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, 1997
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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
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 May 5, 1997: 5,595,794
Total number of pages contained in this document: 20
Page 1 of 20
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Index
Page No.
Part I. Financial Information
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996 3-4
Consolidated Statements of Operations
Three Months Ended March 31, 1997 and 1996 5
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1997 and 1996 6-7
Notes to Consolidated Financial Statements 8-15
Management's Discussion and Analysis of Results
of Operations and Financial Conditions 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
Signatures 20
Page 2 of 20
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, December 31,
1997 1996
------------ ------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 331,000 $ 455,000
Trade accounts receivable (less
allowance for doubtful accounts of
$182,000 in 1997 and $145,000 in 1996) 1,921,000 1,508,000
Inventories 1,222,000 1,272,000
Other current assets 114,000 22,000
----------- -----------
Total current assets 3,588,000 3,257,000
----------- -----------
Property, plant and equipment, at cost 2,825,000 2,789,000
Less accumulated depreciation (2,042,000) (2,020,000)
----------- -----------
Net property, plant and equipment 783,000 769,000
----------- -----------
Other assets 92,000 90,000
----------- -----------
$4,463,000 $4,116,000
=========== ===========
Page 3 of 20
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, December 31,
1997 1996
------------ ------------
(Unaudited)
Liabilities and Common Stock and other Stockholders' Deficit
Current liabilities:
Notes payable $1,379,000 $1,424,000
Current portion of long-term debt 153,000 161,000
Accounts payable 880,000 660,000
Accrued expenses and other liabilities 217,000 140,000
----------- -----------
Total current liabilities 2,629,000 2,385,000
----------- -----------
Long-term debt, less current maturities 853,000 895,000
----------- -----------
Preferred dividends in arrears 3,797,000 3,714,000
----------- -----------
Redeemable preferred stock, $1.00 par
value, $1.10 cumulative convertible
series; 300,121 shares outstanding; at
$10 per share redemption value 3,001,000 3,001,000
----------- -----------
Commitments and contingencies - -
----------- -----------
Common stock and other stockholders' deficit:
Common stock, $.10 par value, authorized
20,000,000 shares; 5,595,794 and
5,562,461 issued and outstanding,
respectively 574,000 571,000
Additional paid-in-capital 7,232,000 7,229,000
Accumulated deficit (13,295,000) (13,351,000)
------------ ------------
(5,489,000) (5,551,000)
Less cost of shares in treasury (147,863
shares in 1997 and 1996) (328,000) (328,000)
----------- ------------
Total common stock and other
stockholders' deficit (5,817,000) (5,879,000)
------------ ------------
$4,463,000 $4,116,000
============ ============
See accompanying notes to consolidated financial statements.
Page 4 of 20
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three Months Ended
March 31,
-------------------------
1997 1996
---------- ----------
Net sales $3,703,000 $3,283,000
Cost of sales 2,576,000 2,312,000
----------- -----------
Gross profit 1,127,000 971,000
Selling, general and
administrative expenses 918,000 788,000
---------- -----------
Operating income 209,000 183,000
---------- -----------
Other income (expense):
Interest expense (80,000) (79,000)
Miscellaneous income 10,000 19,000
---------- -----------
(70,000) (60,000)
---------- -----------
Net income 139,000 123,000
Less: Dividends on redeemable
preferred stock (83,000) (83,000)
---------- ----------
Net income applicable to common
stockholders $ 56,000 $ 40,000
=========== ===========
Weighted average number of common and common
equivalent shares outstanding 5,873,701 5,387,000
Net income per share of common and common
equivalent shares:
Net income $ .02 $.02
Dividends on redeemable preferred stock (.01) (.01)
------ -----
Net income applicable to common stockholders $ .01 $ .01
====== =====
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
Three Months Ended
March 31,
---------------------------
1997 1996
-------- ---------
(Unaudited)
Cash flows from operating activities:
Net income $139,000 $ 123,000
--------- ----------
Adjustments to reconcile net income
to net cash provided by:
Depreciation 35,000 32,000
Amortization 5,000 4,000
Provision for doubtful accounts 40,000 18,000
Loss on disposal of fixed assets 2,000 1,000
Compensation expense - common stock 6,000 -
(Increase) decrease in:
Accounts receivable (453,000) (97,000)
Inventory 50,000 (101,000)
Prepaid expenses and other assets (100,000) (101,000)
Increase (decrease) in:
Accounts payable 220,000 108,000
Accrued expenses 77,000 90,000
--------- ----------
Total adjustments to net income (118,000) (46,000)
--------- ----------
Net cash provided by
operating activities 21,000 77,000
--------- ----------
Cash flows from investing activities
Purchases of property, plant
and equipment (58,000) (14,000)
Proceeds received from the sale of
property and equipment 8,000 1,000
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Cash used in investing activities (50,000) (13,000)
--------- ----------
Cash flows from financing activities
Decrease in notes payable
banks - net (45,000) (15,000)
Reduction of long-term debt (50,000) (38,000)
-------- ---------
Cash used in financing
activities (95,000) (53,000)
-------- ---------
Net (decrease) increase in cash and
cash equivalents (124,000) 11,000
Cash and cash equivalents beginning of period 455,000 252,000
--------- ----------
Cash and cash equivalents end of period $331,000 $ 263,000
========= ==========
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-
Three Months Ended
March 31,
---------------------------
1997 1996
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(Unaudited)
Supplemental disclosure
of cash flow information:
Cash paid during the three months for:
Interest $80,000 $75,000
======== ========
Non-cash transactions:
During the three months ended March 31,
1997 33,333 shares of common stock was
issued to an officer of the Company. $ 6,000 $ -
======== ========
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 three
months ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997.
