Environmental
Matters
We are
subject to federal, state, and local environmental laws and regulations and
believe that our operations comply in all material respects where we have a
business presence. No significant expenditures are anticipated in order to
comply with environmental laws and regulations that would have a material impact
on our Company in 2009. We are not aware of any pending litigation or
significant financial obligations arising from current or past environmental
practices that are likely to have a material adverse effect on our financial
position. However, we cannot assure you that environmental problems relating to
properties operated by us will not develop in the future, and we cannot predict
whether any such problems, if they were to develop, could require significant
expenditures on our part. In addition, we are unable to predict what legislation
or regulations may be adopted or enacted in the future with respect to
environmental protection and waste disposal.
Seasonality
Lapolla’s
business, taken as a whole, is materially affected by seasonal factors.
Specifically, sales of our products tend to be lowest during the first and
fourth fiscal quarters, with sales during the second and third fiscal quarters
being comparable and marginally higher. Although our foam resins and acrylic
coatings are restricted by cold temperatures, we have developed certain
formulations that allow for a broader range of application in colder
temperatures. By broadening and diversifying our foam and coatings products to
those that are less sensitive to temperature during application, we increase the
likelihood of less seasonal downward sales trending during the winter
months. Inclement weather does impede sales, but it also produces a
pent up demand that can be realized in the subsequent short term. The
acquisition of AirTight and its associated equipment sales, position Lapolla for
growth during inclement weather months while seeding the market for future foam
sales.
Historical
Information
We were
incorporated in the state of Delaware on October 20, 1989 and underwent a
variety of name changes and operations to date. For our current
operations, we acquired 100% of the capital stock of Infiniti Paint Co., Inc., a
Florida corporation, effective September 1, 2001, which was engaged in the
business of developing, marketing, selling, and distributing acrylic roof
coatings, roof paints, polyurethane foam systems, sealants, and roof adhesives
in the Southeastern United States. On February 8, 2002, the name of Infiniti
Paint Co., Inc. was changed to Infiniti Products, Inc. to eliminate the limiting
public perception about the business only being related to paints (“Infiniti
Subsidiary”). On December 20, 2004, we changed our name from Urecoats
Industries, Inc. to IFT Corporation to keep pace with the activities of our
Infiniti Subsidiary at the time. During the latter part of 2004, our Infiniti
Subsidiary built and began operating a manufacturing plant in the Southeastern
United States. On February 11, 2005, we acquired 100% of the capital stock of
Lapolla Industries, Inc., an Arizona corporation (“Lapolla Subsidiary”), which
was engaged in the business of manufacturing acrylic roof coatings and
sealants, and distributing polyurethane foam systems in the Southwestern
United States. On April 1, 2005, our Infiniti Subsidiary merged with and into
our Lapolla Subsidiary whereas the existence of our Infiniti Subsidiary ceased.
On October 1, 2005, our Lapolla Subsidiary merged with and into the Company,
under its former name of IFT Corporation, whereas the existence of our Lapolla
Subsidiary ceased. On November 8, 2005, the Company changed its name to Lapolla
Industries, Inc. For discontinued operations, we discontinued the
operations of our RSM Technologies, Inc. subsidiary on November 5, 2004, a
Florida corporation, established in June 2001 as Urecoats Manufacturing, Inc.,
to manufacture, market, and sell our former RSM Products.
As a
leading national manufacturer and supplier of foam and coatings, we operate in a
business environment that includes certain risks. The risks described in this
section could adversely affect our sales, operating results and financial
condition. Although the factors listed below are considered to be the most
significant factors, they should not be considered a complete statement of all
potential risks and uncertainties. Unlisted factors may present significant
additional obstacles which may adversely affect our business.
· Global Economic
Conditions and Financial Crisis - The current global
economic crisis described below should also be considered when reviewing each of
the subsequent paragraphs setting forth the various aspects of our business,
operations, and products. The recent global economic and financial
market crisis has caused, among other things, a general tightening in the credit
markets, lower levels of liquidity, increases in the rates of default and
bankruptcy, and lower consumer and business spending. Although the ultimate
outcome of these events cannot be predicted, it may have a material adverse
effect on the Company and our ability to borrow money in the credit markets and
potentially to draw on our revolving credit facility or otherwise obtain
financing. Similarly, current or potential customers and suppliers
may no longer be in business, may be unable to fund purchases or determine to
reduce purchases, all of which could lead to reduced demand for our products,
reduced gross margins, and increased customer payment delays or defaults.
Further, suppliers may not be able to supply us with needed raw materials on a
timely basis, may increase prices or go out of business, which could result in
our inability to meet customer demand in a timely manner or affect our gross
margins. We are also limited in our ability to reduce costs to offset the
results of a prolonged or severe economic downturn given certain fixed costs
associated with our operations.
· Cost and
Availability of Raw Materials - Our operating results
are significantly affected by the cost of raw materials. We may not be able to
fully offset the impact of higher raw materials through price increases or
productivity improvements. Certain raw materials are critical to our production
processes, such as polyols, catalysts, and titanium dioxide. The Company has
supply arrangements to meet the planned operating requirements for the future.
However, an inability to obtain these critical raw materials at any future date
would adversely impact our ability to produce products.
· Retention of Key
Personnel - Our success depends upon
our retention of key managerial, technical, selling and marketing personnel. The
loss of the services of key personnel might significantly delay or prevent the
achievement of our development and strategic objectives. We must
continue to attract, train and retain managerial, technical, selling and
marketing personnel. Competition for such highly skilled employees in our
industry is high, and we cannot be certain that we will be successful in
recruiting or retaining such personnel. We also believe that our success depends
to a significant extent on the ability of our key personnel to operate
effectively, both individually and as a group. If we are unable to identify,
hire and integrate new employees in a timely and cost-effective manner, our
operating results may suffer.
