SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file No. 0-14119-NY
POLYMER RESEARCH CORP. OF AMERICA
---------------------------------
(Name of small business issuer in its charter)
----------------------------------------------
NEW YORK 11-2023495
- ------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
2186 Mill Avenue, Brooklyn, NY 11234
- --------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number including area code: (718) 444-4300
--------------
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
------- -------
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. X .
State issuers' revenues for its most recent fiscal year - $2,127,457
The aggregate market value of voting stock held by non-affiliates of the
Registrant at March 31, 2003 was approximately $1,195,696 based on the last sale
price of such stock.
As of March 31, 2003, the Registrant had 2,053,644 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
PART I
ITEM 1 - Description Of Business
Polymer Research Corp. of America ("the Company") was incorporated under the
laws of New York State in 1963. It is principally engaged in research and
development in polymer chemistry, on a contract basis, particularly in the
application of chemical "grafting," i.e., techniques for modification of organic
and inorganic substances. The Company also manufactures and sells products
arising from research activities and textile printing inks. The Company's
principal place of business is located at 2186 Mill Avenue, Brooklyn, New York
11234. The Company's phone number at that address is (718) 444-4300.
During 2002, research revenues and products sales accounted for 84 percent and
16 percent of the Company's net revenues, respectively.
For a detailed breakdown of segments of the Company's revenues, income, capital
expenditures and identifiable assets, see Note 9 of Notes to Financial
Statements.
Research And Development Contract Work
The Company's principal business is that of research and development on a
contract basis for other companies in the field of polymer chemistry, i.e., the
chemical creation and use of polymers. "Polymers" are essentially compounds of
high molecular weight, such as plastics and resins.
Polymers result from chemical reactions of compounds with low molecular weights,
called "monomers," which react to form a polymer. Generally, a polymerization
reaction (i.e., the chemical creation of a polymer) entails the application of
heat to a solution containing the appropriate monomers, in the presence of a
catalyst; the result of the reaction can include one or more kinds of polymers.
The Company owns 4 current patents for its chemical "grafting" technology.
Chemical "grafting" refers to processes by which surfaces are bonded together,
or a coating is affixed to a surface through various polymerization reactions.
By using chemical "grafting" techniques, the Company can form a permanent
scratch and corrosion-resistant protective coating on plastics, rubber, metals,
and other substances. Based upon the Company's research, management believes
that there are many other practical applications of these techniques that have
not yet been fully developed or discovered.
Research and development contract work for specific application of its chemical
"grafting" techniques has been done for pharmaceutical companies and
manufacturers of industrial equipment, tires, packaging material, pipes, tubes
and plastic films, and other enterprises.
-2-
A majority of the Company's research and development work in chemical "grafting"
is done for customers in the private sector. The Company markets its research
and development services by contacting businesses which might have a use for
chemical "grafting." Typically the Company and the prospective customer
determine the possible application of chemical "grafting" in which the customer
has an interest. The Company then submits a research proposal based on
specifications provided by the prospective customer. If the proposal is
accepted, or if an acceptable proposal is negotiated, the Company enters into a
contract with the customer and commences the research that is required.
A majority of the Company's research and development contracts are for specified
periods of time. Most such contracts extend for a period of three to four
months. The remainder of the Company's research and development contract work is
done either on a lump sum or month-to-month basis.
Research revenue earned from foreign customers outside the United States
aggregated approximately $660,000 for 2002, representing approximately 31% of
total annual research revenues for 2002.
Almost all of the research and development contracts provide that if the Company
successfully develops a patentable new process while working on the contract,
the Company will assign patent rights to the customer who then will have the
exclusive right to use that process. This right generally extends only for uses
which the Company was hired to do the research, and in some instances, is
dependent upon the customer making specified payments to the Company. The
Company believes that these provisions in its contracts are necessary and have
not unreasonably inhibited the Company's research and development projects for
other customers.
As of December 31, 2002, the Company employed seven in-house sales persons to
market its research and development contracts, primarily through bulk mailings
and presence on the Internet to targeted potential customers.
To date, all of the Company's research and development services have been
related to contracts for customers.
Production
The Company manufactures formulations resulting from research work predominantly
as an accommodation for the companies for whom the research work was done. The
Company also has, since its inception, produced and sold color inks, and
components thereof. These products are used by textile businesses for the
printing of textiles.
Employees And Employee Relations
As of December 31, 2002, the Company had 34 full-time employees. The President
and the 11 other scientists in the Company's Research Department are engaged in
research and development. The Production Department has 2 employees who are
engaged in the production of items arising from research and textile inks. There
are 5 employees in the sales and marketing departments. In addition, there are
10 clerical employees and 3 maintenance employees.
-3-
The Company's technical staff sign nondisclosure agreements whereby they agree
to keep the technical information and processes of the Company confidential. In
those agreements, such technical personnel also agree to unconditionally assign
to the Company all techniques and inventions developed by them in furtherance of
or related to Company projects.
None of the Company's employees are members of a labor union. There have been no
strikes or work stoppages and the Company believes its employee relations are
satisfactory.
Competition
The fields in which the Company does business are highly competitive.
In its contract research and development business, the Company competes with the
in-house research and development staffs of its customers and scientists at
educational institutions and foundations who will service private customers. The
Company also faces potential competition from research and development companies
which are substantially larger than the Company, and various private
laboratories, although the Company believes that it is presently the only
Company doing contract research and development work in the field of chemical
"grafting" for other companies. The Company's "grafting" techniques include the
use of innocuous or mild non-alkaline and non-acidic chemicals. In addition, the
Company's method of grafting, by use of chemicals, is less expensive than other
methods such as gamma ray grafting.
In its textile ink business, the Company faces intense competition from a
variety of competitors, many of whom are substantially larger and have
significantly greater resources, reputations and marketing abilities than does
the Company, and the Company is not a significant factor in this business.
Environmental Consideration
The Company does not believe that its operations are adversely affected by
existing environmental regulations. The Company's primary waste products are
non-toxic and non-corrosive such as wood, paper and cardboard and are disposed
of by a private sanitation company. The small amount of chemicals that the
Company disposes of are sealed in non-corrosive containers and are removed from
the premises by a company that is licensed to dispose of corrosive waste.
Patents
The Company's President and other employees of the Company have assigned a total
of 20 current United States patents to its clients. The assigned patents, which
cover the basic grafting process, were issued between 1986 and 2002. Each patent
is effective for 17 years from the date of its issuance. The Company currently
owns four patents in the field of chemical grafting, which expire between 2004
and 2019.
