Attached files
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended FEBRUARY 28, 2010
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-17741
EPOLIN, INC.
(Exact Name of Registrant as Specified in Its Charter)
NEW JERSEY 22-2547226
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
358-364 ADAMS STREET
NEWARK, NEW JERSEY 07105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 465-9495
Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
Securities registered pursuant to Section 12(g) of the Exchange Act: COMMON
STOCK (NO PAR VALUE)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act.
Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Yes [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definition of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act).
Yes [ ] No [X]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant (8,484,310 shares) as of August 31, 2009, the
last business day of the registrant's most recently completed second fiscal
quarter, was approximately $4,157,000. The number of shares outstanding of the
Common Stock (no par value) of the registrant as of the close of business on May
18, 2010 was 12,166,355.
Documents Incorporated by Reference: None
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EPOLIN, INC.
TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business 3
Item 1A. Risk Factors 6
Item 1B. Unresolved Staff Comments 9
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Reserved 9
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 9
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 17
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 17
Item 9A(T). Controls and Procedures 17
Item 9B. Other Information 17
PART III
Item 10. Directors, Executive Officers and Corporate Governance 18
Item 11. Executive Compensation 20
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 22
Item 13. Certain Relationships and Related Transactions, and
Director Independence 23
Item 14. Principal Accountant Fees and Services 24
PART IV
Item 15. Exhibits and Financial Statement Schedules 24
Signatures 26
2
FORWARD-LOOKING STATEMENTS
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. Certain of these risks and uncertainties are
discussed in this report in Part I, Item 1A "Risk Factors". The Company does not
intend to update these forward-looking statements.
PART I
ITEM 1. BUSINESS.
INTRODUCTION
Epolin, Inc. (referred to herein as "Epolin", the "Company", "we", "us"
and "our"), which was incorporated in the State of New Jersey in May 1984, is a
specialized chemical company primarily engaged in the manufacturing, marketing,
research and development of dyes and dye formulations. Our business is heavily
weighted towards the development, manufacture and sale of near infrared dyes.
Applications for these dyes cover several markets that include laser protection,
welding, sunglasses, optical filters, glazing and imaging and security inks and
tagants.
Our wholly-owned subsidiary, Epolin Holding Corp. ("Epolin Holding"), was
incorporated in the State of New Jersey as a real estate holding company. Epolin
Holding became a wholly-owned subsidiary in January 1998.
Following completion of Epolin's public offering in 1989, our revenues
were then primarily generated through the synthesis and sale of specialty
organic chemical products. Building upon this base, Epolin singled out near
infrared dye technology as a most promising product line and since 1991 has
emphasized the development, manufacture and sale of these dyes.
Paralleling the growth of the dye business, we maintain 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. However, unlike the dye business, we do not expect our
specialty chemical business to grow.
We sell our products to the manufacturers of plastics/resins, credit
cards, electronics, glass, and other basic materials primarily in the United
States, Asia, and Europe.
Our principal offices are located at 358-364 Adams Street, Newark, New
Jersey 07105 and our telephone number is (973) 465-9495. Epolin's web-site can
be accessed at www.epolin.com.
Unless the context otherwise requires, all references herein to "Epolin"
or the "Company" refer to Epolin, Inc. and its consolidated subsidiary, Epolin
Holding Corp.
INFRARED DYES
Based upon our years of experience in the specialty dye business, we
believe that Epolin possesses the largest offering of near infrared (NIR) dyes
in the world. Our Epolight(TM) NIR dyes absorb in the near infrared region of
the electromagnetic light spectrum which is 700nm to 1600nm. However, we are
unaware of any statistical evidence available to support or contradict the
belief that Epolin is the largest NIR dye producer.
Epolight(TM) dyes are sold as pure crystalline dyes or formulated
mixtures. We also incorporate our dyes into liquid inks and thermoplastics
pellets. We have approximately 275 to 300 product formulations and have created
a more vertically integrated product line over the past three years to address
more applications.
3
Our products can be divided into five distinct product groups: dyes, dye
blends, inks and coatings, laminate pellets and other.
We sell our products into three primary market segments. Any product that
does not fall into any of the three primary markets is characterized as Custom.
EYE PROTECTION
Our eye protection products are used in plastic lenses, eyeglasses,
goggles, windows and shields that protect eyes from high energy ultraviolet
(UV), visible and near infrared radiation. Typical end-users include welders,
military, industrial and medical laser users. The eye protection market is
concentrated with several major and medium-sized customers in the United States,
Asia and Europe.
We believe our products are important because our dyes protect the eyes by
absorbing the harmful wavelengths of light while simultaneously allowing visible
light transmission. Consumers are increasingly aware of the risk of macular
degeneration due to long term exposure to the sun's harmful NIR light waves.
This concern has generated interest in the Company's products for use in
sunglasses.
SECURITY INK
Our inks and coatings are used on credit cards as well as security inks
for documents and packaging. Typical end-users include banks, printers,
publishers and consumer goods companies. The ink and coatings market is
worldwide with several security ink makers in the United States, Europe and
Asia. Our products make transparent ATM cards readable by ATM machines. Our near
infra-red (NIR) dyes are almost invisible and mask important data or otherwise
tag products by code as genuine. Our products are viable tools to thwart
counterfeiting and fraud.
LIGHT MANAGEMENT
Our light Management products are used in laser equipment, electronic
displays, night vision systems, solar heat shields, heat and light sensors,
imaging systems, plasma televisions and data storage discs. Typical end-users
include a large variety of industrial, automotive, aerospace, construction and
electronic users. The light Management market includes many diverse market
niches worldwide. Our light Management dyes allow for the filtering and
manipulation of visible light and NIR light for many applications.
SPECIALTY CHEMICAL PRODUCTS
We also maintain 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. The production
and sale of these products represents less than 10% of the overall business.
EFFECT OF COMPLIANCE WITH GOVERNMENT REGULATION
Manufacturers of chemical products are subject to extensive Federal and
State environmental regulations. Although we believe that our manufacturing
processes do not result in the emission of volatile organic vapors into the
atmosphere, and that we are not in violation of any State or Federal
environmental regulations, Epolin is required to comply with such regulations
with respect to manufacture, storage and/or disposal of toxic materials. To our
knowledge, we are 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 our
business. In addition, we are subject to the State of New Jersey Industrial Site
Recovery Act (ISRA), which, among other requirements, requires us to obtain
prior approval before relocating our facilities or consummating a transaction
that would result in a change in control of Epolin. Our facilities are subject
to inspection to ascertain whether we have complied with State environmental
regulations. While we believe Epolin has complied with such regulations, there
can be no assurance that we will not be required to incur expenses to remedy any
future environmental violations discovered. We register all new and proprietary
products with the Toxic Substances Control Agency (TSCA) which is required in
order for us to offer for sale any new chemical product. No assurances can be
given that such registrations will be approved for any new product.
4
During the years ended February 28, 2010 and February 28, 2009, we
expended approximately $40,000 and $36,000, respectively, for compliance with
environmental laws. Actual costs to be incurred in future periods may vary from
the foregoing costs, given inherent uncertainties in evaluating environmental
exposures. Subject to the imprecision in estimating future environmental costs,
we do not expect that any sum we may have to pay in connection with
environmental matters would have a materially adverse effect on our financial
condition or results of operations in any one year.
SOURCES AND AVAILABILITY OF RAW MATERIALS
We purchase chemicals from several large chemical manufacturers and then
further processes them into our saleable products. Although we limit ourselves
to a relatively small number of suppliers, we are not restricted to such
suppliers, and Management believes the availability to such raw materials is
widespread. During the year ended February 28, 2010, no significant difficulties
were encountered in obtaining adequate supplies of raw materials. We typically
purchase materials in large quantities and volumes to provide up to a two year
supply of certain raw materials.
RESEARCH AND DEVELOPMENT
Our research and development efforts are devoted to (i) developing new or
improved products to satisfy defined market needs, (ii) providing quality
technical services to assure the success of our products for our customers'
applications, (iii) providing technology for improvements to our products,
processes and applications, and (iv) providing support to our manufacturing
plant for cost reduction, productivity and quality improvement programs.
We have committed resources to research and development of new dyes and to
our capability to provide technical services to customers. New applications are
supported by a Director of Research with contributions from his staff including
Murray S. Cohen, Ph.D., our Chief Scientist.
During the years ended February 28, 2010 and February 28, 2009, the
amounts spent on research and development activities were approximately $374,000
and 461,000, respectively. All research and development costs are borne by
Epolin.
SALES AND DISTRIBUTION
Our internal sales team sells directly to customers on a worldwide basis.
We also hire independent distributors and have sales agents in North America,
Europe and Asia. In total, we currently sell to customers in twenty nations. We
also use our customer-centric website to develop new customers and marketing
opportunities at www.epolin.com.
COMPETITION
We experience, in management's opinion, limited competition in all areas
of our business. Management believes that other dye companies do not offer the
broad range of dyes nor provide the level of technical service as provided by
Epolin. We believe that our extensive product portfolio, technical expertise and
customer support are the key factors in our competitiveness.
TECHNOLOGICAL OBSOLESCENCE
The major portion of our product line has been used in protective eyewear
since 1976. Yet the field has proven to be an active one and we must anticipate
competition to develop.
Epolin has committed itself to make capital investments to maintain its
position as a key supplier in this field. There can be no assurance that our dye
technology will not be rendered less competitive, or obsolete, by the
development of new methods to achieve laser safety and other forms of eye
protection.
PATENTS AND PROPRIETARY PROTECTION
We have not generally in the past relied upon patents for protection of
our dye business or to provide us with any significant competitive advantage as
it relates to our existing product lines. There can be no assurance that others
may not independently develop the same, similar or alternative technologies or
otherwise obtain access to our proprietary technologies. However, we recently
filed a patent application in the United States and Canada for a new IR dye
compound. Even if this patent application is granted, we cannot guaranty that
such will be of commercial benefit to the Company or otherwise offer the Company
protection from competing products.
5
DEPENDENCE ON CERTAIN CUSTOMERS
A material portion of our business is dependent on certain domestic
customers, the loss of which could have a material effect on operations. During
the year ended February 28, 2010, approximately 33.4% of sales were to three
customers. During the year ended February 28, 2009, approximately 31.0% of sales
were to three customers.
EMPLOYEES
We presently employ ten persons on a full time basis. Our employees are
not represented by labor unions. We believe that relations with our employees
are good.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and file annual, quarterly and current
reports, proxy statements and other information with the Securities and Exchange
Commission ("SEC"). Such reports, proxy statements and other information may be
inspected at the public reference room of the SEC at 100 F Street, N.E.,
Washington D.C. 20549. Copies of such material can be obtained from the facility
at prescribed rates. Please call the SEC toll free at 1-800-SEC-0330 for
information about its public reference room. Because we file documents
electronically with the SEC, you may also obtain this information by visiting
the SEC's Internet website at http://www.sec.gov.
ITEM 1A. RISK FACTORS.
OUR BUSINESS INVOLVES A HIGH DEGREE OF RISK. IN ADDITION TO OTHER
INFORMATION IN THIS REPORT, POTENTIAL INVESTORS SHOULD CAREFULLY CONSIDER THE
RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS REPORT
BEFORE DECIDING WHETHER TO INVEST IN SHARES OF OUR COMMON STOCK. EACH OF THE
FOLLOWING RISKS MAY MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS, RESULTS OF
OPERATIONS AND FINANCIAL CONDITION. THESE RISKS MAY CAUSE THE MARKET PRICE OF
OUR COMMON STOCK TO DECLINE, WHICH MAY CAUSE YOU TO LOSE ALL OR A PART OF THE
MONEY YOU PAID TO BUY OUR COMMON STOCK.
