 $ 13,707,000
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Notes payable $ 6,254,000 $ 4,914,000
Current portion of long-term debt 448,000 690,000
Accounts payable 2,647,000 1,852,000
Obligation for Appraisal Rights -- 1,541,000
Payable to stockholders 261,000 262,000
Accrued expenses and other liabilities 547,000 347,000
------------ ------------
Total current liabilities 10,157,000 9,606,000
------------ ------------
Long-term debt, less current maturities 881,000 961,000
------------ ------------
Obligation for Appraisal Rights 568,000 --
------------ ------------
Commitments and contingencies (Note 10) -- --
------------ ------------
Stockholders' equity:
Common stock, $.01 par value; 40,000,000
shares authorized; 9,235,434 issued at September
30, 2003 and December 31, 2002, respectively 92,000 92,000
Additional paid-in-capital 13,924,000 13,924,000
Accumulated deficit (10,538,000) (10,876,000)
------------ ------------
Total stockholders' equity 3,478,000 3,140,000
------------ ------------
$ 15,084,000 $ 13,707,000
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
3
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
---------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net Sales $ 29,980,000 $ 27,575,000 $ 10,820,000 $ 9,423,000
Cost of Sales 20,584,000 18,892,000 7,395,000 6,450,000
------------ ------------ ------------ ------------
Gross profit 9,396,000 8,683,000 3,425,000 2,973,000
Selling, general and
administrative expenses 8,706,000 7,806,000 3,037,000 2,634,000
------------ ------------ ------------ ------------
Operating income 690,000 877,000 388,000 339,000
------------ ------------ ------------ ------------
Other (expense) income:
Interest expense (329,000) (403,000) (119,000) (135,000)
Miscellaneous income 184,000 203,000 89,000 31,000
------------ ------------ ------------ ------------
(145,000) (200,000) (30,000) (104,000)
------------ ------------ ------------ ------------
Income before taxes and cumulative
effect of change in accounting
principle for SFAS 142 545,000 677,000 358,000 235,000
Income tax expense (207,000) (371,000) (136,000) (82,000)
------------ ------------ ------------ ------------
Net income before cumulative effect
of change in accounting principle
for SFAS 142 338,000 306,000 222,000 153,000
Cumulative effect of change in
accounting principle for SFAS 142,
net of tax benefit -- (789,000) -- --
------------ ------------ ------------ ------------
Net income (loss) $ 338,000 $ (483,000) $ 222,000 $ 153,000
============ ============ ============ ============
Basic and diluted earnings per share
before cumulative effect of change
in accounting principle $ .04 $ .03 $ .02 $ .02
Cumulative effect of change in
accounting principle -- (.08) -- --
------------ ------------ ------------ ------------
Basic and diluted earnings (loss)
per share $ .04 $ (.05) $ .02 $ .02
============ ============ ============ ============
Weighted average shares outstanding 9,235,434 9,226,808 9,235,434 9,235,434
============ ============ ============ ============
Weighted average shares and
potentially dilutive shares outstanding 9,270,858 9,226,808 9,341,707 9,235,434
============ ============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
4
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended
September 30,
--------------------------
2003 2002
----------- -----------
(Unaudited)
Cash flows from operating activities:
Net income (loss) $ 338,000 $ (483,000)
----------- -----------
Adjustments to reconcile net income (loss)
to net cash (used in) provided by:
Cumulative effect of change in accounting principle -- 789,000
Depreciation 339,000 340,000
Amortization 28,000 24,000
Provision for doubtful accounts 195,000 151,000
Provision for income tax 207,000 371,000
Compensation expense-issuance of stock -- 4,000
(Gain) on disposal of property
and equipment (49,000) (4,000)
Other -- (6,000)
(Increase) decrease in:
Accounts receivable (1,241,000) (590,000)
Inventory (686,000) (116,000)
Prepaid expenses and other assets 96,000 (116,000)
Increase (decrease) in:
Accounts payable 795,000 462,000
Accrued expenses and other liabilities 199,000 (18,000)
----------- -----------
Total adjustments to net income (117,000) 1,291,000
----------- -----------
Net cash provided by
operating activities: 221,000 808,000
----------- -----------
Cash flows from investing activities:
Purchases of property, plant
and equipment (321,000) (301,000)
Proceeds received from sale of
property and equipment 73,000 34,000
----------- -----------
Net cash (used in) investing activities (248,000) (267,000)
----------- -----------
Cash flows from financing activities
Increase (decrease) in notes payable
banks - net 1,340,000 (53,000)
Proceeds from issuance of long-term debt 203,000 210,000
Payment of obligation for Appraisal Rights (973,000) --
Repayment of long-term debt (525,000) (556,000)
----------- -----------
Net cash provided by (used in)
financing activities 45,000 (399,000)
----------- -----------
- continued -
The accompanying notes are an integral part of the consolidated financial
statements.
5
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
-continued-
Nine Months Ended
September 30,
-----------------------------
2003 2002
---------- ----------
(Unaudited)
Net increase(decrease)in cash and
cash equivalents 18,000 142,000
Cash and cash equivalents beginning of period 1,609,000 1,368,000
---------- ----------
Cash and cash equivalents end of period 1,627,000 $1,510,000
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the nine months for interest $ 318,000 $ 355,000
========== ==========
Non-cash transactions:
Issuance of 15,000 shares of common stock
to an employee of the Company
in 2002 $ -- $ 4,000
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
6
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) Interim Financial Statements
----------------------------
The accompanying unaudited consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and
do not include all of the information and footnotes required by
auditing standards generally accepted in the United States of America
for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been
included. Operating results for the nine months ended September 30,
2003 are not necessarily indicative of the results that may be expected
for the year ended December 31, 2003. The significant accounting
principles used in the preparation of these unaudited interim
consolidated financial statements are the same as those used in the
preparation of the annual audited consolidated financial statements.
These statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2002.
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
The Company and its subsidiaries are primarily involved in the
manufacture and sale of exterior and interior finish wall coatings and
mortar products for the construction industry, as well as the sale of
building materials from other manufacturers. Sales of the Company's
products are made to customers located primarily in Florida and other
parts of the Southeastern United States through distributors and
Company-owned distribution facilities.
a) Basis of presentation
---------------------
The consolidated financial statements herein contain the
accounts of the Company and its wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in
consolidation.
b) Concentration of Credit Risk
----------------------------
Concentration of credit risk with respect to trade accounts
receivable are limited due to the large number of entities comprising
the Company's customer base. Trade accounts receivable represent
amounts due from building materials dealers, contractors and
sub-contractors, located principally in the Southeastern United States
who have purchased products on an unsecured open account basis. At
September 30, 2003, accounts aggregating to
7
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
$552,000, or approximately 8.5% of total gross trade accounts
receivable, were deemed to be ineligible for borrowing purposes under
the Company's borrowing agreement with its commercial lender, compared
to $537,000, or approximately 10.0%, of total gross trade receivables
outstanding at December 31, 2002. (See Note (5)- Notes Payable). The
allowance for doubtful accounts at September 30, 2003 of $547,000 is
considered sufficient to absorb any losses which may arise from
uncollectible accounts receivable.
The Company places its cash with commercial banks. At
September 30, 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.
d) Property, plant and equipment
-----------------------------
Property, plant and equipment is stated at cost, less
accumulated depreciation. Depreciation is computed on the straight-line
basis over the estimated useful lives of the depreciable assets.
Expenditures for maintenance and repairs are charged to expense as
incurred, while expenditures which extend the useful life of assets are
capitalized. Differences between the proceeds received on the sale of
property, plant and equipment and the carrying value of the assets on
the date of sale is credited to or charged against net income, as
applicable.
e) Income Taxes
------------
The Company utilizes the liability method for determining its
income taxes. Under this method, deferred taxes and liabilities are
recognized for the expected future tax consequences of events that have
been recognized in the consolidated financial statements or income tax
returns. Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in the years in
which temporary differences are expected to be realized or settled;
valuation allowances are provided against assets that are not likely to
be realized.
8
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
f) Earnings per share of stock
---------------------------
Basic earnings per share is computed by dividing net income,
by the weighted-average number of shares of common stock outstanding
each year. Diluted earnings per share is computed by dividing net
income by the weighted-average number of shares of common stock and
common stock equivalents outstanding during each year. (See Note (9) -
Earnings Per Share).
g) Cash and cash equivalents
-------------------------
The Company has defined cash and cash equivalents as those
highly liquid investments with original maturities of three months or
less, and are stated at cost. Included in cash and cash equivalents at
both September 30, 2003 and December 31, 2002 are short-term time
deposits of $123,000. Also included in cash and cash equivalents at
September 30, 2003 and December 31, 2002 are $794,000 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
applied, will reduce the outstanding balance on the line of credit,
resulting in greater borrowing availability.
h) Revenue recognition policy
--------------------------
Revenue from sales transactions, net of discounts and
allowances, is recorded upon delivery of inventory to the customer.
i) Stock based compensation
------------------------
The Company measures compensation expense related to the grant
of stock options and stock-based awards to employees in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," under which compensation
expense, if any, is generally based on the difference between the
exercise price of an option, or the amount paid for an award, and the
market price or fair value of the underlying common stock at the date
of the award.
Pursuant to SFAS No. 123, as amended by SFAS No. 148
"Accounting for Stock-Based Compensation Transition and Disclosure" the
Company has elected to use the intrinsic value method of accounting for
employee awards, stock based compensation awards. Accordingly, the
Company has not recognized compensation expense for its noncompensatory
employee stock options.
9
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
i) Stock based compensation (continued)
------------------------
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:
Nine Months Ended Three Months Ended
September 30, September 30,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net income (loss) available to
common stockholders, as reported $ 338,000 $ (483,000) $ 222,000 $ 153,000
Deduct: Total stock-based employee
compensation expense determined
under fair-value-based method for
all awards, net of related tax effects (10,000) (17,000) (7,000) (5,000)
----------- ----------- ----------- -----------
Pro-forma net income (loss) $ 328,000 $ (500,000) $ 215,000 $ 148,000
=========== =========== =========== ===========
Income (loss) per share:
Basic as reported $ .04 $ (.05) $ .02 $ .02
Basic pro-forma $ .04 $ (.05) $ .02 $ .02
Diluted as reported $ .04 $ (.05) $ .02 $ .02
Diluted pro-forma $ .04 $ (.05) $ .02 $ .02
j) Accounting estimates
--------------------
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America, requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
k) Fair Value of Financial Instruments
-----------------------------------
The carrying amount of the Company's financial instruments,
principally notes payable and obligation for appraisal rights,
approximates fair value based on discounted cash flows and because the
borrowing rates are similar to the current rates offered to the
Company.
l) Segment Reporting
-----------------
The Company has adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. For the nine
10
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
l) Segment Reporting (continued)
month periods ended September 30, 2003 and 2002, the Company has
determined that it continues to operate in a single operating segment.
