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, 1998

             [_] 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 - $5,647,189

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 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 February 18, 1999 was  approximately  $2,554,000 based on the last
sale price of such stock.

As of February 18, 1999,  the  Registrant  had 1,593,947  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.

During 1998,  research  revenues and products sales accounted for 81 percent and
19 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  13 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 a  number  of  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 $2,342,500 for 1998,  representing  approximately 51% of total annual
research revenues for 1998.

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.

The  Company  employs 10  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  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 1998,  1997 and 1996,  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, 1998, the Company had 53 full-time  employees.  The President
and the 19 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 11 employees in the sales and marketing departments.  In addition, there are
14 clerical employees and 4 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 16 United  States  patents  to the  Company,  9 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
seller-financed mortgage, which was renegotiated during 1996. Under the terms of
the renegotiated mortgage the Company made an $800,000 principal installment and
paid a $45,000 renegotiation fee. (See Note 6 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.

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 1998,  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.


                                             Bid Prices
                                             ----------
     Quarter                             LOW             HIGH
     -------                             ---             ----
      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

      1997
      ----
October - December                      2-1/8            3
July - September                        2                2-5/16
April - June                            2                2-1/2
January - March                         2-1/2            3-7/8


                                       -6-
<PAGE>


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 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 9 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 9 of Notes to Financial Statements).

On March 1, 1996 the Company  declared a 10% stock dividend to  shareholders  at
March 15, 1996,  paid March 29, 1996. The  transaction was valued based upon the
closing market price of the Company's stock on the day prior to declaration (See
Note 9 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
excersizable  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 10 of Notes to Financial Statements).

On February 11, 1999, the Company  declared a 5 % stock dividend to stockholders
of record on March 19,  1999,  payable on April 2, 1999 (See Note 16 of Notes to
Financial Statements).

As of February 18, 1999 there were 1,593,947 shares outstanding, which were held
by approximately 900 shareholders,  398 shareholders of record and approximately
500 additional beneficial owners.


                                       -7-
<PAGE>


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

RESULTS OF OPERATIONS

Revenue Analysis
                                         Year Ended December 31,
                                         -----------------------
                                                             Percentage of
                                ($) In Thousands            Total Revenues
                                ----------------            --------------

                            1998     1997     1996     1998      1997      1996
                          ------   ------   ------   ------    ------    ------
Research                  $4,554   $4,214   $4,326     80.6%     77.3%     85.0%
Production                 1,093    1,234      752     19.4      22.7      15.0
                          ------   ------   ------   ------    ------    ------
Total Revenues            $5,647   $5,448   $5,078    100.0%    100.0%    100.0%
                          ======   ======   ======   ======    ======    ======


1998 v. 1997

Total revenues increased $199,000 or 4% from $5,448,000 in 1997 to $5,647,000 in
1998.  Research  revenue  increased  $340,000  or 8%  while  production  revenue
decreased $141,000 or 11.0% from 1997 to 1998.

The  increase in  research  revenues  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.

1997 v. 1996

Total revenues increased $370,000 or 7% from $5,078,000 in 1996 to $5,448,000 in
1997.  Research  revenues  decreased  $112,000  or 3% while  production  revenue
increased $482,000 or 64% from 1996 to 1997.

The  decrease  in research  revenue was  primarily  attributable  to  continuing
turnover of personnel in the marketing department.


                                       -8-
<PAGE>


The increase in production  sales was  primarily the result of increased  demand
resulting  from  research  findings for  customers in prior years and  increased
demand from the building industry for polymer coatings.

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

Cost of Revenues Analysis

                                         Year Ended December 31,
                                         -----------------------
                                                              Cost as a
                                                            Percentage of
                              ($ In Thousands)              Total Revenues
                                                            --------------
                           1998     1997     1996     1998      1997      1996
                          ------   ------   ------   ------    ------    ------
Research                  $1,048   $1,002   $1,017     18.6%     18.4%     20.0%
Production                   789    1,018      623     14.0      18.7      12.3
                          ------   ------   ------   ------    ------    ------
Total cost of
 revenues                 $1,838   $2,020   $1,640     32.6%     37.1%     32.3%
                          ======   ======   ======   ======    ======    ======

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  percentage cost
of sales than research sales.  Production sales dropped as a percentage of total
sales from 22.7% in 1997 to 19.4% in 1998.

1997 v. 1996

The cost of revenues as a percentage  of sales  increased  from 32.3% in 1996 to
37.1% in 1997.  The  increase  in cost of  revenues  is  primarily  caused by an
increase in the percentage of product  sales,  which have a higher cost of sales
than research revenue. Production sales as a percentage of total sales increased
to 22.7% in 1997 compared to 14.8% in 1996.

Selling, General and Administrative Expenses Analysis

                                      Year Ended December 31,
                                      -----------------------
                                                           Expenses as a
                                                           Percentage of
                              ($ In Thousands)            Total Revenues
                              ----------------            --------------
                            1998    1997    1996       1998   1997   1996
                            ----    ----    ----       ----   ----   ----
Selling, General &
Administrative Expenses    $3,310  $2,902  $2,898      58.6%  53.2%  57.1%
                           ======= ======  ======      =====  =====  =====


                                       -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 11
of Notes to Financial Statements).

