<PAGE> 1
______________________________________________________________________________
______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q/A
QUARTERLY REPORT
Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarter ended June 30, 1994 Commission file number 1-11013
SPECIALTY CHEMICAL RESOURCES, INC.
----------------------------------------------------
Exact name of registrant as specified in its charter
Delaware 34-1366838
---------------------- ------------------------
State of incorporation I.R.S. Employer I.D. No.
9100 Valley View Road; Macedonia, Ohio 44056
---------------------------------------------
Address of principal executive offices and zip code
(216) 468-1380
---------------------------------------------------
Registrant's telephone number, including area code
Indicate by a 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 twelve (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 ninety
(90) days. Yes__X__ No_____.
The number of outstanding shares of the registrant's common stock as
of August 1, 1994 was 3,932,777. The registrant has no other class of
stock outstanding.
_________________________________________________________________________
______________________________Page 1 of 14_______________________________
<PAGE> 2
Specialty Chemical Resources, Inc.
Form 10-Q/A
For the quarter ended June 30, 1994
Index
Part I Financial Information Page
Item 1. Financial Statements..........................................3
Condensed Balance Sheets......................................3
Condensed Statements of Operations, 3 Months..................5
Condensed Statements of Operations, 6 Months..................6
Condensed Statements of Cash Flows, 3 Months..................7
Condensed Statements of Cash Flows, 6 Months..................8
Notes to Financial Statements.................................9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................9
Part II Other Information
Item 1. Legal Proceedings............................................12
Item 6. Exhibits & Reports on Form 8-K...............................12
2 of 14
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
Specialty Chemical Resources, Inc.
Condensed Balance Sheets
<CAPTION>
June 30, 1994 December 31, 1993
(Unaudited) (Audited)
------------- -----------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 22,892 $ 32,691
Accounts Receivables 6,345,708 6,824,594
Receivables - Other (Note C) -0- 4,308,481
Inventories (Note B) 6,895,601 6,342,379
Prepaid expenses 395,967 165,731
Refundable Income Taxes -0- 853,783
------------ ------------
Total current assets 13,660,168 18,527,659
Property, plant and equipment
At cost 10,283,060 10,187,905
Less accumulated depreciation
and amortization (2,349,579) (1,956,503)
------------ ------------
7,933,481 8,231,402
Other assets
Goodwill 21,278,513 21,586,547
Other 1,451,279 1,568,208
------------ -------------
22,729,792 23,154,755
------------ -------------
Total assets $ 44,323,441 $ 49,913,816
============ ============
<FN>
See accompanying Notes to Financial Statements.
</TABLE>
3 of 14
<PAGE> 4
<TABLE>
Specialty Chemical Resources, Inc.
Condensed Balance Sheets
(continued)
<CAPTION>
June 30, 1994 December 31, 1993
(Unaudited) (Audited)
---------------- -----------------
<S> <C> <C>
Current liabilities
Accounts payable $ 5,506,044 $ 6,660,088
Deferred Income Taxes 329,531 326,345
Accrued expenses 446,790 487,436
Accrued other, including
acquisition costs 122,236 171,160
----------- -----------
Total current liabilities 6,404,601 7,645,029
Long-term obligations
less current maturities 4,156,000 9,948,000
Deferred Income Taxes 1,641,690 2,507,018
---------- ----------
Total non-current liabilities 5,797,690 12,455,018
Stockholders' equity
Preferred stock - $.01 par value;
authorized 2,000,000 shares
Common Stock - $.10 par value;
authorized 13,000,000 shares;
issued and outstanding 3,932,777
and 3,932,780 393,279 393,279
Additional paid in capital 41,878,573 41,878,573
Accumulated deficit (10,150,702) (12,458,083)
----------- -----------
32,121,150 29,813,769
----------- -----------
$44,323,441 $49,913,816
=========== ===========
<FN>
See accompanying Notes to Financial Statements.
</TABLE>
4 of 14
<PAGE> 5
<TABLE>
Specialty Chemical Resources, Inc.
Condensed Statements of Operations
(Unaudited)
For the 3 month periods ended:
<CAPTION>
June 30, 1994 June 30, 1993
--------------- --------------
<S> <C> <C>
Net Sales $10,864,139 $11,127,203
Cost of Goods Sold 9,141,817 8,675,949
----------- -----------
Gross profit 1,722,322 2,451,254
Selling, general and administrative
expenses 1,731,445 1,592,830
Amortization of intangibles 218,448 215,769
----------- -----------
Operating profit (loss) (227,571) 642,655
Other (income) expense
Interest expense 191,860 134,701
Other 158 ( 7,941)
----------- -----------
192,018 126,760
----------- -----------
Earnings (loss) before income
taxes and extraordinary items (419,589) 515,895
Income taxes (benefit) ( 63,000) 190,800
----------- -----------
Earnings (loss) before extra-
ordinary items (356,589) 325,095
Extraordinary gain (net of income
taxes) (Note C) 2,994,797 -0-
----------- -----------
Net earnings $ 2,638,208 $ 325,095
=========== ===========
Earnings (loss) per common share:
Earnings (loss) before extra-
ordinary item $ (.09) $ .08
Extraordinary item $ .76 $ -0-
---------- ----------
Net earnings $ .67 $ .08
========== ==========
Weighted average shares outstanding 3,932,778 3,939,211
<FN>
See accompanying Notes to Financial Statements.