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, 1996.
(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 a maturity of three months or less when
purchased. Included in cash and cash equivalents at March 31, 1997 and
December 31, 1996 are time deposits of $154,000 and $153,000,
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).
(5) Notes Payable
Included in notes payable at March 31, 1997, is $1,379,000 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
Page 8 of 20
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(5) Notes Payable (continued)
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-
1/2% at May 1, 1997) 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, 1998.
At March 31, 1997, the line of credit limit available for borrowing
aggregated $1,859,000, of which $1,379,000 had been borrowed. For the
three months ended March 31, 1997 and 1996, the maximum borrowings at
any month end were $1,391,000 and $1,332,000 respectively. The
average month end amount outstanding during the three months ended
March 31, 1997 and 1996 periods were $1,386,000 and $1,254,000,
respectively.
(6) Long-Term Debt and Current Installments of Long-Term Debt
Included in long-term debt at March 31, 1997, are two mortgage
loans, collateralized by Premix's real property, in the amounts of
$513,000 and $314,000, respectively, less current installments of
$43,000. Each loan bears adjustable interest rates. As of May 1,
1997, interest rates on such mortgage loans were 10.5% and 12%,
respectively.
Long-term debt at March 31, 1997 also includes a $36,000
obligation, less current installments of $27,000, 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 $143,000, less
current installments of $83,000, relates principally to equipment
financing. The notes bear interest at various rates ranging from
8.75% to 15.39% and are payable monthly through 1998.
(7) Tax Credit Carryforwards
At March 31, 1997, the Company had approximately $12.2 million of
net operating losses, for book and tax purposes, available through the
year 2009 and investment and other tax credits of approximately
$165,000 available through the year 2001. A valuation allowance of
the resulting net deferred tax asset of approximately $4.5 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.
Page 9 of 20
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(8) Capital Stock
(a) Common Stock
At March 31, 1997, the Company had outstanding 5,595,794
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 4, 1997, the Company issued 33,333 shares of
authorized, but unissued Common Stock to the President of Premix
and Acrocrete as part of his employment compensation.
(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, 1997, 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 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 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, 1997 in the amount of $83,000
and for each quarter since the fourth quarter of 1985 aggregating
$3,797,000 through March 31, 1997. 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, 1997, an aggregate of
359,879 shares of Preferred Stock were converted into 1,199,557
shares of Common Stock. As a result of these conversions, the
Company was required to redeem 36,121 shares in 1991 and 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 March 31, 1997, the Company had the following outstanding
series of warrants:
(i) 1,316,999 warrants issued in the Company's public offering
in 1983. Each warrant entitles the holder to purchase one share
of Common Stock at $4.80 per share until March 31, 1998.
(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, 1997, 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 $83,000 in
Preferred Stock dividends accrued, but not declared, for the three
months ended March 31, 1997 and 1996, 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 Common Stock and Common Stock
equivalents outstanding during the period. Common stock equivalents
represent the dilutive effect of the assumed exercise of outstanding
stock options and certain warrants exercisable at $.10 per share.
Shares issuable in exchange for convertible Preferred Stock and
warrants exercisable at $4.80 per share 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 May 1, 1997, the
Company is not a defendant in any lawsuits which allege injuries due
Page 12 of 20
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(10) Commitments and Contingencies (continued)
asbestos exposure.