1997 v. 1996

Selling,  general  and  administrative  expenses,  as  a  percentage  of  sales,
increased $4,000 during 1997, but decreased as a percentage of sales, from 57.1%
in 1996 to 53.2% in 1997.  The Company's 7% sales increase in 1997 was supported
by slightly  increased  support staff. In addition,  legal  proceeding  expenses
dropped from 1996 to 1997.

CAPITAL RESOURCES AND LIQUIDITY

Cash and  certificates of deposit have increased from $1,522,316 at December 31,
1997 to $1,960,559 at December 31, 1998.  (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.  Neither the
issuance of stock nor the acquisition of debt was in 1998, nor expected to be in
1999, significant sources of cash.

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 to Financial Statements).

Except with  respect to the  mortgage 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  anticipated in
the next year are  anticipated  to  approximate  those in the past three  years.
During June, 2000, the Company  anticipates the use of approximately  $1,400,000
to satisfy the balloon payment due on the building mortgage (See Note 6 of Notes
to Financial Statements).

The Company's  cash position at December 31, 1998 is deemed  sufficient to cover
any  unforeseen  sales  downturn  as it is equal to  approximately  7 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, 1998 was 2.98
to 1.0 as compared to 2.95 to 1.0 at December 31, 1997.


                                      -10-
<PAGE>


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 6 of Notes to Financial Statements).  The Company intends
to provide for this payment by accumulating cash prior to the payment due date.

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

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  breakthroughs 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

Consistent  with recent years,  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.

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 1998.


                                      -11-
<PAGE>

<TABLE>
<CAPTION>

                                3/31/98          6/30/98         9/30/98           12/31/98
                                -------          -------         -------           --------
<S>                          <C>              <C>             <C>               <C>
Total revenue                $ 2,188,176      $ 1,362,085     $ 1,130,831       $   996,097
Cost of revenue                  658,736          437,123         319,312           423,304
Gross profit                   1,529,440          924,962         811,519           542,793
SG&A expenses                    827,931          813,865         764,981           903,255
Income (loss) from
 operations                      701,509          111,097          46,538          (360,462)
Other expenses                   (22,615)         (10,164)         (3,070)          (18,668)
Pre-tax income (loss)            678,894          100,933          43,468          (379,130)
Income tax expense
 (benefit)                      (321,500)         (43,500)        (30,050)          193,205
Net income (loss)            $   357,394      $    57,433     $    13,418       $  (185,925)
</TABLE>


During  the  years  ended  1997 and 1996,  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.


ITEM 9.   DISAGREEMENTS ON FINANCIAL AND ACCOUNTING DISCLOSURES

                                      None









                                      -12-
<PAGE>


                             POLYMER RESEARCH CORP.
                                   OF AMERICA

                              FINANCIAL STATEMENTS

                           DECEMBER 31, 1998 AND 1997


<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA



                                    CONTENTS


                                                                           Page
                                                                           ----

Independent Auditors' Report                                                F-1

Financial Statements

Balance Sheets at December 31, 1998 and 1997                          F-2 - F-3

Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996                                            F-4

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

Statement of Stockholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996                                            F-6

Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996                                      F-7 - F-8

Notes to Financial Statements                                         F-9 - F-21

Financial Statement Schedules

For the Years Ended December 31, 1998, 1997 and 1996:

         Report of Independent Certified Public
         Accountants on Financial Statement Schedules                      F-22

VIII     Valuation and Qualifying Accounts and Reserves                    F-23

   X     Supplementary Income Statement Information                        F-24

  XI     Property, Equipment and Accumulated Depreciation                  F-25

         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>


                          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, 1998 and 1997,  and the related  statements  of income,
comprehensive  income,  stockholders'  equity and cash flows for the years ended
December  31,  1998,  1997  and  1996.   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, 1998 and 1997 and the results of its  operations and its
cash flows for the years ended  December 31, 1998,  1997 and 1996, in conformity
with generally accepted accounting principles.


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


Hicksville, New York
February 18, 1999


                                       F-1
<PAGE>





                                 BALANCE SHEETS





<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
                                 BALANCE SHEETS
                           DECEMBER 31, 1998 AND 1997


                                                     ASSETS
                                                     ------
<TABLE>
<CAPTION>
                                                                      1998                   1997
                                                                   ----------             ----------
<S>                                                                <C>                    <C>
CURRENT ASSETS:
    Cash and cash equivalents                                      $  823,238             $  938,218
    Certificates of deposit                                         1,137,321                584,098
    Investment securities available
     for sale                                                         412,341                482,940
    Accounts receivable, less allowance for
     doubtful accounts of $-0- for 1998 and 1997                      245,669                137,827
    Inventories                                                       103,130                 99,654
    Deferred tax charge                                                39,000                    -0-
    Prepaid expenses and other current assets                          13,178                 17,504
                                                                   ----------             ----------

         Total Current Assets                                       2,773,877              2,260,241
                                                                   ----------             ----------

PROPERTY AND EQUIPMENT                                              2,814,511              2,863,416
                                                                   ----------             ----------

OTHER ASSETS:
    Deferred financing costs, less accumulated
     amortization of $3,456 for 1998 and $3,093 for 1997               11,087                 11,450
    Security deposits                                                   1,195                    -0-

                                                                       12,282                 11,450
                                                                   ----------             ----------
                                                                   $5,600,670             $5,135,107
                                                                   ==========             ==========

</TABLE>











       See independent auditors' report and notes to financial statements.


