SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K / A-1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
June 13, 2000
IMPERIAL INDUSTRIES, INC.
(Exact Name of registrant as specified in charter)
DELAWARE 1-7190 65-0854631
- ----------------- ----------- ----------------
(State or other (Commission (I.R.S. Employer
Jurisdiction of File Number) Identification)
Incorporation) Number)
1259 Northwest 21st Street, Pompano Beach, Florida 33069
--------------------------------------------------------
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code: (954) 917-4114
--------------
Not Applicable
--------------
(Former Name or former address, if changed since last report)
Item 7. Financial Statements and Exhibits:
(a) The following financial statements of A & R Supply of Mississippi, Inc.
and A & R Supply of Hattiesburg, Inc. are included herein:
Independent Auditor's Report for A & R Supply of Mississippi, Inc. ........................................ F-1
Financial Statements of A & R Supply of Mississippi, Inc.:
Balance Sheet as of March 31, 2000 ............................................................... F-2
Statement of Income and Retained Earnings for the year ended March 31, 2000 ...................... F-4
Statement of Cash Flows for the year ended March 31, 2000 ........................................ F-6
Notes to financial statements .................................................................... F-7
Independent Auditor's Report for A & R Supply of Hattiesburg, Inc. ........................................ F-13
Financial Statements of A & R Supply of Hattiesburg, Inc.:
Balance Sheet as fo March 31, 2000 ............................................................... F-14
Statement of Income and Retained Earnings for the year ended March 31, 2000 ...................... F-16
Statement of Cash Flows for the year ended March 31, 2000 ........................................ F-17
Notes to financial statements .................................................................... F-18
(b) Pro forma financial information. ................................................................. F-23
Imperial Industries' Inc. Unaudited Pro Forma Consolidated Statement of Operations
for the year ended December 31, 1999 (unaudited) and related notes thereto. ...................... F-24
Imperial Industries' Inc. Unaudited Pro Forma Consolidated Statement of Operations
for the Six Months ended June 30, 2000............................................................ F-26
- 2 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned.
IMPERIAL INDUSTRIES, INC.
(Registrant)
Dated: August 22, 2000 By: /S/ HOWARD L. EHLER, JR.
------------------------
HOWARD L. EHLER, JR.
Executive Vice President/
Chief Financial Officer
- 3 -
[Letterhead of Cooper, Burton, Fletcher & Co.]
Independent Auditors' Report
Board of Directors
A & R Supply of Mississippi, Inc.
Gulfport, Mississippi
We have audited the accompanying balance sheet of A & R Supply of Mississippi,
Inc. (a Mississippi "C" corporation), as of March 31, 2000, and the related
statements of income and retained earnings and cash flows for the year then
ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of A & R Supply of Mississippi,
Inc., as of March 31, 2000, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ Cooper, Burton, Fletcher & Co.
Certified Public Accountants
Gulfport, Mississippi
July 13, 2000
F-1
A & R Supply of Mississippi, Inc.
Balance Sheet
March 31, 2000
Assets
Current assets:
Cash on hand and in banks $ 18,484
Accounts receivable 506,782
Due from related parties 76,877
Inventory 852,041
Prepaid expenses 30,791
----------
Total current assets 1,484,975
----------
Property, plant and equipment:
Autos and trucks 395,347
Equipment 170,453
Furniture and fixtures 23,883
Leasehold improvements 19,526
----------
Total 609,209
Less: Accumulated depreciation 138,188
----------
Total property, plant and equipment 471,021
----------
Other assets:
Unamortized goodwill 25,667
Unamortized organization costs 74
Unamortized loan costs 500
Deposits 5,274
----------
Total other assets 31,515
----------
Total assets $1,987,511
==========
The accompanying notes are an integral part of these
financial statements.
F-2
A & R Supply of Mississippi, Inc.
Balance Sheet
March 31, 2000
Liabilities & stockholders' equity
Current liabilities:
Accounts payable $ 895,943
Notes payable, current maturities 145,582
Obligations under capital leases, current maturities 26,113
Due to stockholders 157,483
Payroll taxes withheld and accrued 73,281
Other payroll withholdings 2,193
Accrued retirement 4,110
Accrued salaries 62,281
Sales taxes payable 67,687
Accrued royalties 9,958
----------
Total current liabilities 1,444,631
----------
Long-term liabilities:
Notes payable, net of current maturities 228,191
Obligations under capital leases, net of current maturities 78,652
----------
Total long-term liabilities 306,843
----------
Stockholders' equity:
Common stock, 100 shares authorized,
issued and outstanding 100
Additional paid-in capital 1,500
Retained earnings 234,437
----------
Total stockholders' equity 236,037
----------
Total liabilities and stockholders' equity $1,987,511
==========
The accompanying notes are an integral part of these financial statements.
F-3
A & R Supply of Mississippi, Inc.
