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, 1997
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 ______________________
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 59-0967727
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3009 Northwest 75th Avenue, Miami, Florida 33122
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 477-7000
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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, $.10 par value
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(Title of class)
$1.10 Cumulative Convertible Preferred Stock
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES __X__ NO ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (S229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
Page 1 of 52
The aggregate market value of the voting stock of the Registrant held by
non-affiliates computed by reference to the average bid and asked price of the
registrant's Common Stock ($.10 par value) and $1.10 Cumulative Convertible
Preferred Stock on March 2, 1998 is: $3,184,648
Number of shares of Imperial Industries, Inc. Common Stock ($.10 par
value) outstanding on March 2, 1998: 6,483,961
Total number of pages contained in this document: 52
Page 2 of 52
PART I
Item 1. Business
Imperial Industries, Inc. (hereinafter referred to as "the
Company") is a Delaware corporation organized in 1968. The Company's
executive offices are located at 3009 Northwest 75th Avenue, Miami,
Florida 33122, and the telephone number at such offices is (305) 477-
7000.
The Company is engaged in the manufacture of building materials
for sale 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 has three distribution outlets through which
it markets certain of its products directly to end users. The
Company's products are used in the construction industry by
developers, builders, contractors, and sub-contractors.
The Company's business is directly related to the level of
activity in the new and renovation construction market in Florida, 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, 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 and sales operations are conducted by
its wholly owned subsidiaries, Premix-Marbletite Manufacturing Co.
("Premix") and Acrocrete, Inc. ("Acrocrete"). The Company primarily
manufactures stucco, roof tile mortar and plaster 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.
Page 3 of 52
Item 1. Business (continued)
Premix (continued)
Premix accounted for approximately 49%, 49% and 59% of the
Company's consolidated annual revenues in the fiscal years ended
December 31, 1997, 1996 and 1995, 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 foreign countries. The Company has the option to renew the
agreement for two additional five 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 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 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, 1997, 1996 and 1995,
Acrocrete's sales accounted for approximately 51%, 51% and 41%,
respectively, of the Company's consolidated annual revenues.
Suppliers
Premix's raw materials and products are purchased from
approximately 26 suppliers. While five suppliers account for
Page 4 of 52
Item 1. Business (continued)
Suppliers (continued)
approximately 64% 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 20
suppliers, of which five account for approximately 84% 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.
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 by selling certain complementary products
manufactured by other companies that are part of wall system
applications. 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. A majority of the Company's sales are made directly by the
Company to approximately 250 distributors.
While the Company's sales are typically to distributors, the
Company focuses marketing efforts on the contractor/subcontractor end
user to create a brand preference for the Company's products. One
distributor accounted for approximately 11% of total sales in 1995 but
only 5% and 3% of total sales in 1996 and 1997, respectively. The
loss of that 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. Sales by other
distributors as well as direct sales to end users contributed to the
percentage decline in sales to the one distributor. The Company
primarily markets its products to distributors through Company
salesmen, who promote both Premix and Acrocrete products, located in
the Southeastern United States.
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 are 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.
Page 5 of 52
Item 1. Business (continued)
Marketing and Sales (continued)
Each leased facility contains between approximately 7,500 to 8,500
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. The Company closed
the Savannah Facility at the end of the first quarter of 1997.
Effective February 1, 1998, the Company acquired a facility in
Tampa, Florida that was engaged primarily in the distribution of
landscape stone products. The Company intends to utilize this
distribution facility to gain market share for the sale of its
products on the West Coast of Florida. The Company presently does not
have any plans to open other warehouse distribution facilities.
Seasonality
The sale of Premix's and Acrocrete'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, regional and
national manufacturers of acrylic, cement and plaster products, most
of whom manufacture products similar to those of Premix and Acrocrete.
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 quality, customer service and
maintaining lower overhead costs than larger national companies.
Environmental Matters
In 1992, the Company removed its fuel pumps and underground tanks
at its facilities in Miami and Casselberry, Florida, rather than
upgrade the storage tank systems to comply with more stringent
environmental standards which went in effect December 31, 1992. Upon
removal of the tanks, test results showed evidence of soil and ground
water contamination at each site. The contaminated soil was removed
from the properties and the regulatory authorities required the
Company to test the groundwater and provide engineering reports to
determine what remedial actions, if any, were necessary. In December
1994 and June 1995, the environmental authorities released the Company
from having to undertake any additional remedial action to its
Casselberry and Miami, Florida facilities, respectively.
Premix is eligible for reimbursement of certain allowable costs
Page 6 of 52
Item 1. Business (continued)
Environmental Matters (continued)
associated with the removal of the contamination and engineering
studies that were required in connection with the assessment of
contamination through an insurance program established by the State of
Florida environmental authorities. Because of the uncertainty
surrounding these reimbursements, the Company has elected to account
for the insurance proceeds, if any, to be derived from this matter on
a cash basis.
Employees
The Company and its subsidiaries had 75 employees as of December
31, 1997. The Company considers its employee relations to be
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 6 facilities
in Florida and Georgia. 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
-------------- ------------ -------- --------------------------
Miami, Fl. 30,000 Owned Premix (Manufacturing)
Casselberry, Fl. 20,000 Owned Premix (Manufacturing)
Atlanta, Ga. 14,750 Leased Acrocrete (Manufacturing)
Tampa, Fl. 8,470 Owned Acrocrete (Distribution)
Jacksonville, Fl. 7,500 Leased Acrocrete (Distribution)
Norcross, Ga. 7,600 Leased Acrocrete (Distribution)
The lease on the Atlanta facility expires April 30, 2000, and
provides for rental payments of $3,340 per month. The Company has the
option to terminate the lease on April 30, 1998, or anytime thereafter
with 90 days notice.
The facilities located in Norcross, Georgia and Jacksonville,
Florida are utilized for the distribution of Acrocrete's products
directly to the end-user (contractor/subcontractor). The lease on the
Jacksonville facility expires December 31, 1998, and provides for
rental payments of $2,656 per month. Acrocrete leases the Norcross
facility at $2,920 per month, through the lease expiration date of
April 30, 1998. The Company plans to renew the leases for the
Jacksonville and Norcross facilities. Comparable properties at
equivalent rentals are available for replacement of these facilities
if such leases are not extended.
Page 7 of 52
Item 2. Properties (continued)
The Miami and Casselberry facilities are encumbered by first
mortgage liens with outstanding principal balances at December 31,
1997, of $485,000 and $310,000, respectively. See "Notes to
Consolidated Financial Statements". The Tampa facility, acquired
effective February 1, 1998, is encumbered by a first mortgage lien in
the amount of $215,000.
Management believes that the Company's facilities and equipment
are well-maintained, in good operating condition and sufficient for
its present operating needs. The Company is presently evaluating
certain projects aimed at consolidating, upgrading and expanding its
manufacturing operations which involves relocating certain operations
to new facilities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources".
Item 3. Legal Proceedings
In April 1996, the Company and Premix were dismissed as a
defendant, to which it had been a party with other unaffiliated
companies, in the remaining 27 asbestos lawsuits pending in various
circuit courts in Alabama and Florida. Such lawsuits sought
unspecified damages alleging injuries to persons exposed to products
containing asbestos. As of March 2, 1998, the Company is not a
defendant in any lawsuits which allege injuries due to asbestos
exposure.
The Company and Premix are parties to an Interim Agreement for
Defense and Indemnity of Asbestos Bodily Injury Cases (the
"Agreement") with certain of its insurance carriers under which each
party agreed to pay a negotiated percentage share of defense costs and
indemnification expenditures, subject to policy limits, for the
pending and future asbestos claims. The Agreement has been extended
until May 15, 1999, and is subject to cancellation upon sixty days
notice by any party.
The insurance carriers have agreed to pay, in the aggregate,
approximately 93% of the damages, costs and expenditures related to
the litigation. Premix is responsible for the remaining 7%.
The Company believes, based upon the Agreement with its insurance
carriers, and its experience in these claims to date, it has adequate
insurance coverage for any future similar type of claims. To date, no
case went to trial with Premix as a defendant. Premix has either
settled for a nominal amount of money or been voluntarily dismissed
without payment from approximately 193 cases. Based upon historical
results, the Company does not believe any potential future claims
would be material. However, there can be no assurance that insurance
will ultimately cover the aggregate liability for damages to which
Premix may be exposed. Premix is unable, at this time, to determine
the exact extent of its exposure or outcome of the litigation of any
other similar cases that may arise in the future.
Page 8 of 52
Item 3. Legal Proceedings (continued)
Acrocrete was a co-defendant in a lawsuit captioned "Stephen P.