                                      F-2
<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
                                 BALANCE SHEETS
                           DECEMBER 31, 1998 AND 1997


                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                    1998                      1997
                                                                -----------               -----------
<S>                                                             <C>                       <C>
CURRENT LIABILITIES:
    Current maturities of long-term debt                        $    34,688               $    31,244
    Accounts payable                                                 74,288                    75,548
    Deferred revenue                                                496,650                   252,450
    Income taxes payable                                             89,431                    56,100
    Accrued expenses and other current
     liabilities                                                    235,685                   349,802
                                                                -----------               -----------

         Total Current Liabilities                                  930,742                   765,144
                                                                -----------               -----------

LONG-TERM LIABILITY:
    Long-term debt, less current maturities                       1,417,082                 1,451,770
                                                                -----------               -----------

STOCKHOLDERS' EQUITY:
    Common stock - $.01 par value; 4,000,000
     shares authorized; 1,685,784 and 1,580,548
     shares issued at December 31, 1998 and
     1997, respectively                                              16,857                    15,805
    Capital in excess of par value                                3,120,685                 2,850,332
    Retained earnings                                               167,259                   111,029
    Accumulated other comprehensive income (loss)                     4,782                    (2,236)
                                                                -----------               -----------
                                                                  3,309,583                 2,974,930

Less:  Treasury stock, at cost -
        91,837  shares in 1998 and 1997                              56,737                    56,737
                                                                -----------               -----------

         Total Stockholders' Equity                               3,252,846                 2,918,193
                                                                -----------               -----------


                                                                $ 5,600,670               $ 5,135,107
                                                                ===========               ===========
</TABLE>

      See independent auditors' report and notes to financial statements.


                                       F-3
<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
                              STATEMENTS OF INCOME
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                            1998                  1997                   1996
                                                                         -----------           -----------            -----------
<S>                                                                      <C>                   <C>                    <C>
NET REVENUES:
     Research                                                            $ 4,554,400           $ 4,214,293            $ 4,326,424
     Production                                                            1,092,789             1,233,979                752,145
                                                                         -----------           -----------            -----------
                                                                           5,647,189             5,448,272              5,078,569
                                                                         -----------           -----------            -----------
COST OF REVENUES:
     Research                                                              1,048,560             1,001,818              1,017,460
     Production                                                              789,915             1,018,505                623,320
                                                                         -----------           -----------            -----------
                                                                           1,838,475             2,020,323              1,640,780
                                                                         -----------           -----------            -----------

GROSS PROFIT                                                               3,808,714             3,427,949              3,437,789

SELLING, GENERAL AND ADMINISTRATIVE
 EXPENSES                                                                  3,310,032             2,902,474              2,897,775
                                                                         -----------           -----------            -----------

INCOME FROM OPERATIONS                                                       498,682               525,475                540,014
                                                                         -----------           -----------            -----------

OTHER INCOME (EXPENSE):
     Interest income                                                          92,687                65,886                 58,965
     Interest expense                                                       (154,241)             (157,320)              (227,683)
     Net rental income                                                            -0-                   -0-                 2,850
     Realized gain (loss) on investment
      in marketable securities                                                 7,037                 1,604                 (1,621)
     Mortgage modification expense                                                -0-                   -0-               (45,000)
                                                                         -----------           -----------            -----------

           Total Other Expense                                               (54,517)              (89,830)              (212,489)
                                                                         -----------           -----------            -----------

INCOME BEFORE PROVISION FOR INCOME
 TAXES                                                                       444,165               435,645                327,525

PROVISION FOR INCOME TAXES                                                   201,845               229,066                157,697
                                                                         -----------           -----------            -----------

NET INCOME                                                               $   242,320           $   206,579            $   169,828
                                                                         ===========           ===========            ===========

BASIC EARNINGS PER SHARE                                                 $       .15           $       .13*           $       .11**
                                                                         ===========           ===========            ===========

WEIGHTED AVERAGE NUMBER OF SHARES
 OUTSTANDING                                                               1,586,268             1,558,215*             1,543,148**
                                                                         ===========           ===========            ===========
</TABLE>

*    Restated for 1998 5% stock dividend
**   Restated for 1998 5% stock dividend and 1997 5% stock dividend


       See independent auditors' report and notes to financial statements.

                                       F-4
<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
                       STATEMENTS OF COMPREHENSIVE INCOME
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                  1998                1997                1996
                                                                ---------           ---------           ---------
<S>                                                             <C>                 <C>                 <C>
NET INCOME                                                      $ 242,320           $ 206,579           $ 169,828

OTHER COMPREHENSIVE INCOME,
 NET OF TAX:
         Unrealized gain (loss) during the period                   7,018               9,881             (10,147)
                                                                ---------           ---------           ---------

OTHER COMPREHENSIVE INCOME (LOSS)                                   7,018               9,881             (10,147)
                                                                ---------           ---------           ---------

COMPREHENSIVE INCOME                                            $ 249,338           $ 216,460           $ 159,681
                                                                =========           =========           =========
</TABLE>

See independent auditors' report and notes to financial statements.


