FORM 10 - Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2002
----------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 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 33069-1428
------------------------------------------------------------------
(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 the number of shares of Imperial Industries, Inc. Common Stock
($.01 par value) outstanding as of August 5, 2002: 9,235,434
Total number of pages contained in this document: 28
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Consolidated Balance Sheets
June 30, 2002 and December 31, 2001 3
Consolidated Statements of Operations
Six Months and Three Months Ended June 30,
2002 and 2001 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2002 and 2001 5-6
Notes to Consolidated Financial Statements 7-18
Management's Discussion and Analysis of Results 19-25
Of Operations and Financial Condition
Part II. Other Information and Signatures
Item 1. Legal Proceedings 26
Item 6. Exhibits and Reports on Form 8 - K 26
Signatures 27
Certification Pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 28
2
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, December 31,
2002 2001
------------ ------------
(unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 1,554,000 $ 1,368,000
Trade accounts receivable (less
allowance for doubtful accounts of
$460,000 and $453,000 at June 30, 2002
and December 31, 2001, respectively) 4,924,000 4,419,000
Inventories 3,968,000 3,807,000
Deferred income taxes 561,000 523,000
Other current assets 483,000 294,000
------------ ------------
Total current assets 11,490,000 10,411,000
------------ ------------
Property, plant and equipment, at cost 4,294,000 4,197,000
Less accumulated depreciation (1,923,000) (1,749,000)
------------ ------------
Net property, plant and equipment 2,371,000 2,448,000
------------ ------------
Deferred income taxes 483,000 327,000
------------ ------------
Excess cost of investment over net
assets acquired -- 1,272,000
------------ ------------
Other assets 139,000 133,000
------------ ------------
$ 14,483,000 $ 14,591,000
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Notes payable $ 5,258,000 $ 4,335,000
Current portion of long-term debt 733,000 669,000
Accounts payable 1,859,000 1,906,000
Obligation for appraisal rights 877,000 --
Payable to stockholders 262,000 286,000
Accrued expenses and other liabilities 711,000 735,000
------------ ------------
Total current liabilities 9,700,000 7,931,000
------------ ------------
Long-term debt, less current maturities 1,072,000 1,440,000
------------ ------------
Obligation for appraisal rights -- 877,000
------------ ------------
Commitments and contingencies (Note 10) -- --
------------ ------------
Stockholders' equity:
Common stock, $.01 par value
40,000,000 shares authorized; 9,235,434 and
9,220,434 issued at June 30, 2002
and December 2001, respectively 92,000 92,000
Additional paid-in-capital 13,924,000 13,920,000
Accumulated deficit (10,305,000) (9,669,000)
------------ ------------
Total stockholders' equity 3,711,000 4,343,000
------------ ------------
$ 14,483,000 $ 14,591,000
============ ============
The accompanying notes are an integral part
of the consolidated financial statements.
3
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
------------------------------- ------------------------------
2002 2001 2002 2001
------------------------------- ------------------------------
Net Sales $18,152,000 $20,925,000 $ 9,443,000 $10,757,000
Cost of Sales 12,442,000 14,549,000 6,458,000 7,460,000
------------ ----------- ----------- -----------
Gross profit 5,710,000 6,376,000 2,985,000 3,297,000
Selling, general and
administrative expenses 5,172,000 5,759,000 2,710,000 2,915,000
------------ ----------- ----------- -----------
Operating income 538,000 617,000 275,000 382,000
------------ ----------- ----------- -----------
Other income (expense):
Interest expense (268,000) (449,000) (136,000) (218,000)
Miscellaneous income 172,000 52,000 115,000 22,000
------------ ----------- ----------- -----------
(96,000) (397,000) (21,000) (196,000)
------------ ----------- ----------- -----------
Income before taxes and cumulative
effect of change in accounting
principle for SFAS 142 442,000 220,000 254,000 186,000
Income tax expense (289,000) (77,000) (223,000) (65,000)
------------ ----------- ----------- -----------
Net income before cumulative effect
of change in accounting principle
for SFAS 142 153,000 143,000 31,000 121,000
Cumulative effect of change in
accounting principle for SFAS 142
(Note 4) (789,000) -- -- --
------------ ----------- ----------- -----------
Net (loss) income $ (636,000) $ 143,000 $ 31,000 $ 121,000
============ =========== =========== ===========
Basic earnings per share:
Net income before cumulative effect
of change in accounting principle $ .02 $ .02 $ -- $ .01
Cumulative effect of change in
accounting principle (.09) -- -- --
------------ ----------- ----------- -----------
Net (loss) income $ (.07) $ .02 $ -- $ .01
============ =========== =========== ===========
Diluted earnings per share:
Net income before cumulative effect
of change in accounting principle $ .02 $ .02 $ -- $ .01
Cumulative effect of change in
accounting principle (.09) -- -- --
------------ ----------- ----------- -----------
Net (loss) income $ (.07) $ .02 $ -- $ .01
============ =========== =========== ===========
Weighted average shares outstanding 9,222,423 9,207,601 9,224,390 9,209,767
============ =========== =========== ===========
Weighted average shares and
potentially dilutive shares outstanding 9,222,423 9,209,824 9,251,057 9,209,767
============ =========== =========== ===========
The accompanying notes are an integral part
of the consolidated financial statements.
