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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 1-7190
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IMPERIAL INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 65-0854631
- - ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1259 Northwest 21st Street, Pompano Beach, Florida 33069-1417
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 917-4114
---------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
----------------------------
(Title of Class)
8% Subordinated Debentures
--------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (S229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock of the Registrant held
by non-affiliates computed by reference to the average bid and asked price of
the registrant's Common Stock ($.01 par value) on March 15, 2000 is: $4,637,256
Number of shares of Imperial Industries, Inc. Common Stock ($.01 par
value) outstanding on March 15, 2000: 8,505,434
PART I
Item 1. Business
--------
Imperial Industries, Inc., is a Delaware corporation which
through its predecessor corporation has been in existence since 1968.
The Company's executive offices are located at 1259 Northwest 21st
Street, Pompano Beach, Florida 33069 and the telephone number at such
offices is (954) 917-4114.
Merger
------
On October 12, 1998, the Board of Directors approved a plan
merging Imperial Industries, Inc. into Imperial Merger Corp., a newly-
formed, wholly-owned subsidiary of the Company, (the "Merger"). The
Merger was approved at a special meeting of the Company's Stockholders
on December 17, 1998, with the Merger becoming effective December 31,
1998. On the effective date of the Merger, Imperial Merger Corp.
changed its name to Imperial Industries, Inc. (hereinafter referred to
as (the "Company").
Upon consummation of the Merger, each share of common stock
outstanding prior to the Merger was automatically converted to one
share of common stock of the Company. Each share of preferred stock
outstanding prior to the Merger was converted, at the holder's option,
into either (a) $4.75 in cash and ten shares of the Company's common
stock, or (b) $2.25 in cash, an 8% subordinated debenture, face value
$8.00, and five shares of the Company's common stock. Holders
representing 81,100 preferred shares have elected dissenters' rights,
which, if perfected under Delaware law, would require the Company to
pay to the holders the fair value of their stock in cash to be
determined by the Delaware Chancery Court. Pursuant to Delaware law,
the dissenting shareholders petitioned the Delaware Chancery Court to
determine the fair value of their shares at the effective date of the
Merger, exclusive of any element of value attributable to the Merger.
In accordance with the Merger, the Company issued $984,960 of
8% Subordinated Debentures, 1,574,610 shares of common stock and paid
$732,550 in cash to the former preferred shareholders who did not elect
dissenters' rights. The Company does not know the amount which would be
payable to dissenting holders who ultimately perfect their dissenters
rights. Those dissenting stockholders who fail to perfect their
dissenters' rights under Delaware law would ultimately receive the
consideration in option (b) above. For a more complete description of
the Merger, see Note (1) of Notes to Consolidated Financial statements.
General
-------
The Company, through its subsidiaries, is engaged in the
manufacture and distribution of building materials to building
materials dealers and others located primarily in Florida and Georgia,
and to a lesser extent, other states in the Southeastern part of the
United States as well as foreign countries. In addition, the Company
presently has nine distribution outlets through which it markets
certain of its manufactured products directly to end users. The
Company's products are used in the construction industry by developers,
builders, contractors, and sub-contractors.
2
Item 1. Business (continued)
--------
General (continued)
-------
The Company's business is directly related to the level of
activity in the new and renovation construction market in Florida and
Georgia, and to a lesser extent other states in the Southeastern part
of the United States. The Company's products are used by developers,
general contractors and subcontractors in the construction or
renovation of residential, multi-family and commercial buildings and
swimming pools. In Florida and Georgia, demand for new construction is
related to, among other things, population growth. Population growth,
in turn, is principally a function of migration of new residents to the
state. When economic conditions reduce migration, demand for new
construction decreases. Construction activity is also affected by the
size of the inventory of available housing units, mortgage interest
rates, availability of funds and local government growth management
policies. The Company's operations are directly related to the general
economic conditions existing in the Southeastern part of the United
States.
The Company's manufacturing operations are conducted by its
wholly owned subsidiaries, Premix-Marbletite Manufacturing Co.
("Premix") and Acrocrete, Inc. ("Acrocrete"). Effective January 1,
2000, the Company's distribution operations are conducted through its
other wholly owned subsidiary, Just-Rite Supply, Inc. ("Just- Rite).
The manufacturing operations primarily produce stucco, roof tile mortar
and plaster products. The distribution operations distribute products
manufactured by the Company's manufacturing subsidiaries and other
related products.
Stucco products are applied as a finishing coat to exterior
surfaces and to swimming pools. Roof tile mortar is used to adhere
cement roof tiles to the roof. Plaster customarily is used to finish
interiors of structures.
Premix
------
Premix, together with its predecessors, has been in business
for approximately 40 years. The names "Premix" and "Premix-Marbletite"
are among the registered trademarks of Premix. The Company believes the
trade names of its manufactured products represent a substantial
benefit to the Company because of industry recognition and brand
preference. Premix manufactures stucco, roof tile mortar, plaster and
swimming pool finishes. The products manufactured by Premix basically
are a combination of portland (or masonry) cement, sand, lime, marble
and a plasticizing agent and other chemicals, including color-
impregnating materials.
Premix accounted for approximately 39%, 42% and 49% of the
Company's consolidated annual revenues in the fiscal years ended
December 31, 1999, 1998 and 1997, respectively.
In August 1994, the Company entered into a five year licensing
agreement with an unaffiliated company to exclusively manufacture and
sell a new roof tile mortar product throughout the State of Florida and
certain foreign countries. In 1999, the Company exercised its option to
renew the agreement for the first of two additional five
3
Item 1. Business (continued)
--------
Premix (continued)
------
year periods. Premix has also entered into agreements to manufacture
this product on behalf of selected wholesalers who distribute this
product under the wholesalers names through their existing established
dealer networks to service the roofing contractor industry. To date, a
majority of all roof tile mortar sales have been derived from South
Florida. Until 1996, the Company's licensed roof tile mortar product
was the only mortar product approved by Miami Dade County, Florida,
building authorities for use to adhere all types of cement roof tiles
to roofs. In 1997, the Company's roof tile mortar was approved by the
Broward and Palm Beach County building authorities along with other
competitive products. Other adhesive products used for similar purposes
are also used by the industry. The manufacturing of this new product
did not require any significant change to the current manufacturing
facility. The Company has expanded its marketing efforts for this
product to other areas of Florida based on product performance rather
than only as required by building code requirements.
Acrocrete
---------
Acrocrete, organized in 1988, manufactures synthetic acrylic
stucco products. The Company's trade name "Acrocrete" and certain of
its manufactured products are described by trade names protected by
registered trademarks. Acrocrete's products, used principally for
exterior wall coatings, broaden and complement the range of products
produced and sold by Premix. Management believes acrylic stucco
products have certain advantages over traditional cementitious stucco
products for certain types of construction applications because
synthetic acrylic products provide a hard durable finish with stronger
color retention properties. Further, acrylic stucco products have
improved flexibility characteristics, which minimizes the problems of
cracking of cement coating. Acrocrete's product system provides for
energy efficiency for both residential and commercial buildings.
For the fiscal years ended December 31, 1999, 1998 and 1997,
Acrocrete's sales accounted for approximately 61%, 58% and 51%,
respectively, of the Company's consolidated annual revenues. Prior to
January 1, 2000, Acrocrete operated the Company's distribution
operations.
Just-Rite
---------
In January 2000, the Company established Just-Rite Supply, a
wholly owned subsidiary to own and operate its five wholesale
distribution outlets formerly operated by Acrocrete. The Company's
Board of Directors determined to establish the Company's distribution
operations as a separate business unit to maximize business
efficiencies. In addition, effective January 1, 2000 and March 1, 2000,
Just-Rite acquired four building material distribution outlets to
diversify its product offering to the construction market to include
gypsum, roofing, masonry, insulation products, as well as installation
services beyond those supported by the Company's manufacturing
operation. Management believes the acquired distribution outlets will
position the Company to gain a greater
4
Item 1. Business (continued)
--------
Just-Rite (continued)
---------
market share for its manufactured products through more direct sales to
the end-user and to expand operations by distributing a wider range of
building materials to the construction industry that are complementary
to its existing product lines.
Acquisition Opportunities
-------------------------
The Company believes the gypsum, masonry and stucco products
distribution industries are fragmented and have the potential for
consolidation in response to the competitive disadvantages faced by
smaller distributors. Management believes that these industries are
characterized by a significant number of relatively small privately-
owned, local, relationship-based companies that emphasize service,
delivery and reliability as well as competitive pricing and breadth of
product line to their customers. The competitive environment for these
distributors, in combination with the desire for owners of certain of
these distributors to gain liquidity, provides an opportunity for
expansion through acquisition. The Company believes that opportunities
exist for a company which has the ability to source and distribute
products effectively to serve the building materials industry and to
effect cost savings through economics of scale which can be applied to
companies that may be acquired in these industries. In February 2000,
the Company entered into a non-binding letter of intent to acquire a
building materials distributor in Tallahassee, Florida.
The Company intends to continue to seek prospective
acquisition candidates in businesses that complement or are otherwise
related to that of the Company. Although the primary focus of the
Company's expansion and acquisition program will be on seeking suitable
acquisition candidates who are engaged in the wholesale distribution of
building materials, the Company will consider the purchase of
manufacturers of products which may be distributed through its
wholesale distribution business. Although the Company believes there
may be a number of suitable acquisition candidates, there can be no
assurance that the Company will be able to consummate the acquisition
of any companies. Other than as stated above, the Company does not have
any binding understanding, agreement or commitment regarding any
potential acquisition.
Suppliers
---------
Premix's raw materials and products are purchased from
approximately 23 suppliers. While five suppliers account for
approximately 56% of Premix's purchases, Premix is not dependent on any
one supplier for its requirements. Equivalent materials are readily
available from other sources at similar prices.
Acrocrete's raw materials are purchased from approximately 19
suppliers, of which five account for approximately 69% of Acrocrete's
raw material purchases. However, equivalent materials are available
from several other sources at similar prices and Acrocrete is not
dependent on any one supplier for its requirements.
5
Item 1. Business (continued)
---------
Suppliers (continued)
---------
The Company's Just-Rite distribution outlets sell products of
many suppliers, none of which account for in excess of 5% of the
Company's purchases.
Marketing and Sales
-------------------
The Company's marketing and sales strategy is to create a
profit center for the products it manufactures, as well as enlarging
its product offering to include certain complementary products
manufactured by other companies. The complementary items are purchased
by the Company and held in inventory, together with manufactured
products, for sale to customers. Generally, sales orders are filled out
of existing inventory within several days of receipt of the order. The
total package sales approach to the new and renovation construction
markets is targeted at both the end user of the Company's products,
being primarily the contractor or subcontractor, and the distributor,
principally building materials dealers who purchase products from the
Company and sell to the end user, and in some instances, to retail
customers.
While the Company's sales historically have been typically to
distributors, the Company focuses marketing efforts on the
contractor/subcontractor end user to create a brand preference for the
Company's products. No one distributor has accounted for 10% or more of
total sales during the past three years. The Company believes the loss
of any one distributor would not cause a material loss in sales because
the brand preference contractors and subcontractors have developed for
the Company's products generally cause the user to seek a distributor
who carries the Company's products. Although the Company markets its
products to distributors through Company salesmen, located in the
Southeastern United States who promote both Premix and Acrocrete
products, direct sales to end users now account for over 42% of total
revenues in 1999.
In April 1994, the Company started a pilot program in
Savannah, Georgia to sell its Acrocrete products directly to the end
user. The Company's products and certain complementary products
manufactured by other companies were inventoried and sold from a leased
warehouse distribution facility. In January 1995, the Company opened a
second distribution facility in Jacksonville, Florida. In May 1995, the
Company opened a third distribution facility in Norcross, Georgia. The
Company closed the Savannah facility at March 31, 1997.
