SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[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, 2000
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
----------------------
IMPERIAL INDUSTRIES,INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 65-0854631
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1259 Northwest21stStreet,PompanoBeach,Florida 33069-1417
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 917-4114
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
----------------------------
(Title of Class)
8% Subordinated Debentures
--------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] YES [ ] NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (S229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock of the Registrant held by
non-affiliates computed by reference to the average bid and asked price of the
registrant's Common Stock ($.01 par value) on March 16, 2001 is: $2,016,044
Number of shares of Imperial Industries, Inc. Common Stock ($.01 par
value) outstanding on March 16, 2001: 9,205,434
PART I
Item 1. Business
--------
Imperial Industries, Inc., is a Delaware corporation which
through its predecessor corporation has been in existence since
1968. The Company's executive offices are located at 1259 Northwest
21st Street, Pompano Beach, Florida 33069 and the telephone number
at such offices is (954) 917-4114.
Merger
------
On October 12, 1998, the Board of Directors approved a plan
merging Imperial Industries, Inc. into Imperial Merger Corp., a
newly- formed, wholly-owned subsidiary of the Company, (the
"Merger"). The Merger was approved at a special meeting of the
Company's Stockholders on December 17, 1998, with the Merger
becoming effective December 31, 1998. On the effective date of the
Merger, Imperial Merger Corp. changed its name to Imperial
Industries, Inc. (hereinafter referred to as (the "Company").
Upon consummation of the Merger, each share of common stock
outstanding prior to the Merger was automatically converted to one
share of common stock of the Company. Each share of preferred stock
outstanding prior to the Merger was converted, at the holder's
option, into either (a) $4.75 in cash and ten shares of the
Company's common stock, or (b) $2.25 in cash, an 8% subordinated
debenture, face value $8.00, and five shares of the Company's common
stock. Holders representing 81,100 preferred shares have elected
dissenters' rights, which, if perfected under Delaware law, would
require the Company to pay to the holders the fair value of their
stock in cash to be determined by the Delaware Chancery Court.
Pursuant to Delaware law, the dissenting shareholders petitioned the
Delaware Chancery Court to determine the fair value of their shares
at the effective date of the Merger, exclusive of any element of
value attributable to the Merger.
In accordance with the Merger, the Company issued $984,960 of
8% Subordinated Debentures, 1,574,610 shares of common stock and
paid $732,550 in cash to the former preferred shareholders who did
not elect dissenters' rights. The Company does not know the amount
which would be payable to dissenting holders who ultimately perfect
their dissenters rights. Those dissenting stockholders who fail to
perfect their dissenters' rights under Delaware law would ultimately
receive the consideration in option (b) above. For a more complete
description of the Merger, see Note (1) of Notes to Consolidated
Financial statements.
1
Item 1. Business (continued)
--------
General
-------
The Company, through its subsidiaries, is engaged in the
manufacture and distribution of building materials to building
materials dealers and others located primarily in Florida,
Mississippi, Georgia, and Alabama and to a lesser extent, other
states in the Southeastern part of the United States as well as
foreign countries. The Company presently has fourteen distribution
outlets through which it markets certain of its manufactured
products and other purchased 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 these
states 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. 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 these
states. When economic conditions reduce migration, demand for new
construction decreases. Construction activity is also affected by
the size of the inventory of available housing units, mortgage
interest rates, availability of funds and local government growth
management policies. The Company's operations are directly related
to the general economic conditions existing in the Southeastern part
of the United States.
The Company's manufacturing operations are conducted by its
wholly owned subsidiaries, Premix-Marbletite Manufacturing Co.
("Premix") and Acrocrete, Inc. ("Acrocrete"). The Company's
distribution operations are conducted through its other wholly owned
subsidiary, Just-Rite Supply, Inc. ("Just-Rite"). The manufacturing
operations primarily produce and distribute stucco, roof tile mortar
and plaster products. The distribution operations distribute gypsum,
roofing and insulation products, as well as products manufactured by
the Company's manufacturing subsidiaries.
2
Item 1. Business (continued)
--------
General (continued)
-------
Stucco products are applied as a finishing coat to exterior
surfaces and to swimming pools. Roof tile mortar is used to adhere
cement roof tiles to the roof. Plaster customarily is used to finish
interiors of structures.
Premix
------
Premix, together with its predecessors, has been in business
for approximately 40 years. The names "Premix" and
"Premix-Marbletite" are among the registered trademarks of Premix.
The Company believes the trade names of its manufactured products
represent a substantial benefit to the Company because of industry
recognition and brand preference. Premix manufactures stucco, roof
tile mortar, plaster and swimming pool finishes. The products
manufactured by Premix basically are a combination of portland (or
masonry) cement, sand, lime, marble and a plasticizing agent and
other chemicals, including color- impregnating materials.
Premix accounted for approximately 23%, 39% and 42% of the
Company's consolidated annual revenues in the fiscal years ended
December 31, 2000, 1999 and 1998, respectively.
The Company is a party to a licensing agreement with an
unaffiliated company to exclusively manufacture and sell a roof tile
mortar product throughout the State of Florida and certain foreign
countries. Premix has also entered into agreements to manufacture
this product on behalf of selected wholesalers who distribute this
product under the wholesalers names through their existing
established dealer networks to service the roofing contractor
industry. To date, a majority of all roof tile mortar sales have
been derived from South Florida. Until 1996, the Company's licensed
roof tile mortar product was the only mortar product approved by
Miami Dade County, Florida, building authorities for use to adhere
all types of cement roof tiles to roofs. In 1997, the Company's roof
tile mortar was approved by the Broward and Palm Beach County
building authorities along with other competitive products. Other
adhesive products used for similar purposes are also used by the
industry. The 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.
3
Item 1. Business (continued)
--------
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, 2000, 1999 and 1998,
Acrocrete's sales accounted for approximately 21%, 61% and 58%,
respectively, of the Company's consolidated annual revenues. Prior
to January 1, 2000, the Company's distribution operations were
operated through Acrocrete.
Just-Rite
---------
In January 2000, the Company established Just-Rite Supply, a
wholly owned subsidiary to own and operate its five wholesale
distribution outlets formerly owned and operated by Acrocrete. The
Company's Board of Directors determined to establish the Company's
distribution operations as a separate business unit to maximize
business efficiencies. In addition, during the first five months of
2000, Just-Rite acquired nine building material distribution outlets
to diversify its product offering to the construction market to
include gypsum, roofing, masonry, insulation products, as well as
installation services beyond those supported by the Company's
manufacturing operation. Management believes the acquired
distribution outlets position the Company to gain a greater market
share for its manufactured products through more direct sales to the
end-user and to expand operations by distributing a wider range of
4
Item 1. Business (continued)
--------
Just-Rite (continued)
---------
building materials to the construction industry that are
complementary to its existing product lines.
For the fiscal year ended December 31, 2000, Just-Rite's sales,
excluding the sale of Premix and Acrocrete products, accounted for
approximately 56% of the Company's consolidated annual revenues.
Acquisition Opportunities and Present Status
--------------------------------------------
The Company believes the gypsum, roofing and stucco building
products distribution industries are fragmented and have the
potential for consolidation in response to the competitive
disadvantages faced by smaller distributors. Management believes
that these industries are characterized by a significant number of
relatively small privately-owned, local, relationship-based
companies that emphasize service, delivery and reliability as well
as competitive pricing and breadth of product line to their
customers. The competitive environment for these distributors, in
combination with the desire for owners of certain of these
distributors to gain liquidity, provides an opportunity for
expansion through acquisition. The Company believes that
opportunities exist for a company which has the ability to source
and distribute products effectively to serve the building materials
industry and to effect cost savings through economies of scale which
can be applied to companies that may be acquired in these
industries.
The Company's primary focus in 2001 is to complete the
integration of the distribution outlets acquired in 2000 with its
existing operations and to attempt to effect cost savings in the
consolidation of the acquired operations. While it currently will
emphasize internal growth through gains in productivity of
operations, the Company believes there exists a number of possible
acquisition candidates. The Company presently is not seeking any
acquisitions, but may do so in the future and does not have any
binding understanding, agreement or commitment regarding any
potential acquisition.
Suppliers
---------
Premix's raw materials and products are purchased from
approximately 26 suppliers. While four suppliers account for
approximately 57% 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.
5
Item 1. Business (continued)
--------
Suppliers (continued)
---------
Acrocrete's raw materials are purchased from approximately 17
other suppliers, of which five account for approximately 66% 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.
The Company's Just-Rite distribution outlets sell products of
many suppliers. Just-Rite purchases a significant amount of its
products through buying group organizations, companies which
consolidate product purchase orders from many independent
distributors and order product from various vendors on the
distributors behalf to gain consolidated purchasing efficiencies for
each distributor. One such buying organization accounted for
approximately 26% of Just-Rite purchases in 2000. However, there are
other buying organizations in which the Company can obtain product
at the same or similar prices.
Marketing and Sales
-------------------
The Company's marketing and sales strategy is to create a
profit center for the products it manufactures, as well as enlarging
its product offering to include certain complementary products and
other building materials manufactured by other companies. The
complementary items are purchased by the Company and held in
inventory, together with manufactured products, for sale to
customers. Generally, sales orders are filled out of existing
inventory within several days of receipt of the order. The total
package sales approach to the new and renovation construction
markets is targeted at both the end user of the Company's products,
being primarily the contractor or subcontractor, and the
distributor, principally building materials dealers who purchase
products from the Company and sell to the end user, and in some
instances, to retail customers.
While the Company's manufactured sales historically have been
typically to distributors, the Company focuses marketing efforts on
the contractor/subcontractor end user to create a brand preference
for the Company's manufactured products. No one distributor has
accounted for 10% or more of total sales during the past three
years. The Company believes the loss of any one distributor would
not cause a material loss in sales because the brand preference
contractors and subcontractors have developed for the Company's
manufactured products generally cause the user to seek a distributor
who carries the Company's products. Although the Company markets its
products to distributors through Company salesmen located in the
Southeastern
6
Item 1. Business (continued)
--------
Marketing and Sales (continued)
-------------------
United States who promote both Premix and Acrocrete products, direct
sales of manufactured products and other building materials to end
users through Just-Rite now account for approximately 70% of total
revenues in 2000.
Beginning in 1994, the Company opened a distribution outlet in
Savannah, Georgia to sell its Acrocrete products directly to the end
user. The Company's products and certain complementary products
manufactured by other companies were inventoried and sold from a
leased warehouse distribution facility. Since 1994, the Company has
closed the Savannah outlet and opened or acquired an additional
fourteen outlets in Florida, Georgia, Mississippi and Alabama.
In February 1998, the Company acquired a facility in Tampa,
Florida that was engaged primarily in the distribution of landscape
stone products. The Company utilized this distribution facility to
gain market share for the sale of its products on the West Coast of
Florida. The Company subsequently opened a fourth distribution
facility in the third quarter of 1998 in Dallas, Georgia, and a
fifth in Gadsden, Alabama in April 1999, which was subsequently
moved to Rainbow City, Alabama in 2000. In January 2000, the Company
acquired three additional outlets, one in Foley, Alabama, one in
Pensacola, Florida and one in Destin, Florida. In March 2000 and
April 2000, the Company acquired additional distribution outlets in
Panama City Beach and Tallahassee, Florida. Effective May 1, 2000
the Company acquired three distribution outlets located in Gulfport,
Pascagoula and Hattiesburg, Mississippi. In October, 2000, the
Company opened a new distribution outlet in Picayune, Mississippi
and subsequently closed the Hattiesburg outlet in February, 2001.
Each facility contains between approximately 6,400 to 29,000
square feet. The distribution facilities are designed to promote
product brand preference to the contractor and sub-contractor, and
also to improve service capabilities, increase market share, and to
increase profit margins from the sale of the Company's products and
to expand operations by distributing a wide range of products to the
construction industry. The Company sells Acrocrete, Premix and
complementary products of other manufacturers at such distribution
facilities.
