FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended _______September 30, 1996______________________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to ______________________
Commission file number ______________1-7190___________________________________
_________________________IMPERIAL_INDUSTRIES,_INC._____________________________
(Exact name of registrant as specified in its charter)
__________Delaware________________________________59-0967727___________________
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
_________3009_Northwest_75th_Avenue,_Miami,_Florida_33122-1439_________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305)_477-7000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES __X__ NO ____
Indicate the number of shares of Imperial Industries, Inc. Common Stock
($.10 par value) outstanding as of November 1, 1996: 5,562,461
Total number of pages contained in this document: 19
Page 1 of 20
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Index
Page No.
Part I. Financial Information
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995 3-4
Consolidated Statements of Operations
Nine Months and Three Months Ended
September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995 6-7
Notes to Consolidated Financial Statements 8-15
Management's Discussion and Analysis of Financial
Condition and Results of Operations 16-18
Part II. Other Information and Signatures
Item 1. Legal Proceedings 19
Item 3. Default Upon Senior Securities 19
Item 6. Exhibits and Reports on Form 8-K 19
Page 2 of 20
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IMPERIAL INDUSTRIES, INC, AND SUBSIDIAIRES
Consolidated Balance Sheets
September 30, December 31,
1996 1995
----------- -----------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 282,000 $ 252,000
Trade accounts receivable (less
allowance for doubtful accounts of
$138,000 in 1996 and $139,000 in 1995) 1,536,000 1,371,000
Inventories 1,236,000 1,280,000
Other current assets 59,000 38,000
----------- -----------
Total current assets 3,113,000 2,941,000
----------- -----------
Property, plant and equipment, at cost 2,714,000 2,651,000
Less accumulated depreciation (2,005,000) (1,934,000)
----------- -----------
Net property, plant and equipment 709,000 717,000
----------- -----------
Other assets 113,000 89,000
----------- -----------
$3,935,000 $3,747,000
=========== ===========
See accompanying notes to consolidated financial statement.
Page 3 of 20
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IMPERIAL INDUSTRIES, INC, AND SUBSIDIAIRES
Consolidated Balance Sheets
September 30, December 31,
1996 1995
----------- -----------
(Unaudited)
Liabilities and Common Stock and other Stockholders' Deficit
Current liabilities:
Notes payable $1,219,000 $1,245,000
Current portion of long-term debt 162,000 155,000
Accounts payable 617,000 708,000
Accrued expenses and other liabilities 149,000 100,000
----------- -----------
Total current liabilities 2,147,000 2,208,000
----------- -----------
Long-term debt, less current maturities 905,000 1,000,000
----------- -----------
Preferred dividends in arrears 3,632,000 3,384,000
----------- -----------
Redeemable preferred stock, $1.00 par
value, $1.10 cumulative convertible
series; 300,121 shares outstanding; at
$10 per share redemption value 3,001,000 3,001,000
----------- -----------
Commitments and contingencies - -
----------- -----------
Common stock and other stockholders' deficit:
Common stock, $.10 par value. Authorized
20,000,000 shares; 5,710,324 issued and
outstanding in 1996 and 5,560,324 in 1995 571,000 556,000
Additional paid-in-capital 7,229,000 7,276,000
Accumulated deficit (13,222,000) (13,295,000)
----------- -----------
(5,422,000) (5,463,000)
Less cost of shares in treasury (147,863
shares in 1996 and 172,863 in 1995) (328,000) (383,000)
----------- -----------
Total common stock and other
stockholders' deficit (5,750,000) (5,846,000)
----------- -----------
$3,935,000 $3,747,000
=========== ===========
See accompanying notes to consolidated financial statement.
