SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file No. 0-14119-NY
POLYMER RESEARCH CORP. OF AMERICA
(Name of small business issued in its charter)
NEW YORK 11-2023495
- ------------------------------- ---------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
2186 Mill Avenue, Brooklyn, NY 11234
- --------------------------------------- -------
(Address of principal executive offices) (Zip Code)
Issuers telephone number including area code: (718) 444-4300
--------------
Securities registered pursuant to Section 12(b) of the Act:
- -----------------------------------------------------------
NONE
Securities registered pursuant to Section 12(g) of the Act:
- -----------------------------------------------------------
4,000,000 shares of $.01 par value Common Stock
Check whether the issuers: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 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___
Registrant's revenues for its most recent fiscal year - $4,836,157
----------
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
Yes _X_ No___
The aggregate market value of voting stock held by
non-affiliates of the Registrant at March 21, 2000 was approximately $3,627,288
based on the last sale price of such stock.
As of March 21, 2000, the Registrant had 1,813,644 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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<PAGE>
ITEM 1 - BUSINESS
Polymer Research Corp. of America ("the Company") was incorporated under the
laws of New York State in 1963. It is principally engaged in research and
development in polymer chemistry, on a contract basis, particularly in the
application of chemical "grafting," i.e., techniques for modification of organic
and inorganic substances. The Company also manufactures and sells products
arising from research activities and textile printing inks. The Company's
principal place of business is located at 2186 Mill Avenue, Brooklyn, New York
11234. The Company's phone number at that address is (718) 444-4300.
During 1999, research revenues and products sales accounted for 79 percent and
21 percent of the Company's net revenues, respectively.
For a detailed breakdown of segments of the Company's revenues, income, capital
expenditures and identifiable assets, see Note 14 of Notes to Financial
Statements.
RESEARCH AND DEVELOPMENT CONTRACT WORK
The Company's principal business is that of research and development on a
contract basis for other companies in the field of polymer chemistry, i.e., the
chemical creation and use of polymers. "Polymers" are essentially compounds of
high molecular weight, such as plastics and resins.
Polymers result from chemical reactions of compounds with low molecular weights,
called "monomers," which react to form a polymer. Generally, a polymerization
reaction (i.e., the chemical creation of a polymer) entails the application of
heat to a solution containing the appropriate monomers, in the presence of a
catalyst; the result of the reaction can include one or more kinds of polymers.
The Company owns 20 patented processes for chemical "grafting" technology.
Chemical "grafting" refers to processes by which surfaces are bonded together,
or a coating is affixed to a surface, or in depth, through various
polymerization reactions.
Chemical "grafting" is done by treating a surface with one or more solutions
containing monomers, polymers and/or other chemicals. By using heat, catalysts
and/or other appropriate techniques, small "whiskers" grow on the surface being
treated. These "whiskers" are generally polymers which include in their chemical
makeup molecules that remain part of the surface being treated. The "whiskers"
can themselves form a protective coating on a surface or join the "whiskers"
from another surface thus bonding the two surfaces together. Alternately, by
suitable methods, grafting can take place in depth throughout the body of the
substrate, i.e. the product to be grafted.
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By using chemical "grafting" techniques, the Company can form a permanent
scratch and corrosion-resistant protective coating on plastics, rubber, metals,
and other substances. Based upon the Company's research, management believes
that there are many other practical applications of these techniques that have
not yet been fully developed or discovered.
Research and development contract work for specific application of its chemical
"grafting" techniques has been done for pharmaceutical companies and
manufacturers of industrial equipment, tires, packaging material, pipes, tubes
and plastic films, and other enterprises. The Company continues to seek and
obtain such research and development contract work.
A majority of the Company's research and development work in chemical "grafting"
is done for customers in the private sector. The Company markets its research
and development services by contacting businesses which might have a use for
chemical "grafting." Typically the Company and the prospective customer
determine the possible application of chemical "grafting" in which the customer
has an interest. The Company then submits a research proposal based on
specifications provided by the prospective customer. If the proposal is
accepted, or if an acceptable proposal is negotiated, the Company enters into a
contract with the customer and commences the research that is required.
A majority of the Company's research and development contracts are for specified
periods of time. Most such contracts extend for a period of three to four months
and are renewable. The remainder of the Company's research and development
contract work is done either on a lump sum or month-to-month basis.
Research revenue earned from foreign customers outside the United States
aggregated $1,747,500 for 1999, representing approximately 36% of total annual
research revenues for 1999.
Almost all of the research and development contracts provide that if the Company
successfully develops a patentable new process while working on the contract,
the Company will assign patent rights to the customer who then will have the
exclusive right to use that process. This right generally extends only for uses
which the Company was hired to do the research, and in some instances, is
dependent upon the customer making specified payments to the Company. The
Company believes that these provisions in its contracts are necessary and have
not unreasonably inhibited the Company's research and development projects for
other customers.
As of December 31, 1999, the Company employed 9 in-house sales persons plus 1
person in training to market its research and development contracts, primarily
through bulk mailings and presence on the Internet to targeted potential
customers.
To date, all of the Company's research and development services have been
related to contracts for customers.
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PRODUCTION
The Company manufactures formulations resulting from research work predominantly
as an accommodation for the companies for whom the research work was done.
The Company also has, since its inception, produced and sold color inks, and
components thereof. These products are used by textile businesses for the
printing of textiles.
The manufacture of textile inks is essentially a process of mechanically mixing
solvents, resins, emulsions, gums, oils and pigments to produce a colored ink
which can be printed onto cloth. The Company owns and operates the mixing
machinery for this manufacturing process and acquires the required ingredients
from a variety of sources. The Company is not dependent upon a particular
supplier for the ingredients. The Company's textile inks are solvent-free and
non-polluting.
During 1999, 1998 and 1997, no one customer of the Company accounted for more
than 5% of its sales of formulation products or textile inks. The Company has no
long-term contracts with its customers for textile inks and maintains
approximately a one-month supply of the ingredients for the textile inks in
inventory. The Company fills 95% of all textile ink orders within two business
days after their receipt.
The Company's sales of textile inks are dependent upon the decision of textile
companies as to whether they will dye or print their fabrics. Such a decision is
primarily based on fashion trends, with one-color fabrics requiring dyeing and
multi-colored fabrics requiring printing. However, these trends have not had a
material adverse effect on the Company's revenues because the Company has
maintained a reliable customer base in the United States. The sales of printing
inks has not been a significant source of revenues or profits for the Company.
The Company employs 1 in-house salesperson to sell its textile inks. The Company
markets its textile inks to the United States and foreign customers. Foreign
customers account for less than 5% of the Company's textile ink sales.
EMPLOYEES AND EMPLOYEE RELATIONS
As of December 31, 1999, the Company had 45 full-time employees. The President
and the 15 other scientists in the Company's Research Department are engaged in
research and development. The Production Department has 4 employees who are
engaged in the production of items arising from research and textile inks. There
are 10 employees in the sales and marketing departments. In addition, there are
12 clerical employees and 3 maintenance employees.
The Company's technical staff sign nondisclosure agreements whereby they agree
to keep the technical information and processes of the Company confidential. In
those agreements, such technical personnel also agree to unconditionally assign
to the Company all techniques and inventions developed by them in furtherance of
or related to Company projects.
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<PAGE>
None of the Company's employees are members of a labor union. There have been no
strikes or work stoppages and the Company believes its employee relations are
satisfactory.
COMPETITION
The fields in which the Company does business are highly competitive.
In its contract research and development business, the Company competes with the
in-house research and development staffs of its customers and scientists at
educational institutions and foundations who will do private grant research on
processes to produce materials with characteristics of the types desired by the
Company's customers. The Company also faces potential competition from research
and development companies which are substantially larger than the Company, and
various private laboratories, although the Company believes that it is presently
the only Company doing contract research and development work in the field of
chemical "grafting" for other companies. The Company's "grafting" techniques
include the use of innocuous or mild non-alkaline and non-acidic chemicals. In
addition, the Company's method of grafting, by use of chemicals, is less
expensive than other methods such as gamma-ray grafting.
In its textile ink business, the Company faces intense competition from a
variety of competitors, many of whom are substantially larger and have
significantly greater resources, reputations and marketing abilities than does
the Company, and the Company is not a significant factor in this business.
