<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 8-K/A No. 2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) June 6, 1997
------------
Specialty Chemical Resources, Inc.
- ----------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 1-11013 34-1366838
- ---------------------------- ------------------------ ------------------
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
9055 Freeway Drive, Macedonia, OH 44056
-----------------------------------------
(Address of Principal Executive Offices)
Registrant's telephone number, including area code (216) 468-1380.
----------------
<PAGE> 2
SPECIALTY CHEMICAL RESOURCES, INC.
FORM 8-K
CURRENT REPORT
THIS AMENDMENT IS BEING FILED TO THE REGISTRANT'S CURRENT REPORT ON
FORM 8-K, DATED JUNE 6, 1997, AMENDED ON AUGUST 5, 1997 TO ADD THE UNAUDITED
INTERIM FINANCIAL STATEMENTS WHICH WERE PREVIOUSLY OMITTED.
Item 7. Financial Statements, Pro Forma Financial Information and
----------------------------------------------------------
Exhibits.
---------
a. Audited Financial Statements of Businesses Acquired
(i) Report of Independent Auditors for the
years ended December 31, 1996, 1995 and 1994.
b. Unaudited Interim Financial Statements of Businesses
Acquired
c. Pro Forma Financial Information
(i) Unaudited Pro Forma Condensed Consolidated
Statement of Income of Specialty Chemical
Resources, Inc. (SCR) at March 31, 1997 and
the Notes related thereto;
(ii) Unaudited Pro Forma Consolidated Balance Sheet
of Specialty Chemical Resources, Inc. at
March 31, 1997 and the Notes related thereto;
(iii) Unaudited Pro Forma Consolidated Statement
of Income of Specialty Chemical Resources,
Inc. for the Year ended December 31, 1996
and the Notes related thereto.
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.
SPECIALITY CHEMICAL RESOURCES, INC.
Dated: January 18, 1999 By: /s/ David F. Spink
-- ---------------------------------------
David F. Spink, Chief Financial Officer
2
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder
Hysan Corporation:
We have audited the accompanying balance sheets of Hysan Corporation (the
Company) as of December 31, 1996 and 1995, and the related statements of
operations, stockholder's equity (deficit) and cash flows for each of the
years in the three-year period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hysan Corporation as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31,
1996 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
February 25, 1997
3
<PAGE> 4
<TABLE>
<CAPTION>
HYSAN CORPORATION
Balance Sheets
December 31, 1996 and 1995
========================================================================================
ASSETS 1996 1995
- ----------------------------------------------------------------------------------------
Current assets:
<S> <C> <C>
Cash and Cash equivalents $ 145,375 2,620
Trade accounts receivable, less allowance for doubtful
accounts of $10,866 in 1996 and $41,439 in 1995 1,787,871 1,978,380
Other accounts receivable 33,708 89,556
Inventory 3,295,237 3,248,425
Prepaid expenses 247,916 198,429
- ----------------------------------------------------------------------------------------
Total current assets 5,510,107 5,517,410
Property, plant, and equipment:
Land 144,176 144,176
Buildings and improvements 1,888,388 1,702,766
Buildings under capital lease 56,400 --
Machinery and equipment 5,242,451 6,042,424
Equipment under capital lease 45,000 --
Furniture and fixtures 914,299 971,192
- ----------------------------------------------------------------------------------------
8,290,714 8,860,558
Less accumulated depreciation and amortization (5,406,431) (5,879,001)
- ----------------------------------------------------------------------------------------
Net property, plant, and equipment 2,884,283 2,981,557
Other assets 3,025 28,926
- ----------------------------------------------------------------------------------------
$ 8,397,415 8,527,893
========================================================================================
</TABLE>
See accompanying notes to financial statements
4
<PAGE> 5
<TABLE>
<CAPTION>
HYSAN CORPORATION
Balance Sheets
December 31, 1996 and 1995
===============================================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) 1996 1995
- -----------------------------------------------------------------------------------------------
Current liabilities:
<S> <C> <C>
Accounts payable and accrued liabilities $ 3,011,512 3,140,113
Accounts payable to affiliates 507,048 536,682
Notes payable to parent and bank 1,701,417 1,961,417
Current maturities of long-term debt 69,388 140,644
Current maturities of obligations under
capital leases 50,857 --
- -----------------------------------------------------------------------------------------------
Total current liabilities 5,340,222 5,778,856
Borrowings from Parent -- 3,624,358
Long-term debt, less current maturities -- 92,402
Long-term obligations under capital leases - 35,328 --
net of current maturities
Stockholder's equity (deficit):
Common stock, $1 par value
Authorized, issued, and outstanding 1,000 shares 1,000 1,000
Additional paid-in capital 15,068,911 7,959,553
Accumulated deficit (12,048,046) (8,928,276)
- -----------------------------------------------------------------------------------------------
Total stockholder's equity (deficit) 3,021,865 (967,723)
