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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, 1997 Commission file number 1-11013
SPECIALTY CHEMICAL RESOURCES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 34-1366838
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(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) (Zip Code)
Registrant's telephone number, including area code: (216) 468-1380
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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 18, 1997 was 3,882,099. 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, 1997
Index
Part I Financial Information Page
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
Page 2 of 11
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Specialty Chemical Resources, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
(Unaudited) (Audited)
-------------- -----------------
<S> <C> <C>
Current assets
Cash and cash equivalents 134,414 $ 168,641
Accounts Receivables 4,922,768 4,697,128
Receivable - other 523,215 509,231
Inventories - LIFO 6,209,682 5,909,447
Prepaid expenses 254,510 305,259
Refundable Income Taxes - 1,075,016
------------ ------------
Total current assets 12,044,589 12,664,722
Property, plant and equipment
At cost 14,348,628 14,284,234
Less accumulated depreciation
and amortization (4,711,577) (4,451,017)
------------ ------------
9,637,051 9,833,217
Other assets
Goodwill 21,040,795 21,197,875
Other 233,272 227,572
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21,274,067 21,425,447
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Total assets $ 42,955,707 $ 43,923,386
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
Page 3 of 11
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Specialty Chemical Resources, Inc.
Condensed Balance Sheets
(continued)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
(Unaudited) (Audited)
-------------- -----------------
<S> <C> <C>
Current liabilities
Current Maturities $ 439,017 $ 434,733
Accounts payable 3,549,164 4,004,870
Accrued expenses 773,761 675,619
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Total current liabilities 4,761,942 5,115,222
Long-term obligations 11,675,771 12,246,119
Stockholders' equity
Preferred stock - $.01 par value;
authorized 1,996,500 shares
Common Stock - $.10 par value;
authorized 13,000,000 shares;
issued 3,947,764 and
3,947,764 shares respectively 394,777 394,777
Additional paid in capital 41,935,125 41,935,125
Less common stock in treasury,
at cost; 65,500 shares (118,722) (118,722)
Accumulated deficit (15,673,836) (15,629,785)
Unearned compensation (19,350) (19,350)
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26,517,994 26,562,045
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$ 42,955,707 $ 43,923,386
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
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Specialty Chemical Resources, Inc.
Condensed Statements of Operations
(Unaudited)
For the 3 month periods ended:
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1996
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<S> <C> <C>
Net Sales $ 10,197,079 $ 10,063,149
Cost of Goods Sold 8,168,782 8,599,388
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Gross profit 2,028,297 1,463,761
Selling, general and administrative
expenses 1,577,125 1,510,621
Amortization of intangibles 258,961 217,173
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Operating profit 192,211 (264,033)
Other (income) expense
Interest expense 258,068 236,377
Other (21,806) -
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236,262 236,377
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Earnings (loss) before income
taxes (44,051) (500,410)
Income taxes - -
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Earnings (loss) $ (44,051) $ (500,410)
============ ============
Earnings (loss) per common share: $ (.01) $ (.13)
Weighted average shares outstanding 3,882,102 3,947,768
</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, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Net cash provided by
operating activities $ 758,112 $ 75,154
Net cash (used) by
investing activities (166,274) (46,535)
Cash flows from financing activities:
Payments on revolver (7,591,184) (11,306)
Proceeds from revolver 6,965,119 -
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Net cash provided (used) by
financing activities (626,065) (11,306)
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Net increase (decrease) in cash
and cash equivalents (34,227) 17,313
Cash and cash equivalents at
beginning of period 168,641 1,238
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Cash and cash equivalents at end
of period $ 134,414 $ 18,551
=========== ===========
</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, 1996 and March 31, 1997
and the results of operations and cash flows for the interim periods ended March
31, 1997 and 1996.
Any 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 3l,
1997 1996
---- ----
<S> <C> <C>
Raw materials $3,893,553 $3,663,804
Finished goods 2,961,160 2,890,674
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Total FIFO cost 6,854,713 6,554,478
Less: Excess of FIFO cost over
LIFO 645,031 645,031
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Total LIFO cost $6,209,682 $5,909,447
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</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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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,
---------
1997 1996
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<S> <C> <C>
Net sales.................................................. 100.0% 100.0%
Cost of goods sold......................................... 80.1% 85.5%
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Gross profit........................................... 19.9% 14.5%
Selling, general and administrative expenses............... 15.5% 15.0%
Operating profit....................................... 1.9% (2.6%)
Interest expense........................................... (2.5%) (2.3%)
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 AS COMPARED TO THREE MONTHS ENDED MARCH 31,
1996:
Net sales of $10,197,000 for the three-month period ended March 31,
1997, were $134,000, or 1.3%, above the comparable period in the prior year. The
increase was primarily due to sales of new, higher price automotive products,
which more than offset a 4.8% volume reduction from the prior year. 1996 first
quarter net sales included a large volume of lower margin business which the
Company eliminated.
