<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
Of the Securities and Exchange act of 1934
For Quarter Ended September 30,1996
-----------------------------
Commission file number 0-14119-NY
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Polymer Research Corp. of America
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 11-2023495
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
2186 Mill Avenue, Brooklyn, New York 11234
- --------------------------------------------- ------------
(Address of principal executive offices) (Zip code)
(718) 444-4300
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(Registrants telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
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
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
October 31, 1996 1,406,169
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<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
INDEX
Page
Number
------
Part I - FINANCIAL INFORMATION:
ITEM I - FINANCIAL STATEMENTS
Balance Sheets:
September 30, 1996 (Unaudited) and
December 31, 1995 1-2
Statements of Operations:
Three months and nine months
ended September 30, 1996
and 1995 (Unaudited) 3
Statements of Cash Flows:
Nine months ended September 30, 1996
and 1995 (Unaudited) 4
Notes to Financial Statements 5-8
ITEM 2 - MANAGEMENT`S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 9-10
PART II - OTHER INFORMATION 11
<PAGE>
PARTI-FINANCIAL INFORMATION
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POLYMER RESEARCH CORP. OF AMERICA
BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
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September 30, December 31,
ASSETS 1996 1995
- ------ ----------- ------------
(Unaudited) (Note 1)
CURRENT ASSETS:
Cash $ 508,344 $1,474,034
Investment - certificates of deposit 548,093 142,611
Investment securities available
for sale 526,055 588,481
Accounts receivable,less allowances
of $ 0 55,490 59,816
Inventories 76,137 72,713
Prepaid expenses and other 27,404 12,595
---------- ----------
Total current assets 1,741,523 2,350,250
---------- ----------
Land, Property, and Equipment-net 2,944,760 3,014,588
---------- ----------
Deferred financing costs and other 11,786 12,177
---------- ----------
Total other assets 11,786 12,177
---------- ----------
TOTAL $4,698,069 $5,377,015
========== ==========
The accompanying notes are an integral part of these financial statements.
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<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
POLYMER RESEARCH CORP. OF AMERICA
BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
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September 30, December 31,
1996 1995
------------- ------------
(Unaudited) (Note 1)
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 27,473 $ 39,146
Accounts payable 12,483 13,142
Accrued expenses and other
current liabilities 248,144 295,083
Income taxes payable 44,605 33,400
Deferred revenue 50,000 170,837
----------- -----------
Total current liabilities 382,705 551,608
----------- -----------
LONG-TERM DEBT (NOTE 4) 1,488,117 2,303,355
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per
share, authorized 4,000,000 shares,
issued 1,489,657 and 1,354,234
shares respectively 14,896 13,542
Capital in excess of par value 2,632,037 2,091,699
Retained earnings 246,905 475,518
Unrealized holding losses (9,854) (1,970)
Less: Treasury stock at cost
83,488 shares in 1996 and
83,488 shares in 1995 (56,737) (56,737)
----------- -----------
Total Stockholders' Equity 2,827,247 2,522,052
----------- -----------
TOTAL $ 4,698,069 $ 5,377,015
=========== ===========
The accompanying notes are an integral part of these financial statements.
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<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED) AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
Net revenues:
<S> <C> <C> <C> <C>
Product sales $ 166,655 $ 141,886 $ 617,741 $ 513,249
Research 1,275,500 1,099,641 3,499,224 3,345,613
----------- ----------- ----------- -----------
Total 1,442,155 1,241,527 4,116,965 3,858,862
----------- ----------- ----------- -----------
Cost of Revenues
Product sales 134,478 117,880 514,945 396,225
Research 237,954 475,727 808,328 1,484,546
----------- ----------- ----------- -----------
Total 372,432 593,607 1,323,273 1,880,771
----------- ----------- ----------- -----------
Gross Profit on Revenues 1,069,723 647,920 2,793,692 1,978,091
Selling, General, and
Administrative Expenses 689,668 427,216 2,006,762 1,261,708
----------- ----------- ----------- -----------
Income from Operations 380,055 220,704 786,930 716,383
----------- ----------- ----------- -----------
Other Revenues (Expenses):
Interest income 11,781 11,305 40,468 36,018
Mortgage modification fee (45,000) (45,000)
Interest expense (see note 2) (62,966) (61,888) (185,630) (165,543)
Rental income 4,311 3,650 4,311 3,650
----------- ----------- ----------- -----------
Total (91,874) (46,933) (185,851) (125,875)
----------- ----------- ----------- -----------
Income before income taxes 288,181 173,771 601,079 590,508
Provision for income taxes (134,500) (83,000) (288,000) (288,000)
----------- ----------- ----------- -----------
Net income $ 153,681 $ 90,771 $ 313,079 $ 302,508
=========== =========== =========== ===========
Income per Share $ 0.11 $ 0.O6 * $ 0.22 $ 0.22 *
=========== =========== =========== ===========
Weighted average number of shares
outstanding during the period 1,406,069 1,406,069 * 1,406,069 1,406,069 *
=========== =========== =========== ===========
</TABLE>
* Restated for 1996 10% stock dividend.
