SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB

              [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1999

              [ ] TRANSITION REPORT PURSUANT TO 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 issued 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)

Issuers 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:
-----------------------------------------------------------

                 4,000,000 shares of $.01 par value Common Stock

Check whether the issuers: (1) filed all reports required to be filed by Section
13 or 15(d) of the  Exchange  Act of 1934 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___


Registrant's revenues for its most recent fiscal year - $4,836,157
                                                        ----------

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.
Yes _X_ No___

The  aggregate  market value of voting stock held by
non-affiliates of the Registrant at March 21, 2000 was approximately  $3,627,288
based on the last sale price of such stock.

As of March 21,  2000,  the  Registrant  had  1,813,644  shares of Common  Stock
outstanding.
                       DOCUMENTS INCORPORATED BY REFERENCE
                                      NONE
                                       -1-

<PAGE>



ITEM 1 - 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 1999,  research  revenues and products sales accounted for 79 percent and
21 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  14 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 20 patented  processes  for  chemical  "grafting"  technology.
Chemical  "grafting"  refers to processes by which surfaces are bonded together,
or  a  coating  is  affixed  to  a  surface,   or  in  depth,   through  various
polymerization reactions.

Chemical  "grafting"  is done by treating a surface  with one or more  solutions
containing monomers,  polymers and/or other chemicals.  By using heat, catalysts
and/or other appropriate techniques,  small "whiskers" grow on the surface being
treated. These "whiskers" are generally polymers which include in their chemical
makeup  molecules that remain part of the surface being treated.  The "whiskers"
can  themselves  form a protective  coating on a surface or join the  "whiskers"
from another  surface thus bonding the two surfaces  together.  Alternately,  by
suitable  methods,  grafting can take place in depth  throughout the body of the
substrate, i.e. the product to be grafted.



                                       -2-


<PAGE>



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.  The Company  continues to seek and
obtain such research and development contract work.

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
and are  renewable.  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 $1,747,500 for 1999,  representing  approximately 36% of total annual
research revenues for 1999.

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, 1999,  the Company  employed 9 in-house  sales persons plus 1
person in training 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.


                                       -3-
<PAGE>

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.

The manufacture of textile inks is essentially a process of mechanically  mixing
solvents,  resins,  emulsions,  gums, oils and pigments to produce a colored ink
which can be printed  onto  cloth.  The  Company  owns and  operates  the mixing
machinery for this manufacturing  process and acquires the required  ingredients
from a variety of  sources.  The  Company  is not  dependent  upon a  particular
supplier for the  ingredients.  The Company's  textile inks are solvent-free and
non-polluting.

During 1999,  1998 and 1997,  no one customer of the Company  accounted for more
than 5% of its sales of formulation products or textile inks. The Company has no
long-term   contracts   with  its  customers  for  textile  inks  and  maintains
approximately  a one-month  supply of the  ingredients  for the textile  inks in
inventory.  The Company  fills 95% of all textile ink orders within two business
days after their receipt.

The Company's  sales of textile inks are dependent  upon the decision of textile
companies as to whether they will dye or print their fabrics. Such a decision is
primarily based on fashion trends,  with one-color  fabrics requiring dyeing and
multi-colored fabrics requiring printing.  However,  these trends have not had a
material  adverse  effect on the  Company's  revenues  because  the  Company has
maintained a reliable customer base in the United States.  The sales of printing
inks has not been a significant source of revenues or profits for the Company.

The Company employs 1 in-house salesperson to sell its textile inks. The Company
markets its textile  inks to the United  States and foreign  customers.  Foreign
customers account for less than 5% of the Company's textile ink sales.

EMPLOYEES AND EMPLOYEE RELATIONS

As of December 31, 1999, the Company had 45 full-time  employees.  The President
and the 15 other scientists in the Company's Research  Department are engaged in
research and  development.  The  Production  Department  has 4 employees who are
engaged in the production of items arising from research and textile inks. There
are 10 employees in the sales and marketing departments.  In addition, there are
12 clerical employees and 3 maintenance employees.

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.




                                       -4-
<PAGE>

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 do private grant research on
processes to produce materials with  characteristics of the types desired by the
Company's 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 United  States  patents  to the  Company,  10 of which have  expired.  The
assigned patents,  which cover the basic grafting  process,  were issued between
1968 and  1996.  Each  patent  is  effective  for 17 years  from the date of its
issuance.

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.




                                       -5-
<PAGE>

ITEM 2. 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.  On June 4, 1990,  the Company  purchased  the building and
adjoining  property.  The Company had previously  leased this facility under the
terms of a long-term  operating  lease.  The purchase  price of the property was
$3,000,000 of which the Company paid $500,000 and granted a $2,500,000  mortgage
to the seller.  The  mortgage  matures  June 1, 2000 and will  require a balloon
payment  of  approximately   $1,400,000  (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  believes  that its facility is adequate  for its current  needs and
those of the foreseeable future.

The  Company  also leases  approximately  1,500  square feet of office  space in
Phoenix, Arizona which serves as its West Coast sales and marketing office.

ITEM 3. LEGAL PROCEEDINGS

The Company is a defendant in certain  lawsuits which 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,  and they will not have a material
adverse effect on the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth  quarter of 1999,  no matters were  submitted to a vote of the
Company's security holders.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
        SHAREHOLDER MATTERS


The Company's Common Stock has traded 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. The prices indicated have not
been adjusted for stock dividends and stock splits referred to below.




                                       -6-
<PAGE>

                                                      Bid Prices
       Quarter                                 LOW            HIGH
       -------                                 ---            ----
        1999
October - December                                3/4        1-1/4
July - September                              1-14/64        1-27/32
April - June                                  1-9/16         2-1/4
January - March                             2-1/8            3
        1998
October - December                           1-7/8            2-7/8
July - September                            2-1/2            4-1/4
April - June                                3-3/4            6-7/8
January - March                             1-15/16          5

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 February 11, 1999 the Company declared a 5% stock dividend to shareholders at
March 19, 1999,  paid April 2, 1999. The  transaction  was valued based upon the
closing market price of the Company's stock on the day prior to declaration (See
Note 10 of Notes to Financial Statements).

On March 2, 1998, the Company  declared a 5% stock dividend to  stockholders  of
record at March 23, 1998,  paid April 2, 1998. The  transaction was valued based
upon the  closing  market  price  of the  Company's  stock  on the day  prior to
declaration (See Note 10 of Notes to Financial Statements).

On March 20, 1997 the Company  declared a 5% stock dividend to  shareholders  at
April 1, 1997,  paid April 8, 1997.  The  transaction  was valued based upon the
closing market price of the Company's stock on the day prior to the declaration.
(See Note 10 of Notes to Financial Statements).

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
exersizable  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 11 of Notes to Financial Statements).

As of March 21, 2000 there were 1,813,644 shares outstanding, which were held by
approximately 1,000  shareholders,  350 shareholders of record and approximately
650 additional beneficial owners.


                                       -7-
<PAGE>

ITEM 7.  MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
                     CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Revenue Analysis
<TABLE>
<CAPTION>

                                                     Year Ended December 31,
                                                     -----------------------
                                                                          Percentage of
                                   ($) In Thousands                         Total Revenues
                                   ----------------                         --------------
                            1999       1998       1997           1999         1998          1997
                            ----       ----       ----           ----         ----          ----
<S>                        <C>        <C>        <C>             <C>          <C>           <C>
Research                   $3,814     $4,554     $4,214          78.9%        80.6%         77.3%
Production                  1,022      1,093      1,234          21.1         19.4          22.7
                           ------     ------     ------         ------       ------        ------
Total Revenues             $4,836     $5,647     $5,448         100.0%       100.0%        100.0%
                           ======     ======     ======         ======       ======        ======
</TABLE>

1999 v. 1998
------------

Total revenues  decreased  $811,000 or 14% from $5,647,000 in 1998 to $4,836,000
in 1999. The decrease in research  revenue  accounted for 91% of the decrease in
revenue as production revenue decreased $71,000 or 6.0% from 1998 to 1999.

The decrease in production was primarily  attributable to the decrease in demand
for research services, the results of which often lead to production orders.

The decrease in research sales was primarily the result of decreased  demand for
research  in part  caused by a  combination  of  internal  changes  in sales and
administrative staff and prolonged negotiations with certain potential clients.

The  rate of  inflation  has not had a  material  impact  upon  the  results  of
operations.

1998 v. 1997
------------

Total revenues increased $199,000 or 4% from $5,448,000 in 1997 to $5,647,000 in
1998.  Research  revenues  increased  $340,000  or 8% while  production  revenue
decreased $141,000 or 11% from 1997 to 1998.

