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
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(Exact name of small business issuer 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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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)
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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
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Item 1- Financial Statements
POLYMER RESEARCH CORPORATION OF AMERICA
BALANCE SHEETS
- ASSETS -
September 30, December 31,
2001 2000
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(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
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TOTAL CURRENT ASSETS 1,238,848 1,368,970
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Land, Property, and Equipment-net
of accumulated depreciation of $ 1,157,626 and $1,107,628 respectively 2,606,387 2,673,779
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OTHER ASSETS:
Cash-restricted, non-current 90,000 120,000
Security deposits 1,095 1,195
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Total other assets 91,095 121,195
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TOTAL $ 3,936,330 $ 4,163,944
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- 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
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TOTAL CURRENT LIABILITIES 529,527 695,178
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LONG-TERM LIABILITIES:
Term loan, less current maturities 266,667 341,667
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TOTAL LIABILITIES 796,194 1,036,845
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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)
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TOTAL STOCKHOLDERS' EQUITY 3,140,136 3,127,099
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TOTAL $ 3,936,330 $ 4,163,944
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See accompanying notes to financial statements.
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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
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Total 1,196,085 1,138,618
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Cost of Revenues
Product Sales 111,336 149,692
Research 254,081 258,206
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Total 365,417 407,898
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Gross Profit on Revenues 830,668 730,720
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Selling, General and Administrative Expenses 813,428 582,246
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Income from Operations 17,240 148,474
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Other Revenue (Expenses):
Investment income 1,871 6,476
Interest expense (7,957) (11,405)
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Total other Revenues (Expenses) (6,086) (4,929)
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Income before income taxes 11,154 143,545
(Provision) benefit for income taxes 1,600 (63,950)
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Net Income $ 12,754 $ 79,595
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Basic earnings per share .01 .04
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Weighted average number of shares outstanding during the period 1,925,784 1,813,644
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See accompanying notes to financial statements.
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POLYMER RESEARCH CORPORATION OF AMERICA
STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 2001 AND 2000
(Unaudited)
2001 2000
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Net Revenue
Product Sales $ 530,359 $ 528,264
Research Revenue 3,592,451 3,520,500
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Total 4,122,810 4,048,764
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Cost of Revenues
Product Sales 466,952
551,432
Research 829,086 742,860
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Total 1,296,038 1,294,292
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Gross Profit on Revenues 2,826,772 2,754,472
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Selling, General and Administrative Expenses 2,767,960 2,330,914
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Income from Operations 58,812 423,558
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Other Revenue (Expenses):
Investment income 12,209 37,149
Interest expense (29,183) (85,263)
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Total other revenues (Expenses) (16,974) (48,114)
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Income before income taxes 41,838 375,444
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Provision for income taxes (28,800) (158,950)
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Net Income $ 13,038 $ 216,494
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Basic earnings per share .01 .12
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Weighted average number of shares outstanding during the period 1,925,784 1,813,644
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See accompanying notes to financial statements.
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POLYMER RESEARCH CORPORATION OF AMERICA
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED
SEPTEMBER 30, 2001 AND 2000
(Unaudited)
2001 2000
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OPERATIONS:
Net income $ 13,038 $ 216,494
Charge not affecting funds-
Depreciation and amortization 75,000 74,996
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Funds Provided by Operations 88,038 291,490
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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)
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Increase(Decrease) in net operating assets (69,550) (272,540)
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Total 18,488 18,950
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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
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Total (75,614) (475,951)
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INVESTMENT IN LAND, PROPERTY, AND EQUIPMENT (7,608) --
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INCREASE (DECREASE) IN CASH $ (64,734) $(457,001)
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See accompanying notes to financial statements.
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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.
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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.
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NOTE 3 - Provision for Income Taxes (First nine months)
2001 2000
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Federal $ 13,300 $ 99,000
State and local 15,500 59,950
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Total $ 28,800 $ 158,950
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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.
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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.
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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.
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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 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
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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
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Carl Horowitz President and
Chief Accounting Officer
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