form10k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
The Fiscal Year Ended December 31, 2008
Commission
File No. 001-31354
(Exact
Name of Registrant as Specified in Its Charter)
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Delaware
(State
of Incorporation)
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13-3545304
(I.R.S.
Employer Identification No.)
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|
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Intercontinental
Business Park
15402
Vantage Parkway East, Suite 322
Houston,
Texas
(Address
of Principal Executive Offices)
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77032
(Zip
Code)
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(281)
219-4700
(Registrant’s
Telephone Number)
Securities
registered pursuant to Section 12 (b) of the Act: None
Securities
registered pursuant to Section 12 (g) of the Act:
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Common
Stock, $.01 par value and Warrants
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|
(Title
of Each Class)
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Indicate
by check mark if the Registrant is a well-known seasoned issuer as defined in
Rule 405 of the Securities Act. YES ¨ NO þ
Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. YES ¨ NO þ
Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days. YES þ 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. þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See the definitions of “large
accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule
12b-2 of the Exchange Act (Check one):
|
Large
Accelerated Filer ¨
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Accelerated
Filer ¨
|
|
Non-Accelerated
Filer ¨
|
|
Smaller
Reporting Company þ
|
Indicate
by check mark whether the Registrant is a shell company (as defined by Rule
12b-2 of the Exchange Act). YES ¨ NO þ
As of
June 27, 2008, the aggregate market value of the Registrant’s common stock held
by non-affiliates of the Registrant was approximately $17,826,169 based on
the closing sales price as quoted on the NASD OTC Bulletin Board.
Common
Stock outstanding as of March 25, 2009 — 63,944,803 shares.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
FORM
10-K
FOR
THE YEAR ENDED DECEMBER 31, 2008
INDEX
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Page
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PART
I
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Item
1.
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1
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Item
1A.
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3
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Item
1B.
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4
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Item
2.
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4
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Item
3.
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4
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Item
4.
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4
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PART
II
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Item
5.
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5
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Item
6.
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5
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Item
7.
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6
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Item
7A.
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9
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Item
8.
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9
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Item
9.
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9
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Item
9A.
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9
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Item
9A(T).
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9
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Item
9B.
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9
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PART
III
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Item
10.
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10
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Item
11.
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12
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Item
12.
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19
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Item
13.
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20
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Item
14.
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22
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PART
IV
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Item
15.
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23
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24
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25
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26
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FORWARD
LOOKING STATEMENTS
Statements
made by us in this report and in other reports and statements released by us
that are not historical facts constitute “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933, Section 21 of
the Securities Exchange Act of 1934 and the Private Securities Litigation Reform
Act of 1995. These forward-looking statements are necessarily estimates
reflecting the best judgment of management and express our opinions about trends
and factors which may impact future operating results. You can identify these
and other forward-looking statements by the use of words such as “may,” “will,”
“should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,”
“predicts,” “intends,” “potential,” “continue,” or the negative of such terms,
or other comparable terminology. Such statements rely on a number of assumptions
concerning future events, many of which are outside of our control, and involve
risks and uncertainties that could cause actual results to differ materially
from opinions and expectations. Any such forward-looking statements, whether
made in this report or elsewhere, should be considered in context with the
various disclosures made by us about our businesses including, without
limitation, the risk factors discussed below. Although we believe our
expectations are based on reasonable assumptions, judgments, and estimates,
forward-looking statements involve known and unknown risks, uncertainties,
contingencies, and other factors that could cause our or our industry's actual
results, level of activity, performance or achievement to differ materially from
those discussed in or implied by any forward-looking statements made by or on
the Company and could cause our financial condition, results of operations, or
cash flows to be materially adversely affected. Except as required under the
federal securities laws and the rules and regulations of the
U.S. Securities and Exchange Commission (“SEC”), we do not have any
intention or obligation to update publicly any forward-looking statements,
whether as a result of new information, future events, changes in assumptions,
or otherwise.
As used
in this report, "Lapolla” and the "Company" or "Us" or "We" or “Our” refer to
the Lapolla Industries, Inc., unless the context otherwise requires. Our
Internet website address is www.lapollaindustries.com.
We make our periodic and current reports, together with amendments to these
reports, available on our website, free of charge, as soon as reasonably
practicable after such material is electronically filed with, or furnished to,
the SEC. The information on our Internet website is not incorporated by
reference in this Annual Report on Form 10-K.
Item
1. Business.
General
Overview
Lapolla
is a leading national manufacturer and distributor of foam, coatings, and
equipment, focused on developing and commercializing foam and coatings targeted
at commercial and industrial and residential applications in the insulation and
construction industries. Being back integrated in both foam and coating systems
puts Lapolla in a strong competitive position as both product lines reduce
energy consumption and ultimately lead to direct savings for
consumers. Our products address growing consumer awareness of the
building envelope. The building envelope is the separation between
the interior and the exterior environments of a building and serves as the outer shell to protect
the indoor environment as well as to facilitate its climate control. The physical components of the
envelope include the foundation, roof, walls,
doors and windows. We provide superior insulation, an air
barrier, and a vapor barrier with our products. We have invested substantial
resources to acquire, develop and commercialize a variety of foam and coatings
products and related sales and marketing programs to date. During
2008, we completed our acquisition of the assets of Air-Tight Marketing and
Distribution, Inc. (AirTight”). Prior to the acquisition of the
assets of AirTight, AirTight was a leading spray foam insulation distributor
located in Rutledge, Georgia providing a turn-key start-up and training program
for spray foam insulators. Lapolla acquired AirTight’s customer base which
includes commercial and residential spray foam insulation contractors. The basic
assets purchased from AirTight include, but are not limited to, trademarks,
customers, inventories, equipment, accounts receivable, and goodwill. In
addition, we obtained additional product approvals and certifications which
broadened our market reach. During 2007, we completed construction of our
initial Foam Resin Plant and began full scale polyol blending operations.
Additional products are currently being developed or outsourced to meet
identified opportunities in target markets both nationally and internationally
for spray and pour polyurethane foam applications.
Operating
Segments
We
operate our business on the basis of two reportable segments — Foam and
Coatings. The Foam segment involves producing building envelope
insulation foam for interior wall and roofing applications. The Coatings segment
involves producing protective coatings and primers. Both segments involve
supplying equipment and related ancillary items used for application of our
products. The following table sets forth, for the years indicated,
sales for our Foam and Coatings segments:
|
|
|
2008
|
|
|
2007
|
|
|
Foam
|
|
$ |
37,306,714 |
|
|
$ |
20,753,052 |
|
|
Coatings
|
|
$ |
10,273,422 |
|
|
$ |
11,087,747 |
|
Foam
Segment
Our foam
business involves supplying building envelope insulation and roofing foam to the
construction industry. Building envelope insulation foam applications consist of
perimeter wall and attic space commercial and industrial, and residential,
applications. Roofing applications consist of new and retrofit commercial and
industrial, and residential, applications. The start up of our own Foam Resin
Plant enabled Lapolla to benefit from the economics of manufacturing spray
polyurethane foam systems as we opened up new sales opportunities through
previously unavailable channels (e.g. distribution). Lapolla provides open and
closed cell spray foam insulation, as well as closed cell technology for
roofing, applications. We have attained certain third party
credentials for our in-house manufactured spray foam systems, which is leading
to greater acceptance of our proprietary foam products in our target markets.
This segment also supplies adhesives and equipment for applications. We use our
own distribution facilities, as well as public warehousing in certain local
markets nationally to better serve our customers. Performance, availability,
product credentials, approvals, technical and customer service, and pricing are
major competitive factors in the foam business.
Coatings
Segment
Our
coatings business involves supplying a variety of protective coatings for
roofing systems for new and retrofit commercial and industrial, as well as
residential, applications primarily to the roofing industry. We centralized our
coatings manufacturing operations to our Houston, Texas facility during the
latter part of 2007 to adapt to changing market conditions and increase
efficiency. This segment also supplies caulking and equipment for
applications. We use our own distribution facilities, as well as public
warehousing in certain local markets nationally to better serve our customers.
During 2007, we divested our retail distribution channel primarily involving
paint related protective coatings to focus on our core roof coating and foam
competencies. Product credentials, approvals and performance, pricing,
technology, technical customer service, and availability are major competitive
factors in our coatings business.
Sales
and Marketing
We
maintain a growing national and international sales and marketing focus. Sales
are concentrated on distributors and contractors in the insulation and roofing
industries. Lapolla utilizes direct sales, independent representatives,
distributors, and public bonded warehouses strategically positioned on a state
or regional basis to serve customers. Insulation foam and reflective roof
coatings are aggressively growing through enhanced consumer awareness due to
nationally promoted programs from federal, state, municipal and other government
agencies, energy companies, and private organizations. Some of these programs
include the American Recovery and Reinvestment Act of 2009, Cool Roof Rating
Council, Energy Star and state and utility company funded rebates to energy
conscious building owners for following very specific recommendations, using
reflectivity and emmissivity as the general goal in reducing the environmental
impact of the “heat island effect”. Lapolla places a high priority on sales
trending to create preparedness and processes to better serve our customers.
Information is gathered with input from sales, customers, management experience
and historical sales trending to predict needed supply for stock and
warehousing to meet the needs of our customers on a timely basis. Public
warehousing, distribution and direct sales allow us to supply our customers in a
timely and efficient fashion. The combined volumes of our products are disbursed
throughout a broad customer base. This broad base assures lack of vulnerability
to the loss of one key customer. Although sales plans include the addition of
new and individually large volume customers, none today represent a significant
adverse effect through such a loss.
Raw
Materials
We place
a high priority on forecasting material demand to meet customer demands in the
most expedient and cost effective manner. The primary materials being
used to manufacture our foam and coatings products are polyols, catalysts,
resins, and titanium dioxide. The suppliers of the necessary raw materials are
industry leaders in both the specific chemistries and basic in the manufacturing
of the raw materials for supply. We maintain strong relationships and
have commitments for continuing supply through times of shortage. A lengthy
interruption of the supply of one of these materials could adversely affect our
ability to manufacture and supply commercial product. With our volume
potential, Lapolla continues to be a potentially lucrative target for vendors to
assure their own growth and demand in 2009 and beyond. Our foam resins and
acrylic coatings are manufactured in our Houston, Texas facility. We maintain
sufficient manufacturing capacity at this facility to support our current
forecasted demand as well as a substantial safety margin of additional capacity
to meet peaks of demand and sales growth in excess of our current
expectations.
Patents
and Trademarks
We rely
on our own proprietary technologies in our foam and coatings segments for
finished goods formulations. Additionally, we also rely on trade secrets
and proprietary know-how that we seek to protect, in part, through
confidentiality agreements with our partners, customers, employees and
consultants. We market our products under various trademarks, for which we have
registered and unregistered trademark protection in the United States. These
trademarks are considered to be valuable because of their contribution to market
identification of our products.
Competition
Competition
is based on a combination of product credentials and approvals, price structure,
technology, availability, warranty availability to building owners, and product
performance. Lapolla is expanding through aggressive sales and marketing,
competitive pricing, a strong sales force comprised of direct salespersons,
independent representatives, and distributors, building owner and contractor
brand awareness, and acquisitions (i.e. AirTight). Lapolla differentiates itself
from competitors by offering personalized sales support and providing efficient
response time on issues ranging from technical service to delivery of products.
We are one of the largest suppliers of spray polyurethane foam for insulation
and roofing foam nationally. The foam manufacturing industry consists of a few
large and medium sized manufacturing companies with global, national and
regional presence primarily relying on distributors to service markets. As a
manufacturer of foam resins, we are able to access previously unavailable
distribution channels and penetrate target markets through direct sales. We
supply our products primarily to large, medium and small insulation, roofing,
and general contractors. Within the coatings industry, as manufacturers
specifically focused on energy efficient acrylic coatings for roofing and
construction as their primary line, Lapolla is a major player in a very
fragmented market. Product credentials and approvals differentiate product lines
and suppliers that are more readily suited to broad use and industry acceptance.
We are currently listed with certain credentials and approvals to assure minimal
restrictions in markets and uses. Lapolla utilizes advertising campaigns,
articles in industry periodicals, trade show exposure, public relations, printed
case studies, internet and website exposure, mailers and direct sales,
distribution, and marketing to obtain greater product line branding and
recognition.
Employees
At
December 31, 2008, we employed 66 full time individuals. None of our employees
are currently represented by a union. We believe that our relations with our
employees are generally very good.
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.
· Acquisitions
- As part of
our business strategy, we regularly consider and, as appropriate, make
acquisitions of technologies, products and businesses that we believe are
complementary to our business. Our primary acquisition criterion is sales volume
in our core foam and coatings competencies. Acquisitions may involve risks and
could result in difficulties in integrating the operations, personnel,
technologies and products of the companies acquired, some of which may result in
significant charges to earnings. If we are unable to successfully integrate our
acquisitions with our existing businesses, we may not obtain the advantages that
the acquisitions were intended to create, which may materially adversely affect
our business, results of operations, financial condition and cash flows, our
ability to develop and introduce new products and the market price of our stock.
In connection with acquisitions, we could experience disruption in our business
or employee base, or key employees of companies that we acquire may seek
employment elsewhere, including with our competitors. Furthermore, the products
of companies we acquire may overlap with our products or those of our customers,
creating conflicts with existing relationships or with other commitments that
are detrimental to the integrated businesses.
·
SEC
Reviews - The reports of
publicly-traded companies are subject to review by the SEC from time to time for
the purpose of assisting companies in complying with applicable disclosure
requirements and to enhance the overall effectiveness of companies’ public
filings, and comprehensive reviews of such reports are now required at least
every three years under the Sarbanes-Oxley Act of 2002. SEC reviews may be
initiated at any time. While we believe that our previously filed SEC reports
comply, and we intend that all future reports will comply in all material
respects with the published rules and regulations of the SEC, we could be
required to modify or reformulate information contained in prior filings as a
result of an SEC review. Any modification or reformulation of information
contained in such reports could be significant and could result in material
liability to us and have a material adverse impact on the trading price of our
common stock.
Item 1B. Unresolved Staff
Comments
None.
We
conduct our operations in leased facilities. Our corporate headquarters and
primary administrative, manufacturing, distribution, and warehousing facility is
located in Texas. Our present facilities are adequate for our currently known
and projected needs in the near term.
Item 3. Legal
Proceedings
Legal
Proceedings
(a) Larry P. Medford, Plaintiff vs.
Lapolla Industries, Inc., Defendant
On March
27, 2009, the Plaintiff filed a complaint against the Defendants in the Superior
Court of Morgan County, State of Georgia. Defendant was served on
April 3, 2009. On July 1, 2009, pursuant to an Asset Purchase
Agreement (the “Agreement”), the Company acquired certain assets and liabilities
of Air-Tight Marketing and Distribution, Inc. from the selling shareholders,
Larry P. Medford and Ted J. Medford in exchange for cash, restricted common
stock, and forgiveness of debt owed to Lapolla by AirTight. The
complaint alleges breach of payment of the promissory note and breach of
contract seeking monetary damages of up to $1,400,000 on the promissory note and
other damages aggregating approximately $2 million plus interest in connection
with the Agreement. Lapolla denies the allegations in the complaint
and maintains that it has multiple valid defenses to the lawsuit. The
outcome of this litigation cannot be determined at this time.
(b) Various Lawsuits and Claims Arising
in the Ordinary Course of Business
We are
involved in various lawsuits and claims arising in the ordinary course of
business. These other matters are, in our opinion, immaterial both individually
and in the aggregate with respect to our financial position, liquidity or
results of operations.
Item 4. Submission of Matters to a Vote of
Security Holders
We did
not submit any matter during the fourth quarter of the fiscal year covered by
this report to a vote of security holders, through the solicitation of proxies
or otherwise.
PART
II
Item 5. Market for the Company’s Common
Equity, Related Stockholder Matters, and Issuer Purchases of Equity
Securities
Market
Information
The
following table shows the quarterly price range of our common stock during the
periods listed.
|
|
|
2008
|
|
|
2007
|
|
|
Calendar
Quarter
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First
|
|
$ |
0.76 |
|
|
$ |
0.41 |
|
|
$ |
0.73 |
|
|
$ |
0.45 |
|
|
Second
|
|
$ |
0.89 |
|
|
$ |
0.46 |
|
|
$ |
1.00 |
|
|
$ |
0.32 |
|
|
Third
|
|
$ |
0.79 |
|
|
$ |
0.43 |
|
|
$ |
0.89 |
|
|
$ |
0.41 |
|
|
Fourth
|
|
$ |
0.57 |
|
|
$ |
0.19 |
|
|
$ |
0.65 |
|
|
$ |
0.30 |
|
Our
common stock is traded on the NASDAQ O-T-C Bulletin Board as of November 5, 2007
under the symbol “LPAD”. Prior to that time, our common stock traded on the
American Stock Exchange under the ticker “LPA”. As of March 25, 2009,
there were approximately 4,500 holders of record of our common
stock. We did not declare any common stock dividends during the past
two years and do not anticipate declaring common stock dividends in
2009.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table summarizes information about our common stock that may be issued
upon the exercise of options, warrants and rights under all equity compensation
plans, as of December 31, 2008:
|
Equity
Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
Number
of Securities
|
|
|
|
|
|
|
|
|
|
|
Remaining
Available for
|
|
|
|
|
Number
of Securities to
|
|
|
Weighted-Average
|
|
|
Future
Issuance Under
|
|
|
|
|
Be
Issued Upon Exercise
|
|
|
Exercise
Price of
|
|
|
Equity
Compensation Plans
|
|
|
|
|
Of
Outstanding Options,
|
|
|
Outstanding
Options,
|
|
|
(excluding
Securities
|
|
|
|
|
Warrants
and Rights
|
|
|
Warrants
and Rights
|
|
|
Reflected
in Column (a))
|
|
|
Plan
Category
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity
Compensation Plans
|
|
|
|
|
|
|
|
|
|
|
Approved
by Security Holders (1)
|
|
|
7,290,333 |
|
|
$ |
0.66 |
|
|
|
2,709,667 |
|
|
Equity
Compensation Plans Not
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approved
by Security Holders (2)
|
|
|
6,396,104 |
|
|
$ |
0.73 |
|
|
|
— |
|
|
Total
|
|
|
13,686,437 |
|
|
$ |
0.79 |
|
|
|
2,709,667 |
|
Notes:
(1)
Includes shares of our common stock issuable under our Equity Incentive Plan.
