SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended FEBRUARY 28, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-17741
EPOLIN, INC.
(Name of Small Business Issuer 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 (Zip Code)
executive offices)
Issuer's telephone number, including area code: (973) 465-9495
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock
(no par value)
Check whether the Issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B not contained in this form, and no disclosure will
be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
State Issuer's revenues for its most recent fiscal year: $1,602,150
As of May 15, 1998, the aggregate market value of the Common Stock held by
non-affiliates of the Issuer (5,030,631 shares) was approximately
$1,559,495. The number of shares outstanding of the Common Stock (no par
value) of the Issuer as of the close of business on May 15, 1998 was
11,586,555.
Documents Incorporated by Reference: None
<PAGE>
PART I
Item 1. Description of Business.
Introduction
Epolin Inc. ("Epolin" or the "Company") is a manufacturing and research and
development company which was incorporated in the State of New Jersey on
May 8, 1984. The Company is engaged in commercial production and sale of
specialty chemicals, especially certain dyes which management believes are
useful materials because they have the capability to absorb near infrared
radiation. Its principal offices are located at 358-364 Adams Street,
Newark, New Jersey 07105 and its telephone number is (973) 465-9495.
In April 1989, Epolin successfully completed an initial public offering of
its securities pursuant to a public offering generating net proceeds of
approximately $1,950,000. Simultaneously, upon closing of the offering,
Epolin acquired 100% of the stock of Accort Labs, Inc. ("Accort"), then an
affiliated entity.
Commencing upon completion of the Company's public offering through January
1990, the Company's efforts were primarily devoted to the renovation and
completion of its 17,000 square foot manufacturing and office facility.
The principal product(s) that the Company developed were expanding
polymeric coatings. The Company has since curtailed this effort due
primarily to the high cost of the product and the lower price commanded by
similar products now sold into this maturing market. The Company has more
recently established itself as a supplier of near infrared dyes as well as
other specialty chemical products. It sells its dyes primarily to lens
manufacturers who serve as the suppliers to the laser protection eyewear
market as well as the welding market.
Since completion of the Company's public offering, the Company's revenues
had been primarily generated through the synthesis and sale of specialty
organic chemical products. Building upon this base, the Company singled out
near infrared dye technology as a most promising product line and has
emphasized the development, manufacture and sale of these dyes to the
optical industry.
The Company's prior emphasis on the expanding monomer technology has been
significantly modified. The expanding monomers failed to reach any
significant level of sales and sales growth because the price of UV
coatings, a major application for the technology, had fallen dramatically
and the market could not sustain the higher pricing for the Company's
product. Research and development on expanding monomer applications was
therefore curtailed and the Company became fully committed to specialty
chemical manufacture especially to near infrared dye development,
manufacture and sales. This part of the product line has proven to be a
successful one to pursue in that the sales of these dyes have averaged at
a growth rate of approximately 15% to 20% per year for the last five years.
No assurance can be given that such trend will continue. The Company
believes that its future lies with dye technology and is formulating long
range plans to exploit new applications for both the near infrared dyes as
well as other dyes. Paralleling the growth of the dye business, the Company
has maintained a level of production and sales of specialty products made
on a custom basis. These include additives for plastics, thermochromic
materials for use in paints as well as other specialty chemicals made in
low volume to sell at prices that reflect the value of the product. A
discussion of this market is described in the first subsection that
follows. Thereafter the current market for dyes are described as well as
the newer applications which will be the basis for new markets for dyes.
In July 1997, the Board of Directors of Epolin approved a plan of merger
(the "Plan") wherein Epolin's wholly-owned subsidiary, Accort, would merge
into Epolin. The effective date of the Plan was deemed to have occurred as
of the beginning of fiscal 1998. The merger is currently pending approval
with the State of New Jersey. As a result, Accort's assets, liabilities
and stockholders' equity as of March 1, 1997 were transferred to Epolin.
Accort had no transactions for the year ended February 28, 1998.
The Company's wholly-owned subsidiary, Epolin Holding Corp. ("Epolin
Holding"), was incorporated in the State of New Jersey as a real estate
holding company. Prior to being acquired by the Company in January 1998,
it was owned and controlled by Murray S. Cohen and James Ivchenko (officers
and directors of the Company). (See Part III, Item 12).
This report contains certain forward-looking statements and information
relating to the Company that are based on the beliefs and assumptions made
by the Company's management as well as information currently available to
the management. When used in this document, the words "anticipate",
"believe", "estimate", and "expect" and similar expressions, are intended
to identify forward-looking statements. Such statements reflect the
current views of the Company with respect to future events and are subject
to certain risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those described
herein as anticipated, believed, estimated or expected. The Company does
not intend to update these forward-looking statements.
Specialty Chemical Products
Although the Company is heavily engaged in the manufacture and sale of
dyes, specialty chemical manufacture continues to constitute approximately
22% of its sales. It is currently working on the preparation and sale of a
variety of specialty chemical products on behalf of companies that sell
into the adhesives, plastics, aerospace, pharmaceutical and flavors and
fragrance industries. The Company's products primarily serve as
intermediates, additives and processing aids for complex chemical
formulations. The Company markets its products to other companies who are
in need of low level quantities of unique chemicals which provide
specialized functions and are necessary elements in complex chemical
mixtures manufactured by the Company's respective customers. These products
are produced on a low volume basis in chemical production equipment ranging
from 50 liter size flasks to two hundred gallon reactors. The Company
sustains this business because its customers find it economically
inefficient to manufacture such low volume specialty chemicals for their
own use. Raw materials utilized in connection with the preparation of
specialty chemical products are either available from chemical suppliers or
made by the Company in its own facilities.
This segment of the Company's business is manufactured on an individual
basis to meet each customers respective needs. Presently, the Company
provides products used as components in plastics, adhesives and coatings,
flavors and odorant mixtures, pharmaceutical and medical products and
aerospace materials.
Although the specialty chemical business currently commands approximately
22% of total sales, the Company does not expect this segment of its
business to grow. It has, instead, made a strong research and development
commitment to the growth of the specialty dye business. This market is
described in segments in the following subsections.
Dyes for Laser Protection
The Company has sold near infrared dyes since 1990 to customers who
manufacture and sell eyewear to protect personnel from the harmful effects
of laser light. In the first stages of the Company's marketing efforts, the
Company sold dyes that had a special capability to absorb the emissions of
the neodynium-YAG laser. This laser was and is used by the military for
range finders carried by tanks. Following the Company's success in selling
dyes for military usage, new markets were developed selling to
manufacturers of safety eyewear for personnel who worked with lasers or
were exposed to very strong sources of infrared radiation.
The Company sells dyes into a market that requires the use of absorptive
dyes for face shields, helmets and goggles to protect personnel from the
harmful effects of radiation from welding. Nationally prescribed
specifications now state that welding shields must absorb specific levels
of the infrared generated by the welding arc in order to protect personnel
from eye damage. The specifications have come about because a number of
studies had shown that excessive infrared radiation can cause the
development of premature cataracts. Thus, for different levels of
protection, a specific reduction of ultraviolet, visible and infrared
emissions are now required. As a result, the Company now offers a line of
dyes for welding that absorb the entire range of welding radiation.