Management can give no assurance that any of the patents, which the Company
possesses or might possess in the future, will be enforceable or, if
enforceable, will provide the Company or the holder thereof with an advantage
over its competitors.
-4-
ITEM 2. Description Of Property
The Company's offices, research and development and manufacturing facilities are
located in a 64,000 square foot three-story building at 2186 Mill Avenue,
Brooklyn, New York, which the Company has owned since 1990 (see Note 5 of Notes
to Financial Statements).
The Company utilizes the space in the following manner: approximately 11,000
square feet is devoted to office space; approximately 10,000 square feet is
devoted to production of items resulting from research and textile inks;
approximately 35,000 square feet is devoted to research and laboratory
facilities and 8,000 square feet is devoted to warehousing inventory. The
Company also leases approximately 3,200 square feet of office space in Phoenix,
Arizona which serves as its West Coast sales and marketing office and
laboratory.
The Company believes that its facilities are adequate for its current needs and
those of the foreseeable future.
ITEM 3. Legal Proceedings
The Company is a defendant in certain lawsuits that arose in the normal course
of the Company's business. In the opinion of management, the allowance the
Company has provided is sufficient to cover the potential damages and expenses
that may be incurred in these proceedings. Accordingly, management does not
believe these proceedings will have a material adverse affect on the Company's
financial condition.
ITEM 4. Submission Of Matters To A Vote Of Security Holders
During the fourth quarter of 2002, no matters were submitted to a vote of the
Company's security holders.
PART II
ITEM 5. Market For Common Equity And Related Stockholder Matters
For the past two fiscal years, the Company's Common Stock trade on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") small
capital market. The following table sets forth the high and low bid prices for
the periods indicated where the Common Stock is traded under the symbol PROA.
The indicated prices are interdealer prices without retail markups, markdowns or
commissions and do not necessarily represent actual sales. The limited amount of
sales within these ranges should not be interpreted to indicate that an
established trading market exists for the shares of Common Stock, nor do these
prices necessarily accurately reflect the true value of such shares.
-5-
Bid Prices
-------------------
2002 LOW HIGH
---- --- ----
October - December 1.10 5.91
July - September 1.70 3.50
April - June 0.56 1.80
January - March 0.50 1.00
2001
----
October - December 0.77 1.02
July - September 0.85 1.01
April - June 0.94 1.20
January - March 1.00 2.22
Beginning February25, 2003, the Company's common stock was delisted from NASDAQ
and currently trades on the over-the-counter electronic bulletin board.
Dividend Policy
The Company has paid no cash dividends to its stockholders since its
incorporation and has no present intention to do so. The payment of dividends in
the future will be determined by the Board of Directors based on the Company's
earnings, financial condition, capital requirements and other factors at the
time.
On July 20, 1995 the Company adopted a Shareholders Rights Plan. The Rights Plan
provides for the issuance of one stock right, entitling the holder to buy one
share of common stock at a price of $25 (subject to adjustment), for each
outstanding share of the Company's common stock. The rights will become
exercisable only if an "acquiring party" (as defined) acquires or announces a
tender offer to acquire 15% or more of the Company's common stock. The rights
expire July 31, 2005 (See Note 7 of Notes to Financial Statements).
As of March 31, 2003, there were 2,053,644 shares outstanding, which were held
by approximately, 400 shareholders of record and approximately 1,000 additional
beneficial owners.
Sales Of Unregistered Securities
On July 18, 2002, the Company issued 150,000 shares of common stock to Eli
Weinstein for a purchase price of $225,000. The shares of commons stock were not
registered under the Securities Act of 1933. The issuance of the shares was
exempt from registration pursuant to Section 4 (2) of the Securities Act as a
transaction not involving any public offering. Simultaneously, the Company
granted 150,000 warrants to Mr. Weinstein, which expired unexercised.
ITEM 6. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
The Company is primarily engaged in the business of performing research and
development on a contract basis. Additionally, the Company manufactures and
sells chemical products arising from its research
-6-
activities as well as inks used by textile businesses for the printing of
textiles. Availability of production of research breakthroughs is an important
marketing tool of the Company to its research customers. No material capital
expenditures are foreseen nor considered necessary in the next twelve months for
the continued production of textile inks and chemical products.
Revenue Trend Analysis: Year Ended December 31,
---------------------------------------------------
Percentage of
($ In Thousands) Total Revenues
----------------------- ------------------
2002 2001 2002 2001
---- ---- ---- ----
Research $1,780 $4,361 87.0% 86.0%
Production 348 711 13.0% 14.0
------ ------ ----- -----
Total Revenues $2,128 $5,072 100.0% 100.0%
====== ====== ===== =====
Total revenues decreased $ 2,943,784 or 58% from $5,071,241 in 2001 to
$2,127,457 in 2002. Research revenue decreased 59% or $2,581,544 while
production sales decreased 51% or $363,091 from 2001 to 2002.
The decrease in annual research and production sales was primarily the result of
decreased market demand for research and production related to an inconsistent
economy and a decreasing customer base. The rate of inflation has not had a
material impact upon the results of operations.
Cost of Revenue Trend Analysis:
Year Ended December 31,
---------------------------------------------------
Percentage of
($ In Thousands) Total Revenues
----------------------- ------------------
Research $ 889 $ 957 41.7% 18.8%
Production 473 513 22.2% 10.1%
------ ------ ---- ----
Total Revenues $1,362 $1,470 28.0% 28.9%
====== ====== ==== ====
Costs of revenues as a percentage of sales increased in 2002 as compared to 2001
primarily as a result of decreased sales with a similar labor force.
Selling, General and Administrative Expenses Trend Analysis
Year Ended December 31,
---------------------------------------------------
Percentage of
($ In Thousands) Total Revenues
----------------------- ------------------
Selling, General and
Administrative expense $2,561 $3,601 120% 70.1%
====== ====== ===== =====
-7-
Selling, general and administrative expenses, as a percentage of sales increased
dramatically 142% in 2002, as compared to 72.6% during 2001. The increase is
attributed to similar expenses with substantially decreased sales. The key
variable to the Company's success is the number of research contracts it can
secure and complete in accordance with their respective terms. Over the past 18
months, demand for the Company's research has decreased markedly, which
management believes is partially attributable to general economic factors.
Management cannot predict if, or when, demand for the Company's services will
increase.
Income taxes:
A total income tax benefit of $235,641 was provided for income taxes for 2002 as
compared to a provision of $ 7,955 in 2001. The benefit for income taxes in 2002
and 2001 were calculated based on the statutory federal income tax rates plus
state and local taxes.
