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FORM 10 - Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2003
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 1-7190
------
IMPERIAL INDUSTRIES, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 65-0854631
-------- ----------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1259 Northwest 21st Street, Pompano Beach, Florida 33069-4114
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 917-4114
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicated by check mark whether the registrant is an accelerated filer
(as defined in Rule 12-b-2 of the Exchange Act).
YES [X] NO [X]
Indicate the number of shares of Imperial Industries, Inc. Common Stock
($.01 par value) outstanding as of May 1, 2003: 9,235,434
Total number of pages contained in this document: 39
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2003 and December 31, 2002 3
Consolidated Statements of Operations
Three Months Ended March 31, 2003 and 2002 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2003 and 2002 5
Notes to Consolidated Financial Statements 6-16
Item 2. Management's Discussion and Analysis of Results 17-23
Of Operations and Financial Condition
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 23
Item 4. Controls and Procedures 23
Part II. OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings 25
Item 6. Exhibits and Reports on Form 8 - K 26
Signatures 27
Certification of Report 28
2
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, December 31,
2003 2002
------------ ------------
(unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 1,672,000 $ 1,609,000
Trade accounts receivable (less
allowance for doubtful accounts of
$484,000 and $477,000 at March 31, 2003
and December 31, 2002, respectively) 5,093,000 4,880,000
Inventories 3,609,000 3,613,000
Deferred income taxes 404,000 383,000
Other current assets 546,000 553,000
------------ ------------
Total current assets 11,324,000 11,038,000
------------ ------------
Property, plant and equipment, at cost 4,193,000 4,051,000
Less accumulated depreciation (2,166,000) (2,068,000)
------------ ------------
Net property, plant and equipment 2,027,000 1,983,000
------------ ------------
Deferred income taxes 509,000 509,000
------------ ------------
Other assets 179,000 177,000
------------ ------------
$ 14,039,000 $ 13,707,000
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Notes payable $ 4,757,000 $ 4,914,000
Current portion of long-term debt 656,000 690,000
Accounts payable 2,353,000 1,852,000
Obligation for Appraisal Rights 973,000 1,541,000
Payable to stockholders 262,000 262,000
Accrued expenses and other liabilities 398,000 347,000
------------ ------------
Total current liabilities 9,399,000 9,606,000
------------ ------------
Long-term debt, less current maturities 965,000 961,000
------------ ------------
Obligation for Appraisal Rights 568,000 --
------------ ------------
Commitments and contingencies (Note 10) -- --
------------ ------------
Stockholders' equity:
Common stock, $.01 par value; 40,000,000
shares authorized; 9,235,434 issued at March
31, 2003 and December 31, 2002, respectively $ 92,000 $ 92,000
Additional paid-in-capital 13,924,000 13,924,000
Accumulated deficit (10,909,000) (10,876,000)
------------ ------------
Total stockholders' equity 3,107,000 3,140,000
------------ ------------
$ 14,039,000 $ 13,707,000
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
3
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
Three Months Ended
March 31,
---------------------------
2003 2002
----------- -----------
(Unaudited)
Net Sales $ 8,962,000 $ 8,709,000
Cost of Sales 6,238,000 5,984,000
----------- -----------
Gross profit 2,724,000 2,725,000
Selling, general and
administrative expenses 2,747,000 2,462,000
----------- -----------
Operating (loss) income (23,000) 263,000
----------- -----------
Other income (expense):
Interest expense (97,000) (132,000)
Miscellaneous income 66,000 57,000
----------- -----------
(31,000) (75,000)
----------- -----------
(Loss) income before income taxes and
cumulative effect of change in accounting
principle for SFAS 142 (54,000) 188,000
Income tax benefit (expense) 21,000 (66,000)
----------- -----------
(Loss) income before effect of change
in accounting principle for SFAS 142 (33,000) 122,000
Cumulative effect of change in accounting
principle for SFAS 142, net of deferred
tax benefit of $483,000 -- (789,000)
----------- -----------
Net (loss) $ (33,000) $ (667,000)
=========== ===========
Basic (loss) per common share $ -- $ (.07)
=========== ===========
Diluted (loss) per common share $ -- $ (.07)
=========== ===========
Weighted average common shares outstanding 9,235,434 9,220,434
=========== ===========
Weighted average shares and
potentially dilutive shares outstanding 9,235,434 9,220,434
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
4
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended
March 31,
--------------------------
2003 2002
----------- -----------
(Unaudited)
Cash flows from operating activities:
Net (loss) $ (33,000) $ (667,000)
----------- -----------
Adjustments to reconcile net income
to net cash provided by:
Cumulative effect of change in accounting principle -- 789,000
Depreciation 105,000 108,000
Amortization 10,000 11,000
Provision for doubtful accounts 53,000 47,000
Provision for write-down of assets 16,000 --
Provision for income tax (benefit) expense (21,000) 66,000
(Gain) on disposal of fixed assets (43,000) (3,000)
(Increase) decrease in:
Accounts receivable (266,000) (265,000)
Inventory 4,000 (206,000)
Prepaid expenses and other assets (21,000) (41,000)
Increase (decrease) in:
Accounts payable 501,000 361,000
Payable to Stockholders -- (3,000)
Accrued expenses and other liabilities 51,000 31,000
----------- -----------
Total adjustments to net income 389,000 895,000
----------- -----------
Net cash provided by
operating activities: 356,000 228,000
----------- -----------
Cash flows from investing activities:
Purchases of property, plant
and equipment (172,000) (112,000)
Proceeds received from sale of
property and equipment 66,000 27,000
----------- -----------
Net cash used in investing activities (106,000) (85,000)
----------- -----------
Cash flows from financing activities:
(Decrease) increase in notes payable
banks - net (157,000) 633,000
Proceeds from issuance of long-term debt 122,000 82,000
Repayment of long-term debt (152,000) (210,000)
----------- -----------
Net cash (used in) provided by
financing activities (187,000) 505,000
----------- -----------
Net increase in cash and
cash equivalents 63,000 648,000
Cash and cash equivalents beginning of period 1,609,000 1,368,000
----------- -----------
Cash and cash equivalents end of period $ 1,672,000 $ 2,016,000
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the three months for:
Interest $ 97,000 $ 122,000
=========== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
5
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
(1) Interim Financial Statements
----------------------------
The accompanying unaudited consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and
do not include all of the information and footnotes required by
auditing standards generally accepted in the United States of America
for complete financial statements. In the opinion of management, all
adjustments considered necessary for a fair presentation have been
included. Operating results for the three months ended March 31, 2003
are not necessarily indicative of the results that may be expected for
the year ended December 31, 2003. The significant accounting principles
used in the preparation of these unaudited interim consolidated
financial statements are the same as those used in the preparation of
the annual audited consolidated financial statements. These statements
should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2002.
