10QSB 1 0001.txt QUARTERLY REPORT FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Under Section 13 or 15 (d) Of the Securities and Exchange act of 1934 For Quarter Ended June 30, 2000 -------------- Commission file number 0-14119-NY ---------- Polymer Research Corp. of America --------------------------------- (Exact name of registrant as specified in its charter) New York 11-2023495 -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S Employer incorporation or organization) Identification No.) 2186 Mill Avenue, Brooklyn, New York 11234 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) (718) 444-4300 -------------------------------------------------------------------------------- (Registrants telephone number, including area code) Not Applicable -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No____ APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. June 30, 2000 1,813,644 -------------------------------------------------------------------------------- POLYMER RESEARCH CORP. OF AMERICA INDEX Page Number ------ Part I - FINANCIAL INFORMATION: ------------------------------- ITEM I - FINANCIAL STATEMENTS Balance Sheets: June 30, 2000 (Unaudited) and December 31, 1999 1 Statements of Operations: Three months ended June 30, 2000 and 1999 (Unaudited) 3 Statements of Cash Flows: Three months ended June 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 PART I - FINANCIAL INFORMATION ------------------------------ POLYMER RESEARCH CORP. OF AMERICA BALANCE SHEETS JUNE 30, 2000 AND DECEMBER 31, 1999 ------------------------------------ June 30, December 31, ASSETS 2000 1999 ----------- -------- (Unaudited) (Note 1) CURRENT ASSETS: Cash and cash equivalents $ 692,844 $1,156,778 Investment - certificates of deposit 50,152 235,246 Investment securities available for sale 292,396 Accounts receivable, less allowances of $0 350,891 306,429 Inventories 110,624 116,028 Deferred tax charge 127,500 127,500 Prepaid income taxes 93,578 188,578 Prepaid expenses and other 13,178 37,605 ---------- ---------- Total current assets 1,438,767 2,460,560 ---------- ---------- Land, Property, and Equipment-net 2,690,198 2,740,195 ---------- ---------- Investment - certificates of deposit 120,000 Security deposits 1,195 1,195 Deferred financing costs - net 10,723 ---------- ---------- Total other assets 121,195 11,918 ---------- ---------- TOTAL $4,250,160 $5,212,673 ========== ========== The accompanying notes are an integral part of these financial statements. ----------------------------------------------------------------------------1 PART I - FINANCIAL INFORMATION POLYMER RESEARCH CORP. OF AMERICA BALANCE SHEETS JUNE 30, 2000 AND DECEMBER 31, 1999 ------------------------------------ June 30, December 31, 2000 1999 ----------- -------- (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 42,498 81,696 Accrued expenses and other current liabilities 222,073 272,364 Deferred revenue 55,000 206,332 ----------- ----------- Total current liabilities 469,571 1,534,434 ----------- ----------- LONG-TERM DEBT (NOTE 2) 391,671 450,609 ----------- ----------- 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 Accumulated deficit (21,567) (158,466) Accumulated other comprehensive loss (24,389) Less: Treasury stock, at cost 12,140 respectively (7,500) (7,500) ----------- ----------- Total Stockholders' Equity 3,388,918 3,227,630 ----------- ----------- TOTAL $ 4,250,160 $ 5,212,673 =========== =========== The accompanying notes are an integral part of these financial statements. -------------------------------------------------------------------------2 POLYMER RESEARCH CORP. OF AMERICA --------------------------------- STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED) AND THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED) --------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 ----------- ----------- ----------- ------------ Net revenues: Product sales $ 202,166 $ 163,858 $ 387,382 $ 688,535 Research 1,231,000 1,084,220 2,522,764 2,026,720 ----------- ----------- ----------- ----------- Total 1,433,166 1,248,078 2,910,146 2,715,255 ----------- ----------- ----------- ----------- Cost of Revenues Product sales 244,132 129,764 401,740 307,527 Research 230,411 256,503 484,654 522,530 ----------- ----------- ----------- ----------- Total 474,543 386,267 886,394 830,057 ----------- ----------- ----------- ----------- Gross Profit on Revenues 958,623 861,811 2,023,752 1,885,198 Selling, General, and Administrative Expenses 941,096 776,991 1,748,668 1,535,637 ----------- ----------- ----------- ----------- Income from Operations 17,527 84,820 275,084 349,561 ----------- ----------- ----------- ----------- Other Revenues (Expenses): Investment income 15,909 17,035 30,673 36,048 Interest expense (See note 2) (36,740) (37,841) (73,858) (75,877) ----------- ----------- ----------- ----------- Total (20,831) (20,806) (43,185) (39,829) ----------- ----------- ----------- ----------- Income before income taxes (3,304) 64,014 231,899 309,732 Provision for income taxes 5,000 (38,000) (95,000) (161,000) ----------- ----------- ----------- ----------- Net Income $ 1,696 $ 26,014 $ 136,899 $ 148,732 =========== =========== =========== =========== Basic earnings per Share $ 0.00 $ 0.01 $ 0.07 $ 0.09 =========== =========== =========== =========== Weighted average number of shares outstanding during the period 1,825,784 1,793,861 1,825,784 1,734,748 =========== =========== =========== =========== -----------