(3) Inventories
-----------
At September 30, 2003 and December 31, 2002 inventories
consisted of:
2003 2002
---- ----
Raw Materials $ 511,000 $ 490,000
Finished Goods 3,530,000 2,856,000
Packaging materials 258,000 267,000
----------- -----------
$ 4,299,000 $ 3,613,000
=========== ===========
(4) Goodwill and Other Intangible Assets
------------------------------------
Effective January 1, 2002 the Company adopted SFAS 141,
"Business Combinations," and SFAS 142, "Goodwill and Other Intangible
Assets". SFAS 141 was issued by the FASB in June 2001. SFAS 141
requires that the purchase method of accounting be used for all
business combinations completed after June 30, 2001. SFAS 141 also
specifies the types of acquired intangible assets that are required to
be recognized and reported separately from goodwill and those acquired
intangible assets that are required to be included in goodwill. The
Company's adoption of this standard did not have any effect on its
accounting for prior business combinations.
SFAS 142 requires that goodwill no longer be amortized, but
instead be tested for impairment at least annually. SFAS 142 requires
recognized intangible assets to be amortized over their respective
estimated useful lives and reviewed for impairment in accordance with
SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets". Any recognized intangible assets determined to have an
indefinite useful life are not amortized, but instead tested for
impairment in accordance with the standard until its life is determined
to no longer be indefinite.
In the second quarter of 2002, the Company completed its SFAS
142 transitional impairment review and determined that the goodwill
("excess cost of investment over net assets acquired") of $1,272,000
associated with acquisitions of several distribution facilities in 2000
should be reduced to $0. The impairment was the result of the
under-performance of several of the acquired distribution facilities.
The fair value of the distribution reporting unit was determined using
the present value of expected future cash flows and other valuation
measures.
11
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(4) Goodwill and Other Intangible Assets (continued)
------------------------------------
The $1,272,000 ($789,000 net of related tax benefit) non-cash
charge was reflected as a cumulative effect of an accounting change in
the Consolidated Statements of Operations for the quarter ended March
31, 2002. In accordance with SFAS 142 and SFAS 3, "Reporting Accounting
Changes in Interim Financial Statements" ("SFAS 3"), when a
transitional impairment loss for goodwill (cumulative effect type
accounting change) is measured in other than the first interim
reporting period, it is recognized in the first interim period
irrespective of the period in which it is measured.
(5) Notes Payable
-------------
At September 30, 2003 and December 31, 2002, notes payable
represent amounts outstanding under a $7,000,000 line of credit from a
commercial lender to the Company's subsidiaries. The line of credit is
collateralized by the subsidiaries' accounts receivable and inventory,
bears interest at prime rate plus 1/2% (4.50% at September 30, 2003),
expires June 19, 2004, and is subject to annual renewal.
At September 30, 2003, the line of credit limit available for
borrowing based on eligible receivables and inventory aggregated
$6,870,000, of which $6,254,000 was outstanding. The average amounts
outstanding for the nine months periods ended September 30, 2003 and
2002 were $5,447,000 and $4,760,000, respectively.
(6) Long-Term Debt and Current Installments of Long-Term Debt
---------------------------------------------------------
Included in long-term debt at September 30, 2003, are three
mortgage loans, collateralized by real property, in the aggregate
amount of $608,000, less current installments aggregating $57,000.
During 2000, the Company acquired certain assets and assumed
certain liabilities of seven building materials distributors in which
it issued uncollateralized 8% promissory notes in the aggregate amount
of $850,000 as partial consideration. At September 30, 2003, all but a
remaining note payable of $128,000 was paid and the remaining note
payable was classified as a current liability.
Other long-term debt in the aggregate amount of $593,000, less
current installments of $263,000, relates principally to equipment
financing. The notes bear interest at various rates ranging from 3.10%
to 11.4%.
12
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(7) Income Taxes
------------
At September 30, 2003, the net deferred tax asset of
approximately $685,000 consisted primarily of the tax effect of net
operating loss carryforwards and the goodwill written off during 2002.
The operating loss carryforwards of approximately $769,000 expire in
varying amounts from 2005 through 2009.
In the nine months ended September 30, 2003 and 2002, the
Company recognized income tax expense of $207,000 and a tax benefit of
$112,000, respectively.
(8) Capital Stock
-------------
(a) Common Stock
------------
At September 30, 2003, the Company had outstanding 9,235,434
shares of common stock with a $.01 par value per share ("Common
Stock"). The holders of common stock are entitled to one vote per share
on all matters, voting together with the holders of preferred stock, if
any. In the event of liquidation, holders of common stock are entitled
to share ratably in all the remaining assets of the Company, if any,
after satisfaction of the liabilities of the Company and the
preferential rights of the holders of outstanding preferred stock, if
any.
On July 19, 2002 at the Company's Annual Meeting of
Shareholders, the Company's Shareholders approved a proposal for a one
for five reverse common stock split ("Reverse Stock Split"). The Board
of Directors reserved the right, without further action by the
Shareholders, to delay implementation of the Reverse Stock Split for up
to 12 months or to elect not to proceed with the Reverse Stock Split if
in its sole discretion, determined that it was no longer in the best
interests of the Company and its stockholders. In July 2003, the Board
of Directors determined it was in the best interest of the Company not
to proceed with the Reverse Stock Split.