In February 1998, the Company acquired a facility in Tampa,
Florida that was engaged primarily in the distribution of landscape
stone products. The Company is utilizing this distribution facility in
an attempt to gain market share for the sale of its products on the
West Coast of Florida. The Company subsequently opened a fourth
distribution facility in the third quarter of 1998 in Dallas, Georgia,
and a fifth in Gadsden Alabama in April 1999. In January 2000, the
Company acquired three additional outlets, one in Foley, Alabama, one
in Pensacola, Florida and one in Destin, Florida. In March 2000, the
Company acquired an additional distribution outlet in Panama City
Beach, Florida. The Company presently is evaluating the feasibility of
6
Item 1. Business (continued)
--------
Marketing and Sales (continued)
-------------------
of opening other warehouse distribution facilities in conjunction with
its acquisition program.
Each facility contains between approximately 6,400 to 15,000
square feet. The distribution facilities are designed to promote
product brand preference to the contractor and sub-contractor, and also
to improve service capabilities, increase market share, and to increase
profit margins from the sale of the Company's products. The Company
sells Acrocrete and complementary products of other manufacturers at
such distribution facilities.
Seasonality
-----------
The sale of the Company's products in the construction market
for the Southeastern United States is somewhat seasonal, with a
slightly lower rate of sales historically occurring in the period
December through February compared to the rest of the year.
Competition
-----------
The Company's business is highly competitive. Premix and
Acrocrete encounter significant competition from local, independent
firms, as well as regional and national manufacturers of acrylic,
cement and plaster products, most of whom manufacture products similar
to those of Premix and Acrocrete. The Company's distribution outlets
encounter significant competition from local independent distributors
as well as regional and national distributors who sell similar
products. Many of these competitors are larger, more established and
better financed than the Company. The Company believes it can compete
with the other companies based upon product performance and quality,
customer service and prices through maintaining lower overhead costs
than larger national companies.
Environmental Matters
---------------------
The Company is subject to various federal, state and local
environmental laws and regulations in the normal course of its
business. Although the Company believes that its manufacture, handling,
use, sale and disposal of its raw materials and products are in accord
with current environmental regulations, future developments could
require the Company to make unforeseen expenditures relating to
environmental matters. Increasingly strict environmental laws,
standards and environmental policies may increase the risk of liability
and compliance costs associated with the Company's operations. Capital
expenditures for this purpose have not been material in past years, and
expenditures for 2000 to comply with existing laws and regulations are
also not expected to have a material effect on the Company's financial
position, results of operations or liquidity.
Employees
---------
The Company and its subsidiaries had 86 full time employees as
of December 31, 1999. The Company considers its employee relations to
be
7
Item 1. Business (continued)
--------
Employees
---------
satisfactory. The Company's employees are not subject to any collective
bargaining agreement.
Item 2. Properties
-----------
The Company and its subsidiaries maintain a total of 13
facilities in Florida, Georgia and Alabama. The location and size of
the Company's facilities and the nature of the operations in which such
facilities are used, are as follows:
Approximate Owned/
Location Sq. Footage Leased Company Products
-------- ----------- ------ ----------------
Pompano Beach, Fl. 19,600 Leased Premix (Manufacturing)
Winter Springs, Fl. 26,000 Owned Premix (Manufacturing)
Kennesaw, Ga. 20,400 Leased Acrocrete (Manufacturing)
Tampa, Fl. 8,470 Owned Just-Rite (Distribution)
Jacksonville, Fl. 11,400 Leased Just-Rite (Distribution)
Norcross, Ga. 12,200 Leased Just-Rite (Distribution)
Dallas, Ga. 6,400 Leased Just-Rite (Distribution)
Gadsden, Al. 10,000 Leased Just-Rite (Distribution)
Pensacola, Fl. 15,250 Owned Just-Rite (Distribution)
Ft. Walton Beach, Fl 8,000 Leased Just-Rite (Distribution)
Destin, Fl. 7,680 Leased Just-Rite (Distribution)
Foley, Al. 9,000 Leased Just-Rite (Distribution)
Panama City Beach, Fl. 9,540 Leased Just-Rite (Distribution)
The Just-Rite distribution outlets typically consist of a
warehouse building and supply yard for the inventory and sale of
products directly to the end user.
Except for the Destin, Florida and Panama City Beach, Florida
locations, all leased properties are leased from unaffiliated third
parties. The Destin, Florida facility is leased from an entity in which
the former owner of A&R Supply, Inc. owns a minority interest. The
former owner sold his business interest to the Company in January 2000
and is currently a Vice President and general manager of Just- Rite.
The Panama City Beach, Florida facility is leased from the former owner
of Panhandle Drywall Supply, Inc., who sold his business interest to
Just-Rite in March 2000 and is currently an employee of the Company.
Management believes that the Company's facilities and
equipment are well-maintained, in good operating condition and
sufficient for its present operating needs.
Item 3. Legal Proceedings
-----------------
As of March 28, 2000, Acrocrete and other parties have been
named in 36 pending lawsuits in various Southeastern states, by
homeowners, contractors and subcontractors, or their insurance
companies, claiming moisture intrusion damages on single family
residences. The Company's insurance carriers have accepted coverage for
35 of these claims and
8
Item 3. Legal Proceedings (continued)
-----------------
are providing a defense under a reservation of rights. The Company
expects its insurance carriers to accept coverage for the other one
recently filed lawsuit. 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 the
Company. 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.
In response to the alleged defects and in compliance with
modified building codes adopted in North Carolina, Acrocrete, together
with many other manufacturers of synthetic stucco wall systems, has
developed modified wall systems that allow the drainage of incidental
moisture that may enter the wall system. Most manufacturers continue to
produce the traditional (i.e., face-sealed) stucco systems and in
commercial construction, estimated to account for more than 50% of
product sales, the traditional system is still the product of choice.
The alleged defects have generally occurred in the residential
construction market. To the Company's knowledge, in the commercial
market, where methods of construction and quality control are monitored
more closely than in the residential market, the alleged drainage
problem has been limited.
On June 15, 1999, 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 allegations against 12 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
been placed on notice of this suit and the Company is awaiting their
response regarding coverage, but fully expects that the insurance
carriers will accept coverage and the defense. In the interim, the
insurance carrier has retained defense counsel on the behalf of Premix.
Premix intends to vigorously defend this claim and believes it has
meritorious defenses. Premix is unable to determine the exact extent of
its exposure or the outcome of this litigation.
Premix and Acrocrete are engaged in other legal actions and
claims arising in the ordinary course of its business, none of which is
believed to be material to the Company.
On April 23, 1999, certain Dissenting Shareholders owning
shares of the Company's preferred stock filed a petition for appraisal
in the Delaware Chancery Court to determine the fair value of the
shares at December 31, 1998, the effective date of the Company's
Merger. (See Note 1 of Notes to Consolidated Financial Statements).
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
9
PART II
Item 5. Market for the Registrant's Common Equity and Related
-----------------------------------------------------
Stockholder Matters
-------------------
The Company's Common Stock is traded in the over-the-counter
market. The following table sets forth the high and low bid quotations
of the Common Stock for the quarters indicated, as reported by the
National Quotation Bureau, Inc. Such quotations represent prices
between dealers and do not include retail mark-up, mark-down, or
commission, and may not necessarily represent actual transactions.
Fiscal, 1998 High Low
------------ ---- ---
First Quarter $.40 $.25
Second Quarter .58 .36
Third Quarter .44 .29
Fourth Quarter .40 .28
Fiscal, 1999 High Low
------------ ---- ---
First Quarter $.41 $.28
Second Quarter .44 .31
Third Quarter .63 .44
Fourth Quarter .72 .45
The Company has not paid any cash dividends on its Common
Stock since 1980.
On March 15, 2000, the Common Stock was held by 1,978
stockholders of record.
As of March 15, 2000, the closing bid and asked prices of the
Common Stock was $.78 and $.80, respectively.
10
Item 6. Selected Financial Data
-----------------------
The following is a summary of selected financial data (in
thousands except as to per share amounts) for the five years ended
December 31, 1999:
Statements of Operations Data Year Ended December 31,
- - ----------------------------- -----------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Net sales $ 22,604 $ 18,739 $ 15,774 $ 13,742 $ 11,615
-------- -------- -------- -------- --------
Cost of sales 15,198 12,823 10,867 9,881 8,239
-------- -------- -------- -------- --------
Selling, general and administrative
expenses 5,932 4,645 3,740 3,313 2,979
-------- -------- -------- -------- --------
Interest expense (475) (272) (329) (317) (282)
-------- -------- -------- -------- --------
Merger costs -- (456) -- -- --
-------- -------- -------- -------- --------
Miscellaneous income, net 34 1,218 54 43 7
-------- -------- -------- -------- --------
Income before income taxes 1,033 1,761 892 274 122
-------- -------- -------- -------- --------
Income tax benefit, net 187 296 753 -- --
-------- -------- -------- -------- --------
Net income 1,220 2,057 1,645 274 122
-------- -------- -------- -------- --------
Less: dividends on redeemable
preferred stock -- (248) (330) (330) (330)
-------- -------- -------- -------- --------
Less: net charge for elimination
of preferred stock -- (975) -- -- --
-------- -------- -------- -------- --------
Net income (loss) applicable to
common stockholders $ 1,220 $ 834 $ 1,315 $ (56) $ (208)
-------- -------- -------- -------- --------
Net income (loss) per share
applicable to common stockholders
Basic $ .15 $ .13 $ .22 $ (.01) $ (.04)
-------- -------- -------- -------- --------
Diluted $ .15 $ .12 $ .21 $ (.01) $ (.04)
-------- -------- -------- -------- --------
Number of shares used in computation
of income (loss) per share: Basic 8,199 6,566 6,009 5,471 5,382
-------- -------- -------- -------- --------
Diluted 8,390 6,715 6,267 5,471 5,382
-------- -------- -------- -------- --------
Balance Sheets Data
- - -------------------
As of December 31,
------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Working capital $ 3,447 $ 2,439 $ 1,995 $ 872 $ 733
-------- -------- -------- -------- --------
Total assets $ 8,768 $ 7,561 $ 5,128 $ 4,116 $ 3,747
-------- -------- -------- -------- --------
Long-term debt,
less current maturities $ 1,328 $ 1,316 $ 819 $ 895 $ 1,000
-------- -------- -------- -------- --------
Obligation for appraisal rights $ 877 $ 877 $ - $ - $ -
-------- -------- -------- -------- --------
Redeemable preferred stock $ - $ - $ 3,001 $ 3,001 $ 3,001
-------- -------- -------- -------- --------
Preferred dividends in arrears(1) $ - $ - $ 4,044 $ 3,714 $ 3,384
-------- -------- -------- -------- --------
Common stock and other
stockholders' equity (deficit) $ 3,514 $ 2,281 $ (4,441) $ (5,879) $ (5,846)
-------- -------- -------- -------- --------
Current ratio 2.1 to 1 1.8 to 1 2.2 to 1 1.4 to 1 1.3 to 1
-------- -------- -------- -------- --------
11
(1) No cash dividends were paid on the cumulative redeemable preferred
stock since 1985. The preferred stock and all accumulated accrued
unpaid dividends were eliminated at December 31, 1998, upon the
effective date of the Merger.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
General
--------
The Company's business is related primarily to the level of
construction activity in the Southeastern United States, particularly
the states of Florida and Georgia. The majority of the Company's
products are sold to building materials dealers located principally in
Florida and Georgia who provide materials to contractors and
subcontractors engaged in the construction of residential, commercial
and industrial buildings and swimming pools. One indicator of the level
and trend of construction activity is the amount of construction
permits issued for the construction of buildings. The level of
construction activity is subject to population growth, inventory of
available housing units, government growth policies and construction
funding, among other things.
