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
                   For the fiscal year ended December 31, 2003

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) 917-7665
                                                      --------------

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 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, 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 is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

         The aggregate market value of the voting stock of the Registrant held
by non-affiliates computed by reference to the average bid and asked price of
the registrant's Common Stock ($.01 par value) on March 19, 2004 is: $2,117,166

         Number of shares of Imperial  Industries,  Inc.  Common Stock ($.01 par
value) outstanding on March 19, 2004: 9,235,434

                       Documents Incorporated by Reference

          Certain information required for Part III of this Report is
incorporated herein by reference to the Proxy Statement for the Registrant's
2004 Annual Meeting of Stockholders.


<PAGE>


                                TABLE OF CONTENTS

                                     PART I

                                                                        Page

Item 1  Business                                                           3

Item 2  Properties                                                        10

Item 3  Legal Proceedings                                                 11

Item 4  Submission of Matters to a Vote of Security Holders               12

                                     PART II

Item 5  Market for Registrant's Common Equity and Related
                  Stockholders Matters                                    13

Item 6  Selected Financial Data                                           14

Item 7  Managements Discussion and Analysis of Financial
                  Condition and Results of Operations                     15

Item 7A Quantitative and Qualitative Disclosures about Market
                  Risk                                                    31

Item 8  Financial Statements and Supplementary Data                       32

Item 9  Changes in and Disagreement with Accountants on
                  Accounting and Financial Disclosure                     59

Item 9A Controls and Procedures                                           59

                                    PART III

Item 10 Directors and Executive Officers of the Registrant                60

Item 11 Executive Compensation                                            61

Item 12 Security Ownership of Certain Beneficial Owners and
                  Management                                              61

Item 13 Certain Relationships and Related Transactions                    61

Item 14 Principal Accounting Fees and Services                            61

                                     PART IV

Item 15 Exhibits, Financial Statement Schedules and Reports
                  on Form 8-K                                             62

Signatures                                                                64



                                       2
<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) 917-7665.

                  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, and 8%
                  subordinated debenture, face value $8.00, and five shares of
                  the Company's common stock.

                           In accordance with the Merger, the Company issued
                  $984,962 of 8% Subordinated Debentures, 1,574,610 shares of
                  common stock and was obligated to pay $732,550 in cash to the
                  former preferred stockholders who did not elect dissenters'
                  rights. The Debentures were retired in 2001.

                           Holders representing 81,100 preferred shares elected
                  dissenters' rights under Delaware law. In April 2003, the
                  Company and the dissenting preferred stockholders reached a
                  settlement. In accordance with the settlement, the Company
                  paid the dissenting preferred stockholders $12.00 per share in
                  cash ($973,000) and issued a 5.6% promissory note for $10.00
                  per share ($811,000) due May 1, 2006. The principal balance of
                  the note would be reduced to $7.00 per share ($567,700) in the
                  event the Company prepays the note in full prior to November
                  1, 2004. On March 29, 2004, the Company prepaid $400,000 of
                  the principal on the Note. (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 has three
                  manufacturing facilities for its products and ten distribution
                  outlets through which it markets certain of its

                                       3
<PAGE>

Item 1.           Business (continued)

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

                  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 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 the Company's markets. When
                  economic conditions reduce migration, demand for new
                  construction would be expected to decrease. Construction
                  activity is also affected by the size of the inventory of
                  available housing units, mortgage interest rates, availability
                  of financing 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 product through its
                  wholly-owned subsidiaries, Premix-Marbletite Manufacturing Co.
                  ("Premix") and Acrocrete, Inc. ("Acrocrete"). The Company
                  distributes its own and complementary products through its
                  wholly-owned subsidiary, Just-Rite Supply, Inc. ("Just-Rite").
                  The manufacturing facilities primarily produce and distribute
                  stucco, roof tile mortar and plaster products, while the
                  distribution facilities 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 over 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.

                                       4
<PAGE>

Item 1.           Business (continued)

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

                           Premix products accounted for approximately 25%, 24%
                  and 22% of the Company's consolidated annual revenues in the
                  fiscal years ended December 31, 2003, 2002 and 2001,
                  respectively.

                           Premix has an exclusive license to manufacture and
                  sell a roof tile mortar product throughout the State of
                  Florida and certain foreign countries. To date, a majority of
                  all roof tile mortar sales have been derived from South
                  Florida. The Company has expanded its marketing efforts for
                  this product to other areas of Florida.

                  Acrocrete
                  ---------

                           Acrocrete has manufactured synthetic acrylic stucco
                  products since 1988. 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, 2003, 2002
                  and 2001, Acrocrete's sales accounted for approximately 23%,
                  25% and 22%, respectively, of the Company's consolidated
                  annual revenues.

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

                           The Company's subsidiary Just-Rite owns and operates
                  the Company's wholesale distribution outlets. Prior to 2000
                  these outlets were operated through Acrocrete. During 2000,
                  Just-Rite acquired nine additional building distribution
                  outlets to diversify its product offering to the construction
                  market to include gypsum, roofing, masonry, insulation
                  products, as well as installation services beyond those
                  supported by the Company's manufacturing operation. Management
                  believes the acquired distribution outlets position the
                  Company to gain a greater market share for its manufactured
                  products through a more direct sales approach 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

                                       5
<PAGE>

Item 1.           Business (continued)

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

                  three distribution outlets and eliminated installation
                  services being provided at two other distribution outlets
                  related to the acquired operations. In 2002, the Company
                  closed another distribution outlet associated with the
                  acquired operations and opened a new outlet in South Florida.
                  In 2003, an additional distribution outlet associated with the
                  acquired operations was closed.

                           For the fiscal years ended December 31, 2003,
                  2002,and 2001, Just-Rite's sales, excluding the sale of Premix
                  and Acrocrete products, accounted for approximately 52%, 51%
                  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 recently has been to
                  complete the integration of the distribution outlets acquired
                  in 2000 with its existing operations and to attempt to effect
                  cost savings and gain productivity in the consolidation of
                  these acquired operations. The Company has taken action to
                  improve operating performance in the Company's distribution
                  facilities through:(i) an approximate 32% reduction in
                  workforce (68 employees) in 2001; (ii) closure of three
                  under-performing distribution locations in Mississippi in
                  2001, one in Florida in 2002 and one in Alabama in 2003; (iii)
                  elimination of installation services at two other locations;
                  and (iv) development of a consolidated purchasing program in
                  an attempt to realize greater savings from the purchase and
                  resale of products. While the Company currently will emphasize
                  internal growth through gains in productivity of operations,
                  the Company believes there exists a number of possible
                  acquisition candidates. The Company presently is not seeking
                  any acquisitions and does not have any binding

                                       6
<PAGE>

Item 1.           Business (continued)

                  Acquisition Opportunities and Present Status (continued)
                  --------------------------------------------------------

                  understanding, agreement or commitment regarding any potential
                  acquisition. The Company may pursue acquisitions in the future
                  if such acquisitions will enhance Company operations. In 2004,
                  the Company intends to seek financing to purchase equipment to
                  modernize its manufacturing facilities in an effort to gain
                  efficiencies and productivity in its manufacturing processes.

                  Suppliers
                  ---------

                           Premix's raw materials and products are purchased
                  from approximately 35 suppliers. While seven suppliers account
                  for approximately 74% 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 30 suppliers, of which five account for
                  approximately 74% 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 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 28%, 23% and 25% of
                  Just-Rite purchases in 2003, 2002 and 2001. 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.

                                       7
<PAGE>

Item 1.           Business (continued)

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

                           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 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 the Company's
                  manufactured products and other building materials to end
                  users through Just-Rite accounted for approximately 24% of
                  total revenues in 2003.

                           The Company established its first distribution
                  facility in 1994 when it opened an outlet in Savannah, Georgia
                  to sell its Acrocrete products and certain complementary
                  products manufactured by other companies to the end user.

                           Over the following several years the Company has
                  opened new distribution outlets and expanded its distribution
                  facilities into other parts of Florida, as well as Alabama and
                  Mississippi to gain market share through acquisitions and
                  start-ups. The Company currently has ten (10) distribution
                  outlets in Florida, Georgia, Mississippi and Alabama.

                           Each facility contains between approximately 4,000 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, 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.

                  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. Primarily 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 previous periods.

                                       8
<PAGE>

Item 1.           Business (continued)

                  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 distributor 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 than larger national
                  companies.

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

                           The Company is subject to various federal, state and
                  local environmental laws and regulation 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 2004 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 148 full time
                  employees as of December 31, 2003. The Company considers its
                  employee relations to be satisfactory. The Company's employees
                  are not subject to any collective bargaining agreement.

                  Available Information
                  ---------------------

                           Copies of Imperial Industries, Inc.'s quarterly
                  reports on Form 10-Q, annual report on Form 10-K and current
                  reports on Form 8-K, and any amendments to the foregoing, will
                  be provided without charge to any shareholder submitting a
                  written request to the Secretary of the Company or by calling
                  954-917-7665. All of the Company's SEC filings are also
                  available on the Company's website at
                  www.imperialindustries.com as soon as reasonably practicable
                  after having been electronically filed or furnished to the
                  SEC. In addition, the Company's Code of Business Conduct is

                                       9
<PAGE>
Item 1.           Business (continued)

                  Available Information (continued)

                  available at that website address and will be provided without
                  charge to any shareholder submitting a written request.

                           Additionally, materials the Company files with the
                  SEC's Public Reference Room at 450 Fifth Street, N.W.,
                  Washington, D.C. 20549. Information on the operation of the
                  Public Reference Room may be obtained by calling the SEC at
                  1-800-SEC-0330. The SEC maintains an Internet site
                  (www.sec.gov) that contains reports, proxy and information
                  statements, and other information regarding issuers that file
                  electronically with the SEC.

Item 2.           Properties

                           The Company and its subsidiaries conduct operations
                  from a total of 13 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
                  Destin, FL                  7,680       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
                  Port St. Lucie, FL          4,000       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 facility in Tallahassee, all leased
                  properties are leased from unaffiliated third parties. The
                  Tallahassee facility is leased from the former owner of
                  Tallahassee Gypsum Dealers, Inc., who sold her business to
                  Just-Rite in April 2000 and is currently an employee of the
                  Company.

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

                                       10
<PAGE>

Item 3.           Legal Proceedings

                           As of March 23, 2004, the Company's subsidiary
                  Acrocrete, together with other parties, are defendants in 56
                  lawsuits pending in various Southeastern states, brought by
                  homeowners, homeowner associations, contractors and
                  subcontractors, or their insurance companies, claiming
                  moisture intrusion damage as a result of the use of Exterior
                  Insulation Finish Wall Systems ("EIFS"), on single and
                  multi-family residences and one commercial project. The
                  Company's insurance carriers have accepted coverage under a
                  reservation of rights for 41 of these claims and are providing
                  a defense. Acrocrete expects its insurance carriers will
                  accept coverage for the other 15 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 EIFS are not restricted
                  to Acrocrete products used in an EIFS application, but rather
                  are an industry-wide issue. There never has 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 window, roof flashing, decking and the lack of
                  caulking.

                           As insurance markets for moisture intrusion type
                  coverage have all but disappeared, the Company was forced on
                  March 15, 2004 to renew its existing products liability
                  coverage with an exclusion for EIFS exposure. The Company's
                  management is evaluating the creation of a self insurance fund
                  for these types of claims, and believes that with existing
                  coverage covering all potential claims for goods sold prior to
                  March 15, 2004, that for the foreseeable future any uninsured
                  claims should not have a material adverse effect on the
                  Company's financial position. Sales of products used in EIFS
                  applications are believed to represent less than 20% of the
                  Company's revenues.

                           On June 15, 1999, the Company's subsidiary Premix was
                  served with a complaint captioned Mirage Condominium
                  Association, Inc. v. Premix, in the Eleventh Judicial Circuit
                  in and for Miami-Dade County, Florida, Case No: 97-27544
                  (CA-11). The lawsuit raises a number of allegations against 12
                  separate defendants involving alleged construction defects,
                  which as to Premix alleged that certain materials, purportedly
                  provided by Premix to the Developers/Contractor and used to
                  anchor balcony railings to the structure were defective.
                  Premix believes it has meritorious defenses to these claims.
                  The Company's insurance carrier has not made a decision
                  regarding coverage to date. Since the inception of this matter
                  in 1999 the insurance carrier has retained defense counsel on
                  behalf of Premix and is paying defense costs. Premix expects
                  the insurance carrier to eventually accept coverage. As
                  discovery is not yet completed, Premix is unable to determine
                  the exact extent of its exposure or the

                                       11
<PAGE>

Item 3.           Legal Proceedings (continued)

                  outcome of this litigation, however the Company believes
                  that its ultimate exposure, if any, is not material.

                           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 preferred
                  stockholders 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. On April 30,
                  2003, the Company reached a settlement with the dissenting
                  preferred stockholders. (See Note (1) of the Consolidated
                  Financial Statements.)

