SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

             [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
                    For the fiscal year ended December 31, 2001
                                        OR
           [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from ____________ to ____________

Commission file number 1-7190
-----------------------------

                            IMPERIAL INDUSTRIES, INC.
                            -------------------------
              (Exact name of registrant as specified in its charter)

              Delaware                                   65-0854631
              --------                                   ----------
    (State or other jurisdiction of                  (I.R.S. Employer
    incorporation or organization)                  Identification No.)

       1259 Northwest 21st Street, Pompano Beach, Florida     33069-1417
       --------------------------------------------------     ----------
           (Address of principal executive offices)            (Zip Code)

     Registrant's telephone number, including area code:   (954)y917-4114

     Securities registered pursuant to Section 12(b) of the Act:

     Title of each class             Name of each exchange on which registered
     -------------------             -----------------------------------------
            None                                            None

     Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.01 par value
                          ----------------------------
                                (Title of Class)

      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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (S229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]

      The aggregate market value of the voting stock of the Registrant held by
non-affiliates computed by reference to the average bid and asked price of the
registrant's Common Stock ($.01 par value) on March 22, 2002 is: $1,140,300

      Number of shares of Imperial Industries, Inc. Common Stock ($.01 par
value) outstanding on March 22, 2002:  9,220,434

<PAGE>
                                       PART I

Item 1.   Business
          --------

               Imperial Industries, Inc., (the "Company") is a Delaware
          corporation which through its predecessor corporation has been in
          existence since 1968. The Company's executive offices are located at
          1259 Northwest 21st Street, Pompano Beach, Florida 33069 and the
          telephone number at such offices is (954) 917-4114.

          Merger
          ------

               In December 1998, the Company approved a plan merging it into a
          wholly-owned subsidiary of the Company effective December 31, 1998,
          (the "Merger").

               Upon consummation of the Merger, each share of common stock
          outstanding prior to the Merger was automatically converted to one
          share of common stock of the Company. Each share of preferred stock
          outstanding prior to the Merger was converted, at the holder's option,
          into either (a) $4.75 in cash and ten shares of the Company's common
          stock, or (b) $2.25 in cash, an 8% subordinated debenture, face value
          $8.00, and five shares of the Company's common stock. Holders
          representing 81,100 preferred shares have elected dissenters' rights,
          which, if perfected under Delaware law, would require the Company to
          pay to the holders the fair value of their stock in cash to be
          determined by the Delaware Chancery Court. Pursuant to Delaware law,
          the dissenting shareholders petitioned the Delaware Chancery Court to
          determine the fair value of their shares at the effective date of the
          Merger, exclusive of any element of value attributable to the Merger.

               In accordance with the Merger, the Company issued $984,960 of 8%
          Subordinated Debentures, 1,574,610 shares of common stock and paid
          $732,550 in cash to the former preferred shareholders who did not
          elect dissenters' rights. The Company does not know the amount which
          would be payable to dissenting holders who ultimately perfect their
          dissenters rights. The Debentures were retired in 2001. For a more
          complete description of the Merger, see Note (1) of Notes to
          Consolidated Financial statements.

          General
          -------

               The Company, through its subsidiaries, is engaged in the
          manufacture and distribution of building materials to building
          materials dealers and others located primarily in Florida,
          Mississippi, Georgia, and Alabama and to a lesser extent, other states
          in the Southeastern part of the United States as well as foreign
          countries. The Company presently has eleven distribution outlets
          through which it markets certain of its manufactured products and
          other purchased products directly to developers, builders,
          contractors, and sub-contractors.

               The Company's business is directly related to the level of
          activity in the new and renovation construction market in the

                                       2
<PAGE>

Item 1.   Business (continued)
          --------------------

          General (continued)
          -------------------

          Southeast United States. The Company's products are used by
          developers, general contractors and subcontractors in the construction
          or renovation of residential, multi-family and commercial buildings
          and swimming pools. Demand for new construction is related to, among
          other things, population growth. Population growth, in turn, is
          principally a function of migration of new residents to these states.
          When economic conditions reduce migration, demand for new construction
          decreases. Construction activity is also affected by the size of the
          inventory of available housing units, mortgage interest rates,
          availability of funds and local government growth management policies.
          The Company's operations are directly related to the general economic
          conditions existing in the Southeastern part of the United States.

                    The Company manufactures products through its wholly owned
          subsidiaries, Premix-Marbletite Manufacturing Co. ("Premix") and
          Acrocrete, Inc. ("Acrocrete"). The Company distributes products
          through its wholly owned subsidiary, Just-Rite Supply, Inc.
          ("Just-Rite"). The manufacturing operations primarily produce and
          distribute stucco, roof tile mortar and plaster products, while the
          distribution operations expand the Company's product line by
          distributing gypsum, roofing and insulation products, as well as
          products manufactured by the Company.

               Stucco products are applied as a finishing coat to exterior
          surfaces and to swimming pools. Roof tile mortar is used to adhere
          cement roof tiles to the roof. Plaster customarily is used to finish
          interiors of structures.

          Premix
          ------

               Premix, together with its predecessors, has been in business for
          approximately 40 years. The names "Premix" and "Premix-Marbletite" are
          among the registered trademarks of Premix. The Company believes the
          trade names of its manufactured products represent a substantial
          benefit to the Company because of industry recognition and brand
          preference. Premix manufactures stucco, roof tile mortar, plaster and
          swimming pool finishes. The products manufactured by Premix basically
          are a combination of portland (or masonry) cement, sand, lime, marble
          and a plasticizing agent and other chemicals, including color-
          impregnating materials.

               Premix accounted for approximately 22%, 23% and 39% of the
          Company's consolidated annual revenues in the fiscal years ended
          December 31, 2001, 2000 and 1999, respectively.

               The Company is a party to a licensing agreement with an
          unaffiliated company to exclusively manufacture and sell a roof tile
          mortar product throughout the State of Florida and certain foreign
          countries.

                                       3
<PAGE>

Item 1.   Business (continued)
          --------------------

          Premix (continued)
          ------------------

          To date, a majority of all roof tile mortar sales have been derived
          from South Florida. Until 1996, the Company's licensed roof tile
          mortar product was the only mortar product approved by Miami Dade
          County, Florida, building authorities for use to adhere all types of
          cement roof tiles to roofs. In 1997, the Company's roof tile mortar
          was approved by the Broward and Palm Beach County building authorities
          along with other competitive products. Other adhesive products used
          for similar purposes are also used by the industry. The Company has
          expanded its marketing efforts for this product to other areas of
          Florida based on product performance rather than only as required by
          building code requirements.

          Acrocrete
          ---------

               Acrocrete, organized in 1988, manufactures synthetic acrylic
          stucco products. The Company's trade name "Acrocrete" and certain of
          its manufactured products are described by trade names protected by
          registered trademarks. Acrocrete's products, used principally for
          exterior wall coatings, broaden and complement the range of products
          produced and sold by Premix. Management believes acrylic stucco
          products have certain advantages over traditional cementitious stucco
          products for certain types of construction applications because
          synthetic acrylic products provide a hard durable finish with stronger
          color retention properties. Further, acrylic stucco products have
          improved flexibility characteristics, which minimizes the problems of
          cracking of cement coating. Acrocrete's product system provides for
          energy efficiency for both residential and commercial buildings.

               For the fiscal years ended December 31, 2001, 2000 and 1999,
          Acrocrete's sales accounted for approximately 22%, 21% and 61%,
          respectively, of the Company's consolidated annual revenues. Prior to
          January 1, 2000, the Company's distribution operations were operated
          through Acrocrete.

          Just-Rite
          ---------

               In January 2000, the Company established Just-Rite to own and
          operate its five wholesale distribution outlets formerly owned and
          operated by Acrocrete. During the first five months of 2000,
          Just-Rite acquired nine building material distribution outlets
          to diversify its product offering to the construction market to
          include gypsum, roofing, masonry, insulation products, as well as


                                       4
<PAGE>

Item 1.   Business (continued)
          --------------------

          Just-Rite (continued)
          ---------------------

          installation services beyond those supported by the Company's
          manufacturing operation. Management believes the acquired distribution
          outlets position the Company to gain a greater market share for its
          manufactured products through more direct sales to the end-user and to
          expand operations by distributing a wider range of building materials
          to the construction industry that are complementary to its existing
          product lines. In 2001, the Company closed three distribution outlets
          and eliminated installation services being provided at two other
          distribution outlets related to the acquired operations.

               For the fiscal year ended December 31, 2001 and 2000, Just-Rite's
          sales, excluding the sale of Premix and Acrocrete products, accounted
          for approximately 56% and 56% of the Company's consolidated annual
          revenues.

          Acquisition Opportunities and Present Status
          --------------------------------------------

               The Company believes the gypsum, roofing and stucco building
          products distribution industries are fragmented and have the potential
          for consolidation in response to the competitive disadvantages faced
          by smaller distributors. Management believes that these industries are
          characterized by a significant number of relatively small
          privately-owned, local, relationship-based companies that emphasize
          service, delivery and reliability, as well as competitive pricing and
          breadth of product line to their customers. The competitive
          environment for these distributors, in combination with the desire for
          owners of certain of these distributors to gain liquidity, provides an
          opportunity for expansion through acquisition. The Company believes
          that opportunities exist for a company which has the ability to source
          and distribute products effectively to serve the building materials
          industry and to effect cost savings through economies of scale which
          can be applied to companies that may be acquired in these industries.

               The Company's primary focus in 2001 was to complete the
          integration of the distribution outlets acquired in 2000 with its
          existing operations and to attempt to effect cost savings in the
          consolidation of the acquired operations. The Company has taken action
          to improve operating performance in the Company's distribution
          operations through: (i) an approximate 32% reduction in workforce of
          68 employees in 2001; (ii) closure of under-performing distribution
          locations in Hattiesburg, Picayune and Pascagoula, Mississippi; (iii)
          elimination of installation services at two locations; and (iv)
          development of a consolidated purchasing program in an attempt to
          realize greater savings from the purchase and resale of products.
          While it currently will emphasize internal growth through gains in
          productivity of operations, the Company believes there exists a number
          of possible acquisition candidates. The Company presently is not


                                       5
<PAGE>

Item 1.   Business (continued)
          --------------------

          Acquisition Opportunities and Present Status (continued)

          seeking any acquisitions. Accordingly, it does not have any binding
          understanding, agreement or commitment regarding any potential
          acquisition. The Company may pursue acquisitions in the future if such
          acquisitions will enhance Company operations.

          Suppliers
          ---------

               Premix's raw materials and products are purchased from
          approximately 21 suppliers. While five suppliers account for
          approximately 64% of Premix's purchases, Premix is not dependent on
          any one supplier for its requirements. Equivalent materials are
          readily available from other sources at similar prices.

               Acrocrete's raw materials are purchased from approximately 16
          other suppliers, of which five account for approximately 67% of
          Acrocrete's raw material purchases. However, equivalent materials are
          available from several other sources at similar prices and Acrocrete
          is not dependent on any one supplier for its requirements.

               The Company's Just-Rite distribution outlets sell products of
          many suppliers. Just-Rite purchases a significant amount of its
          products through buying group organizations, companies which
          consolidate product purchase orders from many independent distributors
          and order product from various vendors on the distributors behalf to
          gain consolidated purchasing efficiencies for each distributor. One
          such buying organization accounted for approximately 25% and 26% of
          Just-Rite purchases in 2001 and 2000. However, there are other buying
          organizations in which the Company believes it can obtain product at
          the same or similar prices.

          Marketing and Sales

               The Company's marketing and sales strategy is to create a profit
          center for the products it manufactures, as well as enlarging its
          product offerings to include certain complementary products and other
          building materials manufactured by other companies. The complementary
          items are purchased by the Company and held in inventory, together
          with manufactured products, for sale to customers. Generally, sales
          orders are filled out of existing inventory within several days of
          receipt of the order. The total package sales approach to the new and
          renovation construction markets is targeted at both the end user of
          the Company's products, being primarily the contractor or
          subcontractor, and the distributor, principally building materials
          dealers who purchase products from the Company and sell to the end
          user, and in some instances, to retail customers.

               While the Company's manufactured sales have been typically to
          distributors, the Company focuses marketing efforts on the
          contractor/subcontractor end user to create a brand preference for the

                                       6
<PAGE>

Item 1.   Business (continued)
          --------------------

          Marketing and Sales (continued)
          -------------------------------

          Company's manufactured products. No one distributor has accounted for
          10% or more of total sales during the past three years. The Company
          believes the loss of any one distributor would not cause a material
          loss in sales because the brand preference contractors and
          subcontractors have developed for the Company's manufactured products
          generally cause the user to seek a distributor who carries the
          Company's products. The Company markets its products to distributors
          through Company salesmen located in the Southeastern United States who
          promote both Premix and Acrocrete products. However, direct sales of
          manufactured products and other building materials to end users
          through Just-Rite accounted for approximately 70% of total revenues in
          2001.

               In 1994, the Company opened a distribution outlet in Savannah,
          Georgia to sell its Acrocrete products directly to the end user. The
          Company's products and certain complementary products manufactured by
          other companies were inventoried and sold from a leased warehouse
          distribution facility.

               In February 1998, the Company acquired a facility in Tampa,
          Florida that was engaged primarily in the distribution of landscape
          stone products. The Company utilized this distribution facility to
          gain market share for the sale of its products on the West Coast of
          Florida. The Company subsequently opened a distribution facility in
          the third quarter of 1998 in Dallas, Georgia, and one in Gadsden,
          Alabama in April 1999, which was subsequently moved to Rainbow City,
          Alabama in 2000. In January 2000, the Company acquired three
          additional outlets, one in Foley, Alabama, one in Pensacola, Florida
          and one in Destin, Florida. In March 2000 and April 2000, the Company
          acquired additional distribution outlets in Panama City Beach and
          Tallahassee, Florida. In May 2000 the Company acquired three
          distribution outlets located in Gulfport, Pascagoula and Hattiesburg,
          Mississippi. In October, 2000, the Company opened a new distribution
          outlet in Picayune, Mississippi. In 2001, the Company closed
          distribution outlets in Hattiesburg, Picayune and Pascagoula,
          Mississippi due to under-performance and competitive conditions in
          their local markets. The Company currently has eleven (11)
          distribution outlets in Florida, Georgia, Mississippi and Alabama.

               Each facility contains between approximately 6,400 to 29,000
          square feet. The distribution facilities are designed to promote
          product brand preference to the contractor and sub-contractor, and
          also to improve service capabilities, increase market share, and to
          increase profit margins from the sale of the Company's products and to
          expand operations by distributing a wide range of products to the
          construction industry. The Company sells Acrocrete, Premix and
          complementary products of other manufacturers at such distribution
          facilities.


                                       7
<PAGE>

Item 1.   Business (continued)

          Seasonality
          -----------

               The sale of the Company's products in the construction market for
          the Southeastern United States is somewhat seasonal due in part to
          periods of adverse weather, with a lower rate of sales historically
          occurring in the period December through February compared to the rest
          of the year. As a result of acquisitions consummated in 2000 located
          in Northwest Florida, Alabama and Mississippi, management believes the
          Company's sales are more subject to seasonal fluctuation than in prior
          years.


            Competition
            -----------

               The Company's business is highly competitive. Premix and
          Acrocrete encounter significant competition from local, independent
          firms, as well as regional and national manufacturers of acrylic,
          cement and plaster products, most of whom manufacture products similar
          to those of Premix and Acrocrete. The Company's distribution outlets
          encounter significant competition from local independent distributors
          as well as regional and national distributors who sell similar
          products. Many of these competitors are larger, more established and
          better financed than the Company. The Company believes it can compete
          with the other companies based upon product performance and quality,
          customer service and prices through maintaining lower overhead costs
          than larger national companies.

          Environmental Matters
          ---------------------

               The Company is subject to various federal, state and local
          environmental laws and regulations in the normal course of its
          business. Although the Company believes that its manufacturing,
          handling, using, selling and disposing of its raw materials and
          products are in accord with current environmental regulations, future
          developments could require the Company to make unforeseen expenditures
          relating to environmental matters. Increasingly strict environmental
          laws, standards and environmental policies may increase the risk of
          liability and compliance costs associated with the Company's
          operations. Capital expenditures for this purpose have not been
          material in past years, and expenditures for 2002 to comply with
          existing laws and regulations are also not expected to have a material
          effect on the Company's financial position, results of operations or
          liquidity.