</TABLE>
5 of 14
<PAGE> 6
<TABLE>
Specialty Chemical Resources, Inc.
Condensed Statements of Operations
(Unaudited)
For the 6 month periods ended:
<CAPTION>
June 30, 1994 June 30, 1993
--------------- --------------
<S> <C> <C>
Net Sales $20,494,879 $21,402,167
Cost of Goods Sold 17,181,447 16,762,419
----------- -----------
Gross profit 3,313,432 4,639,748
Selling, general and administrative
expenses 3,309,394 3,081,738
Amortization of intangibles 436,896 431,537
----------- -----------
Operating profit (loss) (432,858) 1,126,473
Other (income) expense
Interest expense 320,647 222,882
Other (3,089) (20,367)
----------- -----------
317,558 202,515
----------- -----------
Earnings (loss) before income
taxes and extraordinary items (750,416) 923,958
Income taxes (benefit) ( 63,000) 339,800
----------- -----------
Earnings (loss) before extra-
ordinary items (687,416) 584,158
Extraordinary gain (net of income
taxes) (Note C) 2,994,797 -0-
----------- -----------
Net earnings $ 2,307,381 $ 584,158
----------- -----------
Earnings (loss) per common share:
Earnings (loss) before extra-
ordinary item $ (.17) $ .15
Extraordinary item $ .76 $ -0-
---------- ----------
Net earnings $ .59 $ .15
========== ==========
Weighted average shares outstanding 3,932,778 3,937,806
<FN>
See accompanying Notes to Financial Statements.
</TABLE>
6 of 14
<PAGE> 7
<TABLE>
Specialty Chemical Resources, Inc.
Condensed Statements of Cash Flows
(Unaudited)
For the 3 month periods ended:
<CAPTION>
June 30, 1994 June 30, 1993
-------------- --------------
<S> <C> <C>
Net cash provided (used) by operating
activities $ 5,429,680 $(2,254,287)
Cash flows from investing activities:
Expenditures for property, plant and
equipment - net ( 44,299) ( 42,097)
----------- ----------
Net cash provided (used) by
investing activities ( 44,299) ( 42,097)
Cash flows from financing activities:
Payments on revolver (8,085,000) (4,268,330)
Proceeds on revolver 2,695,000 6,521,000
----------- -----------
Net cash provided (used) by
financing activities (5,390,000) 2,252,670
----------- -----------
Net increase (decrease) in cash
and cash equivalents ( 4,619) (43,714)
Cash and cash equivalents at beginning
of period 27,511 44,694
----------- -----------
Cash and cash equivalents at end
of period $ 22,892 $ 980
=========== ===========
<FN>
See accompanying Notes to Financial Statements.
</TABLE>
7 of 14
<PAGE> 8
<TABLE>
Specialty Chemical Resources, Inc.
Condensed Statements of Cash Flows
(Unaudited)
For the 6 month periods ended:
<CAPTION>
June 30, 1994 June 30, 1993
-------------- --------------
<S> <C> <C>
Net cash provided (used) by operating
activities $ 5,877,356 $(3,902,685)
Cash flows from investing activities:
Expenditures for property, plant and
equipment - net ( 95,155) ( 74,776)
----------- ----------
Net cash provided (used) by
investing activities ( 95,155) ( 74,776)
Cash flows from financing activities:
Payments on revolver (13,295,000) (7,049,330)
Proceeds on revolver 7,503,000 10,949,000
----------- -----------
Net cash provided (used) by
financing activities (5,792,000) 3,899,670
----------- -----------
Net increase (decrease) in cash
and cash equivalents (9,799) (77,791)
Cash and cash equivalents at beginning
of period 32,691 78,771
----------- -----------
Cash and cash equivalents at end
of period $ 22,892 $ 980
=========== ===========
<FN>
See accompanying Notes to Financial Statements.
</TABLE>
8 of 14
<PAGE> 9
Specialty Chemical Resources, Inc.