- -----------------------------------------------------------------------------------------------
$ 8,397,415 8,527,893
===============================================================================================
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
<TABLE>
<CAPTION>
HYSAN CORPORATION
Statements of Operations
Years ended December 31, 1996, 1995 and 1994
============================================================================================================================
1996 1995 1994
<S> <C> <C> <C>
Net sales $ 17,932,233 18,189,673 19,434,879
Cost of sales and expenses:
Cost of sales 15,800,809 16,134,021 18,168,797
Selling, general, and administrative expenses 4,925,548 4,735,222 4,676,842
- ---------------------------------------------------------------------------------------------------------------------------
Operating loss (2,794,124) (2,679,570) (3,410,760)
Interest expense 315,418 593,240 446,498
Other expense, net 10,228 32,718 10,578
- ---------------------------------------------------------------------------------------------------------------------------
Net loss $ (3,119,770) (3,305,528) (3,867,836)
===========================================================================================================================
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 7
<TABLE>
<CAPTION>
HYSAN CORPORATION
Statements of Stockholder's Equity (Deficit)
Years ended December 31, 1996, 1995 and 1994
=============================================================================================
Additional
Common paid-in Accumulated
stock capital deficit Total
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $ 1,000 7,959,553 (1,754,912) 6,205,641
Net loss -- -- (3,867,836) (3,867,836)
- ----------------------------------------------------------------------------------------------
Balance at December 31, 1994 $ 1,000 7,959,553 (5,622,748) 2,337,805
Net loss -- -- (3,305,528) (3,305,528)
- ----------------------------------------------------------------------------------------------
Balance at December 31, 1995 1,000 7,959,553 (8,928,276) (967,723)
Capital contributions from Parent -- 7,109,358 -- 7,109,358
Net loss -- -- (3,119,770) (3,119,770)
- ----------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 1,000 15,068,911 (12,048,046) 3,021,865
==============================================================================================
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 8
<TABLE>
<CAPTION>
HYSAN CORPORATION
Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
=========================================================================================================================
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(3,119,770) (3,305,528) (3,867,836)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 644,345 637,879 659,652
Loss (gain) on disposal of property,
plant, and equipment 688 90,498 (12,274)
Changes in assets and liabilities:
Decrease in trade and other accounts receivable 246,357 156,732 461,306
Decrease (increase) in inventory (46,812) 1,256,653 1,129,396
Decrease (increase) in prepaid expenses and other assets (23,586) 122,461 57,859
(Decrease) increase in accounts payable to affiliates (29,634) 215,227 (308,384)
(Decrease) increase in accounts payable and accrued liabilities (128,601) (380,029) 97,301
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (2,457,013) (1,206,107) (1,782,980)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property, plant, and equipment (422,182) (96,254) (257,333)
Proceeds from sale of property, plant, and equipment 2,500 57,005 18,500
- -------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (419,682) (39,249) (238,833)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt -- 53,943 15,876
(Decrease) increase in notes payable to bank (260,000) (500,000) 146,417
Principal payments on long-term debt (205,550) (39,962) (77,753)
Due to parent -- 1,689,431 1,934,927
Capital contributions by Parent 3,485,000 -- --
Decrease in short-term investment -- 25,000 2,582
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 3,019,450 1,228,412 2,022,049
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 142,755 (16,944) 236
Cash and cash equivalents at beginning of year 2,620 19,564 19,328
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 145,375 2,620 19,564
=========================================================================================================================
Supplemental information - cash paid during the year for interest $ 314,650 624,601 410,836
=========================================================================================================================
Supplemental disclosure of non-cash activities:
Contribution of borrowings from Parent to stockholders' equity $ 3,624,358 -- --
=========================================================================================================================
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 9
HYSAN CORPORATION
Notes to Financial Statements
December 31, 1996, 1995 and 1994
================================================================================
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Hysan Corporation (the Company), a specialty chemical manufacturer, is
a wholly owned subsidiary of WEDGE Energy Group, Inc. (the Parent).