Liquidity And Capital Resources
Cash and certificates of deposit have decreased to $ 204,508 at December 31,
2002 from $ 711,952 at December 31, 2001. (See the statement of cash flows for a
more detailed analysis of opening versus closing cash). Cash is generated by and
used by the Company through its operations.
Cash flow of the Company is a direct result of net income and net cash provided
from operating activities. Credit extended by the Company in the form of
receivables and received in the form of payables has not had and will not have a
significant impact on cash flow.
During the early portion of 2003, the Company required additional working
capital and received a loan from its Senior Vice President of approximately
$99,000. However, during the balance of the first quarter of 2003, the Company
experienced an increase in new research contracts and greater cash receipts from
operations. For the period January 1, 2003 through March 31, 2003, collections
of accounts receivable and deposits for new research contracts exceeded
$800,000.
The Company does not anticipate any material capital expenditures in the next 12
months. The Company's cash position at December 31, 2001 is not deemed
sufficient to cover a continued sales downturn. Over both the long and short
term, liquidity will be the direct result of sales and the impact of sales on
profitability. Although revenues are expected to return to higher levels again
in 2003, continued low sales would make it impossible for the Company to
continue operations due to insufficient cash flow. Accordingly, the Company is
actively seeking to raise additional capital. There can be no assurance that the
Company will be successful in raising such funds and that if additional funds
are raised, that they will be sufficient to maintain the Company until its
operations achieve profitability.
For the year ending December 31, 2002, the Company will elect to carryback the
current year net operating loss, which will result in an estimated federal
refundable tax credit of $ 272,500. Additionally, during the first quarter of
2003, the Company received an approval for an SBA Disaster
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Loan for $491,500. The loan requires no payments of principle or interest during
the first two years. The term of the loan is thirty years and bears interest at
4.5%. The Company expects to receive funding from the loan during the second
quarter of 2003.
The ratio of current assets to current liabilities at December 31, 2002 was 1.32
to 1.0 as compared to 1.70 to 1.0 at December 31, 2001.
Cash flow from investing activities is not expected to have an impact on cash
flow in the next twelve months. No significant changes to operating expenses are
anticipated within the next twelve months.
ITEM 7. Financial Statements
The response to this item appears on pages F-1 - F-18, and is hereby
incorporated herein.
ITEM 8. Changes In And Disagreements With Accountants On Accounting And
Financial Disclosure.
None.
PART III
ITEM 9. Directors, Executive Officers, Promoters, And Control Persons;
Compliance With Section /16(A) Of The Exchange Act.
The directors and executive officers of the Company as of December 31, 2002 are
as follows:
NAME AGE POSITION
- ---- --- --------
Carl Horowitz 79 President and Director
Irene Horowitz 79 Senior Vice President and Director
John M. Ryan 47 Executive Vice President, Corporate
Research and Director
Alice J. Horowitz 43 Vice President of Polymer West Coast
branch and Director
Boris Jody 83 Director
Jascha J. Gurevitz 84 Director
Anna Dichter 89 Secretary, Treasurer
Terry J. Wolfgang 41 Director
Dr. Mohan Sanduja 67 Vice President, R & D and Director
Clare Chamow 68 Vice President, Office Management
-9-
Carl Horowitz founded the Company and has devoted his full time and efforts to
the affairs of the Company, as its President and as a Director, since 1963. Mr.
Horowitz received a B.S. in Chemical Engineering at Columbia University in New
York in 1950, and a Master of Science degree in Polymer Chemistry from
Polytechnic Institute of Brooklyn in 1961. Mr. Horowitz is the husband of Irene
Horowitz and the father of Alice J. Horowitz and Terry J. Wolfgang.
Irene Horowitz has been a Director and a Senior Vice President of the Company
since 1980. Mrs. Horowitz devotes her full time and efforts to the affairs of
the Company, and her primary responsibility as Senior Vice President is to
oversee the operations of the Company. Mrs. Horowitz is the wife of Carl
Horowitz and the sister of Anna Dichter and the mother of Alice J. Horowitz and
Terry J. Wolfgang.
John M. Ryan has been a Director since September, 1984. Mr. Ryan has been
employed by the Company since 1981 as a technical director of Special Product
Development and has been the Executive Vice President of Corporate Research
since 1985.
Alice J. Horowitz was a Senior Vice President. In 1987, she became a Director.
During 1995 Ms. Horowitz relocated outside of New York and now operates a sales
office of Polymer Research Corp. of America in Arizona. Ms. Horowitz is the
daughter of Carl and Irene Horowitz.
Boris Jody was elected a Director of the Company in 1984. Mr. Jody is currently
retired. Mr. Jody previously was with Standard Motor Products, Inc., where he
had been Vice President of Corporate Affairs.
Jascha J. Gurevitz was elected as a Director of the Company in 2000. Currently,
Mr. Gurevitz is retired. Previously, Mr. Gurevitz worked for Central News Agency
of Johannesburg, South Africa from 1958 through 1990 as manager of their New
York office.
Anna Dichter joined the Company in 1968 as Controller. She was elected
Secretary/Treasurer of the Company in 1977. Mrs. Dichter, who devotes her full
time and efforts to the affairs of the Company, is in charge of maintaining the
Company's books on a day-to-day basis. She is the sister of Irene Horowitz.
Terry J. Wolfgang has been a Director of the Company since 1989. She has been
engaged in the private practice of law in New York City. Ms. Wolfgang is the
daughter of Carl and Irene Horowitz. Ms. Wolfgang has occasionally performed
legal services for the Company.
Dr. Mohan Sanduja, PHD joined the Company in 1979 as Assistant Director of
Research. In 1982, he became a Director of Research and Development. In 1987, he
became a Director of the Company and Vice President of Research and Development.
Clare Chamow joined the Company in 1982. She became a Vice President in March of
1996 and is responsible for office management. She is a graduate of Brooklyn
College with a B.A. Degree in Education.
-10-
Section 16(a) of the Securities Exchange Act of 1934 requires directors,
executive officers and holders of more than 10% of Polymer's Common Stock to
file with the Securities and Exchange Commission reports regarding their
ownership and changes in ownership of Polymer's securities. Polymer believes
that, during 2002, none its directors, executive officers and 10% shareowners
changed any of their ownership of the Company. In making this statement, Polymer
has relied upon the written representations of its directors, executive officers
and stockholders.
-11-
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during the years ended
December 31, 2002 and 2001 to the chief executive officer and those three
executive officers of the Company who earned in excess of $100,000 for the year
ended December 31, 2002.