For a description of this plan, refer to
Note 17 – Share-Based Payment Arrangements, Equity Incentive Plan, of our
Notes to Financial Statements included in our annual report on Form 10-K for the
year ended December 31, 2008.
(2)
Represents warrants and conversion shares issued by the Company in connection
with certain financing agreements with ComVest. Refer to
the Footnotes in the Stockholders Holding 5% or More section for more detailed
information.
Performance
Graph
Set forth
below is a line graph comparing the yearly percentage change in the cumulative
total stockholder return on our common stock with the cumulative total return of
the S&P 500 Stock Index and the AMEX Industrial Manufacturing Index for the
period beginning December 31, 2003 and ending December 31, 2008. The graph
assumes that all dividends have been reinvested. We did not declare any
dividends during the past five years.
Recent
Sales of Unregistered Securities
None.
Item 6. Selected Financial
Data
Not
Applicable.
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations.
Management's
Discussion and Analysis
of
Financial Condition and Results of Operations for the Three-Year Period Ended
December 31, 2008
Overview
This
financial review presents our operating results for each of the three years in
the period ended December 31, 2008, and our financial condition at
December 31, 2008. Except for the historical information contained herein,
the following discussion contains forward-looking statements which are subject
to known and unknown risks, uncertainties and other factors that may cause our
actual results to differ materially from those expressed or implied by such
forward-looking statements. We discuss such risks, uncertainties and other
factors throughout this report and specifically under Item 1A of
Part I of this report, “Risk Factors.” In addition, the following review
should be read in connection with the information presented in our financial
statements and the related notes to our financial statements. Refer to
Item 8 of this Form 10-K, Note
1 – Summary of Significant Accounting Policies for further information
regarding significant accounting policies and Note 17 – Business Segment
Information for further information regarding our business segment
structure.
Overall
Results of Operations
Sales
The
following is a summary of sales for the years ending December 31:
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Sales
|
|
$ |
47,580,136 |
|
|
$ |
31,840,799 |
|
|
$ |
30,314,736 |
|
Our sales
increased $15,739,337, or 49%, from 2007 to 2008, as compared to an increase of
$1,526,063, or 5%, from 2006 to 2007. Foam sales surged $16,553,662 or 80% over
2007, while Coatings sales declined $814,325 or 7% because of the prior year
sale of our retail coatings business. The increase in Foam sales continues to be
attributed to cost conscious residential and commercial building owners
transitioning from traditional fiberglass insulation to energy efficient SPF.
Volatile energy prices throughout 2008, especially during the second and third
quarters, heightened the public’s interest for green building materials and
sustainable energy solutions both of which perfectly describe our portfolio. In
addition, Lapolla’s acquisition of AirTight, a turn key, equipment, startup, and
training company, provided additional market penetration while converting
additional existing insulators to foam.
Cost
of Sales
Cost of
sales increased $11,556,886 or 43%, from 2007 to 2008, due primarily to higher
sales volumes, as well as higher raw material costs, specifically in the 4th
quarter. Freight costs escalated during the 2nd and
3rd
quarters as surging oil prices justified higher trip rates as well as increased
fuel surcharges during that time frame.
Gross
Profit
Our gross
profit increased $ 4,182,451 or 86% from 2007 to 2008, due to our substantial
sales growth, specifically in our Foam segment, as compared to, an increase of
$55,243, from 2006 to 2007. Gross margin percentage increased 3.7%
from 2007 to 2008 due to a full year of plant utilization manufacturing in-house
foam resins, versus a partial year of 2007, when this plant was initially
constructed. In addition, we recognized manufacturing economies of scale
associated with our huge volume increases as well as increased purchasing power
for the raw materials relating to our manufactured goods in both segments. Gross
margin percentage decreased approximately 1% from 2006 to 2007 due to
manufacturing startup costs in 2007 related to our new resin plant.
Operating
Expenses
Our total
operating expenses are comprised of selling, general and administrative
expenses, or SG&A, professional fees, depreciation and amortization,
consulting fees, interest expense, and other (income) expense. These total
operating expenses increased $2,654,153, or 27%, from 2007 to 2008, due to
increases of $2,390,054 for SG&A, $397,922 for amortization of discount (a
non-cash item associated with ComVest’s refinancing), $177,439 for interest
expense, $158,044 for depreciation & amortization (also
non-cash), $47,015 for interest expense related party, and lower
other income of 109,592, offset by a $481,833 gain on extinguishment of debt
(non-cash), $106,334 in consulting fees, and $39,312 in professional
fees. Total operating expenses increased $1,991,191, or 25%, from
2006 to 2007, due to an increase of $1,339,095 for SG&A, $334,620 for
professional fees, $37,669 for consulting fees, $573,523 for interest expense,
$161,757 for other (income) expense, offset by a decrease of $7,703 for
depreciation and amortization, and $124,255 for interest expense – related
party.
SG&A
increased $2,390,054, or 28%, from 2007 due to increases in payroll &
benefits of $723,237, bad debt expenses of $664,527, commissions of $641,001,
advertising of $207,319, rents of $203,392, travel and related of $114,316,
insurances of $102,658, investor relations of $80,206, and corporate office
expenses of $48,072, which were partially offset by declines in share based
compensation of $287,773 and marketing and promotions of
$106,902. SG&A costs increased $1,339,095 from 2006 to
2007 due to increases of $314,016 for payroll and related employee benefits,
$57,714 for sales commissions, $147,485 for insurances, $570,278 for share based
compensation, $1,638 for American Stock Exchange fees, $72,024 for investor
relations, $11,481 for rents, and $634,602 for corporate office expenses, offset
by a decrease of $19,512 for travel and related services, $52,144 for
advertising, $49,640 for marketing and promotional items, $14,147 for recruiting
fees, and $334,701 in bad debts
Professional
fees decreased $39,312 from 2007 to 2008 as cost cutting measures on any
non-volume related expenses were implemented as compared to an increase of
$334,620, or 151%, from 2006 to 2007, due to an increase in legal fees of
$210,628 and outside accountants, auditing and auditing related services of
$123,992.
Depreciation
and amortization expense increased $158,044 or 83% from 2007 to 2008, primarily
due to assets associated with the AirTight asset acquisition as compared to a
$7,703 decrease, or 4%, from 2006 to 2007.
Consulting
fees decreased $106,334 or 61% as controlling fixed, non-volume related expenses
remain a priority as compared to an increase of $37,668, or 28%, from 2006 to
2007 due to an increase in outside professional services primarily related to
obtaining credentials and approvals for our new foam formulations.
Interest
expense, including interest expense – related party, amortization of discount
and extinguishment of debt increased $140,542 or 19% as we renegotiated our
ComVest borrowing instruments, allowing for greater working capital to grow our
business as compared to an increase of $449,268, or 159%, from 2006
to 2007 due to an increase in the capital utilized from our ComVest credit
instruments and amortization of the discount from the Warrants issued in
connection with the Convertible Term Note and Revolving Credit
Note.
Other
income decreased $109,592 or 66% from 2007 to 2008, which represents primarily
royalties, as compared to the increase of $161,757, from 2006 to 2007 due to the
sale of our retail distribution channel during the latter part of
2007.
Results
of Business Segments
The
following is a summary of sales by segment for the years ending December
31:
|
Segments
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Foam
|
|
$ |
37,306,714 |
|
|
$ |
20,753,052 |
|
|
$ |
18,214,350 |
|
|
Coatings
|
|
$ |
10,273,422 |
|
|
$ |
11,087,747 |
|
|
$ |
12,100,386 |
|
Foam
sales increased $16,553,663 or 80% over 2007, as energy conscious building
owners and consumers continued to seek relief from rising oil prices, as
polyurethane spray foam (SPF) continues to gain market share from traditional
insulation systems such as fiberglass. Our AirTight asset purchase
furthered our market penetration into the foam segment through AirTight’s
training, startup and rig building operations. By providing new
market entrants as well as existing insulation companies with the equipment and
training to successfully market foam, revenue growth from equipment has
escalated and the ongoing sales of Lapolla foam has followed. Foam sales
increased $2,538,702, or 14%, from 2006 to 2007 due to attracting, recruiting,
and maintaining a qualified sales force, national advertising and promotion
programs, including attendance at trade shows, and attainment of certain third
party approvals and credentials on our foam formulations required to sell our
products in our target markets, partially offset by the general downturn in the
building products market experienced during the latter part of 2007. Cost of
sales increased $12,380,603, or 67%, due to the substantial volume increases,
but at the same time gross profit margin dollars and percentages increased, from
the economies of scale and full year production of in-house manufactured resins.
Cost of sales increased $2,374,636, or 15%, from 2006 to 2007 due to higher
sales volumes and start up costs and expenses for our new Foam Resin
Plant. Segment loss decreased $1,829,883, or 94%, from 2007 to 2008
as targeted volumes were achieved in the marketplace. Segment loss increased
$505,489, or 35%, from 2006 to 2007 due to start up costs and expenses related
to our new Foam Resin Plant, costs related to maintaining manufacturing and
warehousing facilities, SG&A to support sales growth, and costs for third
party approvals and credentials.
Coatings
sales fell $814,326 or 7% from 2007 to 2008 because of the 2007 divestiture of
our retail coatings business, as compared to a decrease of $1,102,639, or 8%,
from 2006 to 2007 due also to the mid-2007 sale of our retail distribution
channel and the general downturn in the building products market experienced
during the latter part of 2007. Cost of sales declined $823,717 or 10% from 2007
to 2008 but margin dollars increased $9,931 as our margin percentage increased
from 22% to 24% on the more strategic product line. Cost of sales
decreased $903,816, or 9%, from 2006 to 2007 due to lower sales volumes. Segment
profit increased $549,425, or 410%, from 2007 to 2008 from the increased margin
percentage associated with our more strategic product line. Segment profit was
$133,825, from 2006 to 2007 primarily due a reduction in costs and expenses
realized from the sale of our retail distribution channel and closure of our
Florida manufacturing facility.
Outlook
for 2009
The
Company’s outlook is very aggressive, as we expect sales to continue to grow to
record levels in 2009. Our optimism is based on market share increases in the
construction insulation markets which are driven by growing consumer awareness
about energy efficient foams and coatings. Margin increases as a result of
vertical integration, sales growth, potential acquisitions, in conjunction with
tighter controls on spending are expected to enable LaPolla to achieve
profitability in 2009. The markets for our products are highly competitive;
however, we believe that our competitive advantages are rooted in our product
formulations, product credentials, approvals and performance, price structures,
and technical customer service. In addition, we offer the flexibility, quality
of products and responsiveness that a smaller company can offer. This
outlook is based on a number of assumptions relating to our business and
operations which are subject to change, some of which are outside our control. A
variation in our assumptions may result in a change in this
outlook.
Liquidity
and Capital Resources
Cash on
hand at December 31, 2008 was $42,845 reflecting a decrease of $297,010 when
compared to the $339,855 of cash on hand at December 31, 2007. The cash on hand
at December 31, 2006 was $382,116. Cash flow continues to be negatively impacted
by substantial sales growth and the associated increases in accounts receivable
and inventory. We rely not only upon our Revolving Credit and Term Loan
Agreement with ComVest Capital, LLC (“ComVest”), as amended, under which ComVest
agreed to loan us up to $9,500,000 (approximately $1,000,000 available) under a
revolving credit note and $3,000,000 under a convertible term note (“Credit
Facility”), but also our Chairman of the Board and principal stockholder, who
provides short term loans for working capital to manage cash flow fluctuations.
Although our operational cash flow is expected to continue to increase
sufficiently to enable us to meet our budgetary requirements in 2009, we will
likely seek to raise additional capital through private placements of debt, or
common or preferred stock with accredited sophisticated investors, to fund our
aggressive strategic growth plans and limited capital expenditures. We have
budgeted up to $100,000 for capital expenditures for 2009. The Chairman of the
Board has committed to providing up to $2,000,000 for working capital during
2009 on an as needed basis.
Net cash
used in our operations was $7,377,470 in 2008 compared to $5,468,143 in 2007.
The cash used in operations for 2008 as compared to 2007 was primarily
attributable to our net loss for the year, including the effect of adjustments
to reconcile net loss to cash provided by or used in operating activities and
adjusting for non-cash items, augmented by increases in trade receivables and
inventories, partially offset by increases in accounts payable, accrued expenses
and other current liabilities, and other liabilities. Net cash used in our
operations was $5,468,143 in 2007 compared to $3,680,208 in 2006. The cash used
in operations for 2007 as compared to 2006 was attributable to our net loss for
the year, including the effect of adjustments to reconcile net loss to cash
provided by or used in operating activities and adjusting for non-cash items,
offset by decreases in trade receivables, inventories, prepaid expenses and
other current assets, and accounts payable, and increases in deposits and other
non-current assets, accrued expenses and other current liabilities, and other
liabilities. For 2008, 2007 and 2006, the net cash for discontinued operations
used in operating activities was $848, $9,152, and $330,069,
respectively.
Contractual
Obligations
|
|
|
Payments
Due By Period
|
|
|
|
|
Less
Than
|
|
|
1
to 3
|
|
|
4
to 5
|
|
|
More
Than
|
|
|
|
|
|
|
|
1
Year
|
|
|
Years
|
|
|
Years
|
|
|
5
Years
|
|
|
Total
|
|
|
ComVest
Convertible Term Note
|
|
$ |
500,000 |
|
|
$ |
2,500,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
3,000,000 |
|
|
ComVest
Revolving Credit Note
|
|
|
— |
|
|
|
8,537,821 |
|
|
|
— |
|
|
|
— |
|
|
|
8,537,821 |
|
|
Long-Term
Debt Obligations
|
|
|
104,001 |
|
|
|
122,949 |
|
|
|
57,227 |
|
|
|
— |
|
|
|
284,177 |
|
|
Estimated
Interest Payments on Long-Term Debt and ComVest
Obligations
|
|
|
1,026,708 |
|
|
|
639,735 |
|
|
|
2,113 |
|
|
|
— |
|
|
|
1,668,556 |
|
|
Operating
Lease Obligations
|
|
|
478,427 |
|
|
|
427,521 |
|
|
|
84,000 |
|
|
|
— |
|
|
|
989,948 |
|
|
Total
|
|
$ |
2,109,136 |
|
|
$ |
12,228,026 |
|
|
$ |
143,340 |
|
|
$ |
— |
|
|
$ |
14,480,502 |
|
The
information provided in the table above relates to credit instruments, vehicle
notes, an equipment lease, and facility leases.
Net cash
used in investing activities was $258,792 in 2008 compared to $1,381,955 in 2007
and $654,005 in 2006. We invested $124,175 in new property, plant and equipment
during 2008 compared to $1,381,955 in 2007, as well as $100,000 towards the
purchase of AirTight’s assets. During 2008, property, plant and equipment
additions included $222,793 in vehicles, $69,968 for leasehold improvements,
$29,267 for office furniture and equipment, $72,077 for computers and software,
$15,094 for machinery and equipment, and $18,634 for construction in progress.
We invested $1,381,955 in new property, plant and equipment during 2007 compared
to $654,005 in 2006. During 2007, property, plant and equipment additions
included $55,510 for leasehold improvements, $28,099 for office furniture and
equipment, $1,360,859 for machinery and equipment relating to our new foam resin
plant and expansion of our coating and distribution facility in Houston, Texas,
and reductions included $105,323 for vehicles and $72,476 for plant construction
in progress due to capitalizing the operating portion of our foam resin plant.
For 2008, 2007 and 2006, net cash for discontinued operations provided by or
used in investing activities was $-0-.
Net cash
provided by financing activities was $7,339,252 in 2008 compared to $6,807,837
in 2007 and $4,315,708 in 2006. Net cash was provided by our Credit
Facility and Chairman to finance our operations and capital expenditures.
ComVest provided $3,400,000 under the Revolving Credit Note and $1,502,616 under
the Convertible Term Note and the Chairman provided $3,800,000 under a financial
commitment in the form of short term loans. During 2008, we made principal
repayments of $400,000 under the Convertible Term Note and $1,000,000 in
reduction of our short term indebtedness to our Chairman prior to modifying the
Credit Facility. In connection with the closing of the Credit Facility
modification, the Chairman canceled $2,000,000 in short term loans in exchange
for common stock. Net cash provided by financing activities was $6,807,837 in
2007 compared to $4,315,708 in 2006. Net cash was provided by our Credit
Facility and short term loans from our Chairman, to finance our operations and
capital expenditures. ComVest provided $5,000,000 under a Revolving Credit Note
and $2,000,000 under a Convertible Term Note, which we used to payoff certain
former financings which were guaranteed by the Chairman, and repaid $400,000 of
the short term loans advanced to us by the Chairman prior to entering into the
Credit Facility. Principal repayments began under the Convertible Term Note on
September 2007 and $200,000 was repaid during 2007. The Chairman
canceled $1,550,000 in short term loans in exchange for common stock during
2007. For 2008, 2007 and 2006, the net cash for discontinued operations used in
financing activities was $-0-, $326,129, and $173,789,
respectively.