Page 4 of 20
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------- ---------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Net sales $10,433,000 $8,463,000 $3,481,000 $2,862,000
Cost of sales 7,468,000 5,987,000 2,489,000 2,077,000
---------- ---------- ---------- ----------
Gross profit 2,965,000 2,476,000 992,000 785,000
Selling, general and
administrative expenses 2,434,000 2,221,000 882,000 826,000
---------- ---------- ---------- ----------
Operating income (loss) 531,000 255,000 110,000 (41,000)
Other income (expense):
Interest expense (238,000) (203,000) (81,000) (73,000)
Miscellaneous income 28,000 3,000 5,000 -
---------- ---------- ---------- ----------
(210,000) (200,000) (76,000) (73,000)
---------- ---------- ---------- ----------
Net income (loss) 321,000 55,000 34,000 (114,000)
Less: Dividends on redeemable
preferred stock (Note 8b) (248,000) (248,000) (83,000) (83,000)
---------- ---------- ---------- ----------
Net income (loss) applicable to
common stockholders (Note 9) $ 73,000 $ (193,000) $ (49,000) $(197,000)
========== ========== ========== ==========
Weighted average number of shares
outstanding 5,440,000 5,381,000 5,533,000 5,387,000
========== ========== ========== ==========
Net income (loss) per share of common
stock (note 9) $.013 $(.04) $(.01) $(.04)
========== ========== ========== ==========
See accompanying notes to consolidated financial statement.
Page 5 of 20
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Increase (Decrease) In Cash and Cash Equivalents
Nine Months Ended
September 30,
---------------------------
1996 1995
---------- ----------
(Unaudited)
Cash flows from operating activities:
Net income $ 321,000 $ 55,000
---------- ----------
Adjustments to reconcile net income
to net cash provided by:
Depreciation 98,000 93,000
Amortization 13,000 9,000
Provision for doubtful accounts 63,000 80,000
Issuance of common stock 24,000 2,000
Gain on sale of assets (1,000) (3,000)
(Increase) decrease in:
Accounts receivable (228,000) (337,000)
Inventory 44,000 (277,000)
Prepaid expenses and other assets (58,000) (29,000)
Increase (decrease) in:
Accounts payable (91,000) 439,000
Accrued expenses 49,000 (23,000)
---------- ----------
Total adjustments to net income (87,000) (46,000)
---------- ----------
Net cash provided by
operating activities 234,000 9,000
---------- ----------
Cash flows from investing activities
Funds received from sale of assets 4,000 3,000
Purchase of property, plant
and equipment (95,000) (211,000)
---------- ----------
Cash used in investing activities (91,000) (208,000)
---------- ----------
Cash flows from financing activities
(Decrease) increase in notes payable
banks - net (26,000) 138,000
(Decrease) increase in long-term debt - net (87,000) 21,000
---------- ----------
Cash (used in) provided by financing
activities (113,000) 159,000
---------- ----------
Net increase (decrease) in cash and cash
equivalents 30,000 (40,000)
Cash and cash equivalents
beginning of period 252,000 238,000
---------- ----------
Cash and cash equivalents end of period $ 282,000 $ 198,000
========== ==========
Page 6 of 20
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Increase (Decrease) In Cash and Cash Equivalents
-continued-
Nine Months Ended
September 30,
---------------------------
1996 1995
---------- ----------
(Unaudited)
Supplemental disclosure
of cash flow information:
Cash paid during the nine months for:
Interest $235,000 $204,000
========== ==========
Non-cash transactions:
During the nine months ended September 30,
1996 and 1995, 25,000 and 50,000 shares of
common stock was issued from treasury stock.
Also, during the nine months ended
September 30, 1996, 150,000 shares of common
stock were issued to an officer and directors
of the Company
See accompanying notes to consolidated financial statements.
Page 7 of 20
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Interim Financial Statements
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments considered necessary for a
fair presentation have been included. Operating results for the nine
months ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1996.
The significant accounting principles used in the preparation of these
interim financial statements are the same as those used in the
preparation of the annual audited consolidated financial statements.
These statements should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995.
(2) Revenue Recognition Policy
Revenue from sale transactions is recorded upon shipment and
delivery of inventory to the customer, net of discounts and
allowances.