The Company and Premix are parties to an Interim Agreement for
Defense and Indemnity of Asbestos Bodily Injury Cases (the
"Agreement") with certain of its insurance carriers under which each
party agreed to pay a negotiated percentage share of defense costs and
indemnification expenditures, subject to policy limits, for the
pending and future asbestos claims. The Agreement has been extended
until May 15, 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%.
The Company believes, based upon the Agreement with its insurance
carriers, and its experience in these claims to date, it has adequate
insurance coverage for any future similar type of claims. To date,
no case went to trial with Premix as a defendant. Premix has either
settled for a nominal amount of money or been voluntarily dismissed
without payment from approximately 193 cases. Based upon historical
results, the Company does not believe any potential future claims
would be material. However, there can be no assurance that insurance
will ultimately cover the aggregate liability for damages to which
Premix may be exposed. Premix is unable at this time to determine the
exact extent of its exposure or outcome of the litigation of any other
similar cases that may arise in the future.
Acrocrete 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 12 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 $10,000
for four of its operating facilities. The leases expire at various
dates ranging from September 31, 1997 to December 31, 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) 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
$100,000. The Employment Agreement provides for automatic renewal for
additional one year periods as of July 1, of each year, unless the
Company or the Executive notifies the other party of an intent not to
renew at least 90 days prior to expiration of the existing term. The
Executive receives a car allowance, as well as certain other benefits,
such as health and disability insurance. The Executive is also
entitled to receive incentive compensation based upon targets
formulated by the Company's Compensation Committee.
Prior to a change in control, the Company has the right to
terminate the Employment Agreement without cause at any time upon
thirty days written notice, provided the Company pays to the Executive
a severance payment equivalent to 50% of his then current annual base
salary. As part of the Employment Agreement, the Executive has
agreed not to disclose confidential information and not to compete
with the Company during his term of employment and, in certain cases
for a two (2) year period following his termination.
In the event of a "Change in Control" (as defined in the
Employment Agreement), the Employment Agreement is automatically
extended to a three year period. Thereafter, the Executive will be
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
Page 14 of 20
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-continued-
(10) Commitments and Contingencies (continued)
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 an aggregate
of 75,000 shares of common stock of the Company during the three years
ended December 31, 1999, based on the earnings performance of the
Company in each year.
(d) During the third quarter of 1996, the Company entered into an
employment arrangement with Fred H. Hansen to serve as President of
the Company's subsidiaries, Premix and Acrocrete, providing for an
annual base salary to $117,601 and a bonus based upon earnings
performance of the Subsidiaries. Under this arrangement, Mr. Hansen
would receive 33,333 shares of common stock of the Company for each
year of employment for a three year period ending in 1998. Mr.
Hansen received 33,333 shares of common stock in February 1997. In
addition, Mr. Hansen is eligible to receive up to an aggregate of
100,000 shares of the common stock of the Company in the three year
period ending December 31, 2000, based on the earnings performance of
the subsidiaries for each year. Also Mr. Hansen received a moving
allowance of $15,000 and is entitled to the use of a Company auto, or
car allowance of $650 per month during his employment.
(11) Stock Based Compensation
Effective 1996, the Company has adopted the disclosure
provisions of Statement of Financial Accounting Standards No. 123
("SFAS No. 123"), "Accounting for Stock-Based Compensation" and has
retained the intrinsic value method of accounting for such stock-based
compensation. Had the fair value based accounting provisions of SFAS
No. 123 been adopted, the effect would not be material.
Page 15 of 20
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IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Results of Operations
And Financial Condition
General
The Company's business is related primarily to the level of
construction activity in Florida and Georgia. The majority of the
Company's products are sold to building materials dealers located
principally in Florida and Georgia who provide materials to
contractors and subcontractors engaged in the construction of
residential, commercial and industrial buildings and swimming
pools. One indicator of the level and trend of construction
activity is the amount of construction permits issued for the
construction of buildings. The level of construction activity is
subject to population growth, inventory of available housing units,
government growth policies and construction funding, among other
things.
Results of Operations
Three Months Ended March 31, 1997 Compared to 1996
Net sales for the three months ended March 31, 1997 increased
$420,000, or approximately 13%, compared to the same period in
1996. The increase in sales was derived primarily from the sale of
Acrocrete products, and to a lesser extent, the sale of certain
complementary products manufactured by other companies, which were
sold through the Company's warehouse distribution facilities.