Indemnification
Our
Restated Certificate of Incorporation, as amended from time to time, provides
that we will indemnify, to the fullest extent permitted by the Delaware General
Corporation Law, each person that is involved in or is, or is threatened to be,
made a party to any action, suit or proceeding by reason of the fact that he or
she, or a person of whom he or she is the legal representative, is or was a
director or officer of the Company or was serving at our request as a director,
officer, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise. We have purchased insurance policies
covering personal injury, property damage and general liability intended to
reduce our exposure for indemnification and to enable us to recover a portion of
any future amounts paid.
Item 7A. Quantitative and Qualitative
Disclosures About Market Risk
Market
Risk
We do not
issue or invest in financial instruments or their derivatives for trading or
speculative purposes. Our operations are primarily conducted presently in the
United States, and, as such, we are not subject to material foreign currency
exchange risks. Although we have outstanding debt and related interest expense,
market risk in interest rate exposure in the United States is currently not
material to our operations. However, we do expect an increase in
international business in 2009 and will utilize letters of credit to mitigate
any risk of collection.
Item 8. Financial Statements and
Supplementary Data
The
information required by this Item is incorporated herein by reference to the
financial statements set forth in Item 15 of Part IV of this report,
“Exhibits and Financial Statement Schedules.”
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and
Procedures
Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms, and that such information is accumulated and communicated
to our management, including our Principal Executive Officer and our Principal
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosures. Our management, including our Principal Executive Officer and our
Principal Financial Officer, does not expect that our disclosure controls or
procedures will prevent all error and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, have been detected. These inherent limitations include the realities that
judgments in decision- making can be faulty, and that breakdowns can occur
because of simple error or mistake. Additionally, controls can be circumvented
by the individual acts of some persons, by collusion of two or more people, or
by management override of the control. The design of any system of controls is
also based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions. Because of the inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and not be detected. We carried out an evaluation, under the
supervision and with the participation of our management, including our
Principal Executive Officer and our Principal Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as of December 31, 2008, the end of the annual period covered by
this report. The evaluation of our disclosure controls and procedures included a
review of the disclosure controls’ and procedures’ objectives, design,
implementation and the effect of the controls and procedures on the information
generated for use in this report. In the course of our evaluation, we sought to
identify data errors, control problems or acts of fraud and to confirm the
appropriate corrective actions, including process improvements, were being
undertaken. Based on the foregoing, our Principal Executive Officer and our
Principal Financial Officer concluded that, as of the end of the period covered
by this report, our disclosure controls and procedures were effective. Further,
management determined that, as of December 31, 2008, there were no changes
in our internal control over financial reporting that occurred during the fourth
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Item 9A(T). Controls and
Procedures
Management’s
Report on Internal Control Over Financial Reporting
We are
responsible for establishing and maintaining adequate internal control over
financial reporting, as is defined in the Exchange Act, pursuant to the SEC’s
rules and regulations. We maintain a system of internal control over financial
reporting based on criteria established by COSO. These internal controls are
designed to provide reasonable assurance that the reported financial information
is presented fairly, that disclosures are adequate and that the judgments
inherent in the preparation of financial statements are reasonable. There are
inherent limitations in the effectiveness of any system of internal control,
including the possibility of human error and overriding of controls.
Consequently, an effective internal control system can only provide reasonable,
not absolute, assurance, with respect to reporting financial information. We
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework and criteria established by COSO.
Based on this evaluation, we concluded that our internal control over financial
reporting was, as of the December 31, 2008, the end of the annual period covered
by this report, effective. This annual report does not include an attestation
report of the Company’s independent registered public accounting firm regarding
internal control over financial reporting. Management’s report was not subject
to attestation by the Company’s independent registered public accounting firm
pursuant to temporary rules of the SEC that permit the Company to provide only
management’s report in this annual report.
Item 9B. Other Information
None.
PART
III
Item 10. Directors, Executive Officers and
Corporate Governance
Set forth
below are descriptions of the backgrounds of each incumbent nominee, their ages,
and their principal occupations for at least the past five years and their
public-company directorships as of the record date. There are no familial
relationships among any of our directors or among any of our directors and
executive officers.
|
|
Richard
J. Kurtz
|
68
|
Director since November 23, 1998
|
|
|
|
|
|
Chairman
of the Board
Mr.
Kurtz has been chief executive officer of the Kamson Corporation, a
privately held corporation, in business for the past 31 years. The Kamson
Corporation has its principal executive offices located in Englewood
Cliffs, New Jersey and currently owns and operates eighty one (81)
investment properties in the Northeastern U.S. Mr. Kurtz is a graduate of
the University of Miami and a member of its President's Club. Most
notably, the Chamber of Commerce in Englewood Cliffs and the Boy Scouts of
America chose him Man of the Year. Mr. Kurtz resides in Alpine, New Jersey
and is currently vice president and a member of the Board of Directors for
the Jewish Community Center on the Palisades in Tenafly, New Jersey. He is
also an elected member of the Board of Trustees and Foundation Board for
the Englewood Hospital and Medical Center of New Jersey and the Board of
Governors for the Jewish Home and Rehabilitation
Center.
|
|
|
Lt.
Gen. Arthur J. Gregg (US Army) (Ret.)
|
80
|
Director since February 21, 2000
|
|
Lt.
Gen. Gregg has more than fifty seven years of distinguished military and
business experience. His record of performance repeatedly demonstrates the
ability to lead organizations to success. As a result of his extensive
military and executive experience, he has considerable contacts and
respect within federal government agencies and private industry. Lt. Gen.
Gregg has retired from active management but continues an active schedule
as a member of several corporate and nonprofit boards. He chairs four of
these boards. His education includes Harvard University, John F. Kennedy
School of Government Concentrated Executive Program in National Security;
Saint Benedict College Atchison, Kansas, Bachelor of Science in Business
Administration (Summa cum Laude); Army War College, Carlisle Barracks,
Pennsylvania, One-year graduate level college; Command and General Staff
College, Fort Leavenworth, Kansas, One-year graduate level
college.
|
|
|
Jay
C. Nadel
|
50
|
Director since January 16, 2007
|
|
Mr.
Nadel is chairman of the board of Englewood Hospital and Medical Center
since September 2006. In addition to being an independent consultant since
2004, Mr. Nadel is an employee of Sloan Securities since January 2006. As
a CPA and senior financial services executive, Mr. Nadel has extensive
business management and operations experience. From 2002 to 2004, he was
executive vice president of Bank of New York’s Clearing Services where he
oversaw strategic planning; 1986 to 2001, a partner in the investment firm
of Weiss, Peck & Greer/Robeco, where he was chairman of the operations
committee and managing director of the firm’s Clearing Services Division;
and 1980 to 1986, he was a manager at KPMG Peat Marwick, New York, where
he provided audit services. Mr. Nadel is a Certified Public Accountant
since 1980 and has a Bachelor of Science degree from the University of
Maryland.
|
|
|
Augustus
J. Larson
|
51
|
Director since January 16, 2007
|
|
Mr.
Larson is president of Larson Capital, LLC, a commercial real estate
finance and investment company in Far Hills, New Jersey. He founded Larson
Capital, LLC in 2004. From 2001 to 2003, Mr. Larson was managing director
of PW Funding and directed its commercial and multi-family real estate
loan production in the metro New Jersey and New York markets. He is
currently a presiding director of the newly formed Somerset County region
Team Capital Bank in Somerville, New Jersey, and as such is also a member
of the of the Management Board of Team Capital Bank, which is a federally
chartered savings bank providing commercial banking services in eastern
Pennsylvania and New Jersey. Mr. Larson is a councilman in the
Borough of Far Hills, New Jersey. He has a Bachelor of Arts from Colgate
University in New York. He is also a certified mortgage banker and an
active member in numerous professional and charitable
organizations.
|
|
|
Howard
L. Brown
|
63
|
Director since May 22, 2007
|
|
Mr.
Brown has over 36 years experience in sales, distribution, financial
forecasting and planning, mergers and acquisitions and quality assurance.
He was chairman and chief executive officer of Allied Office Products,
headquartered in Clifton, New Jersey, the country's largest independent
dealer of office products and services, which was sold to Office Depot in
2006. Allied, prior to the sale, had grown annual sales to more than $350
Million from over 30 acquisitions beginning in 1998. Mr. Brown is a
graduate of Syracuse University. He is a member of the board of
directors of Holy Name Hospital in Teaneck, New Jersey, Potomac Ridge
Behavioral Health Foundation in Rockville, Maryland, and Direct Supply
Warehouse in New Jersey. Mr. Brown is a
philanthropist.
|
|
|
Douglas
J. Kramer
|
45
|
Director, CEO and President
|
|
Mr.
Kramer joined the Company in February 2005 as president and chief
operating officer and was named Chief Executive Officer and President in
July 2006. He was appointed to the Board on January 16, 2007. Mr. Kramer
has 22 years Industry Experience. Prior to joining Lapolla, he was vice
president of the Construction Products Division for Foam Enterprises, LLC,
a wholly-owned subsidiary of the BASF Corporation, where he was employed
from 1997 to 2004. Mr. Kramer has a background in Liberal Arts from Penn
State University and the University of
Texas.
|
|
|
Michael
T. Adams
|
43
|
Director, CGO, EVP and Secretary
|
|
Mr.
Adams has more than twelve years experience with Lapolla. He was appointed
to the Board on December 20, 2004 and named Chief Governance Officer,
Executive Vice President, and Secretary in July 2006. During his term with
Lapolla, Mr. Adams served as president and interim chief executive officer
from 2003 to 2005, interim chief financial officer in February 2008,
executive vice president and corporate secretary from 1999 to 2003, and
held various officer positions in the Company’s former subsidiaries since
he first joined Lapolla in 1997. He earned his Bachelor of Science and
Master of Science in business administration, and Juris Doctor degrees
from Nova Southeastern University, Fort Lauderdale,
Florida.
|
|
|
Paul
Smiertka
|
52
|
CFO and Treasurer
|
|
Mr.
Smiertka has 20 years of financial experience from BASF’s chemicals and
coatings businesses, serving from 1986 through 2006, with his last
position as director, Finance and Administration, BASF
Intertrade. While at BASF, he also served as controller and
treasurer of two of BASF’s largest joint ventures worldwide, BASF FINA,
LP, a joint venture between BASF and ATOFINA, and Sabina Petrochemicals,
LLC, a tri-venture between BASF, ATOFINA and Shell. He also spent four
years as the controller for Chemical Intermediates, and held various
financial positions in the Coatings and Colorants Division. Prior to
joining Lapolla, Mr. Smiertka was director of planning at SBL Logistics, a
Houston, Texas based privately-held transportation broker and contract
carrier during 2007. He earned his BS in Finance and MBA in Finance and
Accounting degrees from Fordham University, New
York.
|
- Officers
are appointed by and hold office at the pleasure of the Board of
Directors.
- Timothy
J. Novak resigned as CFO and Treasurer on February 15, 2008 and Michael T.
Adams, CGO, EVP and Secretary of the Company, was appointed interim CFO and
Treasurer on said date until a successor was named on March 3,
2008.
Section
16(a) Beneficial Ownership Reporting Compliance
Section 16(a)
of the Securities Exchange Act of 1934, as amended (“Exchange Act”), requires
our executive officers, directors and persons who own more than ten percent of a
registered class of our equity securities to file reports of ownership and
changes in ownership with the SEC. Executive officers, directors and greater
than ten-percent stockholders are required by SEC regulation to furnish us with
copies of all Section 16(a) forms they file. Based solely on our review of
the copies of such forms furnished to us or the written representations from
certain of the reporting persons that no other reports were required, we believe
that during the fiscal year ended December 31, 2008, all executive
officers, directors and greater than ten-percent beneficial owners complied with
the reporting requirements of Section 16(a).
Code
of Business Ethics and Conduct
We have
adopted a Code of Business Ethics and Conduct, which contains general guidelines
for conducting our business and is designed to help directors, employees and
independent consultants resolve ethical issues in an increasingly complex
business environment. The Code of Business Ethics and Conduct applies to all
directors, consultants and employees, including our principal executive officer
and our principal financial officer and any other employee with any
responsibility for the preparation and filing of documents with the SEC. The
Code of Business Ethics and Conduct covers topics including, but not limited to,
conflicts of interest, confidentiality of information and compliance with laws
and regulations. A copy of the Code of Business Ethics and Conduct is available
in the Corporate Governance section of our website at www.lapollaindustries.com. The information on our
website is not incorporated by reference in this annual report. We may post
amendments to or waivers of the provisions of the Code of Business Ethics and
Conduct, if any, made with respect to any directors and employees on that
website. Our stockholders may request a copy of our Code of Business Ethics and
Conduct by writing to Lapolla Industries, Inc., Attn: Corporate Secretary,
Intercontinental Business Park, 15402 Vantage Parkway East, Suite 322, Houston,
Texas 77032.
Nominating
Function
The
Corporate Governance Committee handles the nominating function for Board of
Directors, including but not limited to, evaluating candidates for membership on
the Board and making recommendations to the Board regarding candidates and
composition of the Board. There have been no changes to the
procedures by which security holders may recommend nominees to the Company’s
Board of Directors since the last disclosure of such procedures in the Company
Proxy Statement filed with the SEC on April 30, 2007. Our Director Selection
Process criterion is available on our website at http://www.lapollaindustries.com/pdf/directorselection.pdf.
Audit
Committee
The Board
of Directors has a standing Audit Committee, which is comprised of Jay C. Nadel,
Lt. Gen. Arthur J. Gregg, US Army (Ret), and Augustus J. Larson. Each member of
our Audit Committee meets the independence criteria by applicable SEC rules for
audit committee membership and is an “independent director”. In addition, Mr.
Nadel is our “audit committee financial expert” as such term is described in
applicable SEC regulations. Refer to
Directors above for information on Mr. Nadel’s qualifications, as well as, Lt.
Gen. Gregg and Mr. Larson.
Item 11. Executive and Director
Compensation
Executive
Compensation Discussion and Analysis
This
Executive Compensation Discussion and Analysis section discusses the
compensation policies and programs for our named executive officers consisting
of our CEO and President (Mr. Kramer), current CFO and Treasurer (Mr. Smiertka),
CGO, EVP, and Secretary (Mr. Adams), and former CFO and Treasurer (Mr. Novak).
The Compensation Committee administers the compensation policies and programs
for our named executive officers, as well as the equity-based incentive
compensation plans in which those persons participate.
The
Compensation Committee’s philosophy is to provide a compensation package that
attracts, motivates and retains executive talent, and delivers rewards for
superior performance as well as consequences for underperformance. The
objectives of the Compensation Committee’s compensation practices are to (a)
provide a total compensation program that is competitive in the industries in
which we compete for executive talent; (b) place a significant portion of
executive compensation at risk by linking such compensation to the achievement
of corporate financial performance objectives and individual objectives; (c)
provide long-term incentive compensation that focuses executives’ efforts on
building stockholder value by aligning their interests with our
stockholders; and (d) provide incentives that promote executive retention.
In designing and administering our executive compensation programs, we attempt
to strike an appropriate balance among these elements, as discussed
below.
The major
compensation elements for our named executive officers are base salary, annual
bonuses, equity awards, insurance benefits and perquisites. Each of these
elements is an integral part of and supports our overall compensation
objectives. Base salaries (other than increases), insurance benefits and
perquisites form stable parts of our named executive officers’ compensation
packages that are not necessarily dependent on our performance during a
particular year. We set these compensation elements at competitive levels so
that we are able to attract, motivate and retain highly qualified executive
officers. Consistent with our performance-based philosophy, we reserve the
largest potential compensation for performance- and incentive-based awards.
These awards include annual and long-term awards that are based on our financial
performance and provide compensation in the form of stock options and stock
bonuses to provide incentives that are tied to both our short-term and long-term
performance. Our performance-based annual bonuses reward short-term and
long-term performance, while our stock options reward long-term performance and
align the interests of management with our stockholders. We additionally provide
for retention of certain named executive officers through transaction bonuses in
the case of a change in control.
Compensation
Committee Determination of Compensation Awards
The
Compensation Committee has primary authority for determining the compensation
awards to be made to our executive officers. The Compensation Committee annually
determines the total compensation levels for our executive officers by
considering several factors, including each executive officer’s role and
responsibilities, how the executive officer is performing against those
responsibilities, and the Company’s performance.
Components
of Compensation
Base
salaries provide our executive officers with a degree of financial certainty and
stability. In order to attract and retain highly qualified executives, we
provide base salaries based on individual negotiations and general competitive
hiring practices. Salaries are usually set by agreement with the named executive
officers but also periodically reviewed in the case of executive promotions or
other significant changes in responsibilities. The named executive officers
received an average salary increase of 6% from fiscal year 2007 to fiscal year
2008. No formulaic base salary increases are provided to the named executive
officers. Mr. Smiertka received a 25% increase in his base salary during 2008
based on individual negotiations.
The
primary purpose of our annual bonus, payable in cash or stock bonuses, is to
motivate our named executive officers to meet or exceed our company-wide
short-term performance objectives. The named executive officers are each
eligible for annual bonus consideration designed to reward the named executive
officers for their contributions to individual and corporate objectives. Annual
bonuses are generally paid in March of the year following the performance
period. For 2008, the Compensation Committee set profitability as the threshold.
The Company did not achieve profitability as expected in 2008. No annual bonuses
were paid to any named executive officers for 2008.
Long-Term
Incentive Awards — Stock Options
Our named
executive officers are eligible to participate in our Equity Incentive Plan
(“Equity Plan”). In addition to our named executive officers, our key employees
are eligible to receive stock option grants (each option to purchase one share
of common stock) under our Equity Plan throughout the fiscal year in connection
with certain events, such as a new hire, retention of an employee, integration
of acquisitions or the achievement of certain individual performance objectives.