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
The Company and its subsidiaries are primarily involved in the
manufacturing and sale of exterior and interior finish wall coatings
and mortar products for the construction industry, as well as the sale
of other building materials from other manufacturers. Sales of the
Company's products are made to customers primarily in Florida and the
Southeastern United States through distributors and company-owned
distribution facilities.
a) Basis of presentation
---------------------
The consolidated financial statements contain the accounts of
the Company and its wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in
consolidation.
b) Concentration of Credit Risk
----------------------------
Concentration of credit risk with respect to trade accounts
receivable are limited due to the large number of entities comprising
the Company's customer base. Trade accounts receivable represent
amounts due from building materials dealers, contactors and
sub-contractors, located principally in the Southeastern United States
who have purchased products on an unsecured open account basis. At
March 31, 2003, accounts aggregating
6
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
$603,000, or approximately 10.8% of total gross trade accounts
receivable, were deemed to be ineligible for borrowing purposes under
the Company's borrowing agreement with its commercial lender, compared
to $537,000, or approximately 10.0%, of total gross trade receivables
outstanding at December 31, 2002. (See Note (5)- Notes Payable). The
allowance for doubtful accounts at March 31, 2003 of $484,000 is
considered sufficient to absorb any losses which may arise from
uncollectible accounts receivable.
The Company places its cash with commercial banks. At March
31, 2003, the Company has cash balances with banks in excess of Federal
Deposit Insurance Corporation insured limits. Management believes the
credit risk related to these deposits is minimal.
c) Inventories
-----------
Inventories are stated at the lower of cost or market (net
realizable value), on a first-in, first-out basis. Finished goods
include the cost of raw materials, freight in, direct labor and
overhead.
d) Property, plant and equipment
-----------------------------
Property, plant and equipment is stated at cost, less
accumulated depreciation. Depreciation is computed on the straight-line
basis over the estimated useful lives of the depreciable assets.
Expenditures for maintenance and repairs are charged to expense as
incurred, while expenditures which extend the useful life of assets are
capitalized. Differences between the proceeds received on the sale of
property, plant and equipment and the carrying value of the assets on
the date of sale is credited to or charged against net income.
e) Income Taxes
------------
The Company utilizes the liability method for determining its
income taxes. Under this method, deferred taxes and liabilities are
recognized for the expected future tax consequences of events that have
been recognized in the consolidated financial statements or income tax
returns. Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in the years in
which temporary differences are expected to be realized or settled;
valuation allowances are provided against assets that are not likely to
be realized.
f) Earnings per share of stock
---------------------------
Basic earnings per share is computed by dividing net income,
by the weighted-average number of shares of common stock
7
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
f) Earnings per share of stock (continued)
outstanding each year. Diluted earnings per share is computed by
dividing net income by the weighted-average number of shares of common
stock and common stock equivalents outstanding during each year. (See
Note (9) - Earnings Per Share).
g) Cash and cash equivalents
-------------------------
The Company has defined cash and cash equivalents as those
highly liquid investments with original maturities of three months or
less, and are stated at cost. Included in cash and cash equivalents at
both March 31, 2003 and December 31, 2002 are short-term time deposits
of $122,000. Also included in cash and cash equivalents at March 31,
2003 and December 31, 2002 are $470,000 and $713,000,respectively, of
customer payments that are required to be remitted to the Company's
commercial lender upon their bank clearance under the terms of the
Company's line of credit. Such amounts will reduce the outstanding
balance on the line of credit, resulting in greater borrowing
availability.
h) Revenue recognition policy
--------------------------
Revenue from sales transactions, net of discounts and
allowances, is recorded upon delivery of inventory to the customer.
i) Stock based compensation
------------------------
The Company measures compensation expense related to the grant
of stock options and stock-based awards to employees in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," under which compensation
expense, if any, is generally based on the difference between the
exercise price of an option, or the amount paid for an award, and the
market price or fair value of the underlying common stock at the date
of the award.
Pursuant to SFAS No. 123, as amended by SFAS No. 148
"Accounting for Stock-Based Compensation Transition and Disclosure" the
Company has elected to use the intrinsic value method of accounting for
employee awards, stock based compensation awards. Accordingly, the
Company has not recognized compensation expense for its noncompensatory
employee stock option.