The increase in research revenue was primarily achieved during the first quarter
of 1998 resulting from the Company's strong marketing  efforts during the latter
part of 1997. In addition,  the strong  domestic and European  economies  helped
improve research revenue.

The decrease in  production  revenue was primarily  attributable  to decrease in
demand from  research  customers  as well as an  inventory  buildup by customers
which occurred during the latter part of 1997.

The  rate of  inflation  has not had a  material  impact  upon  the  results  of
operations.


                                       -8-
<PAGE>


Cost of Revenues Analysis

                             Year Ended December 31,
                             -----------------------
                                                        Cost as a
                                                     Percentage of
                  ($ In Thousands)                   Total Revenues
                                                     --------------
                  1999     1998     1997         1999      1998      1997
                ------   ------   ------       ------    ------    ------
Research        $1,090   $1,048   $1,002        22.5%     18.6%     18.4%
Production         574      790    1,018        11.9      14.0      18.7
                ------   ------   ------       ------    ------    ------
Total cost of
 revenues       $1,664   $1,838   $2,020        34.4%     32.6%     37.1%
                ======   ======   ======       ======    ======    ======

1999 v.1998
-----------

The cost of revenues as a percentage  of sales  increased  from 32.6% in 1998 to
34.4% in 1999.  The  increase  in cost of  revenues  is  primarily  caused  by a
decrease in the  research  sales  without  corresponding  decreases  in research
salaries and related expenses.

1998 v. 1997
------------

The cost of revenues as a percentage  of sales  decreased  from 37.1% in 1997 to
32.6% in 1998.  The  decrease  in cost of  revenues  is  primarily  caused  by a
decrease in the percentage of product  sales,  which have a higher cost of sales
than research  revenue.  Production sales dropped as a percentage of total sales
from 22.7% in 1997 to 19.4% in 1998.

Selling, General and Administrative Expenses Analysis

                                       Year Ended December 31,
                                                          Expenses as a
                                                          Percentage of
                             ($ In Thousands)           Total Revenues
                                                        --------------
                            1999    1998     1997      1999    1998    1997
                            ----    ----     ----      ----    ----    ----
Selling, General &
Administrative Expenses    $3,304  $3,310  $2,902      68.3%  58.6%  53.2%
                           ======= ======  ======      =====  =====  =====

1999 v. 1998
------------

Selling,  general  and  administrative  expenses,  as  a  percentage  of  sales,
increased to 68.3% in 1999,  as compared to 58.6%  during 1998.  The increase is
attributed to a similar level of expenses and a decrease in sales.  In addition,
during  1999,  the  Company  issued  shares  of stock  to  certain  officers  as
compensation   aggregating   $140,000   (see  Note  12  of  Notes  to  Financial
Statements).




                                       -9-
<PAGE>


1998 v. 1997
------------

Selling,  general  and  administrative  expenses,  as  a  percentage  of  sales,
increased to 58.6% in 1998,  as compared to 53.2%  during 1997.  The increase is
directly  related to the Company's  efforts to increase sales.  During 1998, the
Company  hired  additional   salespeople  and  directed  resources  to  generate
additional  revenue.  In addition,  during 1998,  the Company  issued  shares of
common stock to its employees as compensation  aggregating  $85,315 (See Note 12
of Notes to Financial Statements).

Net (Loss) Income

1999 v. 1998

The Company reported a net loss  representing 2.8% of sales for 1999 compared to
net income of 4.3% of sales for 1998. The change is a result of the 14% decrease
in sales in 1999 combined with consistent  selling,  general and  administrative
expenses for the two years.

1998 v. 1997

The Company reported net income of 4.3% of sales for 1998 compared to net income
of 3.8% of sales for 1997.  The increase is a result of the 4% increase in sales
in 1998 combined with a substantial  decrease in the cost of revenue  percentage
offset in part by an increase in operating expenses.

CAPITAL RESOURCES AND LIQUIDITY

Cash and  certificates of deposit have decreased from $1,960,559 at December 31,
1998 to $1,392,024  at December 31, 1999.  The decrease is in part caused by the
Company overpaying its current year tax liability, paying off its prior year tax
liability and having received a substantially  lower amount of unearned customer
deposits at  December  31,  1999.  (See the  statement  of cash flows for a more
detailed analysis of opening versus closing cash).

Cash is generated and used by the Company through its  operations.  The issuance
of stock was not in 1999,  nor expected to be in 2000, a  significant  source of
cash. However,  during 2000, the Company will borrow funds from a bank to lessen
the  reduction  in cash  balances  which will result  from the balloon  mortgage
payment coming due (See Note 17 of Notes to Financial Statements).

In June of 2000, the Company will be required to satisfy the balloon payment due
on the building mortgage of approximately  $1,398,330.  The Company  anticipates
that this payment will be paid in part from the proceeds of a $500,000 five year
term loan,  which is  scheduled  to be funded  just prior to the  payment of the
balloon mortgage payable, along with approximately $900,000 from cash on hand.



                                      -10-
<PAGE>

In an attempt to secure a better,  yet safe,  return on excess cash,  management
has elected to invest  certain  cash  amounts in  marketable  securities.  These
securities  include U.S.  Government  and New York State Mutual Bond Funds.  The
Company  closely  monitors  these   investments   which  are  subject  to  price
fluctuation (See Note 2 of Notes to Financial Statements).

Except  with  respect  to the  balloon  mortgage  payment  due on the  Company's
building,  there are no known  demands for cash related to capital  expenditures
seen as imminent in the  upcoming  three  years based on stable  sales.  Capital
expenditures projected for the next year are anticipated to approximate those of
the past three years.

The Company's  cash position at December 31, 1999,  prior to accounting  for the
balloon mortgage payment coming due June 1, 2000, is deemed  sufficient to cover
any  unforeseen  sales  downturn  as it is equal to  approximately  5 months  of
selling, general and administrative expenses. Over both the long and short term,
liquidity will be the direct result of sales.

The ratio of current assets to current liabilities at December 31, 1999 was 1.60
to 1.0 as compared to 2.98 to 1.0 at December 31, 1998.  The decrease in current
ratio is directly  related to the balloon payment on the mortgage payable coming
due on June 1, 2000, which has been classified as current.

GENERAL DISCUSSION

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.

Cash flow from  financing  and  investing  activities is not expected to have an
impact on cash flow in the next 1 to 3 years.  However, the Company is preparing
for the building  mortgage  balloon payment of  approximately  $1,400,000 due on
June 1, 2000 (see Note 5 of Notes to Financial Statements).  The Company intends
to satisfy a portion of this  obligation  from the  proceeds of a $500,000  term
loan. The loan will be repaid in monthly  principal  installments of $8,333 plus
interest at the rate of 8.5% per annum. As part of the borrowing agreement,  the
Company  will be  granted a  $250,000  line of credit  and will be  required  to
deliver to the lender  collateral  of  $125,000  at the term loan  closing.  The
Company intends to provide for the balance of this payment by accumulating  cash
prior to the payment due date.

The Company  anticipates a significant  decrease in interest income and interest
expense upon the satisfaction of the building mortgage.

No other significant  changes to operating  expenses are anticipated  within the
next 1 to 3 years.


                                      -11-
<PAGE>

SEGMENT DISCUSSION

The Company is primarily in the business of research sales.  The sale of textile
inks and chemical products is an accommodation to research  customers and is not
seen as a  segment  that  could  stand  on its own as an  independent  business.
Availability of production of research  developments  is an important  marketing
tool  of  the  Company  to  its  research  customers.   No  significant  capital
expenditures  are  foreseen  in the  next 1 to 3  years  as  necessary  for  the
continued production of textile inks and chemical products,  including potential
increases in such productions.

ANALYTIC REVIEW OF QUARTERLY RESULTS

Sales and gross profits for the fourth quarter decreased from the average of the
prior  three  quarters.  This  is a  result  of a  drop  in  revenue  without  a
corresponding  decrease in costs and an increase  in fourth  quarter  production
sales, which yield a lower gross profit than research.

Sales for the  fourth  quarter  represented  approximately  18% of total  annual
sales.