          Employees
          ---------

               The Company and its subsidiaries had 142 full time employees as
          of December 31, 2001. The Company considers its employee relations to
          be satisfactory. The Company's employees are not subject to any
          collective bargaining agreement.


                                       8
<PAGE>

Item 2.    Properties
           ----------

               The Company and its subsidiaries maintain a total of 14
          facilities in Florida, Georgia, Mississippi and Alabama. The location
          and size of the Company's facilities and the nature of the operations
          in which such facilities are used, are as follows:

                                      Approximate  Owned/
                   Location           Sq. Footage  Leased   Company
                   --------           -----------  ------   -------
                Pompano Beach, Fl.       19,600    Leased   Premix
                Winter Springs, Fl.      26,000    Owned    Premix
                Kennesaw, Ga.            20,400    Leased   Acrocrete
                Tampa, Fl.                8,470    Owned    Just-Rite
                Jacksonville, Fl.        11,400    Leased   Just-Rite
                Norcross, Ga.            12,200    Leased   Just-Rite
                Dallas, Ga.               6,400    Leased   Just-Rite
                Rainbow City, Al.        10,000    Leased   Just-Rite
                Pensacola, Fl.           15,250    Owned    Just-Rite
                Destin, Fl.               7,680    Leased   Just-Rite
                Foley, Al.                9,000    Leased   Just-Rite
                Panama City Beach, Fl.    9,540    Leased   Just-Rite
                Tallahassee, Fl          17,500    Leased   Just-Rite
                Gulfport, Ms.            28,800    Leased   Just-Rite

               The Just-Rite distribution outlets typically consist of a
          warehouse building and supply yard for the inventory and sale of
          products directly to the end user.

               Except for the facilities in Tallahassee, Panama City Beach, and
          Gulfport, all leased properties are leased from unaffiliated third
          parties. The Tallahassee and Panama City Beach facilities are leased
          from the former owners of Tallahassee Gypsum Dealers, Inc, and
          Panhandle Drywall Supply, Inc., who sold their business interest to
          Just-Rite in March 2000 and April 2000 and are currently employees of
          the Company. The Gulfport locations are leased from an entity owned by
          the former owners of A&R Supply, Inc. and A&R Supply of Mississippi,
          Inc., who sold their businesses to Just-Rite, one of whom remains as a
          vice president and general manager of Just-Rite. The Pascagoula
          facility is leased from an entity solely-owned by the former owner of
          A&R Supply of Mississippi, Inc. The Pascagoula facility has been
          closed and sublet.

               Management believes that the Company's facilities and equipment
          are well-maintained, in good operating condition and sufficient for
          its present operating needs.

                                       9
<PAGE>

Item 3.    Legal Proceedings
           -----------------

               As of March 22, 2002, the Company's subsidiary Acrocrete and
          other parties are defendants in 25 lawsuits pending in various
          Southeastern states, by homeowners/homeowner associations, contractors
          and subcontractors, or their insurance companies, claiming moisture
          intrusion damages on single and multi-family family residences. The
          Company's insurance carriers have accepted coverage under a
          reservation of rights for 23 of these claims and are providing a
          defense. The Company expects its insurance carriers to accept coverage
          for the other 2 recently filed lawsuits. Acrocrete is vigorously
          defending all of these cases and believes it has meritorious defenses,
          counter-claims and claims against third parties. Acrocrete is unable
          to determine the exact extent of its exposure or outcome of this
          litigation.

               The allegations of defects in synthetic stucco wall systems are
          not restricted to Acrocrete products but rather are an industry-wide
          issue. There has never been any defect proven against Acrocrete. The
          alleged failure of these products to perform has generally been linked
          to improper application and the failure of adjacent building materials
          such as windows, roof flashing, decking and the lack of caulking.

               On June 15, 1999, Premix was served with a complaint captioned
          Mirage Condominium Association, Inc. v. Premix Marbletite
          Manufacturing Co., et al., in Miami-Dade County Florida. The lawsuit
          raises a number of allegations against 12 separate defendants
          involving alleged construction defects. Plaintiff has alleged only one
          count against Premix, which claims that certain materials, purportedly
          provided by Premix to the Developer/ Contractor and used to anchor
          balcony railings to the structure were defective. The Company's
          insurance carrier has not made a decision regarding coverage to date.
          In the interim, the insurance carrier has retained defense counsel on
          behalf of Premix and is paying defense costs. Premix expects the
          insurance carriers to eventually accept coverage. Premix is unable to
          determine the exact extent of its exposure or the outcome of this
          litigation.

               Premix, Acrocrete and Just-Rite are engaged in other legal
          actions and claims arising in the ordinary course of its business,
          none of which is believed to be material to the Company.

               On April 23, 1999, certain Dissenting Shareholders owning shares
          of the Company's preferred stock filed a petition for appraisal in the
          Delaware Chancery Court to determine the fair value of the shares at
          December 31, 1998, the effective date of the Company's Merger. (See
          Note 1 of Notes to Consolidated Financial Statements).

                                       10
<PAGE>

Item 4.     Submission of Matters to a Vote of Security Holders

               The Company held its 2001 annual meeting of shareholders on
          November 14, 2001, (the "Annual Meeting").

               (a) At the Annual Meeting, the Company's shareholders voted on
          the election of Class III directors as follows:

               Two Class III directors were elected at the Annual Meeting with
          the votes as indicated below:

                                                For             Withhold
                                                ---             --------
                  S. Daniel Ponce            5,948,471          480,201
                  Lisa M. Brock              5,944,771          483,901

               (b) A proposal to amend the Company's Certificate of
          Incorporation in order to increase the number of authorized shares of
          Common Stock from 20,000,000 to 40,000,000 was approved by the
          Company's shareholders at the Annual Meeting by the following vote:

                           For:                       5,574,384
                           Against:                     824,626
                           Abstain:                      29,662
                           Not Voted:                 2,791,762

                                       11
<PAGE>
                                     PART II


Item 5.  Market for the Registrant's Common Equity and Related
         Stockholder Matters
         -----------------------------------------------------

               The Company's Common Stock is traded in the over-the-counter
          market. The following table sets forth the high and low bid quotations
          of the Common Stock for the quarters indicated, as reported by the
          National Quotation Bureau, Inc. Such quotations represent prices
          between dealers and do not include retail mark-up, mark-down, or
          commission, and may not necessarily represent actual transactions.

                            Fiscal, 2000       High          Low
                            ------------       ----          ---

                            First Quarter      $.86          $.54
                            Second Quarter      .70           .58
                            Third Quarter       .71           .51
                            Fourth Quarter      .44           .35

                            Fiscal, 2001       High          Low
                            ------------       ----          ---

                            First Quarter      $.43          $.28
                            Second Quarter      .39           .26
                            Third Quarter       .29           .14
                            Fourth Quarter      .21           .17


               The Company has not paid any cash dividends on its Common Stock
          since 1980 and does not anticipate paying any in the foreseeable
          future.

               On March 22, 2002, the Common Stock was held by 1,875
          stockholders of record.

               As of March 22, 2002, the closing bid and asked prices of the
          Common Stock was $.15 and $.19, respectively.


                                       12
<PAGE>

Item 6.   Selected Financial Data
          -----------------------

               The following is a summary of selected financial data (in
          thousands except as to per share amounts) for the five years ended
          December 31, 2001:
<TABLE>
<CAPTION>

Statements of Operations Data                                  Year Ended December 31,
-----------------------------                                  -----------------------
                                           2001(2)       2000(2)        1999          1998          1997
                                           -------       -------        ----          ----          ----

<S>                                       <C>           <C>           <C>           <C>           <C>
Net sales                                 $ 39,514      $ 40,730      $ 22,604      $ 18,739      $ 15,774
                                          --------      --------      --------      --------      --------
Cost of sales                               27,254        28,218        15,198        12,823        10,867
                                          --------      --------      --------      --------      --------
Selling, general and administrative
 expenses                                   11,367        10,985         5,932         4,645         3,740
                                          --------      --------      --------      --------      --------
Interest expense                              (825)         (806)         (475)         (272)         (329)
                                          --------      --------      --------      --------      --------
Merger costs                                  --            --            --            (456)         --
                                          --------      --------      --------      --------      --------
Goodwill impairment charge                    (238)         --            --            --            --
                                          --------      --------      --------      --------      --------
Miscellaneous income, net                       77           199            34         1,218            54
                                          --------      --------      --------      --------      --------
(Loss) income before income taxes              (93)          920         1,033         1,761           892
                                          --------      --------      --------      --------      --------
Income tax (expense) benefit, net             (128)         (386)          187           296           753
                                          --------      --------      --------      --------      --------
Net (loss) income                             (221)          534         1,220         2,057         1,645
                                          --------      --------      --------      --------      --------
Less:  dividends on redeemable
  preferred stock                             --            --            --            (248)         (330)
                                          --------      --------      --------      --------      --------
Less:  net charge for elimination
  of preferred stock                          --            --            --            (975)         --
                                          --------      --------      --------      --------      --------
Net (loss) income applicable to
  common stockholders                     $   (221)     $    534      $  1,220      $    834      $  1,315
                                          --------      --------      --------      --------      --------
Net (loss) income per share
  applicable to common stockholders
     Basic                                $   (.02)     $    .06      $    .15      $    .13      $    .22
                                          --------      --------      --------      --------      --------
     Diluted                              $   (.02)     $    .06      $    .15      $    .12      $    .21
                                          --------      --------      --------      --------      --------
Number of shares used in computation
 of (loss) income per share:  Basic          9,214         8,936         8,199         6,566         6,009
                                          --------      --------      --------      --------      --------
                              Diluted        9,214         9,070         8,390         6,715         6,267
                                          --------      --------      --------      --------      --------
</TABLE>
<TABLE>
<CAPTION>

Balance Sheets Data                                      As of December 31,
-------------------                                      ------------------
                                       2001(2)     2000(2)      1999        1998       1997
                                       -------     -------      ----        ----       ----

<S>                                   <C>         <C>         <C>         <C>         <C>
Working capital                       $ 2,480     $ 1,607     $ 3,447     $ 2,439     $ 1,995
                                      -------     -------     -------     -------     -------
Total assets                          $14,591     $16,792     $ 8,768     $ 7,561     $ 5,128
                                      -------     -------     -------     -------     -------
Long-term debt,
 less current maturities              $ 1,440     $ 1,402     $ 1,328     $ 1,316     $   819
                                      -------     -------     -------     -------     -------
Obligation for appraisal rights       $   877     $   877     $   877     $   877     $  --
                                      -------     -------     -------     -------     -------
Redeemable preferred stock            $  --       $  --       $  --       $  --       $ 3,001
                                      -------     -------     -------     -------     -------
Preferred dividends in arrears(1)     $  --       $  --       $  --       $  --       $ 4,044
                                      -------     -------     -------     -------     -------
Common stock and other
  stockholders' equity (deficit)      $ 4,343     $ 4,559     $ 3,514     $ 2,281     $(4,441)
                                      -------     -------     -------     -------     -------

Current ratio                        1.3 to 1    1.2 to 1    2.1 to 1    1.8 to 1    2.2 to 1
                                     --------    --------    --------    --------    --------
</TABLE>

     (1)  No cash dividends were paid on the cumulative redeemable preferred
          stock since 1985. The preferred stock and all accumulated accrued
          unpaid dividends were eliminated at December 31, 1998, upon the
          effective date of the Merger.

                                       13
<PAGE>

Item 6.   Selected Financial Data (continued)
          -----------------------------------

     (2)  Four acquisition transactions were consummated during 2000 which
          significantly impacted the Balance Sheets and Statements of (See Note
          14 in the accompanying financial statements.)


Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations
          -----------------------------------------------------------

          General
          -------

               The Company's business is related primarily to the level of
          construction activity in the Southeastern United States, particularly
          the states of Florida, Georgia, Mississippi and Alabama. The majority
          of the Company's products are sold to contractors, subcontractors and
          building materials dealers located principally in these states who
          provide building materials for the construction of residential,
          commercial and industrial buildings and swimming pools. 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 remained strong in the Southeastern United States during the last
          several years, the duration of recent economic conditions and the
          magnitude of its effect on the construction industry are uncertain and
          cannot be predicted.

          Special Note R egarding Forward-Looking Statements
          --------------------------------------------------

               This Form 10-K contains certain forward looking statements within
          the meaning of the Private Securities Litigation Reform Act of 1995
          with respect to the financial condition, results of operations and
          business of the Company, and its subsidiaries, including statements
          made under Management's Discussion and Analysis of Financial Condition
          and Results of Operations. These forward looking statements involve
          certain risks and uncertainties. No assurance can be given that any of
          such matters will be realized. Factors that may cause actual results
          to differ materially from those contemplated by such forward looking
          statements include, among others, the following: realization of tax
          benefits; impairment of long-lived assets, including goodwill; the
          outcome of litigation; the competitive pressure in the industry;
          general economic and business conditions; the ability to implement and
          the effectiveness of business strategy and development plans; quality
          of management; business abilities and judgement of personnel;
          availability of qualified personnel; and labor and employee benefit
          costs.


                                       14
<PAGE>

Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations (continued)
          -----------------------------------------------------------

          Critical Accounting Policies
          ----------------------------

               We prepare our consolidated financial statements in accordance
          with accounting principles generally accepted in the United States of
          America, which require management to make estimates and assumptions
          (see Note 2 to the consolidated financial statements). Management
          bases these estimates and assumptions on historical results and known
          trends as well as our forecasts as to how these might change in the
          future. Actual results could differ from these estimates and
          assumptions. We believe that the following critical accounting
          policies involve a higher degree of judgement and complexity:

          Revenue Recognition and Related Expenses
          ----------------------------------------

               The Company primarily recognizes sales based upon shipment of
          products to its customers and has procedures in place at each of its
          subsidiaries to ensure that an accurate cut-off is obtained for each
          reporting period.

               Provisions for the estimated costs for bad debts are recorded in
          selling, general and administrative expense at the end of each
          reporting period. The amounts recorded are generally based upon the
          payment histories of customers while also factoring in any changes in
          business conditions, such as competitive conditions in the market and
          deterioration in the economic condition of the construction industry,
          among other things, which may effect customers' ability to pay. As a
          result, significant judgement is required by the Company in
          determining the appropriate amounts to record and such judgments may
          prove to be incorrect in the future. The Company believes that its
          procedures for estimating such amounts are reasonable and historically
          have not resulted in material adjustments in subsequent periods when
          estimates are adjusted to the actual amounts.

          Inventory Valuation
          -------------------

               The Company values inventories at the lower of cost or market
          using the first-in, first-out (FIFO) method. The Company will record
          provisions, as appropriate, to write-down obsolete and excess
          inventory to estimated net realizable value. The process for
          evaluating obsolete and excess inventory often requires the Company to
          make subjective judgments and estimates concerning future sales
          levels, quantities and prices at which such inventory will be able to
          be sold in the normal course of business. Accelerating the disposal
          process or incorrect estimates of future sales potential may cause the
          actual results to differ from the estimates at the time such inventory
          is disposed or sold. The Company believes that its procedures for
          estimating such amounts are reasonable and historically have not
          resulted in material

                                       15
<PAGE>

Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations (continued)
          -----------------------------------------------------------

          Inventory Valuation (continued)
          -------------------------------

          adjustments in subsequent periods when the estimates are adjusted to
          the actual amounts.

          Asset Impairment
          ----------------

               Our review of long-lived assets and goodwill requires us to
          initially estimate the undiscounted future cash flow of these assets,
          whenever events or changes in circumstances indicate that the carrying
          amount of these assets may not be fully recoverable. If such analysis
          indicates that a possible impairment may exist, we are required to
          then estimate the fair value of the asset, principally determined
          either by third party appraisals, sales price negotiations or
          estimated discounted future cash flows, which includes making
          estimates of the timing of the future cash flows, discount rates and
          reflecting varying degrees of perceived risk.

               The determination of fair value includes numerous uncertainties.
          For example, in determining fair value of goodwill utilizing
          discounted forecasted cash flows, significant judgments are made
          concerning future purchased and manufactured goods sale prices,
          operating, selling and administrative costs, interest and discount
          rates, technological changes, consumer demand, governmental
          regulations and the effects of competition. We believe that we have
          made reasonable estimates and judgments in determining whether our
          long-lived assets and goodwill have been impaired, however, if there
          is a material change in the assumptions used in our determination of
          fair values or if there is a material change in the conditions or
          circumstances influencing fair value, we could be required to
          recognize a material non-cash impairment charge.