The accompanying notes are an integral part of these financial statements. --------------------------------------------------------------------------3 POLYMER RESEARCH CORP. OF AMERICA --------------------------------- STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999 (UNAUDITED) -------------------------------------------------------------------------------- OPERATIONS: 2000 1999 ------- ------ Net Income $ 136,899 $ 148,732 Charge not affecting funds - Issuance of Incentive Stock 46,667 Unrealized holding losses (gains) (11,904) Depreciation and amortization 49,997 40,725 --------- --------- Funds Provided by operations 186,896 224,220 --------- --------- Asset and liability management: Accounts receivable (44,462) (168,626) Inventories 5,404 (279) Other current assets 24,427 Accounts payable (39,198) 17,705 Accrued expenses and other (150,291) (44,273) Income taxes payable 95,000 (46,571) Deferred revenue (51,332) (396,650) Total other assets 10,723 727 --------- --------- Increase (Decrease) in net operating assets (149,729) (637,967) --------- --------- Total 37,167 (413,747) --------- --------- FUNDS USED BY FINANCING Certificates of deposit 65,094 542,321 Investment securities 316,785 69,095 Proceeds of note payable 50,000 Payment of Mortgage (967,082) (16,891) Payments on long term debt 34,102 --------- --------- Total (501,101) 594,525 --------- --------- INVESTMENT IN LAND, PROPERTY, AND EQUIPMENT (3,180) --------- --------- INCREASE (DECREASE) IN CASH $(463,934) $ 177,598 ========= ========= The accompanying notes are an integral part of these financial statements. -------------------------------------------------------------------------4 POLYMER RESEARCH CORP. OF AMERICA NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - Financial statements In the opinion of the management of Polymer Research Corp. of America (the Company), the accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-QSB and do not include all of the information and footnotes required by generally accepted accounting principles. Management believes that the results herein reflect all adjustments which are in the opinion of management necessary to fairly state the results and current financial condition of the Company for the respective periods. These statements should be read in conjunction with the financial statements and notes thereto included in the Company's report filed under cover of Form 10-KSB. The results of operations for the six month period 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. --------------------------------------------------------------------------5 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. -----------------------------------------------------------------------------6 Property and Equipment Property and equipment is stated at cost. The costs of additions and betterments are capitalized and expenditures for repairs and maintenance are expensed in the period incurred. When items of property and equipment are sold or retired, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is included in income. The company capitalizes leased equipment where the terms of the lease result in the transfer to the Company of substantially all of the benefits and risks of ownership of the equipment. Depreciation and amortization of property and equipment is provided utilizing the straight-line method over the estimated useful lives of the respective assets as follows: Transportation equipment 3 to 5 years Machinery and equipment 5 years Furniture and fixtures 5 to 10 years Building and improvements 40 years Office equipment under capital leases 5 years Deferred Financing Costs Costs incurred in obtaining the mortgage discussed below have been capitalized and are being amortized over the term of the related obligation utilizing the straight-line method. Income Taxes The Company accounts for its income taxes utilizing Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes" which requires that the Company follow the liability method of accounting for income taxes. The liability method