10QSB 1 polymer10qsb2ndq2001.txt QUARTERLY REPORT FORM 10-QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [x] Quarterly Report Under Section 13 or 15 (d) Of the Securities and Exchange Act of 1934 For Quarter Ended June 30, 2001 ----------------------------------------- Commission file number 0-14119-NY --------------------------------------- Polymer Research Corp. of America ------------------------------------------------------------- (Exact name of small business issuer 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 -------------------------------------------------------------- Issuers telephone number Not Applicable (Former name, former address and former fiscal year, if changed since last report) State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. July 31, 2001 1,925,784 -------------------------------------------------------------- POLYMER RESEARCH CORP. OF AMERICA INDEX Page Number ------ Part I - FINANCIAL INFORMATION: ITEM 1 - FINANCIAL STATEMENTS Balance Sheets: June 30, 2001 (Unaudited) and December 31, 2000 2 Statements of Operations: Three months and six months ended June 30, 2001 and 2000 (Unaudited) 4 Statements of Cash Flows: Three months and six months ended June 30, 2001 and 2000 (Unaudited) 5 Notes to Financial Statements 6-9 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10-11 PART II - OTHER INFORMATION ITEM 4 - Submission of Matters to a Vote of 12 Security Holders ITEM 6 - Exhibits and Reports on Form 8-k 12 PART I - FINANCIAL INFORMATION POLYMER RESEARCH CORP. OF AMERICA BALANCE SHEETS JUNE 30, 2001 AND DECEMBER 31, 2000 June 30, December 31, ASSETS 2001 2000 ------ ---------- --------- (Unaudited) CURRENT ASSETS: Cash and cash equivalents $1,011,538 $ 695,585 Cash - Restricted cash 45,000 30,000 Accounts receivable,less allowances of $0 130,244 281,661 Inventories 133,941 124,719 Deferred tax charge 33,600 33,600 Prepaid and refundable income taxes 82,446 203,405 ---------- ---------- Total current assets 1,436,769 1,368,970 ---------- ---------- Land, Property, and Equipment-net of accumulated depreciation of $ 1,157,626 and $1,107,628 respectively 2,631,386 2,673,779 ---------- ---------- OTHER ASSETS: Cash - restricted, non-curent 105,000 120,000 Security deposits 1,195 1,195 ---------- ---------- Total other assets 106,195 121,195 ---------- ---------- TOTAL $ 4,174,350 $ 4,163,944 ========== ========= See notes to financial statements 2 PART I - FINANCIAL INFORMATION POLYMER RESEARCH CORP. OF AMERICA BALANCE SHEETS -(CONTINUED) JUNE 30, 2001 AND DECEMBER 31, 2000 June 30, December 31, 2001 2000 ---------- --------- (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Note payable-bank $ 50,000 $ 50,613 Current portion of term loan 100,000 100,000 Accounts payable 44,212 19,991 Accrued expenses and other current liabilities 293,812 234,574 Deferred revenue 267,277 290,000 ----------- ----------- Total current liabilities 755,301 695,178 ----------- ----------- LONG-TERM LIABILITIES: Term loan, less current maturities 291,666 341,667 ----------- ----------- Total liabilities 1,046,967 1,036,845 ----------- ----------- STOCKHOLDERS' EQUITY: Common stock, par value $.01 per share, authorized 4,000,000 shares, issued 1,925,784 shares 19,257 19,257 Capital in excess of par value 3,504,978 3,504,978 Accumulated deficit (379,091) (379,375) Less: Treasury stock, at cost 22,140 respectively (17,761) (17,761) Total ----------- ----------- Stockholders' Equity 3,127,383 3,127,099 ----------- ----------- TOTAL $ 4,174,350 $ 4,163,944 =========== =========== See notes to financial statements 3 POLYMER RESEARCH CORP. OF AMERICA STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED) AND THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED)
Three Months Ended Six Months Ended June 30, June 30, -------------------------- ---------------------------- 2001 2000 2,001 2000 Net revenues: Product sales $ 169,284 $ 202,166 $ 395,957 $ 387,382 Research 1,131,195 1,231,000 2,530,768 2,522,764 ----------- ----------- ----------- ----------- Total 1,300,479 1,433,166 2,926,725 2,910,146 ----------- ----------- ----------- ----------- Cost of Revenues Product sales 154,897 244,132 355,616 401,740 Research 276,562 230,411 575,005 484,654 ----------- ----------- ----------- ----------- Total 431,459 474,543 930,621 886,394 ----------- ----------- ----------- ----------- Gross Profit on Revenues 869,020 958,623 1,996,104 2,023,752 Selling, General, and Administrative Expenses 937,599 941,096 1,954,532 1,748,668 ----------- ----------- ----------- ----------- Income from Operations (68,579) 17,527 41,572 275,084 ----------- ----------- ----------- ----------- Other Revenues (Expenses): Investment income 5,558 15,909 10,338 30,673 Interest expense (10,320) (36,740) (21,226) (73,858) ----------- ----------- ----------- ----------- Total Other Revenues (Expenses) (4,762) (20,831) (10,888) (43,185) ----------- ----------- ----------- ----------- Income before income taxes (73,341) (3,304) 30,684 231,899 Provision for income taxes 24,100 5,000 (30,400) (95,000) ----------- ----------- ----------- ----------- Net Income $ (49,241) $ 1,696 $ 284 $ 136,899 =========== =========== =========== =========== Basic earnings per Share $ (0.03) $ 0.00 $ 0.00 $ 0.07 =========== =========== =========== =========== Weighted average number of shares outstanding during the period 1,925,784 1,825,784 1,925,784 1,825,784 =========== =========== =========== ===========
