<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10K/A

                                  ANNUAL REPORT

                       Pursuant to Section 13 or 15 (d) of
                       the Securities Exchange Act of 1934

For the calendar year ended December 31, 1997 Commission file no 1-11013
                            -----------------                    -------

                       SPECIALTY CHEMICAL RESOURCES, INC.
                       ----------------------------------
             (Exact name of registrant as specified in its charter)

                   Delaware                                   34-1366838
       -------------------------------                   -----------------
           (State of incorporation)                  (I.R.S. Employer I.D. No.)

                  9055 S. Freeway Drive, Macedonia, Ohio         44056
                  --------------------------------------         -----
                 (Address of principal executive offices)      (Zip Code)

Registrant's telephone number, including area code:   (330) 468-1380
                                                     ---------------------

Securities registered pursuant to Section 12(b) of the Act:

                     Common Stock, par value $.10 per share.

Securities registered pursuant to Section 12(g) of the Act: None
                                                           -------

        Indicate by 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 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 90 days. Yes   x   No
                                              -----   ------

        Indicate by checkmark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes   x   No 
                                 -----    ------

        The aggregate market value of voting stock held by nonaffiliates of the
Registrant as of February 27, 1998 was $3,795,440.

        As of February 27, 1998, 3,882,261 shares of the Registrant's Common
Stock were outstanding.

Documents Incorporated by Reference: The registrant's definitive proxy statement
for its 1998 Annual Meeting of Stockholders, which the registrant intends to
file with the Securities and Exchange Commission within 120 days of the close of
its fiscal year end, December 31, 1997, is incorporated by reference in Part III
of this Annual Report on Form 10-K from the date of filing of such document.




                                  Page 1 of 8
<PAGE>   2

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS


GENERAL. This discussion should be read in conjunction with the information
contained in the Financial Statements and Notes thereto of the Company contained
elsewhere in this Report.





                                  Page 2 of 8
<PAGE>   3


RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage of net
sales of certain items included in the Company's Statement of Operations.
<TABLE>
<CAPTION>
                                                    Year Ended December 31,
                                                  -----------------------------
                                                  1997        1996        1995
                                                  ----        ----        ----

<S>                                              <C>         <C>         <C>   
Net Sales ..................................     100.0%      100.0%      100.0%
  Cost of goods sold .......................      83.4%       84.2%       90.1%
                                                  ----        ----        ----
Gross profit ...............................      16.6%       15.8%        9.9%

Selling, general and administrative
  expenses .................................      17.2%       15.6%       17.6%
Amortization of intangibles ................       2.5%        2.3%        2.0%
Impairment of long lived assets ............      45.9%       --          --
                                                  ----        ----        ----
Operating profit(loss) .....................     (49.0%)      (2.2%)      (9.7%)
Interest and expense .......................       3.5%        2.7%        1.8%
</TABLE>


FISCAL YEAR ENDED DECEMBER 31, 1997 AS COMPARED TO 1996

         The Company's results include the results attributable to the
acquisition of the Hysan Assets as of May 22, 1997. Net sales $40,284,000 for
the year ended December 31, 1997 were $1,370,000, or 3.5% above the comparable
period in the prior year. $4,867,000 of the current year net sales were
attributed to the acquisition of Hysan Assets. Excluding acquisition related
sales, net sales for the year ended December 31, 1997 were $35,417,000;
$3,497,000, or 9.0% below the comparable period in the prior year. This
reduction in net sales for the year is due primarily to production shortfalls
caused by the difficulty of integrating the Hysan operations.

         Cost of goods sold for the year ended December 31, 1997, increased by
$845,000 as compared to cost of goods sold for the same period in the prior
year. All of this increase was due to increased sales unit volume during the
year ended December 31, 1997, attributable to the acquisition of Hysan. Cost of
goods sold decreased as a percentage of net sales from 84.3% to 83.4% for the
year ended December 31, 1996 and 1997, respectively. The decrease as a percent
of net sales was due primarily to higher unit pricing in 1997.

         Selling, general and administrative expenses were $6,904,000 for the
year ended December 31, 1997, or 17.1% of net sales. Selling, general and
administrative expenses were $6,067,000, or 15.6% of net sales for year ended
December 31, 1996. The increase in selling, general and administrative expenses
was due primarily to increased shipping costs of $334,000 as a result of
operational disruptions and increased sales salary and commission costs
of $185,000 both related to the Hysan acquisition.

         At December 31, 1997, in accordance with FAS 121, the Company estimated
its undiscounted cash flows from operations which results indicate that an
impairment of long-lived assets exists and that a write-down to fair value is
required. The Company utilized an independent third party appraiser to determine
fair value based upon expected future cash flows from operations discounted at a
rate commensurate with the risks involved. Based upon the valuation performed,
the Company recorded a non-cash charge of $18,501,000 which is reflected as a
reduction in the carrying amount of goodwill.





                                  Page 3 of 8

<PAGE>   4


         Interest expense for the year ended December 31, 1997, was 3.5% of net
sales versus 2.7% for the comparable period in the prior year. Interest expense
was $1,405,000 for the year ended December 31, 1997, as compared to $1,059,000
for the year ended December 31, 1996. The increase in interest expense is due to
increased borrowing under the Company's senior credit facility resulting from
the acquisition as well as full year accrual of interest on the 6% convertible
subordinated debentures. See "Liquidity and Capital Resources".

         The Company recorded a net loss for the year ended December 31, 1997,
of $21,085,000, or $5.43 per share on weighted average shares outstanding of
3,882,264. The charge for impairment of long-lived assets accounted for
$18,501,000 of the loss, or $4.77 per share. This compared to a net loss of
$1,762,713, or $.45 per share on weighted average shares outstanding of
3,945,618 for the same period in the prior year. The decrease in earnings for
the 1997 period is due primary to the non-cash charge incurred with the
impairment of long-lived assets (Described above).


FISCAL YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO 1995

         Net sales of $38,914,000 for the year ended December 31, 1996, were
$4,505,000 or 10.4% below the prior year. The decrease was a result of the
Company's efforts to reduce low margin sales, lower demand from automotive and
industrial customers as well as decreased sales of its electronics cleaning
products.

         Cost of goods sold for the year ended December 31, 1996, decreased by
$6,340,000 or 16.2% as compared to cost of goods sold for the same period in the
prior year. This decrease was due principally to reduced sales during the year
ended December 31, 1996, and cost reduction efforts in manufacturing labor and
overhead. Cost of goods sold decreased as a percentage of net sales from 90.1%
to 84.2% for the year ended December 31, 1995, and 1996 respectively. Of the
5.9% decrease, 5.0% was due to higher unit pricing and 0.7% was due to cost
reduction efforts in manufacturing labor and overhead.

         Selling, general, and administrative expenses were $6,067,000 for the
year ended December 31, 1996, or 15.6% of net sales. Selling, general and
administrative expenses were $7,648,000, or 17.6% of net sales for the same
period in 1995 including $650,000 of non-recurring cost for a proxy Contest
(described below). The remaining decrease in 1996 selling, general and
administrative expense is due to cost reduction efforts, lower compensation
costs, and lower bad debt expense as a result of settling a fully reserved
account.

         Interest expense for the year ended December 31, 1996, was 2.7% of net
sales versus 1.8% for the comparable period in the prior year. Interest expense
was $1,059,000 for the year ended December 31, 1996, an increase of $280,000,
from the year ended December 31, 1995. This increase is due to increased
borrowing under the senior credit facility as well as an increase in the
Company's interest rate during the first nine months of the year. The increase
in interest expense as a percentage of net sales is due primarily to reduced
sales. See "Liquidity and Capital Resources".

         The Company recorded a net loss for the year ended December 31, 1996, 
of $1,762,713 or $.45 per share on weighted average shares outstanding of
3,945,618. This compared to a net loss of $2,008,606, or $.51 per share on
weighted average shares outstanding of 3,939,348.





                                  Page 4 of 8

<PAGE>   5


INCOME TAXES AND NET OPERATING LOSS CARRYFORWARDS

         As of December 31, 1997, the Company had approximately $11,335,000 of
net operating loss carryforwards. However, due to a change in ownership during
1992, the Company has an annual limitation of approximately $850,000 in the
utilization of its net operating loss carryforwards. In addition, due to losses
in 1997, 1996 and 1995 and the realization in 1994 of built-in gains,
approximately $10,000,000 of the carryforwards may be utilized beyond the
current annual limitation to offset future taxable income. Except as discussed
below, and subject to limitations of the Internal Revenue Code of 1986, as
amended (the "Code"), the NOLs should be available to offset future income of
the Company. Use of the NOLs to reduce future taxable income may subject the
Company to an alternative minimum tax.