INVENTORY
Inventory is stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are stated at cost and are depreciated
using the straight-line method over the following estimated useful
lives:
================================================================================
Years
Buildings and improvements 5-31
Machinery and equipment 5-25
Furniture and fixtures 2-12
================================================================================
Maintenance and repair costs are charged to operations, and replacements
and betterments are capitalized.
Effective January 1, 1996, the Company adopted SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of. Accordingly, in the event that facts and circumstances
indicate that property, plant and equipment may be impaired, an
evaluation of recoverability would be performed. If an evaluation is
required, the estimated future cash flows associated with the asset is
compared to the asset's carrying amount to determine if a write-down to
market value is necessary. Adoption of this standard did not have a
material effect on the financial position or results of operations of
the Company.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the year that includes the enactment date.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents.
(Continued)
9
<PAGE> 10
HYSAN CORPORATION
Notes to Financial Statements
================================================================================
CONCENTRATION OF CREDIT RISK
The Company performs credit evaluation of its customers, but does not
require collateral. Credit losses within the Company's customer base
have been within management's expectations.
USES OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent 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.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents
and short- and long-term debt. The Company believes that the carrying
value of these instruments on the accompany balance sheet approximates
their fair value.
(2) AGREEMENTS AND OTHER TRANSACTIONS WITH RELATED PARTIES
INCOME TAXES
The Company is included in the consolidated federal income tax return
with the Parent. Pursuant to a tax-sharing policy with the Parent, the
annual provision or benefit for Federal income taxes is determined as
though the Company filed a separate Federal income tax return. Any
Federal income taxes currently due are paid directly to the Parent.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
================================================================================
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 3,694 8,853
Net operating loss carryforwards 3,762,782 2,739,991
Other 90,634 112,607
- --------------------------------------------------------------------------------
Total gross deferred tax assets 3,857,110 2,861,451
Less valuation allowance (3,792,405) (2,733,277)
- --------------------------------------------------------------------------------
Net deferred tax assets 64,705 128,174
Deferred tax liabilities - differences between
book and tax depreciation 64,705 128,174
- --------------------------------------------------------------------------------
Net deferred taxes $ -- --
================================================================================
</TABLE>
The benefits of net operating losses generated in 1996, 1995 and 1994 have been
offset by a valuation allowance due to the uncertainty of the Company's ability
to utilize such benefits in future periods.
(Continued)
10
<PAGE> 11
HYSAN CORPORATION
Notes to Financial Statements
================================================================================
INSURANCE EXPENSE
Insurance coverage is provided through an affiliate. The cost of this
coverage was:
<TABLE>
<CAPTION>
================================================================================
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Insurance expense to affiliate $ 351,348 401,005 532,448
- -------------------------------------------------------------------------------
</TABLE>
LEASE AGREEMENTS
The Company leases certain office space from an affiliate under an
operating lease agreement which expires in August 1998. The lease
agreement requires monthly lease payments of approximately $10,000. Rent
expense paid to the affiliate was $114,281 in 1996, $126,646 in 1995,
and $115,984 in 1994.