ENVIRONMENTAL CONSIDERATION
The Company does not believe that its operations are adversely affected by
existing environmental regulations. The Company's primary waste products are
non-toxic and non-corrosive such as wood, paper and cardboard and are disposed
of by a private sanitation company. The small amount of chemicals that the
Company disposes of are sealed in non-corrosive containers and are removed from
the premises by a company that is licensed to dispose of corrosive waste.
PATENTS
The Company's President and other employees of the Company have assigned a total
of 20 United States patents to the Company, 10 of which have expired. The
assigned patents, which cover the basic grafting process, were issued between
1968 and 1996. Each patent is effective for 17 years from the date of its
issuance.
Management can give no assurance that any of the patents which the Company
possesses or might possess in the future, will be enforceable or, if
enforceable, will provide the Company or the holder thereof with an advantage
over its competitors.
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<PAGE>
ITEM 2. PROPERTY
The Company's offices, research and development and manufacturing facilities are
located in a 64,000 square foot three-story building at 2186 Mill Avenue,
Brooklyn, New York. On June 4, 1990, the Company purchased the building and
adjoining property. The Company had previously leased this facility under the
terms of a long-term operating lease. The purchase price of the property was
$3,000,000 of which the Company paid $500,000 and granted a $2,500,000 mortgage
to the seller. The mortgage matures June 1, 2000 and will require a balloon
payment of approximately $1,400,000 (see Note 5 of Notes to Financial
Statements).
The Company utilizes the space in the following manner: approximately 11,000
square feet is devoted to office space; approximately 10,000 square feet is
devoted to production of items resulting from research and textile inks;
approximately 35,000 square feet is devoted to research and laboratory
facilities and 8,000 square feet is devoted to warehousing inventory.
The Company believes that its facility is adequate for its current needs and
those of the foreseeable future.
The Company also leases approximately 1,500 square feet of office space in
Phoenix, Arizona which serves as its West Coast sales and marketing office.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in certain lawsuits which arose in the normal course
of the Company's business. In the opinion of management the allowance the
Company has provided is sufficient to cover the potential damages and expenses
that may be incurred in these proceedings, and they will not have a material
adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1999, no matters were submitted to a vote of the
Company's security holders.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The Company's Common Stock has traded on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") small capital market. The
following table sets forth the high and low bid prices for the periods indicated
where the Common Stock is traded under the symbol PROA. The indicated prices are
interdealer prices without retail markups, markdowns or commissions and do not
necessarily represent actual sales. The limited amount of sales within these
ranges should not be interpreted to indicate that an established trading market
exists for the shares of Common Stock, nor do these prices necessarily
accurately reflect the true value of such shares. The prices indicated have not
been adjusted for stock dividends and stock splits referred to below.
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<PAGE>
Bid Prices
Quarter LOW HIGH
------- --- ----
1999
October - December 3/4 1-1/4
July - September 1-14/64 1-27/32
April - June 1-9/16 2-1/4
January - March 2-1/8 3
1998
October - December 1-7/8 2-7/8
July - September 2-1/2 4-1/4
April - June 3-3/4 6-7/8
January - March 1-15/16 5
DIVIDEND POLICY
The Company has paid no cash dividends to its stockholders since its
incorporation and has no present intention to do so. The payment of dividends in
the future will be determined by the Board of Directors based on the Company's
earnings, financial condition, capital requirements and other factors at the
time.
On February 11, 1999 the Company declared a 5% stock dividend to shareholders at
March 19, 1999, paid April 2, 1999. The transaction was valued based upon the
closing market price of the Company's stock on the day prior to declaration (See
Note 10 of Notes to Financial Statements).
On March 2, 1998, the Company declared a 5% stock dividend to stockholders of
record at March 23, 1998, paid April 2, 1998. The transaction was valued based
upon the closing market price of the Company's stock on the day prior to
declaration (See Note 10 of Notes to Financial Statements).
On March 20, 1997 the Company declared a 5% stock dividend to shareholders at
April 1, 1997, paid April 8, 1997. The transaction was valued based upon the
closing market price of the Company's stock on the day prior to the declaration.
(See Note 10 of Notes to Financial Statements).
On July 20, 1995 the Company adopted a Shareholders Rights Plan. The Rights Plan
provides for the issuance of one stock right, entitling the holder to buy one
share of common stock at a price of $25 (subject to adjustment), for each
outstanding share of the Company's common stock. The rights will become
exersizable only if an "acquiring party" (as defined) acquires or announces a
tender offer to acquire 15% or more of the Company's common stock. The rights
expire July 31, 2005 (See Note 11 of Notes to Financial Statements).
As of March 21, 2000 there were 1,813,644 shares outstanding, which were held by
approximately 1,000 shareholders, 350 shareholders of record and approximately
650 additional beneficial owners.
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ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenue Analysis
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
Percentage of
($) In Thousands Total Revenues
---------------- --------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Research $3,814 $4,554 $4,214 78.9% 80.6% 77.3%
Production 1,022 1,093 1,234 21.1 19.4 22.7
------ ------ ------ ------ ------ ------
Total Revenues $4,836 $5,647 $5,448 100.0% 100.0% 100.0%
====== ====== ====== ====== ====== ======
</TABLE>
1999 v. 1998
- ------------
Total revenues decreased $811,000 or 14% from $5,647,000 in 1998 to $4,836,000
in 1999. The decrease in research revenue accounted for 91% of the decrease in
revenue as production revenue decreased $71,000 or 6.0% from 1998 to 1999.
The decrease in production was primarily attributable to the decrease in demand
for research services, the results of which often lead to production orders.
The decrease in research sales was primarily the result of decreased demand for
research in part caused by a combination of internal changes in sales and
administrative staff and prolonged negotiations with certain potential clients.
The rate of inflation has not had a material impact upon the results of
operations.
1998 v. 1997
- ------------
Total revenues increased $199,000 or 4% from $5,448,000 in 1997 to $5,647,000 in
1998. Research revenues increased $340,000 or 8% while production revenue
decreased $141,000 or 11% from 1997 to 1998.
The increase in research revenue was primarily achieved during the first quarter
of 1998 resulting from the Company's strong marketing efforts during the latter
part of 1997. In addition, the strong domestic and European economies helped
improve research revenue.
The decrease in production revenue was primarily attributable to decrease in
demand from research customers as well as an inventory buildup by customers
which occurred during the latter part of 1997.
The rate of inflation has not had a material impact upon the results of
operations.
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<PAGE>
Cost of Revenues Analysis
Year Ended December 31,
-----------------------
Cost as a
Percentage of
($ In Thousands) Total Revenues
--------------
1999 1998 1997 1999 1998 1997
------ ------ ------ ------ ------ ------
Research $1,090 $1,048 $1,002 22.5% 18.6% 18.4%
Production 574 790 1,018 11.9 14.0 18.7
------ ------ ------ ------ ------ ------
Total cost of
revenues $1,664 $1,838 $2,020 34.4% 32.6% 37.1%
====== ====== ====== ====== ====== ======
1999 v.1998
- -----------
The cost of revenues as a percentage of sales increased from 32.6% in 1998 to
34.4% in 1999. The increase in cost of revenues is primarily caused by a
decrease in the research sales without corresponding decreases in research
salaries and related expenses.
1998 v. 1997
- ------------
The cost of revenues as a percentage of sales decreased from 37.1% in 1997 to
32.6% in 1998. The decrease in cost of revenues is primarily caused by a
decrease in the percentage of product sales, which have a higher cost of sales
than research revenue. Production sales dropped as a percentage of total sales
from 22.7% in 1997 to 19.4% in 1998.
Selling, General and Administrative Expenses Analysis
Year Ended December 31,
Expenses as a
Percentage of
($ In Thousands) Total Revenues
--------------
1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
Selling, General &
Administrative Expenses $3,304 $3,310 $2,902 68.3% 58.6% 53.2%
======= ====== ====== ===== ===== =====
1999 v. 1998
- ------------
Selling, general and administrative expenses, as a percentage of sales,
increased to 68.3% in 1999, as compared to 58.6% during 1998. The increase is
attributed to a similar level of expenses and a decrease in sales. In addition,
during 1999, the Company issued shares of stock to certain officers as
compensation aggregating $140,000 (see Note 12 of Notes to Financial
Statements).
