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, 1999
[ ] 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: $1,681,243
As of June 1, 1999, the aggregate market value of the Common Stock held by
non-affiliates of the Issuer (4,985,631 shares) was approximately
$1,096,839. The number of shares outstanding of the Common Stock (no par
value) of the Issuer as of the close of business on June 1, 1999 was
11,561,555.
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 was approved by the State of
New Jersey as of December 30, 1998. 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 years ended February 28,
1998 and 1999.
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).
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. 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 the year ended February 28, 1999, approximately 52.8% of sales were
to four customers, two of which totaled 32.4%. Three of these customers
comprised 40.2% of accounts receivable at February 28, 1999. 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 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.
Item 3. Legal Proceedings.
There are no 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, 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
Fiscal year ended February 28, 1999: High Low
March 1, 1998 to May 31, 1998 $.44 $.1875
June 1, 1998 to Aug. 31, 1998 $.34 $.15
Sept. 1, 1998 to Nov. 30, 1998 $.20 $.08
Dec. 1, 1998 to Feb. 28, 1999 $.22 $.15
(b) Holders.
As of June 1, 1999 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 1999 Compared to Fiscal 1998
During the year ended February 28, 1999, the Company reported sales of
approximately $1,681,000 as compared to sales of approximately $1,602,000
during the year ended February 28, 1998, an increase of approximately
$79,000 or 4.9%. This increase in sales was primarily attributable to a
small increase in sales of the Company's near infrared absorbing dyes, and
small increases in sales of new dyes for new applications.
Operating income for fiscal 1999 decreased to approximately $280,000 as
compared to operating income of approximately $383,000 for fiscal 1998, a
decrease of approximately $103,000. This change resulted primarily from
increases in selling, general and administrative expenses and increases in
cost of sales, partially offset by an increase in sales. Cost of sales in
fiscal 1999 was approximately $671,000 compared to cost of sales in fiscal
1998 of approximately $492,000. In fiscal 1999, the Company's selling,
general and administrative expenses were approximately $731,000 as compared
to selling, general and administrative expenses of approximately $727,000
for the fiscal year ended February 28, 1998.
During the fiscal year ended February 28, 1999, the Company realized
approximately $27,000 in interest income as compared to approximately
$22,000 in interest income for the prior year. This increase resulted
primarily from increases in available cash in fiscal 1999.
During the fiscal year ended February 28, 1999, the Company reported income
before taxes of approximately $307,000 as compared to income before taxes
of approximately $406,000 for the fiscal year ended February 28, 1998. Net
income after taxes was approximately $148,000 or $.01 per share for fiscal
1999 as compared to net income after taxes of approximately $305,000 or
$.03 per share for fiscal 1998.
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.
Liquidity and Capital Resources
On February 28, 1999, the Company had working capital of approximately
$1,334,000, an equity to debt ratio of 6.10 to 1, and stockholders' equity
of approximately $1,732,000. On February 28, 1999, the Company had
approximately $676,000 in cash and cash equivalents, total assets of
approximately $2,016,000 and total liabilities of approximately $284,000.
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 being written using
two digits, rather than 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, already are year
2000 compliant. Nevertheless, throughout 1999, assessment, testing and
remediation, if necessary, will continue.
The Company is also actively working with critical suppliers of 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 important third parties.
The Company currently does not have a contingency plan in the event of 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 assurances 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. 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. During the fiscal year ended February
28, 1999, the Company repurchased 155,000 shares of its Common Stock under
this program at a cumulative cost of $34,084.
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 74 Chairman of the 1984
Board, Chief Executive
Officer and Director
James Ivchenko 59 President 1993
and Director
Chester C. Swasey 55 Vice President of 1994
Sales and Marketing,
Secretary and Director
Claire Bluestein 73 Director 1984
Morris Dunkel 71 Director 1984
Abdelhamid A.H. Ramadan 59 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 tables set forth information concerning
the annual and long-term compensation for services in all capacities to the
Company for the fiscal years ended February 28, 1999, 1998 and 1997, of
those persons who were, at February 28, 1999 (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 1999 $111,538(1) $20,000
Chairman of the 1998 $ 89,575(1) $20,000
Board and Chief 1997 $ 88,542(1) $ 7,950
Executive Officer
James Ivchenko 1999 $106,538(1) $15,000
President 1998 $ 95,771(1) $15,000
1997 $ 83,125(1) $ 7,950
Chester C. Swasey 1999 $ 94,504 $ 5,000
Vice President of 1998 $ 89,903 $ 5,000
Sales and Marketing 1997 $ 82,596 $ 4,300
Summary Compensation Table
Long-Term
Compensation
Restricted Shares
Name and Principal Fiscal Stock Underlying
Position Year Awards Options
Murray S. Cohen 1999 0 75,000
Chairman of the 1998 0 0
Board and Chief 1997 0 0
Executive Officer
James Ivchenko 1999 0 75,000
President 1998 0 0
1997 0 0
Chester C. Swasey 1999 0 75,000
Vice President of 1998 0 0
Sales and Marketing 1997 0 0
(1) Does not include any deferred compensation arrangements.