Such grants provide an incentive for our executive officers and key employees to
increase our market value, as represented by our market price, as well as
serving as a method for motivating and retaining them. The Compensation
Committee believes that an award of stock options more closely aligns the
interests of the recipient with those of our stockholders because the recipient
will only realize a return on the option if our stock price increases over the
term of the option. The exercise price of our option grants under the Equity
Plan is equal to 100% of the closing price of our stock on the grant
date.
During
2005, stock options were granted to Mr. Kramer (2,000,000 options) and Mr. Adams
(400,000 options) which options have a term of 6 years, with vesting to
occur in annual increments based upon each executive meeting certain performance
objectives (e.g. sales growth and gross margin thresholds), and, once vested,
are exercisable over a declining four year period based on a formula to provide
an incentive for continued employment. The vesting and exercisability conditions
of the aforementioned options are accelerated in the event of termination due to
death, permanent disability, or a change in control (“2005
Grants”). The sales growth thresholds were set at $12 Million, $18
Million, $24 Million, $30 Million, and $40 Million, all of which were met during
2008. The gross margin threshold was set at 25% and was not met
during 2008. Prior to 2008, the Compensation Committee vested a total of 560,000
stock options, of which 480,000 options for Mr. Kramer and 80,000 options for
Mr. Adams. Mr. Kramer subsequently concluded renegotiation of his new employment
agreement and in connection therewith, the Company amended his 2005 stock option
grant by eliminating the original vesting criteria on all of the unvested and
remaining 1,520,000 options and automatically vesting them, reestablishing
exercisability for all of the vested 2,000,000 stock options on an inclining
basis over a four year period, and extending the expiration date for an
additional three years, subject to satisfactory employment. Mr. Adams
subsequently canceled his unvested and remaining 320,000 options granted in 2005
due to the Company not meeting both the sales growth and gross margin threshold
vesting criteria established by the Compensation Committee. Accordingly, at
December 31, 2008, the remaining 1,520,000 options granted to Mr. Kramer during
2005 vested. Such options, plus the previously vested 480,000 options described
above, are now exercisable at various rates, on a cumulative basis, over a four
year period from the date of vesting.
During
2007, stock options granted to Mr. Novak (200,000 options) had a term of 5
years, with vesting to occur in annual increments based on satisfactory
continued employment up to each respective fiscal year ended vesting date, and,
once vested, were immediately exercisable. Prior to 2008, a pro rata portion of
27,944 options had vested. However, Mr. Novak resigned on February
15, 2008, and, as a result, his 27,944 unexercised and vested options were
automatically forfeited. In addition, during 2007, three key employees were
granted an aggregate of 550,000 stock options primarily to retain, motivate, and
ensure the continued achievement of certain employment objectives by each of
them. Accordingly, at December 31, 2008, a total of 120,833 options granted
during 2007 vested, all of which are exercisable.
During
2008, additional stock options were granted to Mr. Kramer (2,000,000 options) in
connection with his renegotiated employment agreement, which options have a term
of approximately 5.7 years, and vest in quarterly increments (250,000 options)
based on achieving an operating profit, and once vested, are exercisable on an
inclining basis over four years, subject to continued satisfactory employment.
Stock options granted to Mr. Smiertka during 2008 have a term of 5 years, with
vesting to occur in quarterly increments (33,333 options for June and September
2008 and 33,334 for December 2008) based on profitability, and once vested, are
immediately exercisable. If Mr. Smiertka’s options do not vest during a
particular quarter, they are forfeited. The vesting and exercisability
conditions of the aforementioned options are accelerated in the event of
termination due to death, permanent disability, or a change in
control. During the second quarter of 2008, the Company achieved an
operating profit, which automatically vested an aggregate of 283,333 options, of
which 250,000 options were for Mr. Kramer and 33,333 were for Mr. Smiertka.
Although the Company achieved an operating profit for the third quarter of 2008,
this operating profit only occurred after reversal of the share-based
compensation expense relating to Mr. Kramer’s and Mr. Smiertka’s stock options
due to the Company not achieving an operating profit otherwise. In addition,
during 2008, six other key employees were granted an aggregate of 830,500 stock
options primarily to retain, motivate, and ensure the continued achievement of
certain employment objectives by each of them. If such employment objectives
were not met, specified amounts of these options per employee are forfeited.
Accordingly, at December 31, 2008, a total of 3,030,000 options were granted; a
total of 300,333 options vested, of which 50,333 options are immediately
exercisable and 250,000 options (Mr. Kramer) are exercisable at various rates,
on a cumulative basis, over a four year period from the date of vesting; and a
total of 113,500 options were forfeited.
Perquisites and Other
Benefits
We also
provide other benefits to our named executive officers that are not tied to any
formal individual or company performance criteria and are intended to be part of
a competitive overall compensation program. For 2008, these benefits included
payment of health and dental insurance, term life insurance, and a leased
automobile for Mr. Kramer, health and dental insurance and automobile allowance
for Mr. Adams, and health and dental insurance for Mr. Smiertka and Mr.
Novak.
We have
provided a transaction bonus for Mr. Kramer and Mr. Adams in their employment
agreements which only activates upon consummation of a change in control. See Severance and Change in Control
Arrangements below for more information.
Severance
and Change of Control Arrangements
We
ordinarily enter into employment agreements with our named executive officers
and occasionally key employees providing for specific terms of employment.
Accordingly, employment of any employee without an employment agreement may be
terminated at any time. We provide certain benefits to our named executive
officers upon certain qualifying terminations and with terminations under
certain circumstances following a change of control, which benefits are designed
to retain our named executive officers, provide continuity of management in the
event of an actual or threatened change of control, and to ensure that our named
executive officers’ compensation and benefits expectations would be met in such
event. A description of the material terms of our change of control agreements
is on page 15 of this report under “Potential Payments Upon Termination or
Change-in-Control.”
Policy on Deductibility of
Compensation
Section 162(m)
of the Internal Revenue Code of 1986, as amended (“Code”), limits the tax
deductibility by a company of annual compensation in excess of $1,000,000 paid
to our CEO and any of our four other most highly compensated executive officers.
However, performance-based compensation that has been approved by stockholders
is excluded from the $1,000,000 limit if, among other requirements, the
compensation is payable only upon attainment of pre-established, objective
performance goals and our board of directors committee that establishes such
goals consists only of “outside directors.” Additionally, stock options will
qualify for the performance-based exception where, among other requirements, the
exercise price of the option is not less than the fair market value of the stock
on grant date, and the plan includes a per-executive limitation on the number of
shares for which options may be granted during a specified period. Our stock
option grants under our Equity Plan are intended to meet the criteria of
Section 162(m) of the Code. We believe all of the members of our
Compensation Committee qualify as outside directors pursuant to Section 162(m)
of the Code. The Compensation Committee considers the anticipated tax treatment
to our Company and our executive officers when reviewing executive compensation
and our compensation programs. The deductibility of some types of compensation
payments can depend upon the timing of an executive’s vesting or exercise of
previously granted rights. Sections 280G and 4999 of the Code impose
certain adverse tax consequences on compensation treated as excess parachute
payments. An executive is treated as having received excess parachute payments
for purposes of Sections 280G and 4999 of the Code if he or she receives
compensatory payments or benefits that are contingent on a change in the
ownership or control of a corporation, and the aggregate amount of such
contingent compensatory payments and benefits equal or exceeds three times the
executive’s base amount. If the executive’s aggregate contingent compensatory
payments and benefits equal or exceed three times the executive’s base amount,
the portion of the payments and benefits in excess of one times the base amount
are treated as excess parachute payments. An executive’s base amount generally
is determined by averaging the executive’s Form W-2 taxable compensation
from the corporation for the five calendar years preceding the calendar year in
which the change in ownership or control occurs. An executive’s excess parachute
payments are subject to a 20% excise tax under Section 4999 of the Code, in
addition to any applicable federal income and employment taxes. Also, the
corporation’s compensation deduction in respect of the executive’s excess
parachute payments is disallowed under Section 280G of the Code. If we were
to be subject to a change of control, certain amounts received by our executives
(e.g. amounts attributable to accelerated vesting of options) could be excess
parachute payments under Sections 280G and 4999 of the
Code.
Executive
Compensation
The
following table shows the compensation earned by, or awarded or paid to, each of
our named executive officers for services rendered in all capacities to us for
the year ended December 31, 2008.
SUMMARY
COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
Options
|
|
|
All
Other
|
|
|
|
|
|
Name
and
|
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Awards
|
|
|
Awards
|
|
|
Compensation
|
|
|
Total
|
|
|
Principal
Position
|
($)
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
(1)
|
|
|
($)
(2)
|
|
|
($)
|
|
|
(a)
|
(b)
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
|
(f)
|
|
|
(i)
|
|
|
(j)
|
|
|
Douglas
J. Kramer
|
2008
|
|
|
350,000 |
|
|
|
— |
|
|
|
— |
|
|
|
662,816 |
|
|
|
19,545 |
|
|
|
1,032,361 |
|
|
CEO
and President
|
2007
|
|
|
350,000 |
|
|
|
— |
|
|
|
— |
|
|
|
342,617 |
|
|
|
19,361 |
|
|
|
711,978 |
|
|
|
2006
|
|
|
350,000 |
|
|
|
— |
|
|
|
— |
|
|
|
93,738 |
|
|
|
17,134 |
|
|
|
460,872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
T. Adams
|
2008
|
|
|
158,750 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
24,064 |
|
|
|
182,814 |
|
|
CGO,
EVP and Secretary
|
2007
|
|
|
158,611 |
|
|
|
— |
|
|
|
— |
|
|
|
68,977 |
|
|
|
18,691 |
|
|
|
246,279 |
|
|
|
2006
|
|
|
121,792 |
|
|
|
— |
|
|
|
— |
|
|
|
15,623 |
|
|
|
13,208 |
|
|
|
150,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul
Smiertka
|
2008
|
|
|
155,962 |
|
|
|
— |
|
|
|
— |
|
|
|
36,782 |
|
|
|
5,581 |
|
|
|
198,325 |
|
|
CFO
and Treasurer (3)
|
2007
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2006
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy
J. Novak
|
2008
|
|
|
30,145 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,313 |
|
|
|
32,458 |
|
|
Former
CFO and Treasurer (4)
|
2007
|
|
|
92,361 |
|
|
|
— |
|
|
|
— |
|
|
|
14,449 |
|
|
|
3,855 |
|
|
|
110,665 |
|
|
|
2006
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Notes:
(1)
The amounts shown in this column represent the amounts of compensation cost
recognized by us in each fiscal year related to grants of stock options, as
prescribed under SFAS 123R. For a discussion of valuation assumptions, see Note
17 – Share-Based Payment Arrangements, Equity Incentive Plan, of our
Notes to Financial Statements included in our annual report on Form 10-K for the
year ended December 31, 2008. The information provided hereinbelow shows how
much of the overall amount of the compensation cost recognized by us in 2008 is
attributable to each award:
|
|
|
|
|
|
|
Number
of Shares of Stock
|
|
|
2008
Fiscal
Year
|
|
|
Name of Executive Officer
|
Grant Date
|
|
Exercise Price ($)
|
|
|
Underlying Options Granted
|
|
|
Compensation
Cost
($)
|
|
|
Douglas
J. Kramer
|
7/12/2005
|
|
|
.67 |
|
|
|
2,000,000 |
|
|
|
367,926 |
|
|
Douglas
J. Kramer
|
5/5/2008
|
|
|
.74 |
|
|
|
2,000,000 |
|
|
|
294,890 |
|
|
Paul
Smiertka
|
3/3/2008
|
|
|
.68 |
|
|
|
200,000 |
|
|
|
36,782 |
|
(2)
For 2008, the amounts disclosed in this column consist of perquisites valued at
an aggregate of $51,503, of which approximately $2,963 was attributed to
personal use of a Company provided leased vehicle to Mr. Kramer; $9,000 was for
a car allowance for Mr. Adams; $15,642, $15,642, $5,581, and $2,313 was for
health and dental insurance for Mr. Kramer, Mr. Adams, Mr. Smiertka, and Mr.
Novak, respectively; and $940 was for life insurance coverage for Mr.
Kramer.
(3)
Mr. Smiertka joined the Company as CFO and Treasurer on March 3,
2008.
(4)
Mr. Novak joined the Company as CFO and Treasurer on June 11, 2007 and resigned
on February 16, 2008.
GRANTS
OF PLAN-BASED AWARDS TABLE
The
following table sets forth summary information regarding all grants of
plan-based awards made to our named executive officers for the year ended
December 31, 2008.
|
|
|
|
All
Other Option Awards:
|
|
|
Exercise
or Base Price
|
|
|
Grant
Date Fair
|
|
|
|
|
|
Number
of Securities
|
|
|
Option
Awards
|
|
|
of
Stock and
|
|
|
Name
|
Grant
Date
|
|
Underlying
Options (#)
|
|
|
($/Sh)
|
|
|
Option
Awards (3)
|
|
|
(a)
|
(b)
|
|
(j)
|
|
|
(k)
|
|
|
(l)
|
|
|
Douglas
J. Kramer
|
5/5/2008
|
|
|
2,000,000 |
(1) |
|
|
0.74 |
|
|
$ |
1,463,352 |
|
|
Paul
Smiertka
|
3/3/2008
|
|
|
200,000 |
(2)
|
|
|
0.68 |
|
|
$ |
133,777 |
|
Notes:
(1)
Amount represents the number of shares that may be purchased pursuant to options
that were granted the Equity Plan, and have an exercise price per share equal to
100% of the closing price of our common stock on the NASDAQ OTCBB on May 5,
2008, the grant date, in accordance with the terms of the Equity Plan. The
options have a term of approximately 5.7 years, vest, and are exercisable, upon
satisfaction of the following criteria: 250,000 Options on the earlier of: (i)
June 30, 2008, provided the Company has net pre-tax income for the fiscal
quarter ending on that date, as indicated on its Form 10-Q filed with the SEC
(“Quarterly Profit”); or (ii) the last day of the Company’s first fiscal quarter
ending after June 30, 2008 for which the Company has Quarterly Profit, subject
in all cases to continued satisfactory employment through the vesting date; and
an additional 250,000 options on the last day of each of the next seven fiscal
quarters for which Company has Quarterly Profit, subject to continued
satisfactory employment through the last day of each such fiscal quarter. Once
vested, the options shall be exercisable, on a cumulative basis, as follows: 8
1/3% of the vested options shall be exercisable 12 months from the date of
vesting; 16 2/3% of the vested options shall be exercisable 24 months from the
date of vesting; 25% of the vested options shall be exercisable 36 months from
the date of vesting; and 100% of the vested options shall be exercisable 48
months from the date of vesting.
(2)
Amount represents the number of options that were granted pursuant to the Equity
Plan, and have an exercise price per share equal to 100% of the closing price of
our common stock on the NASDAQ OTCBB on March 3, 2008, the grant date, in
accordance with the terms of the plan. The options have a term of five years,
vest, and are exercisable, upon satisfaction of the following criteria: Subject
to the Company achieving profitability as indicated below for the quarters ended
June 30, 2008 = 33,333 options; September 30, 2008 = 33,333 options; December
31, 2008 = 33,334 options; March 31, 2009 = 25,000 options; June 30, 2009 =
25,000 options; September 30, 2009 = 25,000 options; and December 31, 2009 =
25,000 options. The determination of whether or not a quarter was profitable is
made by the Compensation Committee based on the quarterly and annual reports
filed with the SEC, as and when approved by the Audit Committee, and
ratification and approval of such determination by the Board of Directors. If it
is determined that a quarter was not profitable, then the number of options
allocable for that quarter shall be forfeited.
(3)
The dollar value of the options shown represents the grant date fair value based
on a lattice-based valuation model of option valuation to determine grant date
fair value, as prescribed under SFAS No. 123R. The actual value, if any, an
executive may realize will depend on the excess of the market price over the
option exercise price on the date the option is exercised. There is no assurance
that the value realized by an executive will be at or near the value estimated
by the lattice-based valuation model. For a discussion of valuation assumptions,
see Note
17 – Share-Based Payment Arrangements, Equity Incentive Plan, of our
Notes to Financial Statements included in our annual report on Form 10-K for the
year ended December 31, 2008.
Outstanding
Equity Awards
The
following table sets forth summary information regarding the outstanding equity
awards held by each of our named executive officers at December 31,
2008.
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
Option
Awards
|
|
|
|
|
|
|
|
|
Equity
Incentive Plan
|
|
|
|
|
|
|
|
|
Number
of Securities
|
|
|
Awards:
Number of
|
|
|
|
|
|
|
|
|
Underlying
Unexercised
|
|
|
Securities
Underlying
|
|
|
Option
|
|
Option
|
|
|
|
Options
(#) (1) (2) (3) (4)
|
|
|
Unexercised
Unearned
|
|
|
Exercise
|
|
Expiration
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Options
(#)
|
|
|
Price
($)
|
|
Date
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(e)
|
|
(f)
|
|
Douglas
J. Kramer
|
|
|
— |
|
|
|
2,000,000 |
|
|
|
— |
|
|
|
0.67 |
|
12/31/2012
|
|
Douglas
J. Kramer
|
|
|
— |
|
|
|
250,000 |
|
|
|
1,750,000 |
|
|
|
0.74 |
|
12/31/2013
|
|
Michael
T. Adams
|
|
|
20,000 |
|
|
|
60,000 |
|
|
|
— |
|
|
|
0.67 |
|
7/11/2011
|
|
Paul
Smiertka
|
|
|
33,333 |
|
|
|
— |
|
|
|
100,000 |
|
|
|
0.68 |
|
3/2/2013
|
Notes:
(1)
Mr. Kramer, Mr. Adams, and Mr. Smiertka each have 2,250,000, 80,000, and 33,333
vested stock options, of which -0-, 20,000, and 33,333 are exercisable,
respectively.