                                       F-5
<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
                        STATEMENT OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                       Common Stock, $.01 Par
                                         Value Authorized;
                                         4,000,000 Shares               Capital
                                      --------------------------       in Excess         Retained
                                        Shares          Amount           of Par          Earnings
                                      ---------       ----------       ----------      -----------
<S>                                   <C>             <C>              <C>              <C>
Balance, December 31, 1995            1,354,234       $   13,542       $2,091,699       $  475,518

Net Income                                  -0-              -0-              -0-          169,828
Stock Dividend                          135,423            1,354          540,338         (541,692)

Unrealized Loss on Investment
 Securities Available for Sale              -0-              -0-              -0-              -0-
                                      ---------       ----------       ----------      -----------

Balance, December 31, 1996            1,489,657           14,896        2,632,037          103,654
                                      ---------       ----------       ----------      -----------

Net Income                                  -0-              -0-              -0-          206,579
Stock Bonus Issued                       20,000              200           19,800              -0-
Stock Dividend                           70,891              709          198,495         (199,204)
Unrealized Gain Investment
 Securities Available for Sale              -0-              -0-              -0-              -0-
                                      ---------       ----------       ----------      -----------

Balance, December 31, 1997            1,580,548           15,805        2,850,332          111,029
                                      ---------       ----------       ----------      -----------

Net Income                                  -0-              -0-              -0-          242,320
Stock Bonus Issued                       30,800              308           85,007              -0-
Stock Dividend                           74,436              744          185,346         (186,090)
Unrealized Gain on Investment
 Securities Available for Sale              -0-              -0-              -0-              -0-
                                      ---------       ----------       ----------      -----------

Balance, December 31, 1998            1,685,784       $   16,857       $3,120,685       $  167,259
                                      ---------       ----------       ----------      -----------
</TABLE>

<TABLE>
<CAPTION>

                                         Accumulated
                                            Other
                                        Comprehensive            Treasury Stock - At Cost
                                         ------------           ---------------------------
                                         Income(Loss)           Shares              Amount
                                         ------------           ------              ------
<S>                                      <C>                    <C>            <C>
Balance, December 31, 1995               $    (1,970)           83,488         $   (56,737)

Net Income                                       -0-               -0-                 -0-
Stock Dividend                                   -0-             8,349                 -0-

Unrealized Loss on Investment
 Securities Available for Sale               (10,147)              -0-                 -0-
                                         -----------            ------         ----------- 

Balance, December 31, 1996                   (12,117)           91,837             (56,737)
                                         -----------            ------         ----------- 

Net Income                                       -0-               -0-                 -0-
Stock Bonus Issued                               -0-               -0-                 -0-
Stock Dividend                                   -0-               -0-                 -0-
Unrealized Gain Investment
 Securities Available for Sale                 9,881               -0-                 -0-
                                         -----------            ------         ----------- 

Balance, December 31, 1997                    (2,236)           91,837             (56,737)
                                         -----------            ------         ----------- 

Net Income                                       -0-               -0-                 -0-
Stock Bonus Issued                               -0-               -0-                 -0-
Stock Dividend                                   -0-               -0-                 -0-
Unrealized Gain on Investment
 Securities Available for Sale                 7,018               -0-                 -0-
                                         -----------            ------         ----------- 

Balance, December 31, 1998               $     4,782            91,837         $   (56,737)
                                         ===========            ======         =========== 
</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, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                                                              1998                   1997                   1996
                                                                          -----------            -----------            -----------
<S>                                                                       <C>                    <C>                    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Cash received from customers                                             $ 5,779,942            $ 5,255,070            $ 5,266,656
 Interest received                                                             92,687                 65,886                 58,965
 Rent received                                                                    -0-                    -0-                  2,850
                                                                          -----------            -----------            -----------
     Cash Provided By Operating Activities                                  5,872,629              5,320,956              5,328,471
                                                                          -----------            -----------            -----------

 Cash paid for merchandise                                                 (1,790,321)            (1,961,416)            (1,572,608)
 Cash paid to suppliers and employees                                      (3,298,625)            (2,899,200)            (2,732,151)
 Interest paid                                                               (154,241)              (157,320)              (227,683)
 Income taxes paid                                                           (207,514)                (5,966)              (358,097)
 Mortgage modification fee paid                                                   -0-                    -0-                (45,000)
                                                                          -----------            -----------            -----------
     Cash Disbursed For Operating Activities                               (5,450,701)            (5,023,902)            (4,935,539)
                                                                          -----------            -----------            -----------

                  NET CASH PROVIDED BY
              OPERATING ACTIVITIES                                            421,928                297,054                392,932
                                                                          -----------            -----------            -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Proceeds from maturity of certificates of deposit                                -0-                399,030                142,611
 Proceeds from sale of marketable securities                                   95,610                551,452                378,619
                                                                          -----------            -----------            -----------
     Cash Provided By Investing Activities                                     95,610                950,482                521,230
                                                                          -----------            -----------            -----------

 Purchase of certificates of deposit                                         (553,223)              (428,790)              (554,338)
 Purchase of marketable securities                                            (10,956)              (549,624)              (275,189)
 Purchase of property and equipment                                           (37,095)               (11,865)               (18,221)
                                                                          -----------            -----------            -----------
     Cash Disbursed For Investing Activities                                 (601,274)              (990,279)              (847,748)
                                                                          -----------            -----------            -----------

              NET CASH USED IN INVESTING
              ACTIVITIES                                                     (505,664)               (39,797)              (326,518)
                                                                          -----------            -----------            -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Principal payments on long-term borrowings                                   (31,244)               (28,209)              (831,278)
                                                                          -----------            -----------            -----------

              NET CASH USED IN FINANCING
              ACTIVITIES                                                      (31,244)               (28,209)              (831,278)
                                                                          -----------            -----------            -----------

              NET (DECREASE) INCREASE  IN CASH                               (114,980)               229,048               (764,864)

              CASH, BEGINNING OF YEAR                                         938,218                709,170              1,474,034
                                                                          -----------            -----------            -----------

              CASH, END OF YEAR                                           $   823,238            $   938,218            $   709,170
                                                                          ===========            ===========            ===========
</TABLE>


    See independent auditors' report and notes to financial statements.