Zabow, II and Karen I. Zabow, et al. vs. M/I Schottenstein Homes,
Inc., Heiner Construction Company and Acrocrete, Inc.", filed October
2, 1996 in Wake County, North Carolina. The lawsuit involved claims
by owners of eight homes in Cary, North Carolina, against the general
contractor, a subcontractor, and Acrocrete. The claims related to the
use of synthetic stucco in the construction of such homes which was
allegedly manufactured by Acrocrete. The lawsuit alleged negligent
misrepresentation, breach of warranty, unfair and deceptive trade
practices, fraud and negligence due to defective material, and
requests punitive damages. The plaintiffs alleged that Acrocrete knew
of inherent defects prevalent in synthetic stucco wall systems that
permitted water intrusion to cause moisture damage to the interior and
wood framing of the houses. In October 1997, the Plaintiffs
voluntarily dismissed Acrocrete with prejudice as a result of the
Plaintiffs settlement with the general contractor defendant.
On October 17, 1997, Acrocrete was named a co-defendant in a
lawsuit captioned "M/I Schottenstein Homes, Inc. vs. Acrocrete, Inc.,
et al filed in Wake County, North Carolina. The lawsuit involves
claims by owners of 52 homes constructed by M/I Schottenstein Homes,
Inc., the general contractor, that the use of synthetic stucco in the
system of construction of the exterior finish of their homes,
allegedly manufactured by Acrocrete, caused moisture intrusion
damages. Eight of the homeowners were the parties to the previously
described lawsuit filed against Acrocrete. As part of its settlement
with the homeowner, M/I Homes received an assignment of any claims
which the homeowners may have against any other contractors,
subcontractors, material men, or suppliers which might be responsible
for any damages pertaining to the alleged defects. The lawsuit
against Acrocrete and the other parties alleges negligent
misrepresentation, breach of warranty, fraud, unfair and deceptive
trade practices and requests punitive damages.
Acrocrete believes it has meritorious defenses against the claim
as well as a counter claim against the general contractor and
installer of the product. The Company's insurance carrier has
accepted coverage and is providing defense under a reservation of
rights. Acrocrete is unable, at this time, to determine the exact
extent of its exposure or outcome of the litigation of this lawsuit.
In addition, Acrocrete has been named in seven similar lawsuits
filed against Acrocrete and other parties, (contractors and
subcontractors), by homeowners, or their insurance companies, claiming
moisture intrusion damages on single family residences.
Acrocrete is vigorously defending all of these cases and believes
it has meritorious defenses, counter-claims and claims against third
parties. The Company's insurance carriers to have accepted coverage
for five of the above claims and are providing defense under a
reservation of rights. The Company expects its insurance carriers to
accept coverage for the other two remaining claims. Acrocrete is
unable to determine the exact extent of its exposure or outcome of
litigation of these lawsuits.
Page 9 of 52
Item 3. Legal Proceedings (continued)
In the fourth quarter of 1993, the Company incurred a $100,000
charge to settle a product liability lawsuit for which the Company was
not insured. The Company entered into an agreement to settle this
lawsuit for $100,000, payable in equal monthly installments of $2,083
over a four year period with an annual interest rate of 7-1/2%. In
accordance with the terms of the agreement, in the event of the
Company's bankruptcy, the plaintiff will be permitted to file a claim
for $160,000, less any amounts previously paid. See "Notes to
Consolidated Financial Statements".
Premix and Acrocrete 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.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Page 10 of 52
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, 1996 High Low
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First Quarter $.06 $.03
Second Quarter .10 .06
Third Quarter .14 .07
Fourth Quarter .14 .08
Fiscal, 1997 High Low
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First Quarter $.20 $.08
Second Quarter .28 .20
Third Quarter .45 .20
Fourth Quarter .44 .29
The Company has not paid any cash dividends on its Common Stock
since 1980. The Company is prohibited from paying any dividends on
the Common Stock until all accrued and unpaid dividends on the
Company's $1.10 Cumulative Redeemable Convertible Preferred Stock are
paid in full. The Company has omitted cash dividends on its
Preferred Stock since the fourth quarter of 1985 aggregating
$4,044,000 at December 31, 1997. See "Notes to Consolidated
Financial Statements".
On March 2, 1998, the Common Stock was held by 2,113
stockholders of record.
As of March 2, 1998, the closing bid and asked prices of the
Common Stock was $.30 and $.40, respectively.
Page 11 of 52
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, 1997:
Statements of Operations Data Year Ended December 31,
1997 1996 1995 1994 1993
Net sales $15,774 $13,742 $11,615 $7,996 $7,714
Cost of sales 10,867 9,881 8,239 5,726 5,637
Selling, general and administrative
expenses 3,740 3,313 2,979 2,104 2,068
Interest expense (329) (317) (282) (204) (168)
Miscellaneous income 54 43 7 23 17
Income tax benefit, net 753 - - - -
Net income (loss) 1,645 274 122 (15) (142)
Less: dividends on redeemable
preferred stock (330) (330) (330) (330) (330)
Net income (loss) applicable to
common stockholders $ 1,315 $ (56) $ (208) $ (345) $ (472)
Net income (loss) per share
applicable to common stockholders $ .22 $ (.01) $ (.04) $ (.06) $ (.09)
Number of shares used in computation
of income (loss) per share 6,009 5,471 5,382 5,317 5,217
Balance Sheets Data
As of December 31,
1997 1996 1995 1994 1993
Working capital $1,995 $ 872 $ 733 $ 334 $ 417
Total assets $5,128 $4,116 $3,747 $3,067 $2,668
Long-term debt,
less current maturities $ 819 $ 895 $1,000 $ 576 $ 678
Redeemable preferred stock $3,001 $3,001 $3,001 $3,001 $3,001
Preferred dividends in arrears (1) $4,044 $3,714 $3,384 $3,054 $2,723
Common stock and other
stockholders' deficit $(4,441) $(5,879) $(5,846) $(5,641) $(5,301)
(1) No cash dividends have been paid on the cumulative redeemable preferred stock
since 1985.
Page 12 of 52
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
General
The Company's business is related primarily to the level of
construction activity in 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.
Results of Operations
Year Ended December 31, 1997 Compared to 1996
Net sales for 1997 increased $2,032,000, or approximately 15%,
compared to 1996. Approximately $1,184,000 of the increase in sales
for 1997 was derived from the sale of Acrocrete products, together
with certain complementary products manufactured by other companies
which were sold through the Company's wholesale distribution
facilities. Premix products, principally a roof tile mortar
product, accounted for the balance of the increase in sales.
Gross profit as a percentage of net sales for 1997, was
approximately 31%, compared to 28% in 1996. The increase in gross
profit margins was due to savings realized from raw material
purchases, modifications made to the Company's manufacturing
process to gain greater production efficiency, and cost reduction
programs implemented in 1996 which continue to focus on
manufacturing processes for opportunities to reduce cost.
Selling, general and administrative expenses as a percentage
of net sales for 1997 was approximately 24%, the same as 1996.
Selling, general and administrative expenses increased $427,000, or
approximately 13% compared to 1996. The increase in expenses was
primarily due to expenses associated with the expanded operations
and additional sales and delivery expenses associated with
servicing the increased volume of business.
In fiscal year ended December 31, 1997, the Company recognized
an $800,000 tax credit as a result of a reevaluation of a portion
of the valuation allowance of the Company's net operating losses.
As a result of the above factors and after giving effect to
accrued unpaid dividends on the redeemable preferred stock, the
Company derived net income applicable to common stockholders of
$1,315,000, or $.22 per share in 1997, compared to a net loss of
$(56,000), or $(.01) per share, in 1996. Net income applicable to
common stockholders includes charges of $330,000 in 1997 and 1996
for unpaid cumulative dividends on preferred stock.
Page 13 of 52
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Year Ended December 31, 1996 Compared to 1995
Net sales in 1996 increased $2,127,000, or approximately 18%,
compared to 1995. 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.
Gross profit as a percentage of net sales for 1996 was
approximately 28%, compared to 29% in 1995. The decrease in gross
profit margins was principally due to higher manufacturing expenses
and a greater proportion of sales of lower gross profit margin
products, including certain complementary products manufactured by
other companies. The Company has been reviewing all raw material
purchases to ensure it realizes the lowest cost possible and is in
the process of streamlining and updating its manufacturing
processes by acquiring and modifying certain equipment to gain
greater production efficiency. As a result, the Company expects to
achieve higher gross profit margins in 1997 compared to 1996.
