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 March 31,2000
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Commission file number 0-14119-NY
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Polymer Research Corp. of America
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(Exact name of registrant as specified in its charter)
New York 11-2023495
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(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
2186 Mill Avenue, Brooklyn, New York 11234
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(Address of principal executive offices)
(Zip code)
(718) 444-4300
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(Registrants telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X__ No____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
April 30, 2000 1,813,644
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POLYMER RESEARCH CORP. OF AMERICA
INDEX
Page
Number
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Part I - FINANCIAL INFORMATION:
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ITEM I - FINANCIAL STATEMENTS
Balance Sheets:
March 31, 2000 (Unaudited) and
December 31, 1999 1
Statements of Operations:
Three months ended March 31, 2000
and 1999 (Unaudited) 3
Statements of Cash Flows:
Three months ended March 31, 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 9-10
PART II - OTHER INFORMATION 11
PART I - FINANCIAL INFORMATION
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POLYMER RESEARCH CORP. OF AMERICA
BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
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March 31, December 31,
ASSETS 2000 1999
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(Unaudited) (Note 1)
CURRENT ASSETS:
Cash and cash equivalents $ 1,616,377 $ 1,156,778
Investment - certificates of deposit 169,059 235,246
Investment securities available
for sale 285,979 292,396
Accounts receivable,less allowances
of $0 145,601 306,429
Inventories 116,885 116,028
Deferred tax charge 127,500 127,500
Prepaid income taxes 88,359 188,578
Prepaid expenses and other 51,036 37,605
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Total current assets 2,600,796 2,460,560
Land, Property, and Equipment-net 2,715,197 2,740,195
Security deposits 1,195 1,195
Deferred financing costs - net 10,360 10,723
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Total other assets 11,555 11,918
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TOTAL $ 5,327,548 $ 5,212,673
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The accompanying notes are an integral part of these
financial statements.
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PART I - FINANCIAL INFORMATION
POLYMER RESEARCH CORP. OF AMERICA
BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
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March 31, December 31,
2000 1999
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(Unaudited) (Note 1)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable bank 50,000
Current portion of long-term debt $ 5,116 $ 6,960
Current portion of mortgage payable 982,829 967,082
Accounts payable 45,189 81,696
Accrued expenses and other
current liabilities 251,580 272,364
Deferred revenue 205,000 206,332
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Total current liabilities 1,539,714 1,534,434
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LONG-TERM DEBT (NOTE 2) 425,000 450,609
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STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per
share, authorized 4,000,000 shares,
issued 1,825,784 shares 18,257 18,257
Capital in excess of par value 3,399,728 3,399,728
Accumulated deficit (23,262) (158,466)
Accumulated other comprehensive
loss (24,389) (24,389)
Less: Treasury stock, at cost
12,140 respectively (7,500) (7,500)
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Total Stockholders' Equity 3,362,834 3,227,630
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TOTAL $ 5,327,548 $ 5,212,673
========= =========
The accompanying notes are an integral part of these
financial statements.
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POLYMER RESEARCH CORP. OF AMERICA
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STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
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2000 1999
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Net Revenues
Research $ 1,291,764 $ 942,500
Production 185,216 524,677
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Total 1,476,981 1,467,177
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Cost of Revenues
Research 254,243 266,027
Production 157,608 177,763
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Total 411,851 443,790
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Gross Profit on Revenues 1,065,130 1,023,387
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Selling, General, and
Administrative Expenses 807,572 758,646
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Income from operations 257,558 264,741
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Other revenues (Expenses):
Investment income 14,764 19,013
Interest expense (37,118) (38,036)
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Income before income taxes 235,204 245,718
Provision for income taxes 100,000 123,000
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Net Income $ 135,204 $ 122,718
========= ========
Basic earnings per share $ .07 $ .07
========= ========
Weighted average number of shares
outstanding during the period 1,825,784 1,673,644
========= =========
The accompanying notes are an integral part of these
financial statements.
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POLYMER RESEARCH CORP. OF AMERICA
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STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
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OPERATIONS: 2000 1999
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Net Income $ 135,204 $ 122,718
Charge not affecting funds -
Unrealized holding losses (gains) 28
Depreciation and amortization 24,999 24,999
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Funds Provided by operations 160,203 147,745
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Asset and liability management:
Accounts receivable 160,828 40,804
Inventories (857) 15,074
Other current assets (13,431) (16,526)
Accounts payable (36,507) (21,152)
Accrued expenses and other (20,784) 4,703
Income taxes payable 100,219 (15,386)
Deferred revenue (1,332) (276,650)
Total other assets 363 232
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Increase (Decrease) in net
operating assets 188,499 (268,901)
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Total 348,702 (121,156)
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FUNDS USED BY
FINANCING
Certificates of deposit 66,187 (10,337)
Investment securities 6,416 54,194
Proceeds of note payable 50,000
Payments on long term debt (11,706) (8,335)
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Total 110,897 35,522
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INVESTMENT IN LAND, PROPERTY,
AND EQUIPMENT (1,457)
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INCREASE (DECREASE) IN CASH $ 459,599 $ (87,091)
========= ========
The accompanying notes are an integral part of these
financial statements.
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POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - Financial statements
In the opinion of the management of Polymer Research Corp. of America (the
Company), the accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and do not include all of the
information and footnotes required by generally accepted accounting principles.