SUPPORT FROM PARENT
At December 31, 1995, the Company owed its Parent $3,624,358. This
amount was comprised of $578,307 related to a promissory note due
December 31, 1998 and $3,046,051 of borrowings under a borrowing
arrangement which allowed the Company to borrow up to $4,000,000 from
its Parent. These borrowings bear interest at Wells Fargo (formerly
First Interstate Bank) prime plus 1%. Subsequent to December 31, 1995,
the Company entered into an arrangement with its Parent whereby the
Company converted the outstanding debt owed to the Parent to additional
paid-in capital. In addition, the Company received capital contributions
of $3,485,000 from the Parent in 1996. Management believes this will
give the Company sufficient resources to continue its effort to
restructure its operations and gain operational profitability.
In recent years, the Company has incurred significant losses from
operations. The Company has relied upon borrowing from its Parent to
fund the cash deficiencies created by the operational losses. Recently,
the Company has restructured its manufacturing operations and has closed
certain facilities, consolidated certain job functions, and reduced the
number of employees in an attempt to reduce the operational losses.
While management feels these changes will have a positive impact on the
future operations of the Company, there can be no assurance that
operational profitability will be achieved.
DUE TO PARENT AND AFFILIATES
Amounts due to the Parent and affiliates included in current liabilities
are funds advanced for operations and insurance.
(Continued)
11
<PAGE> 12
<TABLE>
<CAPTION>
=======================================================================================================
(3) INVENTORY
Inventory consisted of the following:
- -------------------------------------------------------------------------------------------------------
1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and supplies $ 1,612,274 1,217,444
Work in process 723,521 1,072,273
Finished goods 959,442 958,708
- -------------------------------------------------------------------------------------------------------
$ 3,295,237 3,248,425
- -------------------------------------------------------------------------------------------------------
</TABLE>
(4) NOTES PAYABLE TO BANK
Notes payable at December 31, 1996 and 1995 consisted
of the following:
<TABLE>
<CAPTION>
=======================================================================================================
1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
$2,000,000 short-term revolving bank note secured by accounts
receivable, inventory and general intangibles, due May 1,
1997 and August 1, 1996 respectively, interest payable
monthly at bank's prime rate plus 4% (12.25% at
December 31, 1996) $ 1,701,417 1,961,417
- -------------------------------------------------------------------------------------------------------
$ 1,701,417 1,961,417
=======================================================================================================
Long-term debt at December 31, 1996 and 1995 consisted of the
following:
=======================================================================================================
1996 1995
- -------------------------------------------------------------------------------------------------------
Long-term note payable in monthly installments
of $4,167 through 1997 $ 45,833 100,000
Equipment note secured by equipment, payable
in monthly installments of $8,183, including
interest at 11.75%, through March 1997 23,555 133,046
- -------------------------------------------------------------------------------------------------------
69,388 233,046
Less current maturities (69,388) (140,644)
- -------------------------------------------------------------------------------------------------------
Long-term debt, less current maturities $ -- 92,402
=======================================================================================================
</TABLE>
(Continued)
12
<PAGE> 13
HYSAN CORPORATION
Notes to Financial Statements
===============================================================================
In 1995, the Company entered into an agreement to consolidate the unpaid
balance of the short-term revolving bank note and term loan. The terms
of the current agreement include monthly reductions on the revolving
limit and full payment of the balance on May 1, 1997. Interest is
payable monthly at bank's prime rate plus 4%. The Company is currently
in compliance with the terms of the agreement.
