SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MAY 31, 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: 11,496,555
outstanding as of May 31, 1999
<PAGE>
PART I - FINANCIAL INFORMATION
EPOLIN, INC. AND SUBSIDIARIES
Index to Financial Information
Period Ended May 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 7
Item 2 - Management's Discussion and
Analysis or Plan of Operation 8
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
MAY 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 three months ended May 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 SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
May 31,
1999 1998
Current assets:
Cash and cash equivalents $ 991,878 417,887
Accounts receivable 172,931 199,697
Inventories 306,615 366,948
Prepaid expenses:
Income taxes 22,504 32,799
Other 16,981 23,756
Employee loans 8,965 596
Deferred taxes 156,107 95,240
Total current assets 1,675,981 1,136,923
Property, plant and
equipment - at cost:
Land 81,000 77,343
Building 369,000 352,338
Machinery and equipment 202,515 200,163
Furniture and fixtures 11,036 11,036
Leasehold improvements 432,037 432,037
Total 1,095,588 1,072,917
Less: Accumulated
depreciation and
amortization 636,098 586,988
Net property,
plant and equipment 459,490 485,929
Other assets:
Deferred taxes 0 103,684
Security deposits 0 12,635
Cash value -
life insurance policy 62,558 42,677
Total other assets 62,558 158,996
Total $2,198,029 1,781,848
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
May 31,
1999 1998
Current liabilities:
Accounts payable $ 22,382 12,186
Accrued expenses 24,104 35,181
Due officers 10,319 0
Taxes payable
- payroll and income 95,996 1,311
Total current liabilities 152,801 48,678
Other liabilities
- deferred compensation 144,764 93,800
Total liabilities 297,565 142,478
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 2,220,384 2,206,983
Common stock unissued 0 10,000
Paid-in capital 6,486 6,486
Accumulated deficit (278,178) (574,558)
Total 1,948,692 1,648,911
Less: Treasury stock (48,228) (9,541)
Total stockholders' equity 1,900,464 1,639,370
Total $2,198,029 1,781,848
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MAY 31, 1999 AND 1998
1999 1998
Sales $ 491,666 302,377
Cost of sales and expenses:
Cost of sales 111,821 105,832
Selling, general
and administrative
expenses 111,584 156,260
Total 223,405 262,092
Operating income 268,261 40,285
Other income interest 7,881 3,871
Income before taxes 276,142 44,156
Income tax expense 93,940 406
Net income $ 182,202 43,750
Per share data:
Net income per
common share $ 0.02 -
Weighted average
number of shares
of common outstanding 11,512,479 11,611,555
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MAY 31, 1999 AND 1998
1999 1998
Cash flows from
operating activities:
Net income $ 182,202 43,750
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation
and amortization 4,584 17,585
(Increase) decrease in:
Accounts receivable 157,983 15,279
Inventories (26,991) 15,328
Advances and loans 1,363 5,270
Increase (decrease) in:
Accounts payable (21,022) (28,199)
Accrued expenses (26,923) (20,362)
Taxes payable 61,451 (352)
Net cash provided by
operating activities 332,647 48,299
Cash flows from
investing activities:
Purchase of
treasury stock (14,144) (9,541)
Payments for equipment (2,353) 0
Net cash used by
investing activities (16,497) (9,541)
Cash flows from
financing activities -
Post termination distribution
of Epolin Holding Corp.'s
former earnings 0 (10,000)
Increase in cash 316,150 28,758
Cash and cash equivalents:
Beginning 675,728 389,129
Ending $ 991,878 417,887
Supplemental Disclosure
of Cash Flow Information:
Income taxes paid $ 32,400 366
<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 May 31, 1999, the Company reported sales of
approximately $491,700 as compared to sales of approximately $302,400 during
the quarter ended May 31, 1998, an increase of approximately $189,300 or 62.6%.
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 May 31, 1999 increased to approximately
$268,300 as compared to operating income of approximately $40,300 for the
quarter ended May 31, 1998, an increase of approximately $228,000. This change
resulted primarily from an increase in sales during the quarter ended May 31,
1999 as compared to the comparable 1998 period, with cost of sales remaining
substantially the same for the quarter ended May 31, 1999 compared to the
quarter ended May 31, 1998. In addition, selling, general and administrative
expenses decreased in the quarter ended May 31, 1999 compared to the
comparable 1998 period. Cost of sales for the three months ended May 31, 1999
was approximately $111,800 as compared to cost of sales during the three months
ended May 31, 1998 of approximately $105,800. During the three months ended
May 31, 1999, the Company's selling, general and administrative expenses were
approximately $111,600 as compared to selling, general and administrative
expenses of approximately $156,300 for the three months ended May 31, 1998.
During the three months ended May 31, 1999, the Company realized approximately
$7,900 in interest income as compared to approximately $3,900 in interest
income for the comparable period of 1998.
During the quarter ended May 31, 1999, the Company reported income before taxes
of approximately $276,100 as compared to income before taxes of approximately
$44,200 for the three months ended May 31, 1998. Net income after taxes was
approximately $182,200 for the three months ended May 31, 1999 as compared to
income after taxes of approximately $43,800 for the three months ended May 31,
1998.
LIQUIDITY AND CAPITAL RESOURCES
On May 31, 1999, the Company had working capital of approximately $1,523,180,
an equity to debt ratio of approximately 6.39 to 1, and stockholders' equity of
approximately $1,900,000. On May 31, 1999, the Company had approximately
$992,000 in cash and cash equivalents, total assets of approximately $2,198,000
and total liabilities of approximately $298,000. 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 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 220,000 shares have been repurchased under this program
through May 31, 1999, which includes 65,000 shares repurchased during the
quarter ended May 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. Submissions of Matters to a Vote of Security-Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
There are no exhibits applicable to this Form 10-QSB.
(b) Reports on Form 8-K.
Listed below are reports on Form 8-K filed during the
fiscal quarter ended May 31, 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: July 12, 1999 By: /s/James Ivchenko
James Ivchenko,
President
Dated: July 12, 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 MAY 31, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-END> MAY-31-1999
<CASH> 991,878
<SECURITIES> 0
<RECEIVABLES> 172,931
<ALLOWANCES> 0
<INVENTORY> 306,615
<CURRENT-ASSETS> 1,675,981
<PP&E> 1,095,588
<DEPRECIATION> 636,098
<TOTAL-ASSETS> 2,198,029
<CURRENT-LIABILITIES> 152,801
<BONDS> 0
<COMMON> 2,220,384
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,198,029
<SALES> 491,666
<TOTAL-REVENUES> 491,666
<CGS> 111,821
<TOTAL-COSTS> 111,821
<OTHER-EXPENSES> 111,584
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 276,142
<INCOME-TAX> 93,940
<INCOME-CONTINUING> 182,202
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 182,202
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