4
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended
June 30,
-------------------------------
2002 2001
---------- -----------
(Unaudited)
Cash flows from operating activities:
Net (loss) income $(636,000) $ 143,000
---------- ---------
Adjustments to reconcile net income to net cash (used in) provided by:
Cumulative effect of change in accounting principle 789,000 --
Depreciation 221,000 251,000
Amortization 14,000 41,000
Debt issue discount -- 30,000
Provision for doubtful accounts 112,000 140,000
Provision for income tax 289,000 77,000
Compensation expense-issuance of stock 4,000 5,000
(Gain)loss on disposal of property
and equipment (2,000) 5,000
Other (6,000) --
(Increase) decrease in:
Accounts receivable (617,000) (345,000)
Inventory (161,000) 162,000
Prepaid expenses and other assets (209,000) (300,000)
Increase (decrease) in:
Accounts payable (47,000) 141,000
Accrued expenses and other liabilities (42,000) (99,000)
---------- ---------
Total adjustments to net income 345,000 108,000
---------- ---------
Net cash (used in) provided by
operating activities: (291,000) 251,000
---------- ---------
Cash flows from investing activities:
Purchases of property, plant
and equipment (172,000) (24,000)
Proceeds received from sale of
property and equipment 30,000 25,000
Payment on note payable for acquisitions -- (100,000)
---------- ---------
Net cash (used in) investing activities (142,000) (99,000)
---------- ---------
Cash flows from financing activities
Increase (decrease) in notes payable
banks - net 923,000 (16,000)
Proceeds from issuance of long-term debt 111,000 --
Repayment of long-term debt (415,000) (448,000)
---------- ---------
Net cash provided by (used in)
financing activities 619,000 (464,000)
---------- ---------
The accompanying notes are an integral part
of the consolidated financial statements.
5
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
-continued-
Six Months Ended
June 30,
------------------------------
2002 2001
---------- -----------
Net increase(decrease)in cash and
cash equivalents 186,000 (312,000)
Cash and cash equivalents beginning of period 1,368,000 1,853,000
---------- -----------
Cash and cash equivalents end of period $1,554,000 $ 1,541,000
========== ===========
Non-cash transactions:
Issuance of 15,000 shares of common stock
to an employee of the Company
in 2002 and 2001 $ 4,000 $ 5,000
========== ===========
The accompanying notes are an integral part
of the consolidated financial statements.
6
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) Interim Financial Statements
----------------------------
The accompanying unaudited consolidated financial statements
have been prepared in accordance with the instructions to Form
10-Q and do not include all of the information and footnotes
required by auditing standards generally accepted in the United
States of America for complete financial statements. In the
opinion of management, all adjustments considered necessary for a
fair presentation have been included. Operating results for the
six months ended June 30, 2002 are not necessarily indicative of
the results that may be expected for the year ended December 31,
2002. 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, 2001.