Selling,  general and  administrative  expenses  increased  significantly in the
fourth quarter  resulting from increased legal  proceedings  expenses and normal
year-end  expenses  including  bonuses and holiday  expenses as well as year-end
commissions earned in 1999.
<TABLE>
<CAPTION>

                                                 3/31/99          6/30/99         9/30/99        12/31/99
                                                 -------          -------         -------        --------

<S>                                         <C>              <C>            <C>             <C>
Total revenue                               $1,467,177       $1,248,078     $1,228,733      $   892,169
Cost of revenue                                443,790          386,267        502,364          331,702
Gross profit                                 1,023,387          861,811        726,369          560,467
SG&A expenses                                  758,646          776,991        780,793          987,565
Income (loss) from
 operations                                    264,741           84,820        (54,424)         (427,098)

Other expenses                                 (19,023)         (20,806)       (25,121)          (2,807)
Pre-tax income (loss)                          245,718           64,014        (79,545)        (429,905)

Income tax (expense)
 benefit                                       (123,000)         (38,000)       30,000          194,673

Net income (loss)                           $  122,718        $  26,014      $ (49,545)       $(235,232)
</TABLE>

During the year ended  1997,  the  quarterly  financial  statements  reflected a
charge for an annualized  profit sharing  contribution of $100,000.  Such amount
was paid in the subsequent year and is included in accrued expenses.  Management
has elected to not make a contribution for 1998 or 1999.

ITEM 9.  DISAGREEMENTS ON FINANCIAL AND ACCOUNTING DISCLOSURES
         -----------------------------------------------------

                                      None



                                      -12-

<PAGE>


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
         --------------------------------

The directors and executive  officers of the Company as of December 31, 1999 are
as follows:

NAME                         AGE             POSITION
----                         ---             --------

Carl Horowitz                76              President and Director

Irene Horowitz               76              Senior Vice President and Director

John M. Ryan                 44              Director, Executive Vice
                                              President, Corporate Research

Alice J. Horowitz            40              Director and Vice President of
                                              Polymer West Coast branch

Boris Jody                   80              Director

Anna Dichter                 86              Secretary, Treasurer

Terry J. Wolfgang            38              Director

Dr. Mohan Sanduja            64              Vice President, R & D
                                              Director

Clare Chamow                 65              Vice President, Office Management

Harriet Finger               57              Controller

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.

                                      -13-

<PAGE>

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.

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.

Harriet  Finger joined the Company in 1999 as a  bookkeeper.  She was later made
controller  and devotes full time to  overseeing  the day to day finances of the
Company.




                                      -14-



<PAGE>


ITEM 11. EXECUTIVE COMPENSATION
         ----------------------

The  following  table sets forth the  compensation  paid  during the years ended
December 31, 1999, 1998 and 1997 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, 1997.

                           SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>

                                                                                              LONG TERM COMPENSATION
                                                                                              ----------------------

                           ANNUAL COMPENSATION                                       AWARDS         PAYOUTS
                        -----------------------------------------------------------------------------------------------------------
  (a)                   (b)             (c)            (d)             (e)               (f)      (g)         (h)        (I)
NAME                                                                OTHER          RESTRICTED
AND                                                                ANNUAL          STOCK                      LTIP        ALL OTHER
PRINCIPAL                                                          COMPEN-         AWARDS       OPTIONAL     PAYOUTS      COMPEN-
POSITION               YEAR      SALARY ($)         BONUS($)       SATION($)      (#)           SAR'S(#)      ($)         SATION($)
                                                                     (1)

<S>                    <C>     <C>                     <C>     <C>               <C>             <C>      <C>           <C>
CARL HOROWITZ          1999    $   174,414          $  -0-      $    12,812       50,000         -0-       $  -0-        $   -0-
CEO, PRESIDENT         1998        170,000             -0-           13,233         -0-          -0-          -0-            -0-
                       1997        160,000           25,000          13,236         -0-          -0-          -0-         12,985

IRENE HOROWITZ         1999        164,873             -0-             -0-        50,000         -0-          -0-            -0-
SENIOR VICE            1998        180,703             -0-             -0-          -0-          -0-          -0-            -0-
PRESIDENT              1997        158,349           10,000            -0-          -0-          -0-          -0-         12,985

JOHN M. RYAN           1999        272,486             -0-             -0-        20,000         -0-
EXECUTIVE VICE         1998        276,984           12,324            -0-          -0-          -0-          -0-            -0-
PRESIDENT              1997        241,167             -0-             -0-        20,000         -0-          -0-          3,359

MOHAN SANDUJA          1999        126,897             -0-             -0-          -0-          -0-          -0-            -0-
VICE PRESIDENT         1998        125,367            1,500            -0-          -0-          -0-          -0-            -0-
RESEARCH AND           1997        117,780            1,624            -0-          -0-          -0-          -0-          9,905
DEVELOMENT
</TABLE>

(1) Represents premiums on officer's life insurance policy in which Mr. Horowitz
has the right to designate the beneficiary.


                                      -15-


<PAGE>



STOCK OPTIONS

No executive officer owns any stock options.

EMPLOYMENT AGREEMENTS

On May 17, 1998, the Company and Carl Horowitz  agreed to extend Mr.  Horowitz's
employment  agreement through May 16, 2003. Mr.  Horowitz's  maximum base salary
under the new  agreement is $170,000  for 1998 with annual  increases of $10,000
thereafter  until  January 1, 2003,  when the maximum  base salary  increases to
$240,000.

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 5 preceding year's annual  compensation,  payable for
the remainder of the  individuals'  life. In addition the Company is to maintain
the individuals' medical benefits.

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 not to make any contributions for 1999.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         ---------------------------------------------------
                 MANAGEMENT
                 ----------

The following table sets forth certain  information,  as of March 21, 2000, 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                    467,914           25.8%
$.01 par value       2719 Whitman Drive
                     Brooklyn, NY  11234


                                      -16-
<PAGE>

                     Irene  Horowitz                  120,811             6.7%
                     2719 Whitman Drive
                     Brooklyn, NY  11234

                     John M. Ryan                      49,184             2.7%
                     3035 Lonni Lane
                     Merrick, N.Y.  11566

                     Alice J. Horowitz                 21,517             1.2%
                     3046 West Tonopah Drive
                     Phoenix, Arizona  85027

                     Boris Jody                            -0-             -0-%
                     4301 N. Ocean Blvd.
                     Boca Raton, Fl.

                     Anna Dichter                       1,800              .1%
                     1757 E. 54th Street
                     Brooklyn, N.Y.

                     Terry J. Wolfgang                  3,700              .2%
                     440 West End Avenue
                     New York, N.Y.  10750

                     Dr. Mohan Sanduja                  1,000              .1%
                     144-90 91st Avenue
                     Flushing, N.Y.

                     Clare Chamow                         400             -0-%
                     5613 Fillmore Avenue
                     Brooklyn, N.Y. 11234

                     Harriet Finger                       420             -0-%
                     3310 Nostrand Avenue
                     Brooklyn, N.Y. 11229

                     All executive officers and
                     Directors as a group (10
                      in number)                      666,746            36.8%




                                      -17-
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                                      NONE

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS
                 ON FORM 8-K

1.      Financial  Statements.  See  Item  8  above  for  a  list  of  financial
        statements included as part of this Annual Report on Form 10-K.

3.      Exhibits

        (3.1)   Registrant's  Certificate  of  Incorporation,  as  amended,  and
                By-Laws,  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  Security 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)    Material Contracts

        (.1)    Employment Contract of Carl Horowitz,  the Company's  President,
                dated March 17, 1998 (filed with 1998 Form 10K).

        (.2)    Mortgage  agreement  between  the  Company  and Tama Realty Co.,
                dated June 4, 1990  (incorporated  by  reference  as  previously
                filed with the United States Security and Exchange Commission in
                March 1991 with Form 10K).

        (.2A)   Mortgage  modification  agreement  between  the Company and Tama
                Realty Co., dated August 26, 1996  (incorporated by reference as
                previously  filed with the United  States  Security and Exchange
                Commission in March, 1997 with Form 10K).

        (.3)    Retirement  benefits  agreement  between  the  Company  and Carl
                Horowitz,  dated July 26, 1994  (incorporated  by  reference  as
                previously  filed with the United  States  Security and Exchange
                Commission in March, 1995 with Form 10K).



                                      -18-

<PAGE>

        (.4)    Retirement  benefits  agreement  between  the  Company and Irene
                Horowitz,  dated July 26, 1994  (incorporated  by  reference  as
                previously  filed with the United  States  Security and Exchange
                Commission in March, 1995 with Form 10K).