OPERATING RESULTS MAY FLUCTUATE. Our operating results may fluctuate
because of a number of factors, many of which are beyond our control. Some of
these factors that affect our results but which are difficult to control or
predict are: the reduction, rescheduling or cancellation of orders by customers
whether as a result of slowing demand for our products, stockpiling of our
products or otherwise; fluctuations in the timing and amount of customer
requests for product shipments; fluctuations in product life cycles; changes in
the mix of products that our customers buy; competitive pressures on selling
prices; the ability of our customers to obtain products from their other
suppliers; and general economic conditions.
DEPENDENCE ON KEY CUSTOMERS. Our customers are concentrated, so the loss
of one or more key customers could significantly reduce our revenues. During the
year ended February 28, 2010, approximately 33.4% of sales were to three
customers. During the year ended February 28, 2009, approximately 31.0% of sales
were to three customers.
CONCENTRATION OF CREDIT RISKS. At February 28, 2010, four of our customers
represented 44.5% of our trade receivables. Such accounts receivable subject us
to a significant concentration of risk. There can be no assurance that such
clients will not experience financial difficulties or other problems which could
delay such customers in paying for product on a timely basis or at all. Any
problems with such customers can be expected to have a material adverse effect
on our business.
TECHNOLOGICAL CHANGES. The major portion of our product line has been used
in protective eyewear since 1976. Yet the field has proven to be an active one
and we must anticipate competition to develop. Epolin has committed itself to
make capital investments to maintain its position as a key supplier in this
field. There can be no assurance that our dye technology will not be rendered
less competitive, or obsolete, by the development of new methods to achieve
laser safety and other forms of eye protection.
6
COMPETITION. We experience, in management's opinion, limited competition
in all areas of our business. Management believes that other dye companies do
not offer the broad range of dyes nor provide the level of technical service as
provided by Epolin. We believe that our extensive product portfolio, technical
expertise and customer support are the key factors in our competitiveness.
However, as mentioned above, there can be no assurance that we will be able to
maintain our competitive position in the event new methods to achieve laser
safety and other forms of eye protection are developed.
ENVIRONMENTAL REGULATION. Manufacturers of chemical products are subject
to extensive Federal and State environmental regulations. While we believe
Epolin has complied with such regulations, there can be no assurance that we
will not be required to incur expenses to remedy any future environmental
violations discovered. In addition, 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 our business.
PATENTS AND PROPRIETARY PROTECTION. We have not generally in the past
relied upon patents for protection of our dye business or to provide us with any
significant competitive advantage as it relates to our existing product lines.
There can be no assurance that others may not independently develop the same,
similar or alternative technologies or otherwise obtain access to our
proprietary technologies. However, we recently filed a patent application in the
United States and Canada for a new IR dye compound. Even if this patent
application is granted, we cannot guaranty that such will be of commercial
benefit to the Company or otherwise offer the Company protection from competing
products.
SOURCES AND AVAILABILITY OF RAW MATERIALS. We purchase chemicals from
several large chemical manufacturers and then further process them into its
saleable products. Although we limit ourselves to a relatively small number of
suppliers, we are not restricted to such suppliers, and Management believes the
availability to such raw materials is widespread. Nevertheless, there can be no
assurance that raw materials will continue to be easily obtainable. Any
difficulty in obtaining raw materials would have a material adverse effect on
our business.
THE LOSS OF OUR CHIEF EXECUTIVE OFFICER, PRESIDENT OR CHAIRMAN OF THE
BOARD WOULD DISRUPT OUR BUSINESS. Our success depends in substantial part upon
the services our three principal executive officers. Although our Chairman of
the Board presently works only on a part-time basis, a loss of one or more of
our current officers could severely and negatively impact our operations. In
addition, we do not maintain key-man life insurance on any of our three
principal executive officers and we have no plans to obtain this insurance.
WE ARE DEPENDENT ON KEY PERSONNEL. Due to the specialized nature of our
business, our success depends in part upon attracting and retaining the services
of qualified managerial and technical personnel. The market for such persons
remains competitive and the relative small size of Epolin may make it more
difficult for us to recruit and retain qualified persons.
DIVIDENDS. During fiscal 2007, Epolin approved the adoption of a dividend
policy under which Epolin will issue a regular annual cash dividend on shares of
its Common Stock. The amount of the dividend, record date and payment date will
be subject to approval every year by the Board of Directors. As a result, any
such future dividends will depend on earnings, other financial requirements and
other factors, many of which may be beyond the control of Epolin.
MAINTAINING AND IMPROVING OUR FINANCIAL CONTROLS MAY STRAIN OUR RESOURCES
AND DIVERT MANAGEMENT'S ATTENTION. We are subject to the requirements of the
Securities Exchange Act of 1934, including the requirements of the
Sarbanes-Oxley Act of 2002. The requirements of these rules and regulations have
increased, and we expect will continue to increase, our legal and financial
compliance costs, make some activities more difficult, time-consuming or costly
and may also place undue strain on our personnel, systems and resources. The
Sarbanes-Oxley Act requires, among other things, that we maintain effective
disclosure controls and procedures and internal control over financial
reporting. This can be difficult to do. As a result of this and similar
activities, management's attention may be diverted from other business concerns,
which could have a material adverse effect on our business, financial condition
and results of operations.
7
THE ONGOING ECONOMIC SLOWDOWN MAY HAVE A MATERIAL ADVERSE IMPACT ON OUR
BUSINESS AND FINANCIAL CONDITION THAT WE CURRENTLY CANNOT PREDICT. The ongoing
global economic slowdown has caused disruptions and extreme volatility in global
financial markets, increased rates of default and bankruptcy, and declining
consumer and business confidence. While the ultimate outcome of these events
cannot be predicted, they could materially adversely affect our business and
financial condition. For example, the consequences of the economic crisis could
result in interruptions or delays in our suppliers' or customers' performance of
any contracts, reductions and delays in customer purchases, delays in or the
inability of customers to obtain financing to purchase our products, and
bankruptcy of customers. Any of these events may materially adversely affect our
business.
OUR STOCK PRICE MAY EXPERIENCE VOLATILITY. The market price of the Common
Stock, which currently is listed in the OTC Bulletin Board, has, in the past,
fluctuated over time and may in the future be volatile. We believe that there
are a small number of market makers that make a market in our Common Stock. The
actions of any of these market makers could substantially impact the volatility
of our Common Stock.
POTENTIAL FUTURE SALES PURSUANT TO RULE 144. Many of the shares of Common
Stock presently held by management and others are "restricted securities" as
that term is defined in Rule 144, promulgated under the Securities Act. Under
Rule 144, a person (or persons whose shares are aggregated) who has satisfied a
certain holding period, may, under certain circumstances sell such shares or a
portion of such shares. Effective as of February 15, 2008, the holding period
for the resale of restricted securities of reporting companies was shortened
from one year to six months. Additionally, the SEC substantially simplified Rule
144 compliance for non-affiliates by allowing non-affiliates of reporting
companies to freely resell restricted securities after satisfying a six-month
holding period (subject only to the Rule 144(c) public information requirement
until the securities have been held for one year) and by allowing non-affiliates
of non-reporting companies to freely resell restricted securities after
satisfying a 12-month holding period. Therefore, actual sales or the prospect of
sales of such shares under Rule 144 in the future may depress the prices of the
Company's securities.
OUR COMMON STOCK IS A PENNY STOCK. Our Common Stock is classified as a
penny stock, which is traded on the OTCBB. As a result, an investor may find it
more difficult to dispose of or obtain accurate quotations as to the price of
the shares of the Common Stock. In addition, the "penny stock" rules adopted by
the Securities and Exchange Commission subject the sale of the shares of the
Common Stock to certain regulations which impose sales practice requirements on
broker-dealers. For example, broker-dealers selling such securities must, prior
to effecting the transaction, provide their customers with a document that
discloses the risks of investing in such securities. Furthermore, if the person
purchasing the securities is someone other than an accredited investor or an
established customer of the broker-dealer, the broker-dealer must also approve
the potential customer's account by obtaining information concerning the
customer's financial situation, investment experience and investment objectives.
The broker-dealer must also make a determination whether the transaction is
suitable for the customer and whether the customer has sufficient knowledge and
experience in financial matters to be reasonably expected to be capable of
evaluating the risk of transactions in such securities. Accordingly, the
Commission's rules may result in the limitation of the number of potential
purchasers of the shares of the Common Stock. In addition, the additional
burdens imposed upon broker-dealers by such requirements may discourage
broker-dealers from effecting transactions in the Common Stock, which could
severely limit the market of our Common Stock.
LIMITATIONS OF THE OTCBB CAN HINDER COMPLETION OF TRADES. Trades and
quotations on the OTCBB involve a manual process that may delay order
processing. Price fluctuations during a delay can result in the failure of a
limit order to execute or cause execution of a market order at a price
significantly different from the price prevailing when an order was entered.
Consequently, one may be unable to trade in our Common Stock at optimum prices.
THE OTCBB IS VULNERABLE TO MARKET FRAUD. OTCBB securities are frequent
targets of fraud or market manipulation, both because of their generally low
prices and because OTCBB reporting requirements are less stringent than those of
the stock exchanges or NASDAQ.
INCREASED DEALER COMPENSATION COULD ADVERSELY AFFECT STOCK PRICE. OTCBB
dealers' spreads (the difference between the bid and ask prices) may be large,
causing higher purchase prices and less sale proceeds for investors.
Except as required by the Federal Securities Law, Epolin does not
undertake any obligation to release publicly any revisions to any
forward-looking statements to reflect events or circumstances after the date of
this Form 10-K or for any other reason.
8
ITEM 1B. UNRESOLVED STAFF COMMENTS.
We are a smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934 and are not required to provide the information
under this item.
ITEM 2. PROPERTIES.
We presently occupy approximately 19,500 square feet of manufacturing,
warehouse and administrative space in Newark, New Jersey which property the
Company has occupied since June 1989. The property is currently owned by Epolin
Holding Corp. ("Epolin Holding"), our wholly-owned subsidiary. We presently
occupy the property pursuant to a lease, effective November 1, 1996, which was
for an initial term of five years with three five years options with annual rent
of $97,740, subject to annual adjustments based on increases in the Consumer
Price Index which adjustments have been waived by Epolin Holding. Such rent
includes real estate taxes and insurance expenses. Generally, we expect that the
lease will be renewed in the normal course of business. We believe that the
current facility is adequate for the foreseeable future.
We entered into a sublease with a non-related party effective September
2005 for an initial term ending October 31, 2007 pursuant to which we were
subleasing approximately 2,500 square feet of our space for the subtenant to
operate a laboratory at an annual rental of $18,000. Following the end of the
initial term, the subtenant remained in the premises on a month-to-month basis
until May 2009 at which time the premises were abandoned by the subtenant.
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. RESERVED.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
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
sales prices per share 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.
FISCAL YEAR ENDED FEBRUARY 28, 2010 HIGH LOW
March 1, 2009 to May 31, 2009 $0.66 $0.35
June 1, 2009 to Aug. 31, 2009 $0.65 $0.45
Sept. 1, 2009 to Nov. 30, 2009 $0.52 $0.30
Dec. 1, 2009 to Feb. 28, 2010 $0.48 $0.30
FISCAL YEAR ENDED FEBRUARY 28, 2009: HIGH LOW
March 1, 2008 to May 31, 2008 $0.64 $0.57
June 1, 2008 to Aug. 31, 2008 $0.65 $0.54
Sept. 1, 2008 to Nov. 30, 2008 $0.63 $0.27
Dec. 1, 2008 to Feb. 28, 2009 $0.50 $0.27
9
HOLDERS
As of May 18, 2010, there were approximately 262 stockholders of record of
the Company's Common Stock. This does not reflect persons or entities that hold
their stock in nominee or "street name".