The following table illustrates the effect on net income
earnings per share if the Company had applied the fair
value-recognition provisions of Financial Standards Board (FASB)
8
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
i) Stock based compensation (continued)
------------------------------------
Statement No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation:
Three Months Ended
March 31,
2003 2002
-------- -----------
Net (loss) available to
common stockholders, as reported $(33,000) $ (667,000)
Deduct: Total stock-based employee
compensation expense determined
under fair-value-based method for
all awards, net of related tax effects -- (8,000)
-------- -----------
Pro-forma net (loss) $(33,000) $ (675,000)
======== ===========
(Loss) per share:
Basic as reported $ -- $ (.07)
Basic pro-forma $ -- $ (.07)
Diluted as reported $ -- $ (.07)
Diluted pro-forma $ -- $ (.07)
j) Accounting estimates
--------------------
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America, requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
k) Fair Value of Financial Instruments
-----------------------------------
The carrying amount of the Company's financial instruments
principally notes payable and obligation for appraisal rights,
approximates fair value based on discounted cash flows and because the
borrowing rates are similar to the current rates offered to the
Company.
l) Segment Reporting
-----------------
The Company has adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. For the three month
periods ended March 31, 2003 and 2002, the Company has determined that
it continues to operate in a single operating segment.
9
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(3) Inventories
-----------
At March 31, 2003 and December 31, 2002 inventories consisted
of:
2003 2002
---------- ----------
Raw Materials $ 479,000 $ 490,000
Finished Goods 2,908,000 2,856,000
Packaging materials 222,000 267,000
---------- ----------
$3,609,000 $3,613,000
========== ==========
(4) Goodwill and Other Intangible Assets
------------------------------------
Effective January 1, 2002 the Company adopted SFAS 141,
"Business Combinations," and SFAS 142, "Goodwill and Other Intangible
Assets". SFAS 141 was issued by the FASB in June 2001. SFAS 141
requires that the purchase method of accounting be used for all
business combinations completed after June 30, 2001. SFAS 141 also
specifies the types of acquired intangible assets that are required to
be recognized and reported separately from goodwill and those acquired
intangible assets that are required to be included in goodwill. The
Company's adoption of this standard did not have any effect on its
accounting for prior business combinations.
SFAS 142 requires that goodwill no longer be amortized, but
instead be tested for impairment at least annually. SFAS 142 requires
recognized intangible assets to be amortized over their respective
estimated useful lives and reviewed for impairment in accordance with
SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets". Any recognized intangible assets determined to have an
indefinite useful life are not amortized, but instead tested for
impairment in accordance with the standard until its life is determined
to no longer be indefinite.
In the second quarter of 2002, the Company completed its SFAS
142 transitional impairment review and determined that the goodwill
("excess cost of investment over net assets acquired") of $1,272,000
associated with acquisitions of several distribution facilities in 2000
should be reduced to $0. The impairment was the result of the
under-performance of several of the acquired distribution facilities.
The fair value of the distribution reporting unit was determined using
the present value of expected future cash flows and other valuation
measures.
The $1,272,000 ($789,000 net of related tax benefit) non-cash
charge was reflected as a cumulative effect of an accounting change in
the Consolidated Statements of Operations for the quarter ended March
31, 2002. In accordance with SFAS 142 and SFAS 3, "Reporting Accounting
Changes in Interim Financial Statements" ("SFAS 3"), when a
transitional impairment loss for goodwill (cumulative effect type
accounting change) is measured in other than the first interim
reporting period, it is recognized in the
10
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(4) Goodwill and Other Intangible Assets (continued)
------------------------------------
first interim period irrespective of the period in which it is
measured.
(5) Notes Payable
-------------
At March 31, 2003 and December 31, 2002, notes payable
represent amounts outstanding under a $6,000,000 line of credit
(increased to $7,000,000 effective April 22, 2003) from a commercial
lender to the Company's subsidiaries. The line of credit is
collateralized by the subsidiaries' accounts receivable and inventory,
bears interest at prime rate plus 1/2% (5.25% at March 31, 2003),
expires June 19, 2004, and is subject to annual renewal.
At March 31, 2003, the line of credit limit available for
borrowing based on eligible receivables and inventory aggregated
$5,383,000, of which $4,757,000 was outstanding. The average amounts
outstanding for the three month periods ended March 31, 2003 and 2002
were $4,754,000 and $4,583,000, respectively.
(6) Long-Term Debt and Current Installments of Long-Term Debt
---------------------------------------------------------
Included in long-term debt at March 31, 2003, are four
mortgage loans, collateralized by real property, in the aggregate
amount of $834,000, less current installments aggregating $254,000.
Subsequent to March 31, 2003 the Company sold a property no longer
utilized in operations and satisfied a mortgage in the approximate
amount of $199,000 classified as a current liability.
During 2000, the Company acquired certain assets and assumed
certain liabilities of seven building materials distributors in which
it issued $850,000 uncollateralized 8% promissory notes as partial
consideration. At March 31, 2003, the aggregate remaining notes of
$128,000 were classified as a current liability.
Other long-term debt in the aggregate amount of $659,000, less
current installments of $274,000, relates principally to equipment
financing. The notes bear interest at various rates ranging from 3.10%
to 11.4%.
11
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(7) Income Taxes
------------
At March 31, 2003, the net deferred tax asset of approximately
$913,000 consisted primarily of the tax effect of net operating loss
carryforwards and the goodwill written off. The operating loss
carryforwards of approximately $769,000 expire in varying amounts from
2005 through 2009.
In the three months ended March 31, 2003 and 2002, the Company
recognized income tax benefit of $21,000 and tax expense of $66,000,
respectively.
