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, 1999
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.
October 31, 1999 1,813,644
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
INDEX
Page
Number
------
Part I - FINANCIAL INFORMATION:
ITEM I - FINANCIAL STATEMENTS
Balance Sheets:
September 30, 1999 (Unaudited) and
December 31, 1998 1
Statements of Operations:
Three months and nine months
ended September 30, 1999
and 1998 (Unaudited) 3
Statements of Cash Flows:
Nine months ended September 30, 1999
and 1998 (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
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
September 30, December 31,
ASSETS 1999 1998
---------- ----------
(Unaudited) (Note 1)
CURRENT ASSETS:
Cash $ 754,977 $ 823,238
Investment - certificates of deposit 663,322 1,137,321
Investment securities available
for sale 314,350 412,341
Accounts receivable, less allowances
of $0 611,460 245,669
Inventories 109,827 103,130
Deferred tax charge 39,000 39,000
Prepaid expenses and other 99,822 13,178
---------- ----------
Total current assets 2,592,758 2,773,877
---------- ----------
Land, Property, and Equipment-net 2,753,746 2,814,511
---------- ----------
Security deposits 1,195 1,195
Deferred financing costs - net 9,632 11,087
---------- ----------
Total other assets 10,827 12,282
---------- ----------
TOTAL $5,357,331 $5,600,670
========== ==========
The accompanying notes are an integral part of these financial statements.
- -------------------------------------------------------------------------------1
<PAGE>
PART I - FINANCIAL INFORMATION
POLYMER RESEARCH CORP. OF AMERICA
BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
September 30, December 31,
1999 1998
----------- -----------
(Unaudited) (Note 1)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,426,097 $ 34,688
Accounts payable 57,869 74,288
Accrued expenses and other
current liabilities 193,912 235,685
Income taxes payable 89,431
Deferred revenue 200,000 496,650
----------- -----------
Total current liabilities 1,877,878 930,742
----------- -----------
LONG-TERM DEBT (NOTE 2) 1,417,082
-----------
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per
share, authorized 4,000,000 shares,
issued 1,825,784 and 1,685,784
shares respectively 18,257 16,857
Capital in excess of par value 3,399,728 3,120,685
Retained earnings 76,768 167,259
Accumulated other comprehensive
income (loss) (7,800) 4,782
Less: Treasury stock, at cost
12,140 and 91,837 shares
respectively (7,500) (56,737)
----------- -----------
Total Stockholders' Equity 3,479,453 3,252,846
----------- -----------
TOTAL $ 5,357,331 $ 5,600,670
=========== ===========
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 SEPTEMBER 30,1999 AND 1998 (UNAUDITED) AND
THE NINE MONTHS ENDED SEPTEMBER 30,1999 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------- ----------- ----------- -----------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net revenues:
Product sales $ 152,502 $ 239,005 $ 841,037 $ 788,424
Research 1,076,231 891,826 3,102,951 3,892,668
----------- ----------- ----------- -----------
Total 1,228,733 1,130,831 3,943,988 4,681,092
----------- ----------- ----------- -----------
Cost of Revenues
Product sales 221,522 128,405 529,049 681,556
Research 280,842 190,907 803,372 733,615
----------- ----------- ----------- -----------
Total 502,364 319,312 1,332,421 1,415,171
----------- ----------- ----------- -----------
Gross Profit on Revenues 726,369 811,519 2,611,567 3,265,921
Selling, General, and
Administrative Expenses 780,793 764,981 2,316,430 2,406,777
----------- ----------- ----------- -----------
Income from Operations (54,424) 46,538 295,137 859,144
----------- ----------- ----------- -----------
Other Revenues (Expenses):
Interest income 12,468 35,391 48,516 80,141
Interest expense (see note 4) (37,589) (38,461) (113,466) (115,990)
----------- ----------- ----------- -----------
Total (25,121) (3,070) (64,950) (35,849)
----------- ----------- ----------- -----------
Income (loss) before income taxes (79,545) 43,468 230,187 823,295
(Provision for) benefit from income taxes 30,000 (30,050) (131,000) (395,050)
----------- ----------- ----------- -----------
Net income (loss) $ (49,545) $ 13,418 $ 99,187 $ 428,245
=========== =========== =========== ===========
Income (loss) per Share $ (0.03) $ 0.01* $ 0.06 $ 0.26*
=========== =========== =========== ===========
Weighted average number of shares
outstanding during the period 1,813,644 1,673,644* 1,761,844 1,673,644*
=========== =========== =========== ===========
</TABLE>
* Restated for 1999 5% stock dividend
The accompanying notes are an integral part of the financial statements
- -------------------------------------------------------------------------------3
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
OPERATIONS: 1999 1998
--------- ---------
Net Income $ 99,187 $ 428,245
Charges not affecting funds -
Issuance of Incentive stock 81,667 42,658
Unrealized holding losses (12,582) 2,564
Depreciation and amortization 66,451 75,000
--------- ---------
Funds Provided by operations 234,723 548,467
--------- ---------
Asset and liability management:
Accounts receivable (365,791) (35,844)
Inventories (6,697) 11,829
Other current assets (28,311) (70,035)
Other assets 1,455 699
Accounts payable (16,419) (57,701)
Accrued expenses and other (41,773) (62,491)
Income taxes payable (89,431) 209,789
Deferred revenue (296,650) (112,450)
Increase (Decrease) in net
operating assets (843,617) (116,204)
--------- ---------
Total (608,894) 432,263
--------- ---------
FUNDS PROVIDED (USED) BY
FINANCING
Certificates of deposit 473,999 (979,841)
Investment securities 97,991 85,191
Issuance of stock 42,090
Payments on long term debt (25,671) (23,125)
--------- ---------
Total 546,319 (875,685)
--------- ---------
INVESTMENT IN LAND, PROPERTY,
AND EQUIPMENT (5,686) (21,446)
--------- ---------
INCREASE (DECREASE) IN CASH $ (68,261) $ 464,868
========= =========
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 l0-KSB.
