FORM 10 - Q


                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

[X]      QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15 (d) OF THE SECURITIES
         EXCHANGE ACT OF 1934.

         For the quarterly period ended September 30, 2002
                                        ------------------

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

         For the transition period from   _______________  to  _______________


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

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

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

         1259 Northwest 21st Street, Pompano Beach, Florida 33069-1428
         -------------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code:  (954) 917-4114

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.   YES   X    NO
                                                 ---      ---

         Indicate the number of shares of Imperial Industries, Inc. Common Stock
($.01 par value) outstanding as of November 4, 2002: 9,235,434

         Total number of pages contained in this document: 30




                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                                      INDEX

                                                                    Page No.
                                                                    --------

Part I.  Financial Information

                  Consolidated Balance Sheets
                   September 30, 2002 and December 31, 2001            3


                  Consolidated Statements of Operations
                   Nine Months and Three Months Ended September
                   30, 2002 and 2001                                   4

                  Consolidated Statements of Cash Flows
                   Nine Months Ended September 30, 2002 and 2001       5-6

                  Notes to Consolidated Financial Statements           7-18

                  Management's Discussion and Analysis of Results      19-25
                   Of Operations and Financial Condition

                  Market Risk                                          25-26

                  Controls and Procedures                              26


Part II. Other Information and Signatures

                  Item 1.  Legal Proceedings                           27

                  Item 4.  Submission of Matters to a Vote of          27
                                    Security Holders

                  Item 6.  Exhibits and Reports on Form 8 - K          28

                  Signatures                                           29

                  Certification of Report                              30



                                       2



                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets


                                                   September 30,    December 31,
                                                       2002            2001
                                                   ------------     ------------
                                                    (unaudited)
      Assets
      ------
Current assets:
  Cash and cash equivalents                     $  1,510,000      $  1,368,000
  Trade accounts receivable (less
   allowance for doubtful accounts of
   $491,000 and $453,000 at September 30, 2002
   and December 31, 2001, respectively)            4,858,000         4,419,000
  Inventories                                      3,923,000         3,807,000
  Deferred income taxes                              479,000           523,000
  Other current assets                               371,000           294,000
                                                ------------      ------------
     Total current assets                         11,141,000        10,411,000
                                                ------------      ------------
Property, plant and equipment, at cost             4,415,000         4,197,000
  Less accumulated depreciation                   (2,036,000)       (1,749,000)
                                                ------------      ------------
     Net property, plant and equipment             2,379,000         2,448,000
                                                ------------      ------------

Deferred income taxes                                483,000           327,000
                                                ------------      ------------
Excess cost of investment over net
  assets acquired                                         --         1,272,000
                                                ------------      ------------
Other assets                                         154,000           133,000
                                                ------------      ------------
                                                $ 14,157,000      $ 14,591,000
                                                ============      ============
      Liabilities and Stockholders' Equity
      ------------------------------------
Current liabilities:
   Notes payable                                $  4,282,000      $  4,335,000
   Current portion of long-term debt                 751,000           669,000
   Accounts payable                                2,368,000         1,906,000
   Obligation for appraisal rights                   877,000                --
   Payable to stockholders                           262,000           286,000
   Accrued expenses and other liabilities            741,000           735,000
                                                ------------      ------------
     Total current liabilities                     9,281,000         7,931,000
                                                ------------      ------------
Long-term debt, less current maturities            1,012,000         1,440,000
                                                ------------      ------------
Obligation for appraisal rights                           --           877,000
                                                ------------      ------------
Commitments and contingencies (Note 10)                   --                --
                                                ------------      ------------
Stockholders' equity:
 Common stock, $.01 par value
 40,000,000 shares authorized; 9,235,434 and
 9,220,434 issued at September 30, 2002
 and December 2001, respectively                      92,000            92,000
Additional paid-in-capital                        13,924,000        13,920,000
Accumulated deficit                              (10,152,000)       (9,669,000)
                                                ------------      ------------
      Total stockholders' equity                   3,864,000         4,343,000
                                                ------------      ------------
                                                $ 14,157,000      $ 14,591,000
                                                ============      ============


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


                                       3


                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
                      Consolidated Statements of Operations
                                   (unaudited)



                                                    Nine Months Ended               Three Months Ended
                                                       September 30,                   September 30,
                                             ------------------------------      ------------------------------
                                                 2002              2001              2002              2001
                                             ------------      ------------      ------------      ------------
                                                                                       
Net Sales                                    $ 27,575,000      $ 30,481,000      $  9,423,000      $  9,556,000
Cost of Sales                                  18,892,000        20,972,000         6,450,000         6,423,000
                                             ------------      ------------      ------------      ------------
     Gross profit                               8,683,000         9,509,000         2,973,000         3,133,000
Selling, general and
administrative expenses                         7,806,000         8,531,000         2,634,000         2,772,000
                                             ------------      ------------      ------------      ------------
     Operating income                             877,000           978,000           339,000           361,000
                                             ------------      ------------      ------------      ------------
Other income (expense):
   Interest expense                              (403,000)         (646,000)         (135,000)         (197,000)
   Miscellaneous income                           203,000           116,000            31,000            64,000
                                             ------------      ------------      ------------      ------------
                                                 (200,000)         (530,000)         (104,000)         (133,000)
                                             ------------      ------------      ------------      ------------
     Income before taxes and cumulative
     effect of change in accounting
     principle for SFAS 142                       677,000           448,000           235,000           228,000
Income tax expense                               (371,000)         (166,000)          (82,000)          (89,000)
                                             ------------      ------------      ------------      ------------
     Net income before cumulative effect
     of change in accounting principle
     for SFAS 142                                 306,000           282,000           153,000           139,000
     Cumulative effect of change in
     accounting principle for SFAS 142,
     net of tax benefit  (Note 4)                (789,000)               --                --                --
                                             ------------      ------------      ------------      ------------
Net (loss) income                            $   (483,000)     $    282,000      $    153,000      $    139,000
                                             ============      ============      ============      ============

