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 NOVEMBER 30, 1998
[ ] 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: 11,606,555
outstanding as of January 1, 1999
<PAGE>
PART I - FINANCIAL INFORMATION
EPOLIN, INC. AND SUBSIDIARIES
Index to Financial Information
Period Ended November 30, 1998
Item Page Herein
Item 1 - Financial Statements:
Introductory Comments 3
Consolidated Balance Sheets 4
Consolidated Statements of Income 6
Consolidated Statements of Cash Flows 8
Item 2 - Management's Discussion and
Analysis or Plan of Operation 9
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
November 30, 1998
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 nine months
ended November 30, 1998 are not necessarily
indicative of the results of operations for the full
fiscal year ending February 28, 1999.
These condensed statements should be read in
conjunction with the Company's audited financial
statements for the fiscal year ended February 28, 1998.
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
November 30,
1998 1997
Current assets:
Cash and cash equivalents $761,519 598,341
Accounts receivable 92,909 266,594
Inventories 294,900 301,840
Related party receivables - 4,056
Prepaid expenses:
Income Taxes 82,804 10,145
Other 26,703 8,414
Deferred taxes - 100,555
Total current assets 1,258,835 1,289,945
Property, plant and
equipment - at cost:
Land 77,343 -
Building 352,338 -
Machinery and equipment 200,162 203,043
Furniture and fixtures 11,036 11,036
Leasehold improvements 432,037 432,037
Total 1,072,916 646,116
Less: Accumulated
depreciation and
amortization 622,165 540,082
Net depreciated cost 450,751 106,034
Other assets:
Loan receivable
- related party - 70,198
Deferred taxes 198,924 199,493
Security deposits 12,635 37,070
Cash value - life
insurance policy 42,680 23,902
Total other assets 254,239 330,663
Total $1,963,825 1,726,642
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
November 30,
1998 1997
Current liabilities:
Accounts payable $4,393 22,851
Accrued expenses 46,239 31,886
Taxes payable
- payroll and income 1,902 -
Total current liabilities 52,534 54,737
Other liabilities
- deferred compensation 93,800 73,053
Total liabilities 146,334 127,790
Commitments
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:
11,606,555 and
11,654,000 shares
issued outstanding
at 1998 and 1997
respectively 2,216,983 2,206,984
Common stock unissued - 10,000
Paid-in capital 6,486 6,486
Accumulated deficit (384,673) (624,618)
Total 1,838,796 1,598,852
Less: treasury stock (21,305) -
Total stockholders' equity 1,817,491 1,598,852
Total $1,963,825 1,726,642
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED
November 30,
1998 1997
Sales $351,627 486,083
Cost of sales and expenses:
Cost of sales 103,516 120,598
Selling, general
and administrative expenses
173,469 180,898
Total 276,985 301,496
Operating income 74,642 184,587
Other income - Interest 8,972 4,590
Income before taxes 83,614 189,177
Income tax expense (23,801) -
Net income $107,415 189,177
Per share data:
Net income
per common share 0.01 0.02
Weighted average
number of shares of
common outstanding 11,606,555 11,611,555
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
NINE MONTHS ENDED
November 30,
1998 1997
Sales $1,123,774 1,233,301
Cost of sales and expenses:
Cost of sales 373,767 378,530
Selling, general and
administrative expenses 531,680 575,941
Total 905,447 954,471
Operating income 218,327 278,830
Other income - Interest 17,541 9,679
Income before taxes 235,868 288,509
Income tax expense 2,233 -
Net income $233,635 288,509
Per share data:
Net income per common share 0.02 0.02
Weighted average number of
shares of common outstanding 11,604,472 11,611,555
<PAGE>
EPOLIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
November 30,
1998 1997
Cash flows from operating activities:
Net income $233,635 288,509
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 52,764 44,487
Changes in assets and liabilities:
Accounts receivable 122,067 (40,070)
Inventories 87,376 39,848
Advances and loans - 16,041
Prepaid expenses:
Income taxes (50,005) -
Other 2,916 6,350 -
Accounts payable (35,992) 4,127
Accrued expenses (9,304) (1,328)
Taxes payable 238 (6,347)
Net cash provided by
operating activities 403,695 351,617
Cash flows from investing activities:
Related party loans - 1,306
Purchase of treasury stock (21,305) -
Payments for equipment - (7,385)
Net cash used by investing activities (21,305) (6,079)
Cash flows from financing activities:
Post termination distribution
of Epolin Holding Corp.'s former earnings (10,000) -
Increase in cash 372,390 345,538
Cash and cash equivalents:
Beginning 389,129 252,803
Ending $761,519 598,341
Supplemental Disclosure of
Cash Flow Information:
Income taxes paid $4,034 14,300
<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 November 30, 1998, the Company reported
sales of approximately $351,600 as compared to sales of
approximately $486,100 during the quarter ended November 30, 1997,
a decrease of approximately $134,500 or 27.7%. During the nine
months ended November 30, 1998, the Company had sales of
approximately $1,123,800 as compared to sales of approximately
$1,233,300 during the nine months ended November 30, 1997, a
decrease of approximately $109,500 or 8.9%. This decrease in
sales was primarily attributable to a decrease in sales of the
Company's near infrared absorbing dyes and decreases in sales of
new dyes and additional applications in the quarter ended November
30, 1998 as compared to the quarter ended November 30, 1997.