Selling, general and administrative expenses as a percentage
of net sales for 1996 was approximately 24% compared to 26% in
1995. In 1995, selling, general and administrative expenses
included start-up costs associated with the opening of two of the
Company's three distribution outlets. However, selling, general
and administrative expenses increased $334,000 or approximately 11%
in 1996, compared to 1995. The increase in expenses was primarily
due to expenses associated with the expanded operations,
particularly additional sales expenses related to the Company's
distribution outlets. Selling, general and administrative expenses
as a percentage of net sales decreased in 1996 compared to 1995
because of spreading expenses over greater revenues without the
corresponding increase of overhead. Interest expense was greater
in 1996 compared to 1995, primarily because of increased borrowings
under its line of credit with its commercial lender to fund working
capital requirements resulting from increased sales.
Due to the above factors and after giving effect to preferred
stock dividends accrued but not paid, the Company incurred a net
loss applicable to common stockholders of $56,000, or $.01 per
share in 1996, compared to a net loss of $208,000 or $.04 per share
in 1995. Net loss to common stockholders includes charges of
$330,000 in 1996 and 1995 for unpaid cumulative dividends on
preferred stock.
Liquidity and Capital Resources
At December 31, 1997, the Company had working capital of
approximately $1,995,000 compared to working capital of $872,000 at
December 31, 1996. As of December 31, 1997 the Company had cash and
cash equivalents of $552,000.
Page 14 of 52
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition (continued)
Liquidity and Capital Resources (continued)
The Company's principal source of short-term liquidity is
existing cash on hand and the utilization of a $2,000,000 line of
credit with a commercial lender scheduled to expire on June 19,
1999. The line of credit is automatically extended for an
additional one year term unless either party gives the other notice
of nonextension 60 days prior to the expiration date. Premix and
Acrocrete, the Company's subsidiaries, borrow on the line of credit,
based upon and collateralized by, its 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, 1997,
$778,000 had been borrowed against $1,580,000 in available lines of
credit limits.
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 and sales
directly to the end-user (contractors and subcontractors), through
Company owned warehouse distribution outlets. The Company presently
owns and operates three warehouse distribution outlets.
The Company's common stockholders' deficit of $4,441,000, at
December 31, 1997, resulted primarily from losses incurred in
1987 and prior years, and unpaid cumulative dividends required by
the Company's issued and outstanding preferred stock. The Company
has attempted to generate net income and adequate cash to support
operations by various methods, including the commencement of
manufacturing acrylic stucco products, opening warehouse
distribution outlets to sell its products directly to the end user,
the development and sale of new products, and reductions in raw
material costs and changes to manufacturing processes to gain
greater production efficiency. In 1997, these actions enabled the
Company to derive income before taxes and the application of unpaid
dividends on the redeemable preferred stock in 1997 of $892,000,
compared to income of $274,000 in 1986.
The Company has omitted payment of cash dividends on its
preferred stock since the fourth quarter of 1985, and has accrued
$4,044,000 of dividends in arrears on the preferred stock as of
December 31, 1997. The Company is continuing its efforts to develop
a plan to satisfy the preferred stock dividend arrearage and
mandatory sinking fund requirements which would be acceptable to
its stockholders.
Effective February 1, 1998, the Company acquired the land,
buildings, equipment and inventory of a distribution facility in
Tampa, Florida for approximately $400,000. A portion of the
purchase price was financed through the issuance of a $215,000
mortgage note payable monthly over four years.
Page 15 of 52
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition (continued)
Liquidity and Capital Resources (continued)
The Company expects other capital expenditures in 1998 for
improvements to its equipment and manufacturing facilities to require
aggregate cash expenditures of approximately $275,000. In the first
quarter of 1998, the Company added approximately 6,000 square feet of
warehouse space to its Casselberry, Florida manufacturing facility to
consolidate Florida manufacturing operations to more closely mirror
market geographic demands. Other projects planned in 1998 are aimed at
relocating and expanding the Company's manufacturing facility in
Atlanta, Georgia, and the proposed sale and relocation of the
Company's manufacturing /distribution facility in Miami to a leased
location in Broward County. The Company expects to complete the above
cost reduction projects in 1998 and will continue to focus on the
efficient utilization of its resources in its efforts to accomplish
further cost reductions.
The Company believes its cash on hand and the maintenance of
its borrowing arrangement with its commercial lender will provide
sufficient cash to supplement any cash shortfalls from operations
and provide adequate liquidity for the next twelve months to
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) achieve long-term profitable operations; (ii) pay
or otherwise satisfy omitted preferred stock dividends and
preferred stock redemption requirements; and (iii) resolve current
litigation on terms favorable to the Company.
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.
Page 16 of 52
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) and (2) on page 44 present fairly, in all
material respects, the financial position of Imperial Industries, Inc. and its
subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. 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
generally accepted auditing standards 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.
PRICE WATERHOUSE LLP
Miami, Florida
March 27, 1998
Page 17 of 52
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, December 31,
Assets 1997 1996
Current assets:
Cash and cash equivalents $ 552,000 $ 455,000
Trade accounts receivable (less
allowance for doubtful accounts of
$176,000 in 1997 and $145,000 in 1996) 1,534,000 1,508,000
Inventories 1,204,000 1,272,000
Deferred taxes 350,000 -
Other current assets 60,000 22,000
----------- -----------
Total current assets 3,700,000 3,257,000
----------- -----------
Property, plant and equipment, at cost 2,974,000 2,789,000
Less accumulated depreciation (2,100,000) (2,020,000)
----------- -----------
Net property, plant and equipment 874,000 769,000
----------- -----------
Deferred taxes 450,000 -
Other assets 104,000 90,000
----------- -----------
$5,128,000 $4,116,000
=========== ===========
Page 18 of 52
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, December 31,
1997 1996
Liabilities and Common Stock and other Stockholders' Deficit
Current liabilities:
Notes payable $ 778,000 $1,424,000
Current portion of long-term debt 130,000 161,000
Accounts payable 580,000 660,000
Accrued expenses and other liabilities 217,000 140,000
----------- -----------
Total current liabilities 1,705,000 2,385,000
----------- -----------
Long-term debt, less current maturities 819,000 895,000
Preferred dividends in arrears 4,044,000 3,714,000
Redeemable preferred stock, $1.00 par
value, $1.10 cumulative convertible
series; 300,121 shares outstanding; at
$10 per share redemption value 3,001,000 3,001,000
Commitments and contingencies - -
Common stock and other stockholders' deficit:
Common stock, $.10 par value, authorized
20,000,000 shares; 6,483,961 and
5,562,461 issued, respectively 663,000 571,000
Additional paid-in-capital 7,260,000 7,229,000
Accumulated deficit (12,036,000) (13,351,000)
------------ ------------
(4,113,000) (5,551,000)
Less cost of shares in treasury (147,863
shares in 1997 and 1996) (328,000) (328,000)
------------ ------------
Total common stock and other
stockholders' deficit (4,441,000) (5,879,000)
------------ ------------
$5,128,000 $4,116,000
============ ============
See accompanying notes to consolidated financial statements.
Page 19 of 52
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Year Ended December 31,
1997 1996 1995
Net sales $15,774,000 $13,742,000 $11,615,000
Cost of sales 10,867,000 9,881,000 8,239,000
------------- ------------- -------------
Gross profit 4,907,000 3,861,000 3,376,000
Selling, general and
administrative expenses 3,740,000 3,313,000 2,979,000
------------- ------------- -------------
Operating income 1,167,000 548,000 397,000
Other income (expense):
Interest expense (329,000) (317,000) (282,000)
Miscellaneous income 54,000 43,000 7,000
------------- ------------- -------------
(275,000) (274,000) (275,000)
------------- ------------- -------------
Income before income taxes 892,000 274,000 122,000
Income tax benefit (expense):
Current (47,000) - -
Deferred 800,000 - -
------------- ------------- -------------
753,000 - -
------------- ------------- -------------
Net income 1,645,000 274,000 122,000
Less: Dividends on redeemable
preferred stock (330,000) (330,000) (330,000)
------------- ------------- -------------
Net income (loss) applicable to
common stockholders $ 1,315,000 $ (56,000) $ (208,000)
============= ============= =============
Basic earnings (loss) per
common share $.22 $(.01) $(.04)
============= ============= =============
Diluted earnings (loss) per
common share $.21 $(.01) $(.04)
============= ============= =============
See accompanying notes to consolidated financial statements.