DIVIDENDS
Subsequent to the end of fiscal 2006, the Board of Directors approved the
adoption of a dividend policy under which we will issue a regular annual cash
dividend on shares of our Common Stock. The amount of the dividend, record date
and payment date will be subject to approval every year by the Board of
Directors. In accordance with the new dividend policy, a regular annual cash
dividend of $0.02 per share was paid in each of May 2006, May 2007 and May 2008.
In addition, since of the adoption of the dividend policy in fiscal 2007, a
special cash dividend of $0.02 per share was paid in each of January 2007 and
January 2008, and a supplemental special cash dividend of $0.04 per share was
paid in August 2008. No further dividends have been paid since August 2008
primarily due to the Company's decision to seek strategic alternatives. The
Board determined to postpone any action regarding the declaration of the regular
annual cash dividend for 2009 and beyond pending the outcome of this process.
RECENT SALES OF UNREGISTERED SECURITIES
During the fiscal years ended February 28, 2009 and February 28, 2010, we
issued or sold the following equity securities that were not registered under
the Securities Act of 1933, as amended (the "Securities Act"):
Pursuant to the Epolin, Inc. 2008 Stock Incentive Plan, each director
shall receive a stock award annually of 25,000 shares of Common Stock. On
September 1, 2008, a total of 100,000 shares of Common Stock were granted to the
Company's four directors, and similarly, on October 21, 2009, a total of 100,000
shares of Common Stock were granted to the Company's four directors, all of
which shares were issued under the 2008 Stock Incentive Plan.
All of such securities were issued in reliance upon the exemption from
registration pursuant to Section 4(2) of the Securities Act for "transactions by
the issuer not involving any public offering".
EQUITY COMPENSATION PLAN INFORMATION
2008 STOCK INCENTIVE PLAN
On June 18, 2008, our Board of Directors approved and adopted the Epolin,
Inc. 2008 Stock Incentive Plan (the "2008 Plan"), and authorized us to issue up
to 1,500,000 shares of our Common Stock under the 2008 Plan (subject to
adjustment to take account of stock dividends, stock splits, recapitalizations
and similar corporate events). The 2008 Plan was approved by the stockholders on
August 18, 2008. The purpose of the 2008 Plan is to provide officers, other
employees and directors of, and consultants to, us an incentive to (a) enter
into and remain in our service or that of our subsidiaries or to provide
services to us or our subsidiaries, (b) enhance our long term performance and
that of our subsidiaries, and (c) acquire a proprietary interest in us. Under
the 2008 Plan, we will have the right to issue stock options, stock appreciation
rights, restricted stock, restricted stock units, performance shares or
performance units, and stock or stock-based awards. Pursuant to the 2008 Plan,
each director shall receive a stock award annually of 25,000 shares of Common
Stock. As of February 28, 2010, 200,000 shares of Common Stock have been granted
under the 2008 Plan. No options or any other awards have been granted to date
under the 2008 Plan.
PRIOR STOCK OPTION PLAN
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 (the "1998 Plan
Option Pool"). In September 2001, the Board of Directors increased the size of
the 1998 Plan Option Pool to 1,500,000 shares. 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. Options exercised through February 28, 2010
total 686,000. Options cancelled or expired for all years totaled 311,000, which
under the 1998 Plan were available for future grant, and as of February 28,
2010, there are options outstanding to acquire 245,000 shares. With the approval
of the 2008 Plan by our stockholders, the 1998 Plan terminated and therefore we
are no longer able to grant options under it. However, options that have already
been granted under the 1998 Plan will continue to be outstanding.
10
Information regarding equity compensations plans, as of February 28, 2010,
is set forth in the table below:
---------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
NUMBER OF SECURITIES REMAINING AVAILABLE FOR
TO BE ISSUED UPON WEIGHTED-AVERAGE FUTURE ISSUANCE UNDER
EXERCISE OF EXERCISE PRICE OF EQUITY COMPENSATION PLANS
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES REFLECTED
PLAN CATEGORY WARRANTS AND RIGHTS (A) WARRANTS AND RIGHTS (B) IN COLUMN (A)) (C)
---------------------------------------------------------------------------------------------------------
Equity compensation
plans approved by -0- -0- 1,300,000
security holders
---------------------------------------------------------------------------------------------------------
Equity compensation
plans not approved 245,000 $0.49 -0-
by security holders
---------------------------------------------------------------------------------------------------------
Total 245,000 $0.49 1,300,000
---------------------------------------------------------------------------------------------------------
SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
In August 2001, the Board of Directors of the Company authorized a 500,000
share stock repurchase program. Pursuant to the repurchase program, the Company
may purchase up to 500,000 shares of its common stock in the open market or in
privately negotiated transactions from time to time, based on market prices. The
Company indicated that the timing of the buyback of the Company's shares will be
dictated by overall financial and market conditions and other corporate
considerations. The repurchase program may be suspended without further notice.
There were no repurchases made by the Company of shares of its Common Stock
during the fiscal years ended February 29, 2008, February 28, 2009 and February
28, 2010. In prior years, since the adoption of the program in August 2001, a
total of 331,500 shares were repurchased at a cumulative cost of $195,766.
ITEM 6. SELECTED FINANCIAL DATA.
We are a smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934 and are not required to provide the information
under this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the audited
consolidated financial statements and the notes thereto appearing elsewhere in
this report and is qualified in its entirety by the foregoing.
EXECUTIVE OVERVIEW
Epolin, Inc. (the "Company", "we", "us" and "our") which was incorporated
in the State of New Jersey in May 1984, is a specialized chemical company
primarily engaged in the manufacturing, marketing, research and development of
dyes and dye formulations. Our business is heavily weighted towards the
development, manufacture and sale of near infrared dyes. Applications for these
dyes cover several markets that include laser protection, welding, sunglasses,
optical filters, glazing and imaging and security inks and tagants. Paralleling
the growth of the dye business, we maintain 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.
However, unlike the dye business, we do not expect our specialty chemical
business to grow.
11
We sell our products to manufacturers of plastics/resins, credit cards,
electronics, glass and other basic materials. Our customers are located in all
regions of the world, although a material portion of our business is dependent
on certain domestic customers, the loss of which could have a material effect on
operations. During the year ended February 28, 2010, approximately 33.4% of
sales were to three customers. During the year ended February 28, 2009,
approximately 31.0% of sales were to three customers. The loss of one or more
key customers could have a material adverse effect on the Company.
RESULTS OF OPERATIONS
The following tables set forth operations data for the year ended February
28, 2010 and year ended February 28, 2009.
2010 2009 % change
----------- ----------- --------
Sales $ 2,944,628 $ 3,091,539 -4.8%
Gross profit 1,670,860 1,647,340 1.4%
Gross profit percentage 56.7% 53.3% 3.4%
Selling, general & administrative 1,118,622 1,251,521 -10.6%
----------- -----------
Operating income 552,238 395,819 39.5%
Other Income 30,335 70,861 -57.2%
----------- -----------
Income before taxes 582,573 466,680 24.8%
Income taxes 113,503 139,111 -18.4%
----------- -----------
Net income (after taxes) $ 469,070 $ 327,569 43.2%
=========== ===========
SALES
For the year ended February 28, 2010, sales were $2,945,000 as compared to
$3,092,000 for the year ended February 28, 2009, a decrease of $147,000 or 4.8%.
Such decrease in sales for the year ended February 28, 2010 are primarily
due to decreased sales in the ink and coating market which decreased $245,000
and the custom market which decreased $68,000 for the year ended February 28,
2010 compared to the prior year, offset by increased sales in the eye protection
market which sales increased by $62,000 and light management market which sales
increased by $106,000 for the year ended February 28, 2010 compared to the prior
year.
In both fiscal 2009 and fiscal 2010, the eye protection market represented
our largest market with sales in the eye protection representing 45.4% and 50.0%
of sales in fiscal 2009 and fiscal 2010, respectively. Sales in the eye
protection market were $1,467,000 for the year ended February 28, 2010 and
$1,405,000 for the year ended February 28, 2009. For the light management
market, sales were $803,000 and $687,000 for the years ended February 28, 2010
and 2009. With regard to the ink and coating market, sales were $576,000 for the
year ended February 28, 2010 compared to $821,000 for the year ended February
28, 2009. For the year ended February 28, 2010, sales in the custom market were
$93,000 compared to $161,000 for the year ended February 28, 2009.
Categorized by geographic area, sales in the United States increased for
the year ended February 28, 2010 while sales decreased in Asia and Europe
compared to the prior year. For the year ended February 28, 2010 compared to the
prior year, sales increased in the United States to $2,402,000 from $2,115,000,
while in Asia sales decreased to $290,000 from $578,000, and in Europe sales
decreased to $247,000 from $398,000.
12
GROSS PROFIT
Gross profit, defined as sales less cost of sales, was $1,671,000 or 56.7%
of sales for the year ended February 28, 2010 compared to $1,647,000 or 53.3% of
sales for the year ended February 28, 2009, an increase of 3.4%. In terms of
absolute dollars, gross profit increased $24,000 in fiscal 2010 compared to the
prior year, an increase of 1.4%.
Cost of sales was $1,274,000 for the year ended February 28, 2010 which
represented 43.3% of sales compared to $1,444,000 for the year ended February
28, 2009 which represented 46.7% of sales. In terms of absolute dollars, cost of
sales decreased $170,000 for fiscal 2010 compared to the prior year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased to $1,119,000 or
38.0% of sales for the year ended February 28, 2010 compared to $1,252,000 or
40.5% of sales for the year ended February 28, 2009, a decrease of $133,000.
Such decrease in absolute dollars was primarily due to a decrease in officers'
salaries and administrative salaries, and decreases in commission and consulting
fees offset by increases in professional fees primarily resulting from costs
associated with the potential sale of the Company as previously disclosed and
described below.
OPERATING INCOME
Operating income, in terms of absolute dollars, increased to $552,000 in
fiscal 2010 from $396,000 in fiscal 2009, an increase of $156,000. While sales
did decrease in fiscal 2010 compared to fiscal 2009, such decrease was offset by
a greater decrease in selling, general and administrative expenses as well as a
decrease in cost of sales to sales ratio compared to the prior year.
OTHER INCOME
Total other income for the year ended February 28, 2010 was $30,000
compared to $71,000 for the year ended February 28, 2009. We realize rental
income of $4,500 for fiscal 2010 compared to $18,000 for fiscal 2009. In May
2009, our subtenant abandoned the premises which it had been subleasing since
September 2005. In addition, our interest income was $26,000 for fiscal 2010
compared to $53,000 for fiscal 2009.
NET INCOME
During fiscal 2010, we reported income before taxes of $583,000 as
compared to income before taxes of $467,000 for fiscal 2009, an increase of
$116,000. Income taxes were $114,000 for fiscal 2010 compared to $139,000 for
fiscal 2009. Changes in income taxes are generally attributed to changes from
period to period in sales and expenses. Net income after taxes was $469,000 or
$0.04 per share for the year ended February 28, 2010 as compared to $328,000 or
$0.03 per share for the year ended February 28, 2009. As a percentage of sales,
net income after taxes was 15.9% of sales for the year ended February 28, 2010
compared to 10.6% of sales for the year ended February 28, 2009.