         Section 382 of the Code limits the amount of a corporation's taxable
income which can be offset by NOLs arising prior to an "ownership change". An
ownership change occurs when the percentage of stock owned by 5 percent
shareholders, or group of 5 percent shareholders, increases over 50 percent over
a three year period. For example, an ownership change would occur if shares
comprising more than 50 percent of a corporation's stock are sold to new public
shareholders. As a result of the public offering in February 1992 and the
ownership change that occurred in connection therewith, the limitation on the
utilization of the NOLs imposed by Section 382 of the Code will apply. Under the
limitation, the amount of the Company's taxable income that each year can be
offset by NOLs attributable to periods before the ownership change cannot exceed
the product of (I) the fair market value of the stock of the Company immediately
prior to the ownership change and (ii) the long-term tax-exempt rate prescribed
by the IRS. The limitation imposed by the change in ownership may result in the
Company paying income taxes in excess of the amount payable in the absence of a
change in ownership.

         The Company had no income tax expense in 1997. The income tax benefit
of $127,600 for the year ended December 31, 1996, consists of approximately
$11,000 of current federal income taxes and approximately $138,600 of deferred
tax benefits. The income tax benefit of $2,981,000 for the year ended December
31, 1995, consists of $1,006,000 of current refundable federal income taxes and
approximately $1,975,000 of deferred federal income tax benefits.


LIQUIDITY AND CAPITAL RESOURCES

         As of December 31, 1997, the Company's ratio of current assets to
current liabilities was 1.75 to 1 and the quick ratio (cash and cash
equivalents, and accounts receivable, divided by current liabilities) was .66 to
1. As of December 31, 1996, the Company's ratio of current assets to current
liabilities was 2.48 to 1 and the quick ratio (described above) was 1.26 to 1.
The decrease in liquidity is due primarily to increases in the current portion
of the Company's long debt under the senior credit facility and increased
accounts payable to support higher inventory levels from the integration of the
Hysan operations.

         During the twelve months ended December 31, 1997, the Company incurred
$1,405,000 in interest expense, of which $240,000 was accrued to the carrying
value of the 6% convertible subordinated debentures, and made interest payments
totaling $1,124,000. Accrued interest at December 31, 1997, was $108,000.
Accrued interest reflected in the carrying value of the 6% convertible
subordinated debentures was $290,000 at December 31, 1997.

         On May 22, 1997 the Company, in connection with the acquisition of the
Hysan Assets, executed an amendment to its current agreement (the "Credit
Agreement") with its senior lender Star Bank, N.A. The amended Credit Agreement
provides for the $15,000,000 facility which expires on December 31, 2000,
comprised of a revolving line of credit and three term loans secured by the
inventory, accounts receivable and machinery and equipment of Specialty
Chemical. Borrowings


                                  Page 5 of 8



<PAGE>   6

on the revolving line of credit and two of the term loans bear interest at the
prime rate plus 1.5%, subject to decrease if certain ratios and financial tests
are met. The first of these two term loans for $2,680,000 amortizes in
forty-seven consecutive monthly installments of $55,833 commencing June 1, 1998
with a forty-eighth and final principal payment of $55,849. The second of these
term loans for $1,500,000 amortizes in four equal consecutive monthly payments
of $375,000 commenced on July 1, 1997 and was paid off in 1997. The third term
loan bears interest at the prime rate plus 4.5%, subject to decrease if certain
financial tests are met. This term loan for $1,000,000 amortizes in seventeen
consecutive monthly installments of $55,555 commencing July 1, 1997 with an
eighteenth and final installment of $55,565.

         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. Based on 1997 financial performance the senior lender has revised
the various covenants by amending the Credit Agreement. The Company is currently
in compliance with all of the covenants. Such amendment requires that such
financial covenants for the future be revised in a form mutually agreeable to
the bank and the Company no later than May 15, 1998. Such amendment further
requires that the Company provide an acceptable plan to the bank no later than
April 30, 1998 to provide additional capital for the Company and consummate such
plan no later than May 30, 1998. The failure to do so would constitute an event
of default under the Credit Agreement. As of December 31, 1997, approximately
$591,000 as unused and available under the Credit Agreement.

         In addition to the Credit Agreement, the Company is a borrower under an
installment note dated October 15, 1995 to a bank. The borrowing is
collateralized by a building which serves as the Company's distribution center
and corporate offices. Interest is payable monthly at l/4% over the bank's prime
rate. As of December 31, 1997, the Company had $794,013 remaining on the note.
Effective January, 1998, the Company refinanced the mortgage with a new
$1,125,000 with a new bank. The note, which bears interest at 8.75%, requires
twelve monthly interest only payments until February 1, 1999. Commencing on
February 1, 1999, the note requires 167 monthly principal and interest payments
of $11,790, the final payments being due on November 1, 2012. The borrowing is
collateralized by a facility which serves as the Company's distribution center
and corporate offices.

         Other than the interest and loan amortization commitments described
above, Specialty Chemical had no other material commitments for capital leases,
interest or fees. (See note D - Long-Term Debt and Note E - Commitments and
Contingencies.)

         On May 22, 1997, the Company acquired the Hysan Assets for an estimated
purchase price of $7,432,000 including of expenses related to the transaction.
The asset purchase agreement required that $500,000 of the purchase price be
deposited in escrow with a bank in order to secure any adjustments to the
purchase price that may be necessary pursuant to the asset purchase agreement
and to secure Hysan's indemnification obligations thereunder. The purchase price
is subject to adjustment based upon the final disposition of accounts receivable
and inventory. The Company believes that it is entitled to certain adjustments
and recoveries from such escrow. Such adjustments and recoveries are being
disputed by the Seller. During the third quarter of 1997 the Company incurred an
additional $225,000 of expenditures relating to the acquisition.

         Net cash provided by operating activities was $4,376,000 in 1997,
versus cash used of $587,000 for 1996, and net cash used by operating activities
of $2,650,000 for 1995. Net capital expenditures were $932,000, $156,000, and
$3,685,000 respectively, for the three years 1997, 1996, and 1995. The Company
expects to spend approximately $800,000 in capital expenditures for 1998 to be
funded from operating cash flows and borrowings under the senior credit



                                  Page 6 of 8



<PAGE>   7

facility. Under current business conditions, and assuming that the Company and
its senior lender agree on revised financial covenants and the plan to provide
additional capital is consummated on a timely basis, the Company expects no
significant change in its liquidity position during the current fiscal year.


                                  Page 7 of 8
<PAGE>   8


                                            PART IV

     ITEM 14. EXHIBITS; FINANCIAL STATEMENT SCHEDULES; REPORTS ON FORM 8-K

The Index to Financial Statements and Financial Statement Schedules is listed 
below.

    Reports on Form 8-K.

1.   The Company filed a Form 8-K on June 6, 1997, on which it announced the
     acquisition of the Hysan Assets.

2.   The Company filed a Form 8-K/A on August 5, 1997, on which it disclosed
     Audited Financial Statements of Business Acquired (Hysan Corporation) as
     well as Proforma Financial Information.


      INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

                                                                Pg No.

Report of Independent Certified Public Accountants............... F-1

Balance Sheets
   December 31, 1997 and 1996.............................. F-2 & F-3

Statements of Operations
   December 31, 1997, 1996 and 1995.............................. F-4

Statements of Stockholders' Equity
   December 31, 1997, 1996, and 1995............................. F-5

Statements of Cash Flows
   December 31, 1997, 1996, and 1995....................... F-6 & F-7

Notes to Financial Statements............................. F-8 - F-23

Report of Independent Certified Public Accountants
   on Schedules................................................. F-24

Schedule II - Valuation and Qualifying Accounts
                December 31, 1997, 1996 and 1995................ F-25


                                  Page 8 of 8




<PAGE>   9


                          INDEPENDENT AUDITORS' REPORT





Stockholders of
SPECIALTY CHEMICAL RESOURCES, INC.


We have audited the accompanying balance sheets of Specialty Chemical Resources,
Inc. as of December 31, 1997 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. 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 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 Specialty Chemical Resources,
Inc. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.







