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 June 30, 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.
July 31, 1998 1,593,947
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
INDEX
Page
Number
Part I - FINANCIAL INFORMATION: ------
ITEM I - FINANCIAL STATEMENTS
Balance Sheets:
June 30, 1998 (Unaudited) and
December 31, 1997 1
Statements of Operations:
Three months and six months ended
June 30, 1998 and 1997 (Unaudited) 3
Statements of Cash Flows:
Three months and six months ended
June 30, 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 JUNE 30, 1998 AND DECEMBER 31, 1997
- --------------------------------------------------------------------------------
June 30, December 31,
ASSETS 1998 1997
- ------ ---------- ------------
(Unaudited) (Note 1)
CURRENT ASSETS:
Cash $1,963,905 $1,367,008
Investment - certificates of deposit 158,356 155,308
Investment securities available
for sale 384,389 482,940
Accounts receivable,less allowances
of $0 and $4,000 120,112 137,827
Inventories 74,912 99,654
Prepaid expenses and other 73,643 17,504
---------- ----------
Total current assets 2,775,317 2,260,241
---------- ----------
Land, Property, and Equipment-net 2,821,363 2,863,416
---------- ----------
Deferred financing costs and other 10,984 11,450
---------- ----------
Total other assets 10,984 11,450
---------- ----------
TOTAL $5,607,664 $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 JUNE 30, 1998 AND DECEMBER 31, 1997
- --------------------------------------------------------------------------------
June 30, December 31,
1998 1997
----------- -----------
(Unaudited) (Note 1)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 33,438 $ 31,244
Accounts payable 30,238 75,548
Accrued expenses and other
current liabilities 249,350 349,802
Income taxes payable 238,849 56,100
Deferred revenue 202,450 252,450
----------- -----------
Total current liabilities 754,325 765,144
----------- -----------
LONG-TERM DEBT (NOTE 2) 1,434,365 1,451,770
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per
share, authorized 4,000,000 shares,
issued 1,685,784 and 1,685,784
shares respectively 16,857 15,805
Capital in excess of par value 3,120,117 2,850,332
Retained earnings 339,765 111,029
Unrealized holding losses (1,028) (2,236)
Less: Treasury stock, at cost
91,837 shares in 1998 and
91,837 shares in 1997 (56,737) (56,737)
----------- -----------
Total Stockholders' Equity 3,418,974 2,918,193
----------- -----------
TOTAL $ 5,607,664 $ 5,135,107
=========== ===========
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, 1998 AND 1997 (UNAUDITED) AND
THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net revenues:
Product sales $ 127,759 $ 320,399 $ 549,419 $ 553,079
Research 1,234,326 1,129,601 3,000,842 2,277,901
----------- ----------- ----------- -----------
Total 1,362,085 1,450,000 3,550,261 2,830,980
----------- ----------- ----------- -----------
Cost of Revenues
Product sales 183,718 258,758 553,151 489,889
Research 253,405 233,608 542,708 495,260
----------- ----------- ----------- -----------
Total 437,123 492,366 1,095,859 985,149
----------- ----------- ----------- -----------
Gross Profit on Revenues 924,962 957,634 2,454,402 1,845,831
Selling, General, and
Administrative Expenses 813,865 746,822 1,641,796 1,407,179
----------- ----------- ----------- -----------
Income from Operations 111,097 210,812 812,606 438,652
----------- ----------- ----------- -----------
Other Revenues (Expenses):
Interest income 28,501 16,952 44,750 34,068
Interest expense (See note 2) (38,665) (39,518) (77,529) (79,017)
----------- ----------- ----------- -----------
Total (10,164) (22,566) (32,779) (44,949)
----------- ----------- ----------- -----------
Income before income taxes 100,933 188,246 779,827 393,703
Provision for income taxes (43,500) (89,499) (365,000) (188,000)
----------- ----------- ----------- -----------
Net Income $ 57,433 $ 98,747 $ 414,827 $ 205,703
=========== =========== =========== ===========
Basic earnings per Share $ 0.04 $ 0.06* $ 0.26 $ 0.13
=========== =========== =========== ===========
Weighted average number of shares
outstanding during the period 1,593,947 1,593,947* 1,593,947 1,593,947
=========== =========== =========== ===========
</TABLE>
* Restated for 1998 5% 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, 1998 AND 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
OPERATIONS: 1998 1997
---- ----
Net Income $ 414,827 $ 205,703
Charge not affecting funds -
Issuance of incentive stock 28,439
Unrealized holding losses 1,208 5,428
Depreciation and amortization 49,998 48,978
--------- ---------
Funds Provided by operations 494,472 260,109
--------- ---------
Asset and liability management:
Accounts receivable 17,715 (6,637)
Inventories 24,742 3,258
Other current assets (56,139) 75,225
Other assets 466 214
Accounts payable (45,310) (8,794)
Accrued expenses and other (100,452) (114,401)
Income taxes payable 182,749
Deferred revenue (50,000) (368,300)
--------- ---------
Other current liabilities
Increase (Decrease) in net
operating assets (26,229) (419,435)
--------- ---------
Total 468,243 (159,326)
--------- ---------
FUNDS USED BY
FINANCING
Certificates of deposit (3,048) (15,953)
Investment securities 98,551 1,168
Issuance of stock 56,309 20,000
Payments on long term debt (15,211) (13,770)
--------- ---------
Total 136,601 (8,555)
--------- ---------
INVESTMENT IN LAND, PROPERTY,
AND EQUIPMENT (7,376)
---------
INCREASE (DECREASE) IN CASH $ 597,468 $(167,881)
========= =========
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-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 six 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.