This Form 10-K contains certain forward looking statements
within the meaning of the Private Securities Litigation Reform Act of
1995 with respect to the financial condition, results of operations and
business of Imperial Industries, Inc., 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: 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 judgement of personnel; and availability of qualified
personnel; labor and employee benefit costs.
Results of Operations
---------------------
Year Ended December 31, 1999 Compared to 1998
---------------------------------------------
Net sales in 1999 increased $3,865,000, or approximately 21%
compared to 1998. The increase in sales was derived primarily from
increased sales of Acrocrete products, together with certain
complementary products manufactured by other companies, sold through
the Company's distribution outlets. The sales of Acrocrete products
derived from the Company's new distribution outlets in Tampa, Florida,
(acquired February 1, 1998), Dallas, Georgia, (opened July 1, 1998),
and Gadsden, Alabama, (opened April 1, 1999) accounted for $4,145,000
of sales in 1999, compared to $2,137,000 of sales in 1998.
Effective January 1, 2000 and March 1, 2000, the Company
acquired two building materials distributors that derived net sales of
approximately $5,795,000 and $2,276,000, respectively, in 1999. As a
result of these acquisitions, net sales in 2000 are expected to
increase significantly over 1999 levels.
Gross profit as a percentage of net sales for 1999 was
approximately 33%, compared to 32% in 1998. The increase in gross
profit margins was principally due to a price increase for certain
products instituted in the third quarter of 1999.
Selling, general and administrative expenses as a percentage
of net sales for 1999 was approximately 26%, compared to 25% in 1998.
Selling, general and administrative expenses increased $1,287,000, or
approximately 28%, in 1999 compared to 1998. The increase in expenses
was primarily due to additional sales expenses associated with
servicing the increased volume of business, including a new senior
marketing and sales manager, and operating costs related to the
Company's new distribution facilities.
Interest expense increased from $272,000 in 1998 to $475,000
in 1999. The increase in interest expense was due to the amount of
$290,000 associated with the issuance of
12
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (continued)
-------------------------------------
Year Ended December 31, 1999 Compared to 1998 (continued)
---------------------------------------------------------
Subordinated Debentures and obligations incurred in connection
with the Company's merger at December 31, 1998. Miscellaneous income
for 1998 includes a gain of $1,066,000 derived from the sale of its
former manufacturing facility in Miami, Florida and $62,000 of
reimbursements the Company received from the State of Florida
environmental authorities insurance program for costs the Company
incurred in prior years related to the removal of underground fuel
tanks located at its facilities. Miscellaneous expenses includes
approximately $456,000 in fees and expenses associated with the Merger
and elimination of the preferred stock in 1998.
In 1999, the Company recognized a $574,000 tax benefit as a
result of the release of a portion of the valuation allowance on the
Company's deferred tax assets. For the fiscal year ended December 31,
1999, the Company recognized a net income tax benefit of $213,000
representing income before taxes at the statutory rate of 35% less the
tax benefit described above. Based on the Company's net operating loss
carryforwards, the Company is not expected to pay such federal income
taxes for 1999.
As a result of the above factors, the Company derived net
income applicable to common stockholders of $1,220,000 or $.15 per
share for 1999, compared to net income of $834,000 or $.13 per share in
1998. Net income applicable to common stockholders includes a charge of
$248,000 in 1998 for unpaid cumulative dividends on preferred stock,
which was retired in 1998. In addition, in connection with the Merger,
1998 net income applicable to common stockholders was reduced by
$975,000.
Year Ended December 31, 1998 Compared to 1997
---------------------------------------------
Net sales in 1998 increased $2,965,000, or approximately 19%
compared to 1997. The increase in sales was derived primarily from
increased sales of Acrocrete products, together with certain
complementary products manufactured by other companies, sold through
the Company's distribution outlets. Sales derived from the Company's
new distribution outlet in Tampa, Florida, acquired effective February
1, 1998, accounted for approximately $1,790,000 of the increase in
sales.
Gross profit as a percentage of net sales for 1998 was
approximately 32%, compared to 31% in 1997. The increase in gross
profit margins was principally due to savings realized from raw
material purchases and modifications made to the Company's
manufacturing process to gain greater production efficiency.
Selling, general and administrative expenses as a percentage
of net sales for 1998, was approximately 25%, compared to 24% in 1997.
Selling, general and administrative expenses increased $905,000, or
approximately 24%, in 1998 compared to 1997. The increase in expenses
was primarily due to additional sales and delivery expenses associated
with servicing the increased volume of business and costs related to
the Company's new distribution outlet
13
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (continued)
--------------------------
Year Ended December 31, 1998 Compared to 1997 (continued)
----------------------------------------------
in Tampa, Florida, which was acquired in February 1998. In addition,
the Company estimates it incurred approximately $122,000 in costs in
connection with relocating four of its facilities to new locations in
1998.
Miscellaneous income for 1998 includes, a gain of $1,066,000
derived from the sale of it former manufacturing facility in Miami,
Florida and $62,000 of reimbursements the Company received from the
State of Florida environmental authorities insurance program for costs
the Company incurred in prior years related to the removal of
underground fuel tanks located at its facilities. Miscellaneous
expenses includes approximately $456,000 in fees and expenses
associated with the Merger and elimination of the preferred stock in
1998.
In 1998, the Company recognized a $927,000 tax benefit as a
result of the releasing of a portion of the valuation allowance on the
Company's deferred tax assets. For the fiscal year ended December 31,
1998, the Company recognized a net income tax benefit of $320,000
representing income before taxes at the statutory rate of 35% less the
tax benefit described above. Based on the Company's net operating loss
carryforwards, the Company did not pay such taxes on its federal income
tax for 1998.
As a result of the above factors and after giving effect to
the Merger and preferred stock dividends accrued, but not paid in 1998
and 1997, the Company derived net income applicable to common
stockholders of $834,000 or $.13 per share for 1998, compared to net
income of $1,315,000or $.22 per share in 1997. Net income applicable to
common stockholders includes charges of $248,000 in 1998 and $330,000
in 1997 for unpaid cumulative dividends on preferred stock which was
retired in 1998. In addition, in connection with the Merger, net income
applicable to common stockholders has been reduced by $975,000.
Liquidity and Capital Resources
-------------------------------
At December 31, 1999, the Company had working capital of
approximately $3,447,000 compared to working capital of $2,439,000 at
December 31, 1998. As of December 31, 1999, the Company had cash and
cash equivalents of $1,119,000.
The Company's principal source of short-term liquidity is
existing cash on hand and the utilization of a $4,500,000 line of
credit with a commercial lender scheduled to expire on June 19, 2001.
Premix, Acrocrete and Just-Rite borrow on the line of credit, based
upon and collateralized by, their eligible accounts receivable and
inventory. Generally, accounts not collected within 120 days are not
eligible accounts receivable under the Company's borrowing agreement
with its commercial lender. At December 31, 1999, $1,526,000 had been
borrowed against the line of credit. Based on eligible receivables and
inventory, the Company had, under its line
14
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (continued)
--------------------------
Liquidity and Capital Resources (continued)
--------------------------------
of credit, total available borrowing of approximately $2,670,000 at
December 31, 1999.
Trade accounts receivable represent amounts due from sub-
contractors, contractors and building materials dealers located
principally in Florida and Georgia who have purchased products on an
unsecured open account basis and through Company owned warehouse
distribution outlets. As of December 31, 1999 the Company owned and
operated five warehouse distribution outlets. Accounts receivable, net
of allowance, at December 31, 1999 was $2,677,000 compared to
$2,535,000 at December 31, 1998. The increase in receivables of
$142,000, or approximately 6% was primarily related to higher sales
levels prevalent in 1999 compared to 1998.
The Company's shareholders approved a plan of merger with a
wholly owned subsidiary becoming effective December 31, 1998. The Plan
satisfied the Company's redeemable preferred stock dividend arrearage
and mandatory sinking fund requirements which aggregated $7,293,000 at
December 31, 1998.
As a result of the consummation of the merger, the Company
issued an aggregate of $984,960 face amount, 8% subordinated
debentures, 1,574,610 shares of common stock and agreed to pay $732,550
in cash to the former preferred shareholders. At December 31, 1999, the
Company had paid $684,375 of such cash amount. Amounts payable to such
shareholders at December 31, 1999 results from their non-compliance
with the conditions for payments. Holders representing 81,100 preferred
shares have elected dissenters' 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 is unable to
determine the fair value of the preferred stock owned by such
dissenting shareholders, but 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. Expenses associated with the merger aggregated
approximately $456,000 and were expensed in 1998.
Effective January 1, 2000, the Company acquired certain assets
and assumed certain liabilities of three building materials
distributors held under common ownership in a single transaction
accounted for as a purchase acquisition. The total consideration,
exclusive of the issuance of Common Stock, was $1,420,000 consisting of
$798,000 in cash, unsecured promissory notes of $150,000 due 90 days
from closing and $100,000 due one year from closing. The Company also
assumed $372,000 of the acquired companies' secured debt and issued
225,000 shares of the Company's unregistered common stock valued at
$.64 per share.
15
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (continued)
-------------------------
Liquidity and Capital Resources (continued)
-------------------------------
Effective March 1, 2000, the Company acquired certain assets
of another unrelated building materials distributor accounted for as a
purchase. The total consideration was $344,000, which includes 50,000
shares of the Company's unregistered common stock valued at $42,000, or
$.84 per share. The Company paid cash of $219,000 and issued an
unsecured promissory note of $125,000 payable over two years from
closing.
The consummation of these acquisitions and working capital
required to fund operations required utilization of approximately
$1,000,000 under its line of credit.
In February 2000, the Company entered into a non-binding
letter of intent to acquire certain of the assets of a wholesale
building material distribution facility located in Tallahassee,
Florida. The closing, subject to normal contingencies, is anticipated
to be effective April, 2000. The Company expects to utilize
approximately $400,000 under its line of credit, issue notes in the
approximate amount of $150,000, assume secured debt of approximately
$100,000 and issue 130,000 shares of common stock to consummate the
proposed acquisition and fund operations.
The Company presently is evaluating the feasibility of opening
or acquiring other warehouse distribution facilities. In addition, the
Company expects to incur capital expenditures during the next twelve
months to upgrade certain Company facilities and maintain its equipment
to support operations. Management does not expect the cash investment
for the expenditures to upgrade facilities and maintain equipment to be
material. Capital needs associated with opening or acquiring any
additional facilities cannot be estimated at this time.
The Company believes its cash on hand, utilization of unused
borrowings under its line of credit, and the maintenance of its
borrowing arrangement with its commercial lender will provide
sufficient cash to supplement cash shortfalls, if any, from operations
and provide adequate liquidity for the next twelve months to satisfy
the obligations arising from the merger and support the cash
requirements of its capital expenditure programs.
The ability of the Company to maintain and improve its long
term liquidity is dependent upon the Company's ability to successfully
(i) maintain profitable operations; (ii) pay or otherwise satisfy
obligations arising from the merger; and (iii) resolve current
litigation on terms favorable to the Company.
16
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (continued)
-------------------------
Liquidity and Capital Resources (continued)
--------------------------------
Year 2000 Issues
----------------
Management completed a company wide program to prepare the
Company's computer systems and other applications for the year 2000.
The year 2000 problem, which is common to most businesses, concerns the
inability of such systems to properly recognize dates and date-
sensitive information on and beyond January 1, 2000. Based on such
assessment, the Company developed and completed a year 2000 compliance
plan, under which all key information systems were tested, and
non-compliant software replaced. All of the Company's systems are now
2000 compliant. In addition, the Company has not experienced any
material difficulties regarding compatibility of customers' and
suppliers' systems which interface with the Company's systems or could
otherwise impact the Company's operations.