7
Item 1. Business (continued)
--------
Seasonality
-----------
The sale of the Company's products in the construction market
for the Southeastern United States is somewhat seasonal due in part
to periods of adverse weather, with a lower rate of sales
historically occurring in the period December through February
compared to the rest of the year. As a result of acquisitions
consummated in 2000 located in Northwest Florida, Alabama and
Mississippi, management believes the Company's sales are more
subject to seasonal fluctuation than in prior years.
Competition
-----------
The Company's business is highly competitive. Premix and
Acrocrete encounter significant competition from local, independent
firms, as well as regional and national manufacturers of acrylic,
cement and plaster products, most of whom manufacture products
similar to those of Premix and Acrocrete. The Company's distribution
outlets encounter significant competition from local independent
distributors as well as regional and national distributors who sell
similar products. Many of these competitors are larger, more
established and better financed than the Company. The Company
believes it can compete with the other companies based upon product
performance and quality, customer service and prices through
maintaining lower overhead costs than larger national companies.
Environmental Matters
---------------------
The Company is subject to various federal, state and local
environmental laws and regulations in the normal course of its
business. Although the Company believes that its manufacture,
handling, use, sale and disposal of its raw materials and products
are in accord with current environmental regulations, future
developments could require the Company to make unforeseen
expenditures relating to environmental matters. Increasingly strict
environmental laws, standards and environmental policies may
increase the risk of liability and compliance costs associated with
the Company's operations. Capital expenditures for this purpose have
not been material in past years, and expenditures for 2001 to comply
with existing laws and regulations are also not expected to have a
material effect on the Company's financial position, results of
operations or liquidity.
Employees
---------
The Company and its subsidiaries had 210 full time employees as
of December 31, 2000. The Company considers its employee relations
to be satisfactory. The Company's employees are not subject to any
collective bargaining agreement.
8
Item 2. Properties
----------
The Company and its subsidiaries maintain a total of 17
facilities in Florida, Georgia, Mississippi and Alabama. The
location and size of the Company's facilities and the nature of the
operations in which such facilities are used, are as follows:
Approximate Owned/
Location Sq.Footage Leased CompanyProducts
Pompano Beach, Fl. 19,600 Leased Premix (Manufacturing)
Winter Springs, Fl. 26,000 Owned Premix (Manufacturing)
Kennesaw, Ga. 20,400 Leased Acrocrete (Manufacturing)
Tampa, Fl. 8,470 Owned Just-Rite (Distribution)
Jacksonville, Fl. 11,400 Leased Just-Rite (Distribution)
Norcross, Ga. 12,200 Leased Just-Rite (Distribution)
Dallas, Ga. 6,400 Leased Just-Rite (Distribution)
Rainbow City, Al. 10,000 Leased Just-Rite (Distribution)
Pensacola, Fl. 15,250 Owned Just-Rite (Distribution)
Ft. Walton Beach, Fl. 8,000 Leased Just-Rite (Distribution)
Destin, Fl. 7,680 Leased Just-Rite (Distribution)
Foley, Al. 9,000 Leased Just-Rite (Distribution)
Panama City Beach, Fl. 9,540 Leased Just-Rite (Distribution)
Tallahassee, Fl 17,500 Leased Just-Rite (Distribution)
Gulfport, Ms. 28,800 Leased Just-Rite (Distribution)
Pascagoula, Ms. 9,000 Leased Just-Rite (Distribution)
Picayune, Ms. 10,000 Leased Just-Rite (Distribution)
The Just-Rite distribution outlets typically consist of a
warehouse building and supply yard for the inventory and sale of
products directly to the end user.
Except for the Destin, Tallahassee, Panama City Beach,
Gulfport, and Pascagoula locations, all leased properties are leased
from unaffiliated third parties. The Destin facility is leased from
an entity in which the former owner of A&R Supply, Inc. owns a
minority interest. The former owner sold his business interest to
the Company in January 2000 and is currently a Vice President and
general manager of Just-Rite. The Tallahassee and Panama City Beach
facilities are leased from the former owners of Tallahassee Gypsum
Dealers, Inc, and
9
Item 2. Properties (continued)
----------
Panhandle Drywall Supply, Inc., who sold their business interest to
Just-Rite in March 2000 and April 2000 and are currently employees
of the Company. The Gulfport locations are leased from an entity
owned by the former owners of A&R Supply, Inc. and A&R Supply of
Mississippi, Inc., who sold their businesses to Just-Rite and are
currently Vice Presidents and General Managers of Just-Rite. The
Pascagoula facility is leased from an entity solely-owned by the
former owner of A&R Supply of Mississippi, Inc.
Management believes that the Company's facilities and equipment
are well-maintained, in good operating condition and sufficient for
its present operating needs.
Item 3. Legal Proceedings
-----------------
As of March 23, 2001, the Company's subsidiary Acrocrete and
other parties are defendants in 30 lawsuits pending in various
Southeastern states, by homeowners, contractors and subcontractors,
or their insurance companies, claiming moisture intrusion damages on
single family residences. The Company's insurance carriers have
accepted coverage under a reservation of rights for 28 of these
claims and are providing a defense. The Company expects its
insurance carriers to accept coverage for the other two recently
filed lawsuits. Acrocrete is vigorously defending all of these cases
and believes it has meritorious defenses, counter-claims and claims
against third parties. Acrocrete is unable to determine the exact
extent of its exposure or outcome of this litigation.
The allegations of defects in synthetic stucco wall systems are
not restricted to Acrocrete products but rather are an industry-wide
issue. There has never been any defect proven against Acrocrete. The
alleged failure of these products to perform has generally been
linked to improper application and the failure of adjacent building
materials such as windows, roof flashing, decking and the lack of
caulking.
On June 15, 1999, Premix was served with a complaint captioned
Mirage Condominium Association, Inc. v. Premix Marbletite
Manufacturing Co., et al., in Miami-Dade County Florida. The
lawsuit raises a number of allegations against 12 separate
defendants involving alleged construction defects. Plaintiff has
alleged only one count against Premix, which claims that certain
materials,
10
Item 3. Legal Proceedings (continued)
-----------------
purportedly provided by Premix to the Developer/ Contractor and used
to anchor balcony railings to the structure were defective. The
Company's insurance carrier has not made a decision regarding
coverage to date. In the interim, the insurance carrier has retained
defense counsel on behalf of Premix and is paying defense costs.
Premix expects the insurance carriers to eventually accept coverage.
Premix is unable to determine the exact extent of its exposure or
the outcome of this litigation.
Premix and Acrocrete are engaged in other legal actions and
claims arising in the ordinary course of its business, none of which
is believed to be material to the Company.
On April 23, 1999, certain Dissenting Shareholders owning
shares of the Company's preferred stock filed a petition for
appraisal in the Delaware Chancery Court to determine the fair value
of the shares at December 31, 1998, the effective date of the
Company's Merger. (See Note 1 of Notes to Consolidated Financial
Statements).
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
11
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,1999 High Low
----------- ---- ---
First Quarter $.41 $.28
Second Quarter .44 .31
Third Quarter .63 .44
Fourth Quarter .72 .45
Fiscal,2000 High Low
----------- ---- ---
First Quarter $.86 $.54
Second Quarter .70 .58
Third Quarter .71 .51
Fourth Quarter .55 .35
The Company has not paid any cash dividends on its Common
Stock since 1980.
On March 16, 2001, the Common Stock was held by 1,897
stockholders of record.
As of March 16, 2001, the closing bid and asked prices of the
Common Stock was $.29 and $.31, respectively.
12
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,
2000:
Statements of Operations Data Year Ended December 31,
- ----------------------------- -----------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Net sales $ 40,730 $ 22,604 $ 18,739 $ 15,774 $ 13,742
Cost of sales 28,218 15,198 12,823 10,867 9,881
Selling, general and administrative
expenses 10,985 5,932 4,645 3,740 3,313
Interest expense (806) (475) (272) (329) (317)
Merger costs -- -- (456) -- --
Miscellaneous income, net 199 34 1,218 54 43
Income before income taxes 920 1,033 1,761 892 274
Income tax (expense) benefit, net (386) 187 296 753 --
Net income 534 1,220 2,057 1,645 274
Less: dividends on redeemable
preferred stock -- -- (248) (330) (330)
Less: net charge for elimination
of preferred stock -- -- (975) -- --
Net income (loss) applicable to
common stockholders $ 534 $ 1,220 $ 834 $ 1,315 $ (56)
Net income (loss) per share
applicable to common stockholders
Basic $ .06 $ .15 $ .13 $ .22 $ (.01)
Diluted $ .06 $ .15 $ .12 $ .21 $ (.01)
Number of shares used in computation
of income (loss) per share: Basic 8,936 8,199 6,566 6,009 5,471
Diluted 9,070 8,390 6,715 6,267 5,471
13
Balance Sheets Data
- ------------------- As of December 31,
-----------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Working capital $ 1,607 $ 3,447 $ 2,439 $ 1,995 $ 872
Total assets $16,792 $ 8,768 $ 7,561 $ 5,128 $ 4,116
Long-term debt,
less current maturities $ 1,402 $ 1,328 $ 1,316 $ 819 $ 895
Obligation for appraisal rights $ 877 $ 877 $ 877 $- $-
Redeemable preferred stock $- $- $- $ 3,001 $ 3,001
Preferred dividends in arrears(1) $- $- $- $ 4,044 $ 3,714
Common stock and other
stockholders' equity (deficit) $ 4,559 $ 3,514 $ 2,281 $(4,441) $(5,879)
Current ratio 1.2 to 1 2.1 to 1 1.8 to 1 2.2 to 1 1.4 to 1
(1) No cash dividends were paid on the cumulative redeemable
preferred stock since 1985. The preferred stock and all accumulated
accrued unpaid dividends were eliminated at December 31, 1998, upon
the effective date of the Merger.
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations
-------------------------
General
-------
The Company's business is related primarily to the level of
construction activity in the Southeastern United States,
particularly the states of Florida, Georgia, Mississippi and
Alabama. The majority of the Company's products are sold to building
materials dealers located principally in these states 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. Although general construction activity has increased in the
Southeastern United States during the past five years, the duration
of recent economic conditions and the magnitude of its effect on the
construction industry are uncertain and cannot be predicted.
This Form 10-K contains certain forward looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995 with respect to the financial condition, results of
operations and business of the Company, and its subsidiaries,
including statements made under Management's Discussion and
Analysis of Financial Condition and Results of Operations. These
forward
14
looking statements involve certain risks and uncertainties. No
assurance can be given that any of such matters will be realized.
Factors that may cause actual results to differ materially from
those contemplated by such forward looking statements include,
among others, the following: the competitive pressure in the
industry; general economic and business conditions; the ability to
implement and the effectiveness of business strategy and
development plans; quality of management; business abilities and
judgement of personnel; and availability of qualified personnel;
labor and employee benefit costs.
Results of Operations
---------------------
Year Ended December 31, 2000 Compared to 1999
---------------------------------------------
Net sales in 2000 increased $18,126,000, or approximately 80.2%
compared to 1999. The increase in sales was derived from the sale of
building materials generated by distributors acquired at various
dates during the first five months of 2000. These sales primarily
consisted of building materials purchased from other manufacturers,
principally gypsum, roofing, insulation, metal studs, masonry and
stucco products.
Gross profit as a percentage of net sales for 2000 was
approximately 30.7% compared to 32.8% in 1999. The decrease in gross
profit margins was principally due to a greater proportion of
consolidated sales represented by products manufactured by other
companies sold through the Company's acquired distribution
facilities, as compared to the proportionate amount of sale of
products manufactured by the Company with higher gross profit
margins. Products manufactured by the Company accounted for
approximately 43.4% of consolidated sales in 2000, compared to
approximately 74.0% in 1999. The distribution facilities typically
generate lower gross profit margins than the direct sale of the
Company's manufactured products.