Statement of Income and Retained Earnings
For the Year Ended March 31, 2000
Net sales $6,510,604
Cost of sales 4,397,195
----------
Gross profit 2,113,409
----------
Operating expense:
Advertising 18,752
Automobile expense 55,591
Bad debts 104,290
Commissions 54,074
Depreciation and amortization 67,157
Dues and subscriptions 4,785
Employee benefits 64,697
Equipment rental 41,784
Factoring fees 10,081
Insurance 83,393
Interest 57,798
Janitorial services 10,500
Legal and accounting 22,426
Miscellaneous 2,904
Office expenses 30,846
Outside services 7,028
Rent 66,954
Repairs and maintenance 79,803
Royalties 59,527
Salaries, officers 359,688
Salaries, other 692,382
Supplies 20,219
Taxes and licenses 99,258
Telephone and utilities 46,850
Travel and entertainment 12,599
Uniforms 7,590
----------
Total operating expense 2,080,976
----------
Total operating income (carried forward) $ 32,433
----------
The accompanying notes are an integral part of these financial statements.
F-4
A & R Supply of Mississippi, Inc.
Statement of Income and Retained Earnings
For the Year Ended March 31, 2000
(Continued)
Total operating income (brought forward) $ 32,433
---------
Other income:
Administrative fees 2,824
Interest income 240
Gain on sale of assets 51,492
Miscellaneous income 22,283
Rent income 2,159
---------
Total other income 78,998
---------
Income before provision for income taxes 111,431
Provision for income taxes (5,343)
---------
Net income
106,088
Retained earnings, beginning
128,349
Retained earnings, ending
$ 234,437
=========
The accompanying notes are an integral part of these financial statements.
F-5
A & R Supply of Mississippi, Inc.
Statement of Cash Flows
For the Year Ended March 31, 2000
Cash flows from operating activities:
Net income $ 106,088
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 67,157
Bad debts 104,290
Gain on sale of assets (51,492)
Changes in assets and liabilities:
Increase in:
Accounts receivable (66,477)
Inventory (291,387)
Prepaid expenses (1,855)
Increase (decrease) in:
Accounts payable 70,065
Payroll taxes withheld and accrued 70,086
Sales tax payable 6,114
Income taxes payable (6,842)
Other accrued expenses 59,292
---------
Net cash provided by operating activities 65,039
---------
Cash flows from investing activities:
Purchase of property and equipment (102,497)
Proceeds from sale of property and equipment 435,682
Decrease in deposits 1,554
Increase in amounts due from related parties (76,877)
---------
Net cash provided by investing activities 257,862
---------
Cash flows from financing activities:
Proceeds from notes payable 100,022
Capital lease obligations 75,189
Principal reduction in notes payable (660,588)
Principal reduction in capital lease obligations (17,332)
Advances from stockholder 156,483
---------
Net cash used in financing activities (346,226)
---------
Net decrease in cash (23,325)
Cash, beginning of year 41,809
---------
Cash, end of year $ 18,484
=========
Supplemental cash flow information:
Cash paid for interest $ 57,557
=========
Cash paid for income taxes $ 20,278
=========
The accompanying notes are an integral part of these financial statements.
F-6
A & R Supply of Mississippi, Inc.
Notes to Financial Statements
March 31, 2000
Note A - Summary of Significant Accounting Policies
A summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying financial statements follows.
1. Description of Operations - A & R Supply of Mississippi, Inc.
(a Mississippi "C" corporation), incorporated on March 13,
1996. The Company engages in wholesale of building materials
and supplies in Gulfport, Mississippi, and the surrounding
area.
2. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities;
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.
3. Cash and Cash Equivalents - For purposes of the statement of
cash flows, management considers all highly liquid investments
purchased with an original maturity of three months or less to
be cash equivalents.
4. Inventory - Inventory of building materials and supplies is
valued by the first-in first-out method (FIFO).
5. Property and Equipment - Property and equipment are recorded
at cost. Depreciation is provided for in amounts sufficient to
relate the cost of depreciable assets to operations over their
estimated service lives. The straight-line method of
depreciation is followed for substantially all assets for
financial reporting purposes, while accelerated methods are
used for tax purposes. The estimated lives used in determining
depreciation are:
Machinery and equipment 5 - 10 years
Vehicles 5 - 10 years
Buildings and improvements 10 - 39 years
6. Income Taxes - Income taxes are provided for the tax effects
of transactions reported in the financial statements and
consist of taxes due only for the current period. Subsequent
to March 31, 2000, the Company filed an election with the
Internal Revenue Service to be taxed as a Subchapter "S"
corporation. As a Subchapter "S" corporation, the Company does
not provide for income taxes in the financial statements as
shareholders are taxed personally on the Company's earnings.
Accordingly, no deferred tax assets or liabilities are
recognized in the financial statements. Differences in amounts
reported for income taxes and amounts computed at statutory
rates are due primarily to differences between the methods of
computing depreciation for book and tax purposes.
7. Advertising - Advertising costs are recorded as an operating
expense in the period incurred. Total advertising costs, at
March 31, 2000, totaled $18,752.
F-7
A & R Supply of Mississippi, Inc.
