<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 March 31, 1997
---------------
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.
April 30, 1997 1,488,711
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<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
INDEX
PART I - FINANCIAL INFORMATION: Page Number
-----------
ITEM I - FINANCIAL STATEMENTS
Balance Sheets:
March 31, 1997 (Unaudited) and
December 31, 1996 1
Statements of Operations:
Three months ended March 31, 1997
and 1996 (Unaudited) 3
Statements of Cash Flows:
Three months ended March 31, 1997
and 1996 (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
MARCH 31, 1997 AND DECEMBER 31, 1996
- --------------------------------------------------------------------------------
March 31, December 31,
ASSETS 1997 1996
--------- -----------
(Unaudited) (Note 1)
CURRENT ASSETS:
Cash $ 559,416 $ 709,170
Investment - certificates of deposit 563,390 554,338
Investment securities available
for sale 465,297 473,283
Accounts receivable,less allowances
of $0 and $4,000 63,241 91,850
Inventories 73,408 85,822
Prepaid expenses and other 90,773 195,086
--------- ---------
Total current assets 1,815,525 2,109,549
--------- ---------
Land, Property, and Equipment-net 2,915,321 2,939,514
--------- ---------
Deferred financing costs and other 11,811 11,814
--------- ---------
Total other assets 11,811 11,814
--------- ---------
TOTAL $ 4,742,657 $ 5,060,877
========== ==========
The accompanying notes are an integral part of these financial
statements.
- -------------------------------------------------------------1
<PAGE>
PART I - FINANCIAL INFORMATION
POLYMER RESEARCH CORP. OF AMERICA
BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
- --------------------------------------------------------------------------------
March 31, December 31,
1997 1996
--------- ---------
(Unaudited) (Note 1)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 28,031 $ 28,143
Accounts payable 66,466 56,907
Accrued expenses and other
current liabilities 363,108 417,714
Deferred revenue 20,000 393,300
--------- ---------
Total current liabilities 477,605 896,064
--------- ---------
LONG-TERM DEBT (NOTE 2) 1,476,363 1,483,080
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per
share, authorized 4,000,000 shares,
issued 1,489,657 and 1,489,657
shares respectively 14,896 14,896
Capital in excess of par value 2,632,037 2,632,037
Retained earnings 210,610 103,654
Unrealized holding losses (12,117) (12,117)
Less: Treasury stock, at cost
91,837 shares in 1996 and
91,837 shares in 1995 (56,737) (56,737)
--------- ---------
Total Stockholders' Equity 2,788,689 2,681,733
--------- ---------
TOTAL $ 4,742,657 $ 5,060,877
========= =========
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 MARCH 31, 1997 AND 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
1997 1996
---- ----
Net Revenues
Research $ 1,148,300 $ 1,087,824
Production 232,680 227,733
--------- ---------
Total 1,380,980 1,315,557
--------- ---------
Cost of Revenues
Research 261,652 295,002
Production 231,131 184,506
--------- ---------
Total 492,783 479,508
--------- ---------
Gross Profit on Revenues 888,197 836,049
--------- ---------
Selling, General, and
Administrative Expenses 660,357 634,867
--------- ---------
Income from operations 227,840 201,182
--------- ---------
Other revenues (Expenses):
Investment income 17,116 15,887
Interest expense (39,499) (61,504)
--------- ---------
Income before income taxes 205,457 155,565
Provision for income taxes 98,501 75,500
--------- ---------
Net Income $ 106,956 $ 80,065
========= ========
Income per share $ .08 $ .06
========= ========
Weighted average number
of shares outstanding
during the period 1,397,820 1,397,820
========= =========
The accompanying notes are an integral part of these financial
statements.
- -------------------------------------------------------------3
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
OPERATIONS: 1997 1996
- ----------- ---- ----
Net Income $ 106,956 $ 80,065
Charge not affecting funds -
Depreciation and amortization 24,999 25,051
---------- ---------
Funds Provided by operations 131,955 105,116
---------- ---------
Asset and liability management:
Accounts receivable 28,609 (16,254)
Inventories 12,414 (21,918)
Other current assets 104,313 (17,176)
Accounts payable 9,559
Accrued expenses and other (54,606) 43,160
Income taxes payable (16,602)
Deferred revenue (373,300) (170,837)
---------- ---------
Other current liabilities
Increase (Decrease) in net
operating assets (273,011) (199,627)
---------- ---------
Total (141,056) (94,511)
---------- ---------
FUNDS USED BY
FINANCING
Certificates of deposit (9,052) (1,865)
Investment securities 7,986 57,650
Payments on long term debt (6,829) (9,406)
---------- ---------
Total (7,895) 46,379
---------- ---------
INVESTMENT IN LAND, PROPERTY,
AND EQUIPMENT (803) (4,559)
---------- ---------
INCREASE (DECREASE) IN CASH $ (149,754) $ (52,691)
========== =========
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 three month period is not necessarily
indicative of the results for an entire year.
The balance sheet at December 31, 1996 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.
The Company maintains deposits with financial institutions in excess of amounts
insured by the FDIC.