(b) Preferred Stock
---------------
The authorized preferred stock of the Company consists of
5,000,000 shares, $.01 par value per share. The preferred stock is
issuable in series, each of which may vary, as determined by the Board
of Directors, as to the designation and number of shares in such
series, the voting power of the holders thereof, the dividend rate,
redemption terms and prices, the voluntary and involuntary liquidation
preferences, and the conversion rights and sinking fund requirements,
if any, of such series. At September 30, 2003 and December 31, 2002,
there were no shares of preferred stock outstanding.
13
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(8) Capital Stock (continued)
-------------
(c) Warrants
--------
At September 30, 2003, the Company had warrants outstanding to
purchase 150,000 shares of the Company's common stock (the "Warrants").
Each Warrant entitles the holder to purchase one share at $.38 per
share until December 31, 2003.
(d) Stock Option Plans
------------------
The Company has two stock option plans, the Directors' Stock
Option Plan (the "Directors Plan") and the 1999 Employee Stock Option
Plan (the "Employee Plan")(collectively, the "1999 Plans"). The 1999
Plans provide for options to be granted at generally no less than the
fair market value of the Company's Common stock at the grant date.
Options granted under the 1999 Plans have a term of up to 10 years and
are exercisable six months from the grant date. The 1999 Plans are
administered by the Board's Compensation and Stock Option Committee
(the "Committee"), which is comprised of three outside directors. The
Committee determines who is eligible to participate and the number of
shares for which options are to be granted. A total of 600,000 and
200,000 shares are reserved for issuance under the Employee and
Directors' Plans, respectively.
During the nine months ended September 30, 2003 the Company
granted options to 22 employees to purchase 150,000 shares at $.18 per
share for a five year period under the Employee Plan. As of September
30, 2003, options for 210,000 shares were available for future grants
under the Employee Plan. No shares are currently available for future
grant under the Directors' Plan.
14
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(9) Earnings Per Share
------------------
Below is a reconciliation between basic and diluted earnings
per common share under FAS 128 for the nine months and three months
ended September 30, 2003 and 2002 (in thousands except per share
amounts):
Nine Months
----------------------------------------------------------
2003 2002
---------------------------- ---------------------------
Income Shares Per Share Loss Shares Per Share
------ ------ --------- ---- ------ ---------
Net income (loss) $ 338 -- -- $(483) -- --
Basic earnings (loss)
per share $ 338 9,235 $.04 $(483) 9,227 $(.05)
----- ----- ---- ----- ----- -----
Effect of dilutive
securities:
Options/Warrants $ -- 36 $ -- $ -- -- $ --
----- ----- ---- ----- ----- -----
Diluted earnings (loss)
per common share $ 338 9,271 $.04 $(483) 9,227 $(.05)
----- ----- ---- ----- ----- -----
Three Months
----------------------------------------------------------
2003 2002
---------------------------- ---------------------------
Income Shares Per Share Income Shares Per Share
------ ------ --------- ------ ------ ---------
Net income $ 222 -- -- $ 153 -- --
Basic earnings
per share $ 222 9,235 $.02 $ 153 9,235 $ .02
----- ----- ---- ----- ----- -----
Effect of dilutive
securities:
Options/Warrants $ -- 107 $ -- $ -- -- $ --
----- ----- ---- ----- ----- -----
Diluted earnings
per common share $ 222 9,342 $.02 $ 153 9,235 $ .02
----- ----- ---- ----- ----- -----
For the nine months ended September 30, 2003 and 2002, 345,000
and 490,000 options and warrants were excluded from the diluted
earnings per share computations, respectively, because they were
anti-dilutive. For the quarter ended September 30, 2003 and 2002,
345,000 and 570,000 options and warrants were excluded from the diluted
earnings per share computations, respectively, because they were
anti-dilutive.
(10) Commitments and Contingencies
-----------------------------
(a) Contingencies
-------------
As of November 1, 2003, the Company's subsidiary, Acrocrete,
Inc., together with other parties, are defendants in 52 lawsuits
pending in various Southeastern states, brought by homeowners,
homeowners associations, contractors and subcontractors, or their
15
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(10) Commitments and Contingencies (continued)
-----------------------------
(a) Contingencies (continued)
-------------
insurance companies, claiming moisture intrusion damages on single and
multi-family residences. The Company's insurance carriers have accepted
coverage under a reservation of rights for 42 of these claims and are
providing a defense. The Company expects its insurance carriers will
accept coverage for the other 10 recently filed lawsuits. Acrocrete is
vigorously defending all of these cases and believes it has meritorious
defenses, counter-claims and claims against third parties. Acrocrete is
unable to determine the exact extent of its exposure or outcome of this
litigation.
The allegations of defects in synthetic stucco wall systems
are not restricted to Acrocrete products, but rather are an
industry-wide issue. There has never been any defect proven against
Acrocrete. The alleged failure of these products to perform has
generally been linked to improper application and the failure of
adjacent building materials such as windows, roof flashing, decking and
the lack of caulking.
On June 15, 1999, Premix was served with a complaint captioned
Mirage Condominium Association, Inc. v. Premix, In the Eleventh
Judicial Circuit In and For Miami-Dade County, Florida, Case No:
97-27544 (CA-11). The lawsuit raises a number of allegations against 12
separate defendants involving alleged construction defects. The lawsuit
originally alleged a claim against Premix for third-party beneficiary
breach of contract. This claim was voluntarily dismissed on the eve of
a hearing on Premix's dispositive Motion for Summary Judgment.