Management believes many welding customers and potential customers are
attracted to the Company's dyes because they had been tied to dye suppliers
who would only sell the dyes if the customer were to purchase the suppliers
resin or formulated resin. Freedom to formulate any resin and do in plant
injection molding of lenses or shields, has significant cost implications
for these customers. The availability of the Company's dyes has allowed the
Company to gain new customers. The Company expects to see this welding
market grow in the future not only because of increased sensitivity to the
health effects of conventional welding methods but also because of the
increasing use of lasers for welding. These instruments will require closer
monitoring for exposure of personnel to laser light but will also require
personnel peripheral to the welding operation to be protected.
Dyes for Sun Protection
There have been various reports that near infrared radiation causes slow
but long term damage to the eye leading to premature cataracts. Certain
customers incorporate the Company's dyes into premium sunglasses to sell at
premium pricing. An additional value in sunglasses containing near
infrared dyes is that there is a noticeable heat reduction on the eye which
allows long term use in the sun. Management believes that this reduces
problems associated with discomfort due to perspiration around the eye.
Dyes for Filters
A smaller but not well characterized market exists for filters that block
certain frequencies in the near infrared and visible spectrum. Most of the
inquiries come from instrument makers who purchase glass filters containing
rare earth oxides. These filters are expensive and are subject to chipping,
shattering and other breakage. Management believes the use of a clear
plastic filter containing the Company's dyes would lower cost and increase
reliability. This high value added market is under development. No
assurance can be given that the Company will be able to successfully
develop this market.
Dyes for Heat Shields
It has been shown in experimental and theoretical studies that a window
containing near infrared dyes is capable of reducing the internal heat load
of a structure by 40 to 50 percent. This type of application of infrared
dyes is reported in use for sun roofs of automobiles in Japan. The specific
advantage offered by near infrared dyes is heat reduction coupled with good
visible transparency. This allows high visibility while, at the same time,
effectively blocking the frequencies responsible for transporting heat.
Management believes near infrared dyes can be effectively used in a wide
variety of applications as heat shields. The Company has set its sights
on this potential market by initiating research and development studies
leading to dyes or dye combinations that can meet the tight requirements
demanded by this market. Of particular concern to the Company is the need
for long term performance which, at a minimum, requires a working lifetime
of seven years exposure to direct sunlight. By developing dyes of greatly
improved thermal and ultraviolet stability, the Company believes it can
meet the long term exposure requirements for heat shields. The Company
further believes that of particular importance is the ability of these new
dyes to be used in the manufacture of extruded engineering plastic
products. Known near infrared dyes do not possess the thermal stability to
survive processing of large extruded structures. The Company believes that
it can demonstrate that these new dyes offer a degree of freedom in
plastics processing and that this can represent an important developing
market. No assurance can be given, however, that the foregoing can be
demonstrated, or if demonstrated, that the Company will be able to
successfully develop this market.
Dyes for Security Inks
Certain of the near infrared dyes absorb very little of the visible
spectrum. These can be used at low concentration in inks and paints and not
be visually detected. However, when viewed by reflection of an infrared
laser or lamp, the presence of dye is easily seen as a black marking.
Mechanical "readers" can be used to detect the presence of dyes by
responding with a simple "go, no-go" signal. Management believes that the
industrial security and currency marking is potentially a large volume
application for these dyes. No assurance can be given that the Company
will be able to successfully develop this market.
Dyes for Interlayer and Laminates
One of the most abrasion resistant surfaces is that of glass. The Company
has found that the interlayer used for glass to glass laminates can
incorporate dyes and bond to the glass strongly. These laminated glass
structures can perform like the plastic heat shields described above. The
Company believes that such laminated glass structures have the added
advantage of abrasion resistance and in automotive applications, are
shatter-proof. The Company is pursuing markets for laminates as shatter-
proof windshield and sun roofs. No assurance can be given that the Company
will find a successful developer in this market.
Licensing Agreement
The Company's Expanding Monomer technology (which was previously emphasized
by the Company but has since been curtailed) was developed by the late Dr.
William Bailey, a former director of the Company. In June 1983, Dr. Bailey
was issued U.S. Patent 4,387,215 which granted Dr. Bailey broad generic
claims in regard to the Expanding Monomer and polymer systems. Pursuant to
a licensing agreement dated January 31, 1986 (which terminated and
replaced a previous agreement with the Company), and as amended in 1988,
the Company was granted until the expiration of the patent (June 2000) the
exclusive right to exploit the patent and to manufacture, produce, market,
use and sell products and materials derived thereunder. Pursuant to the
agreement, the Company is required to pay a percentage royalty (based on
various levels of sales) and a fixed royalty fee of $50,000 per year
(reduced by percentage royalties, if any, paid during that year). Fixed
royalties have not been paid since 1990 because the Company decided to
postpone payments under the licensing agreement pending receipt of orders
for Expanding Monomer products. Since then, and as described above, the
Company has curtailed this technology. As provided in the agreement, Dr.
Bailey's sole remedy for non-payment of fixed royalties shall be the
cancellation of the licensing agreement without further recourse against
the Company. Although the Company has not received any notification from
Dr. Bailey's estate regarding termination or cancellation of the licensing
agreement, any such notice that the Company would receive would have no
material impact on the Company's business since the Company has previously
decided to curtail the development of Expanding Monomer technology.
Effect of Compliance With Government Regulation
Manufacturers of chemical products are subject to extensive Federal and
State environmental regulations. Although the Company believes that its
manufacturing processes do not result in the emission of volatile organic
vapors into the atmosphere, and that the Company is not in violation of
any State or Federal environmental regulations, the Company is required to
comply with such regulations with respect to manufacture, storage and/or
disposal of toxic materials. To the Company's knowledge, it is in
compliance with present regulations. (See also Part I, Item 3 for
information on a legal proceeding settled in August 1997). However, no
assurances can be given that future regulations will not be adopted,
compliance with which will result in substantial expense to, and otherwise
adversely affect the Company's business. In addition, the Company is
subject to the State of New Jersey Industrial Site Recovery Act (ISRA),
which, among other requirements, requires the Company to obtain prior
approval before relocating its facilities or consummating a transaction
that would result in a change in control of the Company. The Company's
facilities are subject to inspection to ascertain whether the Company has
complied with State environmental regulations. While the Company believes
it has complied with such regulations, there can be no assurance that the
Company will not be required to incur expenses to remedy any future
environmental violations discovered. The Company is in the process of
registering certain new and proprietary products with the Toxic Substances
Control Agency (TSCA) which is required in order for the Company to offer
for sale any new chemical product. No assurances can be given that such
registrations will be approved.
Research and Development
The Company has made a commitment of resources to research and development
for new dyes and for improvement of the Company's capability to provide
technical services to its dye customers. In this regard, the Company has
undertaken a dye synthesis effort to develop and produce dyes with greatly
improved thermal stability. These dyes are now a part of the Company's
product line and sales have started to grow. There are also plans to make
available to the Company the plastic processing equipment similar to that
used by the Company's customers to extrude and injection mold plastic-dye
formulations. Management expects that this will allow the Company to better
understand its customer's problems and to design solutions.