In addition, the Company entered into two capital lease agreements in
1996 relating to office space and equipment. The obligation outstanding
for these capital leases at December 31, 1996 was $86,185 of which
$50,857 is due in 1997.
(5) OBLIGATIONS UNDER CAPITAL LEASES
The Company leases a filling machine and office facilities. The leases
were classified as capital leases for financial reporting purposes.
The assets and liabilities under capital leases are recorded at the
lower of the present value of the minimum lease payments or the fair
value of the asset. The assets are amortized over the lower of their
related lease terms of their estimated productive lives.
The filling machine lease expires on October 31, 1997. The office
facilities lease expires in April 2000. Interest rates on these leases
vary from 6% to 9%.
The following is a schedule by year of future minimum lease payments
under capital leases together with the present value of the net minimum
lease payments as of December 31, 1996:
<TABLE>
<CAPTION>
================================================================================
Year ending
December 31 Total
- --------------------------------------------------------------------------------
<S> <C>
1997 $56,614
1998 16,842
1999 16,842
2000 5,615
- --------------------------------------------------------------------------------
Total minimum lease payments 95,913
Less amount representing interest 9,728
- --------------------------------------------------------------------------------
Present value of net minimum lease payments 86,185
Less current portion 50,857
- --------------------------------------------------------------------------------
$35,328
================================================================================
</TABLE>
(Continued)
13
<PAGE> 14
HYSAN CORPORATION
Notes to Financial Statements
- --------------------------------------------------------------------------------
Interest expense reported on these obligations was $3,967 in 1996. The
office facilities lease requires that the Company pay all operating
expenses and related taxes.
(6) COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
Operating lease commitments consist primarily of building and equipment
leases. Future minimum lease commitments under operating lease
agreements are:
<TABLE>
<CAPTION>
================================================================================
Years ending Operating
December 31, leases
- --------------------------------------------------------------------------------
<S> <C> <C>
1997 $349,710
1998 191,824
1999 91,409
2000 85,302
2001 32,424
Thereafter -
- --------------------------------------------------------------------------------
$750,669
================================================================================
</TABLE>
Rent expense was $701,413, $571,897 and $921,269 for 1996, 1995 and
1994, respectively.
The equipment lease agreements generally require the Company to pay
personal property taxes, maintenance, and insurance premiums related to
leased assets. Upon expiration of lease terms, the Company may purchase
leased equipment at its then market value plus applicable sales taxes,
or renew the lease agreements at the fair rental value of the equipment.
LITIGATION
In February 1996, the Company settled a lawsuit with a landlord of a
rented facility. As part of the settlement, the Company has been
released from any claims asserted for unpaid rent and the cost of
repairs. The amounts owed under the settlement are reflected in the
December 31, 1995 financial statements.
During 1994, the Company manufactured and delivered a product to a
customer that was sold under the customer's label. In November 1994, the
customer received reports that certain cans of the product had ruptured
and leaked. The customer undertook a program to recall the problem batch
of product which allegedly ruptured and leaked, Subsequently, in January
1995, the customer filed suit to recover the costs of the recall
program.
In December 1995, the Company reached an agreement with the customer
resulting in the payment of certain amounts and allowing the customer to
purchase certain products at discounts off standard list prices.
(Continued)
14
<PAGE> 15
HYSAN CORPORATION
Notes to Financial Statements
- --------------------------------------------------------------------------------
The Company is involved in other claims and legal matters in the
ordinary course of business. It is management's belief that these claims
will not have a significant effect on the Company's financial position
or results of operations.
(7) EMPLOYEE BENEFIT PLAN
The Savings Plan for Employees of Hysan Corporation (the Plan) was
established on January 1, 1987 under Sections 401(a) and 401(k) of the
Internal Revenue Code. Nonunion employees who are at least 20-1/2 years
of age are eligible to participate in the Plan. The Plan is funded by
employee contributions and Company contributions. Employees may
contribute to the Plan up to 15% of their salary. No Company
contributions were made to the Plan during the years ended December 31,
1996, 1995 and 1994.