Net income in the future will be dependent upon our ability to maintain
revenues in excess of our cost of sales and other expenses. Prior to fiscal
2007, sales had grown for a number of consecutive years. In fiscal 2007,
however, sales decreased by $91,000 compared to fiscal 2006 and, in fiscal 2008,
sales decreased by $17,000 compared to fiscal 2007. The largest reduction in
sales in recent years occurred in fiscal 2009 with sales decreasing by $501,000
compared to fiscal 2008. While sales continued to decrease in fiscal 2010
compared to fiscal 2009, such decrease was not nearly as dramatic as the prior
year with sales decreasing by $147,000 in fiscal 2010 compared to fiscal 2009.
Nevertheless, we have had four consecutive years of sales having decreased
compared to sales in the immediate prior year. One positive sign, however, is
that net income did improve by $142,000 in fiscal 2010 compared to the prior
year. This favorably compares to net income in fiscal 2009 compared to fiscal
2008 in which net income decreased by $396,000.
13
OPERATIONS OUTLOOK
Following a period of readjustment in our business priorities, we were
able to achieved $3,701,000 in sales for fiscal 2006 which was $821,000 or 28.5%
greater than the prior fiscal year. In fiscal 2007, however, sales decreased to
$3,610,000, a decrease of 2.5% from the prior year, and in fiscal 2008, sales
decreased to $3,593,000, a decrease of 0.5% from fiscal 2007. This continued
into fiscal 2009 in which sales decreased at a much greater rate to $3,092,000
or 14.0% compared to fiscal 2008. As mentioned above, however, while sales
continued to decrease in fiscal 2010 compared to fiscal 2009, such decrease was
not nearly as dramatic as the prior year with sales decreasing by $147,000 in
fiscal 2010 compared to fiscal 2009. During these periods of reduced sales, we
had a major decline in sales of security inks for the credit card market which
had been a key area of our growth from 2005 to 2007. While this market remains a
source of business for us, we will likely not be able to achieve the same level
of sales in the future which we achieved from 2005 to 2007 in the security inks
market. Nevertheless, we are confident that with our core group of products, we
will be able to maintain sales in our principal markets, such as the eye
protection market and the light management market, while always seeking new
areas for the use of our dyes.
As a result of expressions of interest received, management began in
fiscal 2009 to explore strategic alternatives for the Company. In February 2009,
the Company retained Millburn Capital Group as its financial advisor in
connection with the Board's decision to explore strategic alternatives for the
Company, including the potential sale of the Company. In May 2009, the Company
announced that it has entered into a non-binding letter of intent whereby all of
the outstanding capital stock of the Company would be acquired by a strategic
purchaser. Pursuant to an amendment entered into in September 2009, the Company
had agreed to negotiate exclusively with such strategic purchaser until December
15, 2009. In November 2009, such proposed purchaser terminated the non-binding
letter of intent as a result of which the Company's obligation to negotiate
exclusively with such purchaser was terminated as well. The Company is
continuing to pursue strategic and financial options which it believes are in
the best interests of its shareholders including but not limited to the
potential sale to a third party including the above mentioned strategic
purchaser. There can be no assurance that any such transaction can or will be
completed. The Company does not currently intend to publicly disclose additional
information about the status of this process but will publicly report all
required information on a timely basis.
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of funds is cash flow from operations in the normal
course of selling products. On February 28, 2010, we had working capital of
$3,099,000, a debt to equity ratio of 0.06 to 1, and stockholders' equity of
$4,038,000 compared to working capital of $2,561,000, a debt to equity ratio of
0.15 to 1, and stockholders' equity of $3,549,000 on February 28, 2009. On
February 28, 2010, we had $1,909,000 in cash and cash equivalents, total assets
of $4,299,000 and total liabilities of $261,000, compared to $1,545,000 in cash
and cash equivalents, total assets of $4,096,000 and total liabilities of
$547,000 on February 28, 2009.
Net cash provided by operating activities for the year ended February 28,
2010 was $403,000 which was primarily the result of net income of $469,000, plus
non-cash items including depreciation of $104,000 and a deferred tax expense of
$14,000, plus a decrease in prepaid taxes of $194,000, offset by increase in
accounts receivable of $98,000 and inventories of $17,000, and a decrease in
accrued expenses of $237,000 and accounts payable of $22,000. Net cash provided
by operating activities for the year ended February 28, 2009 was $445,000 which
was primarily the result of net income of $328,000, plus non-cash items
including depreciation of $105,000, plus a decrease in accounts receivable of
$247,000 and an increase in accounts payable of $29,000 and accrued expenses of
$14,000, offset by increases in inventories of $25,000, prepaid taxes of
$228,000, and decreases in taxes payable of $37,000.
Net cash used by investing activities for year ended February 28, 2010 was
$39,000 due to property and equipment purchases of $64,000 offset by a decrease
in the cash value of a life insurance policy of $25,000, while net cash used by
investing activities for year ended February 28, 2009 was $162,000 due to
property and equipment purchases of $150,000 and increase in cash value of a
life insurance policy of $12,000. For the year ended February 28, 2010, there
was no net cash used by financing activities compared to $718,000 in net cash
used in financing activities for the year ended February 28, 2009 due to cash
dividends of $718,000 having been paid during that fiscal year.
We anticipate, based on currently proposed plans and assumptions relating
to our operations, that our current cash and cash equivalents together with
projected cash flows from operations and projected revenues will be sufficient
to satisfy its contemplated cash requirements for more than the next 12 months.
Our contemplated cash requirements for fiscal 2011 and beyond will depend
primarily upon level of sales of our products, inventory levels, product
development, sales and marketing expenditures and capital expenditures.
14
Inflation has not significantly impacted our operations.
SIGNIFICANT ACCOUNTING POLICIES
Our discussion and analysis of the Company's financial condition and
results of operations are based upon our consolidated financial statements which
have been prepared in conformity with U.S. generally accepted accounting
principles. Our significant accounting policies are described in Note B to the
consolidated financial statements included elsewhere herein. The application of
our critical accounting policies is particularly important to the portrayal of
our financial position and results of operations. These critical accounting
policies require us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. We believe the following critical accounting
policies reflect the more significant judgments and estimates used in the
preparation of the consolidated financial statements.
ACCOUNTS RECEIVABLE - Accounts receivable are stated at the amount
management expects to collect from outstanding balances. Management provides for
probable uncollectible amounts though a charge to earnings and a credit to a
valuation allowance based on its assessment of the status of individual
accounts. This allowance is an amount estimated by management to be adequate to
absorb possible losses. Balances that are still outstanding after management has
used reasonable collection efforts are written off through a charge to the
valuation allowance and a credit to accounts receivable.
INVENTORIES - Our inventories consist of raw materials, work in process,
finished goods and supplies which we value at the lower of cost or market under
the first-in, first-out method.
PLANT, PROPERTY AND EQUIPMENT - Our plant, property and equipment are
stated at cost. We compute provisions for depreciation on the straight-line
methods, based upon the estimated useful lives of the various assets. We also
capitalize the costs of major renewals and betterments. Repairs and maintenance
are charged to operations as incurred. Upon disposition, the cost and related
accumulated depreciation are removed and any related gain or loss is reflected
in earnings.
INCOME TAXES - We account for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", in which the asset
and liability method is used in accounting for income taxes. We recognize
deferred taxes for temporary differences between the basis of assets and
liabilities for financial statement and for income tax purposes. Temporary
differences relate primarily to different accounting methods used for
depreciation and amortization of property and equipment and deferred
compensation.
REVENUE RECOGNITION - We recognize revenue consistent with the provisions
of SEC Staff Accounting Bulletin No. 104, "Revenue Recognition", which sets
forth guidelines in the timing of revenue recognition based upon factors such as
passage of title, payments and customer acceptance. Any amounts received prior
to satisfying our revenue recognition criteria will be recorded as deferred
revenue in the accompanying balance sheet. We recognize revenue from product
sales when there is persuasive evidence that an arrangement exists, when title
has passed, the price is fixed or determinable, and we are reasonably assured of
collecting the resulting receivable. Our policy is to replace certain products
that do not conform to customer specifications, however replacements are made at
our discretion subject to in house product lab analysis. There are no terms or
conditions set forth within our sales contracts that provide for product
replacements. We expense replacement costs as incurred.
STOCK-BASED COMPENSATION - Effective March 1, 2006, we have adopted
Statement of Financial Accounting Standards ("SFAS") No. 123(R), "Share-Based
Payment". SFAS 123R requires companies to measure and recognize in operations
the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value. In accordance with the
provisions of the Securities and Exchange Commission Staff Accounting Bulletin
No. 107, we have adapted the modified-prospective transition method. Prior
periods were not restated to reflect the impact of adopting the new standard. We
determine the fair value of stock-based compensation using the Black-Scholes
option-pricing model, which requires us to make assumptions regarding future
dividends, expected volatility of our stock, and the expected lives of the
options. Under SFAS 123R we also make assumptions regarding the number of
options and the number of shares of restricted stock and performance shares that
will ultimately vest. As a result of the adoption of FAS 123R, stock-based
compensation expense recognized includes compensation expense for all
share-based payments granted on or prior to, but not yet vested as of March 1,
2006, based on the grant date fair value estimated in accordance with the
original provisions of FAS 123, and compensation cost for all share-based
payments granted on or subsequent to March 1, 2006, based on the grant date fair
value estimated in accordance with the provisions of FAS 123R.
15
RECENTLY ADOPTED ACCOUNTING STANDARDS
On March 1, 2008, we adopted Statement of Financial Accounting Standard
("SFAS") No. 157, "Fair Value Measurements" ("FAS 157") for financial assets and
liabilities, which clarifies the meaning of fair value, establishes a framework
for measuring fair value and expands disclosures about fair value measurements.
Fair value is defined under FAS 157 as the exchange price that would be received
for an asset or paid to transfer a liability in the principal or most
advantageous market for the assets or liabilities in an orderly transaction
between market participants on the measurement date. Subsequent changes in fair
value of these financial assets and liabilities are recognized in earnings or
other comprehensive income when they occur. The effective date of the provisions
of FAS 157 for non-financial assets and liabilities, except for items recognized
at fair value on a recurring basis, was deferred by Financial Accounting
Standards Board ("FASB") Staff Position FAS 157-2 ("FSP FAS 157-2") and are
effective for the fiscal year beginning March 1, 2009. The adoption of FAS 157
for financial assets and liabilities did not have an impact on our consolidated
financial position or results of operations.
Also, effective March 1, 2008, we adopted SFAS No. 159 "The Fair Value
Option for Financial Assets and Financial Liabilities" ("FAS 159") which allows
an entity the irrevocable option to elect fair value for the initial and
subsequent measurement for certain financial assets and liabilities on a
contract-by-contract basis. As of February 28, 2010, we have not elected the
fair value option for any additional financial assets and liabilities beyond
those already prescribed by accounting principles generally accepted in the
United States.
In October 2008, the FASB issued Staff Position No. FAS 157-3,
"Determining the Fair Value of a Financial Asset in a Market That Is Not Active
("FSP FAS 157-3")." FSP FAS 157-3 clarifies the application of FAS 157 in a
market that is not active and defines additional key criteria in determining the
fair value of a financial asset when the market for that financial asset is not
active. FSP FAS 157-3 applies to financial assets within the scope of accounting
pronouncements that require or permit fair value measurements in accordance with
FAS 157. FSP FAS 157-3 was effective upon issuance and the application of FSP
FAS 157-3 did not have a material impact on our consolidated financial
statements.
OTHER INFORMATION
Subsequent to the end of fiscal 2006, the Board of Directors approved the
adoption of a dividend policy under which we will issue a regular annual cash
dividend on shares of our Common Stock. The amount of the dividend, record date
and payment date will be subject to approval every year by the Board of
Directors. In accordance with the new dividend policy, a regular annual cash
dividend of $0.02 per share was paid in each of May 2006, May 2007 and May 2008.