                           In March 2003, Just-Rite instituted litigation
                  against a former employee, employed at the Company's Gulfport,
                  Mississippi distribution facility, and others, due to alleged
                  violations by the employee of his non-compete agreements
                  related to the acquisition of the business at that location.
                  The litigation against the former employee seeks to enjoin
                  further violations of his non-compete agreement and for
                  damages resulting from such actions. In connection with the
                  litigation, Just-Rite discontinued payments on a promissory
                  note with a remaining balance in the aggregate amount of
                  $128,000, issued as partial consideration for the acquisition
                  of the Gulfport, Mississippi facility. The beneficial holders
                  of the promissory note (the former employee and the other
                  former owner) have initiated claims against Just-Rite for
                  payment of the obligation. In February 2004, the Court entered
                  an Order ruling that the former employee had violated the
                  terms of a preliminary injunction barring him from further
                  competing against Just-Rite and ordered that certain sanctions
                  be imposed.

                           The Company is aggressively defending all of the
                  lawsuits and claims described above, and while the Company
                  does not believe these claims will have a material adverse
                  effect on the Company's financial position, given the
                  uncertainty and unpredictability of litigation there can be no
                  assurance of this.


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

                           None.

                                       12
<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, and reported on the OTC Bulletin
                  Board. 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 2002               High              Low
                        -----------               ----              ---

                        First Quarter             $.17              $.12
                        Second Quarter             .26               .15
                        Third Quarter              .22               .14
                        Fourth Quarter             .16               .12

                        Fiscal 2003               High              Low
                        -----------               ----              ---

                        First Quarter             $.15              $.13
                        Second Quarter             .20               .15
                        Third Quarter              .33               .16
                        Fourth Quarter             .30               .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 19, 2004, the Common Stock was held by 1,831
                  stockholders of record.

                           As of March 19, 2004, the closing bid and asked
                  prices of the Common Stock was $.27 and $.35, respectively.

                                       13
<PAGE>

Item 6.           Selected Financial Data

                           The following is a summary of selected financial data
                  (in thousands except as to per share amounts) for each of the
                  five years in the period ended December 31, 2003:
<TABLE>
<CAPTION>

Statements of Operations Data                                             Year Ended December 31,
-----------------------------                     ------------------------------------------------------------------------
                                                     2003          2002          2001          2000          1999
                                                  ------------------------------------------------------------------------
<S>                                                <C>           <C>           <C>           <C>           <C>
Net Sales                                          $41,069       $36,504       $39,514       $40,730       $ 22,604
                                                  ------------------------------------------------------------------------
Cost of sales                                       28,438        25,099        27,254        28,218         15,198
                                                  ------------------------------------------------------------------------
Selling, general and administrative
  expenses                                          11,457        10,564        11,367        10,985          5,932
                                                  ------------------------------------------------------------------------

Interest expense                                      (454)         (531)         (825)         (806)          (475)
                                                  ------------------------------------------------------------------------
Impairment charge                                        -           (96)         (238)            -              -
                                                  ------------------------------------------------------------------------
Miscellaneous income, net                              218           129            77           199             34
                                                  ------------------------------------------------------------------------
Income (Loss) before income taxes
 and cumulative effect of change in
 accounting principle for SFAS 142                     938           343           (93)          920          1,033
                                                  ------------------------------------------------------------------------

Income tax (expense) benefit, net                     (298)         (448)         (128)         (386)           187
                                                  ------------------------------------------------------------------------
Cumulative effect of change in
 accounting principle for SFAS 142                       -          (789)            -             -              -
                                                  ------------------------------------------------------------------------

Net income (loss)                                      640          (894)         (221)          534          1,220
                                                  ------------------------------------------------------------------------
Less: Provision for settlement
 of appraisal rights obligation                          -          (313)            -             -              -
                                                  ------------------------------------------------------------------------
Net income (loss) applicable to
  common stockholders                              $   640       $(1,207)      $  (221)      $   534       $  1,220
                                                  ------------------------------------------------------------------------
Net income (loss) per share
  applicable to common stockholders
   Basic                                           $  0.07       $ (0.13)      $ (0.02)      $  0.06       $   0.15
                                                  ------------------------------------------------------------------------

   Diluted                                         $  0.07       $ (0.13)      $ (0.02)      $  0.06       $   0.15
                                                  ------------------------------------------------------------------------
Number of shares used in computation
  of income (loss) per share: Basic                  9,235         9,229         9,214         8,936          8,199
                                                  ------------------------------------------------------------------------

                              Diluted                9,290         9,229         9,214         9,070          8,390
                                                  ------------------------------------------------------------------------

Balance Sheets Data                                                         As of December 31,
-------------------                               ------------------------------------------------------------------------
                                                     2003          2002          2001          2000          1999
                                                  ------------------------------------------------------------------------
Working capital                                    $ 2,173       $ 1,432       $ 2,743       $ 1,607       $  3,447
                                                  ------------------------------------------------------------------------

Total assets                                       $14,918       $13,707       $14,591       $16,792       $  8,768
                                                  ------------------------------------------------------------------------
Long term debt,
  less current maturities                          $   848       $   961       $ 1,440       $ 1,402       $  1,328
                                                  ------------------------------------------------------------------------

Obligation for appraisal rights                    $   568       $ 1,541       $ 1,140       $   877       $    877
                                                  ------------------------------------------------------------------------
Common stock and other
  stockholders' equity                             $ 3,780       $ 3,140       $ 4,343       $ 4,559       $  3,514
                                                  ------------------------------------------------------------------------

Current ratio                                      1.2 to 1     1.1 to 1      1.4 to 1      1.2 to 1       2.1 to 1
                                                  ------------------------------------------------------------------------
</TABLE>

                                       14
<PAGE>


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 Regarding 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 ability to
                  collect our account or note receivables when due or within a
                  reasonable period of time after they become due and payable;
                  the cost of capital including interest rates and related fees
                  and expenses may increase; the outcome of any current or
                  future litigation; the adequacy or availability of insurance
                  coverage for certain types of future product damage claims;
                  the competitive pressure in the industry; unexpected product
                  shortages; general economic and business conditions may be
                  less favorable than expected; the ability to implement and the
                  effectiveness of business strategy and development plans;
                  quality of management; business abilities and judgment of
                  personnel; availability of qualified personnel; changes in
                  accounting policies and practices, as may be adopted by
                  regulatory agencies as well as the Financial Accounting
                  Standards Board; and labor and employee benefit costs.

                           These risks are not exhaustive. The Company operates
                  in a continually changing business environment, and new risks
                  emerge from time to time. We cannot predict such risks nor can
                  we assess the impact, if any, of such risks on our business or
                  the extent to which any risk, or combination of

                                       15
<PAGE>

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

                  Special Note Regarding Forward-Looking Statements (continued)
                  -------------------------------------------------------------

                  risks may cause actual results to differ from those projected
                  in any forward-looking statements.

                           These forward-looking statements speak only as of the
                  date of this document. We do not undertake any obligation to
                  update or revise any of these forward-looking statements to
                  reflect events or circumstance occurring after the date of
                  this document or to reflect the occurrence of unanticipated
                  events.

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

                           The Company prepares its 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). As with all estimates
                  and assumptions, they are subject to an inherent degree of
                  uncertainty. Management bases these estimates and assumptions
                  on historical results and known trends as well as its
                  forecasts as to how these might change in the future. Actual
                  results could differ from these estimates and assumptions. The
                  Company believes that the following critical accounting
                  policies involve a higher degree of judgment 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 debt 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 affect customers' ability to pay. As a
                  result, significant judgment 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. Misjudgments by the Company in
                  estimating its allowance for doubtful accounts could have a
                  material adverse affect on the Company's financial condition,
                  results of operations and cash flow.


                                       16
<PAGE>


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

                  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 adjustments in subsequent periods when the estimates
                  are adjusted to the actual amounts. However, if actual market
                  conditions are less favorable than those assumed by
                  management, additional inventory write-downs may be required.
                  As a result, the Company's financial condition, results of
                  operations and cash flow could be adversely affected.

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

                           The Company's review of long-lived assets and
                  goodwill requires the Company to initially estimate the
                  undiscounted future cash flow of these assets, whenever events
                  or changes in circumstance indicate that the carrying amount
                  of these assets may not be fully recoverable. If such analysis
                  indicates that a possible impairment may exist, the Company is
                  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 carrying 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. The Company
                  believes that it has made reasonable estimates and judgments
                  in determining whether its long-lived assets and goodwill have
                  been impaired. However, if there is a material change in the
                  assumptions used in the Company's determination of fair values
                  or if there is a material change in the conditions or
                  circumstances influencing fair value, the Company could be
                  required to recognize a material non-cash impairment charge.

                                       17
<PAGE>
Item 7.           Management's Discussion and Analysis of Financial Condition
                  and Results of Operations (continued)

                  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 its 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 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. The Company's anticipated 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 many other
                  factors, including those noted under "Special Note Regarding
                  Forward-Looking Statements" and "Market Risks".

                  Overview
                  --------

                           The Company's net sales increased approximately 12.5%
                  in 2003 as compared to 2002. Demand for products sold by the
                  Company was strong in 2003 primarily due to strength in the
                  new housing and commercial construction markets in the
                  Company's trade area in the Southeastern United States and
                  market share gains in selected territories. Management expects
                  the strength in new construction activity to remain strong in
                  the Company's principal markets in 2004.

                           The Company's gross margins in 2003 were similar to
                  2002. Selling, general and administrative expenses were
                  adversely affected in 2003 by higher inflationary costs
                  related primarily to fuel costs and delivery expenses,
                  insurance expense and payroll costs. The Company expects these
                  costs will continue to rise in 2004.

                                       18
<PAGE>

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

                  Overview (continued)
                  --------------------

                           The Company had cash, cash equivalents and restricted
                  cash of $1,870,000 as of December 31, 2003. In 2003, the
                  Company increased its line of credit with its commercial
                  lender from $6,000,000 to $7,000,000 to partially fund a
                  $973,000 cash payment to former preferred stockholders in
                  connection with the settlement of appraisal rights litigation
                  and to finance increased working capital requirements because
                  of increased business. On March 29, 2004 the Company prepaid
                  $400,000 of the remaining $568,000 note due to the former
                  preferred stockholders. Management believes that available
                  liquidity plus expected operating cash flows will meet the
                  Company's regular cash needs in 2004, including the cash
                  requirements associated with its regular capital expenditures
                  program and the balance due on the note payable to the former
                  stockholders. In addition, the Company is presently evaluating
                  a plant modernization capital expenditure project for its
                  manufacturing facilities to enhance its manufacturing
                  efficiency and productivity. New financing would be required
                  for these capital expenditures, which is expected to aggregate
                  approximately $1,000,000. There can be no assurance that funds
                  would be available on terms acceptable to the Company, or
                  available at all, to fund this capital project.

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

                  Year Ended December 31, 2003 compared to 2002
                  ---------------------------------------------

                           Net sales in 2003 increased $4,565,000, or
                  approximately 12.5% compared to 2002. The increase in sales is
                  principally due to growth in the sales of the Company's
                  manufactured products and increased sales at the Company's
                  distribution facilities, including $1,175,000, in 2003, in
                  increased sales generated from a new distribution facility
                  opened in the third quarter of 2002 in Port St. Lucie,
                  Florida. The increased sales of the new distribution facility
                  were in part offset by a sales reduction of approximately
                  $447,000 realized in 2002 from the Company's former Pensacola,
                  Florida distribution facility closed in the third quarter of
                  2002.

                           Gross profit as a percentage of net sales for 2003
                  was approximately 30.8% compared to 31.2% in 2002. Increases
                  in purchase discounts and vendor rebates resulting from
                  improved programs with its suppliers in 2003 were not
                  sufficient to offset cost increases of raw materials and the
                  adverse affect of higher insurance costs of $136,000
                  associated with manufacturing expenses included in cost of
                  sales during the year. The comparative gross profit margins
                  for 2003 and 2002 reflect similar competitive conditions in
                  the Company's markets for the sales of both its manufactured
                  and distributed products.


                                       19
<PAGE>

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

                  Year Ended December 31, 2003 compared to 2002 (continued)
                  ---------------------------------------------------------

                           The Company is continuing its efforts to emphasize
                  the sales of its higher gross profit margin manufactured
                  products through its distribution facilities and other
                  distributors and to decrease reliance on sales of products
                  purchased from other manufacturers. The Company increased its
                  sales force during 2002 to further promote the sales of its
                  manufactured products to the end-user.

                           Selling, general and administrative expenses as a
                  percentage of net sales in 2003 were approximately 27.9%
                  compared to 28.9% in 2002. Selling, general and administrative
                  expenses increased $893,000 in 2003, or approximately 8.5%
                  compared to 2002. The newly opened Port St. Lucie distribution
                  facility, net of the effect of the expenses associated with
                  the Pensacola facility closed in 2002, accounted for $78,000
                  of the increase in expenses for 2003 compared to 2002. For the
                  year ended December 31, 2003 the remaining increase in
                  selling, general and administrative expenses of $825,000 was
                  primarily attributable to higher sales and inflationary cost
                  pressures which included a $189,000 increase in delivery and
                  fuel charges, a $127,000 increase in insurance expense, a
                  $89,000 increase in maintenance expenses, and a $386,000
                  increase in payroll costs. Increases in other operating
                  expenses, primarily those associated with the increase in
                  sales, accounted for the balance of the increase in operating
                  expenses in 2003.