Basic earnings per share:
     Net income before cumulative effect
     of change in accounting principle       $       0.03      $       0.03      $       0.02      $       0.02
     Cumulative effect of change in
     accounting principle                           (0.08)               --                --                --
                                             ------------      ------------      ------------      ------------
Net (loss) income                            $      (0.05)     $       0.03      $       0.02      $       0.02
                                             ============      ============      ============      ============

Diluted earnings per share:
     Net income before cumulative effect
     of change in accounting principle       $       0.03      $       0.03      $       0.02      $       0.02
     Cumulative effect of change in
     accounting principle                           (0.08)               --                --                --
                                             ------------      ------------      ------------      ------------
Net (loss) income                            $      (0.05)     $       0.03      $       0.02      $       0.02
                                             ============      ============      ============      ============

Weighted average shares outstanding             9,226,808         9,211,941         9,235,434         9,220,434
                                             ============      ============      ============      ============
Weighted average shares and
potentially dilutive shares outstanding         9,226,808         9,213,138         9,235,434         9,220,434
                                             ============      ============      ============      ============



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

                                       4


                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows



                                                                    Nine Months Ended
                                                                     September 30,
                                                             ----------------------------
                                                                 2002            2001
                                                             -----------      -----------
                                                                     (Unaudited)
                                                                        
Cash flows from operating activities:
   Net (loss) income                                         $  (483,000)     $   282,000
                                                             -----------      -----------

   Adjustments to reconcile net income
   to net cash (used in) provided by:
     Cumulative effect of change in accounting principle         789,000               --
     Depreciation                                                340,000          377,000
     Amortization                                                 24,000           56,000
     Debt issue discount                                              --           44,000
     Provision for doubtful accounts                             151,000          225,000
     Provision for income tax                                    371,000          151,000
     Compensation expense-issuance of stock                        4,000            5,000
     (Gain)loss on disposal of property
       and equipment                                              (4,000)           3,000
     Other                                                        (6,000)              --

    (Increase) decrease in:
      Accounts receivable                                       (590,000)         (94,000)
      Inventory                                                 (116,000)         (70,000)
      Prepaid expenses and other assets                         (116,000)        (256,000)

     Increase (decrease) in:
       Accounts payable                                          462,000          137,000
       Accrued expenses and other liabilities                    (18,000)        (138,000)
                                                             -----------      -----------
     Total adjustments to net income                           1,291,000          440,000
                                                             -----------      -----------

       Net cash provided by
        operating activities:                                    808,000          722,000
                                                             -----------      -----------

Cash flows from investing activities:
      Purchases of property, plant
       and equipment                                            (301,000)         (53,000)
      Proceeds received from sale of
       property and equipment                                     34,000           38,000
      Payment on note payable for acquisitions                        --         (100,000)
                                                             -----------      -----------

      Net cash (used in) investing activities                   (267,000)        (115,000)
                                                             -----------      -----------

Cash flows from financing activities
      Increase (decrease) in notes payable
       banks - net                                               (53,000)        (233,000)
      Proceeds from issuance of long-term debt                   210,000            8,000
      Repayment of long-term debt                               (556,000)        (600,000)
                                                             -----------      -----------
       Net cash (used in)
        financing activities                                    (399,000)        (825,000)
                                                             -----------      -----------


                                  - continued -

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

                                       5


                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                   -continued-



                                                              Nine Months Ended
                                                                 September 30,
                                                         -----------     -----------
                                                             2002              2001
                                                         -----------     -----------
                                                                 (Unaudited)
                                                                      
Net increase(decrease)in cash and
  cash equivalents                                           142,000        (218,000)
Cash and cash equivalents beginning of period              1,368,000       1,853,000
                                                         -----------     -----------
Cash and cash equivalents end of period                  $ 1,510,000     $ 1,635,000
                                                         ===========     ===========

Non-cash transactions:
    Issuance of 15,000 shares of common stock
         to an employee of the Company
         in 2002 and 2001                                $     4,000     $     5,000
                                                         ===========     ===========




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


                                       6


                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (Unaudited)


(1)      Interim Financial Statements
         ----------------------------

                  The accompanying unaudited consolidated financial statements
         have been prepared in accordance with the instructions to Form 10-Q and
         do not include all of the information and footnotes required by
         auditing standards generally accepted in the United States of America
         for complete financial statements. In the opinion of management, all
         adjustments considered necessary for a fair presentation have been
         included. Operating results for the nine months ended September 30,
         2002 are not necessarily indicative of the results that may be expected
         for the year ended December 31, 2002. The significant accounting
         principles used in the preparation of these unaudited interim
         consolidated financial statements are the same as those used in the
         preparation of the annual audited consolidated financial statements.
         These statements should be read in conjunction with the consolidated
         financial statements and notes thereto included in the Company's Annual
         Report on Form 10-K for the year ended December 31, 2001.

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

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

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

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

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

                  Concentration of credit risk with respect to trade accounts
         receivable are limited due to the large number of entities comprising
         the Company's customer base. Trade accounts receivable represent
         amounts due from building materials dealers, contactors and
         sub-contractors, located principally in the Southeastern United States
         who have purchased products on an unsecured open account basis. At
         September 30, 2002, accounts aggregating


                                       7


                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   -continued-


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

         $673,000, or approximately 12.6% of total gross trade accounts
         receivable, were deemed to be ineligible for borrowing purposes under
         the Company's borrowing agreement with its commercial lender, compared
         to $669,000, or approximately 13.7%, of total gross trade receivables
         outstanding at December 31, 2001. See Note (5). The allowance for
         doubtful accounts at September 30, 2002 of $491,000 is considered
         sufficient to absorb any losses which may arise from uncollectible
         accounts receivable.

