<PAGE>
FORM 10-Q
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 June 30, 1996
-------------------------------------------------------------
Commission file number 0-14119-NY
---------------------------------------------------------
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
- -------------------------------------------------------------------------------
(Registrants telephone number, including area code)
Not Applicable
- -------------------------------------------------------------------------------
(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
----- -----
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.
July 31, 1996 1,406,169
- -------------------------------------------------------------------------------
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
INDEX
Page
Number
Part I - FINANCIAL INFORMATION: ------
ITEM I - FINANCIAL STATEMENTS
Balance Sheets:
June 30, 1996 (Unaudited) and
December 31, 1995 1-2
Statements of Operations:
Three months and six months
ended June 30, 1996 and 1995 (Unaudited) 3
Statements of Cash Flows:
Six months ended June 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>
PART I - FINANCIAL INFORMATION
- ------------------------------
POLYMER RESEARCH CORP. OF AMERICA
BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
- -------------------------------------------------------------------------------
June 30, December 31,
ASSETS 1996 1995
----------- -----------
(Unaudited) (Note 1)
CURRENT ASSETS:
Cash $ 1,350,108 $ 1,474,034
Investment - certificates of deposit 146,344 142,611
Investment securities available
for sale 527,670 588,481
Accounts receivable,less allowances
of $ 0 87,412 59,816
Inventories 85,126 72,713
Prepaid expenses and other 75,879 12,595
----------- -----------
Total current assets 2,272,539 2,350,250
----------- -----------
Land, Property, and Equipment-net 2,969,098 3,014,588
----------- -----------
Deferred financing costs and other 11,877 12,177
----------- -----------
Total other assets 11,877 12,177
----------- -----------
TOTAL $ 5,253,514 $ 5,377,015
=========== ===========
The accompanying notes are an integral part of these
financial statements.
- -----------------------------------------------------------------------------1
<PAGE>
PART I - FINANCIAL INFORMATION
- ------------------------------
POLYMER RESEARCH CORP. OF AMERICA
BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
- -------------------------------------------------------------------------------
June 30, December 31,
1996 1995
---------- ------------
(Unaudited) (Note 1)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 41,246 $ 39,146
Accounts payable 32,730 13,142
Accrued expenses and other
current liabilities 223,789 295,083
Income taxes payable 33,400
Deferred revenue 170,837
----------- -----------
Total current liabilities 297,765 551,608
----------- -----------
LONG-TERM DEBT (NOTE 4) 2,282,183 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 93,224 475,518
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 2,673,566 2,522,052
----------- -----------
TOTAL $ 5,253,514 $ 5,377,015
=========== ===========
The accompanying notes are an integral part of these
financial statements.
- -----------------------------------------------------------------------------2
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------- ---------- ---------- -----------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net revenues:
Product sales 223,353 $ 195,584 451,086 $ 371,363
Research 1,135,900 1,173,669 2,223,724 2,245,972
---------- ---------- ---------- ----------
Total 1,359,253 1,369,253 2,674,810 2,617,335
---------- ---------- ---------- ----------
Cost of Revenues
Product sales 195,961 144,595 380,467 278,345
Research 275,372 507,666 570,374 1,008,819
---------- ---------- ---------- ----------
Total 471,333 652,261 950,841 1,287,164
---------- ---------- ---------- ----------
Gross Profit on Revenues 887,920 716,992 1,723,969 1,330,171
Selling, General, and
Administrative Expenses 682,227 428,535 1,317,094 834,492
---------- ---------- ---------- ----------
Income from Operations 205,693 288,457 406,875 495,679
---------- ---------- ---------- ----------
Other Revenues (Expenses):
Interest income 12,800 14,689 28,687 24,713
Interest expense (See note 4) (61,160) (38,616) (122,664) (103,655)
Rental loss
---------- ---------- ---------- ----------
Total (48,360) (23,927) (93,977) (78,942)
---------- ---------- ---------- ----------
Income before income taxes 157,333 264,530 312,898 416,737
Provision for income taxes (78,000) (132,000) (153,500) (205,000)
---------- ---------- ---------- ----------
Net Income 79,333 $ 132,530 159,398 $ 211,737
========== ========== ========== ==========
Income per Share 0.06 $ 0.09* 0.11 $ 0.15*
========== ========== ========== ==========
Weighted average number of shares
outstanding during the period 1,406,169 1,406,169* 1,406,169 1,406,169*
========== ========== ========== ==========
</TABLE>
* Restated for 1996 10% stock dividend
The accompanying notes are an integral part of these financial statements.
