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 March 31, 1998
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, 1998 1,593,947
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POLYMER RESEARCH CORP. OF AMERICA
INDEX
Page
Number
Part I - FINANCIAL INFORMATION:
ITEM I - FINANCIAL STATEMENTS
Balance Sheets:
March 31, 1998 (Unaudited) and
December 31, 1997 1
Statements of Operations:
Three months ended March 31, 1998
and 1997 (Unaudited) 3
Statements of Cash Flows:
Three months ended March 31, 1998
and 1997 (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, 1998 AND DECEMBER 31, 1997
- --------------------------------------------------------------------------------
March 31, December 31,
ASSETS 1998 1997
---------- ----------
(Unaudited) (Note 1)
CURRENT ASSETS:
Cash $1,924,310 $1,367,008
Investment - certificates of deposit 156,817 155,308
Investment securities available
for sale 389,451 482,940
Accounts receivable,less allowances
of $0 226,115 137,827
Inventories 107,606 99,654
Prepaid expenses and other 35,929 17,504
---------- ----------
Total current assets 2,840,228 2,260,241
---------- ----------
Land, Property, and Equipment-net 2,839,003 2,863,416
---------- ----------
Deferred financing costs and other 11,218 11,450
---------- ----------
Total other assets 11,218 11,450
---------- ----------
TOTAL $5,690,449 $5,135,107
========== ==========
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, 1998 AND DECEMBER 31, 1997
- --------------------------------------------------------------------------------
March 31, December 31,
1998 1997
----------- -----------
(Unaudited) (Note 1)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 30,438 $ 31,244
Accounts payable 53,102 75,548
Accrued expenses and other
current liabilities 354,486 349,802
Income taxes payable 288,362 56,100
Deferred revenue 242,450 252,450
----------- -----------
Total current liabilities 968,838 765,144
----------- -----------
LONG-TERM DEBT (NOTE 2) 1,445,068 1,451,770
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per
share, authorized 4,000,000 shares,
issued 1,580,548 and 1,580,548
shares respectively 15,805 15,805
Capital in excess of par value 2,850,332 2,850,332
Retained earnings 468,423 111,029
Unrealized holding losses (1,280) (2,236)
Less: Treasury stock, at cost
91,837 shares (56,737) (56,737)
----------- -----------
Total Stockholders' Equity 3,276,543 2,918,193
----------- -----------
TOTAL $ 5,690,449 $ 5,135,107
=========== ===========
The accompanying notes are an integral part of these financial statements.
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POLYMER RESEARCH CORP. OF AMERICA
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
1998 1997
----------- -----------
Net Revenues
Research $ 1,766,516 $ 1,148,300
Production 421,660 232,680
----------- -----------
Total 2,188,176 1,380,980
----------- -----------
Cost of Revenues
Research 289,303 261,652
Production 369,433 231,131
----------- -----------
Total 658,736 492,783
----------- -----------
Gross Profit on Revenues 1,529,440 888,197
----------- -----------
Selling, General, and
Administrative Expenses 827,931 660,357
----------- -----------
Income from operations 701,509 227,840
----------- -----------
Other revenues (Expenses):
Investment income 16,249 17,116
Interest expense (38,864) (39,499)
----------- -----------
Income before income taxes 678,894 205,457
Provision for income taxes 321,500 98,501
----------- -----------
Net Income $ 357,394 $ 106,956
=========== ===========
Income per share $ .24 $ .07
=========== ===========
Weighted average number of shares
outstanding during the period 1,488,711 1,488,711
=========== ===========
The accompanying notes are an integral part of these financial statements.
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POLYMER RESEARCH CORP. OF AMERICA
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(UNAUDITED)
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OPERATIONS: 1998 1997
--------- ---------
Net Income $ 357,394 $ 106,956
Charge not affecting funds -
Unrealized holding losses 956
Depreciation and amortization 24,999 24,999
--------- ---------
Funds Provided by operations 383,349 131,955
--------- ---------
Asset and liability management:
Accounts receivable (88,288) 28,609
Inventories (7,952) 12,414
Other current assets (18,425) 104,313
Accounts payable (22,446) 9,559
Accrued expenses and other 4,684 (54,606)
Income taxes payable 232,262
Deferred revenue (10,000) (373,300)
Total other assets 232
--------- ---------
Increase (Decrease) in net
operating assets 90,067 (273,011)
--------- ---------
Total 473,416 (141,056)
--------- ---------
FUNDS USED BY
FINANCING
Certificates of deposit (1,509) (9,052)
Investment securities 93,489 7,986
Payments on long term debt (7,508) (6,829)
--------- ---------
Total 84,472 (7,895)
--------- ---------
INVESTMENT IN LAND, PROPERTY,
AND EQUIPMENT (586) (803)
--------- ---------
INCREASE (DECREASE) IN CASH $ 557,302 $(149,754)
========= =========
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-QSB 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-KSB.
