<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended March 31, 1996 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
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Address of principal executive offices and zip code
(216) 468-1380
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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
April 29, 1996 was 3,947,766. The registrant has no other class of stock
outstanding.
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Specialty Chemical Resources, Inc.
Form 10-Q
For the quarter ended March 31, 1996
Index
<TABLE>
<CAPTION>
Part I Financial Information Page
<S> <C>
Item 1. Financial Statements..........................................3
Condensed Balance Sheets....................................3-4
Condensed Statements of Operations, 3 Months..................5
Condensed Statements of Cash Flows, 3 Months..................6
Notes to Financial Statements.................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................8-10
Part II Other Information
Item 1. Legal Proceedings.............................................10
Item 6. Exhibits & Reports on Form 8-K................................10
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Specialty Chemical Resources, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 18,551 $ 1,238
Accounts Receivables 5,255,649 6,218,508
Receivable - other 156,466 810,102
Inventories - LIFO 6,797,200 6,717,310
Prepaid expenses 504,665 201,420
Refundable Income Taxes 1,134,079 1,134,079
------------ ------------
Total current assets 13,866,610 15,082,657
Property, plant and equipment
At cost 14,176,777 14,130,242
Less accumulated depreciation
and amortization (3,684,033) (3,426,847)
------------ ------------
10,492,744 10,703,395
Other assets
Goodwill 21,048,988 21,266,161
Other 220,236 220,236
------------ -------------
21,269,224 21,486,397
------------ -------------
Total assets $ 45,628,578 $ 47,272,449
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
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Specialty Chemical Resources, Inc.
Condensed Balance Sheets
(continued)
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
(Unaudited) (Audited)
----------- ---------
Current liabilities
<S> <C> <C>
Current Maturities $ 44,500 $ 44,500
Accounts payable 5,664,554 6,695,517
Accrued expenses 1,099,472 1,200,666
----------- -----------
Total current liabilities 6,808,526 7,940,683
Long-term obligations 10,387,820 10,399,126
Deferred Income Taxes 138,805 138,805
Redeemable Preferred Stock, $.01 par
value and $100 redemption value;
authorized and issued 3,500 shares
in 1995 350,000 350,000
Stockholders' equity
Preferred stock - $.01 par value;
authorized 1,996,500 shares
Common Stock - $.10 par value;
authorized 13,000,000 shares;
issued and outstanding 3,947,767
and 3,947,769 394,777 394,777
Additional paid in capital 41,935,125 41,935,125
Accumulated deficit (14,347,775) (13,847,367)
Unearned compensation (38,700) (38,700)
----------- -----------
27,943,427 28,443,835
----------- -----------
$45,628,578 $47,272,449
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
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<PAGE> 5
Specialty Chemical Resources, Inc.
Condensed Statements of Operations
(Unaudited)
For the 3 month periods ended:
<TABLE>
<CAPTION>
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Net Sales $10,063,149 $ 9,218,946
Cost of Goods Sold 8,599,388 7,919,236
----------- -----------
Gross profit 1,463,761 1,299,710
Selling, general and administrative
expenses 1,510,621 1,618,071
Amortization of intangibles 217,173 217,173
----------- -----------
Operating profit (264,033) (535,534)
Other (income) expense
Interest expense 236,377 134,336
Other - ( 9,351)
----------- -----------
236,377 124,985
----------- -----------
Earnings (loss) before income
taxes (500,410) (660,519)
Income taxes - -
----------- -----------
Earnings (loss) $ (500,410) $ (660,519)
=========== ===========
Earnings (loss) per common share: $ (.13) $ (.17)
Weighted average shares outstanding 3,947,768 3,932,775
</TABLE>
See accompanying Notes to Financial Statements.
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Specialty Chemical Resources, Inc.
Condensed Statements of Cash Flows
(Unaudited)
For the 3 month periods ended:
<TABLE>
<CAPTION>
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Net cash provided by (used) in
operating activities $ 75,154 $(1,437,465)
Cash flows from investing activities:
Expenditures for property, plant and
equipment - net (46,535) (874,769)
----------- ----------
Net cash (used) by
investing activities (46,535) (874,769)
Cash flows from financing activities:
Payments on revolver (11,306) (1,075,564)
Proceeds from revolver - 3,385,000
----------- -----------
Net cash provided (used) by
financing activities (11,306) 2,309,436
----------- -----------
Net increase (decrease) in cash
and cash equivalents 17,313 (2,798)
Cash and cash equivalents at beginning
of period 1,238 15,025
----------- -----------
Cash and cash equivalents at end
of period $ 18,551 $ 12,227
=========== ===========
</TABLE>
See accompanying Notes to Financial Statements.
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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, 1995 and March 31, 1996
and the results of operations and cash flows for the interim periods ended March
31, 1996 and 1995.
In March 1995, the FASB adopted SFAS No. 121, Accounting For The
Impairment Of Long-Lived Assets and For Long-Lived Assets To Be Disposed Of.
This Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity to be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The Company has adopted SFAS No. 121 in
the first quarter of 1996. 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>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Raw materials $4,080,053 $4,111,440
Finished goods 3,434,703 3,323,426
---------- ----------
Total FIFO cost 7,514,756 7,434,866
Less: Excess of FIFO cost over
LIFO 717,556 717,556
---------- ----------
Total LIFO cost $6,797,200 $6,717,310
---------- ----------
</TABLE>
Note C - 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.