Competition
The Company generally experiences significant competition in all areas of
its business from numerous other companies many of which are larger and
better financed. At the present time, however, the Company believes that
it has a unique position as a supplier of near infrared dyes. Management
believes that the only other suppliers of these dyes use them as a vehicle
to sell other products. Management believes that these companies will only
sell the dye to purchasers of their resins or to those who buy their
formulated resin or their finished lenses. Such companies do not sell the
pure dye which is done by the Company. Insofar as the major profit
incentive comes from the manufacture and sale of finished product,
Management believes those companies that have the capability to formulate
dyes in resin and injection mold the formulated resin, have a strong
incentive to purchase the dye without any other requirements. However, in
the future, other dye manufacturers may change their policy and sell dye
directly. This will present the Company with a challenge to its pricing
structure. However, because of the Company's low overhead, it is believed
that such a challenge can be met successfully.
The Company has also invested resources in improved processes for the
manufacture of dyes so that the Company can consider itself a low cost
producer. The research and development program has introduced a new family
of near infrared dyes that show a marked improvement in thermal and light
stability over existing dyes. The Company believes that this new family of
dyes will allow it to maintain a strong position as a dye supplier for
laser safety and welding optical wear.
Technological Obsolescence
The chemical and plastics industry is characterized by rapid technological
changes. Although the near infrared dyes that form the major portion of the
Company's product line have been used in protective eyewear since 1976, the
field has proven to be an active one for other applications and the Company
must anticipate competition to develop. To remain competitive, the Company
has committed itself to make capital investments to maintain its position
as a key dye supplier in this field. There can be no assurance that the
Company's dye technology will not be rendered less competitive, or
obsolete, by the development by others of new methods to achieve laser
safety and other forms of eye protection. Furthermore, to remain
competitive, the Company may be required to make large, ongoing capital
investments to develop and produce dyes at competitive prices. There is no
assurance that can be given that the funds for such investments will be
available to the Company.
Patents and Proprietary Protection
The Company does not rely upon patents for protection of its dye business.
It has, however, anticipated the need for such proprietary protection and
has acted by applying for patents on a class of new dyes that it has
developed. In connection therewith, a patent was recently granted by the
U.S. Patent Office (U.S. Patent 5,686,639) for a new class of quinone
diimmonium salts in November 1997. Other patent disclosures have been
submitted and the Company intends to prepare appropriate applications as it
deems necessary in the future. No assurance can be given that other
patents with regard to the foregoing will be issued. The Company has
allowed its patent position on two patents it owns on Expanding Monomers to
lapse by not paying the maintenance fees. This will have no material impact
on the Company's business since the Company decided previously to curtail
the development of this technology. The Company intends to continue an
intensive patent program on new dyes, especially in those instances where
composition of matter claims can be obtained. There can be no assurance
that these patents will be of commercial benefit to the Company, or
otherwise offer the Company protection from competing products. Although
the issuance of a patent entitles the owner to a statutory presumption of
validity, the presumption is not conclusive as to validity or the scope of
enforceability of the claims therein. The enforceability and validity of a
patent can be challenged by litigation after its issuance and, if the
outcome of litigation is adverse to the owner of the patent, other parties
may be free to use the subject matter covered by the patent. Moreover, the
cost of defending these patents against infringement could require
substantial expenditures which the Company may decide it is unable to
afford. In addition, persons or entities may have filed patent applications
and may have been issued patents on inventions or otherwise possess
proprietary rights to technologies potentially useful to the Company. There
can be no assurance that others may not independently develop the same,
similar or alternative technologies or otherwise obtain access to the
Company's proprietary technologies.
Marketing and Sales
The marketing of the Company's dye products is primarily the responsibility
of Mr. Chester Swasey, an executive officer of the Company. The marketing
of specialty products which primarily include flavors and fragrances,
polymer additives and process aids is handled primarily by Mr. James
Ivchenko, President of the Company, and Dr. Murray Cohen, Chairman of the
Board and Chief Executive Officer of the Company. These specialty products
are marketed to companies who need low volume amounts of unique chemicals
usually used in small amounts in complex chemical formulations.
A material portion of the Company's business is dependent on certain
customers, the loss of which could have a material effect on operations.
During fiscal 1998, approximately 76.6% of sales were to seven customers,
two of which totaled 31.0%. Three of these customers comprised 61.3% of
accounts receivable at February 28, 1998.
Employees
The Company presently employees approximately eight persons, all on a full
time basis of which approximately four are employed in manufacturing and
production, two in research and development, one in sales and marketing and
one in administration and supervision. The Company's employees are not
represented by labor unions.
Item 2. Description of Property.
The Company presently occupies approximately 19,500 square feet of
manufacturing, warehouse and administrative space in Newark, New Jersey
which property the Company has occupied since June 1989. Prior to October
1996, the Company occupied approximately 17,000 square feet of such space.
During fiscal 1996, Management decided to explore the possibility of
purchasing said property from its then owner, a non-affiliated entity which
purchase would include such additional space of approximately 2,500 square
feet. In order to finance the purchase, the Company was advised by its
proposed lender that the members of the Company's Board of Directors would
be required to guarantee the repayment of any financing. At a meeting of
the Board of Directors held in June 1996, only Murray S. Cohen and James
Ivchenko, each an officer and director of the Company, agreed to
participate in any such arrangement. It was agreed that Dr. Cohen and Mr.
Ivchenko, or an entity to be formed by them, would purchase the property
and lease the property to the Company under a long term arrangement. As a
result, Dr. Cohen and Mr. Ivchenko entered into an agreement to purchase
the property for the sum of $450,000, which agreement was prior to closing
assigned to Epolin Holding Corp. ("Epolin Holding") a company formed by Dr.
Cohen and Mr. Ivchenko to acquire the property. Such purchase was completed
in October 1996. Simultaneously with the closing, the Company entered into
substantially similar leasing arrangements with Epolin Holding as then
existed with the former owner of the property. Such new lease expires in
October 2001 (with three 5 year options) with annual rent of $97,740
subject to annual adjustments based on increases in the Consumer Price
Index. Such rent includes real estate taxes and insurance expenses. In
January 1998, Epolin Holding became a wholly-owned subsidiary of Epolin.
(See Part III, Item 12).
Item 3. Legal Proceedings.
In August 1997, the Company settled an action which had been commenced in
May 1997 by Passaic Valley Sewerage Commissioners ("PVSC") against the
Company in the Superior Court of New Jersey, Essex County. PVSC is a body
politic and corporate organized pursuant to the laws of the State of New
Jersey for the purpose of collecting and treating wastewater generated in a
four-county area along the Passaic Valley river basin. In such action,
PVSC alleged that the Company failed to submit certain required forms and
reports and a certain completed permit application on time and that the
Company had also failed to install certain monitoring equipment. This suit
requested that the Company be enjoined from further violations, that the
Company be declared a "significant noncomplier" and that the Company be
assessed civil penalties. Pursuant to a Settlement Agreement entered into
in August 1997, the Company without admitting any fact, liability or fault
as to the allegations of the Complaint agreed to pay and has paid PVSC the
sum of $1,000 and PVSC has dismissed the Complaint with prejudice and
released the Company from any and all claims for civil penalties arising
from the allegations in the Complaint.
There are no other material pending legal proceedings to which the Company
is a party or to which any of its property is subject.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders.
PART II
Item 5. Market for Common Equity
and Related Stockholder Matters.
(a) Market Information.
The Company's Common Stock is presently being traded in the over-the-
counter market under the symbol "EPLN" and is listed on the OTC Bulletin
Board. The following chart sets forth the range of the high and low bid
quotations for the Company's Common Stock for each period indicated. The
quotations represent prices between dealers and do not include retail
markups, markdowns, commissions or other adjustments and may not represent
actual transactions.