          Income Taxes
          ------------

               The Company accounts for income taxes using the liability method
          in accordance with SFAS No. 109 "Accounting for Income Taxes" ("SFAS
          No. 109"), which requires that the deferred tax consequences of
          temporary differences between the amounts recorded in the Company's
          Consolidated Financial Statements and the amounts included in the
          Company's federal and state income tax returns be recognized in the
          balance sheet. As the Company generally does not file their income tax
          returns until well after the closing process for the December 31
          financial statements is complete, the amounts recorded at December 31
          reflect estimates of what the final amounts will be when the actual
          income tax returns are filed for that fiscal year. In addition,
          estimates are often required with respect to, among other things, the
          appropriate state income tax rates to use in the various states that
          the Company and its subsidiaries are required to file, the potential
          utilization of

                                       16
<PAGE>

Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations (continued)
          -----------------------------------------------------------

          Income Taxes (continued)
          ------------------------

          operating and capital loss carry-forwards for both federal and state
          income tax purposes and valuation allowances required, if any, for tax
          assets that may not be realizable in the future. The Company believes
          that the amounts recorded as deferred income tax assets will be
          recoverable through future taxable income generated by the Company.
          Although there can be no assurance that all recognized deferred tax
          assets will be fully recovered, the Company believes the procedures
          and estimates used in its accounting for income taxes are reasonable
          and in accordance with established tax law. Our forecasted profits
          from future operations may be adversely affected by various factors
          including, but not limited to, declines in customer demand, increased
          competition, the deterioration in general economic and business
          conditions, as well as other factors, including those noted under
          "Special Note Regarding Forward-Looking Statements" and "Market
          Risks".

          Results of Operations
          ---------------------

          Year Ended December 31, 2001 Compared to 2000
          ---------------------------------------------

               Net sales in 2001 decreased $1,216,000 or approximately 3.0%
          compared to 2000. Reduced market prices for gypsum wallboard, a major
          product line of the Company's distribution operations, closure of
          certain under-performing distribution operations, elimination of
          installation services at certain locations and reduced demand for
          certain of the Company's manufactured products, accounted for the
          sales decline in 2001 compared to 2000.

               Gross profit as a percentage of net sales for 2001 was
          approximately 31.0% compared to 30.7% in 2000. The increase in gross
          profit margins was principally due to a slight improvement in gross
          profit margins realized by the Company's distribution operations.
          Although, the Company realized an increase in gross profit margins,
          the severe industry price declines in gypsum wallboard products was a
          primary factor in the total gross profits decrease from 2000 to 2001.

               In 2001, the aggregate gross profits derived by the Company's
          acquired distribution facilities were adversely affected by
          competitive conditions in the Company's distribution markets,
          primarily the sale of gypsum products manufactured by other companies.
          Market prices for gypsum wallboard were substantially lower in 2001
          compared to the average prices realized in 2000. The decrease appeared
          to be the result of excess supply and increased competition among the
          gypsum wallboard manufacturers. However, the trend of lower gypsum
          wallboard pricing, which commenced in early 2000 and continued for six
          consecutive quarters through the first

                                       17
<PAGE>

Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations (continued)
          -----------------------------------------------------------

          Year Ended December 31, 2001 Compared to 2000 (continued)
          ---------------------------------------------------------

          six months of 2001, began to rebound from historically low levels
          during the third quarter ended September 30, 2001. During the third
          quarter, certain manufacturers reduced production of gypsum wallboard
          and a seasonally strong demand for gypsum wallboard resulted in
          increased gypsum prices in the latter part of 2001, although at still
          significantly reduced prices from historical levels. The Company is
          unable to determine if such increased prices will be maintained or
          trend higher in 2002. However, additional price increases for gypsum
          wallboard have been announced for March 2002.

               The results of operations of the Company's distribution
          operations had a negative impact on the Company's consolidated results
          in 2001 due in large part to reduced gross profits caused by lower
          gypsum wallboard prices and poor operating results at certain
          under-performing distribution facilities, including those facilities
          which were closed in 2001. In 2001, the Company's distribution
          operations realized sales of $27,597,000 and incurred an operating
          loss of $639,000 before any charges of corporate overhead and
          write-off of goodwill impairment charges, compared to sales of
          $28,464,000 and an operating profit of $171,000 in 2000. In addition,
          the Company incurred a $238,000 impairment charge to goodwill as a
          result of the under-performance of certain acquired distribution
          operations subsequent to the date of their acquisition.

               Efforts are being made to increase sales and gross profits of
          distribution operations by focusing primarily on attaining increased
          sales of the Company's manufactured products through the Company's
          acquired distribution facilities and its manufacturing facilities,
          broadening the product line of the Company's existing distribution
          facilities in selected markets and decreasing reliance on sales of
          gypsum products in certain distribution locations.

               Selling, general and administrative expenses as a percentage of
          net sales for 2001 were approximately 28.8% compared to 27.0% in 2000.
          The most significant reason for the increase in selling, general and
          administrative expenses as a percentage of sales in the year 2001 was
          the decrease in revenue resulting from the decline in gypsum wallboard
          prices and the recent closure of under-performing distribution
          facilities in 2001. Selling, general and administrative expenses
          increased $382,000 or approximately 3.5% in 2001, compared to 2000.
          The increase in expenses was primarily due to additional operating
          costs, including an increase in provision for bad debt expense of
          $92,000, primarily related to the distributors acquired at various
          times during 2000. In addition, the operating results of certain of
          the acquired distributors were not included for the entire twelve
          month period in 2000 due to the

                                       18
<PAGE>

Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations (continued)

          Year Ended December 31, 2001 Compared to 2000 (continued)
          ---------------------------------------------------------

          timing of their respective acquisitions.

               The Company has taken action to improve operating performance in
          the Company's distribution operations through: (i) an approximate 32%
          reduction in workforce of 68 employees in 2001; (ii) closure of
          under-performing distribution locations in Hattiesburg, Picayune and
          Pascagoula, Mississippi; (iii) elimination of installation services at
          two locations; and (iv) development of a consolidated purchasing
          program in an attempt to realize greater savings from the purchase and
          resale of products. The operations associated with the three closed
          distribution locations and eliminated installation services accounted
          for aggregate operating losses for 2001 and 2000 of approximately,
          $474,000 and $96,000 respectively. Additional charges attributed to
          the closed operations, including expenses arising from the sale of
          vehicles and closing of a leased facility, increased total losses
          associated with the closed operations in 2001 to approximately
          $592,000.

               The Company had operating income of $655,000 in 2001 as compared
          to operating income of $1,527,000 in 2000. Due to the closing of
          certain acquired distribution facilities and the underperformance of
          another, the Company recorded a $238,000 impairment of goodwill in
          2001. There was no corresponding charge against operating income in
          2000.

               Interest expense increased $19,000 in 2001 or approximately 2.4%
          compared to 2000. The increase in interest expense in 2001 was
          primarily due to additional borrowings related to the purchase and
          operation of the acquired distributors for a full year period in 2001,
          compared to 2000, offset by lower borrowing rates.

               In the year ended 2001 the Company recognized income tax expense
          of $128,000, compared to $386,000 for 2000. Deferred income tax
          expense in 2001 is the result of the expiration of unused net
          operating loss carryforwards in 2001.

               As a result of the above factors, the Company incurred a net loss
          of $221,000 or $.02 per fully diluted share for 2001, compared to net
          income of $534,000 or $.06 per share for 2000.

          Year Ended December 31, 2000 Compared to 1999
          ---------------------------------------------

               Net sales in 2000 increased $18,126,000, or approximately 80.2%
          compared to 1999. The increase in sales was derived from the sale of
          building materials generated by distributors acquired at various dates
          during the first five months of 2000. These sales primarily consisted
          of building materials purchased from other

                                       19
<PAGE>

Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations (continued)
          -----------------------------------------------------------

          Year Ended December 31, 2000 Compared to 1999 (continued)
          ---------------------------------------------------------

          manufacturers, principally gypsum, roofing, insulation, metal studs,
          masonry and stucco products.

               Gross profit as a percentage of net sales for 2000 was
          approximately 30.7% compared to 32.8% in 1999. The decrease in gross
          profit margins was principally due to a greater proportion of
          consolidated sales represented by products manufactured by other
          companies sold through the Company's acquired distribution facilities,
          as compared to the proportionate amount of sale of products
          manufactured by the Company with higher gross profit margins. Products
          manufactured by the Company accounted for approximately 43.4% of
          consolidated sales in 2000, compared to approximately 74.0% in 1999.
          The distribution facilities typically generate lower gross profit
          margins than the direct sale of the Company's manufactured products.

               In 2000, gross profits derived by the Company's acquired
          distribution facilities were adversely affected by competitive
          conditions in the Company's distribution markets for sales of gypsum
          products manufactured by other companies. Gypsum products, principally
          wallboard, a major product line of the acquired distributors, suffered
          price deflation of approximately 40% in 2000, due to industry
          conditions.

               The results of operations of the acquired distributors had a
          material impact on the Company's consolidated results in 2000 and will
          continue to impact results in 2001. The acquisitions were accounted
          for under the purchase method of accounting. Accordingly, results of
          operations of the acquired distributors have been consolidated since
          their respective acquisition dates in 2000.

               Efforts are being made to increase sales and gross profits by
          focusing primarily on attaining increased sales of the Company's
          manufactured products through the Company's acquired distribution
          facilities, expanding the sale of installed products and broadening
          the product line of the Company's existing distribution facilities
          where suitable in selected markets.

               Selling, general and administrative expenses as a percentage of
          net sales for 2000 was approximately 27.0% compared to 26.2% in 1999.
          Selling, general and administrative expenses increased $5,053,000 or
          approximately 85.2% in 2000, compared to 1999. The increase in
          expenses was primarily due to additional operating costs related to
          the acquired distributors acquired in 2000 and costs incurred to
          integrate the acquisitions. Certain growth initiatives in the
          Company's distribution operations resulted in increased expenses in
          2000. Start-up costs were incurred to develop the sale of certain
          installed products at selected

                                       20
<PAGE>

Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations (continued)
          -----------------------------------------------------------

          Year Ended December 31, 2000 Compared to 1999 (continued)
          ---------------------------------------------------------

          distribution locations and for the opening of a new distribution
          location in Picayune, Mississippi in October 2000. In addition, the
          Company incurred additional costs to up-grade the delivery
          capabilities of its distribution facilities through the purchase and
          leasing of additional vehicles and added sales personnel in selected
          markets in an attempt to increase sales.

               Efforts have been made to improve operating efficiency in the
          Company's distribution operations through: (i) a reduction in
          personnel in certain locations; (ii) closure of an acquired under-
          performing distribution location in Hattiesburg, Mississippi; (iii)
          the recent consolidation of the Company's distribution locations in
          Pensacola, Florida and Foley, Alabama, through a reduction and
          realignment of personnel; and (iv) an attempt to realize greater
          savings from the purchase and resale of products through a
          consolidated purchasing program.

               Interest expense increased $331,000, or approximately 69.7%
          compared to 1999. The increase in interest expense was primarily due
          to additional borrowings related to the purchase and operations of the
          acquired distributors. Miscellaneous income for 2000 included a
          $75,000 settlement of a prior year product liability claim against a
          former vendor.

               In 2000, the Company incurred $367,000 of deferred income tax
          expense. In 1999, the Company recognized a $574,000 tax benefit as a
          result of releasing a portion of the valuation allowance on the
          Company's deferred tax asset. The Company's Consolidated Statement of
          Operations for the year ended December 31, 1999, reflected a deferred
          income tax benefit of $213,000, comprised of taxes at the statutory
          rate of 35% less the tax benefit described above.

               As a result of the above factors, the Company generated net
          income of $534,000, or $.06 per fully diluted share for 2000, compared
          to net income of $1,220,000, or $.15 per share for 1999.

          Liquidity and Capital Resources
          -------------------------------

               Sources and Uses of Cash
               ------------------------

               Our business provided approximately $1,185,000 and $19,000 of net
          cash from operations in 2001 and 2000, respectively. The increase in
          cash flow in 2001 was primarily attributable to reductions in accounts
          receivable and inventory as a result of closing certain distribution
          operations, eliminating installation operations and management's
          emphasis on improving working capital.

                                       21
<PAGE>

 Item 7.  Management's Discussion and Analysis of Financial Condition
          and Results of Operations (continued)
          -----------------------------------------------------------

          Liquidity and Capital Resources (continued)
          -------------------------------------------

               Sources and Uses of Cash (continued)
               ------------------------------------

               During 2001, the net expenditures for investing activities were
          $112,000 compared to $2,693,000 in 2000. The larger expenditures in
          the prior year were the result of the purchase of seven building
          material distributors which accounted for the majority of the 2000
          expenditures.

               During 2001, we reduced our line of credit balance approximately
          $768,000. We also made principal payments on other debt totaling
          $1,538,000, including the payment of the 8% Subordinated Debentures
          due December 31, 2001. In 2001 we received proceeds of approximately
          $748,000 from collateralized borrowing agreements which were partially
          used to repay the 8% Subordinated Debentures.

               Future Commitments and Funding Sources
               --------------------------------------

               At December 31, 2001, our contractual cash obligations, with
          initial or remaining terms in excess of one year, were as follows:
<TABLE>
<CAPTION>

               Contractual Cash                                                Payments Due by Fiscal               2006 and
               Obligations                Total          2002           2003           2004           2005        Thereafter
               -------------------------------------------------------------------------------------------------------------
<S>                                    <C>            <C>            <C>            <C>            <C>            <C>
               Long-term debt(a)       $2,109,000     $  669,000     $  620,000     $  729,000     $   87,000     $    4,000

               Operating leases(a)      3,599,000      1,052,000        889,000        803,000        480,000        375,000
                                       ----------     ----------     ----------     ----------     ----------     ----------

               Total contractual
                cash obligations       $5,708,000     $1,721,000     $1,509,000     $1,532,000     $  567,000     $  379,000
                                       ----------     ----------     ----------     ----------     ----------     ----------
</TABLE>

     (a)  See Notes 7 and 13 in the accompanying financial statements for
          additional information regarding our debt and commitments.

               At December 31, 2001, the Company had working capital of
          approximately $2,480,000 compared to working capital of $1,607,000 at
          December 31, 2000. The improvement in working capital was primarily a
          result of the payment of the $985,000 8% Subordinated Debentures due
          December 31, 2001 in part from proceeds derived from long-term
          financing agreements in the amount of $715,000. As of December 31,
          2001, the Company had cash and cash equivalents of $1,368,000.

               The Company's principal source of short-term liquidity is
          existing cash on hand and the utilization of a $6,000,000 line of
          credit with a commercial lender. The maturity date of the line of
          credit is June 19, 2002, subject to annual renewal. Premix, Acrocrete
          and Just-Rite borrow on the line of credit, based upon

                                       22
<PAGE>

Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations (continued)
          -----------------------------------------------------------

          Liquidity and Capital Resources (continued)
          -------------------------------------------

          and collateralized by, their eligible accounts receivable and
          inventory. Generally, accounts not collected within 120 days are not
          eligible accounts receivable under the Company's borrowing agreement
          with its commercial lender. At December 31, 2001, $4,335,000 had been
          borrowed against the line of credit. Based on eligible receivables and
          inventory, the Company had, under its line of credit, total available
          borrowing, (including the amount outstanding of $4,335,000) of
          approximately $4,923,000 at December 31, 2001.

               Trade accounts receivable represent amounts due from sub-
          contractors, contractors and building materials dealers located
          principally in Florida, Mississippi and Georgia who have purchased
          products on an unsecured open account basis and through Company owned
          warehouse distribution outlets. As of December 31, 2001, the Company
          owned and operated eleven distribution outlets. Accounts receivable,
          net of allowance, at December 31, 2001 was $4,419,000 compared to
          $4,866,000 at December 31, 2000. The decrease in receivables of
          $447,000, or approximately 9.2%, was primarily related to lower sales
          levels in the fourth quarter of 2001 compared to 2000, partially
          attributable to the closing of certain distribution locations and the
          elimination of installation services.

               As a result of the consummation of the December 31, 1998 merger,
          among other things, the Company agreed to pay $733,000 in cash to the
          former preferred shareholders. At December 31, 2001, the Company had
          paid $685,000 of such cash amount. Amounts payable to such
          shareholders at December 31, 2001 results from their non- compliance
          with the conditions for payments.