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
The Company and its subsidiaries are primarily involved in the
manufacturing and sale of exterior and interior finish wall
coatings and mortar products for the construction industry, as
well as the 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
----------------------------
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, contactors
and sub-contractors, located principally in the Southeastern
United States who have purchased products on an unsecured open
account basis. At June 30, 2002, accounts aggregating $610,000
7
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
or approximately 11.3% 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 June 30, 2002 of
$460,000 is considered sufficient to absorb any losses which may
arise from uncollectible accounts receivable.
The Company places its cash with commercial banks. At June 30,
2002, the Company has cash balances with banks in excess of
Federal Deposit Insurance Corporation insured limits. Management
believes the credit risk related to these deposits is minimal.
c) Inventories
-----------
Inventories are stated at the lower of cost or market (net
realizable value), on a first-in, first-out basis. Finished goods
include the cost of raw materials, freight in, direct labor and
overhead.
d) Property, plant and equipment
-----------------------------
Property, plant and equipment is stated at cost, less
accumulated depreciation. Depreciation is computed on the
straight-line basis over the estimated useful lives of the
depreciable assets. Expenditures for maintenance and repairs are
charged to expense as incurred, while expenditures which extend
the useful life of assets are capitalized. Differences between the
proceeds received on the sale of property, plant and equipment and
the carrying value of the assets on the date of sale is credited
to or charged against net income.
e) 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 is net of $57,000 accumulated
amortization at June 30, 2002 and December 31, 2001. (See Note 4
for goodwill accounting policy adopted January 1, 2002).
8
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
-----------------------------------------------------------------------
(continued)
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 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).
h) 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 June 30, 2002 and December 31, 2001 are short term
time deposits of $122,000 and $121,000, respectively. Also
included in cash and cash equivalents at June 30, 2002 and
December 31, 2001 are $952,000 and $698,000,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.
i) Revenue recognition policy
--------------------------
Revenue from sales transactions, net of discounts and
allowances, is recorded upon delivery of inventory to the
customer.
j) 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
9
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
-----------------------------------------------------------------------
(continued)
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.
k) 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.
l) 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.
m) Segment Reporting
-----------------
The Company has adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. For the six
month periods ended June 30, 2002 and 2001, the Company has
determined that it continues to operate in a single operating
segment.
n) New Accounting Pronouncements
-----------------------------
In June 2001, the FASB issued SFAS No. 143, "Accounting for
Asset Retirement Obligations". SFAS No. 143, which is effective for
fiscal years beginning after June 15, 2002, addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset
retirement costs. The Company's adoption of this standard is not
expected to have a material effect on its financial statements.
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
10
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
n) New Accounting Pronouncements (continued)
-----------------------------
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 does not anticipate SFAS 145 having
a material effect on their 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 Company is required to adopt the provisions of SFAS
146 effective for exit or disposal activities initiated after
December 31, 2002. The Company is currently evaluating the impact of
adoption of this statement.
(3) Inventories
At June 30, 2002 and December 31, 2001 inventories consisted of:
2002 2001
---------- ----------
Raw Materials $ 518,000 $ 465,000
Finished Goods 3,197,000 3,062,000
Packaging materials 253,000 280,000
---------- ---------
$3,968,000 $3,807,000
---------- ---------
11
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(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 our 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 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". 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 the first six months and second quarter of 2001, net income would
have been $156,000 and $128,000, respectively, with no impact on
earnings per share.
The Company has completed their SFAS 142 transitional
impairment review and determined that the goodwill ("excess cost
of investment over net assets acquired") of $1,272,000 associated
with the fiscal 2000 Just-Rite Supply, Inc. acquisitions of
several distribution facilities, should be reduced to $0. The fair
value of the reporting unit (Just-Rite Supply, Inc) 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 six-month period ended June 30, 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
12
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(4) Goodwill and Other Intangible Assets (continued)
------------------------------------
in other than the first interim reporting period, it shall be
recognized in the first interim period irrespective of the period
in which it is measured. The impact on the three-month period
ended March 31, 2002 is as follows:
Three Months Ended March 31, 2002
--------------------------------------------------------------
Net Income/(Loss) Basic EPS Diluted EPS
--------------------------------------------------------------
Reported Net Income $ 122,000 $ 0.01 $ 0.01
Less: Impairment Charge $ (789,000) $ (0.08) $ (0.08)
Adjusted Net Loss $ (667,000) $ (0.07) $ (0.07)
(5) Notes Payable
-------------
At June 30, 2002 and December 31, 2001 notes payable represent
amounts outstanding under a $6,000,000 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% (5.25% at
June 30, 2002), expires June 19, 2003, and is subject to annual
review.
