SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MAY 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-17741
EPOLIN, INC.
(Exact name of Small Business Issuer as Specified in its Charter)
New Jersey 22-2547226
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification
Organization) Number)
358-364 ADAMS STREET
NEWARK, NEW JERSEY 07105
(Address of Principal Executive Offices)
(973) 465-9495
(Issuer's Telephone Number, Including Area Code)
Check whether the Issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the Registrant was required to file such
reports),and (2) has been subject to such filing requirements for the past
90 days.
Yes No X
State the number of shares outstanding of each of the Issuer's classes of
common equity, as of the latest practicable date:
Common, no par value per share: 11,611,555
outstanding as of August 1, 1997
<PAGE>
PART I - FINANCIAL INFORMATION
EPOLIN, INC. AND SUBSIDIARY
Index to Financial Information
Period Ended May 31, 1997
ITEM PAGE HEREIN
Item 1 - Financial Statements:
Introductory Comments 3
Balance Sheet 4
Statement of Income 6
Statement of Cash Flows 7
Notes to Consolidated Financial Statements 8
Item 2 - Management's Discussion and
Analysis or Plan of Operation 13
<PAGE>
EPOLIN, INC. AND SUBSIDIARY
MAY 31, 1997
The financial information herein is unaudited. However, in the opinion
of management, such information reflects all normal and recurring adjustments
necessary for a fair presentation of the financial results for the periods
being reported. Additionally, it should be noted that the accompanying
financial statements do not purport to be complete disclosures in conformity
with generally accepted accounting principles.
The results of operations for the three months ended May 31, 1997 are
not necessarily indicative of the results of operations for the full fiscal
year ending February 28, 1998.
These condensed statements should be read in conjunction with the
Company's audited financial statements for the fiscal year ended February 28,
1997.
<PAGE>
EPOLIN, INC AND SUBSIDIARY
BALANCE SHEET
(Unaudited)
ASSETS
MAY 31, 1997
Current assets:
Cash and cash equivalents $ 225,010
Accounts receivables (Note 3) 267,227
Inventories (Note 4) 365,920
Related party receivables: (Note 11)
Advances 4,056
Loan 200
Prepaid expenses:
Income Taxes 10,145
Other 14,764
Deferred taxes (Note 5) 100,555
Total current assets 990,577
Property, plant and equipment - at cost:
Machinery and equipment 203,043
Furniture and fixtures 11,036
Leasehold improvements 429,037
Total 643,116
Less: Accumulated depreciation
and amortization 510,424
Net depreciated cost 132,692
Other assets:
Loan receivable - related party (Note 11) 81,531
Deferred taxes (Note 5) 199,494
Security deposits 37,070
Cash value - life insurance policy
(Note 10) 23,902
Total other assets 341,997
Total $1,465,566
<PAGE>
EPOLIN, INC. AND SUBSIDIARY
BALANCE SHEET (CONTINUED)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
MAY 31, 1997
Current liabilities:
Accounts payable $ 9,057
Accrued expenses 31,886
Total current liabilities 40,943
Deferred compensation (Note 10) 23,053
Total liabilities 63,996
Commitments (Note 10)
Stockholders'equity:
Preferred stock, $2.50 par value: 940,000
shares authorized; none issued
Series A convertible non-cumulative
preferred stock, $15.513 par value;
redemption price and liquidation
preferences 60,000 shares
authorized: 5,478 shams issued and
redeemed
Common stock, no par value; 20,000,000
shares authorized: 11,654,000 shares
issued and outstanding at 1997 and 1996 2,206,983
Common stock unissued (Note 6) 10,000
Paid-in capital 6,488
Accumulated deficit (821,899)
Total 1,401,570
Less treasury stock (Note 7) -
Total stockholders' equity 1,401,570
Total $ 1,465,566
<PAGE>
EPOLIN, INC. AND SUBSIDIARY
STATEMENT OF INCOME
(Unaudited)
THREE MONTHS ENDED MAY 31, 1997
Sales (Notes 2 and 3) $ 343,460
Cost of expenses:
Cost of sales 127,080
Selling, general and administrative
expenses (Notes 2,7,8 & 10) 177,517
Total 304,597
Operating income 38,863
Other - Interest 2,364
Income before taxes 41,277
Income taxes (Note 5) -
Net income $41,227
Per share data:
Net income per common share $ -
Weighted average number of
shares of common outstanding $11,611,555
<PAGE>
EPOLIN, INC. AND SUBSIDIARY
STATEMENT OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED MAY 31, 1997
Cash flows from operating activities:
Net income $ 41,227
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 14,829
Changes in assets and liabilities:
Accounts receivable (40,703)
Inventories (24,232)
Advances and loans 15,841
Accounts payable (9,668)
Accrued Expenses (1,328)
Taxes payable - payroll (6,347)
Net cash provided by operating activities (10,381)
Cash flows from investing activities:
Related party loan (10,027)
Payments for equipment - net (4,385)
Net cash used by investing activities (14,412)
Decrease in cash (24,793)
Cash and cash equivalents:
Beginning 252,803
Ending $228,010
Supplemental Disclosure of Cash Flow
Information:
Income taxes paid $ 175
<PAGE>
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
Epolin, Inc. (the "Company") was incorporated on May 8, 1984
pursuant to the laws of the State of New Jersey to develop, manufacture
and market a class of monomer and polymer formulations with applications
in the composition and manufacture of a new type of highly protective and
durable material. The Company's activities during its development
stage from May 8, 1984 (inception) through February 28, 1990 had been
substantially devoted to developing its principal products. Active
operations in the monomer and polymer technologies have ceased.