The accompanying notes are an integral part of the financial statements
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<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
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OPERATIONS: 1996 1995
----------- -----------
Net Income $ 313,079 $ 302,508
Charge not affecting funds -
Depreciation and amortization 75,440 74,658
----------- -----------
Funds Provided by operations 388,519 377,166
----------- -----------
Asset and liability management:
Accounts receivable 4,326 (20,890)
Inventories (3,424) (7,465)
Other current assets (14,809) 5,981
Other assets 391 8,499
Accounts payable (659)
Accrued expenses and other (46,939) (42,152)
Income taxes payable 11,205 18,532
Deferred revenue (120,837)
----------- -----------
Increase (Decrease) in net
operating assets (170,746) (37,655)
----------- -----------
Total 217,773 339,511
----------- -----------
FUNDS PROVIDED BY
FINANCING
Certificates of deposit (405,482) (4,665)
Investment securities 54,542 37,381
Payments on long term debt (826,911) (23,297)
----------- -----------
Total (1,177,851) 9,419
----------- -----------
INVESTMENT IN LAND, PROPERTY,
AND EQUIPMENT (5,612) (23,532)
----------- -----------
INCREASE (DECREASE) IN CASH $ (965,690) $ 325,398
=========== ===========
The accompanying notes are an integral part of these financial statements.
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POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - Financial statements
In the opinion of the management of Polymer Research Corp. of America (the
Company), the accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles.
Management believes that the results herein reflect all adjustments which are in
the opinion of management necessary to fairly state the results and current
financial condition of the Company for the respective periods. These statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's report filed under cover of Form 10-K.
The results of operations for the nine month period is not necessarily
indicative of the results for an entire year.
The balance sheet at December 31, 1995 has been taken from the audited financial
statements as of that date.
NOTE 2 - Summary of Significant Accounting Policies
Business Activity
The Company is engaged in the research and development of the applications of
chemical grafting and sells products resulting from such research. Additionally,
the Company produces and sells textile printing inks.
Credit Risk
Financial instruments that potentially subject the company to credit risk
include investments in United States Treasury bills notes and other certificates
of deposit, government agencies' securities and U.S. Government and New York
State mutual bond funds. Future changes in economic conditions may make the
investment less valuable.
In addition, financial instruments that potentially subject the Company to
credit risk also include accounts receivable. Accounts receivable resulting from
research or product sales are not collateralized.
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<PAGE>
The Company maintains deposits with financial institutions in excess of amounts
insured by the FDIC.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts 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.
Revenue Recognition
Revenue from research contracts is recognized upon client approval on
performance of a specific stage of the contract and collection. In addition,
revenue on products sold are recognized when products are shipped for sale to
customers.
Inventories
are valued at the lower of cost or market, with cost determined using the
first-in, first-out method and with market defined as the lower of replacement
cost or realizable value.
Investment Securities
The Company determines the appropriate classification of securities at the time
of purchase. If the Company has the intent and the ability at the time of
purchase to hold securities until maturity or on a long-term basis, they are
classified as investments and carried at amortized historical cost. Securities
to be held for indefinite periods of time and not intended to be held to
maturity or on a long-term basis are classified as available for sale and
carried at fair value. Securities held for indefinite periods of time include
securities that management intends to use as part of its asset and liability
management strategy and that may be sold in response to changes in interest
rates, resultant prepayment risk and other factors related to interest rate and
resultant prepayment risk changes.