The internal staff costs, replacement of systems and
consulting expenses to prepare the systems for the year 2000 were not
material to the Company's operating results, liquidity or financial
position.
Item 8. Financial Statement and Supplementary Data
------------------------------------------
See Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K for the Index to Financial Statements contained
herein.
17
Report of Independent Certified Public Accountants
To the Board of Directors and Shareholders of
Imperial Industries, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 46 present fairly, in all material
respects, the financial position of Imperial Industries, Inc. and its
subsidiaries at December 31, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States. In addition, in our opinion, the financial statement schedules
listed in the accompanying index under Item 14(a)(2) on page 46 present fairly
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Miami, Florida
March 28, 2000
18
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, December 31,
Assets 1999 1998
------ ---- ----
Current assets:
Cash and cash equivalents $ 1,119,000 $ 1,097,000
Trade accounts receivable (less
allowance for doubtful accounts of
$254,000 and $200,000 at December 31,
1999 and 1998, respectively) 2,677,000 2,535,000
Inventories 2,023,000 1,374,000
Deferred taxes 634,000 505,000
Other current assets 43,000 15,000
------------ ------------
Total current assets 6,496,000 5,526,000
------------ ------------
Property, plant and equipment, at cost 2,653,000 2,517,000
Less accumulated depreciation (1,164,000) (1,182,000)
------------ ------------
Net property, plant and equipment 1,489,000 1,335,000
------------ ------------
Deferred taxes 699,000 615,000
------------ ------------
Other assets 84,000 85,000
------------ ------------
$ 8,768,000 $ 7,561,000
------------ ------------
LiabilitiesandStockholders'Equity
Current liabilities:
Notes payable $ 1,526,000 $ 780,000
Current portion of long-term debt 164,000 123,000
Accounts payable 902,000 1,300,000
Payable to stockholders 48,000 733,000
Accrued expenses and other liabilities 409,000 151,000
------------ ------------
Total current liabilities 3,049,000 3,087,000
------------ ------------
Long-term debt, less current maturities 1,328,000 1,316,000
------------ ------------
Obligation for appraisal rights 877,000 877,000
------------ ------------
Commitments and contingencies -- --
------------ ------------
Stockholders' equity:
Common stock, $.01 par value at December 31,
1999 and 1998; 20,000,000 shares authorized;
8,230,434 and 8,182,571 issued at
December 31, 1999 and 1998, respectively 82,000 82,000
Additional paid-in-capital 13,414,000 13,507,000
Accumulated deficit (9,982,000) (11,202,000)
------------ ------------
3,514,000 2,387,000
Less cost of shares in treasury (none and
47,863 shares at December 31, 1999 and
1998, respectively -- (106,000)
------------ ------------
Total stockholder's equity 3,514,000 2,281,000
------------ ------------
$ 8,768,000 $ 7,561,000
------------ ------------
See accompanying notes to consolidated financial statements.
19
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Net sales $ 22,604,000 $ 18,739,000 $ 15,774,000
Cost of sales 15,198,000 12,823,000 10,867,000
------------ ------------ ------------
Gross profit 7,406,000 5,916,000 4,907,000
Selling, general and
administrative expenses 5,932,000 4,645,000 3,740,000
------------ ------------ ------------
Operating income 1,474,000 1,271,000 1,167,000
------------ ------------ ------------
Other income (expense):
Interest expense (475,000) (272,000) (329,000)
Merger costs -- (456,000) --
Miscellaneous income 34,000 1,218,000 54,000
------------ ------------ ------------
(441,000) 490,000 (275,000)
------------ ------------ ------------
Income before income taxes 1,033,000 1,761,000 892,000
------------ ------------ ------------
Income tax benefit (expense):
Current (26,000) (24,000) (47,000)
Deferred 213,000 320,000 800,000
------------ ------------ ------------
187,000 296,000 753,000
------------ ------------ ------------
Net income 1,220,000 2,057,000 1,645,000
Less: Net charge for elimination
of preferred stock -- (975,000) --
Less: Dividends on redeemable
preferred stock -- (248,000) (330,000)
------------ ------------ ------------
Net income applicable to
common stockholders $ 1,220,000 $ 834,000 $ 1,315,000
------------ ------------ ------------
Basic earnings per
common share $ .15 $ .13 $ .22
------------ ------------ ------------
Diluted earnings per
common share $ .15 $ .12 $ .21
------------ ------------ ------------
20
See accompanying notes to consolidated financial statements.
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Common Stock and
Other Stockholders' Equity
Years ended December 31, 1999, 1998 and 1997
Additional
Common Stock paid-in Accumulated Treasury
Shares Amount capital deficit stock Total
------ ------ ------- ------- ----- -----
Balance at December 31, 1996 5,562,561 $ 571,000 $ 7,229,000 $(13,351,000) $(328,000) $ (5,879,000)
Issuance of common stock 921,500 92,000 31,000 123,000
Accrued dividends in arrears
on preferred stock (330,000) (330,000)
Net income 1,645,000 1,645,000
--------- ------------ ------------ ------------ --------- ------------
Balance at December 31, 1997 6,484,061 663,000 7,260,000 (12,036.000) (328,000) (4,441,000)
Issuance of common stock 124,000 2,000 (187,000) 222,000 37,000
Accrued dividends in arrears
on preferred stock (248,000) (248,000)
Recapitalization of par value of
common stock from $.10 to
$.01 per share (599,000) 599,000
Issuance of common stock in
preferred stock conversion 1,574,510 16,000 5,835,000 (975,000) 4,876,000
Net income 2,057,000 2,057,000
--------- ------------ ------------ ------------ --------- ------------
Balance at December 31, 1998 8,182,571 82,000 13,507,000 (11,202,000) (106,000) 2,281,000
Issuance of common stock 47,863 (93,000) 106,000 13,000
Net income 1,220,000 1,220,000
--------- ------------ ------------ ------------ --------- ------------
Balance at December 31, 1999 8,230,434 $ 82,000 $ 13,414,000 $ (9,982,000) $ -- $ 3,514,000
--------- ------------ ------------ ------------ --------- ------------
See accompanying notes to consolidated financial statements.
21
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net income $ 1,220,000 $ 2,057,000 $ 1,645,000
Adjustments to reconcile net income
to net cash provided by:
Depreciation 225,000 178,000 149,000
Amortization 21,000 31,000 19,000
Debt issue discount 59,000
Provision for doubtful accounts 177,000 154,000 126,000
Deferred taxes, net (213,000) (320,000) (800,000)
Loss (gain) on disposal of fixed assets 5,000 (1,078,000) 1,000
Compensation expense - issuance of stock 13,000 68,000 41,000
(Increase) decrease in:
Accounts receivable (319,000) (1,155,000) (152,000)
Inventories (649,000) (170,000) 68,000
Prepaid expenses and other assets (47,000) 1,000 (38,000)
(Decrease) increase in:
Accounts payable (398,000) 720,000 (80,000)
Accrued expenses and other liabilities 257,000 (66,000) 77,000
----------- ----------- -----------
Net cash provided by
operating activities 351,000 420,000 1,056,000
----------- ----------- -----------
Cash flows from investing activities
Proceeds received from sale of property
and equipment 31,000 1,278,000 9,000
Purchases of property, plant
and equipment (415,000) (839,000) (263,000)
----------- ----------- -----------
Net cash (used in) provided by investing
activities (384,000) 439,000 (254,000)
----------- ----------- -----------
Cash flows from financing activities
Increase (decrease) in notes payable
banks - net 746,000 2,000 (646,000)
Proceeds from issuance of long-term debt 459,000 324,000 60,000
Repayment of long-term debt (465,000) (642,000) (167,000)
Payable to stockholders (685,000) - -
Proceeds received from the exercise
of stock options -- 2,000 48,000
----------- ----------- -----------
Net cash provided by (used in)
financing activities 55,000 (314,000) (705,000)
Net increase in cash and cash
equivalents 22,000 545,000 97,000
Cash and cash equivalents,
beginning of year 1,097,000 552,000 455,000
----------- ----------- -----------
Cash and cash equivalents, end of year $ 1,119,000 $ 1,097,000 $ 552,000
----------- ----------- -----------
Supplemental disclosure
of cash flow information:
Cash paid during the year for interest $ 283,000 $ 276,000 $ 329,000
----------- ----------- -----------
See accompanying notes to consolidated financial statements
22
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(1) Merger
-------
On December 17, 1998, the Company's stockholders approved a
Plan merging Imperial Industries, Inc. into Imperial Merger Corp., a
newly- formed, wholly-owned subsidiary of the Company, (the "Merger"),
with the Merger becoming effective December 31, 1998,, (the "Effective
Date"). On the Effective Date, Imperial Merger Corp. changed its name
to Imperial Industries, Inc., (the "Company").
At the Effective Date, each share of the Company's $.10 par
value common stock outstanding before the Merger was converted into one
share of $.01 par value common stock resulting in the recapitalization
of $599,000 from common stock to additional paid-in-capital. Also at
the Effective Date, 300,121 outstanding shares of preferred stock, with
a carrying value of $3,001,000 were retired and $4,292,000 of accrued
dividends on such shares, were eliminated as described in the following
paragraphs.
Holders of 219,021 shares of the preferred stock (the
"Exchanging Shareholders"), with a carrying value of $2,190,000,
elected to convert their shares into either (a) $4.75 in cash and ten
shares of the Company's common stock, or (b) $2.25 in cash, an 8%
three-year $8.00 subordinated debenture and five shares of the
Company's common stock. In connection with the Exchanging Shareholders'
election, the Company was required to pay cash of $733,000 which was
presented as payable to stockholders in the accompanying consolidated
balance sheet at December 31, 1998. At December 31, 1999 cash payable
to stockholders was reduced to $48,000 from $733,000 at December 31,
1998, as a result of satisfying the cash requirements due to Exchanging
Shareholders who had submitted their preferred stock to the Company for
the merger consideration. The Company was also required to issue
$985,000 face value of 8% subordinated debentures with a fair value of
$808,000, and 1,574,610 shares of $.01 par common stock with a fair
value of $630,000 based on the market price of $.40 per share of the
Company's common stock at the Effective Date. The total fair value of
the cash, debentures and common stock to be exchanged with the
Exchanging Shareholders was $2,171,000. Had the Exchanging Shareholders
elected to convert their shares under the provisions of the preferred
stock's governing instrument, they would have received 251,655 shares
of common stock with a fair value of $101,000. The excess of the total
fair value of cash, debentures and common stock to be exchanged with
the Exchanging Shareholders, over the fair value which the Exchanging
Shareholders would have received under the preferred stock's original
conversion provisions represented a conversion charge of $2,070,000 to
accumulated deficit and a reduction in net income applicable to common
stockholders in the accompanying consolidated statement of operations
for the year ended December 31, 1998. In addition, conversion of the
219,021 preferred shares resulted in a credit to additional paid-in
capital of $5,835,000, for the year ended December 31, 1998.