Notes to Financial Statements
Note A - Summary of Significant Accounting Policies
The accompanying audited and unaudited financial statements have been
prepared in conformity with generally accepted accounting principles and all
adjustments are of a normal recurring nature and are, in the opinion of
management, necessary to present fairly the financial position of Specialty
Chemical Resources, Inc. (The Company) at December 31, 1993 and June 30, 1994
and the results of operations and cash flows for the interim periods ended June
30, 1994.
Company inadvertently used a 10 year life for depreciation on
machinery and equipment placed into service this year (assets replaced due to
December, 1992 Macedonia plant fire). The Company has determined the useful
life on this machinery and equipment to be 16 years. For the six-months ended
June 30, 1994, the impact (related to the change in depreciation) to earnings
before income taxes and extraordinary items was $108,645 and for the quarter
$54,496. The tax affect for the six-months ended June 30, 1994 and the quarter
was $9,000.
Any other significant accounting policies employed in the preparation of
the financial statements are included in the Company's most recent Form 10-K.
Note B - Inventories
Inventories are stated at the lower of cost or market determined by the
last-in, first-out (LIFO) method for raw materials and the first-in, first-out
(FIFO) method for finished goods.
The Company's inventories consisted of the following at:
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
----------- -----------
<S> <C> <C>
Raw materials $4,138,038 $4,181,837
Finished goods 3,331,336 2,734,315
---------- ----------
Total FIFO cost 7,469,374 6,916,152
Less: Excess of FIFO cost over
LIFO 573,773 573,773
---------- ----------
Total LIFO cost $6,895,601 $6,342,379
---------- ----------
</TABLE>
Note C - Receivables - Other and Extraordinary Item
During the six-month period ended June 30, 1994, the Company received
a total of $8,396,814 from its insurance carrier. The final payment, received
June 24, 1994, in the amount of $6,588,333 represents final
9 of 14
<PAGE> 10
settlement on all claims for the December, 1992 fire. The repayment of these
monies was first used to reduce "Receivables - Other" with the remainder
resulting in an extraordinary gain of $2,994,797 (net of taxes).
Note D - Legal Proceedings
There have been no material changes in the status of legal proceedings
pending against the Company other than that which was reported on the Company's
most recent Form 10-K.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
In December, 1992, the company experienced a non-chemical fire at its
Macedonia, Ohio facility. The fire adversely effected production capabilities
at this facility, which adverse effect continued through 1993.
The following table sets forth, for the periods indicated, the
percentage relationship to net sales of certain items included in the Company's
Statement of Operations.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
----------------- ------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales......................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................ 83.8% 78.3% 84.1% 78.0%
------ ------ ------ ------
Gross profit.................................... 16.2% 21.7% 15.9% 22.0%
Selling, general and administrative expenses...... 16.1% 14.4% 15.9% 14.3%
Operating profit.(loss)......................... (2.1%) 5.3% (2.1%) 5.8%
Interest expense.................................. 1.6% 1.0% 1.8% 1.2%
</TABLE>
Net sales of $20,494,879 for the six-month period ended June 30, 1994,
were $907,288, or 4.2%, below the comparable period in the prior year. This
decrease was a result of reduced demand for automotive and industrial
maintenance products.
For the second quarter ended June 30, 1994, net sales of $10,864,139
were $263,064, or 2.4%, below the comparable period, in the prior year. This
decrease was mainly attributable to the same factors discussed above with
respect to the six-month period ended June 30, 1994.
Cost of goods sold for the six-month period ended June 30, 1994,
increased by $419,028 as compared to the same period in the prior year. This
increase was due principally to increased charges for utilities and
10 of 14
<PAGE> 11
increased repair/maintenance expense. Cost of goods sold increased as a
percentage of net sales from 78.3% to 83.8% for the six-month periods ended
June 30, 1993 and 1994, respectively. The increase in percent of sales was due
to reduced sales during the 1994 period.
Cost of goods sold increased by $465,868 for the three-months ended
June 30, 1994. This increase was due principally to charges discussed above.
Cost of goods sold increased as a percentage of net sales from 78.0% to 84.1%
for the three-months ended June 30, 1994 as compared to the same period in the
prior year. The increase was due primarily to reduce sales during the 1994
period.
Selling, general and administrative expenses were $3,309,394 for the
six-month period June 30, 1994, or 16.1% of net sales. Selling, general and
administrative expenses were $3,081,738 or 14.4% of net sales for the same
period in 1993. The increase of $227,656 was due principally to an increase in
commission expense incurred from the sales of branded products and increased
freight charges. The increase in percent of sales was due primarily to reduced
sales during the 1994 period.
Selling, general, and administrative expenses were $1,731,445 for the
quarter end June 30, 1994, or 15.9% of net sales. Selling, general, and
administrative expenses were $1,592,830, or 14.3% of net sales for the same
period in 1993. The increase $138,615 was due principally to increases in
medical insurance expense as well as increased freight charges, while the
increase in percent of sales was due to reduced sales during the 1994 period.