SUMMARY COMPENSATION TABLE
----------------------------------------------------------------------------------------------------
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------- ------------------------- -------------
(a) (b) (c) (d) (e) (f) (g) (h)
NAME OTHER RESTRICTED SECURITIES
AND ANNUAL STOCK UNDERLYING LTIP
PRINCIPAL COMPEN- AWARDS OPTIONS/ PAYOUTS
POSITION YEAR SALARY ($) BONUS($) SATION($) ($) SAR'S(#) ($)
CARL HOROWITZ 2002 175,078 - 15,122 (1) - - -
CEO, PRESIDENT 2001 171,765 - - - - -
2000 180,440 - - 53,125 - -
IRENE HOROWITZ 2002 143,427 - 9,334 (1) - - -
SENIOR VICE 2001 134,591 - - - - -
PRESIDENT 2000 141,388 - - 53,125 - -
JOHN M. RYAN 2002 234,904 30,000 18,798 (2) - - -
EXECUTIVE VICE 2001 286,583 - - - - -
PRESIDENT 2000 247,178 - - - - -
MOHAN SANDUJA 2002 123,989 - - - - -
VICE PRESIDENT 2001 124,073 - - - - -
RESEARCH AND 2000 128,180 - - - - -
DEVELOPMENT
(1) Represents automobile lease and insurance payments.
(2) Represents automobile lease and insurance payments and premiums
on officer's life insurance policy in which Mr. Horowitz has the
right to designate the beneficiary.
Stock Options
No executive officer owns any stock options or stock appreciation rights .
Employment Agreements
On May 17, 1998, the Company amended Mr. Horowitz's employment agreement to
extend it through May 16, 2003. Additionally, Mr. Horowitz's base salary under
the new agreement was $170,000 for 1998 with annual increases of $10,000
thereafter until December 31, 2002. In the final
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period of the agreement (January 1, 2003 through May 16, 2003), Mr. Horowitz is
entitled to receive salary at the annual rate of $240,000. During 2002 and 2001,
Mr. Horowitz agreed to accept a lesser salary of $175,078 and $171,765,
respectively, to assist in the Company's efforts to reduce expenses. Mr.
Horowitz has agreed to continue receiving a reduced salary in 2003.
On July 26, 1994 the Company entered into retirement agreements with the
Company's President and Senior Vice President. The agreements set a compensation
rate of 60% of the average annual compensation for the five preceding year's,
payable for the remainder of the individuals' life. In addition the Company is
to maintain the individuals' medical benefits.
Compensation of Directors
Directors who are not employees of the Company receive a fee of $500 for each
regular meeting of the Board of Directors that they attend.
Effective January 1, 1990, the Company adopted a qualified noncontributory
profit sharing plan. 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, if any, are determined at the Board of
Directors' discretion. A percentage of the benefits vest after three years of
qualifying service. The Company elected to make a $5,000 contribution for 2001.
ITEM 11. Security Ownership Of Certain Beneficial Owners And Management And
Related Stockholder Matters
The following table sets forth certain information, as of March 31, 2003, with
respect to each person known to the Company to be the beneficial owner of more
than 5% of the Company's Common Stock, each executive officer named on the
Summary Compensation table, and by all officers and directors as a group:
Amount
Name And Address Of Beneficially Percentage
Title Of Class Beneficial Owner Owned Of Class
- -------------- ------------------- ----- ----------
Common stock Carl Horowitz 762,668(1) 37.14 (1)
$.01 par value 2719 Whitman Drive
Brooklyn, NY 11234
Irene Horowitz 475,354(1) 23.15 (1)
2719 Whitman Drive
Brooklyn, NY 11234
John M. Ryan 40,210 1.96
3035 Lonni Lane
Merrick, N.Y. 11566
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Alice J. Horowitz 20,151 0.98
3046 West Tonopah Drive
Phoenix, Arizona 85027
Boris Jody 0 0.00
4301 N. Ocean Blvd.
Boca Raton, Fl.
Jascha J. Gurevitz 0 0.00
155 East 93rd Street, Apt. 3A
New York, NY 10028
Anna Dichter 1,800 0.09
1757 E. 54th Street
Brooklyn, N.Y.
Terry J. Wolfgang 3,700 0.18
2186 Mill Avenue
Brooklyn, N.Y. 11234
Dr. Mohan Sanduja 1,000 0.05
144-90 91st Avenue
Flushing, N.Y.
Clare Chamow 400 0.02
5613 Fillmore Avenue
Brooklyn, N.Y. 11234
All executive officers and
Directors as a group (10
in number) 1,013,908 49.37
(1) Includes 291,375 shares jointly held by Carl and Irene Horowitz, but
excludes shares individually held by the other.
ITEM 12. Certain Relationships and Related Transactions
During 2002, the Company compensated Terry S. Wolfgang, Esq. approximately
$84,000 for legal services rendered to the Company. Ms. Wolfgang is a director
of the Company and is the daughter of the Company's President, Dr. Carl Horowitz
and Senior Vice President, Irene Horowitz.
-14-
ITEM 13. Exhibits and Reports on Form 8-k
(a) Exhibits
Exhibit Description
(3.1) Registrant's Certificate of Incorporation, as amended, (incorporated
by reference as previously filed with the United States Securities and
Exchange Commission on January 7, 1986 on Form 10). Amendment to the
Certificate of Incorporation dated July 23, 1988, (incorporated by
reference as previously filed with the United States Securities and
Exchange Commission in March 1991 with Form 10K)
(3.2) By Laws, as amended (incorporated by reference as previously filed
with the United States Securities and Exchange Commission on January
7, 1986 on Form 10K)
(10.1) Employment Contract of Carl Horowitz, the Company's President, dated
March 17, 1998 (filed with 1998 Form 10K). *
(10.3) Retirement benefits agreement between the Company and Carl Horowitz,
dated July 26, 1994 (incorporated by reference as previously filed
with the United States Securities and Exchange Commission in March,
1995 with Form 10K). *
(10.4) Retirement benefits agreement between the Company and Irene
Horowitz, dated July 26, 1994 (incorporated by reference as previously
filed with the United States Securities and Exchange Commission in
March, 1995 with Form 10K). *
(23.1) Consent of Independent Accountants
(99.1) Certificate of Chief Executive Officer pursuant to 18 U.S.C.ss.1350.
*Management Contract
(b) Reports on Form 8-K.