- ----------------------------------------------------------------------------3
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
- ---------------------------------
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
- -------------------------------------------------------------------------------
OPERATIONS: 1996 1995
----------- ----------
Net Income $ 159,398 $ 211,737
Charge not affecting funds -
Depreciation and amortization 50,350 49,572
---------- ---------
Funds Provided by operations 209,748 261,309
---------- ---------
Asset and liability management:
Accounts receivable (27,596) (29,554)
Inventories (12,413) (2,308)
Other current assets (63,284) 1,358
Other assets 300
Accounts payable 19,588
Accrued expenses and other (71,294) (74,750)
Income taxes payable (33,400) 11,426
Deferred revenue (170,837)
Other current liabilities
---------- ---------
Increase (Decrease) in net
operating assets (358,936) (93,828)
---------- ---------
Total (149,188) 167,481
---------- ---------
FUNDS PROVIDED BY
FINANCING
Certificates of deposit (3,733) (2,870)
Investment securities 52,927 43,606
Payments on long term debt (19,072) (14,370)
---------- ---------
Total 30,122 26,366
---------- ---------
INVESTMENT IN LAND, PROPERTY,
AND EQUIPMENT (4,860) (21,023)
---------- ---------
INCREASE (DECREASE) IN CASH $ (123,926) $ 172,824
========== =========
The accompanying notes are an integral part of these
financial statements.
- ----------------------------------------------------------------------------4
<PAGE>
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 six 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.
- -----------------------------------------------------------------------------5
<PAGE>
The Company maintains deposits with financial institutions in
excess of amounts insured by the FDIC.
Pervasivenes 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
- -----------
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, using the specific identification
- -----------------------------------------------------------------------------6
<PAGE>
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
- ------------------------
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."
- -----------------------------------------------------------------------------7
<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 - Provision for Income Taxes (First six months)
--------------------------
1996 1995
--------- ---------
Federal $ 91,000 $ 121,000
State and local 62,500 84,000
--------- ---------
Total $ 153,500 $ 205,000
========= =========
NOTE 4 - Mortgage Liability
------------------
The Company is obligated to pay a mortgage note payable in equal monthly
instalments of $23,605 including interest at 10.5% per annum through June, 2000,
secured by the related building. Such mortgage is being amortized using a 25
year amortization. The entire unpaid principal balance is due in a balloon
payment of $2,134,053 on June 1, 2000.
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.
- -----------------------------------------------------------------------------8
<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
$173,120 since December 31, 1995 as a result of income tax and expense
prepayments as well as a decrease in accrued expenses.
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 June 30, 1996 increased to
7.63 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 June 30, 1996 is deemed sufficient to cover any unforeseen sales
downturn in the short term as it is equal to approximately nine 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 June 30, 1996 v. 1995
Net revenues for the second quarter of 1996 were $ 1,359,253 a decrease of
$10,000 (.007%) compared to the second quarter of 1995. Product sales increased
35% in the second quarter of 1996 over 1995, principally due to increased demand
from overseas customers.
The cost of revenues in research decreased from 43% in the second quarter of
1995 to 24% 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.
Costs of product sales increased from 73% in the second quarter of 1995 to 88%
in the same quarter of 1996 principally as a result of increased labor due to
additional employees and higher wages.
- -----------------------------------------------------------------------------9
<PAGE>
Selling, general, and administrative expenses increased as a percentage of sales
from 31% for the second quarter of 1995 to 50% 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 decreased from $ 132,530 (10% of sales) in 1995 to $ 79,333 (6% of
sales) in 1996 due to increased utilities, interest, and labor related to
additional employees and higher wages.
Six months ended June 30, 1996 v. 1995
Net revenues for the first half of 1996 were $ 2,674,810 an increase of $ 57,475
(2%) compared to first half of 1995. Research sales remained approximately the
same in the first half of 1996 as compared to 1995. The lack of change in
research sales is attributable to similar demand for research based on an
unchanged sales effort. Product sales increased 22% in the first half of 1996
over 1995. Production revenue increased due to increased demand from overseas
customers.
The cost of revenues in research decreased from 45% in the first half of 1995 to
26% in the first half 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.
Costs of product sales increased from 75% in the first half of 1995 to 84% in
the first half of 1996 principally as a result of increased labor related to
additonal employees and higher wages.
Selling, general, and administrative expenses increased as a percentage of sales
from 31% for the first half of 1995 to 49% for the first half 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 decreased from $ 211,737 (8% of sales) in 1995 to $ 159,398 (6% of
sales) in 1996 due to increased utilities, interest, and labor related to
additional emplyees and higher wages.
- ---------------------------------------------------------------------------10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings: None
- ------
ITEM 2 - Changes in Securities:
- ------
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.
ITEM 3 - Defaults Upon Senior Securities: None
- ------
ITEM 4 - Submission of Matters to a Vote of Security Holders:
- ------
The Company held its annual meeting on May 17th 1996. At such meeting
the following persons were elected directors:
Director and votes for:
Carl Horowitz 1,397,789
Irene Horowitz 1,397,789
John Ryan 1,397,789
Alice Ryan 1,397,789
Boris Jody 1,397,789
Mohan Sanduja 1,397,789
Terry J. Wolfgang 1,397,789
ITEM 5 - Other Information: None
- ------
ITEM 6 - Exhibits and Reports on Form 8-k:
- ------
None
- ----------------------------------------------------------------------------11
<PAGE>
FORM 10-Q
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 August 5, 1996 /s/ Carl Horowitz
------------------------- -------------------------------------
Carl Horowitz, President and Chief
Accounting Officer
- ----------------------------------------------------------------------------12