(2)
On July 12, 2005, we granted Mr. Kramer 2,000,000 options and Mr. Adams 400,000
options, which were subject to certain vesting criteria and exercisability
restrictions. See
Executive Compensation Discussion and Analysis, Long-Term Incentive Awards – Stock
Options above for detailed information.
(3)
On May 5, 2008, we granted Mr. Kramer 2,000,000 options, which are subject to
certain vesting criteria and exercisability restrictions. See Grants
of Plan-Based Awards Table above, Footnote 1, for detailed
information.
(4)
On March 3, 2008, we granted Mr. Smiertka 200,000 options, which are subject to
certain vesting criteria. See Grants
of Plan-Based Awards Table above, Footnote 2, for detailed
information.
We did
not have any outstanding stock awards held by our named executive officers at
December 31, 2008. Nor did any of our named executive officers
exercise any stock options during the year ended December 31, 2008.
Potential
Payments Upon Termination or Change-in-Control
We
entered into long term employment and stock option agreements with our current
named executive officers that provide certain benefits in the event of
termination due to dismissal for other than cause, disability and death, or
change in control.
Termination
Under Mr.
Kramer’s agreement, the entitlements upon termination vary depending upon: (1)
Termination by Company Without Cause or by Executive with Good Reason, (A)
severance amount equal to the lesser of (i) 24 months Base Salary; or (ii) Base
Salary for the remainder of the Term, paid in equal monthly installments; (B)
the product of (i) the Value of any equity or equity based awards granted which
he can show that he reasonably would have received had he remained employed by
the Company through the end of the calendar year containing the Termination
Date, or 4 months after the Termination Date, whichever is greater, multiplied
by (ii) a fraction, the numerator of which is the number of days in the calendar
year in which the Date of Termination occurs through the Termination Date and
the denominator of which is 365, but only to the extent not previously vested,
exercised and/or paid; (C) to the extent not theretofore paid or otherwise
provided for, Company shall pay or provide to him any other amounts or benefits
which he is then entitled to receive through the Termination Date under any
plan, program, policy or practice or contract or agreement maintained by the
Company for his benefit, including any unused vacation that is accrued and
unpaid as of the Termination Date; and (D) for 12 months from the Termination
Date, continued participation in any plan providing medical, hospitalization and
dental coverage for him as of the Termination Date, subject to the same terms
and conditions as were applicable to him immediately prior to the Termination
Date; (2) Termination by Company For Cause or by Executive Without Good Reason,
in which case, Mr. Kramer shall have no right to any bonuses, salaries, benefits
or other compensation other than those accrued through the date of employment
termination or required by law to be provided; and (3) Termination On Account of
Death or Disability, (A) Company shall treat termination of his employment on
account of his Death or Disability as a Termination without Cause, (B) in the
event of his Death, the Termination Date shall be his date of death, (C) in the
event of his Disability, the Termination Date shall be the date that is 5 days
after the date on which the Company gives him written notice of termination of
employment on account of his Disability, and (D) the Company’s determination
that he is incapable of fulfilling his obligations under his agreement is final
and binding in the absence of fraud.
As used
in Mr. Kramer’s agreement, “Cause” means: (i) willful malfeasance or willful
misconduct in connection with his employment, (ii) continuing refusal to perform
his duties hereunder or follow any lawful direction of the Board, (iii) any
material breach of the nonsolicitation, noncompetition, and confidential
information provisions of his agreement, (iv) engaging in conduct detrimental to
the interest or reputation of the Company, without regard to whether such
conduct was in connection with the his employment, or (v)
his conviction of, or plea of nolo contendere to, a felony (other
than a traffic violation), which, in each event in (i), (ii) or (iii), actually
has a material effect on the Company and its business; and “Good Reason” means:
(i) a reduction in Mr. Kramer’s Base Salary, (ii) a substantial diminution of
his duties and responsibilities, or (iii) a relocation of his primary workplace
that is not agreed to by him and is to a location that is greater than 50 miles
from his primary workplace as of the date of this Agreement.
Under Mr.
Adams’ and Mr. Smiertka’s agreements, the entitlements upon termination vary
depending upon: (a) dismissal for other than cause, (i) an amount equal to 6
months (Mr. Adams) or 2 months (Mr. Smiertka) annual base salary paid in equal
monthly installments, (ii) the product of (I) any awards (stock options) which
each can show that he reasonably would have received had he remained in such
executive capacity with us through the end of the calendar year or 6 or 2 months
after the date of termination, whichever is greater, in which occurs his date of
termination, multiplied by (II) a fraction, the numerator of which is the number
of days in the calendar year in which the date of termination occurs through the
date of termination and the denominator of which is 365, but only to the extent
not previously vested, exercised and/or paid, (iii) for 6 or 2 months following
the date of termination, we will continue to provide medical and dental benefits
to the executive only on the same basis as such benefits are provided during
such period to our other senior executive officers; provided, however, that if
our welfare plans do not permit such coverage, we will provide each of them the
medical benefits outside of such plans, and (iv) to the extent not theretofore
paid or provided, we will timely pay or provide to them any other amounts or
benefits which they are entitled to receive through the date of termination
under any plan, including accrued vacation to the extent unpaid; or (b)
disability or death, (i) an amount equal to 6 or 2 months annual base
salary.
As used
in Mr. Adams’ and Mr. Smiertka’s agreements, “Cause” means: (i) executive’s
commission of any act of fraud, embezzlement or dishonesty, (ii) executive’s
unauthorized use or disclosure of any confidential information or trade secrets
of the Company, (iii) any intentional misconduct or violation of the Company’s
Code of Business Ethics and Conduct by executive which has a materially adverse
effect upon the Company’s business or reputation, (iv) executive’s continued
failure to perform the major duties, functions and responsibilities of
executive’s position after written notice from the Company identifying the
deficiencies in executive’s performance and a reasonable cure period of not less
than thirty (30) days or (v) a material breach of executive’s fiduciary duties
as an officer of the Company.
We did
not enter into a long term employment agreement with our former CFO and
Treasurer, Mr. Novak, who resigned on February 15, 2008.
Change
in Control
If
Lapolla or any successor terminates any of the current named executive officers’
employment agreements at any time during their respective employment periods
following a Change in Control: each of them: (i) will be entitled to an amount
equal to the salary which would otherwise be payable over the remaining term of
each of their agreements in one lump sum; and (ii) any outstanding awards held
by them or other benefits under any Company plan or program, which have not
vested in accordance with their terms, will become fully vested and exercisable
at the time of such termination. In the case of Mr. Kramer and Mr.
Adams, we have also provided a transaction bonus equal to 6 % or 1½ % which
is activated upon consummation of a change in control.
A “Change
in Control” is defined as an Ownership Change Event or series of related
Ownership Change Events (collectively, a "Transaction") in which the
stockholders of the Company immediately before the Transaction do not retain
immediately after the Transaction, direct or indirect beneficial ownership of
more than 50% of the total combined voting power of the outstanding voting
securities of the Company or, in the case of an Ownership Change Event, the
entity to which the assets of the Company were transferred. An "Ownership Change Event" will
be deemed to have occurred if any of the following occurs with respect to the
Company: (i) the direct or indirect sale or exchange by the stockholders of
the Company of all or substantially all of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a party;
(iii) the sale, exchange, or transfer of all or substantially all of the
assets of the Company (other than a sale, exchange or transfer to one or more
subsidiaries of the Company); or (iv) a liquidation or dissolution of the
Company. The sole exception to Change in Control and Ownership Change Event is
any Change in Control that may result from the death or incapacity of Richard J.
Kurtz wherein his interest is transferred to his heirs only. In such
event, no Change in Control or Ownership Change Event will be deemed to have
occurred.
Acceleration
of Benefits Under Certain Other Plans
Our
Equity Plan also contains provisions for the accelerated vesting of stock
options to participating named executive officers in the event of a change in
control (using the same definition of “Change in Control” described above).
Under our Equity Plan, in the event of a Change in Control, the surviving,
continuing, successor, or purchasing entity or parent thereof, as the case may
be (the "Acquiror"),
may, without the consent of any participant, either assume the Company's rights
and obligations under outstanding options or substitute for outstanding options
substantially equivalent options to purchase the Acquiror's stock. In the event
the Acquiror elects not to assume or substitute for outstanding options in
connection with a Change in Control, the Compensation Committee shall provide
that any unexercised and/or unvested portions of outstanding options shall be
immediately vested and exercisable in full as of the date thirty (30) days prior
to the date of the Change in Control. The vesting and/or exercise of any option
shall be conditioned upon the consummation of the Change in Control. Any Options
which are not assumed by the Acquiror in connection with the Change in Control
nor exercised as of the time of consummation of the Change in Control shall
terminate and cease to be outstanding effective as of the time of consummation
of the Change in Control. In accordance with the requirements of the
SEC, the following table presents our reasonable estimate of the benefits
payable to our named executive officers (1) under our employment agreements
assuming that dismissal for other than cause, disability or death, or change in
control occurred on December 31, 2008; and (2) under our Equity Plan
assuming that a change of control occurred on December 31, 2008. Excluded
from this table are any values relating to the transaction bonuses under the
employment agreements (as described above) as such values are incalculable based
on the highly speculative nature of this particular benefit. Although we believe
we have made reasonable estimates regarding the amounts payable, there can be no
assurance that in the event of a dismissal for other than cause, disability or
death, or change in control, our named executive officers will receive the
amounts reflected below.
|
|
|
|
|
|
|
Value
of
|
|
|
Continuation
of
|
|
|
|
|
|
|
|
|
Salary
|
|
|
Option
Acceleration
|
|
|
Employee
Benefits
|
|
|
Total
Value
|
|
|
Name
|
Trigger
|
|
($)
|
|
|
($)
(4)
|
|
|
($)
(5)
|
|
|
($)
|
|
|
Douglas
J. Kramer
|
Dismissal
Other Than for Cause
|
|
|
700,000 |
(1)
|
|
|
— |
|
|
|
22,237 |
|
|
|
722,237 |
|
|
CEO
and President
|
Disability
or Death
|
|
|
700,000 |
(1)
|
|
|
— |
|
|
|
22,237 |
|
|
|
722,237 |
|
|
|
Change
in Control
|
|
|
700,000 |
(1)
|
|
|
— |
|
|
|
— |
|
|
|
700,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
T. Adams
|
Dismissal
Other Than for Cause
|
|
|
13,229 |
(2)
|
|
|
— |
|
|
|
10,451 |
|
|
|
23,680 |
|
|
CGO,
EVP and Secretary
|
Disability
or Death
|
|
|
13,229 |
(2)
|
|
|
— |
|
|
|
10,451 |
|
|
|
23,680 |
|
|
|
Change
in Control
|
|
|
13,229 |
(2)
|
|
|
— |
|
|
|
— |
|
|
|
13,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul
Smiertka
|
Dismissal
Other Than for Cause
|
|
|
33,333 |
(3)
|
|
|
— |
|
|
|
9,141 |
|
|
|
42,474 |
|
|
CFO
and Treasurer
|
Disability
or Death
|
|
|
33,333 |
(3)
|
|
|
— |
|
|
|
9,141 |
|
|
|
42,474 |
|
|
|
Change
in Control
|
|
|
400,000 |
(3)
|
|
|
— |
|
|
|
— |
|
|
|
400,000 |
|
Notes:
(1)
Represents annual base salary payable over the remaining term of his employment
agreements payable in one lump sum.
(2)
Represents 4 months or the remaining annual base salary payable over the
remaining term of his employment agreements payable in one lump sum, whichever
is lesser. Mr. Adams’ employment agreement expired on January 31,
2009.
(3)
Represents 2 months of his annual base salary payable in equal monthly
installments.
(4)
This column represents the aggregate value of accelerated vesting of unvested
stock options based on the spread between the closing price of our common stock
on December 31, 2008 and the exercise prices of the stock options. Based on the
closing price of our common stock on December 31, 2008 of $ .51 and exercise
prices of all unvested stock options being greater than $.51, there is no spread
value to report in this table at December 31, 2008. Refer to Part
III, Outstanding Equity Awards at Fiscal Year-End table, Option Awards, for more
information on the unvested stock options outstanding.
(5)
Represents the aggregate value of (a) 12 months, or $15,506, for Mr. Kramer, 1
month, or $1,292, for Mr. Adams, and 2 months, or $1,448, for Mr. Smiertka, for
health and dental insurance, payable monthly; and (b) 1 week for Mr. Kramer, or
$6,731, 3 weeks for Mr. Adams, or $10,451, and 2 weeks for Mr. Smiertka, or
$9,141, for unused accrued vacation.
Non-Employee
Director Compensation
Standard
Compensation Arrangements
All
directors are required to attend the Annual Meeting of Stockholders. Each
director who is not an employee is reimbursed for actual expenses incurred in
attending Annual Stockholder, Board and Committee meetings.
Director
Compensation under Equity Incentive Plan
On
January 16, 2007, we amended the Equity Plan to include Directors as eligible
participants and granted certain stock option compensation with vesting and
exercisability restrictions.
The
following table summarizes compensation for non-employee directors for the year
ended December 31, 2008, including costs incurred during 2008 for stock
options granted in 2007 that vested in 2008. Please note that ownership of
vested and exercisable stock options by our non-employee directors is set forth
under “Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters” in this report.
DIRECTOR
COMPENSATION TABLE
|
|
|
Fees
Earned or
|
|
|
|
|
|
|
|
|
All
Other
|
|
|
|
|
|
Name
|
|
Paid
in Cash ($)
|
|
|
Stock
Awards ($)
|
|
|
Option
Awards ($)
|
|
|
Compensation
($)
|
|
|
Total
($)
|
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
(1)
|
|
|
(g)
|
|
|
(h)
|
|
|
Richard
J. Kurtz
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
866,456 |
(2)
|
|
|
866,456 |
|
|
Arthur
J. Gregg
|
|
|
— |
|
|
|
— |
|
|
|
31,704 |
|
|
|
— |
|
|
|
31,704 |
|
|
Jay
C. Nadel
|
|
|
— |
|
|
|
— |
|
|
|
63,417 |
|
|
|
— |
|
|
|
63,417 |
|
|
Augustus
J. Larson
|
|
|
— |
|
|
|
— |
|
|
|
19,024 |
|
|
|
— |
|
|
|
19,024 |
|
|
Howard
L. Brown
|
|
|
— |
|
|
|
— |
|
|
|
71,628 |
|
|
|
20,000 |
(3)
|
|
|
91,628 |
|
Notes:
(1) The
amounts shown are the amounts of compensation cost recognized by us in fiscal
year 2008 related to grants of stock options in fiscal year 2007, as prescribed
under SFAS No. 123R. For a discussion of the Equity Incentive Plan and
valuation assumptions, see Note
17 – Share-Based Payment Arrangements, Equity Incentive Plan, of our
Notes to Financial Statements included in our annual report on Form 10-K for the
year ended December 31, 2008. The information below shows how much of the
overall amount of the compensation cost is attributable to each award for the
year ended December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
Number
of Shares
|
|
|
of
Stock Underlying
|
|
|
|
|
|
|
|
|
|
|
of
Stock Underlying
|
|
of
Stock Underlying
|
|
|
Vested
and
|
|
|
|
|
|
|
Grant
|
|
Exercise
|
|
Vested
Option
|
|
Unvested
Option
|
|
|
Unvested
Option
|
|
|
2008
Fiscal Year
|
|
|
Director
|
Date
|
|
Price ($)
|
|
Awards Granted
|
|
Awards Granted
|
|
|
Awards Granted
|
|
|
Compensation Cost ($)
|
|
|
Richard
J. Kurtz
|
1/16/2007
|
|
|
.60 |
|
200,000
|
(i)
|
|
— |
|
|
|
200,000 |
|
|
|
— |
|
|
Arthur
J. Gregg
|
1/16/2007
|
|
|
.60 |
|
75,000
|
(ii)
|
|
150,000 |
|
|
|
225,000 |
|
|
|
31,704 |
|
|
Jay
C. Nadel
|
1/16/2007
|
|
|
.60 |
|
150,000
|
(iii)
|
|
300,000 |
|
|
|
450,000 |
|
|
|
63,417 |
|
|
Augustus
J. Larson
|
1/16/2007
|
|
|
.60 |
|
45,000
|
(iv)
|
|
90,000 |
|
|
|
135,000 |
|
|
|
19,024 |
|
|
Howard
L. Brown
|
5/22/2007
|
|
|
.60 |
|
224,200
|
(v)
|
|
275,800 |
|
|
|
500,000 |
|
|
|
71,628 |
|
The grant
date fair value of the options to purchase the shares above of our common stock
on January 16, 2007, was approximately $.59 per share, based on a lattice-based
model of option valuation to determine grant date fair value, as prescribed
under SFAS No. 123R. The actual value, if any, a director may realize
will depend on the excess of the stock price over the exercise price on the date
the option is exercised. There is no assurance that the value realized by a
director will be at or near the value estimated by the lattice-based valuation
model. The following assumptions were used in the lattice-based valuation model:
market price of stock, $.60; exercise price of option, $.60; expected stock
volatility, 269.54%; risk-free interest rate, 4.636% (Mr. Kurtz - based on
7-year treasury bond rate), and 4.193% (Lt. Gen. Gregg (Ret), Mr. Nadel, Mr.