At June 30, 2002 the line of credit limit available for
borrowing based on eligible receivables and inventory aggregated
to $5,258,000, all of which was outstanding. The average amounts
outstanding for the six month periods ended June 30, 2002 and 2001
were $4,866,000 and $5,038,000, respectively.
(6) Long-Term Debt and Current Installments of Long-Term Debt
---------------------------------------------------------
Included in long-term debt at June 30, 2002, are four mortgage
loans, collateralized by real property, in the aggregate amount of
$883,000, less current installments aggregating $261,000.
During 2000, the Company acquired certain assets and assumed
certain liabilities of seven building materials distributors in
which it issued $850,000 uncollateralized 8% promissory notes as
partial consideration. At June 30, 2002, aggregate remaining notes
of $268,000 were classified as long-term debt, less current
installments of $212,000.
Other long-term debt in the aggregate amount of $654,000,
less current installments of $260,000, relates principally to
equipment financing. The notes bear interest at various rates
ranging from 4.89% to 10.83%.
13
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(7) Income Taxes
------------
At June 30, 2002, the net deferred tax asset of approximately
$1,044,000 consisted mostly of the tax effect of net operating loss
carryforwards of $442,000 and the tax effect of the goodwill written
off of $534,000. Reflected in the $442,000 is the effect of a second
quarter 2002 valuation allowance recorded by the Company of $319,000
against the operating loss carryforward for amounts expected to
expire. The operating loss carryforwards expire in varying amounts
through 2009.
In the six months ended June 30, 2002 and 2001, the Company
recognized an income tax benefit of $194,000 and tax expense of
$77,000, respectively.
(8) Capital Stock
-------------
(a) Common Stock
------------
At June 30, 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 June 2002 and 2001, the Company issued 15,000 shares of
common stock as incentive compensation to an employee pursuant to
the terms of an employment agreement.
(b) Preferred Stock
---------------
The authorized preferred stock of the Company consists of
5,000,000 shares, $.01 par value per share. The preferred stock is
issuable in series, each of which may vary, as determined by the
Board of Directors, as to the designation and number of shares in
such series, the voting power of the holders thereof, the dividend
rate, redemption terms and prices, the voluntary and involuntary
liquidation preferences, and the conversion rights and sinking
fund requirements, if any, of such series. At June 30, 2002 and
December 31, 2001, there were no shares of preferred stock
outstanding.
(c) Warrants
--------
At June 30, 2002, 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.
14
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(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 form the grant date. The 1999 Plans are
administered by the Compensation and Stock Option Committee (the
"Committee"), which is comprised of three outside directors. The
Committee determines who is eligible to participate and the number
of shares for which options are to be granted. A total of 600,000
and 200,000 shares are reserved for issuance under the Employee
and Directors' Plans, respectively.
During the three months ended June 30, 2002 the Company
granted options to purchase 80,000 shares at $.22 per share for a
five year period consisting of 40,000 shares under the Employee
Stock Option Plan(the "Employee Plan")and 40,000 shares under the
Directors' Stock Option Plan (the "Directors' Plan"). As of June
30, 2002, options for 360,000 shares were available for future
grants under the Employee Plan. No shares are currently available
for future grant under the Directors' Plan.
