FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-7190
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IMPERIAL INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 59-0967727
- - ------------------------------- -----------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3009 Northwest 75th Avenue, Miami, Florida 33122-1439
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 477-7000
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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
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Indicate the number of shares of Imperial Industries, Inc. Common Stock
($.10 par value) outstanding as of May 3, 1996: 5,387,461
Total number of pages contained in this document: 19
Page 1 of 19
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Index
Page No.
Part I. Financial Information
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995 3-4
Consolidated Statements of Operations
Three Months Ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 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 I. Legal Proceedings 19
Item 3. Default Upon Senior Securities 19
Item 6. Exhibits and Reports on Form 8-K 19
Page 2 of 19
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IMPERIAL INDUSTRIES, INC, AND SUBSIDIAIRES
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
1996 1995
------------ --------------
Assets
Current assets:
Cash and cash equivalents $ 263,000 $ 252,000
Trade accounts receivable (less
allowance for doubtful accounts of
$152,000 in 1996 and $139,000 in 1995) 1,450,000 1,371,000
Inventories 1,381,000 1,280,000
Other current assets 133,000 38,000
----------- -----------
Total current assets 3,227,000 2,941,000
----------- -----------
Property, plant and equipment, at cost 2,662,000 2,651,000
Less accumulated depreciation (1,965,000) (1,934,000)
----------- -----------
Net property, plant and equipment 697,000 717,000
----------- -----------
Other assets 91,000 89,000
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$4,015,000 $3,747,000
=========== ===========
Page 3 of 19
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IMPERIAL INDUSTRIES, INC, AND SUBSIDIAIRES
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
1996 1995
------------ --------------
Liabilities and Common Stock and other Stockholders' Deficit
Current liabilities:
Notes payable $1,230,000 $1,245,000
Current portion of long-term debt 151,000 155,000
Accounts payable 816,000 708,000
Accrued expenses and other liabilities 190,000 100,000
----------- -----------
Total current liabilities 2,387,000 2,208,000
----------- -----------
Long-term debt, less current maturities 966,000 1,000,000
----------- -----------
Preferred dividends in arrears 3,466,000 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; 5,387,461 issued and
outstanding in 1996 and 1995 556,000 556,000
Additional paid-in-capital 7,276,000 7,276,000
Accumulated deficit (13,254,000) (13,295,000)
----------- -----------
(5,422,000) (5,463,000)
Less cost of shares in treasury (172,863
shares in 1996 and 1995 (383,000) (383,000)
----------- -----------
Total common stock and other
stockholders' deficit (5,805,000) (5,846,000)
----------- -----------
$4,015,000 $3,747,000
=========== ===========
See accompanying notes to consolidated financial statements.
Page 4 of 19
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three Months Ended
March 31,
-------------------------
1996 1995
----------- -----------
Net sales $3,283,000 $2,568,000
Cost of sales 2,312,000 1,776,000
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Gross profit 971,000 792,000
Selling, general and
administrative expenses 788,000 628,000
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Operating income 183,000 164,000
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Other income (expense):
Interest expense (79,000) (61,000)
Miscellaneous income 19,000 4,000
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(60,000) (57,000)
----------- -----------
Net income 123,000 107,000
Less: Dividends on redeemable
preferred stock (82,000) (82,000)
----------- -----------
Net income applicable to common
stockholders $ 41,000 $ 25,000
=========== ===========
Weighted average number of shares
outstanding 5,387,000 5,367,000
=========== ===========
Net income per share of common stock:
Net income $.022 $.020
Dividends on redeemable preferred stock (.015) (.015)
----------- -----------
Net income applicable to common stockholders $.007 $.005
=========== ===========
See accompanying notes to consolidated financial statement.