                           In 2003, the Company closed an unprofitable
                  distribution facility in Foley, Alabama. The Foley operations
                  including estimated allowances for the termination of a lease
                  and disposal of inventory accounted for losses of
                  approximately $379,000 in 2003 compared to $174,000 in 2002.
                  In addition, the Company incurred losses of approximately
                  $36,000 in 2003 related to the completion of the disposition
                  of assets associated with a distribution facility closed in
                  2002.

                           Interest expense decreased $77,000 in 2003, or
                  approximately 14.5%, compared to 2002. The decrease in
                  interest expense in 2003 was primarily due to reduced
                  borrowing rates under the Company's interest bearing
                  obligations compared to 2002, principally the appraisal rights
                  obligations incurred as a result of a settlement completed on
                  April 30, 2003.

                           Miscellaneous income, net of expenses, increased
                  $89,000 in 2003, compared to 2002. The increase in
                  miscellaneous income in 2003 is attributed primarily to the
                  Company recognizing greater income for late charges on past
                  due accounts receivables and gains from the sale of certain
                  property and equipment.


                                       20
<PAGE>

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

                  Year Ended December 31, 2003 compared to 2002 (continued)
                  ---------------------------------------------------------

                           In 2003, the Company recognized income tax expense of
                  $298,000 compared to income tax expense (excluding tax impact
                  of goodwill impairment) of $448,000 for 2002.

                           After giving effect to the above factors, the Company
                  had net income of $640,000, or $.07 per fully diluted share,
                  for 2003, compared to a net loss of $105,000 in 2002 before
                  the cumulative effect of change in accounting principle (as
                  discussed below)of $789,000 and a provision for settlement of
                  appraisal rights obligation of $313,000.

                           The 2002 results were adversely impacted by a
                  $1,272,000 ($789,000 net of related deferred tax benefit)
                  non-cash goodwill impairment charge. The charge was related to
                  the Company's required adoption of Statement of Financial
                  Accounting Standards (SFAS) No. 142 "Goodwill and Other
                  Intangible Assets". The Company has no remaining goodwill on
                  its balance sheet at December 31, 2003 and 2002. The
                  impairment of goodwill was attributable to the
                  under-performance of the Company's distribution operations
                  associated with the acquisition of certain building materials
                  distributors in 2000. In accordance with SFAS No. 142, the
                  Company reflected this impairment charge in 2002 financial
                  results as a cumulative change in accounting principle.

                           As a result of the non-cash goodwill impairment
                  charge and provision for settlement of appraisal rights
                  obligation, the Company incurred a net loss of $1,207,000, or
                  $.13 per fully diluted share, for 2002.

                  Year Ended December 31, 2002 compared to 2001
                  ---------------------------------------------

                           Net sales in 2002 decreased $3,010,000, or
                  approximately 7.6% compared to 2001. The closure of certain
                  under-performing distribution facilities, and the elimination
                  of installation services and sale of gypsum wallboard at
                  certain locations during 2001, accounted for the greatest
                  amount of sales decline in 2002 compared to 2001. The closure
                  of the under-performing operations in 2001 represented
                  $2,054,000 of the sales decline, prior to giving any
                  consideration to the elimination of gypsum wallboard at
                  certain other locations, including the Company's distribution
                  facility in Pensacola, Florida, which was subsequently closed
                  in the third quarter of 2002. The closure of the Pensacola,
                  Florida facility accounted for the remainder of the decrease
                  in sales. Gross profit as a percentage of net sales for 2002
                  was approximately 31.2% compared to 31.0% in 2001. The
                  comparative gross profit margins for 2002 and 2001 reflect
                  similar competitive pressures in the Company's markets for the
                  sales of both its manufactured and distributed products. The
                  Company increased its sales force in early 2002 to

                                       21
<PAGE>

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

                  Year Ended December 31, 2002 compared to 2001 (continued)
                  ---------------------------------------------------------

                  further its efforts to build market share and to promote the
                  sales of its higher gross profit margin manufactured products
                  to the end-user and decrease reliance on sales of lower gross
                  profit margin gypsum products and other products purchased
                  from non-affiliated vendors.

                           Market prices for gypsum wallboard, a major product
                  line purchased and sold by the Company's distribution
                  facilities, were believed to be slightly higher in 2002
                  compared to the average prices realized in 2001. The trend of
                  lower gypsum wallboard pricing, which commenced in early 2000
                  and continued for six consecutive quarters through the first
                  six months of 2001, has rebounded from the historically low
                  levels reached during the third quarter ended September 30,
                  2001. During that quarter, certain manufacturers reduced
                  production of gypsum wallboard and a stronger demand for
                  gypsum wallboard resulted in increased gypsum prices in the
                  latter part of 2001, although at still significantly reduced
                  prices from historical levels prior to 2000. The Company is
                  unable to determine if the improvement in prices in 2002 will
                  trend higher or even be maintained at current levels, during
                  2003.

                           Selling, general and administrative expenses as a
                  percentage of net sales for 2002 were approximately 28.9%,
                  compared to 28.8% in 2001. Selling, general and administrative
                  expenses decreased $803,000, or approximately 7.1% in 2002,
                  compared to 2001. The decrease in expenses was primarily due
                  to a reduction in operating costs associated with closing
                  under-performing distribution locations and Company-wide
                  reductions in personnel costs to gain improved operating
                  efficiencies, all of which took place during 2001 and 2002.

                           During 2001, the Company took action to improve
                  operating performance of the Company's distribution locations
                  through: (i) an approximate 32% reduction in workforce; (ii)
                  closure of under-performing distribution locations in
                  Hattiesburg, Picayune and Pascagoula, Mississippi; (iii)
                  elimination of installation services at two additional
                  locations; and (iv) development of a consolidated purchasing
                  program in an attempt to realize greater savings from the
                  purchase and resale of products.

                           In 2002, the Company closed an additional
                  unprofitable distribution location in Pensacola, Florida. The
                  Pensacola operations, including estimated allowances for the
                  planned sale of its facility and disposal of inventory,
                  accounted for losses of approximately $374,000 (including a
                  $96,000 impairment charge representing the write-down of the
                  property held for sale) in 2002 compared to $221,000 in 2001.
                  In addition, the Company incurred losses of approximately

                                       22
<PAGE>

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

                  Year Ended December 31, 2002 compared to 2001 (continued)
                  ---------------------------------------------------------

                  $54,000 in 2002 related to the completion of the disposition
                  of assets associated with the distribution facilities closed
                  in 2001.

                           Interest expense decreased $294,000 in 2002, or
                  approximately 35.6%, compared to 2001. The decrease in
                  interest expense in 2002 was primarily due to a lower average
                  amount outstanding under the Company's line of credit as a
                  result of closing the distribution facilities in 2001, the
                  payment of the Company's debentures at December 31, 2001,
                  which had an effective annual interest rate of 16%, and lower
                  interest rates under its variable rate borrowings.

                           Miscellaneous income for 2002 included insurance
                  refunds of approximately $51,000 as a result of lower claims
                  than provided for in the underlying insurance policies.

                           After giving effect to the above factors, the Company
                  generated income before taxes, excluding the provisions for
                  settlement of appraisal rights litigation and the write-off of
                  goodwill, as discussed below, for 2002 of $343,000, compared
                  to a loss of $93,000 for 2001.

                           The net loss for 2002 includes the impact of a
                  $1,272,000 ($789,000 net of related deferred tax benefit)
                  non-cash goodwill impairment charge. The charge is related to
                  the Company's required adoption of Statement of Financial
                  Accounting Standards (SFAS) No. 142 "Goodwill and Other
                  Intangible Assets". The goodwill impairment charge is a one
                  time event and does not affect the operating results of the
                  Company. The Company doesn't have any remaining goodwill on
                  its balance sheet which may be impaired for future periods.
                  The impairment of goodwill is attributable to the
                  under-performance of the Company's distribution operations
                  associated with the acquisition of certain building materials
                  distributors in 2000. In accordance with SFAS No. 142, the
                  Company reflected this impairment charge in its 2002 financial
                  results as a cumulative change in accounting principle.

                           In 2002, the Company recognized an income tax expense
                  of $448,000 (excluding tax impact of goodwill impairment),
                  compared to tax expense of $128,000 for 2001. Deferred income
                  tax expense in 2002 and 2001 is the result of the expiration
                  of unused net operating loss carryforwards.

                           In addition, in connection with the Company's
                  settlement in principle of its litigation with dissenting
                  preferred stockholders with appraisal rights, the Company
                  incurred a $313,000 increase in net loss available to common
                  stockholders in 2002. As a result of the above factors, the
                  Company had a net loss of $1,207,000 or $.13 per fully

                                       23
<PAGE>

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

                  Year Ended December 31, 2002 compared to 2001 (continued)
                  ---------------------------------------------------------

                  diluted share for 2002, compared to a net loss of $221,000 or
                  $.02 per share, for 2001.

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

                           As of December 31, 2003, the Company had cash and
                  cash equivalents of $1,870,000, which included customer
                  payments in the amount of $947,000 that are required to be
                  remitted to the Company's commercial lender upon their bank
                  clearance under the terms of the Company's line of credit.
                  Upon remittance of such amount, the outstanding balance of the
                  line of credit will be reduced by such amount and will
                  increase the availability for future borrowing under the line.
                  The Company has implemented a cash management program in an
                  attempt to gain a more rapid clearance of customer payments
                  deposited in its bank accounts.

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

                           The Company's operations generated approximately
                  $362,000 of net cash from operations in 2003 compared to
                  $244,000 in 2002. The increase in cash flow in 2003 was
                  primarily attributable to net income of $640,000 in 2003
                  compared to a loss in 2002, and the favorable impact of
                  increases in accounts payable and accrued expenses, which more
                  than offset increases in accounts receivable and inventory
                  associated with increased sales. During 2003, the net
                  expenditures for investing activities were $307,000 compared
                  to $100,000 in 2002. The increases in expenditures in 2003
                  compared to 2002 were primarily the result of a greater amount
                  of purchases of equipment and vehicles to upgrade the
                  Company's manufacturing operations and improve the job-site
                  delivery capability to its customers. The Company is presently
                  considering a plant modernization program for its
                  manufacturing facilities which would require material capital
                  commitments.

                           During 2003, the Company derived net cash of
                  approximately $206,000 from its financing activities, compared
                  to $97,000 in 2002. In 2003, the Company increased its
                  borrowing under its line of credit by $1,556,000, compared to
                  an increased borrowing of $579,000 in 2002, and made principal
                  payments on other debt totaling $616,000. The increased line
                  of credit was primarily utilized to pay the cash settlement of
                  $973,000 for the appraisal rights obligation.

                                       24
<PAGE>

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

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

                           At December 31, 2003, the Company's contractual cash
                  obligations, with initial or remaining terms in excess of one
                  year, were as follows:
<TABLE>
<CAPTION>

Contractual Cash                                               Payments due by Fiscal                     2008 and
Obligations                   Total            2004             2005            2006           2007      Thereafter
------------------------------------------------------------------------------------------------------------------------
<S>                        <C>             <C>              <C>             <C>              <C>          <C>
Long-term debt (a)         $1,273,000      $  425,000       $  249,000      $  116,000       $ 61,000     $422,000

Operating leases (a)       $2,086,000      $1,019,000       $  625,000      $  234,000       $133,000     $ 75,000
                          ----------------------------------------------------------------------------------------------

Total contractual
  cash obligations         $3,359,000      $1,444,000       $  874,000      $  350,000       $194,000     $497,000
                          ----------------------------------------------------------------------------------------------
</TABLE>

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

                           At December 31, 2003, the Company had working capital
                  of approximately $2,173,000 compared to working capital of
                  $1,432,000 at December 31, 2002.

                           The Company's principal source of short-term
                  liquidity is existing cash on hand and the utilization of a
                  $7,000,000 line of credit with a commercial lender. The
                  maturity date of the line of credit is June 19, 2004, subject
                  to annual renewal. Premix, Acrocrete and Just-Rite borrow on
                  the line of credit, based upon and collateralized by, their
                  eligible accounts receivable and inventory. Generally,
                  accounts not collected within 120 days are not eligible
                  accounts receivable under the Company's borrowing agreement
                  with its commercial lender. At December 31, 2003, $6,470,000
                  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 $6,470,000) of approximately $6,803,000
                  at December 31, 2003.

                           Trade accounts receivable represent amounts due from
                  subcontractors, contractors and building materials dealers
                  located principally in Florida, Alabama, Mississippi and
                  Georgia who have purchased products on an unsecured open
                  account basis and through Company owned warehouse distribution
                  outlets. As of December 31, 2003, the Company owned and
                  operated ten distribution outlets. Accounts receivable, net of
                  allowance, at December 31, 2003 was $5,702,000 compared to
                  $4,880,000 at December 31, 2002. The increase in receivables
                  of $822,000, or approximately 16.8%, was primarily related to
                  increased sales in 2003 (12.5%), particularly sales for the
                  month of December 2003 as compared with December 2002, and
                  some slowness in payments by certain


                                       25
<PAGE>

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

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

                  customers in 2003 compared to 2002. Inventories and accounts
                  payable increased $677,000 and $214,000, respectively, at
                  December 31, 2003 compared to 2002 due to the increased level
                  of business.

                           As a result of the consummation of the December 31,
                  1998 merger, the Company agreed to pay $733,000 in cash to its
                  former preferred stockholders. At December 31, 2003, the
                  Company had paid $685,000 of such cash amount. Amounts payable
                  to such stockholders at December 31, 2003 results from their
                  non-compliance with the condition for payments.