        (27)    Financial Data Schedule




                                      -19-
<PAGE>
                             POLYMER RESEARCH CORP.
                                   OF AMERICA

                              FINANCIAL STATEMENTS

                           DECEMBER 31, 1999 AND 1998




                        POLYMER RESEARCH CORP. OF AMERICA


                                    CONTENTS




<PAGE>



                                                                     Page
                                                                     ----

Independent Auditors' Report                                          F-1
----------------------------

Financial Statements
--------------------

Balance Sheets at December 31, 1999 and 1998                          F-2 -  F-3

Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997                                      F-4

Statements of Comprehensive Income for the Years
Ended December 31, 1999, 1998 and 1997                                F-5

Statements of Stockholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997                                      F-6

Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997                                      F-7 - F-8

Notes to Financial Statements                                         F-9 - F-22

Financial Statement Schedules
-----------------------------

For the Years Ended December 31, 1999, 1998 and 1997:

         Report of Independent Certified Public
         Accountants on Financial Statement Schedules                 F-23

VIII     Valuation and Qualifying Accounts and Reserves               F-24

   X     Supplementary Income Statement Information                   F-25

  XI     Property, Equipment and Accumulated Depreciation             F-26

         All other schedules have been omitted because the required information
         is  included  in the  financial  statements  or the notes  thereto  or
         because they are not required.


<PAGE>

                  [LETTERHEAD OF CASTELLANO, KORENBERG & CO.]


                          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, 1999 and 1998, and the related statements of operations,
comprehensive  (loss) income,  stockholders' equity and cash flows for the years
ended  December 31, 1999,  1998 and 1997.  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 audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  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 audits provide 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, 1999 and 1998 and the results of its  operations and its
cash flows for the years ended  December 31, 1999,  1998 and 1997, in conformity
with generally accepted accounting principles.




                                      /s/ CASTELLANO, KORENBERG & CO. CPAs, P.C.
Hicksville, New York
February 16, 2000


                                       F-1

<PAGE>


                                 BALANCE SHEETS
                                 --------------


<PAGE>



                        POLYMER RESEARCH CORP. OF AMERICA
                                 BALANCE SHEETS
                           DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>

                                                               ASSETS
                                                               ------

                                                                       1999            1998
                                                                       ----            ----
<S>                                                                 <C>             <C>
CURRENT ASSETS:
    Cash and cash equivalents                                       $1,156,778      $   823,238
    Certificates of deposit                                            235,246        1,137,321
    Investment securities available
     for sale                                                          292,396          412,341

    Accounts receivable, less allowance for
     doubtful accounts of $-0- for 1999 and 1998                       306,429          245,669
    Inventories                                                        116,028          103,130
    Deferred tax charge                                                127,500           39,000
    Prepaid income taxes                                               188,578              -0-
    Prepaid expenses and other current assets                           37,605           13,178
                                                                   -----------      -----------

         Total Current Assets                                        2,460,560        2,773,877
                                                                   -----------      -----------

PROPERTY AND EQUIPMENT                                               2,740,195        2,814,511
                                                                   -----------      -----------

OTHER ASSETS:
    Deferred financing costs, less accumulated
     amortization of $3,819 for 1999 and $3,456 for 1998                10,723           11,087
    Security deposits                                                    1,195            1,195
                                                                   -----------     ------------

                                                                        11,918           12,282
                                                                   -----------     ------------


                                                                    $5,212,673       $5,600,670
                                                                   ===========      ===========
</TABLE>

   See independent auditors' report and notes to financial statements.

                                      F-2
<PAGE>

                        POLYMER RESEARCH CORP. OF AMERICA
                                 BALANCE SHEETS
                           DECEMBER 31, 1999 AND 1998


                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------
<TABLE>
<CAPTION>

                                                                                   1999              1998
                                                                                   ----              ----
<S>                                                                             <C>              <C>
CURRENT LIABILITIES:
    Current maturities of mortgage payable                                      $   967,082      $     34,688
    Current maturities of long-term debt                                              6,960               -0-
    Accounts payable                                                                 81,696            74,288
     Deferred revenue                                                               206,332           496,650
     Income taxes payable                                                               -0-            89,431
     Accrued expenses and other current liabilities                                 272,364           235,685
                                                                               ------------      ------------

         Total Current Liabilities                                                1,534,434           930,742
                                                                                -----------       ------------

LONG-TERM LIABILITIES:
    Current portion of mortgage payable refinanced
     with long-term debt                                                            450,000                -0-
    Mortgage payable, less current maturities                                           -0-          1,417,082
    Long-term debt, less current maturities                                             609                -0-
                                                                                -----------       ------------

         Total Long-Term Liabilities                                                450,609          1,417,082
                                                                                -----------        -----------

STOCKHOLDERS' EQUITY:
    Common stock - $.01 par value; 4,000,000
     shares authorized; 1,825,784 and 1,685,784
     shares issued at December 31, 1999 and
     1998, respectively                                                              18,257            16,857
    Capital in excess of par value                                                3,399,728         3,120,685
    (Accumulated deficit) retained earnings                                        (158,466)          167,259
    Accumulated other comprehensive (loss) income                                   (24,389)            4,782
                                                                                ------------      -----------
                                                                                  3,235,130          3,309,583
    Less:  Treasury stock, at cost -
           12,140 and 91,837 shares in 1999 and 1998,
           respectively                                                              7,500            56,737
                                                                                -----------       -----------

         Total Stockholders' Equity                                               3,227,630         3,252,846
                                                                                -----------       -----------

                                                                                 $5,212,673        $5,600,670
                                                                                ===========       ===========
</TABLE>

   See independent auditors' report and notes to financial statements.

                                       F-3
<PAGE>

                        POLYMER RESEARCH CORP. OF AMERICA
                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>

                                                   1999          1998             1997
                                                   ----          ----             ----
<S>                                           <C>            <C>             <C>
NET REVENUES:
         Research                             $ 3,814,145    $ 4,554,400     $ 4,214,293
         Production                             1,022,012      1,092,789       1,233,979
                                              -----------    -----------     -----------
                                                4,836,157      5,647,189       5,448,272
                                              -----------    -----------     -----------
COST OF REVENUES:
         Research                               1,090,261      1,048,560       1,001,818
         Production                               573,862        789,915       1,018,505
                                              -----------    -----------     -----------
                                                1,664,123      1,838,475       2,020,323
                                              -----------    -----------     -----------

GROSS PROFIT                                    3,172,034      3,808,714       3,427,949

SELLING, GENERAL AND ADMINISTRATIVE
 EXPENSES                                       3,303,995      3,310,032       2,902,474
                                              -----------    -----------     -----------

(LOSS) INCOME FROM OPERATIONS                    (131,961)       498,682         525,475
                                              -----------    -----------     -----------

OTHER INCOME (EXPENSE):
         Interest income                           85,652         92,687          65,886
         Interest expense                        (152,321)      (154,241)       (157,320)
         Realized (loss) gain on investment
          in marketable securities                 (1,088)         7,037           1,604
                                              -----------    -----------     -----------

                  Total Other Expense             (67,757)       (54,517)        (89,830)
                                              -----------    -----------     -----------

(LOSS) INCOME BEFORE (BENEFIT FROM)
 PROVISION FOR INCOME TAXES                      (199,718)       444,165         435,645

(BENEFIT FROM) PROVISION FOR INCOME
 TAXES                                            (63,673)       201,845         229,066
                                              -----------    -----------     -----------

NET (LOSS) INCOME                             $  (136,045)   $   242,320     $   206,579
                                              ===========    ===========     ===========

BASIC (LOSS) EARNINGS PER SHARE               $      (.08)   $       .15*    $       .13**
                                              ===========    ===========     ===========

WEIGHTED AVERAGE NUMBER OF SHARES
 OUTSTANDING                                    1,774,904      1,665,965*      1,637,912**
                                              ===========    ===========     ===========
</TABLE>

 *  Restated for 1999 5% stock dividend.
** Restated for 1999 5% stock dividend and 1998 5% stock dividend.

       See independent auditors' report and notes to financial statements.

                                       F-4


<PAGE>
                        POLYMER RESEARCH CORP OF AMERICA
                   STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
             FOR THE YEARS ENEDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                       1999           1998           1997
                                                       ----           ----           ----

<S>                                               <C>             <C>             <C>
NET (LOSS) INCOME                                 $ (136,045)     $ 242,320       $ 206,579
                                                  -----------     ---------       ---------

OTHER COMPREHENSIVE (LOSS)
 INCOME, NET OF TAX:
  Unrealized (loss) gain during the period           (55,359)        10,543           9,122
  Reclassification adjustment for losses (gains),
  included in net income                               1,088         (3,525)            759
                                                  -----------     ---------       ---------

    Other Comprehensive (Loss) Income,
    Before Tax                                       (54,271)         7,018           9,881

  Deferred Tax Benefit                               (25,100)           -0-             -0-
                                                  -----------     ---------       ---------

OTHER COMPREHENSIVE (LOSS)
 INCOME, NET OF TAX:                                 (29,171)         7,018           9,881
                                                  -----------     ---------       ---------

COMPREHENSIVE (LOSS) INCOME                       $ (165,216)     $ 249,338       $ 216,460
                                                  ===========     =========       =========

</TABLE>

See independent auditors' report and notes to financial statements.