(9) Earnings Per Share
------------------
Below is a reconciliation between basic and diluted earnings
per common share under FAS 128 for the six months and three months
ended June 30, 2002 and 2001 (in thousands except per share
amounts):
Six Months
----------
2002 2001
---------------------- -----------------------
Per Per
Income Shares Share Income Shares Share
Net (loss) income $(636) $143
Basic earnings $(636) 9,222 $(.07) $143 9,208 $.02
per share ----- ----- ------ ---- ----- ----
Effect of dilutive
securities:
Options/Warrants -- -- -- -- 2 --
----- ----- ----- ---- ----- ----
Diluted earnings
per common share $(636) 9,222 $(.07) $143 9,210 $.02
----- ----- ------ ---- ----- ----
15
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
Three Months
------------
2002 2001
---------------------- -----------------------
Per Per
Income Shares Share Income Shares Share
Net income $31 $121
Basic earnings $31 9,224 -- $121 9,210 $.01
per share ---- ----- ---- ---- ----- ----
Effect of dilutive
securities:
Options/Warrants -- 27 -- -- 0 --
---- ---- ---- ---- ------ ----
Diluted earnings
per common share $31 9,251 -- $121 9,210 $.01
---- ----- ---- ---- ----- ----
For the six months ended June 30, 2002 and 2001, 550,000 and
183,000 options and warrants were excluded from the diluted
earnings per share computations, respectively, because they were
anti-dilutive. For the quarter ended June 30, 2002 and 2001,
390,000 and 183,000 options and warrants were excluded from the
diluted earnings per share computations, respectively, because
they were anti-dilutive.
(10) Commitments and Contingencies
-----------------------------
(a) Contingencies
-------------
As of August 1, 2002, one of the Company's subsidiaries,
Acrocrete, Inc., and other parties are defendants in 34 lawsuits
pending in various Southeastern states, by homeowners, homeowners
associations, contractors and subcontractors, or their insurance
companies, claiming moisture intrusion damages on single and
multi-family residences. The Company's insurance carriers have
accepted coverage for 26 of these claims and are providing a
defense under a reservation of rights. Acrocrete expects its
insurance carriers to accept coverage for the other 8 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, another of the Company's subsidiaries,
Premix, was served with a complaint captioned Mirage
Condominium Association, Inc. v. Premix Marbletite
Manufacturing Co., et al., in Miami-Dade County Florida. The
lawsuit raises a number of
16
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
allegations against twelve separate defendants involving alleged
construction defects. Plaintiff has alleged only one count against
Premix, which claims that certain materials, purportedly provided
by Premix to the Developer / Contractor and used to anchor balcony
railings to the structure were defective. The Company's insurance
carriers have not made a decision regarding coverage to date, but
have retained counsel on behalf of Premix and are paying defense
costs. The Company expects the insurance company to eventually
accept coverage. Premix is unable to determine the exact extent of
its exposure or the outcome of this litigation.
Premix and Acrocrete are both 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.
On April 23, 1999, certain Dissenting Shareholders owning
shares of the Company's formerly issued preferred stock filed a
petition for appraisal in the Delaware Chancery Court to determine
the fair value of their shares at the effective date of Merger,
exclusive of any element of value attributable to the merger. The
Company recorded $877,000 in the accompanying consolidated balance
sheets at March 31, 2002 and December 31, 2001, as an estimate for
the obligation for appraisal rights based on the estimated fair
value of the consideration they could have received had they not
elected dissenters' rights. The Chancery Court may determine fair
value is less than, equal to, or greater than an aggregate of
$877,000. A trial for the appraisal rights was held in the
Chancery Court of Delaware in June 2002. As of the date hereof,
the trial court has not issued a ruling. The Company does not
expect a final non-appealable judicial determination requiring the
Company to make payment to the Dissenting Shareholders prior to
April 1, 2003. At June 30, 2002 the obligation for appraisal
rights was classified as current liability.
(b) Lease Commitments
-----------------
At June 30, 2002, certain property, plant and equipment were
under lease by the Company under long-term leases. The Company
will pay aggregate annual rent of approximately $1,048,000 for its
current operating leases. The leases expire at various dates
ranging from December 31, 2002 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.
17
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(11) Subsequent Event
----------------
On July 19, 2002 at the Company's Annual Meeting of
Shareholders, the Company's Shareholders approved a proposal for a
one for five reverse common stock split ("Reverse Stock Split").