Notes to Financial Statements
March 31, 2000
Note B - Property and Equipment
The following is a summary of property and equipment at March 31, 2000:
Autos and trucks $395,347
Equipment 170,453
Furniture and fixtures 23,883
Leasehold improvements 19,526
--------
Total 609,209
Less: Accumulated depreciation 138,188
--------
Total property and equipment $471,021
========
Depreciation expense, for the year ended March 31, 2000, was $67,003.
Note C - Long-term debt
The Company's long-term debt, at March 31, 2000, may be stated as
follows:
Bancorpsouth
Note payable, due in monthly installments of $1,674, including interest at
10%, through November 2003, secured by a vehicle $8,147
Debis Financial
Note payable, due in monthly installments of $2,694, including interest at
9.35%, through August 2000, secured by equipment 102,091
Ford Motor Credit
Note payable, due in monthly installments of $590, including interest at
10.75%, through June 2002, secured by a vehicle 13,637
Note payable, due in monthly installments of $573, including interest at
9.75%, through May 2002, secured by a vehicle 13,377
Hancock Bank
Note payable, due in monthly installments of $346, including interest at
9.99%, through March 2001, secured by a vehicle 3,930
Peoples Bank
Note payable, due in monthly installments of $1,805, including interest at
1.5% over prime, currently 11%, through March 2001, secured by
receivables and inventory 22,127
Note payable, due in monthly installments of $635, including interest at
8.75%, through December 2001, secured by phone system
and computer 12,278
Note payable , due in monthly installments of $1,198, including interest at
9%, through March 2003, secured by a vehicle 37,524
Note payable, due in monthly installments of $1,900, including interest at
1.25% over prime, currently 10.75%, through August 2001, secured
by receivables & inventory 32,852
F-8
A & R Supply of Mississippi, Inc.
Notes to Financial Statements
March 31, 2000
Peoples Bank (continued)
Note payable, due in monthly installments of $3,211, including interest at 1%
over prime, currently 10.5%, through November 2002, secured
by receivables and inventory 92,733
South Mississippi Planning and Development District Note payable, due in monthly
installments of $593, including interest
at 7.5%, through May 2006, secured by receivables, inventory and
equipment 35,077
--------
Total 373,773
Current maturities (145,582)
--------
Long-term portion of debt $228,191
=========
Maturities of long-term debt may be stated as follows:
March 31,
---------
2002 $ 108,730
2003 78,622
2004 26,637
2005 6,269
Thereafter 7,933
---------
Total $ 228,191
=========
Note D - Capital Lease Obligations
The Company has entered into six leases for machinery, equipment and
vehicles. These leases are accounted for as capital leases. Accordingly, the
assets have been capitalized and depreciation is being recorded in accordance
with the Company's depreciation policies. The book value of these assets, at
March 31, 2000, may be stated as follows:
Capitalized cost $ 138,912
Accumulated depreciation (17,166)
---------
Net book value, March 31, 2000 $ 121,746
=========
Total depreciation expense for these assets, for the year ended March
31, 2000, was $7,661. This amount is included in the total depreciation expense
presented in the statement of income and retained earnings.
F-9
A & R Supply of Mississippi, Inc.
Notes to Financial Statements
March 31, 2000
Future minimum payments required under these leases together with their
present value, as of March 31, 2000, may be stated as follows:
March 31,
---------
2001 $33,193
2002 30,298
2003 22,461
2004 17,169
2005 13,873
Thereafter 6,177
Total minimum lease payments 123,171
Amount representing interest (18,406)
Present value of lease obligation $104,765
Interest expense related to the capital leases presented above totaled
$5,239, for the year ended March 31, 2000.
Note E - Related Party Transactions
Affiliated entities conducting business with A & R Supply of
Mississippi, Inc., for the year ended March 31, 2000, are as follows:
A & R Supply of Hattiesburg, Inc., is a "C" corporation owned
50% by the Company's vice-president
D & R, LLC, is a limited liability company owned by the
Company's shareholders.
Robertson Properties, LLC, is a limited liability company
owned by the Company's vice-president.
At March 31, 2000, the Company had outstanding advances to related
parties as follows:
A & R Supply of Hattiesburg, Inc., related
to sale of inventory and equipment $ 57,994
D & R, LLC, related to sale of building and land 18,883
--------
Due from related parties, March 31, 2000 $ 76,877
========
At March 31, 2000, the Company had outstanding advances from
stockholders totaling $157,483.
F-10
A & R Supply of Mississippi, Inc.
Notes to Financial Statements
March 31, 2000
The Company has a contract with the Company's president providing for
royalty payments based on sales. At March 31, 2000, the Company owed $9,958
under this contract. This amount is reported as accrued royalties on the balance
sheet. Royalty expense, for the year ended March 31, 2000, was $59,527.
The Company transfers inventory to and from A & R Supply of
Hattiesburg, Inc., as necessary to fill customer orders. These inventory
transfers are recorded at cost. The Company had an outstanding receivable
balance relative to the transfers totaling $26,118, at March 31, 2000. This
amount is included with accounts receivable on the balance sheet.