The Company's wholly-owned subsidiary, Accort Labs, Inc., is
engaged in the development, production and sale of near infrared dyes to the
optical industry for laser protection and welding applications and
other dyes, specialty chemical products that serve as intermediates and
additives used in the adhesive, plastic, aerospace, pharmaceutical, flavors
and fragrance industries to customers located in the eastern part of the
United States.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS - For purposes of preparing the statement of cash
flows, cash and cash equivalents include cash in bank and money market
accounts.
INVENTORIES - Consists of raw materials, work in process and finished goods
valued at the lower of cost or market under the first-in, first-out method.
PROPERTY AND EQUIPMENT - Stated at cost less accumulated depreciation.
Provisions for depreciation are computed on the straight-line
and declining balance methods, based upon the estimated useful lives of the
assets.
LEASEHOLD IMPROVEMENTS - Stated at cost less accumulated amortization,
amortized over the lesser of the term of the related lease or the estimated
useful lives of the assets.
Depreciation and amortization expense totaled $14,829 for the three months
ended May 31, 1997.
INCOME TAXES -The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income taxes."
Under Statement 109, the asset and liability method is used in accounting
for income taxes. Deferred taxes are recognized for temporary
differences between the basis of assets and liabilities for financial
statements and income tax purposes. The temporary differences relate
primarily to different accounting methods used for depreciation and
amortization of property and equipment, goodwill, allowance for doubtful
accounts and net operating loss carry forwards. A valuation allowance is
recorded for deferred tax assets when it is more likely than not that
some or all of the deferred tax assets will not be realized through
future operations.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the amounts of sales
and expenses during the reporting period. Actual results could differ
from those estimates.
NOTE 3 - ECONOMIC DEPENDENCY:
A material portion of the Company's business is dependent on certain
domestic customers, the loss of which could have a material effect on
operations. During the three months ended May 31, 1997 approximately 50.4%
of sales were to three customers. Four customers comprised
73.1% of accounts receivable at May 31, 1997 with locations in the Eastern
United States.
NOTE 4 - INVENTORIES:
Raw materials and supplies $ 17,442
Work in process 2,741
Finished goods 345,737
Total $365,920
NOTE 5 - INCOME TAXES:
Deferred tax assets at May 31, 1997 represents recognition
of net operating loss carryforwards and for differences in using
accelerated depreciation methods for book purposes as follows:
Total deferred tax assets $413,263
Less: valuation allowance 113,214
Net deferred tax assets 300,049
Current portion 100,555
Non-current portion $199,494
Deferred tax assets
include the following:
Net operating loss carryforwards $204,159
Temporary differences -
principally accelerated
amortization of leasehold
improvements for book purposes 95,890
$300,049
For Federal tax purposes, the Company has available
approximately $619,000 of net operating loss carryforwards as of May 31,
1997, which expires in the years 2005 through 2007. In addition,
there are State net operating loss carryforwards of approximately
$1,275,000 which expires in the years 1997 through 2004.
NOTE 6 - EMPLOYEE BENEFITS:
SIMPLIFIED EMPLOYEE PENSION PLAN - Effective June 1, 1994,
the Company initiated a prototype covering all eligible participating
employees as defined. Employer contributions totaled $2,846 for the three
months ended May 31, 1997.