                  The Company places its cash with commercial banks. At
         September 30, 2002, the Company has cash balances with banks in excess
         of Federal Deposit Insurance Corporation insured limits. Management
         believes the credit risk related to these deposits is minimal.

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

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

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

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

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

                  Licenses, trademarks and deferred financing costs are
         amortized on the straight-line basis over the estimated useful lives of
         the licenses and trademarks, or over the term of the related financing.
         Excess cost of investment over net assets acquired was amortized using
         the straight-line method over 40 years until December 31, 2001 and was
         net of $57,000 accumulated amortization at December 31, 2001. (See Note
         4 for goodwill accounting policy adopted January 1, 2002).


                                       8


                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   -continued-

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

         f) Income Taxes
            ------------

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

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

                  Basic earnings per share is computed by dividing net income,
         by the weighted-average number of shares of common stock outstanding
         each year. Diluted earnings per share is computed by dividing net
         income by the weighted-average number of shares of common stock and
         common stock equivalents outstanding during each year. (See Note (9) -
         Earnings Per Share).

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

                  The Company has defined cash and cash equivalents as those
         highly liquid investments with original maturities of three months or
         less, and are stated at cost. Included in cash and cash equivalents at
         September 30, 2002 and December 31, 2001 are short term time deposits
         of $122,000 and $121,000, respectively. Also included in cash and cash
         equivalents at September 30, 2002 and December 31, 2001 are $770,000
         and $698,000,respectively, of customer payments that are required to be
         remitted to the Company's commercial lender upon their bank clearance
         under the terms of the Company's line of credit. Such amounts will
         reduce the outstanding balance on the line of credit, resulting in
         greater borrowing availability.

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

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

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

                  The Company measures compensation expense related to the grant
         of stock options and stock-based awards to employees in accordance with
         the provisions of Accounting Principles Board ("APB") Opinion No. 25,
         "Accounting for Stock Issued to

                                       9


                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   -continued-

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

         Employees," under which compensation expense, if any, is generally
         based on the difference between the exercise price of an option, or the
         amount paid for an award, and the market price or fair value of the
         underlying common stock at the date of the award.

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

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

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

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

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

                  The Company has adopted SFAS No. 131, Disclosures about
         Segments of an Enterprise and Related Information. For the nine month
         periods ended September 30, 2002 and 2001, the Company has determined
         that it continues to operate in a single operating segment.

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

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

                  In October 2001, the Financial Accounting Standards Board
         issued "Accounting for the Impairment of Disposal of Long-Lived Assets"
         (SFAS 144"), which is effective for fiscal years beginning after
         December 15, 2001. SFAS 144 addresses accounting


                                       10


                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   -continued-

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

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

         and reporting for the impairment or disposal of long-lived assets. This
         statement superseded SFAS 121, "Accounting for the Impairment of
         Long-Lived Assets to be Disposed Of". The Company's adoption of SFAS
         144 on January 1, 2002 did not have a material effect on its
         consolidated financial statements.

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

                  In June 2002, the FASB issued Statement No. 146, Accounting
         for Costs Associated with Exit or Disposal Activities (SFAS 146) and
         nullifies EITF Issue No. 94-3. SFAS 146 requires that a liability for a
         cost associated with an exit or disposal activity be recognized when
         the liability is incurred, whereas EITF No. 94-3 had recognized the
         liability at the date of an entity's commitment to an exit plan. The
         Company is required to adopt the provisions of SFAS 146 effective for
         exit or disposal activities initiated after December 31, 2002. The
         Company is currently evaluating the impact of adoption of this
         statement.

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

                  At September 30, 2002 and December 31, 2001 inventories
         consisted of:
                                                    2002                2001
                                                 -----------         -----------
                  Raw Materials                  $   555,000         $   465,000
                  Finished Goods                   3,158,000           3,062,000
                  Packaging materials                210,000             280,000
                                                 -----------         -----------
                                                 $ 3,923,000         $ 3,807,000
                                                 -----------         -----------

                                       11


                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   -continued-

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

                  Effective January 1, 2002 the Company adopted SFAS 141,
         "Business Combinations," and SFAS 142, "Goodwill and Other Intangible
         Assets". SFAS 141 was issued by the FASB in June 2001. SFAS 141
         requires that the purchase method of accounting be used for all
         business combinations completed after June 30, 2001. SFAS 141 also
         specifies the types of acquired intangible assets that are required to
         be recognized and reported separately from goodwill and those acquired
         intangible assets that are required to be included in goodwill. The
         Company's adoption of this standard did not have any effect on its
         accounting for prior business combinations.

                  SFAS 142 requires that goodwill no longer be amortized, but
         instead be tested for impairment at least annually. SFAS 142 requires
         recognized intangible assets to be amortized over their respective
         estimated useful lives and reviewed for impairment in accordance with
         SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
         Long-Lived Assets to be Disposed Of". Any recognized intangible assets
         determined to have an indefinite useful life are not amortized, but
         instead tested for impairment in accordance with the standard until its
         life is determined to no longer be indefinite. If goodwill amortization
         had not been recorded in the first nine months and third quarter of
         2001, net income would have been $301,000 and $145,000, respectively,
         with no impact on earnings per share.