- ------------------------------------------------------------------------------5
<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. Since inception the company has contributed $100,000 each
year.
NOTE 3 - Provision for Income Taxes (First six months)
1998 1997
---- ----
Federal $218,000 $112,000
State and local 147,000 76,000
-------- --------
Total $365,000 $188,000
======== ========
NOTE 4 - Mortgage Liability
In September of 1996 the Company prepaid $800,000 due under a mortgage on the
Company's building and modified its payment schedule. As modified, the Company
is obligated to pay the mortgage note 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 - 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. The
Company has valued the shares at $2.77 per share and will recognize compensation
expense for $85,316 rateably throughout the year.
NOTE - 6 - Stock Dividend
On March 2, 1998 the Company declared a 5% stock dividend to shareholders, paid
April 2, 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 has been charged for $ 186,090 as a result of the issuance of 74,436
shares which was credited to common stock and Capital in excess of par value.
- ------------------------------------------------------------------------------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 increased collectively by
$501,394 since December 31, 1997. The increase is principally due to net income
of the fist six months.
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, significant sources of cash for use in operations.
The rate of current assets to current liabilities at June 30, 1998 increased to
3.68 to 1.0 as compared to 2.95 to 1.0 at December 31, 1997. The increase is a
result of net earnings in 1998 and the decrease in deferred revenue.
Based on the above, the Company's cash, investment, and investment securities
position at June 30, 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. The company
expects to use its available cash to satisfy the mortgage on its building when
it becomes due in June 2000.
B. RESULTS OF OPERATIONS
Three months ended June 30, 1998 v. 1997
Net revenues for the second quarter of 1998 were $ 1,362,085, a decrease of
$87,915 (7%) from the second quarter of 1997. Research sales increased $104,725
(1%) in the second quarter of 1998 over 1997. Product sales decreased $192,640
(60%) in the second quarter of 1998 from 1997. Product sales decreased as many
large customers bought large quantities in the first quarter of 1998 and are
still using their inventory.
The cost of revenues in research decreased from 24% in the second quarter of
1997 to 21% in the same quarter of 1998 due to reductions in staff and in
repairs and maintenance expenses.
Costs of product sales increased from 81% in the second quarter of 1997 to 144%
in the same quarter of 1998
- ------------------------------------------------------------------------------9
<PAGE>
principally as a result of decreased volume while utilizing the same staff.
Product sales, while not always profitable are very useful in helping to obtain
research contracts as clients are aware that the company is able to produce the
results of research findings.
Selling, general, and administrative expenses increased as a percentage of sales
to 60% for the second quarter of 1998 from 52% for the comparable quarter of
1997 as a result of increased salaries, legal, insurance, and travel expenses.
Net income decreased from $ 98,747 (7% of sales) in 1997 to $ 57,433 (4% of
sales) in 1998, principally as the result of decreased revenues coupled with
increased Selling, General, and Administrative expenses.
Six months ended June 30, 1998 v. 1997
Net revenues for the first six months of 1998 were $ 3,550,261 an increase of
$719,281 (25%) over the first six months of 1997. Research sales increased
$722,941 (32%) in the first six months of 1998 over 1997 primarily as a result
of the increasing reputation of the company research results triggering further
demand for research work. Product sales decreased $ 3,660 (1%) in the first six
months of 1998 over 1997.
The cost of revenues in research decreased from 22% in the first six months of
1997 to 18% in the same period of 1998 due to increased volume without increases
in staff size.
Costs of product sales increased from 89% in the first six months of 1997 to
101% in the same period of 1998 principally as a result of decreased sales as
well as the same staff level with decreased sales.
Selling, general, and administrative expenses decreased as a percentage of sales
to 46% from 50% for the first six months of 1998 as compared to the first six
months of 1997 as a result of increased salaries, legal, insurance, and travel
expenses.
Net income increased from $ 205,703 (7% of sales) in 1997 to $414,827 (12% of
sales) in 1997, principally as the result of increased revenues and improved
gross margins.
- ------------------------------------------------------------------------------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 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 to act as
incentive compensation. The Company has valued the shares at $2.77 per share and
will recognize compensation expense for $85,316 rateably throughout the year.
On March 2, 1998 the Company declared a 5% stock dividend to shareholders, paid
April 2, 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 has been 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:
The Company held its annual meeting on May 19, 1998. At such meeting the
following persons were elected directors:
Director and votes for:
Carl Horowitz 1,181,724
Irene Horowitz 1,181,724
John Ryan 1,181,724
Alice Ryan 1,181,724
Boris Jody 1,181,724
Mohan Sanduja 1,181,724
Terry J. Wolfgang 1,181,724
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 July 29, 98 /s/ CARL HOROWITZ
----------------------------------
Carl Horowitz, President and Chief
Accounting Officer
- ------------------------------------------------------------------------------12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,122,261
<SECURITIES> 384,389
<RECEIVABLES> 120,112
<ALLOWANCES> 0
<INVENTORY> 74,912
<CURRENT-ASSETS> 2,775,317
<PP&E> 3,761,628
<DEPRECIATION> 940,265
<TOTAL-ASSETS> 5,607,664
<CURRENT-LIABILITIES> 754,324
<BONDS> 1,434,365
0
0
<COMMON> 16,857
<OTHER-SE> 3,402,117
<TOTAL-LIABILITY-AND-EQUITY> 5,607,664
<SALES> 549,419
<TOTAL-REVENUES> 3,550,261
<CGS> 0
<TOTAL-COSTS> 1,095,859
<OTHER-EXPENSES> 1,641,796
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 77,529
<INCOME-PRETAX> 779,827
<INCOME-TAX> 365,000
<INCOME-CONTINUING> 414,827
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 414,827
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