Page 20 of 52
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Common Stock and Other
Stockholders' Deficit
Years ended December 31, 1997, 1996 and 1995
Additional
Common paid-in Accumulated Treasury
Stock capital deficit stock Total
Balance at December 31, 1994 556,000 7,384,000 (13,087,000) (494,000) (5,641,000)
Issuance of 50,000 shares of
common stock - (108,000) - 111,000 3,000
Accrued dividends in arrears
on preferred stock - - (330,000) - (330,000)
Net income - - 122,000 - 122,000
--------- ----------- ------------- ---------- ------------
Balance at December 31, 1995 556,000 7,276,000 (13,295,000) (383,000) (5,846,000)
Issuance of 175,000 shares of
common stock 15,000 (47,000) 55,000 23,000
Accrued dividends in arrears
on preferred stock (330,000) (330,000)
Net income 274,000 274,000
--------- ----------- ------------- ---------- ------------
Balance at December 31, 1996 571,000 7,229,000 (13,351,000) (328,000) (5,879,000)
Issuance of 921,500 shares of
common stock 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 $663,000 $7,260,000 $(12,036,000) $(328,000) $(4,441,000)
========= =========== ============= ========== ============
See accompanying notes to consolidated financial statements.
Page 21 of 52
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended December 31,
1997 1996 1995
Cash flows from operating activities:
Net income $1,645,000 $274,000 $122,000
Adjustments to reconcile net income
to net cash (used in) provided by:
Depreciation 149,000 133,000 119,000
Amortization 19,000 16,000 13,000
Provision for doubtful accounts 126,000 99,000 137,000
Deferred taxes, net (800,000) - -
Loss (gain) on disposal of fixed assets 1,000 4,000 (3,000)
Compensation expense - issuance of stock 41,000 23,000 3,000
(Increase) decrease in:
Accounts receivable (152,000) (236,000) (421,000)
Inventories 68,000 8,000 (243,000)
Prepaid expenses and other assets (38,000) - (48,000)
(Decrease) increase in:
Accounts payable (80,000) (48,000) 286,000
Accrued expenses and other liabilities 77,000 40,000 (65,000)
---------- --------- ----------
Net cash provided by (used in)
operating activities 1,056,000 313,000 (100,000)
---------- --------- ----------
Cash flows from investing activities
Proceeds received from sale of property
and equipment 9,000 11,000 3,000
Purchases of property, plant
and equipment (263,000) (201,000) (224,000)
---------- --------- ----------
Net cash used in investing activities (254,000) (190,000) (221,000)
---------- --------- ----------
Cash flows from financing activities
(Decrease) increase in notes payable
banks - net (646,000) 179,000 201,000
Proceeds from issuance of long-term debt 60,000 66,000 703,000
Repayment of long-term debt (167,000) (165,000) (569,000)
Proceeds received from the exercise
of stock options 48,000 - -
---------- --------- ----------
Net cash (used in) provided by
financing activities (705,000) 80,000 335,000
---------- --------- ----------
Net increase in cash and cash
equivalents 97,000 203,000 14,000
Cash and cash equivalents,
beginning of year 455,000 252,000 238,000
---------- --------- ----------
Cash and cash equivalents, end of year $ 552,000 $455,000 $252,000
========== ========= ==========
Supplemental disclosure
of cash flow information:
Cash paid during the year for interest $ 329,000 $314,000 $284,000
========== ========= ==========
See accompanying notes to consolidated financial statements.
Page 22 of 52
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
(1) Nature of the Business and Summary of Significant Accounting Policies
Imperial Industries, Inc. (the "Company") and its subsidiaries
are primarily involved in the manufacturing and sale of exterior and
interior finishing wall coating and mortar products for the
construction industry. The Company also manufactures and sells
finishing coat products for swimming pools.
The consolidated financial statements contain the accounts of
the Company and its wholly owned subsidiaries, Acrocrete, Inc.
("Acrocrete") and Premix-Marbletite Manufacturing Company ("Premix"),
as well as other subsidiaries which did not have significant
operations during 1995 through 1997.
A summary of the significant accounting policies followed in the
preparation of the accompanying consolidated financial statements is
presented below.
(a) Basis of presentation
The consolidated financial statements of the Company and its
subsidiaries have been prepared in accordance with generally accepted
accounting principles which assume that assets will be realized and
liabilities will be satisfied in the normal course of business.
(b) Significant customers:
During 1995, one distributor accounted for approximately 11% of
total sales. During 1997 and 1996, no single customer accounted for
more than 10% of the Company's sales.
(c) Principles of consolidation
The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in
consolidation.
(d) 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.
Page 23 of 52
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(1) Nature of the Business and Summary of Significant Accounting Policies
(continued)
(e) 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.
(f) Income taxes
The Company records income taxes using the liability method.
Under this method, deferred tax liabilities are recognized for
temporary differences that will result in taxable amounts in future
years. Deferred tax assets are recognized for temporary differences
that will result in deductible amounts in future years. These
temporary differences are primarily the result of net operating loss
carryforwards. Valuation allowances are recognized if it is more
likely than not that some or all of the deferred tax assets will not
be realized (See note 7).
(g) Earnings (loss) per share of common stock
The Company has adopted Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("FAS 128) which requires that
dual presentation of basic and diluted earnings per share for the
years ending after December 15, 1997. Basic earnings (loss) 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
(loss) 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. In accordance with the provision of FAS 128, the Company has
retroactively restated earnings (loss) per common share. (See Note
(10) - Earnings (Loss) 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,
1997 and 1996 are short term time deposits of $259,000 and $153,000,
respectively.
Page 24 of 52
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(1) Nature of the Business and Summary of Significant Accounting Policies
(continued)
(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
In October 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 123,
Accounting For Stock Based Compensation (SFAS 123). SFAS 123, the
disclosure provisions of which must be implemented for fiscal years
beginning subsequent to December 15, 1995, establishes a fair value
based method of accounting for stock based compensation plans, the
effect of which can either be disclosed or recorded. The Company has
adopted the disclosure requirement provisions of SFAS 123 in 1996.
However, the Company has retained the intrinsic value method of
accounting for stock based compensation, based on APB Opinion No.
25. Had the fair value based accounting provisions of SFAS 123 been
adopted, the effect would not be significant.
(k) Accounting estimates
The preparation of financial statements in conformity with
generally accepted accounting principals 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) Financial instruments
The carrying amounts of financial instruments including cash and
cash equivalents, accounts receivable and accounts payable
approximated fair value as of December 31, 1997 and 1996 because of
the relatively short maturity of these instruments.
(2) Inventories
At December 31, 1997 and 1996, inventories consist of:
1997 1996
Raw materials $ 364,000 $ 376,000
Finished goods 614,000 710,000
Packaging materials 226,000 186,000
---------- ----------
$1,204,000 $1,272,000
========== ==========
Page 25 of 52
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(3) Property, Plant and Equipment
A summary of the cost of property, plant and equipment at December
31, 1997 and 1996 is as follows:
Estimated
useful life
1997 1996 (years)
---------- ----------- ------------
Land $ 74,000 $ 74,000 - - -
Buildings and
improvements 834,000 823,000 10 - 40
Machinery and
equipment 1,296,000 1,129,000 3 - 10
Vehicles 574,000 570,000 2 - 8
Furniture and
fixtures 196,000 193,000 3 - 12
----------- -----------
$2,974,000 $2,789,000
=========== ===========
The net book value of property, plant and equipment pledged as
collateral under notes payable and various long-term debt agreements
aggregated $480,000 and $509,000 at December 31, 1997 and 1996,
respectively. See "Note 6."
(4) Notes Payable
Included in notes payable at December 31, 1997 and 1996 is $778,000
and $1,424,000, respectively, which represents the amounts outstanding
under a $2 million line of credit from a commercial lender to Premix and
Acrocrete. The line of credit is collateralized by Premix and
Acrocrete's accounts receivable and inventory, bears interest at prime rate
plus 4% (12 1/2% at December 31, 1997) and expires June 19, 1998, subject
to annual renewal. Effective January 1, 1998, the Company amended its line
of credit to bear interest at prime rate plus 2% and extended the maturity
date to June 19, 1999, subject to annual renewal. The weighted average
effective interest rate on the line of credit was 17.04%, 15.06%, and
14.86% during the years ended December 31, 1997, 1996 and 1995,
respectively.
The line of credit is automatically extended for an additional one
year term on each June 19th unless either party gives the other notice of
nonextension 60 days prior to the preceding June 19th. At December 31,
1997, the line of credit limit available for borrowing aggregated
$1,580,000, of which $778,000 had been borrowed. The average month end
amounts outstanding during 1997 and 1996 were $1,316,000, and $1,308,000,
respectively. The maximum amounts outstanding at any month end during 1997
and 1996 were $1,585,000 and $1,424,000, respectively.