See notes to financial statements 4 POLYMER RESEARCH CORP. OF AMERICA STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 (UNAUDITED) 2001 2000 ----------- ----------- Cash flows from operating activities: Net Income $ 284 $ 136,899 Adjustments to reconcile net income to cash provided from operating activities Depreciation and amortization 50,000 49,997 ----------- ----------- Subtotal 50,284 186,896 Asset and ----------- ----------- liability management: Accounts receivable 151,417 (44,462) Inventories (9,222) 5,404 Other current assets 24,427 Accounts payable 24,221 (39,189) Accrued expenses and other current liabilities 59,238 (150,291) Income taxes payable 120,959 95,000 Deferred revenue (22,723) (51,332) Other assets -- 10,723 ----------- ----------- Increase (Decrease) in net operating assets 323,890 (149,729) Netcash provided by operating activities 374,174 37,167 ----------- ----------- Cash flows from financing activities: Proceeds from certificates of deposit 65,094 Proceeds from Investment securities 316,785 Payment of Note Payable (613) 50,000 Payment of Mortgage (967,082) Changes in long term debt (50,001) 34,102 Total ----------- ----------- (50,614) (501,101) ----------- ----------- Cash flows from investing activities: ADDITIONS TO LAND, PROPERTY, AND EQUIPMENT (7,607) -- ----------- ----------- INCREASE (DECREASE) IN CASH 315,953 (463,934) CASH AND CASH EQUIVALENTS- beginning of period 695,585 1,156,778 ----------- ----------- end of period $ 1,011,538 $ 692,844 =========== =========== See notes to financial statements 5 POLYMER RESEARCH CORP. OF AMERICA NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 1- Basis of Presentation The interim financial statements included herein have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures, normally included in the financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to SEC rules and regulations; nevertheless, management of the Company believes that the disclosures herein are adequate to make the information presented not misleading. The financial statements and notes should be read in conjunction with the audited financial statements and notes thereto as of December 31, 2000 included in the Company's Form 10-KSB filed with SEC. In the opinion of management, all adjustments consisting only of normal recurring adjustments necessary to present fairly the financial position of the Company with respect to the interim financial statements have been made. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. 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. 6 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 the satisfaction of the following 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. 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 7 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. NOTE 3 - Provision for Income Taxes (First six months) 2001 2000 ------ ------ Federal $ 12,500 $ 60,000 State and local 17,900 40,000 -------- -------- Total $ 30,400 $100,000 ======== ======== NOTE 4 - Contingencies At June 30, 2001 the Company was a defendant in various lawsuits which arose in the ordinary course of business. At June 30, 2001, the Company has included a reserve in current liabilities in an amount that management believes is reasonable for legal expenses and potential unfavorable rulings or settlements 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 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 on June 1, 2000. The five year term loan is repayable 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 at June 30, 2001. To secure the term loan and line of credit, the Company granted the lender a security interest in all of the Company's personal property. 8 NOTE 6 - Deferred Revenue Deferred revenue represents cash received from customers prior to and in anticipation of research services performed by the Company. As such services are performed, such deferred amount is recognized as revenue. 9 POLYMER RESEARCH CORP. OF AMERICA ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following discussion and analysis of financial condition and results of operations should be read in conjunction with the Company's financial statements and the accompanying notes thereto included herein, and the financial statements included in its 2000 annual report on Form 10-KSB. This Quarterly Report on Form 10-QSB includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause the actual results, performance (financial or operating) or achievements expressed or implied by such forward-looking statements not to occur or be realized. Such forward-looking statements generally are based upon the Company's best estimated of future results, performance or achievement, based upon current conditions, and based upon the most recent results of operations. There can be no assurance that actual results will not differ materially from those expressed or implied in the