In addition, since of the adoption of the dividend policy in fiscal 2007, a
special cash dividend of $0.02 per share was paid in each of January 2007 and
January 2008, and a supplemental special cash dividend of $0.04 per share was
paid in August 2008. No further dividends have been paid since August 2008
primarily due to the Company's decision to seek strategic alternatives. The
Board determined to postpone any action regarding the declaration of the regular
annual cash dividend for 2009 and beyond pending the outcome of this process.
In August 2001, the Board of Directors of the Company authorized a 500,000
share stock repurchase program. Pursuant to the repurchase program, the Company
may purchase up to 500,000 shares of its common stock in the open market or in
privately negotiated transactions from time to time, based on market prices. The
Company indicated that the timing of the buyback of the Company's shares will be
dictated by overall financial and market conditions and other corporate
considerations. The repurchase program may be suspended without further notice.
There were no repurchases made by the Company of shares of its Common Stock
during the fiscal years ended February 29, 2008, February 28, 2009 and February
28, 2010. In prior years, since the adoption of the program in August 2001, a
total of 331,500 shares were repurchased at a cumulative cost of $195,766.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off balance sheet arrangements that are reasonably
likely to have a current or future effect on our financial condition, revenues,
and results of operations, liquidity or capital expenditures.
16
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the
Securities Exchange Act of 1934 and are not required to provide the information
under this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Financial Statements annexed to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A(T). CONTROLS AND PROCEDURES.
Under the supervision and with the participation of our management,
including the Principal Executive Officer and Principal Financial Officer, we
have evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end
of the period covered by this report. Based on that evaluation, the Principal
Executive Officer and Principal Financial Officer have concluded that, as of
February 28, 2010, these disclosure controls and procedures were effective to
ensure that all information required to be disclosed by us in the reports that
we file or submit under the Exchange Act is: (i) recorded, processed, summarized
and reported, within the time periods specified in the Commission's rule and
forms; and (ii) accumulated and communicated to our management, including our
Principal Executive Officer and Principal Financial Officer, as appropriate to
allow timely decisions regarding required disclosure.
There have been no material changes in internal control over financial
reporting that occurred during the fourth fiscal quarter that have materially
affected, or are reasonably likely to materially affect our internal control
over financial reporting.
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over financial
reporting is a process designed by, or under the supervision of, the Principal
Executive Officer and Principal Financial Officer and effected by our Board of
Directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles.
Our evaluation of internal control over financial reporting includes using
the COSO framework, an integrated framework for the evaluation of internal
controls issued by the Committee of Sponsoring Organizations of the Treadway
Commission, to identify the risks and control objectives related to the
evaluation of our control environment.
Based on our evaluation under the frameworks described above, our
management has concluded that our internal control over financial reporting was
effective as of February 28, 2010.
This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation requirements by
the company's registered public accounting firm pursuant to temporary rules of
the Securities and Exchange Commission that permit the company to provide only
management's report in this annual report.
ITEM 9B. OTHER INFORMATION.
Not applicable.
17
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND
CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.
Set forth below are our present directors and executive officers. 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 85 Chairman of the 1984
Board, Chief Scientist,
Secretary and Director
James Ivchenko 70 President and Director 1993
Greg Amato 53 Chief Executive Officer --
James R. Torpey, Jr. 60 Director 2001
Herve A. Meillat 54 Director 2005
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 and Chairman of the Board of the
Company since June 1984 and Secretary since March 2001. From June 1984 to
January 2006, Dr. Cohen was Chief Executive Officer, and from June 1984 to
August 1994, he was also President. Dr. Cohen also currently serves as Chief
Scientist. 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 Administration from Fairleigh Dickinson
University in New Jersey.
GREG AMATO has been employed by the Company since November 2004 and has
been Chief Executive Officer since January 2006. From, January 2005 to January
2006, he was Vice President of Sales and Marketing. From 1993 to 2004, Mr. Amato
was with Elementis, PLC and certain of its subsidiaries, divisions and
predecessors, which company is a specialty chemical manufacturer. During such
period, Mr. Amato was Vice President, Specialty Markets of Elementis
Specialties, Inc., located in Hightstown, New Jersey from 2000 to 2004;
President and CEO of Elementis Performance Polymers, located of Belleville, New
Jersey from 1998 to 2000; and from 1993 to 1998, Sales Manager of Rheox, which
was acquired by Elementis in 1998. Mr. Amato received a Bachelor of Chemical
Engineering from Georgia Institute of Technology in 1978.
18
JAMES R. TORPEY, JR. has served as Director of the Company since July
2001. Mr. Torpey is Director of Market Development for SunPower Corporation, a
major world wide supplier of solar electric equipment and systems. From 2002 to
2007, he was President of Madison Energy Consultants, a consulting firm in the
energy industry. From 1995 to 2002, he was Director of Technology Initiatives at
First Energy/GPU, Chairman of the Solar Electric Power Association, and
President and member of the Board of Directors of GPU Solar, Inc. He was a
member of the U.S. Department of Energy Solar Industry Advisory Board from 2001
to 2005. Mr. Torpey received his Masters of Business Administration from Rutgers
University in 1991.
HERVE A. MEILLAT has served as Director of the Company since July 2005.
Since September 2006, Mr. Meillat has been the sole owner and CEO of Christian
Dalloz Sunoptics ("CDS"), a company located in France which develops,
manufactures and sells worldwide non-prescription ocular lenses and shields for
premium sunglasses in all market segments including luxury, fashion and sports
eyewear. In February 2009, CDS filed for bankruptcy protection in France. Mr.
Meillat is a former Senior Vice President of the Bacou-Dalloz Group, a world
leader in the design, manufacturing and sales of personal protection equipment.
While with Bacou-Dalloz, he was Senior Vice President of its eye and face
business unit from 2001 to 2004, the President of Dalloz Safety Inc. from 1996
to 2001 and Chief Operating Officer of Christian Dalloz in France from 1989 to
1995.
To the knowledge of the Company, and except as described above, none of
the officers or directors has been personally involved in any bankruptcy or
insolvency proceedings. To the knowledge of the Company, none of the directors
or officers have been convicted in any criminal proceedings (excluding traffic
violations and other minor offenses) or are the subject of a criminal proceeding
which is presently pending, nor have such persons been the subject of any order,
judgment, or decree of any court of competent jurisdiction, permanently or
temporarily enjoining them from acting as an investment advisor, underwriter,
broker or dealer in securities, or as an affiliated person, director or
insurance company, or from engaging in or continuing in any conduct or practice
in connection with any such activity or in connection with the purchase or sale
of any security, nor were any of such persons the subject of a federal or state
authority barring or suspending, for more than 60 days, the right of such person
to be engaged in any such activity, which order has not been reversed or
suspended.
AUDIT COMMITTEE FINANCIAL EXPERT
We do not have an audit committee financial expert, as such term is
defined in Item 407(d)(5) of Regulation S-K, serving on our audit committee
because we have no audit committee and are not required to have an audit
committee because we are not a listed security.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the Company's Common Stock, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes of ownership of
Common Stock of the Company. Officers, directors and greater than ten percent
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
Based solely on the Company's review of such forms received by it, or
written representations from certain of such persons, the Company believes that,
with respect to the fiscal year ended February 28, 2010, all Section 16(a)
filing requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with.
CODE OF ETHICS
The Board of Directors has adopted a Code of Ethics applicable to its
principal executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, which is
designed to promote honest and ethical conduct; full, fair, accurate, timely and
understandable disclosure; and compliance with applicable laws, rules and
regulations. A copy of the Code of Ethics will be provided to any person without
charge upon written request to the Secretary of the Company at its executive
offices, 358-364 Adams Street, Newark, New Jersey 07105.
19
ITEM 11. 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, 2010 and February 28, 2009 of
those persons who were, at February 28, 2010, (i) the chief executive officer
and (ii) the other most highly compensated executive officers of the Company,
whose total compensation was in excess of $100,000 (the named executive
officers):
SUMMARY COMPENSATION TABLE
---------------------------------------------------------------------------------------------------------------------------
NON-EQUITY NONQUALIFIED
NAME AND STOCK OPTION INCENTIVE PLAN DEFERRED ALL OTHER
PRINCIPAL SALARY BONUS AWARDS AWARDS COMPENSATION COMPENSATION COMPENSATION
POSITION YEAR ($) ($) ($) ($) ($) EARNINGS ($) ($) TOTAL
---------------------------------------------------------------------------------------------------------------------------
Greg Amato 2010 $165,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $165,000
Chief Executive 2009 $165,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $165,000
Officer
---------------------------------------------------------------------------------------------------------------------------
Murray S. Cohen 2010 $ 50,827 $ 0 $5,000(1) $ 0 $ 127,500(2) $ 0 $ 0 $183,327
Chairman of the 2009 $ 50,826 $ 0 $7,000(1) $ 0 $ 120,000(2) $ 0 $ 0 $177,826
Board
---------------------------------------------------------------------------------------------------------------------------
James Ivchenko 2010 $195,478 $ 0 $5,000(1) $ 0 $ 112,500(3) $ 32,000(4) $ 0 $344,978
President 2009 $195,478 $ 0 $7,000(1) $ 0 $ 105,000(3) $ 32,000(4) $ 0 $339,478
---------------------------------------------------------------------------------------------------------------------------
(1) Represents the dollar amount recognized for financial statement reporting
purposes with respect to the fiscal year in accordance with SFAS 123R.
(2) Dr. Cohen received additional compensation of $127,500 and $120,000 in
fiscal 2010 and 2009, respectively, based upon the Company's sales for
fiscal 2009 and 2008, as determined under his employment contract which
expired as of February 28, 2009.
(3) Mr. Ivchenko received additional compensation of $112,500 and $105,000 in
fiscal 2010 and 2009, respectively, based upon the Company's sales for
fiscal 2009 and 2008, as determined under his employment contract which
expired as of February 28, 2009.
(4) Represents the amount paid to Mr. Ivchenko in fiscal 2010 and 2009
pursuant to his deferred compensation agreement. See "Deferred
Compensation/Employment Contracts and Change in Control Arrangements"
below.
EQUITY AWARDS
The following table provides certain information concerning equity awards
held by the named executive officers as of February 28, 2010.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OPTION AWARDS STOCK AWARDS
------------------------------------------------------------------------------------------------------------------------
NO. OF NUMBER OF
SECURITIES SECURITIES NUMBER OF EQUITY INCENTIVE PLAN
UNDERLYING UNDERLYING SHARES OR AWARDS: NUMBER OF
UNEXERCISED UNEXERCISED OPTION OPTION UNITS OF STOCK UNEARNED SHARES, UNITS
OPTIONS (#) OPTIONS (#) EXERCISE EXPIRATION THAT HAVE NOT OR OTHER RIGHTS THAT
NAME EXERCISABLE UNEXERCISABLE PRICE ($) DATE VESTED (#) HAVE NOT VESTED(#)
------------------------------------------------------------------------------------------------------------------------
Greg Amato -0- -0- N/A N/A -0- -0-
------------------------------------------------------------------------------------------------------------------------
Murray S. Cohen 20,000 -0- $ 0.41 2/9/2014 -0- -0-
50,000 -0- $ 0.54 6/20/2010 -0- -0-
------------------------------------------------------------------------------------------------------------------------
James Ivchenko 20,000 -0- $ 0.41 2/9/2014 -0- -0-
50,000 -0- $ 0.54 6/20/2010 -0- -0-
------------------------------------------------------------------------------------------------------------------------
COMPENSATION OF DIRECTORS
Since fiscal 2002, the Company has paid directors $750 for each board
meeting attended. Commencing in fiscal 2007, only non-employee directors are
paid such amount. In addition, commencing in fiscal 2007, non-employee directors
are also paid $750 for each committee meeting attended. Directors have always
been and will continue to be reimbursed for reasonable expenses incurred on
behalf of the Company.