During the year ended March 31, 2000, the Company's building and land
located in Gulfport, Mississippi, was sold to D & R, LLC, a partnership composed
of the Company's stockholders. The property was sold at net book value and,
accordingly, no gain or loss was recognized on the sale. D & R, LLC, assumed an
existing loan totaling $339,150 and issued a non-interest bearing note to the
Company in the amount of $18,883, for a total sales price of $358,033. The
Company now leases the building and land from the partnership under a
month-to-month operating lease for a monthly rental of $6,200. Total payments
under this lease were $43,400, for the year ended March 31, 2000. The Company
leases another building from Robertson Properties, LLC, under a month-to-month
operating lease for a monthly rental of $4,330. Total payments under this lease
were $12,990, for the year ended March 31, 2000.
During the year ended March 31, 2000, the Company sold inventory and
equipment located at its Hattiesburg, Mississippi, location to A & R Supply of
Hattiesburg, Inc., a corporation owned 50% by the Company's vice-president. The
Company recognized a gain on the sale totaling $51,492. The Company ceased its
Hattiesburg operations effective August 31, 1999.
Note F - Operating Leases
The Company leases computer hardware and software under an operating
lease at $625 per month through September 2004. Lease expense for this operating
lease, for the year ended March 31, 2000, totaled $3,692.
The Company leases metering equipment under an operating lease at $105
per month through May 2002. Lease expense for this operating lease, for the year
ended March 31, 2000, totaled $1,262.
The Company leases a vehicle under an operating lease at $2,458 per
month through January 2002. Lease expense for this operating lease, for the year
ended March 31, 2000, totaled $30,020.
The Company leases a copier under an operating lease at $313 per month
through February 2003. Lease expense for this operating lease, for the year
ended March 31, 2000, totaled $313.
F-11
A & R Supply of Mississippi, Inc.
Notes to Financial Statements
March 31, 2000
Total expense under these leases, including miscellaneous rental of
other equipment, during the year ended March 31, 2000, was $41,784.
Minimum future rental payments under these operating leases are as
follows:
March 31,
---------
2001 $42,002
2002 37,087
2003 11,147
2004 7,498
2005 3,749
---- --------
Total $101,483
========
Note G - Income Taxes
The provision for income taxes, for the year ended March 31, 2000,
consists of the following components:
Federal income taxes $5,343
======
Note H - Subsequent events
In May 2000, the Company sold all of its operating assets under an
asset purchase agreement and ceased operations.
F-12
[Letterhead of Cooper, Burton, Fletcher & Co.]
Independent Auditors' Report
Board of Directors
A & R Supply of Hattiesburg, Inc.
Hattiesburg, Mississippi
We have audited the accompanying balance sheet of A & R Supply of Hattiesburg,
Inc. (a Mississippi "C" corporation), as of March 31, 2000, and the related
statements of income and retained earnings and cash flows for the period from
September 1, 1999 (inception) through March 31, 2000. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of A & R Supply of Hattiesburg,
Inc., as of March 31, 2000, and the results of its operations and its cash flows
for the period then ended in conformity with generally accepted accounting
principles.
/s/ Cooper, Burton, Fletcher & Co.
Certified Public Accountants
Gulfport, Mississippi
July 11, 2000
F-13
A & R Supply of Hattiesburg, Inc.
Balance Sheet
March 31, 2000
Assets
Current assets:
Cash on hand and in banks $ 10,678
Accounts receivable 230,983
Due from stockholder 1,773
Inventory 93,500
Prepaid expenses 3,884
--------
Total current assets 340,818
--------
Property, plant & equipment:
Autos and trucks 54,316
Equipment 21,005
Furniture and fixtures 1,050
Leasehold improvements 1,305
--------
Total 77,676
Less: Accumulated depreciation 7,130
--------
Total property, plant and equipment 70,546
--------
Other assets:
Unamortized goodwill 29,792
Unamortized organization costs 325
Unamortized loan costs 1,723
Deposits 3,807
--------
Total other assets 35,647
--------
Total assets $447,011
========
The accompanying notes are an integral part of these financial statements.
F-14
A & R Supply of Hattiesburg, Inc.
Balance Sheet
March 31, 2000
Liabilities & Stockholders' Equity
Current liabilities:
Accounts payable $179,360
Notes payable, current maturities 36,963
Obligations under capital leases, current maturities 800
Due from affiliate 57,994
Accrued liabilities 33,870
--------
Total current liabilities 308,987
--------
Long-term liabilities:
Notes payable, net of current maturities 115,631
Obligations under capital leases, net of current maturities 754
--------
Total long-term liabilities 116,385
--------
Stockholders' equity:
Common stock, 100 shares authorized,
issued and outstanding 100
Retained earnings 21,539
--------
Total stockholders' equity 21,639
--------
Total liabilities and stockholders' equity $447,011
========
The accompanying notes are an integral part of these financial statements.