                                      F-5

<PAGE>

                        POLYMER RESEARCH CORP. OF AMERICA
                       STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>

                                       Common Stock, $.01                                     Accumulated
                                      Par Value                                                   Other
                                     4,000,000 Shares Authorized     Capital                  Comprehensive Treasury Stock - At Cost
                                     ----------------------------    in Excess     Retained       (Loss)    ------------------------
                                         Shares Issued     Amount    of Par        Earnings       Income      Shares      Amount
                                         -------------     ------   ---------     -----------      --------    ------      -------
<S>                                       <C>         <C>          <C>          <C>           <C>              <C>      <C>
Balance, December 31, 1996                1,489,657   $   14,896   $2,632,037   $  103,654    $    (12,117)    91,837   $   (56,737)

Net Income                                      -0-          -0-          -0-      206,579             -0-       -0-           -0-

Stock Bonus Issued                           20,000          200       19,800          -0-             -0-       -0-           -0-

Stock Dividend                               70,891          709      198,495     (199,204)            -0-       -0-           -0-

Other Comprehensive Income, Net of Tax          -0-          -0-          -0-          -0-           9,881       -0-           -0-
                                                      ----------   ----------   ----------    ------------    -------   -----------

Balance, December 31, 1997                1,580,548       15,805    2,850,332      111,029          (2,236)    91,837       (56,737)
                                         ----------   ----------   ----------   ----------    ------------    -------   -----------

Net Income                                      -0-          -0-          -0-      242,320             -0-       -0-            -0-

Stock Bonus Issued                           30,800          308       85,007          -0-             -0-       -0-            -0-

Stock Dividend                               74,436          744      185,346     (186,090)            -0-       -0-            -0-

Other Comprehensive Income, Net of Tax          -0-          -0-          -0-          -0-           7,018       -0-            -0-
                                         ----------   ----------   ----------   ----------    ------------    -------   -----------

Balance, December 31, 1998                1,685,784       16,857    3,120,685      167,259           4,782     91,837       (56,737)
                                         ----------   ----------   ----------   ----------    ------------    -------   -----------

Net Loss                                        -0-          -0-          -0-     (136,045)             -0-        -0-       -0-

Stock Bonus Issued                          140,000        1,400      138,600          -0-              -0-        -0-       -0-

Stock Dividend                                  -0-          -0-      140,443     (189,680)             -0-      (79,697)    49,237

Other Comprehensive Loss, Net of Tax            -0-          -0-          -0-          -0-         (29,171)        -0-       -0-
                                         ----------   ----------   ----------   ----------    ------------    -------   -----------
Balance, December 31, 1999               $1,825,784   $   18,257   $3,399,728   $ (158,466)   $    (24,389)    12,140   $    (7,500)
                                         ==========   ==========   ==========   ==========    ============    =======   ===========
</TABLE>

   See independent auditors' report and notes to financial statements.

                                       F-6

<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>

                                                        1999            1998            1997
                                                        ----            ----            ----
<S>                                                  <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Cash received from customers                        $ 4,484,959    $ 5,779,942    $ 5,255,070
 Interest received                                        85,652         92,687         65,886
                                                     -----------    -----------    -----------
     Cash Provided By Operating Activities             4,570,611      5,872,629      5,320,956
                                                     -----------    -----------    -----------

 Cash paid for merchandise                            (1,615,653)    (1,790,321)    (1,961,416)
 Cash paid to suppliers and employees                 (3,255,865)    (3,298,625)    (2,899,200)
 Interest paid                                          (152,321)      (154,241)      (157,320)
 Income taxes paid                                      (139,350)      (207,514)        (5,966)
                                                     -----------    -----------    -----------
     Cash Disbursed For Operating Activities          (5,163,189)    (5,450,701)    (5,023,902)
                                                     -----------    -----------    -----------

                  NET CASH (USED IN) PROVIDED BY
              OPERATING ACTIVITIES                      (592,578)       421,928        297,054
                                                     -----------    -----------    -----------


CASH FLOWS FROM INVESTING ACTIVITIES:
 Proceeds from maturity of certificates of deposit       932,000            -0-        399,030
 Proceeds from sale of marketable securities             276,108         95,610        551,452
                                                     -----------    -----------    -----------
     Cash Provided By Investing Activities             1,208,108         95,610        950,482
                                                     -----------    -----------    -----------

 Purchase of certificates of deposit                         -0-       (553,223)      (428,790)
 Purchase of marketable securities                      (241,447)       (10,956)      (549,624)
 Purchase of property and equipment                          -0-        (37,095)       (11,865)
                                                     -----------    -----------    -----------
     Cash Disbursed For Investing Activities            (241,447)      (601,274)      (990,279)
                                                     -----------    -----------    -----------

              NET CASH PROVIDED BY (USED IN)
              INVESTING ACTIVITIES                       966,661       (505,664)       (39,797)
                                                     -----------    -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Principal payments on mortgage payable                  (34,688)       (31,244)       (28,209)
 Principal payments on long-term borrowings               (5,855)           -0-            -0-
                                                     -----------    -----------    -----------

              NET CASH USED IN FINANCING
              ACTIVITIES                                 (40,543)       (31,244)       (28,209)
                                                     -----------    -----------    -----------

              NET INCREASE (DECREASE) IN CASH            333,540       (114,980)       229,048

              CASH, BEGINNING OF YEAR                    823,238        938,218        709,170
                                                     -----------    -----------    -----------

              CASH, END OF YEAR                      $ 1,156,778    $   823,238    $   938,218
                                                     ===========    ===========    ===========

</TABLE>


   See independent auditors' report and notes to financial statements.

                                       F-7

<PAGE>

<TABLE>
<CAPTION>

                                                      POLYMER RESEARCH CORP. OF AMERICA
                                                          STATEMENTS OF CASH FLOWS
                                            FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

                                                                                       1999               1998                1997
                                                                                       ----               ----                ----
<S>                                                                                 <C>                <C>              <C>
    RECONCILIATION OF NET (LOSS) INCOME TO NET CASH
     (USED IN) PROVIDED BY OPERATING ACTIVITIES:

    NET (LOSS) INCOME                                                               $  (136,045)       $  242,320       $  206,579
                                                                                    -----------        ----------       ----------


    ADJUSTMENTS TO RECONCILE NET (LOSS) INCOME TO
    NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES:

       Bonus paid through issuance of stock                                             140,000            85,315           20,000
       Depreciation and amortization                                                     88,103            86,363           88,327
       Bad debt expense                                                                     120             3,605            6,375
       Realized (gain) loss on investment
        in marketable securities                                                          1,088            (7,037)          (1,604)

    Changes in assets (increase) decrease:
       Accounts receivable                                                              (60,880)         (111,447)         (52,352)
       Inventories                                                                      (12,898)           (3,476)         (13,832)
       Deferred tax charge                                                              (63,400)          (39,000)             -0-
       Prepaid income taxes                                                            (188,578)              -0-          167,000
       Prepaid expenses and other current assets                                        (24,427)            4,326           10,582
       Security deposits                                                                    -0-            (1,195)             -0-

    Changes in liabilities increase (decrease):
       Accounts payable                                                                   7,408            (1,260)          18,641
       Deferred revenue                                                                (290,318)          244,200         (140,850)
       Income taxes payable                                                             (89,431)           33,331           56,100
       Accrued expenses and other current liabilities                                    36,680          (114,117)         (67,912)
                                                                                     ----------       -----------      -----------

                 Total Adjustments                                                     (456,533)          179,608           90,475
                                                                                     ----------       -----------      -----------

                      NET CASH (USED IN) PROVIDED BY
                      OPERATING ACTIVITIES                                           $ (592,578)       $  421,928       $  297,054
                                                                                     ==========        ==========       ==========

    SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

             Stock dividend paid                                                     $  189,680        $  186,090       $  199,204
                                                                                     ==========        ==========       ==========
             Other comprehensive (loss) income, net of tax                           $  (29,171)       $    7,018       $    9,881
                                                                                     ==========        ==========       ==========
             Equipment acquired under long-term financing                            $   13,424        $      -0-       $      -0-
                                                                                     ==========        ==========       ==========
             Stock bonus paid                                                        $  140,000        $   85,315       $   20,000
                                                                                     ==========        ==========       ==========
</TABLE>

       See independent auditors' report and notes to financial statements.

                                       F-8


<PAGE>


                        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.

                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
                investments less valuable.