Larson, and Mr. Brown - based on 5-year treasury bond rate); and expected life,
5 years (Mr. Kurtz), 3 years (Lt. Gen. Gregg (Ret), Mr. Nadel, and Mr. Larson),
and 2.8 years (Mr. Brown); and dividend yield, 0%. The vesting conditions
and exercise restrictions of these options are as follows:
(i)
For Mr. Kurtz, 200,000 options (of a total 1,000,000 granted) are
eligible to vest at the end of each year of his continuous service as a member
of the Board and Chairman of the Board for the next 5 years and exercisable at
the rate of 50% each year only after all of the options vest. Mr. Kurtz canceled
his remaining unvested 800,000 stock options during 2008, which rendered the
200,000 stock option that vested on January 15, 2008 immediately
exercisable.
(ii)
For Mr. Gregg, 75,000 options (of a total 225,000 granted) are eligible
to vest at the end of each year of his continuous service as a member of the
Board, Chairperson of the Compensation Committee, and a member of certain
Standing Committees for the next 3 years and exercisable at the rate of 33⅓%
each year after vested. On January 15, 2008, 75,000 of Mr. Gregg’s stock options
vested.
(iii)
For Mr. Nadel, 150,000 options (of a total 450,000 granted) are eligible
to vest at the end of each year of his continuous service as a member of the
Board, Chairperson of the Audit Committee, and a member of certain Standing
Committees for the next 3 years and exercisable at the rate of 33⅓% each year
after vested. On January 15, 2008, 150,000 of Mr. Nadel’s stock
options vested.
(iv)
For Mr. Larson, 45,000 options (of a total 135,000 granted) are eligible
to vest at the end of each year of his continuous service as a member of the
Board and certain Standing Committees for the next 3 years and exercisable at
the rate of 33⅓% each year after vested. On January 15, 2008, 45,000
of Mr. Larson’s stock options vested.
(v)
Mr. Brown, who was at the time the stock options were originally granted on
January 16, 2007 an advisor/consultant to the Board, 250,000 options (of a total
500,000 granted) were eligible to vest at the end of each year of service
subject meeting certain performance criteria and exercisable at the rate of 50%
each year only after all 500,000 Options vest. However, upon being elected to
the Board at the Annual Meeting of Stockholders held on May 22, 2007, his
advisor/consultant role automatically terminated and his original vesting and
exercise criteria changed to: 86,300 Options automatically vested but are only
be exercisable after the end of two years, while 137,900 Options are eligible to
vest each on January 15, 2008, 2009, and 2010, respectively, based on his
continuous service as a member of the Board and Chairperson of the Executive
Committee 2.67 years and exercisable at the rate of 33⅓% each year after
vested. On January 15, 2008, 137,500 of Mr. Brown stock options
vested.
(2) The
amount shown consists of: (a) $68,856 in accrued interest relating to short term
loans advanced to the Company during 2008; and (b) $797,600 in accrued dividends
relating to Series D Preferred Stock. See also
Note 12 - Related Party Transactions, Item (e), of our Notes to Financial
Statements included in our annual report on Form 10-K for the year ended
December 31, 2008.
(3) The
amount shown consists of $20,000 in accrued dividends paid relating to Series D
Preferred Stock.
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION
No member
of the Compensation Committee is a current or former officer or employee of us
or any of our former subsidiaries. None of our executive officers served on the
board of directors or compensation committee of any entity that has one or more
executive officers serving on our Board of Directors or on the Compensation
Committee.
COMPENSATION
COMMITTEE REPORT
The
Compensation Committee has reviewed and discussed the Compensation Discussion
and Analysis with management, and based on the review and discussions, the
Compensation Committee recommended to our board of directors that the
Compensation Discussion and Analysis be included in our annual report on Form
10-K for the year ended December 31, 2008.
Lt. Gen.
Arthur J. Gregg, US Army (Ret), Chairperson
Item 12. Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters
Directors
and Executive Officers
The
following table sets forth information as of March 25, 2009, regarding the
beneficial ownership of common stock by (i) each director, (ii) CEO,
CFO, and other executive officers, and (iii) all of our directors, named
executive officers and executive officers as a group. Beneficial
ownership is determined under the rules of the SEC and generally includes voting
or investment power over securities. Except in cases where community property
laws apply or as indicated in the footnotes to the table, we believe that each
stockholder identified in the table possesses sole voting and investment power
over all shares of common stock shown as beneficially owned by the stockholder.
Shares of common stock subject to vesting or options that are currently
exercisable or exercisable within 60 days of March 25, 2009 are considered
outstanding and beneficially owned by the person granted the shares or holding
the options for the purpose of computing the percentage ownership of that person
but are not treated as outstanding for the purpose of computing the percentage
ownership of any other person.
SECURITY
OWNERSHIP OF MANAGEMENT TABLE
|
|
|
Shares
of
|
|
|
Rights
to
|
|
|
Total
Shares
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Acquire
Shares of
|
|
|
of
Common Stock
|
|
|
Percent
|
|
|
Beneficial
Owner
|
|
Owned
|
|
|
Common
Stock (1)
(2)
|
|
|
Beneficially
Owned
|
|
|
of
Class (3)
|
|
|
Directors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard
J. Kurtz, Chairman of the Board (4)
|
|
|
40,664,149 |
|
|
|
200,000 |
|
|
|
40,864,149 |
|
|
|
57.50 |
% |
|
Nine
Duck Pond Road, Alpine, NJ 07620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lt.
Gen. Arthur J. Gregg, US Army (Ret)
|
|
|
62,500 |
|
|
|
74,993 |
|
|
|
137,493 |
|
|
|
0.19 |
% |
|
Jay
C. Nadel
|
|
|
1,084,000 |
|
|
|
149,985 |
|
|
|
1,233,985 |
|
|
|
1.74 |
% |
|
Augustus
J. Larson
|
|
|
— |
|
|
|
44,996 |
|
|
|
44,996 |
|
|
|
0.06 |
% |
|
Howard
L. Brown
|
|
|
— |
|
|
|
137,886 |
|
|
|
137,886 |
|
|
|
0.19 |
% |
|
Douglas
J. Kramer (5)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Michael
T. Adams (6)
|
|
|
1,035,524 |
|
|
|
80,000 |
|
|
|
1,115,524 |
|
|
|
1.57 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul
Smiertka (7)
|
|
|
— |
|
|
|
33,333 |
|
|
|
33,333 |
|
|
|
0.05 |
% |
|
Timothy
J. Novak (8)
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
directors and executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
officers
listed above as a group
|
|
|
42,846,173 |
|
|
|
721,193 |
|
|
|
43,567,366 |
|
|
|
61.31 |
% |
Notes:
(1)
On January 15, 2009, an aggregate of 407,500 stock options vested for
non-employee directors, of which 75,000, 150,000, 45,000, and 137,500 options
were for Mr. Gregg, Mr. Nadel, Mr. Larson, and Mr. Brown, respectively. Refer to
Director Compensation Table above for more information.
(2)
Represents common stock which the person has the right to acquire within 60 days
after March 25, 2009. For current executive officers - Mr. Kramer, Mr. Adams,
and Mr. Smiertka have 2,250,000, 80,000, and 33,333 vested stock options, of
which -0-, 80,000, and 33,333 are exercisable, respectively; and directors – Mr.
Kurtz, Mr. Gregg, Mr. Nadel, Mr. Larson, and Mr. Brown have 200,000, 150,000,
300,000, 90,000, and 361,700 vested stock options, of which 200,000, 74,993,
149,985, 44,996, and 137,886 are exercisable, respectively. Refer to
Item 11 – Executive and Director Compensation for more information.
(3)
Based on 71,062,099 shares of our common stock outstanding at March 25, 2009
(Includes those shares in the “Rights to Acquire Shares of Common Stock” column
in this table and the Security Ownership of Certain Beneficial Owners Table
below).
(4)
In addition to shares held in the individual’s sole name, this amount owned
includes 1,200,000 shares held by the spouse of the named person.
(5)
Mr. Kramer is also our CEO and President.
(6)
Mr. Adams is also our CGO, EVP and Secretary.
(7)
Mr. Smiertka started as CFO and Treasurer on March 3, 2008.
(8)
Mr. Novak started as CFO on June 11, 2007 and resigned on February 15,
2008.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS TABLE
Except as
set forth in the above and below tables, our management knows of no person who
is the beneficial owner of more than 5% of our issued and outstanding common
stock.
|
|
|
Shares
of
|
|
|
Rights
to
|
|
|
Total
Shares of
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Acquire
Shares of
|
|
|
Common
Stock
|
|
|
Percent
|
|
|
Name
and Address of Beneficial Owners (1)
|
|
Owned
|
|
|
Common
Stock (1) (2)
|
|
|
Beneficially
Owned
|
|
|
of
Class (3)
|
|
|
ComVest
Capital LLC
|
|
|
— |
|
|
|
6,396,104 |
|
|
|
6,396,104 |
|
|
|
9.00 |
% |
|
ComVest
Capital Management LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ComVest
Group Holdings, LLC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
S. Falk
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One
North Clematis, Suite 300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
West
Palm Beach, Florida 33401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Based on the information provided pursuant to a joint statement on a
Schedule 13G filed with SEC on February 26, 2007, the name of the
Reporting Person is ComVest Capital LLC, a Delaware limited liability
company ("ComVest"), as adjusted by the Company for principal repayments
on the Convertible Term Note, Conversion Price Adjustments, and subsequent
modifications (See
(2)
below). ComVest is a private investment company. The managing member of
ComVest is ComVest Capital Management LLC, a Delaware limited liability
company ("Management"), the managing member of which is ComVest Group
Holdings, LLC, a Delaware limited liability company ("CGH"). Michael Falk
("Falk") is the Chairman and principal member of CGH. Falk is a citizen of
the United States of America. The group of beneficial owners share the
same principal business address provided in this table.
|
|
(2)
Based on 71,062,099 shares of our common stock outstanding at March 25,
2009 (Includes those shares in the “Rights to Acquire Shares of Common
Stock” column in this table and the Security Ownership of Management Table
above).
|
|
(3)
The Company entered into a Revolving Credit and Term Loan Agreement
on February 21, 2007 with ComVest Capital LLC (“ComVest”), which was
amended on June 12, 2007 (“Loan Agreement”), under which ComVest agreed
to: (i) loan up to $5,000,000 under a revolving credit note (“Revolving
Credit Note”); (ii) execute a $2,000,000 convertible term note
(“Convertible Term Note”); (iii) issue certain warrants (“Warrants”) to
ComVest; and (iv) register the underlying shares issuable under the
Convertible Term Note and the Warrants. On June 30, 2008, the Company and
ComVest amended and restated the Loan Agreement, Revolving Credit Note,
and Convertible Term Note, amended the existing Warrants, and issued a new
warrant (“New Warrant”). The Revolving Credit Note, as amended and
restated, was increased to make up to $9,500,000 available, and bears
interest according to a coverage ratio formula with a coverage ratio
ranging from 1.0 to 2.0 and Prime rate ranging from Prime plus 1% to Prime
plus 0%. The coverage ratio formula is defined as the ratio of (i)
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
minus capital expenditures paid in cash, to (ii) Debt Service (as such
terms are defined in the Loan Agreement), in each case for the fiscal
quarter ending on the date of the subject financial statements and
calculation, and (b) the term “Prime Rate” shall mean the “prime rate” or
“base rate” of interest publicly announced by Citibank, N.A. The term of
the Revolving Credit Note was extended to August 31, 2010. The Convertible
Term Note, as amended and restated, was increased to $3,000,000, bears
interest at 10% per annum, the principal is payable (i) in thirteen (13)
equal monthly installments of $83,333.33 each, due and payable on the
first day of each calendar month commencing July 1, 2009 and continuing
through and including August 1, 2010, and (ii) in a final installment due
and payable on August 31, 2010 in an amount equal to the entire remaining
principal balance, and is convertible optionally by ComVest at any time or
mandatorily by Lapolla subject to satisfaction of certain conditions to
common stock at the rate of $.77 per share. The Convertible Term Note was
personally guaranteed by the Chairman of the Board. The existing Warrants,
as amended, are for the purchase of an aggregate of 1,500,000 shares of
common stock, exercisable at an adjusted price of $.60 per share and
expire on a date extended to June 30, 2013. The New Warrant was issued for
the purchase of 1,000,000 shares of common stock, is exercisable at a
price of $.78 per share, and expires June 30, 2013. See
Certain Relationships and Related Party Transactions for more
information.
|
See also
Part II, Item 5, Securities Authorized for Issuance Under equity Compensation
Plans, in this report for information about our common stock that may be issued
upon the exercise of options, warrants and rights under all of our equity
compensation plans, as of December 31, 2008.
Item 13. Certain Relationships and Related
Transactions, and Director Independence
Transactions
with Related Persons
(a) On
January 15, 2008, an aggregate of 607,500 stock options, with an exercise price
of $.60 per share, vested relating to director compensation, of which 200,000,
75,000, 150,000, 45,000, and 137,500 options were for Mr. Kurtz, Mr. Gregg, Mr.
Nadel, Mr. Larson, and Mr. Brown, respectively. These stock options were
previously granted in 2007 as part of a long term non-employee director program
and contain exercise restrictions. See Part
III, Item 11 – Executive and Director Compensation, Non-Employee Director
Compensation, Director
Compensation Table for more detailed information.
(b) On
February 19, 2008, our principal stockholder and Chairman of the Board, in order
to secure Mr. Nadel’s continued attention and hands on participation required
with his role as a Board member, transferred 500,000 shares of his restricted
common stock of Lapolla to Mr. Nadel. The closing price of the
Company’s common stock as traded on the NASDAQ OTCBB on the date of transfer was
$.70 per share.
(b) On
March 3, 2008, we hired Mr. Smiertka as our CFO and Treasurer pursuant to a long
term employment agreement which expires December 31, 2010. His annual base
salary originally at $160,000 was increased during 2008 to $200,000. In
connection with his employment, Mr. Smiertka was granted a stock option to
purchase 200,000 shares of common stock, which vests upon satisfaction of
certain conditions, is exercisable at $.68 per share, and expires March 2,
2013.
(c) On
April 11, 2008, we received a commitment letter from our principal stockholder
and Chairman of the Board, Mr. Kurtz, wherein he agreed to provide funding of
$2,000,000 to be used as working capital to facilitate our growth and expansion
for the 2008 year. The funding is in the form of a demand loan
bearing 6% interest per annum.
(d) On May
5, 2008, the Company entered into a new Executive Employment Agreement
(“Executive Agreement”) and Stock Option Agreement (“Option Agreement”) with its
CEO and President, Mr. Kramer, both of which are summarized below:
(i) Executive Employment
Agreement. This Executive Agreement commenced on May 5, 2008
and ends December 31, 2010 (“Term”). Mr. Kramer’s base salary is $350,000 per
year. He is entitled, upon consummation of a change in control, to a
transaction bonus of 6% of the transaction value. If Mr. Kramer is terminated by
the Company without cause or Mr. Kramer terminates his employment with good
reason (as defined therein) during the Term, he is entitled to: (a) severance
equal to the lesser of 24 months base salary or base salary for the remainder of
the Term, (b) the product of the value of any equity based awards which he can
show he reasonably would have received had he remained employed by the Company
through the end of that calendar year, or 4 months after the termination date,
whichever is greater, multiplied by a fraction, the numerator of which is the
number of days in the calendar year in which the date of termination occurs
through the termination date and the denominator is 365, but only to the extent
not previously vested, exercised and/or paid, and (c) 12 months of continuous
health and dental benefits. If Mr. Kramer is terminated following a change in
control, he is entitled to: (a) his base salary for the remainder of the Term,
and (b) any outstanding awards, including stock options, which have not vested
will become fully vested and exercisable at the time of such termination. The
Executive Agreement also includes nonsolicitation, noncompetition, and ownership
of developments and other rights provisions. This Executive Agreement supersedes
the previously entered into Executive Employment Agreement entered into between
the Company and Mr. Kramer effective as of July 25, 2005 and ending on January
31, 2009.
(ii) Stock Option
Agreement. This Option Agreement commenced on May 5, 2008
(“Grant Date”) and ends December 31, 2013. Mr. Kramer was granted an additional
2,000,000 stock options under the Company’s Equity Incentive Plan, as amended
(“Plan”), for the purchase of common stock, at an exercise price of $.74 per
share (equal to 100% of closing price of Company’s common stock as traded on the
NASDAQ OTCBB on Grant Date) which vests in 250,000 option increments, with the
first increment vesting on the earlier of June 30, 2008, provided the Company
has net pre-tax income for the fiscal quarter ending on that date, or the last
day of the Company’s first fiscal quarter ending after June 30, 2008 for which
the Company has a quarterly profit, and each of the remaining increments on the
last day of each the next seven fiscal quarters for which the Company has a
quarterly profit, subject in all cases to continued satisfactory employment
through the last day of each such fiscal quarter. The options, upon and from the
date of, vesting are exercisable on a cumulative basis of 8 1/3 % at the end of
12 months, 16 2/3 % at the end of 24 months, 25 % at the end of the 36 months,
and 100 % at the end of the 48 months. Additionally, this Option Agreement
amended existing options previously granted to Mr. Kramer under that certain
Option Agreement dated July 12, 2005, which was amended July 28, 2005 (“Prior
Agreement”) and ends July 11, 2011. Under the Prior Agreement, Mr. Kramer was
granted 2,000,000 options, which vest after meeting certain Sales Goal
Thresholds and Gross Profit Margins, and, when vested, become exercisable
pursuant to a formula (“Existing Option”). At the time of entering into the
Option Agreement, there were 1,520,000 options remaining unvested under the
Existing Option, all of which automatically vested on May 5, 2008. The Existing
Option, now and from the date of, vesting is exercisable on a cumulative basis
of 8 1/3 % at the end of 12 months, 16 2/3 % at the end of 24 months, 25 % at
the end of the 36 months, and 100 % at the end of the 48 months. The
Existing Option’s ending date was extended to December 31, 2012.