Period Bid Prices
Fiscal year ended February 28, 1997: High Low
March 1, 1996 to May 31, 1996 $.03 $.02
June 1, 1996 to Aug. 31, 1996 $.10 $.03
Sept. 1, 1996 to Nov. 30, 1996 $.15 $.03125
Dec. 1, 1996 to Feb. 28, 1997 $.15 $.0625
Fiscal year ended February 28, 1998: High Low
March 1, 1997 to May 31, 1997 $.10 $.07
June 1, 1997 to Aug. 31, 1997 $.12 $.07
Sept. 1, 1997 to Nov. 30, 1997 $.12 $.07
Dec. 1, 1997 to Feb. 28, 1998 $.25 $.09
(b) Holders.
As of May 15, 1998 there were approximately 325 record holders of the
Company's Common Stock.
(c) Dividends.
The Company has never declared any cash dividends on its Common Stock and
does not anticipate declaring cash dividends in the foreseeable future.
Item 6. Management's Discussion and Analysis
or Plan of Operation.
The following discussion of the Company's financial condition and results
of operations is based on the Company's Consolidated Financial Statements
and the related notes thereto.
Overview
Epolin, Inc. 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
Fiscal 1998 Compared to Fiscal 1997
During the year ended February 28, 1998, the Company reported sales of
approximately $1,602,000 as compared to sales of approximately $1,414,000
during the year ended February 28, 1997, an increase of approximately
$188,000 or 13.3%. This increase in sales was primarily attributable to an
increase in sales of the Company's near infrared absorbing dyes, and
increases in sales of new dyes and additional applications.
Operating income for fiscal 1998 increased to approximately $383,000 as
compared to operating income of approximately $297,000 for fiscal 1997, an
increase of approximately $86,000. This change resulted primarily from
increases in sales, partially offset by increases in selling, general and
administrative expenses. Cost of sales in fiscal 1998 was approximately
$492,000 compared to cost of sales in fiscal 1997 of approximately
$501,000. In fiscal 1998, the Company's selling, general and
administrative expenses were approximately $727,000 as compared to selling,
general and administrative expenses of approximately $616,000 for the
fiscal year ended February 28, 1997. This change resulted primarily from
increases in salaries, benefits and commissions, and legal and accounting
fees.
During the fiscal year ended February 28, 1998, the Company realized
approximately $22,000 in interest income as compared to approximately
$13,000 in interest income for the prior year. This increase resulted
primarily from increases in available cash in fiscal 1998.
During the fiscal year ended February 28, 1998, the Company reported income
before taxes of approximately $406,000 as compared to income before taxes
of approximately $332,000 for the fiscal year ended February 28, 1997. Net
income after taxes was approximately $305,000 or $.03 per share for fiscal
1998 as compared to net income after taxes of approximately $210,000 or
$.02 per share for fiscal 1997.
Fiscal 1997 Compared to Fiscal 1996
During the year ended February 28, 1997, the Company reported sales of
approximately $1,414,000 as compared to sales of approximately $1,384,000
during the year ended February 29, 1996, an increase of approximately
$30,000 or 2%. This increase in sales was primarily attributable to a
small increase in sales of the Company's near infrared absorbing dyes.
Operating income for fiscal 1997 decreased to approximately $297,000 as
compared to operating income of approximately $338,000 for fiscal 1996, a
decrease of approximately $41,000. This change resulted primarily from
increases in selling, general and administrative expenses, partially offset
by a decrease in cost of sales. Cost of sales in fiscal 1997 was
approximately $501,000 compared to cost of sales in fiscal 1996 of
approximately $614,000. In fiscal 1997, the Company's selling, general and
administrative expenses were approximately $616,000 as compared to selling,
general and administrative expenses of approximately $433,000 for the
fiscal year ended February 29, 1996. This change resulted primarily from
increases in salaries, benefits and commissions, and legal and accounting
fees.
During the fiscal year ended February 28, 1997, the Company realized
approximately $13,000 in interest income as compared to approximately
$7,500 in interest income for the prior year. This increase resulted from
increases in available cash in fiscal 1997.
During the fiscal year ended February 28, 1997, the Company reported income
before taxes of approximately $332,000 as compared to income before taxes
of approximately $342,000 for the fiscal year ended February 29, 1996. Net
income after taxes was approximately $210,000 or $.02 per share for fiscal
1997 as compared to net income after taxes of approximately $626,000 or
$.05 per share for fiscal 1996. For fiscal 1997, the Company had an
income tax expense of approximately $123,000 as compared to an income tax
credit (deferred tax benefit) of approximately $284,000 for fiscal 1996.
Liquidity and Capital Resources
On February 28, 1998, the Company had working capital of approximately
$1,046,000, an equity to debt ratio of 8.44 to 1, and stockholders' equity
of approximately $1,615,000. On February 28, 1998, the Company had
approximately $389,000 in cash and cash equivalents, total assets of
approximately $1,807,000 and total liabilities of approximately $191,000.
At February 28, 1997, the Company had total assets of approximately
$1,442,000. The increase in total assets at February 28, 1998 as compared
to February 28, 1997 is primarily due to the inclusion in fiscal 1998 of
the property owned by Epolin Holding Corp. which became a wholly-owned
subsidiary of the Company in January 1998. The Company believes that its
available cash, cash flow from operations and projected revenues will be
sufficient to fund the Company's operations for 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.
Other Information
In March 1998 (subsequent to the end of fiscal 1998), the Board of
Directors of the Company authorized a stock repurchase program of up to
$150,000 of the Company's outstanding shares of Common Stock. In connection
therewith, the Company announced that purchases may be made in the open
market or in privately negotiated transactions from time to time, based on
market prices and that the repurchase program may be suspended without
further notice. Management believes the Company's shares are undervalued at
current price levels and this program offers the Company a chance not only
to repurchase some of its stock at prices management perceives to be
attractive but it also enables the Company to enhance shareholder value
although no assurance can be given that any such repurchases will have such
effect. To date, the Company has repurchased 25,000 shares of its Common
Stock under this program at $.38 per share.
Item 7. Financial Statements.
See the Consolidated Financial Statements annexed to this report.
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Set forth below are the present directors and executive officers of the
Company. Note that there are no other persons who have been nominated or
chosen to become directors nor are there any other persons who have been
chosen to become executive officers. There are no arrangements or
understandings between any of the directors, officers and other persons
pursuant to which such person was selected as a director or an officer.
Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been elected and have
qualified. Officers serve at the discretion of the Board of Directors.
Present Position Has Served As
Name Age and Offices Director Since
Murray S. Cohen 73 Chairman of the 1984
Board, Chief Executive
Officer and Director
James Ivchenko 58 President 1993
and Director
Chester C. Swasey 54 Vice President of 1994
Sales and Marketing,
Secretary and Director
Claire Bluestein 72 Director 1984
Morris Dunkel 70 Director 1984
Abdelhamid A.H. Ramadan 58 Director 1994
None of the directors and officers is related to any other director or
officer of the Company.
Set forth below are brief accounts of the business experience during the
past five years of each director and executive officer of the Company and
each significant employee of the Company.