                                                 GRANT THORNTON LLP



Cleveland, Ohio
March 6, 1998 (except for the 2nd paragraph of Note D as to which the date is
              April 14, 1998)



                                       F-1

<PAGE>   10

                       Specialty Chemical Resources, Inc.

                                 BALANCE SHEETS
                                   December 31


<TABLE>
<CAPTION>                                                                 
                                     ASSETS
                                                                        1997          1996
                                                                   -----------    -----------
<S>                                                               <C>            <C>
CURRENT ASSETS
   Cash and cash equivalents                                       $     3,100    $   168,641
   Accounts receivable - trade, less allowance for doubtful
       accounts of $137,000 and $102,000, respectively (note D)      5,338,168      4,948,075
   Receivables - other (note E)                                        343,657        258,284
   Inventories (notes A, C and D)                                    8,944,905      5,909,447
   Prepaid expenses                                                    360,196        305,259
   Refundable income taxes                                                --        1,075,016
                                                                   -----------    -----------

            Total current assets                                    14,990,026     12,664,722

PROPERTY AND EQUIPMENT - at cost
   (notes A and D)
      Building                                                       1,293,745        959,199
      Leasehold improvements                                         2,798,551      2,579,490
      Office equipment and furniture                                 1,115,738      1,042,432
      Machinery and equipment                                       11,889,611      9,357,362
      Construction in-progress                                         523,932        227,061
                                                                   -----------    -----------
                                                                    17,621,577     14,165,544
         Less accumulated depreciation and amortization              5,536,789      4,451,017
                                                                   -----------    -----------
                                                                    12,084,788      9,714,527
      Land                                                             118,690        118,690
                                                                   -----------    -----------

                                                                    12,203,478      9,833,217

OTHER ASSETS (note A)
   Goodwill  (note K)                                                  894,319     19,738,338
   Product formulation                                                 692,894        977,150
   Deferred financing costs                                            435,117        421,460
   Other                                                               302,044        288,499
                                                                   -----------    -----------

                                                                     2,324,374     21,425,447
                                                                   -----------    -----------

                                                                   $29,517,878    $43,923,386
                                                                   ===========    ===========


</TABLE>

        The accompanying notes are an integral part of these statements.

                                           F-2





<PAGE>   11
                             Specialty Chemical Resources, Inc.

                                 BALANCE SHEETS - CONTINUED

                                        December 31
<TABLE>
<CAPTION>
                                        LIABILITIES

                                                                         1997             1996
                                                                    ------------     ------------
<S>                                                                 <C>              <C>         
CURRENT LIABILITIES
   Current portion of long-term debt                                $  1,057,497     $    434,733
   Accounts payable                                                    6,893,119        4,004,870
   Accrued liabilities:
      Compensation and payroll taxes                                     123,146          173,320
      Taxes - other                                                       37,116           65,442
      Interest                                                           108,430           68,436
      Other                                                              356,067          368,421
                                                                    ------------     ------------
                                                                         624,759          675,619
                                                                    ------------     ------------

            Total current liabilities                                  8,575,375        5,115,222

LONG-TERM DEBT (note D)                                               15,445,820       12,246,119


DEFERRED INCOME TAXES (notes A and I)                                       --               --


COMMITMENTS AND CONTINGENCIES (note E)                                      --               --



STOCKHOLDERS' EQUITY (notes G and H)
   Preferred stock - $.01 par value; authorized 2,000,000 shares            --               --
   Common stock - $.10 par value; authorized 13,000,000 shares;
      issued 3,947,762 and 3,947,764 shares, respectively                394,777          394,777
   Additional paid-in capital                                         41,935,125       41,935,125
   Accumulated deficit                                               (36,714,497)     (15,629,785)
   Unearned compensation                                                    --            (19,350)
                                                                    ------------     ------------
                                                                       5,615,405       26,680,767
   Less common stock in treasury, at cost;
      65,500 shares each year                                           (118,722)        (118,722)
                                                                    ------------     ------------
                                                                       5,496,683       26,562,045
                                                                    ------------     ------------
                                                                    $ 29,517,878     $ 43,923,386
                                                                    ============     ============
</TABLE>


        The accompanying notes are an integral part of these statements.

                                       F-3
<PAGE>   12
                       Specialty Chemical Resources, Inc.

                            STATEMENTS OF OPERATIONS

                         For the years ended December 31


<TABLE>
<CAPTION>
                                                    1997              1996              1995
                                                ------------     ------------     ------------

<S>                                             <C>              <C>              <C>         
Net sales                                       $ 40,283,662     $ 38,914,148     $ 43,419,021

Cost of goods sold                                33,628,380       32,783,174       39,123,444
                                                ------------     ------------     ------------

          Gross profit                             6,655,282        6,130,974        4,295,577

Selling, general and administrative expenses       6,903,620        6,066,674        7,647,938

Amortization of intangibles                          996,679          906,846          868,692

Impairment of long-lived assets (note K)          18,501,135             --               --
                                                ------------     ------------     ------------

          Operating (loss)                       (19,746,152)        (842,546)      (4,221,053)

Other income (expense)
   Interest expense                               (1,404,700)      (1,059,217)        (779,041)
   Other                                              66,140           11,450           10,488
                                                ------------     ------------     ------------
                                                  (1,338,560)      (1,047,767)        (768,553)
                                                ------------     ------------     ------------

          (Loss) before income taxes             (21,084,712)      (1,890,313)      (4,989,606)

Income taxes (benefits) (notes A and I)                 --           (127,600)      (2,981,000)
                                                ------------     ------------     ------------

          NET (LOSS)                            $(21,084,712)    $ (1,762,713)    $ (2,008,606)
                                                ============     ============     ============
Basic (loss) per common share (note J)          $      (5.43)    $      (0.45)    $      (0.51)
                                                ============     ============     ============
</TABLE>





        The accompanying notes are an integral part of these statements.

                                       F-4
<PAGE>   13
                       Specialty Chemical Resources, Inc.

                       STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                         Common Stock Outstanding 
                                              $.10 par value      Additional
                                            --------------------   Paid-in    Accumulated    Unearned   Treasury
                                             Shares     Amount     Capital      Deficit    Compensation   Stock         TOTAL
                                           ---------   --------  -----------  ------------ ------------  --------   ------------
<S>                                        <C>         <C>       <C>          <C>            <C>        <C>         <C>         
Balance at December 31, 1994               3,932,776   $393,277  $41,878,575  $(11,832,504)  $   --     $    --     $ 30,439,348

   Retirement of fractional shares
    received from prior reverse
    stock split                                   (7)      --           --            --         --          --             --

   Net loss for the year                        --         --           --      (2,008,606)      --          --       (2,008,606)

   Dividends ($1.79 per share)                  --         --           --          (6,257)      --          --           (6,257)

   Issuance of restricted stock               15,000      1,500       56,550          --      (38,700)       --           19,350
                                           ---------   --------  -----------  ------------   --------    --------   ------------
Balance at December 31, 1995               3,947,769    394,777   41,935,125   (13,847,367)   (38,700)       --       28,443,835

   Retirement of fractional shares
      received from prior reverse
      stock split                                 (5)      --           --            --         --          --             --
 
   Net loss for the year                        --         --           --      (1,762,713)      --          --       (1,762,713)

   Dividends on redeemable preferred
      stock  ($1.875 per share)                 --         --           --         (19,705)      --          --          (19,705)

   Amortization of unearned compensation        --         --           --            --       19,350        --           19,350

   Purchase of common stock for treasury     (65,500)      --           --            --         --      (118,722)      (118,722)
                                           ---------   --------  -----------  ------------   --------    ---------  ------------
Balance at December 31, 1996               3,882,264    394,777   41,935,125   (15,629,785)   (19,350)   (118,722)    26,562,045

   Retirement of fractional shares
      received from prior reverse
      stock split                                 (2)      --           --            --         --          --             --

   Net loss for the year                        --         --           --     (21,084,712)      --          --      (21,084,712)

   Amortization of unearned compensation        --         --           --            --       19,350        --           19,350
                                           ---------   --------  -----------  ------------   --------   ---------   ------------
Balance at December 31, 1997               3,882,262   $394,777  $41,935,125  $(36,714,497)  $   --     $(118,722)  $  5,496,683
                                           =========   ========  ===========  ============   ========   =========   ============
</TABLE>


          The accompanying notes are an integral part of these statements.

                                      F-5
<PAGE>   14
                       Specialty Chemical Resources, Inc.