None
ITEM 14. Controls and Procedures
Within the 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation,
the Chief Executive Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company that is required to be included in the Company's
periodic SEC Reports. There have been no significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
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POLYMER RESEARCH CORP. OF AMERICA
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Balance Sheets at December 31, 2002 and 2001 F-3
Statements of Operations for the Years Ended
December 31, 2002, 2001 and 2000 F-4
Statements of Stockholders' Equity for the Years Ended
December 31, 2002, 2001 and 2000 F-5
Statements of Cash Flows for the Years Ended
December 31, 2002, 2001 and 2000 F-6
Notes to Financial Statements F-7 - F-18
F-1
GOLDSTEIN & GANZ, P.C. Member of the American
CERTIFIED PUBLIC ACCOUNTANTS Institute of Certified
98 CUTTERMILL ROAD Public Accountants,
GREAT NECK, NEW YORK 11021 SEC Practice Section
-------------------
(516) 487-0110 Member of The New York
Facsimile (516) 487-2928 State Society of
Certified Public
Accountants
Independent Auditors' Report
To The Stockholders and Board of Directors
Polymer Research Corp. of America
Brooklyn, New York
We have audited the accompanying balance sheets of Polymer Research Corp. of
America at December 31, 2002 and 2001, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Polymer Research Corp. of
America at December 31, 2002 and 2001 and the results of its operations and its
cash flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 7 to the
financial statements, the Company has suffered recurring losses from operations,
and net capital deficiencies that raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 7. The financial statements do not include any
adjustments relating to the recoverability or reclassification of any asset or
liability that might result from the outcome of this uncertainty.
-------------------------------------
GOLDSTEIN & GANZ, CPA's, P.C.
Great Neck, New York
March 26, 2003
POLYMER RESEARCH CORP. OF AMERICA
BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
ASSETS
Current assets: 2002 2001
----------- -----------
Cash and cash equivalents $ 204,508 $ 711,952
Accounts receivable, less allowance for
doubtful accounts of $-0- for 2002 and 2001 279,624 515,343
Inventories 126,317 143,836
Prepaid and refundable income taxes 301,437 154,401
Mortgage escrow 120,574 --
Prepaid expenses and other current assets 55,586 6,441
----------- -----------
Total current assets 1,088,046 1,531,973
----------- -----------
Property and equipment, net of accumulated depreciation
of $1,280,655 and $1,194,815, respectively 2,509,181 2,594,197
----------- -----------
Other assets:
Cash - restricted, non-current -- 150,000
Capitalized mortgage costs, net of amortization of $ 3,748 108,692 --
Security deposits 875 2,175
----------- -----------
$ 3,706,794 $ 4,278,345
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 523,765 $ 387,867
Deferred revenue 155,500 259,250
Notes payable, current maturities 142,975 250,000
----------- -----------
Total current liabilities 822,240 897,117
Long-term liabilities:
Notes payable, long term 1,494,591 241,667
Due to shareholders 201,808 --
----------- -----------
Total liabilities 2,518,639 1,138,784
Stockholders' equity:
Common stock - $.01 par value; 4,000,000 share authorized, 2,075,784 and
1,925,784 issued, respectively,
2,053,644 and 2,031,504 outstanding 20,757 19,257
Capital in excess of par value 3,728,478 3,504,978
Accumulated deficit (2,543,319) (366,913)
----------- -----------
1,205,916 3,157,322
Less: Treasury stock, at cost - 22,140 shares 17,761 17,761
----------- -----------
Total stockholders' equity 1,188,155 3,139,561
----------- -----------
$ 3,706,794 $ 4,278,345
=========== ===========
See Notes to Financial Statements.
F - 3
POLYMER RESEARCH CORP. OF AMERICA
STATEMENTS OF OPERATIONS
December 31,
-----------------------------------
2002 2001
---- ----
Net revenues:
Research $ 1,779,600 $ 4,361,144
Production 347,857 710,948
----------- -----------
2,127,457 5,072,092
Cost of revenues:
Research 889,677 957,277
Production 472,981 513,577
----------- -----------
1,362,658 1,470,854
----------- -----------
Gross profit 764,799 3,601,238
Selling, general and administrative expenses: 2,561,130 3,126,286
Settlement expense 532,983 445,158
----------- -----------
Income (loss) from operations (2,329,314) 29,794
----------- -----------
Other income (expense):
Interest income 4,903 15,266
Interest expense (87,636) (40,553)
----------- -----------
Total other expense, net (82,733) (25,287)
----------- -----------
Income (loss) before provision
for (benefit from) income taxes (2,412,047) 4,507
Provision for (benefit from) income taxes (235,641) (7,955)
----------- -----------
Net income (loss) $(2,176,406) $ 12,462
=========== ===========
Basic and diluted
earnings (loss) per share ($ 1.09) $ 0.01
=========== ===========
Weighted average number of shares
outstanding 1,994,003 1,925,784
=========== ===========
See Notes to Financial Statements.
F - 4
POLYMER RESEARCH CORP. OF AMERICA
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
Common Stock Capital Retained Treasury Stock
----------------------------------- In Excess Earnings ---------------------------
Shares Issued Amounts of Par (Deficit) Shares Amount
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2001 1,925,784 $ 19,257 $ 3,504,978 $ (379,375) 22,140 $ 17,761
Net Income 12,462
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2001 1,925,784 19,257 3,504,978 (366,913) 22,140 17,761
Private sale of Common Stock 150,000 1,500 223,500
Net Loss (2,176,406)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 2002 2,075,784 $ 20,757 $ 3,728,478 $(2,543,319) 22,140 $ 17,761
=========== =========== =========== =========== =========== ===========
See Notes to Financial Statements.
F - 5
POLYMER RESEARCH CORP. OF AMERICA
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
2002 2001
----------- -----------
Cash flows from operating activities:
Net income (loss) (2,176,406) 12,462
----------- -----------
Adjustments to reconcile net (loss) income to
net cash provided by (used in) operating activities:
Depreciation and amortization 89,588 87,187
Bad debt expense 48,110 21,094
Write-off of other receivables 27,100 --
Accrued settlement expenses 258,260 --
Changes in assets and liabilities:
Accounts receivable 187,609 (254,776)
Inventories 17,519 (19,117)
Prepaid and refundable income taxes (174,136) 106,950
Mortgage escrow (120,574) --
Prepaid expenses and other current assets (49,145) (30,787)
Security deposits 1,300 (980)
Accounts payable and accrued expenses 135,898 133,302
Deferred revenue (103,750) (30,750)
----------- -----------
Net cash provided by (used for) operating activities (1,858,627) 24,585
Cash flows from investing activities:
Purchase of property and equipment (824) (7,605)
----------- -----------
Net cash provided by (used for) investing activities (824) (7,605)
----------- -----------
Cash flows from financing activities:
Proceeds from long term debt 1,400,000 100,000
Principal payments of current maturities
on long term debt (170,694) --
Payments for mortgage financing (112,440) --
Principal payments on long-term borrowings (341,667) (100,613)
Loan from shareholders 201,808 --
Proceeds from issuance of stock 225,000 --
----------- -----------
Net cash (used for) financing activities 1,202,007 (613)
----------- -----------
Net increase (decrease) in cash (657,444) 16,367
Cash, beginning of year 861,952 845,585
----------- -----------
Cash, end of year 204,508 861,952
=========== ===========
Supplemental information:
Interest paid $ 88,332 $ 39,301
=========== ===========
Taxes paid $ 1,025 $ --
=========== ===========
See Notes to Financial Statements.