MURRAY S. COHEN has served as Director, Chief Executive Officer and
Chairman of the Board of the Company since June 1984. From June 1984 to
August 1994, Dr. Cohen was also President. Since May 1983, Dr. Cohen has
been an officer of Accort Labs, Inc., a wholly-owned subsidiary of the
Company. From January 1978 through May 1983, Dr. Cohen was the Director of
Research and Development for Apollo Technologies Inc., a company engaged in
the development of pollution control procedures and devices. Dr. Cohen was
employed as a Vice President and Technical Director of Borg-Warner
Chemicals from 1973 through January 1978, where his responsibilities
included the organization, project selection and project director of a 76
person technical staff which developed materials for a variety of plastic
products. He received a Bachelor of Science Degree from the University of
Missouri in 1949 and a Ph.D. in Organic Chemistry from the same institution
in 1953.
JAMES IVCHENKO has served as Director of the Company since September 1993,
President since August 1994, and from February 1992 to August 1994, he was
Technical Director and Vice President of Operations. Prior thereto, Mr.
Ivchenko was employed by Ungerer & Co. as Plant Manager for the Totowa, New
Jersey and Bethlehem, Pennsylvania facilities from May 1988 to May 1991.
Mr. Ivchenko has over 30 years of experience in the flavor, fragrance and
pharmaceutical intermediate industry. He received his Bachelor of Arts
Degree, Masters of Science and Masters of Business Administrations from
Fairleigh Dickinson University in New Jersey.
CHESTER C. SWASEY has served as Director of the Company since 1994 and Vice
President of Sales and Marketing since August 1994. From 1992 to 1994, Mr.
Swasey was employed as a Director of Marketing at Fairmount Chemical
Company. From 1989 to 1992, he was employed as Manager of New Business
Development at Union Carbide Corporation. Mr. Swasey has received several
United States patents and has published a variety of technical papers
related to the performance of plastics additives. Mr. Swasey received a
Bachelor of Science degree in Chemistry from the City College of New York
in 1965, and a Master of Business Administration degree from Fairleigh
Dickinson University in 1973.
CLAIRE BLUESTEIN has served as Director of the Company since June 1984.
Since 1976, Dr. Bluestein has been president and sole shareholder of Captan
Associates, Inc., a company engaged in the development of materials for
commercial applications of radiation curing technology. Dr. Bluestein has
been issued several patents by the United States Department of Commerce,
Trademark and Patent Offices and has published a variety of chemistry
related articles. Dr. Bluestein received her Bachelor of Arts Degree from
the University of Pennsylvania in 1947. In 1948 she received a Master of
Science Degree and in 1950 a Ph.D. in Organic Chemistry from the University
of Illinois.
MORRIS DUNKEL has served as Director of the Company since June 1984. From
1976 through 1983, Dr. Dunkel was employed by Tenneco Chemicals, Inc., a
firm engaged in chemical production activities, in the capacities of
manager and director of Tenneco's organic chemicals research and
development division. Dr. Dunkel has been issued several United States
patents and has published numerous articles relating to chemical processes.
He received a Bachelor of Science Degree in 1950 from Long Island
University. Dr. Dunkel received a Master of Science Degree from Brooklyn
College in 1954 and Ph.D. in Organic Chemistry from the University of
Arkansas in 1956.
ABDELHAMID A.H. RAMADAN has been a Director of the Company since July 1994,
and has served as Manager for Research, Process Development and Quality
Assurance of the Company since November 1993. From March 1992 through
October 1993, he served as production manager at Celgene Corp., and from
1989 through February 1992, he served as Senior Chemist and Chemical
Hygiene Officer of the Company. From 1982 through 1988, Mr. Ramadan served
as Production Department Head at Tenneco Chemicals. Mr. Ramadan received a
Bachelor of Science Degree in Chemistry in 1963 from Ain Shams University -
Cairo - Egypt.
Item 10. Executive Compensation.
The following summary compensation table sets forth information concerning
the annual and long-term compensation for services in all capacities to the
Company for the fiscal years ended February 28, 1998, 1997 and 1996, of
those persons who were, at February 28, 1998 (i) the chief executive
officer and (ii) the other most highly compensated executive officers of
the Company, whose annual base salary and bonus compensation was in excess
of $100,000 (the named executive officers):
Summary Compensation Table
Annual
Compensation
Name and Principal Fiscal
Position Year Salary Bonus
Murray S. Cohen(1) 1998 $89,575 $20,000
Chairman of the 1997 $88,542 $ 7,950
Board and Chief 1996 $48,619 $ 7,500
Executive Officer
James Ivchenko(3) 1998 $95,771(4) $15,000
President 1997 $83,125(4) $ 7,950
1996 $79,166(4) $ 7,000
Chester C. Swasey(5) 1998 $89,903 $ 5,000
Vice President of 1997 $82,596 $ 4,300
Sales and Marketing 1996 $57,243 $ 4,000
Summary Compensation Table
Long-Term
Compensation
Restricted Shares
Name and Principal Fiscal Stock Underlying
Position Year Awards Options
Murray S. Cohen(1) 1998 0 0
Chairman of the 1997 0 0
Board and Chief 1996 1,000,000(2) 75,000
Executive Officer
James Ivchenko(3) 1998 0 0
President 1997 0 0
1996 0 75,000
Chester C. Swasey(5)1998 0 0
Vice President of 1997 0 0
Sales and Marketing 1996 0 75,000
(1) Dr. Cohen was also President from June 1984 to August 1994.
(2) Represents shares issued to Dr. Cohen during fiscal 1996 in lieu of
$40,000 of accrued salary.
(3) Mr. Ivchenko has been President since August 1994. Prior thereto, he
was Technical Director and Vice President of Operations.
(4) Does not include $20,799, $19,809 and $3,274 for fiscal 1998, 1997 and
1996, respectively, being deferred pursuant to an Deferred
Compensation Agreement entered into in December 1995 with Mr.
Ivchenko.
(5) Mr. Swasey has been employed by the Company since August 1994.
Stock Options Granted in Fiscal 1998
No stock options or other stock appreciation rights were granted to any of
the named executive officers during fiscal 1998.
Stock Options Exercised in Fiscal 1998;
Fiscal Year-End Values
During the fiscal year ended February 28, 1998, none of the named executive
officers exercised any previously granted stock options.
The following table indicates the total number of exercisable and
unexercisable stock options held by each named executive officer on
February 28, 1998, the last day of fiscal 1998, and the value of "in the
money" options held by each named executive officer on such date.
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS
FEBRUARY 28, 1998 FEBRUARY 28, 1998(1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
Murray S. Cohen 75,000 0 $15,000 0
James Ivchenko 75,000 0 $15,000 0
Chester C. Swasey 75,000 0 $15,000 0
(1) Based on the average of the closing bid and asked prices of the
Company's Common Stock at February 28, 1998.
Compensation of Directors
Since inception, no director has received any cash compensation for his
services as such. In the past, directors have been and will continue to be
reimbursed for reasonable expenses incurred on behalf of the Company.
Employment Contracts
In December 1995, the Company entered into a Deferred Compensation
Agreement with James Ivchenko, President of the Company, pursuant to which
annual compensation of $19,645 plus interest will be deferred until Mr.
Ivchenko reaches the age of 65 or his employment is terminated. Annual
payments of $32,000 for ten consecutive years shall commence the first day
of the month following the executive reaching the age of 65 or termination
of his employment. Such obligation is being funded with a life insurance
policy owned by the Company.