23
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(1) Merger (continued)
------
Holders of 81,100 shares of preferred stock (the "Dissenting
Shareholders"), with a carrying value of $811,000, elected to exercise
their appraisal rights with respect to the stock. Pursuant to Delaware
law, the Dissenting Shareholders petitioned the Delaware Chancery Court
on April 23, 1999 to determine the fair value of their shares at the
Effective Date, exclusive of any element of value attributable to the
Merger. In the event that a Dissenting Shareholder did not perfect his
appraisal rights, each share would be entitled to receive $2.25 in
cash, an $8.00 subordinated debenture and five shares of common stock
described under option (b) in the preceding paragraph. Based on these
facts, and a valuation prepared by an independent financial advisor in
connection with the Merger, the Company recorded $877,000 in the
accompanying consolidated balance sheets at December 31, 1998 and 1999,
as an estimate for the obligation for appraisal rights. The Chancery
Court may determine fair value is less than, equal to, or greater than
an aggregate of $877,000. Based on advice of counsel that there will be
no final judicial determination requiring the Company to make payment
to Dissenting Shareholders' in the year ended December 31, 2000, the
obligation is classified as long-term debt. In addition, elimination of
the 81,100 preferred shares and accrued dividends of $1,161,000 on such
shares resulted in a redemption credit to accumulated deficit of
$1,095,000 for the year ended December 31, 1998 representing the excess
of the carrying value of the Dissenting Shareholders' preferred stock
and accrued dividends over the obligation for appraisal rights.
In the calculation of earnings per share for the year ended
December 31, 1998, $975,000 has been deducted from net income
representing the conversion charge of $2,070,000, less the redemption
credit of $1,095,000.
In connection with the Merger, all outstanding stock purchase
warrants also converted into warrants with identical terms exerciseable
for shares of the Company's common stock.
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
The Company and its subsidiaries are primarily involved in the
manufacturing and sale of exterior and interior finishing wall coatings
and mortar products for the construction industry. 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.
24
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
(b) Concentration of Credit Risk
----------------------------
Concentrations of credit risk with respect to trade accounts
receivable are limited due to the number of entities comprising the
Company's customer base. However, trade accounts receivable represent
amounts due from building materials dealers located principally in
Florida and Georgia who have purchased products on an unsecured open
account basis. At December 31, 1999, accounts aggregating $146,000, or
approximately 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. See Note (5). The allowance for
doubtful accounts at December 31, 1999 of $254,000 is considered
sufficient to absorb any losses which may arise from uncollectible
accounts receivable.
The Company places its cash with commercial banks. At December
31, 1999, 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 or charged to net income.
(e) Intangible Assets
-----------------
Licenses, trademarks and deferred financing costs are
amortized on straight-line basis over the estimated useful lives of the
licenses and trademarks, or over the term of the related financing.
(f) Income taxes
------------
The Company has adopted the liability method for determining
its income taxes. Under this method, the Company records deferred taxes
based on temporary taxable and deductible differences between the tax
bases of the Company's assets and liabilities and their financial
reporting bases.
25
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 (continued)
------------
Deferred tax assets and liabilities are measured using the enacted tax
rates expected to apply to taxable income in the years in which
temporary differences are expected to be realized or settled; valuation
allowances are provided against assets that are not likely to be
realized.
(g) Earnings per share of common stock
-----------------------------------
Basic earnings per common share is computed by dividing net
income, after deducting preferred stock dividends accumulated during
the year ("net income applicable to common stockholders"), by the
weighted average number of shares of common stock outstanding each
year. Diluted earnings per common share is computed by dividing net
income applicable to common stockholders by the weighted-average number
of shares of common stock and common stock equivalents outstanding
during each year. The Company has retroactively restated earnings per
common share, to give effect to the Merger. (See Note (11) - Earnings
Per Common Share).
(h) Cash and cash equivalents
-------------------------
The Company has defined cash and cash equivalents as those
highly liquid investments with a maturity of three months or less, when
purchased. Included in cash and cash equivalents at December 31, 1999
and 1998 are short term time deposits of $275,000 and $267,000,
respectively.
(i) Revenue recognition policy
--------------------------
Revenue from sales transactions is recorded upon shipment and
delivery of inventory to the customer, net of discounts and allowances.
(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 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. The Company adopted the disclosure requirement provisions
of Statement of Financial Accounting Standards (SFAS") No. 123,
Accounting for Stock-Based Compensation ("SFAS No. 123"). Had the fair
value based accounting provisions of SFAS No. 123 been adopted, the
effect on the Company's net income and earnings per share information
would not have been significant.
26
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
(k) Accounting estimates
--------------------
The preparation of financial statements in conformity with
generally accepted accounting principles 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, debentures and obligation for appraisal
rights, approximates fair value based on discounted cash flows as well
as other valuation techniques.
(m) Segment Reporting
------------------
The Company has adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. For the years ended
December 31, 1999 and 1998, the Company has determined that it operates
in a single operating segment.
(n) New Accounting Pronouncements
-----------------------------
SFAS No. 133, Accounting for Derivatives and Hedging
Activities, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000 (January 1, 2001 for the Company) and
requires that all derivative instruments be recorded on the balance
sheet at their fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. The Company
does not use derivative instruments and therefore anticipates that the
adoption of SFAS No. 133 in 2001 will not have a material effect on the
consolidated financial statements.
(3) Inventories
-----------
At December 31, 1999 and 1998, inventories consist of:
1999 1998
---- ----
Raw materials $ 525,000 $ 345,000
Finished goods 1,276,000 810,000
Packaging materials 222,000 219,000
------- -------
$2,023,000 $1,374,000
---------- ----------
27
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(4) Property, Plant and Equipment
-----------------------------
A summary of the cost of property, plant and equipment at December
31, 1999 and 1998 is as follows:
Estimated
useful life
1999 1998 (years)
---- ---- -------
Land $ 151,000 $ 151,000 - - -
Buildings and
improvements 585,000 560,000 10 - 40
Machinery and equipment 1,272,000 1,141,000 3 - 10
Vehicles 446,000 487,000 2 - 8
Furniture and Fixtures 199,000 178,000 3 - 12
------- ------- - --
$2,653,000 $2,517,000
---------- ----------
The net book value of property, plant and equipment pledged as
collateral under notes payable and various long-term debt agreements
aggregated $621,000 and $543,000 at December 31, 1999 and 1998,
respectively. See "Note 7."
(5) Notes Payable
-------------
At December 31, 1999 and 1998, notes payable represent amounts
outstanding under a $4,500,000 line of credit from a commercial lender
to two of the Company's subsidiaries. Aggregate lines of credit were
increased from $3,000,000 to $4,500,000 on October 1, 1999. The line of
credit is collateralized by the subsidiaries' accounts receivable and
inventory, bears interest at prime rate plus 1% (9 1/2% at December 31,
1999) expires June 19, 2001, and is subject to annual renewal. The
weighted average effective interest rate on the line of credit was
14.09%, 17.49%, and 17.04% during the years ended December 31, 1999,
1998 and 1997, respectively.
At December 31, 1999, the line of credit limit available for
borrowing aggregated $2,670,000, of which $1,526,000 had been borrowed.
The average month-end amounts outstanding during 1999 and 1998 were
$1,312,000, and $957,000, respectively. The maximum amounts outstanding
at any month-end during 1999 and 1998 were $2,017,000 and $1,253,000,
respectively.
(6) Accrued Expenses and Other Liabilities
--------------------------------------
Accrued expenses and other liabilities at December 31, 1999 and 1998
are summarized as follows:
1999 1998
---- ----
Employee compensation related items $ 94,000 $ 42,000
Taxes, other than income taxes 55,000 41,000
Interest 137,000 4,000
Other 123,000 64,000
------- ------
$409,000 $151,000
-------- --------
28
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(7) Long-term Debt
--------------
Long-term debt of the Company is as follows:
1999 1998
---- ----
Adjustable rate mortgage note payable,
interest at 12% at December 31, 1998,
principal and interest payable monthly in
the amount of approximately $3,600, with a
balloon payment of approximately $292,000
due September 1, 2000. This note was paid - 304,000
in October 1999.
Mortgage note payable, interest at 7 1/2% per
annum, principal and interest payable monthly
through January 2002. 116,000 170,000
Subordinated Debentures due December 31, 2001,
stated interest at 8% payable annually
commencing July 1, 1999, principal payable
in the amount of $984,960 at maturity. 867,000 808,000
Mortgage note payable, interest at 8 3/4%,
principal and interest payable monthly in
the amount of approximately $3,760, with a
balloon payment of approximately $187,000
due October 4, 2004. 297,000 -
Equipment notes payable, interest at various
rates ranging from 8.75% to 15.39%, per annum,
principal and interest payable monthly
expiring at various dates through
January 2004. 212,000 157,000
------- -------
1,492,000 1,439,000
--------- ---------
Less current maturities (164,000) (123,000)
-------- --------
$1,328,000 $1,316,000
---------- ----------
As of December 31, 1999, long-term debt matures as follows:
Year ended
December 31, Amount
------------ ------
2001 $1,019,000
2002 68,000
2003 33,000
2004 208,000
---- -------
$1,328,000
----------
29
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(7) Long-term debt (continued)
--------------
In connection with the Merger, the Company issued 8% Subordinated
Debentures with a face amount value of $985,000 effective December 31,
1998. Each Debenture was discounted to a value of $6.56 ($8.00 face value)
using an effective interest rate of 16%. The aggregate carrying value of
the Debentures at December 31, 1999 is $867,000. The Debentures are
general, unsecured obligations of the Company, subordinated in right of
payment to all indebtedness to institutional and other lenders of the
Company. The Debentures are subject to redemption, in whole or in part, at
the option of the Company, at any time at a redemption price of 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
redemption date.
(8) Income Taxes
------------
At December 31, 1999 and 1998, deferred tax assets of $1,333,000 and
$1,120,000, respectively, consist of the tax effects of net operating loss
carryforwards of $2,966,000 and $3,320,000, respectively, less a valuation
allowance of $1,633,000 and $2,207,000, respectively. Net operating losses
of $5,713,000 expire through 2000, and the remaining balance of $2,761,000
expires in varying amounts through 2009.
During 1999 the Company recognized $574,000 of deferred tax benefit as
a result of releasing a portion of the valuation allowance previously
established due to the uncertainty of realizing net operating losses.
Remaining deferred tax assets are fully reserved at December 31, 1999, and
relate, primarily, to the net operating loss carryforwards expiring in 2000
which the Company projects it will be unable to utilize. The ultimate
realization of the remaining deferred tax assets is largely dependent on
the Company's ability to generate sufficient future taxable income.
Management believes that the valuation allowance at December 31, 1999 and
1998 is appropriate, given the cyclical nature of the construction industry
and other factors including but not limited to the uncertainty of future
taxable income expectations beyond the Company's strategic planning
horizon.
The current income tax expense represents state taxes and alternative
minimum taxes payable for the years ended December 31, 1999 and 1998.
A reconciliation of the Federal statutory rate to the effective tax
rate is as follows:
Year Ended December 31,
1999 1998 1997
---- ---- ----
U.S. statutory rate 35% 35% 35%
Valuation allowance (56%) (53%) (124%)
Other 3% 1% 5%
----- ----- -----
Effective rate (18%) (17%) (84%)
----- ----- -----
30
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(9) CapitalStock
------------
(a) Common Stock
------------
At December 31, 1999, the Company had outstanding 8,230,434 shares of
common stock (8,182,571 shares in 1998) 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 1999 and 1998, the Company issued 47,863 and 100,000, respectively,
treasury shares to directors and an officer as compensation for services
rendered. The Company recorded compensation expense in 1999 and 1998 of
$13,000 and $20,000, respectively, representing fair value of the shares
when issued.
In 1997, the Company issued 242,000 restricted shares of common stock
to two officers which were subject to vesting over a three year period.
During 1998 the Company recorded compensation expense of $46,000
representing the fair value of the stock upon the release of the
restrictions and accelerated vesting of all the shares.
In 1997, the Company issued 202,000 shares of common stock to
directors and employees as compensation for services rendered. The Company
recorded compensation expense of $41,000 representing the fair value of
the shares when issued.
(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 December
31, 1999 and 1998, there were no shares of preferred stock outstanding.