(8) EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF THE
INDEPENDENT AUDITOR
In May 1997, the Company sold the majority of its assets, excluding land
and buildings and related improvements, to an unrelated party and ceased
substantially all operations. Continuing operations consist primarily of
liquidating remaining assets.
15
<PAGE> 16
Item 7.b. Unaudited Interim Financial Statements of Businesses Acquired
Hysan Corporation
Condensed Balance Sheet
(Amounts in Thousands)
<TABLE>
<CAPTION>
March 31, 1997
(Unaudited)
-----------
<S> <C>
Current assets
Cash and cash equivalents $ 86
Accounts Receivable 1,771
Inventories 2,694
Other 313
-------
Total current assets 4,864
Property, plant and equipment
At cost 8,301
Less accumulated depreciation
and amortization (5,567)
-------
2,734
Other assets 2
-------
Total assets $ 7,600
=======
</TABLE>
See accompanying Notes to Financial Statements
<PAGE> 17
Hysan Corporation
Condensed Balanced Sheet (continued)
(Amounts in Thousands)
<TABLE>
<CAPTION>
March 31, 1997
(Unaudited)
-----------
<S> <C>
Current liabilities
Current maturities $1,688
Accounts payable 2,118
Accrued expenses 928
------
Total current liabilities 4,734
Long-term obligations 635
Stockholders' equity 2,231
------
$7,600
======
</TABLE>
See accompanying Notes to Financial Statements
<PAGE> 18
Hysan Corporation
Condensed Statement of Operations
(Amounts in Thousands)
For the 3 month period ended:
<TABLE>
<CAPTION>
March 31, 1997
(Unaudited)
-----------
<S> <C>
Net sales $3,768
Cost of goods sold 3,558
------
Gross profit 210
Selling, general and administrative expenses 714
------
Operating profit (504)
Other (income) expense
Interest expense 62
Other 225
------
287
------
Earnings (loss) before income taxes (791)
Income taxes -
------
Earnings (loss) $ (791)
======
</TABLE>
See accompanying Notes to Financial Statements
<PAGE> 19
Hysan Corporation
Condensed Statement of Cash Flows
(Amounts in Thousands)
For the 3 month period ended:
<TABLE>
<CAPTION>
March 31, 1997
(Unaudited)
-----------
<S> <C>
Net cash (used) by operating activities $(649)
Net cash (used) by investing activities (10)
Cash flows from financing activities:
Proceeds from parent 600
-----
Net (decrease) in cash and cash equivalents (59)
Cash and cash equivalents at beginning of period 145
-----
Cash and cash equivalents at end of period $ 86
=====
</TABLE>
See accompanying Notes to Financial Statements
<PAGE> 20
Hysan Corporation
Notes to Financial Statements
Note A -- Summary of Significant Accounting Policies
The accompanying unaudited financial statements have been prepared by
the management of Specialty Chemical from information acquired in the
acquisition process that we believe is in conformity with generally accepted
accounting principles and includes all normal adjustments of a recurring nature
and are, in the opinion of current management, necessary to present fairly the
financial position of Hysan at March 31, 1997 and the results of operations and
cash flows for the interim period ended March 31, 1997.
Note B -- Inventories
Inventories are stated at the lower of cost or market determined by the
first-in, first-out (FIFO) method.
Hysan's inventories (amounts in Thousands) consisted of the following at:
<TABLE>
<CAPTION>
March 31, 1997
--------------
<S> <C>
Raw materials $1,698
Finished goods 996
------
Total FIFO cost $2,694
======
</TABLE>
<PAGE> 21
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following Pro Forma Condensed Consolidated Statements of Income for
the three months ended March 31, 1997 and for the year ended December 31, 1996
present unaudited pro forma operating results for SCR as if the acquisition of
certain assets of Hysan by the Company, which was consummated on May 22, 1997
(the "Transaction") had occurred as of the beginning of the periods presented.