Employee Stock Option Plan
The Company previously adopted an Employee Stock Option Plan (the "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 options which qualify for incentive stock option treatment under Section
422A of the Internal Revenue Code of 1986, as amended, or options which do
not so qualify. In December 1995, options to acquire up to 490,000 shares
of the Company's Common Stock were granted under the Plan. Such options
expire on December 1, 2005. None of such options have been exercised.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as May 15, 1998, certain information with
regard to the record and beneficial ownership of the Company's Common Stock
by (i) each stockholder owning of record or beneficially 5% or more of the
Company's Common Stock, (ii) each director individually, (iii) all officers
and directors of the Company as a group:
AMOUNT AND NATURE OF PERCENT
NAME BENEFICIAL OWNERSHIP OF CLASS
Murray S. Cohen(1)* 2,790,958(2) 23.9%
James Ivchenko(1)* 1,644,587 14.1%
Chester C. Swasey(1)* 925,822 7.9%
Claire Bluestein* 945,155 8.1%
Morris Dunkel* 200,000 1.7%
Abdelhamid R.H. Ramadan(1)* 349,402 3.0%
All Officers and Directors
as a Group (6 persons) 6,855,924 57.7%
* Indicates a Director of the Company. The address for each is 358-364
Adams Street, Newark, New Jersey 07105.
(1) Includes 75,000 which he has the right to acquire within 60 days
pursuant to the exercise of stock options.
(2) Includes 1,000,000 shares owned by three grandchildren of Dr. Cohen,
which shares are held by Dr. Cohen's daughters as custodian. Dr.
Cohen holds a proxy with respect to such shares which proxy expires in
2000. As a result, Dr. Cohen may be deemed to be the beneficial owner
of such shares.
Item 12. Certain Relationships and Related Transactions.
See Part I, Item 2 for information on the leasing arrangements entered into
between Epolin Holding, a company previously owned and controlled by
Murray S. Cohen and James Ivchenko, and the Company. As described therein,
in October 1996, Epolin Holding purchased the premises then leased by the
Company for $450,000 and simultaneously with the closing entered into a
lease with the Company, as tenant. The downpayment of $100,000 was
obtained from the Company evidenced by a five year promissory note of
$75,565 (after charge for three months security deposit under the terms of
the lease) payable in monthly principal payments of $1,541 including
interest at an annual rate of 8.25% (the "Downpayment Loan").
The balance of the purchase price was obtained from a bank mortgage in the
principal amount of $350,000 which mortgage was personally guaranteed by
Murray S. Cohen and James Ivchenko. In January 1998, Dr. Cohen and Mr.
Ivchenko transferred all of the shares each of them owned in Epolin Holding
to Epolin whereby Epolin Holding became a wholly-owned subsidiary of
Epolin. In addition, contemporaneously therewith, the Company paid the
remaining balance due (including accrued interest) on the bank mortgage
which amounted to the sum of $320,990.
At February 28, 1998, the remaining amount due from Epolin Holding on the
Downpayment Loan was $71,504. In addition, at February 28, 1998, there is
a related party receivable due from Epolin Holding in the amount of
$18,166. Such amounts have eliminated in consolidation in the Company's
Consolidated Financial Statements annexed to this report.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 Epolin Inc.'s certificate of incorporation as amended (1)
3.2 Epolin Inc.'s by-laws(1)
4.1 Specimen certificate for common stock(1)
___________________
(1) Filed with the Company's Form S-18 Registration Statement SEC File 33-
25405-NY.
(b) Reports on Form 8-K.
Listed below are reports on Form 8-K filed during the last quarter of the
period covered by this report:
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
EPOLIN, INC.
(Registrant)
By: /s/Murray S. Cohen
Murray S. Cohen,
Chief Executive Officer
Dated: June 8, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant, and in the capacities and on the dates indicated:
Signature Title Date
/s/Murray S. Cohen Chief Executive Officer, 06/08/98
Murray S. Cohen Chairman of the Board,
Director (Principal
Executive Officer and
Principal Financial Officer)
/s/James Ivchenko President, Director 06/08/98
James Ivchenko
/s/Chester C. Swasey Vice President of 06/08/98
Chester C. Swasey Sales and Marketing,
Secretary, Director
/s/Claire Bluestein Director 06/08/98
Claire Bluestein
/s/Morris Dunkel Director 06/08/98
Morris Dunkel
/s/Abdelhamid A.H. Ramadan Director 06/08/98
Abdelhamid A.H. Ramadan
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
FEBRUARY 28, 1998 AND 1997
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
FEBRUARY 28, 1998 AND 1997
CONTENTS
PAGE
Report of Independent Certified Public Accountants 1
Consolidated Financial Statements:
Consolidated Balance Sheets 2 - 3
Consolidated Statements of Income 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6 - 7
Notes to Consolidated Financial Statements 8 - 16
<PAGE>
[LETTERHEAD]
I. WEISMANN ASSOCIATES
PO BOX 2207
MORRISTOWN, NJ 07962-2207
(973) 984-8900
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
EPOLIN, INC. AND SUBSIDIARIES
We have audited the accompanying Consolidated Balance Sheets of Epolin,
Inc. and wholly-owned Subsidiaries as of February 28, 1998 and 1997 and the
related Consolidated Statements of Income, Stockholders' Equity, and Cash
Flows for the years ended February 28, 1998 and 1997 and February 29, 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance as to whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the Consolidated Financial Statements referred to above
present fairly, in all material respects, the financial position of Epolin
Inc. and Subsidiaries as of February 28, 1998 and 1997 and the results of
its operations and its cash flows for the years ended February 28, 1998 and
1997 and February 29, 1996 in conformity with generally accepted accounting
principles.
/s/I. Wessmann Associates
CERTIFIED PUBLIC ACCOUNTANTS
May 5, 1998
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
FEBRUARY 28,
1998 1997
Current assets:
Cash and cash equivalents $ 389,129 252,803
Accounts receivable (Note 3) 214,976 226,524
Inventories (Note 4) 382,276 341,688
Related party receivables (Note 14) - 20,097
Prepaid expenses:
Income taxes 32,799 10,145
Other 23,756 14,764
Employee loans 5,866 -
Deferred taxes (Note 5) 95,240 100,555
Total current assets 1,144,042 966,576
Property, plant and equipment
- at cost (Note 2):
Land 77,343 -
Building 352,338 -
Machinery and equipment 200,162 199,952
Furniture and fixtures 11,036 11,036
Leasehold improvements 432,037 427,743
Total 1,072,916 638,731
Less: Accumulated depreciation
and amortization 569,401 495,595
Net depreciated cost 503,515 143,136
Other assets:
Loan receivable
- related party (Note 14) - 71,504
Deferred taxes (Note 5) 103,684 199,494
Security deposits 12,635 37,070
Cash value - life insurance policy
(Note 11) 42,677 23,902
Total other assets 158,996 331,970
Total $1,806,553 1,441,682
The accompanying notes are an integral part of these statements.