Interest expense for the six-months ended June 30, 1994, was 1.6% of
net sales versus 1.0% for the comparable period in the prior year. Interest
expense was $320,647 for the six-months ended June 30, 1994, an increase of
$97,765 from the six-months ended June 30, 1993. This increase was due to
increased borrowing as well as higher interest rates. See "Liquidity and
Capital Resources".
Interest expense for the quarter ended, June 30, 1994, was 1.8% of net
sales versus 1.2% for the comparable period in the prior year. Interest
expense was $191,860 for the quarter ended June 30, 1994, an increase of
$57,159 from the quarter ended June 30, 1993. The increase was due to the
reasons discussed above. See "Liquidity and Capital Resources".
The Company recorded net earnings for the six-months ended June 30,
1994, of $2,307,381, or $.59 per share on weighted average shares outstanding
of 3,932,778. This compared to a net earnings of $584,158, or $.15 per share
on weighted average shares outstanding of 3,937,806 for the same period in the
prior year. The earnings for the six-month period ended June 30, 1994 were the
result of an extraordinary gain of $2,994,797 (net of taxes). The
extraordinary gain resulted from the insurance settlement on the property and
business interruption costs related to the December, 1992 fire at the
Macedonia, Ohio plant. Had the Company not recognized the extraordinary gain,
a net loss would have been reported of $687,416 or $.17 per share on 3,932,778
weighted average shares outstanding.
11 of 14
<PAGE> 12
For the quarter ended June 30, 1994, the Company earned $.67 per
share on weighted average shares outstanding of 3,932,778 as compared to $.08
per share on weighted average shares outstanding of 3,939,211 for the same
period in the prior year. The earnings for the quarter ended June 30, 1994
were the result of the recognition of the extraordinary gain discussed above.
Had the Company not recognized the extraordinary gain, a net loss would have
been reported of $356,589, or $.09 per share on 3,932,778 weighted average
shares outstanding.
Liquidity and Capital Resources
As of June 30, 1994, the Company's ratio of current assets to current
liabilities was 2.13 to 1 and the quick ratio (cash, cash equivalents, and
accounts receivable, divided by current liabilities) was .99 to 1.
During the six-months ended June 30, 1994, the Company incurred
$320,647 in interest expense and made interest payments totaling $266,043.
Accrued interest at June 30, 1994 was $113,332. Substantially all of the
Company's interest expense was related to the "Credit Agreement" discussed
below.
The Company, as borrower, is a party to a credit agreement (the
"Credit Agreement") that provides for a $10,000,000 revolving line of credit at
an interest rate equal to the prime rate or the London Inter-Bank Offered Rate
(LIBOR), at the Company's election. The Credit Agreement, entered into on
March 30, 1992 and expiring on May 31, 1995, is a facility that allows for
borrowings based upon a formula comprised of inventory, accounts receivable and
fixed assets, less environmental compliance reserve, if any.
Under the terms of the Credit Agreement, the Company is required to
comply with various covenants, the most restrictive of which relate to
restrictions on distributions from the Company to its stockholders, maintenance
of certain financial ratios and levels of tangible net worth and limits on
capital expenditures. As a result of the fire, the Company has used funds for
the replacement of damaged equipment in advance of insurance proceeds. On
January 4, 1994, the Company entered into a ninety (90) day $1,500,000 note at
an interest rate equal to the prime rate with its senior lender to fund
operations until insurance proceeds became available. On June 24, 1994, the
note was repaid in full with a portion of the proceeds received from the
Company's insurance carrier as final settlement of all claims related to the
December, 1992 fire. The balance of the funds received were used to reduce the
amount outstanding under the "Credit Agreement". As a result of the foregoing,
as of June 30, 1994, approximately $5.8 million was unused and available under
the Credit Agreement.
The Company spent $95,155 on capital improvements during the six-month
period ended June 30, 1994. The Company expects to spend approximately
$500,000 on capital improvements during the current fiscal year. Such
expenditures are expected to be funded from cash generated by operations and
borrowings under the Credit Agreement.
12 of 14
<PAGE> 13
Part II - Other Information
Item 1. Legal Proceedings
There have been no material changes in the status of legal proceedings
pending against the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) No exhibits are included with this report.
(b) The Company filed no reports on Form 8-K during the quarter ended June
30, 1994.
13 of 14
<PAGE> 14
Signatures
Pursuant to the requirements 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.
Specialty Chemical Resources, Inc.
By:/s/ COREY ROTH March 22, 1995
--------------------------------
Corey Roth
Vice President, and Treasurer
(Principal Financial Officer)
14 of 14
