10QSB/A 1 polymer3rdq10qsba17575.txt AMENDED QUARTERLY REPORT (FIRST AMENDMENT) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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 There were 1,925,784 shares of the registrant's common stock outstanding as of October 26, 2001. POLYMER RESEARCH CORPORATION OF AMERICA - FORM 10QSB - INDEX -
Page(s) ------- PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Balance Sheets at September 30, 2001 (unaudited) and December 31, 2000 1 Statements of Operations for the Three Month Periods Ended September 30, 2001 and 2000 (unaudited) 2 Statement of Operations for the Nine Month Periods Ended September 30, 2001 and 2000 (unaudited) 3 Statements of Cash Flows for the Nine Month Periods Ended September 30, 2001 and 2000 (unaudited) Notes to Financial Statements 5-7 Item 2. Management's Discussion and Analysis or Plan of Operation 8-9 PART II. OTHER INFORMATION 10 Item 1. Legal Proceedings 9 Item 2. Changes in Securities 9 Item 3. Defaults Upon Senior Securities 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Item 5. Other Information 10 Item 6. Exhibits and Reports on Form 8-K 10 Signatures 11 PART I - Financial Information ------------------------------ Item 1- Financial Statements POLYMER RESEARCH CORPORATION OF AMERICA BALANCE SHEETS - ASSETS - September 30, December 31, 2001 2000 ----------- ----------- (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 630,851 $ 695,585 Cash restricted-current 60,000 30,000 Accounts receivable, less allowances of $0 274,352 281,661 Inventories 108,273 124,719 Deferred tax charge 33,600 33,600 Prepaid and refundable income taxes 131,772 203,405 ----------- ----------- TOTAL CURRENT ASSETS 1,238,848 1,368,970 ----------- ----------- Land, Property, and Equipment-net of accumulated depreciation of $ 1,157,626 and $1,107,628 respectively 2,606,387 2,673,779 ----------- ----------- OTHER ASSETS: Cash-restricted, non-current 90,000 120,000 Security deposits 1,095 1,195 ----------- ----------- Total other assets 91,095 121,195 ----------- ----------- TOTAL $ 3,936,330 $ 4,163,944 =========== =========== - LIABILITIES AND STOCKHOLDERS' EQUITY - CURRENT LIABILITIES: Note payable-bank $ 50,000 $ 50,613 Current portion of term loan 100,000 100,000 Accounts payable 31,693 19,991 Accrued expenses and other current liabilities 203,160 234,574 Deferred revenue 144,674 290,000 ----------- ----------- TOTAL CURRENT LIABILITIES 529,527 695,178 ----------- ----------- LONG-TERM LIABILITIES: Term loan, less current maturities 266,667 341,667 ----------- ----------- TOTAL LIABILITIES 796,194 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 (366,338) (379,375) Less: Treasury stock, at cost 22,140 respectively (17,761) (17,761) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 3,140,136 3,127,099 ----------- ----------- TOTAL $ 3,936,330 $ 4,163,944 =========== =========== See accompanying notes to financial statements. - 1 - POLYMER RESEARCH CORPORATION OF AMERICA STATEMENTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND 2000 (Unaudited) 2001 2000 Net Revenue Product Sales $ 134,402 $ 140,882 Research 1,061,683 997,736 -------------- ------------- Total 1,196,085 1,138,618 -------------- ------------- Cost of Revenues Product Sales 111,336 149,692 Research 254,081 258,206 -------------- ------------- Total 365,417 407,898 -------------- ------------- Gross Profit on Revenues 830,668 730,720 -------------- ------------- Selling, General and Administrative Expenses 813,428 582,246 ---------------- ------------- Income from Operations 17,240 148,474 ---------------- ------------- Other Revenue (Expenses): Investment income 1,871 6,476 Interest expense (7,957) (11,405) --------------- -------------- Total other Revenues (Expenses) (6,086) (4,929) --------------- -------------- Income before income taxes 11,154 143,545 (Provision) benefit for income taxes 1,600 (63,950) ----------------- -------------- Net Income $ 12,754 $ 79,595 ============== ============= Basic earnings per share .01 .04 ============== ============= Weighted average number of shares outstanding during the period 1,925,784 1,813,644 ============== ============= See accompanying notes to financial statements. - 2- POLYMER RESEARCH CORPORATION OF AMERICA STATEMENTS OF OPERATIONS FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND 2000 (Unaudited) 2001 2000 ----------- ----------- Net Revenue Product Sales $ 530,359 $ 528,264 Research Revenue 3,592,451 3,520,500 ----------- ----------- Total 4,122,810 4,048,764 ----------- ----------- Cost of Revenues Product Sales 466,952 551,432 Research 829,086 742,860 ----------- ----------- Total 1,296,038 1,294,292 ----------- ----------- Gross Profit on Revenues 2,826,772 2,754,472 ----------- ----------- Selling, General and Administrative Expenses 2,767,960 2,330,914 ----------- ----------- Income from Operations 58,812 423,558 ----------- ----------- Other Revenue (Expenses): Investment income 12,209 37,149 Interest expense (29,183) (85,263) ----------- ----------- Total other revenues (Expenses) (16,974) (48,114) ----------- ----------- Income before income taxes 41,838 375,444 ----------- ----------- Provision for income taxes (28,800) (158,950) ----------- ----------- Net Income $ 13,038 $ 216,494 =========== =========== Basic earnings per share .01 .12 =========== =========== Weighted average number of shares outstanding during the period 1,925,784 1,813,644 =========== =========== See accompanying notes to financial statements. - 3 - POLYMER RESEARCH CORPORATION OF AMERICA STATEMENTS OF CASH FLOWS FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND 2000 (Unaudited) 2001 2000 ----------- ----------- OPERATIONS: Net income $ 13,038 $ 216,494 Charge not affecting funds- Depreciation and amortization 75,000 74,996 --------- --------- Funds Provided by Operations 88,038 291,490 --------- --------- Asset and liability management: Accounts receivable 7,309 (220,489) Inventories 16,446 9,993 Other current assets 71,733 4,640 Other assets 10,723 Accounts payable 11,702 (34,090) Accrued expenses and other (31,414) (111,154) Income taxes payable 159,169 Deferred revenue (145,326) (91,332) --------- --------- Increase(Decrease) in net operating assets (69,550) (272,540) --------- --------- Total 18,488 18,950 --------- --------- FUNDS USED BY FINANCING Certificates of deposit 115,246 Investment securities 316,785 Proceeds of Note payable (Repayment) (614) 50,000 Payment of mortgage (967,082) Payments of\receipts of long term debt (75,000) 9,100 --------- --------- Total (75,614) (475,951) --------- --------- INVESTMENT IN LAND, PROPERTY, AND EQUIPMENT (7,608) -- --------- --------- INCREASE (DECREASE) IN CASH $ (64,734) $(457,001) ========= =========
See accompanying notes to financial statements. - 4 - POLYMER RESEARCH CORPORATION OF AMERICA NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2001 AND 2000 (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. 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. - 5 - NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued): 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 & Equipment 5 years Furniture & Fixtures 5 to 10 years Building and improvements 40 years Office equipment under Capital leases 5 years 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 The financial statements are presented in accordance with Statement of Financial Accounting Standards No. 128 "Earnings Per Share". Basic earnings per share are computed based upon the weighted average number of common shares outstanding during each year. Diluted earnings per share incorporate the incremental shares issuable upon the assumed exercise of stock options and warrants. In accordance with SFAS 128, diluted earnings per share is not presented in years during which the are no outstanding options or warrants. - 6 - NOTE 3 - Provision for Income Taxes (First nine months) 2001 2000 ----- ---- Federal $ 13,300 $ 99,000 State and local 15,500 59,950 ------ ------ Total $ 28,800 $ 158,950 ------ ------- NOTE 4 - Contingencies At September 30, 2001, the Company was a defendant in various lawsuits which arose in the ordinary course of business. At September 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. Such required balance is decreased proportionately as the term loan is reduced. 