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, 2000
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Commission file number 0-14119-NY
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Polymer Research Corp. of America
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(Exact name of registrant as specified in its charter)
New York 11-2023495
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(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
2186 Mill Avenue, Brooklyn, New York 11234
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(Address of principal executive offices)
(Zip code)
(718) 444-4300
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(Registrants telephone number, including area code)
Not Applicable
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(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, 2000 1,813,644
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POLYMER RESEARCH CORP. OF AMERICA
INDEX
Page
Number
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Part I - FINANCIAL INFORMATION:
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ITEM I - FINANCIAL STATEMENTS
Balance Sheets:
September 30, 2000 (Unaudited) and
December 31, 1999 1
Statements of Operations:
Three months and nine months ended
September 2000 and 1999 (Unaudited) 3
Statements of Cash Flows:
Nine months ended September 30, 2000
and 1999 (Unaudited) 4
Notes to Financial Statements 5-8
ITEM 2 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9-11
PART II - OTHER INFORMATION 12
<PAGE>
PART I - FINANCIAL INFORMATION
POLYMER RESEARCH CORP. OF AMERICA
BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
September 30, December 31,
ASSETS 2000 1999
(Unaudited) (Note 1)
CURRENT ASSETS:
Cash and cash equivalents $ 699,777 $ 1,156,778
Investment - certificates of deposit 235,246
Investment securities available
for sale 292,396
Accounts receivable,less allowances
of $0 526,918 306,429
Inventories 106,035 116,028
Deferred tax charge 127,500 127,500
Prepaid income taxes 29,409 188,578
Prepaid expenses and other 32,965 37,605
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Total current assets 1,522,604 2,460,560
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Land, Property, and Equipment-net 2,665,199 2,740,195
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Investment - certificates of deposit 120,000
Security deposits 1,195 1,195
Deferred financing costs - net 10,723
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Total other assets 121,195 11,918
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TOTAL $ 4,308,998 $ 5,212,673
========== =========
The accompanying notes are an integral part of these financial statements.
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PART I - FINANCIAL INFORMATION POLYMER RESEARCH CORP. OF AMERICA
BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
September 30, December 31,
2000 1999
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(Unaudited) (Note 1)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable bank 50,000
Current portion of long-term debt $ 100,000 $ 6,960
Current portion of mortgage
payable 967,082
Accounts payable 47,606 81,696
Accrued expenses and other
current liabilities 161,210 272,364
Deferred revenue 115,000 206,332
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Total current liabilities 473,816 1,534,434
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LONG-TERM DEBT (NOTE 2) 366,669 450,609
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STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per
share, authorized 4,000,000 shares,
issued 1,825,784 shares 18,257 18,257
Capital in excess of par value 3,399,728 3,399,728
Retained earnings 58,028 (158,466)
Accumulated other comprehensive
loss (24,389)
Less: Treasury stock, at cost
12,140 respectively (7,500) (7,500)
Total Stockholders' Equity 3,468,513 3,227,630
TOTAL $ 4,308,998 $ 5,212,673
========= =========
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 SEPTEMBER 30, 2000 AND 1999 (UNAUDITED) AND
THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED)
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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
Net revenues:
<S> <C> <C> <C> <C>
Product sales $ 140,882 $ 152,502 $ 528,264 $ 841,037
Research 997,736 1,076,231 3,520,500 3,102,951
Total 1,138,618 1,228,733 4,048,764 3,943,988
Cost of Revenues
Product sales 149,692 221,522 551,432 529,049
Research 258,206 280,842 742,860 803,372
Total 407,898 502,364 1,294,292 1,332,421
Gross Profit on Revenues 730,720 726,369 2,754,472 2,611,567
Selling, General, and
Administrative Expenses 582,246 780,793 2,330,914 2,316,430
Income from Operations 148,474 (54,424) 423,558 295,137
Other Revenues (Expenses):
Investment income 6,476 12,468 37,149 48,516
Interest expense (see note 4) (11,405) (37,589) (85,263) (113,466)
Total (4,929) (25,121) (48,114) (64,950)
Income (loss) before income taxes 143,545 (79,545) 375,444 230,187
(Provision for) benefit from income taxes (63,950) 30,000 (158,950) (131,000)
Net income (loss) $ 79,595 $ (49,545) $ 216,494 $ 99,187
=========== =========== =========== ===========
Income (loss) per Share $ 0.04 $ (0.03) $ 0.12 $ 0.06
=========== =========== =========== ===========
Weighted average number of shares
outstanding during the period 1,813,644 1,813,644 1,813,644 1,761,844
=========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS
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POLYMER RESEARCH CORP. OF AMERICA
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
OPERATIONS: 2000 1999
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Net Income $ 216,494 $ 99,187
Charge not affecting funds -
Issuance of Incentive Stock 81,667
Unrealized holding losses (gains) (12,582)
Depreciation and amortization 74,996 66,451
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Funds Provided by operations 291,490 234,723
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Asset and liability management:
Accounts receivable (220,489) (365,791)
Inventories 9,993 (6,697)
Other current assets 4,640 (28,311)
Other assets 10,723 1,455
Accounts payable (34,090) (16,419)
Accrued expenses and other (111,154) (41,773)
Income taxes payable 159,169 (89,431)
Deferred revenue (91,332) (296,650)
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Increase (Decrease) in net
operating assets (272,540) (843,617)
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Total 18,950 (608,894)
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FUNDS USED BY
FINANCING
Certificates of deposit 115,246 473,999
Investment securities 316,785 97,991
Proceeds of note payable 50,000
Payment of Mortgage (967,082)
Payments on\receipts of long
term debt 9,100 (25,671)
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Total (475,951) 546,319
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INVESTMENT IN LAND, PROPERTY,
AND EQUIPMENT (5,686)
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INCREASE (DECREASE) IN CASH $(457,001) $ (68,261)
========= =========
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 and nine month periods are not
necessarily indicative of the results for an entire year.