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

                  The $1,272,000 ($789,000 net of related tax benefit) non-cash
         charge is reflected as a cumulative effect of an accounting change in
         the accompanying Consolidated Statements of Operations for the
         six-month period ended June 30, 2002. In accordance with SFAS 142 and
         SFAS 3, "Reporting Accounting Changes in Interim Financial Statements"
         ("SFAS 3"), when a transitional impairment loss for goodwill
         (cumulative effect type accounting change) is measured in other than
         the first interim reporting period, it shall be recognized in the first
         interim period irrespective


                                       12


                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   -continued-

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

         of the period in which it is measured. The impact on the three-month
         period ended March 31, 2002 is as follows:



                                                        Three Months Ended March 31, 2002
                                            -------------------------------------------------------

                                            Net Income/(Loss)          Basic EPS        Diluted EPS
                                            ------------------        -----------       -----------
                                                                                
            Reported Net Income              $   122,000                $   0.01         $   0.01

            Less: Impairment Charge          $  (789,000)               $  (0.08)        $  (0.08)

            Adjusted Net Loss                $  (667,000)               $  (0.07)        $  (0.07)


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

                  At September 30, 2002 and December 31, 2001, notes payable
         represent amounts outstanding under a $6,000,000 line of credit from a
         commercial lender to the Company's subsidiaries. The line of credit is
         collateralized by the subsidiaries' accounts receivable and inventory,
         bears interest at prime rate plus 1/2% (5.25% at September 30, 2002),
         expires June 19, 2003, and is subject to annual review.

                  At September 30, 2002, the line of credit limit available for
         borrowing based on eligible receivables and inventory aggregated
         $5,152,000, of which $4,282,000 was outstanding. The average amounts
         outstanding for the nine month periods ended September 30, 2002 and
         2001 were $4,760,000 and $5,046,000, respectively.

(6)      Long-Term Debt and Current Installments of Long-Term Debt
         ---------------------------------------------------------

                  Included in long-term debt at September 30, 2002, are four
         mortgage loans, collateralized by real property, in the aggregate
         amount of $867,000, less current installments aggregating $259,000.

                  During 2000, the Company acquired certain assets and assumed
         certain liabilities of seven building materials distributors in which
         it issued $850,000 uncollateralized 8% promissory notes as partial
         consideration. At September 30, 2002, the aggregate remaining notes of
         $216,000 were classified as a current liability.

                  Other long-term debt in the aggregate amount of $680,000, less
         current installments of $276,000, relates principally to equipment
         financing. The notes bear interest at various rates ranging from 4.89%
         to 10.83%.


                                       13


                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   -continued-

(7)      Income Taxes
         ------------

                  At September 30, 2002, the net deferred tax asset of
         approximately $962,000 consisted mostly of the tax effect of net
         operating loss carryforwards of $353,000 and the tax effect of the
         goodwill written off of $534,000 reflected in the $353,000 is the
         effect of a second quarter 2002 valuation allowance recorded by the
         Company of $319,000 against the net operating loss carryforwards for
         amounts expected to expire. The operating loss carryforwards expire in
         varying amounts through 2009.

                  In the nine months ended September 30, 2002 and 2001, the
         Company recognized an income tax benefit of $112,000 and tax expense of
         $166,000, respectively.

(8)      Capital Stock
         -------------

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

                  At September 30, 2002, the Company had outstanding 9,235,434
         shares of common stock with a $.01 par value per share ("Common
         Stock"). The holders of common stock are entitled to one vote per share
         on all matters, voting together with the holders of preferred stock, if
         any. In the event of liquidation, holders of common stock are entitled
         to share ratably in all the remaining assets of the Company, if any,
         after satisfaction of the liabilities of the Company and the
         preferential rights of the holders of outstanding preferred stock, if
         any.

                  In June 2002 and 2001, the Company issued 15,000 shares of
         common stock as incentive compensation to an employee pursuant to the
         terms of an employment agreement.

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

                  The authorized preferred stock of the Company consists of
         5,000,000 shares, $.01 par value per share. The preferred stock is
         issuable in series, each of which may vary, as determined by the Board
         of Directors, as to the designation and number of shares in such
         series, the voting power of the holders thereof, the dividend rate,
         redemption terms and prices, the voluntary and involuntary liquidation
         preferences, and the conversion rights and sinking fund requirements,
         if any, of such series. At September 30, 2002 and December 31, 2001,
         there were no shares of preferred stock outstanding.

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

                  At September 30, 2002, the Company had warrants outstanding to
         purchase 150,000 shares of the Company's common stock (the "Warrants").
         Each Warrant entitles the holder to purchase one share at $.38 per
         share until December 31, 2003.


                                       14


                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   -continued-

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

                  The Company has two stock option plans, the Directors' Stock
         Option Plan and the 1999 Employee Stock Option Plan (collectively, the
         "1999 Plans"). The 1999 Plans provide for options to be granted at
         generally no less than the fair market value of the Company's stock at
         the grant date. Options granted under the 1999 Plans have a term of up
         to 10 years and are exercisable six months form the grant date. The
         1999 Plans are administered by the Compensation and Stock Option
         Committee (the "Committee"), which is comprised of three outside
         directors. The Committee determines who is eligible to participate and
         the number of shares for which options are to be granted. A total of
         600,000 and 200,000 shares are reserved for issuance under the Employee
         and Directors' Plans, respectively.

                  During the nine months ended September 30, 2002 the Company
         granted options to purchase 80,000 shares at $.22 per share for a five
         year period consisting of 40,000 shares under the Employee Stock Option
         Plan(the "Employee Plan")and 40,000 shares under the Directors' Stock
         Option Plan (the "Directors' Plan"). As of September 30, 2002, options
         for 360,000 shares were available for future grants under the Employee
         Plan. No shares are currently available for future grant under the
         Directors' Plan.