20
In addition to the foregoing, pursuant to Epolin, Inc. 2008 Stock
Incentive Plan (the "2008 Plan"), adopted by the Board of Directors on June 18,
2008 and approved by the stockholders on August 18, 2008, each director shall
receive a stock award annually of 25,000 shares of Common Stock.
The following table provides certain summary information concerning the
compensation paid to non-employee directors during fiscal 2010. All compensation
paid to Dr. Cohen and Mr. Ivchenko is set forth in the table under "Executive
Compensation".
DIRECTOR COMPENSATION
----------------------------------------------------------------------------------------
FEES
EARNED OR ALL OTHER
PAID IN STOCK OPTION COMPENSATION
NAME CASH ($) AWARDS (S) AWARDS ($)(1) ($) TOTAL ($)
----------------------------------------------------------------------------------------
James R. Torpey, Jr. $ 3,000 $ 5,000(1) -0- -0- $ 8,000
----------------------------------------------------------------------------------------
Herve A. Meillat $ 3,000 $ 5,000(1) -0- -0- $ 8,000
----------------------------------------------------------------------------------------
(1) Represents the dollar amount recognized in fiscal 2009 for financial
reporting purposes of stock awarded computed in accordance with Financial
Accounting Standards 123R.
DEFERRED COMPENSATION/EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL ARRANGEMENTS
Effective as of November 1, 2004, the Company entered into an employment
agreement with Greg Amato. Such agreement provided that Mr. Amato would be
employed "at-will" and that such employment can be terminated by either party at
any time without reason or cause provided at least six months prior written
notice is given. The employment agreement also provides that Mr. Amato would
receive bonus compensation for 2004 based upon a formula and would be entitled
to receive, following the fiscal year ending February 28, 2006, bonus
compensation equal to 10% of the increase in the Company's net income for the
fiscal year ending February 28, 2006 compared to February 28, 2005. For
subsequent fiscal years, Mr. Amato shall be entitled to receive annual cash
bonuses as the Compensation Committee shall determine with performance
objectives determined prior to the start of the applicable year. Pursuant to the
employment agreement, the Company also agreed to grant Mr. Amato an option to
purchase 100,000 shares of Common Stock of the Company at an exercise price
equal to the fair market value of the Company's Common Stock on November 1, 2004
which option shall be exercisable only after the completion of Mr. Amato's
second year of employment under his employment agreement. Such option expired as
of November 1, 2009. In addition, pursuant to the employment agreement, the
Company agreed to grant to Mr. Amato, one year from the date of his employment
agreement provided he is then employed by the Company, 100,000 shares of
restricted Common Stock of the Company.
Pursuant to a deferred compensation agreement, as amended, entered into
with James Ivchenko, President of the Company, the Company has agreed to pay Mr.
Ivchenko $32,000 per year for ten consecutive years commencing the first day of
the month following Mr. Ivchenko reaching the age of 65. The obligations to Mr.
Ivchenko under his deferred compensation agreement are partially funded with a
life insurance policy owned by the Company. Through February 28, 2010, six
payments of $32,000 each have been paid to Mr. Ivchenko, leaving four remaining
payments owing to Mr. Ivchenko which in the aggregate amounts to $128,000 (the
"Deferred Compensation Remaining Balance"). Subsequent to the year ended
February 28, 2010, and as of May 14, 2010, the Board of Directors agreed to
surrender the life insurance policy for its net surrender value (approximately
$168,000) and pay Mr. Ivchenko the Deferred Compensation Remaining Balance.
Effective as of March 1, 1999, the Company entered into a ten year
employment agreement with Mr. Ivchenko. Pursuant thereto, Mr. Ivchenko shall be
paid an annual salary of not less than the greater of his annual base salary in
effect immediately prior to the effective date of the agreement or any
subsequently established annual base salary. In addition thereto, Mr. Ivchenko
shall receive as additional compensation a certain percentage (as set forth
below) of the Company's annual gross sales up to but not exceeding annual gross
sales of $3 million. Such percentage starts at 1.50% for the fiscal year ended
February 29, 2000 and increases by 0.25% per year during the term of the
agreement. In the event of death or disability, the agreement provides that Mr.
Ivchenko or his estate will receive 100% of his annual salary and additional
compensation as described above for the fiscal year during which he died or
became disabled, and 50% of his annual salary and annual additional compensation
which he would have received (if not for his death or disability) for the
remainder of the ten year term. Such agreement expired as of February 28, 2009.
21
Effective as of March 1, 1999, the Company also entered into a ten year
employment agreement with Murray S. Cohen, Chairman of the Board of the Company.
Pursuant thereto, Dr. Cohen shall be paid an annual salary of not less than the
greater of his annual base salary in effect immediately prior to the effective
date of the agreement or any subsequently established annual base salary. In
addition thereto, Dr. Cohen shall receive as additional compensation a certain
percentage (as set forth below) of the Company's annual gross sales up to but
not exceeding annual gross sales of $3 million. Such percentage starts at 2.00%
for the fiscal year ended February 29, 2000 and increases by 0.25% per year
during the term of the agreement. Pursuant to an amendment to the employment
agreement entered into on March 30, 2006, Dr. Cohen shall have the option to
partially retire pursuant to which Dr. Cohen will devote approximately 50% of
his time to the Company in which event he will be paid 50% of his annual base
salary and 100% of the additional compensation for the remainder of the term. He
shall also have the option to either (i) substantially retire pursuant to which
Dr. Cohen will devote approximately 25% of his time to the Company in which
event he will be paid 25% of his annual base salary and 100% of the additional
compensation for the remainder of the term, or (ii) fully retire in which event
he will be paid no annual base salary and 50% of the additional compensation for
the remainder of the term. In the event of death or disability, the amendment
provides that Dr. Cohen or his estate will receive 100% of his annual salary and
additional compensation as described above for the fiscal year during which he
died or became disabled, and 50% of his annual salary and annual additional
compensation which he would have received (if not for his death or disability)
for the remainder of the ten year term, provided at the time of death or
disability Dr. Cohen was a full-time employee. If at the time of death or
disability Dr. Cohen was fully, partially or substantially retired, then other
percentage rates are provided in the amendment for the payment of the annual
salary and annual additional compensation to Dr. Cohen or his estate for the
balance of the term. Such agreement expired as of February 28, 2009.
The Company had previously entered into a deferred compensation agreement
in June 1998 with Dr. Cohen which provided for the payment of certain funds to
Dr. Cohen for a period of ten years beginning two weeks after the date of his
retirement. Such agreement was terminated in connection with the execution of
the employment agreement with Dr. Cohen. In addition to the foregoing, pursuant
to a deferred compensation agreement entered into in January 1996 which was
terminated in June 1998, there were unfunded accruals of $79,041 (the "Deferred
Compensation Accrual") due to Dr. Cohen which the parties previously agreed
would be paid to Dr. Cohen upon retirement either in equal consecutive monthly
payments for a period not exceeding 60 months or a single payment which will be
at the discretion of the Company. Subsequent to the year ended February 28,
2010, and as of May 14, 2010, the Board of Directors agreed to pay Dr. Cohen the
Deferred Compensation Accrual as soon as practicable.
The Company does not have any termination or change in control
arrangements with any of its named executive officers.
INDEBTEDNESS OF MANAGEMENT
No member of management was indebted to the Company during its last fiscal
year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The following table sets forth, as of May 18, 2010, 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 of the Company, (iii) the Company's
Chief Executive Officer and other executive officers, if any, of the Company
whose total compensation was in excess of $100,000 (the "named executive
officers"), and (iv) all officers and directors of the Company as a group:
AMOUNT AND NATURE PERCENT
NAME OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS
Murray S. Cohen(1)* 1,990,958 16.3%
James Ivchenko(2)* 1,589,587 13.0%
James R. Torpey, Jr.(3)* 147,500 1.2%
Herve A. Meillat* 54,000 **
Greg Amato* 100,000 **
Claire Bluestein* 970,155 8.0%
Santa Monica Partners, L.P.(4) 825,900 6.8%
Sandra Lifschitz(5) 605,000 5.0%
Hummingbird Management, LLC(6) 1,029,119 8.5%
All Executive Officers and
Directors as a Group (5 persons) 3,882,045 31.4%
22
----------
* The address for each is 358-364 Adams Street, Newark, New Jersey 07105.
** Less than 1%.
(1) Includes 1,895,958 shares held by Dr. Cohen and 25,000 shares held by the
wife of Dr. Cohen. Also, includes 70,000 shares which Dr. Cohen has the
right to acquire within 60 days pursuant to the exercise of options
granted under the 1998 Plan.
(2) Includes 1,055,000 shares held by Mr. Ivchenko and 464,587 held by Mr.
Ivchenko and his wife, as joint tenants. Also, includes 70,000 shares
which Mr. Ivchenko has the right to acquire within 60 days pursuant to the
exercise of options granted under the 1998 Plan.
(3) Includes 60,000 shares which Mr. Torpey has the right to acquire within 60
days pursuant to the exercise of options granted under the 1998 Plan.
(4) This information is based solely upon information reported in filings made
to the SEC on behalf of Santa Monica Partners, L.P. Its address is 1865
Palmer Avenue, Larchmont, New York.
(5) This information is based solely upon information reported in filings made
to the SEC on behalf of Sandra Lifschitz. Her address is 7 Tulane Drive,
Livingston, New Jersey.
(6) This information is based solely upon information reported in filings made
to the SEC on behalf of Hummingbird Management, LLC. Its address is 145
East 57th Street, New York, New York.
THE STOCKHOLDERS AGREEMENT
Pursuant to a Stockholders Agreement executed in October 2002, each of the
then members of the Board of Directors (Dr. Cohen and Messrs. Ivchenko and
Torpey, as well as Morris Dunkel, Claire Bluestein and Peter Kenny) has provided
the Company with certain rights of refusal in the event any of such individuals
desire to sell any of the shares of the Company's Common Stock which any of them
hold of record or beneficially. Excluded from such restrictions are gifts in
which the proposed donee agrees to be bound to the Stockholders Agreement and
transfers by will or the laws of descent, provided the shares remain subject to
said restrictions. In addition, shares may be transferred by such individuals
with the prior approval of the Board of Directors of the Company (or any
committee authorized by the Board to give such approval).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
See "Deferred Compensation/Employment Contracts and Change in Control
Arrangements" above for information on the transactions described therein.
Other than described therein, since March 1, 2009, there has not been, nor
is there currently proposed, any transaction or series of similar transactions
to which we were or will be a party: (i) in which the amount involved exceeds
the lesser of $120,000 or one percent of the average of our total assets at
year-end for the last three completed fiscal years; and (ii) in which any
director, executive officer, shareholder who beneficially owns 5% or more of our
common stock or any member of their immediate family had or will have a direct
or indirect material interest.
DIRECTOR INDEPENDENCE
We have determined that two of our four directors are independent
directors. Messrs. Torpey and Meillat are our independent directors. We have
determined their independence using the general independence criteria set forth
in the Nasdaq Marketplace Rules.
23
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following is a summary of the fees billed to us by the principal
accountants to the Company for professional services rendered for the fiscal
years ended February 28, 2010 and February 28, 2009:
Fiscal 2010 Fiscal 2009
Fee Category Fees Fees
Audit Fees $ 51,000 $ 51,000
Audit Related Fees $ 0 $ 0
Tax Fees $ 3,500 $ 3,000
All Other Fees $ 4,000 $ 0
Total Fees $ 58,500 $ 54,000
Audit Fees. Consists of fees billed for professional services rendered for
the audit of our financial statements and review of interim consolidated
financial statements included in quarterly reports and services that are
normally provided by the principal accountants in connection with statutory and
regulatory filings or engagements.