(3) Cash Equivalents
The Company has defined cash and cash equivalents as those highly
liquid investments with an original maturity of three months or less
when purchased. Included in cash and cash equivalents at September 30,
1996 and December 31, 1995 are time deposits of $152,000 and $50,000,
respectively.
(4) Income Taxes
The Company records income taxes using the liability method.
Under this method, deferred tax liabilities are recognized for
temporary differences that will result in taxable amounts in future
years. Deferred tax assets are recognized for temporary differences
that will result in deductible amounts in future years. These
temporary differences are primarily the result of net operating loss
carryforwards. Valuation allowances are recognized if it is more
likely than not that some or all of the deferred tax assets will not
be realized (See note 7).
Page 8 of 20
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(5) Notes Payable
Included in notes payable at September 30, 1996 is $1,219,000
which represents the amount outstanding under a $2,000,000 line of
credit from a commercial lender to Premix-Marbletite Manufacturing Co.
("Premix") and Acrocrete, Inc. ("Acrocrete"), the Company's two
principal operating subsidiaries. The line of credit is
collateralized by Premix's and Acrocrete's accounts receivable and
inventory. The line of credit bears interest at the lender's prime
rate plus 4% (12-1/4% at November 1, 1996) and expires June 20th, of
each year, but is automatically extended for an additional one year
term unless either party gives the other notice of termination by
April 21 of each year. The line of credit was automatically extended
through June 20, 1997. At September 30, 1996, the line of credit limit
available for borrowing aggregated $1,625,000, of which $1,219,000 had
been borrowed. For the nine months ended September 30, 1996 and 1995,
the maximum borrowings at any month end were $1,419,000 and
$1,182,000 respectively. The average month end amount outstanding
during the nine months ended September 30, 1996 and 1995 periods were
$1,299,000 and $1,112,000, respectively.
(6) Long-Term Debt and Current Installments of Long-Term Debt
Included in long-term debt at September 30, 1996, are two
mortgage loans, collateralized by Premix's real property, in the
amounts of $317,000 and $532,000, respectively, less current
installments of $43,000. Each loan bears adjustable interest rates.
As of November 1, 1996 interest rates on such mortgage loans were 12%
and 10 1/2%, respectively.
Long-term debt at September 30, 1996 also includes a $49,000
obligation, less current installments of $26,000, relating to a
product liability lawsuit for which the Company had no insurance. In
the fourth quarter of 1993, the Company entered into an agreement to
settle this lawsuit for $100,000, payable monthly over a four-year
period with interest at the rate of 7-1/2% per annum. In accordance
with the terms of the agreement, in the event the Company files for
bankruptcy protection during the payment period, the plaintiff will be
permitted to file a claim for $160,000, less any amounts previously
paid. Other long-term debt in the aggregate amount of $186,000, less
current installments of $89,000, relates principally to equipment
financing. The notes bear interest at various rates ranging from
8.25% to 15.39% and are payable monthly through 1998.
(7) Tax Credit Carryforwards
At September 30, 1996, the Company had approximately $12.5
million of net operating losses, for book and tax purposes, available
through the year 2009 and investment and other tax credits of
approximately $250,000 available through the year 2001. A valuation
allowance of the resulting net deferred tax asset of approximately
Page 9 of 20
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(7) Tax Credit Carryforwards (continued)
$4.7 million has been established due to the uncertainties relating to
its eventual realizability. Changes in the Company's ownership, if
any, may have the effect of limiting the annual utilization of these
carryforwards.
(8) Capital Stock
(a) Common Stock
At September 30, 1996, the Company had outstanding
5,562,461 shares (net of Treasury shares) of Common Stock $.10
par value per share ("Common Stock"). The holders of Common
Stock are entitled to one vote per share on all matters. 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
prior preferential rights of the holders of outstanding preferred
stock, if any.
On May 23, 1996, the Company issued from treasury 25,000
shares of Common Stock to an employee of the Company as part of
his employment compensation. On July 12, 1996, the Company
issued an aggregate of 150,000 shares of Common Stock to the
Directors and Executive Vice President of the Company as part of
their compensation for services rendered.