(9)      Earnings Per Share
         ------------------

                  Below is a reconciliation between basic and diluted earnings
         per common share under FAS 128 for the nine months and three months
         ended September 30, 2002 and 2001 (in thousands except per share
         amounts):
                                             Nine Months
                                             -----------

                                 2002                          2001
                    ----------------------------     --------------------------
                                            Per                            Per
                     Loss       Shares     Share     Income     Shares    Share
                    ------      ------     -----     ------     ------     ----
Net (loss) income   $ (483)                          $  282
Basic earnings
  per share         $ (483)      9,227     $(.05)    $  282      9,212     $.03
                    ------      ------     -----     ------     ------     ----
Effect of dilutive
 securities:
Options/Warrants        --          --        --         --          1       --
                    ------      ------     -----     ------     ------     ----
Diluted earnings
 per common share   $ (483)      9,227     $(.05)    $  282      9,213     $.03
                    ------      ------     -----     ------     ------     ----

                                       15



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

                                           Three Months
                                           ------------
                                  2002                           2001
                      --------------------------     --------------------------
                                            Per                            Per
                      Income     Shares    Share     Income     Shares    Share
                      ------     ------     ----     ------     ------     ----

Net income            $  153                         $  139
Basic earnings
 per share            $  153      9,235     $.02     $  139      9,220     $.02
                      ------     ------     ----     ------     ------     ----
Effect of dilutive
 securities:
Options/Warrants          --         --       --         --         --       --
                      ------     ------     ----     ------     ------     ----
Diluted earnings
    per common share  $  153      9,235     $.02     $  139      9,220     $.02
                      ------     ------     ----     ------     ------     ----

                  For the nine months ended September 30, 2002 and 2001, 490,000
         and 280,000 options and warrants were excluded from the diluted
         earnings per share computations, respectively, because they were
         anti-dilutive. For the quarter ended September 30, 2002 and 2001,
         570,000 and 430,000 options and warrants were excluded from the diluted
         earnings per share computations, respectively, because they were
         anti-dilutive.

(10)     Commitments and Contingencies
         -----------------------------

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

                  As of November 1, 2002, one of the Company's subsidiaries,
         Acrocrete, Inc., and other parties are defendants in 38 lawsuits
         pending in various Southeastern states, by homeowners, homeowners
         associations, contractors and subcontractors, or their insurance
         companies, claiming moisture intrusion damages on single and
         multi-family residences. The Company's insurance carriers have accepted
         coverage for 37 of these claims and are providing a defense under a
         reservation of rights. Acrocrete expects its insurance carriers to
         accept coverage for the other 1 lawsuit. Acrocrete is vigorously
         defending all of these cases and believes it has meritorious defenses,
         counter-claims and claims against third parties. Acrocrete is unable to
         determine the exact extent of its exposure or outcome of this
         litigation.

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

                  On June 15, 1999, another of the Company's subsidiaries,
         Premix, was served with a complaint captioned Mirage Condominium
         Association, Inc. v. Premix Marbletite Manufacturing Co., et al., in
         Miami-Dade County Florida. The lawsuit raises a number of



                                       16


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

         allegations against twelve separate defendants involving alleged
         construction defects. Plaintiff has alleged only one count against
         Premix, which claims that certain materials, purportedly provided by
         Premix to the Developer / Contractor and used to anchor balcony
         railings to the structure were defective. The Company's insurance
         carriers have not made a decision regarding coverage to date, but have
         retained counsel on behalf of Premix and are paying defense costs. The
         Company expects the insurance company to eventually accept coverage.
         Premix is unable to determine the exact extent of its exposure or the
         outcome of this litigation.

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

                  On April 23, 1999, certain Dissenting Shareholders owning
         shares of the Company's formerly issued preferred stock filed a
         petition for appraisal in the Delaware Chancery Court to determine the
         fair value of their shares at the effective date of Merger, exclusive
         of any element of value attributable to the merger. The Company
         recorded $877,000 in the accompanying consolidated balance sheets at
         September 30, 2002 and December 31, 2001, as an estimate for the
         obligation for appraisal rights based on the estimated fair value of
         the consideration they could have received had they not elected
         dissenters' rights. The Chancery Court may determine fair value is
         greater than an aggregate of $877,000. A trial for the appraisal rights
         was held in the Chancery Court of Delaware in June 2002. As of the date
         hereof, the trial court has not issued a ruling. The Company expects a
         judicial determination requiring the Company to make payment to the
         Dissenting Shareholders in the second quarter of 2003. At September 30,
         2002 the obligation for appraisal rights was classified as a current
         liability.


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

                  At September 30, 2002, certain property, plant and equipment
         were under lease by the Company under long-term leases. The Company
         will pay aggregate annual rent of approximately $1,037,000 for its
         current operating leases. The leases expire at various dates ranging
         from December 31, 2002 to August 31, 2009. Comparable properties at
         equivalent rentals are available for replacement of these facilities if
         any leases are not extended. The Company does not expect to incur any
         material relocation expenses.


                                       17



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

(11)     Recent Event
         ------------

                  On July 19, 2002 at the Company's Annual Meeting of
         Shareholders, the Company's Shareholders approved a proposal for a one
         for five reverse common stock split ("Reverse Stock Split"). Pursuant
         to the terms of the proposal, the Reverse Stock Split was to become
         effective upon filing an appropriate certificate with the Secretary of
         State of Delaware. Notwithstanding the approval of the Reverse Stock
         Split, the Board of Directors reserved the right, without further
         action by the Shareholders, to elect not to proceed with the Reverse
         Stock Split if at any time prior to filing such certificate with the
         State of Delaware, the Board of Directors, in its sole discretion,
         determined that it was no longer in the best interests of the Company
         and its stockholders. In addition, the Board of Directors reserved the
         right to delay the Reverse Stock Split for up to twelve months
         following the stockholder approval.

                  The Board of Directors determined it was in the best interest
         of the Company to postpone the implementation of the Reverse Stock
         Split until a future date to be determined by the Board.