Thereafter a third amended complaint was filed against Premix for
breach of a statutory implied warranty. Plaintiff has alleged that
certain materials, purportedly provided by Premix to the
developers/contractor and used to anchor balcony railings to the
structure were defective. After the third amended complaint was filed,
the contractor filed a cross claim against Premix for indemnification,
breach of implied warranty and product liability. Premix believes it
has meritorious defenses to these claims. The Company's insurance
carrier has not made a decision regarding coverage to date. In the
interim, the insurance carrier has retained defense counsel on behalf
of Premix and is paying defense costs. Premix expects the insurance
carrier to eventually accept coverage. As discovery is not yet
completed, Premix is unable to determine the exact extent of its
exposure or the outcome of this litigation.
The Company's subsidiaries are engaged in other legal actions
and claims arising in the ordinary course of its business, none of
which are believed to be material to the Company.
16
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(10) Commitments and Contingencies (continued)
-----------------------------
(b) Lease Commitments
-----------------
At September 30, 2003, the Company has certain property, plant
and equipment under long-term operating leases. The Company will pay
aggregate annual rent of approximately $1,055,000 for its current
operating leases. The leases expire at various dates ranging from April
30, 2004, to August 31, 2009. Comparable properties at equivalent
rentals are available for replacement of these facilities if any leases
are not extended. The Company does not expect to incur any material
relocation expenses.
(11) Obligation for Appraisal Rights
-------------------------------
On April 30, 2003, the Company and former holders of 81,100
shares of Preferred Stock who elected appraisal rights in connection
with the Company's 1998 Merger ("Dissenting Stockholders") reached a
settlement (the "Settlement"). In accordance with the Settlement, the
Company paid the Dissenting Stockholders $12.00 per share in cash
($973,200) and issued a 5.6% promissory note (the "Note") for $10.00
per share ($811,000) due May 1, 2006, with such Note reduced to $7.00
per share ($567,700) in the event the Company prepays the Note in full
prior to November 1, 2004. If the note is not paid in full prior to
November 1, 2004, the interest rate will increase from 5.6% to 8.0%.
The Company satisfied the cash due at closing from cash on hand and
borrowings from its amended line of credit with its commercial lender
based on an increase to its inventory borrowing base. At September 30,
2003 and December 31, 2002, based on management's intention to prepay
the Note in full prior to November 1, 2004, the appraisal rights
obligation was recorded at $567,700 and $1,541,000, respectively. As a
result of the completion of the settlement, the $567,700 Obligation for
Appraisal Rights was classified as a long-term liability at September
30, 2003.
17
Item 2 Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
General
-------
The Company's business is related primarily to the level of
construction activity in the Southeastern United States, particularly
the states of Florida, Georgia, Mississippi and Alabama. The majority
of the Company's products are sold to contractors, subcontractors and
building materials dealers located principally in these states who
provide building materials for the construction of residential,
commercial and industrial buildings and swimming pools. The level of
construction activity is subject to population growth, inventory of
available housing units, government growth policies and construction
funding, among other things. Although general construction activity has
remained strong in the Southeastern United States during the last
several years, the duration of recent economic conditions and the
magnitude of their effect on the construction industry are uncertain
and cannot be predicted.
Special Note Regarding Forward-Looking Statements
-------------------------------------------------
This Form 10-Q contains certain forward looking statements
within the meaning of the Private Securities Litigation Reform Act of
1995 with respect to the financial condition, results of operations and
business of the Company, and its subsidiaries, including statements
made under Management's Discussion and Analysis of Financial Condition
and Results of Operations. These forward looking statements involve
certain risks and uncertainties. No assurance can be given that any of
such matters will be realized. Factors that may cause actual results to
differ materially from those contemplated by such forward looking
statements include, among others, many of which are beyond the
Company's control, the following: realization of tax benefits;
impairment of long-lived assets, including goodwill; the ability to
collect account or note receivables when due or within a reasonable
period of time after they become due and payable; the outcome of
litigation; the competitive pressure in the industry; general economic
and business conditions; the ability to implement and the effectiveness
of business strategy and development plans; quality of management;
business abilities and judgment of personnel; changes in accounting
policies and practices, as may be adopted by regulatory agencies as
well as the Financial Accounting Standards Board; availability of
qualified personnel; and labor and employee benefit costs.
These risks are not exhaustive. The Company operates in a
continually changing business environment, and new risks emerge from
time to time. The Company cannot predict such risks nor can the Company
assess the impact, if any, of such risks on its business or the extent
to which any risk, or combination of risks may cause actual results to
differ from those projected in any forward-looking statements.
18
Item 2 Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations (continued)
---------------------
Special Note Regarding Forward-Looking Statements (continued)
-------------------------------------------------
These forward-looking statements speak only as of the date of
this document. The Company does not undertake any obligation to update
or revise any of these forward-looking statements to reflect events or
circumstance occurring after the date of this document or to reflect
the occurrence of unanticipated events.
Results of Operations
---------------------
Nine Months and Three Months Ended September 30, 2003 Compared to 2002
----------------------------------------------------------------------
Net Sales for the nine months and three months ended September
30, 2003 increased $2,405,000 and $1,397,000, or approximately 8.7% and
14.8% compared to the same periods in 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 $1,031,000 and $358,000, for the nine months and third
quarter of 2003, in net sales derived from a new distribution facility
opened in the third quarter of 2002 in Port St. Lucie, Florida. The
additional sales of the new distribution facility were offset by a
sales reduction of approximately $446,000 and $114,000 for the nine
months and third quarter of 2003, in comparison to the same periods in
2002, realized from the Company's Pensacola, Florida distribution
facility closed in the third quarter of 2002. Also, the Company
experienced a reduction in sales of $213,000 at its Gulfport,
Mississippi distribution facility for the comparative nine month
periods. The decrease in sales at the Gulfport facility is believed to
be primarily a result of increased competition due to the alleged
violation of a non-compete agreement of a former employee at that
location. The Company commenced litigation against the former employee
to enjoin further violations and for damages resulting from such
actions.