INCENTIVE COMPENSATION PLAN - On December 1989, the Company approved the
1989 Incentive Compensation Plan for the purpose of attracting and
retaining key personnel. All employees of the Company are eligible to
participate in the plan whereby incentive bonuses are determined by the
Board of Directors and payable in shares of common stock.
Shares issued are determined at fifty percent of the closing bid price and
vested and delivered over a three year period.
At May 31, 1997, 20,000 vested shares of common stock covering a
previously awarded bonus have not been issued to an employee.
EMPLOYEE STOCK OPTION PLAN - The Company previously adopted an Employee
Stock Option Plan ("Plan"). As of April 1996, options may no longer be
granted under the Plan. Under the terms of the Plan, options granted
thereunder could be designated as portions which qualify for incentive
stock option treatment under Section 422A of the Internal Revenue Code of
1986, as amended, or options which do not qualify.
OUTSTANDING OPTIONS:
Shares allocated $490,000
Option price $ 0.04
Balance outstanding February 28, 1997 $ -
Granted 490,000
Expired -
Exercised -
Balance outstanding May 31, 1997 $490,000
All outstanding options are exercisable currently.
NOTE 7 - TREASURY STOCK:
Represents 42,445 shares returned to Company when shares were deemed to
have no market value.
NOTE 8 - RESEARCH AND DEVELOPMENT:
Included in selling, general and administrative expenses are costs of
$44,729 for the three months ended May 31, 1997.
NOTE 9 - ACQUISITION:
On April 5, 1989, the Company acquired Accort Labs, Inc. in a business
combination accounted for as a pooling of interests which became a
wholly-owned subsidiary through the exchange of 896,424 shares of
common stock for all of its outstanding stock.
NOTE 10 - COMMITMENTS:
On October 17, 1996, the premises leased from 350 South Street Partnership
was purchased for $450,000 by Epolin Holding Corp., a New Jersey
Corporation, controlled by Dr. Murray S. Cohen and Mr. James A. Ivchenko,
officers/stockholders of Epolin, Inc. This transaction was approved by the
Board of Directors in June 1996 based upon the terms of a $350,000
mortgage obtained from the Broad National Bank wherein personal guarantees
of Dr. Murray S. Cohen and Mr. James A. Ivchenko were mandatory. Other
directors declined to participate in this transaction.
The down-payment of $100,000 was obtained from Epolin, Inc., evidenced by
a five (5) year promissory note of $75,565 (net of a three (3) months
security deposit under the terms of a five (5) year lease) payable in
monthly payments of $1,541 including interest at an annual rate of 8.25%.
The lease, entered into on the same day as the purchase of the property,
is for a term of five (5) years with three (3) five (5) year options at
annual rentals of $97,740 subject to a Cost of Living Index adjustment
from the start of the second year. Rent includes reimbursed real estate
taxes and insurance expenses under terms of the lease.
The minimum annual rentals under the lease are as follows:
YEARS ENDED
FEBRUARY 28, AMOUNTS
1998 $97,740
1999 97,740
2000 97,740
2001 97,740
2002 65,160
Rental expense charged to operations amounted to $24,435 for the three months
ended May 31, 1997.
DEFERRED COMPENSATION - On December 29, 1995, the Company entered
into a deferred compensation agreement with an officer
whereby annual compensation of $19,645 plus interest would be deferred
until such time the officer reaches age 65 or is terminated. The
obligation is being funded with a life insurance policy. Annual
payments of $32,000 for ten consecutive years shall commence the first
day of the month following the executive's 65th birthday or termination.
LICENSING AGREEMENT - The Company entered into a licensing agreement
in November 1985 (amended 1988) with one of its stockholders (now deceased)
for the exclusive right to manufacture, produce, market, use and sell
products and materials under U.S. Patent 4,387,215 related to the Company's
now abandoned expanding monomer technology. Included in its terms was a
commitment for payment of annual fixed royalties of $50,000 and royalty
payments as a percentage of gross sales. Payment due November 30, 1989 was
paid over the twelve-month period ending May 1990, with subsequent payments
postponed until such time as demand for Expanding Monomer technology
commenced. The Company abandoned this technology and has since reversed to
income all accruals made in prior years that related to unpaid fixed
royalty payments. Under the terms of the agreement, the licensor's only
remedy against the Company for non-payment of any prior fixed royalty
payment is cancellation of the license agreement. To date, no notification
regarding the termination or cancellation of the licensing agreement has
been received from the licensor's estate.