               Holders representing 81,100 preferred shares have elected
          dissenters' rights, which, under Delaware law, would require cash
          payments equal to the fair value of their stock, as of the date of the
          merger, to be determined in accordance with Section 262 of the
          Delaware General Corporation Law. The Company has recorded a liability
          for each share based on the fair value of $2.25 in cash, an $8.00
          Subordinated Debenture and five shares of the Company's common stock
          since that is the consideration the dissenting holders would receive
          if they did not perfect their dissenters' rights under the law.
          Dissenting stockholders filed a petition for appraisal rights in the
          Delaware Chancery Court on April 23, 1999.

               In the fourth quarter of 2001, the Company completed the
          refinancing of two mortgage loans and obtained secured equipment
          borrowings from a commercial lender which generated net proceeds of
          approximately $688,000 to help satisfy the 8% Debentures due December
          31, 2001. At December 31, 2001, the Company paid the holders of the
          Debentures tendering their bonds $787,000. Amounts

                                       23
<PAGE>

Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations (continued)
          -----------------------------------------------------------

          Liquidity and Capital Resources (continued)
          -------------------------------------------

          payable to stockholders at December 31, 2001 on the Company's
          consolidated balance sheets includes $238,000 for former stockholder's
          who have not yet tendered their Debentures as required by the terms of
          such instrument.

               The Company presently is focusing its efforts on the completion
          of the integration and consolidation of the acquired distributors'
          operations into the Company, reducing costs and expenses and improving
          working capital. The Company expects to incur various capital
          expenditures during the next twelve months to upgrade and maintain its
          equipment and delivery fleet to support operations. In addition, the
          Company is planning the implementation of an upgraded centralized
          management information system for its distribution operations. Capital
          needs associated with these capital projects cannot be estimated at
          this time, but management does not expect the cash investment portion
          of the expenditures for these projects to exceed $100,000.

               The Company believes its cash on hand and the maintenance of its
          borrowing arrangement with its commercial lender will provide
          sufficient cash to meet its current obligations for its operations and
          support the cash requirements of its capital expenditure programs in
          2002.

               The ability of the Company to maintain and improve its long- term
          liquidity is primarily dependent on the Company's ability to
          successfully achieve and maintain profitable operations and resolve
          its appraisal rights litigation on terms favorable to the Company.

          New Accounting Pronouncements
          -----------------------------

               In June 2001, SFAS 141, "Business Combinations," and SFAS 142,
          "Goodwill and Other Intangible Assets" was adopted by the FASB. SFAS
          141 requires that the purchase method of accounting be used for all
          business combinations completed after June 30, 2001. SFAS 141 also
          specifies the types of acquired intangible assets that are required to
          be recognized and reported separately from goodwill and those acquired
          intangible assets that are required to be included in goodwill. SFAS
          142 will require that goodwill no longer be amortized, but instead
          tested for impairment at least annually. SFAS 142 will also require
          recognized intangible assets be amortized over their respective
          estimated useful lives and reviewed for impairment in accordance with
          SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
          Long-Lived Assets to be Disposed Of". Any recognized intangible asset
          determined to have an indefinite useful life will not be amortized,
          but instead tested

                                       24
<PAGE>

Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations (continued)
          -----------------------------------------------------------

          New Accounting Pronouncements (continued)
          -----------------------------------------

          for impairment in accordance with the Standard until its life is
          determined to no longer be indefinite. SFAS 141 is effective for all
          business combinations initiated after June 30, 2001, while the
          provisions of SFAS 142 are effective for fiscal years beginning after
          December 15, 2001, and are effective for interim periods in the
          initial year of adoption.

               The Company intends to adopt SFAS 142 in 2002. Accordingly, the
          Company will no longer amortize goodwill and will perform an
          impairment test of goodwill annually. The cessation of goodwill
          amortization will result in a reduction of $33,000 in annual goodwill
          amortization, assuming no future impairment of goodwill.

               The SFAS No. 142 goodwill impairment review consists of a two-
          step of first determining the fair value of the reporting unit and
          comparing it to the carrying value of the net assets allocated to the
          reporting unit. If this fair value exceeds the carrying value, no
          further analysis is required. If the fair value of the reporting unit
          is less than the carrying value of the net assets, the implied fair
          value of the reporting unit is allocated to all underlying assets and
          liabilities, including both recognized and unrecognized tangible
          assets, based on their fair value. If necessary, goodwill is then
          written-down to its implied fair value. We must complete the first
          step of the transitional impairment review by June 30, 2002 and, if
          necessary, the second step by December 31, 2002. The Company is
          currently analyzing the effect the adoption of these standards will
          have on its consolidated financial statements.

               In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
          Retirement Obligations". SFAS No. 143, which is effective for fiscal
          years beginning after June 15, 2002, addresses financial accounting
          and reporting for obligations associated with the retirement of
          tangible long-lived assets and the associated asset retirement costs.
          Our adoption of this standard is not expected to have a material
          effect on our financial statements.

               In October 2001, the Financial Accounting Standards Board issued
          "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
          144"). SFAS 144 addresses accounting and reporting for the impairment
          or disposal of long-lived assets. This Statement supersedes SFAS 121,
          "Accounting for the Impairment of Long-Lived Assets to be Disposed
          Of". The Company is required to adopt this pronouncement. The Company
          does not believe that the adoption of SFAS 144 will have a material
          effect on its consolidated financial statements.


                                       25
<PAGE>

Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations (continued)
          -----------------------------------------------------------

          Market Risks
          ------------

               Residential and Commercial Construction Activity
               ------------------------------------------------

               Our sales depend heavily on the strength of residential and
          commercial construction activity in the Southeastern United States.
          The strength of these markets depends on many factors beyond our
          control. Some of these factors include interest rates, employment
          levels, availability of credit, prices of raw materials and consumer
          confidence. Downturns in the market that we serve or in the economy
          generally could have a material adverse effect on our operating
          results and financial condition. Reduced levels of construction
          activity may result in intense price competition among building
          materials suppliers, which may adversely affect our gross margins.

               Our first quarter revenues and, to a lesser extent, our fourth
          quarter revenues are typically adversely affected by winter
          construction cycles and weather patterns in colder climates as the
          level of activity in the new construction and home improvement markets
          decreases. Because much of our overhead and expense remains relatively
          fixed throughout the year, our profits also tend to be lower during
          the first and fourth quarters.

               Exposure to Interest Rates
               --------------------------

               We have two variable rate mortgages totaling $446,000 at December
          31, 2001. The mortgages bear interest at prime plus 1% and are due
          October 2004. In Addition, our $6 million line of credit from a
          commercial lender bears an interest rate of prime plus 1/2%. A
          significant increase in the prime rate could have a material adverse
          effect on our operating results and financial condition.

Item 8.   Financial Statement and Supplementary Data
          ------------------------------------------

               See Item 14. Exhibits, Financial Statement Schedules and Reports
          on Form 8-K for the Index to Financial Statements contained herein.


Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure
          -----------------------------------------------------------

               None.

                                       26
<PAGE>

               Report of Independent Certified Public Accountants



To the Board of Directors and Stockholders of
Imperial Industries, Inc.


In our opinion, the consolidated financial statements listed in the index

appearing under Item 14(a)(1) on page 60 present fairly, in all material

respects, the financial position of Imperial Industries, Inc. and its

subsidiaries at December 31, 2001 and 2000, and the results of their operations

and their cash flows for each of the three years in the period ended December

31, 2001  in conformity with accounting principles generally accepted in the

United States of America. In addition, in our opinion, the financial statement

schedules listed in the index appearing under Item 14(a)(2) on page  60 present

fairly, in all material respects, the information set forth therein when read

in conjunction with the related consolidated financial statements.  These

financial statements and financial statement schedules are the responsibility

of the Company's management; our responsibility is to express an opinion on

these financial statements and financial statement schedules based on our

audits.  We conducted our audits of these statements in accordance with

auditing standards generally accepted in the United States of America, which

require that we plan and perform the audit to obtain reasonable assurance about

whether the financial statements are free of material misstatement.  An audit

includes examining, on a test basis, evidence supporting the amounts and

disclosures in the financial statements, assessing the accounting principles

used and significant estimates made by management, and evaluating the overall

financial statement presentation.  We believe that our audits provide a

reasonable basis for our opinion.

PRICEWATERHOUSECOOPERS LLP
Miami, Florida
March 29, 2002

                                       27
<PAGE>
                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
<TABLE>
<CAPTION>

                                                   December 31,      December 31,
   Assets                                              2001              2000
   ------                                              ----              ----
<S>                                                <C>               <C>
Current assets:
  Cash and cash equivalents                        $  1,368,000      $  1,853,000
  Trade accounts receivable (less
   allowance for doubtful accounts of
   $453,000 and $400,000 at December 31,
   2001 and 2000, respectively)                       4,419,000         4,866,000
  Inventories                                         3,807,000         4,387,000
  Deferred income taxes                                 523,000           377,000
  Other current assets                                  294,000            78,000
                                                   ------------      ------------
     Total current assets                            10,411,000        11,561,000
                                                   ------------      ------------

Property, plant and equipment, at cost                4,197,000         4,418,000
 Less accumulated depreciation                       (1,749,000)       (1,444,000)
                                                   ------------      ------------
     Net property, plant and equipment                2,448,000         2,974,000
                                                   ------------      ------------

Deferred income taxes                                   327,000           589,000
                                                   ------------      ------------

Excess cost of investment over net
 assets acquired                                      1,272,000         1,551,000
                                                   ------------      ------------

Other assets                                            133,000           117,000
                                                   ------------      ------------
                                                   $ 14,591,000      $ 16,792,000
                                                   ============      ============


   Liabilities and Stockholders' Equity
   ------------------------------------
Current liabilities:
  Notes payable                                    $  4,335,000      $  5,203,000
  Current portion of long-term debt                     669,000         1,636,000
  Accounts payable                                    1,906,000         2,264,000
  Payable to stockholders                               286,000            48,000
  Accrued expenses and other liabilities                735,000           803,000
                                                   ------------      ------------
     Total current liabilities                        7,931,000         9,954,000
                                                   ------------      ------------

Long-term debt, less current maturities               1,440,000         1,402,000
                                                   ------------      ------------

Obligation for appraisal rights                         877,000           877,000
                                                   ------------      ------------

Commitments and contingencies (Note 13)                    --                --
                                                   ------------      ------------

Stockholders' equity:
 Common stock, $.01 par value at December 31,
  2001 and 2000; 40,000,000 shares authorized;
  9,220,434 and 9,205,434 issued at
  December 31, 2001 and 2000, respectively               92,000            92,000
 Additional paid-in-capital                          13,920,000        13,915,000
 Accumulated deficit                                 (9,669,000)       (9,448,000)
                                                   ------------      ------------
     Total stockholders' equity                       4,343,000         4,559,000
                                                   ------------      ------------
                                                   $ 14,591,000      $ 16,792,000
                                                   ============      ============
</TABLE>

               The accompanying notes are an integral part of the
                       consolidated financial statements.

                                       28
<PAGE>
                      IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                        Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                                                       -----------------------
                                               2001              2000             1999
                                               ----              ----             ----

<S>                                       <C>               <C>               <C>
Net sales                                 $ 39,514,000      $ 40,730,000      $ 22,604,000

Cost of sales                               27,254,000        28,218,000        15,198,000
                                          ------------      ------------      ------------

     Gross profit                           12,260,000        12,512,000         7,406,000

Selling, general and
 administrative expenses                    11,367,000        10,985,000         5,932,000

Impairment charge                              238,000              --                --
                                          ------------      ------------      ------------

     Operating income                          655,000         1,527,000         1,474,000
                                          ------------      ------------      ------------

Other income (expense):
   Interest expense                           (825,000)         (806,000)         (475,000)
   Miscellaneous income                         77,000           199,000            34,000
                                          ------------      ------------      ------------
                                              (748,000)         (607,000)         (441,000)
                                          ------------      ------------      ------------

    (Loss) income before income taxes          (93,000)          920,000         1,033,000
                                          ------------      ------------      ------------

Income tax (expense) benefit:
   Current                                     (12,000)          (19,000)          (26,000)
   Deferred                                   (116,000)         (367,000)          213,000
                                          ------------      ------------      ------------
                                              (128,000)         (386,000)          187,000
                                          ------------      ------------      ------------

     Net (loss) income                    $   (221,000)     $    534,000      $  1,220,000
                                          ------------      ------------      ------------


Basic (loss) earnings per
 share                                    $       (.02)     $        .06      $        .15
                                          ------------      ------------      ------------

Diluted (loss) earnings per
 share                                    $       (.02)     $        .06      $        .15
                                          ------------      ------------      ------------
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                       29
<PAGE>
<TABLE>
<CAPTION>

                                     IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                  Consolidated Statements of Changes in Common Stock and Other Stockholders' Equity

                                    Years ended December 31, 2001, 2000 and 1999


                                         Common Stock         Additional
                                         ------------           paid-in       Accumulated      Treasury
                                    Shares        Amount        capital         deficit          stock          Total
                                    ------        ------        -------         -------          -----          -----


<S>                               <C>         <C>            <C>             <C>             <C>             <C>
Balance at December 31, 1998      8,182,571   $     82,000   $ 13,507,000    $(11,202,000)   $   (106,000)   $  2,281,000

Issuance of common stock             47,863           --          (93,000)           --           106,000          13,000

Net income                             --             --             --         1,220,000            --         1,220,000

Balance at December 31, 1999      8,230,434         82,000     13,414,000      (9,982,000)           --         3,514,000

Issuance of common stock            975,000         10,000        501,000            --              --           511,000

Net income                             --             --             --           534,000            --           534,000
                               ------------   ------------   ------------    ------------    ------------    ------------

Balance at December 31, 2000      9,205,434         92,000     13,915,000      (9,448,000)           --         4,559,000

Issuance of common stock             15,000           --            5,000            --              --             5,000

Net loss                               --             --             --          (221,000)                       (221,000)
                               ------------   ------------   ------------    ------------    ------------    ------------

Balance at December 31, 2001      9,220,434   $     92,000   $ 13,920,000    $ (9,669,000)   $       --      $  4,343,000
                               ============   ============   ============    ============    ============    ============
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.


                                       30
<PAGE>
                        IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                          Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

                                                              Year Ended December 31,
                                                              -----------------------
                                                       2001             2000            1999
                                                       ----             ----            ----
Cash flows from operating activities:

<S>                                                <C>              <C>              <C>
    Net (loss) income                              $  (221,000)     $   534,000      $ 1,220,000
                                                   -----------      -----------      -----------
    Adjustments to reconcile net (loss) income
    to net cash provided by:
      Depreciation                                     525,000          445,000          225,000
      Amortization                                      71,000           38,000           21,000
      Write-down of goodwill impairment                238,000             --               --
      Debt issue discount                               59,000           59,000           59,000
      Provision for doubtful accounts                  375,000          283,000          177,000
      Provision for writedown of assets
       held for sale and lease                          61,000             --               --
      Provision (benefit) for income taxes             116,000          367,000         (213,000)
      Loss (gain) on disposal of fixed assets           32,000           (1,000)           5,000
      Compensation expense - issuance of stock           5,000           60,000           13,000

      (Increase) decrease in:
        Accounts receivable                             72,000       (2,921,000)        (319,000)
        Inventory                                      580,000         (526,000)        (649,000)
        Prepaid expenses and other assets             (302,000)         (75,000)         (47,000)

      Increase (decrease) in:
        Accounts payable                              (358,000)       1,362,000         (398,000)
        Payable to stockholders                           --               --           (685,000)
        Accrued expenses and other liabilities         (68,000)         394,000          257,000
                                                   -----------      -----------      -----------
      Total adjustments to (net loss) net income     1,406,000         (515,000)      (1,554,000)
                                                   -----------      -----------      -----------

        Net cash provided by (used in)
         operating activities                        1,185,000           19,000         (334,000)
                                                   -----------      -----------      -----------

Cash flows from investing activities
    Purchase  of property, plant
     and equipment                                     (92,000)        (525,000)        (415,000)
    Acquisition of businesses                             --         (2,033,000)            --
    Payment on notes payable A&R acquisitions         (100,000)        (195,000)            --
    Proceeds received from sale of property
     and equipment                                      80,000           40,000           31,000
    Proceeds from exercise of warrants and
     stock options                                        --             20,000             --
                                                   -----------      -----------      -----------
    Net cash used in investing activities             (112,000)      (2,693,000)        (384,000)
                                                   -----------      -----------      -----------
</TABLE>


                                       31
<PAGE>
                        IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                          Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

                                                              Year Ended December 31,
                                                              -----------------------
                                                       2001             2000            1999
                                                       ----             ----            ----
<S>                                                <C>              <C>              <C>
Cash flows from financing activities
    Increase (decrease) in notes payable
     banks - net                                      (768,000)       3,577,000          746,000
    Proceeds from issuance of long-term debt           748,000          273,000          459,000
    Repayment of long-term debt                     (1,538,000)        (442,000)        (465,000)
                                                   -----------      -----------      -----------
     Net cash (used in) provided by
      financing activities                          (1,558,000)       3,408,000          740,000
                                                   -----------      -----------      -----------


Net (decrease) increase in cash
 and cash equivalents                                 (485,000)         734,000           22,000
Cash and cash equivalents,
 beginning of year                                   1,853,000        1,119,000        1,097,000
                                                   -----------      -----------      -----------
Cash and cash equivalents, end of year             $ 1,368,000      $ 1,853,000      $ 1,119,000
                                                   -----------      -----------      -----------

Supplemental disclosure
  of cash flow information:

Cash paid during the year for interest             $   692,000      $   622,000      $   283,000
                                                   -----------      -----------      -----------

Non-cash transactions:
  Issuance of an aggregate of 15,000 and
   775,000 shares, respectively, of common
   stock related to acquisitions and to
   an officer of the Company                       $     5,000      $   490,000      $      --
                                                   -----------      -----------      -----------

  Issuance of notes related to the
   acquisitions                                    $      --        $   950,000      $      --
                                                   -----------      -----------      -----------
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.