                            STATEMENTS OF CASH FLOWS

                         For the years ended December 31

<TABLE>
<CAPTION>


                                                                      1997             1996            1995
                                                                   ------------    -----------    ----------- 
Cash Flows from Operating Activities:
<S>                                                                <C>             <C>            <C>         
   Net loss                                                        $(21,084,712)   $(1,762,713)   $(2,008,606)
   Adjustment to reconcile net earnings (loss) to net cash
      provided by (used in) operating activities:
         Depreciation                                                 1,084,143      1,025,799        907,718
         Amortization of intangibles                                    996,679        906,846        868,692
         Impairment of long-lived assets                             18,501,135           --             --
         Deferred income taxes (benefits)                                  --         (138,805)    (1,975,000)
         Stock compensation                                              19,350         19,350         19,350
         Change in assets and liabilities:
              Decrease in accounts receivable                         1,490,817      1,270,433        572,735
              (Increase) decrease in accounts receivable - other        (85,373)       551,818       (728,089)
              (Increase) decrease in inventories                       (279,840)       807,863        114,903
              (Increase) decrease in prepaid expenses                   (54,937)      (103,839)       181,664
              Decrease (increase) in refundable income taxes          1,075,016         59,063     (1,082,181)
              Increase in other assets                                 (123,557)        (7,337)       (26,144)
              Increase (decrease) in accounts payable                 2,888,249     (2,690,647)       925,001
              (Decrease) in accrued liabilities                         (50,860)      (525,047)      (419,824)
                                                                   ------------    -----------    ----------- 
                  Total adjustments                                  25,460,822      1,175,497       (641,175)
                                                                   ------------    -----------    ----------- 

                     Net cash provided by (used in)
                         operating activities                         4,376,110       (587,216)    (2,649,781)
</TABLE>



                            (CONTINUED ON NEXT PAGE)




        The accompanying notes are an integral part of these statements.

                                       F-6
<PAGE>   15
                       Specialty Chemical Resources, Inc.

                      STATEMENTS OF CASH FLOWS - CONTINUED

                         For the years ended December 31


<TABLE>
<CAPTION>

                                                                      1997            1996            1995
                                                                 ------------    ------------    ------------ 
        Net cash provided by (used in) operating activities
<S>                                                              <C>             <C>             <C>          
             (brought forward from previous page)                $  4,376,110    $   (587,216)   $ (2,649,781)

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from sale of assets                                          --              --            39,966
   Acquisition of Hysan assets (note B)                            (7,431,977)           --              --
   Expenditures for property and equipment - net                     (932,139)       (155,621)     (3,685,351)
   Purchase of product formulations and license agreement                --          (400,300)           --
                                                                 ------------    ------------    ------------ 

          Net cash (used in) investing activities                  (8,364,116)       (555,921)     (3,645,385)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from sale of redeemable preferred stock                      --              --           350,000
   Redemption of redeemable preferred stock                              --          (350,000)           --
   Dividends paid on redeemable preferred stock                          --           (19,705)           --
   Payments on long-term obligations                                 (538,440)       (134,503)         (2,371)
   Proceeds from note payable, net of deferred financing costs      2,090,000       1,688,368         913,750
   Proceeds from issuance of short-term debt                        1,500,000       8,500,265            --
   Payments on short-term debt                                     (1,500,000)    (10,121,882)           --
   Proceeds from sale of convertible subordinated debentures,
      net of deferred financing costs                                 240,000       3,723,373            --
   Purchase of common stock for treasury                                 --          (118,722)           --
   Proceeds on revolver                                            49,734,451      37,041,248      11,965,000
   Payments on revolver                                           (47,703,546)    (38,897,902)     (6,945,000)
                                                                 ------------    ------------    ------------ 

          Net cash provided by financing activities                 3,822,465       1,310,540       6,281,379
                                                                 ------------    ------------    ------------ 

          NET (DECREASE) INCREASE IN CASH
                AND CASH EQUIVALENTS                                 (165,541)        167,403         (13,787)

Cash and cash equivalents at beginning of year                        168,641           1,238          15,025
                                                                 ------------    ------------    ------------ 

Cash and cash equivalents at end of year                         $      3,100    $    168,641    $      1,238
                                                                 ============    ============    ============
</TABLE>



        The accompanying notes are an integral part of these statements.

                                    F-7

<PAGE>   16
                       Specialty Chemical Resources, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1997, 1996 and 1995



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Specialty Chemical Resources, Inc. (SCR, Inc.) formulates, blends, and
   packages pressurized specialty chemical products for sale to marketers,
   distributors, and retailers primarily throughout the United States.  Its
   primary markets are the automotive and industrial maintenance and    
   janitorial/sanitation markets.

   A summary of the significant accounting policies consistently applied in the
   preparation of the accompanying financial statements follows.

   INVENTORIES

   Inventories are stated at the lower of cost or market. Cost is determined by
   the last-in, first-out (LIFO) method for raw materials and the first-in,
   first-out (FIFO) method for finished goods.

   PROPERTY AND EQUIPMENT

   Depreciation is provided for in amounts sufficient to relate the costs of
   depreciable assets to operations over their estimated service lives. The
   straight-line method of depreciation is used for financial reporting
   purposes. Accelerated methods are used for tax purposes.

   The estimated lives used in determining depreciation and amortization for
   financial reporting purposes are as follows:

      Building........................................... 20 years  
                                                                                
      Leasehold improvements............................. 15 years             
                                                                                
      Office equipment and furniture..................... 7-10 years           
                                                                                
      Machinery and equipment............................10-16 years           


   INTANGIBLES

   The Company adopted Statement of Financial Accounting Standards No. 121,
   Accounting For The Impairment Of Long-Lived Assets and For Long-Lived Assets
   To Be Disposed Of (SFAS 121) as of January 1, 1996. This Statement requires
   that long-lived assets, including goodwill, held and used by an entity be
   reviewed for impairment whenever events or changes in circumstances indicate
   that the carrying amount of an asset may not be recoverable.


                                       F-8


<PAGE>   17


                       Specialty Chemical Resources, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                        December 31, 1997, 1996 and 1995



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

   INTANGIBLES (CONTINUED)

   In performing the review for recoverability, the Company estimates its
   expected future cash flows (undiscounted and without interest charges) and
   compares this amount to the carrying value of its long-lived assets to
   determine if an impairment exists. Otherwise, an impairment loss is not
   recognized. The projected amounts used in this computation are based upon
   management's best estimates utilizing information currently available.
   Inherent in these projections are estimates for which the ultimate outcome
   cannot be predicted with a high degree of certainty. Therefore, the actual
   results could materially differ from the projected amounts (see note K).

   Goodwill, resulting from the excess of the purchase price over the fair value
   of net assets acquired is being amortized over 40 years (see note K).
   Purchased product formulations are being amortized on a straight-line basis
   over 10 years. All research and development costs are being expensed as
   incurred.

   Deferred financing costs are related to the bank debt and the issuance of the
   convertible subordinated debentures. These costs are being amortized on a
   straight-line basis over the period of the respective debt agreements.

   Accumulated amortization for intangibles amounted to approximately $2,608,000
   and $6,877,000 for the years ended December 31, 1997 and 1996, respectively.

   INCOME TAXES

   Income taxes are recorded in accordance with Statement of Financial
   Accounting Standards No. 109, Accounting for Income Taxes (SFAS No. 109).
   SFAS 109 utilizes the asset and liability method, under which deferred income
   taxes are recognized for the tax consequences of "temporary differences" by
   applying currently enacted statutory rates to differences between the
   financial statement carrying amounts and the tax basis of existing assets and
   liabilities. Under SFAS 109, the effect on deferred taxes of a change in tax
   rates is recognized in income in the period that includes the enactment date.

   REVENUE RECOGNITION

   The Company recognizes revenue when the product is shipped.




                                       F-9


<PAGE>   18



                       Specialty Chemical Resources, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                        December 31, 1997, 1996 and 1995



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)


   USE 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 amount of assets and liabilities and disclosure of
   contingent assets and 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.


   STATEMENTS OF CASH FLOWS

   For purposes of the statements of cash flows, the Company considers all
   highly liquid investments purchased with a maturity of three months or less
   to be cash equivalents.