F-15
A & R Supply of Hattiesburg, Inc.
Statement of Income and Retained Earnings
For the seven month period ended March 31, 2000
Net sales $894,916
Cost of sales 654,352
--------
Gross Profit 240,564
--------
Operating expense:
Administrative fees 2,824
Advertising 1,981
Automobile expense 9,625
Bad debts 7,344
Commissions 6,064
Depreciation and amortization 8,488
Dues and subscriptions 1,069
Equipment rental 2,444
Insurance 7,325
Interest 4,255
Legal and accounting 3,153
Miscellaneous 699
Office expense 4,137
Outside services 3,158
Rent 14,700
Repairs and maintenance 9,739
Salaries, officer 42,794
Salaries, other 64,370
Supplies 1,566
Taxes and licenses 12,332
Telephone and utilities 7,397
Travel and entertainment 2,684
--------
Total operating expense 218,148
--------
Income before provision for income taxes 22,416
Provision for income taxes (877)
--------
Net income 21,539
Retained earnings, beginning 0
--------
Retained earnings, ending $ 21,539
========
The accompanying notes are an integral part of these financial statements.
F-16
A & R Supply of Hattiesburg, Inc.
Statement of Cash Flows
For the seven month period ended March 31, 2000
Cash flows from operating activities:
Net income $21,539
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation and amortization 8,488
Bad debts 7,344
Changes in assets and liabilities:
Increase in:
Accounts receivable (238,327)
Inventory (93,500)
Prepaid expenses (3,884)
Due from stockholder (1,773)
Increase in:
Accounts payable 179,360
Accrued liabilities 33,870
---------
Net cash used by operating activities (86,883)
---------
Cash flows from investing activities:
Purchase of property and equipment (77,676)
Cost of other assets (37,005)
---------
Net cash used by investing activities (114,681)
---------
Cash flows from financing activities:
Obligations under capital leases 2,235
Proceeds from notes payable 163,767
Principal reduction in notes payable (11,172)
Principal reduction in capital lease obligations (682)
Issuance of common stock 100
Affiliate advances for purchase of property and equipment 75,000
Repayments to affiliate (17,006)
---------
Net cash provided by financing activities 212,242
---------
Net increase in cash 10,678
Cash, beginning of period 0
---------
Cash, end of period $10,678
=========
Supplemental cash flow information:
Cash paid during the period for interest $ 4,255
=========
The accompanying notes are an integral part of these financial statements.
F-17
A & R Supply of Hattiesburg, Inc.
Notes to Financial Statements
March 31, 2000
Note A - Summary of Significant Accounting Policies
A summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying financial statements follows.
1. Description of Operations - A & R Supply of Hattiesburg, Inc., is
a Mississippi "C" corporation incorporated on June 28, 1999. The
Company engages in wholesale of building materials and supplies in
Hattiesburg, Mississippi, and the surrounding areas.
2. Formation - The Company began operations as A & R Supply of
Hattiesburg, Inc., on September 1, 1999. The Hattiesburg operations
of A & R Supply of Mississippi, Inc., were sold to the newly formed
corporation. Values assigned to assets purchased are as follows:
Inventory $ 81,987
Property and equipment 46,654
Goodwill 30,997
Other assets 67
---------
Total $ 159,705
=========
The terms of the purchase of these assets from A & R Supply of
Mississippi, Inc., were as follows:
Cash $ 82,812
Note to A & R Supply of Mississippi, Inc.,
payable in installments of $5,000 per
month, non-interest bearing 75,000
Assumption of existing debt on equipment 1,893
---------
Total $ 159,705
=========
3. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities; 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.
4. Cash and Cash Equivalents - For purposes of the statement of cash
flows, management considers all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents.
5. Inventory - Inventory of building materials is valued by the
first-in, first-out method (FIFO).
F-18
A & R Supply of Hattiesburg, Inc.
Notes to Financial Statements
March 31, 2000
6. Property and Equipment - Property and equipment are recorded at
cost. Depreciation is provided for in amounts sufficient to relate
the cost of depreciable assets to operations over their estimated
service lives. The straight-line method of depreciation is followed
for substantially all assets for financial reporting purposes, while
accelerated methods are used for tax purposes. The estimated lives
used in determining depreciation are:
Machinery and equipment 5 - 10 years
Vehicles 5 - 10 years
Building and improvements 10 - 39 years
7. Income Taxes - Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of
taxes due only for the current period. Subsequent to March 31, 2000,
the Company filed an election with the Internal Revenue Service to
be taxed as a Subchapter "S" corporation. As a Subchapter "S"
corporation, the Company does not provide for income taxes in the
financial statements as shareholders are taxed personally on the
Company's earnings. Accordingly, no deferred tax assets or
liabilities are recognized in the financial statements. Differences
in amounts reported for income taxes and amounts computed at
statutory rates are due primarily to differences between the methods
of computing depreciation for book and tax purposes
8. Advertising - Advertising costs are recorded as an operating
expense in the period incurred. Total advertising costs, at March
31, 2000, totaled $1,981.