Realized gains and losses on dispositions are based on the net proceeds and the
adjusted book value of the securities sold,
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<PAGE>
using the specific identification method. Unrealized gains and losses on
investment securities available for sale are based on the difference between
book value and fair value of each security. These gains and losses are credited
or charged to shareholders' equity, whereas realized gains and losses flow
through the Company's yearly operations.
Property and Equipment
Property and equipment is stated at cost. The costs of additions and betterments
are capitalized and expenditures for repairs and maintenance are expensed in the
period incurred. When items of property and equipment are sold or retired, the
related costs and accumulated depreciation are removed from the accounts and any
gain or loss is included in income.
The company capitalizes leased equipment where the terms of the lease result in
the transfer to the Company of substantially all of the benefits and risks of
ownership of the equipment.
Depreciation and amortization of property and equipment is provided utilizing
the straight-line method over the estimated useful lives of the respective
assets as follows:
Transportation equipment 3 to 5 years
Machinery and equipment 5 years
Furniture and fixtures 5 to 10 years
Building and improvements 40 years
Office equipment under capital
leases 5 years
Deferred Financing Costs
incurred in obtaining the mortgage discussed below have been capitalized and are
being amortized over the term of the related obligation utilizing the
straight-line method.
Income Taxes
The Company accounts for it's income taxes utilizing Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes" which
requires that the Company follow the liability method of accounting for income
taxes.
The liability method provides that deferred tax assets and liabilities
are recorded based on the difference between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes,
referred to as "temporary differences."
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<PAGE>
Net Earnings Per Share
Earnings per share are computed based upon the weighted average number of common
shares outstanding during each year. 1995 computations have been restated to
reflect the stock dividend in February of 1996 for comparison purposes.
Profit Sharing Plan
Effective January 1, 1990, the Company adopted a qualified non-contributory
profit sharing plan. The plan provides its eligible employees with a source of
retirement income, as well as provide assistance in other circumstances such as
death or disability. Eligible employees must meet two requirements to become
participants; attainment of age 21 and completion of one year of service with
the Company. Employer contributions are determined, if any, at the Board of
director's discretion. A percentage of the benefits vest after three years of
qualifying service.
NOTE 3 - ProvisionforIncomeTaxes (First nine months)
1996 1995
---- ----
Federal $ 172,000 $ 169,000
State and local 116,000 119,000
------- -------
Total $ 288,000 $ 288,000
======= =======
NOTE 4 - Mortgage Liability
In September of 1996, the company prepaid $ 800,000 due under its mortgage on
the Company's building and modified its payment schedule. As modified the
Company is obligated to pay the balance of the mortgage in equal monthly
instalments of $15,435 including interest at 10.5% per annum through June, 2000.
Such mortgage is being amortized using a 25 year amortization. The entire unpaid
principal balance is due in a balloon payment of $1,399,534 on June 1, 2000. In
connection with the modification, the Company paid the Mortgagee $45,000.
NOTE - 5 - Stock Dividend
On March 15, 1996 the Company declared a 10% stock dividend to shareholders,
paid March 29, 1996. The transaction was valued based upon the closing market
price of the Company's stock on March 15, 1996, which was $4.00 per share.
Retained earnings was charged for $ 541,692 as a result of the issuance of
135,423 shares.
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<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
Cash, Investments, and Investment securities have decreased collectively by a
$622,634 since December 31, 1995 as a result of income tax payments, a decrease
in accrued expenses, and an $ 800,000 prepayment on the building mortgage made
in September 1996 which were partially offset by cash generated from operations.
Cash is generated by and used by the Company through its operations. Neither the
issuance of stock nor the acquisition of debt was in 1995, nor expected to be in
1996, sources of cash for use in operations.
The rate of current assets to current liabilities at September 30, 1996
increased to 4.55 to 1.0 as compared to 4.26 to 1.0 at December 31, 1995. The
increase is a result of net earnings in 1996 and the decrease in deferred
revenue.
Based on the above, the Company's cash, investment, and investment securities
position at September 30, 1996 is deemed sufficient to cover any unforeseen
sales downturn in the short term as it is equal to approximately seven months
selling, general, and administrative expenses. Over both the long and short
term, liquidity will be a direct result of sales and related net earnings.