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<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
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>
Three Months Ended
March 31,_____
--------------
1996 1995
<S> <C> <C>
Net sales........................................... 100.0% 100.0%
Cost of goods sold.................................. 85.5% 85.9%
------ ------
Gross profit...................................... 14.5% 14.1%
Selling, general and administrative expenses....... 15.0% 17.6%
Operating profit.................................. (2.6%) (5.8%)
Interest expense.................................... (2.3%) (1.5%)
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 AS COMPARED TO THREE MONTHS ENDED MARCH 31,
1995:
Net sales of $10,063,000 for the three-month period ended March 31,
1996, were $844,000, or 9.2%, above the comparable period in the prior year.
This was a result of increased demand and production of the Company's automotive
and industrial products.
Cost of goods sold decreased as a percentage of net sales from 85.9% to
85.5% for the three-month periods ended March 31, 1995 and 1996, respectively.
The decrease in cost of goods sold as a percent of sales is due to lower raw
material costs. Cost of goods sold for the three-month period ended March 31,
1996, increased by $680,000 as compared to the same period in the prior year.
The increase in cost of goods sold dollars is due to the increased sales volume
discussed above.
Selling, general and administrative expenses were $1,511,000 for the
three-month period March 31, 1996, or 15.0% of net sales. Selling, general and
administrative expenses were $1,618,000 or 17.6% of net sales for the same
period in 1995. The decreases in selling, general and administrative expense
dollars is due to cost reduction efforts, lower provision for bad debt write-off
which is the result of better collection performance, and lower compensation
costs.
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Interest expense for the three months ended March 31, 1996, was 2.3% of
net sales versus 1.5% for the comparable period in the prior year. Interest
expense was $236,000 for the three months ended March 31, 1996, an increase of
$102,000 from the three months ended March 31, 1995. The increase is due to
increased borrowings under the Credit Agreement. See "Liquidity".
The Company experienced a net loss for the three months ended March 31,
1996, of $500,000, or $.13 per share on weighted average shares outstanding of
3,947,768. This compared to a net loss of $661,000, or $.17 per share on
weighted average shares outstanding of 3,932,775 for the same period in the
prior year.
Liquidity and Capital Resources
As of March 31, 1996, the Company's ratio of current assets to current
liabilities was 2.04 to 1 and the quick ratio (cash, cash equivalents, and
accounts receivable, divided by current liabilities) was .96 to 1.
During the three months ended March 31, 1996, the Company incurred
$236,000 in interest expense and made interest payments totaling $301,000.
Accrued interest at March 31, 1996 was $86,000. Most of the Company's interest
expense is related to the Company's Credit Agreement, as defined 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. The Credit
Agreement, entered into on March 30, 1992 and expiring on May 31, 1997, is a
facility that allows for borrowings based upon collateral comprised of
inventory, accounts receivable and fixed assets, less environmental compliance
reserve, if any. As of March 31, 1996 the borrowing base under the credit
agreement was $9,528,000. No compliance reserve has been required.
Under the terms of the Credit Agreement, the Company is required to
comply with various covenants, the most restrictive of which relate to
maintenance of certain financial ratios, levels of tangible net worth limits on
capital expenditures and restrictions on distributions from the Company to its
stockholders.
On March 28, 1996 the Credit Agreement was amended to, among other
things, increase the interest rate from the prime rate to the prime rate plus 2
1/4%, waive certain covenant defaults and add a deferred extension fee of
$55,000 payable on March 31, 1997 contingent upon the occurrence of certain
future events. As of March 31, 1996, the Company was in compliance with all
covenants and approximately $148,000 was unused and available under the Credit
Agreement.
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On February 6, 1996, the Company entered into a Commercial Demand Note
to borrow an additional $750,000 from its senior lender. The Demand Note Is
secured by a collateral assignment of the Company's right to receive funds in
the Ohio EPA Trust Fund as well as by the collateralized guarantee of Edwin M.
Roth, the Company's President and Chief Executive officer. The Demand Note is
required to be repaid with the proceeds of any disbursements to the Company from
the Ohio EPA Trust Fund. On March 15, 1996, $621,000 was received as partial
reimbursement from the Ohio EPA Trust Fund and applied to partially repay the
Demand Note.
The Company spent $47,000 on capital improvements during the period
ended March 31, 1996. In addition, the Company expects to spend approximately
$450,000 on capital improvements during the balance of the current fiscal year.
Such expenditures are expected to be funded from cash generated by operations.
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) The Company filed no reports on Form 8-K during the quarter ended March 31,
1996
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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 May 14, 1996
----------------------------------------
Corey Roth
Vice President, and Treasurer
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000703645
<NAME> SPECIALTY CHEMICAL RESOURCES, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 18,551
<SECURITIES> 0
<RECEIVABLES> 5,412,115
<ALLOWANCES> 0
<INVENTORY> 6,797,200
<CURRENT-ASSETS> 13,866,610
<PP&E> 14,176,777
<DEPRECIATION> 3,684,033
<TOTAL-ASSETS> 45,628,578
<CURRENT-LIABILITIES> 6,808,526
<BONDS> 10,387,820
<COMMON> 394,777
350,000
0
<OTHER-SE> 27,548,650
<TOTAL-LIABILITY-AND-EQUITY> 45,628,578
<SALES> 10,063,149
<TOTAL-REVENUES> 10,063,149
<CGS> 8,599,388
<TOTAL-COSTS> 8,599,388
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 236,377
<INCOME-PRETAX> (500,410)
<INCOME-TAX> 0
<INCOME-CONTINUING> (500,410)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (500,410)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