In 2000, gross profits derived by the Company's acquired
distribution facilities were adversely affected by competitive
conditions in the Company's distribution markets for sales of gypsum
products manufactured by other companies. Gypsum products,
15
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (continued)
-------------------------
Year Ended December 31, 2000 Compared to 1999 (continued)
---------------------------------------------------------
principally wallboard, a major product line of the acquired
distributors, suffered price deflation of approximately 40% in 2000,
due to industry conditions.
The results of operations of the acquired distributors had a
material impact on the Company's consolidated results in 2000 and
will continue to impact results in 2001. The acquisitions were
accounted for under the purchase method of accounting. Accordingly,
results of operations of the acquired distributors have been
consolidated since their respective acquisition dates in 2000.
Efforts are being made to increase sales and gross profits by
focusing primarily on attaining increased sales of the Company's
manufactured products through the Company's acquired distribution
facilities, expanding the sale of installed products and broadening
the product line of the Company's existing distribution facilities
where suitable in selected markets.
Selling, general and administrative expenses as a percentage of
net sales for 2000 was approximately 27.0% compared to 26.2% in
1999. Selling, general and administrative expenses increased
$5,053,000 or approximately 85.2% in 2000, compared to 1999. The
increase in expenses was primarily due to additional operating costs
related to the acquired distributors acquired in 2000 and costs
incurred to integrate the acquisitions. Certain growth initiatives
in the Company's distribution operations resulted in increased
expenses in 2000. Start-up costs were incurred to develop the sale
of certain installed products at selected distribution locations and
for the opening of a new distribution location in Picayune,
Mississippi in October 2000. In addition, the Company incurred
additional costs to up-grade the delivery capabilities of its
distribution facilities through the purchase and leasing of
additional vehicles and added sales personnel in selected markets in
an attempt to increase sales.
Efforts have been made to improve operating efficiency in the
Company's distribution operations through: (i) a reduction in
personnel in certain locations; (ii) closure of an acquired under-
performing distribution location in Hattiesburg, Mississippi; (iii)
the recent consolidation of the Company's distribution locations in
16
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (continued)
--------------------------
Year Ended December 31, 2000 Compared to 1999 (continued)
---------------------------------------------------------
Pensacola, Florida and Foley, Alabama, through a reduction and
realignment of personnel; and (iv) an attempt to realize greater
savings from the purchase and resale of products through a
consolidated purchasing program.
Interest expense increased $331,000, or approximately 69.7%
compared to 1999. The increase in interest expense was primarily due
to additional borrowings related to the purchase and operations of
the acquired distributors. Miscellaneous income for 2000 included a
$75,000 settlement of a prior year product liability claim against a
former vendor.
In 2000, the Company incurred $367,000 of deferred income tax
expense. In 1999, the Company recognized a $574,000 tax benefit as a
result of releasing a portion of the valuation allowance on the
Company's deferred tax asset. The Company's Consolidated Statement
of Operations for the year ended December 31, 1999, reflected a
deferred income tax benefit of $213,000, comprised of taxes at the
statutory rate of 35% less the tax benefit described above.
As a result of the above factors, the Company generated net
income of $534,000, or $.06 per fully diluted share for 2000,
compared to net income of $1,220,000, or $.15 per share for 1999.
Year Ended December 31,1999 Compared to 1998
--------------------------------------------
Net sales in 1999 increased $3,865,000, or approximately 21%
compared to 1998. The increase in sales was derived primarily from
increased sales of Acrocrete products, together with certain
complementary products manufactured by other companies, sold through
the Company's distribution outlets. The sales of Acrocrete products
derived from the Company's new distribution outlets in Tampa,
Florida, (acquired February 1, 1998), Dallas, Georgia, (opened July
1, 1998), and Gadsden, Alabama, (opened April 1, 1999) accounted for
approximately $4,145,000 of sales in 1999, compared to $2,137,000 of
sales in 1998.
17
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (continued)
-------------------------
Year Ended December 31, 1999 Compared to 1998 (continued)
---------------------------------------------------------
Gross profit as a percentage of net sales for 1999 was
approximately 33%, compared to 32% in 1998. The increase in gross
profit margins was principally due to a price increase for certain
products instituted in the third quarter of 1999.
Selling, general and administrative expenses as a percentage of
net sales for 1999 was approximately 26%, compared to 25% in 1998.
Selling, general and administrative expenses increased $1,287,000,
or approximately 28%, in 1999 compared to 1998. The increase in
expenses was primarily due to additional sales expenses associated
with servicing the increased volume of business, including a new
senior marketing and sales manager, and operating costs related to
the Company's new distribution facilities.
Interest expense increased from $272,000 in 1998 to $475,000 in
1999. The increase in interest expense was due to the amount of
$290,000 associated with the issuance of Subordinated Debentures and
obligations incurred in connection with the Company's merger at
December 31, 1998. Miscellaneous income for 1998 includes a gain of
$1,066,000 derived from the sale of its former manufacturing
facility in Miami, Florida and $62,000 of reimbursements the Company
received from the State of Florida environmental authorities
insurance program for costs the Company incurred in prior years
related to the removal of underground fuel tanks located at its
facilities. Miscellaneous expenses includes approximately $456,000
in fees and expenses associated with the Merger and elimination of
the preferred stock in 1998.
In 1999, the Company recognized a $574,000 tax benefit as a
result of the release of a portion of the valuation allowance on
the Company's deferred tax assets. For the fiscal year ended
December 31, 1999, the Company recognized a net income tax benefit
of $213,000 representing income before taxes at the statutory rate
of 35% less the tax benefit described above. Based on the Company's
net operating loss carryforwards, the Company is not expected to pay
such federal income taxes for 1999.
As a result of the above factors, the Company derived net
income applicable to common stockholders of $1,220,000 or $.15 per
share for 1999, compared to net income of $834,000 or $.13 per share
in 1998. Net income applicable to common stockholders includes a
charge of $248,000 in 1998 for unpaid cumulative dividends on
preferred stock, which was retired in 1998. In addition, in
connection with the Merger, 1998 net income applicable to common
stockholders was reduced by $975,000.
18
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (continued)
-------------------------
Liquidity and Capital Resources
-------------------------------
At December 31, 2000, the Company had working capital of
approximately $1,607,000 compared to working capital of $3,447,000
at December 31, 1999. The reduction in working capital was a result
of the reclassification of $926,000 8% subordinated debentures due
December 31, 2001 from a long-term obligation at December 31, 1999,
to a short-term obligation at December 31, 2000, and working capital
utilized for the purchase and operation of seven building materials
distributors in 2000. As of December 31, 2000, the Company had cash
and cash equivalents of $1,853,000.
The Company's principal source of short-term liquidity is
existing cash on hand and the utilization of a $6,000,000 line of
credit with a commercial lender. The maturity date of the line of
credit is June 19, 2001, subject to annual renewal. Premix,
Acrocrete and Just-Rite borrow on the line of credit, based upon and
collateralized by, their eligible accounts receivable and inventory.
Generally, accounts not collected within 120 days are not eligible
accounts receivable under the Company's borrowing agreement with its
commercial lender. At December 31, 2000, $5,103,000 had been
borrowed against the line of credit. Based on eligible receivables
and inventory, the Company had, under its line of credit, total
available borrowing, (including the amount outstanding of
$5,103,000) of approximately $5,516,000 at December 31, 2000.
Trade accounts receivable represent amounts due from sub-
contractors, contractors and building materials dealers located
principally in Florida, Mississippi and Georgia who have purchased
products on an unsecured open account basis and through Company
owned warehouse distribution outlets. As of December 31, 2000, the
Company owned and operated fourteen distribution outlets. Accounts
receivable, net of allowance, at December 31, 2000 was $4,866,000
compared to $2,677,000 at December 31, 1999. The increase in
receivables of $2,189,000, or approximately 81.8% was primarily
related to higher sales levels prevalent in 2000 compared to 1999,
as a result of the acquisition of seven building materials
distribution facilities in 2000.
19
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (continued)
-------------------------
Liquidity and Capital Resources (continued)
As a result of the consummation of a merger with a wholly-owned
subsidiary in 1998, the Company issued an aggregate of $984,960 face
amount, 8% subordinated debentures, 1,574,610 shares of common stock
and agreed to pay $732,550 in cash to the former preferred
shareholders. At December 31, 2000, the Company had paid $684,375 of
such cash amount. Amounts payable to such shareholders at December
31, 2000 results from their non-compliance with the conditions for
payments. Holders representing 81,100 preferred shares have elected
dissenters' rights, which, under Delaware law, would require cash
payments equal to the fair value of their stock, as of the date of
the merger, to be determined in accordance with Section 262 of the
Delaware General Corporation Law. The Company has recorded a
liability for each share based on the fair value of $2.25 in cash,
an $8.00 Subordinated Debenture and five shares of the Company's
common stock since that is the consideration the dissenting holders
would receive if they did not perfect their dissenters' rights under
the law. Dissenting stockholders filed a petition for appraisal
rights in the Delaware Chancery Court on April 23, 1999.
Effective January 1, 2000, the Company acquired certain assets
and assumed certain liabilities of three building materials
distributors held under common ownership in a single transaction
accounted for as a purchase acquisition. The total consideration,
was $1,580,000 consisting of $798,000 in cash, uncollateralized
promissory notes of $150,000 due 90 days from closing and $100,000
due one year from closing. The Company also assumed $388,000 of the
acquired companies' collateralized debt and issued 225,000 shares of
the Company's unregistered common stock valued at $.64 per share.
Effective March 1, 2000, the Company acquired certain assets of
another unrelated building materials distributor accounted for as a
purchase. The total consideration was $386,000, which included
50,000 shares of the Company's unregistered common stock valued at
$42,000, ($.84 per share). The Company paid cash of $219,000 and
issued an uncollateralized promissory note of $125,000 payable over
two years from closing.
Effective April 1, 2000, the Company acquired certain assets
and assumed certain liabilities of another unrelated building
materials distributor accounting for it under the purchase method of
20
Item 7. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations (continued)
-------------------------
Liquidity and Capital Resources (continued)
-------------------------------
accounting. Total consideration for the purchase price was $564,000
consisting of $286,000 in cash, an uncollateralized promissory note
of $125,000, with $62,500 due and payable April 10, 2001 and 2002,
and assumed approximately $153,000 of the acquired company's
collateralized debt.
Effective May 1, 2000, the Company acquired certain assets and
assumed certain liabilities of two additional building materials
distributors held under common ownership in a single transaction
accounted for as a purchase transaction. The total consideration for
the purchase was $2,331,000, which included 400,000 shares of the
Company's unregistered common stock valued at $244,000 ($.61 per
share). The Company paid cash of $614,000 at closing and $441,000 30
days after closing, transferred $122,000 of assets, issued an
uncollateralized promissory note of $600,000 payable over three
years from date of closing, and assumed approximately $310,000 of
the acquired companies' collateralized debt.
The consummation of these acquisitions and working capital
required to fund operations at the acquired locations are the
primary contributions to the $3,577,000 increase in the amount
outstanding under the Company's line of credit.
The Company presently is focusing its efforts on the completion
of integration and consolidation of the acquired distributors'
operations into the Company. The Company expects to incur various
capital expenditures during the next twelve months to upgrade and
maintain its equipment and delivery fleet to support operations. In
addition, the Company is evaluating the implementation of a new
centralized management information system. Capital needs associated
with these capital projects cannot be estimated at this time, but
management does not expect the cash investment portion of the
expenditures for these projects to be material.
The Company believes its cash on hand and the maintenance of
its borrowing arrangement with its commercial lender will provide
sufficient cash to supplement cash shortfalls, if any, from
operations and provide adequate liquidity for the next twelve months
to satisfy the obligations arising from the merger and support the
cash requirements of its capital expenditure programs.