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<PAGE>
1998 v. 1997
- ------------
Selling, general and administrative expenses, as a percentage of sales,
increased to 58.6% in 1998, as compared to 53.2% during 1997. The increase is
directly related to the Company's efforts to increase sales. During 1998, the
Company hired additional salespeople and directed resources to generate
additional revenue. In addition, during 1998, the Company issued shares of
common stock to its employees as compensation aggregating $85,315 (See Note 12
of Notes to Financial Statements).
Net (Loss) Income
1999 v. 1998
The Company reported a net loss representing 2.8% of sales for 1999 compared to
net income of 4.3% of sales for 1998. The change is a result of the 14% decrease
in sales in 1999 combined with consistent selling, general and administrative
expenses for the two years.
1998 v. 1997
The Company reported net income of 4.3% of sales for 1998 compared to net income
of 3.8% of sales for 1997. The increase is a result of the 4% increase in sales
in 1998 combined with a substantial decrease in the cost of revenue percentage
offset in part by an increase in operating expenses.
CAPITAL RESOURCES AND LIQUIDITY
Cash and certificates of deposit have decreased from $1,960,559 at December 31,
1998 to $1,392,024 at December 31, 1999. The decrease is in part caused by the
Company overpaying its current year tax liability, paying off its prior year tax
liability and having received a substantially lower amount of unearned customer
deposits at December 31, 1999. (See the statement of cash flows for a more
detailed analysis of opening versus closing cash).
Cash is generated and used by the Company through its operations. The issuance
of stock was not in 1999, nor expected to be in 2000, a significant source of
cash. However, during 2000, the Company will borrow funds from a bank to lessen
the reduction in cash balances which will result from the balloon mortgage
payment coming due (See Note 17 of Notes to Financial Statements).
In June of 2000, the Company will be required to satisfy the balloon payment due
on the building mortgage of approximately $1,398,330. The Company anticipates
that this payment will be paid in part from the proceeds of a $500,000 five year
term loan, which is scheduled to be funded just prior to the payment of the
balloon mortgage payable, along with approximately $900,000 from cash on hand.
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<PAGE>
In an attempt to secure a better, yet safe, return on excess cash, management
has elected to invest certain cash amounts in marketable securities. These
securities include U.S. Government and New York State Mutual Bond Funds. The
Company closely monitors these investments which are subject to price
fluctuation (See Note 2 of Notes to Financial Statements).
Except with respect to the balloon mortgage payment due on the Company's
building, there are no known demands for cash related to capital expenditures
seen as imminent in the upcoming three years based on stable sales. Capital
expenditures projected for the next year are anticipated to approximate those of
the past three years.
The Company's cash position at December 31, 1999, prior to accounting for the
balloon mortgage payment coming due June 1, 2000, is deemed sufficient to cover
any unforeseen sales downturn as it is equal to approximately 5 months of
selling, general and administrative expenses. Over both the long and short term,
liquidity will be the direct result of sales.
The ratio of current assets to current liabilities at December 31, 1999 was 1.60
to 1.0 as compared to 2.98 to 1.0 at December 31, 1998. The decrease in current
ratio is directly related to the balloon payment on the mortgage payable coming
due on June 1, 2000, which has been classified as current.
GENERAL DISCUSSION
Cash flow of the Company is a direct result of net income and net cash provided
from operating activities. Credit extended by the Company in the form of
receivables and received in the form of payables has not had and will not have a
significant impact on cash flow.
Cash flow from financing and investing activities is not expected to have an
impact on cash flow in the next 1 to 3 years. However, the Company is preparing
for the building mortgage balloon payment of approximately $1,400,000 due on
June 1, 2000 (see Note 5 of Notes to Financial Statements). The Company intends
to satisfy a portion of this obligation from the proceeds of a $500,000 term
loan. The loan will be repaid in monthly principal installments of $8,333 plus
interest at the rate of 8.5% per annum. As part of the borrowing agreement, the
Company will be granted a $250,000 line of credit and will be required to
deliver to the lender collateral of $125,000 at the term loan closing. The
Company intends to provide for the balance of this payment by accumulating cash
prior to the payment due date.
The Company anticipates a significant decrease in interest income and interest
expense upon the satisfaction of the building mortgage.
No other significant changes to operating expenses are anticipated within the
next 1 to 3 years.
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<PAGE>
SEGMENT DISCUSSION
The Company is primarily in the business of research sales. The sale of textile
inks and chemical products is an accommodation to research customers and is not
seen as a segment that could stand on its own as an independent business.
Availability of production of research developments is an important marketing
tool of the Company to its research customers. No significant capital
expenditures are foreseen in the next 1 to 3 years as necessary for the
continued production of textile inks and chemical products, including potential
increases in such productions.
ANALYTIC REVIEW OF QUARTERLY RESULTS
Sales and gross profits for the fourth quarter decreased from the average of the
prior three quarters. This is a result of a drop in revenue without a
corresponding decrease in costs and an increase in fourth quarter production
sales, which yield a lower gross profit than research.
Sales for the fourth quarter represented approximately 18% of total annual
sales.
Selling, general and administrative expenses increased significantly in the
fourth quarter resulting from increased legal proceedings expenses and normal
year-end expenses including bonuses and holiday expenses as well as year-end
commissions earned in 1999.
<TABLE>
<CAPTION>
3/31/99 6/30/99 9/30/99 12/31/99
------- ------- ------- --------
<S> <C> <C> <C> <C>
Total revenue $1,467,177 $1,248,078 $1,228,733 $ 892,169
Cost of revenue 443,790 386,267 502,364 331,702
Gross profit 1,023,387 861,811 726,369 560,467
SG&A expenses 758,646 776,991 780,793 987,565
Income (loss) from
operations 264,741 84,820 (54,424) (427,098)
Other expenses (19,023) (20,806) (25,121) (2,807)
Pre-tax income (loss) 245,718 64,014 (79,545) (429,905)
Income tax (expense)
benefit (123,000) (38,000) 30,000 194,673
Net income (loss) $ 122,718 $ 26,014 $ (49,545) $(235,232)
</TABLE>
During the year ended 1997, the quarterly financial statements reflected a
charge for an annualized profit sharing contribution of $100,000. Such amount
was paid in the subsequent year and is included in accrued expenses. Management
has elected to not make a contribution for 1998 or 1999.
ITEM 9. DISAGREEMENTS ON FINANCIAL AND ACCOUNTING DISCLOSURES
-----------------------------------------------------
None
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<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
--------------------------------
The directors and executive officers of the Company as of December 31, 1999 are
as follows:
NAME AGE POSITION
- ---- --- --------
Carl Horowitz 76 President and Director
Irene Horowitz 76 Senior Vice President and Director
John M. Ryan 44 Director, Executive Vice
President, Corporate Research
Alice J. Horowitz 40 Director and Vice President of
Polymer West Coast branch
Boris Jody 80 Director
Anna Dichter 86 Secretary, Treasurer
Terry J. Wolfgang 38 Director
Dr. Mohan Sanduja 64 Vice President, R & D
Director
Clare Chamow 65 Vice President, Office Management
Harriet Finger 57 Controller
Carl Horowitz founded the Company and has devoted his full time and efforts to
the affairs of the Company, as its President and as a Director, since 1963. Mr.
Horowitz received a B.S. in Chemical Engineering at Columbia University in New
York in 1950, and a Master of Science degree in Polymer Chemistry from
Polytechnic Institute of Brooklyn in 1961. Mr. Horowitz is the husband of Irene
Horowitz and the father of Alice J. Horowitz and Terry J. Wolfgang.
Irene Horowitz has been a Director and a Senior Vice President of the Company
since 1980. Mrs. Horowitz devotes her full time and efforts to the affairs of
the Company, and her primary responsibility as Senior Vice President is to
oversee the operations of the Company. Mrs. Horowitz is the wife of Carl
Horowitz and the sister of Anna Dichter and the mother of Alice J. Horowitz and
Terry J. Wolfgang.
John M. Ryan has been a Director since September, 1984. Mr. Ryan has been
employed by the Company since 1981 as a technical director of Special Product
Development and has been the Executive Vice President of Corporate Research
since 1985.
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<PAGE>
Alice J. Horowitz was a Senior Vice President. In 1987, she became a Director.
During 1995 Ms. Horowitz relocated outside of New York and now operates a sales
office of Polymer Research Corp. of America in Arizona. Ms. Horowitz is the
daughter of Carl and Irene Horowitz.
Boris Jody was elected a Director of the Company in 1984. Mr. Jody is currently
retired. Mr. Jody previously was with Standard Motor Products, Inc., where he
had been Vice President of Corporate Affairs.