                                       18




Item 2   Management's Discussion and Analysis of Financial Condition
         -----------------------------------------------------------
         and Results of Operations
         -------------------------


         General
         -------

                  The Company's business is related primarily to the level of
         construction activity in the Southeastern United States, particularly
         the states of Florida, Georgia, Mississippi and Alabama. The majority
         of the Company's products are sold to contractors, subcontractors and
         building materials dealers located principally in these states who
         provide building materials for the construction of residential,
         commercial and industrial buildings and swimming pools. The level of
         construction activity is subject to population growth, inventory of
         available housing units, government growth policies and construction
         funding, among other things. Although general construction activity has
         remained strong in the Southeastern United States during the last
         several years, the duration of recent economic conditions and the
         magnitude of their effect on the construction industry are uncertain
         and cannot be predicted.

         Special Note Regarding Forward-Looking Statements
         -------------------------------------------------

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

                  These risks may not be exhaustive. The Company operates in a
         continually changing business environment, and new risks emerge from
         time to time. We cannot predict such risks nor can we assess the
         impact, if any, of such risks on our business or the extent to which
         any risk, or combination of risks may cause actual results to differ
         from those projected in any forward-looking statements.



                                       19



Item 2   Management's Discussion and Analysis of Financial Condition
         -----------------------------------------------------------
         and Results of Operations (continued)
         -------------------------

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

         Nine Months and Three Months Ended September 30, 2002 Compared to 2001
         ----------------------------------------------------------------------

                  Net Sales for the nine months and three months ended September
         30, 2002 decreased $2,906,000 and $133,000 or approximately 9.5% and
         1.4%, respectively compared to the same periods in 2001. The closure of
         certain under-performing distribution facilities, and the elimination
         of installation services and sales of gypsum wallboard at certain
         locations during 2001, accounted for the principal amount of the sales
         decline in the nine months and third quarter in 2002 compared to the
         same periods in 2001. The closure of the under-performing operations in
         2001 accounted for $2,080,000 and $304,000 of the sales decline in the
         nine months and third quarter 2002 comparable periods, prior to giving
         any consideration to the elimination of gypsum wallboard at certain
         other locations, including the Company's distribution location in
         Pensacola, Florida, which was closed in the third quarter of 2002.
         Third quarter sales were also adversely impacted by an unusual large
         amount of rain in September in certain of the Company's markets on the
         Gulf Coast due to the threat of a hurricane and resulting tropical
         storm which slowed construction and consequently reduced demand for the
         Company's products during the month.

                  Gross profit as a percentage of net sales for the nine months
         and three months ended September 30 of 2002 was approximately 31.5% and
         31.6%, compared to 31.2% and 32.8% for the same periods in 2001. The
         comparative gross profit margins for the 2002 and 2001 periods reflect
         similar competitive conditions in the Company's markets for the sales
         of both its manufactured and distributed products. The Company
         increased its sales force in early 2002 to further its efforts to
         promote the sales of its higher gross profit margin manufactured
         products to the end-user and decrease reliance on sales of lower gross
         profit margin gypsum products.

                  Market prices for gypsum wallboard, a major product line
         purchased and sold by the Company's distribution operations, were
         believed to be slightly higher in the nine months ended September 30,
         2002 compared to the average prices realized for the same period in
         2001. The trend of lower gypsum wallboard pricing, which commenced in
         early 2000 and continued for six consecutive quarters through the first
         six months of 2001, has rebounded to a certain extent from the
         historically low levels during the third quarter ended September 30,
         2001. During that quarter, certain



                                       20




Item 2   Management's Discussion and Analysis of Financial Condition
         -----------------------------------------------------------
         and Results of Operations (continued)
         -------------------------

         Nine Months and Three Months Ended September 30, 2002 Compared to 2001
         ----------------------------------------------------------------------
         (continued)

         manufacturers reduced production of gypsum wallboard and a stronger
         demand for gypsum wallboard resulted in increased gypsum prices in the
         latter part of 2001, although at still significantly reduced prices
         from historical levels prior to 2000. The Company is unable to
         determine if the improvement in prices will trend higher or even be
         maintained at current levels, during the remainder of 2002.

                  Selling, general and administrative expenses as a percentage
         of net sales for the nine months and third quarter of 2002 were
         approximately 28.3% and 28.0%, compared to 28.0% and 29.0% in 2001.
         Selling, general and administrative expenses decreased $725,000 and
         $138,000,or approximately 8.5% and 5.0% in 2002, compared to the same
         periods 2001. The decrease in expenses was primarily due to a reduction
         in operating costs associated with closing under-performing
         distribution locations and Company-wide reductions in manpower to gain
         improved operating efficiencies, which took place during 2001.

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

                  Interest expense decreased $243,000 and $62,000 in the nine
         months and third quarter of 2002, or approximately 37.6% and 31.5%,
         compared to the same periods in 2001. The decrease in interest expense
         in the 2002 periods was primarily due to a lower average amount
         outstanding under the Company's line of credit as a result of closing
         the distribution facilities in 2001, the payment of the Company's
         debentures at December 31, 2001, which had an effective annual interest
         rate of 16%, and lower interest rates under its variable rate
         borrowings. Miscellaneous income for the nine months ended September
         30, 2002, included insurance refunds of approximately $95,000 as a
         result of lower claims than provided for in the underlying insurance
         policies.

                  After giving effect to the above factors, the Company
         generated income before taxes and the write-off of goodwill, as
         discussed below, for the nine months and third quarter ended September
         30, 2002 of $677,000 and $235,000, respectively, compared to $448,000
         and $228,000, for the same periods in 2001.


                                       21


Item 2   Management's Discussion and Analysis of Financial Condition
         -----------------------------------------------------------
         and Results of Operations (continued)
         ------------------------

                  The net loss for the nine months ended September 30, 2002
         includes the impact of a $1,272,000 ($789,000 net of related tax
         benefit) non-cash goodwill impairment charge. The charge is related to
         the Company's required adoption of Statement of Financial Accounting
         Standards (SFAS) No. 142 "Goodwill and Other Intangible Assets". The
         goodwill impairment charge is a one time event and does not affect the
         operating results of the Company. The Company doesn't have any
         remaining goodwill on its balance sheet which may be impaired for
         future periods. The impairment of goodwill is attributable to the
         under-performance of the Company's distribution operations associated
         with the acquisition of certain building materials distributors in
         2000. In accordance with SFAS No. 142, the Company reflected this
         impairment charge in its nine month financial results as a cumulative
         change in accounting principle.