                           Holders representing 81,100 preferred shares elected
                  dissenters' rights under Delaware law. The Company recorded a
                  liability for each share owned by the dissenting preferred
                  stockholders based on the fair value of $2.25 in cash, an
                  $8.00 Subordinated Debenture and five shares of the Company's
                  common stock.

                           On April 30, 2003, the Company and the dissenting
                  preferred stockholders ("Dissenting Stockholder") reached a
                  settlement (the "Settlement"). In accordance with the
                  Settlement, the Company paid the Dissenting Stockholders
                  $12.00 per share in cash ($973,200) and issued a 5.6%
                  promissory note (the "Note") for $10.00 per share ($811,000)
                  due May 1, 2006. The principal balance of the Note would be
                  reduced to $7.00 per share ($567,700) in the event the Company
                  prepays the Note in full prior to November 1, 2004. If not
                  paid by November 2004 the interest rate will increase from
                  5.6% to 8.0%. The Company satisfied the cash due at closing
                  from cash on hand and borrowings from its amended line of
                  credit with its commercial lender. At December 31, 2003, based
                  on management's intention to prepay the Note in full prior to
                  November 1, 2004, the appraisal rights obligation was recorded
                  at $567,700 and classified as a short-term liability. On March
                  29, 2004 the Company elected to prepay $400,000 on the Note.

                           At December 31, 2003, the Company has paid the
                  holders of the Subordinated Debentures tendering their bonds
                  $808,000. Amounts payable to stockholders at December 31, 2002
                  and 2003 on the Company's consolidated balance sheets includes
                  $213,000 payable to former debenture holders who have not yet
                  tendered their Debentures as required by the terms of such
                  instrument.

                           The Company presently is focusing its efforts on
                  enhancing customer service, increasing operating productivity
                  through reducing costs and expenses and improving working
                  capital. The Company expects to incur various capital
                  expenditures aggregating approximately $400,000 during the
                  next twelve months to upgrade and maintain its equipment and

                                       26
<PAGE>

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

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

                  delivery fleet to support its distribution facilities and
                  improve customer service. The Company expects to finance
                  approximately $300,000 of these expenditures from various
                  lenders with the balance funded by cash derived from
                  operations.

                           Effective March 15, 2004 the Company was forced to
                  renew its products liability coverage with an exclusion for
                  EIFS exposure. Based on past experience for these types of
                  claims, the Company does not expect any of these types of
                  uninsured claims that may be alleged in the future to have a
                  material effect on the Company's financial position within the
                  next 18 to 24 months. Due to the uncertainty and
                  unpredictability of litigation there can be no assurances as
                  to when or if any future uninsured claims may be filed. See
                  "Item 3 Legal Proceedings".

                           The Company believes its cash on hand and the
                  maintenance of its borrowing arrangement with its commercial
                  lender will provide sufficient cash to meet current
                  obligations for its operations and support the cash
                  requirements of its regular capital expenditure program in
                  2004. The Company's regular capital expenditure program
                  consists of the routine replacement of equipment and delivery
                  fleet described above.

                           In addition, the Company is evaluating various types
                  of alternative capital projects to expand and enhance its
                  manufacturing capabilities to more effectively serve its
                  customer base, to gain production efficiencies and provide the
                  opportunity to broaden its manufactured product lines and
                  enter new markets. The Company is assessing the merits and
                  assumptions of these alternative projects, and the completion
                  date of any such project, if adopted, is uncertain. The
                  Company is presently seeking funds to first commence the
                  capital project for modernization of its equipment at its
                  Winter Springs, Florida manufacturing facility. Management
                  believes the modernization project for the Winter Springs
                  manufacturing facility could represent approximately
                  $1,000,000 in capital expenditures. There can be no assurance
                  that funds would be available on terms acceptable to the
                  Company, if available at all, to fund these capital projects.

                           The ability of the Company to maintain and improve
                  its long-term liquidity is primarily dependent on the
                  Company's ability to successfully maintain profitable
                  operations.

                  Recent Accounting Pronouncements
                  --------------------------------

                           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

                                       27
<PAGE>

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

                  Recent Accounting Pronouncements (continued)
                  --------------------------------------------

                  beginning after December 15, 2001. SFAS 144 addresses
                  accounting and reporting for the impairment or disposal of
                  long-lived assets. The Company's adoption of SFAS 144 on
                  January 1, 2002 did not have a material effect on its
                  consolidated financial statements.

                           In May 2002, the FASB issued SFAS No. 145,
                  "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
                  FASB Statement No. 13, and Technical Corrections". SFAS 145
                  rescinds the automatic treatment of gains or losses from
                  extinguishment of debt as extraordinary unless they meet the
                  criteria for extraordinary items as outlined in APB Opinion
                  No. 30, Reporting the Results of Operations, Reporting the
                  Effects of Disposal of a Segment of a Business, and
                  Extraordinary, Unusual and Infrequently Occurring Events and
                  Transactions. In addition, SFAS 145 also requires
                  sale-leaseback accounting for certain lease modifications that
                  have economic effects that are similar to sale-leaseback
                  transactions and makes various technical corrections to
                  existing pronouncements. The provisions of SFAS 145 related to
                  the rescission of FASB Statement 4 are effective for fiscal
                  years beginning after May 15, 2002, with early adoption
                  encouraged. All other provisions of SFAS 145 are effective for
                  transactions occurring after May 15, 2002, with early adoption
                  encouraged. The Company's adoption of SFAS 145 did not have a
                  material effect on its financial statements.

                           In June 2002, the FASB issued Statement No. 146,
                  Accounting for Costs Associated with Exit or Disposal
                  Activities (SFAS 146) and nullifies EITF Issue No. 94-3. SFAS
                  146 requires that a liability for a cost associated with an
                  exit or disposal activity be recognized when the liability is
                  incurred, whereas EITF No. 94-3 had recognized the liability
                  at the date of an entity's commitment to an exit plan. The
                  adoption of SFAS 146 did not have a material effect on the
                  Company's consolidated financial statements.

                           In November 2002, the FASB issued Interpretation No.
                  45 ("FIN No. 45"), "Guarantor's Accounting and Disclosure
                  Requirements for Guarantees, Including Indirect Guarantees of
                  Indebtedness of Others." FIN No. 45 clarifies and expands on
                  the existing disclosure requirements of guarantees. FIN No. 45
                  also requires recognition of a liability at fair value of a
                  company's obligations under certain guarantee contracts. The
                  disclosure requirements are effective for financial statements
                  of interim or annual periods ending after December 15, 2002.
                  The adoption of FIN No. 45 did not impact our consolidated
                  financial statements.

                           In April 2003, SFAS No. 149, "Amendment of Statement
                  133 on Derivative Instruments and Hedging Activities" was
                  issued. SFAS No. 149 amends and clarifies accounting for
                  derivative

                                       28
<PAGE>

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

                  Recent Accounting Pronouncements (continued)
                  --------------------------------------------

                  instruments, including certain derivative instruments embedded
                  in other contracts, and for hedging activities under SFAS No.
                  133 SFAS No. 149 is effective for contracts entered into or
                  modified after June 30, 2003 and for hedging relationships
                  designated after June 30, 2003. The adoption of this statement
                  did not impact our consolidated financial statements.

                           In May 2003, the FASB issued SFAS No, 150,
                  "Accounting for Certain Financial Instruments with
                  Characteristics of both Liabilities and Equity." SFAS No. 150
                  establishes standards for how companies classify and measure
                  certain financial instruments with characteristics of both
                  liabilities and equity. It requires companies to classify a
                  financial instrument that is within its scope as a liability
                  (or an asset in some circumstances). SFAS No. 150 is effective
                  immediately for financial instruments entered into or modified
                  after May 15, 2003 and in the first interim period after June
                  15, 2003 for all other financial instruments. The adoption of
                  this statement did not impact our consolidated financial
                  statements.

                           In December 2003, Financial Accounting Standards
                  Board Interpretation ("FIN") No. 46(R), "Consolidation of
                  Variable Interest Entities (revised December 2003)", was
                  issued. The interpretation revises FIN No. 146, "Consolidation
                  of Variable Interest Entities", to exempt certain entities
                  from the requirements of FIN No. 146. The interpretation
                  requires a company to consolidate a variable interest entity
                  ("VIE"), as defined, when the company will absorb a majority
                  of the variable interest entity's expected losses, receive a
                  majority of the variable interest entity's expected residual
                  returns, or both. FIN No. 46(R) also requires consolidation of
                  existing, non-controlled affiliates if the VIE is unable to
                  finance its operations without investor support, or where the
                  other investors do not have exposure to the significant risks
                  and rewards of ownership. The interpretation applies
                  immediately to a VIE created or acquired after January 31,
                  2003. For a VIE acquired before February 1, 2003, FIN No.
                  46(R) applies in the first interim period ending after March
                  15, 2004. The adoption of this interpretation did not impact
                  our consolidated financial statements.

                  Goodwill and Other Intangible Assets
                  ------------------------------------

                           Effective January 1, 2002 the Company adopted SFAS
                  141, "Business Combinations," and SFAS 142, "Goodwill and
                  Other Intangible Assets". SFAS 141 was issued by the FASB in
                  June 2001. 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

                                       29
<PAGE>

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

                  Goodwill and Other Intangible Assets (continued)
                  ------------------------------------------------

                  intangible assets that are required to be included in
                  goodwill. The Company's adoption of this standard did not have
                  any effect on its accounting for prior business combinations.

                           SFAS 142 requires that goodwill no longer be
                  amortized, but instead be tested for impairment at least
                  annually. SFAS 142 requires recognized intangible assets to be
                  amortized over their respective estimated useful lives and
                  reviewed for impairment in accordance with SFAS 144,
                  "Accounting for the Impairment or Disposal of Long-Lived
                  Assets". Any recognized intangible assets determined to have
                  an indefinite useful life are not amortized, but instead
                  tested for impairment in accordance with the standard until
                  its life is determined to no longer be indefinite. If goodwill
                  amortization had not been recorded in 2001 and 2000, the
                  Company's net (loss) income would have been ($180,000) and
                  $563,000, respectively, with no impact on earnings per share.

                           In the second quarter of 2002, the Company completed
                  its SFAS 142 transitional impairment review and determined
                  that the goodwill ("excess cost of investment over net assets
                  acquired") of $1,272,000 associated with acquisitions of
                  several distribution facilities in 2000 should be reduced to
                  $0. The impairment is the result of the under-performance of
                  several of the acquired distribution facilities. The fair
                  value of the distribution reporting unit was determined using
                  the present value of expected future cash flows and other
                  valuation measures.

                           The $1,272,000 ($789,000 net of related tax benefit)
                  non-cash charge is reflected as a cumulative effect of an
                  accounting change in the accompanying Consolidated Statements
                  of Operations for the year ended December 31, 2002.

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

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

                           The Company's 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 the Company's control. Some of
                  these factors include interest rates, employment levels,
                  availability of credit, prices and availability of raw
                  materials and products purchased for resale, as well as
                  consumer confidence. Downturns in the market that the Company
                  serves or in the economy could have a material adverse effect
                  on the Company's operating results and financial condition.
                  Reduced levels of construction activity may result in intense
                  price competition among building materials suppliers, which
                  may adversely affect the Company's gross margins and operating
                  results.

                                       30
<PAGE>

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

                  Market Risks (continued)
                  ------------------------

                           The Company's first quarter revenues and, to a lesser
                  extent, the Company's 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.
                  Weather conditions such as heavy rain or snow, will generally
                  preclude customers from installing the Company's products on
                  job sites. Because much of the Company's overhead and expense
                  remains relatively fixed throughout the year, the Company's
                  profits and operating results also tend to be lower and less
                  favorable during the first and fourth quarters.

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

                           The Company had two variable rate mortgages totaling
                  $387,000 at December 31, 2003. The mortgages bear interest at
                  prime plus 1% and were due October 2004 as of December 31,
                  2003. The Company recently refinanced these obligations and
                  they are now due in March, 2009. In addition, the Company's
                  $7,000,000 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 the
                  Company's operating results and financial condition.

Item 7A.          Quantitative and Qualitative Disclosures about Market Risk

                  Not Applicable.

                                       31
<PAGE>

Item 8.           Financial Statement and Supplementary Data

                  CONSOLIDATED FINANCIAL STATEMENTS:                   Page
                                                                       ----

                  Report of Independent Certified Public
                  Accountants                                            33

                  Consolidated Balance Sheets                            34

                  Consolidated Statements of Operations                  35

                  Consolidated Statements of Changes in
                  Stockholders' Equity                                   36

                  Consolidated Statements of Cash Flows                  37

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.                Merger                                                 39
2.                Description of Business and Summary of
                           Significant Accounting Policies               40
3.                Inventories                                            47
4.                Property, Plant and Equipment                          47
5.                Notes Payable                                          47
6.                Accrued Expenses and Other Liabilities                 48
7.                Long-Term Debt                                         48
8.                Income Taxes                                           49
9.                Capital Stock                                          50
10.               Miscellaneous Income                                   52
11.               Earnings (Loss) Per Common Share                       53
12.               Related Party Transactions                             54
13.               Commitments and Contingencies                          54
14.               Impairment Charge                                      56
15.               Obligation for Appraisal Rights                        57


                  Schedule II - Valuation and Qualifying Accounts        58

                  All other schedules have been omitted because they are not
required, are not applicable or the information is included in the consolidated
financial statements or notes thereto.