(e) On
June 30, 2008, we entered into an Amended and Restated Revolving Credit and Term
Loan Agreement (“Loan Agreement”) with ComVest Capital, LLC (“New Credit
Facility”) which replaced the prior credit facility. The New Credit Facility
provides up to $9,500,000 under an amended and restated revolving credit note
(“Revolver”) and $3,000,000 under an amended and restated convertible term note
(“Convertible Note”) for a total of $12,500,000. The prior credit
facility entered into between LaPolla and ComVest on February 21, 2007, as
amended on June 12, 2007, provided for $5,000,000 under a revolving credit note
and $2,000,000 under a convertible term note (“Prior Credit Facility”). In
connection with the establishment of the New Credit Facility, the Company agreed
to reprice certain warrants originally issued as part of the Prior Credit
Facility and issue a new warrant contemporaneously with entering into the New
Credit Facility. The Revolver bears interest according to a coverage ratio
formula with a coverage ratio ranging from 1.0 to 2.0 and Prime rate ranging
from Prime plus 1% to Prime plus 0%. The coverage ration formula is defined as
the ratio of (i) Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA) minus capital expenditures paid in cash, to (ii) Debt Service (as such
terms are defined in the Loan Agreement), in each case for the fiscal quarter
ending on the date of the subject financial statements and calculation, and (b)
the term “Prime Rate” shall mean the “prime rate” or “base rate” of interest
publicly announced by Citibank, N.A. The Convertible Note: (a) bears interest at
10% per annum, (b) the principal is payable (i) in thirteen (13) equal monthly
installments of $83,333.33 each, due and payable on the first day of each
calendar month commencing July 1, 2009 and continuing through and including
August 1, 2010, and (ii) in a final installment due and payable on August 31,
2010 in an amount equal to the entire remaining principal balance, (c) and is
convertible optionally by ComVest at any time or mandatorily by LaPolla subject
to satisfaction of certain conditions to common stock at the rate of $.77 per
share. The Convertible Note is personally guaranteed by the Chairman
of the Board. The Company issued to ComVest a warrant to acquire up
to 1,000,000 shares of LaPolla's common stock at an exercise price of $.78 per
share (“New Warrant”) and also agreed to modify the exercise price with respect
to all of the previously issued and remaining 1,500,000 warrants (“Prior
Warrants”). The Prior Warrants were previously priced at $.74 for 750,000 and
$.61 for 750,000. The Prior Warrants were repriced at
$.60.
(f) On
June 30, 2008, contemporaneously with entering into the New Credit Facility
described above, the Chairman of the Board and principal stockholder of Lapolla,
Mr. Kurtz, in a private transaction in reliance on Section 4(2) of the
Securities Exchange Act of 1933, as amended, converted $2,000,000 of the total
indebtedness owed to him by Lapolla into shares of restricted common stock, par
value $.01 of Lapolla, at the rate of $.78 per share, yielding a total issuance
of 2,564,103 shares. The price per share reflects the ten (10) day volume
weighted average price (VWAP) of the Company’s common stock as traded on the
NASDAQ OTC Bulletin Board prior to June 30, 2008.
(g) During
2008, the Company issued an aggregate of 250,000 shares of common stock pursuant
to cashless warrant exercises by ComVest in exchange for cancellation of an
aggregate $135,000 of indebtedness, or $.54 per share, of which $67,500 was
recorded as principal repayments to the Revolver, $33,766 as principal
repayments to the Convertible Note, and $33,734 as accrued interest on the
Convertible Note.
(h) During
2008, the Company issued 5,000 shares of common stock pursuant to a cashless
partial conversion of the Convertible Note by ComVest in exchange for
cancellation of $3,850 of indebtedness, or $.77 per share, which was recorded as
a principal repayment to the Convertible Note.
(i) On
January 15, 2009, an aggregate of 407,500 stock options, with an exercise price
of $.60 per share, vested relating to director compensation, of which 75,000,
150,000, 45,000, and 137,500 options were for Mr. Gregg, Mr. Nadel, Mr. Larson,
and Mr. Brown, respectively. These stock options were previously granted in 2007
as part of a long term non-employee director program and contain exercise
restrictions. Refer to
Item (a) above.
(j) On
February 18, 2009, our principal stockholder and Chairman of the Board, in order
to secure Mr. Nadel’s continued attention and hands on participation required
with his role as a Board member, transferred 584,000 shares of his restricted
common stock of Lapolla to Mr. Nadel. The closing price of the
Company’s common stock as traded on the NASDAQ OTCBB on the date of transfer was
$.34 per share.
(k) On
April 9, 2009, we received a commitment letter from our principal stockholder
and Chairman of the Board, Mr. Kurtz, wherein he agreed to provide funding of up
to $2,000,000 to be used as working capital to facilitate our growth and
expansion for the 2009 year. The funding is in the form of a demand
loan bearing 6% interest per annum.
Review,
Approval or Ratification of Transactions with Related
Persons.
The
Company does not maintain a formal policy or procedure for review, approval or
ratification of transactions with related persons. The Company does regularly
communicate through Board and Standing Committee meetings and Unanimous
Resolutions, wherein transactions with related persons are reviewed and approved
or ratified. In addition, transactions involving our directors are disclosed and
reviewed by our Corporate Governance Committee in its assessment of our
directors’ independence. To the extent such transactions are related to ongoing
business relationships, the transactions are disclosed and, as applicable,
reviewed annually. The Board of Directors intends to approve only those related
party transactions that are in the best interests of our
stockholders.
Lapolla
is a “controlled company” because more than 50% of the voting power of Lapolla
is held by Mr. Kurtz, our Chairman of the Board. Although we are not required to
have a majority of independent directors due to being a controlled company, we
are also not required due to not being listed on a national stock exchange or an
inter-dealer quotation system with such requirements. However, the members of
our Audit Committee are required to meet applicable SEC independence standards.
Lapolla uses its own definition for determining whether its directors and
members of specific committees of the board of directors, are independent. In
short, in order to be considered to be independent, a member of the board of
directors or any board committee may not, other than in his or her capacity as a
member of the board of directors or any board committee: (i) accept any
consulting, advisory, or other compensatory fee from the Company; or (ii) be an
affiliated person of the Company or any subsidiary thereof. Independent
directors are not officers of the Company and are in view of the Company’s Board
of Directors, free of any relationship that would interfere with the exercise of
independent judgment. Our board has reviewed the relationships between us,
including our affiliates, and each board member (and each such director’s
immediate family members). Based on its review, the Board has affirmatively
determined that Mr. Kurtz, Mr. Brown, Mr. Kramer, and Mr. Adams are not, and Lt.
Gen. Gregg (Ret), Mr. Nadel, and Mr. Larson are independent directors at this
time. Mr. Kurtz was determined to not be independent based on his majority
stockholder and Chairman of the Board status. Mr. Brown was not independent
based on his initially being retained as an advisor to the Board of Directors on
January 16, 2007 even though his advisory role terminated upon his becoming
elected to the Board of Directors on May 22, 2007 and the stock option
compensation he received was de minimis. Mr. Kramer and Mr. Adams are both not
independent based on being executive officers of Lapolla. There was no
information considered by our Board of Directors, other than what has been
disclosed in this amended report, in determining that Lt. Gen. Gregg (Ret), Mr.
Nadel, and Mr. Larson were “independent” within the Company’s independence
standards.
Item 14. Principal Accountant Fees and
Services
Independent
Registered Public Accounting Firm Fees
Hein
& Associates, LLP (“Hein”), our independent registered public accounting
firm, audited our financial statements for the year ended December 31, 2008 and
2007. The Audit Committee of the Board of Directors selects the independent
registered public accounting firm. Aggregate fees billed to us by
independent registered public accounting firms for the fiscal years ended
December 31,
|
Fee
Category
|
|
2008
|
|
|
2007
|
|
|
Audit
Fees
|
|
$ |
191,128 |
(1)
|
|
$ |
172,920 |
(2)
|
|
Audit-Related
Fees
|
|
|
63,146 |
(3)
|
|
|
29,626 |
(4)
|
|
Tax
Fees
|
|
|
— |
|
|
|
— |
|
|
All
Other Fees
|
|
|
— |
|
|
|
— |
|
|
Total
|
|
$ |
254,274 |
|
|
$ |
202,546 |
|
|
Notes:
|
|
(1)
|
For
2008, represents the aggregate fees billed to us by Hein for professional
services rendered for the audit of our annual financial statements, and
for the reviews of our financial statements included in our Form 10-Q
filings for the second, third and fourth fiscal
quarters.
|
|
(2)
|
For
2007, represents the aggregate fees billed to us by Hein for professional
services rendered for the audit of our annual financial statements, for
the reviews of our financial statements included in our Form 10-Q
filings for the second, third and fourth fiscal quarters, and consent with
respect to a registration statement; and represents the aggregate fees
billed to us by Baum & Company, P.A. (“Baum”) for professional
services rendered for the review of our financial statements included in
our Form 10-Q filing for the first fiscal quarter and consent with respect
to a registration statement.
|
|
(3)
|
For
2008, represents the aggregate fees billed to us by Hein for the start of
the audit of Air-Tight Marketing and Distribution, Inc. for the year ended
December 31, 2007 and review of the interim period from January 1, 2008
through June 30, 2008, which audit was subsequently deemed inapplicable
based on the purchase price reduction recorded by Lapolla at December 31,
2008. These services include accounting consultations that are not
required by statute.
|
|
(4)
|
For
2007, represents the aggregate fees billed to us by Baum for assurance and
related services that are reasonably related to the performance of the
audit and review of our financial statements that are not already reported
in Audit Fees. These services include accounting consultations that are
not required by
statute.
|
Policy
on Audit Committee Pre-Approval
As part
of its required duties, the Audit Committee pre-approves audit and non-audit
services performed by our independent registered public accounting firm to
assure that the provision of such services does not impair the independent
registered public accounting firm’s independence. The policy generally provides
that services in the defined categories of audit services, audit-related
services, tax services and all other services, are deemed pre-approved up to
specified amounts, and sets requirements for specific case-by-case pre-approval
of discrete projects that are not otherwise pre-approved or for services over
the pre-approved amounts. Pre-approval may be given as part of the Audit
Committee’s approval of the scope of the engagement of the independent
registered public accounting firm or on an individual basis. The pre-approval of
services may be delegated to one or more of the Audit Committee’s members, but
the decision must be presented to the full Audit Committee at its next scheduled
meeting. The policy prohibits retention of the independent registered public
accounting firm to perform the prohibited non-audit functions defined in
Section 201 of the Sarbanes-Oxley Act of 2002 or the rules of the SEC, and
also considers whether proposed services are compatible with the independence of
the independent registered public accounting firm. All services provided by our
independent registered public accounting firm in 2008 were pre-approved in
accordance with the Audit Committee’s pre-approval requirements.
PART
IV
Item 15. Exhibits and Financial Statement
Schedules
(a) 1. Financial Statements and
Supplementary Data:
The
following financial statements are included herein under Item 8 of
Part II of this report, “Financial Statements and Supplementary
Data”:
|
Index
to Financial Statements
|
|
(i)
|
|
Report
of Independent Registered Public Accounting Firm
|
|
F-1
|
|
Balance
Sheets at December 31, 2008 and December 31, 2007
|
|
F-2
|
|
Statements
of Operations for Each of the Years in the Two Year Period Ended December
31, 2008
|
|
F-3
|
|
Statements
of Stockholders’ Equity for Each of the Years in the Two Year Period Ended
December 31, 2008
|
|
F-4
|
|
Statements
of Cash Flows for Each of the Years in the Two Year Period Ended December
31, 2008
|
|
F-5
|
|
Notes
to Financial Statements
|
|
F-6
|
2. Financial Statement
Schedules:
The
following additional information should be read with the financial statements
under Item 15(a)1 of Part IV of this report:
|
Schedule
for the Years Ended December 31, 2008 and 2007:
|
|
|
|
|
|
|
|
Schedule Number
|
|
|
|
Valuation
and Qualifying Accounts
|
|
25
|
All other
schedules have been omitted for the reason that the required information is
presented in the financial statements or notes thereto, the amounts involved are
not significant or the schedules are not applicable.
3. Exhibits:
See Index
of Exhibits below.
(b) Item 601
Exhibits:
Reference
is hereby made to the Index of Exhibits under Item 15(a)3 of Part IV of
this report.
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.
|
Date:
|
April 15,
2009
|
LAPOLLA
INDUSTRIES, INC.
|
|
|
|
|
|
|
|
|
By:
|
/s/ Douglas
J. Kramer, CEO
|
|
|
|
|
Douglas
J. Kramer
|
|
|
|
|
CEO
and President
|
|
|
|
|
|
|
Date:
|
April 15,
2009
|
LAPOLLA
INDUSTRIES, INC.
|
|
|
|
|
|
|
|
|
By:
|
/s/ Paul
Smiertka, CFO
|
|
|
|
|
Paul
Smiertka
|
|
|
|
|
CFO
and Treasurer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the date indicated.
|
Date:
|
April 15,
2009
|
LAPOLLA
INDUSTRIES, INC.
|
|
|
|
|
|
|
|
|
By:
|
/s/ Richard
J. Kurtz, Director
|
|
|
|
|
Richard
J. Kurtz
|
|
|
|
|
Chairman
of the Board
|
|
|
|
|
|
|
Date:
|
April 15,
2009
|
LAPOLLA
INDUSTRIES, INC.
|
|
|
|
|
|
|
|
|
By:
|
/s/ Arthur
J. Gregg, Director
|
|
|
|
|
Arthur
J. Gregg
|
|
|
|
|
Director
|
|
|
|
|
|
|
Date:
|
April 15,
2009
|
LAPOLLA
INDUSTRIES, INC.
|
|
|
|
|
|
|
|
|
By:
|
/s/ Jay
C. Nadel, Director
|
|
|
|
|
Jay
C. Nadel
|
|
|
|
|
Director
|
|
|
|
|
|
|
Date:
|
April 15,
2009
|
LAPOLLA
INDUSTRIES, INC.
|
|
|
|
|
|
|
|
|
By:
|
/s/ Augustus
J. Larson, Director
|
|
|
|
|
Augustus
J. Larson
|
|
|
|
|
Director
|
|
|
|
|
|
|
Date:
|
April 15,
2009
|
LAPOLLA
INDUSTRIES, INC.
|
|
|
|
|
|
|
|
|
By:
|
/s/ Howard
L. Brown, Director
|
|
|
|
|
Howard
L. Brown
|
|
|
|
|
Director
|
|
|
|
|
|
|
Date:
|
April 15,
2009
|
LAPOLLA
INDUSTRIES, INC.
|
|
|
|
|
|
|
|
|
By:
|
/s/ Douglas
J. Kramer, Director
|
|
|
|
|
Douglas
J. Kramer
|
|
|
|
|
Director
|
|
|
|
|
|
|
Date:
|
April 15,
2009
|
LAPOLLA
INDUSTRIES, INC.
|
|
|
|
|
|
|
|
|
By:
|
/s/ Michael
T. Adams, Director
|
|
|
|
|
Michael
T. Adams
|
|
|
|
|
Director,
CGO, EVP, and Secretary
|
LAPOLLA
INDUSTRIES, INC.
SCHEDULE II–VALUATION AND QUALIFYING
ACCOUNTS
For the
Years Ended December 31, 2008 and 2007
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
Balance
at
|
|
|
Charged
to
|
|
|
Charged
|
|
|
|
|
|
Balance
|
|
|
|
|
Beginning
|
|
|
Costs
and
|
|
|
to
Other
|
|
|
|
|
|
at
End of
|
|
|
Classification
|
|
of
Period
|
|
|
Expenses
|
|
|
Accounts
|
|
|
Deductions
|
|
|
Period
|
|
|
Year
Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for Doubtful Accounts (1)
|
|
$ |
178,440 |
|
|
$ |
897,360 |
|
|
$ |
— |
|
|
$ |
(565,349 |
) |
|
$ |
492,451 |
|
|
Deferred
Tax Assets Valuation Allowance (2)
|
|
|
12,142,606 |
|
|
|
— |
|
|
|
1,136,257 |
|
|
|
— |
|
|
|
13,278,863 |
|
|
Year
Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for Doubtful Accounts (1)
|
|
$ |
224,306 |
|
|
$ |
199,916 |
|
|
$ |
— |
|
|
$ |
(245,782 |
) |
|
$ |
178,440 |
|
|
Deferred
Tax Assets Valuation Allowance (2)
|
|
|
10,885,429 |
|
|
|
— |
|
|
|
1,257,177 |
|
|
|
— |
|
|
|
12,142,606 |
|
Notes:
(1)
Write-offs of uncollectible accounts are included in Deductions
column.