Stock Option Plans
The Company previously adopted the 1986 Employees' Stock Option Plan (the
"1986 Plan"). As of April 1996, options may no longer be granted under the
1986 Plan. Under the terms of the 1986 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 (the "Code"), 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 1986 Plan. Such options expire on December 1, 2005.
To date, options to acquire 85,000 shares of the Company's Common Stock
have been exercised under the 1986 Plan. The Company has repurchased all
of such shares which were acquired upon exercise.
In December 1998, the Company adopted the 1998 Stock Option Plan (the "1998
Plan") for employees, officers, consultants or directors of the Company to
purchase up to 750,000 shares of Common Stock of the Company. Options
granted under the 1998 Plan shall be non-statutory stock options which do
not meet the requirements of Section 422 of the Code. Under the terms of
the 1998 Plan, participants may receive options to purchase Common Stock in
such amounts and for such prices as may be established by the Board of
Directors or a committee appointed by the Board to administer the 1998
Plan. As of February 28, 1999, options to acquire 450,000 shares of the
Company's Common Stock have been granted under the 1998 Plan and 300,000
options were available for future grant.
The following tables set forth certain information with respect to stock
options granted to the persons named in the Summary Compensation Table
during the fiscal year ended February 28, 1999.
OPTION GRANTS IN FISCAL 1999
INDIVIDUAL GRANTS
Percent of Total
Number of Options Granted
Securities to Exercise or
Underlying Options Employees in Base Price
Name Granted Fiscal Year ($/Sh)
Murray S. Cohen 75,000 16.7% $.15
James Ivchenko 75,000 16.7% $.15
Chester C. Swasey 75,000 16.7% $.15
Option Grants in Fiscal 1999
Individual Grants
Market
Price
On
Date of Expiration
Name Grant(1) Date
Murray S. Cohen $11,625 12/1/2008
James Ivchenko $11,625 12/1/2008
Chester C. Swasey $11,625 12/1/2008
_______________________
(1) Based on the average of the closing bid and asked prices of the
Company's Common Stock on the date of grant. The actual value, if
any, an optionee will realize upon exercise of an option will depend
on the excess of the market value of the Common Stock over the
exercise price on the date the option is exercised.
The following table set forth certain information as to each exercise of
stock options during the year ended February 28, 1999, by the persons named
in the Summary Compensation Table and the fiscal year-end value of
unexercised options:
Aggregated Option Exercises in Fiscal 1999 and Year-End Option Value
Number of Securities
Shares Underlying Unexercised
Acquired Options at February 28, 1999
On Value
Exercise Realized Exercisable Unexercisable
Murray S. Cohen -0- -0- 75,000 75,000
James Ivchenko -0- -0- 75,000 75,000
Chester C. Swasey -0- -0- 75,000 75,000
Aggregated Option Exercises in Fiscal 1999 and Year-End Option Value
Value of Unexercised
In-the-Money Options
at February 28, 1999(1)
Exercisable Unexercisable
Murray S. Cohen $12,750 $4,500
James Ivchenko $12,750 $4,500
Chester C. Swasey $12,075 $4,500
________________________
(1) Realizable values are reported net of the option exercise price but
before any income taxes that the executive may have to pay. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock as well as the option holder's
continued employment through the vesting period. The amounts
reflected in this table may never be obtained.
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.
Deferred Compensation
In December 1995, the Company entered into deferred compensation agreements
with James Ivchenko, President of the Company, and Murray S. Cohen,
Chairman of the Board and Chief Executive Officer of the Company. Mr.
Ivchenko's compensation of $19,645 plus interest will be deferred until Mr.