                                       32
<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 15(a) (1) on page 62 present fairly, in all material
respects, the financial position of Imperial Industries, Inc. and its
subsidiaries (the "Company") at December 31, 2003 and 2002, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2003 in conformity with accounting principals generally
accepted in the United States of America. In addition, in our opinion, the
financial statement schedule listed in the index appearing under Item 15(a) (2)
on page 62 presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements. These financial statements and the financial statement schedule are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements and the financial statement schedule
based on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United State 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.

As discussed in Note 2(p) to the Consolidated Financial Statements, effective
January 1, 2002, the Company changed its method of accounting for goodwill in
accordance with Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets.

PRICEWATERHOUSECOOPERS LLP
Miami, Florida
March 29, 2004


                                       33
<PAGE>


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

                                                                            December 31,
Assets                                                               2003                 2002
------                                                         --------------------------------------
Current assets:
<S>                                                             <C>                   <C>
   Cash and cash equivalents                                    $  1,870,000          $ 1,609,000
   Trade accounts receivable (less
    allowance for doubtful accounts of
    $556,000 and $477,000 at December 31,
    2003 and 2002, respectively)                                   5,702,000            4,880,000
   Inventories                                                     4,290,000            3,613,000
   Deferred income taxes                                             157,000              383,000
   Other current assets                                              444,000              553,000
                                                               --------------------------------------
     Total current assets                                         12,463,000           11,038,000
                                                               --------------------------------------

Property, plant and equipment, at cost                             4,228,000            4,051,000
   Less accumulated depreciation                                  (2,397,000)          (2,068,000)
                                                               --------------------------------------
     Net property, plant and equipment                             1,831,000            1,983,000
                                                               --------------------------------------

Deferred income taxes                                                470,000              509,000
                                                               --------------------------------------


Other assets                                                         154,000              177,000
                                                               --------------------------------------
                                                                $ 14,918,000          $13,707,000
                                                               --------------------------------------

Liabilities and Stockholders' Equity
Current liabilities:
   Notes payable                                                $  6,470,000          $ 4,914,000
   Current portion of long-term debt                                 425,000              690,000
   Accounts payable                                                2,066,000            1,852,000
   Obligation for Appraisal Rights                                   568,000            1,541,000
   Payable to stockholders                                           261,000              262,000
   Accrued expenses and other liabilities                            478,000              340,000
   Income taxes payable                                               22,000                7,000
                                                               --------------------------------------
     Total current liabilities                                    10,290,000            9,606,000
                                                               --------------------------------------

Long-term debt, less current maturities                              848,000              961,000
                                                               --------------------------------------


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

Stockholders' equity:
  Common stock, $.01 par value at December 31, 2003
   and 2002; 40,000,000 shares authorized;
   9,235,434 and 9,235,434 issued at
   December 31, 2003 and 2002, respectively                           92,000               92,000
Additional paid-in-capital                                        13,924,000           13,924,000
Accumulated deficit                                              (10,236,000)         (10,876,000)
                                                               --------------------------------------
     Total stockholders' equity                                    3,780,000            3,140,000
                                                               --------------------------------------
                                                                $ 14,918,000          $13,707,000
                                                               --------------------------------------
</TABLE>



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


                                       34
<PAGE>

                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
                      Consolidated Statements of Operations
<TABLE>
<CAPTION>

                                                                             Year Ended December 31,
                                                           -------------------------------------------------------
                                                                   2003                2002                2001
                                                           -------------------------------------------------------
<S>                                                         <C>                  <C>                 <C>
Net sales                                                   $ 41,069,000         $36,504,000         $39,514,000

Cost of sales                                                 28,438,000          25,099,000          27,254,000
                                                           -------------------------------------------------------

   Gross profit                                               12,631,000          11,405,000          12,260,000
Selling, general and
  administrative expenses                                     11,457,000          10,564,000          11,367,000
Impairment charge                                                   --                96,000             238,000
                                                           -------------------------------------------------------

    Operating income                                           1,174,000             745,000             655,000
                                                           -------------------------------------------------------
Other (expense) income:
   Interest expense                                             (454,000)           (531,000)           (825,000)
   Miscellaneous income, net                                     218,000             129,000              77,000
                                                           -------------------------------------------------------
                                                                (236,000)           (402,000)           (748,000)
                                                           -------------------------------------------------------
   Income (loss) before income taxes
   and cumulative effect of change in
   accounting principle for SFAS 142                             938,000             343,000             (93,000)
                                                           -------------------------------------------------------
Income tax expense:
   Current                                                       (33,000)             (7,000)            (12,000)
   Deferred                                                     (265,000)           (441,000)           (116,000)
                                                           -------------------------------------------------------
                                                                (298,000)           (448,000)           (128,000)
                                                           -------------------------------------------------------

   Income (Loss) before cumulative
   effect of change in accounting
   principle for SFAS 142                                   $    640,000         $  (105,000)        $  (221,000)
                                                           -------------------------------------------------------

   Cumulative effect of change in
   accounting principle for SFAS 142,
   net of deferred tax benefit of $483,000
   (Note 2)                                                            -            (789,000)                  -
                                                           -------------------------------------------------------

Net income (loss)                                                640,000            (894,000)           (221,000)
    Less: Provision for settlement of
      appraisal rights obligation                                      -            (313,000)                  -
                                                           -------------------------------------------------------

Net income (loss) available to
  common stockholders                                       $    640,000         $(1,207,000)        $  (221,000)
                                                           =======================================================

Basic and diluted income (loss) earnings per
  share before cumulative effect of change
  in accounting principle                                   $       0.07         $     (0.01)        $     (0.02)

Cumulative effect of change in accounting
  principle                                                 $        -           $     (0.09)        $       -
                                                           -------------------------------------------------------
                                                                    0.07               (0.10)              (0.02)

Basic and diluted income (loss) earnings per
  share before provision for settlement
  of appraisal rights litigation

  Less: Provision for settlement of appraisal
  rights obligation                                                  -                 (0.03)                -
                                                           -------------------------------------------------------

Basic and diluted income (loss) earnings
  per share before cumulative effect of
  change in accounting principle                            $       0.07         $     (0.13)        $      0.02
                                                           =======================================================
</TABLE>

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

                                       35
<PAGE>


                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

           Consolidated Statements of Changes in Stockholders' Equity

                  Years Ended December 31, 2003, 2002 and 2001
<TABLE>
<CAPTION>


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

<S>                              <C>               <C>           <C>                 <C>                              <C>
Balance at January 1, 2001       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
                               ----------------- ------------- ------------------ --------------------------------- ---------------

Issuance of Common Stock            15,000              -             4,000                   -             -             4,000

Provision for settlement of
 appraisal rights obligation             -              -                 -            (313,000)            -          (313,000)

Net loss                                 -              -                 -            (894,000)            -          (894,000)

                               ----------------- ------------- ------------------ --------------------------------- ---------------
Balance at December 31, 2002     9,235,434         92,000        13,924,000         (10,876,000)            -         3,140,000
                               ----------------- ------------- ------------------ --------------------------------- ---------------

Net income                               -              -                 -             640,000             -           640,000
                               ----------------- ------------- ------------------ --------------------------------- ---------------

Balance at December 31, 2003    $9,235,434        $92,000       $13,924,000        $(10,236,000)        $   -        $3,780,000
                               ----------------- ------------- ------------------ --------------------------------- ---------------
</TABLE>

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

                                       36
<PAGE>

                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                                 Year Ended December 31,
                                                                    ------------------------------------------------
                                                                         2003              2002             2001
                                                                    ------------------------------------------------
Cash flows from operating activities:

<S>                                                                  <C>                <C>              <C>
Net income (loss)                                                    $   640,000        $ (894,000)      $ (221,000)
                                                                    ------------------------------------------------
Adjustments to reconcile net income (loss) to net cash provided by
  (used in) operating activities:
Cumulative effect of change in accounting principle                            -           789,000                -
     Depreciation                                                        481,000           464,000          525,000
     Amortization                                                         36,000            28,000           71,000
     Write-down of goodwill                                                    -                 -          238,000
     Debt issue discount                                                       -                 -           59,000
     Provision for doubtful accounts                                     318,000           268,000          375,000
     Provision for writedown of assets                                    11,000            96,000           61,000
     Provision for deferred income taxes                                 265,000           441,000          116,000
     (Gain) loss on disposal of fixed assets                             (48,000)            5,000           32,000
     Compensation expenses - issuance of stock                                 -             4,000            5,000

     (Increase) decrease in:
       Accounts receivable                                            (1,140,000)         (729,000)          72,000
       Inventory                                                        (677,000)          194,000          580,000
       Prepaid expenses and other assets                                 109,000          (331,000)        (302,000)

     Increase (decrease) in:
       Accounts payable                                                  214,000           (54,000)        (358,000)
       Interest on obligation for appraisal rights                             -            88,000           88,000
       Accrued expenses and other liabilities                            138,000          (125,000)        (145,000)
       Income taxes payable                                               15,000                --          (11,000)
                                                                    ------------------------------------------------
     Total adjustments to net income (loss)                             (278,000)        1,138,000        1,406,000
                                                                    ------------------------------------------------

       Net cash (used in) provided by
         operating activities                                            362,000           244,000        1,185,000
                                                                    ------------------------------------------------

Cash flows from investing activities
     Purchase of property, plant
      and equipment                                                     (380,000)         (142,000)         (92,000)
     Payment on notes payable A&R acquisitions                                 -                 -         (100,000)
     Proceeds received from sale of property
       and equipment                                                      26,000            42,000           80,000
     Proceeds received from insurance settlement                          47,000                 -                -
                                                                    ------------------------------------------------

     Net cash used in investing
       activities                                                       (307,000)         (100,000)        (112,000)
                                                                    ------------------------------------------------
</TABLE>


                                 - continued -

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


                                       37
<PAGE>

                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                      Consolidated Statements of Cash Flows
                                   (continued)
<TABLE>
<CAPTION>


                                                                                  Year Ended December 31,
                                                                   -------------------------------------------------
                                                                          2003              2002             2001
                                                                   -------------------------------------------------
<S>                                                                   <C>                 <C>             <C>
Cash flows from financing activities
     Increase (decrease) in notes payable
       banks - net                                                    1,556,000           579,000         (768,000)
     Payable to stockholders                                             (1,000)          (24,000)               -
     Payment of obligation for appraisal rights                        (973,000)                -                -
     Proceeds from issuance of long-term debt                           240,000           246,000          748,000
     Repayment of long-term debt                                       (616,000)         (704,000)      (1,538,000)
                                                                   -------------------------------------------------
       Net cash provided by (used in)
         financing activities                                           206,000            97,000       (1,558,000)
                                                                   -------------------------------------------------

Net increase (decrease) in cash
   and cash equivalents                                                 261,000           241,000         (485,000)
Cash and cash equivalents,
   beginning of year                                                  1,609,000         1,368,000        1,853,000
                                                                   -------------------------------------------------
Cash and cash equivalents, end of year                              $ 1,870,000        $1,609,000       $1,368,000
                                                                   -------------------------------------------------

Supplemental disclosure of cash flow information:

Cash paid during the year for interest                              $   446,000        $  455,000       $  692,000
                                                                   -------------------------------------------------
Cash paid during the year for income taxes                               17,000            10,000           30,000
                                                                   -------------------------------------------------
Non-cash transactions:
   Issuance of 15,000, shares of common
     stock to an employee of the Company in
     each of 2002 and 2001                                                    -             4,000       $    5,000
Capital lease obligations                                                48,000            51,000           43,000

Asset acquisitions financed                                             193,000           202,000          715,000

Reclassification of property, plant and equipment
  to other current assets (See Note 14)                             $    13,000        $  240,000       $        -
                                                                   -------------------------------------------------
</TABLE>

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

                                       38
<PAGE>


                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

(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.

                  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, 2003. In addition, the Company
              issued $985,000 face value of 8% 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, 2003, the Company paid $808,000 of
              the $985,000 to Debenture holders who had tendered their bonds as
              required by such instruments. Amounts payable to stockholders at
              December 31, 2002 and 2003 on the Company's consolidated balance
              sheets includes $213,000 payable to former debenture holders who
              have not yet tendered their Debentured as required by the terms of
              such instrument.

                  Holders of 81,100 shares of preferred stock (the "Dissenting
              Stockholders"), with a carrying value of $811,000, elected to
              exercise their appraisal rights, pursuant to Delaware law. A trial
              for the appraisal rights was held in the Chancery Court of
              Delaware in June 2002. In February 2003, the Company and the
              Dissenting Stockholders reached a settlement in principle. As of
              December 31, 2002, the Company recorded $1,541,000 in the
              accompanying consolidated balance sheet as an estimate for the
              obligation for appraisal rights based on the estimated fair value
              of the settlement.