Operating income for the quarter ended November 30, 1998 decreased
to approximately $74,600 as compared to operating income of
approximately $184,600 for the quarter ended November 30, 1997, a
decrease of approximately $110,000. Operating income for the nine
months ended November 30, 1998 decreased to approximately $218,300
as compared to operating income of approximately $278,800 for the
nine months ended November 30, 1997, a decrease of approximately
$60,500. This change resulted primarily from a decrease in sales
during the quarter ended November 30, 1998 as compared to the
comparable 1997 period partially offset by decreases in selling,
general and administrative expenses. Cost of sales for the nine
months ended November 30, 1998 was approximately $373,800 as
compared to cost of sales during the nine months ended November
30, 1997 of approximately $378,600. During the nine months ended
November 30, 1998, the Company's selling, general and
administrative expenses were approximately $531,700 as compared to
selling, general and administrative expenses of approximately
$575,900 for the nine months ended November 30, 1997.
During the three and nine months ended November 30, 1998, the
Company realized approximately $9,000 and $17,500, respectively,
in interest income as compared to approximately $4,600 and $9,700,
respectively, in interest income for the comparable period of 1997.
During the quarter ended November 30, 1998, the Company reported
income before taxes of approximately $83,600 as compared to income
before taxes of approximately $189,200 for the three months ended
November 30, 1997. For the nine months ended November 30, 1998,
the Company reported income before taxes of approximately $235,900
as compared to income before taxes of approximately $288,500 for
the nine months ended November 30, 1997. Net income after taxes
was approximately $107,400 for the three months ended November 30,
1998 as compared to income after taxes of approximately $189,200
for the three months ended November 30, 1997. For the nine months
ended November 30, 1998, net income after taxes was approximately
$233,600 as compared to income after taxes of approximately
$288,500 for the comparable period of 1997.
Liquidity and Capital Resources
On November 30, 1998, the Company had working capital of
approximately $1,206,000, an equity to debt ratio of approximately
12.4 to 1, and stockholders' equity of approximately $1,817,000.
On November 30, 1998, the Company had approximately $762,000 in
cash and cash equivalents, total assets of approximately
$1,964,000 and total liabilities of approximately $146,000. At
November 30, 1997, the Company had total assets of approximately
$1,727,000. The increase in total assets at November 30, 1998 as
compared to November 30, 1997 is primarily due to the inclusion of
property owned by Epolin Holding Corp. which became a wholly-owned
subsidiary of the Company in January 1998. The Company believes
that its available cash, cash flow from operations and projected
revenues will be sufficient to fund the Company's operations for
the next 12 months.
The Company does not anticipate making any significant additional
capital expenditures in the immediate future as it believes its
present machinery and equipment will be sufficient to meet its
near term needs.
Inflation has not significantly impacted the Company's operations.
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 (subsequent to the end of fiscal 1998), the Board of
Directors of the Company authorized a stock repurchase program of
up to $150,000 of the Company's outstanding shares of Common
Stock. In connection therewith, the Company announced that
purchases may be made in the open market or in privately
negotiated transactions from time to time, based on market prices
and that the repurchase program may be suspended without further
notice. Management believes the Company's shares are undervalued
at current price levels and this program offers the Company a
chance not only to repurchase some of its stock at prices
management perceives to be attractive but it also enables the
Company to enhance shareholder value although no assurance can be
given that any such repurchases will have such effect. During the
quarter ended May 31, 1998, the Company repurchased 25,000 shares
of its Common Stock under this program at $.38 per share. No
shares were repurchased during the quarter ended November 30, 1998.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security-Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
There are no exhibits applicable to this Form 10-QSB.
(b) Reports on Form 8-K.
Listed below are reports on Form 8-K filed during the
fiscal quarter ended November 30, 1998.
None.
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: January 14, 1999 By:/s/Murray S. Cohen
Murray S. Cohen,
Chief Executive Officer
Dated: January 14, 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 NOVEMBER 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-END> NOV-30-1998
<CASH> 761,519
<SECURITIES> 0
<RECEIVABLES> 92,909
<ALLOWANCES> 0
<INVENTORY> 294,900
<CURRENT-ASSETS> 1,258,835
<PP&E> 1,072,916
<DEPRECIATION> 622,165
<TOTAL-ASSETS> 1,963,825
<CURRENT-LIABILITIES> 52,534
<BONDS> 0
<COMMON> 2,216,983
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,963,825
<SALES> 1,123,774
<TOTAL-REVENUES> 1,123,774
<CGS> 373,767
<TOTAL-COSTS> 373,767
<OTHER-EXPENSES> 531,680
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 235,868
<INCOME-TAX> 2,233
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<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> 233,635
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