                                       32
<PAGE>
                    IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements

                         December 31, 2001, 2000 and 1999


(1)  Merger
     ------

               Effective December 31, 1998, (the "Effective Date"), the Company
          merged into a wholly-owned subsidiary, (the "Merger").

               At the Effective Date, each share of the Company's $.10 par value
          common stock outstanding before the Merger was converted into one
          share of $.01 par value common stock. Also at the Effective Date,
          300,121 outstanding shares of preferred stock, with a carrying value
          of $3,001,000 were retired and $4,292,000 of accrued dividends on such
          shares, were eliminated as described in the following paragraphs.

               In connection with the elimination of the preferred stock, the
          Company was required to pay cash of $733,000, of which $685,000 has
          been paid as of December 31, 2001. In addition, the Company issued
          $985,000 face value of Debentures due December 31, 2001 with a fair
          value of $808,000, and 1,574,610 shares of $.01 par common stock with
          a fair value of $630,000 based on the market price of $.40 per share
          of the Company's common stock at the Effective Date. At December 31,
          2001, the Company paid $787,000 of the $985,000 to Debenture holders
          who had tendered their bonds as required by such instruments.

               Holders of 81,100 shares of preferred stock (the "Dissenting
          Shareholders"), with a carrying value of $811,000, elected to exercise
          their appraisal rights with respect to the stock. Pursuant to Delaware
          law, the Dissenting Shareholders petitioned the Delaware Chancery
          Court on April 23, 1999 to determine the fair value of their shares at
          the Effective Date, exclusive of any element of value attributable to
          the Merger. The Company recorded $877,000 in the accompanying
          consolidated balance sheets at December 31, 2001 and 2000, as an
          estimate for the obligation for appraisal rights based on the
          estimated fair value of the consideration they could have received had
          they not elected dissenters' rights. The Chancery Court may determine
          fair value is less than, equal to, or greater than an aggregate of
          $877,000. The Company does not expect a final judicial determination
          requiring the Company to make payment to Dissenting Shareholders' in
          the year ended December 31, 2002. Accordingly, the obligation is
          classified as long-term.

               In connection with the Merger, all then outstanding stock
          purchase warrants also converted into warrants with identical terms
          exerciseable for shares of the Company's common stock.



                                       33
<PAGE>

                    IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   -continued-


(2)   Description of Business and Summary of Significant Accounting Policies
      ----------------------------------------------------------------------

               The Company and its subsidiaries are primarily involved in the
          manufacturing and sale of exterior and interior finishing wall
          coatings and mortar products for the construction industry, as well as
          the purchasing and sale of other building materials from other
          manufacturers. Sales of the Company's products are made to customers
          primarily in Florida and the Southeastern United States through
          distributors and company-owned distribution facilities.

      (a) Basis of presentation
          ---------------------

               The consolidated financial statements contain the accounts of the
          Company and its wholly-owned subsidiaries. All material intercompany
          accounts and transactions have been eliminated in consolidation.

      (b) Concentration of Credit Risk
          ----------------------------

               Concentrations of credit risk with respect to trade accounts
          receivable are limited due to the large number of entities comprising
          the Company's customer base. Trade accounts receivable represent
          amounts due from building materials dealers, contractors and sub-
          contractors, located principally in the Southeastern United States who
          have purchased products on an unsecured open account basis. At
          December 31, 2001, accounts aggregating $669,000, or approximately 14%
          of total gross trade accounts receivable were deemed to be ineligible
          for borrowing purposes under the Company's borrowing agreement with
          its commercial lender. See Note (5). The allowance for doubtful
          accounts at December 31, 2001 of $453,000 is considered sufficient to
          absorb any losses which may arise from uncollectible accounts
          receivable.

               The Company places its cash with commercial banks. At December
          31, 2001, the Company has cash balances with banks in excess of
          Federal Deposit Insurance Corporation insured limits. Management
          believes the credit risk related to these deposits is minimal.

      (c) Inventories
          -----------

               Inventories are stated at the lower of cost or market (net
          realizable value), on a first-in, first-out basis. Finished goods
          include the cost of raw materials, freight in, direct labor and
          overhead.



                                       34
<PAGE>


                    IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   -continued-

(2)   Description of Business and Summary of Significant Accounting Policies
        (continued)
      ----------------------------------------------------------------------

      (d) Property, plant and equipment
          -----------------------------

               Property, plant and equipment is stated at cost, less accumulated
          depreciation. Depreciation is computed on the straight-line basis over
          the estimated useful lives of the depreciable assets. Expenditures for
          maintenance and repairs are charged to expense as incurred, while
          expenditures which extend the useful life of assets are capitalized.
          Differences between the proceeds received on the sale of property,
          plant and equipment and the carrying value of the assets on the date
          of sale is credited or charged to net income.

      (e) Excess Cost of Investment Over Net Assets Acquired and Other
           Intangible Assets
          ------------------------------------------------------------

               Licenses, trademarks and deferred financing costs are amortized
          on the straight-line basis over the estimated useful lives of the
          licenses and trademarks, or over the term of the related financing.
          Excess cost of investment over net assets acquired was amortized using
          the straight -line method over 40 years and is net of $57,000 and
          $28,000 of accumulated amortization at December 31, 2001 and 2000,
          respectively. (See Note 2 (n) New Accounting Pronouncements for
          goodwill accounting policy).

      (f) Income taxes
          ------------

               The Company utilizes the liability method for determining its
          income taxes. Under this method, deferred taxes and liabilities are
          recognized for the expected future tax consequences of events that
          have been recognized in the consolidated financial statements or
          income tax returns. Deferred tax assets and liabilities are measured
          using the enacted tax rates expected to apply to taxable income in the
          years in which temporary differences are expected to be realized or
          settled; valuation allowances are provided against assets that are not
          likely to be realized.

     (g)  Earnings per share of common stock
          ----------------------------------

               Basic earnings per common share is computed by dividing net
          income by the weighted-average number of shares of common stock
          outstanding each year. Diluted earnings per common share is computed
          by dividing net income applicable to common stockholders by the
          weighted-average number of shares of common stock and common stock
          equivalents outstanding during each year. (See Note (11) - Earnings
          Per Common Share).

                                       35
<PAGE>

                    IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   -continued-

(2)  Description of Business and Summary of Significant Accounting Policies
        (continued)
     ----------------------------------------------------------------------

     (h)  Cash and cash equivalents
          -------------------------

               The Company has defined cash and cash equivalents as those highly
          liquid investments with original maturities of three months or less,
          and are stated at cost. Included in cash and cash equivalents at
          December 31, 2001 and 2000 are short term time deposits of $121,000
          and $285,000, respectively.

     (i)  Revenue recognition policy
          --------------------------

               Revenue from sales transactions, net of discounts and allowances,
          is recorded upon delivery of inventory to the customer.

     (j)  Stock based compensation
          ------------------------

               The Company measures compensation expense related to the grant of
          stock options and stock-based awards to employees in accordance with
          the provisions of Accounting Principles Board ("APB") Opinion No. 25,
          "Accounting for Stock Issued to Employees," under which compensation
          expense, if any, is generally based on the difference between the
          exercise price of an option, or the amount paid for an award, and the
          market price or fair value of the underlying common stock at the date
          of the award.

     (k)  Accounting estimates
          --------------------

               The preparation of financial statements in conformity with
           accounting principles generally accepted in the United States of
           America, requires management to make estimates and assumptions that
           affect the reported amounts of assets and liabilities and disclosure
           of contingent assets and liabilities at the date of the financial
           statements and the reported amounts of revenues and expenses during
           the reporting period.  Actual results could differ from those
           estimates.

     (l)  Fair Value of Financial Instruments
          -----------------------------------

               The carrying amount of the Company's financial instruments
          principally notes payable, debentures and obligation for appraisal
          rights, approximates fair value based on discounted cash flows and
          because the borrowing rates are similar to the current rates offered
          by the Company.



                                       36
<PAGE>

                    IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   -continued-

(2)  Description of Business and Summary of Significant Accounting Policies
       (continued)
     ----------------------------------------------------------------------

     (m)  Segment Reporting
           -----------------

               The Company has adopted SFAS No. 131, Disclosures about Segments
          of an Enterprise and Related Information. For the years ended December
          31, 2001, 2000 and 1999, the Company has determined that it operates
          in a single operating segment.

     (n)   New Accounting Pronouncements
           -----------------------------

               In June 2001, SFAS 141, "Business Combinations," and SFAS 142,
          "Goodwill and Other Intangible Assets" was adopted by the FASB. SFAS
          141 requires that the purchase method of accounting be used for all
          business combinations completed after June 30, 2001. SFAS 141 also
          specifies the types of acquired intangible assets that are required to
          be recognized and reported separately from goodwill and those acquired
          intangible assets that are required to be included in goodwill. SFAS
          142 will require that goodwill no longer be amortized, but instead
          tested for impairment at least annually. SFAS 142 will also require
          recognized intangible assets be amortized over their respective
          estimated useful lives and reviewed for impairment in accordance with
          SFAS 121, "Accounting for the Impairment of Long- Lived Assets and for
          Long-Lived Assets to be Disposed Of". Any recognized intangible asset
          determined to have an indefinite useful life will not be amortized,
          but instead tested for impairment in accordance with the Standard
          until its life is determined to no longer be indefinite. SFAS 141 is
          effective for all business combinations initiated after June 30, 2001,
          while the provisions of SFAS 142 are effective for fiscal years
          beginning after December 15, 2001, and are effective for interim
          periods in the initial year of adoption.

               The Company intends to adopt SFAS 142 in 2002. Accordingly, the
          Company will no longer amortize goodwill and will perform an
          impairment test of goodwill annually. The cessation of goodwill
          amortization will result in a reduction of $33,000 in annual goodwill
          amortization, assuming no future impairment of goodwill. Goodwill
          amortization was $41,000, $29,000 and $0 in 2001, 2000 and 1999,
          respectively.

               The SFAS No. 142 goodwill impairment review consists of two
          steps. The first is determining the fair value of the reporting unit
          and the second is comparing it to the carrying value of the net assets
          allocated to the reporting unit. If this fair value exceeds the
          carrying value, no


                                       37
<PAGE>

                    IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   -continued-

(2)  Description of Business and Summary of Significant Accounting Policies
       (continued)
     ----------------------------------------------------------------------

     (n)  New Accounting Pronouncements (continued)
          -----------------------------------------

          further analysis is required. If the fair value of the reporting unit
          is less than the carrying value of the net assets, the implied fair
          value of the reporting unit is allocated to all underlying assets and
          liabilities, including both recognized and unrecognized tangible
          assets, based on their fair value. If necessary, goodwill is then
          written-down to its implied fair value. We must complete the first
          step of the transitional impairment review by June 30, 2002 and, if
          necessary, the second step by December 31, 2002. The Company is
          currently analyzing the effect the adoption of these standards will
          have on its consolidated financial statements.

               In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
          Retirement Obligations". SFAS No. 143, which is effective for fiscal
          years beginning after June 15, 2002, addresses financial accounting
          and reporting for obligations associated with the retirement of
          tangible long-live assets and the associated asset retirement costs.
          Our adoption of this standard is not expected to have a material
          effect on our financial statements.

               In October 2001, the Financial Accounting Standards Board issued
          "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
          144"), which is effective for fiscal years beginning after December
          15, 2001. SFAS 144 addresses accounting and reporting for the
          impairment or disposal of long-lived assets. This Statement supersedes
          SFAS 121, "Accounting for the Impairment of Long-Lived Assets to be
          Disposed Of". The Company is required to adopt this pronouncement. The
          Company does not believe that the adoption of SFAS 144 will have a
          material effect on its consolidated financial statements.

(3)  Inventories
     -----------

               At December 31, 2001 and 2000, inventories consist of:

                                       2001           2000
                                       ----           ----
            Raw materials           $  465,000     $  562,000
            Finished goods           3,062,000      3,560,000
            Packaging materials        280,000        265,000
                                    ----------     ----------
                                    $3,807,000     $4,387,000
                                    ==========     ==========




                                       38
<PAGE>

                    IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   -continued-


(4)  Property, Plant and Equipment
     -----------------------------

               A summary of the cost of property, plant and equipment at
          December 31, 2001 and 2000 is as follows:

                                                                     Estimated
                                                                    useful life
                                            2001          2000        (years)
                                        ----------     ----------
            Land                        $  191,000     $  191,000      - - -
            Buildings and
             improvements                  963,000        965,000     10 - 40
            Machinery and equipment      1,672,000      1,658,000      3 - 10
            Vehicles                     1,011,000      1,253,000      2 - 8
            Furniture and Fixtures         360,000        351,000      3 - 12
                                        ----------     ----------
                                        $4,197,000     $4,418,000
                                        ==========     ==========

               The net book value of property, plant and equipment pledged as
          collateral under notes payable and various long-term debt agreements
          aggregated $2,024,000 and $1,898,000 at December 31, 2001 and 2000,
          respectively. See "Note 7."

(5)  Notes Payable
     -------------

               At December 31, 2001 and 2000, notes payable represent amounts
          outstanding under a $6,000,000 line of credit from a commercial lender
          to the Company's subsidiaries and included at December 31, 2000 was
          $100,000 in uncollateralized notes payable at 8% issued in connection
          with the January 1, 2000 purchase of three building materials
          distributors. The line of credit is collateralized by the
          subsidiaries' accounts receivable and inventory, bears interest at
          prime rate plus 1/2% (5.25% at December 31, 2001), expires June 19,
          2002, and is subject to annual renewal. The weighted average effective
          interest rate on the line of credit was 8.36%, 11.62%, and 14.09%
          during the years ended December 31, 2001, 2000 and 1999, respectively.

               At December 31, 2001, the line of credit limit available for
          borrowing based on eligible receivables and inventory aggregated
          $4,923,000, of which $4,335,000 remained outstanding. The average
          amounts outstanding during 2001 and 2000 were $4,894,000, and
          $3,511,000, respectively. The maximum amounts outstanding at any
          month-end during 2001 and 2000 were $5,453,000 and $5,103,000,
          respectively.