Note B - Property and Equipment
The following is a summary of property and equipment at March 31, 2000.
Autos and trucks $54,316
Equipment 21,005
Furniture and fixtures 1,050
Leasehold improvements 1,305
-------
Total 77,676
Less: Accumulated depreciation 7,130
-------
Total property, plant and equipment $70,546
=======
Depreciation expense, for the period ended March 31, 2000, was $7,130.
F-19
A & R Supply of Hattiesburg, Inc.
Notes to Financial Statements
March 31, 2000
Note C - Long-term Debt
The Company's long-term debt, at March 31, 2000, may be stated as
follows:
Ford Motor Credit
Note payable, due in monthly installments of $781, including interest
at 9.0%, through July 2002, secured by a vehicle $ 21,620
South Mississippi Planning and Development District
Note payable, due in monthly installments of $1,089, including interest at
7.5%, through May 2006, secured by receivables, inventory and equipment 35,000
Union Planters Bank
Note payable, due in monthly installments of $2,167, including interest at
10.25%, through March 2003, secured by receivables, inventory and equipment 95,974
----------
Total 152,594
Current maturities (36,963)
----------
Long-term portion of debt $115,631
==========
Maturities of long-term debt may be stated as follows:
March 31,
---------
2002 $ 39,708
2003 36,452
2004 23,019
2005 16,452
---------
Total $ 115,631
=========
Note D - Capital Lease Obligations
The Company leases a copy machine under a lease arrangement accounted
for as a capital lease. Accordingly, the asset has been capitalized and
depreciation is being recorded in accordance with the Company's depreciation
policies. The book value of these assets, at March 31, 2000, may be stated as
follows:
Capitalized cost $ 2,235
Accumulated depreciation (261)
--------
Net book value, March 31, 2000 $ 1,974
========
Total depreciation expense for this asset, for the period ended March
31, 2000, was $261. This amount is included in the total depreciation expense
presented in the statement of income and retained earnings.
F-20
A & R Supply of Hattiesburg, Inc.
Notes to Financial Statements
March 31, 2000
Future minimum payments required under this lease together with its
present value, as of March 31, 2000, may be stated as follows:
March 31,
---------
2001 $ 873
2002 802
---- ------
Total minimum lease payments 1,675
Amount representing interest (121)
------
Present value of lease obligation $1,554
======
Interest expense related to the capital leases presented above totaled
$183 for the period ended March 31, 2000.
Note E - Related Parties:
Affiliated entities conducting business with A & R Supply of
Hattiesburg, Inc., for the period ended March 31, 2000, are as follows:
A & R Supply of Mississippi, Inc. (hereafter "affiliate")
The Company purchases inventory from its affiliate in the ordinary
course of business at cost. The Company owed its affiliate $26,118, at March 31,
2000, for purchase of inventory. The amount is included with accounts payable
reported on the balance sheet. In addition, the Company had outstanding advances
from its affiliate, at March 31, 2000, totaling $57,994.
The Company receives administrative and management services from its
affiliate for an administrators fee. Total fees paid to the affiliate for these
services totaled $2,824, at March 31, 2000. During the current period the
Company purchased a vehicle from its affiliate for the assumption of existing
debt totaling $27,713. The balance and terms of its note are more fully
described in Note C to the financial statements.
Note F - Operating Leases
The Company leases a building and land under an operating lease at
$2,000 per month through April 2000. Lease expense for this operating lease, for
the period ended March 31, 2000, totaled $14,000.
The Company leases a storage building under a month-to-month operating
lease at $100 per month. Lease expense for this operating lease, for the period
ended March 31, 2000, totaled $700.
F-21
A & R Supply of Hattiesburg, Inc.
Notes to Financial Statements
March 31, 2000
The Company leases a printer under an operating lease at $20 per month
through January 2004. Lease expense for this operating lease, for the period
ended March 31, 2000, totaled $40.
Total expense under this lease, including miscellaneous rental of other
equipment, for the period ended March 31, 2000, was $2,444.
Minimum future rental payments under these operating leases are as
follows:
March 31,
---------
2001 $ 2,240
2002 240
2003 240
2004 200
-------
Total $ 2,920
=======
Note G - Income Taxes
Provision for income taxes may be stated as follows:
Federal income taxes $ 727
State income taxes 150
-------
Total $ 877
=======
Note H - Subsequent Events
As of May 1, 2000, the Company sold all of its operating assets under
an asset purchase agreement and ceased operations.
F-22
Imperial Industries, Inc.