                In addition,  financial instruments that potentially subject the
                Company  to  credit  risk  also  include  accounts   receivable.
                Accounts receivable 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  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 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.
                                       F-9
<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
                          NOTES TO FINANCIAL STATEMENTS

Note 1 -        Summary of Significant Accounting Policies (cont'd)

                Cash Equivalents

                The Company considers securities with maturities of three months
                or less, when purchased, to be cash equivalents.

                Investment Securities

                The  Company   determines  the  appropriate   classification  of
                securities  at the  time of  purchase.  If the  Company  has the
                intent  and  the  ability  at  the  time  of  purchase  to  hold
                securities  until  maturity  or on a long-term  basis,  they are
                classified  as  investment  securities  and carried at amortized
                historical cost. Securities to be held for indefinite periods of
                time and not  intended  to be held to maturity or on a long-term
                basis are  classified  as available for sale and carried at fair
                value.  Securities  held for indefinite  periods of time include
                securities that  management  intends to use as part of its asset
                and  liability  management  strategy  and  that  may be  sold in
                response to changes in interest rates, resultant prepayment risk
                and  other  factors  related  to  interest  rate  and  resultant
                prepayment risk changes.

                Realized gains and losses on  dispositions  are based on the net
                proceeds and the  adjusted  book value of the  securities  sold,
                using the specific  identification method.  Unrealized gains and
                losses on investment  securities available for sale are based on
                the  difference  between  book  value  and  fair  value  of each
                security.  These  gains and  losses are  credited  or charged to
                other  comprehensive  income,  whereas realized gains and losses
                flow through the Company's yearly operations.

                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.

                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.

                                      F-10


<PAGE>


                                     POLYMER RESEARCH CORP. OF AMERICA
                                       NOTES TO FINANCIAL STATEMENTS

Note 1 -        Summary of Significant Accounting Policies (cont'd)

                Property and Equipment (cont'd).

                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  both  the  straight-line  and  accelerated
                methods over the estimated useful lives of the respective assets
                as follows:

                Building and building improvements                  40 years
                Land improvements                                   20 years
                Transportation equipment                        3 to 5 years
                Machinery and equipment                              5 years
                Furniture and fixtures                         5 to 10 years
                Office equipment                                     5 years

                Deferred Financing Costs

                Costs  incurred in obtaining  the  mortgage  used to finance the
                purchase of its  building  have been  capitalized  and are being
                amortized over the term of the related obligation  utilizing the
                straight-line method.

                Deferred Revenue

                The Company records as deferred revenue  payments  received from
                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-11
<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
                          NOTES TO FINANCIAL STATEMENTS

Note 1 -        Summary of Significant Accounting Policies (cont'd).
                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

                In 1997, the Financial  Accounting Standards Board (FASB) issued
                SFAS 128, "Earnings Per Share." SFAS 128 replaced the previously
                reported primary and fully diluted earnings per share with basic
                and diluted  earnings  per share.  Basic  earnings  per share is
                computed  using the weighted  average  number of common  shares.
                Diluted  earnings  per  share is  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.  Basic earnings per
                share amounts for all periods have been presented.

                Comprehensive Income

                In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive
                Income." This statement  establishes standards for the reporting
                and display of comprehensive income and its components. SFAS 130
                has been  adopted  by the  Company,  effective  January 1, 1998.
                Prior  year  financial  statements  have  been  reclassified  to
                conform to the requirements of SFAS 130.

                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.
Note 2 -        Investment Securities

                At  December  31,  1999  and  1998,  the  investment  securities
                portfolio is comprised of securities classified as available for
                sale,  in  conjunction  with FASB 115,  resulting in  investment
                securities available for sale being carried at market value.

                                      F-12
<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
                          NOTES TO FINANCIAL STATEMENTS

Note 2 -        Investment Securities (cont'd).

<TABLE>
<CAPTION>

                The  amortized  cost and fair  values of  investment  securities
                available for sale at December 31, 1999 are:
                                                                       Gross           Gross
                                                       Amortized      Unrealized       Unrealized        Fair
                                                       Cost             Gains           Losses           Value
                                                       ----             -----           ------           -----
<S>                                                  <C>          <C>               <C>            <C>
                U.S. Treasury securities             $  35,131    $          -0-    $  (1,056)     $    34,075
                Obligations of other U.S.
                 government agencies                   207,952               -0-       (8,223)         199,729
                 Other  securities                      97,110               -0-      (38,518)          58,592
                                                     ---------    --------------    -----------    ------------

                                                     $ 340,193    $         -0-    $  (47,797)      $  292,396
                                                     =========    =============    ==========       ==========

                The  amortized  cost and fair  values of  investment  securities
                available for sale at December 31, 1998 are:
                                                                        Gross            Gross
                                                       Amortized      Unrealized       Unrealized        Fair
                                                       Cost             Gains           Losses           Value
                                                       ----             -----           ------           -----
                U.S. Treasury securities            $   99,418      $   17,006     $  (20,184)     $    96,240
                Obligations of other U.S.
                 government agencies                   196,102           3,400           (287)         199,215
                 Other  securities                     120,835             -0-         (3,949)         116,886
                                                    ----------    --------------    ------------    ----------

                                                     $ 416,355      $   20,406     $  (24,420)       $ 412,341
                                                     =========      ==========     ==========        =========
</TABLE>

                The  amortized  cost and fair  values of  investment  securities
                available  for sale  December 31, 1999 by expected  maturity are
                shown below.  Expected  maturities will differ from  contractual
                maturities  because  borrowers  may  have  the  right to call or
                prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>

                                                                                      Securities Available
                                                                                           For Sale
                                                                                ------------------------------
                                                                                 Amortized         Fair
                                                                                  Cost             Value
                                                                                  ----             -----
<S>                                                                             <C>             <C>
                Due in one year or less                                         $      -0-        $      -0-
                Due after one year but less
                 than five years                                                     8,182             7,872
                Due after five years but
                 less than ten years                                                14,689            14,299
                Due after ten years                                                 12,260            11,904
                                                                                ----------        ----------
                                                                                    35,131            34,075
</TABLE>

                                      F-13
<PAGE>



                        POLYMER RESEARCH CORP. OF AMERICA
                          NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

Note 2 -        Investment Securities (cont'd).
                                                                                 Amortized         Fair
                                                                                  Cost             Value
                                                                                  ----             -----

<S>                                                                                <C>               <C>
                Mortgage-backed securities                                         207,952           199,729
                Other securities                                                    97,110            58,592
                                                                                ----------        ----------

                                                                                $  340,193        $  292,396
                                                                                ==========        ==========
</TABLE>

                Proceeds  from sales and  maturities  of  investment  securities
                available  for  sale  during  1999 and 1998  were  $276,108  and
                $95,610, respectively.

Note 3 -        Inventories

                Inventories at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>

                                                                                  1999              1998
                                                                                  ----              ----

<S>                                                                             <C>              <C>
                Raw materials                                                   $   107,883      $    92,254
                Finished goods                                                        8,145           10,876
                                                                                -----------      -----------

                                                                                $   116,028      $   103,130
                                                                                ===========      ===========

Note 4 -        Property and Equipment

                Property and equipment is summarized as follows:
                                                                                    1999              1998
                                                                                    ----              ----

                Land                                                            $   450,000      $   450,000
                Land improvements                                                    80,211           80,211
                Building                                                          2,550,000        2,550,000
                Building improvements                                               289,505          289,505
                Machinery and equipment                                             238,904          225,480
                Furniture and fixtures                                              108,965          108,965
                Office equipment                                                     45,527           45,527
                                                                                -----------     ------------
                                                                                  3,763,112        3,749,688
                Less:  Accumulated depreciation
                           and amortization                                       1,022,917          935,177
                                                                                -----------     ------------

                                                                                $ 2,740,195       $2,814,511
                                                                                ===========       ==========
</TABLE>

                                      F-14

<PAGE>

                        POLYMER RESEARCH CORP. OF AMERICA
                          NOTES TO FINANCIAL STATEMENTS

Note 4 -        Property and Equipment (cont'd).

                Depreciation  and  amortization  expense related to property and
                equipment amounted to $87,740, $86,000 and $87,963 for the years
                ended December 31, 1999, 1998 and 1997, respectively.

Note 5 -        Mortgage Payable

                On August  20,  1996,  the  Company  renegotiated  the  existing
                mortgage on its building.  The terms of the  agreement  required
                the Company to make an $800,000 principal  installment and pay a
                re-negotiation  fee of  $45,000.  The  remaining  balance of the
                mortgage  is being paid  pursuant to a 25-year  amortization  in
                monthly installments of $15,457 including principal and interest
                at the rate of 10.50% per annum.  The  entire  unpaid  principal
                balance  at the  end of the  mortgage  term,  anticipated  to be
                $1,398,330,  is due in a  balloon  payment  on June 1, 2000 (see
                Note 17).

