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 AUGUST 31, 1999
[ ] 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 X No
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: 11,421,555
outstanding as of August 31, 1999
<PAGE>
PART I - FINANCIAL INFORMATION
EPOLIN, INC. AND SUBSIDIARIES
Index to Financial Information
Period Ended August 31, 1999
Item Page Herein
Item 1 - Financial Statements:
Introductory Comments 3
Consolidated Balance Sheets 4
Consolidated Statements of Income 6
Consolidated Statements of Cash Flows 8
Item 2 - Management's Discussion and
Analysis or Plan of Operation 9
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
AUGUST 31, 1999
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 six months ended August 31, 1999 are
not necessarily indicative of the results of operations for the full fiscal
year ending February 28, 2000.
These condensed statements should be read in conjunction with the
Company's audited financial statements for the fiscal year ended February
28, 1999.
<PAGE>
EPOLIN, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
August 31,
1999 1998
Current assets:
Cash and cash equivalents $1,170,812 572,370
Accounts receivable 170,633 186,041
Inventories 380,527 318,477
Prepaid expenses:
Income taxes 0 60,603
Other 34,282 24,148
Deferred taxes 32,000 95,240
Total current assets 1,788,254 1,256,879
Property, plant and
equipment - at cost:
Land 81,000 77,343
Building 369,000 352,338
Machinery and equipment 206,727 200,162
Furniture and fixtures 11,408 11,036
Leasehold improvements 432,037 432,037
Total 1,100,172 1,072,916
Less: Accumulated
depreciation and amortization 640,684 604,575
Net property and equipment 459,488 468,341
Other assets:
Deferred taxes 90,107 103,684
Security deposits 0 12,635
Cash value -
life insurance policy 72,558 42,677
Total other assets 162,665 158,996
Total $2,410,407 1,884,216
<PAGE>
EPOLIN, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
August 31,
1999 1998
Current liabilities:
Accounts payable $ 32,062 9,908
Accrued expenses 19,574 35,181
Taxes payable:
Payroll 1,420 23,487
Income 162,000 0
Loans payable officers 10,319 0
Total current liabilities 225,375 68,576
Other liabilities
- deferred compensation 144,764 93,800
Total liabilities 370,139 162,376
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;
11,759,000 shares issued and
11,606,555 shares issued and
outstanding at 1999 and 1998
respectively 2,220,384 2,216,983
Paid-in capital 6,486 6,486
Accumulated deficit (121,238) (492,088)
Total 2,105,632 1,731,381
Less: Treasury stock (65,364) (9,541)
Total stockholders' equity 2,040,268 1,721,840
Total $2,410,407 1,884,216
<PAGE>
EPOLIN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
August 31,
1999 1998
Sales $566,347 469,770
Cost of sales and expenses:
Cost of sales 127,826 164,419
Selling, general and
administrative expenses 129,222 201,951
Total 257,048 366,370
Operating income 309,299 103,400
Other income - interest 11,361 4,698
Income before taxes 320,660 108,098
Provision for taxes:
Current:
Federal 99,200 0
State 26,400 0
Total current 125,600 0
Deferred:
Federal 5,020 25,428
State 33,100 200
Total deferred 38,120 25,628
Total 163,720 25,628
Net income $156,940 82,470
Per share data:
Net income per common share $ 0.01 0.01
Weighted average number of
shares of common outstanding $11,445,414 11,606,555
<PAGE>
EPOLIN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED
August 31,
1999 1998
Sales $ 1,058,013 772,147
Cost of sales and expenses:
Cost of sales 239,647 270,251
Selling, general
and administrative expenses 240,806 358,211
Total 480,453 628,462
Operating income 577,560 143,685
Other income - interest 19,242 8,569
Income before taxes 596,802 152,254
Provision for taxes:
Current:
Federal 197,200 25,834
Deferred 26,460 200
Total current 223,660 26,034
Deferred:
Federal 900 0
State 33,100 0
Total deferred 34,000 0
Total 257,660 26,034
Net income $ 339,142 126,220
Per share data:
Net income per common share $ 0.03 0.01
Weighted average number of
shares of common outstanding $11,445,414 11,604,472
<PAGE>
EPOLIN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
August 31,
1999 1998
Cash flows from
operating activities:
Net income $ 339,142 126,220
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 9,170 35,174
(Increase) decrease in:
Accounts receivable 160,281 28,935
Inventories (100,903) 63,799
Cash surrender value -
officers' life insurance (10,000) 0
Prepaid expenses:
Income taxes 56,504 (27,804)
Other (6,973) 5,473
Increase (decrease) in:
Accounts payable (11,342) (30,477)
Accrued expenses (31,453) (20,362)
Taxes payable:
Payroll 110 21,824
Income 128,765 0
Net cash provided by
operating activities 533,301 202,782
Cash flows from
investing activities:
Related party loans (31,280) 0
Purchase of treasury stock (6,937) (9,541)
Net cash used by
investing activities (38,217) (9,541)
Cash flows used by
financing activities:
Post termination distribution
of Epolin Holding Corp.'s
former earnings 0 (10,000)
Increase in cash 495,084 183,241
Cash and cash equivalents:
Beginning 675,728 389,129
Ending $1,170,812 572,370
Supplemental disclosure
of cash flow information:
Income taxes paid $ 5,850 4,034
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
The following discussion should be read in conjunction with the
Financial Statements included in this report and is qualified in its
entirety by the foregoing.
Introduction
Epolin, Inc. (the "Company") 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.
This discussion contains certain forward-looking statements and
information relating to the Company that are based on the beliefs and
assumptions by the Company's management as well as information currently
available to the management. When used herein, 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.