Unaduited Pro Forma Consolidated Financial Information
The following Unaudited Pro Forma Consolidated Statements of Operations of
Imperial Industries, Inc. (the "Company") give effect to the January 19, 2000
(effective January 1, 2000) acquisition of A&R Supply, Inc., A&R Supply of
Foley, Inc. and A&R of Destin, Inc. (collectively, "A&R Pensacola") and the June
13, 2000 (effective May 1, 2000) acquisition of A&R Supply of Mississippi, Inc.
and A&R Supply of Hattiesburg, Inc. (collectively, "A&R Mississippi") as if such
transactions had occurred as of January 1, 1999. (The actual operating results
of A&R Pensacola and A&R Mississippi have been consolidated by the Company since
the respective effective dates.) The Unaudited Pro Forma Consolidated Statement
of Operations for the Year Ended December 31, 1999 reflects the operating
results of Imperial Industries, Inc. and A&R Supply of Foley, Inc. for the year
ended December 31, 1999, A&R Supply, Inc. for the fiscal year ended November 30,
1999, A&R Supply of Mississippi, Inc. for the fiscal year ended March 31, 2000
and A&R of Destin, Inc. for the period from July 1, 1999 (inception) to December
31, 1999. The Unaudited Pro Forma Consolidated Statement of Operations for the
Six Months Ended June 30, 2000 reflects the operating results of Imperial
Industries, Inc. for the six-month period ended June 30, 2000 and A&R
Mississippi for the four-month period ended April 30, 2000. (The results of A&R
Mississippi for the three-month period ended March 31, 2000 are included both as
part of the fiscal year ended December 31, 1999 and the six-month period ended
June 30, 2000 Unaudited Pro Forma Consolidated Statements of Operations.)
The Unaudited Pro Forma Consolidated Financial Information are intended for
informational purposes only and are not necessarily indicative of the results
that would have occurred if the transaction had occurred on the date indicated
or which may be realized in the future. The Unaudited Pro Forma Consolidated
Financial Information should be read in conjunction with the historical
financial statements of the companies comprising A&R Pensacola and A&R
Mississippi, the Consolidated Financial Statements included in the Company's
Form 10-K, filed on March 30, 2000 and the Company's Form 10-Q for the quarterly
period ending June 30, 2000, filed on August 21, 2000.
F-23
Imperial Industries, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
For the Year ended December 31, 1999
Acquisition Acquisition
A&R A&R Adjustments Adjustments Pro Forma
Company Pensacola Miss. Pensacola Miss. As Adjusted
------------ --------- ------------ ------------ ------------ ------------
(1) (2) (3)
Net Sales $ 22,604,000 5,795,000 $ 7,406,000 $ (1,057,000)(4) $ (453,000)(8) $ 34,295,000
Cost of Sales 15,198,000 4,547,000 5,052,000 (992,000)(4) (453,000)(8) 23,352,000
------------ --------- ------------ ------------ ------------ ------------
Gross Profit 7,406,000 1,248,000 2,354,000 (65,000) 10,943,000
Selling, general and administrative 5,932,000 1,123,000 2,237,000 25,000 (5) 36,000(9) 9,353,000
------------ --------- ------------ ------------ ------------ ------------
Operating Income 1,474,000 125,000 117,000 (90,000) (36,000) 1,590,000
Oher Income (expense)
Interest expense (475,000) (98,000) (62,000) 54,000(6) (19,000)(10) (600,000)
Miscellaneous income 34,000 53,000 79,000 166,000
------------ --------- ------------ ------------ ------------ ------------
(441,000) (45,000) 17,000 54,000 (19,000) (434,000)
------------ --------- ------------ ------------ ------------ ------------
Income before income taxes 1,033,000 80,000 134,000 (36,000) (55,000) 1,156,000
Income tax benefit (expense)
Current (26,000) (6,000) (22,000)(11) (54,000)
Deferred 213,000 (11,000) (9,000)(7) 193,000
------------ --------- ------------ ------------ ------------ ------------
187,000 (11,000) (6,000) (9,000) (22,000) 139,000
------------ --------- ------------ ------------ ------------ ------------
Net Income $ 1,220,000 $ 69,000 $ 128,000 $ (45,000) $ (77,000) $ 1,295,000
------------ --------- ------------ ------------ ------------ ------------
Earnings per share
Basic $ 0.15 $ 0.15
Diluted $ 0.15 $ 0.14
Weighted-average shares
outstanding 8,199,000 225,000 (12) 400,000 (12) 8,824,000
Weighted-average and potentially
dilutive shares outstanding 8,390,000 225,000 (12) 400,000 (12) 9,015,000
See the accompanying Notes to Unaudited Consolidated Pro Forma
Consolidated Statement of Operations.
F-24
Notes to Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended Ended December 31, 1999
(1) Represents the historical consolidated statement of operations for the
Company for the year ended December 31, 1999
(2) Represents the historical combined statement of operations of A&R Supply,
Inc. for the year ended November 30, 1999, A&R Supply of Foley, Inc. for
the year ended December 31, 1999 and A&R of Destin, Inc. for the period
from July 1, 1999 (inception) to December 31, 1999.
(3) Represents the historical combined statements of operations of A&R
Mississippi for the year ended March 31, 2000.
(4) Adjustment to eliminate intercompany sales and cost of sales between A&R
Supply, Inc., A&R Supply of Foley,Inc., and A&R of Destin, Inc., and sales
and cost of sales between the Company and A&R Pensacola.