(2)
Includes financial data for current operations only.
|
Exhibit
No.
|
|
Description
|
|
3.1
|
|
Restated
Certificate of Incorporation dated June 28, 1994 as filed with the State
of Delaware on June 16, 1994 (incorporated by reference to Exhibit 3.1 to
Form 10-KSB dated December 31, 1998, filed April 16,
1999).
|
|
3.2
|
|
Certificate
of Amendment of Restated Certificate of Incorporation dated February 12,
1999 as filed with State of Delaware February 12, 1999 (incorporated by
reference to Exhibit 3.2 to Form 10-KSB dated December 31, 1998, filed
April 16, 1999).
|
|
3.3
|
|
Certificate
of Amendment of Restated Certificate of Incorporation dated June 21, 2000
as filed with the State of Delaware on June 26, 2000 (incorporated by
reference to Exhibit 3(i) to Form 10-KSB dated December 31, 2000, filed
March 30, 2001).
|
|
3.4
|
|
Certificate
of Amendment of Restated Certificate of Incorporation dated May 28, 2002
as filed with the State of Delaware on May 28, 2002 (incorporated by
reference to Exhibit 3.1 to Form 10-Q dated June 30, 2002, filed August
19, 2002).
|
|
3.5
|
|
Certificate
of Amendment of Restated Certificate of Incorporation dated December 30,
2004 as filed with the State of Delaware on December 30, 2004
(incorporated by reference to Exhibit 3.5 to Form 10-K dated December 31,
2004, filed March 30, 2005).
|
|
3.6
|
|
Certificate
of Amendment of Restated Certificate of Incorporation dated November 8,
2005 as filed with the State of Delaware on November 8, 2005 (incorporated
by reference to Exhibit 3.6 to Form 10-K dated December 31, 2005, filed
March 31, 2006).
|
|
3.7
|
|
Certificate
of Amendment of Restated Certificate of Incorporation dated May 22, 2007
as filed with the State of Delaware on June 18, 2007 (incorporated by
reference to Exhibit 4.1 to Form 10-Q dated June 30, 2007, filed August
20, 2007).
|
|
3.8
|
|
Certificate
of Amendment of Restated Certificate of Incorporation dated June 10, 2008
as filed with the State of Delaware on June 10, 2008 (incorporated by
reference to Exhibit 4.1 to Form 10-Q dated June 30, 2008, filed August
19, 2008).
|
|
3.9
|
|
Proforma
Restated Certificate of Incorporation, as amended, and currently in effect
(incorporated by reference to Exhibit 4.2 to Form 10-Q dated June 30,
2008, filed August 19, 2008).
|
|
3.10
|
|
Bylaws,
as amended, and currently in effect, of the Company (incorporated by
reference to Exhibit 3.11 to Form 10-KSB dated December 31, 2005, filed
March 31, 2006).
|
|
4.1
|
|
Certificate
of Designation of Preferences of Series B Convertible Preferred Stock
dated September 30, 2001 filed with the State of Delaware November 2, 2001
(incorporated by reference to Exhibit 3.1 to Form 8-K dated September 30,
2001, filed October 25, 2001).
|
|
4.2
|
|
Amendment
to Certificate of Designation of Preferences of Series B Convertible
Preferred Stock dated December 31, 2001 (incorporated by reference to
Exhibit 3.1.1 to Form 8-K dated December 31, 2001, filed January 31,
2002).
|
|
4.3
|
|
Certificate
of Designation of Preferences of Series C Convertible Preferred Stock
dated January 8, 2002 filed with the State of Delaware on February 28,
2002 (incorporated by reference to Exhibit 3.2 to Form 8-K dated January
8, 2002, filed January 31, 2002).
|
|
4.4
|
|
Amendment
to Certificate of Designation of Preferences of Series C Convertible
Preferred Stock dated September 27, 2006 filed with the State of Delaware
on November 1, 2006 (incorporated by reference to Exhibit 4.1 to Form 10-Q
dated September 30, 2006, filed November 1, 2006).
|
|
4.5
|
|
Certificate
of Designation of Preferences of Series D Preferred Stock dated September
28, 2006 as filed with the State of Delaware on November 1, 2006
(incorporated by reference to Exhibit 4.2 to Form 10-Q dated September 30,
2006, filed November 1, 2006).
|
|
10.1
|
|
Securities
Purchase Agreement dated December 31, 2001 between the Company and Richard
J. Kurtz (incorporated by reference to Exhibit 10.2 to Form 8-K dated
December 31, 2001, filed January 31, 2002).
|
|
10.2
|
|
Securities
Purchase Agreement dated September 29, 2006 between the Company and
Richard J. Kurtz (incorporated by reference to Exhibit 10.1 to Form 10-Q
dated September 30, 2006, filed January 31, 2002).
|
|
10.3
|
|
Securities
Purchase Agreement dated December 31, 2006 between the Company and Richard
J. Kurtz (incorporated by reference to Exhibit 10.7 to Form 10-K dated
December 31, 2006, filed March 30, 2007).
|
|
10.4
|
|
Equity
Incentive Plan (incorporated by reference to Exhibit 10.1 to Form 8-K
dated July 12, 2005, filed July 18, 2005).
|
|
10.5
|
|
Amendment
to Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to
Form 8-K dated July 12, 2005, filed July 18, 2005).
|
|
10.6
|
|
Second
Amendment to Equity Incentive Plan dated May 5, 2008 (incorporated by
reference to Appendix B to DEF 14C dated and filed on May 19,
2008).
|
|
10.7
|
|
Equity
Incentive Plan, as amended, and currently in effect (incorporated by
reference to Exhibit 10.2 to Form 10-Q dated June 30, 2008, filed August
20, 2008).
|
|
10.8
|
|
Director
Compensation Plan (incorporated by reference to Exhibit 10.9 to Form 10-K
for December 31, 2004, filed March 30, 2005).
|
|
10.9
|
|
Amendment
to Director Compensation Plan (incorporated by reference Exhibit 10.10 to
Form 8-K dated July 25, 2005, filed July 29, 2005).
|
|
10.10
|
|
Director
Compensation Plan, as amended (incorporated by reference Exhibit 10.11 to
Form 8-K dated July 25, 2005, filed July 29, 2005).
|
|
10.11
|
|
Option
Agreement dated July 12, 2005 between Douglas J. Kramer and the Company
(incorporated by reference to Exhibit 10.3 to Form 8-K dated July 12,
2005, filed July 18, 2005).
|
|
10.12
|
|
Amendment
to Option Agreement dated July 28, 2005 between Douglas J. Kramer and the
Company (incorporated by reference to Exhibit 10.2 to Form 8-K dated July
25, 2005, filed July 29, 2005).
|
|
10.13
|
|
Option
Agreement dated May 5, 2008 between Douglas J. Kramer and the Company
(incorporated by reference to Appendix C to DEF 14C dated and filed on May
19, 2008).
|
|
10.14
|
|
Option
Agreement dated July 12, 2005 between Michael T. Adams and the Company
(incorporated by reference to Exhibit 10.2 to Form 8-K dated July 12,
2005, filed July 18, 2005).
|
|
10.15
|
|
Amendment
to Option Agreement dated July 28, 2005 between Michael T. Adams and the
Company (incorporated by reference to Exhibit 10.1 to Form 8-K dated July
25, 2005, filed July 29, 2005).
|
|
10.16
|
|
Option
Agreement dated March 3 2008 between Paul Smiertka and the Company
(incorporated by reference to Exhibit 10.2 to Form 8-K dated March 3,
2008, filed May 4, 2008).
|
|
10.17
|
|
Executive
Employment Agreement dated July 25, 2005 between Douglas J. Kramer and the
Company (incorporated by to reference Exhibit 10.8 to Form 8-K dated July
25, 2005, filed July 29, 2005).
|
|
10.18
|
|
Executive
Employment Agreement dated May 5, 2008 between Douglas J. Kramer and the
Company (incorporated by to reference Exhibit 10.8 to Form 8-K dated July
25, 2005, filed July 29, 2005).
|
|
10.19
|
|
Executive
Employment Agreement dated July 25, 2005 between Michael T. Adams and the
Company (incorporated by to reference Exhibit 10.7 to Form 8-K dated July
25, 2005, filed July 29, 2005).
|
|
10.20
|
|
Executive
Employment Agreement dated March 3, 2008 between Paul Smiertka and the
Company (incorporated by to reference Exhibit 10.1 to Form 8-K dated March
3, 2008, filed May 4, 2008).
|
|
10.21
|
|
Revolving
Credit and Term Loan Agreement between Lapolla and ComVest dated February
21, 2007 (incorporated by reference to Exhibit 10.1 to Form 8-K dated and
filed February 23, 2007, filed February 2, 2007).
|
|
10.22
|
|
Convertible
Term Note between Lapolla and ComVest dated February 21, 2007
(incorporated by reference to Exhibit 10.2 to Form 8-K dated and filed
February 23, 2007, filed February 2, 2007).
|
|
10.23
|
|
Revolving
Credit Note between Lapolla and ComVest dated February 21, 2007
(incorporated by reference to Exhibit 10.3 to Form 8-K dated and filed
February 23, 2007, filed February 2,
2007).
|
INDEX
OF EXHIBITS
(continued)
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Exhibit
No.
|
|
Description
|
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10.24
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Warrant
No. CV-1 To Purchase Shares of Common Stock to ComVest dated February 21,
2007 (incorporated by reference to Exhibit 10.4 to Form 8-K dated and
filed February 23, 2007, filed February 2, 2007).
|
|
10.25
|
|
Warrant
No. CV-2 To Purchase Shares of Common Stock to ComVest dated February 21,
2007 (incorporated by reference to Exhibit 10.5 to Form 8-K dated and
filed February 23, 2007, filed February 2, 2007).
|
|
10.26
|
|
Warrant
No. CV-3 To Purchase Shares of Common Stock to ComVest dated February 21,
2007 (incorporated by reference to Exhibit 10.6 to Form 8-K dated and
filed February 23, 2007, filed February 2, 2007).
|
|
10.27
|
|
Collateral
Agreement between Lapolla and ComVest dated February 21, 2007
(incorporated by reference to Exhibit 99.1 to Form 8-K dated and filed
February 23, 2007, filed February 2, 2007).
|
|
10.28
|
|
Registration
Rights Agreement between Lapolla and ComVest dated February 21, 2007
(incorporated by reference to Exhibit 99.2 to Form 8-K dated and filed
February 23, 2007, filed February 2, 2007).
|
|
10.29
|
|
Amendment
No. 1 to Revolving Credit and Term Loan Agreement between Lapolla and
ComVest dated June 12, 2007 (incorporated by reference to Exhibit 10.7 to
Form 8-K dated June 12, 2007, filed June 14, 2007).
|
|
10.30
|
|
Amended
and Restated Convertible Term Note between Lapolla and ComVest dated June
12, 2007 (incorporated by reference to Exhibit 10.8 to Form 8-K dated June
12, 2007, filed June 14, 2007).
|
|
10.31
|
|
Amended
and Restated Revolving Credit Note between Lapolla and ComVest dated June
12, 2007 (incorporated by reference to Exhibit 10.9 to Form 8-K dated June
12, 2007, filed June 14, 2007).
|
|
10.32
|
|
Warrant
No. CV-4 To Purchase Shares of Common Stock to ComVest dated June 12, 2007
(incorporated by reference to Exhibit 10.10 to Form 8-K dated June 12,
2007, filed June 14, 2007).
|
|
10.33
|
|
Extension
Under Registration Rights Agreement dated June 12, 2007 (incorporated by
reference to Exhibit 99.3 to Form 8-K dated June 12, 2007, filed June 14,
2007).
|
|
10.34
|
|
Amended
and Restated Revolving Credit and Term Loan Agreement between Lapolla and
ComVest dated June 30, 2008 (incorporated by reference to Exhibit 10.1 to
Form 8-K dated June 30, 2008, filed July 7, 2008).
|
|
10.35
|
|
Amended
and Restated Convertible Term Note between Lapolla and ComVest dated June
30, 2008 (incorporated by reference to Exhibit 10.2 to Form 8-K dated June
30, 2008, filed July 7, 2008).
|
|
10.36
|
|
Amended
and Restated Revolving Credit Note between Lapolla and ComVest dated June
30, 2008 (incorporated by reference to Exhibit 10.4 to Form 8-K dated June
30, 2008, filed July 7, 2008).
|
|
10.37
|
|
Guaranty
between Richard J. Kurtz and ComVest dated June 30, 2008 (incorporated by
reference to Exhibit 10.3 to Form 8-K dated June 30, 2008, filed July 7,
2008).
|
|
10.38
|
|
Debt-to-Equity
Conversion Confirmation between Richard J. Kurtz and the Company dated
June 30, 2008 (incorporated by reference to Exhibit 10.5 to Form 8-K dated
June 30, 2008, filed July 7, 2008).
|
|
10.39
|
|
Warrant
No. CV-5 To Purchase Shares of Common Stock to ComVest dated June 30, 2008
(incorporated by reference to Exhibit 10.9 to Form 8-K dated June 30,
2008, filed July 7, 2008).
|
|
10.40
|
|
Warrants
Amendment Letter for Warrants CV-1 through CV-3 To Purchase Shares of
Common Stock between ComVest and the Company dated June 30, 2008
(incorporated by reference to Exhibit 10.10 to Form 8-K dated June 30,
2008, filed July 7, 2008).
|
|
10.41
|
|
Amended
and Restated Asset Purchase Agreement dated July 1, 2008 between the
Company, Air-Tight Marketing and Distribution, Inc., and Larry P. Medford
and Ted J. Medford (incorporated by reference to Exhibit 10.1 to Form 8-K
dated July 1, 2008, filed July 8, 2008).
|
|
10.42
|
|
Employment
Agreement dated July 1, 2008 between Ted J. Medford and the Company
(incorporated by reference to Exhibit 10.2 to Form 8-K dated July 1, 2008,
filed July 8, 2008).
|
|
10.43
|
|
Option
Agreement dated July 1, 2008 between Ted J. Medford and the Company
(incorporated by reference to Exhibit 10.3 to Form 8-K dated July 1, 2008,
filed July 8, 2008).
|
|
14.1
|
|
Code
of Business Ethics and Conduct, as amended, and currently in effect
(incorporated by reference to Exhibit 14.1 to Form 10-K dated December 31,
2005 filed March 31, 2006).
|
|
|
|
Consent
of Hein & Associates LLP for incorporation by reference in
Registration Statement (Form S-3 No. 333-143922) of April 15, 2009
report.
|
|
|
|
Certification
of Principal Executive Officer Required Under Rule 13a-14(a) of the
Securities Exchange Act of 1934, as amended.
|
|
|
|
Certification
of Principal Financial Officer Required Under Rule 13a-14(a) of the
Securities Exchange Act of 1934, as amended.
|
|
|
|
Certification
of Principal Executive Officer and Principal Financial Officer Required
Under Rule 13a-14(b) of the Securities Exchange Act of 1934, as
amended, and 18 U.S.C. Section
1350.
|
2008
Annual Audit
Lapolla
Industries, Inc.
Intercontinental
Business Park
15402
Vantage Parkway East, Suite 322
Houston,
Texas 77032
www.lapollaindustries.com
LAPOLLA
INDUSTRIES, INC.
INDEX
TO FINANCIAL STATEMENTS
|
|
Page
|
|
|
|
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
|
F-1
|
|
|
|
|
BALANCE SHEETS
|
|
|
|
|
|
Years
Ended December 31, 2008 and 2007
|
F-2
|
|
|
|
|
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
Years
Ended December 31, 2008 and 2007
|
F-3
|
|
|
|
|
STATEMENTS OF STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
Years
Ended December 31, 2008 and 2007
|
F-4
|
|
|
|
|
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
Years
Ended December 31, 2008 and 2007
|
F-5
|
|
|
|
|
NOTES TO FINANCIAL
STATEMENTS
|
F-6
|
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors
Lapolla
Industries, Inc.
Houston,
Texas
We have
audited the accompanying balance sheets of Lapolla Industries, Inc. as of
December 31, 2008 and 2007 and the related statements of operations, change in
stockholders’ equity and cash flows for the years ended December 31, 2008 and
2007. We have also audited the Schedule II listed in the accompanying
Item 15(a)2. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Lapolla Industries, Inc. as of
December 31, 2008 and 2007, and the results of their operations and their cash
flows for the years ended December 31, 2008 and 2007 in conformity with
accounting principles generally accepted in the United States of
America.
Also, in
our opinion, the Schedule II presents fairly, in all material respects, the
information set forth therein in relation to the financial statements taken as a
whole.
We were
not engaged to examine management’s assertion about the effectiveness of Lapolla
Industries, Inc.’s internal control over financial reporting as of December 31,
2008 included in Item 9A(T) of Part II in the Company’s Annual Report on Form
10-K for the Year Ended December 31, 2008 and, accordingly, we do not express an
opinion thereon.
HEIN
& ASSOCIATES LLP
/s/ Hein
& Associates LLP
Houston,
Texas
April 15,
2009
LAPOLLA
INDUSTRIES, INC.
BALANCE
SHEETS
|
|
|
As
of December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
Cash
|
|
$ |
42,845 |
|
|
$ |
339,855 |
|
|
Trade
Receivables
|
|
|
8,502,679 |
|
|
|
3,350,154 |
|
|
Inventories
|
|
|
4,764,937 |
|
|
|
2,698,097 |
|
|
Prepaid
Expenses and Other Current Assets
|
|
|
1,425,551 |
|
|
|
532,233 |
|
|
Total
Current Assets
|
|
|
14,736,012 |
|
|
|
6,920,339 |
|
|
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment
|
|
|
2,623,388 |
|
|
|
2,626,068 |
|
|
|
|
|
|
|
|
|
|
|
|
Other
Assets:
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
3,741,167 |
|
|
|
1,951,000 |
|
|
Other
Intangible Assets
|
|
|
1,695,907 |
|
|
|
142,318 |
|
|
Deposits
and Other Non-Current Assets
|
|
|
133,252 |
|
|
|
226,320 |
|
|
Total
Other Assets
|
|
|
5,570,326 |
|
|
|
2,319,638 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
22,929,726 |
|
|
$ |
11,866,045 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
Payable
|
|
$ |
6,827,059 |
|
|
$ |
2,422,625 |
|
|
Accrued
Expenses and Other Current Liabilities
|
|
|
| |