NOTE 11 - RELATED PARTY TRANSACTIONS:
At May 31, 1997, the Company has advanced Epolin Holding Corp.
(controlled by the officers/stockholders of the Company) $4,056 covering
expenses related to the purchase of the premises leased by the Company.
Loan receivable - related party consists of the remaining amount due from
loan by the Company to Epolin Holding Corp. covering the down payment for
the purchase of the premises.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of
Operation.
The following discussion should be read in conjunction with the
Financial Statements and Notes thereto included in this report and is
qualified in its entirety by the foregoing.
Overview
Epolin, Inc. ("Epolin") is a manufacturing and research and development
company which was incorporated in the State of New Jersey in May 1984.
The Company is principally engaged in the development, production
and sale of near infrared dyes to the optical industry for laser protection
and for welding applications and other dyes, specialty chemical products
that serve as intermediates and additives used in the adhesive, plastic,
aerospace, pharmaceutical, flavors and fragrance industries to a group of
customers primarily in the United States, Europe, Australia and the Far
East.
Results of Operations
Sales for the three months ended May 31, 1997 were approximately $343,000
while operating income was approximately $39,000. For the entire
fiscal year ended May 31, 1997, the Company reported sales of approximately
$1,414,000 and operating income of approximately $297,000. Cost
of sales for the three months ended May 31, 1997 was approximately
$127,000 and the Company's selling, general and administrative expenses
for the three months ended May 31, 1997 were approximately $178,000.
During the three months ended May 31, 1997, the Company realized
approximately $2,400 in interest income. Net income before and after taxes
for the three months ended May 31, 1997 was approximately $41,000.
Liquidity and Capital Resources
As of May 31, 1997, the Company had working capital of approximately
$950,000 as compared to working capital of approximately $908,000 as of
February 28, 1997, an increase of approximately $42,000. The Company's
equity to debt ratio was approximately 21.9 to 1 as of May 31, 1997 as
compared to an equity to debt ratio of 16.7 to 1 as of May 31, 1997.
Stockholders' equity as of May 31, 1997 was approximately $1,402,000 as
compared to stockholders' equity of approximately $1,360,000 as of May 31,
1997. As of May 31, 1997, the Company had approximately $228,000 in
cash and cash equivalents, total assets of approximately $1,466,000 and total
liabilities of approximately $64,000, as compared to $253,000 in cash and
cash equivalents, total assets of approximately $1,440,000 and total
liabilities of approximately $81,000 as of May 31, 1997. The Company
believes that its available cash, cash flow from operations and projected
revenues will be sufficient to fund the Company's operations for at least
the next 12 months.
The Company does not anticipate making any significant additional
capital expenditures in the immediate future as it believes its present
machinery and equipment will be sufficient to meet its near term needs.
Inflation has not significantly impacted the Company's operations.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security-Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
There are no exhibits applicable to this Form 10-QSB.
(b) Reports on Form 8-K.
Listed below are reports on Form 8-K filed during the
fiscal quarter ended May 31, 1997.
None.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this Report to be signed on its behalf by the undersigned
thereunto duly authorized.
EPOLIN, INC.
(Registrant)
Dated: August 8, 1997 By:/s/Murray S. Cohen
Murray S. Cohen,
Chief Executive Officer
Dated: August 8, 1997 By:/s/Murray S. Cohen
Murray S. Cohen,
Principal Financial
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
EPOLIN, INC.'S QUARTERLY REPORT FOR THE QUARTER ENDED MAY 31,1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> MAY-31-1997
<CASH> 228,010
<SECURITIES> 0
<RECEIVABLES> 267,227
<ALLOWANCES> 0
<INVENTORY> 365,920
<CURRENT-ASSETS> 990,877
<PP&E> 643,116
<DEPRECIATION> 510,424
<TOTAL-ASSETS> 1,465,566
<CURRENT-LIABILITIES> 40,943
<BONDS> 0
<COMMON> 2,206,983
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,401,570
<SALES> 343,460
<TOTAL-REVENUES> 343,460
<CGS> 127,080
<TOTAL-COSTS> 127,080
<OTHER-EXPENSES> 177,517
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 41,227
<INCOME-TAX> 0
<INCOME-CONTINUING> 41,227
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,227
<EPS-PRIMARY> .000
<EPS-DILUTED> .000
</TABLE>