                                       F-7
<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
                                                                                     1998               1997                 1996
                                                                                  ---------           ---------           ----------
RECONCILIATION OF NET INCOME TO NET CASH
  PROVIDED BY OPERATING ACTIVITIES:
<S>                                                                               <C>                 <C>                 <C>
    NET INCOME                                                                    $ 242,320           $ 206,579           $ 169,828
                                                                                  ---------           ---------           ---------

    ADJUSTMENTS TO RECONCILE NET INCOME TO
    NET CASH PROVIDED BY OPERATING ACTIVITIES:

       Bonus paid through issuance of stock                                          85,315              20,000                 -0-
       Depreciation and amortization                                                 86,363              88,327              93,658
       Bad debt expense                                                               3,605               6,375               2,342
       Realized (gain) loss on investment
        in marketable securities                                                     (7,037)             (1,604)              1,621

    Changes in assets (increase) decrease:
       Accounts receivable                                                         (111,447)            (52,352)            (34,376)
       Inventories                                                                   (3,476)            (13,832)            (13,109)
       Deferred tax charge                                                          (39,000)                -0-                 -0-
       Prepaid income taxes                                                             -0-             167,000            (167,000)
       Prepaid expenses and other current assets                                      4,326              10,582             (15,491)
       Security deposits                                                             (1,195)                -0-                 -0-

    Changes in liabilities increase (decrease):
       Accounts payable                                                              (1,260)             18,641              43,765
       Deferred revenue                                                             244,200            (140,850)            222,463
       Income taxes payable                                                          33,331              56,100             (33,400)
       Accrued expenses and other current liabilities                              (114,117)            (67,912)            122,631
                                                                                  ---------           ---------           ---------


                 Total Adjustments                                                  179,608              90,475             223,104
                                                                                  ---------           ---------           ---------


                      NET CASH PROVIDED BY
                      OPERATING ACTIVITIES                                        $ 421,928           $ 297,054           $ 392,932
                                                                                  =========           =========           =========


    SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

             Stock dividend paid                                                  $ 186,090           $ 199,204           $ 541,692
                                                                                  =========           =========           =========
             Other comprehensive income (loss)                                    $   7,018           $   9,881           $ (10,147)
                                                                                  =========           =========           =========
             Stock bonus paid                                                     $  85,315           $  20,000                 -0-
                                                                                  =========           =========           =========
</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  for  research  and
          production is derived from various manufacturers 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 resulting from product sales are not collateralized.

          The Company maintains  deposits with financial  institutions in excess
          of amounts insured by the FDIC.

          Pervasiveness of Estimates

          The  preparation of financial  statements in conformity with generally
          accepted  accounting  principles requires management to make estimates
          and assumptions that affect reported amounts of assets and liabilities
          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 is
          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, 1998 and 1997, 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).

     The amortized cost and fair values of investment  securities  available for
sale at December 31, 1997 are:

<TABLE>
<CAPTION>
                                                               Gross           Gross
                                            Amortized        Unrealized       Unrealized         Fair
                                              Cost             Gains           Losses           Value
                                            ---------       ---------        ---------        ---------
<S>                                         <C>             <C>              <C>              <C>
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 at December 31, 1998 are:

<TABLE>
<CAPTION>
                                                               Gross           Gross
                                            Amortized        Unrealized       Unrealized         Fair
                                              Cost             Gains           Losses           Value
                                            ---------       ---------        ---------        ---------
<S>                                         <C>             <C>              <C>              <C>      
U.S. Treasury securities                    $  90,181       $   2,053        $      -0-       $  92,234
Obligations of other U.S.
 government agencies                          254,177          12,601          (20,948)         245,830
Other  securities                             149,999             -0-           (5,123)         144,876
                                            ---------       ---------        ---------        ---------

                                            $ 494,357       $  14,654        $ (26,071)       $ 482,940
                                            =========       =========        =========        =========
</TABLE>

The amortized cost and fair values of investment  securities  available for sale
December 31, 1998 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.

                                                      Securities Available
                                                            For Sale
                                                     ----------------------

                                                     Amortized        Fair
                                                       Cost           Value
                                                     ---------        -----

     Due in one year or less                         $     -0-      $    -0-
     Due after one year but less
      than five years                                  70,176        65,472
     Due after five years but
      less than ten years                               6,697         6,950
     Due after ten years                               22,545        23,817
                                                       ------        ------
                                                       99,418        96,239



                                      F-13
<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
                          NOTES TO FINANCIAL STATEMENTS

Note 2 -  Investment Securities (cont'd).

                                                    Amortized        Fair
                                                       Cost          Value

     Mortgage-backed securities                      196,102        199,215
     Other securities                                120,835        116,887
                                                    --------       --------
                                                    $416,355       $412,341
                                                    ========       ========

     Proceeds from sales and maturities of investment  securities  available for
     sale during 1998 and 1997 were $95,610 and $551,452, respectively.