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<PAGE>
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 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 two criteria: first, client
approval of performance of a specific stage of the contract and, second,
collection of the resulting revenue is assured. Revenue from production is
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 face 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
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 operations.
- ------------------------------------------------------------------------------6
<PAGE>
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 its 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." The adoption of the new statement did not have a
material impact on the Company's financial position or results of operations.
Net Earnings Per Share
- ----------------------
Earnings per share are computed based upon the weighted average number of common
shares outstanding during each year.
- ------------------------------------------------------------------------------7
<PAGE>
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 three months)
1997 1996
------- -------
Federal $ 58,500 $ 44,500
State and local 40,001 31,000
------- -------
Total $ 98,501 $ 75,500
======= =======
NOTE 4 - Mortgage Liability
In September of 1996 the Company prepaid $800,000 due under it's mortgage on the
Company's building and modified its payment schedule. As modified, the Company
is obligated to pay a mortgage note payable in equal monthly instalments of
$15,457 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 $1,398,330 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.
NOTE - 6 - SUBSEQUENT EVENT
On April 1, 1997 the Company declared a 5% stock dividend to shareholders, paid
April 9, 1997. The transaction was valued based upon the closing market price of
the Company's stock on April 1, 1997, which was $2.81 per share. Retained
earnings was charged for $212,107 as a result of the issuance of 75,483 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
$148,688 since December 31, 1996. The decrease is principally due to the use of
cash received in late 1996 to perform services on research contracts.
Cash is generated by and used by the Company through its operations. Neither the
issuance of stock nor the acquisition of debt was in 1996, nor expected to be in
1997, sources of cash for use in operations.
The rate of current assets to current liabilities at March 31, 1997 increased to
3.80 to 1.0 at March 31, 1997 as compared to 2.35 to 1.0 at December 31, 1996.
The increase is a result of net earnings in 1997 and the decrease in deferred
revenue.
Based on the above, the Company's cash, investment, and investment securities
position at March 31, 1997 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 March 31, 1997 v. 1996
Net revenues for the first quarter of 1997 were $1,380,980, an increase of
$65,423 (5%) over the first quarter of 1996. Research sales increased $60,476
(5.6%) in the first quarter of 1997 over 1996. Product sales were effectively
unchanged in the first quarter of 1997 over 1996.
The cost of revenues in research decreased from 27% in the first quarter of 1996
to 23% in the same quarter of 1997 due to reductions in staff and repairs and
maintenance.
Costs of product sales increased from 81% in the first quarter of 1996 to 99% in
the same quarter of 1997 principally as a result of increased material prices.
- ------------------------------------------------------------------------------9
<PAGE>
Selling, general, and administrative expenses remained consistent as a
percentage of sales at 48% for the first quarter of 1997 and for the comparable
quarter of 1996.
Interest expense decreased due to the principal pre-payment of $800,000 on the
mortgage in September 1996. (See Note 4.)
Net income increased from $80,065 (6% of sales) in 1996 to $106,957 (8% of
sales) in 1997, principally as the result of increased revenues, improved gross
margins, and the reduced interest expense.
- ---------------------------------------------------------------------------10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings:
The Company is party to various lawsuits arising in the ordinary course of
business. The Company's financial statements include reserves of $150,000 for
legal expenses and any unfavorable outcomes in amounts management believes to be
reasonable. In the opinion of management, such lawsuits should not have a
material adverse effect on the Company's financial condition.
ITEM 2 - Changes in Securities:
On April 1, 1997 the Company declared a 5% stock dividend to shareholders, paid
April 9, 1997. The transaction was valued based upon the closing market price of
the Company's stock on April 1, 1997, which was $2.81 per share. Retained
earnings was charged for $212,107 as a result of the issuance of 75,483 shares.
On April 1, 1997 prior to the declaration of a stock dividend, the Company
issued 20,000 shares of stock to an Executive Vice President as a bonus for past
and future services. These shares have not been registered under the Securities
Act of 1933 and sales of the shares are subject to restrictions and limitations.
The Company has valued the shares at $1 per share and will recognize
compensation expense for 1997 totaling $20,000 related to this bonus rateably
throughout the year.
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
- ----------------------------------------------------------------------------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
------------------ ------------------------------------
Carl Horowitz, President and Chief
Accounting Officer
- ---------------------------------------------------------------------------12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,122,806
<SECURITIES> 465,297
<RECEIVABLES> 63,241
<ALLOWANCES> 0
<INVENTORY> 73,408
<CURRENT-ASSETS> 1,815,525
<PP&E> 2,915,321
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,742,657
<CURRENT-LIABILITIES> 477,605
<BONDS> 1,476,363
0
0
<COMMON> 14,896
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,742,657
<SALES> 232,680
<TOTAL-REVENUES> 1,380,980
<CGS> 231,131
<TOTAL-COSTS> 492,783
<OTHER-EXPENSES> 660,357
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,499
<INCOME-PRETAX> 205,457
<INCOME-TAX> 98,501
<INCOME-CONTINUING> 106,956
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106,956
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