Pursuant to the terms of the proposal, the Reverse Stock Split was
to become effective upon filing an appropriate certificate with
the Secretary of State of Delaware. Notwithstanding the approval
of the Reverse Stock Split, the Board of Directors reserved the
right, without further action by the Shareholders, to elect not to
proceed with the Reverse Stock Split if at any time prior to
filing such certificate with the State of Delaware, the Board of
Directors, in its sole discretion, determined that it was no
longer in the best interests of the Company and its stockholders.
In addition, the Board of Directors reserved the right to delay
the Reverse Stock Split for up to twelve months following the
stockholder approval.
The Board of Directors determined it was in the best
interest of the Company to temporarily postpone the implementation
of the Reverse Stock Split until a future date. The Company
expects to proceed with the Reverse Stock Split in the near
future.
18
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, the following: realization of
tax benefits; impairment of long-lived assets, including
goodwill; 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; availability of qualified personnel;
and labor and employee benefit costs.
These risks may not be 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 risks may cause actual
results to differ from those projected in any forward-looking
statements.
19
Item 2 Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (continued)
-------------
Results of Operations
---------------------
Six Months and Three Months Ended June 30, 2002 Compared to 2001
----------------------------------------------------------------
Net Sales for the six months and three months ended June 30,
2002 decreased $2,773,000 and $1,314,000 or approximately 13.3%
and 12.2%, respectively compared to the same periods in 2001. The
closure of certain under-performing distribution facilities, and
the elimination of installation services and sales of gypsum
wallboard at certain locations during 2001, in combination with
reduced demand for certain of the Company's manufactured
products, accounted for the principal amount of the sales decline
in the six months and second quarter in 2002 compared to the same
periods in 2001. The closure of the under-performing operations
accounted for $1,776,000 and $860,000 of the sales decline in the
six months and second quarter 2002 comparable periods. Second
quarter sales were also adversely impacted by an unusual large
amount of rain in June in the Company's principal markets, which
slowed construction and consequently reduced demand for the
Company's products during the month.
Gross profit as a percentage of net sales for the six months
and three months ended June 30 of 2002 was approximately 31.5%
and 31.6%, compared to 30.5% and 30.6% for the same periods in
2001. The increase in gross profit margins was principally due to
a greater proportion of consolidated sales from company
manufactured products having higher gross profit margins. This is
primarily attributable to (i) the closure of certain
under-performing distribution facilities in 2001 whose sales were
primarily comprised of lower gross profit margin products
manufactured by other companies and (ii) the Company's continuing
efforts to emphasize the sales of its manufactured products
through its distribution facilities and to decrease reliance on
sales of lower margin gypsum products. The Company recently
increased its sales force to further promote the sales of its
manufactured products to the end-user.
Market prices for gypsum wallboard, a major product line
purchased and sold by the Company's distribution operations, were
believed to be slightly higher in the six months ended June 30,
2002 compared to the average prices realized for the same period
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 to a
certain extent from the historically low levels during the third
quarter ended September 30, 2001. During that quarter, certain
20
Item 2 Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (continued)
-------------
Six Months and Three Months Ended June 30, 2002 Compared to 2001
----------------------------------------------------------------
(continued)
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 will trend higher or even be maintained at current levels,
during the remainder of 2002.
Selling, general and administrative expenses as a percentage
of net sales for the six months and second quarter of 2002 were
approximately 28.5% and 28.7%, compared to 27.5% and 27.1% in
2001. Selling, general and administrative expenses decreased
$587,000 and $205,000,or approximately 10.2% and 7.0% in 2002,
compared to the same periods 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 manpower to gain improved operating efficiencies,
which took place during 2001. Selling, general and administrative
expenses increased in the second quarter of 2002 compared to the
first quarter primarily as a result of sales and marketing
initiatives to increase sales for its manufactured products.
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, Picayne
and Pascagoula, Mississippi; (iii) elimination of installation
services at two locations; and (iv) development of a consolidated
purchasing program in an attempt to realize greater savings from
the purchase and resale of products.