Results of Operations
During the quarter ended August 31, 1999, the Company reported sales
of approximately $566,300 as compared to sales of approximately $469,800
during the quarter ended August 31, 1998, an increase of approximately
$96,500 or 20.5%. During the six months ended August 31, 1999, the Company
reported sales of approximately $1,058,000 as compared to sales of
approximately $772,100 during the six months ended August 31, 1998, an
increase of approximately $285,900 or 37.0%. 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 for new
applications.
Operating income for the quarter ended August 31, 1999 increased to
approximately $309,300 as compared to operating income of approximately
$103,400 for the quarter ended August 31, 1998, an increase of approximately
$205,900. Operating income for the six months ended August 31, 1999 increased
to approximately $577,600 as compared to operating income of approximately
$143,700 for the six months ended August 31, 1998, an increase of approximately
$433,900. This change resulted primarily from an increase in sales during the
six months ended August 31, 1999 as compared to the comparable 1998 period,
with cost of sales decreasing for the six months ended August 31, 1999 compared
to the six months ended August 31, 1998. In addition, selling, general and
administrative expenses decreased in the six months ended August 31, 1999
compared to the comparable 1998 period. Cost of sales for the six months
ended August 31, 1999 was approximately $239,600 as compared to cost of sales
during the six months ended August 31, 1998 of approximately $270,300. During
the six months ended August 31, 1999, the Company's selling, general and
administrative expenses were approximately $240,800 as compared to selling,
general and administrative expenses of approximately $358,200 for the six
months ended August 31, 1998.
During the three months and six months ended August 31, 1999, the Company
realized approximately $11,400 and $19,200, respectively, in interest income
as compared to approximately $4,700 and $8,600, respectively, in interest
income for the comparable periods of 1998.
During the quarter ended August 31, 1999, the Company reported income
before taxes of approximately $320,700 as compared to income before taxes of
approximately $108,100 for the three months ended August 31, 1998. For the six
months ended August 31, 1999, the Company reported income before taxes of
approximately $596,800 as compared to income before taxes of approximately
$152,300 for the six months ended August 31, 1998. Net income after taxes was
approximately $156,900 for the three months ended August 31, 1999 as compared
to income after taxes of approximately $82,500 for the three months ended
August 31, 1998. For the six months ended August 31, 1999, net income after
taxes was approximately $339,100 as compared to net income after taxes of
approximately $126,200 for the comparable period of 1998.
Liquidity and Capital Resources
On August 31, 1999, the Company had working capital of approximately
$1,562,900, an equity to debt ratio of approximately 5.51 to 1, and
stockholders' equity of approximately $2,040,000. On August 31, 1999, the
Company had approximately $1,170,800 in cash and cash equivalents, total
assets of approximately $2,410,400 and total liabilities of approximately
$370,100. 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.
Year 2000 Issue
The Year 2000 issue is the result of computer programs having been
written using two digits, rather then four, to define the applicable year.
Software programs and hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in a major system failure or
miscalculations causing disruptions of operations, including a temporary
inability to engage in normal business activities.
Based on recent assessments, the Company determined that its critical
software (primarily widely-used software packages) and all of its critical
business systems, including manufacturing instrumentation, are already year
2000 compliant. Nevertheless, throughout 1999, assessment, testing and
remediation, if necessary, will continue.
The Company is also actively working with critical suppliers at
products and services to determine that the suppliers' operations and the
products and services they provide are year 2000 compliant or to monitor
their progress toward year 2000 compliance. In this regard, the Company
believes its greatest year 2000 risk for disruption to its business is the
potential noncompliance of third parties. As a result, the Company has
initiated communications with third parties with whom the Company has
material direct and indirect business relationships. The Company is
currently in the process of contacting third parties in order to determine
the extent to which the Company's business is vulnerable to the third
parties' failure to make their systems year 2000 compliant. To date, the
Company is still continuing to gather information from such other third
parties.
The Company currently does not have a contingency plan in the event a
particular system, including the systems of material third parties, are not
year 2000 compliant. Such a plan will be developed if it becomes clear
that the Company is not going to achieve its scheduled compliance
objectives. Although no assurance can be given that there will be no
interruption of operations in the year 2000, the Company believes (and
assuming that third parties with whom the Company has material business
relationships successfully remediate their own year 2000 issues) that it
has reasonably assessed all of its systems in order to ensure that the
Company will not suffer any material adverse effect from the year 2000
issue.
The Company has used and will continue to use internal resources to
resolve its year 2000 issue. Costs incurred to date by the Company have not
been material and the Company currently expects that the total cost of
these programs will not exceed $60,000.
Other Information
In March 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. A total of
295,000 shares have been repurchased under this program through August 31,
1999, which includes 75,000 shares repurchased during the quarter ended
August 31, 1999.
<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 August 31, 1999.
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: October 15, 1999 By:/s/Murray S. Cohen
Murray S. Cohen,
Chief Executive Officer
Dated: October 15, 1999 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 AUGUST 31, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-END> AUG-31-1999
<CASH> 1,170,812
<SECURITIES> 0
<RECEIVABLES> 170,633
<ALLOWANCES> 0
<INVENTORY> 380,527
<CURRENT-ASSETS> 1,788,254
<PP&E> 1,100,172
<DEPRECIATION> 640,684
<TOTAL-ASSETS> 2,410,407
<CURRENT-LIABILITIES> 225,375
<BONDS> 0
<COMMON> 2,220,384
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,040,268
<SALES> 1,058,013
<TOTAL-REVENUES> 1,058,013
<CGS> 239,647
<TOTAL-COSTS> 239,647
<OTHER-EXPENSES> 240,806
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 596,802
<INCOME-TAX> 257,660
<INCOME-CONTINUING> 339,142
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 339,142
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