Ivchenko reaches the age of 65 or his employment is terminated. The
obligation is being funded with a life insurance policy owned by the
Company. 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. Dr. Cohen's agreement provides
for a credit of $25,000 per year to his account until his date of
retirement. Upon retirement, he will be paid pursuant to either of the
following methods as determined and selected in the sole discretion of the
Company: (i) equal consecutive monthly payments for a period not exceeding
60 months or (ii) a single payment equal to the then percent value of his
account.
The Company also entered into deferred compensation agreements in June 1998
with Chester C. Swasey and Abdelhamid A.H. Ramadan. These agreements
provide for annual payments of 50% of each employee's salary before bonuses
at his respective retirement dates, to be paid in biweekly installments for
10 years. The effective date of these agreements is March 1, 1999.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as June 1, 1999, 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) 24.0%
James Ivchenko(1)* 1,644,587 14.1%
Chester C. Swasey(1)* 925,822 7.9%
Claire Bluestein* 945,155 8.0%
Morris Dunkel* 200,000 1.7%
Abdelhamid R.H.
Ramadan(1)* 369,402 3.2%
All Officers and Directors
as a Group (6 persons) 6,875,924 58.0%
* Indicates a Director of the Company. The address for each is 358-364
Adams Street, Newark, New Jersey 07105.
(1) Includes 75,000 shares which each has the right to acquire within 60
days pursuant to the exercise of stock options granted under the 1986
Plan. Does not include an additional 75,000 shares which each does
not have the right to acquire within 60 days pursuant to the exercise
of stock options granted under the 1998 Plan.
(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.
None.
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 15, 1999
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, 06/15/99
Murray S. Cohen Chairman of the Board,
Director (Principal
Executive Officer and
Principal Financial Officer)
/s/James Ivchenko President, Director 06/14/99
James Ivchenko
Vice President of
Chester C. Swasey Sales and Marketing,
Secretary, Director
/s/Claire Bluestein Director 06/15/99
Claire Bluestein
/s/Morris Dunkel Director 06/15/99
Morris Dunkel
Abdelhamid A.H.
Ramadan Director
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1999 AND 1998
<PAGE>
CONTENTS
Independent Auditor's Report
Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statement of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
EPOLIN, INC. AND SUBSIDIARIES
Newark, New Jersey
We have audited the accompanying Consolidated Balance Sheets of Epolin, Inc.
and its wholly owned Subsidiary(ies) as of February 28, 1999 and 1998 and the
related Consolidated Statements of Income, Stockholders' Equity, and Cash Flows
for the years ended February 28, 1999, 1998 and 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance 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
Subsidiary(ies) as of February 28, 1999 and 1998 and the results of its
operations and its cash flows for the years ended February 28, 1999, 1998 and
1997 in conformity with generally accepted accounting principles.
/s/POLAKOFF WEISMANN LEEN LLC
POLAKOFF WEISMANN LEEN LLC
May 15, 1999
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
February 28,
1999 1998
Current assets:
Cash and cash equivalents $675,728 389,129
Accounts receivable 330,914 214,976
Inventories 279,624 382,276
Prepaid expenses:
Income taxes 22,504 32,799
Other 16,947 23,756
Employee loans 10,362 5,866
Deferred tax assets
-current portion 126,854 95,240
Total current assets 1,462,933 1,144,042
Property, plant and
equipment - at cost:
Land 81,000 77,343
Building 369,000 352,338
Machinery and equipment 200,162 200,162
Furniture and fixtures 11,036 11,036
Leasehold improvements 432,037 432,037
Total 1,093,235 1,072,916
Less:
Accumulated depreciation
and amortization 631,514 569,401
Net property,
plant and equipment 461,721 503,515
Other assets:
Deferred tax assets
- -non current portion 29,253 103,684
Security deposits 0 12,635
Cash value
- life insurance policy 62,558 42,677
Total other assets 91,811 158,996
Total $2,016,465 1,806,553
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,
1999 1998
Current liabilities:
Accounts payable $ 43,404 40,385
Accrued expenses 51,027 55,543
Taxes payable:
Payroll 1,310 1,663
Income 33,235 0
Total current liabilities 128,976 97,591
Other liabilities:
Deferred compensation 144,764 93,800
Loans payable-officers 10,319 0
Total other liabilities 155,083 93,800
Total liabilities 284,059 191,391
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 and
11,654,000 shares issued and outstanding at
1999 and 1998, respectively 2,220,384 2,206,984
Common stock unissued 0 10,000
Paid-in capital 6,486 6,486
Accumulated deficit (460,380) (608,308)
Total 1,766,490 1,615,162
Less:
Treasury stock
-at cost 34,084 0
Total stockholders' equity 1,732,406 1,615,162
Total $2,016,465 1,806,553
The accompanying notes are an integral part of these statements.