21
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.
22
Report of Independent Certified Public Accountants
To the Board of Directors and Shareholders of
Imperial Industries, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 54 present fairly, in all material
respects, the financial position of Imperial Industries, Inc. and its
subsidiaries at December 31, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2000 in conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the financial statement
schedules listed in the accompanying index under Item 14(a)(2) on page 56
present fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedules are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, 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 our
opinion.
PRICEWATERHOUSECOOPERS LLP
Miami, Florida
April 2, 2001
23
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, December 31,
Assets 2000 1999
------ ------------ ------------
Current assets:
Cash and cash equivalents $ 1,853,000 $ 1,119,000
Trade accounts receivable (less
allowance for doubtful accounts of
$400,000 and $254,000 at December 31,
2000 and 1999, respectively) 4,866,000 2,677,000
Inventories 4,387,000 2,023,000
Deferred taxes 377,000 634,000
Other current assets 78,000 43,000
------------ ------------
Total current assets 11,561,000 6,496,000
------------ ------------
Property, plant and equipment, at cost 4,418,000 2,653,000
Less accumulated depreciation (1,444,000) (1,164,000)
------------ ------------
Net property, plant and equipment 2,974,000 1,489,000
------------ ------------
Deferred taxes 589,000 699,000
------------ ------------
Excess cost of investment over net
assets acquired 1,551,000 --
------------ ------------
Other assets 117,000 84,000
------------ ------------
$ 16,792,000 $ 8,768,000
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Notes payable $ 5,203,000 $ 1,526,000
Current portion of long-term debt 1,636,000 164,000
Accounts payable 2,264,000 902,000
Payable to stockholders 48,000 48,000
Accrued expenses and other liabilities 803,000 409,000
------------ ------------
Total current liabilities 9,954,000 3,049,000
------------ ------------
Long-term debt, less current maturities 1,402,000 1,328,000
------------ ------------
Obligation for appraisal rights 877,000 877,000
------------ ------------
Commitments and contingencies -- --
------------ ------------
Stockholders' equity:
Common stock, $.01 par value at December 31,
2000 and 1999; 20,000,000 shares authorized;
9,205,434 and 8,230,434 issued at
December 31, 2000 and 1999, respectively 92,000 82,000
Additional paid-in-capital 13,915,000 13,414,000
Accumulated deficit (9,448,000) (9,982,000)
------------ ------------
Total stockholders' equity 4,559,000 3,514,000
------------ ------------
$ 16,792,000 $ 8,768,000
============ ============
See accompanying notes to consolidated financial statements.
24
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Year Ended December31,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
Net sales $ 40,730,000 $ 22,604,000 $ 18,739,000
Cost of sales 28,218,000 15,198,000 12,823,000
------------ ------------ ------------
Gross profit 12,512,000 7,406,000 5,916,000
Selling, general and
administrative expenses 10,985,000 5,932,000 4,645,000
------------ ------------ ------------
Operating income 1,527,000 1,474,000 1,271,000
------------ ------------ ------------
Other income (expense):
Interest expense (806,000) (475,000) (272,000)
Merger costs -- -- (456,000)
Miscellaneous income 199,000 34,000 1,218,000
------------ ------------ ------------
(607,000) (441,000) 490,000
------------ ------------ ------------
Income before income taxes 920,000 1,033,000 1,761,000
------------ ------------ ------------
Income tax benefit (expense):
Current (19,000) (26,000) (24,000)
Deferred (367,000) 213,000 320,000
------------ ------------ ------------
(386,000) 187,000 296,000
Net income 534,000 1,220,000 2,057,000
Less: Net charge for elimination
of preferred stock -- -- (975,000)
Less: Dividends on redeemable
preferred stock -- -- (248,000)
------------ ------------ ------------
Net income applicable to
common stockholders $ 534,000 $ 1,220,000 $ 834,000
============ ============ ============
Basic earnings per
common share $ .06 $ .15 $ .13
============ ============ ============
Diluted earnings per
common share $ .06 $ .15 $ .12
============ ============ ============
See accompanying notes to consolidated financial statements.
25
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Common Stock and Other Stockholders' Equity
Years ended December 31, 2000, 1999 and 1998
Additional
Common Stock paid-in Accumulated Treasury
Shares Amount capital deficit stock Total
--------- ------------ ------------ ------------ --------- ------------
Balance at December 31, 1997 6,484,061 $ 663,000 $ 7,260,000 $(12,036.000) $(328,000) $ (4,441,000)
Issuance of common stock 124,000 2,000 (187,000) 222,000 37,000
Accrued dividends in arrears
on preferred stock (248,000) (248,000)
Recapitalization of par value of
common stock from $.10 to
$.01 per share (599,000) 599,000
Issuance of common stock in
preferred stock conversion 1,574,510 16,000 5,835,000 (975,000)
4,876,000
Net income 2,057,000 2,057,000
--------- ------------ ------------ ------------ --------- ------------
Balance at December 31, 1998 8,182,571 82,000 13,507,000 (11,202,000) (106,000)
2,281,000
Issuance of common stock 47,863 (93,000) 106,000 13,000
Net income 1,220,000 1,220,000
--------- ------------ ------------ ------------ --------- ------------
Balance at December 31, 1999 8,230,434 82,000 13,414,000 (9,982,000) -- 3,514,000
Issuance of common stock 975,000 10,000 501,000 511,000
Net income 534,000 534,000
--------- ------------ ------------ ------------ --------- ------------
Balance at December 31, 2000 9,205,434 $ 92,000 $ 13,915,000 $ (9,448,000) $ -- $ 4,559,000
========= ============ ============ ============ ========= ============
See accompanying notes to consolidated financial statements.
26
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended December 31,
-------------------------------------------------------
2000 1999 1998
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 534,000 $ 1,220,000 $ 2,057,000
----------- ----------- -----------
Adjustments to reconcile net income
to net cash provided by:
Depreciation 445,000 225,000 178,000
Amortization 38,000 21,000 31,000
Debt issue discount 59,000 59,000 --
Provision for doubtful accounts 283,000 177,000 154,000
Provision for income taxes 367,000 -- --
Deferred taxes, net -- (213,000) (320,000)
(Gain) loss on disposal of fixed assets (1,000) 5,000 (1,078,000)
Compensation expense - issuance of stock 60,000 13,000 68,000
(Increase) decrease in:
Accounts receivable (2,921,000) (319,000)
Inventory (526,000) (649,000) (170,000)
Prepaid expenses and other assets (75,000) (47,000) 1,000
Increase (decrease) in:
Accounts payable 1,362,000 (398,000) 720,000
Payable to stockholders -- (685,000) --
Accrued expenses and other liabilities 394,000 257,000 (66,000)
----------- ----------- -----------
Total adjustments to net income (515,000) (1,554,000) (1,637,000)
----------- ----------- -----------
Net cash (used in) provided by
operating activities 19,000 (334,000) 420,000
----------- ----------- -----------
Cash flows from investing activities
Purchase of property, plant
and equipment (525,000) (415,000) (839,000)
Acquisition of businesses (2,033,000) -- --
Payment on notes payable A&R acquisitions (195,000) -- --
Proceeds received from sale of property
and equipment 40,000 31,000 1,278,000
Proceeds from exercise of warrants and
stock options 20,000 -- 2,000
----------- ----------- -----------
Net cash (used in) provided by investing
activities (2,693,000) (384,000) 441,000
----------- ----------- -----------
Cash flows from financing activities
Increase (decrease) in notes payable
banks - net 3,577,000 746,000 2,000
Proceeds from issuance of long-term debt 273,000 459,000 324,000
Repayment of long-term debt (442,000) (465,000) (642,000)
----------- ----------- -----------
Net cash provided by (used in)
financing activities 3,408,000 740,000 (316,000)
----------- ----------- -----------
27
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended December 31,
----------------------------------------------------
2000 1999 1998
---------- ---------- ----------
Net increase in cash and cash
equivalents 734,000 22,000 545,000
Cash and cash equivalents,
beginning of year 1,119,000 1,097,000 552,000
---------- ---------- ----------
Cash and cash equivalents, end of year $1,853,000 $1,119,000 $1,097,000
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 622,000 $ 283,000 $ 276,000
========== ========== ==========
Non-cash transactions:
Issuance of an aggregate of 775,000 shares
of common stock related to acquisitions
and to an officer of the Company $ 490,000 $ -- $ --
========== ========== ==========
Issuance of notes related to the
acquisitions $ 950,000 $ -- $ --
========== ========== ==========
See accompanying notes to consolidated financial statements.
28
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998
(1) Merger
------
On December 17, 1998, the Company's stockholders approved a Plan
merging Imperial Industries, Inc. into Imperial Merger Corp., a newly-
formed, wholly-owned subsidiary of the Company, (the "Merger"), with
the Merger becoming effective December 31, 1998,, (the "Effective
Date"). On the Effective Date, Imperial Merger Corp. changed its name
to Imperial Industries, Inc., (the "Company").
At the Effective Date, each share of the Company's $.10 par value
common stock outstanding before the Merger was converted into one
share of $.01 par value common stock resulting in the recapitalization
of $599,000 from common stock to additional paid-in-capital. Also at
the Effective Date, 300,121 outstanding shares of preferred stock,
with a carrying value of $3,001,000 were retired and $4,292,000 of
accrued dividends on such shares, were eliminated as described in the
following paragraphs.
Holders of 219,021 shares of the preferred stock (the "Exchanging
Shareholders"), with a carrying value of $2,190,000, elected to
convert their shares into either (a) $4.75 in cash and ten shares of
the Company's common stock, or (b) $2.25 in cash, an 8% three-year
$8.00 subordinated debenture ("Debenture") and five shares of the
Company's common stock. In connection with the Exchanging
Shareholders' election, the Company was required to pay cash of
$733,000 which was presented as payable to stockholders in the
consolidated balance sheet at December 31, 1998. At December 31, 2000
and 1999 cash payable to stockholders was reduced to $48,000 from
$733,000 at December 31, 1998, as a result of satisfying the cash
requirements due to Exchanging Shareholders who had submitted their
preferred stock to the Company for the merger consideration. The
Company was also required to issue $985,000 face value of Debentures
with a fair value of $808,000, and 1,574,610 shares of $.01 par common
stock with a fair value of $630,000 based on the market price of $.40
per share of the Company's common stock at the Effective Date. The
total fair value of the cash, debentures and common stock to be
exchanged with the Exchanging Shareholders was $2,171,000. Had the
Exchanging Shareholders elected to convert their shares under the
provisions of the preferred stock's governing instrument, they would
have received 251,655 shares of common stock with a fair value of
$101,000. The excess of the total fair value of cash, Debentures and
common stock to be exchanged with the Exchanging Shareholders, over
the fair value which the Exchanging Shareholders would have received
under the preferred stock's original conversion provisions represented
a conversion charge of $2,070,000 to accumulated deficit and a
reduction in net income applicable to common stockholders in the
accompanying consolidated statement of operations
29
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(1) Merger (continued)
------
for the year ended December 31, 1998. In addition, conversion of the
219,021 preferred shares resulted in a credit to additional paid-in
capital of $5,835,000, for the year ended December 31, 1998.