                                       39
<PAGE>

                    IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   -continued-


(6)  Accrued Expenses and Other Liabilities
     --------------------------------------

               Accrued expenses and other liabilities at December 31, 2001 and
          2000 are summarized as follows:

                                                      2001         2000
                                                      ----         ----
            Employee compensation related items     $183,000     $156,000
            Taxes, other than income taxes           109,000      166,000
            Income taxes                              12,000         --
            Interest                                 283,000      261,000
            Other                                    148,000      220,000
                                                    --------     --------
                                                    $735,000     $803,000
                                                    ========     ========

(7)  Long-term Debt
     --------------
<TABLE>
<CAPTION>

               Long-term debt of the Company is as follows:

                                                                                2001            2000
                                                                                ----            ----
<S>                                                                          <C>            <C>
                  Uncollateralized notes issued for acquisitions,
                   interest at 8% per annum, principal and
                   interest payable through September 2003                   $   492,000    $   805,000

                  Mortgage note payable, interest at 7 1/2% per
                   annum, principal and interest payable monthly
                   through January 2002                                             --           63,000

                  Subordinated Debentures due December 31, 2001,
                   stated interest at 8% payable annually
                   commencing July 1, 1999, principal payable
                   in the amount of $985,000 at maturity                            --          926,000

                  Mortgage note payable, interest at 8 3/4%,
                   principal and interest payable monthly in
                   the amount of approximately $3,760, with a
                   balloon payment of approximately $187,000
                   due October 4, 2004                                           256,000        277,000

                  Mortgage note payable, interest at prime + 1%,
                   principal payments of $800 plus interest
                   payable monthly, with a balloon payment of
                   approximately $118,000 due October 4, 2004                    144,000           --

                  Mortgage note payable, interest at prime + 1%,
                   principal payments of $1,678 plus interest
                   payable monthly, with a balloon payment of
                   approximately $247,000 due October 4, 2004                    302,000           --


                                       40
<PAGE>

                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   -continued-

(7)  Long-term Debt (continued)
     --------------------------

                  Mortgage note payable, interest at 8 3/4%,
                   principal and interest payable monthly in
                   the amount of approximately $2,415, with a
                   balloon payment of approximately $198,000
                   due June 16, 2003                                             212,000        222,000

                  Equipment notes payable, interest at various
                   rates ranging from 4.89% to 10.83%, per annum,
                   principal and interest payable monthly
                   expiring at various dates through September
                   2006. (Includes obligations for capital
                   leases of $104,000)                                           703,000        745,000
                                                                             -----------    -----------
                                                                               2,109,000      3,038,000
                  Less current maturities                                       (669,000)    (1,636,000)
                                                                             -----------    -----------
                                                                             $ 1,440,000    $ 1,402,000
                                                                             ===========    ===========
</TABLE>

               As of December 31, 2001, long-term debt matures as follows:

                      Year ended
                      December 31,             Amount
                      ------------             ------

                         2002               $  669,000
                         2003                  620,000
                         2004                  729,000
                         2005                   87,000
                         2006                    4,000
                                            ----------
                                            $2,109,000
                                            ==========

               In connection with the Merger, the Company issued 8% Subordinated
          Debentures with a face value of $985,000 effective December 31, 1998.
          Each Debenture was discounted to a value of $6.56 ($8.00 face value)
          using an effective interest rate of 16%. The aggregate carrying value
          of the Debentures at December 31, 2000 was $926,000. The Debentures
          were general, uncollateralized obligations of the Company,
          subordinated in right of payment to all indebtedness to institutional
          and other lenders of the Company. The Debentures were subject to
          redemption, in whole or in part, at the option of the Company, at any
          time at a redemption price of 100% of the principal amount thereof,
          plus accrued and unpaid interest, if any, to the redemption date. The
          Debentures were retired in 2001.


(8)  Income Taxes
     ------------

               At December 31, 2001 and 2000, deferred tax assets of $850,000
          and $966,000, respectively, consist mostly of the tax effect of net
          operating loss carryforwards of $731,000 and $966,000, respectively.
          Net operating losses of $1,923,000 expire in varying amounts through
          2009.

                                       41
<PAGE>

                   IMPERIAL INDUSTRIES, INC.  AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   -continued-


(8)  Income Taxes (continued)
     ------------------------

               The Company reduced the deferred tax asset $116,000 and $45,000,
          respectively for net operating loss carryforwards which expired unused
          in 2001 and 2000. During 1999, the Company recognized a tax benefit of
          $574,000, based on the future utilization of net operating loss
          carryforwards prior to their expiration. The ultimate realization of
          the remaining deferred tax assets is largely dependent on the
          Company's ability to generate sufficient future taxable income.

               The current income tax expense represents state taxes and
          alternative minimum taxes payable for the years ended December 31,
          2001 and 2000.

               A reconciliation of the Federal statutory rate to the effective
          tax is as follows:

                                                  Year Ended December 31,
                                                 2001       2000     1999
                                                 ----       ----     ----
            U.S. statutory rate                   (35%)       35%       35%
            Valuation allowance                     0%         0%      (56%)
            Reversal of 1999 items (benefit)      173%         7%       --
            Other                                   0%         0%        3%
                                                 ----       ----      ----

               Effective rate                     138%        42%      (18%)
                                                 ====       ====      ====


(9)  Capital Stock
     -------------

     (a)  Common Stock
          ------------

               At December 31, 2001, the Company had outstanding 9,220,434
          shares of common stock (9,205,434 shares at December 31, 2000) with a
          $.01 par value per share ("Common Stock"). The holders of common stock
          are entitled to one vote per share on all matters, voting together
          with the holders of preferred stock, if any. In the event of
          liquidation, holders of common stock are entitled to share ratably in
          all the remaining assets of the Company, if any, after satisfaction of
          the liabilities of the Company and the preferential rights of the
          holders of outstanding preferred stock, if any.

               In 2001, the Company issued 15,000 shares of common stock as
          incentive compensation to an employee pursuant to the terms of an
          employment agreement.

               In 2000, the Company issued an aggregate of 675,000 shares of
          common stock as partial consideration for the purchase of certain
          assets of seven

                                       42
<PAGE>

                    IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   -continued-

(9)  Capital Stock (continued)
     -------------------------

     (a)  Common Stock (continued)
          ------------------------

          building materials distributors, 100,000 shares were issued to an
          officer as compensation for services rendered, and 200,000 shares were
          issued in connection with the exercise of outstanding stock purchase
          warrants. In 1999, the Company issued 47,863 treasury shares to
          directors and an officer as compensation for services rendered. The
          Company recorded compensation expense for shares issued to directors
          and an officer in amounts equal to the fair value of the shares when
          issued.

     (b)  Preferred Stock
          ---------------

               The authorized preferred stock of the Company consists of
          5,000,000 shares, $.01 par value per share. The preferred stock is
          issuable in series, each of which may vary, as determined by the Board
          of Directors, as to the designation and number of shares in such
          series, the voting power of the holders thereof, the dividend rate,
          redemption terms and prices, the voluntary and involuntary liquidation
          preferences, and the conversion rights and sinking fund requirements,
          if any, of such series. At December 31, 2001 and 2000, there were no
          shares of preferred stock outstanding.

     (c)  Warrants
          --------

               At December 31, 2001 and 2000, the Company had warrants
          outstanding to purchase 150,000 shares of the Company's common stock.
          The Company issued 150,000 warrants in January 1999 to its investment
          banker for financial advisory services in connection with the Merger
          (the "Investment Banker Warrants"), which entitle the holder to
          purchase one share at $.38 per share until December 31, 2003. The
          Company estimated the fair value of the Investment Banker Warrants at
          $22,000 based on a Black-Scholes pricing model and the following
          assumptions: volatility of 45%, risk-free rate of 4.6%, expected life
          of four years and a dividend rate of 0%. Warrants to purchase 200,000
          shares of the Company's common stock at $.10 per share were exercised
          in 2000.

     (d)  Stock Option Plans
          ------------------

               The Company has two stock option plans, the Directors' Stock
          Option Plan and the 1999 Employee Stock Option Plan (collectively, the
          "1999 Plans"). The 1999 Plans provide for options to be granted at
          generally no less than the fair market value of the Company's stock at
          the grant date. Options granted under the 1999 Plans have a term of up
          to 10 years and are exercisable six months from the grant date. The
          1999 Plans are administered by the Compensation and Stock Option
          Committee (the "Committee"), which is comprised of three directors.
          The Committee

                                       43
<PAGE>

                    IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   -continued-
(9)  CapitalStock (continued)

     (d)  Stock Option Plans (continued)

          determines who is eligible to participate and the number of shares for
          which options are to be granted. A total of 600,000 and 200,000 shares
          are reserved for issuance under the Employee and Directors' Plans,
          respectively. As of December 31, 2001, options for 400,000 shares were
          available for future grants under the 1999 Plans.

               A summary of the activity and status of our stock option plans
          was as follows:
<TABLE>
<CAPTION>


                                                           Weighted Average          Number of Options
                                                            Exercise Price              Years Ended
                                                               Per Share                December 31,
                                                           -----------------      ------------------------
                                                           2001   2000   1999     2001       2000     1999

<S>                                                        <C>    <C>    <C>     <C>        <C>       <C>
                Outstanding Options - Beginning of Year   $0.57  $ --     --     245,000      --       --
                Options Granted                           $0.21  $0.57    --     185,000    245,000    --
                Options Exercised                         $ --   $ --     --       --         --       --
                Options Cancelled                         $ --   $ --     --     (30,000)     --       --
                                                                                 ------------------------
                Options Outstanding - End of Year         $0.41  $0.57    --     400,000    245,000    --
                                                                                 ------------------------
                Options Exercisable - End of Year         $0.57  $0.57    --     215,000    245,000    --
                                                                                 ------------------------
</TABLE>

               Information with respect to outstanding and exercisable stock
          options at December 31, 2001 was as follows:
<TABLE>
<CAPTION>

                                                 Options Outstanding                   Options Exercisable
                                                 -------------------                   -------------------
                                          Weighted Average   Weighted Average                    Weighted Average
                                             Remaining           Exercise                            Exercise
            Exercise Price     Shares       Life(Years)          Price(1)             Shares          Price
            --------------     ------       -----------          --------             ------          -----
<S>             <C>            <C>             <C>                <C>                <C>              <C>
                $0.20          120,000         4.87               $0.20                  --              --
                $0.24           65,000         4.71               $0.24                  --              --
                $0.57          215,000         2.99               $0.57               215,000          $0.57
                               -------         ----               -----               -------          -----
                  Total        400,000         3.84               $0.41               215,000
                               =======         ====               =====               =======
</TABLE>

     (1)  All options were granted at market price and no compensation cost has
          been recognized in connection with these options.

               Pursuant to SFAS No. 123, the Company has elected to use the
          intrinsic value method of accounting for employee stock-based
          compensation awards. Accordingly, the Company has not recognized
          compensation expense for its noncompensatory employee stock option
          awards. The Company's pro forma net results for fiscal 2001 and 2000,
          had the Company elected to adopt the fair value approach (which
          charges earnings for the estimated fair value of stock options) of
          SFAS No. 123, would have been a loss of $283,000 ($.03 per share) for
          2001 and income of $501,000 ($.06 per share) for 2000.

                                       44
<PAGE>

                    IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   -continued-

(9)  Capital Stock (continued)
     -------------------------

     (d) Stock Option Plans (continued)
         ------------------------------

               The weighted average fair value of the Company's Options granted
          during fiscal 2001 and 2000 were $.15 and $.44 per share,
          respectively, at the date of grant. The fair value of the Options was
          estimated using the Black-Scholes option pricing model with the
          following weighted average assumptions for fiscal 2001 and 2000; no
          expected dividend yields; expected volatility of 112% and 104%; risk
          free interest rate of 5.9% and 3.4%; and an expected option life of
          four years for both periods.

(10) Miscellaneous income

               A summary of miscellaneous income (expense) for the years ended
          December 31, 2001, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
                                                      2001           2000          1999
                                                      ----           ----          ----
<S>                                                <C>            <C>           <C>
          Interest income                          $  10,000      $  15,000     $  12,000
          (Loss) gain on disposal of property,
           plant and equipment                       (32,000)         1,000        (5,000)
          Other, net                                  99,000        183,000        27,000
                                                   ---------      ---------     ---------
                                                   $  77,000      $ 199,000     $  34,000
                                                   =========      =========     =========
</TABLE>

(11) Earnings Per Common Share

               Below is a reconciliation between basic and diluted earnings per
          common share under FAS 128 for the years ended December 31, 2001,
          2000, and 1999 (in thousands except per share amounts):
<TABLE>
<CAPTION>
                                               2001                          2000                      1999
                                  --------------------------     ------------------------    -----------------------
                                                        Per                         Per                         Per
                                  Income     Shares    Share     Income    Shares   Share     Income   Shares   Share
                                  ------     ------    -----     ------    ------   -----     ------   ------   -----
<S>                                <C>       <C>       <C>        <C>     <C>      <C>       <C>       <C>     <C>
           Net (loss) income       $(221)                         $534                       $1,220

           Basic earnings
            per common share       $(221)     9,214    $(.02)     $534      8,936   $.06      $1,220   8,199    $.15
                                   -----      -----    -----      ----      -----   -----     ------   -----    ----

           Effect of dilutive
            securities:
            Warrants                                                          134                       191
                                   -----      -----    -----      ----      -----   ----      ------   -----    ----
           Diluted (loss) earnings
            per common share       $(221)     9,214    $(.02)     $534      9,070   $.06      $1,220   8,390    $.15
                                   -----      -----    -----      ----      -----   ----      ------   -----    ----
</TABLE>
                                       45
<PAGE>

                    IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   -continued-


(12) Related Party Transactions
     --------------------------

               The Company and its subsidiaries paid legal fees of approximately
          $275,000, $238,000 and $114,000 in 2001, 2000 and 1999, respectively,
          to law firms with which two directors, including the Company's
          Chairman of the Board are affiliated.

(13) Commitments and Contingencies
     -----------------------------

     (a)   Contingencies
           -------------

               As of March 22, 2002, the Company's subsidiary, Acrocrete, Inc.,
          and other parties are defendants in 25 lawsuits pending in various
          Southeastern states, by homeowners/homeowner associations, contractors
          and subcontractors, or their insurance companies, claiming moisture
          intrusion damages on single and multi-family family residences. The
          Company's insurance carriers have accepted coverage under a
          reservation of rights for 23 of these claims and are providing a
          defense. The Company expects its insurance carriers to accept coverage
          for the other two recently filed lawsuits. Acrocrete is vigorously
          defending all of these cases and believes it has meritorious defenses,
          counter-claims and claims against third parties. Acrocrete is unable
          to determine the exact extent of its exposure or outcome of this
          litigation.

               The allegations of defects in synthetic stucco wall systems are
          not restricted to the Company's products but rather are an
          industry-wide issue. There has never been any defect proven against
          Acrocrete. The alleged failure of these products to perform has
          generally been linked to improper application and the failure of
          adjacent building materials such as windows, roof flashing, decking
          and the lack of caulking.

               On June 15, 1999, the Company was served with a complaint
          captioned Mirage Condominium Association, Inc. v. Premix Marbletite
          Manufacturing Co., et al., in Miami-Dade County Florida. The lawsuit
          raises a number of allegations against twelve separate defendants
          involving alleged construction defects. Plaintiff has alleged only one
          count against Premix, which claims that certain materials, purportedly
          provided by Premix to the Developer/ Contractor and used to anchor
          balcony railings to the structure were defective. The Company's
          insurance carrier has not made a decision regarding coverage to date.
          However, in the interim, the insurance carrier has retained counsel on
          behalf of Premix and is paying defense costs. The Company expects the
          insurance carrier to eventually accept coverage. The Company is unable
          to determine the exact extent of its exposure or the outcome of this
          litigation.

               On April 23, 1999, certain Dissenting Shareholders owning shares
          of the Company's formerly issued preferred stock filed a petition for
          appraisal in the Delaware Chancery Court to determine the fair value
          of their shares at

                                       46
<PAGE>

                    IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   -continued-

(13) Commitments and Contingencies
     -----------------------------

     (a)  Contingencies (continued)
          --------------------------

          the effective date of Merger, exclusive of any element of value
          attributable to the merger. (See Note (1) - Merger).

               The Company is engaged in other legal actions and claims arising
          in the ordinary course of its business, none of which are believed to
          be material to the Company.

     (b)  Lease Commitments
          -----------------

               At December 31, 2001 certain property, plant and equipment were
          leased by the Company under long-term leases. Certain of these leases
          provided for escalation in rent upon the lease anniversary date.
          Future minimum lease commitments as of December 31, 2001, for all
          noncancellable leases are as follows:

                          December 31,
                          ------------
                              2002                  $1,052,000
                              2003                     889,000
                              2004                     803,000
                              2005                     480,000
                              2006 and thereafter      375,000
                                                    ----------
                                                    $3,599,000
                                                    ----------

               Rental expenses incurred for operating leases were approximately
          $1,242,000, $957,000 and $331,000, for the years ended December 31,
          2001, 2000 and 1999, respectively.