Note 3 -  Inventories

     Inventories at December 31, 1998 and 1997 are as follows:

                                                   1998              1997
                                                 --------          --------

     Raw materials                               $ 92,254          $ 85,556
     Finished goods                                10,876            14,098
                                                 --------          --------

                                                 $103,130          $ 99,654
                                                 ========          ========

Note 4 -  Property and Equipment

     Property and equipment is summarized as follows:

                                                     1998           1997
                                                  ----------     ----------

     Land                                         $  450,000     $  450,000
     Land improvements                                80,211         80,211
     Building                                      2,550,000      2,550,000
     Building improvements                           289,505        289,505
     Transportation equipment                            -0-         12,967
     Machinery and equipment                         225,480        206,917
     Furniture and fixtures                          108,965         99,018
     Office equipment                                 45,527         65,066
                                                  ----------     ----------
                                                   3,749,688      3,753,684
     Less:  Accumulated depreciation
                and amortization                     935,177        890,268
                                                  ----------     ----------

                                                  $2,814,511     $2,863,416
                                                  ==========     ==========


                                      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 $86,000, $87,963 and $93,294 for the years ended
          December 31, 1998, 1997 and 1996 respectively.

Note 5 -  Deferred Revenue

          At  December  31,  1998 and 1997 the  Company  had  received  research
          contract  payments not yet earned  aggregating  $496,650 and $252,450,
          respectively.

Note 6 -  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.

          The  mortgage  is secured  by a lien on the  building.  The  principal
          balances payable on the mortgage amounted to $1,451,770 and $1,483,014
          of which  $34,688  and $31,244  represent  current  maturities  of the
          mortgage at December 31, 1998 and 1997, respectively.

          Aggregate maturities of the mortgage note payable are as follows:



                  Years Ending December 31:
                  -------------------------
                           1999                        $   34,688
                           2000                         1,417,082
                                                       ----------

                                                       $1,451,770
                                                       ==========
Note 7 -  Contingencies

          At December 31, 1998,  the Company is a defendant in various  lawsuits
          which arose in the ordinary course of business.  At December 31, 1998,
          the Company has  provided a reserve of  $100,000,  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.


                                      F-15
<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
                          NOTES TO FINANCIAL STATEMENTS

Note 8 -  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  $170,000  for 1998 and  annual
          increases of $10,000 throughout its duration.

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

                Years Ending December 31:
                -------------------------
                         1999                       $ 55,893
                         2000                         34,839
                                                    --------
                         2001                         21,521
                         2002                         16,419
                         2003                         13,682
                                                    --------

                                                    $142,354
                                                    ========



          Lease expenses  charged to operations for the years ended December 31,
          1998 and 1997 amounted to $41,978 and $11,191, 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:

                Years Ending December 31:
                -------------------------
                         1999                         $13,651
                         2000                           7,026
                                                      -------
                                                      $20,677
                                                      =======

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

          Rent expense  charged to  operations  for the year ended  December 31,
          1998 amounted to $7,975.


                                      F-16
<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
                          NOTES TO FINANCIAL STATEMENTS

Note 9 -  Stock Dividends

          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.

          On  March  1,  1996 the  Company  declared  a 10%  stock  dividend  to
          stockholders  of record at March 15, 1996,  paid March 29,  1996.  The
          transaction  was valued  based upon the  closing  market  price of the
          Company's stock on March 15, 1996 which was $4.00 per share.  Retained
          earnings  was  charged  for  $541,692  as a result of the  issuance of
          135,423 shares.

          Per share  data were  retroactively  restated  for the  effects of the
          1998, 1997 and 1996 stock dividends.

Note 10 - 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.


                                      F-17
<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
                          NOTES TO FINANCIAL STATEMENTS


Note 10 - Shareholders Rights Plan (cont'd).

          The Company  will  generally be entitled to redeem all rights for $.01
          per right at any time prior to the tenth day following the acquisition
          of 15% or more of the Company's common stock by a person or group.

Note 11 - Stock Bonuses

          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 at $20,000.

Note 12 - Provision For Income Taxes

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

                                           1998         1997        1996
                                         ---------    ---------   ---------

     Current:
      Federal                            $ 154,381    $ 135,754   $  92,054
      State and local                       86,464       93,312      65,643
                                         ---------    ---------   ---------
                                           240,845      229,066     157,697
                                         ---------    ---------   ---------

     Deferred:
      Federal                              (23,900)         -0-         -0-
      State and local                      (15,100)         -0-         -0-
                                         ---------    ---------   ---------
                                           (39,000)         -0-         -0-

     Provision for income taxes          $ 201,845    $ 229,066   $ 157,697
                                         =========    =========   =========


                                      F-18
<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
                          NOTES TO FINANCIAL STATEMENTS


Note 12 - Provision For Income Taxes (cont'd).