provides that deferred tax assets and liabilities are recorded based on the difference between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes, referred to as "temporary differences." Net Earnings Per Share Earnings per share are computed based upon the weighted average number of common shares outstanding during each year. -------------------------------------------------------------------------7 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 six months) 2000 1999 Federal $ 55,000 $ 98,000 State and local 40,000 63,000 -------- ------- Total $ 95,000 $161,000 ======== ======= 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 June 30, 2000. In addition the Company has granted the lender a security interest in all personal property. ---------------------------------------------------------------------------8 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 $ 529,028 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 3.07 to 1.0 at June 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 six 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 June 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 June 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. -------------------------------------------------------------------------9 B. RESULTS OF OPERATIONS Three months ended June 30, 2000 v. 1999 Net revenues for the second quarter of 2000 were $ 1,433,166 an increase of $ 185,088 (15%) compared with the second 1999. Research sales increased $ 146,780 (14%) in the second quarter of 2000 compared to 1999. The increase is related to increased demand from the Company's customers for its services in the first half of 2000. Product sales increased $ 38,308 (24%) compared to the second quarter of 1999. Several product sales contracts signed in the first quarter are of a long term nature which delayed shipping and increased the second quarter sales. The cost of revenues in research decreased from 24% in the second quarter of 1999 to 19% in the same quarter of 2000 due to the increase in revenue using a smaller staff. Costs of product sales increased from 80% in the second quarter of 1999 to 120% in the same quarter of 2000 principally as a result of increased labor, shipping, and materials costs. Selling, general, and administrative expenses increased as a percentage of sales from 62% in the second quarter of 1999 to 66% in the same quarter of 2000 principally as a result of increased salaries and legal settlement expenses. Net income decreased from $ 26,014 (2% of sales) in the second quarter of 1999 to $1,696 (0% of sales) in 2000, principally as the result of increased salaries and expenses. Six months ended June 30, 2000 v. 1999 Net revenues for the first six months of 2000 were $2,910,146, an increase of $194,891 (7%) compared with the first six months of 1999. Research sales increased $ 496,044 (25%) in the first six months of 2000 compared to 1999. Product sales decreased $301,153 (44%) compared to the first six months of 1999. The first six months of 1999 had unusually high demand for products. The cost of revenues in research decreased from 26% in the first six months of 1999 to 19% in the first six months of 2000 due to the increase in revenue using a smaller staff. Costs of product sales increased from 44% in the first -------------------------------------------------------------------------10 six months of 1999 to 104% in the first six months of 2000 principally as a result of decreased sales with increased labor. Selling, general, and administrative expenses increased as a percentage of sales to 60% for the first six months of 1999 from 56% for the comparable period of 1999 principally due to increased salaries and legal expenses. Net income decreased from $ 148,732 (5% of sales) in 1999 to $ 136,899 (5% of sales) in 2000. -------------------------------------------------------------------------11 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: The Company held its annual meeting on May 12, 2000. At such meeting the following persons were elected directors: Director and votes for: Carl Horowitz 1,283,363 Irene Horowitz 1,283,363 John Ryan 1,283,363 Alice Horowitz 1,283,363 Boris Jody 1,283,363 Mohan Sanduja 1,283,363 Terry J. Wolfgang 1,283,363 ITEM 5 - Other Information: None ITEM 6 - Exhibits and Reports on Form 8-k: None ---------------------------------------------------------------------------12 FORM 10-Q SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. POLYMER RESEARCH CORP. OF AMERICA, --------------------------------- (REGISTRANT) Date: August 8, 2000 /s/Carl Horowitz -------------- ----------------------------------- Carl Horowitz, President and Chief Accounting Officer ------------------------------------------------------------------------13