Interest expense decreased $181,000 and $82,000 in the six
months and second quarter of 2002, or approximately 40.3% and
37.6%, compared to the same period in 2001. The decrease in
interest expense in the 2002 periods 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 the six months and second quarter of 2002 included insurance
refunds of approximately $91,000 and $84,000, respectively, as a
result of lower claims than provided for in the underlying
insurance policies.
21
Item 2 Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (continued)
-------------
In the six months and second quarter of 2002, the Company
recognized income on tax benefit of $194,000 and tax expense of
$223,000, respectively, compared to income tax expense of $77,000
and $65,000 for the same periods in of 2001.
As a result of the above factors, the Company had a net loss
of $636,000 and net income of $31,000, or $(.07) per fully
diluted share for the six months, and no earnings per fully
diluted share for the second quarter of 2002, compared to net
income of $143,000 and $121,000, or $.02 and $.01 per share for
2001.
Liquidity and Capital Resources
-------------------------------
Sources and Uses of Cash
------------------------
The Company's operations used $291,000 in cash for the
six months ended June 30, 2002 due primarily to a $778,000
increase in net accounts receivable and inventory. Sales in June
2002 were adversely impacted by an unusually large amount of rain
which slowed construction and resulted in reduced receivable
collections and higher inventories at the end of the period. In
the first six months of 2001 net cash provided by operating
activities of $251,000 included a net increase of only $183,000
in accounts receivable and inventory.
During the first six months of 2002, the net expenditures
for investing activities were $142,000 compared to $99,000 in
2001. The purchase of equipment to up-grade the Company's
manufacturing equipment and distribution capabilities accounted
for the majority of the 2002 expenditures.
During the six months ended June 30, 2002, the line of
credit balance increased approximately $923,000 to meet the
Company's working capital needs. The Company made principal
payments on other debt totaling $415,000 during the six month
period.
Future Commitments and Funding Sources
--------------------------------------
At June 30, 2002, the Company's contractual cash
obligations, with initial or remaining terms in excess of one
year, remained generally unchanged compared to December 31, 2001
except for the items described more fully in the following
paragraph. See Notes 6 and 10 in the accompanying financial
statements for additional information regarding the Company's
commitments.
At June 30, 2002, the Company had working capital of
approximately $1,790,000 compared to working capital of
$2,480,000 at December 31, 2001. The net reduction in
22
Item 2 Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (continued)
-------------
Liquidity and Capital Resources (continued)
-------------------------------
working capital was primarily attributable to the
reclassification of appraisal rights obligation ($877,000) and a
mortgage note ($207,000 due June 2003) from long-term debt at
December 31, 2001 to a current liability at June 30, 2002.
As of June 30, 2002, the Company had cash and cash
equivalents of $1,554,000, which included customer payments in
the amount of $952,000 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. 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.
The Company's principal source of short-term liquidity is
existing cash on hand and the utilization of a $6,000,000 line of
credit with a commercial lender. The maturity date of the line of
credit is June 19, 2003, 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 receivable outstanding more than
120 days are not eligible under the agreement. At June 30, 2002
the line of credit available for borrowing based on eligible
receivables and inventory aggregated to $5,258,000, all of which
was outstanding.
Trade accounts receivable represent amounts due from
sub-contractors, contractors and building materials dealers
located principally in Florida, and the Southeastern States who
have purchased products on an unsecured open account basis and
through Company owned warehouse distribution outlets. As of June
30, 2002, the Company owned and operated eleven distribution
outlets. Accounts receivable, net of a $460,000 allowance, at
June 30, 2002 was $4,924,000 compared to $4,419,000 (net of a
$453,000 allowance) at December 31, 2001.
As a result of the consummation of the December 31, 1998
merger, among other things, the Company agreed to pay $733,000 in
cash to the former preferred shareholders and issued $985,000
face value Debentures due December 31, 2001. Amounts payable to
such shareholders at June 30, 2002 on the Company's consolidated
balance sheets of $262,000
23
Item 2 Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (continued)
-------------
Liquidity and Capital Resources (continued)
-------------------------------
results from certain former holders continued non-compliance
with the conditions for payment.