Page 5 of 19
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Increase (Decrease) In Cash and Cash Equivalents
Three Months Ended
March 31,
---------------------------
1996 1995
----------- -----------
(Unaudited)
Cash flows from operating activities:
Net income $ 123,000 $107,000
----------- -----------
Adjustments to reconcile net income
to net cash provided by:
Depreciation 32,000 29,000
Amortization 4,000 3,000
Provision for doubtful accounts 18,000 12,000
Loss on sale of fixed assets 1,000 -
Compensation expense - treasury stock - 2,000
(Increase) decrease in:
Accounts receivable (97,000) (323,000)
Inventory (101,000) (63,000)
Prepaid expenses and other assets (101,000) (62,000)
Increase (decrease) in:
Accounts payable 108,000 207,000
Accrued expenses 90,000 58,000
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Total adjustments to net income (46,000) (137,000)
----------- -----------
Net cash provided by (used in)
operating activities 77,000 (30,000)
----------- -----------
Cash flows from investing activities
Purchases of property, plant
and equipment (14,000) (53,000)
Proceeds received from the sale of
property and equipment 1,000 -
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Cash used in investing activities (13,000) (53,000)
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Cash flows from financing activities
(Decrease) increase in notes payable
banks - net (15,000) 100,000
Reduction of long-term debt (38,000) (56,000)
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Cash (used in) provided by financing
activities (53,000) 44,000
----------- -----------
Net increase (decrease) in cash and
cash equivalents 11,000 (39,000)
Cash and cash equivalents beginning of period 252,000 238,000
----------- -----------
Cash and cash equivalents end of period $ 263,000 $199,000
=========== ===========
Page 6 of 19
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Increase (Decrease) In Cash and Cash Equivalents
-continued-
Three Months Ended
March 31,
---------------------------
1996 1995
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(Unaudited)
Supplemental disclosure
of cash flow information:
Cash paid during the three months for:
Interest $75,000 $62,000
=========== ===========
Non-cash transactions:
During the three months ended March 31,
1995 50,000 shares of common stock was
issued from treasury stock to a former officer
of the Company.
See accompanying notes to consolidated financial statements.
Page 7 of 19
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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 three
months ended March 31, 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 March 31,
1996 and December 31, 1995 are time deposits of $150,000 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 19
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(5) Notes Payable
Included in notes payable at March 31, 1996 is $1,230,000 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 May 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 March 31, 1996, the line of credit limit available
for borrowing aggregated $1,544,000, of which $1,230,000 had been
borrowed. For the three months ended March 31, 1996 and 1995, the
maximum borrowings at any month end were $1,332,000 and $1,145,000
respectively. The average month end amount outstanding during the
three months ended March 31, 1996 and 1995 periods were $1,254,000 and
$1,053,000, respectively.
(6) Long-Term Debt and Current Installments of Long-Term Debt
Included in long-term debt at March 31, 1996, are two mortgage
loans, collateralized by Premix's real property, in the amounts of
$319,000 and $551,000, respectively, less current installments of
$42,000. Each loan bears adjustable interest rates. As of May 1, 1996
the interest rates on such mortgage loans were 12% and 10 1/2%,
respectively.
Long-term debt at March 31, 1996 includes a $62,000 obligation,
less current installments of $24,000, 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 $185,000, less current installments of
$85,000, 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 March 31, 1996, the Company had approximately $12.5 million of
net operating losses, for book and tax purposes, available through the
Page 9 of 19
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(7) Tax Credit Carryforwards (continued)
year 2009 and investment and other tax credits of approximately
$250,000 available through the year 2001. A valuation allowance for
of the resulting net deferred tax asset of approximately $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 March 31, 1996, the Company had outstanding 5,387,461
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 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 March 31, 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 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.
Page 10 of 19
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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 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 three months ended March 31, 1996 in the amount of $82,000
and for each quarter since the fourth quarter of 1985 aggregating
$3,466,000 through March 31, 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 March 31, 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
through 1995.
The Company did not redeem any shares of Preferred Stock as
required on April 1, 1991, 1992, 1993, 1994 or 1995. 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.
(c) Warrants
At March 31, 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.
Page 11 of 19
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(8) Capital Stock (continued)
(c) Warrants (continued)
(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 March 31, 1996, 505,500 shares of common stock were
reserved for issuance under the Company's stock option plans at
an option exercise price of $.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 $82,000 of
Preferred Stock dividends accrued, but not declared, for the three
months ended March 31, 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 advised by counsel that Premix had
been 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. The plaintiffs, for the most part, were former
welders, insulators, laborers, plasterers and their families, who were
claiming personal injury or wrongful death resulting from exposure to
asbestos products produced by several manufacturers, including Premix.
The plaintiffs' alleged exposure to asbestos generally range from 1955
through 1985. As of May 1, 1996, the Company is not a defendant in
any lawsuits which alleges injuries due to asbestos exposure.
Page 12 of 19
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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 March
31, 1996, the Company had accrued approximately $8,000 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.
Premix and Acrocrete are engaged in other legal actions and
claims arising in the ordinary course of business, none of which are
material to the Company.
(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 August, 1997. The Company is subject to an operating lease
agreement for certain computer equipment which provides for monthly
rental payments of $971 through February, 1998.