The balance sheet at December 31, 1999 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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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, when
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
Historically, the Company determined the appropriate classification of
securities at the time of purchase. If the Company had the intent and the
ability at the time of purchase to hold securities until maturity or on a
long-term basis, they were 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 were classified as
available for sale and carried at face value.
Realized gains and losses on dispositions were 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
were based on the difference between book value and fair value of each security.
These gains and losses were 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.
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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)
2000 1999
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Federal $ 99,000 $ 80,000
State and local 59,950 51,000
Total $ 158,950 $131,000
======= =======
NOTE 4 - Mortgage Liability
In September of 1996 the Company prepaid $800,000 due under its mortgage on the
Company's building and modified its payment schedule. As modified, the Company
was 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 was amortized using a 25 year amortization. The
entire unpaid principal balance was due and was paid in a balloon payment of
$1,398,330 on June 1, 2000.
NOTE 5 - Long Term Debt
On March 15, 2000, the Company entered into a borrowing arrangement with a bank
whereby the bank agreed to extend a $500,000 term loan facility to the Company.
The Company utilized the facility in full in connection with the balloon
mortgage payment June 1, 2000. The five year term loan will be repaid in monthly
principal installments of $8,333 plus interest at 8.5% per annum. The loan
requires the Company to comply with certain financial covenants and to maintain
on deposit with the lender no less than $150,000. Simultaneously, the bank
extended a $250,000 line of credit facility to the Company, $50,000 of which was
drawn upon and is outstanding and due to the bank at September 30, 2000. In
addition the Company has granted the lender a security interest in all personal
property.
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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 $
864,643 since December 31, 1999. The decrease is due to the repayment in June of
the mortgage on the Company's building.
Cash is generated by and used by the Company through its operations. Neither the
issuance of stock nor the acquisition of debt was in 1999, nor expected to be in
2000, significant sources of cash for use in operations, other than as outlined
below.
The ratio of current assets to current liabilities increased to 3.55 to 1.0 at
September 30, 2000 as compared to 1.60 to 1.0 at December 31, 1999. The increase
was the result of two factors: (i) net income for the first nine months; and
(ii) the satisfaction in June of the building mortgage, all of which was
classified as current at December 31, 1999, using in part, long term debt.
On March 15, 2000, the Company entered into a borrowing arrangement with a bank
whereby the bank agreed to extend a $500,000 term loan facility to the Company.
The Company utilized the facility in full in connection with the balloon
mortgage payment due June 1, 2000. The five year term loan will be repaid in
monthly principal installments of $8,333 plus interest at 8.5% per annum and is
due on May 31, 2005. The loan requires the Company to comply with certain
financial covenants and to maintain on deposit with the lender collateral of
$150,000. Simultaneously, the bank extended a $250,000 line of credit facility
to the Company, $50,000 of which was drawn upon and is outstanding and due to
the bank at September 30, 2000. In addition the Company has granted the lender a
security interest in all personal property.
Based on the above, the Company's cash and cash equivalents, at September 30,
2000 is sufficient to cover any unforeseen sales downturn in the short term as
it is equal to approximately three 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.
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B. RESULTS OF OPERATIONS
Three months ended September 30, 2000 v. 1999
Net revenues for the third quarter of 2000 were $ 1,138,618 a decrease of $
90,115 (7%) compared with the third quarter of 1999. Research sales decreased $
78,495 (7%) in the third quarter of 2000 compared to 1999. The decrease is
related to decreased demand from the Company's customers for its services in the
three months of 2000.
Product sales decreased $ 11,620 (7%) compared to the third quarter of 1999. The
decrease is related to decreased demand from the Company's customers for its
products in the three months of 2000.
The cost of revenues in research remained constant at 26% in the third quarter
of 2000 compared to the same quarter of 1999.
Costs of product sales decreased from 145% in the third quarter of 1999 to 106%
in the same quarter of 2000 principally as a result of more efficient production
operations. Selling, general, and administrative expenses decreased as a
percentage of sales from 63% in the third quarter of 1999 to 51% in the same
quarter of 2000 principally as a result of decreased salaries and legal
settlement expenses.
Net income increased from $ (49,545) (4% of sales) in the third quarter of 1999
to $79,595 (7% of sales) in 2000, principally as the result of decreased
salaries and legal expenses.
Nine months ended September 30, 2000 v. 1999
Net revenues for the first nine months of 2000 were $4,048,764, an increase of
$104,776 (3%) compared with the first nine months of 1999. Research sales
increased $ 417,549 (13%) in the first nine months of 2000 compared to 1999.
Product sales decreased $312,773 (37%) compared to the first nine months of
1999. The first nine months of 1999 had unusually high demand for products.
The cost of revenues in research remained constant at 26% in the first nine
months of 2000 compared to the same period of 1999.
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Costs of product sales increased from 62% in the first nine months of 1999 to
104% in the first nine months of 2000 principally as a result of decreased sales
with increased labor. Selling, general, and administrative expenses remained
consistent as a percentage of sales at 58% for the first nine months of 1999 as
compared to 59% for the comparable period of 1999.
Net income increased from $ 99,187 (2.5% of sales) in 1999 to $ 216,494 (5% of
sales) in 2000.
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<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: 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
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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,
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(REGISTRANT)
Date: October 26, 2000 /s/Carl Horowitz
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Carl Horowitz, President and Chief
Accounting Officer
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