Holders of 81,100 shares of preferred stock (the "Dissenting
Shareholders"), with a carrying value of $811,000, elected to exercise
their appraisal rights with respect to the stock. Pursuant to Delaware
law, the Dissenting Shareholders petitioned the Delaware Chancery
Court on April 23, 1999 to determine the fair value of their shares at
the Effective Date, exclusive of any element of value attributable to
the Merger. In the event that a Dissenting Shareholder does not
perfect his appraisal rights, each share would be entitled to receive
$2.25 in cash, a Debenture and five shares of common stock described
under option (b) in the preceding paragraph. Based on these facts, and
a valuation prepared by an independent financial advisor in connection
with the Merger, the Company recorded $877,000 in the accompanying
consolidated balance sheets at December 31, 1999 and 2000, as an
estimate for the obligation for appraisal rights. The Chancery Court
may determine fair value is less than, equal to, or greater than an
aggregate of $877,000. The Company does not expect a final judicial
determination requiring the Company to make payment to Dissenting
Shareholders' in the year ended December 31, 2001, the obligation is
classified as long-term debt. In addition, elimination of the 81,100
preferred shares and accrued dividends of $1,161,000 on such shares
resulted in a redemption credit to accumulated deficit of $1,095,000
for the year ended December 31, 1998 representing the excess of the
carrying value of the Dissenting Shareholders' preferred stock and
accrued dividends over the obligation for appraisal rights.
In the calculation of earnings per share for the year ended
December 31, 1998, $975,000 was deducted from net income representing
the conversion charge of $2,070,000, less the redemption credit of
$1,095,000.
In connection with the Merger, all outstanding stock purchase
warrants also converted into warrants with identical terms
exerciseable for shares of the Company's common stock.
(2) Description of Business and Summary of Significant Accounting Policies
-------------------------------------------------------------------
The Company and its subsidiaries are primarily involved in the
manufacturing and sale of exterior and interior finishing wall
coatings and mortar products for the construction industry, as well as
the sale of other building materials from other manufacturers. Sales
of the
30
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
-----------------------------------------------------------------------
(continued)
Company's products are made to customers primarily in Florida and the
Southeastern United States through distributors and company-owned
distribution facilities.
(a) Basis of presentation
---------------------
The consolidated financial statements contain the accounts of the
Company and its wholly-owned subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
(b) Concentration of Credit Risk
----------------------------
Concentrations of credit risk with respect to trade accounts
receivable are limited due to the number of entities comprising the
Company's customer base. Trade accounts receivable represent amounts
due from building materials dealers, contractors and sub-contractors,
located principally in the Southeastern United States who have
purchased products on an unsecured open account basis. At December 31,
2000, accounts aggregating $273,000, or approximately 5% of total
gross trade accounts receivable were deemed to be ineligible for
borrowing purposes under the Company's borrowing agreement with its
commercial lender. See Note (5). The allowance for doubtful accounts
at December 31, 2000 of $400,000 is considered sufficient to absorb
any losses which may arise from uncollectible accounts receivable.
The Company places its cash with commercial banks. At December 31,
2000, the Company has cash balances with banks in excess of Federal
Deposit Insurance Corporation insured limits. Management believes the
credit risk related to these deposits is minimal.
(c) Inventories
-----------
Inventories are stated at the lower of cost or market (net
realizable value), on a first-in, first-out basis. Finished goods
include the cost of raw materials, freight in, direct labor and
overhead.
(d) Property,plantandequipment
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
31
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
(d) Property plant and equipment (continued)
----------------------------------------
expenditures which extend the useful life of assets are capitalized.
Differences between the proceeds received on the sale of property,
plant and equipment and the carrying value of the assets on the date
of sale is credited or charged to net income.
(e) Intangible Assets
-----------------
Licenses, trademarks and deferred financing costs are amortized on
straight-line basis over the estimated useful lives of the licenses
and trademarks, or over the term of the related financing.
(f) Income taxes
------------
The Company has adopted the liability method for determining its
income taxes. Under this method, the Company records deferred taxes
based on temporary taxable and deductible differences between the tax
bases of the Company's assets and liabilities and their financial
reporting bases. Deferred tax assets and liabilities are measured
using the enacted tax rates expected to apply to taxable income in the
years in which temporary differences are expected to be realized or
settled; valuation allowances are provided against assets that are not
likely to be realized.
(g) Earnings per share of common stock
----------------------------------
Basic earnings per common share is computed by dividing net
income, after deducting preferred stock dividends accumulated during
the year ("net income applicable to common stockholders"), by the
weighted average number of shares of common stock outstanding each
year. Diluted earnings per common share is computed by dividing net
income applicable to common stockholders by the weighted-average
number of shares of common stock and common stock equivalents
outstanding during each year. The Company has retroactively restated
earnings per common share, to give effect to the Merger. (See Note
(11) - Earnings Per Common Share).
(h) Cash and cash equivalents
-------------------------
The Company has defined cash and cash equivalents as those highly
liquid investments with a maturity of three months or less, when
purchased. Included in cash and cash equivalents at December 31, 2000
and 1999 are short term time deposits of $285,000 and $275,000,
respectively.
32
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
(continued)
(i) Revenue recognition policy
--------------------------
Revenue from sales transactions is recorded upon delivery of
inventory to the customer, net of discounts and allowances.
(j) Stock based compensation
------------------------
The Company measures compensation expense related to the grant of
stock options and stock-based awards to employees in accordance with
the provisions of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," under which compensation
expense, if any, is generally based on the difference between the
exercise price of an option, or the amount paid for an award, and the
market price or fair value of the underlying common stock at the date
of the award.
(k) Accounting estimates
--------------------
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America, requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
(l) Fair Value of Financial Instruments
-----------------------------------
The carrying amount of the Company's financial instruments
principally notes payable, debentures and obligation for appraisal
rights, approximates fair value based on discounted cash flows as well
as other valuation techniques.
(m) Segment Reporting
-----------------
The Company has adopted SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. For the years ended
December 31, 2000 and 1999, the Company has determined that it
operates in a single operating segment.
33
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(2) Description of Business and Summary of Significant Accounting Policies
-----------------------------------------------------------------------
(continued)
(n) New Accounting Pronouncements
-----------------------------
SFAS No. 133, Accounting for Derivatives and Hedging Activities,
is effective for all fiscal quarters of fiscal years beginning after
June 15, 2000 (January 1, 2001 for the Company) and requires that
all derivative instruments be recorded on the balance sheet at their
fair value. Changes in the fair value of derivatives are recorded
each period in current earnings or other comprehensive income,
depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. The
Company does not use derivative instruments and therefore
anticipates that the adoption of SFAS No. 133 in 2001 will not have
a material effect on the consolidated financial statements.
(3) Inventories
-----------
At December 31, 2000 and 1999, inventories consist of:
2000 1999
---- ----
Raw materials $ 562,000 $ 525,000
Finished goods 3,560,000 1,276,000
Packaging materials 265,000 222,000
---------- ----------
$4,387,000 $2,023,000
========== ==========
(4) Property,PlantandEquipment
--------------------------
A summary of the cost of property, plant and equipment at December
31, 2000 and 1999 is as follows:
Estimated
useful life
2000 1999 (years)
---------- ---------- -----------
Land $ 191,000 $ 151,000 - - -
Buildings and
improvements 965,000 585,000 10 - 40
Machinery and equipment 1,658,000 1,272,000 3 - 10
Vehicles 1,253,000 446,000 2 - 8
Furniture and Fixtures 351,000 199,000 3 - 12
---------- ----------
$4,418,000 $2,653,000
========== ==========
The net book value of property, plant and equipment pledged as
collateral under notes payable and various long-term debt agreements
aggregated $1,898,000 and $621,000 at December 31, 2000 and 1999,
respectively. See "Note 7."
34
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(5) Notes Payable
-------------
At December 31, 2000 and 1999, notes payable represent amounts
outstanding under a $6,000,000 line of credit from a commercial lender to
the Company's subsidiaries and $100,000 in uncollateralized notes payable
issued in connection with the January 1, 2000 purchase of three building
materials distributors. The line of credit is collateralized by the
subsidiaries' accounts receivable and inventory, bears interest at prime
rate plus 1/2% (10% at December 31, 2000), expires June 19, 2001, and is
subject to annual renewal. The weighted average effective interest rate on
the line of credit was 11.62%, 14.09%, and 17.49% during the years ended
December 31, 2000, 1999 and 1998, respectively.
At December 31, 2000, the line of credit limit available for
borrowing based on eligible receivables and inventory aggregated
$5,516,000, of which $5,103,000 had been borrowed. The average amounts
outstanding during 2000 and 1999 were $3,511,000, and $1,312,000,
respectively. The maximum amounts outstanding at any month-end during 2000
and 1999 were $5,103,000 and $2,017,000, respectively.
(6) Accrued Expenses and Other Liabilities
--------------------------------------
Accrued expenses and other liabilities at December 31, 2000 and 1999
are summarized as follows:
2000 1999
---- ----
Employee compensation related items $156,000 $ 94,000
Taxes, other than income taxes 166,000 55,000
Interest 261,000 137,000
Other 220,000 123,000
-------- --------
$803,000 $409,000
======== ========
(7) Long-term Debt
--------------
Long-term debt of the Company is as follows:
2000 1999
---- ----
Uncollateralized notes issued for acquisitions,
interest at 8% per annum, principal and
interest payable through September 2003. $805,000 $ --
Mortgage note payable, interest at 7 1/2% per
annum, principal and interest payable monthly
through January 2002. 63,000 116,000
35
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(7) Long-termDebt (continued)
Subordinated Debentures due December 31, 2001,
stated interest at 8% payable annually
commencing July 1, 1999, principal payable
in the amount of $985,000 at maturity. 926,000 867,000
Mortgage note payable, interest at 8 3/4%,
principal and interest payable monthly in
the amount of approximately $3,760, with a
balloon payment of approximately $187,000
due October 4, 2004. 277,000 297,000
Mortgage note payable, interest at 8 3/4%,
principal and interest payable monthly in
the amount of approximately $2,415, with
a balloon payment of approximately $198,000
due June 16, 2003 222,000 --
Equipment notes payable, interest at various
rates ranging from 8.75% to 15.39%, per annum,
principal and interest payable monthly
expiring at various dates through
January 2004. 745,000 212,000
---------- ----------
3,038,000 1,492,000
Less current maturities (1,636,000) (164,000)
---------- ----------
$1,402,000 $1,328,000
========== ==========
As of December 31, 2000, long-term debt matures as follows:
Year ended
December31, Amount
----------- ------
2001 $1,636,000
2002 596,000
2003 524,000
2004 269,000
2005 13,000
----------
$3,038,000
==========
In connection with the Merger, the Company issued 8% Subordinated
Debentures with a face amount value of $985,000 effective December 31,
1998. Each Debenture was discounted to a value of $6.56 ($8.00 face value)
using an effective interest rate of 16%. The aggregate carrying value of
the Debentures at December 31, 2000 and 1999 is $926,000 and $867,000,
respectively. The Debentures are general, uncollateralized obligations of
the Company, subordinated in right of payment to all indebtedness to
institutional and other lenders of the Company. Interest is payable
annually on June 30th of each year. The Debentures are subject to
36
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(7) Long-term Debt (continued)
--------------
redemption, in whole or in part, at the option of the Company, at any time
at a redemption price of 100% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the redemption date. The
outstanding principal balance, plus accrued interest is due and payable on
December 31, 2001.
(8) Income Taxes
------------
At December 31, 2000 and 1999, deferred tax assets of $966,000 and
$1,333,000, respectively, consist of the tax effect of net operating loss
carryforwards of $966,000 and $2,966,000, respectively, less a valuation
allowance of $0 and $1,633,000, respectively. Net operating losses of
$2,761,000 expires in varying amounts through 2009.
The Company reduced the deferred tax asset and valuation allowance
for net operating loss carryforwards which expired unused in 2000. During
1999, the Company recognized a tax benefit of $574,000, based on the
future utilization of net operating loss carryforwards prior to their
expiration. The utilization of net operating loss carryforwards prior to
their expiration. The ultimate realization of the remaining deferred tax
assets is largely dependent on the Company's ability to generate
sufficient future taxable income.
The current income tax expense represents state taxes and alternative
minimum taxes payable for the years ended December 31, 2000 and 1999.