(8) Capital Stock
-------------
(a) Common Stock
------------
At March 31, 2003, the Company had outstanding 9,235,434
shares of common stock with a $.01 par value per share ("Common
Stock"). The holders of common stock are entitled to one vote per share
on all matters, voting together with the holders of preferred stock, if
any. In the event of liquidation, holders of common stock are entitled
to share ratably in all the remaining assets of the Company, if any,
after satisfaction of the liabilities of the Company and the
preferential rights of the holders of outstanding preferred stock, if
any.
On July 19, 2002 at the Company's Annual Meeting of
Shareholders, the Company's Shareholders approved a proposal for a one
for five reverse common stock split ("Reverse Stock Split"). Pursuant
to the terms of the proposal, the Reverse Stock Split was to become
effective upon filing an appropriate certificate with the Secretary of
State of Delaware. Notwithstanding the approval of the Reverse Stock
Split, the Board of Directors reserved the right, without further
action by the Shareholders, to elect not to proceed with the Reverse
Stock Split if at any time prior to the filing of such certificate with
the State of Delaware, the Board of Directors, in its sole discretion,
determined that it was no longer in the best interests of the Company
and its stockholders. In addition, the Board of Directors reserved the
right to delay the Reverse Stock Split for up to twelve months
following the stockholder approval.
The Board of Directors determined it was in the best interest
of the Company to postpone the implementation of the Reverse Stock
Split until a future date to be determined by the Board and as a result
the Reverse Stock Split has not been implemented.
(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
12
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(8) Capital Stock (continued)
-------------
the Board of Directors, as to the designation and number of shares in
such series, the voting power of the holders thereof, the dividend
rate, redemption terms and prices, the voluntary and involuntary
liquidation preferences, and the conversion rights and sinking fund
requirements, if any, of such series. At March 31, 2003 and December
31, 2002, there were no shares of preferred stock outstanding.
(c) Warrants
--------
At March 31, 2003, the Company had warrants outstanding to
purchase 150,000 shares of the Company's common stock (the "Warrants").
Each Warrant entitles the holder to purchase one share at $.38 per
share until December 31, 2003.
(d) Stock Option Plans
------------------
The Company has two stock option plans, the Directors' Stock
Option Plan 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 Common
stock at the grant date. Options granted under the 1999 Plans have a
term of up to 10 years and are exercisable six months form the grant
date. The 1999 Plans are administered by the Compensation and Stock
Option Committee (the "Committee"), which is comprised of three outside
directors. The Committee determines who is eligible to participate and
the number of shares for which options are to be granted. A total of
600,000 and 200,000 shares are reserved for issuance under the Employee
and Directors' Plans, respectively. As of March 31, 2003, options for
360,000 shares were available for future grants under the Employee
Plan. No shares are currently available for future grant under the
Directors' Plan.
(9) Earnings Per Share
------------------
Below is a reconciliation between basic and diluted earnings
per common share under FAS 128 for the three months ended March 31,
2003 and 2002 (in thousands except per share amounts):
2003 2002
---------------------- ------------------------
Per Per
Loss Shares Share Loss Shares Share
----- ----- ----- ----- ----- -------
Net (loss) income $ (33) -- -- $(667) -- --
Basic earnings
per share $ (33) 9,235 $ -- $(667) 9,220 $ (.07)
----- ----- ----- ----- ----- -------
Effect of dilutive
securities:
Options/Warrants -- -- -- -- -- --
----- ----- ----- ----- ----- -------
Diluted earnings
per common share $ (33) 9,235 $ -- $(667) 9,220 $ (.07)
----- ----- ----- ----- ----- -------
13
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(9) Earnings Per Share (continued)
------------------
For the three months ended March 31, 2003 and 2002, 590,000
and 510,000 options and warrants were excluded from the diluted
earnings per share computations, respectively, because they were
anti-dilutive.
(10) Commitments and Contingencies
-----------------------------
(a) Contingencies
-------------
As of May 1, 2003, the Company's subsidiary, Acrocrete, Inc.,
together with other parties are defendants in 41 lawsuits pending in
various Southeastern states, brought by homeowners, homeowners
associations, contractors and subcontractors, or their insurance
companies, claiming moisture intrusion damages on single and
multi-family residences. The Company's insurance carriers have accepted
coverage under a reservation of rights for 35 of these claims and are
providing a defense. The Company expects its insurance carriers will
accept coverage for the other 6 recently filed lawsuits. Acrocrete is
vigorously defending all of these cases and believes it has meritorious
defenses, counter-claims and claims against third parties. Acrocrete is
unable to determine the exact extent of its exposure or outcome of this
litigation.
The allegations of defects in synthetic stucco wall systems
are not restricted to Acrocrete products, but rather are an
industry-wide issue. There has never been any defect proven against
Acrocrete. The alleged failure of these products to perform has
generally been linked to improper application and the failure of
adjacent building materials such as windows, roof flashing, decking and
the lack of caulking.
On June 15, 1999, Premix was served with a complaint captioned
Mirage Condominium Association, Inc. v. Premix, In the Eleventh
Judicial Circuit In and For Miami-Dade County, Florida, Case No:
97-27544 (CA-11). The lawsuit raises a number of allegations against 12
separate defendants involving alleged construction defects. The lawsuit
originally alleged a claim against Premix for third-party beneficiary
breach of contract. This claim was voluntarily dismissed on the eve of
a hearing on Premix's dispositive Motion for Summary Judgment. A Third
Amended Complaint was filed against Premix for breach of a statutory
implied warranty. Plaintiff has alleged that certain materials,
purportedly provided by Premix to the Developers/Contractor and used to
anchor balcony railings to the structure were defective. After the
Third Amended Complaint was filed, the contractor filed a cross claim
against Premix for indemnification, breach of implied warranty and
product liability.