   Cash payments for income taxes amounted to $38,000, $75,000 and $79,000 for
   the years ended December 31, 1997, 1996 and 1995, respectively. In addition,
   the Company received income tax refunds of approximately $1,080,000 during
   1997. Cash payments for interest amounted to $1,124,000, $1,095,000 and
   $687,000 in the year ended December 31, 1997, 1996 and 1995, respectively.
   The Company also accrued $240,000 and $150,000 of interest in 1997 and 1996,
   respectively, on convertible subordinated debentures due 2006. During 1995,
   the Company accrued $6,257 of preferred stock dividends and issued $58,050 of
   restricted stock to an employee.


   FAIR VALUE OF FINANCIAL INSTRUMENTS

   The following methods and assumptions were used by the Company in estimating
   the fair value of each class of financial instruments for which it is
   practicable to estimate fair value.

   For cash, receivables and payables, the carrying amounts approximate fair
   value because of the short maturity of these instruments. For long-term
   obligations, including current maturities, the fair value of the Company's
   long-term obligations approximates historically recorded cost since interest
   rates approximate market.





                                      F-10


<PAGE>   19



                       Specialty Chemical Resources, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                        December 31, 1997, 1996 and 1995



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

   NEWLY ISSUED ACCOUNTING STANDARDS

   In 1997, the FASB issued Statement of Financial Accounting Standards No. 130,
   Reporting Comprehensive Income ("SFAS 130") and Statement of Financial
   Accounting Standards No. 131, Disclosures About Segments of an Enterprise and
   Related Information ("SFAS 131"). SFAS 130 establishes standards to measure
   all changes in equity that result from transactions and other economic events
   other than transactions with owners. Comprehensive income is the total of net
   income and all other nonowner changes in equity. SFAS 131 introduces a new
   segment reporting model called the "management approach". The management
   approach is based on the manner in which management organizes segments within
   a company for making operating decisions and assessing performance. The
   management approach replaces the notion of industry and geographic segments.
   The Company will adopt SFAS 130 and SFAS 131 in fiscal year 1998. The Company
   believes adoption of SFAS 130 and SFAS 131 will not have a significant effect
   on the Company's financial statements.

NOTE B - ACQUISITION

   On May 22, 1997, Specialty Chemical Resources, Inc. acquired substantially
   all of the tangible and intangible non-real estate assets of Hysan
   Corporation ("Hysan") pursuant to an Asset Purchase Agreement (the
   "Agreement"). The purchase price for the acquired assets was $7,432,000,
   including expenses related to the transaction. The Agreement required that
   $500,000 of the purchase price be deposited in escrow with a bank as security
   for any adjustments to the purchase price that may be necessary to secure
   Hysan's indemnification obligations thereunder. The remaining portion of the
   purchase price was paid in cash. The acquisition was recorded under the
   purchase method of accounting in accordance with Accounting Principles Board
   Opinion (APB) No. 16. The purchase price was allocated based upon the fair
   value of assets acquired at the date of acquisition. The excess of the
   purchase price over the fair value of the assets acquired of approximately
   $273,000 was recorded as goodwill. The Company included the results of
   operations of Hysan as of the acquisition date. The following unaudited
   proforma information has been prepared assuming Hysan had been acquired as of
   the beginning of the periods presented:

<TABLE>
<CAPTION>
                                   ==========================================
                                           YEARS ENDED DECEMBER 31,          
                                   ------------------------------------------
                                     1997                          1996      
                                   ------------------------------------------
<S>                                  <C>                      <C>            
         Net sales                   $44,571,000              $53,710,000    
                                                                             
         Net (loss)                  $(21,382,000)            $( 1,582,000)  
                                                                             
         Basic (loss) per share      $(5.51)                  $(.40)         
</TABLE>




                                      F-11


<PAGE>   20



                       Specialty Chemical Resources, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                        December 31, 1997, 1996 and 1995



NOTE C - INVENTORIES

   Inventories consist of the following at:
<TABLE>
<CAPTION>
                                                              ===========================================
                                                                                 DECEMBER 31,
                                                              -------------------------------------------
                                                                    1997                    1996
                                                              -------------------------------------------
<S>                                                             <C>                     <C>       
       Raw materials                                            $5,416,048              $3,663,804

       Finished goods                                            4,224,414               2,890,674
                                                              -------------------------------------------
                                                                 9,640,462               6,554,478

       Less excess of FIFO over LIFO cost                          695,557                 645,031
                                                              -------------------------------------------
                                                                $8,944,905              $5,909,447
                                                              ===========================================
</TABLE>

   Had the Company historically followed the FIFO cost method for raw material
   inventories, the net loss for the years ended December 31, 1997, 1996 and
   1995 would have decreased by approximately $51,000, increased by
   approximately $44,000, and decreased by approximately $79,000, respectively.

NOTE D - LONG-TERM DEBT

   Long-term debt consists of the following at:
<TABLE>
<CAPTION>
                                                      =====================================
                                                                     DECEMBER 31,
                                                      -------------------------------------
                                                              1997              1996
                                                      -------------------------------------
<S>                                                    <C>                 <C>        
       Revolver                                          $ 8,072,634        $ 6,041,729

       Term loan A - bank                                  2,680,000          1,710,000

       Term loan B - bank                                    666,670               --

       Mortgage loan - bank                                  794,013            871,944
 
       6% Convertible subordinated debentures              4,290,000          4,050,000

       Other                                                    --                7,179
                                                         ------------------------------
                                                          16,503,317         12,680,852

       Less current portion                                1,057,497            434,733
                                                         ------------------------------
                                                         $15,445,820        $12,246,119
                                                         ==============================
</TABLE>

                                      F-12


<PAGE>   21



                       Specialty Chemical Resources, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                        December 31, 1997, 1996 and 1995



NOTE D - LONG-TERM DEBT (CONTINUED)

   During September 1996, the Company terminated its revolving credit agreement
   with a bank and entered into a $12,000,000 financing agreement with a new
   bank. During May 1997, the Company entered into a First Amendment to the
   financing agreement increasing potential borrowings to $15,000,000. The
   amended credit facility is comprised of a Revolving Loan and Term Loan A and
   Term Loan B. The maximum borrowings under the credit facility are pursuant to
   a formula based upon the amount of the Company's receivables, inventory and
   the then outstanding balance under the previous facility. In addition, the
   bank can reduce the maximum borrowings under the facility by establishing an
   environmental compliance reserve in certain circumstances. No compliance
   reserves have been required as of December 31, 1997. Borrowings under this
   credit agreement are collateralized by substantially all of the Company's
   assets. The Revolving Loan matures on December 31, 2000 and bears interest at
   the bank's prime rate (8.5% at December 31, 1997) plus 1-1/2%. The interest
   rate charged by the bank can be reduced to the prime rate based upon the
   Company meeting certain performance measures. 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. Based on 1997
   financial performance, the senior lender has revised the various covenants by
   amending the credit agreement. The Company is currently in compliance with
   all of the covenants. Such amendment requires that such financial covenants
   for the future be revised in a form mutually agreeable to the bank and the
   Company no later than May 15, 1998. Such amendment further requires that
   the Company provide an acceptable plan to the bank no later than April 30,
   1998 to provide additional capital for the Company and consummate such plan
   no later than May 30, 1998. The failure to do so would constitute an event of
   default under the credit agreement. As of December 31, 1997, approximately
   $591,000 is unused and available under the credit agreement.

   The original term loan portion of the credit facility consisted of a
   $1,800,000 installment loan payable in sixty monthly installments of $30,000
   beginning on October 1, 1996. The amended term loan portion of the credit
   facility is comprised of Term Loan A in the amount of $2,680,000 and Term
   Loan B in the amount of $1,000,000. Principal on Term Loan A is payable in
   forty-eight monthly installments of $55,833 beginning on June 1, 1998.
   Interest is payable monthly at the same rate and terms as the Revolving Loan.
   Principal on Term Loan B is payable in eighteen monthly installments of
   $55,555 commencing on July 1, 1997. Interest is payable monthly at the bank's
   prime rate plus 4-1/2%. For each six-month period that Term Loan B remains
   outstanding, the Company may be required to make an additional principal
   payment based on its "excess cash flow" as defined in the agreement.

   In addition to the above loans, the bank advanced to the Company $1,500,000
   on a short-term basis in conjunction with the acquisition of Hysan. The
   advance was fully repaid in 1997.