Anna Dichter joined the Company in 1968 as Controller. She was elected
Secretary/Treasurer of the Company in 1977. Mrs. Dichter, who devotes her full
time and efforts to the affairs of the Company, is in charge of maintaining the
Company's books on a day-to-day basis. She is the sister of Irene Horowitz.
Terry J. Wolfgang has been a Director of the Company since 1989. She has been
engaged in the private practice of law in New York City. Ms. Wolfgang is the
daughter of Carl and Irene Horowitz. Ms. Wolfgang has occasionally performed
legal services for the Company.
Dr. Mohan Sanduja, PHD joined the Company in 1979 as Assistant Director of
Research. In 1982, he became a Director of Research and Development. In 1987, he
became a Director of the Company and Vice President of Research and Development.
Clare Chamow joined the Company in 1982. She became a Vice President in March of
1996 and is responsible for office management. She is a graduate of Brooklyn
College with a B.A. Degree in Education.
Harriet Finger joined the Company in 1999 as a bookkeeper. She was later made
controller and devotes full time to overseeing the day to day finances of the
Company.
-14-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The following table sets forth the compensation paid during the years ended
December 31, 1999, 1998 and 1997 to the chief executive officer and those three
executive officers of the Company who earned in excess of $100,000 for the year
ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-----------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (I)
NAME OTHER RESTRICTED
AND ANNUAL STOCK LTIP ALL OTHER
PRINCIPAL COMPEN- AWARDS OPTIONAL PAYOUTS COMPEN-
POSITION YEAR SALARY ($) BONUS($) SATION($) (#) SAR'S(#) ($) SATION($)
(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CARL HOROWITZ 1999 $ 174,414 $ -0- $ 12,812 50,000 -0- $ -0- $ -0-
CEO, PRESIDENT 1998 170,000 -0- 13,233 -0- -0- -0- -0-
1997 160,000 25,000 13,236 -0- -0- -0- 12,985
IRENE HOROWITZ 1999 164,873 -0- -0- 50,000 -0- -0- -0-
SENIOR VICE 1998 180,703 -0- -0- -0- -0- -0- -0-
PRESIDENT 1997 158,349 10,000 -0- -0- -0- -0- 12,985
JOHN M. RYAN 1999 272,486 -0- -0- 20,000 -0-
EXECUTIVE VICE 1998 276,984 12,324 -0- -0- -0- -0- -0-
PRESIDENT 1997 241,167 -0- -0- 20,000 -0- -0- 3,359
MOHAN SANDUJA 1999 126,897 -0- -0- -0- -0- -0- -0-
VICE PRESIDENT 1998 125,367 1,500 -0- -0- -0- -0- -0-
RESEARCH AND 1997 117,780 1,624 -0- -0- -0- -0- 9,905
DEVELOMENT
</TABLE>
(1) Represents premiums on officer's life insurance policy in which Mr. Horowitz
has the right to designate the beneficiary.
-15-
<PAGE>
STOCK OPTIONS
No executive officer owns any stock options.
EMPLOYMENT AGREEMENTS
On May 17, 1998, the Company and Carl Horowitz agreed to extend Mr. Horowitz's
employment agreement through May 16, 2003. Mr. Horowitz's maximum base salary
under the new agreement is $170,000 for 1998 with annual increases of $10,000
thereafter until January 1, 2003, when the maximum base salary increases to
$240,000.
On July 26, 1994 the Company entered into retirement agreements with the
Company's President and Senior Vice President. The agreements set a compensation
rate of 60% of the average 5 preceding year's annual compensation, payable for
the remainder of the individuals' life. In addition the Company is to maintain
the individuals' medical benefits.
Directors who are not employees of the Company receive a fee of $500 for each
regular meeting of the Board of Directors that they attend.
Effective January 1, 1990, the Company adopted a qualified noncontributory
profit sharing plan. 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, if any, are determined at the Board of
Directors' discretion. A percentage of the benefits vest after three years of
qualifying service. The Company elected not to make any contributions for 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT
----------
The following table sets forth certain information, as of March 21, 2000, with
respect to each person known to the Company to be the beneficial owner of more
than 5% of the Company's Common Stock, each executive officer named on the
Summary Compensation table, and by all officers and directors as a group:
AMOUNT
------
NAME AND ADDRESS OF BENEFICIALLY PERCENTAGE
------------------- ------------ ----------
TITLE OF CLASS BENEFICIAL OWNER OWNED OF CLASS
- -------------- ------------------- ----- --------
Common stock Carl Horowitz 467,914 25.8%
$.01 par value 2719 Whitman Drive
Brooklyn, NY 11234
-16-
<PAGE>
Irene Horowitz 120,811 6.7%
2719 Whitman Drive
Brooklyn, NY 11234
John M. Ryan 49,184 2.7%
3035 Lonni Lane
Merrick, N.Y. 11566
Alice J. Horowitz 21,517 1.2%
3046 West Tonopah Drive
Phoenix, Arizona 85027
Boris Jody -0- -0-%
4301 N. Ocean Blvd.
Boca Raton, Fl.
Anna Dichter 1,800 .1%
1757 E. 54th Street
Brooklyn, N.Y.
Terry J. Wolfgang 3,700 .2%
440 West End Avenue
New York, N.Y. 10750
Dr. Mohan Sanduja 1,000 .1%
144-90 91st Avenue
Flushing, N.Y.
Clare Chamow 400 -0-%
5613 Fillmore Avenue
Brooklyn, N.Y. 11234
Harriet Finger 420 -0-%
3310 Nostrand Avenue
Brooklyn, N.Y. 11229
All executive officers and
Directors as a group (10
in number) 666,746 36.8%
-17-
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NONE
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS
ON FORM 8-K
1. Financial Statements. See Item 8 above for a list of financial
statements included as part of this Annual Report on Form 10-K.
3. Exhibits
(3.1) Registrant's Certificate of Incorporation, as amended, and
By-Laws, as amended (incorporated by reference as previously
filed with the United States Securities and Exchange Commission
on January 7, 1986 on Form 10). Amendment to the Certificate of
Incorporation dated July 23, 1988, (incorporated by reference as
previously filed with the United States Security and Exchange
Commission in March 1991 with Form 10K)
(3.2) By Laws, as amended (incorporated by reference as previously
filed with the United States Securities and Exchange Commission
on January 7, 1986 on Form 10K)
(10) Material Contracts
(.1) Employment Contract of Carl Horowitz, the Company's President,
dated March 17, 1998 (filed with 1998 Form 10K).
(.2) Mortgage agreement between the Company and Tama Realty Co.,
dated June 4, 1990 (incorporated by reference as previously
filed with the United States Security and Exchange Commission in
March 1991 with Form 10K).
(.2A) Mortgage modification agreement between the Company and Tama
Realty Co., dated August 26, 1996 (incorporated by reference as
previously filed with the United States Security and Exchange
Commission in March, 1997 with Form 10K).
(.3) Retirement benefits agreement between the Company and Carl
Horowitz, dated July 26, 1994 (incorporated by reference as
previously filed with the United States Security and Exchange
Commission in March, 1995 with Form 10K).
-18-
<PAGE>
(.4) Retirement benefits agreement between the Company and Irene
Horowitz, dated July 26, 1994 (incorporated by reference as
previously filed with the United States Security and Exchange
Commission in March, 1995 with Form 10K).
(27) Financial Data Schedule
-19-
<PAGE>
POLYMER RESEARCH CORP.
OF AMERICA
FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
POLYMER RESEARCH CORP. OF AMERICA
CONTENTS
<PAGE>
Page
----
Independent Auditors' Report F-1
- ----------------------------
Financial Statements
- --------------------
Balance Sheets at December 31, 1999 and 1998 F-2 - F-3
Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997 F-4
Statements of Comprehensive Income for the Years
Ended December 31, 1999, 1998 and 1997 F-5
Statements of Stockholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997 F-6
Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 F-7 - F-8
Notes to Financial Statements F-9 - F-22
Financial Statement Schedules
- -----------------------------
For the Years Ended December 31, 1999, 1998 and 1997:
Report of Independent Certified Public
Accountants on Financial Statement Schedules F-23
VIII Valuation and Qualifying Accounts and Reserves F-24
X Supplementary Income Statement Information F-25
XI Property, Equipment and Accumulated Depreciation F-26
All other schedules have been omitted because the required information
is included in the financial statements or the notes thereto or
because they are not required.