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997
1999 1998 1997
Sales $1,681,243 1,602,150 1,414,226
Cost of sales and expenses:
Cost of sales 670,793 491,960 500,975
Selling, general and administrative
expenses 730,816 726,990 616,438
Total 1,401,609 1,218,950 1,117,413
Operating income 279,634 383,200 296,813
Other income:
Interest income 27,304 22,487 12,933
Gain on disposal of assets 0 500 22,525
Total other income 27,304 22,987 35,458
Income before taxes 306,938 406,187 332,271
Income taxes 159,010 101,420 122,720
Net income $147,928 304,767 209,551
Per share data:
Basic earnings per common share 0.01 0.03 0.02
Fully diluted earnings
per common share 0.01 0.03 0.02
Weighted average number of
common shares outstanding 11,597,048 11,611,555 11,611,555
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, 1996 $2,216,984 6,486 (1,072,678) 1,150,792
Net income
- - Year ended
February 28, 1997 0 0 209,551 209,551
Balance
- - February 28, 1997 2,216,984 6,486 (863,127) 1,360,343
Prior period
adjustment 0 0 (49,948) (49,948)
Net income
- - Year ended
February 28, 1998 0 0 304,767 304,767
Balance
- - February 28, 1998 2,216,984 6,486 (608,308) 1,615,162
Common stock issued
for stock option 3,400 0 0 3,400
Net income
- - Year ended
February 28, 1999 0 0 147,928 147,928
Balance
- - February 28, 1999 $2,220,384 6,486 (460,380) 1,766,490
The accompanying notes are an integral part of these statements.
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 28, 1999, 1998 AND 1997
1999 1998 1997
Cash flows from operating activities:
Net income $147,928 304,767 209,551
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 62,113 61,890 65,022
Deferred tax expense 42,817 101,125 87,420
Obligation under deferred compensation
agreement 50,964 20,799 19,779
(Increase) decrease in:
Accounts receivable (115,938) 11,548 (62,258)
Inventories 102,652 (40,588) (96,262)
Employee loans (4,496) (5,866) (4,056)
Prepaid expenses:
Income taxes 10,295 (22,654) (10,145)
Other 6,809 (8,992) (3,453)
Security deposits 12,635 24,435 (24,435)
Increase (decrease) in:
Accounts payable 3,019 21,660 (30,435)
Accrued expenses (4,516) 22,329 21,788
Taxes payable:
Payroll (353) (4,834) 6,347
Income 33,235 150 (34,975)
Net cash provided by operating activities 347,164 485,769 143,888
Cash flows from investing activities:
Related party loans 10,319 91,601 (87,545)
Increase in cash value
- - life insurance policy (19,881) (18,775) (17,333)
Assets from acquisition of subsidiary -
net of accumulated depreciation (20,319) (417,765) 0
Payments for equipment 0 (4,504) (18,007)
Net cash used by investing activities (29,881) (349,443) (122,885)
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, 1999, 1998 AND 1997
1999 1998 1997
Cash flows from financing activities:
Proceeds from the issuance of
capital stock 3,400 0 0
Purchase of treasury stock (34,084) 0 0
Net cash used by financing activities (30,684) 0 0
Increase in cash 286,599 136,326 21,003
Cash and cash equivalents:
Beginning 389,129 252,803 231,800
Ending $675,728 389,129 252,803
Supplemental Disclosure of Cash Flow
Information:
Income taxes paid $ 80,700 22,504 42,050
The accompanying notes are an integral part of these statements.
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
NOTE A - ORGANIZATION AND BASIS OF PRESENTATION:
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 and specialty chemical products that serve as intermediates and additives
used in the adhesive, plastic, aerospace, pharmaceutical and 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, filed with the State of New
Jersey on July 25, 1997, and approved as of December 30, 1998. The merging
corporation's assets, liabilities and stockholder's equity as of March 1, 1997
were transferred to the surviving corporation. The merging corporation was
inactive for the years ended February 28, 1999 and 1998.
The Company's wholly owned Subsidiary, Epolin Holding, Corp., was incorporated
in New Jersey as a real estate holding company assets consisting of land and a
building. Prior to being acquired on January 29, 1998, it was controlled by
two officers/stockholders of the Company.