The following Pro Forma Condensed Consolidated Balance Sheet as of March 31,
1997 presents the unaudited pro forma financial condition of SCR as if the
Transactions had occurred as of March 31, 1997.
The unaudited pro forma adjustments are described in the accompanying
notes. The unaudited pro forma adjustments represent SCR's preliminary
determination of the necessary adjustments and are based upon certain
assumptions SCR considers reasonable under the circumstances. Final amounts may
differ from those set forth below. The unaudited pro forma financial information
presented does not consider any future events which may occur after the
acquisition of the assets.
THE UNAUDITED PRO FORMA FINANCIAL INFORMATION IS PRESENTED FOR
INFORMATIONAL PURPOSES ONLY AND IS NOT NECESSARILY INDICATIVE OF THE OPERATING
RESULTS OR FINANCIAL POSITION THAT WOULD HAVE OCCURRED HAD THE TRANSACTIONS BEEN
CONSUMMATED AT THE DATES INDICATED, NOR IS IT NECESSARILY INDICATIVE OF THE
FUTURE OPERATING RESULTS OR FINANCIAL POSITION OF SCR FOLLOWING THE ACQUISITION
OF ASSETS.
The unaudited pro forma condensed financial information should be read
in conjunction with the financial statements and the related notes thereto
contained in (i) SCR's Annual Report on Form 10K for the year ended December 31,
1996, (ii) SCR's Quarterly Report on Form 10-Q for the quarter ended March 31,
1997, and (iii) the financial statements of Hysan and the notes thereto
contained herein.
16
<PAGE> 22
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Condensed Statement of Operations
For the 3 month period ended March 31, 1997
(Amounts in thousands, except for share and per share data)
SCR Hysan Adjustments
March 31, March 31, For Adjusted
1997 1997 Acquisition Notes Pro Forma
--------- ---------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
Net Sales $ 10,197 $ 3,768 ($ 1,065) (1) $ 12,900
(1,004) (1)
(90) (2)
Total Cost of Goods Sold 8,169 3,558 (57) (4) 10,576
-------- -------- -------- --------
Gross Margin 2,028 210 86 2,324
Selling, General & 90 (2)
Administration Expense 1,577 714 (375) (3) 2,006
Amortization of Intangibles 259 -0- -0- 259
-------- -------- -------- --------
Operating Income (loss) 192 (504) 371 59
Interest Expense 258 62 101 (5) 421
Other (22) 225 (225) (3) (22)
-------- -------- -------- --------
Net Income(Loss)Before Taxes (44) (791) 495 (340)
Income Taxes(Benefit) -0- -0- -0- (6) -0-
-------- -------- -------- --------
Net Income (Loss) (44) (791) 495 (340)
======== ======== ======== ========
Earnings(loss)per common share: $ (.01) $ (.09)
Weighted average shares outstanding: 3,882,102 3,882,102
</TABLE>
17
<PAGE> 23
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Condensed Balance Sheets
March 31, 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
SCR Hysan Adjustments
March 31, March 31, For Adjusted
1997 1997 Acquisition Notes Pro Forma
--------- --------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash $ 134 $ 86 $ (86) (7) $ 134
Accts. Rec 5,446 1,771 110 (8) 7,327
Inventory 6,210 2,694 62 (8) 8,966
Other Assets 255 313 (152) (7) 416
------- ------- ------- -------
Total Current Assets 12,045 4,864 (66) 16,843
------- ------- ------- -------
Long-Term Assets:
(1,424) (7)
Fixed Assets-Net 9,637 2,734 677 (8) 11,624
Goodwill 21,041 -0- 21,041
Other 233 2 (2) 233
------- ------- ------- -------
Total Long Term Assets 30,911 2,736 (749) 32,898
------- ------- ------- -------
Total Assets 42,956 7,600 (815) 49,741
------- ------- ------- -------
Current Liabilities:
Trade Payables 3,549 2,118 (2,118) (7) 3,549
Other 1,213 2,616 (2,616) (7) 1,213