                                      F-13


<PAGE>   22



                       Specialty Chemical Resources, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                        December 31, 1997, 1996 and 1995

NOTE D - LONG-TERM DEBT (CONTINUED)

   The mortgage note originally consisted of a $1,075,000 installment note dated
   October 15, 1995. Monthly principal payments of approximately $6,000 began on
   June 1, 1996, with the balance due on February 1, 1998. As of December 31,
   1997, the Company had $794,013 remaining on the note. Effective January 1998,
   the Company refinanced the mortgage with a new $1,125,000 installment note
   with a new bank. The note, which bears interest at 8.75%, requires twelve
   monthly interest payments. Commencing on February 1, 1999, the note requires
   167 monthly principal and interest payments of $11,790, with final payment on
   November 1, 2012. The aggregate maturities schedule of long-term debt
   reflects the terms of the new note. The borrowing is collateralized by a
   building which serves as the Company's distribution center and corporate
   offices.

   The 6% convertible subordinated debentures, due October 15, 2006, are
   convertible at the option of the holder into shares of the Company's common
   stock at a conversion price of $1.50 per share. Each $100 principal amount of
   the debentures is convertible into 66.67 shares of common stock at any time
   after December 31, 2001, or under certain circumstances, if there is a change
   in control of the Company as defined under the debentures. Subsequent to
   October 15, 1999, the debentures are redeemable at the option of the Company,
   in whole or in part, initially at 110%, and thereafter at prices declining to
   100% at October 15, 2004, together with accrued interest. The debentures are
   subordinated to all senior debt of the Company. The proceeds, which were
   received in 1996, were used to repay a portion of the Company's indebtedness
   and to repurchase all of its outstanding redeemable preferred stock from a
   major shareholder (see note G). Interest accrues semi-annually and is due
   upon maturity of the debentures.

   Aggregate maturities of long-term debt at December 31, 1997 are as follows:

                 1998                                $ 1,057,497
                 1999                                    709,823
                 2000                                  8,789,450
                 2001                                    721,423
                 2002                                    335,361
                 Thereafter                            4,889,763
                                                      ----------
                                                     $16,503,317
                                                     ===========


NOTE E - COMMITMENTS AND CONTINGENCIES

    Certain operations of the Company are conducted in leased facilities under
    noncancellable operating leases which expire at various dates through 2005.
    One of the leases which relates to the manufacturing facility can be
    extended at the option of the Company to the year 2025. The Company also has
    entered into several noncancellable operating leases for various machinery
    and equipment which expire at various dates through 2001.

                                      F-14


<PAGE>   23



                       Specialty Chemical Resources, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                        December 31, 1997, 1996 and 1995



NOTE E - COMMITMENTS AND CONTINGENCIES (CONTINUED)

    The following table details scheduled minimum rental payments of all
    noncancellable operating leases:
                                                              RENTAL
                       YEAR ENDING DECEMBER 31,            COMMITMENT
                       ------------------------            ----------

                                1998                      $  395,000
                                1999                         402,000
                                2000                         383,000
                                2001                         297,000
                                2002                         216,000
                             Thereafter                      577,000
                                                          ----------
                                                          $2,270,000
                                                          ==========


    Rent expense for the years ended December 31, 1997, 1996 and 1995 was
    approximately $518,000, $407,000 and $512,000, respectively.

    The Company is currently involved in litigation and investigations
    pertaining to environmental concerns by the State of Ohio in connection with
    several potential problems at its Macedonia, Ohio manufacturing plant. In
    1990 the Company entered into a Consent Order with the State of Ohio. The
    Company was required to submit to the Ohio Environmental Protection Agency
    (Ohio EPA), a closure plan to address contamination identified at the
    property. The Company submitted the closure plan as required. Ohio EPA also
    requested, in the event the remedial measures in the proposed closure plan
    are not successful within a two-year period, that at that time the Company
    provide supplemental or alternative measures to clean up the remaining
    contamination.

    On May 17, 1994, the Ohio EPA approved the revised closure plan which
    included unilateral modifications as deemed necessary by the Ohio EPA. On
    June 17, 1994, the Company appealed the Ohio EPA's action on the grounds
    that the unilateral modifications were unreasonable and unlawful. On January
    6, 1995, the Company and the State of Ohio entered into a settlement
    agreement, which resulted in a termination of the Company's appeal of this
    matter before the Environmental Board of Review. On May 3, 1995, the Ohio
    EPA issued a supplemental closure plan approval letter that established
    certain deadlines with regard to the Company's implementation of a
    Groundwater Extraction and Treatment System, a Soil Vapor Extraction System,
    and certain other closure plan tasks. On December 9, 1996, the Company
    revised its estimate to address




                                      F-15


<PAGE>   24



                       Specialty Chemical Resources, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                        December 31, 1997, 1996 and 1995



NOTE E - COMMITMENTS AND CONTINGENCIES (CONTINUED)

    closure costs at the Macedonia facility. Based on estimates of closure costs
    received from the Company's environmental consultant, the revised total
    closure costs are estimated at approximately $1,446,000. As of December 31,
    1997, $1,296,000 of closure costs were expended, of which $792,000 was
    received from both escrow funds and an Ohio EPA Trust Account (the Trust).
    The escrow funds and trust funds were deposited by previous owners. During
    1996, the Company received $621,000 from the Trust for reimbursement of
    expenditures; in addition the Company has approximately $344,000 of monies
    due from the Trust for reimbursement of EPA expenditures and has recorded
    this amount as an Account Receivable - Other on the December 31, 1997
    balance sheet. The Company believes that the expenditures for which they are
    seeking reimbursement are in accordance with the closure activities
    contemplated by the Trust requirements. While the Company is not aware of
    any reason that it would not receive reimbursement for these expenditures,
    the Ohio EPA has discretion in responding to the Company's request.

    If the remediation techniques proposed in the closure plan are not
    successful, or if supplemental or alternative technologies are required to
    be used, then the Company may incur costs in excess of the $1,446,000
    closure cost estimate. The Company believes, based on discussions with its
    technical consultants, that the cost of additional testing and operation of
    the proposed remedial systems will be approximately $150,000 and that the
    costs of the supplemental or alternative cleanup measures, if determined to
    be necessary, would not exceed $2,000,000.

    On October 15, 1997, the Company received Notices of Violation ("NOV's")
    from the Ohio Attorney General's Office alleging that the Company has failed
    to comply with the terms of the 1990 Consent Order. The State alleges that
    the Company has committed numerous violations of applicable Ohio hazardous
    waste laws and regulations. Ohio EPA bases these allegations upon the
    results of a number of inspections conducted from 1993 through 1997. The
    Company prepared detailed written responses to each NOV and, without
    admitting liability, took specific actions in response to the allegations
    identified by Ohio EPA. The Ohio EPA has demanded that the Company pay the
    State of Ohio the sum of $1,080,000 as stipulated penalties for the alleged
    violations. Through the October 15, 1997 letter, the Attorney General
    invited the Company to enter negotiations to resolve the disagreement
    regarding the Company's alleged violations of the 1990 Consent Order.

    The Company believes that it has materially complied with the requirements
    of the Consent Order and that stipulated penalties due to the State of Ohio
    pursuant to the Consent Order, if any, should not have a materially adverse
    effect on the financial condition of the Company. However, there can be no
    assurance that negotiations with the State of Ohio will be successful and
    will not result in extended litigation between the Company and the State of
    Ohio.



                                      F-16


<PAGE>   25


                       Specialty Chemical Resources, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                        December 31, 1997, 1996 and 1995




NOTE E - COMMITMENTS AND CONTINGENCIES (CONTINUED)

    The Company was also a defendant in two product liability lawsuits. Both of
    these suits were defended by the Company's insurance carrier and were
    settled by the insurance company within the limits of the insurance
    coverage.


NOTE F - EMPLOYEE BENEFIT PLANS

    The Company has a defined contribution 401(k) profit-sharing plan (the Plan)
    covering certain salaried employees with one year of credited service. The
    Company's profit-sharing contributions are at the discretion of the Board of
    Directors and are credited to each participant's account based on a
    percentage of gross compensation subject to a maximum contribution for each
    participant. The Company is also required under the 401(k) provisions to
    match employee contributions equal to 50% of each such participant's
    deferred compensation up to a maximum of 4% of the participant's annual
    compensation. Contributions by the Company under the 401(k) provisions for
    1997, 1996 and 1995 were approximately $57,200, $48,000 and $51,700,
    respectively. The Company did not make any profit-sharing contributions to
    the Plan for the years ended December 31, 1997, 1996 and 1995.