                  In the nine months and third quarter of 2002, the Company
         recognized an income tax benefit of $112,000 and an expense of $82,000,
         respectively, compared to tax expense of $166,000 and $89,000 for the
         same periods for 2001.

                  As a result of the above factors, the Company had a net loss
         of $483,000 and net income of $153,000, or a loss of $.05 per fully
         diluted share for the nine months, and earnings per diluted share of
         $.02 for the third quarter of 2002, compared to net income of $282,000
         and $139,000,or $.03 and $.02 per share, for 2001.

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

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

                  The Company's operations provided approximately $808,000 and
         $722,000 of net cash from operations in the first nine months of 2002
         and 2001, respectively. In the first nine months of 2001 the Company's
         net cash flow benefited from the closing of certain under-performing
         distribution operations and elimination of installation services, which
         had the effect of reducing receivables and inventory formerly
         attributable to those operations. As a result, the Company realized a
         net increase of only $164,000 in receivables and inventory in the 2001
         period, compared to an increase of $706,000 in 2002.

                  During the first nine months of 2002, the net expenditures for
         investing activities were $267,000 compared to $115,000 in 2001. The
         purchase of equipment to up-grade the Company's manufacturing equipment
         and to expand and up-grade the Company's delivery capabilities
         accounted for the majority of the 2002 expenditures.

                  During the nine months ended September 30, 2002, the line of
         credit balance decreased approximately $53,000. The Company made
         principal payments on other debt totaling $556,000 during the first
         nine months of 2002. In addition, the Company

                                       22


Item 2   Management's Discussion and Analysis of Financial Condition
         -----------------------------------------------------------
         and Results of Operations (continued)
         -------------------------

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

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

         incurred additional long-term debt of $210,000 to finance the major
         portion of its capital expenditures.

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

                  At September 30, 2002, the Company's contractual cash
         obligations, with initial or remaining terms in excess of one year,
         remained generally unchanged compared to December 31, 2001 except for
         the items described more fully in the following paragraph. See Notes 6
         and 10 in the accompanying financial statements for additional
         information regarding the Company's commitments.

                  At September 30, 2002, the Company had working capital of
         approximately $1,860,000 compared to working capital of $2,480,000 at
         December 31, 2001. The net reduction in working capital was primarily
         attributable to the reclassification of appraisal rights obligation
         ($877,000) and a mortgage note ($204,000 due June 2003) from long-term
         debt at December 31, 2001 to a current liability at September 30, 2002.

                  As of September 30, 2002, the Company had cash and cash
         equivalents of $1,510,000, which included customer payments in the
         amount of $770,000 that are required to be remitted to the Company's
         commercial lender upon their bank clearance under the terms of the
         Company's line of credit. Upon remittance of such amount, the
         outstanding balance of the line of credit will be reduced by such
         amount and will increase the availability for the future borrowing. The
         Company has implemented a cash management program in an attempt to gain
         a more rapid clearance of customer payments deposited in its bank
         accounts.

                  The Company's principal source of short-term liquidity is
         existing cash on hand and the utilization of a $6,000,000 line of
         credit with a commercial lender. The maturity date of the line of
         credit is June 19, 2003, subject to annual renewal. Premix, Acrocrete
         and Just-Rite borrow on the line of credit, based upon and
         collateralized by, their eligible accounts receivable and inventory.
         Generally, accounts receivable outstanding more than 120 days are not
         eligible under the agreement. At September 30, 2002 the line of credit
         available for borrowing based on eligible receivables and inventory
         aggregated to $5,152,000, of which $4,282,000 was outstanding.

                  Trade accounts receivable represent amounts due from
         sub-contractors, contractors and building materials dealers located
         principally in Florida, and the Southeastern States who have purchased
         products on an unsecured open account basis and through Company owned
         warehouse distribution outlets. As of September 30, 2002, the Company
         owned and operated eleven

                                       23


Item 2   Management's Discussion and Analysis of Financial Condition
         -----------------------------------------------------------
         and Results of Operations (continued)
         -------------------------

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

         distribution outlets. Accounts receivable, net of a $491,000 allowance,
         at September 30, 2002 was $4,858,000 compared to $4,419,000 (net of a
         $453,000 allowance) at December 31, 2001.

                  As a result of the consummation of the December 31, 1998
         merger, among other things, the Company agreed to pay $733,000 in cash
         to the former preferred shareholders and issued $985,000 face value
         Debentures due December 31, 2001. Amounts payable to such shareholders
         at September 30, 2002 on the Company's consolidated balance sheets of
         $262,000 results from certain former preferred stock holders continued
         non-compliance with the conditions for payment.

                  Holders representing 81,100 preferred shares have elected
         dissenter's rights, which under Delaware law, would require cash
         payments equal to the fair value of their stock, as of the date of the
         merger, to be determined in accordance with Section 262 of the Delaware
         General Corporation Law. The Company has recorded a liability for each
         share based on the fair value of $2.25 in cash, an $8.00 Subordinated
         Debenture and five shares of the Company's common stock since that is
         the consideration the dissenting holders would have received if they
         did not perfect their dissenters' rights under the law. Dissenting
         stockholders filed a petition for appraisal rights in the Delaware
         Chancery Court on April 23, 1999. A trial for the appraisal rights was
         held in the Chancery Court of Delaware in June 2002. As of the date
         hereof, the trial court has not issued a ruling. The Company expects a
         judicial determination requiring the Company to make payment to the
         Dissenting Shareholders in the second quarter of 2003.