On February 7, 1995, the Company issued 50,000 shares of
authorized, but unissued Common Stock to the former President of
Premix and Acrocrete as part of his employment compensation.
(b) Preferred Stock - $1.10 Cumulative Convertible Series
The authorized preferred stock of the Company consists of
5,000,000 shares, $1.00 par value per share. The preferred stock
is issuable in series, each of which may vary, as determined by
the Board of Directors, as to the designation and number of
shares in such series, the voting power of the holders thereof,
the dividend rate, redemption terms and prices, the voluntary and
involuntary liquidation preferences, and the conversion rights
and sinking fund requirements, if any, of such series.
At September 30, 1996, the Company had issued and
outstanding 300,121 shares of $1.10 cumulative convertible
preferred stock ("Preferred Stock"). The holders of Preferred
Stock are entitled to one vote per share on all matters without
regard to class, except that the holders of Preferred Stock are
entitled to vote as a separate class with regard to the issuance
of any equity securities which ranks senior or on parity with the
Preferred Stock, or to change or repeal any of the express terms
of the Preferred Stock in a manner substantially prejudicial to
Page 10 of 20
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(8) Capital Stock (continued)
(b) Preferred Stock - $1.10 Cumulative Convertible Series (continued)
the holders thereof. Each share of Preferred Stock is entitled
to cumulative quarterly dividends at the rate of $1.10 per annum
and is currently convertible into 1.149 shares of Common Stock.
The liquidation preference of the Preferred Stock is $10.00 per
share, plus accrued but unpaid dividends. The Preferred Stock
is callable, in whole or in part, by the Company at its option at
any time upon 30 days prior notice, at $11.00 per share, plus
accrued but unpaid dividends.
The Company has omitted dividends on its Preferred Stock for
the nine months ended September 30, 1996 in the amount of
$248,000 and for each quarter since the fourth quarter of 1985
aggregating $3,632,000 through September 30, 1996. The omission
of Preferred Stock dividends is a reduction in net income
applicable to common stockholders and have been recorded as non-
current liabilities on the Company's consolidated balance sheets.
The Preferred Stock is subject to redemption through a
mandatory sinking fund at a redemption price of $10.00 per share
on April 1 of each year. Through September 30, 1996, an
aggregate of aggregate of 359,879 shares of Preferred Stock were
converted into 1,199,557 shares of Common Stock. As a result of
these conversions, the Company was required to redeem 36,121
shares in 1991 and an additional 66,000 shares for each year
thereafter until all such shares of Preferred Stock was redeemed.
The Company did not redeem any shares of Preferred Stock as
required on April 1, 1991 or any year thereafter. Under the
provisions of the sinking fund requirements, if an annual sinking
fund requirement is not met, it is added to the requirements for
the next year. The Preferred Stock has not been included in
common stockholders' deficit because of its mandatory redemption
feature.
The Company is 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, while the
Company is in default in the payment of any dividends on the
Preferred Stock and the sinking fund requirements are in arrears.
Page 11 of 20
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(8) Capital Stock (continued)
(c) Warrants
At September 30, 1996, the Company had the following
outstanding series of warrants:
(i) 1,316,999 warrants issued in the Company's public offering
in 1983. Each warrant entitles the holder to purchase one share
of Common Stock at $4.80 per share until March 31, 1997.
(ii) 200,000 warrants. Each warrant entitles the holder to
purchase one share of Common Stock at $.10 per share until June
28, 1997. Two directors acquired 150,000 and 50,000 warrants,
respectively, in connection with a $400,000 financing in 1988.
The loan has since been repaid by the Company.
(d) Stock Options
At September 30, 1996, 505,500 shares of Common Stock were
reserved for issuance pursuant to stock options granted under the
Company's stock option plans. The exercise price of all such
options is $.10 per share. No additional options may be granted
under any of the Company's stock option plans.