Gross profit as a percentage of net sales for the first
quarter of 1997 was approximately 30%, the same percentage as the
first quarter of 1996. The Company has been reviewing all raw
material purchases to ensure it realizes the lowest cost possible
and is in the process of streamlining and updating its
manufacturing processes by acquiring and modifying certain
equipment to gain greater production efficiency. As a result, the
Company expects to achieve higher gross profit margins in 1997
compared to 1996.
Selling, general and administrative expenses as a percentage
of net sales for the first quarter of 1997 was approximately 25%,
compared to 24% in the same period last year. However, selling,
general and administrative expenses increased $130,000, or
approximately 16% in 1997 compared to 1996. The increase in
expenses was primarily due to additional sales and delivery
expenses associated with servicing the increased volume of
business.
As a result of the above factors and after giving effect to
Page 16 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 (continued)
Results of Operations (continued)
Three Months Ended March 31, 1997 Compared to 1996 (continued)
preferred stock dividends accrued, but not paid, the Company
derived net income applicable to common stockholders of $56,000, or
$.01 per share in 1997, compared to net income of $40,000, or $.01
per share, in 1996. Net income applicable to common stockholders
includes charges of $83,000 in the 1997 and 1996 first quarter
periods for unpaid cumulative dividends on preferred stock.
Liquidity and Capital Resources
At March 31, 1997, the Company had working capital of
approximately $959,000 compared to working capital of $872,000 at
December 31, 1996. As of March 31, 1997, the Company had cash and
cash equivalents of $331,000.
The Company's principal source of short-term liquidity is
existing cash on hand and the utilization of a $2,000,000 line of
credit with a commercial lender scheduled to expire on June 20,
1998. 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, 1997, $1,379,000 had been borrowed against $1,859,000
in available lines of credit limits.
Trade accounts receivable represent amounts due from building
materials dealers located principally in Florida and Georgia who
have purchased products on an unsecured open account basis and
sales directly to the end-user (contractors and subcontractors),
through Company owned warehouse distribution outlets. As a result
of a higher level of sales generated in 1997 compared to 1996, the
Company's accounts receivable increased from $1,653,000 at December
31, 1996 to $2,103,000 at March 31, 1997.
The Company's common stockholders' deficit of $5,817,000 at
March 31, 1997, resulted primarily from losses incurred in 1987 and
prior years, and unpaid cumulative dividends required by the
Company's issued and outstanding preferred stock. The Company has
attempted to generate net income and adequate cash to support
operations by various methods, including the commencement of
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)
Liquidity and Capital Resources (continued)
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, In the first three
months of 1997, these actions enabled the Company to derive net
income of $139,000 prior to the application of unpaid dividends on
the redeemable preferred stock, compared to a net income of
$123,000 in 1996.
The Company has omitted payment of cash dividends on its
preferred stock since the fourth quarter of 1985, and has accrued
$3,797,000 of dividends in arrears on the preferred stock as of
March 31, 1997. The Company is continuing its efforts to develop a
plan to satisfy the preferred stock dividend arrearage and
mandatory sinking fund requirements which would be acceptable to
its stockholders.
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 Company has no material capital expenditures planned for
the next twelve months, other than expenditures that the Company
will spend to upgrade the Company's manufacturing facilities in
Casselberry, Florida. Management estimates it will require a
$50,000 cash investment to fund the improvements to its equipment.
The Company expended approximately $50,000 in capital expenditures
in the first quarter of 1997 to upgrade its manufacturing equipment
in its facilities.
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.
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 March 31, 1997, the Company has omitted
dividends aggregating $3,797,000 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
Page 19 of 20
<PAGE>
IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
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/
Assistant Vice President
May 9, 1997
Page 20 of 20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 331
<SECURITIES> 0
<RECEIVABLES> 2,103
<ALLOWANCES> 182
<INVENTORY> 1,222
<CURRENT-ASSETS> 3,588
<PP&E> 2,825
<DEPRECIATION> 2,042
<TOTAL-ASSETS> 4,463
<CURRENT-LIABILITIES> 2,629
<BONDS> 0
3,001
0
<COMMON> 574
<OTHER-SE> (6,391)
<TOTAL-LIABILITY-AND-EQUITY> 4,463
<SALES> 3,703
<TOTAL-REVENUES> 3,713
<CGS> 2,576
<TOTAL-COSTS> 2,576
<OTHER-EXPENSES> 918
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80
<INCOME-PRETAX> 139
<INCOME-TAX> 0
<INCOME-CONTINUING> 139
<DISCONTINUED> 0
<EXTRAORDINARY> (83)
<CHANGES> 0
<NET-INCOME> 56
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