                  On April 30, 2003, the Company and the Dissenting Stockholders
              finalized the settlement. In accordance with the settlement, the
              Company paid the holders of appraisal rights $12.00 per share in
              cash ($973,200) and issued a 5.6% Promissory Note (the "Note")for
              $10.00 per share ($811,000) due May 1, 2006. The principal balance
              of the Note would be reduced to $7.00 per share ($567,700) in the
              event the Company repays the Note in full prior to November 1,
              2004. At December 31, 2003, based on management's intention to
              prepay the Note in full prior to November 1, 2004, the appraisal
              rights obligation was recorded in the amount of $567,700 and is
              classified as a current liability in the accompanying consolidated
              balance sheets. On March 29, 2004 the Company paid $400,000
              related to the Note.

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

                                       39
<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 form building materials dealers, contractors
              and subcontractors, located principally in the Southeastern United
              States who have purchased products on an unsecured open account
              basis. At December 31, 2003, accounts aggregating $537,000, or
              approximately 8.6% 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, 2003 of $556,000
              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, 2003, the Company had 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.

                                       40
<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 at 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 until December 31, 2001 and was net of $57,000 accumulated
              amortization at December 31, 2001. (See Note 2 (n) Recent
              Accounting Pronouncements and Note 2 (o) Goodwill and Other
              Intangible Assets).

                  (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).


                                       41
<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 defines 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, 2003 and 2002 are short-term time
              deposits of $123,000 and $122,000, respectively. Also included in
              cash and cash equivalents at December 31, 2003 and 2002 are
              $947,000 and $713,000, respectively, of customer payments that are
              required to be remitted to the Company's commercial lender upon
              their bank clearance under the terms of the Company's line of
              credit. Such amounts when remitted to the lender will reduce the
              outstanding balance of the line of credit, resulting in greater
              borrowing availability.

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

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

                  (j) Purchase rebates
                  --------------------

                  The Company has an arrangement with a buying group
              organization providing for inventory purchase rebates ("vendor
              rebates") based principally upon achievement of certain volume
              purchasing levels during the year. The Company accrues the
              estimated receipt of vendor rebates as part of its cost of sales
              for products sold based on progress towards earning the vendor
              rebates taking into consideration cumulative purchases throughout
              the year. Substantially all vendor rebate receivables are
              collected within three months immediately following fiscal
              year-end. While management believes the Company will continue to
              receive consideration from the buying group in 2004 and
              thereafter, there can be no assurance that the buying group will
              continue to provide comparable amounts of vendor rebates in the
              future.

                  (k) 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 (See Note 9).

                                       42
<PAGE>

                      IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

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

                  (k) Stock based compensation (continued)
                  ----------------------------------------

                  Pursuant to SFAS No. 123, as amended by SFAS No. 148
              "Accounting for Stock-Based Compensation Transition and
              Disclosure" the Company has elected to use the intrinsic value
              method of accounting for employee awards, stock based compensation
              awards. Accordingly, the Company has not recognized compensation
              expense for its noncompensatory employee stock options.

                  The following table illustrates the effect on net income and
              earnings per share if the Company had applied the fair
              value-recognition provisions of Financial Standards Board (FASB)
              Statement No. 123, Accounting for Stock-Based Compensation, to
              stock-based employee compensation (in thousands, except per share
              amounts):
<TABLE>
<CAPTION>

                                                                               Year Ended December 31
                                                                          2003           2002         2001
                                                                     --------------------------------------
<S>                                                                   <C>            <C>           <C>
             Net income (loss) available to common
              stockholders, as reported                               $   640        $(1,207)      $ (221)

             Deduct: Total stock-based employee
               compensation expense determined
               under fair-value-based method for
               all awards, net of related tax effects                     (12)           (31)         (62)
                                                                     --------------------------------------

             Pro forma net income (loss)                              $   628        $(1,238)      $ (283)
                                                                     ======================================

             Earnings (loss) per share:
               Basic as reported                                      $  0.07        $ (0.13)      $(0.02)
               Basic pro forma                                        $  0.07        $ (0.13)      $(0.03)
               Diluted as reported                                    $  0.07        $ (0.13)      $(0.02)
               Diluted pro forma                                      $  0.07        $ (0.13)      $(0.03)
</TABLE>

                  (l) 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.


                                       43
<PAGE>



                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

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

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

                  The carrying amounts of the Company's financial instruments
              principally notes payable, debentures, obligation for appraisal
              rights and long-term debt, approximate fair value based on
              discounted cash flows and because the borrowing rates are similar
              to the current rates available to the Company.

                  (n) Segment Reporting
                  ---------------------

                  The Company adopted SFAS No. 131, Disclosures about Segments
              of an Enterprise and Related Information. For the years ended
              December 31, 2003, 2002 and 2001, the Company determined that it
              operated in a single operating segment.

                  (o) Recent Accounting Pronouncements
                  ------------------------------------

                  In October 2001, the Financial Accounting Standards Board
              issued "Accounting for the Impairment of 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 superseded SFAS 121, "Accounting for the Impairment
              of Long-Lived Assets to be Disposed Of". The Company's adoption of
              SFAS 144 on January 1, 2002 did not have a material effect on its
              consolidated financial statements.

                  In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB
              Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13,
              and Technical Corrections". SFAS 145 rescinds the automatic
              treatment of gains or losses from extinguishment of debt as
              extraordinary unless they meet the criteria for extraordinary
              items as outlined in APB Opinion No. 30, Reporting the Results of
              Operations, Reporting the Effects of Disposal of a Segment of a
              Business, and Extraordinary, Unusual and Infrequently Occurring
              Events and Transactions. In addition, SFAS 145 also requires
              sale-leaseback accounting for certain lease modifications that
              have economic effects that are similar to sale-leaseback
              transactions and makes various technical corrections to existing
              pronouncements. The provisions of SFAS 145 related to the
              rescission of FASB Statement 4 are effective for fiscal years
              beginning after May 15, 2002, with early adoption encouraged. All
              other provisions of SFAS 145 are effective for transactions
              occurring after May 15, 2002, with early adoption encouraged. The
              Company's adoption of SFAS 145 did not have a material effect on
              its financial statements.

                  In June 2002, the FASB issued Statement No. 146, Accounting
              for Costs Associated with Exit or Disposal Activities (SFAS 146)
              and nullifies EITF Issue No. 94-3. SFAS 146 requires that a

                                       44
<PAGE>

                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

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

                  (o) Recent Accounting Pronouncements (continued)
                  ------------------------------------------------

              liability for a cost associated with an exit or disposal activity
              be recognized when the liability is incurred, whereas EITF No.
              94-3 had recognized the liability at the date of an entity's
              commitment to an exit plan. The adoption of SFAS 146 did not have
              a material effect on the Company's consolidated financial
              statements.

                  In November 2002, the FASB issued Interpretation No. 45 ("FIN
              No. 45"), "Guarantor's Accounting and Disclosure Requirements for
              Guarantees, Including Indirect Guarantees of Indebtedness of
              Others." FIN No. 45 clarifies and expands on he existing
              disclosure requirements for guarantees. FIN No. 45 also requires
              recognition of a liability at fair value of a company's
              obligations under certain guarantee contracts. The disclosure
              requirements are effective for financial statements of interim or
              annual periods ending after December 15, 2002. The adoption of FIN
              No. 45 did not impact our consolidated financial statements.

                  In April 2003, SFAS No. 149, "Amendment of Statement 133 on
              Derivative Instruments and Hedging Activities" was issued. SFAS
              No. 149 amends and clarifies accounting for derivative
              instruments, including certain derivative instruments embedded in
              other contracts, and for hedging activities under SFAS No. 133
              SFAS No. 149 is effective for contracts entered into or modified
              after June 30, 2003 and for hedging relationships designated after
              June 30, 2003. The adoption of this statement did not impact our
              consolidated financial statements.

                  In May 2003, the FASB issued SFAS No, 150, "Accounting for
              Certain Financial Instruments with Characteristics of both
              Liabilities and Equity." SFAS No. 150 establishes standards for
              how companies classify and measure certain financial instruments
              with characteristics of both liabilities and equity. It requires
              companies to classify a financial instrument that is within its
              scope as a liability (or an asset in some circumstances). SFAS No.
              150 is effective immediately for financial instruments entered
              into or modified after May 15, 2003 and in the first interim
              period after June 15, 2003 for all other financial instruments.
              The adoption of this statement did not impact our consolidated
              financial statements.

                  In December 2003, Financial Accounting Standards Board
              Interpretation ("FIN") No. 46(R), "Consolidation of Variable
              Interest Entities (revised December 2003)", was issued. The
              interpretation revises FIN No. 146, "Consolidation of Variable
              Interest Entities", to exempt certain entities from the
              requirements of FIN No. 146. The interpretation requires a company
              to consolidate a variable interest entity ("VIE"), as

                                       45
<PAGE>

                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

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

                  (o) Recent Accounting Pronouncements (continued)
                  ------------------------------------------------

              defined, when the company will absorb a majority of the variable
              interest entity's expected losses, receive a majority of the
              variable interest entity's expected residual returns, or both. FIN
              No. 46(R) also requires consolidation of existing, non-controlled
              affiliates if the VIE is unable to finance its operations without
              investor support, or where the other investors do not have
              exposure to the significant risks and rewards of ownership. The
              interpretation applies immediately to a VIE created or acquired
              after January 31, 2003. For a VIE acquired before February 1,
              2003, FIN No. 46(R) applies in the first interim period ending
              after March 15, 2004. The adoption of this interpretation did not
              impact our consolidated financial statements.

                  (p) Goodwill and Other Intangible Assets
                  ----------------------------------------

                  Effective January 1, 2002 the Company adopted SFAS 141,
              "Business Combinations," and SFAS 142, "Goodwill and Other
              Intangible Assets". SFAS 141 was issued by the FASB in June 2001.
              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. The Company's adoption of this standard
              did not have any effect on its accounting for prior business
              combinations.

                  SFAS 142 requires that goodwill no longer be amortized, but
              instead be tested for impairment at least annually. SFAS 142
              requires recognized intangible assets to be amortized over their
              respective estimated useful lives and reviewed for impairment in
              accordance with SFAS 144, "Accounting for the Impairment or
              Disposal of Long-Lived Assets". Any recognized intangible assets
              determined to have an indefinite useful life are not amortized,
              but instead tested for impairment until its life is determined to
              no longer be indefinite. If goodwill amortization had not been
              recorded in 2001, net (loss) would have been $(180,000) with no
              impact on earnings per share.

                  In the second quarter of 2002, the Company completed its SFAS
              142 transitional impairment review and determined that the
              goodwill ("excess cost of investment over net assets acquired") of
              $1,272,000, net of amortization, associated with acquisitions of
              several distribution facilities in 2000 should be reduced to $0.
              The impairment was the result of the under-performance of several
              of the acquired distribution facilities. The fair value of the
              distribution reporting unit was determined using the

                                       46
<PAGE>

                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

                  (p) Goodwill and Other Intangible Assets (continued)
                  ----------------------------------------------------

              present value of expected future cash flows and other valuation
              measures.

                  The $1,272,000 ($789,000 net of related tax benefit) non-cash
              charge was reflected as a cumulative effect of an accounting
              change in the accompanying Consolidated Statements of Operations
              for the year ended December 31, 2002.


(3)      Inventories

                  At December 31, 2003 and 2002, inventories consist of:

                                               2003                2002
                                               ----                ----
                  Raw materials              $  667,000        $   490,000
                  Finished goods              3,353,000          2,856,000
                  Packaging materials           270,000            267,000
                                            -----------       ------------
                                             $4,290,000        $ 3,613,000
                                            -----------       ------------

(4)      Property, Plant and Equipment

                  A summary of the cost of property, plant and equipment at
<TABLE>
<CAPTION>
December 31, 2003 and 2002 is as follows:
                                                                                            Estimated
                                                                                           useful life
                                                     2003                 2002               (years)
                                             -------------------- -------------------- -------------------
<S>                                                 <C>               <C>
           Land                                     151,000           $  151,000                 ---
           Buildings and
             improvements                           641,000              632,000               10 - 40
           Machinery and equipment                2,074,000            1,860,000                3 - 20
           Vehicles                               1,024,000            1,051,000                2 - 8
           Furniture and Fixtures                   338,000              357,000                3 - 12
                                             -------------------- --------------------
                                                 $4,228,000           $4,051,000
                                             -------------------- --------------------
</TABLE>

                  The net book value of property, plant and equipment pledged as
              collateral under notes payable and various long-term debt
              agreements aggregated $1,378,000 and $1,976,000 at December 31,
              2003 and 2002, respectively. See "Note 7."

(5)      Notes Payable

                  At December 31, 2003 and 2002, notes payable represent amounts
              outstanding under a $7,000,000 line of credit from a commercial
              lender to the Company's subsidiaries. The line of credit is
              collateralized by the subsidiaries' accounts receivable and
              inventory, bears interest at prime plus 1/2% (4.50% at December
              31, 2003), expires June 19, 2004, and is subject to annual
              renewal. The weighted average effective interest rate on the line
              of

                                       47
<PAGE>

                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

(5)      Notes Payable (continued)

              credit was 5.08%. 5.80%, and 8.36% during years ended December 31,
              2003, 2002 and 2001, respectively.