Audit Related Fees. Consists of fees billed for assurance and related
services that are reasonably related to the performance of the audit or review
of our consolidated financial statements and are not reported under "Audit
Fees".
Tax Fees. Consists of fees billed for professional services for tax
compliance, tax advice and tax planning. These services include preparation of
federal and state income tax returns.
All Other Fees. Consists of fees for product and services other than the
services reported above.
Pre-Approval Policies and Procedures
Prior to engaging its accountants to perform a particular service, the
Company's Board of Directors obtains an estimate for the service to be
performed. All of the services described above were approved by the Board of
Directors in accordance with its procedures.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following documents are filed as part of this report:
(1) Financial Statements
Financial Statements are listed in the Contents to Consolidated Financial
Statements included with this report.
(2) Financial Statement Schedules
No financial statement schedules are included because such schedules are
not applicable, are not required, or because required information is
included in the financial statements or notes thereto.
(3) 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)
31.1 Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the
Exchange Act)
24
31.2 Certification of Principal Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the
Exchange Act)
32.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. 1350)
--------------------------------------------------------------------------------
(1) Filed with the Company's Form S-18 Registration Statement SEC File
33-25405-NY.
25
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,
Chairman of the Board
Dated: May 28, 2010
------------
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/ Greg Amato Chief Executive Officer May 28, 2010
------------------------ (Principal Executive Officer) ------------
Greg Amato
/s/ Murray S. Cohen Chairman of the Board, May 28, 2010
------------------------ Secretary and Director ------------
Murray S. Cohen
/s/ James Ivchenko President and Director May 28, 2010
------------------------ (Principal Financial Officer) ------------
James Ivchenko
/s/ James R. Torpey, Jr. Director May 28, 2010
------------------------ ------------
James R. Torpey, Jr.
/s/ Herve A. Meillat Director May 28, 2010
------------------------ ------------
Herve A. Meillat
26
EPOLIN, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED
FEBRUARY 28, 2010 AND 2009
CONTENTS
PAGE
----
Independent Auditor's Report 1
Consolidated Financial Statements:
Consolidated Balance Sheets 2 - 3
Consolidated Statements of Income 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7 - 23
INDEPENDENT AUDITOR'S REPORT
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
EPOLIN, INC. AND SUBSIDIARY
Newark, New Jersey
We have audited the accompanying Consolidated Balance Sheets of Epolin,
Inc. and it's wholly owned Subsidiary as of February 28, 2010 and 2009 and the
related Consolidated Statements of Income, Stockholders' Equity and Cash Flows
for each of the two years in the periods ended February 28, 2010 and 2009. 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 audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. 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.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Epolin Inc. and Subsidiary
as of February 28, 2010 and 2009, and the results of its operations and its cash
flows for each of the two years in the periods ended February 28, 2010 and 2009,
in conformity with accounting principles generally accepted in the United States
of America.
/s/ Weismann Associates LLC
---------------------------
Weismann Associates LLC
Branchburg, NJ 08876
May 11, 2010
1
EPOLIN, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
FEBRUARY 28,
-----------------------
2010 2009
---------- ---------
CURRENT ASSETS:
Cash and cash equivalents $1,908,752 1,544,966
Accounts receivable 469,035 371,443
Inventories 683,995 667,184
Prepaid expenses 55,094 56,298
Prepaid taxes 33,870 228,346
Deferred tax assets-current portion 14,698 18,377
---------- ---------
Total current assets 3,165,444 2,886,614
---------- ---------
PLANT, PROPERTY AND EQUIPMENT - AT COST:
Land 81,000 81,000
Building and improvements 770,537 767,300
Laboratory equipment 210,555 191,549
Furniture and office equipment 273,863 233,387
Leasehold improvements 532,131 532,131
---------- ---------
Total 1,868,086 1,805,367
Less: Accumulated depreciation and amortization 1,008,372 905,242
---------- ---------
Net plant, property and equipment 859,714 900,125
---------- ---------
OTHER ASSETS:
Deferred tax assets-non current portion 85,460 95,504
Cash value - life insurance policy 188,641 213,452
---------- ---------
Total other assets 274,101 308,956
---------- ---------
Total $4,299,259 4,095,695
========== =========
The accompanying notes are an integral part of these consolidated
financial statements.
2
EPOLIN, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
FEBRUARY 28,
------------------------
2010 2009
----------- ----------
CURRENT LIABILITIES:
Accounts payable $ 16,777 38,698
Accrued expenses 47,145 284,424
Taxes payable:
Payroll 2,208 2,208
----------- ----------
Total current liabilities 66,130 325,330
OTHER LIABILITIES - Deferred compensation 195,082 221,388
----------- ----------
Total liabilities 261,212 546,718
----------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $2.50 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;
13,115,000 and 13,015,000 shares issued, and 12,166,355 and
12,066,355 shares outstanding at February 28, 2010 and
2009, repectively 2,364,693 2,364,693
Additional paid-in capital 124,820 104,820
Retained earnings 1,899,616 1,430,546
----------- ----------
Total 4,389,129 3,900,059
Less: Treasury stock - at cost 351,082 351,082
----------- ----------
Total stockholders' equity 4,038,047 3,548,977
----------- ----------
Total $ 4,299,259 4,095,695
=========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
3
EPOLIN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED FEBRUARY 28, 2010 AND 2009
2010 2009
------------ -----------
SALES $ 2,944,628 3,091,539
------------ -----------
COST OF SALES AND EXPENSES:
Cost of sales 1,273,768 1,444,199
Selling, general and administrative 1,118,622 1,251,521
------------ -----------
Total 2,392,390 2,695,720
------------ -----------
OPERATING INCOME 552,238 395,819
------------ -----------
OTHER INCOME:
Rental income 4,500 18,000
Interest 25,835 52,861
------------ -----------
Total 30,335 70,861
------------ -----------
INCOME BEFORE TAXES 582,573 466,680
INCOME TAXES 113,503 139,111
------------ -----------
NET INCOME $ 469,070 327,569
============ ===========
PER SHARE DATA:
Basic earnings per common share $ 0.04 0.03
============ ===========
Fully diluted earnings per common share $ 0.04 0.03
============ ===========
Weighted average number of common shares outstanding 12,101,972 12,015,944
============ ===========
Fully diluted number of common shares outstanding 12,104,872 12,056,380
============ ===========
The accompanying notes are an integral part of these consolidated
financial statements.
4
EPOLIN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED FEBRUARY 28, 2010 AND 2009
ADDITIONAL
NUMBER OF COMMON PAID-IN- RETAINED TREASURY TREASURY STOCKHOLDERS'
SHARES ISSUED STOCK CAPITAL EARNINGS SHARES STOCK EQUITY
------------- ----------- ---------- ---------- --------- ---------- -------------
BALANCE - March 1, 2008 12,915,000 $ 2,364,693 76,820 1,820,958 948,645 (351,082) 3,911,389
DIVIDENDS PAID - - - (717,981) - - (717,981)
STOCK-BASED COMPENSATION 100,000 - 28,000 - - - 28,000
NET INCOME - - - 327,569 - - 327,569
------------- ----------- ---------- ---------- --------- ---------- -------------
BALANCE - February 28, 2009 13,015,000 $ 2,364,693 104,820 1,430,546 948,645 (351,082) 3,548,977
============= =========== ========== ========== ========= ========== =============
BALANCE - March 1, 2009 13,015,000 $ 2,364,693 104,820 1,430,546 948,645 (351,082) 3,548,977
STOCK-BASED COMPENSATION 100,000 - 20,000 - - - 20,000
NET INCOME - - - 469,070 - - 469,070
------------- ----------- ---------- ---------- --------- ---------- -------------
BALANCE - February 28, 2010 13,115,000 $ 2,364,693 124,820 1,899,616 948,645 (351,082) 4,038,047
============= =========== ========== ========== ========= ========== =============
The accompanying notes are an integral part of these consolidated financial
statements.
5
EPOLIN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED FEBRUARY 28, 2010 AND 2009
2010 2009
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 469,070 327,569
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 104,432 104,599
Deferred tax expense 13,723 6,274
Stock-based compensation 20,000 28,000
Obligation under deferred compensation agreement (26,306) (25,295)
(Increase) decrease in:
Accounts receivable (97,592) 247,002
Inventories (16,811) (24,655)
Prepaid expenses 1,204 4,114
Prepaid taxes 194,476 (228,346)
Increase (decrease) in:
Accounts payable (21,921) 29,038
Accrued expenses (237,279) 13,669
Taxes payable - (37,081)
----------- ----------
Net cash provided by operating activities 402,996 444,888
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) decrease in cash value - life insurance policy 24,811 (12,083)
Payments for plant, property and equipment (64,021) (150,000)
----------- ----------
Net cash provided (used) in investing activities (39,210) (162,083)
----------- ----------
CASH FLOWS USED IN FINANCING ACTIVITIES -
Dividends paid - (717,981)
----------- ----------
INCREASE (DECREASE) IN CASH 363,786 (435,176)
CASH AND CASH EQUIVALENTS:
Beginning 1,544,966 1,980,142
----------- ----------
Ending $ 1,908,752 1,544,966
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS:
Income taxes paid $ 129,700 273,398
=========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
6
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION:
------
The Company is 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, credit
card security and protective documents industries to customers located in the
United States and throughout the world.
The Company's wholly owned Subsidiary, Epolin Holding Corporation, was
incorporated in New Jersey as a real estate holding company whose assets consist
of land and a building. On January 29, 1998, the Company acquired 100% of the
stock in Epolin Holding Corporation. Prior to acquisition, two
officers/stockholders of the Company controlled it.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------
BASIS OF PRESENTATION - The Consolidated Financial Statements presented herein
reflect all normal and recurring adjustments that, in the opinion of management,
are necessary for a fair presentation of the consolidated balance sheets,
consolidated operating results and consolidated cash flows for the periods
presented in accordance with accounting principles generally accepted in the
United States of America. All significant intercompany accounts and transactions
have been eliminated.
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 and its Subsidiary at various times
of the year had cash deposits in financial institutions and a brokerage house in
excess of the amount insured by the agencies of the federal government. In
evaluating this credit risk, the Company periodically evaluates the stability of
the financial institution and brokerage house.
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of accounts receivable.
Generally, the Company does not require collateral or other securities to
support its accounts receivable. Four customers represented 44.5% of the
Company's trade receivables at February 28, 2010.
SOURCE OF RAW MATERIALS - The Company purchases chemicals from several large
chemical manufacturers, further processing them into its saleable products.
Although the Company limits itself to a relatively small number of suppliers, it
is not restricted to such suppliers, and availability of such raw materials is
widespread.