14
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(10) Commitments and Contingencies (continued)
-----------------------------
(a) Contingencies (continued)
-------------
Premix has meritorious defenses to these claims.
The Company's insurance carrier has not made a decision regarding
coverage to date. In the interim, the insurance carrier has retained
defense counsel on behalf of Premix and is paying defense costs. Premix
expects the insurance carriers to eventually accept coverage. As
discovery is not yet completed, Premix is unable to determine the exact
extent of its exposure or the outcome of this litigation.
The Company's subsidiaries are engaged in other legal actions
and claims arising in the ordinary course of its business, none of
which are believed to be material to the Company.
On April 23, 1999, certain Dissenting Shareholders owning
shares of the Company's formerly issued preferred stock filed a
petition for appraisal in the Delaware Chancery Court to determine the
fair value of their shares at the effective date of Merger, which would
require the Company to pay the holders the fair value of their stock in
cash as determined by the Delaware Chancery Court. A trial for the
appraisal rights was held in the Chancery Court of Delaware in June
2002. In February 2003, the Company and the Dissenting Stockholders
reached a settlement in principle prior to the trial court issuing a
ruling. On April 30, 2003 the Company consummated the settlement with
its Dissenting Stockholders. As of March 31, 2003, the Company has
recorded $1,541,000 in the accompanying balance sheet as an estimate
for appraisal rights based on the estimated fair value of settlement.
(See Note 11)
(b) Lease Commitments
-----------------
At March 31, 2003, certain property, plant and equipment were
under lease by the Company under long-term leases. The Company will pay
aggregate annual rent of approximately $1,091,000 for its current
operating leases. The leases expire at various dates ranging from
August 31, 2003 to August 31, 2009. Comparable properties at equivalent
rentals are available for replacement of these facilities if any leases
are not extended. The Company does not expect to incur any material
relocation expenses.
(11) Recent Events
-------------
In February 2003, the Company and former holders of 81,100
shares of Preferred Stock who elected appraisal rights in connection
with the Company's 1998 Merger ("Dissenting Stockholders") reached a
settlement in principle prior to the trial court issuing a ruling (the
"Settlement"). On April 30, 2003, the Settlement was completed and the
Company paid the
15
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(11) Recent Events (continued)
-------------
Dissenting Stockholders $12.00 per share in cash ($973,200) and issued
a 5.6% Promissory Note for $10.00 per share ($811,000) due May 1, 2006,
with such Note reduced to $7.00 per share ($567,700) in the event the
Company prepays the Note in full prior to November 1, 2004. If the note
is not paid in full prior to November 1, 2004, the interest rate will
increase from 5.6% to 8.0%. The Company satisfied the cash due at
closing from cash on hand and borrowings from its amended line of
credit with it commercial lender based on an increase to its inventory
borrowing base. At March 31, 2003 and December 31, 2002, based on
management's intention to prepay the Note in full prior to November 1,
2004, the appraisal rights obligation was recorded at $1,541,000. As a
result of the completion of the settlement on April 30, 2003, $567,700
of the Obligation for Appraisal Rights was classified as long-term
liability at March 31, 2003.
On April 22, 2003 the Company amended its line of credit to
provide for an increase to $7,000,000 from $6,000,000 based on eligible
receivables and inventory and increased the amount of inventory
eligible for borrowings.
16
Item 2 Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
General
-------
The Company's business is related primarily to the level of
construction activity in the Southeastern United States, particularly
the states of Florida, Georgia, Mississippi and Alabama. The majority
of the Company's products are sold to contractors, subcontractors and
building materials dealers located principally in these states who
provide building materials for the construction of residential,
commercial and industrial buildings and swimming pools. The level of
construction activity is subject to population growth, inventory of
available housing units, government growth policies and construction
funding, among other things. Although general construction activity has
remained strong in the Southeastern United States during the last
several years, the duration of recent economic conditions and the
magnitude of their effect on the construction industry are uncertain
and cannot be predicted.
Special Note Regarding Forward-Looking Statements
-------------------------------------------------
This Form 10-Q contains certain forward looking statements
within the meaning of the Private Securities Litigation Reform Act of
1995 with respect to the financial condition, results of operations and
business of the Company, and its subsidiaries, including statements
made under Management's Discussion and Analysis of Financial Condition
and Results of Operations. These forward looking statements involve
certain risks and uncertainties. No assurance can be given that any of
such matters will be realized. Factors that may cause actual results to
differ materially from those contemplated by such forward looking
statements include, among others, the following: realization of tax
benefits; impairment of long-lived assets, including goodwill; the
ability to collect our account or note receivables when due or within a
reasonable period of time after they become due and payable; the
outcome of litigation; the competitive pressure in the industry;
general economic and business conditions; the ability to implement and
the effectiveness of business strategy and development plans; quality
of management; business abilities and judgment of personnel; there may
be changes in accounting policies and practices, as may be adopted by
regulatory agencies as well as the Financial Accounting Standards
Board; availability of qualified personnel; and labor and employee
benefit costs.
These risks may not be exhaustive. The Company operates in a
continually changing business environment, and new risks emerge from
time to time. The Company cannot predict such risks nor can the Company
assess the impact, if any, of such risks on its business or the extent
to which any risk, or combination of risks may cause actual results to
differ from those projected in any forward-looking statements.
17
Item 2 Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (continued)
-------------
Special Note Regarding Forward-Looking Statements (continued)
--------------------------------------------------
These forward-looking statements speak only as of the date of
this document. The Company does not undertake any obligation to update
or revise any of these forward-looking statements to reflect events or
circumstance occurring after the date of this document or to reflect
the occurrence of unanticipated events.