NOTE B - 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,
1999 follows:
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEET
Epolin
Epolin Holding Eliminations Consolidated
Current assets $1,455,396 61,501 (53,964) 1,462,933
Non-current assets 542,387 427,853 (416,708) 553,532
Total $1,997,783 489,354 (470,672) 2,106,465
Total liabilities $ 338,023 399,514 (453,478) 284,059
Stockholders'
equity:
Common stock 2,220,384 - - 2,220,384
Additional paid
- -in capital 6,486 - - 6,486
Accumulated
deficit (533,026) 89,840 (17,194) (460,380)
Treasury stock (34,084) - - (34,084)
Total
stockholders'
equity 1,659,760 89,840 (17,194) 1,732,406
Total $1,997,783 489,354 (470,672) 2,016,465
CONDENSED CONSOLIDATING STATEMENT OF INCOME
Sales $1,681,243 - - 1,681,243
Other revenue - 97,740 (97,740) -
Total 1,681,243 97,740 (97,740) 1,681,243
Cost of sales 768,533 - (97,740) 670,793
Selling,
general
and
administrative 706,088 24,728 - 730,816
Total 1,474,621 24,728 (97,740) 1,401,609
Operating income 206,622 73,012 - 279,634
Other income 27,304 - - 27,304
Income before
taxes 233,926 73,012 - 306,938
Income taxes 158,644 366 - 159,010
Net income $75,282 72,646 - 147,928
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Cash and Cash Equivalents - Includes cash in bank and money market accounts for
purposes of preparing the Statement of Cash Flows.
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 $575,728 and $289,129 at February 28, 1999 and
1998, 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 - 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 $62,113, $61,890 and $68,396 for
the fiscal years 1999, 1998 and 1997, 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, allowance for doubtful
accounts and net operating loss carry forwards.
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, 1999
NOTE C - 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, 1999, approximately 52.78% of sales were to
four customers, two of which totaled 32.39%. Three of these customers,
located in the Eastern United States, comprised 40.21% of accounts receivable
at February 28, 1999. 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 located in the Eastern United States comprised 61.3% of
accounts receivable at February 28, 1998.
NOTE D - INVENTORIES:
1999 1998
Raw materials and supplies $ 33,242 21,907
Work in process 27,491 2,741
Finished goods 218,891 357,628
Total $279,624 382,276
NOTE E - INCOME TAXES:
1999 1998
Federal and State deferred tax
assets include the following:
Tax effect of utilization of net
operating loss carryforwards $ 32,671 88,905
Temporary differences
- principally accelerated
amortization of leasehold
improvements for book purposes 123,436 110,019
Total - deferred tax assets 156,107 198,92
Current portion 126,854 95,240
Non-current portion $ 29,253 103,684
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
NOTE E - INCOME TAXES (Continued):
Income tax expense consists of the following components:
1999 1998 1997
Current
Federal $112,341 - -
State 3,852 295 35,300
Total current 116,193 295 35,300
Deferred:
Federal 9,995 66,924 90,625
State 32,822 34,201 (3,205)
Total deferred 42,817 101,125 87,420
Total $159,010 101,420 122,720
Reconciliation of income tax at the statutory rate to the Company's effective
rate:
Computed at the
statutory rate $219,815 231,300 112,972
State income taxes
(net) 3,852 295 23,298
Decrease in
deferred tax asset
valuation allowance - (113,214) -
Non-deductible items (64,657) (16,961) (13,550)
Total provision for taxes $159,010 101,420 122,720
For State tax purposes, the Company has available approximately $363,016 of net
operating loss carryforwards as of February 28, 1999, which expire in the years
2000 through 2003.
NOTE F - ACCRUED SALARIES:
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 an 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.
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
NOTE G - EMPLOYEE BENEFITS:
Simplified Employee Pension Plan - Effective June 1, 1994, covering all
eligible participating employees as defined. Employer contributions totaled
$12,908, $12,141 and $11,191 for the years ended February 28, 1999, 1998 and
1997 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. During the year ended February 28, 1999, 20,000 vested shares of
common stock covering a previously awarded bonus were issued to the employee on
May 18, 1998.
Employee Option Plan - The Company previously adopted The Stock Option Plan.
As of April 1996, options may no longer be granted. Under the terms of the
Plan, options granted 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 and expire on December 1, 2005.