(14) Year 2000 Acquisitions
     ----------------------

               During 2000, the Company consummated four transactions for the
          purchase of seven building material distributors as described below.
          These acquisitions have been accounted for under the purchase method
          of accounting and the results of the acquired distributors have been
          consolidated since the respective acquisition dates.

               Effective January 1, 2000, the Company acquired certain assets
          and assumed certain liabilities of three building materials
          distributors located in Pensacola and Destin, Florida and Foley,
          Alabama.

               The three distributors ("A&R"), which had been under common
          ownership, were acquired for $1,580,000 in a single transaction that
          was accounted for under the purchase method of accounting.


                                       47
<PAGE>

                    IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   -continued-

(14) Year 2000 Acquisitions (continued)
     ----------------------------------

               The components of the purchase price were as follows (in
          thousands):

            Cash                                               $  471
            Transfer of other assets                              327
            Common stock issued
             (225,000 shares @ $.64/share)                        144
            Three month uncollateralized note issued              150
            One year uncollateralized note issued                 100
            Collateralized debt assumed                           388
                                                               ------
                                                               $1,580
                                                               ======

               The purchase price was allocated to the acquired assets and
          liabilities based on their fair values on the acquisition date with
          the excess of $401,000 being recorded as excess cost of investment
          over net assets acquired, which is being amortized using the straight
          line method over 40 years.

               Effective March 1, 2000, the Company acquired certain assets of a
          building materials distributor ("Panhandle") located in Panama City
          Beach, Florida, for $386,000.

               The components of the purchase price were as follows (in
          thousands):

            Cash                                               $  219
            Two year uncollateralized note issued                 125
            Common stock issued
             (50,000 shares @ $.84/share)                          42
                                                               ------
                                                               $  386
                                                               ======

               The purchase price was allocated to the acquired assets and
          liabilities based on their fair values on the acquisition date with
          the excess of $167,000 being recorded as excess cost of investment
          over net assets acquired, which is being amortized using the straight
          line method over 40 years.

               Effective April 1, 2000 the Company acquired certain assets and
          liabilities of a building materials distributor ("Tallahassee")
          located in Tallahassee, Florida for $564,000.



                                       48
<PAGE>

                    IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   -continued-

(14) Year 2000 Acquisitions (continued)
     ----------------------------------

               The components of the purchase price were as follows: (in
          thousands):

            Cash                                               $286
            Two year uncollateralized note issued               125
            Collateralized debt assumed                         153
                                                               ----
                                                               $564
                                                               ====

               The purchase price was allocated to the acquired assets and
          liabilities based on of their fair values on the acquisition date with
          the excess of $125,000 being recorded as excess cost of investment
          over net assets acquired, which is being amortized using the straight
          line method over 40 years.

               Effective May 1, 2000, the Company acquired certain assets and
          liabilities of two related distributors ("A&R of Mississippi"), with
          locations in Gulfport, Hattiesburg and Pascagoula, Mississippi.

               The components of the purchase price were as follows (in
          thousands):

            Cash ($614,000 at closing, $441,000
             paid 30 days after closing)                       $1,055
            Transfer of other assets                              122
            Three year uncollateralized note issued               600
            Collateralized debt assumed                           310
            Common stock issued (400,000 shares @ $.61/share)     244
                                                               ------
                                                               $2,331
                                                               ======

               The purchase price was allocated to the acquired assets and
          liabilities based on their fair values on the acquisition date with
          the excess of $886,000 being recorded as excess cost of investment
          over net assets acquired, which is being amortized using the straight
          line method over 40 years.

               Following are the unaudited pro-forma results of operations as if
          the A&R, Panhandle, Tallahassee and A&R of Mississippi purchases had
          occurred on January 1, 1999 (in thousands, except per share and share
          amounts):

                                    Year Ended              Year Ended
                                 December 31, 2000       December 31, 1999
                                 -----------------       -----------------
      Net sales                        $44,869                 $38,361
      Net income                       $   483                 $ 1,348
      Earnings per common share:
         Basic                         $   .05                 $   .15
         Diluted                       $   .05                 $   .15


                                       49
<PAGE>

                    IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                    Notes to Consolidated Financial Statements
                                   -continued-

(14) Year 2000 Acquisitions (continued)
     ----------------------------------

               This unaudited pro-forma financial information is not necessarily
          indicative of the operating results that would have occurred had the
          transactions been consummated as of January 1, 1999, nor is it
          necessarily indicative of future operating results.

               The preliminary impact of the Company's assets and liabilities
          related to the acquisitions as of December 31, 2000, were as follows
          (in thousands):

          Fair value of assets and liabilities acquired:
          Inventories                                           $1,838
          Property plant and equipment                           1,445
          Other assets (Excess cost of investment
           over net assets acquired)                             1,580
          Liabilities (Assumed)                                   (851)
                                                                ------
                                                                 4,012
          Less:
          Debt issued                                           (1,100)
          Common stock issued                                     (430)
          Adjustment for accounts receivable due Company          (449)
                                                                ------
          Net cash paid as reflected in the
           Statement of Cash Flows                              $2,033
                                                                ======

 (15)  Impairment Charge

               During 2001, we reviewed our long-lived assets and goodwill for
          which there were indications of possible impairment. The assets we
          reviewed were primarily those associated with the Company's
          distribution operations acquired in 2000, since we had experienced
          losses from certain of these operations, closed several locations,
          restructured operations and made changes to management. Based on these
          reviews, we recorded an impairment charge of $238,000 in the fourth
          quarter of 2001. This charge represented a write-down of the excess
          cost of investment over net assets acquired related to the January 1,
          2000 and May 1, 2000 acquisitions. The fair values of the goodwill
          were primarily based on our estimates of discounted future cash flows.

                                       50
<PAGE>
                                    PART III

Item 10.  Directors and Executive Officers of the Registrant
          --------------------------------------------------

               The following table sets forth certain information with respect
          to the directors and executive officers of the Company:

          Name                   Age     Position With Company
          ----                   ---     ---------------------

          S. Daniel Ponce         53     Chairman of the Board - Class III
          Lisa M. Brock           43     Director - Class III
          Milton J. Wallace       66     Director - Class II
          Morton L. Weinberger    72     Director - Class II
          Howard L. Ehler, Jr.    58     Director - Class I/Principal Executive
                                          Officer/Executive Vice President/
                                          and Secretary
          Gary J. Hasbach         57     President, Premix, Acrocrete and
                                          Just-Rite
          Betty J. Murchison      62     Chief Accounting Officer/
                                         Assistant Vice President

               The Company's Board of Directors is divided into three classes.
          In accordance with the Company's Certificate of Incorporation, the
          members of each Class are designated to serve for three (3) year
          staggered terms. The Class I director's term expires at the 2002
          annual meeting, or until his successor is elected. Class II directors
          terms expire at the 2003 annual meeting or until their successors are
          elected, and Class III directors terms expire at the 2004 annual
          meeting or until their successors are elected.

               Subject to certain contractual rights, each officer serves at the
          discretion of the board of directors.

          S. Daniel Ponce.   Mr. Ponce has been Chairman of the Board of the
             Company since 1988.  Mr.  Ponce has been engaged in the practice of
             law for over twenty five  years and is currently a stockholder  in
             the law firm of Wallace, Bauman, Legon, Fodiman, Ponce & Shannon,
             P.A.  Ponce is a member of the Board of Directors of the University
             of Florida Foundation, Inc. and serves as Chairman of its audit
             committee.  He is also a non-practicing certified public
             accountant.

          Lisa M. Brock.   Mrs. Brock has been a director of the Company since
             1988.  Mrs. Brock  was employed by the Company and its
             subsidiaries, Premix and Acrocrete, as Vice President for over 5
             years until December, 1994 when she retired.  Mrs. Brock continues
             to serve as a consultant to the Company.


                                       51
<PAGE>

Item 10.  Directors and Executive Officers of the Registrant (continued)
          --------------------------------------------------------------

          Milton J. Wallace.  Mr. Wallace has been a director of the Company
             since February 1999.  Mr. Wallace has been a practicing attorney in
             Miami for over 40 years and is currently a shareholder in the law
             firm of Wallace, Bauman, Legon, Fodiman, Ponce & Shannon, P.A.  He
             was a co-founder and Chairman of the Board of Renex Corp, a
             provider of dialysis services, from 1993 through February 2000 when
             Renex Corp. was acquired by National Nephrology Associates, Inc.
             Mr. Wallace was Chairman of the Board of Med/Waste, Inc., a
             provider of medical waste management services, until February 13,
             2002 when such company filed for bankruptcy protection under
             Chapter 7 of the Federal Bankruptcy Code. He is a director of
             several private companies.

          Morton L. Weinberger, CPA.   Mr. Weinberger has been a director of the
             Company since 1988.  Mr.  Weinberger, a certified public
             accountant, has been self-employed as a  consultant to various
             professional organizations for the past sixteen years.  He provides
             consulting services  for the Company.  For the previous twenty-five
             years, he was engaged in the practice of public accounting.  During
             such period, he was a partner with Peat Marwick Mitchell & Co., now
             known as KPMG Peat Marwick, and thereafter BDO Seidman, both public
             accounting firms.

          Howard L. Ehler, Jr.   Mr. Ehler has been Principal Executive Officer
             of the Company since March 1990 and Executive Vice President, Chief
             Financial Officer and Secretary of the Company since April 1988.
             Prior thereto he was Vice President, Chief Financial Officer and
             Assistant Secretary of the Company for over five years.

          Gary J. Hasbach.  Mr. Hasbach became President of Premix and Acrocrete
             in March 2001, and President of Just-Rite, in February 2000.  Prior
             thereto, he had been Executive Vice President of Sales and
             Marketing for Premix and Acrocrete since January 1, 1999.  Mr.
             Hasbach was formerly President of Premix and Acrocrete from
             September 1990 to May 1996.  From May 1996 to December 1997, Mr.
             Hasbach served as Executive Vice President of Marketing for Florida
             Tile Industries, Inc, a distributor of tile and flooring products.
             In addition, Mr.  Hasbach was a director of the Company from 1993
             to February 1997.

          Betty J. Murchison.  Ms. Murchison has been the Company's Chief
             Accounting Officer since June 1995.  Prior thereto, from October,
             1991 to June 1995, she was Principal Accounting Officer of Royce
             Laboratories, Inc., a manufacturer of generic pharmaceutical
             products.  For over 25 years prior thereto, she was employed by the
             Company, the last three years acting as the Company's Chief
             Accounting Officer.


                                       52
<PAGE>

Item 10.  Directors and Executive Officers of the Registrant (continued)
          --------------------------------------------------------------

          Board of Directors Meetings and Attendance
          ------------------------------------------

               The Board of Directors met four (4) times in fiscal 2001. Each
          director attended all of the Board of Directors meetings in 2000.

          Compensation and Stock Option Committee
          ---------------------------------------

               The Compensation and Stock Option Committee, composed of Ms.
          Brock, as Chairman and Messrs. Ponce and Weinberger met three (3)
          times during 2001. Every member attended all of such meetings. The
          Compensation Committee reviews the Company's general compensation
          policies and procedures; establishes salaries and benefit programs for
          the Chief Executive Officer and other executive officers of the
          Company and its subsidiaries; reviews, approves and establishes
          performance targets and awards under incentive compensation plans for
          its executive officers; and reviews and approves employment
          agreements. The Compensation and Stock Option Committee also
          administers the Company's Employee Stock Option Plan and has the
          authority to determine, among other things, to whom to grant options,
          the amount of options, the terms of options and the exercise prices
          thereof.

          Audit Committee
          ---------------

               The Audit Committee is presently composed of Mr. Weinberger, as
          Chairman, and Messrs. Ponce and Wallace. The Audit Committee met two
          (2) times during 2001. Every member attended all of such meetings. The
          principal duties of the Audit Committee are to recommend the
          appointment of independent auditors, meet with the Company's
          independent auditors to review the arrangements for, and scope of the
          audit by the independent auditors and the fees related to such work;
          review the independence of the independent auditors; consider the
          adequacy of the system of internal accounting controls; review and
          monitor the Company's policies regarding conflicts of interest; and
          discuss with management and the independent accountants the Company's
          annual and quarterly financial statements.


          Reports Pursuant to Section 16(a) of the Securities and Exchange Act
          of 1934
          --------------------------------------------------------------------

               The Company's officers and directors are required to file Forms
          3, 4 and 5 with the Securities and Exchange Commission in accordance
          with Section 16(a) of the Securities Exchange Act of 1934, as amended,
          and the rules and regulations promulgated thereunder. Based solely on
          a review of such reports furnished to the Company as required by Rule
          16a-3(e), in 2001 no officer or director other than Mr. Wallace failed
          to file any such report on a timely basis. Mr. Wallace filed Form 4's
          for the months of October 2000 and April 2001 untimely.


                                       53
<PAGE>

Item 11.  Executive Compensation

          Summary Compensation Table
          --------------------------

               The following table summarizes the compensation paid or accrued
          for each of the three fiscal years in the period ended December 31,
          2000 for the Company's chief executive officer and each other
          executive officer whose total annual salary and bonus exceeded
          $100,000 for any fiscal year, (the "Named Executive Officers").
<TABLE>
<CAPTION>

                                     Annual Compensation
                                     -------------------

                                                                          Long-Term Compensation
                                                                          ----------------------
                                                                                Securities
                                                                Other           Underlying
                                                                Annual          Options to
               Name and                                         Compen-         Purchase
          Principal Position      Year     Salary    Bonus(1)   sation(2)       Shares(3)
          ------------------      ----     ------    --------   ---------       ---------
<S>                               <C>     <C>         <C>       <C>               <C>
          Howard L. Ehler Jr.     2001    $150,000    $  -      $  -              20,000
           Principal Executive    2000    $140,000     30,000    60,000           10,000
           Officer, Executive     1999    $130,000     30,000     2,000           20,000
           Vice President and
           Secretary

          Gary Hasbach
           President, Premix,     2001     140,000       -      $15,000           20,000
           Acrocrete and          2000     130,000     30,000      -              10,000
           Just-Rite              1999     110,000     47,000      -              10,000
</TABLE>

          (1) Bonuses shown were earned in the year indicated even though
          actually paid in a subsequent year. Bonuses for year 2001 have not yet
          been determined.

          (2) Except as indicated, none of the named individuals above have
          received personal benefits or perquisites that exceed the lesser of
          $50,000 or 10% of the total annual salary and bonus reported for the
          named executive officer in the above table. Mr. Ehler's other Annual
          Compensation in 2000 and 1999 represents the market price at date of
          grant of 100,000 and 7,863 shares of common stock. Although 100,000
          such shares were issued in calendar year 2000, the Compensation
          Committee awarded such shares as services and performance tendered
          over the previous several years. Mr. Hasbach's other Annual
          Compensation in 2001 represents Mr. Hasbach's relocation expenses
          provided by the Company.

          (3) Stock options are granted under the terms and provisions of the
          1999 Employee Stock Option Plan. For a description of the stock
          options see "Executive Compensation-Options Granted in Year Ended
          December 31, 2001".

                                       54
<PAGE>

Item 11.  Executive Compensation (continued)
          ----------------------------------

          Compensation Agreements
          -----------------------

               The Company is party to a one year renewable employment
          agreement, (the "Employment Agreement") with Howard L. Ehler, Jr. (the
          "Executive"). Mr. Ehler serves as Executive Vice President, Principal
          Executive Officer and Chief Financial Officer of the Company at a
          current base salary of $150,000. The Employment Agreement provides for
          automatic renewal for additional one year periods on July 1st of each
          year, unless the Company or Executive notifies the other party of such
          party's intent not to renew at least 90 days prior to each June 30 of
          the initial term and any extended term thereafter. The Executive
          receives the use of a Company car, as well as certain other benefits,
          such as health and disability insurance. The Executive is also
          entitled to receive incentive compensation based upon targets
          formulated by the Compensation Committee.

               Prior to a Change in Control (as defined in the Employment
          Agreement), the Company has the right to terminate the Employment
          Agreement, without cause, at any time upon thirty days written notice,
          provided the Company pays to the Executive a severance payment
          equivalent to 50% of his then current annual base salary. As part of
          the Employment Agreement, the Executive has agreed not to disclose
          information and not to compete with the Company during his term of
          employment and, in certain cases, for a two (2) year period following
          his termination.