          The reconciliation between the maximum effective income tax rates with
          federal  statutory tax rates for the year ended  December 31, 1998 and
          the rates  reflected in the  accompanying  financial  statements is as
          follows:

                Income taxes at U.S. statutory rates                  $ 151,016
                (Decrease) increase in federal income
                tax expense resulting from:
                Federal tax arising from non-deductible
                financial statement expenses                             22,640
                Benefit from deduction for state
                and local taxes                                         (58,275)
                State and local taxes                                    86,464
                                                                    -----------

                Provision for Income Taxes                          $   201,845
                                                                    ===========

Note 13 - 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, 1998,
1997 and 1996 are as follows:




                                           1997         1996         1998
                                        ----------   ----------   ----------
     NET REVENUES:
      Research                          $4,554,400   $4,214,293   $4,326,424
      Production                         1,092,789    1,233,979      752,145
                                        ----------   ----------   ----------

                   Total Net Revenues   $5,647,189   $5,448,272   $5,078,569
                                        ==========   ==========   ==========

     GROSS PROFIT:
      Research                          $3,505,840   $3,212,475   $3,308,964
      Production                           302,874      215,474      128,825
                                        ----------   ----------   ----------
                   Total Gross Profit    3,808,714    3,427,949    3,437,789
                                        ==========   ==========   ==========

                                      F-19
<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
                          NOTES TO FINANCIAL STATEMENTS

Note 13 - Industry Segments (cont'd).
<TABLE>
<CAPTION>
                                                         1998                  1997                  1996
                                                      ----------            ----------            ----------
<S>                                                    <C>                   <C>                   <C>
     SELLING, GENERAL AND ADMINISTRATIVE
      EXPENSES                                         3,310,032             2,902,474             2,897,775
                                                      ----------            ----------            ----------


     INCOME FROM OPERATIONS                           $  498,682            $  525,475            $  540,014
                                                      ==========            ==========            ==========

     CAPITAL EXPENDITURES:
          Research                                    $    8,901                   -0-            $    3,603
          Production                                       4,289                   -0-                 2,881
          Corporate                                       23,904                11,864                 5,766
                                                      ----------            ----------            ----------
                       Total                          $   37,094            $   11,864            $   12,250
                                                      ==========            ==========            ==========

     DEPRECIATION AND AMORTIZATION:
          Research                                    $   35,690            $   36,505            $   27,545
          Production                                      17,200                17,593                22,028
          Corporate                                       33,110                33,865                44,085
                                                      ----------            ----------            ----------
                       Total                          $   86,000            $   87,963            $   93,658
                                                      ==========            ==========            ==========

     IDENTIFIABLE ASSETS:
          Research                                    $1,145,853            $1,262,411               886,238
          Production                                     901,017               718,512               831,529
          Corporate                                    3,553,800             3,154,184             3,343,110
                                                      ----------            ----------            ----------
                       Total                          $5,600,670            $5,135,107            $5,060,877
                                                      ==========            ==========            ==========
</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-20
<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
                          NOTES TO FINANCIAL STATEMENTS

Note 14 - Accrued Expenses and Other Current Liabilities

          Accrued  expenses and other  current  liabilities  are  summarized  as
          follows:

                                                        1998         1997
                                                      --------     --------

     Accrued profit sharing                           $     -0-    $100,000
     Accrued provision for legal
      proceedings                                      100,000      100,000
     Accrued vacation                                   23,435       26,042
     Accrued professional fees                          35,000       30,000
     Accrued officers' bonuses                             -0-       37,899
     Other items (none in excess
      of 5% of total current liabilities)               77,250       55,861
                                                      --------     --------

                                                      $235,685     $349,802
                                                      ========     ========

Note 15 -

          Profit Sharing Plan

          Profit  sharing  expense  under the Company's  noncontributory  profit
          sharing plan charged to operations amounted to $-0- for the year ended
          December 31, 1998 and  $100,000 for the years ended  December 31, 1997
          and 1996.

Note 16 - Subsequent Event

          On February  11,  1999,  the Company  declared a 5% stock  dividend to
          stockholders of record at March 16, 1999, payable April 2, 1999.


                                      F-21
<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 1998,  1997 and 1996,  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 18, 1999


                                      F-22
<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 Accounts                     Balanced at
                                        Of Year             Expenses             Beginning             Deductions      End of Year

Allowance for Doubtful Accounts:


<S>                                    <C>                  <C>                  <C>                  <C>              <C>
Year ended December 31, 1998           $      -0-           $    3,605           $      -0-          $    3,605        $      -0-
                                       ----------           ----------           ----------          ----------        ----------
Year ended December 31, 1997           $      -0-           $    6,375           $      -0-          $    6,375        $      -0-
                                       ----------           ----------           ----------          ----------        ----------
Year ended December 31, 1996           $    4,000           $    2,342           $      -0-          $    6,342        $      -0-
                                       ----------           ----------           ----------          ----------        ----------

Reserve for Sales Credits:


Year ended December 31, 1998          $       -0-           $      -0-           $      -0-          $      -0-        $      -0-
                                       ----------           ----------           ----------          ----------        ----------
Year ended December 31, 1997          $       -0-           $      -0-           $      -0-          $      -0-        $      -0-
                                       ----------           ----------           ----------          ----------        ----------
Year ended December 31, 1996          $       -0-           $      -0-           $      -0-          $      -0-        $      -0-
                                       ----------           ----------           ----------          ----------        ----------
</TABLE>



                                      F-23
<PAGE>


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


                                              Charged To Costs and Expenses
                                                         December 31,
                                           1998             1997          1996
                                        ----------       ----------    --------


1. MAINTENANCE AND REPAIR                $  61,832       $    *        $  56,208
                                        ----------       ----------    ---------

2. DEPRECIATION                          $  86,000       $  87,963     $  93,658
                                        ----------       ----------    ---------

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

4. ROYALTIES                               *                  *              *

5. ADVERTISING COSTS                       *                  *              *

Note:  * Less than 1% of revenue.