<PAGE>
[LETTERHEAD OF CASTELLANO, KORENBERG & CO.]
INDEPENDENT AUDITORS' REPORT
To The Stockholders and Board of Directors
Polymer Research Corp. of America
Brooklyn, New York
We have audited the accompanying balance sheets of Polymer Research Corp. of
America at December 31, 1999 and 1998, and the related statements of operations,
comprehensive (loss) income, stockholders' equity and cash flows for the years
ended December 31, 1999, 1998 and 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Polymer Research Corp. of
America at December 31, 1999 and 1998 and the results of its operations and its
cash flows for the years ended December 31, 1999, 1998 and 1997, in conformity
with generally accepted accounting principles.
/s/ CASTELLANO, KORENBERG & CO. CPAs, P.C.
Hicksville, New York
February 16, 2000
F-1
<PAGE>
BALANCE SHEETS
--------------
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS
------
1999 1998
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,156,778 $ 823,238
Certificates of deposit 235,246 1,137,321
Investment securities available
for sale 292,396 412,341
Accounts receivable, less allowance for
doubtful accounts of $-0- for 1999 and 1998 306,429 245,669
Inventories 116,028 103,130
Deferred tax charge 127,500 39,000
Prepaid income taxes 188,578 -0-
Prepaid expenses and other current assets 37,605 13,178
----------- -----------
Total Current Assets 2,460,560 2,773,877
----------- -----------
PROPERTY AND EQUIPMENT 2,740,195 2,814,511
----------- -----------
OTHER ASSETS:
Deferred financing costs, less accumulated
amortization of $3,819 for 1999 and $3,456 for 1998 10,723 11,087
Security deposits 1,195 1,195
----------- ------------
11,918 12,282
----------- ------------
$5,212,673 $5,600,670
=========== ===========
</TABLE>
See independent auditors' report and notes to financial statements.
F-2
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of mortgage payable $ 967,082 $ 34,688
Current maturities of long-term debt 6,960 -0-
Accounts payable 81,696 74,288
Deferred revenue 206,332 496,650
Income taxes payable -0- 89,431
Accrued expenses and other current liabilities 272,364 235,685
------------ ------------
Total Current Liabilities 1,534,434 930,742
----------- ------------
LONG-TERM LIABILITIES:
Current portion of mortgage payable refinanced
with long-term debt 450,000 -0-
Mortgage payable, less current maturities -0- 1,417,082
Long-term debt, less current maturities 609 -0-
----------- ------------
Total Long-Term Liabilities 450,609 1,417,082
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value; 4,000,000
shares authorized; 1,825,784 and 1,685,784
shares issued at December 31, 1999 and
1998, respectively 18,257 16,857
Capital in excess of par value 3,399,728 3,120,685
(Accumulated deficit) retained earnings (158,466) 167,259
Accumulated other comprehensive (loss) income (24,389) 4,782
------------ -----------
3,235,130 3,309,583
Less: Treasury stock, at cost -
12,140 and 91,837 shares in 1999 and 1998,
respectively 7,500 56,737
----------- -----------
Total Stockholders' Equity 3,227,630 3,252,846
----------- -----------
$5,212,673 $5,600,670
=========== ===========
</TABLE>
See independent auditors' report and notes to financial statements.
F-3
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NET REVENUES:
Research $ 3,814,145 $ 4,554,400 $ 4,214,293
Production 1,022,012 1,092,789 1,233,979
----------- ----------- -----------
4,836,157 5,647,189 5,448,272
----------- ----------- -----------
COST OF REVENUES:
Research 1,090,261 1,048,560 1,001,818
Production 573,862 789,915 1,018,505
----------- ----------- -----------
1,664,123 1,838,475 2,020,323
----------- ----------- -----------
GROSS PROFIT 3,172,034 3,808,714 3,427,949
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 3,303,995 3,310,032 2,902,474
----------- ----------- -----------
(LOSS) INCOME FROM OPERATIONS (131,961) 498,682 525,475
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 85,652 92,687 65,886
Interest expense (152,321) (154,241) (157,320)
Realized (loss) gain on investment
in marketable securities (1,088) 7,037 1,604
----------- ----------- -----------
Total Other Expense (67,757) (54,517) (89,830)
----------- ----------- -----------
(LOSS) INCOME BEFORE (BENEFIT FROM)
PROVISION FOR INCOME TAXES (199,718) 444,165 435,645
(BENEFIT FROM) PROVISION FOR INCOME
TAXES (63,673) 201,845 229,066
----------- ----------- -----------
NET (LOSS) INCOME $ (136,045) $ 242,320 $ 206,579
=========== =========== ===========
BASIC (LOSS) EARNINGS PER SHARE $ (.08) $ .15* $ .13**
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 1,774,904 1,665,965* 1,637,912**
=========== =========== ===========
</TABLE>
* Restated for 1999 5% stock dividend.
** Restated for 1999 5% stock dividend and 1998 5% stock dividend.
See independent auditors' report and notes to financial statements.
F-4
<PAGE>
POLYMER RESEARCH CORP OF AMERICA
STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
FOR THE YEARS ENEDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NET (LOSS) INCOME $ (136,045) $ 242,320 $ 206,579
----------- --------- ---------
OTHER COMPREHENSIVE (LOSS)
INCOME, NET OF TAX:
Unrealized (loss) gain during the period (55,359) 10,543 9,122
Reclassification adjustment for losses (gains),
included in net income 1,088 (3,525) 759
----------- --------- ---------
Other Comprehensive (Loss) Income,
Before Tax (54,271) 7,018 9,881
Deferred Tax Benefit (25,100) -0- -0-
----------- --------- ---------
OTHER COMPREHENSIVE (LOSS)
INCOME, NET OF TAX: (29,171) 7,018 9,881
----------- --------- ---------
COMPREHENSIVE (LOSS) INCOME $ (165,216) $ 249,338 $ 216,460
=========== ========= =========
</TABLE>
See independent auditors' report and notes to financial statements.
F-5
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock, $.01 Accumulated
Par Value Other
4,000,000 Shares Authorized Capital Comprehensive Treasury Stock - At Cost
---------------------------- in Excess Retained (Loss) ------------------------
Shares Issued Amount of Par Earnings Income Shares Amount
------------- ------ --------- ----------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 1,489,657 $ 14,896 $2,632,037 $ 103,654 $ (12,117) 91,837 $ (56,737)
Net Income -0- -0- -0- 206,579 -0- -0- -0-
Stock Bonus Issued 20,000 200 19,800 -0- -0- -0- -0-
Stock Dividend 70,891 709 198,495 (199,204) -0- -0- -0-
Other Comprehensive Income, Net of Tax -0- -0- -0- -0- 9,881 -0- -0-
---------- ---------- ---------- ------------ ------- -----------
Balance, December 31, 1997 1,580,548 15,805 2,850,332 111,029 (2,236) 91,837 (56,737)
---------- ---------- ---------- ---------- ------------ ------- -----------
Net Income -0- -0- -0- 242,320 -0- -0- -0-
Stock Bonus Issued 30,800 308 85,007 -0- -0- -0- -0-
Stock Dividend 74,436 744 185,346 (186,090) -0- -0- -0-
Other Comprehensive Income, Net of Tax -0- -0- -0- -0- 7,018 -0- -0-
---------- ---------- ---------- ---------- ------------ ------- -----------
Balance, December 31, 1998 1,685,784 16,857 3,120,685 167,259 4,782 91,837 (56,737)
---------- ---------- ---------- ---------- ------------ ------- -----------
Net Loss -0- -0- -0- (136,045) -0- -0- -0-
Stock Bonus Issued 140,000 1,400 138,600 -0- -0- -0- -0-
Stock Dividend -0- -0- 140,443 (189,680) -0- (79,697) 49,237
Other Comprehensive Loss, Net of Tax -0- -0- -0- -0- (29,171) -0- -0-
---------- ---------- ---------- ---------- ------------ ------- -----------
Balance, December 31, 1999 $1,825,784 $ 18,257 $3,399,728 $ (158,466) $ (24,389) 12,140 $ (7,500)
========== ========== ========== ========== ============ ======= ===========
</TABLE>
See independent auditors' report and notes to financial statements.