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
February 28,
1998 1997
Current liabilities:
Accounts payable $ 40,385 18,725
Accrued expenses 55,543 33,214
Taxes payable - payroll and income 1,663 6,347
Total current liabilities 97,591 58,286
Other liabilities - deferred
compensation (Note 11) 93,800 23,053
Total liabilities 191,391 81,339
Commitments (Note 11)
Stockholders' equity:
Preferred stock, $15.513 par value;
940,000 shares authorized;
none issued - -
Preferred stock, series A
convertible non-cumulative,
$2.50 par value; redemption price
and liquidation preference;
60,000 shares authorized;
5,478 shares issued and redeemed - -
Common stock, no par value;
20,000,000 shares authorized;
11,654,000 shares issued and
outstanding at 1998 and 1997 (Note 6) 2,206,984 2,206,984
Common stock unissued (Note 7) 10,000 10,000
Paid-in capital 6,486 6,486
Accumulated deficit (608,308) (863,127)
Total 1,615,162 1,360,343
Less: Treasury stock (Note 8) - -
Total stockholders' equity 1,615,162 1,360,343
Total $1,806,553 1,441,682
The accompanying notes are an integral part of these statements.
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended
February 28, February 29,
1998 1997 1996
Sales (Notes 2 and 3) $ 1,602,150 1,414,226 1,384,410
Cost of sales and expenses:
Cost of sales 491,960 500,975 613,879
Selling, general
and administrative
expenses
(Notes 2, 6, 7, 9 & 11) 726,990 616,438 432,783
Total 1,218,950 1,117,413 1,046,662
Operating income 383,200 296,813 337,748
Other income (loss):
Interest income 22,487 12,933 7,518
Gain (loss)
on disposal of assets 500 22,525 (3,570)
Income before taxes 406,187 332,271 341,696
Income tax expense
(benefit) (Note 5) 101,420 122,720 (284,467)
Net income $ 304,767 209,551 626,163
Per share data:
Net income per common share $ 0.03 0.02 0.05
Weighted average number of
shares of common
outstanding $11,611,555 11,611,555 11,444,888
The accompanying notes are an integral part of these statements.
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional
Common Paid-in- Accumulated Stockholders'
Stock Capital Deficit Equity
Balance
- - March 1, 1995 $2,176,984 6,486 (1,698,841) 484,629
Common stock
issued in lieu
of accrued
salary (Note 6) 40,000 - - 40,000
Net income
- Year ended
February 29,
1996 - - 626,163 626,163
Balance
- February 29,
1996 2,216,984 6,486 (1,072,678) 1,150,792
Net income
- Year ended
February 28,
1997 - - 209,551 209,551
Balance
- February 28
, 1997 2,216,984 6,486 (863,127) 1,360,343
Prior period
adjustment
(Notes 6 & 12) - - (49,948) (49,948)
Net income
- Year ended
February 28,
1998 - - 304,767 304,767
Balance
- February 28,
1998 $2,216,984 6,486 (608,308) 1,615,162
The accompanying notes are an integral part of these statements.
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended
February 28, February 29,
1998 1997 1996
Cash flows from
operating activities:
Net income $304,767 209,551 626,163
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 61,890 65,022 70,677
Deferred tax expense
(benefit) 101,125 87,420 (320,995)
Loss on disposal of assets - - 3,570
Obligation under deferred
compensation agreement 20,799 19,779 3,274
Stock issued in lieu
of accrued salary - - 40,000
Changes in assets
and liabilities:
Accounts receivable 11,548 (62,258) (44,266)
Inventories (40,588) (96,262) (145,614)
Employee loans (5,866) (4,056)
Prepaid expenses (8,992) (3,453) 3,616
Prepaid income taxes (22,654) (10,145) -
Accounts payable 21,660 (30,435) 26,183
Accrued expenses 22,329 21,788 2,426
Accrued salaries - - (89,948)
Taxes payable:
Payroll (4,834) 6,347 (5,179)
Income 150 (34,975) 33,328
Net cash provided by
operating activities 461,334 168,323 203,235
The accompanying notes are an integral part of these statements.
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
Years ended
February 28, February 29,
1998 1997 1996
Cash flows from
investing activities:
Related party loans 91,601 (87,545) -
Patents (net) - - 7,588
Cash value - life
insurance policy (18,775) (17,333) (6,569)
Assets from acquisition
of subsidiary - net
of accumulated
depreciation (Note 1) (417,765) - -
Payments for equipment (4,504) (18,007) (29,761)
Security deposits 24,435 (24,435) -
Net cash used by
investing activities (325,008) (147,32O) (28,742)
Increase in cash 136,326 21,003 174,493
Cash and cash equivalents:
Beginning 252,803 231,800 57,307
Ending $389,129 252,803 231,800
Supplemental Disclosure
of Cash Flow Information:
Income taxes paid $ 22,504 42,050 1,662
Interest paid $ - - 28
The accompanying notes are an integral part of these statements.
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:
Epolin, Inc. (the "Company") was incorporated in 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.
Prior to March 1, 1997, the Company's wholly-owned Subsidiary, Accort Labs,
Inc., was 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.
On July 1, 1997, the Board of Directors approved a plan of merger "Plan"
whereas the Company's wholly-owned Subsidiary Accort Labs, Inc. (the
merging corporation) would merge into Epolin, Inc. (the surviving
corporation). The effective date of the "Plan" was March 1, 1997. The
above "Plan" was filed with the State of New Jersey on July 25, 1997 and is
pending approval as of February 28, 1998. As a result, the merging
corporation's assets, liabilities and stockholder's equity as of March 1,
1997 were transferred to the surviving corporation. The merging
corporation had no transactions for the year ended February 28, 1998.
The Company's wholly-owned Subsidiary, Epolin Holding, Corp. was
incorporated in New Jersey as a real estate holding company. Prior to
being acquired on January 29, 1998, it. was controlled by two
officers/stockholders of the Company with the majority of its assets
consisting of land and a building.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation - The accompanying Consolidated Financial
Statements include the accounts of the Company and its Subsidiaries.
Intercompany transactions and balances have been eliminated in
consolidation. Condensed consolidating financial statements for the year
ended February 28, 1998 follows:
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
CONDENSED CONSOLIDATING BALANCE SHEET
Epolin
Epolin Holding Eliminations Consolidated
Current assets $1,137,235 24,973 (18,166) 1,144,042
Non-current assets 669,318 437,315 (444,122) 662,511
Total $1,806,553 462,288 (462,288) 1,806,553
Total liabilities 191,391 435,094 (435,094) 191,391
Stockholders'
equity:
Common stock 2,216,984 - - 2,216,984
Additional paid-
in capital 6,486 - - 6,486
Accumulated
earnings
(deficit) (608,308) 27,194 (27,194) (608,308)
Total
stockholders'
equity 1,615,162 27,194 (27,194) 1,615,162
Total $1,806,553 462,288 (462,288) 1,806,553
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Sales $1,602,150 - - 1,602,150
Other revenue - 8,145 (8,145) -
Total 1,602,150 8,145 (8,145) 1,602,150
Cost of sales 491,960 - - 491,960
Gross profit 1,110,190 8,145 (8,145) 1,110,190
Selling, general
and
administrative 725,720 1, 270 - 726,990
Operating income 384,470 6,875 (8,145) 383,200
Other income 29,862 - (6,875) 22,987
Income before taxes 414,332 6,875 (15,020) 406,187
Income tax 101,420 - - 101,420
Net income $ 312,912 6,875 (15,020) 304,767
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Cash and Cash Equivalents - For purposes of preparing the statement of cash
flows, includes cash in bank and money market accounts.
Concentrations of Credit Risks - The Company has cash deposits in financial
institutions in excess of the amount insured by agencies of the federal
government in the amounts of $289,296 and $171,825 at February 28,1998 and
1997, respectively. In evaluating this credit risk, the Company
periodically evaluates the stability of these financial institutions.