                The mortgage is secured by a lien on the building. The principal
                balances  payable on the  mortgage  amounted to  $1,417,082  and
                $1,451,770 of which  $1,417,082  and $34,688  represent  current
                maturities  of the  mortgage  at  December  31,  1999 and  1998,
                respectively.

                Aggregate  maturities  of  the  mortgage  note  payable  are  as
                follows:
<TABLE>
<CAPTION>

                Year Ending December 31:
                ------------------------
<S>                       <C>                                                                       <C>
                          2000                                                                      $1,417,082
                                                                                                    ==========

Note 6 -        Long - Term Debt


                Long - term debt at December 31, 1999 is summarized as follows:

                Installment loan payable -
                in equal monthly installments
                of $613 including interest at 9%
                per annum through January, 2001,
                secured by related equipment.                                                      $    7,972

                Less: Unamortized discount                                                                 403
                                                                                                  ------------
                                                                                                         7,569
                Less: Current maturities                                                                 6,960
                                                                                                   -----------
                                                                                                   $       609
                                                                                                   ===========
</TABLE>

                                      F-15

<PAGE>

                        POLYMER RESEARCH CORP. OF AMERICA
                          NOTES TO FINANCIAL STATEMENTS

Note 6 -        Long - Term Debt (cont'd).


                Aggregate maturities of long-term are as follows:
<TABLE>
<CAPTION>

                Years Ending December 31:
                -------------------------
<S>                      <C>                                                                             <C>
                         2000                                                                            6,960
                         2001                                                                      $       609
                                                                                                   -----------

                                                                                                   $     7,569
                                                                                                   ===========
</TABLE>

Note 7 -        Deferred Revenue

                At December 31, 1999 and 1998 the Company had received  research
                contract  payments  not  yet  earned  aggregating  $206,332  and
                $496,650, respectively.

Note 8 -        Contingencies

                At December  31,  1999,  the  Company is a defendant  in various
                lawsuits  which arose in the  ordinary  course of  business.  At
                December  31,  1999,  the  Company  has  provided  a reserve  of
                $162,500,  included in current  liabilities,  as a provision for
                legal expenses and potential  unfavorable  rulings in certain 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 9 -        Commitments

                On July 26, 1994 the Company entered into retirement  agreements
                with 2 key executives. The agreements set a compensation rate of
                60% of the  average  5  preceding  years'  annual  compensation,
                payable for the remainder of the  executive's  life. The Company
                is  also   responsible  to  maintain  the   executives   medical
                insurance.

                On October 23, 1998 the Company extended its employment contract
                with its President  which expires on May 16, 2003.  The contract
                provides  for a current  minimum  annual  salary of $180,000 for
                1999 and annual increases of $10,000 throughout its duration.




                                      F-16

<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
                          NOTES TO FINANCIAL STATEMENTS

Note 9 -        Commitments (cont'd).

                In addition, the Company has entered into various noncancellable
                operating leases requiring future minimum rentals as follows:

                Years Ending December 31:
                -------------------------
                        2000                                     $     42,130
                        2001                                           23,995
                        2002                                           16,419
                        2003                                           13,682
                                                                 ------------
                                                                 $     96,226

                Lease  expenses  charged  to  operations  for  the  years  ended
                December  31, 1999 and 1998  amounted  to $43,997  and  $41,978,
                respectively.

                During  1998,  the  Company  entered  into a lease for an office
                facility in Phoenix,  Arizona under a  noncancellable  operating
                lease requiring future minimum rental as follows:

                Year Ending December 31:
                        2000                                      $     7,026
                                                                  ===========

                In  addition,  the lease  provides  for  escalation  clauses for
                increases in real estate taxes and building maintenance.

                Rent expense  charged to operations for the years ended December
                31, 1999 and 1998 amounted to $10,832 and $7,975, respectively.

Note 10 -       Stock Dividends

                On February 11, 1999,  the Company  declared a 5% stock dividend
                to stockholders of record at March 19, 1999, paid April 2, 1999.
                The  transaction  was valued based upon the closing market price
                of the Company's stock on February 10, 1999, which was $2.38 per
                share. Retained earnings was charged for $189,680 as a result of
                the issuance of 79,697 treasury shares.



                                      F-17
<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
                          NOTES TO FINANCIAL STATEMENTS

Note 10 -       Stock Dividends (cont'd).

                On March 2, 1998,  the Company  declared a 5% stock  dividend to
                stockholders  of record at March 23,  1998,  paid April 2, 1998.
                The  transaction  was valued based upon the closing market price
                of the Company's stock on February 27, 1998, which was $2.50 per
                share. Retained earnings was charged for $186,090 as a result of
                the issuance of 74,436 shares.

                On March 20,  1997 the Company  declared a 5% stock  dividend to
                stockholders of record at April 1, 1997, paid April 8, 1997. The
                transaction  was valued  based upon the closing  market price of
                the Company's  stock on April 7, 1997 which was $2.81 per share.
                Retained  earnings  was charged for  $199,204 as a result of the
                issuance of 70,891 shares.

                Per share data were  retroactively  restated  for the effects of
                the 1999, 1998 and 1997 stock dividends.

Note 11 -       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.

                                      F-18
<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
                          NOTES TO FINANCIAL STATEMENTS

Note 12 -       Stock Bonuses

                On April 12, 1999, the Company paid certain  officers a bonus by
                issuing them 140,000  restricted  shares of the Company's stock.
                The shares have not been registered  under the Securities Act of
                1933 and sales of the shares are  subject  to  restrictions  and
                limitations.  The Company  valued the shares issued at $1.00 per
                share aggregating $140,000.

                On  April 2,  1998,  subsequent  to the  1998 5% stock  dividend
                record date,  the Company's  Board of Directors  authorized  the
                issuance of 30,800 shares of the Company's stock to employees of
                the  Company.  The  shares  have not been  registered  under the
                Securities  Act of 1933 and sales of the shares  are  subject to
                restrictions  and  limitations.  The  Company  valued the shares
                issued at $2.77 per share aggregating $85,315.

                On April 1,  1997,  prior to the 1997 5% stock  dividend  record
                date,  the Company paid an Executive  Vice  President a bonus by
                issuing to him 20,000  restricted shares of the Company's stock.
                The shares have not been registered  under the Securities Act of
                1933 and sales of the shares are  subject  to  restrictions  and
                limitations.  The Company  valued the shares issued at $1.00 per
                share aggregating $20,000.

Note 13 -       (Benefit From) Provision For Income Taxes

                The (benefit  from)  provision for income taxes is summarized as
                follows:

                                     1999           1998        1997
                                     ----           ----        ----
                Current:
                 Federal           $ (24,159)   $ 154,381    $ 135,754
                 State and local      23,886       86,464       93,312
                                   ---------    ---------    ---------
                                        (273)     240,845      229,066
                                   ---------    ---------    ---------
                Deferred:
                 Federal             (39,400)     (23,900)         -0-
                 State and local     (24,000)     (15,100)         -0-
                                   ---------    ---------    ---------
                                     (63,400)     (39,000)         -0-
                                   ---------    ---------    ---------
                                   $ (63,673)   $ 201,845    $ 229,066
                                   =========    =========    =========

                The  reconciliation  between  the maximum  effective  income tax
                rates  with  federal  statutory  tax  rates  for the year  ended
                December 31, 1999 and the rates  reflected  in the  accompanying
                financial statements is as follows:

                                      F-19
<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
                          NOTES TO FINANCIAL STATEMENTS

Note 13 -         (Benefit From) Provision For Income Taxes (cont'd).

                  Income tax benefit at U.S. statutory rates      $    (67,904)

                  (Decrease) increase in federal income
                   tax expense resulting from:
                  Federal tax arising from non-deductible
                   financial statement expenses                        13,566
                  Future federal tax benefit from unrealized
                   loss on marketable securities                       (25,100)
                  Benefit from deduction for state
                   and local taxes                                      (8,121)
                  State and local taxes                                 23,886
                                                                  -------------

                  Benefit from Income Taxes                       $    (63,673)
                                                                  =============

Note 14 -         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.

                Production -    Manufacture  and sale of products  arising
                                from research activities and the sale of textile
                                printing inks and accessories.