The results of operations for the nine month period are not necessarily
indicative of the results for an entire year.
The balance sheet at December 31, 1998 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 client approval of
performance of a specific stage of the contract and the assurance of collection
of the resulting revenue. 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."
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 nine months)
1999 1998
-------- --------
Federal $ 80,000 $236,000
State and local 51,000 159,050
-------- --------
Total $131,000 $395,050
======== ========
NOTE 4 - Mortgage Liability
In September of 1996 the Company prepaid $800,000 due under the mortgage on the
Company's building and modified the payment schedule on such mortgage. 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 - Stock Issuances
On February 11, 1999 the Company declared a 5% stock dividend to shareholders of
record at March 16, 1999, payable on April 2, 1999. The transaction was valued
based upon the closing market price of the Company's stock on February 11, 1999,
which was $2.38 per share. Retained earnings were charged for $ 189,680 as a
result of the issuance of 79,697 shares from the treasury stock being held by
the Company.
On April 12, 1999 the Company issued 140,000 shares of its common stock as
incentive compensation to four of its officers. The Company valued these
restricted shares at $1.00 per share and will recognize compensation expense of
$140,000 ratably over four quarters.
- -------------------------------------------------------------------------------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
$640,251 since December 31, 1998. The decrease is principally due to the expense
associated with the cost of performance of work for revenue that was deferred as
of December 31, 1998.
Cash is generated by and used by the Company through its operations. Neither the
issuance of stock nor the acquisition of debt was in 1998, nor expected to be in
1999, sources of cash for use in operations.
The rate of current assets to current liabilities decreased to 1.38 to 1.0 at
September 30, 1999 as compared to 2.98 to 1.0 at December 31, 1998. The decrease
results from the reclassification to current of the entire remaining mortgage
balance in as the balloon payment is due within one year.
The Company's cash, investment, and investment securities position which totals
$ 1,732,649 at September 30, 1999 is deemed sufficient to satisfy the mortgage
balloon payment of $1,398,330 due in June 2000. After such payment, liquidity
will be a direct result of sales and net earnings.
B. RESULTS OF OPERATIONS
Three months ended September 1999 v. 1998
Net revenues for the third quarter of 1999 were $ 1,228,733, an increase of
$97,902 (9%) compared with the third quarter of 1998. Research sales increased
$184,405 (6%) in the third quarter of 1999 compared to 1998. Product sales
decreased $86,503 (36%) for the third quarter of 1999 compared to 1998 due to
decreased demand.
The cost of revenues in research increased from 21% in the third quarter of 1998
compared to 26% the same quarter of 1999 as a result of increased direct and
indirect costs.
Costs of product sales increased from 54% in the third quarter of 1998 to 145%
in the same quarter of 1999 principally as a result of decreased sales with
similar employees and costs in production.
- -------------------------------------------------------------------------------9
<PAGE>
Selling, general, and administrative expenses decreased as a percentage of sales
to 64% for the third quarter of 1999 from 68% for the comparable quarter of 1998
principally due to increased volume without a comparable increase in expenses.
This years selling, general, and administrative expenses included $ 35,000 in
compensation related to the issuance of 140,000 shares of common stock as
incentive to certain members of management (see note 5)
Net income decreased from $ 13,418 (1% of sales) in 1998 to a loss of ($20,014)
in 1999, principally as the result of decreased gross profit with an increase in
overhead expenses and decreased interest income.
Nine months ended September 30, 1999 v. 1998
Net revenues for the first nine months of 1999 were $3,943,988, a decrease of
$737,104 (16%) compared with the first nine months of 1998. Research sales
decreased $ 789,717 (20%) in the first nine months of 1999 compared to 1998.
Product sales for 1999 increased $52,613 (7%) over the first nine months of 1999
compared to 1998.
The cost of revenues in research increased from 19% in the nine months of 1998
to 26% in the first nine months of 1999 due to the substantial decrease in
revenue with increase direct and indirect expenses.
Costs of product sales decreased from 86% in the first nine months of 1998 to
63% in the same period of 1999 principally as a result of increased sales
without additional employees.
Selling, general, and administrative expenses increased as a percentage of sales
to 59% for the first nine months of 1999 from 51% for the comparable period of
1998 principally due to decreased volume without a proportionate decrease in
expenses.
Net income decreased from $ 428,245 (9% of sales) in 1998 to $ 99,187 (3% of
sales) in 1999, principally as the result of decreased research revenues.
- ------------------------------------------------------------------------------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: 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:
None
- ------------------------------------------------------------------------------11
<PAGE>
FORM l0-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>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,418,299
<SECURITIES> 314,350
<RECEIVABLES> 611,460
<ALLOWANCES> 0
<INVENTORY> 109,827
<CURRENT-ASSETS> 2,592,758
<PP&E> 3,753,917
<DEPRECIATION> 1,000,171
<TOTAL-ASSETS> 5,357,331
<CURRENT-LIABILITIES> 1,877,878
<BONDS> 1,426,097
0
0
<COMMON> 18,257
<OTHER-SE> 3,461,196
<TOTAL-LIABILITY-AND-EQUITY> 5,357,331
<SALES> 841,037
<TOTAL-REVENUES> 3,943,988
<CGS> 529,049
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,332,421
<LOSS-PROVISION> 2,316,430
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 131,000
<INCOME-CONTINUING> 99,187
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 99,187
<EPS-BASIC> 0.06
<EPS-DILUTED> 0.06
</TABLE>