F-6
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 4,484,959 $ 5,779,942 $ 5,255,070
Interest received 85,652 92,687 65,886
----------- ----------- -----------
Cash Provided By Operating Activities 4,570,611 5,872,629 5,320,956
----------- ----------- -----------
Cash paid for merchandise (1,615,653) (1,790,321) (1,961,416)
Cash paid to suppliers and employees (3,255,865) (3,298,625) (2,899,200)
Interest paid (152,321) (154,241) (157,320)
Income taxes paid (139,350) (207,514) (5,966)
----------- ----------- -----------
Cash Disbursed For Operating Activities (5,163,189) (5,450,701) (5,023,902)
----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (592,578) 421,928 297,054
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of certificates of deposit 932,000 -0- 399,030
Proceeds from sale of marketable securities 276,108 95,610 551,452
----------- ----------- -----------
Cash Provided By Investing Activities 1,208,108 95,610 950,482
----------- ----------- -----------
Purchase of certificates of deposit -0- (553,223) (428,790)
Purchase of marketable securities (241,447) (10,956) (549,624)
Purchase of property and equipment -0- (37,095) (11,865)
----------- ----------- -----------
Cash Disbursed For Investing Activities (241,447) (601,274) (990,279)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 966,661 (505,664) (39,797)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage payable (34,688) (31,244) (28,209)
Principal payments on long-term borrowings (5,855) -0- -0-
----------- ----------- -----------
NET CASH USED IN FINANCING
ACTIVITIES (40,543) (31,244) (28,209)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 333,540 (114,980) 229,048
CASH, BEGINNING OF YEAR 823,238 938,218 709,170
----------- ----------- -----------
CASH, END OF YEAR $ 1,156,778 $ 823,238 $ 938,218
=========== =========== ===========
</TABLE>
See independent auditors' report and notes to financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
POLYMER RESEARCH CORP. OF AMERICA
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
RECONCILIATION OF NET (LOSS) INCOME TO NET CASH
(USED IN) PROVIDED BY OPERATING ACTIVITIES:
NET (LOSS) INCOME $ (136,045) $ 242,320 $ 206,579
----------- ---------- ----------
ADJUSTMENTS TO RECONCILE NET (LOSS) INCOME TO
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES:
Bonus paid through issuance of stock 140,000 85,315 20,000
Depreciation and amortization 88,103 86,363 88,327
Bad debt expense 120 3,605 6,375
Realized (gain) loss on investment
in marketable securities 1,088 (7,037) (1,604)
Changes in assets (increase) decrease:
Accounts receivable (60,880) (111,447) (52,352)
Inventories (12,898) (3,476) (13,832)
Deferred tax charge (63,400) (39,000) -0-
Prepaid income taxes (188,578) -0- 167,000
Prepaid expenses and other current assets (24,427) 4,326 10,582
Security deposits -0- (1,195) -0-
Changes in liabilities increase (decrease):
Accounts payable 7,408 (1,260) 18,641
Deferred revenue (290,318) 244,200 (140,850)
Income taxes payable (89,431) 33,331 56,100
Accrued expenses and other current liabilities 36,680 (114,117) (67,912)
---------- ----------- -----------
Total Adjustments (456,533) 179,608 90,475
---------- ----------- -----------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES $ (592,578) $ 421,928 $ 297,054
========== ========== ==========
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Stock dividend paid $ 189,680 $ 186,090 $ 199,204
========== ========== ==========
Other comprehensive (loss) income, net of tax $ (29,171) $ 7,018 $ 9,881
========== ========== ==========
Equipment acquired under long-term financing $ 13,424 $ -0- $ -0-
========== ========== ==========
Stock bonus paid $ 140,000 $ 85,315 $ 20,000
========== ========== ==========
</TABLE>
See independent auditors' report and notes to financial statements.
F-8
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Business Activity
Polymer Research Corp. of America ("the Company") is
predominately engaged in the research and development of the
applications of chemical grafting for both domestic and
international companies. The Company also produces and sells
products arising from research activities and textile printing
inks. Revenue from research and production is derived from
various customers throughout the United States and worldwide.
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
investments less valuable.
In addition, financial instruments that potentially subject the
Company to credit risk also include accounts receivable.
Accounts receivable are not collateralized.
The Company maintains deposits with financial institutions in
excess of amounts insured by the FDIC.
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 and disclosure of contingent 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 satisfaction
of the following two criteria: first, client approval of
performance of specific stage of the contract and second, when
collection of the resulting revenue is assured. Revenue from
production is recognized when the product is shipped for sale to
customers.
F-9
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies (cont'd)
Cash Equivalents
The Company considers securities with maturities of three months
or less, when purchased, to be cash equivalents.
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 investment securities 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 fair
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
other comprehensive income, whereas realized gains and losses
flow through the Company's yearly operations.
Inventories
Inventories, which consists of raw materials and finished goods
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.
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.
F-10
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies (cont'd)
Property and Equipment (cont'd).
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 both the straight-line and accelerated
methods over the estimated useful lives of the respective assets
as follows:
Building and building improvements 40 years
Land improvements 20 years
Transportation equipment 3 to 5 years
Machinery and equipment 5 years
Furniture and fixtures 5 to 10 years
Office equipment 5 years
Deferred Financing Costs
Costs incurred in obtaining the mortgage used to finance the
purchase of its building have been capitalized and are being
amortized over the term of the related obligation utilizing the
straight-line method.
Deferred Revenue
The Company records as deferred revenue payments received from
research contracts prior to the culmination of the revenue
process.
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."
F-11
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies (cont'd).
Profit Sharing Plan
The Company maintains a qualified noncontributory profit sharing
plan. The plan provides all eligible employees with a source of
retirement income, as well as 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 by an annual resolution of the
Board of Directors. A percentage of the benefits vest after
three years of qualifying service.
Earnings Per Share
In 1997, the Financial Accounting Standards Board (FASB) issued
SFAS 128, "Earnings Per Share." SFAS 128 replaced the previously
reported primary and fully diluted earnings per share with basic
and diluted earnings per share. Basic earnings per share is
computed using the weighted average number of common shares.
Diluted earnings per share is computed using the weighted
average number of common shares and potentially dilutive common
shares outstanding during the period. Potentially dilutive
common shares consist of employee stock options, restricted
stock, warrants and convertible securities. Basic earnings per
share amounts for all periods have been presented.
Comprehensive Income
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive
Income." This statement establishes standards for the reporting
and display of comprehensive income and its components. SFAS 130
has been adopted by the Company, effective January 1, 1998.
Prior year financial statements have been reclassified to
conform to the requirements of SFAS 130.
Reclassifications
Certain accounts relating to the prior years have been
reclassified to conform to the current year's presentation.
These reclassifications have no effect on previously reported
income.
Note 2 - Investment Securities
At December 31, 1999 and 1998, the investment securities
portfolio is comprised of securities classified as available for
sale, in conjunction with FASB 115, resulting in investment
securities available for sale being carried at market value.
F-12
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 2 - Investment Securities (cont'd).
<TABLE>
<CAPTION>
The amortized cost and fair values of investment securities
available for sale at December 31, 1999 are:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 35,131 $ -0- $ (1,056) $ 34,075
Obligations of other U.S.
government agencies 207,952 -0- (8,223) 199,729
Other securities 97,110 -0- (38,518) 58,592
--------- -------------- ----------- ------------
$ 340,193 $ -0- $ (47,797) $ 292,396
========= ============= ========== ==========
The amortized cost and fair values of investment securities
available for sale at December 31, 1998 are:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
U.S. Treasury securities $ 99,418 $ 17,006 $ (20,184) $ 96,240
Obligations of other U.S.
government agencies 196,102 3,400 (287) 199,215
Other securities 120,835 -0- (3,949) 116,886
---------- -------------- ------------ ----------
$ 416,355 $ 20,406 $ (24,420) $ 412,341
========= ========== ========== =========
</TABLE>
The amortized cost and fair values of investment securities
available for sale December 31, 1999 by expected maturity are
shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Available
For Sale
------------------------------
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Due in one year or less $ -0- $ -0-
Due after one year but less
than five years 8,182 7,872
Due after five years but
less than ten years 14,689 14,299
Due after ten years 12,260 11,904
---------- ----------
35,131 34,075
</TABLE>
F-13
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Note 2 - Investment Securities (cont'd).