B. RESULTS OF OPERATIONS
Three months ended September 30, 1996 v. 1995
Net revenues for the third quarter of 1996 were $ 1,442,155 an increase of $
200,628 (16%) compared to the third quarter of 1995 as a result of more
contracts and increased contract fees. Product sales increased 17% in the third
quarter of 1996 over 1995, principally due to increased demand resulting from
increased research contracts yielding increased production demand.
The cost of revenues in research decreased from 43% in the third quarter of 1995
to 19% in same quarter of 1996 due to a reallocation of salaries which were
previously classified as Research Cost of Sales being re-allocated to Selling,
General, and Administrative expenses.
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<PAGE>
Costs of product sales decreased from 83% in the third quarter of 1995 to 81% in
the same quarter of 1996 principally as a result of increased sales without the
need for additional employees and higher wages.
Selling, general, and administrative expenses increased as a percentage of sales
from 34% for the third quarter of 1995 to 48% for the comparable quarter of
1996. Such increase is primarily the result of reallocation of salaries which
were previously classified as Research Cost of Sales being re-allocated to
Selling, General, and Administrative expenses.
costs.
Net income increased from $ 90,771 (7.3% of sales) in 1995 to $ 153,681 (11% of
sales) in 1996 due to increased sales.
Nine months ended September 30, 1996 v. 1995
Net revenues for the first nine months of 1996 were $ 4,116,965 an increase of $
258,103 (6.7%) compared to first nine months of 1995. Research sales increased
4.6% in the first nine months of 1996 as compared to 1995 as a result of more
contracts and increased contract fees. The increase in research sales is
attributable to increased foreign sales and increased economic demand. Product
sales increased 20% in the first nine months of 1996 over 1995. Production
revenue increased principally due to increased demand resulting from increased
research contracts yielding increased production demand.
The cost of revenues in research decreased from 44% in the first nine months of
1995 to 23% in the first nine months of 1996 due to a re-allocation of salaries
which were previously classified as Research Cost of Sales being re-allocated to
Selling, General, and Administrative expenses.
Costs of product sales increased from 77% in the first nine months of 1995 to
83% in the first nine months of 1996 principally as a result of increased labor
related to additional employees and higher wages.
Selling, general, and administrative expenses increased as a percentage of sales
from 33% for the first nine months of 1995 to 49% for the first nine months of
1996. Such increase is primarily the result of reallocation of salaries which
were previously classified as Research Cost of Sales being re-allocated to
Selling, General, and Administrative expenses.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings:
Periodically the company becomes subject to litigation concerning
research results. Management believes that the ultimate outcome of
pending litigation will not have a material adverse effect on the
company.
ITEM 2 - Changes in Securities:
None
ITEM 3 - Defaults Upon Senior Securities: None
ITEM 4 - Submission of Matters to a Vote of Security Holders:
None
ITEM 5 - Other Information: None
ITEM 6 - Exhibits and Reports on Form 8-k:
Exhibit 27 - Financial Data Schedule
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<PAGE>
FORM 10-QSB
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POLYMER RESEARCH CORP. OF AMERICA,
----------------------------------------
(REGISTRANT)
Date October 31, 1996 /s/ Carl Horowitz
----------------------- ----------------------------------
Carl Horowitz, President and Chief
Accounting Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION, EXTRACTED
FROM THE COMPANY'S THIRD QUARTER FINANCIAL STATEMENT FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,056,437
<SECURITIES> 526,055
<RECEIVABLES> 554,490
<ALLOWANCES> 0
<INVENTORY> 76,137
<CURRENT-ASSETS> 1,741,534
<PP&E> 2,944,760
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,698,069
<CURRENT-LIABILITIES> 382,705
<BONDS> 1,488,117
0
0
<COMMON> 14,896
<OTHER-SE> 2,182,351
<TOTAL-LIABILITY-AND-EQUITY> 4,498,069
<SALES> 617,741
<TOTAL-REVENUES> 4,116,965
<CGS> 514,945
<TOTAL-COSTS> 1,323,273
<OTHER-EXPENSES> 2,051,762
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185,630
<INCOME-PRETAX> 601,079
<INCOME-TAX> 288,000
<INCOME-CONTINUING> 313,079
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 313,079
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