(9) Net Income Applicable to Common Stockholders
Net income applicable to common stockholders includes $248,000
Preferred Stock dividends accrued, but not declared, for the nine
months ended September 30, 1996 and 1995, respectively.
Net income per share of Common Stock is computed after
considering the effect of Preferred Stock dividends, on the basis of
the weighted average number of shares outstanding. Shares issuable in
exchange for convertible Preferred Stock, stock options and warrants
are antidilutive and, therefore, are not included in the computations.
(10) Commitments and Contingencies
(a) In April 1996, the Company was dismissed as a defendant, to which
it had been a party with other unaffiliated companies, in 27
asbestos lawsuits pending in various circuit courts in Alabama
and Florida. Such lawsuits sought unspecified damages alleging
injuries to persons exposed to products containing asbestos. As
of November 1, 1996, the Company is not a defendant in any
lawsuits which allege injuries due to asbestos exposure.
Page 12 of 20
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(10) Commitments and Contingencies (continued)
The Company and Premix are parties to an Interim Agreement for
Defense and Indemnity of Asbestos Bodily Injury Cases (the
"Agreement") with certain of its insurance carriers under which each
party agreed to pay a negotiated percentage share of defense costs and
indemnification expenditures, subject to policy limits, for the
pending and future asbestos claims. The Agreement has been extended
until May 15, 1997. The Agreement is subject to cancellation upon
sixty days notice by any party.
The insurance carriers have agreed to pay, in the aggregate,
approximately 93% of the damages, costs and expenditures related to
the litigation. Premix is responsible for the remaining 7%. At
September 30, 1996, the Company had accrued approximately $3,000 in
estimated litigation and settlement costs related to the previously
described asbestos claims, net of any amounts paid by the insurers.
The Company believes, based upon the Agreement with its insurance
carriers, and its experience in these claims to date, it has adequate
insurance coverage for any future similar type of claims. To date,
no case went to trial with Premix as a defendant. Premix has either
settled for a nominal amount of money or been voluntarily dismissed
without payment from approximately 193 cases. Based upon historical
results, the Company does not believe any potential future claims
would be material. However, there can be no assurance that insurance
will ultimately cover the aggregate liability for damages to which
Premix may be exposed. Premix is unable at this time to determine the
exact extent of its exposure or outcome of the litigation of any other
similar cases that may arise in the future.
The Company is engaged in other legal actions and claims arising
in the ordinary course of its business. One such action may be
material to the Company. Acrocrete is a co-defendant in a lawsuit
captioned "Stephen P. Zabow, II and Karen I. Zabow, et al. vs. M/I
Schottenstein Homes, Inc., Heiner Construction Company and Acrocrete,
Inc.", filed October 2, 1996 in Wake County, North Carolina. The
lawsuit involves claims by owners of eight homes in Cary, North
Carolina, against the general contractor, a subcontractor, and
Acrocrete. The claims relate to the use of synthetic stucco in the
construction of such homes. The lawsuit alleges negligent
misrepresentation, breach of warranty, unfair and deceptive trade
practices, fraud and negligence due to defective material, and
requests punitive damages. The plaintiffs allege that Acrocrete knew
of inherent defects prevalent in synthetic stucco wall systems that
permitted water intrusion to cause moisture damage to the interior and
wood framing of the houses.
Page 13 of 20
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(10) Commitments and Contingencies (continued)
Acrocrete believes it has meritorious defenses against the claim
and cross-claims against the general contractor and installer of the
product. The Company's insurance carriers are providing a defense and
accepted coverage under reservation of rights. Acrocrete is unable,
at this time, to determine the exact extent of its exposure or outcome
of the litigation of this lawsuit.
(b) The Company pays aggregate monthly rent of approximately $9,025
for four of its operating facilities. The leases expire at various
dates ranging from December 31, 1996 to April 30, 1998. Three of the
leases provide for annual increases in monthly rent.