Inventories - Consists of raw materials, work in process, finished goods
and supplies valued at the lower of cost or market under the first-in,
first-out method.
Fair Value of Financial Instruments - The fair values of all reported
assets and liabilities which represent financial instruments approximate
the carrying values of such amounts.
Property, Plant and Equipment - Stated at cost less accumulated
depreciation and amortization. Provisions for depreciation are computed on
the straight-line and declining balance methods, based upon the estimated
useful lives of the assets.
Depreciation and amortization expense totaled $61,890, $68,396 and $70,053
for the fiscal years 1998, 1997 and 1996, respectively.
Income taxes -The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income taxes",
wherein 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 statement 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.
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998
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 year ended February 28, 1998, approximately 76.6%
of sales were to seven customers, two of which totaled 31.0%. Three of
these customers with locations in the Eastern United States comprised 61.3%
of accounts receivable at February 28, 1998. During the year ended
February 28, 1997, approximately 66.5% of sales were to five customers, one
of which totaled 18.9%. Two of these customers comprised 48.8% of accounts
receivable at February 28, 1997 with locations in the Eastern United
States.
NOTE 4 - INVENTORIES:
1998 1997
Raw materials and supplies $ 21,907 19,887
Work in process 2,741 6,781
Finished goods 357,628 315,020
Total $382,276 341,688
NOTE 5 - INCOME TAXES:
1998 1997
Deferred tax assets
include the following:
Net operating loss carry forwards $ 88,905 204,159
Temporary differences - principally
accelerated amortization of leasehold
improvements for book purposes 110,019 95,890
$198,924 300,049
Total - deferred tax assets $198,924 413,263
Less: valuation allowance - 113,214
198,924 300,049
Current portion 95,240 100,555
Non-current portion $103,684 199,494
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998
NOTE 5 - INCOME TAXES (Continued):
Income tax expense (benefit) consists of the following components:
1998 1997 1996
Current - State $ 295 35,300 36,528
Deferred:
Federal 66,924 90,625 (318,053)
State 34,201 (3,205) (2,942)
Total deferred 101,125 87,420 (320,995)
Total $101,420 122,720 (284,467)
Reconciliation of income tax at the statutory rate to the Company's
effective rate:
Computed at the
statutory rate $231,300 112,972 116,177
State income taxes (net) 295 23,298 24,108
Decrease in deferred
tax asset
valuation allowance (113,214) - (418,763)
Non-deductible items (16,961) (13,550) (5,989)
Total provision for taxes $101,420 122,720 (284,467)
For Federal tax purposes, the Company has available approximately $121,400
of net operating loss carryforwards as of February 28, 1998, which expire
in the years 2005 through 2007. In addition, there are State net operating
loss carryforwards of approximately $742,100 which expire in the years 1998
through 2004.
NOTE 6 - ACCRUED SALARIES:
Four officers and one former employee previously elected to defer a portion
of their salaries to preserve the Company's cash position. Salaries of
three officers and the former employee were waived and removed from the
books during 1996 and 1995 and credited to income.
On April 25, 1995, the Board of Directors authorized the issuance of
1,000,000 shares of common stock (market value $.04 per share) to the
remaining officer in lieu of $40,000 of his remaining accrued salary of
$89,948. The remaining unpaid balance of $49,948 was classified as
deferred compensation as of February 28, 1998. (See Note 12.)
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998
NOTE 7 - EMPLOYEE BENEFITS:
Simplified Employee Pension Plan - Effective June 1, 1994, covering all
eligible participating employees as defined. Employer contributions totaled
$12,141, $11,191 and $5,744 for the years ended February 28, 1998, 1997 and
1996 respectfully.
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 February 28, 1998, 20,000 vested shares of common stock covering a
previously awarded bonus had not been issued to the employee. Management
believes that the shares will be issued in the next fiscal year.
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. In December 1995,
options to acquire up to 490,000 shares of the Company's common stock were
granted under the Plan. Such options expire on December 1, 2005.
Outstanding Options:
Shares allocated as of February 28, 1998 490,000
Option price $ 0.04
All outstanding options are exercisable currently. No options were
granted, expired or excercised during the current fiscal year ended
February 28, 1998.
NOTE 8 - TREASURY STOCK:
Represents 42,445 shares returned to Company when shares were deemed to
have no market value.
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998
NOTE 9 - RESEARCH AND DEVELOPMENT:
Included in selling, general and administrative expenses are costs of
$164,724, $170,468 and $152,700 for the years 1998, 1997 and 1996,
respectively.
NOTE 10 - ACQUISITIONS:
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.
On January 29, 1998, the Company acquired 100 shares (100% interest) of
Epolin Holding, Corp.'s outstanding common stock, thereby becoming a
wholly-owned Subsidiary. The Company accounted for this business
combination by the purchase method, in accordance with Accounting
Principles Board (APB) #16, whereas the excess net book value over cost
was used to reduce the basis of the acquired assets principally land and
building.
NOTE 11 - 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 Murray S. Cohen, Ph.D. 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 Murray S. Cohen, Ph.D. and Mr. James A. Ivchenko were
mandatory. Other directors declined to participate in this transaction.
(See Note 10.)
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. Epolin Holding Corp. is a
wholly-owned Subsidiary of Epolin, Inc. as of January 28, 1998.
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998
NOTE 11 - COMMITMENTS (continued):
The minimum annual rentals under the lease are as follows:
Years Ended
February 28, Amounts
1999 $97,740
2000 97,740
2001 97,740
2002 65,160
Rental expense charged to operations amounted to $89,595, $90,717 and
$90,437 for the years 1998, 1997 and 1996, respectively.
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. Deferred compensation charged to operations
were $20,799, $19,809 and $3,274 for the years 1998, 1997 and 1996
respectively. (See Note 12.)
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.
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1998
NOTE 12 - PRIOR PERIOD ADJUSTMENT:
Deferred compensation to an officer of $49,948 previously eliminated was
reinstated, resulting in changes to accumulated deficit as of February 28,
1997:
NOTE 13 - SUSEQUENT EVENTS:
On April 9, 1998, the Company purchased 25,000 shares of its common stock
at $.38 per share on the open market. The Company intends to purchase
additional shares of its stock in the near future.
NOTE 14 - RELATED PARTY TRANSACTIONS:
At February 28, 1997, the Company had 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 (See
Notes 1 and 10.)
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. (See Notes 1 and 10.)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
EPOLIN, INC.'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED FEBRUARY 28, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-END> FEB-28-1998
<CASH> 389,129
<SECURITIES> 0
<RECEIVABLES> 214,976
<ALLOWANCES> 0
<INVENTORY> 382,276
<CURRENT-ASSETS> 1,144,042
<PP&E> 1,072,916
<DEPRECIATION> 569,401
<TOTAL-ASSETS> 1,806,553
<CURRENT-LIABILITIES> 97,591
<BONDS> 0
<COMMON> 2,206,984
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,615,162
<SALES> 1,602,150
<TOTAL-REVENUES> 1,602,150
<CGS> 491,960
<TOTAL-COSTS> 491,960
<OTHER-EXPENSES> 726,990
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 406,187
<INCOME-TAX> 101,420
<INCOME-CONTINUING> 304,767
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 304,767
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