A reconciliation of the Federal statutory rate to the effective tax
is as follows:
Year Ended December 31,
2000 1999 1998
---- ---- ----
U.S. statutory rate 35% 35% 35%
Valuation allowance 0% (56%) (53%)
Reversal of 1999 items (benefit) 7%
Other 0% 3% 1%
--- --- ---
Effective rate 42% (18%) (17%)
=== === ===
37
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(9) Capital Stock
-------------
(a) Common Stock
------------
At December 31, 2000, the Company had outstanding 9,205,434 shares of
common stock (8,230,434 shares at December 31, 1999) with a $.01 par value
per share ("Common Stock"). The holders of common stock are entitled to
one vote per share on all matters, voting together with the holders of
preferred stock, if any. In the event of liquidation, holders of common
stock are entitled to share ratably in all the remaining assets of the
Company, if any, after satisfaction of the liabilities of the Company and
the preferential rights of the holders of outstanding preferred stock, if
any.
In 2000, the Company issued an aggregate of 675,000 shares of common
stock as partial consideration for the purchase of certain assets of seven
building materials distributors, 100,000 shares were issued to an officer
as compensation for services rendered, and 200,000 shares were issued in
connection with the exercise of outstanding stock purchase warrants. In
1999 and 1998, the Company issued 47,863 and 100,000, respectively,
treasury shares to directors and an officer as compensation for services
rendered. The Company recorded compensation expense for shares issued to
directors and an officer in amounts equal to the fair value of the shares
when issued.
(b) Preferred Stock
---------------
The authorized preferred stock of the Company consists of 5,000,000
shares, $.01 par value per share. The preferred stock is issuable in
series, each of which may vary, as determined by the Board of Directors,
as to the designation and number of shares in such series, the voting
power of the holders thereof, the dividend rate, redemption terms and
prices, the voluntary and involuntary liquidation preferences, and the
conversion rights and sinking fund requirements, if any, of such series.
At December 31, 2000 and 1999, there were no shares of preferred stock
outstanding.
Redeemable Preferred Stock - $1.10 Cumulative Convertible Series
----------------------------------------------------------------
Until December 31, 1998, the Company had issued and outstanding
300,121 shares of $1.10 cumulative convertible redeemable preferred stock.
The holders of preferred stock were entitled to one vote per share on all
matters without regard to class, except that the holders of preferred
stock were entitled to vote as a separate class with regard to the
issuance of any equity securities which ranks senior or on parity with the
preferred stock, or to change or repeal any of the express terms of the
preferred stock in a manner substantially prejudicial to the holders
thereof. Each share of the preferred stock was entitled to cumulative
quarterly dividends
38
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(9) Capital Stock (continued)
-------------
(b) Preferred Stock (continued)
---------------
Redeemable Preferred Stock - $1.10 Cumulative Convertible Series
----------------------------------------------------------------
(continued)
at the rate of $1.10 per annum and was convertible into 1.149 shares of
common stock. The liquidation preference of the preferred stock was $10.00
per share, plus accrued but unpaid dividends. The preferred stock was
callable, in whole or in part, by the Company at its option at any time
upon 30 days prior notice, at $11.00 per share, plus accrued and unpaid
dividends.
The Company had omitted dividends on its preferred stock since the
fourth quarter of 1985 aggregating $4,044,000 through December 31, 1997.
The omission of preferred stock dividends was a reduction of net income
applicable to Common Stockholders and was recorded as a non-current
liability in the Company's consolidated balance sheets. The preferred
stock was not included in common stock and other stockholders' deficit
because of its mandatory redemption feature.
The Company was prohibited from paying any cash dividends on common
stock and from purchasing or otherwise acquiring for value, any shares of
either preferred or common stock, at any time that the Company was in
default in the payment of any dividends on the preferred stock or if the
sinking fund requirements are in arrears.
Effective December 31, 1998, all outstanding shares of the preferred
stock were retired and all accumulated accrued dividends were eliminated
as a result of the Merger. (See Note (1) - Merger).
(c) Warrants
--------
At December 31, 2000 and 1999, the Company had warrants outstanding
to purchase 150,000 and 350,000 shares, respectively, of the Company's
common stock. The Company issued 150,000 warrants in January 1999 to its
investment banker for financial advisory services in connection with the
Merger (the "Investment Banker Warrants"), which entitle the holder to
purchase one share at $.38 per share until December 31, 2003. The Company
estimated the fair value of the Investment Banker Warrants at $22,000
based on a Black-Scholes pricing model and the following assumptions:
volatility of 45%, risk-free rate of 4.6%, expected life of four years and
a dividend rate of 0%. Warrants to purchase 200,000 shares of the
Company's common stock at $.10 per share were exercised in 2000.
39
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(9) Capital Stock (continued)
-------------
(d) Stock Option Plans
------------------
In December 1999, the Board of Directors adopted the Directors' Stock
Option Plan and the 1999 Employee Stock Option Plan (collectively, the
"1999 Plans"), which received shareholder approval on September 27, 2000.
The 1999 Plans provide for options to be granted at generally no less than
the fair market value of the Company's stock at the grant date. Options
granted under the 1999 Plans have a term of up to 10 years and are
exercisable six months from the grant date. The 1999 Plans are
administered by the Compensation and Stock Option Committee (the
"Committee"), which is comprised of three directors. The Committee
determines who is eligible to participate and the number of shares for
which options are to be granted. A total of 600,000 and 200,000 shares are
reserved for issuance under the Employee and Directors' Plans,
respectively. As of December 31, 2000, options for 555,000 shares were
available for future grants under the 1999 Plans.
At December 31, 2000, all of the 245,000 options originally granted
under the plans (the "options") were outstanding. The options have an
exercise price of $.57 (the fair market value of the Company's Common
Stock on September 27, 2000), a weighted average remaining life of 4.3
years and are fully vested.
Pursuant to SFAS No. 123, the Company has elected to use the
intrinsic value method of accounting for employee stock-based compensation
awards. Accordingly, the Company has not recognized compensation expense
for its noncompensatory employee stock option awards. The Company's pro
forma net income for fiscal 2000, had the Company elected to adopt the
fair value approach (which charges earnings for the estimated fair value
of stock options) of SFAS No. 123, would have been reduced by $33,000. The
Company's earnings per share would have remained at $.06 per share.
The weighted average fair value of the Company's options granted
during fiscal 2000 was $.44 per share at the date of grant. The fair value
of the options was estimated using the Black-Scholes option pricing model
with the following weighted average assumptions for fiscal 2000; no
expected dividend yield; expected volatility of 111.5%; risk free interest
rate of 6%; and an expected option life of four years.
40
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(10) Miscellaneous income
--------------------
A summary of miscellaneous income (expense) for the years ended
December 31, 2000, 1999 and 1998 is as follows:
2000 1999 1998
---- ---- ----
Interest income $ 15,000 $ 12,000 $13,000
Gain (loss) on disposal of property,
plant and equipment 1,000 (5,000) 1,078,000
Other, net 183,000 27,000 127,000
-------- ------- ----------
$199,000 $34,000 $1,218,000
-------- ------- ----------
On October 2, 1998, the Company sold its Miami, Florida manufacturing
facility for $1,406,000 and received net cash proceeds of $801,000 after
satisfaction of the mortgage and payment of commissions and closing costs.
A gain of $1,066,000 was recognized on this transaction.
(11) Earnings Per Common Share
-------------------------
Below is a reconciliation between basic and diluted earnings per
common share under FAS 128 for the years ended December 31, 2000, 1999 and
1998 (in thousands except per share amounts):
2000 1999 1998
------------------------ ---------------------- -----------------------
Per Per Per
Income Shares Share Income Shares Share Income Shares Share
Net income $534 $1,220 $2,057
Less net charge
for elimination of
preferred stock (975)
Less dividends on
redeemable
preferred stock (248)
Basic earnings
per common share $534 8,936 $.06 $1,220 8,199 $.15 $834 6,566 $.13
---- ----- ---- ------ ----- ---- ---- ----- ----
Effect of dilutive
securities:
Warrants 134 191 149
---- ----- ---- ------ ----- ---- ---- ----- ----
Diluted earnings
per common share $534 9,070 $.06 $1,220 8,390 $15 $834 6,715 $.12
==== ===== ==== ====== ===== === ==== ===== ====
41
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(12) Related Party Transactions
--------------------------
The Company and its subsidiaries paid legal fees of approximately
$238,000, $114,000 and $86,000 in 2000, 1999 and 1998, respectively, to
law firms with which the Company's Chairman of the Board was affiliated.
(13) Commitments and Contingencies
-----------------------------
(a) Contingencies
-------------
As of March 23, 2001, the Company's subsidiary, Acrocrete, Inc., and
other parties are defendants in 30 lawsuits pending in various
Southeastern states, by homeowners, contractors and subcontractors, or
their insurance companies, claiming moisture intrusion damages on single
family residences. The Company's insurance carriers have accepted coverage
under a reservation of rights for 28 of these claims and are providing a
defense. The Company expects its insurance carriers to accept coverage for
the other two recently filed lawsuits. Acrocrete is vigorously defending
all of these cases and believes it has meritorious defenses,
counter-claims and claims against third parties. Acrocrete is unable to
determine the exact extent of its exposure or outcome of this litigation.
The allegations of defects in synthetic stucco wall systems are not
restricted to the Company's products but rather are an industry-wide
issue. There has never been any defect proven against Acrocrete. The
alleged failure of these products to perform has generally been linked to
improper application and the failure of adjacent building materials such
as windows, roof flashing, decking and the lack of caulking.
On June 15, 1999, the Company was served with a complaint captioned
Mirage Condominium Association, Inc. v. Premix Marbletite Manufacturing
Co., et al., in Miami-Dade County Florida. The lawsuit raises a number of
allegations against twelve separate defendants involving alleged
construction defects. Plaintiff has alleged only one count against Premix,
which claims that certain materials, purportedly provided by Premix to the
Developer/ Contractor and used to anchor balcony railings to the structure
were defective. The Company's insurance carrier has not made a decision
regarding coverage to date. However, in the interim, the insurance carrier
has retained counsel on behalf of Premix and is paying defense costs. The
Company expects the insurance carrier to eventually accept coverage. The
Company is unable to determine the exact extent of its exposure or the
outcome of this litigation.
On April 23, 1999, certain Dissenting Shareholders owning shares of
the Company's formerly issued preferred stock filed a petition for
appraisal in the Delaware Chancery Court to determine the fair value of
their shares at the effective date of Merger, exclusive of any element of
value attributable to the merger. (See Note (1) - Merger).
42
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(13) Commitments and Contingencies
-----------------------------
(a) Contingencies (continued)
-------------
The Company is engaged in other legal actions and claims arising in
the ordinary course of its business, none of which are believed to be
material to the Company.
(b) Lease Commitments
-----------------
At December 31, 2000 certain property, plant and equipment were
leased by the Company under long-term leases. Certain of these leases
provided for escalation in rent upon the lease anniversary date. Future
minimum lease commitments as of December 31, 2000, for all noncancellable
leases are as follows:
December31,
-----------
2001 $1,085,000
2002 885,000
2003 728,000
2004 695,000
2005 and after 398,000
Rental expenses incurred for operating leases were approximately
$957,000, $331,000 and $153,000, for the years ended December 31, 2000,
1999 and 1998, respectively.
(14) Recent Acquisitions
-------------------
During 2000, the Company consummated four transactions for the
purchase of seven building material distributors as described below.
These acquisitions have been accounted for under the purchase method of
accounting and the results of the acquired distributors have been
consolidated since the respective acquisition dates.
Effective January 1, 2000, the Company acquired certain assets and
assumed certain liabilities of three building materials distributors
located in Pensacola and Destin, Florida and Foley, Alabama.
The three distributors ("A&R"), which had been under common
ownership, were acquired for $1,580,000 in a single transaction that was
accounted for under the purchase method of accounting.