Page 26 of 52
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(5) Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities at December 31, 1997 and 1996
are summarized as follows:
1997 1996
Employee compensation
related items $ 72 000 $ 46,000
Taxes, other than income taxes 38,000 32,000
Income taxes 30,000 -
Interest 7,000 8,000
Legal fees - 1,000
Other 70,000 53,000
--------- --------
$217,000 $140,000
========= ========
(6) Long-term Debt
Long-term debt of the Company is as follows:
1997 1996
Adjustable rate mortgage note payable, interest
at 10.5% at December 31, 1997, principal in
the amount of $3,111 together with interest is
payable monthly, with a balloon payment of
approximately $376,000 due December 5, 2000 $ 485,000 $523,000
Adjustable rate mortgage note payable,
interest at 12% at December 31, 1997,
principal and interest payable monthly in
the amount of approximately $3,600, with a
balloon payment of approximately $292,000
due September 1, 2000 310,000 316,000
Litigation settlement agreement, interest at
7.5% due monthly, principal payable in 48
equal 48 monthly periods in the amount of
approximately $2,083 through August 1998 19,000 43,000
Equipment notes payable, interest at various
rates ranging from 8.75% to 15.39%, per annum,
principal and interest payable monthly 135,000 174,000
---------- ---------
949,000 1,056,000
Less current maturities (130,000) (161,000)
---------- ----------
$ 819,000 $ 895,000
========== ==========
Page 27 of 52
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(6) Long-term Debt (continued)
As of December 31, 1997, long-term debt matures as follows:
Year ended
December 31, Amount
1999 $ 71,000
2000 727,000
2001 15,000
2002 6,000
--------
$819,000
========
In the fourth quarter of 1993, the Company incurred a $100,000 charge
to settle a product liability lawsuit for which the Company had no
insurance. The Company entered into an agreement to settle this lawsuit
for $100,000, payable monthly over a four-year period with interest at the
rate of 7-1/2% per annum. In accordance with the terms of the agreement,
in the event of the Company's bankruptcy, the plaintiff will be permitted
to file a claim for $160,000, less any amounts previously paid.
(7) Income Taxes
At December 31, 1997, the deferred tax asset of $800,000 primarily
consists of the tax effect of net operating loss carryforwards of
$11,300,000 less a valuation allowance of $3,300,000. Net operating losses
expire in varying amounts through 2009.
During 1997 the Company recognized $800,000 of deferred tax assets as
a result of releasing a portion of the valuation allowance previously
established due to the uncertainty of realizing net operating losses. The
remaining deferred tax assets are fully reserved at December 31, 1997. 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,
1997 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 year ended December 31, 1997.
At December 31, 1997, the Company had outstanding 6,483,961 shares of
Common Stock (5,562,461 shares in 1996 with a $.10 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.
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.
Page 28 of 52
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(8) Capital Stock
(a) Common Stock
On February 7, 1995, the Company issued 50,000 shares of Common Stock
from Treasury to the former President of Premix and Acrocrete as part of
his employment compensation.
On May 23, 1996, the Company issued from treasury 25,000 shares of
Common Stock to an employee of the Company as part of his employment
compensation. On July 12, 1996, the Company issued an aggregate of 150,000
shares of Common Stock to the Directors and Executive vice President of the
Company as part of their compensation for services rendered.
On February 4, 1997, the Company issued 33,333 shares of authorized,
but unissued Common Stock to the President of Premix and Acrocrete as part
of his employment compensation.
On May 1, 1997, 25,400 shares of Common Stock were issued upon the
exercise of stock options previously granted under the Company's stock
option plans.
On May 29, 1997, the Company issued an aggregate of 144,000 shares of
Common Stock to its Directors and certain employees of the Company as part
of their compensation for services rendered.
In July 1997, the Company's Board of Directors adopted a Restricted
Stock Plan (the "Plan") for the benefit of certain key employees. An
aggregate of 241,667 shares of Common Stock were reserved for issuance
under the Plan. The Plan is administered by the Company's Compensation
Committee. On July 31, 1997, an aggregate of 241,667 restricted shares
were issued to two employees, subject to certain vesting requirements over
a three year period. An aggregate of 175,000 shares will vest over a three
year period based on certain performance goals set forth in the Plan. An
aggregate of 66,667 shares will vest over a two year period based on
continued employment with the Company by the holder. If the vesting
requirements are not met, the restricted shares theretofore issued will be
forfeited and thereafter be subject to reallocation under the plan. Prior
to vesting, the holders will receive all of the benefits of ownership of
the restricted shares, including voting rights, but will not have the right
to transfer such unvested shares. Effective January 21, 1998, an aggregate
of 58,333 had met the Plan vesting requirements and were released and re-
issued to two employees.
On July 15, 1997, the Company issued 25,000 shares of Common Stock to
an employee of the Company as part of his employment compensation. In July
1997, an aggregate of 452,100 shares of Common Stock were issued to the
Company's Directors and the Executive Vice President of the Company upon
the exercise of Stock Options previously granted under the Company's stock
option plans. The Company received aggregate cash proceeds of $45,210.
Page 29 of 52
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(8) Capital Stock (continued)
(b) Redeemable Preferred Stock - $1.10 Cumulative Convertible Series
The authorized preferred stock of the Company consists of 5,000,000
shares, $1.00 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, 1997 and 1996, the Company had issued and outstanding
300,121 shares of $1.10 cumulative convertible redeemable preferred stock
("Preferred Stock"). The holders of Preferred Stock are entitled to one
vote per share on all matters without regard to class, except that the
holders of Preferred Stock are 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 is entitled to
cumulative quarterly dividends at the rate of $1.10 per annum and is
convertible into 1.149 shares of common stock. The liquidation preference
of the Preferred Stock is $10.00 per share, plus accrued but unpaid
dividends. The Preferred Stock is 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 has omitted dividends on its Preferred Stock since the
fourth quarter of 1985 aggregating $4,044,000 through December 31, 1997
($3,714,000 through December 31, 1996). The omission of Preferred Stock
dividends is a reduction of net income applicable to Common Stockholders
and is recorded as a non-current liability in the accompanying consolidated
balance sheets.
The Preferred Stock is 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 has 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 is not
met, it is added to the requirements for the next year.
The Company is prohibited from paying any cash dividends on Common
Page 30 of 52
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(8) Capital Stock (continued)
(b) Redeemable Preferred Stock - $1.10 Cumulative Convertible Series
(continued)
Stock and from purchasing or otherwise acquiring for value, any shares of
either preferred or common stock, at any time that the Company is in
default in the payment of any dividends on the Preferred Stock or if the
sinking fund requirements are in arrears.
(c) Warrants
At December 31, 1997, the Company had the following outstanding series
of warrants:
(i) 1,316,999 warrants issued in the Company's public offering in 1983.
Each warrant entitles the holder to purchase one share of Common Stock at
$4.80 per share. During February, 1997, the Company's Board of Directors
authorized an extension of the expiration date of these warrants from March
31, 1997 to March 31, 1998. In March 1998, the Board of Directors extended
the expiration date of the warrants to April 30, 1998. The warrants are not
registered nor are they exercisable until a registration statement covering
the underlying Common Stock is declared effective by the Securities and
Exchange Commission.
(ii) 200,000 warrants issued in connection with financing arrangements in
1988. Each warrant entitles the holder to purchase one share of Common
Stock at $.10 per share. The expiration date was extended to June 29, 2000
from June 28, 1997 on June 20, 1997. Two directors acquired 150,000 and
50,000 warrants, respectively, in connection with a $400,000 financing in
1988. The loan has since been repaid by the Company.
(d) Stock Options
The Company's 1979 Non-Qualified Stock Option Plan (the "1979 Plan")
expired in 1989 and no additional options may be granted thereunder. At
December 31, 1997, 2,500 shares of common stock were reserved for issuance
upon exercise of outstanding stock options originally granted under the
1979 Plan.
The Company's 1984 Stock Option Plan (the "1984 Plan") expired in
1994 and no additional options may be granted thereunder. At December 31,
1997, options for 21,500 shares of common stock were outstanding under the
1984 Plan.
Page 31 of 52
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(8) Capital Stock (continued)
(d) Stock Options (continued)
Option activity under these plans is summarized as follows:
Fair market value
At date of grant
Number Price per Per
of shares share Total Share Total
Outstanding and exercisable
at December 31, 1994 505,500 $ .10 $50,000 $.02-.20 $50,000
Granted during 1995 - - - - -
Exercised during 1995 - - - - -
Terminated during 1995 - - - - -
-------- -------- --------
Outstanding and exercisable
at December 31, 1995 505,500 $ .10 $50,000 $.02-.20 $50,000
Granted during 1996 - - - - -
Exercised during 1996 - - - - -
Terminated during 1996 - - - - -
-------- -------- --------
Outstanding and exercisable
at December 31, 1996 505,500 $ .10 $50,000 $.02-.20 $50,000
-------- -------- --------
Granted during 1997 - - - - -
Exercised during 1997 (477,500) $ .10 $48,000 - $48,000
Terminated during 1997 (4,000) .10 - - -
-------- -------- --------
Outstanding and exercisable
at December 31, 1997 24,000 $ .10 $ 2,000 $.02-.20 $ 2,000
======== ======== ========
The following options to purchase the Company's common stock, all of which are
vested, were outstanding under the Plans on December 31, 1997:
Year of Number of Exercise Expiration
Grant Shares Price Date
1989 5,000 .10 * 7/29/99**
1994 19,000 .10 3/27/99
--------
24,000
* In 1993, the exercise price per share was reduced from $.20 per share to
$.10.