Redeemable Preferred Stock-$1.10 Cumulative Convertible Series
--------------------------------------------------------------
Until December 31, 1998, the Company had issued and outstanding
300,121 shares of $1.10 cumulative convertible redeemable preferred stock.
The holders of preferred stock were entitled to one vote per share on all
matters without regard to class, except that the holders of preferred stock
were entitled to vote as a separate class with regard to the issuance of
any equity securities which ranks senior or on parity with the preferred
stock, or to change or repeal any of the express terms of the preferred
stock in a manner substantially prejudicial to the holders thereof. Each
share of the preferred stock was entitled to cumulative quarterly dividends
31
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(9) Capital Stock (continued)
--------------
(b) Preferred Stock (continued)
Redeemable Preferred Stock-$1.10 Cumulative Convertible Series
--------------------------------------------------------------
(continued)
at the rate of $1.10 per annum and was convertible into 1.149 shares of
common stock. The liquidation preference of the preferred stock was $10.00
per share, plus accrued but unpaid dividends. The preferred stock was
callable, in whole or in part, by the Company at its option at any time
upon 30 days prior notice, at $11.00 per share, plus accrued and unpaid
dividends.
The Company had omitted dividends on its preferred stock since the
fourth quarter of 1985 aggregating $4,044,000 through December 31, 1997.
The omission of preferred stock dividends was a reduction of net income
applicable to Common Stockholders and was recorded as a non-current
liability in the accompanying consolidated balance sheets.
The preferred stock was subject to redemption through a mandatory
sinking fund at a redemption price of $10.00 per share, at the rate of
approximately 66,000 preferred shares a year, starting in 1986, less any
preferred shares converted into common stock. Through December 31, 1997,
an aggregate of 359,879 shares of preferred stock were converted into
1,199,557 shares of common stock. As a result of these conversions, the
Company was required to redeem 36,121 shares in 1991 and 66,000 shares for
each year thereafter through 1995, at which time the preferred stock was
intended to be fully retired. The preferred stock was not been included in
common stock and other stockholders' deficit because of its mandatory
redemption feature.
The Company did not redeem any shares of the preferred stock as
required on April 1, 1991, or any year thereafter. Under the provisions of
the sinking fund requirements, if an annual sinking fund requirement was
not met, it is added to the requirements for the next year.
The Company was prohibited from paying any cash dividends on common
stock and from purchasing or otherwise acquiring for value, any shares of
either preferred or common stock, at any time that the Company was in
default in the payment of any dividends on the preferred stock or if the
sinking fund requirements are in arrears.
Effective December 31, 1998, all outstanding shares of the preferred
stock were retired and all accumulated accrued dividends were eliminated
as a result of the Merger. (See Note (1) - Merger).
(c) Warrants
---------
At December 31, 1999 and 1998, the Company had warrants outstanding
to purchase 350,000 and 200,000, respectively, of the Company's common
stock. The 200,000 warrants outstanding at December 31, 1998 were issued
to two directors in 1988 in connection with obtaining a loan which has
since been repaid. The warrants entitle the holder to purchase one share
at $.10 per
32
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(9) Capital Stock (continued)
-------------
(c) Warrants (continued)
---------
share until June 29, 2000. The Company issued 150,000 warrants in January
1999 to its investment banker for financial advisory services in connection
with the Merger (the "Investment Banker Warrants") which entitle the holder
to purchase one share at $.38 per share until December 31, 2003. The
Company estimated the fair value of the Invenstment Banker Warrants at
$22,000 based on a Black-Scholes pricing model and the following
assumptions: volatility of 45%, risk-free rate of 4.6%, expected life of
four years and a dividend rate of 0%.
(d) Stock Options
-------------
In December 1999, the Board of Directors adopted the Director's Stock
Option Plan and the 1999 Employee Stock Option Plan (collectively, the
"1999 Plans"). The 1999 Plans provide for options to be granted at
generally no less than the fair market value of the Company's stock at the
grant date. Options granted under the 1999 Plans have a term of up to 10
years and are exercisable six months from the grant date. The 1999 Plans
are administered by the Compensation and Stock Option Committee. A total
of 600,000 and 200,000 shares are reserved for issuance under the Employee
and Director Plans, respectively. Adoption of the 1999 Plans is subject to
stockholder approval.
On December 16, 1999, the Company granted 215,000 options under the
1999 Plans at an exercise price that will be equal to the fair value of
the common stock on the date the Company's stockholders approve the 1999
Plans. Each option has a term of five years from the date of grant and
vesting will be determined at the time of stockholder approval. All
options granted are outstanding at December 31, 1999.
(10) Miscellaneous income
--------------------
A summary of miscellaneous income (expense) for the years ended
December 31, 1999, 1998 and 1997 is as follows:
1999 1998 1997
---- ---- ----
Interest income $ 12,000 $ 13,000 $10,000
(Loss) gain on disposal of property,
plant and equipment 5,000) 1,078,000 (1,000)
Other, net 27,000 127,000 45,000
------ ------- ------
$ 34,000 $1,218,000 $54,000
------- ---------- -------
On October 2, 1998, the Company sold its Miami, Florida
manufacturing facility for $1,406,000 and received net cash proceeds of
$801,000 after satisfaction of the mortgage and payment of commissions and
closing costs. A gain of $1,066,000 was recognized on this transaction.
33
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(11) Earnings Per Common Share
-------------------------
Below is a reconciliation between basic and diluted earnings per
common share under FAS 128 for the years ended December 31, 1999, 1998 and
1997 (in thousands except per share amounts):
1999 1998 1997
------------------------- ----------------------- -----------------------
Per Per Per
Income Shares Share Income Shares Share Income Shares Share
Net income $1,220 $2,057 $1,675
Less net charge
for elimination of
preferred stock (975)
Less dividends on
redeemable
preferred stock (248) (330)
------ ------
Basic earnings
per common share $1,220 8,199 $.15 $ 834 6,566 $.13 $1,315 6,009 $.22
------ ----- ---- ------ ----- ---- ------ ----- ----
Effect of dilutive
securities:
Warrants 191 149 167
------ ----- ---- ------ ----- ---- ------ ----- ----
Diluted earnings
per common share $1,220 8,390 $.15 $ 834 6,715 $.12 $ (56) 6,267 $.21
------ ----- ---- ------ ----- ---- ------ ----- ----
(12) Related Party Transactions
--------------------------
The Company and its subsidiaries paid legal fees of approximately
$114,000, $86,000 and $37,000 in 1999, 1998 and 1997, respectively, to a
law firm with which the Company's Chairman of the Board was affiliated.
(13) Commitments and Contingencies
-----------------------------
(a) Contingencies
-------------
As of March 28, 2000, the Company and other parties have been named
in 36 lawsuits pending in various Southeastern states, by homeowners,
contractors and subcontractors, or their insurance companies, claiming
moisture intrusion damages on single family residences. The allegations of
defects in synthetic stucco wall systems are not restricted to the
Company's products but rather are an industry-wide issue. There has never
been any defect proven against the Company. 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. In response to the alleged defects and
in compliance with modified building codes adopted in North Carolina, the
Company, together with many other manufacturers of synthetic stucco wall
systems, has developed modified wall systems that allow the drainage of
incidental moisture that may enter the wall system. Most manufacturers
continue to produce the traditional (i.e., face-sealed) stucco systems and
in commercial construction, estimated to account for more than 50% of
product sales, the traditional system is still the product of choice. The
alleged defects have
34
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(13) Commitments and Contingencies (continued)
-----------------------------
(a) Contingencies (continued)
-------------
generally occurred in the residential construction market. To the
Company's knowledge, in the commercial market, where methods of
construction and quality control are monitored more closely than in the
residential market, the alleged drainage problem has been limited. The
Company's insurance carriers have accepted coverage for 35 of these claims
and are providing a defense under a reservation of rights. The Company
expects its insurance carriers to accept coverage for the other one
recently filed lawsuit. The Company is vigorously defending all of these
cases and believes it has meritorious defenses, counter-claims and claims
against third parties. The Company is unable to determine the exact extent
of its exposure or outcome of this litigation.
On June 15, 1999, the Company 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
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 been placed on
notice of this suit and the Company is awaiting their response regarding
coverage, but fully expects that the insurance carriers will accept
coverage and the defense. In the interim, the insurance carrier has
retained defense counsel on behalf of the Company.
The Company intends to vigorously defend this claim and believes it
has meritorious defenses. The Company is unable to determine the exact
extent of its exposure or the outcome of this litigation.
The Company is 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.
(b) Lease Commitments
-----------------
At December 31, 1999 certain property, plant and equipment were
leased by the Company under long-term leases. Certain of these leases
provided for escalation in rent upon the lease anniversary date. Future
minimum lease commitments as of December 31, 1999, for all noncancellable
leases are as follows:
December 31,
------------
2000 $315,000
2001 315,000
2002 312,000
2003 317,000
2004 323,000
Rental expenses incurred for operating leases were approximately
$331,000, $153,000 and $128,000, for the years ended December 31, 1999,
1998 and 1997, respectively.
35
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(13) Commitments and Contingencies (continued)
-----------------------------
(14) Subsequent Event
----------------
Effective January 1, 2000, the Company acquired certain assets and
assumed certain liabilities of three building materials distributors held
under common ownership in a single transaction accounted for as a purchase
acquisition. The total consideration was $1,420,000 which includes 225,000
shares of the Company's unregistered common stock valued at $144,000 or
$.64 per share. The Company paid $798,000 in cash, and issued unsecured
promissory notes of $150,000 due 90 days from closing and $100,000 due one
year from closing. The Company also assumed $372,000 of the acquired
companies' secured debt.
Effective March 1, 2000, the Company acquired certain assets of
another unrelated building materials distributor accounted for as a
purchase. The total consideration was $344,000 which includes 50,000 shares
of the Company's unregistered common stock valued at $42,000, or $.84 per
share. The Company paid cash of $219,000 and issued an unsecured promissory
note of $125,000 payable over two years from the date of closing.
****************************
36
PART III
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
The following table sets forth certain information with respect
to the directors and executive officers of the Company:
Name Age PositionWithCompany
---- --- -------------------
S. Daniel Ponce 51 Chairman of the Board - Class III
Lisa M. Brock 41 Director - Class III
Milton J. Wallace 64 Director - Class II
Morton L. Weinberger 70 Director - Class II
Fred H. Hansen 53 President, Premix and Acrocrete
Howard L. Ehler, Jr. 56 Principal Executive Officer/Executive
Vice President and Secretary
Betty J. Murchison 60 Principal Accounting Officer/
Assistant Vice President
Gary J. Hasbach 55 President, Just-Rite
The Company's Board of Directors is divided into three classes.
In accordance with the Company's Certificate of Incorporation, the
members of each Class are designated to serve for three (3) year
staggered terms. Class II directors were to serve until the 1999
annual meeting or until their successors are elected, and Class III
directors shall serve until the 2000 annual meeting or until their
successors are elected. The Company did not have an annual meeting
in 1999. Accordingly, Class II directors will serve until the next
annual meeting to be held by the Company. The Company has no Class I
directors. Mr. Wallace was appointed to fill a vacancy on the Board
on February 17, 1999.
Subject to certain contractual rights, each officer serves at
the discretion of the board of directors.
S. Daniel Ponce. Mr. Ponce has been Chairman of the Board of the
Company since 1988. Mr. Ponce has been engaged in the practice of
law for over twenty five years and is currently a stockholder in
the law firm of Wallace, Bauman, Legon, Fodiman, Ponce & Shannon,
P.A. Ponce is a member of the Board of Directors of the
University of Florida Foundation, Inc. and serves as Chairman of
its audit committee. He is also a non-practicing certified public
accountant.