F - 6
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Business Activity
Polymer Research Corp. of America ("the Company") is predominately engaged in
the research and development of the applications of chemical grafting for both
domestic and international companies. The Company also produces and sells
products arising from research activities and textile printing inks. Revenue
from research and production is derived from various customers throughout the
United States and worldwide.
Concentration of Credit Risk
The Company maintains its cash in several bank accounts at high credit quality
financial institutions. The balances, at times, may exceed federally insured
limits. At December 31, 2002, the Company exceeded FDIC insured limits by
$78,674.
The Financial instrument, which potentially subjects the Company to significant
concentrations of credit risk, is principally trade accounts receivable.
Use 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 and disclosure of contingent
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 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 the product is shipped for sale to
customers.
Inventories
Inventories, which consists of raw materials and finished goods 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.
F - 7
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 1 - 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 when 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:
Land improvements 20 years
Building and building improvements 40 years
Transportation equipment 3 to 5 years
Machinery and equipment 5 years
Furniture and fixtures 5 to 10 years
Office equipment 5 years
Capitalized Mortgage Costs
Costs incurred in obtaining the mortgage used to finance the purchase the
building were capitalized and amortized over the term of the related obligation
utilizing the straight-line method.
Deferred Revenue
The Company records as deferred revenue payments received for research contracts
prior to the culmination of the revenue process.
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."
F - 8
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies (continued).
Profit Sharing Plan
The Company maintains a qualified noncontributory profit sharing plan. The plan
provides all eligible employees with a source of retirement income, as well as
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 by an annual resolution of the Board of Directors.
A percentage of the benefits vest after three years of qualifying service.
Earnings Per Share
Basic earnings per share is computed using the weighted average number of common
shares. Diluted earnings per share are computed using the weighted average
number of common shares and potentially dilutive common shares outstanding
during the period. Potentially dilutive common shares consist of employee stock
options, restricted stock, warrants and convertible securities.
The provisions of SFAS No. 128 "earnings per Share," which require the
presentation of both net income per common share and net income per common
share-assuming dilution preclude the inclusion of any potential common shares in
the computation of any diluted per-share amounts when a loss from continuing
operations exists. Accordingly, for 2002, net income per common share and net
income per common share-assuming dilution are equal.
Reclassifications
Certain accounts relating to the prior years have been reclassified to conform
to the current year's presentation. These reclassifications have no effect on
previously reported income.
Segment Information
The Company operates in two segments. The Company is primarily in the business
of performing research and development on a contract basis. Additionally, the
Company also manufactures and sells chemical products arising from its research
activities as well as inks used by textile businesses for the printing of
textiles.
F - 9
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 2 - Inventories
Inventories at December 31, 2002 and 2001 were comprised of the following:
2002 2001
-------- --------
Raw materials $122,857 $141,549
Finished goods 3,460 2,287
-------- --------
$126,317 $143,836
======== ========
Note 3 - Property and Equipment
Property and equipment at December 31, 2002 and 2001 was comprised of the
following:
2002 2001
---------- ----------
Land $ 450,000 $ 450,000
Land improvements 80,211 80,211
Building 2,550,000 2,550,000
Building improvements 301,880 301,880
Machinery and equipment 262,874 262,050
Furniture and fixtures 100,424 100,424
Office equipment 44,447 44,447
---------- ----------
3,789,836 3,789,012
Less: Accumulated depreciation
and amortization 1,280,655 1,194,815
---------- ----------
$2,509,181 $2,594,197
========== ==========
Depreciation and amortization expense related to property and equipment amounted
to $85,840, and $87,187 for the years ended December 31, 2002 and 2001,
respectively.
Note 4 - Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at December 31, 2002 and 2001 were
comprised of the following:
F - 10
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 4 - Accounts Payable and Accrued Expenses (continued)
2002 2001
-------- --------
Accounts payable $ 41,098 $ 83,915
Accrued settlement expenses 306,150 200,000
Accrued vacation 31,829 30,916
Accrued professional fees 40,000 42,200
Other accruals 104,688 30,836
-------- --------
$523,765 $387,867
======== ========
Note 5 - Long-term Debt
Long-term debt at December 31, 2002 and 2001 was comprised of the following:
2002 2001
---------- ----------
Mortgage payable through July 2017 in equal monthly installments
of $15,044 with interest at 10% per annum through July 2004,
thereafter interest at varying rates adjusted every six months
with no increase or decrease by more
than 2% on any single change date $1,379,306 $ --
Settlement payable over 3 years in equal
monthly payments of $8,333 258,260 --
Revolving credit note maturing June 2002, interest payable monthly at prime plus 1% -- 150,000
Term loan payable through May, 2005 in equal monthly installments
of $8,333 with interest at 8.5%, collateralized by substantially
all assets of
the Company -- 341,667
---------- ----------
1,637,566 491,667
Less: Current maturities 142,975 250,000
---------- ----------
Long-term portion $1,494,591 $ 241,667
========== ==========
F - 11
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 5 - Long-term Debt (continued)
Mortgage Payable
In July, 2002, the Company entered into a 15 year mortgage for $1,400,000 which
is secured by real property and improvements at the Company's corporate
headquarters in Brooklyn, NY. Interest on the unpaid balance of the $1,400,000
will accrue at a fixed rate of 10% per annum for the first 24 months of the
loan. Beginning August 2004 the interest rate will adjust to the 6-month London
Interbank Offer Rate plus 775 basis points (the "Adjusted Interest Rate"). The
Adjusted Interest Rate will be adjusted every six months thereafter and will not
be increased or decreased by more than 2% on any single change date. At December
31, 2002 the balance due under the term of the mortgage was $1,379,306.
The principal payments of the term of the mortgage payable are as follows:
Year Ending December 31:
------------------------
2003 44,611
2004 49,282
2005 54,443
2006 60,144
2007 66,441
thereafter 1,104,385
----------
$1,379,306
==========
Settlement Payable
During the year the Company settled a legal action for thirty-six equal monthly
payments of $8,333, which began in February 2003. The present value of this
obligation was recorded on the balance sheet based upon an imputed interest rate
of 10%. At December 31, 2002, the balance due under the terms of the settlement
was $258,260.