                  At December 31, 2003, the line of credit limit available for
              borrowing based on eligible receivables and inventory aggregated
              $6,803,000, of which $6,470,000 was outstanding. The average
              amounts outstanding during 2003 and 2002 were $5,623,000, and
              $4,782,000, respectively. The maximum amounts outstanding at any
              month-end during 2003 and 2002 were $6,470,000 and $5,537,000,
              respectively.

(6)      Accrued Expenses and Other Liabilities

                  Accrued expenses and other liabilities at December 31, 2003
              and 2002 are summarized as follows:
<TABLE>
<CAPTION>

                                                           2003               2002
                                                    ------------------ -----------------
<S>                                                      <C>                <C>
             Employee compensation related items         $161,000           $164,000
             Taxes, other than income taxes               161,000            118,000
             Product warranty                              57,000             15,000
             Interest                                      22,000              7,000
             Other                                         77,000             36,000
                                                    ------------------ -----------------
                                                         $478,000           $340,000
                                                    ------------------ -----------------
</TABLE>

(7)      Long-Term Debt

                  Long-term debt of the Company is as follows:
<TABLE>
<CAPTION>

                                                                                      2003               2002
                                                                              ------------------- ------------------
<S>                                                                                 <C>                 <C>
Uncollateralized note issued for acquisition,
  interest at 8% per annum, originally scheduled
  to mature on September 2003. (A)                                                  $ 128,000           $ 164,000

Mortgage note payable, interest at prime + 1% principal and interest payable
  monthly in the amount of approximately $1,127, with a balloon payment of
  approximately $137,000
  due March 10, 2009. (B)                                                             207,000             233,000

Mortgage note payable, interest at prime + 1%, principal payments of $800 plus
  interest payable monthly, with a balloon payment of
  approximately $76,000 due March 10, 2009. (B)                                       125,000             134,000

Mortgage note payable, interest at prime + 1%, principal payments of $1,678 plus
  interest payable monthly, with a balloon payment of
  approximately $160,000 due March 10, 2009. (B)                                      262,000             282,000
</TABLE>

                                       48
<PAGE>


                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

(7)      Long-Term Debt (continued)

<TABLE>
<CAPTION>

                                                                                      2003               2002
                                                                              ------------------- ------------------
<S>                                                                                 <C>                 <C>
Mortgage note payable, interest at 8 3/4%, principal and interest payable
  monthly in the amount of approximately $2,415, was paid
  in 2003.                                                                                  -             202,000

Equipment notes payable, interest at various rates ranging from 0.0% to 11.40%,
  per annum, principal and interest payable monthly expiring at various dates
  through October
  2007.                                                                               551,000             636,000
                                                                              ------------------- ------------------
                                                                                    1,273,000           1,651,000
Less current maturities                                                              (425,000)           (690,000)
                                                                              ------------------- ------------------
                                                                                    $ 848,000           $ 961,000
                                                                              ------------------- ------------------
</TABLE>

         (A) Note payments have been suspended pending the outcome of
litigation. See Note 13.

         (B) Effective March 10, 2004 the Company refinanced these obligations
in accordance with the terms set forth above.

  As of December 31, 2003, long-term debt matures as follows:

                                  Year ended
                                 December 31,                Amount
                         ----------------------------- -------------
                         2004                           $  425,000
                         2005                              249,000
                         2006                              116,000
                         2007                               61,000
                         2008 and thereafter               422,000
                                                       -------------
                                                        $1,273,000
                                                       -------------
(8)      Income Taxes

                  The deferred tax asset of $627,000 and $892,000, at December
              31, 2003 and 2002, respectively, consist of the tax effect of the
              following:
                                                        2003            2002
                                                   --------------- -------------
                Net operating loss carryforwards    $   88,000      $ 292,000
                Goodwill amortization                  470,000        510,000
                Other                                   69,000         90,000
                                                   --------------- -------------
                                                    $  627,000      $ 892,000
                                                   --------------- -------------

                  The Company has net operating losses of approximately $232,000
              that will expire in varying amounts from 2011 through 2014.


                                       49
<PAGE>

                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

(8)      Income Taxes (continued)

                  The deferred tax asset net decrease of $265,000 for 2003 was
              primarily due to the use of net operating loss carry forwards. 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,
              2003, 2002 and 2001.

                  A reconciliation of the Federal statutory rate to the
              effective tax is as follows:
<TABLE>
<CAPTION>

                                                                       Year Ended December 31,
                                                             ---------------------------------------
                                                                 2003          2002         2001
                                                             ---------------------------------------
<S>                                                              <C>          <C>            <C>
                U.S. statutory rate                              35%          (35%)          (35%)
                Expiring net operating losses                     0%           29%             0%
                Reversal of 1999 items                            0%            0%           173%
                Other                                            (3%)           2%             0%
                                                             ---------------------------------------

                     Effective rate                              32%           (4%)          138%
                                                             ---------------------------------------
</TABLE>

(9)      Capital Stock

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

                  At December 31, 2003 and 2002, the Company had outstanding
              9,235,434 shares of common stock 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 2002 and 2001, the Company issued 15,000 shares of common
              stock each year as incentive compensation to an employee pursuant
              to the terms of an employment agreement associated with a 2000
              acquisition.

                  (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

                                       50
<PAGE>

                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                   (continued)

(9)      Capital Stock (continued)

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

              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,
              2003, 2002 and 2001, there were no shares of preferred stock
              outstanding.

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

                  At December 31, 2002 and 2001, the Company had warrants
              outstanding to purchase 150,000 shares of the Company's common
              stock issued to its investment banker for financial advisory
              services in connection with the Merger (the "Investment Banker
              Warrants"). The Investment Banker Warrants expired December 31,
              2003.

                  (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 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 were
              reserved for issuance under the Employee and Directors' Plans,
              respectively. As of December 31, 2003, options for 210,000 shares
              were available for future grants under the 1999 Employee Plan. All
              shares available for issuance under the Director's Plan are
              subject to outstanding options.

                  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,
                                             ------------------------------------------ -------------------------------------
                                                 2003          2002          2001           2003         2002          2001
                                             ------------------------------------------ -------------------------------------
<S>                                           <C>           <C>           <C>            <C>          <C>           <C>
Outstanding Options - Beginning of year       $ 0.37        $ 0.41        $  0.57        440,000      400,000       245,000
Options Granted                               $ 0.18        $ 0.22        $  0.21        150,000       80,000       185,000
Options Exercised                             $  -          $  -          $   -                -            -             -
Options Cancelled                             $  -          $  -          $   -                -      (40,000)      (30,000)
                                                                                        -------------------------------------
Options Outstanding - End of Year             $ 0.32        $ 0.37        $  0.41        590,000      440,000       400,000
                                                                                        -------------------------------------
Options Exercisable - End of Year             $ 0.32        $ 0.37        $  0.57        590,000      440,000       215,000
                                                                                        -------------------------------------
</TABLE>

                                       51
<PAGE>

                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

                  Information with respect to outstanding and exercisable stock
              options at December 31, 2003 was as follows:
<TABLE>
<CAPTION>

                                                    Options Outstanding           Options Exercisable
                                              -------------------------------- ---------------------------
              Exercise Price      Shares          Weighted        Weighted                    Weighted
                                                  Average         Average                      Average
                                               Remaining Life     Exercise                    Exercise
                                                  (Years)        Price (A)      Shares          Price
             ---------------------------------------------------------------------------------------------
<S>           <C>                 <C>                  <C>      <C>             <C>             <C>
              $    0.18           150,000              4.38     $   0.18        150,000         $ 0.18
              $    0.20           120,000              2.87     $   0.20        120,000         $ 0.20
              $    0.22            80,000              3.38     $   0.22         80,000         $ 0.22
              $    0.24            45,000              2.71     $   0.24         45,000         $ 0.24
              $    0.57           195,000              0.96     $   0.57        195,000         $ 0.57
                               --------------                  -------------------------------------------
                    Total         590,000                       $   0.32        590,000         $ 0.32
                               --------------                  -------------------------------------------
</TABLE>

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

                  Pursuant to SFAS No. 123,as amended by SFAS No. 148
              "Accounting for Stock-Based Compensation Transition and
              Disclosure" 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 weighted average fair value of the Company's Options
              granted during 2003, 2002 and 2001 were $.13, $.18 and $.15 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 2003, 2002 and
              2001; no expected dividend yield; expected volatility of 103%,
              130% and 112%; risk free interest rate of 2.3%, 4.8% and 5.9%; and
              an expected option life of four years for each period.

(10)     Miscellaneous income

                  A summary of miscellaneous income (expense) for the years
         ended December 31, 2003, 2002 and 2001 is as follows:
<TABLE>
<CAPTION>

                                                                    2003               2002             2001
                                                                 -----------------------------------------------------
<S>                                                               <C>                <C>              <C>
           Interest income                                        $  3,000           $  4,000         $10,000
           Insurance premium dividends                              57,000             51,000          36,000
           Late charge income                                      114,000             56,000          39,000
           Gain (loss) on disposal of property,
             plant and equipment                                    38,000             (5,000)        (32,000)
           Other, net                                                6,000             23,000          24,000
                                                                 -----------------------------------------------------
                                                                  $218,000           $129,000         $77,000
                                                                 =====================================================
</TABLE>



                                       52
<PAGE>

                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

(11)     Earnings (Loss) Per Common Share

                  Below is a reconciliation between basic and diluted earnings
              (loss) per common share under SFAS 128 for the years ended
              December 31, 2003, 2002 and 2001 (in thousands except per share
              amounts):
<TABLE>
<CAPTION>

                                                2003                              2002                              2001
                                    ------------------------------------------------------------------------------------------------
                                     Income    Shares  Per Share       Loss      Shares   Per Share      Loss     Shares   Per Share
                                    ------------------------------------------------------------------------------------------------
<S>                                  <C>      <C>       <C>         <C>          <C>      <C>          <C>        <C>      <C>
Basic earnings (loss):
Income (loss) before cumulative
 effect of change in accounting
 principle for SFAS 142              $640     9,235     $0.07       $  (105)     9,229    $(0.01)      $(221)     9,214    $(0.02)

Cumulative effect of change in
 accounting principle for
 SFAS 142, net of tax benefit        $  -         -     $ -         $  (789)     9,229    $(0.09)      $   -          -
                                    ------------------------------------------------------------------------------------------------

Net income (loss)                    $640     9,235     $0.07       $  (894)     9,229    $(0.10)      $(221)     9,214    $(0.02)
 Less: Provision for settlement
 of appraisal rights obligation      $  -         -     $ -            (313)     9,229     (0.03)      $   -          -    $    -
                                    ------------------------------------------------------------------------------------------------

Net income (loss) available to
 common stockholders                 $640     9,235     $0.07       $(1,207)     9,229    $(0.13)      $(221)     9,214    $(0.02)
                                    ================================================================================================

Effect of Dilutive Securities:
  Options                               -        55         -             -          -         -           -          -         -

Diluted earnings (loss):
Income (loss) before cumulative
 effect of change in accounting
 principle for SFAS 142              $640     9,290     $0.07       $  (105)     9,229    $(0.01)      $(221)     9,214    $(0.02)

Cumulative effect of change in
 accounting principle for
 SFAS 142, net of tax benefit        $  -         -     $ -         $  (789)     9,229    $(0.09)      $   -          -    $  -
                                    ------------------------------------------------------------------------------------------------

Net income (loss)                    $640     9,290     $0.07       $  (894)     9,229    $(0.10)      $(221)     9,214    $(0.02)
 Less: Provision for settlement
 of appraisal rights obligation      $  -         -     $ -            (313)     9,229    $(0.03)          -          -    $  -
                                    ------------------------------------------------------------------------------------------------

Net income (loss)available to
 common stockholders                 $640     9,290     $0.07       $(1,207)     9,229    $(0.13)      $(221)     9,214    $(0.02)
                                    ================================================================================================
</TABLE>


     Options and warrants to purchase 345,000, 590,000, and 550,000 shares of
common stock as of December 31, 2003, 2002 and 2001, respectively, were not
included in the computation of diluted earnings per share for the respective
years because the exercise price of the options was greater than the average
market price of the Corporation's common stock.


                                       53
<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 $193,000, $78,000 and $275,000 in 2003, 2002 and
              2001, respectively, to a law firm with which two directors,
              including the Company's Chairman of the Board are affiliated. Such
              fees were primarily for services rendered by members and
              associates of such law firm other than the two directors. In
              addition, the Company paid annual lease payments of $94,000 for
              use of a distribution facility in each of 2003, 2002 and 2001, to
              the former owner of a business acquired by the Company's
              subsidiary, who is currently employed by the Company.

(13)     Commitments and Contingencies

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

                           As of March 23, 2004, the Company's subsidiary
                  Acrocrete, together with other parties, are defendants in 56
                  lawsuits pending in various Southeastern states, brought by
                  homeowners, homeowner associations, contractors and
                  subcontractors, or their insurance companies, claiming
                  moisture intrusion damage as a result of the use of Exterior
                  Insulation Finish Wall Systems ("EIFS"), on single and
                  multi-family residences. The Company's insurance carriers have
                  accepted coverage under a reservation of rights for 41 of
                  these claims and are providing a defense. Acrocrete expects
                  its insurance carriers will accept coverage for the other 15
                  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 EIFS are not restricted
                  to Acrocrete products used in an EIFS application, but rather
                  are an industry-wide issue. There never has 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 window, roof flashing, decking and the lack of
                  caulking.