** In 1994, the expiration date was extended from 7/29/94 to 7/29/99.
Page 32 of 52
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(9) Other Income (Expense)
A summary of miscellaneous income (expense) for the years ended
December 31, 1997, 1996 and 1995 is as follows:
1997 1996 1995
Interest income $10,000 $ 5,000 $ 4,000
(Loss) gain on disposal of property,
plant and equipment (1,000) (4,000) 3,000
Other, net 45,000 42,000 -
-------- -------- --------
$54,000 $43,000 $ 7,000
======== ======== ========
(10) Earnings (Loss) Per Common Share
Below is a reconciliation between basic and diluted earnings (loss)
per common share under FAS 128 for the years ended December 31, 1997, 1996
and 1995 (in thousands except per share amounts):
1997 1996 1995
Per Per Per
Income Shares Share Income Shares Share Income Shares Share
Net income $1,645 $ 274 $ 122
Less dividends on
redeemable
preferred stock (330) (330) (330)
------- ------- ------
Basic earnings
(loss) per
common share $1,315 6,009 $.22 $ (56) 5,471 $(0.01) $(208) 5,382 $(0.04)
======= ====== ====== ======= ===== ======= ====== ===== =======
Effect of dilutive
securities:
Stock options 24
Warrants 200
------- ------- ------- ------
Diluted earnings
(loss) per
common share $1,315 6,267 $.21 $ (56) 5,471 $(0.01) $(208) 5,382 $(0.04)
======= ====== ====== ======= ===== ======= ====== ===== =======
(11) Related Party Transactions
The Company and its subsidiaries paid legal fees of approximately
$37,000, $29,000 and $35,000 in 1997, 1996 and 1995, respectively, to law
firms with which the Chairman of the Board was affiliated.
Page 33 of 52
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(12) Commitments and Contingencies
(a) In April 1996, the Company and Premix were dismissed as a defendant,
to which it had been a party with other unaffiliated companies, in the
remaining 27 asbestos lawsuits pending in various circuit courts in Alabama
and Florida. Such lawsuits sought unspecified damages alleging injuries to
persons exposed to products containing asbestos. As of March 2, 1998, the
Company is not a defendant in any lawsuits which allege injuries due to
asbestos exposure.
The Company and Premix are parties to an Interim Agreement for Defense
and Indemnity of Asbestos Bodily Injury Cases (the "Agreement") with certain
of its insurance carriers under which each party agreed to pay a negotiated
percentage share of defense costs a nd indemnification expenditures, subject
to policy limits, for the pending and future asbestos claims. The Agreement
has been extended until May 15, 1999, and is subject to cancellation upon
sixty days notice by any party.
The insurance carriers have agreed to pay, in the aggregate,
approximately 93% of the damages, costs and expenditures related to the
litigation. Premix is responsible for the remaining 7%.
The Company believes, based upon the Agreement with its insurance
carriers, and its experience in these claims to date, it has adequate
insurance coverage for any future similar type of claims. To date, no case
went to trial with Premix as a defendant. Premix has either settled for a
nominal amount of money or been voluntarily dismissed without payment from
approximately 193 cases. Based upon historical results, the Company does
not believe any potential future claims would be material. However, there
can be no assurance that insurance will ultimately cover the aggregate
liability for damages to which Premix may be exposed. Premix is unable, at
this time, to determine the exact extent of its exposure or outcome of the
litigation of any other similar cases that may arise in the future.
Acrocrete was a co-defendant in a lawsuit captioned "Stephen P. Zabow,
II and Karen I. Zabow, et al. vs. M/I Schottenstein Homes, Inc., Heiner
Construction Company and Acrocrete, Inc.", filed October 2, 1996 in Wake
County, North Carolina. The lawsuit involved claims by owners of eight
homes in Cary, North Carolina, against the general contractor, a
subcontractor, and Acrocrete. The claims related to the use of synthetic
stucco in the construction of such homes which was allegedly manufactured by
Acrocrete. The lawsuit alleged negligent misrepresentation, breach of
warranty, unfair and deceptive trade practices, fraud and negligence due to
defective material, and requests punitive damages. The plaintiffs alleged
that Acrocrete knew of inherent defects prevalent in synthetic stucco wall
systems that permitted water intrusion to cause moisture damage to the
interior and wood framing of the houses. In October 1997, the Plaintiffs
voluntarily dismissed Acrocrete with prejudice as a result of the Plaintiff
settlement with the general contractor defendant.
On October 17, 1997, Acrocrete was named a co-defendant in a lawsuit
Page 34 of 52
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(12) Commitments and Contingencies (continued)
captioned "M/I Schottenstein Homes, Inc. vs. Acrocrete, Inc., et al filed in
Wake County, North Carolina. The lawsuit involves claims by owners of 52
homes constructed by M/I Schottenstein Homes, Inc., the general contractor,
that the use of synthetic stucco in the system of construction of the
exterior finish of their homes, allegedly manufactured by Acrocrete, caused
moisture intrusion damages. Eight of the homeowners were the parties to the
previously described lawsuit filed against Acrocrete. As part of its
settlement with the homeowner, M/I Homes received an assignment of any
claims which the homeowners may have against any other contractors,
subcontractors, material men, or suppliers which might be responsible for
any damages pertaining to the alleged defects. The lawsuit against
Acrocrete and the other parties alleges negligent misrepresentation, breach
of warranty, fraud, unfair and deceptive trade practices and requests
punitive damages.
Acrocrete believes it has meritorious defenses against the claim as
well as a counter claim against the general contractor and installer of the
product. The Company's insurance carriers has accepted coverage and is
providing defense under a reservation of rights. Acrocrete is unable, at
this time, to determine the exact extent of its exposure or outcome of the
litigation of this lawsuit.
In addition, Acrocrete has been named in seven similar lawsuits filed
against Acrocrete and other parties, (contractors and subcontractors), by
homeowners, or their insurance companies, claiming moisture intrusion
damages on single family residences.
Acrocrete is vigorously defending all of these cases and believes it
has meritorious defenses, counter-claims and claims against third parties.
The Company's insurance carriers have accepted coverage for five of the
above claims and are providing defense under a reservation of rights. The
Company expects its insurance carriers to accept coverage for the other two
remaining claims. Acrocrete is unable to determine the exact extent of its
exposure or outcome of litigation of these lawsuits.
Premix and Acrocrete 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.
(b) The Company pays aggregate monthly rent of approximately $9,300 for
three of its operating facilities. The leases expire at various dates
ranging from April 30, 1998 to April 30, 2000. Comparable properties at
equivalent rentals are available for replacement of these facilities if such
leases are not extended.
In addition, the Company leases one automobile under an agreement which
provides for a minimum monthly payment of $600 through June, 1998. The
Company is subject to an operating lease agreement for certain computer
equipment which provides for monthly rental payments of $1,000 through
Page 35 of 52
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(12) Commitments and Contingencies (continued)
February, 1998.
Rental expenses incurred for operating leases were approximately
$128,000, $129,000 and $122,000, for the years ended December 31, 1997, 1996
and 1995, respectively.
(c) Howard L. Ehler, Jr., ("the Executive"), is employed by the Company
pursuant to a one year renewable agreement (the "Employment Agreement").
Mr. Ehler serves as Executive Vice President, Principal Executive Officer
and Chief Financial Officer of the Company at a current annual base salary
of $120,000. The Employment Agreement provides for automatic renewal for
additional one year periods as of July 1, of each year, unless the Company
or the Executive notifies the other party of an intent not to renew at least
90 days prior to expiration of the existing term. 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 Company's Compensation
Committee.