Gross profit as a percentage of net sales for the nine months
and third quarter of 2003 was approximately 31.3% and 31.7% compared to
31.5% and 31.6% in the same periods in 2002.The comparative gross
profit margins for the 2003 and 2002 periods reflect similar
competitive conditions in the Company's markets for the sales of both
its manufactured and distributed products.
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.
19
Item 2 Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations (continued)
---------------------
Nine Months and Three Months Ended September 30, 2003 Compared to 2002
----------------------------------------------------------------------
(continued)
Selling, general and administrative expenses as a percentage
of net sales for the nine months and third quarter of 2003 were
approximately 29.0% and 28.1% compared to 28.3% and 28.0% in 2002.
Selling, general and administrative expenses increased $900,000 and
$403,000, in the nine months and third quarter of 2003, or
approximately 11.5% and 15.3% compared to the same periods in 2002. The
newly opened Port St. Lucie distribution facility, net of the effect of
the expenses associated with the Pensacola facility closed in 2002,
accounted for $105,000 and $22,000 of the increase in expenses for the
nine months and third quarter comparable periods, respectively. For the
nine months ended September 30, 2003 the remaining increase in selling,
general and administrative expenses of $795,000 was primarily
attributable to higher sales and inflationary cost pressures which
included a $151,000 increase in delivery and fuel charges, a $76,000
increase in insurance expense, a $68,000 increase in maintenance
expense, and a $244,000 increase in payroll costs. In addition, the
Company incurred a $151,000 increase in legal fees in the first nine
months of 2003 compared to 2002, due in part to the commencement of
litigation against a former employee for violations of his non-compete
agreement as discussed above.
The following expenses accounted for $350,000 of the $403,000
increase in expenses from the 2002 to 2003 third quarter periods as
follows: $74,000 in delivery and fuel charges, a $35,000 increase in
insurance expenses, $35,000 for maintenance expense, $149,000 increase
in payroll costs and $58,000 in legal fees. Increases in other
operating expenses, primarily those associated with the increase in
sales, accounted for the balance of the increase in operating expenses
for both the nine months and three months periods of 2003.
Interest expense decreased $74,000 and $16,000 in the nine
months and third quarter of 2003, or approximately 18.4% and 11.9%,
compared to the same periods in 2002. The decrease in interest expense
in 2003 was primarily due to reduced rates under the Company's interest
bearing obligations compared to 2002, principally the appraisal rights
obligations incurred as a result of a settlement completed on April 30,
2003.
Miscellaneous income, net of expenses, decreased $19,000 and
increased $58,000 in the nine months and third quarter of 2003,
compared to the same periods in 2002, which is primarily a result of
insurance refunds recognized in non-comparable quarters. The increase
in miscellaneous income in the third quarter of 2003 is attributed
primarily to the Company recognizing income of approximately $55,000
for insurance
20
Item 2 Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations (continued)
---------------------
Nine Months and Three Months Ended September 30, 2003 Compared to 2002
----------------------------------------------------------------------
(continued)
refunds resulting from lower claims than provided for in the underlying
insurance policies. In 2002, the Company recognized similar type
refunds of $95,000 during the first nine months of 2002, of which only
$4,000 was recognized in the third quarter.
In the nine months and third quarter of 2003, the Company
recognized income tax expense of $207,000 and $136,000, compared to
income tax benefits of $112,000 and income tax expense of $82,000, for
the same periods in 2002.
After giving effect to the above factors, the Company had net
income of $338,000 and $222,000, or $.04 and $.02 per fully diluted
share, for the nine months and third quarter of 2003, compared to net
income (before the cumulative effect of change in accounting principle
as discussed below)of $306,000 and $153,000, or $.03 and $.02 per
share, for the nine months and third quarter of 2002,respectively.
The 2002 nine month 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 doesn't
have any remaining goodwill on its balance sheet which may be impaired
for future periods. The impairment of goodwill was attributable to the
under-performance of the Company's distribution operations associated
with the acquisition of certain building materials distributors in
2000. In accordance with SFAS No. 142, the Company reflected this
impairment charge in the first quarter 2002 financial results as a
cumulative change in accounting principle.
As a result of the non-cash goodwill impairment charge, the
Company incurred a net loss of $483,000, or $.05 per fully diluted
share, for the nine months ended September 30,2002.
Liquidity and Capital Resources
-------------------------------
Sources and Uses of Cash
------------------------
In the first nine months of 2003, net cash used by operating
activities included the benefit of an increase in accounts payables of
$795,000 compared to a $462,000 increase in the same period in 2002.
The increase in accounts payable in 2003 and 2002 partially offset an
increase in net accounts receivable and inventory of $1,732,000 in
2003, compared to an increase of $555,000 in 2002. The increase is
primarily due to greater sales increases in 2003 compared to 2002. The
increase in accounts receivable and inventory was the principal reason
21
Item 2 Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations (continued)
---------------------
Liquidity and Capital Resources (continued)
-------------------------------
operations provided net cash of $221,000 in 2003, compared to $808,000
in 2002.