Holders representing 81,100 preferred shares have elected
dissenter's rights, which under Delaware law, would require cash
payments equal to the fair value of their stock, as of the date
of the merger, to be determined in accordance with Section 262 of
the Delaware General Corporation Law. The Company has recorded a
liability for each share based on the fair value of $2.25 in
cash, an $8.00 Subordinated Debenture and five shares of the
Company's common stock since that is the consideration the
dissenting holders would receive if they did not perfect their
dissenters' rights under the law. Dissenting stockholders filed a
petition for appraisal rights in the Delaware Chancery Court on
April 23, 1999. A trial for the appraisal rights was held in the
Chancery Court of Delaware in June 2002. As of the date hereof,
the trial court has not issued a ruling. The Company expects
a final non-appealable judicial determination requiring the
Company to make payment to the Dissenting Shareholders prior
to June 30, 2003.
The Company presently is focusing its efforts on building
market share for the sale of its manufactured products, reducing
costs and expenses and improving working capital. The Company
expects to incur various capital expenditures during the next
twelve months to upgrade and maintain its equipment and delivery
fleet to support operations and for the recent opening of a
distribution facility in Port St. Lucie, Florida. In addition,
the Company is planning the implementation of an upgraded
centralized management information system for its distribution
operations. Capital needs associated with these capital projects
cannot be estimated at this time, but management does not expect
the cash portion of the expenditures for these projects to exceed
$150,000 during the twelve months subsequent to June 30, 2002.
The Company believes its cash on hand and the maintenance
of the borrowing arrangement with its commercial lender will
provide sufficient cash to meet current obligations for its
day-to-day operations and support the cash requirements of its
capital expenditure programs. However, the ability of the Company
to maintain and improve its liquidity is primarily dependent on
the Company's ability to increase profitable operations, to
obtain its projected cash flow and resolve its outstanding
appraisal rights litigation. It is likely the Company will be
required to obtain additional financing to fund the resolution
of such litigation within the next nine months. While the
Company does not presently have arrangements for such sources
of financing, the Company believes that it would be able to
obtain the necessary financing through additional borrowings
from banks or through the issuance of debt or equity. Such
financing may be dilutive to existing shareholders. There can
be no assurance such financing will be available on terms
reasonably satisfactory to the Company. The inability to obtain
such financing could have a material adverse effect on the
Company's future operations and financial performance.
24
Item 3 Market Risks
------------
Residential and Commercial Construction Activity
------------------------------------------------
The Company's sales depend heavily on the strength of
residential and commercial construction activity in the
Southeastern United States. The strength of these markets depends
on many factors beyond the Company's control. Some of these
factors include interest rates, employment levels, availability
of credit, prices of raw materials and consumer confidence.
Downturns in the markets that the Company serve or in the economy
generally could have a material adverse effect on the Company's
operating results and financial condition. Reduced levels of
construction activity may result in intense price competition
among building materials suppliers, which may adversely affect
the Company's gross margins.
The Company's first quarter revenues and, to a lesser
extent, its fourth quarter revenues are typically adversely
affected by winter construction cycles and weather patterns in
colder climates as the level of activity in the new construction
and home improvement markets decreases. Because much of the
Company's overhead and expense remains 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
$431,000 at June 30, 2002. The mortgages bear interest at prime
plus 1% and are due October 2004. In addition, the Company's
$6,000,000 line of credit from a commercial lender bears an
interest rate of prime plus 1/2%. A significant increase in the
prime rate could have a material adverse effect on the Company's
operating results and financial condition.
25
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
PART II. Other Information
Item 1. Legal Proceedings
------------------
See notes to Consolidated Financial Statements, Note 10 (a),
set forth in Part I Financial Information.
Item 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).
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
-------------------
None.
26
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be signed on
it behalf by the undersigned thereunto duly authorized.
IMPERIAL INDUSTRIES, INC.
By: /S/ Howard L. Ehler, Jr.
-------------------------
Howard L. Ehler, Jr.
Executive Vice President/
Principal Executive Officer
By: /S/ Betty Jean Murchison
-------------------------
Betty Jean Murchison
Chief Accounting Officer/
Assistant Vice President
August 14, 2002
27