Prior to a change in control, 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 the
Employment Agreement, the Executive has agreed not to disclose confidential
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" (as defined in the Employment
Agreement), the Employment Agreement is automatically extended to a three
year period. Thereafter, the Executive will be entitle to terminate his
employment with the Company for any reason at any time. In the event the
Executive terminates his employment after a Change of Control, the Executive
will be entitled to receive the lesser of (i) a lump sum amount 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 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 31, 1997 pursuant to the terms of the Company's Restricted
Stock Plan. See "Note (8)(a) Common Stock".
(d) 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
Page 36 of 52
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(12) Commitments and Contingencies (continued)
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 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. See "Note (8)(a)
Common Stock". Also Mr. Hansen received a moving allowance of $15,000 and
is entitled 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.
(13) 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,
1997, accounts aggregating $53,000, or approximately 3% of total gross
trade accounts receivable were deemed to be ineligible for borrowing
purposes under the Company's borrowing agreement with its commercial lender.
The allowance for doubtful accounts at December 31, 1997 of $176,000 is
considered sufficient to absorb any losses which may arise from
uncollectible accounts receivable.
The Company places its cash with high quality commercial banks,
however, at December 31, 1997, 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.
(14) Subsequent Event
Effective as of February 1, 1998, Acrocrete, Inc. acquired the
property, plant, equipment and inventory of a wholesale distribution
facility, engaged in the sale of landscape stone and building materials.
The closing for this transaction occurred on March 2, 1998 for a total
purchase price of approximately $400,000.
On March 6, 1998, the Company entered into an agreement with an
investment banker to provide advisory services to the Company in connection
with the development of a plan to satisfy the Company's Redeemable
Preferred Stock dividend arrearage and mandatory sinking fund requirements.
The investment banker received cash consideration of $25,000 and is
entitled to receive additional consideration based upon the success of the
plan
Page 37 of 52
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 Position With Company
S. Daniel Ponce 49 Chairman of the Board - Class III
Lisa M. Brock 39 Director - Class III
Leonard C. Ferri 83 Director - Class II
Morton L. Weinberger 68 Director - Class II
Fred H. Hansen 51 President, Premix and Acrocrete
Howard L. Ehler, Jr. 54 Principal Executive Officer/Executive
Vice President and Secretary
Betty J. Murchison 58 Principal Accounting Officer/
Assistant Vice President
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 I directors were to serve until the 1994
annual meeting or until their successors were elected, Class II
directors were to serve until the 1995 annual meeting or until their
successors were elected, and Class III directors were to serve until
the 1996 annual meeting or until their successors were elected. The
Company did not have an annual meeting in 1994, 1995 and 1996. Class
I, Class II and Class III directors will serve until the next annual
meeting to be held by the Company. The Company has no Class I
directors.
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 years and is currently a name partner in the
law firm of Hanzman, Criden, Korge, Chaykin, Ponce & Heise, P.A.
Mr. 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. Mrs. Brock is the niece
of Leonard C. Ferri.
Page 38 of 52
Item 10. Directors and Executive Officers of the Registrant (continued)
Leonard C. Ferri. Mr. Ferri has been a director of the Company since
1976. Mr. Ferri has been an independent management consultant
since 1975. In 1975 Mr. Ferri retired as Managing Director of
Xerox de Mexico, S.A. From 1965 to 1970 he served as Managing
Director of Xerox de Peru, S.A. For the 19 years prior thereto, he
was employed by Radio Corporation of America (RCA), the last six
years as Regional Director - Latin America in RCA's international
division. Mr. Ferri is the uncle of Lisa M. Brock.
Morton L. Weinberger, CPA. Mr. Weinberger has been a director of the
Company since 1988. Mr. Weinberger, a certified public
accountant, has been an independent consultant to various
professional organizations for the past eight 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. In 1985, he served as Executive Vice President
for Eagle National Bank. Mr. Weinberger filed a personal petition
for reorganization under Chapter 11 of the Federal Bankruptcy Act
in February 1991 and was reorganized and discharged from bankruptcy
in April 1992.
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.
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.
Board of Directors Meetings and Attendance
The Board of Directors met five (5) times in fiscal 1997. Each
director attended all of the Board of Directors meetings in 1997.
Compensation and Stock Option Committee
Messrs. Ponce, Ferri, 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 three (3)
times in fiscal 1997. Each member attended all of the meetings.
Page 39 of 52
Item 10. Directors and Executive Officers of the Registrant (continued)
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 1997 no officer or director failed to file any such
report on a timely basis except Mr. Hansen. Fred H. Hansen filed one
late Form 4 report relating to one purchase transaction.
Item 11. Management Remuneration and Transactions
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,
1997 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").
Annual Compensation
Long-Term
Other Compensation
Annual Restricted
Name and Compen- Stock
Principal Position Year Salary Bonus(1) sation(2) Awards(3)
Howard L. Ehler Jr. 1997 $100,000 $40,000 - $18,750
Principal Executive 1996 $ 98,555 32,000 - 3,500
Officer, Executive 1995 $ 95,685 15,000 - -
Vice President and
Secretary
Fred H. Hansen 1997 $117,601 $85,000 - $41,667
President, Premix 1996 37,000 10,000 $15,000 -
and Acrocrete 1995 - - - -
(1) Bonuses shown were earned in the year indicated even though actually
paid in a subsequent year.
(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. Hansen's Other Annual Compensation in 1996 included
$15,000 in moving and relocation expenses. Mr. Hansen's employment began
September 2, 1996 at an annual salary of $117,601.
Page 40 of 52
Item 11. Management Remuneration and Transactions (continued)
SUMMARY COMPENSATION TABLE (continued)
(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. As of December 31, 1997, based on the average of the
bid and asked market price of the Company's Common Stock on that date of
$.42, Mr. Ehler held 75,000 shares of restricted stock valued at $31,500,
and Mr. Hansen held 166,667 shares of restricted stock valued at $70,000.
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 schedule 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 he same time and
same rate as paid to all Common Stockholders and such shares may be voted.
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
$120,000. 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 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
Page 41 of 52
Item 11. Management Remuneration and Transactions (continued)
Compensation Agreements (continued)
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. See "Note (8)(a) Common Stock.
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. See
"Note(8)(a) Common Stock". Also, Mr. Hansen received a moving allowance of
$15,000 in 1996 and 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.
Aggregated Option Exercises in Year Ended December 31, 1997
The following table sets forth certain aggregated option information
for each of the Named Executive Officers in the Summary Compensation Table
for the fiscal year ended December 31, 1997.
Number of Shares Value
Name Acquired on Exercise Realized (1)
Howard L. Ehler, Jr. 83,500 $12,525
Fred H. Hansen - -
(1) Represents the difference between the option exercise price and the
closing market price of the Company's Common Stock on the date of
exercise.
Director Compensation
During the year ended December 31, 1997, 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 Messrs. Ferri and Weinberger, and Ms. Brock,
respectively, to provide various management consulting services to the
Company. Each Agreement provides for monthly fees of $833 and may be
terminated upon 60 days notice by either party.
Page 42 of 52
Item 11. Management Remuneration and Transactions (continued)
Director Compensation (continued)
In May 29, 1997, each director received 35,000 shares of the Company's
common stock. The average of the bid and asked market price on said date
was $.25 per share. Commencing September 1994 Mr. Ponce was provided the
use of a Company car at a cost of approximately $600 per month.
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 1997, the Compensation and Stock
Option Committee consisted of Messrs. Ponce, Ferri, 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.
In 1997, the Company paid legal fees to a law firm in which Mr. Ponce is
affiliated. See Item 13 "Certain Relationships and Related Transactions."