43
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(14) Recent Acquisitions (continued)
-------------------
The components of the purchase price were as follows (in thousands):
Cash $ 471
Transfer of other assets 327
Common stock issued
(225,000 shares @ $.64/share) 144
Three month uncollateralized note issued 150
One year uncollateralized note issued 100
Collateralized debt assumed 388
------
$1,580
======
The purchase price was allocated to the acquired assets and
liabilities based on their fair values on the acquisition date with the
excess of $401,000 being recorded as excess cost of investment over net
assets acquired, which is being amortized using the straight line method
over 40 years.
Effective March 1, 2000, the Company acquired certain assets of a
building materials distributor ("Panhandle") located in Panama City Beach,
Florida, for $386,000.
The components of the purchase price were as follows (in thousands):
Cash $ 219
Two year uncollateralized note issued 125
Common stock issued
(50,000 shares @ $.84/share) 42
------
$ 386
======
The purchase price was allocated to the acquired assets and
liabilities based on their fair values on the acquisition date with the
excess of $167,000 being recorded as excess cost of investment over net
assets acquired, which is being amortized using the straight line method
over 40 years.
Effective April 1, 2000 the Company acquired certain assets and
liabilities of a building materials distributor ("Tallahassee") located in
Tallahassee, Florida for $564,000.
44
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(14) Recent Acquisitions (continued)
------------------
The components of the purchase price were as follows: (in thousands):
Cash $286
Two year uncollateralized note issued 125
Collateralized debt assumed 153
----
$564
====
The purchase price was allocated to the acquired assets and
liabilities based on of their fair values on the acquisition date with the
excess of $125,000 being recorded as excess cost of investment over net
assets acquired, which is being amortized using the straight line method
over 40 years.
Effective May 1, 2000, the Company acquired certain assets and
liabilities of two related distributors ("A&R of Mississippi"), with
locations in Gulfport, Hattiesburg and Pascagoula, Mississippi.
The components of the purchase price were as follows (in thousands):
Cash ($614,000 at closing, $441,000
paid 30 days after closing) $1,055
Transfer of other assets 122
Three year uncollateralized note issued 600
Collateralized debt assumed 310
Common stock issued (400,000 shares @ $.61/share) 244
------
$2,331
======
The purchase price was allocated to the acquired assets and
liabilities based on their fair values on the acquisition date with the
excess of $886,000 being recorded as excess cost of investment over net
assets acquired, which is being amortized using the straight line method
over 40 years.
Following are the unaudited pro-forma results of operations as if
the A&R, Panhandle, Tallahassee and A&R of Mississippi purchases had
occurred on January 1, 1999 (in thousands, except per share and share
amounts):
Year Ended Year Ended
December 31,2000 December 31,1999
---------------- ----------------
Net sales $44,869 $38,361
Net income $ 483 $ 1,348
Earnings per common share:
Basic $ .05 $ .15
Diluted $ .05 $ .15
45
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(14) Recent Acquisitions (continued)
-------------------
This unaudited pro-forma financial information is not necessarily
indicative of the operating results that would have occurred had the
transactions been consummated as of January 1, 1999, nor is it necessarily
indicative of future operating results.
The preliminary impact of the Company's assets and liabilities
related to the acquisitions as of December 31, 2000, were as follows (in
thousands):
Fair value of assets and liabilities acquired:
Inventories $1,838
Property plant and equipment 1,445
Other assets (Excess cost of investment
over net assets acquired) 1,580
Liabilities (Assumed) (851)
------
4,012
Less:
Debt issued (1,100)
Common stock issued (430)
Adjustment for accounts receivable due Company (449)
------
Net cash paid as reflected in the
Statement of Cash Flows $2,033
======
46
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 52 Chairman of the Board - Class III
Lisa M. Brock 42 Director - Class III
Milton J. Wallace 65 Director - Class II
Morton L. Weinberger 71 Director - Class II
Howard L. Ehler, Jr. 57 Director - Class I/Principal Executive
Officer/Executive Vice President/
and Secretary
Betty J. Murchison 61 Principal Accounting Officer/
Assistant Vice President
Gary J. Hasbach 56 President, Premix, Acrocrete and
Just-Rite
The Company's Board of Directors is divided into three classes.
In accordance with the Company's Certificate of Incorporation, the
members of each Class are designated to serve for three (3) year
staggered terms. The Class I director's term expires at the 2002
annual meeting, or until his successor is elected. Class II
directors terms expire at the 2003 annual meeting or until their
successors are elected, and Class III directors terms expire at the
2001 annual meeting or until their successors are elected.
Subject to certain contractual rights, each officer serves at
the discretion of the board of directors.
S. Daniel Ponce. Mr. Ponce has been Chairman of the Board of the
Company since 1988. Mr. Ponce has been engaged in the practice of
law for over twenty five years and is currently a stockholder in
the law firm of Wallace, Bauman, Legon, Fodiman, Ponce & Shannon,
P.A. Ponce is a member of the Board of Directors of the
University of Florida Foundation, Inc. and serves as Chairman of
its audit committee. He is also a non-practicing certified public
accountant.
47
Item 10. Directors and Executive Officers of the Registrant (continued)
--------------------------------------------------------------
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.
Milton J. Wallace. Mr. Wallace has been a director of the Company
since February 1999. Mr. Wallace has been a practicing attorney
in Miami for over 40 years and is currently a shareholder in the
law firm of Wallace, Bauman, Legon, Fodiman, Ponce & Shannon,
P.A. He was a co-founder and Chairman of the Board of Renex Corp,
a provider of dialysis services, from 1993 through February 2000
when Renex Corp. was acquired by National Nephrology Associates,
Inc. Mr. Wallace is Chairman of the Board of Med/Waste, Inc., a
provider of medical waste management services. He is a director
of several private companies.
Morton L. Weinberger, CPA. Mr. Weinberger has been a director of
the Company since 1988. Mr. Weinberger, a certified public
accountant, has been self-employed as a consultant to various
professional organizations for the past twelve years. He provides
consulting services for the Company. For the previous twenty-five
years, he was engaged in the practice of public accounting.
During such period, he was a partner with Peat Marwick Mitchell &
Co., now known as KPMG Peat Marwick, and thereafter BDO Seidman,
both public accounting firms.
Howard L. Ehler, Jr. Mr. Ehler has been Principal Executive
Officer of the Company since March 1990 and Executive Vice
President, Chief Financial Officer and Secretary of the Company
since April 1988. Prior thereto he was Vice President, Chief
Financial Officer and Assistant Secretary of the Company for over
five years.
Gary J. Hasbach. Mr. Hasbach became President of Premix and
Acrocrete in March 2001, and President of Just-Rite, in February
2000. Prior thereto, he had been Executive Vice President of
Sales and Marketing for Premix and Acrocrete since January 1,
1999. Mr. Hasbach was formerly President of Premix and Acrocrete
from September 1990 to May 1996. From May 1996 to December 1997,
Mr. Hasbach served as Executive Vice President of Marketing for
Florida Tile Industries, Inc, a distributor of tile and flooring
products. In addition, Mr. Hasbach was a director of the Company
from 1993 to February 1997.
48
Item 10. Directors and Executive Officers of the Registrant (continued)
--------------------------------------------------------------
Betty J. Murchison. Ms. Murchison has been the Company's 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 four (4) times in fiscal 2000. Each
director attended all of the Board of Directors meetings in 2000.
Compensation and Stock Option Committee
---------------------------------------
The Compensation and Stock Option Committee, composed of Ms.
Brock, as Chairman and Messrs. Ponce and Weinberger met three (3)
times during 2000. Every member attended all of such meetings. The
Compensation Committee reviews the Company's general compensation
policies and procedures; establishes salaries and benefit programs
for the Chief Executive Officer and other executive officers of the
Company and its subsidiaries; reviews, approves and establishes
performance targets and awards under incentive compensation plans
for its executive officers; and reviews and approves employment
agreements. The Compensation and Stock Option Committee also
administers the Company's Employee Stock Option Plan and has the
authority to determine, among other things, to whom to grant
options, the amount of options, the terms of options and the
exercise prices thereof.
Audit Committee
---------------
The Audit Committee is presently composed of Mr. Weinberger, as
Chairman, and Messrs. Ponce and Wallace. The Audit Committee met two
(2) times during 2000. Every member attended all of such meetings.
The principal duties of the Audit Committee are to recommend the
appointment of independent auditors, meet with the Company's
independent auditors to review the arrangements for, and scope of
the audit by the independent auditors and the fees related to such
work; review the independence of the independent auditors; consider
the adequacy of the system of internal accounting controls; review
and monitor the Company's policies regarding conflicts of interest;
and discuss with management and the independent accountants the
Company's annual and quarterly financial statements.
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 2000 no officer or director failed to
file any such report on a timely basis.
49
Item 11. Executive Compensation
----------------------
Summary Compensation Table
--------------------------
The following table summarizes the compensation paid or accrued
for each of the three fiscal years in the period ended December 31,
2000 for the Company's chief executive officer and each other
executive officer whose total annual salary and bonus exceeded
$100,000 for any fiscal year, (the "Named Executive Officers").
AnnualCompensation
------------------
Long-TermCompensation
---------------------
Securities
Other Underlying
Annual Options to
Name and Compen- Purchase
Principal Position Year Salary Bonus(1) sation(2) Shares(3)
------------------ ---- ------ -------- --------- ---------
Howard L. Ehler Jr. 2000 $140,000 $30,000 $60,000 10,000
Principal Executive 1999 $130,000 30,000 2,000 20,000
Officer, Executive 1998 $120,000 35,000 - -
Vice President and
Secretary
Fred H. Hansen(4) 2000 $160,000 $30,000 $ - 10,000
President, Premix 1999 138,000 40,000 - 20,000
and Acrocrete 1998 150,000 75,000 - -
Gary Hasbach
President, Just- 2000 $130,000 $30,000 $ - 10,000
Rite 1999 110,000 47,000 - 10,000
(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.
Ehler's other Annual Compensation in 2000 and 1999 represents the
market price at date of grant of 100,000 and 7,863 shares of common
stock. Although 100,000 such shares were issued in calendar year
2000, the Compensation Committee awarded such shares as services and
performance tendered over the previous several years.
(3) Stock options are granted under the terms and provisions of the
1999 Employee Stock Option Plan. For a description of the stock
options see "Executive Compensation-Options Granted in Year Ended
December 31, 2000".
(4) Mr. Hansen retired effective December 31, 2000 and is now a
consultant to the Company.
50
Item 11. Executive Compensation (continued)
----------------------
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 $140,000. 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 the use of a
Company car, 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 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.
Options Granted in Year Ended December 31, 2000
-----------------------------------------------
The following table sets forth certain summary information
concerning the number of stock options granted and the potential
realizable value of the stock options granted to the Company's Named
Executive Officers during the fiscal year ended December 31, 2000.
51
Item 11. Executive Compensation (continued)
----------------------
Options Granted in Year Ended December 31, 2000 (continued)
Number of Realizable Value
Securities % of Total at Assumed Rates
Underlying Options of Stock Price
Options Granted to Exercise Appreciation
Granted in Employees in Price Expiration forOptionTerm(3)
Name 2000 (1) FiscalYear ($/Share)(2) Date 5%($) 10%($)
---- -------- ---------- ------------ ---- ----- ------
Howard L. Ehler, Jr. 10,000 33.3% $.57 04/24/05 $1,575 $3,480
Principal Executive Officer,
Executive Vice President and
Secretary
Fred H. Hansen 10,000 33.3% $.57 04/24/05 $1,575 $3,480
President Premix and Acrocrete
Gary J. Hasbach 10,000 33.3% $.57 04/24/05 $1,575 $3,480
President Just-Rite
(1) Options were granted pursuant to the terms and conditions of the
Company's 1999 Employee Stock Option Plan adopted December 15, 1999
for which stockholder approval was obtained on September 27, 2000.