Results of Operations
---------------------
Three Months Ended March 31, 2003 Compared to 2002
--------------------------------------------------
Net Sales for the three months ended March 31, 2003 increased
$253,000 or approximately 2.9% compared to 2002. Net sales derived from
a new distribution facility opened in the third quarter of 2002 in Port
St. Lucie, Florida, offset by the reduction in sales realized from the
Pensacola distribution facility closed in the third quarter of 2002,
accounted for $97,000 of the $253,000 increase in sales. The balance of
the increase in sales came from internally generated growth from the
sales of the Company's manufactured products and increased sales from
the Company's distribution facilities offset by a reduction of
approximately $225,000 decrease in sales from the Company's Gulfport,
Mississippi distribution facility. The decrease in sales at the
Gulfport facility is believed to be primarily because of increased
competition due to the alleged violation of a non-compete agreement of
a former employee at that location. The Company has instituted
litigation against the former employee to enjoin further violations and
for damages resulting from such actions.
Gross profit as a percentage of net sales for the first
quarter of 2003 was approximately 30.4% compared to 31.3% in 2002. The
decrease in gross profit margins was principally due to lower gross
profit margins realized from sales generated from the Company's
distribution facilities in 2003 compared to the same period in 2002.
The lower gross profit margins are primarily attributable to more
intense competitive conditions in several of the Company's trade areas
in 2003, particularly the Gulfport, Mississippi trade area. The Company
is continuing to emphasize the sales of its higher gross profit margin
manufactured products through its distribution facilities and other
distributors and to decrease reliance on sales of products purchased
from other manufacturers. The Company increased its sales force during
2002 to further promote the sales of its manufactured products to the
end-user.
Selling, general and administrative expenses as a percentage
of net sales for the first quarter of 2003 were approximately 30.7%
compared to 28.3% in 2002. Selling, general and administrative expenses
increased $285,000 or approximately 11.6% in 2003, compared to 2002. Of
this
18
Item 2 Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (continued)
-------------
Three Months Ended March 31, 2003 Compared to 2002 (continued)
--------------------------------------------------
increase, approximately $138,000 is believed to be attributed to
inflationary cost pressures on certain expenses and costs associated
with the Company's attention on improving customer service and the
opening of a new distribution facility in August 2002. Insurance
premiums accounted for approximately $18,000 of the increase in
expenses. Delivery charges and fuel costs increased approximately
$53,000. Maintenance costs increased $27,000 and payroll costs were up
approximately $40,000. (The Company's total payroll costs increased
approximately 2.8% in the first quarter of 2003 compared to 2002). In
addition, during the first quarter of 2003 the Company elected to
settle several customer complaints to maintain customer goodwill that
resulted in a $39,000 increase in expenses compared to the same period
in 2002. Based on historical experience, the Company is not expecting
to incur a similar amount of expenses in subsequent quarters. Also, the
Company incurred a $49,000 increase in legal fees in the first quarter
of 2003 compared to 2002, primarily as a result of the commencement of
litigation against a former employee for violations of his non-compete
agreement as discussed above. Increases in various other operating
expenses accounted for the remaining $59,000 increase in expenses.
Interest expense decreased $35,000 in the first quarter of
2003, or approximately 26.5%, compared to 2002. The decrease in
interest expense in the first three months of 2003 was primarily due to
a reduced level of interest bearing obligations in 2003 compared to
2002, principally the appraisal rights obligations as a result of a
settlement completed on April 30, 2003.
In the first quarter of 2003, the Company recognized an income
tax benefit of $21,000, compared to a $66,000 expense for the first
three months of 2002.
After giving effect to the above factors, the Company
generated a loss before taxes and the write-off of goodwill, as
discussed below, for the first three months of 2003 of $54,000,
compared to income of $122,000 for 2002.
The first quarter 2002 results were adversely impacted by
$1,272,000 ($789,000 net of related deferred tax benefit) non-cash
goodwill impairment charge. The charge was related to the Company's
required adoption of Statement of Financial Accounting Standards (SFAS)
No. 142 "Goodwill and Other Intangible Assets". The goodwill impairment
charge did not affect the operating results of the Company. The Company
doesn't have any remaining goodwill on its balance sheet which may be
impaired for future periods. The impairment of goodwill was
attributable to the under-performance of the Company's distribution
operations associated with the acquisition of
19
Item 2 Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (continued)
-------------
Three Months Ended March 31, 2003 Compared to 2002 (continued)
--------------------------------------------------
certain building materials distributors in 2000. In accordance with
SFAS No. 142, the Company has reflected this impairment charge in the
first quarter 2002 financial results as a cumulative change in
accounting principle.
As a result of the above factors, the Company incurred a net
loss of $33,000 or $.00 per fully diluted share for the first quarter
of 2003, compared to a loss of $667,000 or $.07 per share for 2002.
Liquidity and Capital Resources
-------------------------------
Sources and Uses of Cash
------------------------
The Company generated approximately $356,000 and $228,000 of
net cash from operations for the first three months of 2003 and 2002,
respectively, due primarily to the following items. In the first
quarter of 2003, net cash provided by operating activities included a
$501,000 increase in accounts payables compared to a $361,000 increase
in the same quarter in 2002. Also, in the first three months of 2003
inventory decreased by $4,000, compared to a $206,000 increase in the
first quarter of 2002, due to improved working capital management.
During the first quarter of 2003, the net expenditures for
investing activities were $106,000 compared to $85,000 in 2002. The
purchase of equipment to up-grade the Company's manufacturing equipment
and distribution capabilities accounted for the majority of the
expenditures for each period.