In addition, the Company leases one automobile under an
agreement which provides for a minimum monthly payment of $600
through June 1998. The Company is subject to an operating lease
agreement for certain computer equipment which provides for monthly
rental payments of $971 through February, 1998.
(c) In 1992, the Company removed its fuel pumps and underground
tanks at its facilities in Miami and Casselberry, Florida, rather than
upgrade the storage tank systems to comply with more stringent
environmental standards which went into effect December 31, 1992. Upon
removal of the tanks, test results showed evidence of soil and ground
water contamination at each site. The contaminated soil was removed
from the properties and the regulatory authorities required the
Company to test the groundwater and provide engineering reports to
determine what remedial actions, if any, are necessary with respect to
the ground water contamination. In December 1994, all appropriate
governmental authorities released the Company from further remedial
actions with respect to the Casselberry, Florida facility. In June
1995, the governmental authorities released the Company from further
remedial action with respect to its Miami, Florida facility.
During 1995, the Company incurred expenses of approximately
$6,000 in connection with the engineering studies, tank removal and
contamination removal. The Company is eligible for reimbursement of
certain allowable costs in connection with the removal of the
contamination through a program established by the State of Florida
Department of Environmental Regulation.
(d) Howard L. Ehler, Jr. ("the Executive") is employed by the
Company pursuant to a one year renewable agreement (the "Employment
Agreement"). Mr. Ehler serves as Executive Vice President and Chief
Financial Officer of the Company at a current annual base salary of
$98,555. The Employment Agreement provides for automatic renewal for
additional one year periods as of July 1, of each year, unless the
Company or the Executive notifies the other party of an intent not to
renew at least 90 days prior to expiration of the existing term. The
Executive receives a car allowance, as well as certain other benefits,
Page 14 of 20
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(10) Commitments and Contingencies (continued)
such as health and disability insurance. The Executive is also
entitled to receive incentive compensation based upon targets
formulated by the Company's Compensation Committee.
Prior to a change in control, the Company has the right to
terminate the Employment Agreement without cause at any time upon
thirty days written notice, provided the Company pays to the Executive
a severance payment equivalent to 50% of his then current annual base
salary. As part of the Employment Agreement, the Executive has
agreed not to disclose confidential information and not to compete
with the Company during his term of employment and, in certain cases
for a two (2) year period following his termination.
In the event of a "Change in Control" (as defined in the
Employment Agreement), the Employment Agreement is automatically
extended to a three year period. Thereafter, the Executive will be
entitled to terminate his employment with the Company for any reason
at any time. In the event the Executive terminates his employment
after a Change of Control, the Executive will be entitled to receive
the lesser of (i) a lump sum amount equal to the base salary payments
and all other compensation and benefits Executive would have received
had the Employment Agreement continued for the full term; or (ii)
three times Executive's base salary then in effect on the effective
date of termination. The Executive would also be entitled to such
severance in the event the Company terminates the Executive without
cause after a Change of Control.
In addition, Mr. Ehler is eligible to receive up to 75,000
shares of common stock of the Company based on the earnings
performance of the Company for the three years ended December 31,
1999.
(e) During the third quarter of 1996, the Company entered into an
employment arrangement with Fred M. Hansen to serve as president of
the Company's subsidiaries, Premix and Acrocrete, providing for an
annual base salary to $117,601 and a bonus based upon earnings
performance of the Subsidiaries. Under this arrangement, as an
inducement for his employment, the executive is to receive 100,000
shares of common stock of the Company over a three year period ending
in 1998. In addition, the executive is eligible to receive an
aggregate of 100,000 shares of the common stock of the Company based
on the earnings performance of the subsidiaries for each year in the
three year period ending December 31, 2000. Also Mr. Hansen is
entitled to a moving allowance of $15,000 and the use of a Company
auto, or car allowance of $650 per month during his employment.
Page 15 of 20
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
At September 30, 1996, the Company had working capital
of approximately $966,000 compared to working capital of
$733,000 at December 31, 1995.