------- ------- ------- -------
Total Current Liabilities: 4,762 4,734 (4,734) 4,762
Long-Term Liabilities:
(35) (5)
Long Term Obligations 11,676 35 6,585 (5) 18,461
200 (5)
Payable to Parent -0- 600 (600) (5) -0-
------- ------- ------- -------
Total L-T Liabilities 11,676 635 6,150 18,461
Shareholders Equity 26,518 2,231 (2,231) 26,518
------- ------- ------- -------
Total Liabilities & Equity $42,956 $ 7,600 $ (815) $49,741
======= ======= ======= =======
</TABLE>
18
<PAGE> 24
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Condensed Statement of Operations
For the year ended December 31, 1996
(Amounts in thousands, except for share and per share data)
<TABLE>
<CAPTION>
SCR Hysan Adjustments
December 31, December 31, For Adjusted
1996 1996 Acquisition Notes Pro Forma
----------- ----------- ----------- ------ -----------
<S> <C> <C> <C> <C> <C>
Net Sales $ 38,914 $ 17,932 ($ 3,136) (1) $ 53,710
(3,042) (1)
(360) (2)
Total Cost of Goods Sold 32,783 15,801 (226) (4) 44,956
----------- ----------- ----------- -----------
Gross Margin 6,131 2,131 492 8,754
Selling, General & 360 (2)
Administration Expense 6,067 4,925 (3,567) (3) 7,785
Amortization of Intangibles 907 -0- -0- 907
----------- ----------- ----------- -----------
Operating Income (loss) (843) (2,794) 3,699 62
Interest Expense 1,059 316 334 (5) 1,709
Other (11) 10 (10) (3) (11)
----------- ----------- ----------- -----------
Net Income(Loss)Before Taxes (1,891) (3,120) 3,375 (1,636)
Income Taxes(Benefit) (128) -0- -0- (6) (128)
----------- ----------- ----------- -----------
Net Income (Loss) (1,763) (3,120) 3,375 (1,508)
=========== =========== =========== == ===========
Earnings(loss)per common share: $ (.45) $ (.38)
Weighted average shares outstanding: 3,945,618 3,945,618
</TABLE>
19
<PAGE> 25
Notes to Financial Statements:
Includes
- --------
(1) Adjustments to Hysan's net sales and cost of goods sold associated with
business lost by Hysan during 1997.
(2) To reclassify Hysan's historical costs for freight-out to customers
from cost of goods sold to selling expense to conform them to the cost
structure associated with the Company.
(3) Removal of Hysan's Selling, General & Administrative and other expense
which were not acquired and the addition of incremental SG&A by the
Company in conjunction with the acquisition.
(4) Reduced depreciation and amortization costs based upon the allocation
of the purchase price of the Hysan acquisition.
(5) Represents the elimination of Hysan debt and interest expense and the
addition of $6,585 of new debt under the Company's amended financing
agreement, and use of the line of credit of $200 for expenses related
to this transaction.
(6) Because of the Company's loss and tax position, no addition tax effect
is included.
(7) Represents the elimination of assets and liabilities reflected on the
historical financial statements of Hysan but not acquired by the
Company.
(8) Represents adjustments associated with the allocation of the estimated
purchase price for the Hysan acquisition. The purchase price related to
the acquisition of Hysan was approximately $6,785 including $677 of
related expenses. The purchase price is subject to adjustment based
upon final disposition of accounts receivable and inventory. The
allocation of the estimated purchase price for the acquisition is as
follows:
Accounts Receivable............................ $1,881
Inventory...................................... 2,756
Prepaid Expense................................ 161
Fixed Assets................................... 1,987
------
Total.......................................... $6,785
======
20