                           As insurance markets for moisture intrusion type
                  coverage have all but disappeared, the Company was forced on
                  March 15, 2004 to renew its existing products liability
                  coverage with an exclusion for EIFS exposure. The Company's
                  management is evaluating the creation of a self insurance fund
                  for these types of claims, and believes that with existing
                  coverage covering all potential claims for goods sold prior to
                  March 15, 2004, that for the foreseeable future any uninsured
                  claims should not have a material adverse

                                       54
<PAGE>

                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

(13)     Commitments and Contingencies

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

                  effect on the Company's financial position. Sales of products
                  used in EIFS applications are believed to represent less than
                  20% of the Company's revenues.

                           On June 15, 1999, the Company's subsidiary Premix was
                  served with a complaint captioned Mirage Condominium
                  Association, Inc. v. Premix, in the Eleventh Judicial Circuit
                  in and for Miami-Dade County, Florida, Case No: 97-27544
                  (CA-11). The lawsuit raises a number of allegations against 12
                  separate defendants involving alleged construction defects,
                  which as to Premix alleged that certain materials, purportedly
                  provided by Premix to the Developers/Contractor and used to
                  anchor balcony railings to the structure were defective.
                  Premix believes it has meritorious defenses to these claims.
                  The Company's insurance carrier has not made a decision
                  regarding coverage to date. Since the inception of this matter
                  in 1999 the insurance carrier has retained defense counsel on
                  behalf of Premix and is paying defense costs. Premix expects
                  the insurance carrier to eventually accept coverage. As
                  discovery is not yet completed, Premix is unable to determine
                  the exact extent of its exposure or the outcome of this
                  litigation, however the Company believes that its ultimate
                  exposure, if any, is not material.

                           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 preferred
                  stockholders 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. On April 30,
                  2003, the Company reached a settlement with the dissenting
                  preferred stockholders. (See Note (1) of the Consolidated
                  Financial Statements.)

                      In March 2003, Just-Rite instituted litigation against a
                  former employee, employed at the Company's Gulfport,
                  Mississippi distribution facility, and others, due to alleged
                  violations by the employee of his non-compete agreements
                  related to the acquisition of the business at that location.
                  The litigation against the former employee seeks to enjoin
                  further violations of his non-compete agreement and for
                  damages resulting from such actions. In connection with the
                  litigation, Just-Rite discontinued payments on a promissory
                  note with a remaining balance in the aggregate amount of
                  $128,000, issued as partial consideration for the acquisition

                                       55
<PAGE>

                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

(13)     Commitments and Contingencies

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

                  of the Gulfport, Mississippi facility. The beneficial holders
                  of the promissory note (the former employee and the other
                  former owner) have initiated claims against Just-Rite for
                  payment of the obligation. In February 2004, the Court entered
                  an order ruling that the former employee had violated the
                  terms of a preliminary injunction barring him from his further
                  competing against Just-Rite and ordered that certain sanctions
                  be imposed.

                  The Company is aggressively defending all of the lawsuits and
                  claims described above, and while the Company does not believe
                  these claims will have a material adverse effect on the
                  Company's financial position, given the uncertainty and
                  unpredictability of litigation there can be no assurance of
                  this.

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

                  At December 31, 2003 certain property, plant and equipment
                  were leased by the Company under long-term leases. Future
                  minimum lease commitments as of December 31, 2003, for all
                  noncancellable leases are as follows:

                         December 31,
                             2004                     $1,019,000
                             2005                        625,000
                             2006                        234,000
                             2007                        133,000
                             2008 and thereafter          75,000
                                                      ----------
                                                      $2,086,000

              Rental expense incurred for operating leases were approximately
              $1,152,000, $1,096,000 and $1,242,000, for the three years ended
              December 31, 2003, 2002 and 2001, respectively.

(14)     Impairment Charges

                  In 2002, the Company closed an under-performing distribution
              facility. As a result of closing this facility, the Company
              recorded an impairment charge of $96,000 to write-down the
              carrying value of the property held for sale to $240,000, its
              estimated realizable value. The property has been reclassified
              from property, plant and equipment to other current assets (asset
              held for sale) in the accompanying December 31, 2002 balance
              sheet.

                  During 2001, the Company reviewed its long-lived assets and
              goodwill for which there were indications of possible impairment.
              The assets the Company reviewed were primarily those

                                       56
<PAGE>

                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (continued)

(14)     Impairment Charges (continued)

              associated with the Company's distribution operations acquired in
              2000, since the Company experienced losses from certain of these
              operations, closed several locations, restructured operations and
              made changes to management. Based on these reviews, the Company
              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 the Company's estimates of discounted future
              cash flows.

(15)     Obligation for Appraisal Rights

                  (a) On April 30, 2003, the Company and former holders of
              81,100 shares of Preferred Stock who elected appraisal rights
              in connection with the Company's 1998 Merger ("Dissenting
              Stockholders") reached a settlement (the "Settlement"). In
              accordance with the Settlement, the Company paid the
              Dissenting Stockholders $12.00 per share in cash ($973,200)
              and issued a 5.6% promissory note (the "Note") for $10.00 per
              share ($811,000) due May 1, 2006. The principal balance of the
              Note would be reduced to $7.00 per share ($567,700) in the
              event the Company prepays the Note in full prior to November
              1, 2004. If the Note is not paid in full prior to November 1,
              2004, the interest rate will increase from 5.6% to 8.0%. The
              Company satisfied the cash due at closing of the Settlement
              from cash on hand and borrowings from its amended line of
              credit with its commercial lender based on an increase to its
              inventory borrowing base. At December 31, 2003 and 2002, based
              on management's intention to prepay the Note in full prior to
              November 1, 2004, the appraisal right obligation was recorded
              at $567,700 and $1,541,000, respectively, on the accompanying
              consolidated balance sheets. As a result of the completion of
              the Settlement, the $567,700 Obligation for Appraisal Rights
              was classified as a short-term liability at December 31, 2003.
              On March 29, 2004 the Company paid $400,000 related to
              the Note.

                  In 2002, the Company recognized a $313,000 increase
              in net loss available to common stockholders as a result of
              reaching a settlement in principle with the Dissenting
              Stockholders in February 2003. The $313,000 loss was due to the
              excess of the $1,541,000 settlement over the $1,228,000 carrying
              value of the obligation at the time of settlement, including
              accrued interest of $351,000.

                                       57
<PAGE>

                                   Schedule II


                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
                        Valuation and Qualifying Accounts
                  Years ended December 31, 2003, 2002 and 2001
<TABLE>
<CAPTION>

                                                                           Charged to
                                              Balance        Charged to       other
                                           beginning of       cost and      accounts-     Deductions -     Balance at end
                   Description                period          expenses      describe        describe          of period
-----------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>               <C>            <C>           <C>                  <C>
Year Ended December 31, 2003:

 Reserves and allowances deducted
  from asset accounts;
 Allowance for doubtful accounts:
  Trade                                   $  477,000        $318,000       $     -       $ 239,000      (A)   $ 556,000
                                         ------------------------------------------------------------------------------------

Year Ended December 31, 2002:

 Reserves and allowances deducted
  from asset accounts;
 Allowance for doubtful accounts:
  Trade                                   $  453,000        $268,000       $     -       $ 244,000      (A)   $ 477,000
                                         ------------------------------------------------------------------------------------

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
                                         ------------------------------------------------------------------------------------
</TABLE>




(A) Uncollectable accounts written off, net of recoveries.


                                       58
<PAGE>



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

                   None.

Item 9A.          Controls and Procedures

                  a. Evaluation of disclosure controls and procedures
                  ---------------------------------------------------

                           The Company has established disclosure controls and
                  procedures to ensure that material information relating to the
                  Company, including its consolidated subsidiaries, is made
                  known to the officer who certify the Company's financial
                  reports, as well as to other members of senior management and
                  the Board of Directors.

                           The Company's management, under the supervision of
                  the Company's Chief Executive Officer ("CEO")/Chief Financial
                  Officer ("CFO"), has evaluated the effectiveness of the
                  Company's disclosure controls and procedures as defined in
                  Securities and Exchange Commission ("SEC") Rule 13a-15(e) as
                  of the end of the period covered by this report. Management
                  has concluded that the Company's disclosure controls and
                  procedures are effective to ensure that information the
                  Company is required to disclose in reports that it files or
                  submits under the Securities Exchange Act is communicated to
                  management, including the CEO/CFO, as appropriate, to allow
                  timely decisions regarding required disclosure and is
                  recorded, processed, summarized, and reported within the time
                  periods specified in the SEC's rules and forms.

                  b. Changes in internal controls.
                  --------------------------------

                           There were no significant changes in the Company's
                  internal controls or in other factors that could significantly
                  affect the Company's internal controls subsequent to the
                  Evaluation Date.

                                       59
<PAGE>

                                    PART III

Item 10.      Directors and Executive Officers of the Registrant

                           Information regarding the Company's Board of
                  Directors appearing under the caption "Election of Directors"
                  and "Board of Directors and its Committees" in the Company's
                  Proxy Statement for its 2004 Annual Meeting of Stockholders is
                  hereby incorporated by reference.

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

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

   Howard L. Ehler, Jr.            60              Principal Executive Officer,
                                                   Executive Vice President and
                                                   Secretary

   Gary J. Hasbach                 59              President, Premix, Acrocrete
                                                   and Just-Rite

   Betty J. Murchison              64              Chief Accounting Officer,
                                                   Assistant Vice President

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

                           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 has been President of
                  Premix and Acrocrete since March 2001, and President of
                  Just-Rite, since 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 form September 1990 to May
                  1996.

                           Betty J. Murchison. Ms. Murchison has been the
                  Company's Chief Accounting Officer since June 1995.


                  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 2003 no officer or director filed any report
                  untimely, or failed to file a required report.

                                       60
<PAGE>

                                    PART III

              Code of Business Conduct and Ethics

                           Information regarding the Company's Business Conduct
                  and Ethics is included in the Company's Proxy Statement for
                  its 2004 Annual Meeting of Stockholders and is hereby
                  incorporated by reference.

Item 11.      Executive Compensation

                           Information appearing under the caption "Executive
                  Compensation" in the Company's Proxy Statement for its 2004
                  Annual Meeting of Stockholders is hereby incorporated by
                  reference.


Item 12.      Security Ownership of Certain Beneficial Owners and Management

                           Information setting forth the security ownership of
                  certain beneficial owners and management appearing under the
                  caption "Stock Ownership" in the Company's Proxy Statement for
                  its 2004 Annual Meeting of Stockholders is hereby incorporated
                  by reference.

Item 13.      Certain Relationships and Related Transactions

                           Information regarding certain relationships and
                  related transactions appearing under the caption "Certain
                  Transaction" in the Company's Proxy Statement for its 2004
                  Annual Meeting of Stockholders is hereby incorporated by
                  reference.

Item 14.      Principal Accounting Fees and Services

                           Information regarding principal accounting fees and
                  services appearing under the caption "Independent Certified
                  Public Accountant" in the Company's Proxy Statement for its
                  2004 Annual Meeting of Stockholders is hereby incorporated by
                  reference.


                                       61
<PAGE>

                                     PART IV

Item 15.      Exhibits, Financial Statement Schedules and Reports on Form 8-K

                  (a)      1. and 2. The consolidated financial statements and
                           supplemental financial statement schedule

                      See Part II, Item 8. Financial Statements and
                  Supplementary Data for an index of the Corporation's
                  consolidated financial statements and supplementary data
                  schedule.

                                   3. EXHIBITS
                                   -----------

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.

Exhibit No.                                 Description

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.

                                       62
<PAGE>


Item 15.      Exhibits, Financial Statement Schedules and Reports of Form 8-K
             (continued)

                                   3. EXHIBITS
                                   (continued)

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).

*14.1    Imperial Industries, Inc. Code of Business Conduct.

*21      Subsidiaries of the Company.

*31      Certification of the Company's Chief Executive Officer/Chief Financial
         Officer pursuant to Rule 13a - 14(a).

*32      Certification of the company's Chief Executive Officer/Chief Financial
         Officer pursuant to Section 1350.

                  (b)      Reports on Form 8-K:

                  A Form 8-K was filed on November 12, 2003 announcing the
                  issuance of a press release setting forth a summary of the
                  Company's sales and operating results for the third quarter
                  and nine months ended September 30, 2003.


                                       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 29, 2004             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 and behalf
     of the Registrant and in the capacities and on the dated indicated.

/s/ Daniel Ponce                   Chairman of the Board of      March 29, 2004
--------------------               Directors
S. Daniel Ponce


/s/  Lisa M. Brock                 Director                      March 29, 2004
------------------
Lisa M. Brock


/s/ Milton J. Wallace              Director                      March 29, 2004
-----------------------
Milton J. Wallace


/s/ Morton L. Weinberger           Director                      March 29, 2004
------------------------
Morton L. Weinberger


/s/ Howard L. Ehler, Jr.           Director, Executive Vice      March 29, 2004
--------------------------         President, Principal
Howard L. Ehler, Jr.               Executive Officer, Chief
                                   Financial Officer and
                                   Secretary



/s/ Betty J. Murchison             Assistant Vice President      March 29, 2004
------------------------           and Chief Accounting
Betty J. Murchison                 Officer