During the first nine months of 2003, net expenditures for
investing activities were $248,000 compared to $267,000 in 2002. The
on-going purchase of equipment to up-grade the Company's manufacturing
equipment and to improve its distribution capabilities accounted for
the majority of the expenditures for each period.
During the nine months ended September 30, 2003, the Company's
line of credit balance increased approximately $1,340,000 due to
funding a significant portion of the $973,000 cash settlement paid to
the Appraisal Rights holders on April 30, 2003 and to meet the
Company's increased working capital needs associated with increased
sales during the period. The Company also made a net reduction to
long-term debt totaling $322,000 during the first nine months of 2003.
Primarily as a result of the foregoing factors, the Company's financing
activities provided net cash of $45,000 in the first nine months of
2003.
Future Commitments and Funding Sources
--------------------------------------
As of September 30, 2003, the Company had cash and cash
equivalents of $1,627,000, which included customer payments in the
amount of $794,000 that are required to be remitted to the Company's
commercial lender upon their bank clearance under the terms of the
Company's line of credit. Upon remittance of such amount, the
outstanding balance of the line of credit will be reduced by such
amount and will increase the availability for future borrowing under
the line. The Company has implemented a cash management program in an
attempt to gain a more rapid clearance of customer payments deposited
in its bank accounts.
At September 30, 2003, the Company's contractual cash
obligations, with initial or remaining terms in excess of one year,
remained generally unchanged compared to December 31, 2002 except for
the Appraisal Rights Obligations. See Notes 6, 10 and 11 in the
accompanying financial statements for additional information regarding
the Company's commitments.
As of September 30, 2003, the Company had working capital of
approximately $2,314,000 compared to working capital of $1,432,000 at
December 31, 2002. The increase in working capital was primarily
attributable to the reclassification of $568,000 of the appraisal
rights obligation from a short-term liability at December 31, 2002 to a
long-term liability at September 30, 2003. In addition, during the nine
months ended September 30, 2003, the Company sold a former distribution
facility property and repaid a $199,000 mortgage obligation classified
as a short-term liability at December 31, 2002.
22
Item 2 Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations (continued)
---------------------
Liquidity and Capital Resources (continued)
-------------------------------
The Company's principal source of short-term liquidity is
existing cash on hand and the utilization of a line of credit with its
commercial lender. The maturity date of the line of credit is June 19,
2004, subject to annual renewal. The Company's subsidiaries borrow on
the line of credit, based upon and collateralized by, their eligible
accounts receivable and inventory. Generally, accounts outstanding in
excess of 120 days are not eligible accounts receivable under the
Company's borrowing agreement with its commercial lender. At September
30, 2003, $6,254,000 had been borrowed against the line of credit.
Based on eligible receivables and inventory, the Company had total
available borrowing, (including the amount outstanding of $6,254,000)
of approximately $6,870,000 at September 30, 2003.
Trade accounts receivable represent amounts due from
subcontractors, contractors and building materials dealers located
principally in Florida, Mississippi, Georgia and other Southeastern
States who have purchased products on an unsecured open account basis
and through Company owned warehouse distribution outlets. As of
September 30, 2003, the Company owned and operated eleven distribution
facilities. Accounts receivable, net of allowance, at September 30,
2003 was $5,926,000 compared to $4,880,000 at December 31, 2002. The
increase in receivables of $1,046,000, or approximately 21.4%, was
primarily related to a 21.2% sales increase in the third quarter of
2003 compared to the fourth quarter of 2002.
As a result of the consummation of the Company's December 31,
1998 merger with its wholly owned subsidiary, the Company agreed to pay
$733,000 in cash to its former preferred stockholders. As of September
30, 2003, the Company had paid $685,000 of such cash amount. Amounts
payable to such stockholders at September 30, 2003 results from their
non-compliance with the condition for payments.
Holders representing 81,100 preferred shares elected
dissenters' rights, rather than accept the Company's payment proposal
in the December 31, 1998 merger. The Company recorded a liability for
each share based on the fair value of the combination of cash, an $8.00
Subordinated Debenture and Company common stock, the consideration the
dissenting holders would have received if they did not perfect their
dissenters' rights under the law. Dissenting stockholders filed a
petition for appraisal rights in the Delaware Chancery Court on April
23, 1999.
On April 30, 2003, the Company and the dissenting stockholders
reached a 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 for
23
Item 2 Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations (continued)
---------------------
Liquidity and Capital Resources (continued)
-------------------------------
$10.00 per share ($811,000) due May 1, 2006, with such Note to be
reduced to $7.00 per share ($567,700) in the event the Company prepays
the Note in full prior to November 1, 2004. The Company satisfied the
cash due at closing from cash on hand and borrowings from its amended
line of credit with its commercial lender. At September 30, 2003, based
on management's intention to prepay the Note in full prior to November
1, 2004, the appraisal rights obligation was recorded in the amount of
$567,700 and was classified as a long-term liability.
As of September 30, 2003, the Company had paid the holders of
the Subordinated Debentures tendering their bonds $808,000. Amounts
payable to stockholders at September 30, 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
$300,000 during the next twelve months to upgrade and maintain its
equipment and delivery fleet to support operations and improve customer
service. The Company expects to finance approximately $200,000 of these
expenditures from various lenders, with the balance funded by cash
derived from operations.
The Company believes its cash on hand, the maintenance of its
line of credit and new equipment financing arrangements will provide
sufficient cash to meet its current obligations for its operations and
support the cash requirements of its current capital expenditure
programs in 2003.