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 September 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. NOTE 6 - Deferred Revenue Deferred revenue represents cash received from customers prior to and in anticipation of research services performed by the Company. As these services are performed, such deferred amount is recognized as revenue. - 7 - POLYMER RESEARCH CORPORATION OF AMERICA OTHER INFORMATION SEPTEMBER 30, 2001 AND 2000 (Unaudited) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN 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 estimates 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, variation 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 decreased collectively by $64,734 since December 31, 2000. The decrease resulted principally from the repayment of long-term debt of $75,000. The ratio of current assets to current liabilities increased to 2.28 to 1.0 at September 30, 2001 as compared to 1.91 to 1.0 at December 31, 2000 principally as a result of the recognition of and therefore reduction of deferred revenue. 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 and at September 30, 2001 the balance was $366,667. The five-year term loan is repayable in monthly principal instalments 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 September 30, 2001 for use as working capital. Based on the above, management believes the Company's cash position at September 30, 2001 is sufficient to meet its financial needs and 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. - 8 - B. RESULTS OF OPERATIONS Three months ended September 30, 2001 v. 2000. Net revenues for the third quarter of 2001 were $1,196,085 an increase of $ 57,467 (5%) compared with the third quarter of 2000. Research sales increased $63,947 (6%) in the third quarter of 2001 compared to 2000. Product sales decreased $6,480 (5%) compared to the third quarter of 2000 due to decreased demand from research customers. The cost of revenues in research decreased to 24% from 26% in the third quarter of 2001 compared to 2000 as a result of increased sales with similar payroll and supply expenses. The cost of revenues in production decreased to 82% from 106% in the third quarter of 2001 compared to 2000 as a result of decreased payroll expenses due to attrition of employees who were not replaced. Selling, general, and administrative expenses increased as a percentage of sales in the third quarter of 2001 as compared to the same quarter of 2000 from 51% to 68% as a result of increased legal settlement expenses. Net income for the third quarter decreased from $79,595 (7% of sales) in 2000 to $ 754 (0% of sales) in 2001 principally as a result of increased selling, general, and administrative expenses. Income before interest and taxes decreased by $132,391. Nine months ended September 30, 2001 v. 2000. Net revenues for the first nine months of 2001 were $4,122,810, an increase of $74,046 (2%) compared with the first nine months of 2000. Research sales increased $71,951 (2%) in the first nine months of 2001 as compared to 2000 while product sales increased $2,095 (0%) compared to the first nine months of 2000. The cost of revenues in research increased to 23% from 21% in the first nine months of 2001 as compared to 2000 as a result of increased payroll expenses in the Arizona laboratory. The cost of revenues in production decreased to 88% from 104% in the first nine 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 67% in the first nine months of 2001 as compared to 57% in the first nine months of 2000 as a result of increased legal settlements. Net income for the first nine months decreased from $216,494 (5% of sales) in 2000 to $13,038 (0% of sales) in 2001 primarily due to increased Arizona payroll expenses and increased legal settlements. Income before interest and taxes decreased by $364,746. - 9 - PART II OTHER INFORMATION ITEM 1 - Legal proceedings: The Company is party to various lawsuits arising in the ordinary course of business. The Company's financial statements include reserves for legal expenses and any unfavorable outcomes in amounts management believes to be reasonable. In the opinion of management, such lawsuits should not have a material adverse effect on the Company's financial condition ITEM 2 - Changes in Securities: None ITEM 3 - Defaults Upon Senior Securities: None ITEM 4- Submission of Matters to a Vote of Security Holders: None ITEM 5- Other Information: None ITEM 6- Exhibits and Reports on Form 8-K: NONE - 10 - SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. POLYMER RESEARCH CORPORATION OF AMERICA November 28, 2001 By: /s/ Carl Horowitz ----------------------------- Carl Horowitz President and Chief Accounting Officer - 11 -