Amortized Fair
Cost Value
---- -----
<S> <C> <C>
Mortgage-backed securities 207,952 199,729
Other securities 97,110 58,592
---------- ----------
$ 340,193 $ 292,396
========== ==========
</TABLE>
Proceeds from sales and maturities of investment securities
available for sale during 1999 and 1998 were $276,108 and
$95,610, respectively.
Note 3 - Inventories
Inventories at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Raw materials $ 107,883 $ 92,254
Finished goods 8,145 10,876
----------- -----------
$ 116,028 $ 103,130
=========== ===========
Note 4 - Property and Equipment
Property and equipment is summarized as follows:
1999 1998
---- ----
Land $ 450,000 $ 450,000
Land improvements 80,211 80,211
Building 2,550,000 2,550,000
Building improvements 289,505 289,505
Machinery and equipment 238,904 225,480
Furniture and fixtures 108,965 108,965
Office equipment 45,527 45,527
----------- ------------
3,763,112 3,749,688
Less: Accumulated depreciation
and amortization 1,022,917 935,177
----------- ------------
$ 2,740,195 $2,814,511
=========== ==========
</TABLE>
F-14
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 4 - Property and Equipment (cont'd).
Depreciation and amortization expense related to property and
equipment amounted to $87,740, $86,000 and $87,963 for the years
ended December 31, 1999, 1998 and 1997, respectively.
Note 5 - Mortgage Payable
On August 20, 1996, the Company renegotiated the existing
mortgage on its building. The terms of the agreement required
the Company to make an $800,000 principal installment and pay a
re-negotiation fee of $45,000. The remaining balance of the
mortgage is being paid pursuant to a 25-year amortization in
monthly installments of $15,457 including principal and interest
at the rate of 10.50% per annum. The entire unpaid principal
balance at the end of the mortgage term, anticipated to be
$1,398,330, is due in a balloon payment on June 1, 2000 (see
Note 17).
The mortgage is secured by a lien on the building. The principal
balances payable on the mortgage amounted to $1,417,082 and
$1,451,770 of which $1,417,082 and $34,688 represent current
maturities of the mortgage at December 31, 1999 and 1998,
respectively.
Aggregate maturities of the mortgage note payable are as
follows:
<TABLE>
<CAPTION>
Year Ending December 31:
------------------------
<S> <C> <C>
2000 $1,417,082
==========
Note 6 - Long - Term Debt
Long - term debt at December 31, 1999 is summarized as follows:
Installment loan payable -
in equal monthly installments
of $613 including interest at 9%
per annum through January, 2001,
secured by related equipment. $ 7,972
Less: Unamortized discount 403
------------
7,569
Less: Current maturities 6,960
-----------
$ 609
===========
</TABLE>
F-15
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 6 - Long - Term Debt (cont'd).
Aggregate maturities of long-term are as follows:
<TABLE>
<CAPTION>
Years Ending December 31:
-------------------------
<S> <C> <C>
2000 6,960
2001 $ 609
-----------
$ 7,569
===========
</TABLE>
Note 7 - Deferred Revenue
At December 31, 1999 and 1998 the Company had received research
contract payments not yet earned aggregating $206,332 and
$496,650, respectively.
Note 8 - Contingencies
At December 31, 1999, the Company is a defendant in various
lawsuits which arose in the ordinary course of business. At
December 31, 1999, the Company has provided a reserve of
$162,500, included in current liabilities, as a provision for
legal expenses and potential unfavorable rulings in certain of
these cases. It is management's opinion that the ultimate
liability, if any, which might result from the remainder of such
actions would not have a material effect on the Company's
financial position.
Note 9 - Commitments
On July 26, 1994 the Company entered into retirement agreements
with 2 key executives. The agreements set a compensation rate of
60% of the average 5 preceding years' annual compensation,
payable for the remainder of the executive's life. The Company
is also responsible to maintain the executives medical
insurance.
On October 23, 1998 the Company extended its employment contract
with its President which expires on May 16, 2003. The contract
provides for a current minimum annual salary of $180,000 for
1999 and annual increases of $10,000 throughout its duration.
F-16
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 9 - Commitments (cont'd).
In addition, the Company has entered into various noncancellable
operating leases requiring future minimum rentals as follows:
Years Ending December 31:
-------------------------
2000 $ 42,130
2001 23,995
2002 16,419
2003 13,682
------------
$ 96,226
Lease expenses charged to operations for the years ended
December 31, 1999 and 1998 amounted to $43,997 and $41,978,
respectively.
During 1998, the Company entered into a lease for an office
facility in Phoenix, Arizona under a noncancellable operating
lease requiring future minimum rental as follows:
Year Ending December 31:
2000 $ 7,026
===========
In addition, the lease provides for escalation clauses for
increases in real estate taxes and building maintenance.
Rent expense charged to operations for the years ended December
31, 1999 and 1998 amounted to $10,832 and $7,975, respectively.
Note 10 - Stock Dividends
On February 11, 1999, the Company declared a 5% stock dividend
to stockholders of record at March 19, 1999, paid April 2, 1999.
The transaction was valued based upon the closing market price
of the Company's stock on February 10, 1999, which was $2.38 per
share. Retained earnings was charged for $189,680 as a result of
the issuance of 79,697 treasury shares.
F-17
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 10 - Stock Dividends (cont'd).
On March 2, 1998, the Company declared a 5% stock dividend to
stockholders of record at March 23, 1998, paid April 2, 1998.
The transaction was valued based upon the closing market price
of the Company's stock on February 27, 1998, which was $2.50 per
share. Retained earnings was charged for $186,090 as a result of
the issuance of 74,436 shares.
On March 20, 1997 the Company declared a 5% stock dividend to
stockholders of record at April 1, 1997, paid April 8, 1997. The
transaction was valued based upon the closing market price of
the Company's stock on April 7, 1997 which was $2.81 per share.
Retained earnings was charged for $199,204 as a result of the
issuance of 70,891 shares.
Per share data were retroactively restated for the effects of
the 1999, 1998 and 1997 stock dividends.
Note 11 - Shareholders Rights Plan
On July 20, 1995, the Company adopted a Shareholders Rights
Plan. The Company adopted the plan to protect shareholders
against unsolicited attempts to acquire control of the Company.
The rights were issued to shareholders of record on July 31,
1995 and will expire on July 31, 2005. The Rights Plan provides
for the issuance of one stock right for each outstanding share
of the Company's common stock. The rights will become
exercisable only if an "acquiring party" (as defined in the
rights plan) acquires 15% or more of the Company's common stock
or announces a tender offer that would result in ownership of
15% or more of the Company's common stock.
Each right will entitle the holder to buy one share of common
stock at an exercise price of $25, subject to adjustment.
Upon the occurrence of certain events, holders of the rights
will be entitled to purchase either the Company's stock or
shares in an "Acquiring Entity" at 50% of those shares market
value.
The Company will generally be entitled to redeem all rights for
$.01 per right at any time prior to the tenth day following the
acquisition of 15% or more of the Company's common stock by a
person or group.
F-18
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 12 - Stock Bonuses
On April 12, 1999, the Company paid certain officers a bonus by
issuing them 140,000 restricted shares of the Company's stock.
The shares have not been registered under the Securities Act of
1933 and sales of the shares are subject to restrictions and
limitations. The Company valued the shares issued at $1.00 per
share aggregating $140,000.
On April 2, 1998, subsequent to the 1998 5% stock dividend
record date, the Company's Board of Directors authorized the
issuance of 30,800 shares of the Company's stock to employees of
the Company. The shares have not been registered under the
Securities Act of 1933 and sales of the shares are subject to
restrictions and limitations. The Company valued the shares
issued at $2.77 per share aggregating $85,315.
On April 1, 1997, prior to the 1997 5% stock dividend record
date, the Company paid an Executive Vice President a bonus by
issuing to him 20,000 restricted shares of the Company's stock.
The shares have not been registered under the Securities Act of
1933 and sales of the shares are subject to restrictions and
limitations. The Company valued the shares issued at $1.00 per
share aggregating $20,000.
Note 13 - (Benefit From) Provision For Income Taxes
The (benefit from) provision for income taxes is summarized as
follows:
1999 1998 1997
---- ---- ----
Current:
Federal $ (24,159) $ 154,381 $ 135,754
State and local 23,886 86,464 93,312
--------- --------- ---------
(273) 240,845 229,066
--------- --------- ---------
Deferred:
Federal (39,400) (23,900) -0-
State and local (24,000) (15,100) -0-
--------- --------- ---------
(63,400) (39,000) -0-
--------- --------- ---------
$ (63,673) $ 201,845 $ 229,066
========= ========= =========
The reconciliation between the maximum effective income tax
rates with federal statutory tax rates for the year ended
December 31, 1999 and the rates reflected in the accompanying
financial statements is as follows:
F-19
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 13 - (Benefit From) Provision For Income Taxes (cont'd).