                  The Company presently is focusing its efforts on building
         market share for the sale of its manufactured products, reducing costs
         and expenses and improving working capital. The Company expects to
         incur various capital expenditures during the next twelve months to
         upgrade and maintain its equipment and delivery fleet to support
         operations and for the recent opening of a distribution facility in
         Port St. Lucie, Florida. In addition, the Company is implementing an
         upgraded centralized management information system for its distribution
         operations. Capital needs associated with these capital projects cannot
         be estimated at this time, but management does not expect the cash
         portion of the expenditures for these projects to exceed $150,000
         during the twelve months subsequent to September 30, 2002.



                                       24




Item 2   Management's Discussion and Analysis of Financial Condition
         -----------------------------------------------------------
         and Results of Operations (continued)
         -------------------------

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

                  The Company believes its cash on hand and the maintenance of
         the borrowing arrangement with its commercial lender will provide
         sufficient cash to meet current obligations for its day-to-day
         operations and support the cash requirements of its capital expenditure
         programs. However, the ability of the Company to maintain and or
         improve its liquidity is primarily dependent on the Company's ability
         to increase profitable operations, to obtain its projected cash flow
         and resolve its outstanding appraisal rights litigation on a basis
         favorable to the Company. The Company will be required to obtain
         additional financing to fund the resolution of such litigation expected
         in the second quarter of 2003. While the Company does not presently
         have arrangements for such sources of financing, the Company believes
         that it will be able to obtain the necessary financing through
         additional borrowings from its current lender, and/or banks and others
         through the issuance of debt or equity. Such financing may be dilutive
         to existing shareholders. There can be no assurance such financing will
         be available on terms reasonably satisfactory to the Company. The
         inability to obtain such financing could have a material adverse effect
         on the Company's future operations and financial performance.

Item 3   Market Risks
         ------------

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

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

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


                                       25



Item 3   Market Risks (continued)
         ------------

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

                  The Company has two variable rate mortgages totaling $424,000
         at September 30, 2002. The mortgages bear interest at prime plus 1% and
         are due October 2004. In addition, the Company's $6,000,000 line of
         credit from a commercial lender bears an interest rate of prime plus
         1/2%. A significant increase in the prime rate could have a material
         adverse effect on the Company's operating results and financial
         condition.

Item 4   Controls and Procedures
         -----------------------

         Evaluation of Disclosure Controls and Procedures
         ------------------------------------------------

                  Disclosure controls and procedures are controls and other
         procedures that are designed to ensure that information required to be
         disclosed by us in the reports that we file or submit, is recorded,
         processed, summarized and reported, within the time periods specified
         in the Securities and Exchange Commission's rules and forms.

                  Our Chief Executive Officer/Chief Financial Officer has
         evaluated our disclosure controls and procedures as of November 13,
         2002 and believe they are in effect.

         Changes in Internal Controls
         ----------------------------

                  Not applicable.



                                       26



                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                           PART II. Other Information


Item 1.  Legal Proceedings
         -----------------

                  See notes to Consolidated Financial Statements, Note 10 (a),
         set forth in Part I Financial Information.

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

                  The Company held its 2002 annual meeting of shareholders on
         July 19, 2002 (the "Annual Meeting").

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

                                                  For                 Witheld
                                                  ---                 -------
                  Howard L. Ehler, Jr.          6,713,606             405,197

         (b)      The Company's proposal for a one for five reverse stock split
                  ("Reverse Stock Split") was approved by the Company's
                  Shareholders at the Annual Meeting by the following votes:

                                    For:                      6,309,797
                                    Against:                    771,090
                                    Abstain:                     37,916
                                    Not Voted:                2,101,631

                  The Board of Directors reserved the right to delay the Reverse
         Stock Split for up to twelve months following stockholder approval. The
         Board of Directors has determined it was in the best interest of the
         Company to postpone the implementation of the Reverse Stock Split until
         a future date to be determined by the Board.



                                       27



                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES

                     PART II. Other Information - continued



Item 6.  Exhibits and Reports on Form 8-K
         --------------------------------



Exhibit
  No.                                 Description
-----    ----------------------------------------------------------------------

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

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

3.2      Amendment to Certificate of Incorporation of the Company (Incorporated
         by reference to Form 10-K dated December 31, 2001, Exhibit 3.2).

3.3      By-Laws of the Company, (Incorporated by reference to Form S-4
         Registration Statement, Exhibit 3.2).

10.1     Consolidating, Amended and Restated Financing Agreement by and between
         Congress Financial Corporation and Premix-Marbletite Manufacturing Co.,
         Acrocrete, Inc. and Just-Rite Supply, Inc. dated January 28, 2000.
         (Incorporated by reference to Form 10-K dated December 31, 1999, File
         No. 1-7190, Exhibit 10-1).

10.2     Employee Stock Option Plan (Incorporated by reference to Form 10-K
         dated December 31, 2000, Exhibit 10.4).

10.3     Directors Stock Option Plan (Incorporated by reference to Form 10-K
         dated December 31, 2000, Exhibit 10.5).

99.1     Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant
         to section 906 of the Sarbanes-Oxley Act of 2002.


(b)      Reports on Form 8-K

                  None.


                                       28


                   IMPERIAL INDUSTRIES, INC. AND SUBSIDIARIES


                                   SIGNATURES


         Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on it behalf by
the undersigned thereunto duly authorized.


                                                IMPERIAL INDUSTRIES, INC.
                                                By: /S/  Howard L. Ehler, Jr.
                                                    --------------------------
                                                    Howard L. Ehler, Jr.
                                                    Executive Vice President/
                                                    Principal Executive Officer



                                                By: /S/  Betty Jean Murchison
                                                    ---------------------------
                                                    Betty Jean Murchison
                                                    Chief Accounting Officer/
                                                    Assistant Vice President



November 13, 2002


                                       29