Outstanding Options:
Shares allocated as of February 28, 1999 405,000
Option price $ 0.04
All outstanding options are exercisable currently. No options were granted or
expired during fiscal year ended February 28, 1999. Options to purchase 85,000
shares were exercised in the current year.
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
NOTE G - EMPLOYEE BENEFITS (continued):
The Company adopted the 1998 Stock Option Plan on December 1, 1998. Under the
terms of the plan, the company reserved 750,000 shares of common stock for
issuance pursuant to the exercise of options to be granted under the Plan which
do not meet the requirements of Section 422 of the Code. Options expire ten
years after the date granted and are subject to a vesting period as follows:
(1) no portion will be exercisable prior to the first anniversary of the date
of grant, and (2) each of the options will become exercisable as to 50% of the
shares underlying the option on each of the first and second anniversaries of
the date granted at $0.15 per share.
Option granted as of February 28, 1999:
No. of Date Expiration
Shares Granted Date
425,000 December 1, 1998 December 30, 2008
25,000 February 10, 1999 February 09, 2009
There are 300,000 option attributable to future grants.
NOTE H - TREASURY STOCK:
The Company made several purchases of their own common stock during the year
ended February 28, 1999, totaling 155,000 shares at a cumulative cost of
$34,084. Treasury stock at February 28, 1999 totaled 197,445 shares,
including 42,445 shares which were returned to the Company at no cost in prior
years.
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
NOTE I - RESEARCH AND DEVELOPMENT:
Included in selling, general and administrative expenses totaling $183,111,
$164,724 and $170,468 for the fiscal years 1999, 1998 and 1997, respectively.
NOTE J - ACQUISITIONS:
On January 29, 1998, the Company acquired 100 shares (100% interest) of Epolin
Holding Corp.'s common stock.
NOTE K - 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 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 two
officers/stockholders were mandatory. Other directors declined participation
in this transaction.
The down payment of $100,000 was obtained from The Company, 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, 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
effective with the second year. Rent includes reimbursed real estate taxes and
insurance. Epolin Holding Corp. became a wholly owned Subsidiary of Epolin,
Inc. as of January 29, 1998.
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
The minimum annual rentals under the lease are as follows:
Years Ended Amounts
February 29, 2000 $97,740
February 28, 2001 97,740
February 28, 2002 65,160
The lease is anticipated to be renewed at February 28, 2002, however,
management has not determined the renewal rent.
Rental expense charged to operations amounted to $89,595 and $90,717 for the
years 1998 and 1997, respectively.
Deferred Compensation - On December 29, 1995, the Company entered into a
deferred compensation agreement with two officers: One officer's 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 officer's 65th birthday or
termination. The second officer's account is credited with $25,000 per year
until his date of retirement. Upon retirement, he will be paid with either
methods determined and selected in the sole discretion of the Company: (1)
equal consecutive monthly payments for a period not exceeding sixty (60) months
or (2) a single payment equal to the then present value of the account.
Deferred compensation charged to operations were $21,840 for the first officer
and $29,124 for the second officer for the year ended February 28, 1999.
Deferred compensation for the first officer of $20,799 and $19,809 were charged
to operations for the fiscal year ended February 28, 1998 and 1997,
respectively.
The Company entered into new deferred compensation agreements dated June 25,
1998 with two additional employees. These plans provide for annual payments of
50% of each employee's salary before bonuses at their respective retirement
dates, to be paid in biweekly installments for ten years. The effective date
of the plan is March 1, 1999 and the liability will be actuarially computed.
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
NOTE L - PRIOR PERIOD ADJUSTMENT:
Previously eliminated deferred compensation of $49,948 due to an officer was
reinstated, resulting in changes to accumulated deficit as of February 28,
1997.
<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, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-END> FEB-28-1999
<CASH> 675,728
<SECURITIES> 0
<RECEIVABLES> 330,914
<ALLOWANCES> 0
<INVENTORY> 279,624
<CURRENT-ASSETS> 1,462,933
<PP&E> 1,093,235
<DEPRECIATION> 631,514
<TOTAL-ASSETS> 2,016,465
<CURRENT-LIABILITIES> 128,976
<BONDS> 0
<COMMON> 2,220,384
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,732,406
<SALES> 1,681,243
<TOTAL-REVENUES> 1,681,243
<CGS> 670,793
<TOTAL-COSTS> 670,793
<OTHER-EXPENSES> 730,816
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 306,938
<INCOME-TAX> 159,010
<INCOME-CONTINUING> 147,928
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 147,928
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
