-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FDVmeNjaHTflSg1h1IQ+g0et9ab5HoGQxTLsqZ3B0i9hHc3pFF+htmIBBYKhqV8A F9CCm87/dGtlWCdyhKHGDQ== 0000950152-99-000276.txt : 19990120 0000950152-99-000276.hdr.sgml : 19990120 ACCESSION NUMBER: 0000950152-99-000276 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970606 ITEM INFORMATION: FILED AS OF DATE: 19990119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECIALTY CHEMICAL RESOURCES INC CENTRAL INDEX KEY: 0000703645 STANDARD INDUSTRIAL CLASSIFICATION: SPECIALTY CLEANING, POLISHING AND SANITATION PREPARATIONS [2842] IRS NUMBER: 341366838 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-11013 FILM NUMBER: 99508097 BUSINESS ADDRESS: STREET 1: 9055 FREEWAY DR CITY: MACEDONIA STATE: OH ZIP: 44056 BUSINESS PHONE: 2164681380 MAIL ADDRESS: STREET 1: 9055 FREEWAY DRIVE CITY: MACEDONIA STATE: OH ZIP: 44056 FORMER COMPANY: FORMER CONFORMED NAME: MOMENTUM INC DATE OF NAME CHANGE: 19920105 FORMER COMPANY: FORMER CONFORMED NAME: ELECTRONIC THEATRE RESTAURANTS CORP DATE OF NAME CHANGE: 19870120 8-K/A 1 SPECIALITY CHEMICAL RESOURCES, INC. 8-K/A 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. ---------------- 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 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 4
HYSAN CORPORATION Balance Sheets December 31, 1996 and 1995 ======================================================================================== ASSETS 1996 1995 - ---------------------------------------------------------------------------------------- Current assets: 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 ========================================================================================
See accompanying notes to financial statements 4 5
HYSAN CORPORATION Balance Sheets December 31, 1996 and 1995 =============================================================================================== LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) 1996 1995 - ----------------------------------------------------------------------------------------------- Current liabilities: 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 ===============================================================================================
See accompanying notes to financial statements. 5 6
HYSAN CORPORATION Statements of Operations Years ended December 31, 1996, 1995 and 1994 ============================================================================================================================ 1996 1995 1994 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) ===========================================================================================================================
See accompanying notes to financial statements. 6 7
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 - ---------------------------------------------------------------------------------------------- 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 ==============================================================================================
See accompanying notes to financial statements. 7 8
HYSAN CORPORATION Statements of Cash Flows Years ended December 31, 1996, 1995 and 1994 ========================================================================================================================= 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------- 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 -- -- =========================================================================================================================
See accompanying notes to financial statements. 8 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 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:
================================================================================ 1996 1995 - -------------------------------------------------------------------------------- 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 $ -- -- ================================================================================
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 11 HYSAN CORPORATION Notes to Financial Statements ================================================================================ INSURANCE EXPENSE Insurance coverage is provided through an affiliate. The cost of this coverage was:
================================================================================ 1996 1995 1994 - ------------------------------------------------------------------------------- Insurance expense to affiliate $ 351,348 401,005 532,448 - -------------------------------------------------------------------------------
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 12
======================================================================================================= (3) INVENTORY Inventory consisted of the following: - ------------------------------------------------------------------------------------------------------- 1996 1995 - ------------------------------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------------------------------
(4) NOTES PAYABLE TO BANK Notes payable at December 31, 1996 and 1995 consisted of the following:
======================================================================================================= 1996 1995 - ------------------------------------------------------------------------------------------------------- $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 =======================================================================================================
(Continued) 12 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:
================================================================================ Year ending December 31 Total - -------------------------------------------------------------------------------- 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 ================================================================================
(Continued) 13 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:
================================================================================ Years ending Operating December 31, leases - -------------------------------------------------------------------------------- 1997 $349,710 1998 191,824 1999 91,409 2000 85,302 2001 32,424 Thereafter - - -------------------------------------------------------------------------------- $750,669 ================================================================================
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 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 16 Item 7.b. Unaudited Interim Financial Statements of Businesses Acquired Hysan Corporation Condensed Balance Sheet (Amounts in Thousands)
March 31, 1997 (Unaudited) ----------- 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 =======
See accompanying Notes to Financial Statements 17 Hysan Corporation Condensed Balanced Sheet (continued) (Amounts in Thousands)
March 31, 1997 (Unaudited) ----------- 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 ======
See accompanying Notes to Financial Statements 18 Hysan Corporation Condensed Statement of Operations (Amounts in Thousands) For the 3 month period ended:
March 31, 1997 (Unaudited) ----------- 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) ======
See accompanying Notes to Financial Statements 19 Hysan Corporation Condensed Statement of Cash Flows (Amounts in Thousands) For the 3 month period ended:
March 31, 1997 (Unaudited) ----------- 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 =====
See accompanying Notes to Financial Statements 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:
March 31, 1997 -------------- Raw materials $1,698 Finished goods 996 ------ Total FIFO cost $2,694 ======
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 22
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 --------- ---------- ----------- ----- --------- 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
17 23 UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION Condensed Balance Sheets March 31, 1997 (Amounts in thousands)
SCR Hysan Adjustments March 31, March 31, For Adjusted 1997 1997 Acquisition Notes Pro Forma --------- --------- ----------- ----- --------- 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 ======= ======= ======= =======
18 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)
SCR Hysan Adjustments December 31, December 31, For Adjusted 1996 1996 Acquisition Notes Pro Forma ----------- ----------- ----------- ------ ----------- 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
19 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 -----END PRIVACY-ENHANCED MESSAGE-----