Page 13 of 19
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(10) Commitments and Contingencies (continued)
(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,
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
Page 14 of 19
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(10) Commitments and Contingencies (continued)
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.
Page 15 of 19
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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 March 31, 1996, the Company had working capital of
approximately $840,000 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.
Although general construction activity has increased in
Florida since 1993, the duration of present economic conditions
and the magnitude of its effect on the construction industry is
uncertain and cannot be predicted.
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.
The line of credit is automatically extended for an additional
one year term unless either party gives the other notice of non-
extension 60 days prior to the expiration date. Premix and
Acrocrete, the Company's subsidiaries, borrow on the line of
credit, based upon and collateralized by, its eligible accounts
receivable and inventory. Generally, accounts not collected
within 120 days are not eligible accounts receivable under the
Company's borrowing agreement with its commercial lender. At
March 31, 1996, $1,230,000 had been borrowed against available
lines of credit limits collateralized by accounts receivable and
inventory.
Until 1994, all trade accounts receivable represented
amounts due from building materials dealers located principally
in Florida and Georgia who have purchased products on an
unsecured open account basis. In April 1994, the Company
commenced selling its Acrocrete products in the Savannah,
Georgia area directly to the end-user (contractors and
Page 16 of 19
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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)
subcontractors), through Company owned warehouse distribution
facilities. In January 1995 and May 1995, the Company opened
its second and third warehouse distribution facilities. As a
result of sales to the end user and a higher level of sales
generated in the first three months of 1996, compared to 1995,
the Company's accounts receivable increased from $1,371,000 at
December 31, 1995 to $1,450,000, at March 31, 1996.
The Company's common stockholders' deficit of $5,805,000,
at March 31, 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 reduce operating losses and to generate
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 $123,000 for the three months ended March 31, 1996
prior to the application of unpaid dividends on the redeemable
preferred stock, compared to net income of $107,000 for the
three months ended March 31, 1995.
The Company has omitted payment of cash dividends on its
preferred stock since the fourth quarter of 1985, and has
accrued $3,466,000 of dividends in arrears on the preferred
stock as of March 31, 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 and
(ii) pay or otherwise satisfy omitted preferred stock dividends
and preferred stock redemption requirements.
Page 17 of 19
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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)
The Company has no material capital expenditures planned
for the next twelve months, other than approximately $50,000 in
capital that the Company may elect to spend to upgrade the
Company's manufacturing facility in Casselberry, Florida.
Result of Operations
Three Months Ended March 31, 1996 Compared to 1995
Net sales for the three months ended March 31, 1996
increased $715,000, or approximately 28%, compared to the same
period in 1995. The increase in sales was derived primarily
from the sale of Acrocrete products, together with certain
complementary products manufactured by other companies, which
were sold through the Company's warehouse distribution
facilities. The Company opened its first location in April 1994
and two additional facilities in January and May 1995.
Gross profit as a percentage of net sales for the first
quarter 1996 was approximately 30% compared to 31% in the same
period of 1995. The decrease in gross profit margin was
principally due to 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 was approximately 24% for the first
quarter of 1996 and 1995. However, selling, general and
administrative expenses increased $160,000, or approximately 25%
in 1996 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 new
distribution outlets. Selling, general and administrative
expenses as a percentage of net sales remained approximately the
same for the 1996 and 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 19
<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 March 31, 1996, the Company has omitted
dividends aggregating $3,466,000 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 through 1995. The
Company has been unable to satisfy the sinking fund requirements
and did not redeem any shares of preferred stock in April 1995.
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
May 10, 1996
Page 19 of 19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MARCH 1996 FORM 10-Q AND IS QUAILFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 263
<SECURITIES> 0
<RECEIVABLES> 1,602
<ALLOWANCES> 152
<INVENTORY> 1,381
<CURRENT-ASSETS> 3,227
<PP&E> 2,662
<DEPRECIATION> 1,965
<TOTAL-ASSETS> 4,015
<CURRENT-LIABILITIES> 2,387
<BONDS> 0
3,001
0
<COMMON> 556
<OTHER-SE> (6,361)
<TOTAL-LIABILITY-AND-EQUITY> 4,015
<SALES> 3,283
<TOTAL-REVENUES> 3,302
<CGS> 2,312
<TOTAL-COSTS> 3,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 79
<INCOME-PRETAX> 123
<INCOME-TAX> 0
<INCOME-CONTINUING> 123
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 123
<EPS-PRIMARY> .007
<EPS-DILUTED> .007
</TABLE>