                Information  on industry  segments for the years ended  December
                31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>

                                                                     1999                  1998                1997
                                                                     ----                  ----                ----
NET REVENUES:
<S>                                                                 <C>                   <C>                 <C>
         Research                                                   $3,814,145            $4,554,400          $4,214,293
         Production                                                  1,022,012             1,092,789           1,233,979
                                                                   -----------           -----------         -----------

                  Total Net Revenues                                $4,836,157            $5,647,189          $5,448,272
                                                                    ==========            ==========          ==========
</TABLE>



                                      F-20

<PAGE>

                        POLYMER RESEARCH CORP. OF AMERICA
                          NOTES TO FINANCIAL STATEMENTS

Note 14 -     Industry Segments (cont'd).
<TABLE>
<CAPTION>

                                                                     1999                  1998               1997
                                                                     ----                  ----               ----
GROSS PROFIT:
<S>                                                                <C>                   <C>                 <C>
         Research                                                  $2,723,884            $3,505,840          $3,212,475
         Production                                                   448,150               302,874             215,474
                                                                  -----------           ------------        ------------
                  Total Gross Profit                                3,172,034             3,808,714           3,427,949

SELLING, GENERAL AND ADMINISTRATIVE
 EXPENSES                                                            3,303,995            3,310,032           2,902,474
                                                                   -----------          -----------          ------------


(LOSS) INCOME FROM OPERATIONS                                      $ (131,961)           $   498,682        $    525,475
                                                                  ===========            ===========        ============

CAPITAL EXPENDITURES:
         Research                                                  $   5,571             $     8,901        $       -0-
         Production                                                    2,685                   4,289                 -0-
         Corporate                                                     5,168                  23,905              11,865
                                                                  ----------             -----------       -------------
                  Total                                           $   13,424             $    37,095        $     11,865
                                                                  ==========             ===========        ============

DEPRECIATION AND AMORTIZATION:
         Research                                                 $   36,412             $    35,690        $     36,505
         Production                                                   17,548                  17,200              17,593
         Corporate                                                    33,780                  33,110              33,865
                                                                  ----------             -----------       -------------
                  Total                                           $   87,740             $    86,000        $     87,963
                                                                  ==========             ===========        ============

IDENTIFIABLE ASSETS:
        Research                                                  $1,225,237             $ 1,145,853          $1,262,411
        Production                                                   849,921                 901,017             718,512
        Corporate                                                  3,137,515               3,553,800           3,154,184
                  Total                                           $5,212,673             $ 5,600,670          $5,135,107
                                                                  ==========             ===========          ==========
</TABLE>


                         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.

                                      F-21

<PAGE>

                        POLYMER RESEARCH CORP. OF AMERICA
                          NOTES TO FINANCIAL STATEMENTS

Note 15 -        Accrued Expenses and Other Current Liabilities

                Accrued expenses and other current liabilities are summarized as
                follows:

                                                         1999          1998
                                                         ----          ----

                 Accrued provision for legal
                  proceedings                          $  162,500    $  100,000
                 Accrued vacation                          27,689        23,435
                 Accrued professional fees                36,000         35,000
                 Other items (none in excess
                  of 5% of total current liabilities)      46,175        77,250
                                                       ----------   -----------

                                                       $  272,364    $  235,685
                                                       ==========    ==========

Note 16 -        Profit Sharing Plan

                 Profit  sharing  expense  under the  Company's  noncontributory
                 profit sharing plan charged to operations  amounted to $-0- for
                 the years ended December 31, 1999 and 1998 and $100,000 for the
                 year ended December 31, 1997.

Note 17 -        Subsequent Event

                 On  March  20,  2000,  the  Company  entered  into a  borrowing
                 arrangement  with a bank  whereby  the bank  agreed to extend a
                 $500,000 term loan facility to the Company. The Company intends
                 to utilize the facility in connection with the balloon mortgage
                 payment  due June 1,  2000.  The five  year  term  loan will be
                 repaid  in  monthly  principal   installments  of  $8,333  plus
                 interest at 8.5% per annum.  The loan  requires  the Company to
                 comply with certain  financial  covenants and to deliver to the
                 lender  collateral  of $125,000  upon funding of the term loan.
                 Simultaneously,  the bank  extended a  $250,000  line of credit
                 facility to the Company.



                                      F-22

<PAGE>


To The Stockholders
Polymer Research Corp. of America
Brooklyn, New York


Our report on our audits of the basic financial  statements of Polymer  Research
Corp. of America for 1999, 1998 and 1997, appears on page F-1. Those audits were
made for the  purpose of forming  an opinion on the basic  financial  statements
taken as a whole.  The accompanying  supplementary  information is presented for
the  purpose of  additional  analysis  and is not a  required  part of the basic
financial  statements.  Such  information  has been  subjected  to the  auditing
procedures  applied in the audit of the basic  financial  statements and, in our
opinion,  is fairly  stated in all  material  respects  in relation to the basic
financial statements taken as a whole.






                                       CASTELLANO, KORENBERG & CO., CPAs, P.C.



Hicksville, New York
February 16, 2000



                                      F-23


<PAGE>

                       POLYMER RESEARCH CORP. OF AMERICA
         SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>

Column A                               Column B               Column C          Column D        Column E
--------                               --------        -----------------------  --------        ---------
                                                             Additions
                                                       ----------------------
                                       Balance at      Charged to    Charged
                                       Beginning       Costs and     to Other                    Balance
                                        Of Year        Expenses      Accounts    Deductions      End of Year
                                        -------        --------      --------    ----------      -----------
Allowance for Doubtful Accounts:
--------------------------------

<S>                                   <C>            <C>             <C>          <C>          <C>
Year ended December 31, 1999          $    -0-        $    120       $    -0-     $   120        $    -0-
                                      --------        --------       --------     --------       --------
Year ended December 31, 1998          $    -0-        $  3,605       $  3,605     $    -0-       $    -0-
                                      --------        --------       --------     --------       --------
Year ended December 31, 1997          $    -0-        $  6,375       $  6,375     $    -0-       $    -0-
                                      --------        --------       --------     --------       --------

Reserve for Sales Credits:
--------------------------

Year ended December 31, 1999          $    -0-        $    -0-       $    -0-     $    -0-       $    -0-
                                      --------        --------       --------     --------       --------
Year ended December 31, 1998          $    -0-        $    -0-       $    -0-     $    -0-       $    -0-
                                      --------        --------       --------     --------       --------
Year ended December 31, 1997          $    -0-        $    -0-       $    -0-     $    -0-       $    -0-
                                      --------        --------       --------     --------       --------
</TABLE>




                                      F-24


<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
                        SCHEDULE X - SUPPLEMENTARY INCOME
                              STATEMENT INFORMATION

<TABLE>
<CAPTION>

                                                          Charged To Costs and Expenses
                                                          -----------------------------
                                                                  December 31,
                                                                  ------------

                                                    1999             1998              1997
                                                    ----             ----              ----


<S>                                                <C>             <C>             <C>
1. MAINTENANCE AND REPAIR                          $      *        $  61,832       $     *
                                                   ----------      ---------       ---------

2. DEPRECIATION                                    $  87,740        $  86,000       $  87,963
                                                   ---------        ---------       ---------

3. TAXES, OTHER THAN PAYROLL
    AND INCOME TAXES                                   *                *               *

4. ROYALTIES                                           *                *               *
5. ADVERTISING COSTS                                   *                *               *

Note:  * Less than 1% of revenue.

</TABLE>


                                      F-25


<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
         SCHEDULE XI - PROPERTY, EQUIPMENT AND ACCUMULATED DEPRECIATION
                          YEAR ENDED DECEMBER 31, 1999



<TABLE>
<CAPTION>
                                 Initial Cost to  Company                    Gross Amount At Which Carried
                                ----------------------------                     At Close of Period
                                                                            --------------------------------

                                           Land                            Land
                                          Building and                     Building and
Description               Encumbrances   Improvements      Equipment       Improvements     Equipment       Total
-----------               ------------   ------------      ---------       ------------     ---------     -----------
<S>                       <C>             <C>             <C>             <C>               <C>         <C>
Land, Building and
 Improvements             $1,417,082      $3,369,716      $       -0-     $3,369,716        $     -0-     $3,369,716

Equipment                        -0-             -0-          393,396           -0-           393,396        393,396
                          ----------      ----------      -----------     ----------       -----------    ----------

                          $1,417,082      $3,369,716      $   393,396     $3,369,716        $ 393,396     $3,763,112
                          ==========      ==========      ===========     ==========       ===========    ==========

</TABLE>

                                                                Life
                                                                On
                                                                Which
                                                                Depreciation
                                                                In Latest
                      Accumulated         Date                  Income Statement
Description           Depreciation        Acquired              is Computed
-----------

Land, Building and
 Improvements         $   682,397       June 4, 1990            20-40 Years

Equipment                340,520
                      -----------           Various              3-10 Years

                      $1,022,917
                      ==========




                                      F-26