forward looking statements. Forward-looking statements may be identified by the use of forward-looking terminology such as "may," "will," "expect," "believe," "estimate," "anticipate," "continue" or similar terms, variations of those terms or the negative of those terms. Potential risks and uncertainties include, among other things, such factors as the ability to attract and retain qualified personnel, the effect on our financial condition of delays in payments received from third parties, economic conditions, and other factors which may be set forth in our other filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. CAPITAL RESOURCES AND LIQUIDITY Cash and cash equivalents have increased collectively by $ 315,953 since December 31, 2000. The increase resulted principally from the receipt of a $90,000 tax refund, reduction in other prepaid expenses and reduction of accounts receivable. Prepaid taxes decreased as a result of application of payments against liabilities created during the year. 10 The ratio of current assets to current liabilities remained the same at 1.90 to 1.0 at June 30, 2001 as compared to 1.91 to 1.0 at December 31, 2000. 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 utilized the facility in connection with the balloon mortgage payment on June 1, 2000. The five year term loan is repayable 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 $150,000. Simultaneously, the bank extended a $250,000 line of credit facility to the Company, $50,000 of which was drawn upon and was outstanding at June 30, 2001. Based on the above, management believes the Company's cash position at June 30, 2001 is sufficient to cover any unforeseen sales downturn in the short term. Over both the long and short term, liquidity will be a direct result of sales and related net earnings. No significant capital expenditures are anticipated. B. RESULTS OF OPERATIONS Three months ended June 30, 2001 v. 2000 Net revenues for the second quarter of 2001 were $ 1,300,479, a decrease of $ 132,687 (9%) compared with the second quarter of 2000. Research sales decreased $ 99,805 (8%) in the second quarter of 2001 compared to 2000. The decrease is due to decreased demand for research services related to a slowdown in the economy. Product sales decreased $32,882 (16%) compared to the second quarter of 2000 due to decreased demand from research customers. The cost of revenues in research increased to 24% from 18% in the second quarter of 2001 compared to 2000 as a result of increased payroll and supply expenses in the Arizona laboratory. The cost of revenues in production decreased to 91% from 120% in the second quarter of 2001 compared to 2000 as a result of decreased payroll expenses due to attrition of employees that were not replaced. Selling, general, and administrative expenses increased as a percentage of sales in the second quarter of 2001 as compared to the same quarter of 2000 from 65% to 72% as a result of increased reserves for contingent liabilities. Net income for the second quarter decreased from $ 1,696 (.1% of sales) in 2000 to a loss of $ 49,241 in 2001 principally as a result of increased reserves for contingent liabilities. Income before interest and taxes decreased by $86,106. 11 Six months ended June 30, 2001 v. 2000 Net revenues for the first six months of 2001 were $2,926,725, an increase of $ 16,579 (.5%) compared with the first six months of 2000. Research sales increased $ 8,004 (.3%) in the first six months of 2001 as compared to 2000 while product sales increased $8,575 (2%) compared to the first six months of 2000. The cost of revenues in research increased to 23% from 19% in the first six months of 2001 as compared to 2000 as a result of increased expenses in payroll in the Arizona laboratory. The cost of revenues in production decreased to 90% from 104% in the first six months of 2001 as compared to 2000 as a result of decreased payroll expenses due to attrition of employees that were not replaced. Selling, general, and administrative expenses increased as a percentage of sales to 60% in the first six months of 2001 as compared to 51% in the first six months of 2000 as a result of increased reserves for contingent liabilities. Net income for the first six months decreased from $ 136,899 (4.7% of sales) in 2001 to $ 284 (0% of sales) in 2001 primarily due to increased Arizona payroll expenses and increased reserves for contingent liabilities. 12 PART II - OTHER INFORMATION ITEM 4 - Submission of Matters to a Vote of Security Holders: The company held its annual meeting on May 25, 2001. At such meeting the following persons were elected directors: Director votes for: withheld: 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 6 - Exhibits and Reports on Form 8-K: The Company filed a Report on Form 8-K/A-1 dated April 2, 2001 reporting under item 4. Changes in Registrant's Certifying Accountants. 13 FORM 10-QSB SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. POLYMER RESEARCH CORP. OF AMERICA, ---------------------------------- (REGISTRANT) Date August 13, 2001 /s/ Carl Horowitz ------------------- ------------------------------------ Carl Horowitz, President and Chief Accounting Officer 14