Lisa M. Brock. Mrs. Brock has been a director of the Company since
1988. Mrs. Brock was employed by the Company and its
subsidiaries, Premix and Acrocrete, as Vice President for over 5
years until December, 1994 when she retired. Mrs. Brock continues
to serve as a consultant to the Company.
37
Item 10. Directors and Executive Officers of the Registrant (continued)
--------------------------------------------------
Milton J. Wallace. Mr. Wallace has been a director of the Company
since February 1999. Mr. Wallace has been a practicing attorney
in Miami for over 30 years and is currently a shareholder in the
law firm of Wallace, Bauman, Legon, Fodiman, Ponce & Shannon,
P.A. He was a co-founder and Chairman of the Board of Renex Corp,
a provider of dialysis services, from 1993 through February 2000
when Renex Corp. was acquired by National Nephrology Associates,
Inc. Mr. Wallace is Chairman of the Board of Med/Waste, Inc., a
provider of medical waste management services. He is a director
of several private companies.
Morton L. Weinberger, CPA. Mr. Weinberger has been a director of the
Company since 1988. Mr. Weinberger, a certified public
accountant, has been self-employed as a consultant to various
professional organizations for the past twelve years. He provides
consulting services for the Company. For the previous twenty-five
years, he was engaged in the practice of public accounting.
During such period, he was a partner with Peat Marwick Mitchell &
Co., now known as KPMG Peat Marwick, and thereafter BDO Seidman,
both public accounting firms.
Fred H. Hansen. Mr. Hansen has been President of Premix and
Acrocrete since September 1996. Prior thereto, from 1986 to 1996,
he was employed by Dryvit Systems Canada Ltd., the last six years
acting as Vice President and General Manager. From 1982 to 1986,
Mr. Hansen was the National Sales Manager for W.R. Grace & Co. of
Canada Ltd., a manufacturer and distributor of building
materials.
Howard L. Ehler, Jr. Mr. Ehler has been Principal Executive Officer
of the Company since March 1990 and Executive Vice President,
Chief Financial Officer and Secretary of the Company since April
1988. Prior thereto he was Vice President, Chief Financial
Officer and Assistant Secretary of the Company for over five
years.
Gary J. Hasbach. Mr. Hasbach became President of Just-Rite, on
February 3, 2000. Prior thereto, he had been Executive Vice
President of Sales and Marketing for Premix and Acrocrete since
January 1, 1999. Mr. Hasbach was formerly President of Premix and
Acrocrete from September 1990 to May 1996. From May 1996 to
December 1997, Mr. Hasbach served as Executive Vice President of
Marketing for Florida Tile Industries, Inc, a distributor of tile
and flooring products. In addition, Mr. Hasbach was a director of
the Company from 1993 to February 1997.
Betty J. Murchison. Ms. Murchison has been the Principal Accounting
Officer since June 1995. Prior thereto, from October, 1991 to
June 1995, she was Principal Accounting Officer of Royce
Laboratories, Inc., a manufacturer of generic pharmaceutical
products. For over 25 years prior thereto, she was employed by
the Company, the last three years acting as the Company's
Principal Accounting Officer.
38
Item 10. Directors and Executive Officers of the Registrant (continued)
--------------------------------------------------
Board of Directors Meetings and Attendance
------------------------------------------
The Board of Directors met five (5) times in fiscal 1999. Each
director attended all of the Board of Directors meetings in 1999,
other than Leonard C. Ferri who attended no meetings. Mr. Ferri
resigned as a member of the Board of Directors in 1999.
Compensation and Stock Option Committee
---------------------------------------
Messrs. Ponce, Weinberger and Ms. Brock serve on the
Compensation and Stock Option Committee, with Mr. Ponce serving as
Chairman. The Compensation and Stock Option Committee met six (6)
times in fiscal 1999. Each member attended all of the meetings.
Reports Pursuant to Section 16(a) of the Securities and Exchange Act
--------------------------------------------------------------------
of 1934
-------
The Company's officers and directors are required to file Forms
3, 4 and 5 with the Securities and Exchange Commission in accordance
with Section 16(a) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder. Based
solely on a review of such reports furnished to the Company as
required by Rule 16a-3(e), in 1998 no officer or director failed to
file any such report on a timely basis.
Item 11. Executive Compensation
----------------------
Summary Compensation Table
--------------------------
The following table summarizes the compensation paid or accrued
for each of the three fiscal years in the period ended December 31,
1999 for the Company's chief executive officer and each other
executive officer whose total annual salary and bonus exceeded
$100,000 for any fiscal year, (the "Named Executive Officers").
AnnualCompensation
------------------
Long-Term Compensation
----------------------
Securities
Other Underlying
Annual Restricted Options to
Name and Compen- Stock Purchase
Principal Position Year Salary Bonus(1) sation(2) Awards(3) Shares(4)
------------------ ---- ------ -------- --------- --------- ---------
Howard L. Ehler Jr. 1999 $130,000 $ - $ 2,000 $ - 20,000
Principal Executive 1998 $120,000 35,000 -
Officer, Executive 1997 $100,000 40,000 18,750
Vice President and
Secretary
Fred H. Hansen 1999 $138,000 $ - $ - $ - 20,000
President, Premix 1998 150,000 75,000 - -
and Acrocrete 1997 118,000 85,000 - 41,667
Gary Hasbach
President, Just-
Rite 1999 $110,000 $ - $ - $ - 10,000
39
Item 11. Executive Compensation (continued)
----------------------
Summary Compensation Table (continued)
--------------------------
(1) Bonuses shown were earned in the year indicated even though
actually paid in a subsequent year. Bonuses for 1999 have not yet
been determined.
(2) Except as indicated, none of the named individuals above have
received personal benefits or perquisites that exceed the lesser of
$50,000 or 10% of the total annual salary and bonus reported for the
named executive officer in the above table. Mr. Ehler's other Annual
Compensation in 1999 represents the market value at date of grant of
7,863 shares of common stock.
(3) The restricted stock included in the table in 1997 represents
the market value of the entire stock award on the date of grant
pursuant to the terms of the Company's Restricted Stock Plan, even
though no shares were vested as of such date. The values indicated
are not necessarily indicative of the actual values which may be
realized by the Named Executive Officers. Mr. Ehler's restricted
stock is scheduled to vest at the rate of 25,000 shares per year
over a three year period ending December 31, 1999. Mr. Hansen's
restricted stock is scheduled to vest as follows: 33,333 shares in
1997, 66,667 shares in 1998, 33,333 shares in 1999, and 33,334
shares in 2000. The restricted stock becomes vested when and if Plan
vesting requirements are attained. Dividends are paid on the
restricted stock at the same time and same rate as paid to all
Common Stockholders and such shares may be voted. In 1998, the
Company released all restricted stock from the Restricted Stock Plan
and reissued the stock to the named executives.
(4) Stock options are granted under the terms and provisions of the
1999 Employee Stock Option Plan. For a description of the stock
options see "Executive Compensation-Options Granted in Year Ended
December 31, 1999".
Compensation Agreements
-----------------------
The Company is party to a one year renewable employment
agreement, (the "Employment Agreement") with Howard L. Ehler, Jr.
(the "Executive"). Mr. Ehler serves as Executive Vice President,
Principal Executive Officer and Chief Financial Officer of the
Company at a current base salary of $130,000. The Employment
Agreement provides for automatic renewal for additional one year
periods on July 1st of each year, unless the Company or Executive
notifies the other party of such party's intent not to renew at
least 90 days prior to each June 30 of the initial term and any
extended term thereafter. The Executive receives a car allowance, as
well as certain other benefits, such as health and disability
insurance. The Executive is also entitled to receive incentive
compensation based upon targets formulated by the Compensation
Committee.
Prior to a Change in Control (as defined in the Employment
Agreements), the Company has the right to terminate the Employment
Agreement, without cause, at any time upon thirty days written
notice, provided the Company pays to the Executive a severance
payment equivalent to 50% of his then current annual base salary. As
part of
40
Item 11. Executive Compensation (continued)
----------------------
Summary Compensation Table (continued)
--------------------------
the Employment Agreement, the Executive has agreed not to disclose
information and not to compete with the Company during his term of
employment and, in certain cases, for a two (2) year period
following his termination.
In the event of a Change in Control, the Employment Agreement
is automatically extended to a three year period. Thereafter, the
Executive will be entitled to terminate his employment with the
Company for any reason at any time. In the event the Executive so
terminates employment, the Executive will be entitled to receive the
lesser of (i) a lump sum equal to the base salary payments and all
other compensation and benefits the Executive would have received
had the Employment Agreement continued for the full term; or (ii)
three times the Executive's base salary then in effect on the
effective date of termination. The Executive would also be entitled
to such severance in the event the Company terminates the Executive
without cause after a Change of Control.
In addition, Mr. Ehler was issued 75,000 shares of Common Stock
of the Company on July 30, 1997 pursuant to the terms of the
Company's Restricted Stock Plan.
During the third quarter of 1996, the Company entered into an
employment arrangement with Fred H. Hansen to serve as President of
the Company's subsidiaries, Premix and Acrocrete. Mr. Hansen
presently receives an annual base salary of $150,000 and a bonus
based upon earnings performance of the subsidiaries. Under this
arrangement, Mr. Hansen received 33,333 shares of Common Stock of
the Company in February 1997. In addition, Mr. Hansen was issued
166,667 shares of Common Stock on July 31, 1997 pursuant to the
terms of the Company's Restricted Stock Plan. Also, Mr. Hansen is
entitled, at his election, to the use of a Company auto, or car
allowance of $650 per month during his employment, as well as
certain other benefits, such as health and disability insurance.
Options Granted in Year Ended December 31, 1999
-----------------------------------------------
The following table sets forth certain summary information
concerning the number of stock options granted and the potential
realizable value of the stock options granted to the Company's Named
Executive Officers during the fiscal year ended December 31, 1999.
Number of Realizable Value
Securities % of Total at Assumed Rates
Underlying Options of Stock Price
Options Granted to Exercise Appreciation
Granted in Employees in Price Expiration for Option Term(3)
Name 1999(1) Fiscal Year ($/Share)(2) Date 5%($) 10%($)
---- ------- ----------- ------------ ---- ----- ------
Howard L. Ehler, Jr. 20,000 14.8% - 12/15/04 $3,600 $7,800
Principal Executive Officer,
Executive Vice President and
Secretary
41
Item 11. Executive Compensation (continued)
----------------------
Options Granted in Year Ended December 31, 1999 (continued)
-----------------------------------------------
Fred H. Hansen 20,000 14.8% - 12/15/04 $3,600 $7,800
President Premix and Acrocrete
Gary J. Hasbach
President Just-Rite 10,000 7.4% - 12/15/04 $1,800 $3,900
(1) Options were granted pursuant to the terms and conditions of the
Company's 1999 Employee Stock Option Plan adopted December 15, 1999.
The options granted are not exercisable unless the Company obtains
stockholder approval prior to December 14, 2000. The options shall
become null and void if stockholder approval is not obtained by such
date.
(2) The exercise price will be equal to the fair market value of the
Company's common stock at the date the 1999 Employee Stock Option
Plan is approved by the Company's stockholders.
(3) The amounts disclosed in the columns which noted appreciation of
the Company's common stock price at the 5% and 10% rates dictated by
the Securities and Exchange Commission, are not intended to be a
forecast of the Company's common stock price and are not necessarily
indicative of the actual value which my be realized by the named
Executive Officers or the stockholders. These assumed rates of 5%
and 10% would result in the Company's common stock price increasing
from $.50 per share to approximately $.68 per share and $.89 per
share, respectively. The assumed $.50 per share floor is based upon
the fair market value of the common stock on the date of grant of
such options. However, the actual exercise price shall be equal to
the fair market value of the common stock on the date the 1999
Employee Stock Option Plan is approved by the Company's
stockholders. The fair market price of such common stock on such
date may be lesser than or greater than $.50 per share.