(2) The exercise price of $.57 per share was equal to the fair
market value of the Company's common stock at September 27, 2000,
the date the 1999 Employee Stock Option Plan was approved by the
Company's stockholders.
(3) The amounts disclosed in the columns which noted appreciation of
the Company's common stock price at the 5% and 10% rates dictated by
the Securities and Exchange Commission, are not intended to be a
forecast of the Company's common stock price and are not necessarily
indicative of the actual value which my be realized by the named
Executive Officers or the stockholders. These assumed rates of 5%
and 10% would result in the Company's common stock price increasing
from $.57 per share to approximately $.73 per share and $.92 per
share, respectively. As of December 31, 2000, the market price for
the common stock was $.38 per share.
Aggregated Option Exercises in Year Ended December 31, 2000
-----------------------------------------------------------
The following table provides certain summary information
concerning the value of unexercised stock options held by the
Company's Named Executive Officers as of December 31, 2000.
52
Item 11. Executive Compensation (continued)
----------------------
Aggregated Option Exercises in Year Ended December 31, 2000
-----------------------------------------------------------
(continued)
Value of Unexercised
Number of Securities "In the Money"
Underlying Unexercised Options at Fiscal
Options at Fiscal Year End Year End($)(1)
-------------------------- ------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- -------------------------
Howard L Ehler, Jr. 30,000 - - -
Principal Executive
Officer, Executive
Vice President and
Secretary
Fred H. Hansen 30,000 - - -
President, Premix
and Acrocrete
Gary J. Hasbach 20,000 - - -
President Just-Rite
No options were exercised by the Named Executive Officers
during the year ended December 31, 2000.
(1) The options are exercisable at $.57 per share. At December 31,
2000 the fair market value of the Company's common stock was deemed
to be $.38 per share, the average of the closing bid and asked price
of the common stock at such date.
The Company has two stock option plans, the Director's Stock
Option Plan and the 1999 Employee Stock Option Plan (collectively,
the "1999 Plans"). The 1999 Plans provide for options to be granted
at generally no less than the fair market value of the Company's
stock at the grant date. The 1999 Plans are administered by the
Company's Compensation and Stock Option Committee. Options granted
under the 1999 Plans have a term of up to 10 years and are
exercisable six months from the grant date. A total of 600,000 and
200,000 shares are reserved for issuance under the Employee and
Director Plans. As of December 31, 2000 there were outstanding
options to purchase 165,000 and 80,000 shares under the Employee and
Director Plans, respectively. The exercise price for all options
currently outstanding is $.57 per share. All options expire five
years from date of grant and are fully vested.
Director Compensation
---------------------
During the year ended December 31, 2000, each director received
an annual retainer of $6,000, payable in quarterly installments.
Effective June 1, 1994 and January 1, 1995, the Company entered into
separate consulting agreements with Mr. Weinberger and Ms. Brock,
53
Item 11. Executive Compensation (continued)
----------------------
Director Compensation (continued)
---------------------
respectively, to provide various management consulting services to
the Company. Each Agreement initially provided for monthly fees of
$833 and may be terminated upon 60 days notice by either party.
During the year ended December 31, 1999 and thereafter, the Company
initiated an acquisition program. In connection with such
acquisition program, Mr. Weinberger was requested to expend
additional time in consulting with the Company's management on
acquisition possibilities, including performing due diligence,
administrative, accounting and other services. As a result of the
increased time and effort spent by Mr. Weinberger, Mr Weinberger's
consulting fee has been increased to $3,500 per month.
On December 15, 1999, each director was granted stock options
to purchase 20,000 shares of the Company's common stock at an
exercise price of $.57 per shares until December 14, 2004. Since
September 1994, Mr. Ponce has been provided the use of a Company car
at a current cost of approximately $786 per month.
Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------
During the year ended December 31, 2000, the Compensation and
Stock Option Committee consisted of Messrs. Ponce, Weinberger and
Ms. Brock. None of these directors has been an officer or employee
of the Company or its subsidiaries during the last ten years, except
Ms. Brock, who was formerly Vice President of Premix and Acrocrete
until December 31, 1994. There are no other relationships required
to be disclosed pursuant to applicable Securities and Exchange
Commission rules and regulations.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth certain information as of March
27, 2001 with respect to the beneficial ownership of the Company's
common stock by (i) each director of the Company, (ii) each Named
Executive Officer, (iii) each person known to the Company to own
more than 5% of such shares, and (iv) all executive officers and
directors as a group. (Except as otherwise provided herein, the
information below is supplied by the holder):
Shares (1) Percent
Beneficially Owned of Class (2)
------------------ ------------
Maureen P. Ferri 656,981 7.1%
120 Simmons Road
Statesboro, GA. 30458
Lisa M. Brock 289,006 (3) 3.1%
Howard L. Ehler, Jr. 406,108 (4) 4.4%
Fred H. Hansen 67,500 (5) .7%
Gary J. Hasbach 270,400 (6) 2.9%
54
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
(continued)
S. Daniel Ponce 591,966 (7) 6.4%
Milton J. Wallace 128,000 (8) 1.4%
Morton L. Weinberger 229,210 (9) 2.5%
All directors and officers
as a group (8 persons) 1,998,308 (10) 21.3%
(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 1259 N.W. 21st Street, Pompano Beach, Florida
33069-1428.
(2) The percent of class for common stockholders is based upon
9,205,434 shares of common stock outstanding and such shares of
common stock such individual has the right to acquire within 60 days
upon exercise of options that are held by such person (but not those
held by any other person).
(3) Includes 20,000 shares of common stock issuable upon
exercise of stock options.
(4) Includes 30,000 shares of common stock issuable upon
exercise of stock options.
(5) Includes 30,000 shares of common stock issuable upon
exercise of stock options.
(6) Includes 20,000 shares of common stock issuable upon
exercise of stock options.
(7) Includes 20,000 shares of common stock issuable upon
exercise of stock options.
(8) Includes 20,000 shares of common stock issuable upon
exercise of stock options.
(9) Includes 20,000 shares of common stock issuable upon
exercise of stock options.
(10) Includes 170,000 shares of common stock issuable upon the
exercise of stock options.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
The law firm of Wallace, Bauman, Legon, Fodiman, Ponce and
Shannon, P.A. of which Mr. Ponce, the Company's Chairman of the
Board, and Mr. Wallace, a Director, are stockholders, served as
general counsel to the Company. The law firm received $237,726 in
2000 for legal services rendered to the Company.
55
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. FinancialStatements: Page
-------------------- ----
Imperial Industries, Inc. and Subsidiaries:
Report of Independent Certified Public Accountant 23
Consolidated Balance Sheets - December 31, 2000 and 1999 24
Consolidated Statements of Operations - Years Ended
December 31, 2000, 1999 and 1998. 25
Consolidated Statement of Changes of Common Stock and
Other Stockholders' Equity - Three Years Ended
December 31, 2000. 26
Consolidated Statements of Cash Flows -
Years ended December 31, 2000, 1999 and 1998 27
Notes to Consolidated Financial Statements 29
2. FinancialStatementSchedules:
---------------------------
II - Valuation and Qualifying Accounts and Reserves 57
3. Exhibits
--------
Incorporated by reference to the Exhibit Index at the
end of this Report. 58
(b) Reports on Form 8-K:
No Form 8-K Reports were filed during the last quarter of the
period covered by this Report.
56
Schedule II
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended December 31, 2000, 1999 and 1998
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, 2000:
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts:
Trade $ 254,000 $283,000 $ -- $ 137,000(A) $ 400,000
---------- -------- ---- ---------- ----------
Valuation allowance for deferred taxes $1,633,000 $ -- $ -- $1,633,000(B) $ --
---------- -------- ---- ---------- ----------
Year ended December 31, 1999:
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts:
Trade $ 200,000 $177,000 $ -- $123,000(A) $ 254,000
---------- -------- ---- ---------- -----------
Valuation allowance for deferred taxes $2,207,000 $ -- $ -- $574,000(C) $1,633,000
---------- -------- ---- ---------- ----------
Year ended December 31, 1998:
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts:
Trade $ 176,000 $154,000 $ -- $130,000(A) $ 200,000
---------- -------- ---- ---------- ----------
Valuation allowance for deferred taxes $3,134,000 $ -- $ -- $927,000(C) $2,207,000
---------- -------- ---- ---------- ----------
(A) Uncollectible accounts written off, net of recoveries.
(B) Expiration of related net operating loss carryforwards.
(C) Deferred tax benefit
57
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger, by and between Imperial Industries,
Inc. and Imperial Merger Corp. dated October 12, 1998
(incorporated by reference to Form S-4 Registration Statement,
Exhibit 2).
2.2 Asset Purchase Agreement entered into as of December 31, 1999
between Just-Rite Supply, Inc., Imperial Industries, Inc., A&R
Supply, Inc., A&R Supply of Foley, Inc., A&R of Destin, Inc.,
Ronald A. Johnson, Rita E. Ward and Jaime E. Granat (incorporated
by reference to Form 8-K dated January 19, 2000, File No. 1-7190,
Exhibit 2.1).
2.3 Asset Purchase Agreement dated June 5, 2000 between Just-Rite
Supply, Inc., Imperial Industries, Inc., A&R Supply of
Mississippi, Inc., A&R Supply of Hattiesburg, Inc., Ronald A.
Johnson, Dennis L. Robertson and Richard Williamson,
(incorporated by reference to Form 8-K dated June 13, 2000,
File No. 1-7190, Exhibit 2.1).
3.1 Certificate of Incorporation of the Company, (incorporated by
reference to Form S-4 Registration Statement, Exhibit 3.1).
3.2 By-Laws of the Company, (incorporated by reference to Form S-4
Registration Statement, Exhibit 3.2).
4.1 Form of Common Stock Purchase Warrant issued to Auerbach, Pollak
& Richardson, Inc., (incorporated by reference to Form S-4
Registration Statement, Exhibit 4.1).
4.2 Form of 8% Subordinated Debenture, (incorporated by reference to
Form S-4 Registration Statement, Exhibit 4.2).
10.1 Consolidating, Amended and Restated Financing Agreement by and
between Congress Financial Corporation and Premix-Marbletite
Manufacturing Co., Acrocrete, Inc. and Just-Rite Supply, Inc.
dated January 28, 2000. (incorporated by reference to Form 10-K
for the year ended December 31, 1999).
10.2 Employment Agreement dated July 26, 1993 between Howard L. Ehler,
Jr. and the Company. (incorporated by reference to Form 8-K
dated July 26, 1993)
10.3 License Agreement between Bermuda Roof Company and Premix
Marbletite Manufacturing Co., (incorporated by reference to Form
S-4 Registration Statement, Exhibit 10.5).
10.4 Employee Stock Option Plan.*
10.5 Directors Stock Option Plan.*
11 Statement recomputation of earnings per share.*
21 Subsidiaries of the Company.*
- ---------------
* Previously Filed
58
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.
April 30, 2001 By: /s/Howard L. Ehler, Jr.
----------------------------------------------
Howard L. Ehler, Jr., Executive Vice President/
Principal Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/S. Daniel Ponce Chairman of the Board of April 30, 2001
- ------------------------ Directors
S. Daniel Ponce
/s/Lisa M. Brock Director April 30, 2001
- ------------------------
Lisa M. Brock
/s/Milton J. Wallace Director April 30, 2001
- ------------------------
Milton J. Wallace
/s/Morton L. Weinberger Director April 30, 2001
- ------------------------
Morton L. Weinberger
/s/Howard L. Ehler,Jr. Director, Executive Vice April 30, 2001
- ------------------------ President, Principal
Howard L. Ehler, Jr. Executive Officer, Chief
Financial Officer and
Secretary
/s/Betty J. Murchison Assistant Vice President April 30, 2001
- ------------------------ and Principal Accounting
Betty J. Murchison Officer
59