Management believes that the results herein reflect all adjustments which are in
the opinion of management necessary to fairly state the results and current
financial condition of the Company for the respective periods. These statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's report filed under cover of Form 10-KSB.
The results of operations for the three 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.
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Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue from research contracts is recognized upon two criteria: first, client
approval of performance of a specific stage of the contract and, second, when
collection of the resulting revenue is assured. Revenue from production is
recognized when products are shipped for sale to customers.
Inventories
Inventories are valued at the lower of cost or market, with cost determined
using the first-in, first-out method and with market defined as the lower of
replacement cost or realizable value.
Investment Securities
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 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 are classified as available for sale and
carried at face 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 shareholders' equity, whereas
realized gains and losses flow through the Company's operations.
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Property and Equipment
Property and equipment is stated at cost. The costs of additions and betterments
are capitalized and expenditures for repairs and maintenance are expensed in the
period incurred. When items of property and equipment are sold or retired, the
related costs and accumulated depreciation are removed from the accounts and any
gain or loss is included in income.
The company capitalizes leased equipment where the terms of the lease result in
the transfer to the Company of substantially all of the benefits and risks of
ownership of the equipment.
Depreciation and amortization of property and equipment is provided utilizing
the straight-line method over the estimated useful lives of the respective
assets as follows:
Transportation equipment 3 to 5 years
Machinery and equipment 5 years
Furniture and fixtures 5 to 10 years
Building and improvements 40 years
Office equipment under capital leases 5 years
Deferred Financing Costs
Costs incurred in obtaining the mortgage discussed below have been capitalized
and are being amortized over the term of the related obligation utilizing the
straight-line method.
Income Taxes
The Company accounts for its income taxes utilizing Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes" which
requires that the Company follow the liability method of accounting for income
taxes.
The liability method provides that deferred tax assets and liabilities are
recorded based on the difference between the tax bases of assets and liabilities
and their carrying amounts for financial reporting purposes, referred to as
"temporary differences."
Net Earnings Per Share
Earnings per share are computed based upon the weighted average number of common
shares outstanding during each year.
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Profit Sharing Plan
The Company maintains a qualified non-contributory profit sharing plan. The plan
provides its eligible employees with a source of retirement income, as well as
provide assistance in other circumstances such as death or disability. Eligible
employees must meet two requirements to become participants; attainment of age
21 and completion of one year of service with the Company. Employer
contributions are determined, if any, at the Board of director's discretion. A
percentage of the benefits vest after three years of qualifying service.
NOTE 3 - Provision for Income Taxes (First three months)
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2000 1999
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Federal $ 60,000 $ 73,500
State and local 40,000 49,500
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Total $ 100,000 $123,000
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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
is 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 is being amortized using a 25 year amortization.
The entire unpaid principal balance is due in a balloon payment of $1,398,330 on
June 1, 2000.
NOTE 5 - Long Term Debt
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, $50,000 of which was drawn upon and is outstanding and due to the bank
at March 31, 2000.
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POLYMER RESEARCH CORP. OF AMERICA
ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
Cash, Investments, and Investment securities have increased collectively by $
386,995 since December 31, 1999. The increase is due to the net income of the
first quarter, receipt of $50,000 from the bank credit line, and reduction of
accounts receivable.
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.
The rate of current assets to current liabilities increased to 1.71 to 1.0 at
March 31, 2000 as compared to 1.60 to 1.0 at December 31, 1999. The increase is
the result of net income for the quarter.
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, $50,000 of which was drawn upon and is outstanding and due to the bank
at March 31, 2000.
Based on the above, the Company's cash, investment, and investment securities
position at March 31, 2000 is deemed sufficient to cover any unforeseen sales
downturn in the short term as it is equal to approximately eight 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.
B. RESULTS OF OPERATIONS
Three months ended March 31, 2000 v. 1999
Net revenues for the first quarter of 2000 were $ 1,476,981,
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an increase of $ 9,804 (1%) compared with the first quarter of 1999. Research
sales increased $ 349,264 (37%) in the first quarter of 2000 compared to 1999.
The increase is related to a deferral of demand from the Company's customers for
its research services from the fourth quarter of 1999 to the first quarter of
2000. Product sales decreased $339,461 (65%) compared to the first quarter of
1999. Several product sales contracts signed in the first quarter are of a
longer term nature which has delayed shipping to the second quarter.
The cost of revenues in research decreased from 28% in the first quarter of 1999
to 20% in the same quarter of 2000 due to the substantial increase in revenue
using the same staff. Costs of product sales increased from 33% in the first
quarter of 1999 to 85% in the same quarter of 2000 principally as a result of
sharply decreased sales.
Selling, general, and administrative expenses increased as a percentage of sales
from 52% in the first quarter of 1999 to 55% in the same quarter of 2000
principally as a result of increased salaries.
Net income increased from $ 122,718 (8% of sales) in 1999 to $135,201 (9 % of
sales) in 2000, principally as the result of increased research revenues.
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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 of $112,500 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:
10.10 Term Loan and Revolving Credit Facility Documents dated March 20, 2000
between the Registrant and Dime Savings Bank
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FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
POLYMER RESEARCH CORP. OF AMERICA,
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(REGISTRANT)
Date: May 10,2000 /s/Carl Horowitz
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Carl Horowitz, President and Chief
Accounting Officer
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EXHIBIT INDEX
10.10 Term Loan and Revolving Credit Facility Documents dated March 20, 2000
between the Registrant and Dime Savings Bank