    The Company has a Retirement Savings Trust and Plan covering full-time
    hourly employees who have completed six months of service. The Company's
    contributions are made on an annual basis and are credited to each
    participant's account at an amount equal to 13 cents per hour of
    compensation (maximum of 48 hours per week). In addition, qualified
    employees are eligible to make voluntary contributions to the Retirement
    Savings Trust and Plan which are fully vested and nonforfeitable.
    Contributions by the Company for the years ended December 31, 1997, 1996 and
    1995 approximated $38,900, $34,500 and $35,200, respectively.


NOTE G - REDEEMABLE PREFERRED STOCK

    During 1995, the Company designated 3,500 shares of its previously
    authorized 2,000,000 preferred shares as cumulative, convertible preferred
    stock. On October 6, 1995, the Company issued 3,500 shares of cumulative,
    convertible preferred stock to an officer/director at a $100 per share
    price, which aggregated to $350,000. The cumulative, convertible preferred
    stock pays quarterly dividends of $1.875 per share. On October 16, 1996, the
    Company redeemed all of its 3,500 shares of redeemable preferred stock for
    $350,000 from the proceeds received in conjunction with the convertible
    subordinated debentures (see note D).



                                      F-17


<PAGE>   26

                       Specialty Chemical Resources, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                        December 31, 1997, 1996 and 1995



NOTE H - STOCKHOLDERS' EQUITY

    On July 25, 1995, the Company entered into a Restricted Stock Award
    Agreement with a key employee for 15,000 shares of common stock. The Company
    charged $19,350 to compensation expense and distributed one-third (1/3) of
    the shares to the employee annually for 1997, 1996 and 1995. All shares were
    distributed on July 25, 1997, at which time the restrictions lapsed. The
    value of the shares under restriction at December 31, 1995 were charged to
    equity as unearned compensation and have been fully amortized to operations.

    In December 1996, the Board of Directors authorized the Company to redeem
    shares of its common stock at the open market price. On December 20, 1996,
    the Company redeemed into treasury, 65,500 common shares at $1.8125 per
    share at an aggregate cost of $118,722, including expenses.

    The Company has a Nonqualified and Incentive Stock Option Plan (the Plan)
    under which 650,000 shares of common stock have been reserved. The Plan
    provides for grants to officers and key employees of the Company of both
    nonqualified and incentive stock options. The exercise price for options
    granted under the Plan must be at least equal to fair market value of the
    shares on the date of grant. The Plan will terminate in January 1999 but
    will not affect any outstanding options previously granted. Such options
    granted may be exercised after one year from the date of grant for not more
    than one-third of the shares originally subject to the option and an
    additional one-third for each of the two years thereafter. The options
    granted under the Plan expire five years from the date of grant. As of
    December 31, 1997, all options granted were under the Nonqualified Option
    Plan.

    The Company also has an Outside Directors' Stock Option Plan (Directors'
    Plan) under which 150,000 shares of common stock have been reserved. Under
    the Directors' Plan, each outside director will be granted an option to
    purchase 10,000 shares of common stock and an additional option to purchase
    5,000 shares of common stock every two years thereafter as long as the
    individual remains on the Company's Board of Directors and remains an
    "outside" director. The exercise price for options granted shall be the fair
    market value of the shares on the date of grant. Directors vest in their
    options in 25% annual increments commencing one year after the date of
    grant. Options granted, to the extent the director has vested, shall be
    exercisable for a term of ten years from the date of grant. In addition, the
    Directors' Plan calls for the exercising of options by directors within
    seven months after their termination and by their beneficiaries within one
    year after their death. The Directors' Plan will terminate in January 1999
    but will not affect any outstanding options previously granted.




                                      F-18


<PAGE>   27
                       Specialty Chemical Resources, Inc.

                   NOTES TO FINANCIAL STATEMENTS - CONTINUED

                        December 31, 1997, 1996 and 1995

NOTE H - STOCKHOLDERS' EQUITY (Continued)

   Transactions for both stock option plans are as follows:

<TABLE>
<CAPTION>

                                          -------------------------------------------------------------------------------
                                                1997                           1996                     1995
                                          -------------------------------------------------------------------------------
                                                     Weighted                      Weighted                  Weighted
                                                     Average                      Average                    Average
                                          Shares  Exercise Price      Shares    Exercise Price   Shares   Exercise Price
                                         -------- --------------     -------   ---------------   ------    -------------
<S>                                       <C>           <C>           <C>         <C>             <C>           <C>   
       Outstanding -
         beginning of year                567,391       $ 5.86        545,428     $   6.14        405,715       $ 7.82
            Granted                       252,000       $ 1.75         50,000     $   1.70        236,570       $ 3.59
            Exercised                        --         $ --             --       $   --             --         $ --
            Cancelled                    (174,857)      $ 9.02        (28,037)    $   3.85        (96,857)      $ 6.95
                                          -------                     -------                     -------             
       Outstanding - 
         end of year                      644,534       $ 3.40        567,391     $   5.86        545,428       $ 6.14
                                          =======                     =======                     =======             

       Exercisable at end of year         291,545       $ 4.91        347,583     $   7.48        249,024       $ 8.80
                                          =======                     =======                     =======             

       Available for grant                155,466                     232,609                     254,572
                                          =======                     =======                     =======              

       Weighted average fair value
          of options granted
          during the year                $   0.87                    $   1.23                   $   1.88
</TABLE>

<TABLE>
<CAPTION>
                                      -------------------------------------------------   ---------------------------
                                                    Outstanding                              Exercisable
                                      -------------------------------------------------   ---------------------------
                                                     Weighted-
                                                      Average
                                                     Remaining           Weighted-                      Weighted-
                     Range of                       Contractual           Average                         Average
                 Exercise Prices       Shares          Life            Exercise Price      Shares     Exercise Price
                 ---------------       ------          ----            --------------      ------     --------------
<S>               <C>      <C>        <C>              <C>                <C>              <C>           <C>   
                  $1.625 - 1.813      294,000          4.7                $ 1.74           12,083        $ 1.70
                  $3.375 - 4.06       201,963          2.3                $ 3.59          134,641        $ 3.59
                   $4.50 - 6.38       118,571          1.4                $ 5.49          114,821        $ 5.46
                  $10.00 - 10.50       30,000          4.2               $ 10.00           30,000       $ 10.00
                                      -------
                                      644,534
                                      =======
</TABLE>

                                      F-19

<PAGE>   28


                       Specialty Chemical Resources, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                        December 31, 1997, 1996 and 1995




NOTE H - STOCKHOLDERS' EQUITY (CONTINUED)

    Both of the Company's stock option plans are accounted for under APB Opinion
    25 and related interpretations. Accordingly, no compensation cost has been
    recognized for the plans. Had compensation cost for the plans been
    determined based on the fair value of the options at the grant dates
    consistent with the method of Statement of Financial Accounting Standards
    123, Accounting for Stock-Based Compensation (SFAS 123), the Company's net
    loss and loss per share would have been increased each period to the
    proforma amounts indicated below.

<TABLE>
<CAPTION>
                                                    ==================================================
                                                            1997            1996             1995
                                                    --------------------------------------------------
<S>                                                  <C>              <C>              <C>         
       Net (loss)                   As reported      $(21,084,712)    $(1,762,713)     $(2,008,606)

                                    Pro forma        $(21,244,477)    $(1,919,713)     $(2,114,606)



       Basic (loss) per share       As reported        $(5.43)          $(0.45)          $(0.51)

                                    Pro forma          $(5.47)          $(0.49)          $(0.54)
</TABLE>



    The fair value of each option grant is estimated on the date of grant using
    the Black-Scholes options-pricing model with the following weighted-average
    assumptions used for grants in 1997, 1996 and 1995: expected volatility of
    48, 61 and 50 percent; risk-free interest rates of 6.44, 6.34 and 6.59
    percent; expected lives of 3, 4 and 3 years; and no dividend payments.


NOTE I - INCOME TAXES

    As of December 31, 1997, the Company had approximately $11,335,000 of net
    operating loss carryforwards. However, due to a change in ownership during
    1992, the Company has an annual limitation of approximately $850,000 in the
    utilization of its net operating loss carryforwards. In addition, due to
    losses in 1997, 1996 and 1995 and the realization in 1994 of built-in gains,
    approximately $10,000,000 of the carryforwards may be utilized beyond the
    current annual limitation to offset future taxable income.