               In the event of a Change in Control, the Employment Agreement is
          automatically extended to a three year period. Thereafter, the
          Executive will be entitled to terminate his employment with the
          Company for any reason at any time. In the event the Executive so
          terminates employment, the Executive will be entitled to receive the
          lesser of (i) a lump sum equal to the base salary payments and all
          other compensation and benefits the Executive would have received had
          the Employment Agreement continued for the full term; or (ii) three
          times the Executive's base salary then in effect on the effective date
          of termination. The Executive would also be entitled to such severance
          in the event the Company terminates the Executive without cause after
          a Change of Control.


          Options Granted in Year Ended December 31, 2001
          -----------------------------------------------

               The following table sets forth certain summary information
          concerning the number of stock options granted and the potential
          realizable value of the stock options granted to the Company's Named
          Executive Officers during the fiscal year ended December 31, 2001.


                                       55
<PAGE>

Item 11.  Executive Compensation (continued)
          ----------------------------------

          Options Granted in Year Ended December 31, 2001 (continued)
          -----------------------------------------------------------
<TABLE>
<CAPTION>

                                                                                                       Realizable Value
                                           Number of                                                   at Assumed Rates
                                           Securities      % of Total                                  of Stock Price
                                           Underlying      Options                                     Appreciation
                                           Options         Granted to      Exercise                    for Option Term (3)
                                           Granted in      Employees in    Price         Expiration    -------------------
                  Name                      2000 (1)       Fiscal Year    ($/Share)(2)      Date        5%($)    10%($)
                  ----                      --------       -----------    ------------      ----        -----    ------

<S>                                          <C>              <C>            <C>          <C>          <C>       <C>
          Howard L. Ehler, Jr.               20,000           10.8%          $.20         11/14/06     $1,108    $2,444
           Principal Executive Officer,
           Executive Vice President and
           Secretary

          Gary J. Hasbach                    20,000           10.8%          $.20         11/14/06     $1,108    $2,444
           President Premix, Acrocrete
           and Just-Rite
</TABLE>


          (1) Options were granted pursuant to the terms and conditions of the
          Company's 1999 Employee Stock Option Plan.

          (2) The exercise price of $.20 per share was equal to the fair market
          value of the Company's common stock at date of grant.

          (3) The amounts disclosed in the columns which noted appreciation of
          the Company's common stock price at the 5% and 10% rates dictated by
          the Securities and Exchange Commission, are not intended to be a
          forecast of the Company's common stock price and are not necessarily
          indicative of the actual value which my be realized by the named
          Executive Officers or the stockholders. These assumed rates of 5% and
          10% would result in the Company's common stock price increasing from
          $.20 per share to approximately $.26 per share and $.32 per share,
          respectively. As of December 31, 2001, the market price for the common
          stock was $.18 per share.

          Aggregated Option Exercises in Year Ended December 31, 2001
          -----------------------------------------------------------

               The following table provides certain summary information
          concerning the value of unexercised stock options held by the
          Company's Named Executive Officers as of December 31, 2001.


                                       56
<PAGE>

Item 11.  Executive Compensation (continued)
          ----------------------------------

          Aggregated Option Exercises in Year Ended December 31, 2001
            (continued)
          -----------------------------------------------------------
<TABLE>
<CAPTION>

                                                           Value of Unexercised
                                 Number of Securities         "In the Money"
                                Underlying Unexercised       Options at Fiscal
                              Options at Fiscal Year End       Year End($)(1)
                              --------------------------       --------------
               Name           Exercisable  Unexercisable  Exercisable Unexercisable
               ----           -----------  -------------  ----------- -------------

<S>                              <C>         <C>           <C>         <C>
         Howard L Ehler, Jr.     50,000         -              -           -
          Principal Executive
          Officer, Executive
          Vice President and
          Secretary

         Gary J. Hasbach         40,000         -              -           -
          President Premix,
          Acrocrete and
          Just-Rite
</TABLE>

               No options were exercised by the Named Executive Officers during
          the year ended December 31, 2001.

          (1) The options are exercisable at $.57 and $.20 per share. At
          December 31, 2001 the fair market value of the Company's common stock
          was deemed to be $.18 per share, the average of the closing bid and
          asked price of the common stock at such date.

               The Company has two stock option plans, the Director's Stock
          Option Plan and the 1999 Employee Stock Option Plan (collectively, the
          "1999 Plans"). The 1999 Plans provide for options to be granted at
          generally no less than the fair market value of the Company's stock at
          the grant date. The 1999 Plans are administered by the Company's
          Compensation and Stock Option Committee. Options granted under the
          1999 Plans have a term of up to 10 years and are exercisable six
          months from the grant date. A total of 600,000 and 200,000 shares are
          reserved for issuance under the Employee and Director Plans. As of
          December 31, 2001 there were outstanding options to purchase 240,000
          and 160,000 shares under the Employee and Director Plans respectively.
          The exercise price for all options currently outstanding are $.20 and
          $.57 per share. All options expire five years from date of grant and
          are fully vested.

          Director Compensation
          ---------------------

               During the year ended December 31, 2001, each director received
          an annual retainer of $6,000, payable in quarterly installments.
          Effective June 1, 1994, January 1, 1995 and January 1, 2001, the
          Company entered into separate consulting agreements with Mr.


                                       57
<PAGE>

Item 11.  Executive Compensation (continued)
          ----------------------------------

          Director Compensation (continued)
          ---------------------------------

          Weinberger, Ms. Brock and Mr. Wallace, respectively, to provide
          various management consulting services to the Company.  Mr. Wallace
          and Ms. Brock receive monthly fees of $833. In connection with the
          Company's acquisition program adopted in 1999, Mr. Weinberger was
          requested to expend additional time in consulting with the Company's
          management on acquisition possibilities, including performing due
          diligence, administrative, accounting and other services.  As a result
          of the increased time and effort spent by Mr.  Weinberger, Mr
          Weinberger's consulting fee for 2000 and 2001 was $3,500 per month.
          Effective January 1, 2002 the fee was reduced to $2,500 per month.
          Each consulting agreement is terminable on sixty (60) days notice by
          either party.

               On November 14, 2001, each director was granted stock options to
          purchase 20,000 shares of the Company's common stock at an exercise
          price of $.20 per shares until November 14, 2006. Since September
          1994, Mr. Ponce has been provided the use of a Company car at a
          current cost of approximately $775 per month.

          Compensation Committee Interlocks and Insider Participation
          -----------------------------------------------------------

               During the year ended December 31, 2001, the Compensation and
          Stock Option Committee consisted of Messrs. Ponce, Weinberger and Ms.
          Brock. None of these directors has been an officer or employee of the
          Company or its subsidiaries during the last ten years, except Ms.
          Brock, who was formerly Vice President of Premix and Acrocrete until
          December 31, 1994. There are no other relationships required to be
          disclosed pursuant to applicable Securities and Exchange Commission
          rules and regulations.

Item 12.  Security Ownership of Certain Beneficial Owners and Management
          --------------------------------------------------------------

               The following table sets forth certain information as of March
          22, 2002 with respect to the beneficial ownership of the Company's
          common stock by (i) each director of the Company, (ii) each Named
          Executive Officer, (iii) each person known to the Company to own more
          than 5% of such shares, and (iv) all executive officers and directors
          as a group. (Except as otherwise provided herein, the information
          below is supplied by the holder):

                                                      Shares (1)      Percent
                                                Beneficially Owned  of Class (2)
                                                ------------------  ------------

          Maureen P. Ferri                           656,981            7.1%
            120 Simmons Road
            Statesboro, GA. 30458
          Lisa M. Brock                              309,006 (3)        3.3%
          Howard L. Ehler, Jr.                       456,108 (4)        4.9%

                                       58
<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management
          (continued)
          -------------------------------------------------------------

         Gary J. Hasbach                            290,400 (5)        3.1%
         S. Daniel Ponce                            611,966 (6)        6.6%
         Milton J. Wallace                          183,000 (7)        2.0%
         Morton L. Weinberger                       249,210 (8)        2.7%

         All directors and officers
           as a group (8 persons)                 2,125,808 (9)       22.4%


-----------------------

          (1) Except as set forth herein, all securities are directly owned and
          the sole investment and voting power are held by the person named.
          Unless otherwise indicated, the address for each beneficial owner is
          1259 N.W. 21st Street, Pompano Beach, Florida 33069-1428.

          (2) The percent of class for common stockholders is based upon
          9,220,434 shares of common stock outstanding and such shares of common
          stock such individual has the right to acquire within 60 days upon
          exercise of options that are held by such person (but not those held
          by any other person).

          (3) Includes 40,000 shares of common stock issuable upon exercise of
          stock options.

          (4) Includes 50,000 shares of common stock issuable upon exercise of
          stock options.

          (5) Includes 40,000 shares of common stock issuable upon exercise of
          stock options.

          (6) Includes 40,000 shares of common stock issuable upon exercise of
          stock options.

          (7) Includes 40,000 shares of common stock issuable upon exercise of
          stock options.

          (8) Includes 40,000 shares of common stock issuable upon exercise of
          stock options.

          (9) Includes 270,000 shares of common stock issuable upon the exercise
          of stock options.

Item 13.  Certain Relationships and Related Transactions
          ----------------------------------------------

               The law firm of Wallace, Bauman, Legon, Fodiman, Ponce and
          Shannon, P.A. of which Mr. Ponce, the Company's Chairman of the Board,
          and Mr. Wallace, a Director, are stockholders, served as general
          counsel to the Company. The law firm received $275,000 in 2001 for
          legal services rendered to the Company.

                                       59
<PAGE>
                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

          (a)  The following documents are filed as part of this report:

          1.  Financial Statements:                                      Page
              ---------------------                                      ----

              Imperial Industries, Inc. and Subsidiaries:

               Report of Independent Certified Public Accountants          27

               Consolidated Balance Sheets - December 31, 2001 and 2000    28

               Consolidated Statements of Operations - Years Ended
                December 31, 2001, 2000 and 1999.                          29

               Consolidated Statement of Changes of Common Stock and
                Other Stockholders' Equity  -  Three Years Ended
                December 31, 2001.                                         30

               Consolidated Statements of Cash Flows -
                Years ended December 31, 2001, 2000 and 1999               31

               Notes to Consolidated Financial Statements                  33

          2.  Financial Statement Schedules:
              ------------------------------

              II - Valuation and Qualifying Accounts and Reserves          61

          3.  Exhibits
              --------

              Incorporated by reference to the Exhibit Index at the
              end of this Report.                                          62

          (b) Reports on Form 8-K:
              No Form 8-K Reports were filed during the last quarter
              of the period covered by this Report.



                                       60
<PAGE>

                                   Schedule II


                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
                 Valuation and Qualifying Accounts and Reserves
                  Years ended December 31, 2001, 2000 and 1999

<TABLE>
<CAPTION>


                                                            Charged     Charged
                                              Balance       to cost    to other                   Balance at
                                             beginning        and      accounts-   Deductions-      end of
       Description                           of period      expenses   describe     describe        period
       -----------                           ---------      --------   --------     --------        ------
<S>                                          <C>            <C>            <C>     <C>               <C>
Year ended December 31, 2001:

  Reserves and allowances deducted
   from asset accounts:
  Allowance for doubtful accounts:
   Trade                                     $  400,000     $  375,000     $-      $  322,000(A)     $  453,000
                                             ----------     ----------     ---     ----------        ----------
  Valuation allowance for deferred taxes     $     --       $     --       $-      $     --          $     --
                                             ----------     ----------     ---     ----------        ----------
Year ended December 31, 2000:

  Reserves and allowances deducted
   from asset accounts:
  Allowance for doubtful accounts:
   Trade                                     $  254,000     $  283,000     $-      $  137,000(A)     $  400,000
                                             ----------     ----------     ---     ----------        ----------
  Valuation allowance for deferred taxes     $1,633,000     $     --       $-      $1,633,000(B)     $     --
                                             ----------     ----------     ---     ----------        ----------

Year ended December 31, 1999:

  Reserves and allowances deducted
   from asset accounts:
  Allowance for doubtful accounts:
   Trade                                     $  200,000     $  177,000     $-      $  123,000(A)     $  254,000
                                             ----------     ----------     ---     ----------        ----------
  Valuation allowance for deferred taxes     $2,207,000     $     --       $-      $  574,000(C)     $1,633,000
                                             ----------     ----------     ---     ----------        ----------
</TABLE>


(A)  Uncollectible accounts written off, net of recoveries.
(B)  Expiration of related net operating loss carryforwards.
(C)  Deferred tax benefit.

                                       61
<PAGE>

                                  EXHIBIT INDEX

     Certain of the following exhibits, designated with an asterisk (*), are
filed herewith. The exhibits not so designated have been filed previously with
the Commission, and are incorporated herein by reference to the documents
indicated in parentheses following the descriptions of such exhibits.
<TABLE>
<CAPTION>


Exhibit No.                         Description
-----------                         -----------
<S>     <C>

   2.1        Agreement and Plan of Merger, by and between Imperial Industries,
               Inc. and Imperial Merger Corp. dated October 12, 1998 (Form S-4
               Registration Statement, Exhibit 2).

   2.2        Asset Purchase Agreement entered into as of December 31, 1999
               between Just-Rite Supply, Inc., Imperial Industries, Inc., A&R
               Supply, Inc., A&R Supply of Foley, Inc., A&R of Destin, Inc.,
               Ronald A. Johnson, Rita E. Ward and Jaime E. Granat (Form 8-K dated
               January 19, 2000, File No. 1-7190, Exhibit 2.1).

   2.3        Asset Purchase Agreement dated June 5, 2000 between Just-Rite
               Supply, Inc., Imperial Industries, Inc., A&R Supply of Mississippi,
               Inc., A&R Supply of Hattiesburg, Inc., Ronald A. Johnson, Dennis L.
               Robertson and Richard Williamson, (Form 8-K dated June 13, 2000,
               File No. 1-7190, Exhibit 2.1.

   3.1        Certificate of Incorporation of the Company, (Form S-4 Registration
               Statement, Exhibit 3.1).

  *3.2        Amendment to Certificate of Incorporation of the Company.

   3.2        By-Laws of the Company, (Form S-4 Registration Statement, Exhibit
               3.2).

   4.1        Form of Common Stock Purchase Warrant issued to Auerbach, Pollak &
               Richardson, Inc., (Form S-4 Registration Statement, Exhibit 4.1).

  10.1        Consolidating, Amended and Restated  Financing Agreement by and
               between Congress Financial Corporation and Premix-Marbletite
               Manufacturing Co., Acrocrete, Inc. and Just-Rite Supply, Inc. dated
               January 28, 2000.

  10.2        Employment Agreement dated July 26, 1993 between Howard L.  Ehler,
               Jr. and the Company. (Form 8-K dated July 26, 1993).

  10.3        License Agreement between Bermuda Roof Company and Premix Marbletite
               Manufacturing Co., (Form S-4 Registration Statement, Exhibit 10.5).

  10.4        Employee Stock Option Plan (Annual Report on  Form 10-K for the year
               ended December 31, 2000).

  10.5        Directors Stock Option Plan (Annual Report on Form 10-K for the year
               ended December 31, 2000).

                                       62
<PAGE>

                                  EXHIBIT INDEX
                                   (continued)



  *11         Statement recomputation of earnings per share.

  *21         Subsidiaries of the Company

</TABLE>



                                       63
<PAGE>


                                   SIGNATURES
                                   ----------

    Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                            IMPERIAL INDUSTRIES, INC.



March 28, 2002               By: /s/ Howard L. Ehler,Jr.
                                 -----------------------------------------------
                                 Howard L. Ehler, Jr., Executive Vice President/
                                         Principal Executive Officer



     Pursuant to the requirements of the Securities and Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.



/s/ S. Daniel Ponce       Chairman of the Board of      March 28, 2002
------------------------  Directors
S. Daniel Ponce


/s/                       Director
------------------------
Lisa M. Brock


/s/ Milton J. Wallace     Director                      March 28, 2002
------------------------
Milton J. Wallace


/s/ Morton L. Weinberger  Director                      March 28, 2002
------------------------
Morton L. Weinberger


/s/ Howard L. Ehler,Jr.   Director, Executive Vice      March 28, 2002
------------------------  President, Principal
Howard L. Ehler, Jr.      Executive Officer, Chief
                          Financial Officer and
                          Secretary


/s/ Betty J.Murchison     Assistant Vice President      March 28, 2002
------------------------  and Chief Accounting
Betty J. Murchison        Officer


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