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, 1997 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.
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.
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<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."
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
The Company maintains 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)
1998 1997
-------- --------
Federal $192,000 $ 58,500
State and local 129,500 40,001
-------- --------
Total $321,500 $ 98,501
======== ========
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.
NOTE - 5 - Restricted Stock Issuance
On April 2, 1998 the Company authorized the issuance of 30,800 restrictive
shares of its common stock as incentive to approximately 35 employees as
incentive compensation. The Company has valued the shares at $2.77 per share and
will recognize compensation expense for $85,316 ratably throughout the year.
NOTE - 6 - Subsequent event
On March 2, 1998 the Company declared a 5% stock dividend to shareholders,
payable on April 2, 1998 to holders of record on March 23, 1998. The transaction
was valued based upon the closing market price of the Company's stock on March
2, 1998, which was $2.50 per share. Retained earnings will be charged for $
186,090 as a result of the issuance of 74,436 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 increased collectively by a
$557,302 since December 31, 1997. The increase is principally due to the net
income of the first quarter.
Cash is generated by and used by the Company through its operations. Neither the
issuance of stock nor the acquisition of debt was in 1997, nor expected to be in
1998, sources of cash for use in operations.
The rate of current assets to current liabilities decreased to 2.93 to 1.0 at
March 31, 1998 as compared to 2.95 to 1.0 at December 31, 1997. The decrease is
the result of an increase in taxes payable net of net income for the quarter.
Based on the above, the Company's cash, investment, and investment securities
position at March 31, 1998 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 March 31, 1998 v. 1997
Net revenues for the first quarter of 1998 were $ 2,188,176, an increase of
$807,196 (58%) over the first quarter of 1997. Research sales increased $618,216
(54%) in the first quarter of 1998 over 1997. Product sales increased $188,980
(81%) over the first quarter of 1998 over 1997.
The cost of revenues in research decreased from 23% in the first quarter of 1997
to 16% in the same quarter of 1998 due to greatly increased volume using the
same staff.
Costs of product sales decreased from 99% in the first quarter of 1997 to 88% in
the same quarter of 1998 principally as a result of increased sales using the
same sized labor force.
- -------------------------------------------------------------------------------9
<PAGE>
Selling, general, and administrative expenses decreased as a percentage of sales
to 38% for the first quarter of 1998 from 48% and for the comparable quarter of
1997 principally due to increased volume without significantly increased
expenses.
Net income increased from $ 106,956 (7.7% of sales) in 1997 to $357,394 (16% of
sales) in 1998, principally as the result of increased revenues and improved
gross margins without substantially increased expenses.
- ------------------------------------------------------------------------------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 $100,000 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 2, 1998 the Company authorized the issuance of 30,800 restrictive
shares of its common stock as incentive to approximately 35 employees as
incentive compensation. The Company has valued the shares at $2.77 per share and
will recognize compensation expense for $85,316 ratably throughout the year.
On March 2, 1998 the Company declared a 5% stock dividend to shareholders,
payable on April 2, 1998 to holders of record on March 23, 1998. The transaction
was valued based upon the closing market price of the Company's stock on March
2, 1998, which was $2.50 per share. Retained earnings will be charged for $
186,090 as a result of the issuance of 74,436 shares.
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:
None
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<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 May 7, 1998 /s/ Carl Horowitz
-----------------------------------
Carl Horowitz, President and Chief
Accounting Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,081,127
<SECURITIES> 389,451
<RECEIVABLES> 226,115
<ALLOWANCES> 0
<INVENTORY> 107,606
<CURRENT-ASSETS> 2,840,228
<PP&E> 2,839,003
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,690,449
<CURRENT-LIABILITIES> 968,838
<BONDS> 0
0
0
<COMMON> 15,805
<OTHER-SE> 3,260,738
<TOTAL-LIABILITY-AND-EQUITY> 5,690,449
<SALES> 421,660
<TOTAL-REVENUES> 2,188,176
<CGS> 369,433
<TOTAL-COSTS> 658,736
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,864
<INCOME-PRETAX> 678,894
<INCOME-TAX> 321,500
<INCOME-CONTINUING> 357,394
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 357,394
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
