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LAPOLLA INDUSTRIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED-CONTINUED)
Note 14. Business Segment Information.
The Company is a leading national manufacturer and supplier operating two segments, Foam and Coatings, based on manufacturing competencies. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company allocates resources to segments and evaluates the performance of segments based upon reported segment sales. Administrative expenses are allocated to both segments. Unallocated costs reflect certain corporate expenses, insurance, investor relations, and gains and losses related to the disposal of corporate assets and derivative liabilities and are included in Unallocated Amounts. There are no intersegment sales or transfers.
Reportable Segments
The following table includes information about our reportable segments for the three months ended:
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March 31, 2012
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March 31, 2011
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Foam
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Coatings
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Totals
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Foam
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Coatings
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Totals
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Sales
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$ |
16,105,029 |
|
|
$ |
2,544,952 |
|
|
$ |
18,649,981 |
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|
$ |
14,826,356 |
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|
$ |
3,146,228 |
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|
$ |
17,972,584 |
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Cost of Sales
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12,988,838 |
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2,088,411 |
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15,077,249 |
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11,579,125 |
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2,573,787 |
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14,152,912 |
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Gross Profit
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3,116,191 |
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456,541 |
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3,572,732 |
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3,247,231 |
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572,441 |
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3,819,672 |
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Depreciation
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47,853 |
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|
7,562 |
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|
55,415 |
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50,716 |
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|
10,762 |
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|
61,478 |
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Amortization of Other Intangible Assets
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95,507 |
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15,092 |
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110,599 |
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77,918 |
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16,535 |
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94,453 |
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Interest Expense
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32,108 |
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5,074 |
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37,182 |
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26,297 |
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5,580 |
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31,877 |
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Segment Profit
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$ |
435,520 |
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$ |
32,935 |
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$ |
468,455 |
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$ |
636,655 |
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$ |
18,463 |
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$ |
655,118 |
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Segment Assets (1)
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21,118,434 |
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4,103,322 |
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25,221,756 |
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21,537,547 |
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5,058,489 |
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26,596,036 |
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Expenditures for Segment Assets
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$ |
40,521 |
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$ |
6,403 |
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$ |
46,924 |
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$ |
90,351 |
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$ |
19,173 |
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$ |
109,524 |
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Reportable Segments
The following are reconciliations of reportable segment profit, and assets, to the Company’s condensed totals at:
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Profit
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March 31, 2012
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March 31, 2011
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Total Profit for Reportable Segments
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$ |
468,456 |
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$ |
655,118 |
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Unallocated Amounts:
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Corporate Expenses
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(1,338,577 |
) |
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(1,103,649 |
) |
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Income (Loss) Before Income Taxes
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$ |
(870,121 |
) |
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$ |
(448,531 |
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Assets
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March 31, 2012
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March 31, 2011
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Total Assets for Reportable Segments (1)
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$ |
25,221,756 |
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$ |
26,596,036 |
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Other Unallocated Amounts (2)
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155,208 |
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185,915 |
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Condensed Total
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$ |
25,376,964 |
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$ |
26,781,951 |
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(1)
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Segment assets are the total assets used in the operation of each segment.
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(2)
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Includes cash, cash equivalents, prepaid expenses, and deposits relating to corporate assets.
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Note 15. Subsequent Events.
(a) On April 2, 2012, the Chairman of the Board advanced $500,000 to the Company for working capital purposes. Prior to paying back the advance, the advance was converted to a promissory note due and payable from the Company to the Chairman. See also Item (f) below.
(b) On April 5, 2012, the Company entered into an Executive Employment Agreement with Harvey L. Schnitzer, as Chief Operating Officer (“COO Agreement”), good until December 31, 2014 (“Term”). The annual base salary is $200,000. The COO is eligible for a varying EBITDA based annual bonus if the Company’s Budgeted Earnings are achieved during any given year. He is also entitled to a change in control bonus equal to 50% of his annual base salary if the change in control occurs during his first 12 months of employment or 100% of his annual base salary if it occurs after the first 12 months during his Term or 6 months after the end of his Term.
(c) On April 13, 2012, the Chairman of the Board advanced $265,000 to the Company for a specific liability and the Company repaid the Chairman back on said date.
(d) On April 16, 2012, a prepaid order for $300,000 from a customer in which the Chairman of the Board has an ownership interest, was, prior to the prepaid order being delivered to the customer, converted to a promissory note due and payable from the Company to the customer and subsequently assigned by it to the Chairman. See also Note 11 - Loans Payable – Related Party, Item (a).
(e) On April 16, 2012, an advance received for $500,000 from a non-affiliated third party financing company owned and operated by a relative of the Company’s Chairman of the Board, was converted to a promissory note due and payable from the Company to the non-affiliated finance company and subsequently assigned to the Chairman. See also Note 11 - Loans Payable – Related Party, Item (b).
(f) On April 16, 2012, the Company consolidated the promissory notes described in Items (a), (d) and (e) above into one $1,300,000 promissory note, bearing interest at 5% per annum, due, including accrued interest, on October 31, 2013, as part of a negotiation with its banking institution to cure a default at December 31, 2011 in its Loan and Security Agreement dated August 31, 2010 (“Lender”), and entered into a subordination agreement with the Lender.
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