During the three months ended March 31, 2003, the line of
credit balance decreased approximately $157,000 as a result of
improvements in the Company's cash management program. The Company also
made a net reduction on long-term debt totaling $30,000 during the
quarter.
Future Commitments and Funding Sources
--------------------------------------
As of March 31, 2003, the Company had cash and cash
equivalents of $1,672,000, which included customer payments in the
amount of $470,000 that are required to be remitted to the Company's
commercial lender upon their bank clearance under the terms of the
Company's line of credit. Upon remittance of such amount, the
outstanding balance of the line of credit will be reduced by such
amount and will increase the availability for future borrowing under
the line. The Company has implemented a cash management program in an
attempt to gain a more rapid clearance of customer payments deposited
in its bank accounts.
At March 31, 2003, the Company's contractual cash obligations,
with initial or remaining terms in excess of one
20
Item 2 Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (continued)
-------------
Liquidity and Capital Resources (continued)
-------------------------------
year, remained generally unchanged compared to December 31, 2002. See
Notes 6 and 10 in the accompanying financial statements for additional
information regarding the Company's commitments.
At March 31, 2003, the Company had working capital of
approximately $1,925,000 compared to working capital of $1,432,000 at
December 31, 2002. The increase in working capital was primarily
attributable to the reclassification of $568,000 of the appraisal
rights obligation from a short-term liability at December 31, 2002 to a
long-term liability at March 31, 2003. Subsequent to March 31, 2003,
the Company sold a former distribution facility property and repaid a
$199,000 mortgage obligation classified as a short-term liability at
March 31, 2003.
The Company's principal source of short-term liquidity is
existing cash on hand and the utilization of a line of credit with its
commercial lender. The maturity date of the line of credit is June 19,
2004, subject to annual renewal. Premix, Acrocrete and Just-Rite borrow
on the line of credit, based upon and collateralized by, their eligible
accounts receivable and inventory. Generally, accounts not collected
within 120 days are not eligible accounts receivable under the
Company's borrowing agreement with its commercial lender. At March 31,
2003, $4,757,000 had been borrowed against the line of credit. Based on
eligible receivables and inventory, the Company had, under its line of
credit, total available borrowing, (including the amount outstanding of
$4,757,000) of approximately $5,383,000 at March 31, 2003. On April 22,
2003 the line of credit was amended to increase the maximum borrowings
from $6,000,000 to $7,000,000 and increase the amount of eligible
borrowings based on inventory.
Trade accounts receivable represent amounts due from
subcontractors, contractors and building materials dealers located
principally in Florida, Mississippi and Georgia who have purchased
products on an unsecured open account basis and through Company owned
warehouse distribution outlets. As of March 31, 2003, the Company owned
and operated eleven distribution facilities. Accounts receivable, net
of allowance, at March 31, 2003 was $5,093,000 compared to $4,880,000
at December 31, 2002. The increase in receivables of $213,000, or
approximately 4.4%, was primarily related to slower payments by certain
customers in the first quarter of 2003 compared to the fourth quarter
of 2002.
As a result of the consummation of the December 31, 1998
merger, the Company agreed to pay $733,000 in cash to its former
preferred stockholders. As of March 31, 2003, the Company had paid
$685,000 of such cash amount. Amounts payable to such stockholders at
March 31, 2003 results from their non-compliance with the condition for
payments.
21
Item 2 Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (continued)
-------------
Liquidity and Capital Resources (continued)
-------------------------------
Holders representing 81,100 preferred shares elected
dissenters' rights, which, under Delaware law, 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 recorded a liability for each share based
on the fair value of $2.25 in cash, and $8.00 Subordinated Debenture
and five shares of the Company's common stock since that is the
consideration the dissenting holders would have received if they did
not perfect their dissenters' rights under the law. Dissenting
stockholders filed a petition for appraisal rights in the Delaware
Chancery Court on April 23, 1999. A trial for the appraisal rights was
held in the Chancery Court of Delaware in June 2002.
In February 2003, the Company and the dissenting stockholders
reached a settlement in principal prior to the trial court issuing a
ruling. On April 30, 2003 the Company completed its settlement and paid
the holders of appraisal rights $12.00 per share in cash ($973,200) and
issued a 5.6% Promissory Note for $10.00 per share ($811,000) due May
1, 2006, with such Note to be reduced to $7.00 per share ($567,700) in
the event the Company prepays the Note in full prior to November 1,
2004. The Company satisfied the cash due at closing from cash on hand
and borrowings from its amended line of credit with its commercial
lender. At March 31, 2003, based on management's intention to prepay
the Note in full prior to November 1, 2004, the appraisal rights
obligation was recorded in the amount of $1,541,000, of which $567,700
was classified as a long-term liability.
As of March 31, 2003, the Company has paid the holders of the
Subordinated Debentures tendering their bonds $808,000. Amounts payable
to stockholders at March 31, 2003 on the Company's consolidated balance
sheets includes $214,000 payable to former debenture holders who have
not yet tendered their Debentures as required by the terms of such
instrument.
The Company presently is focusing its efforts on enhancing
customer service, increasing operating productivity through reducing
costs and expenses and improving working capital. The Company expects
to incur various capital expenditures aggregating approximately
$300,000 during the next twelve months to upgrade and maintain its
equipment and delivery fleet to support operations and improve customer
service. The Company expects to finance approximately $200,000 of these
expenditures from various lenders with the balance funded by cash
derived from operations.