In addition, the Company 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.
Furthermore, there can be no assurance that funds would be available on
terms acceptable to the Company, or available at all, to fund these
capital projects.
The ability of the Company to maintain and improve its
long-term liquidity is primarily dependent on the Company's ability to
maintain profitable operations.
24
Item 3 Quantitative and Qualitative disclosures About Market Risks
-----------------------------------------------------------
Residential and Commercial Construction Activity
------------------------------------------------
The Company's sales depend heavily on the strength of
residential and commercial construction activity in the Southeastern
United States. The strength of these markets depends on many factors
beyond the Company's control. Some of these factors include interest
rates, employment levels, availability of credit, prices of raw
materials and consumer confidence. Downturns in the markets that the
Company serves, or in the economy generally, could have a material
adverse effect on the Company's operating results and financial
condition. Reduced levels of construction activity may result in
intense price competition among building materials suppliers, which may
adversely affect the Company's gross margins.
The Company's first quarter revenues and, to a lesser extent,
its fourth quarter revenues are typically adversely affected by winter
construction cycles and weather patterns in colder climates as the
level of activity in the new construction and home improvement markets
decreases during these periods. Because much of the Company's overhead
and expenses remain relatively fixed throughout the year, Company
profits also tend to be lower during the first and fourth quarters.
Exposure to Interest Rates
--------------------------
The Company has two variable rate mortgages totaling $341,000
at September 30, 2003. The mortgages bear interest at prime plus 1% and
are due October 2004. In addition, the Company's $7,000,000 line of
credit from a commercial lender bears an interest rate of prime plus
1/2%. A significant increase in the prime rate could have a material
adverse effect on the Company's operating results and financial
condition.
Item 4 Controls and Procedures
-----------------------
Evaluation of Disclosure Controls and Procedures
------------------------------------------------
Within 90 days prior to the filing date of this Quarterly
Report, the Company carried out an evaluation, under the supervision
and with the participation of the Company's management, including the
Company's Chief Executive Officer/Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure
controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c)
under the Securities Exchange Act of 1934). Based upon that evaluation,
the Chief Executive Officer/Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective in ensuring
that information required to be disclosed in the reports the Company
files and submits under the Securities Exchange Act of 1934 are
recorded, processed, summarized and reported as and when required.
25
Item 4 Controls and Procedures (continued)
-----------------------
Changes in Internal Controls
----------------------------
There were no significant changes in the Company's internal
controls or in other factors that could significantly affect such
internal controls subsequent to the date of the evaluation described in
the paragraph above, including any corrective action with regard to
significant deficiencies and material weaknesses.
26
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
PART II. Other Information
Item 1. Legal Proceedings
-----------------
See notes to Consolidated Financial Statements, Note 10 (a),
set forth in Part I Financial Information.
27
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
PART II. Other Information - continued
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibit No. Description
----------- -----------
2.1 Agreement and Plan of Merger, by and between Imperial Industries, Inc.
and Imperial Merger Corp. dated October 12, 1998 (Incorporated by
reference to Form S-4 Registration Statement, Exhibit 2).
3.1 Certificate of Incorporation of the Company, (Incorporated by reference
to Form S-4 Registration Statement, Exhibit 3.1).
3.2 Amendment to Certificate of Incorporation of the Company (Incorporated
by reference to Form 10-K dated December 31, 2001, Exhibit 3.2).
3.3 By-Laws of the Company, (Incorporated by reference to Form S-4
Registration Statement, Exhibit 3.2).
10.1 Consolidating, Amended and Restated Financing Agreement by and between
Congress Financial Corporation and Premix-Marbletite Manufacturing Co.,
Acrocrete, Inc. and Just-Rite Supply, Inc. dated January 28, 2000.
(Incorporated by reference to Form 10-K dated December 31, 1999, File
No. 1-7190, Exhibit 10-1).
10.2 Employee Stock Option Plan (Incorporated by reference to Form 10-K
dated December 31, 2000, Exhibit 10.4).
10.3 Directors Stock Option Plan (Incorporated by reference to Form 10-K
dated December 31, 2000, Exhibit 10.5).
10.4 Form of Promissory Note issued in Settlement of Preferred Stock
Dissenters Rights. (Incorporated by reference to Form 10-Q dated March
31, 2003, Exhibit 10.4)
10.5 Amendment No. 3 to Consolidating, Amended and Restated Financing
Agreement by and between Congress Financial Corporation and
Premix-Marbletite Manufacturing Co., Acrocrete, Inc. and Just-Rite
Supply, Inc. dated April 22, 2003. (Incorporated by reference to Form
10-Q dated March 31, 2003, Exhibit 10.5)
31.1 Certification Pursuant to Rule 15-d-14(a)
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
-------------------
A Form 8-K was filed on August 12, 2003 announcing the
issuance of a press release setting forth a summary of the
28
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
PART II. Other Information - continued
(b) Reports on Form 8-K (continued)
-------------------
Company's sales and operating results for the second quarter
and six months ended June 30, 2003.
29
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
IMPERIAL INDUSTRIES, INC.
By: /S/ Howard L. Ehler, Jr.
-----------------------------
Howard L. Ehler, Jr.
Chief Executive Officer/
Chief Financial Officer
By: /S/ Betty Jean Murchison
-----------------------------
Betty Jean Murchison
Chief Accounting Officer/
Assistant Vice President
November 11, 2003
30