Cost of goods sold decreased as a percentage of net sales from 85.5% to
80.1% for the three-month period ended March 31, 1997, as compared to the same
period of the prior year. The decrease in the 1997 period is due to increased
net sales discussed above and lower labor and overhead costs that resulted from
cost reduction efforts during the last year. Cost of goods sold for the
three-month period ended March 31, 1997, decreased by $430,000 as compared to
the same period in the prior year. The decrease is due to decreased sales volume
and lower labor and overhead costs.
Selling, general and administrative expenses were $1,577,000 for the
three-month period March 31, 1997, or 15.5% of net sales. Selling, general and
administrative expenses were $1,511,000, or 15%
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of net sales for the same period in 1996. The increase in selling, general and
administrative expense dollars is due to higher compensation costs.
Interest expense for the three months ended March 31, 1997, was 2.5% of
net sales versus 2.3% for the comparable period in the prior year. Interest
expense was $258,000 for the three months ended March 31, 1997, an increase of
$22,000 from the three months ended March 31, 1996. The increase is due to
higher debt to support working capital requirements which include a lower
accounts payable level to take advantage of discounts. The increase in interest
expense was offset by payables discounts. See "Liquidity and Capital Resources".
The Company experienced a net loss for the three months ended March 31,
1997, of $44,000, or $.01 per share on weighted average shares outstanding of
3,882,102. This compared to a net loss of $500,000, or $.13 per share on
weighted average shares outstanding of 3,947,768 for the same period in the
prior year.
Liquidity and Capital Resources
As of March 31, 1997, the Company's ratio of current assets to current
liabilities was 2.53 to 1 and the quick ratio (cash, cash equivalents, and
accounts receivable, divided by current liabilities) was 1.17 to 1. In February
1997, the Company received a $1,075,000 tax refund, which was used to pay down
long term debt under the Credit Agreement (described below).
During the three months ended March 31, 1997, the Company incurred
$258,000 in interest expense and made interest payments totaling $200,220.
Accrued interest at March 31, 1997 was $66,000. Most of the Company's interest
expense is related to the Company's Credit Agreement, and the $4,000,000 of 6%
subordinated convertible debt, issued in October 1996.
The Company is a borrower, through a credit agreement (the "Credit
Agreement") that provides for a $12,000,000 facility which expires on December
31,1998, comprised of a revolving line of credit and a term loan. Borrowings
under the Credit Agreement bear interest at the prime rate plus 1.5%, subject to
decrease if certain ratios and financial tests are met.
Under the terms of the Credit Agreement, the Company is required to
comply with various covenants, the most restrictive of which relate to the
maintenance of certain financial ratios, levels of tangible net worth, limits on
capital expenditures and restrictions on distributions from the Company to its
stockholders. As of March 31, 1997, approximately $2,588,000 was unused and
available under the Credit Agreement.
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In addition to the Credit Agreement, the Company is a borrower on an
installment note dated October 15, 1995. The borrowing is collateralized by a
building which serves as the Company's distribution center. Interest is payable
monthly at 1/4% over the bank's prime rate. As of March 31, 1997, the Company
had $854,000 remaining on the note.
The Company spent $64,000 on capital improvements during the period
ended March 31, 1997. In addition, the Company expects to spend approximately
$736,000 on capital improvements during the balance of the current fiscal year
which are to be funded from operating cash flows and borrowings under the credit
agreement. Under current business conditions, the Company expects no significant
change in its liquidity position during the current fiscal year. However, the
Company continues to explore growth opportunities by way of acquisition and
product line expansions. Any required capital for these efforts would come from
borrowings under the Credit Agreement or additional borrowings.
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/ DAVID F. SPINK May 2, 1997
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David F. Spink
Vice President (Principal Financial
and Accounting Officer)
Page 11 of 11
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000703645
<NAME> SPECIALTY CHEMICAL RESOURCES, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1.00
<CASH> 134,414
<SECURITIES> 0
<RECEIVABLES> 5,445,983
<ALLOWANCES> 0
<INVENTORY> 6,209,682
<CURRENT-ASSETS> 12,044,589
<PP&E> 14,348,628
<DEPRECIATION> 4,711,577
<TOTAL-ASSETS> 42,955,707
<CURRENT-LIABILITIES> 4,761,942
<BONDS> 11,675,771
<COMMON> 394,777
0
0
<OTHER-SE> 26,123,217
<TOTAL-LIABILITY-AND-EQUITY> 42,955,707
<SALES> 10,197,079
<TOTAL-REVENUES> 10,197,079
<CGS> 8,168,782
<TOTAL-COSTS> 8,168,782
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 258,068
<INCOME-PRETAX> (44,051)
<INCOME-TAX> 0
<INCOME-CONTINUING> (44,051)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (44,051)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