                                      F-20


<PAGE>   29




                       Specialty Chemical Resources, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                        December 31, 1997, 1996 and 1995




NOTE I - INCOME TAXES (CONTINUED)

    The net operating loss carryforwards, to the extent unused, will expire as
follows:

                                   ===============                  
           YEAR ENDING              NET OPERATING 
           DECEMBER 31,                  LOSS
          -------------            ---------------

               1999                   $ 3,060,000

               2000                     2,477,000

               2001                       919,000

               2002                          -

               2003                         1,000

               2004                       139,000

               2010                     1,234,000

               2011                     1,651,000

               2012                     1,854,000
                                    -------------
                                      $11,335,000
                                    =============



    The above-mentioned carryforwards gave rise to deferred tax assets of
    approximately $4.5 million, $3.8 million and $3.2 million at December 31,
    1997, 1996 and 1995, respectively. Due to the uncertainty of the ultimate
    realization of the deferred tax asset, a valuation allowance in the amounts
    of $2.7 million, $2 million and $1.3 million was recorded by the Company for
    the years ended December 31, 1997, 1996 and 1995, respectively. The net
    change in the valuation allowances for 1997, 1996 and 1995 was $.7 million,
    $.7 million and $(1.3) million, respectively.






                                      F-21


<PAGE>   30


                       Specialty Chemical Resources, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                        December 31, 1997, 1996 and 1995




NOTE I - INCOME TAXES (CONTINUED)

    The asset recognition of the net operating loss carryforward is based
    principally on the portion of the carryforwards which are not limited as to
    their use and offset the deferred tax credits that are scheduled to reverse
    in the carryforward period.

    Deferred tax (assets) liabilities are as follows:
<TABLE>
<CAPTION>

                                                       ================================================
                                                                        DECEMBER 31,                   
                                                       ------------------------------------------------
                                                             1997                         1996
                                                       ------------------------------------------------
<S>                                                      <C>                          <C>        
       Depreciation                                      $ 1,404,000                 $ 1,441,000

       Amortization of product
         formulation costs                                   155,000                     260,000

       Accounts receivable allowance                         (55,000)                    (41,000)

       Excess of book inventory over
         tax inventory                                       324,000                     171,000

       Other                                                 (69,000)                    (31,000)

       Net operating loss carryforwards                   (4,500,000)                 (3,800,000)

       Valuation allowance                                 2,741,000                   2,000,000
                                                       ------------------------------------------------
                                                         $     -                  $         -
                                                       ================================================
</TABLE>


    The Company had no income tax expense for 1997. The income tax benefit of
    $127,600 for the year ended December 31, 1996 consists of approximately
    $11,000 of current federal income taxes and approximately $138,600 of
    deferred tax benefits. The income tax benefit of $2,981,000 for the year
    ended December 31, 1995 consists of approximately $1,006,000 of current
    refundable federal income taxes and approximately $1,975,000 of deferred tax
    benefits.

    A reconciliation of differences between the statutory U.S. Federal income 
    tax rate and the Company's effective tax rate follows:

<TABLE>
<CAPTION>
                                    ============================================
                                                    DECEMBER 31,                   
                                    --------------------------------------------
                                          1997           1996           1995
                                    --------------------------------------------
<S>                                  <C>            <C>            <C>
       U.S. Statutory rate                (34%)          (34%)          (34%)
       Goodwill Amortization                1%            11%             4%
       Impairment Write-Down               30%           --             --   
       Other                              --               2%             1%
       Effect of net operating loss
         carryforward and valuation
         allowance                          3%            14%           (31%)
                                     --------------------------------------------

       Effective Income Tax Rate            0%            (7%)          (60%)
                                     --------------------------------------------
</TABLE>




                                      F-22


<PAGE>   31





                       Specialty Chemical Resources, Inc.

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                        December 31, 1997, 1996 and 1995




NOTE J - LOSS PER SHARE OF COMMON STOCK

    The Company adopted SFAS No. 128, Earnings Per Share, effective December 31,
    1997 and all loss per share amounts disclosed herein have been calculated
    under the provisions of SFAS No. 128. Basic loss per common shares was
    computed by dividing net loss by the weighted average number of shares of
    common stock outstanding during the reporting period. The weighted average
    number of common shares used to compute basic loss per common share was
    3,882,264 for 1997, 3,945,618 for 1996 and 3,939,348 for 1995. Diluted loss
    per common share which would include common share equivalents for employee
    stock options, cumulative convertible preferred stock and convertible
    subordinated debentures is not reported because their effect would be
    anti-dilutive for the years presented.


NOTE K - IMPAIRMENT OF LONG-LIVED ASSETS

    At December 31, 1997, in accordance with SFAS 121, the Company determined
    that circumstances related to its recurring operating losses, the reduction
    in customer base, and current projections, indicated that the recoverability
    of the carrying amount of long-lived assets should be assessed. In making
    that assessment, the Company estimated its undiscounted future cash flows
    from operations. The results of that computation indicated that an
    impairment exists and that a write-down of the carrying value of the
    long-lived assets to fair value is required. The Company utilized an
    independent third party appraiser to determine fair value based upon
    expected future cash flows from operations discounted as a rate commensurate
    with risk involved. Based upon the valuation performed, the Company recorded
    a non-cash charge of $18.5 million which is reflected as a reduction in the
    carrying value of goodwill.








                                      F-23



<PAGE>   32

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
                                  ON SCHEDULES







Stockholders of
SPECIALTY CHEMICAL RESOURCES, INC.



In connection with our audit of the financial statements of Specialty Chemical
Resources, Inc. referred to in our report dated March 6, 1998, we have also
audited Schedule II for each of the three years in the period ended December 31,
1997. In our opinion, this schedule presents fairly, in all material respects,
the information required to be set forth therein.





                                              GRANT THORNTON LLP



Cleveland, Ohio
March 6, 1998







                                      F-24


<PAGE>   33





                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                       Specialty Chemical Resources, Inc.

              For the years ended December 31, 1997, 1996 and 1995



<TABLE>
<CAPTION>
                          Column A                Column B                   Column C                   Column D     Column E
                                                                             Additions
                                                                ------------------------------------
                                                 Balance at         Charged to                                       Balance at
                                                Beginning of        Costs and         Charged to                      End of
    Year                 Description               Period            Expenses       Other Accounts    Deductions      Period
------------- ---------------------------   ------------------- ---------------- ------------------- --------------- -------------
<S>                                               <C>               <C>                <C>              <C>            <C>      
    1995                Allowance for
                      doubtful accounts           $ 123,000         $ 260,400          $ -              $ (38,400)     $ 345,000

    1996                Allowance for
                      doubtful accounts           $ 345,000          $ 65,000          $ -              $ (308,000)    $ 102,000

    1997                Allowance for
                      doubtful accounts           $ 102,000          $ 73,800          $ -              $ (38,800)     $ 137,000
</TABLE>


                                      F-25




<PAGE>   34



                                   SIGNATURES
                                   ----------


         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, this 18th day of
January, 1999.

                       SPECIALTY CHEMICAL RESOURCES, INC.




                                    By:/s/ Edwin M. Roth
                                          -------------------------------------
                                          Edwin M. Roth
                                          C.E.O. and Chairman of the Board


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities, on the
date indicated. This Report may be signed in multiple counterparts, all of which
taken together shall constitute one document.

<TABLE>
<CAPTION>

         NAME                                        TITLE                      DATE
         ----                                        -----                      ----
<S>                                     <C>                                <C>
/s/ Edwin M. Roth                       C.E.O. and Chairman                January 18, 1999
----------------------------            of the Board (Principal
   Edwin M. Roth                        Executive Officer)


/s/ Corey B. Roth                       President, Chief Operating
----------------------------            Officer, and Director              January 18, 1999
Corey B. Roth


/s/ David F. Spink                      Vice President, Chief              January 18, 1999
----------------------------            Financial Officer,
David F. Spink                          Treasurer, and Asst.
                                        Secretary


/s/ George N. Aronoff                   Director                           January 18, 1999
----------------------------
George N. Aronoff


/s/ Victor Gelb                         Director                           January 18, 1999
-----------------------------
Victor Gelb


/s/ Lionel N. Sterling                  Director                           January 18, 1999
-----------------------------
Lionel N. Sterling


/s/ Geoffrey J. Colvin                  Director                           January 18, 1999
-----------------------------
Geoffrey J. Colvin


/s/ Terence J. Conklin                  Director                           January 18, 1999
-----------------------------
Terence J. Conklin
</TABLE>