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 2, 1998
with respect to the beneficial ownership of the Company's equity securities
by (i) each director or nominee for 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):
Title of Shares (1) Percent
Class Beneficially Owned of Class (2)
--------- ------------------ ------------
Maureen P. Ferri Common 656,981 10.1%
7335 Old Elm Drive
Hialeah, Fl 33015
Jimmy V. Brabham (3) Common 332,000 5.1
412 Rory Street
Lake Charles, La 70601
Estate of M.G. Woodward(4) Preferred 27,000 9.0
147 Maison Place N.W.
Atlanta, Ga 30327
Estate of Latham G. Kays(5) Preferred 15,275 5.1
8 Paris Court
Lake St. Louis, Mo 63367
Derco Ltd.(6) Preferred 23,863 8.0
P.O. Box 1790
Georgetown Grand Cayman
Cayman Islands
Page 43 of 52
Item 12. Security Ownership of Certain Beneficial Owners and Management
(continued)
Title of Shares (1) Percent
Class Beneficially Owned of Class (2)
--------- ------------------ ------------
Lisa M. Brock Common 271,506(7) 4.2
Howard L. Ehler, Jr. Common 253,245(8) 3.9
Preferred 2,000 .3
Leonard C. Ferri Common 213,200 3.3
Fred H. Hansen Common 220,000(9) 3.4
S. Daniel Ponce Common 476,966(10) 7.2
Morton L. Weinberger Common 174,210 2.7
All directors and officers
as a group (7 persons) Common 1,612,745(11) 24.1
Preferred 2,000 .3
(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 preferred stockholders is based on 300,121
shares of preferred stock outstanding. The percent of class for
common stockholders is based upon 6,483,961 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) Based on the Company's stockholder list at March 2, 1998. To the
Company's knowledge, no Schedule 13D has been filed with the
Securities and Exchange Commission.
(4) Based upon oral representations made by the son of such deceased
stockholder. To the Company's knowledge, no Schedule 13D has been
filed with the Securities and Exchange Commission.
(5) On August 31, 1992, Latham G. Kays filed a Schedule 13D with the
Securities and Exchange Commission, indicating he beneficially owns
15,275 shares of Preferred Stock, or 5.1% of the outstanding
Preferred Stock. In 1995 the Company was advised Mr. Kays had died.
Page 44 of 52
Item 12. Security Ownership of Certain Beneficial Owners and Management
(continued)
(6) On November 30, 1993, Derco Ltd. submitted a proxy at the Annual
Meeting of Stockholders, indicating that Derco Ltd. beneficially owned
an aggregate of 23,863 shares of preferred stock, or 8.0% of the
outstanding preferred stock. To the Company's knowledge, no Schedule
13D has been filed with the Securities and Exchange Commission.
(7) Includes 50,000 shares of common stock issuable upon exercise of
warrants.
(8) Includes 50,000 shares of restricted common stock subject to vesting
requirements.
(9) Includes 133,334 shares of restricted common stock subject to vesting
requirements.
(10) Includes 150,000 shares of common stock issuable upon exercise of
warrants.
(11) 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, Korge, Chaykin, Ponce & Heise,
P.A. in which Mr. Ponce, the Company's Chairman of the Board, is a
named partner, currently serves as general counsel to the Company. In
addition, the law firm represents the Company in certain asbestos
litigation. Approximately 93% of the fees incurred in the asbestos
litigation are paid directly by the insurance companies.
Page 45 of 52
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 Accountant 17
Consolidated Balance Sheets - December 31, 1997 and 1996 18
Consolidated Statements of Operations - Years Ended
December 31, 1997, 1996 and 1995. 20
Consolidated Statement of Changes of Common Stock and
Other Stockholders' Deficit - Three Years Ended
December 31, 1997. 21
Consolidated Statements of Cash Flows -
Years ended December 31, 1997, 1996 and 1995 22
Notes to Consolidated Financial Statements 23
2. Financial Statement Schedules:
II - Valuation and Qualifying Accounts and Reserves 50
3. Exhibits
Incorporated by reference to the Exhibit Index at the
end of this Report. 51
(b) Reports on Form 8-K:
No Form 8-K Reports were filed during the last quarter
of the period covered by this Report.
Page 46 of 52
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 pursuant to 17 C.F.R. Sec. 201.24 and Sec. 230.411, are
incorporated herein by reference to the documents indicated in parentheses
following the descriptions of such exhibits.
Exhibit No. Description
3.1 Restated Certificate of Incorporation of the Company, filed August
8, 1979 (Registration Statement No. 1-2-65385, Exhibit 3 (a).
3.2 Certificate of Amendment of Restated Certificate of Incorporation of
the Company, filed June 16, 1980. (Form 10-Q, quarter ended June
30, 1980, File No. 1-7190 (unnumbered exhibit)).
3.3 By-Laws of the Company, as amended (Form 10-K, year ended December
31, 1980, File No. 1-7190, Exhibit 3).
3.4 Certificate of Amendment of Restated Certificate of Incorporation
of the Company, filed June 20, 1983 (Form 10-Q, quarter ended June
30, 1983, File No. 1-7190, Exhibit 28).
4.1 Certificate of Designation, filed February 22, 1983, with respect to
the Preferred Stock, $1.10 Cumulative Convertible Series (Form 10-K
for the fiscal year ended December 31, 1982, File No. 1-7190,
Exhibit 3.4).
4.2 Warrant Agreement, dated as of February 15, 1983, between the
Company and Southeast Bank N.A., as Warrant Agent. (Form 10-K for
the fiscal year ended December 31, 1982, File No. 1-7190, Exhibit
4.1).
4.11 Financing Agreements, dated as of June 20, 1988 between Premix and
Congress. (Form 8-K dated June 29, 1988, File No. 1-7190, Exhibit
10.2)
4.12 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)
10.4 1979 Non-Qualified Stock Option Plan (Registrant Statement No. 2-
69479, Exhibit 1.D).
10.5 1984 Stock Option Plan (Form 10-K, year ended December 31, 1984,
File No. 1-7190, Exhibit 10.5)
Page 47 of 52
EXHIBIT INDEX
Exhibit No. Description
10.8 Agreement dated as of May 16, 1989, between the Company and four
insurance companies, relating to the defense and indemnity of
asbestos related personal injury claims against Premix. (Form 10-
Q, quarter ended September 30, 1989, File No. 1-7190, Exhibit 10)
10.12 Employment Agreement dated July 26, 1993 between Howard L. Ehler,
Jr. and the Company. (Form 8-K dated July 26, 1993)
*11 Statement recomputation of earnings per share.
*21 Subsidiaries of the Company
Page 48 of 52
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 27, 1998 By: S/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 S. Daniel Ponce Chairman of the Board of March 27, 1998
- --------------------
S. Daniel Ponce Directors
S/S Lisa M. Brock Director March 27, 1998
- --------------------
Lisa M. Brock
S/S Leonard C. Ferri Director March 27, 1998
- --------------------
Leonard C. Ferri
S/S Morton L. Weinberger Director March 27, 1998
- --------------------------
Morton L. Weinberger
S/S Fred H. Hansen President, Premix March 27, 1998
- --------------------
Fred H. Hansen and Acrocrete
S/S Howard L. Ehler, Jr. Executive Vice President, March 27, 1998
- -------------------------
Howard L. Ehler, Jr. Secretary, Principal
Executive Officer and
Chief Financial Officer
S/S Betty J. Murchison Assistant Vice President March 27, 1998
- -------------------------
Betty J. Murchison and Principal Accounting
Officer
Page 49 of 52
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 1997, 1996 and 1995
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, 1997:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts:
Trade $145,000 $126,000 $ - $ 95,000(A) $176,000
Year ended December 31, 1996:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts:
Trade $139,000 $ 99,000 $ - $ 93,000(A) $145,000
Year ended December 31, 1995:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful accounts:
Trade $116,000 $137,000 $ - $114,000(A) $139,000
(A) Uncollectible accounts written off, net of recoveries.
Page 50 of 52
Exhibit 11
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Statement Recomputation of Per Share Earnings
Calculation of (loss) income per share for the years ended December 31, 1997,
1996 and 1995 are as follows:
1997 1996 1995
Income before income taxes $ 892,000 $ 274,000 $ 122,000
Income tax benefit (expense):
Current (47,000) - -
Deferred 800,000 - -
----------- ----------- -----------
753,000 - -
----------- ----------- -----------
Net income 1,645,000 274,000 122,000
Less: dividends on redeemable
preferred stock, $1.10 cumulative
convertible series *(330,000) *(330,000) *(330,000)
----------- ---------- ----------
Net income (loss) applicable
to common stockholders $1,315,000 $(56,000) $(208,000)
=========== ========== ==========
Basic earnings (loss) per
common share $.22 $(.01) $(.04)
=========== ========== ==========
Diluted earnings (loss) per
common share $.21 $(.01) $(.04)
=========== ========== ==========
* Includes $330,000, of cumulative dividends not declared for each of the years
ended December 31, 1997, 1996 and 1995.
Page 51 of 52
Exhibit 21
IMPERIAL INDUSTRIES, INC.
Subsidiaries of the Registrant
December 31, 1997
Incorporated
under laws of
Acrocrete, Inc. Florida
Just-Rite Lumber Company, Inc Florida
Premix-Marbletite Manufacturing Co. Florida
Triple I Leasing, Inc. Florida
Page 52 of 52