The Company's business is related primarily to the level of
construction activity in Florida and Georgia. The majority of
the Company's products are sold to building materials dealers
located principally in Florida and Georgia who provide materials
to contractors and subcontractors engaged in the construction of
residential, commercial and industrial buildings and swimming
pools. One indicator of the level and trend of construction
activity is the amount of construction permits issued for the
construction of buildings. The level of construction activity
is subject to population growth, inventory of available housing
units, government growth policies and construction funding,
among other things.
The Company's principal source of short-term liquidity is
existing cash on hand and the utilization of a line of credit
with a commercial lender scheduled to expire on June 20, 1997.
Premix and Acrocrete, the Company's subsidiaries, borrow on the
line of credit, based upon and collateralized by, its eligible
accounts receivable and inventory. Generally, accounts not
collected within 120 days are not eligible accounts receivable
under the Company's borrowing agreement with its commercial
lender. At September 30, 1996, $1,219,000 had been borrowed
against $1,625,000 in available lines of credit limits.
Trade accounts receivable represent amounts due from
building materials dealers located principally in Florida and
Georgia who have purchased products on an unsecured open account
basis and sales directly to the end-user (contractors and
subcontractors), through Company owned warehouse distribution
facilities. The Company presently owns and operates three
warehouse distribution facilities. As a result of sales to the
end user and a higher level of sales generated in the first nine
months of 1996, compared to 1995, the Company's accounts
receivable increased from $1,371,000 at December 31, 1995 to
$1,536,000, at September 30, 1996.
The Company's common stockholders' deficit of $5,422,000,
at September 30, 1996, resulted primarily from losses incurred
in 1987 and prior years, and unpaid cumulative dividends
required by the Company's issued and outstanding preferred
stock. The Company has attempted to generate net income and
Page 16 of 20
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liquidity and Capital Resources (continued)
adequate cash to support operations by various methods,
including the commencement of manufacturing acrylic stucco
products, opening warehouse distribution outlets to sell its
products directly to the end user, and the development and sale
of new products. These actions enabled the Company to derive
net income of $321,000 for the nine months ended September 30,
1996 prior to the application of unpaid dividends on the
redeemable preferred stock, compared to net income of $55,000
for the nine months ended September 30, 1995.
The Company has omitted payment of cash dividends on its
preferred stock since the fourth quarter of 1985, and has
accrued $3,642,000 of dividends in arrears on the preferred
stock as of September 30, 1996. The Company is continuing its
efforts to develop a plan to satisfy the preferred stock
dividend arrearage and mandatory sinking fund requirements which
would be approved by its stockholders.
The Company believes its cash on hand and the maintenance
of its borrowing arrangement with its commercial lender will
provide sufficient cash to supplement any cash shortfalls from
operations and provide adequate liquidity for the next twelve
months.
The ability of the Company to maintain and improve its long
term liquidity is dependent upon the Company's ability to
successfully (i) achieve long-term profitable operations; (ii)
pay or otherwise satisfy omitted preferred stock dividends and
preferred stock redemption requirements; and (iii) resolve
current litigation on terms favorable to the Company.
The Company has no material capital expenditures planned
for the next twelve months, other than expenditures that the
Company may elect to spend to upgrade the Company's
manufacturing facility in Casselberry, Florida. If the Company
determines it appropriate to upgrade these facilities,
management estimates it would likely require a $50,000 to
$100,000 cash investment and the balance of the funds would be
financed. The Company is investigating the feasibility of
moving its manufacturing facility in Atlanta in April 1997. The
Company is unable to determine what capital expenditures, if
any, may be required at this time.
Page 17 of 20
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Result of Operations
Nine Months Ended and Three Months Ended September 30, 1996
Compared to 1995
Net sales for the nine months ended September 30, 1996,
increased $1,970,000, or approximately 23.3%, compared to the
same period in 1995. For the three months ended September 30,
1996, net sales increased $619,000, or approximately 21.6%,
compared to the same quarter in 1995. The increase in sales was
derived primarily from the sale of Acrocrete products, together
with certain complementary products manufactured by other
companies, sold through the Company's wholesale distribution
facilities.