                                      F-24
<PAGE>


                        POLYMER RESEARCH CORP. OF AMERICA
         SCHEDULE XI - PROPERTY, EQUIPMENT AND ACCUMULATED DEPRECIATION
                          YEAR ENDED DECEMBER 31, 1998


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

                                      Land                     Land
                                      Building and             Building and                         Accumulateed
Description           Encumbrances    Improvements  Equipment  Improvements  Equipment   Total      Depreciation
------------------    ------------    ------------  ---------  ------------  ---------  ----------  ------------
<S>                   <C>             <C>           <C>         <C>          <C>        <C>          <C>
Land, Building and    $1,451,770      $3,369,716    $   -0-     $3,369,716   $     -0-  $3,369,716   $  608,624
 Improvements

Equipment                    -0-             -0-      379,972          -0-     379,972     379,972      326,553
                      ----------      ----------    ---------   ----------   ---------  ----------   ----------

                      $1,451,770      $3,369,716    $ 379,972   $3,369,716     379,972   3,749,688      935,177
                      ==========      ==========    =========   ==========   =========  ==========   ==========

<CAPTION>
                                        Life On Which
                                        Depreciation
                                         In Latest
                                           Income
                         Date             Statement
Description            Acquired          is Computed
------------------     ------------     -------------
<S>                    <C>              <C>
Land, Building and     June 4, 1990     20-40 Years
 Improvements

Equipment                 Various       3-10 Years
</TABLE>



                                      F-25
<PAGE>


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive  officers of the Company as of December 31, 1998 are
as follows:

<TABLE>
<CAPTION>

NAME                       AGE                         POSITION
----                       ---                         --------
<S>                        <C>             <C>                       
Carl Horowitz              75              President and Director

Irene Horowitz             75              Senior Vice President and Director

John M. Ryan               43              Director, Executive Vice
                                            President, Corporate Research

Alice J. Horowitz          39              Director and Vice President of Polymer West branch

Boris Jody                 79              Director

Anna Dichter               85              Secretary, Treasurer

Terry J. Wolfgang          37              Director

Dr. Mohan Sanduja          63              Vice President, R & D
                                            Director

Clare Chamow               64              Vice President, Office Management

Betty Friedman             67              Vice President, Personnel
</TABLE>


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.

Betty Friedman  joined the Company in 1976. She became a Vice President in March
of 1996 and is in charge of personnel and purchasing for production.


                                      -14-
<PAGE>


ITEM 11.  EXECUTIVE COMPENSATION

The  following  table sets forth the  compensation  paid  during the years ended
December 31, 1998, 1997 and 1996 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, 1998.

<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE

                                                                LONGTERM 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      1998  $170,000    $      -0-     $  13,233    $   -0-        $-0-         $-0-      $    -0-
CEO, PRESIDENT     1997   160,000       25,000         13,236        -0-         -0-                    12,985
                   1996   150,000       25,000         10,836        -0-         -0-          -0         7,460

IRENE HOROWITZ     1998    80,703                                    -0-         -0-          -0-           -0-
SENIOR VICE        1997   158,349       10,000            -0-        -0-         -0-          -0-       12,985
PRESIDENT          1996   153,923       10,000            -0-        -0-         -0-          -0-        7,650

JOHN M. RYAN       1998   276,984       12,324            -0-        -0-         -0-          -0-           -0-
EXECUTIVE VICE     1997   241,167          -0-            -0-     20,000         -0-          -0-        3,359
PRESIDENT          1996   218,227       20,000            -0-        -0-         -0-          -0-        3,524

MOHAN SANDUJA      1998   125,367        1,500            -0-        -0-         -0-          -0-           -0-
VICE PRESIDENT     1997   117,780        1,624            -0-        -0-         -0-          -0-        9,905
RESEARCH AND       1996   114,080        1,500            -0-        -0-         -0-          -0-       10,592
DEVELOPMENT
</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.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  following  table sets forth certain  information,  as of February 18, 1999,
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                  367,914         23.1%
$.01 par value           2719 Whitman Drive
                         Brooklyn, NY  11234


                         Irene Horowitz                  70,811          4.4%
                         2719 Whitman Drive                                  
                         Brooklyn, NY  11234                                 
                                                                             
                         John M. Ryan                    29,184          1.8%
                         3035 Lonni Lane                                     
                         Merrick, N.Y.  11566                                
                                                                             
                         Alice J. Horowitz                1,517          0.1%
                         3046 West Tonopah Drive                             
                         Phoenix, Arizona  85027                             
                                                                             
                         Boris Jody                         -0-          0.0%
                         4301 N. Ocean Blvd.                                 
                         Boca Raton, Fl.                                     
                                                                             
                         Anna Dichter                     1,400          0.1%
                         1757 E. 54th Street                                 
                         Brooklyn, N.Y.                                      
                                                                             
                         Terry J. Wolfgang                3,700          0.2%
                         440 West End Avenue                                 
                         New York, N.Y.  10750                               
                                                                             
                         Dr. Mohan Sanduja                  -0-          0.0%
                         144-90 91st Avenue                                  
                         Flushing, N.Y.                                      
                                                                             
                         Clare Chamow                       -0-          0.0%
                         5613 Fillmore Avenue                                
                         Brooklyn, N.Y. 11234                                
                                                                             
                         Betty Friedman                     -0-          0.0%
                         7219 Avenue N                                       
                         Brooklyn, N.Y. 11234                                
                                                                             
                         All executive officers and                          
                         Directors as a group (11                            
                          in number)                    474,526          29.8
                                                                             
                                                                             
<PAGE>


                                                                 -17-

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