(5) Adjustments to record $10,000 of amortization expense on goodwill over an
estimated 40 year life, and to increase depreciation expense $15,000 based
on the fair value of acquired property, plant and equipment.
(6) Adjustment to record interest at 8% on $100,000 note issued in the
acquisition less interest expense of $62,000 associated with A&R Pensacola
debt not assumed.
(7) Adjustment to record $22,000 of tax expense at the statutory rate of 35% on
the A&R Supply of Foley, Inc. portion of the A&R Pensacola income. No tax
expense was recorded for A&R Supply of Foley, Inc. in their historical
statement of operations as they were a Florida "S" corporation. These taxes
were offset by $13,000 of tax benefit related to the net effect of the
acquisition adjustments calculated at the statutory rate of 35% .
(8) Adjustment to eliminate sales and cost of sales between the Company and A&R
Mississippi.
(9) Adjustment to record $21,000 of amortization expense of goodwill over an
estimated 40 year life, and to increase depreciation expense $15,000 based
on the fair value of acquired property, plant and equipment.
(10) Adjustment to record interest at 8% on $600,000 note issued in the
acquisition less interest expense of $29,000 associated with A&R
Mississippi debt not assumed.
(11) Adjustment to increase tax expense $41,000 for A&R Mississippi to $47,000
based on the statutory rate of 35%. A&R Mississippi's historical statement
of operations did not reflect any federal tax expense (it did include
$6,000 of other tax expense) based on their S corporation election with the
IRS. These taxes were offset by $19,000 of tax benefit related to the net
effect of the acquisition adjustments calculated at the statutory rate of
35% .
(12) To adjust the weighted average shares outstanding to give effect to the
assumption that the 225,000 (Pensacola) and 400,000 (Mississippi) shares
issued in conjunction with the respective acquisitions had been outstanding
from the beginning of the period.
F-25
Imperial Industries, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
For the Six Months Ended June 30, 2000
Acquisition
A&R Adjustments Pro Forma
Company Miss. Miss. As Adjusted
------------ ------------ ------------ ------------
(1) (2)
Net Sales $ 19,327,000 $ 3,149,000 $ (120,000)(3) $ 22,356,000
Cost of Sales 13,420,000 2,208,000 (105,000)(3) 15,523,000
------------ ------------ ------------ ------------
Gross Profit 5,907,000 941,000 (15,000) 6,833,000
Selling, general and administrative 4,732,000 979,000 12,000 5,723,000
------------ ------------ ------------ ------------
Operating Income 1,175,000 (38,000) (27,000) 1,110,000
Oher Income (expense)
Interest expense (316,000) (23,000) (6,000)(5) (345,000)
Miscellaneous income 31,000 9,000 40,000
------------ ------------ ------------ ------------
(285,000) (14,000) (6,000) (305,000)
------------ ------------ ------------ ------------
Income before income taxes 890,000 (52,000) (33,000) 805,000
Income tax benefit (expense)
Current 30,000(6) 30,000
Deferred (311,000) (311,000)
------------ ------------ ------------ ------------
(311,000) 30,000 (281,000)
------------ ------------ ------------ ------------
Net Income $ 579,000 $ (52,000) $ (3,000) $ 524,000
------------ ------------ ------------ ------------
Earnings per share
Basic $ 0.07 $ 0.06
Diluted $ 0.07 $ 0.06
Weighted-average shares
outstanding 8,663,000 266,000(7) 8,929,000
Weighted-average and potentially
dilutive shares outstanding 8,900,000 266,000(7) 9,166,000
See the accompanying Notes to Unaudited Consolidated Pro Forma
Consolidated Statement of Operations.
F-26
Notes to Unaudited Pro Forma Consolidated Statement of Operations
For the Six Months Ended June 30, 2000
(1) Represents the historical consolidated statement of operations for the
Company for the six months ended June 30, 2000.
(2) Represents the historical combined statements of operations of A&R
Mississippi for the four-months ended April 30, 2000.
(3) Adjustment to eliminate sales and cost of sales between the Company and A&R
Mississippi for the four-months ended April 30, 2000.
(4) Adjustments to record $7,000 of amortization expense on goodwill over an
estimated 40 year life, and to increase depreciation expense $5,000 based
on the fair value of acquired property, plant and equipment.
(5) Adjustment to record interest for January through April 2000 at 8% on
$600,000 note issued in conjunction with the acquisition less interest
expense of $10,000 associated with A&R debt not assumed.
(6) Adjustment to record an $18,000 tax benefit for A&R Mississippi based on
the statutory rate of 35%. A&R Mississippi's historical statement of
operations did not reflect a provision for federal taxes based on their S
corporation election with the IRS. In addition, a tax benefit of $12,000
was recorded related to the net effect of the acquisition adjustments
calculated at the statutory rate of 35% .
(7) Adjustment to the weighted average shares outstanding to give effect to the
assumption that the 400,000 shares issued in conjunction with the A&R
Mississippi acquisition had been outstanding from the beginning of the
period.
F-27