Income tax benefit at U.S. statutory rates $ (67,904)
(Decrease) increase in federal income
tax expense resulting from:
Federal tax arising from non-deductible
financial statement expenses 13,566
Future federal tax benefit from unrealized
loss on marketable securities (25,100)
Benefit from deduction for state
and local taxes (8,121)
State and local taxes 23,886
-------------
Benefit from Income Taxes $ (63,673)
=============
Note 14 - Industry Segments
The Company's operations are classified into the following two
industry segments:
Research- Providing laboratory research services in the
area of polymer chemistry.
Production - Manufacture and sale of products arising
from research activities and the sale of textile
printing inks and accessories.
Information on industry segments for the years ended December
31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
NET REVENUES:
<S> <C> <C> <C>
Research $3,814,145 $4,554,400 $4,214,293
Production 1,022,012 1,092,789 1,233,979
----------- ----------- -----------
Total Net Revenues $4,836,157 $5,647,189 $5,448,272
========== ========== ==========
</TABLE>
F-20
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 14 - Industry Segments (cont'd).
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
GROSS PROFIT:
<S> <C> <C> <C>
Research $2,723,884 $3,505,840 $3,212,475
Production 448,150 302,874 215,474
----------- ------------ ------------
Total Gross Profit 3,172,034 3,808,714 3,427,949
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 3,303,995 3,310,032 2,902,474
----------- ----------- ------------
(LOSS) INCOME FROM OPERATIONS $ (131,961) $ 498,682 $ 525,475
=========== =========== ============
CAPITAL EXPENDITURES:
Research $ 5,571 $ 8,901 $ -0-
Production 2,685 4,289 -0-
Corporate 5,168 23,905 11,865
---------- ----------- -------------
Total $ 13,424 $ 37,095 $ 11,865
========== =========== ============
DEPRECIATION AND AMORTIZATION:
Research $ 36,412 $ 35,690 $ 36,505
Production 17,548 17,200 17,593
Corporate 33,780 33,110 33,865
---------- ----------- -------------
Total $ 87,740 $ 86,000 $ 87,963
========== =========== ============
IDENTIFIABLE ASSETS:
Research $1,225,237 $ 1,145,853 $1,262,411
Production 849,921 901,017 718,512
Corporate 3,137,515 3,553,800 3,154,184
Total $5,212,673 $ 5,600,670 $5,135,107
========== =========== ==========
</TABLE>
Net income from operations represents net sales less
operating expenses for each segment and corporate
expenses which are not directly attributable to any
segment. Segment identifiable assets include accounts
receivable, inventories and property and equipment for
use in, or directly attributable to, the individual
segments. Corporate identifiable assets include cash,
property and equipment and other assets which are not
directly attributable to any individual segment.
There was no individual customer from which the Company
derived 10% or more of its revenues during the periods
presented.
F-21
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 15 - Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities are summarized as
follows:
1999 1998
---- ----
Accrued provision for legal
proceedings $ 162,500 $ 100,000
Accrued vacation 27,689 23,435
Accrued professional fees 36,000 35,000
Other items (none in excess
of 5% of total current liabilities) 46,175 77,250
---------- -----------
$ 272,364 $ 235,685
========== ==========
Note 16 - Profit Sharing Plan
Profit sharing expense under the Company's noncontributory
profit sharing plan charged to operations amounted to $-0- for
the years ended December 31, 1999 and 1998 and $100,000 for the
year ended December 31, 1997.
Note 17 - Subsequent Event
On March 20, 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 intends
to utilize the facility 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. The loan requires the Company to
comply with certain financial covenants and to deliver to the
lender collateral of $125,000 upon funding of the term loan.
Simultaneously, the bank extended a $250,000 line of credit
facility to the Company.
F-22
<PAGE>
To The Stockholders
Polymer Research Corp. of America
Brooklyn, New York
Our report on our audits of the basic financial statements of Polymer Research
Corp. of America for 1999, 1998 and 1997, appears on page F-1. Those audits were
made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The accompanying supplementary information is presented for
the purpose of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
CASTELLANO, KORENBERG & CO., CPAs, P.C.
Hicksville, New York
February 16, 2000
F-23
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- ----------------------- -------- ---------
Additions
----------------------
Balance at Charged to Charged
Beginning Costs and to Other Balance
Of Year Expenses Accounts Deductions End of Year
------- -------- -------- ---------- -----------
Allowance for Doubtful Accounts:
- --------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999 $ -0- $ 120 $ -0- $ 120 $ -0-
-------- -------- -------- -------- --------
Year ended December 31, 1998 $ -0- $ 3,605 $ 3,605 $ -0- $ -0-
-------- -------- -------- -------- --------
Year ended December 31, 1997 $ -0- $ 6,375 $ 6,375 $ -0- $ -0-
-------- -------- -------- -------- --------
Reserve for Sales Credits:
- --------------------------
Year ended December 31, 1999 $ -0- $ -0- $ -0- $ -0- $ -0-
-------- -------- -------- -------- --------
Year ended December 31, 1998 $ -0- $ -0- $ -0- $ -0- $ -0-
-------- -------- -------- -------- --------
Year ended December 31, 1997 $ -0- $ -0- $ -0- $ -0- $ -0-
-------- -------- -------- -------- --------
</TABLE>
F-24
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
SCHEDULE X - SUPPLEMENTARY INCOME
STATEMENT INFORMATION
<TABLE>
<CAPTION>
Charged To Costs and Expenses
-----------------------------
December 31,
------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
1. MAINTENANCE AND REPAIR $ * $ 61,832 $ *
---------- --------- ---------
2. DEPRECIATION $ 87,740 $ 86,000 $ 87,963
--------- --------- ---------
3. TAXES, OTHER THAN PAYROLL
AND INCOME TAXES * * *
4. ROYALTIES * * *
5. ADVERTISING COSTS * * *
Note: * Less than 1% of revenue.
</TABLE>
F-25
<PAGE>
POLYMER RESEARCH CORP. OF AMERICA
SCHEDULE XI - PROPERTY, EQUIPMENT AND ACCUMULATED DEPRECIATION
YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Initial Cost to Company Gross Amount At Which Carried
---------------------------- At Close of Period
--------------------------------
Land Land
Building and Building and
Description Encumbrances Improvements Equipment Improvements Equipment Total
- ----------- ------------ ------------ --------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Land, Building and
Improvements $1,417,082 $3,369,716 $ -0- $3,369,716 $ -0- $3,369,716
Equipment -0- -0- 393,396 -0- 393,396 393,396
---------- ---------- ----------- ---------- ----------- ----------
$1,417,082 $3,369,716 $ 393,396 $3,369,716 $ 393,396 $3,763,112
========== ========== =========== ========== =========== ==========
</TABLE>
Life
On
Which
Depreciation
In Latest
Accumulated Date Income Statement
Description Depreciation Acquired is Computed
- -----------
Land, Building and
Improvements $ 682,397 June 4, 1990 20-40 Years
Equipment 340,520
----------- Various 3-10 Years
$1,022,917
==========
F-26
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,156,778
<SECURITIES> 527,642
<RECEIVABLES> 306,429
<ALLOWANCES> 0
<INVENTORY> 116,028
<CURRENT-ASSETS> 2,460,560
<PP&E> 3,763,112
<DEPRECIATION> 1,022,917
<TOTAL-ASSETS> 5,212,673
<CURRENT-LIABILITIES> 1,534,434
<BONDS> 0
0
0
<COMMON> 18,257
<OTHER-SE> 3,209,373
<TOTAL-LIABILITY-AND-EQUITY> 5,212,673
<SALES> 4,836,157
<TOTAL-REVENUES> 4,836,157
<CGS> 1,664,123
<TOTAL-COSTS> 4,968,118
<OTHER-EXPENSES> (84,564)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 152,321
<INCOME-PRETAX> (199,718)
<INCOME-TAX> (63,673)
<INCOME-CONTINUING> (136,045)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (136,045)
<EPS-BASIC> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