Revolving Credit Note
The Company was provided a $150,000 revolving credit facility, maturing on June
30, 2002, replacing its $250,000 revolving line of credit. Interest was payable
monthly at 1% above the bank's prime rate. During 2001 the Company drew upon the
entire $150,000 line of credit, which was fully repaid at December 31, 2002. The
Company no longer has the line of credit available.
F - 12
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 5 - Long-term Debt (continued)
Term Loan Payable
On March 20, 2000, the Company entered into a borrowing arrangement with the
bank that issued the revolving credit facility. At December 31, 2002, the
balance due under the term loan was $341,667. During 2002, in connection with
the new mortgage financing, the loan was repaid in full (see Mortgage Payable
above).
In connection with the term loan, the Company was required to place $150,000
into a money market account to collateralize the loan. During 2002, in
connection with the new mortgage financing the $150,000 was released upon
satisfaction of the note (see Mortgage Payable above).
Note 6 - Deferred Revenue
At December 31, 2002 and 2001 the Company received research contract payments
not yet earned aggregating $155,500 and $259,250, respectively.
.
Note 7 - Commitments and Contingencies
Litigation
At December 31, 2002, the Company is a defendant in various lawsuits, which
arose, in the ordinary course of business. As of December 31, 2002, the Company
recorded a provision which it deemed adequate for legal expenses and potential
unfavorable rulings in certain of these cases. As of December, the Company had
settled certain of the cases and recorded legal settlement expenses of $532,983
for the year 2002.
Retirement Agreements
On July 26, 1994 the Company entered into retirement agreements with the
Company's President and Senior Vice President. The agreements set a compensation
rate of 60% of the average annual compensation for the five preceding years,
payable for the remainder of the individuals' life. In addition the Company is
to maintain the individuals' medical benefits.
F - 13
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 7 - Commitments and Contingencies(continued)
Employment Agreements
On May 17, 1998, the Company amended Mr. Horowitz's employment agreement to
extend it through May 16, 2003. Additionally, Mr. Horowitz's base salary under
the new agreement was $170,000 for 1998 with annual increases of $10,000
thereafter until December 31, 2002. In the final period of the agreement
(January 1, 2003 through May 16, 2003), Mr. Horowitz is entitled to receive
salary at the annual rate of $240,000. During 2002 and 2001, Mr. Horowitz agreed
to accept a lesser salary of $175,078 and $171,765, respectively, to assist in
the Company's efforts to reduce expenses. Mr. Horowitz has agreed to continue
receiving a reduced salary in 2003.
Leases
The Company has entered into various noncancellable operating leases for office
space and equipment requiring future minimum lease payments as follows:
Years Ending December 31:
-------------------------
2003 $ 60,368
2004 33,910
2005 34,715
2006 14,600
Rent expense charged to operations for the years ended December 31, 2002 and
2001 amounted to $66,524 and $78,834, respectively.
Going Concern
The Company has continued to sustain losses and continues to require additional
sources of cash to fund its operations. These circumstances create uncertainty
about the Company's ability to continue as a going concern.
Management of the Company has developed a plan to improve cash flow through
increasing revenue and raising additional funds either through the issuance of
debt or equity. Throughout 2002 and prospectively, management believes that the
impact of the September 11, 2001 tragedy negatively affected to a significant
degree the resources available for research of the Company's clients. However,
management further believes that such resources have become more available since
late 2002 and will continue directing its efforts and resources toward expanding
and developing research contracts with new and existing customers. During the
early portion of 2003, the Company required additional working capital and
received a loan from its Senior Vice President of approximately $99,000.
However, during the balance of the first quarter of 2003, the Company
F - 14
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 7 - Commitments and Contingencies(continued)
began experiencing an increase in new research contracts and greater cash
receipts from operations. For the period January 1, 2003 through March 31, 2003,
collections of accounts receivable and deposits for new research contracts
exceeded $800,000 of which approximately $60,000 was used to partially repay the
loan received from the Senior Vice President.
The Company may require additional working capital until such time as
profitability from increased sales are achieved and the Company reaches
break-even levels. The Company is actively seeking to raise additional capital.
There can be no assurance that the Company will be successful in raising such
funds and that if additional funds are raised, that they will be sufficient to
maintain the Company until its operations achieve profitability.
The ability of the Company to continue as a going concern is dependent upon its
ability to raise additional funds and the Company's success in increasing
revenues. The Company anticipates that cash from operations and the additional
financing, if successful, will provide the funds it requires for the balance of
the year ending December 31, 2003. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
Note 8 - Shareholders Rights Plan
On July 20, 1995, the Company adopted a Shareholders Rights Plan. The Company
adopted the plan to protect shareholders against unsolicited attempts to acquire
control of the Company. The rights were issued to shareholders of record on July
31, 1995 and will expire on July 31, 2005. The Rights Plan provides for the
issuance of one stock right for each outstanding share of the Company's common
stock. The rights will become exercisable only if an "acquiring party" (as
defined in the rights plan) acquires 15% or more of the Company's common stock
or announces a tender offer that would result in ownership of 15% or more of the
Company's common stock. Each right will entitle the holder to buy one share of
common stock at an exercise price of $25, subject to adjustment.
Upon the occurrence of certain events, holders of the rights will be entitled to
purchase either the Company's stock or shares in an "Acquiring Entity" at 50% of
those shares market value. The Company will generally be entitled to redeem all
rights for $.01 per right at any time prior to the tenth day following the
acquisition of 15% or more of the Company's common stock by a person or group.
Note 9 - Income Taxes
The provision for (benefit from) income taxes is summarized as follows:
F - 15
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 9 - Income Taxes (continued).
Current: 2002 2001
------- ---- ----
Federal $(272,500) --
State and local 36,859 $ 16,391
--------- ---------
(235,641) 16,391
--------- ---------
Deferred:
---------
Federal -- (8,341)
State and local -0- (16,005)
--------- ---------
-0- (24,346)
--------- ---------
$(235,641) $ (7,955)
========= =========
The reconciliation between the tax provision (benefit) utilizing the maximum
federal statutory tax rate for the years ended December 31, 2002 and 2001 and
the rates reflected in the accompanying financial statements are as follows:
2002 2001
--------- ---------
Income tax (benefit) at U.S. statutory rates $(843,863) $ 1,577
Change in allowance for deferred tax assets 569,264 (9,786)
Surtax exemption 15,000 --
State and local taxes 23,958 254
--------- ---------
Income tax provision (benefit) $(235,641) $ (7,955)
========= =========
For the year ending December 31, 2002, the Company will elect to carryback the
current year net operating loss, which will result in an estimated federal
refundable tax credit of $ 272,500. As a result of losses incurred through
December 31, 2002, after giving effect to the carryback, the Company has a net
operating loss carryforward of approximately $1,640,000. This carryforward will
expire in 2022.