The Company believes its cash on hand, the maintenance of its
amended line of credit and new equipment financing arrangements will
provide sufficient cash to meet its current
22
Item 2 Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations (continued)
-------------
Liquidity and Capital Resources (continued)
-------------------------------
obligations for its operations and support the cash requirements of it
capital expenditure programs in 2003.
The ability of the Company to maintain and improve its
long-term liquidity is primarily dependent on the Company's ability to
successfully achieve and maintain profitable operations.
Item 3 Market Risks
------------
Residential and Commercial Construction Activity
------------------------------------------------
The Company's sales depend heavily on the strength of
residential and commercial construction activity in the Southeastern
United States. The strength of these markets depends on many factors
beyond the Company's control. Some of these factors include interest
rates, employment levels, availability of credit, prices of raw
materials and consumer confidence. Downturns in the markets that the
Company serve or in the economy generally could have a material adverse
effect on the Company's operating results and financial condition.
Reduced levels of construction activity may result in intense price
competition among building materials suppliers, which may adversely
affect the Company's gross margins.
The Company's first quarter revenues and, to a lesser extent,
its fourth quarter revenues are typically adversely affected by winter
construction cycles and weather patterns in colder climates as the
level of activity in the new construction and home improvement markets
decreases. Because much of the Company's overhead and expense remains
relatively fixed throughout the year, Company profits also tend to be
lower during the first and fourth quarters.
Exposure to Interest Rates
--------------------------
The Company has two variable rate mortgages totaling $359,000
at March 31, 2003. The mortgages bear interest at prime plus 1% and are
due October 2004. In addition, the Company's $7,000,000 line of credit
from a commercial lender bears an interest rate of prime plus 1/2%. A
significant increase in the prime rate could have a material adverse
effect on the Company's operating results and financial condition.
Item 4 Controls and Procedures
-----------------------
Evaluation of Disclosure Controls and Procedures
------------------------------------------------
Within 90 days prior to the filing date of this Quarterly
Report, the Company carried out an evaluation, under the
23
Item 4 Controls and Procedures
Evaluation of Disclosure Controls and Procedures (continued)
------------------------------------------------
supervision and with the participation of the Company's management,
including the Company's Chief Executive Officer/Chief Financial
Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c ) under the Securities Exchange Act of 1934).
Based upon that evaluation, the Chief Executive Officer/Chief Financial
Officer concluded that the Company's disclosure controls and procedure
are effective in ensuring that information required to be disclosed in
the reports the Company files and submits under the Securities Exchange
Act of 1934 are recorded, processed, summarized and reported as and
when required.
Changes in Internal Controls
----------------------------
There were no significant changes in the Company's internal
controls or in other factors that could significantly affect such
internal controls subsequent to the date of the evaluation described in
the paragraph above, including any corrective action with regard to
significant deficiencies and material weaknesses.
24
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
PART II. Other Information
Item 1. Legal Proceedings
See notes to Consolidated Financial Statements, Note 10 (a),
set forth in Part I Financial Information.
Item 4. Submission of Matters to a Vote of Security Holders
None.
25
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
PART II. Other Information - continued
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger, by and between Imperial Industries, Inc.
and Imperial Merger Corp. dated October 12, 1998 (Incorporated by
reference to Form S-4 Registration Statement, Exhibit 2).
3.1 Certificate of Incorporation of the Company, (Incorporated by reference
to Form S-4 Registration Statement, Exhibit 3.1).
3.2 Amendment to Certificate of Incorporation of the Company (Incorporated
by reference to Form 10-K dated December 31, 2001, Exhibit 3.2).
3.3 By-Laws of the Company, (Incorporated by reference to Form S-4
Registration Statement, Exhibit 3.2).
10.1 Consolidating, Amended and Restated Financing Agreement by and between
Congress Financial Corporation and Premix-Marbletite Manufacturing Co.,
Acrocrete, Inc. and Just-Rite Supply, Inc. dated January 28, 2000.
(Incorporated by reference to Form 10-K dated December 31, 1999, File
No. 1-7190, Exhibit 10-1).
10.2 Employee Stock Option Plan (Incorporated by reference to Form 10-K
dated December 31, 2000, Exhibit 10.4).
10.3 Directors Stock Option Plan (Incorporated by reference to Form 10-K
dated December 31, 2000, Exhibit 10.5).
10.4 Form of Promissory Note issued in Settlement of Preferred Stock
Dissenters Rights.
10.5 Amendment No. 3 to Consolidating, Amended and Restated Financing
Agreement by and between Congress Financial Corporation and
Premix-Marbletite Manufacturing Co., Acrocrete, Inc. and Just-Rite
Supply, Inc. dated April 22, 2003.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None.
26
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on it behalf by
the undersigned thereunto duly authorized.
IMPERIAL INDUSTRIES, INC.
By: /S/ Howard L. Ehler, Jr.
--------------------------
Howard L. Ehler, Jr.
Principal Executive Officer/
Chief Financial Officer
By: /S/ Betty Jean Murchison
--------------------------
Betty Jean Murchison
Chief Accounting Officer/
Assistant Vice President
May 13, 2003
27
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
CERTIFICATE
I, Howard L. Ehler, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Imperial
Industries, Inc;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstance under which such
statements were made, not misleading;
3. Based on my knowledge, the financial statements, and other financial
information include in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and I have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to me by others within those entities, particularly
during the period in which this quarterly report is being prepared.
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on my evaluation
as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the
registrant's auditors and the Audit Committee of the Company's Board of
Directors:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Imperial Industries, Inc.
By: /S/ Howard L. Ehler, Jr.
-------------------------
Howard L. Ehler, Jr.
Chief Executive Officer/
May 13, 2003 Chief Financial Officer
28