Gross profit as a percentage of net sales for the nine
months and three months ended September 30, 1996, was
approximately 28.4% and 28.5%, respectively, compared to 29.3%
and 27.4% in the comparable periods in 1995. The decrease in
gross profit margins for the nine month period, was principally
due to higher manufacturing expenses and a greater proportion of
sales of lower gross profit margin products, including certain
complementary products manufactured by other companies.
Selling, general and administrative expenses as a
percentage of net sales for the nine months and three months
ended September 30, 1996 was approximately 23.3% and 25.3%,
respectively, compared to 26.2% and 28.9%, for the same periods
in 1995. In 1995, selling, general and administrative expenses
included start-up costs associated with the opening of two the
Company's three warehouse distribution facilities. However,
selling, general and administrative expenses for the nine months
ended September 30, 1996 increased $213,000, or approximately
9.6% compared to 1995. The actual increase in expenses was
primarily due to expenses associated with the expanded
operations and additional sales expenses from the Company's
distribution outlets. Selling, general and administrative
expenses as a percentage of net sales decreased in 1996 compared
to 1995 periods because of spreading expenses over greater
revenues. Interest expense was greater in 1996 compared to
1995, primarily because of increased borrowings under its line
of credit with its commercial lender to fund working capital
requirements resulting from increased sales.
Page 18 of 20
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
PART II. Other Information
Item 1. Legal Proceedings
See Notes to Consolidated Financial Statements, Note 10 (a), set
forth in Part I. Financial Information.
Item 3. Default Upon Senior Securities
The Company has 300,121 shares of $1.10 cumulative convertible
preferred stock issued and outstanding. Each share of preferred
stock is entitled to cumulative quarterly dividends at the rate of
$1.10 per annum. As of September 30, 1996, the Company has
omitted dividends aggregating $3,632,000 on its outstanding
preferred stock. Also, under the provisions of the sinking fund
requirements of the preferred stock, the Company was required to
redeem 36,121 shares in 1991 and an additional 66,000 shares of
preferred stock on April 1 each year thereafter until fully
redeemed. The Company has been unable to satisfy the sinking fund
requirements and did not redeem any shares of preferred stock
since April 1991. For a more complete description, see Note 8 (b)
of Notes to Consolidated Financial Statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 2.1 Amended Plan of Reorganization [Incorporated by reference
to the Company's Form 8-K, File No. 1-7190, dated June 26, 1987.]
Exhibit 4.1 Certificate of Designation with respect to the Preferred
Stock [Incorporated by reference to the Company's registration
statement on Form S-2, File No. 1-7190, dated February 22, 1983.]
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities and 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.
By: /S/ Howard L. Ehler, Jr.
-------------------------------
Howard L. Ehler, Jr.
Executive Vice President/
Principal Executive Officer
By: /S/ Betty Jean Murchison
-------------------------------
Betty Jean Murchison
Principal Accounting Officer
November 11, 1996
Page 19 of 19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
1996 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 282
<SECURITIES> 0
<RECEIVABLES> 1,674
<ALLOWANCES> 138
<INVENTORY> 1,236
<CURRENT-ASSETS> 3,113
<PP&E> 2,714
<DEPRECIATION> 2,005
<TOTAL-ASSETS> 3,935
<CURRENT-LIABILITIES> 2,147
<BONDS> 0
3,001
0
<COMMON> 571
<OTHER-SE> (5,993)
<TOTAL-LIABILITY-AND-EQUITY> 3,935
<SALES> 10,433
<TOTAL-REVENUES> 10,461
<CGS> 7,468
<TOTAL-COSTS> 10,140
<OTHER-EXPENSES> 2,434
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 238
<INCOME-PRETAX> 321
<INCOME-TAX> 0
<INCOME-CONTINUING> 321
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 248
<NET-INCOME> 73
<EPS-PRIMARY> .013
<EPS-DILUTED> .013
</TABLE>