As a result of the current year net operating loss, the Company recorded a
deferred tax asset of approximately $ 741,300. Realization of deferred tax
assets is dependent on generating sufficient taxable income prior to their
expiration. Because realization is not assured, at December 31, 2002 the Company
recorded a valuation allowance of $ 741,300.
F - 16
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 10 - Industry Segments
The Company's operations are classified into the following two industry
segments: Research - providing laboratory research services in the area of
polymer chemistry, and Production -the manufacturing and sale of products
arising from research activities and the sale of textile printing inks and
accessories.
Selected financial information on industry segments for the years ended December
31, 2002 and 2001 are as follows:
2002 2001
----------- -----------
Net Revenues:
Research $ 1,779,600 $ 4,361,144
Production 347,857 710,948
----------- -----------
Total Net Revenues $ 2,127,457 $ 5,072,092
=========== ===========
Gross Profit:
Research $ 889,923 $ 3,403,867
Production (125,124) 197,371
----------- -----------
Total Gross Profit 764,799 3,601,238
Selling, General and Administrative
Expenses 2,561,130 3,126,286
Settlement Expense 532,983 445,158
----------- -----------
Income (Loss) from Operations $(2,329,314) $ (29,794)
=========== ===========
Capital Expenditures:
Research $ -- $ 1,824
Production -- 879
Corporate 824 4,902
----------- -----------
Total $ 824 $ 7,605
=========== ===========
Depreciation and Amortization:
Research $ 33,863 $ 35,155
Production 16,320 16,942
Corporate 35,657 35,090
----------- -----------
Total $ 85,840 $ 87,187
=========== ===========
F - 17
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 10 - Industry Segments (continued)
December 31,
----------------------------------
2002 2001
---- ----
Identifiable Assets:
Research $1,084,042 $1,502,680
Production 862,424 743,206
Corporate 1,760,328 2,032,459
---------- ----------
Total $3,706,794 $4,278,345
========== ==========
Net income from operations represents net sales less operating expenses for each
segment and corporate expenses, which are not directly attributable to any
segment. Segment identifiable assets include accounts receivable, inventories
and property and equipment for use in, or directly attributable to, the
individual segments. Corporate identifiable assets include cash, property and
equipment and other assets, which are not directly attributable to any
individual segment.
There was no individual customer from which the Company derived 10% or more of
its revenues during the periods presented.
Note 11 - Profit Sharing Plan
Profit sharing expense under the Company's noncontributory profit sharing plan
charged to operations amounted to $5,590 for the year ended December 31, 2001.
There was no profit sharing expense for the year ended December 31, 2002.
Note 12 - Quarterly Results of Operations (Unaudited)
Below is a summary of the quarterly results of operations for each quarter
of 2002 and 2001:
2002 First Second Third Fourth
- ---------------------------- ---------- ---------- ---------- ----------
Revenue $1,017,486 $ 614,776 $ 186,710 $ 308,485
Gross profit (loss) 775,193 234,716 (113,944) (131,166)
Net income (loss) $ 2,694 $ (581,201) $ (881,660) $ (713,545)
Basic and diluted net income
(loss) per common share $ 0.00 $ (0.30) $ (0.43) $ (0.34)
F - 18
POLYMER RESEARCH CORP. OF AMERICA
NOTES TO FINANCIAL STATEMENTS
Note 12 - Quarterly Results of Operations (Unaudited) (continued)
2001 First Second Third Fourth
- ---- ----- ------ ----- ------
Revenue $ 1,399,573 $ 1,300,479 $ 1,196,085 $ 1,175,955
Gross profit 1,127,084 869,020 830,668 774,466
Net income (loss) $ 49,525 $ (49,241) $ 12,754 $ (576)
Basic and diluted net income
(loss) per common share $ 0.03 $ (0.03) $ 0.01 $ (0.00)
Note 13 - Subsequent Events
During the early portion of 2003, the Company required additional working
capital and received a loan from its Senior Vice President of approximately
$99,000. However, during the balance of the first quarter of 2003, the Company
began recognizing a greater increase in new research contracts and greater cash
receipts from operations. For the period January 1, 2003 through March 31, 2003,
collections of accounts receivable and deposits for new research contracts
exceeded $800,000 of which approximately $60,000 was used to partially repay the
Senior Vice President.
During the first quarter of 2003, the Company received an approval for an SBA
Disaster Loan for $491,500. The loan requires no payments of principle or
interest during the first two years. The term of the loan is thirty years and
bears interest at 4.5%. The Company expects to receive funding from the loan
during the second quarter of 2003.
F - 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
POLYMER RESEARCH CORP. OF AMERICA
POLYMER RESEARCH CORP. OF AMERICA
---------------------------------
(Registrant)
By /s/ Carl Horowitz Date
------------------------- ------------
CARL HOROWITZ,
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated
/s/ Carl Horowitz Director
- --------------------------------- ------------
Carl Horowitz Date
/s/ Irene Horowitz Director
- -------------------------------- -----------
Irene Horowitz Date
/s/John Ryan Director
- -------------------------------- -----------
John Ryan Date
/s/Alice J. Horowitz Director
- -------------------------------- -----------
Alice J. Horowitz Date
/s/Jascha J. Gurevitz Director
- -------------------------------- -----------
Jascha J. Gurevitz Date
/s/Boris Jody Director
- -------------------------------- -----------
Boris Jody Date
/s/Dr. Mohan Sanduja Director
- -------------------------------- -----------
Dr. Mohan Sanduja PhD Date
/s/Terry J. Wolfgang Director
- -------------------------------- -----------
Terry J. Wolfgang Date
I, Carl Horowitz, certify that:
1. I have reviewed this annual report on Form 10-KSB of Polymer Research Corp.
of America;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or
persons performing the equivalent functions): a) all significant
deficiencies in the design or operation of internal controls which could
adversely affect the registrant's ability to record, process, summarize and
report financial data and have identified for the registrant's auditors any
material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this annual report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
April __, 2003
/s/ Carl Horowitz
----------------------
Carl Horowitz
Chief Executive Officer
and Chief Financial Officer