Aggregated Option Exercises in Year Ended December 31, 1999
-----------------------------------------------------------
The following table provides certain summary information
concerning the value of unexercised stock options held by the
Company's Named Executive Officers as of December 31, 1999.
Value of Unexercised
Number of Securities "In the Money"
Underlying Unexercised Options at Fiscal
Options at Fiscal Year End Year End ($) (1)
-------------------------- -----------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- -------------------------
Howard L Ehler, Jr. - 20,000 - -
Principal Executive
Officer, Executive
Vice President and
Secretary
Fred H. Hansen - 20,000 - -
President, Premix
and Acrocrete
42
Item 11. Executive Compensation (continued)
----------------------
Aggregated Option Exercises in Year Ended December 31, 1999
-----------------------------------------------------------
(continued)
Gary J. Hasbach - 10,000 - -
President Just-Rite
No options were exercised by the Named Executive Officers
during the year ended December 31, 1999.
(1) The options are not exercisable until the Company gains
stockholder approval of the 1999 Employee Stock Option Plan. If the
Company fails to obtain stockholder approval prior to December 14,
2000, the options shall become null and void. The exercise price of
such options will be equal to the fair market value of the common
stock on the date of approval by the Company's stockholders of the
1999 Employee Stock Option Plan. As the options are not yet
exercisable and the exercise price is not fixed, the Company is
unable to determine the fair value of such options.
In December 1999, the Board of Directors adopted the Director's
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. The 1999 Plans are administered
by the Company's Compensation and Stock Option Committee. Options
granted under the 1999 Plans have a term up to 10 years and are
exercisable six months from the grant date provided however, no
options under the Director's Plan will be exercisable until the
Company's stockholders approve the Director's Plan. A total of
600,000 and 200,000 shares are reserved for issuance under the
Employee and Director Plans. Adoption of the 1999 Plans is subject
to stockholder approval. As of December 31, 1999 there were
outstanding options to purchase 135,000 and 80,000 shares under the
Employee and Director Plans, respectively. The exercise price for
such options have not yet been fixed, but will be equal to the fair
value of the common stock on the date the Company's stockholders
approve the 1999 Plans.
Director Compensation
---------------------
During the year ended December 31, 1999, each director received
an annual retainer of $6,000, payable in quarterly installments.
Effective June 1, 1994 and January 1, 1995, the Company entered into
separate consulting agreements with Mr. Weinberger and Ms. Brock,
respectively, to provide various management consulting services to
the Company. Each Agreement initially provided for monthly fees of
$833 and may be terminated upon 60 days notice by either party.
During the year ended December 31, 1999 and thereafter, the Company
initiated an acquisition program. In connection with such
acquisition program, Mr. Weinberger was requested to expend
additional time in consulting with the Company's management on
acquisition possibilities, including performing due diligence,
administrative, accounting and other services. As a result of the
increased time and effort spent by Mr. Weinberger, Mr Weinberger's
consulting fee was increased to $2,833 per month.
43
Item 11. Executive Compensation (continued)
----------------------
Director Compensation (continued)
---------------------
On September 1, 1999 each director, other than Mr. Wallace,
received 10,000 shares of the Company's common stock. The average of
the bid and asked market price on said date was $.57 per share.
Since September 1994, Mr. Ponce was provided the use of a Company
car at a current cost of approximately $786 per month.
On December 15, 1999, each director was granted stock options
to purchase 20,000 shares of the Company's common stock. The
exercise price of such options will be equal to the fair market
value at the date of grant, for a period of five years. The options
are not exercisable until the Company obtains stockholder approval
of the Director's Stock Option Plan.
Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------
During the year ended December 31, 1999, the Compensation and
Stock Option Committee consisted of Messrs. Ponce, Weinberger and
Ms. Brock. None of these directors has been an officer or employee
of the Company or its subsidiaries during the last ten years, except
Ms. Brock, who was formerly Vice President of Premix and Acrocrete
until December 31, 1994. There are no other relationships required
to be disclosed pursuant to applicable Securities and Exchange
Commission rules and regulations.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth certain information as of March
23, 2000 with respect to the beneficial ownership of the Company's
common stock by (i) each director of the Company, (ii) each Named
Executive Officer, (iii) each person known to the Company to own
more than 5% of such shares, and (iv) all executive officers and
directors as a group. (Except as otherwise provided herein, the
information below is supplied by the holder):
Shares (1) Percent
Beneficially Owned of Class (2)
------------------ ------------
Maureen P. Ferri 656,981 7.7%
120 Simmons Road
Statesboro, GA. 30458
Lisa M. Brock 306,506 (3) 3.6%
Howard L. Ehler, Jr. 276,108 3.2%
Fred H. Hansen 220,000 2.6%
Gary J. Hasbach 250,400 2.9%
S. Daniel Ponce 561,966 (4) 6.5%
Milton J. Wallace 100,000 1.2%
Morton L. Weinberger 209,210 2.5%
All directors and officers
as a group (8 persons) 1,930,308 (5) 22.2%
----------------
44
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
(1) Except as set forth herein, all securities are directly owned
and the sole investment and voting power are held by the person
named. Unless otherwise indicated, the address for each beneficial
owner is the same as the Company.
(2) The percent of class for common stockholders is based upon
8,505,434 shares of common stock outstanding and such shares of
common stock such individual has the right to acquire within 60 days
upon exercise of options or warrants that are held by such person
(but not those held by any other person).
(3) Includes 50,000 shares of common stock issuable upon exercise of
warrants.
(4) Includes 150,000 shares of common stock issuable upon exercise
of warrants.
(5) Includes 200,000 shares of common stock issuable upon the
exercise of warrants.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The law firm of Hanzman, Criden, Chaykin, Rolnick, P.A. in
which Mr. Ponce, the Company's Chairman of the Board, was formerly a
member, served as general counsel to the Company for which the firm
received $114,000 in 1999.
45
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form-8-K
---------------------------------------------------------------
(a) The following documents are filed as part of this report:
1. Financial Statements: Page
--------------------- ----
Imperial Industries, Inc. and Subsidiaries:
Report of Independent Certified Public Accountants 18
Consolidated Balance Sheets - December 31, 1999 and 1998 19
Consolidated Statements of Operations - Years Ended
December 31, 1999, 1998 and 1997. 20
Consolidated Statement of Changes of Common Stock and
Other Stockholders' Equity - Three Years Ended
December 31, 1999. 21
Consolidated Statements of Cash Flows -
Years ended December 31, 1999, 1998 and 1997 22
Notes to Consolidated Financial Statements 23
2. Financial Statement Schedules:
------------------------------
II - Valuation and Qualifying Accounts and Reserves 47
3. Exhibits
--------
Incorporated by reference to the Exhibit Index at the
end of this Report. 48
(b) Reports on Form 8-K:
No Form 8-K Reports were filed during the last quarter of the
period covered by this Report.
46
Schedule II
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1999, 1998 and 1997
Charged Charged
Balance to cost to other Balance at
beginning and accounts- Deductions- end of
Description of period expenses describe describe period
----------- --------- -------- -------- -------- ------
Year ended December 31, 1999:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts:
Trade $ 200,000 $ 177,000 $ -- $123,000(A) $ 254,000
---------- --------- ------ ----------- ----------
Valuation allowance for deferred taxes $2,207,000 $ -- $ -- $574,000(B) $1,633,000
---------- --------- ------ ----------- ----------
Year ended December 31, 1998:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts:
Trade $ 176,000 $ 154,000 $ -- $130,000(A) $ 200,000
---------- --------- ------ ----------- ----------
Valuation allowance for deferred taxes $3,134,000 $ -- $ -- $927,000(B) $2,207,000
---------- --------- ------ ----------- ----------
Year ended December 31, 1997:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts:
Trade $ 145,000 $ 126,000 $ -- $ 95,000(A) $ 176,000
---------- --------- ------ ----------- ----------
Valuation allowance for deferred taxes $3,934,000 $ -- $ -- $800,000(B) $3,134,000
---------- --------- ------ ----------- ----------
(A) Uncollectible accounts written off, net of recoveries.
(B) Deferred tax benefit
47
EXHIBIT INDEX
Certain of the following exhibits, designated with an asterisk (*), are
filed herewith. The exhibits not so designated have been filed previously with
the Commission, and are incorporated herein by reference to the documents
indicated in parentheses following the descriptions of such exhibits.
Exhibit No. Description
- - ----------- -----------
2.1 Agreement and Plan of Merger, by and between Imperial Industries,
Inc. and Imperial Merger Corp. dated October 12, 1998 (Form S-4
Registration Statement, Exhibit 2).
2.2 Asset Purchase Agreement entered into as of December 31, 1999
between Just-Rite Supply, Inc., Imperial Industries, Inc., A&R
Supply, Inc., A&R Supply of Foley, Inc., A&R of Destin, Inc.,
Ronald A. Johnson, Rita E. Ward and Jaime E. Granat (Form 8-K
dated January 19, 2000, File No. 1-7190, Exhibit 2.1).
3.1 Certificate of Incorporation of the Company, (Form S-4
Registration Statement, Exhibit 3.1).
3.2 By-Laws of the Company, (Form S-4 Registration Statement, Exhibit
3.2).
4.1 Form of Common Stock Purchase Warrant issued to Auerbach, Pollak
& Richardson, Inc., (Form S-4 Registration Statement, Exhibit
4.1).
4.2 Form of 8% Subordinated Debenture, (Form S-4 Registration
Statement, Exhibit 4.2).
4.3 Warrant Agreements as of June 22, 1988 between the Company and
two of its directors, S. Daniel Ponce and Lisa M. Brock,
formerly Lisa M. Thompson. (Form 8-K dated June 29, 1988, File
No. 1-7190, Exhibit 10.3)
*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.
10.2 Employment Agreement dated July 26, 1993 between Howard L. Ehler,
Jr. and the Company. (Form 8-K dated July 26, 1993)
10.3 Employment Agreement dated July 3, 1996 between Fred H. Hansen
and the Company, (Form S-4 Registration Statement, Exhibit
10.3).
10.4 Restricted Stock Plan, (Form S-4 Registration Statement, Exhibit
10.4).
10.5 License Agreement between Bermuda Roof Company and Premix
Marbletite Manufacturing Co., (Form S-4 Registration Statement,
Exhibit 10.5).
*11 Statement recomputation of earnings per share.
*21 Subsidiaries of the Company
*27 Financial Data Schedule
48
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IMPERIAL INDUSTRIES, INC.
March 29, 2000 By: /s/ Howard L. Ehler,Jr.
---------------------------------------------
Howard L. Ehler, Jr., Executive Vice President/
Principal Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ S. Daniel Ponce Chairman of the Board of March 29, 2000
- - ---------------------------- Directors
S. Daniel Ponce
/s/ Lisa M. Brock Director March 29, 2000
- - ----------------------------
Lisa M. Brock
/s/ Milton J. Wallace Director March 29, 2000
- - ----------------------------
Milton J. Wallace
/s/ Morton L. Weinberger Director March 29, 2000
- - ----------------------------
Morton L. Weinberger
/s/ Howard L. Ehler, Jr. Executive Vice President, March 29, 2000
- - ---------------------------- Secretary, Principal
Howard L. Ehler, Jr. Executive Officer and
Chief Financial Officer
/s/ Betty J.Murchison Assistant Vice President March 29, 2000
- - ---------------------------- and Principal Accounting
Betty J. Murchison Officer
49