7
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
------
PRINCIPLES OF CONSOLIDATION - The accompanying Consolidated Financial Statements
include the accounts of the Company and Subsidiary. Inter-company transactions
and balances have been eliminated in consolidation. Condensed Consolidating
Financial Statements as of February 28, 2010 and for the year then ended are:
CONDENSED CONSOLIDATING BALANCE SHEET
EPOLIN EPOLIN
INC. HOLDING, CORP. ELIMINATIONS CONSOLIDATED
----------- -------------- ------------ ------------
Current assets $ 2,712,079 453,365 - 3,165,444
Non-current assets 1,587,180 643,688 (1,097,053) 1,133,815
----------- -------------- ------------ ------------
Total $ 4,299,259 1,097,053 (1,097,053) 4,299,259
=========== ============== ============ ============
Total liabilities $ 261,212 24,435 (24,435) 261,212
----------- -------------- ------------ ------------
Stockholders' equity:
Common stock 2,364,693 - - 2,364,693
Additional paid-in capital 124,820 - - 124,820
Retained earnings 1,899,616 1,072,618 (1,072,618) 1,899,616
Treasury stock (351,082) - - (351,082)
----------- -------------- ------------ ------------
Total stockholders' equity 4,038,047 1,072,618 (1,072,618) 4,038,047
----------- -------------- ------------ ------------
Total $ 4,299,259 1,097,053 (1,097,053) 4,299,259
=========== ============== ============ ============
CONDENSED CONSOLIDATING STATEMENT OF INCOME
EPOLIN EPOLIN
INC. HOLDING, CORP. ELIMINATIONS CONSOLIDATED
----------- -------------- ------------ ------------
Sales $ 2,944,628 - - 2,944,628
Rental income - 102,240 (97,740) 4,500
----------- -------------- ------------ ------------
Total 2,944,628 102,240 (97,740) 2,949,128
----------- -------------- ------------ ------------
Cost of sales 1,273,768 - - 1,273,768
Selling, general and administrative 1,185,013 31,349 (97,740) 1,118,622
----------- -------------- ------------ ------------
Total 2,458,781 31,349 (97,740) 2,392,390
----------- -------------- ------------ ------------
Operating income 485,847 70,891 - 556,738
Other income - interest 19,089 6,746 - 25,835
----------- -------------- ------------ ------------
Income before taxes 504,936 77,637 - 582,573
Income taxes 107,323 6,180 - 113,503
----------- -------------- ------------ ------------
Net income $ 397,613 71,457 - 469,070
=========== ============== ============ ============
8
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
------
ACCOUNTS RECEIVABLE - Accounts receivable are stated at the amount management
expects to collect from outstanding balances. Management provides for probable
uncollectible amounts though a charge to earnings and a credit to a valuation
allowance based on its assessment of the status of individual accounts. This
allowance is an amount estimated by management to be adequate to absorb possible
losses. Balances that are still outstanding after management has used reasonable
collection efforts are written off through a charge to the valuation allowance
and a credit to accounts receivable.
PLANT, PROPERTY AND EQUIPMENT - Stated at cost. Provisions for depreciation are
computed on the straight-line methods, based upon the estimated useful lives of
the various assets.
A summary of the major categories of the Company's plant, property and equipment
are as follows:
ESTIMATED YEARS
---------------
Building and improvements Straight Line 39
Laboratory equipment Straight Line 5 - 7
Furniture and office equipment Straight Line 5 - 7
Leasehold Improvements Straight Line 10 - 39
The costs of major renewals and betterments are capitalized. Repairs and
maintenance are charged to operations as incurred. Upon disposition, the cost
and related accumulated depreciation are removed and any related gain or loss is
reflected in earnings.
Depreciation and amortization expense totaled $104,432 and $104,599 for
the years ended February 28, 2010 and 2009, 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 for income tax purposes. Temporary
differences relate primarily to different accounting methods used for
depreciation and amortization of property and equipment and deferred
compensation.
FASB Interpretation No. 48, ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES -
AN INTERPRETATION OF FASB STATEMENT NO. 109 (FIN 48), clarifies the accounting
for uncertainty in income tax positions, as defined. FIN 48 requires, among
other matters, that the Company recognize in its financial statements, the
impact of a tax position, if that position is more likely than not of being
sustained on audit, based on the technical merits of the position. The Company
became subject to the provisions of FIN 48 as of March 1, 2007, the beginning of
fiscal year ended 2008, and analyzed the filing positions in all of the federal
and state jurisdictions where it is required to file income tax returns, as well
as all open tax years in these jurisdictions. The adoption of FIN 48 had no
impact on the Company's financial statements for fiscal year ended 2009. As of
February 28, 2010 and 2009, the Company did not record any unrecognized tax
benefits. The Company's policy, if it had unrecognized benefits, is to recognize
accrued interest and penalties related to unrecognized tax benefits as interest
expense and other expense, respectively.
9
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
------
USE OF ESTIMATES - The preparation of the Company's financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates, judgments and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
expenses during the reporting period. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
REVENUE RECOGNITION - The Company recognizes revenue consistent with the
provisions of SEC Staff Accounting Bulletin No. 104, "Revenue Recognition",
which sets forth guidelines in the timing of revenue recognition based upon
factors such as passage of title, payments, and customer acceptance. Any amounts
received prior to satisfying our revenue recognition criteria will be recorded
as deferred revenue in the accompanying balance sheet. The Company recognizes
revenue from product sales when there is persuasive evidence that an arrangement
exists, when title has passed, the price is fixed or determinable, and the
Company is reasonably assured of collecting the resulting receivable. The
Company's policy is to replace certain products that are in nonconformity with
customer specifications; however, replacements are made at the discretion of the
Company subject to in house product lab analysis. There are no terms or
conditions set forth within the Company's sales contracts that provide for
product replacements. Replacement costs are expensed as incurred.
REGULATIONS - The Company expended approximately $40,312 and $36,331 through
February 28, 2010 and 2009, respectively, to maintain compliance with certain
Federal, State and City government regulations relative to the production of
near infrared dyes and specialty chemicals.
NET INCOME PER SHARE - Basic net income per share is calculated on the basis of
the weighted average number of shares outstanding during the period, excluding
dilution. Diluted net income per share is computed on the basis of the weighted
average number of shares plus potentially dilutive common shares arising from
the assumed exercise of stock options.
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.
ADVERTISING COSTS - Advertising costs, included in operating expenses, are
expensed as incurred. Advertising expenses amounted to $19,031 and $19,905 for
the years ended February 28, 2010 and 2009, respectively.
10
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
------
STOCK-BASED COMPENSATION - Effective March 1, 2006, the Company has adopted
Statement of Financial Accounting Standards ("SFAS") No. 123(R), "Share-Based
Payment". SFAS 123R requires companies to measure and recognize in operations
the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value. In accordance with the
provisions of the Securities and Exchange Commission Staff Accounting Bulletin
No. 107, the Company has adapted the modified-prospective transition method.
Prior periods were not restated to reflect the impact of adopting the new
standard. The Company determines the fair value of stock-based compensation
using the Black-Scholes option-pricing model, which requires the Company to make
assumptions regarding future dividends, expected volatility of its stock, and
the expected lives of the options. Under SFAS 123R the Company also makes
assumptions regarding the number of options and the number of shares of
restricted stock and performance shares that will ultimately vest. As a result
of the adoption of FAS 123R, stock-based compensation expense recognized
includes compensation expense for all share-based payments granted on or prior
to, but not yet vested as of March 1, 2006, based on the grant date fair value
estimated in accordance with the original provisions of FAS 123, and
compensation cost for all share-based payments granted on or subsequent to March
1, 2006, based on the grant date fair value estimated in accordance with the
provisions of FAS 123R.
Prior to the adoption of FAS 123R and for the year ended February 28,
2007, no tax benefits from the exercise of stock options have been recognized.
Any future excess tax benefits derived from the exercise of stock options will
be recorded prospectively and reported as cash flows from financing activities
in accordance with FAS 123R.
Deferred charges for options granted to non-employees are determined in
accordance with FAS No. 123 and EITF 96-18 "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services" as the fair value of the consideration or the fair
value of the equity instruments issued, whichever is more reliably measured.
The weighted average Black-Scholes value of options granted under the
stock plans during the years ended February 28, 2010 and 2009 was $.18,
respectively. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants:
FEBRUARY 28,
-----------------------
2010 2009
---------- ----------
Weighted average expected life in years 2 2
Dividends per share - 0.06
Volatility 7.0% 7.0%
Risk-free interest rate 2.8% 4.0%
11
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
------
RECENTLY ADOPTED ACCOUNTING STANDARDS - On March 1, 2008, the Company adopted
Statement of Financial Accounting Standard ("SFAS") No. 157, "Fair Value
Measurements" ("FAS 157") for financial assets and liabilities, which clarifies
the meaning of fair value, establishes a framework for measuring fair value and
expands disclosures about fair value measurements. Fair value is defined under
FAS 157 as the exchange price that would be received for an asset or paid to
transfer a liability in the principal or most advantageous market for the assets
or liabilities in an orderly transaction between market participants on the
measurement date. Subsequent changes in fair value of these financial assets and
liabilities are recognized in earnings or other comprehensive income when they
occur. The effective date of the provisions of FAS 157 for non-financial assets
and liabilities, except for items recognized at fair value on a recurring basis,
was deferred by Financial Accounting Standards Board ("FASB") Staff Position FAS
157-2 ("FSP FAS 157-2") and are effective for the fiscal year beginning March 1,
2009. The adoption of FAS 157 for financial assets and liabilities did not have
an impact on the Company's consolidated financial position or results of
operations. For additional information on the fair value of financial assets and
liabilities, see Note N - Fair Value Measurements.
Also, effective March 1, 2008, the Company adopted SFAS No. 159 "The Fair
Value Option for Financial Assets and Financial Liabilities" ("FAS 159") which
allows an entity the irrevocable option to elect fair value for the initial and
subsequent measurement for certain financial assets and liabilities on a
contract-by-contract basis. As of February 28, 2010, the Company has not elected
the fair value option for any additional financial assets and liabilities beyond
those already prescribed by accounting principles generally accepted in the
United States.
In October 2008, the FASB issued Staff Position No. FAS 157-3,
"Determining the Fair Value of a Financial Asset in a Market That Is Not Active
("FSP FAS 157-3")." FSP FAS 157-3 clarifies the application of FAS 157 in a
market that is not active and defines additional key criteria in determining the
fair value of a financial asset when the market for that financial asset is not
active. FSP FAS 157-3 applies to financial assets within the scope of accounting
pronouncements that require or permit fair value measurements in accordance with
FAS 157. FSP FAS 157-3 was effective upon issuance and the application of FSP
FAS 157-3 did not have a material impact on our consolidated financial
statements.
12
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C - INCOME TAXES:
------
1. Federal and State deferred tax assets include:
FEBRUARY 28,
---------------------
2010 2009
--------- ---------
Temporary differences:
Accelerated amortization $ 219 2,629
Deferred compensation 83,885 95,198
Stock-based compensation 16,054 16,054
--------- ---------
Total 100,158 113,881
Less: Current portion 14,698 18,377
--------- ---------
Non-current portion $ 85,460 95,504
========= =========
2. Income tax:
FEBRUARY 28,
---------------------
2010 2009
--------- ---------
Current:
Federal $ 79,000 108,635
State 20,780 24,202
--------- ---------
Total current 99,780 132,837
--------- ---------
Deferred:
Federal 10,140 3,718
State 3,583 2,556
--------- ---------
Total deferred 13,723 6,274
--------- ---------
Total $ 113,503 139,111
========= =========
3. Reconciliation of income tax at the statutory rate to the Company's effective
rate:
FEBRUARY 28,
---------------------
2010 2009
--------- ---------
Computed at the statutory rate $ 198,075 158,671
State income taxes (net) 20,780 24,202
(Increase) Decrease in deferred tax asset 13,723 6,274
General business credits (12,740) (29,944)
Other reconciling items (106,335) (20,092)
--------- ---------
Effective tax $ 113,503 139,111
========= =======
13
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - TREASURY STOCK:
------
Consists of 948,645 shares at a net cost of $351,082 as of February 28, 2010 and
2009, respectively. There were no purchases of treasury shares made during the
years ended February 28, 2010 and 2009, respectively.
NOTE E - 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 years ended February 28, 2010, approximately 33.4% of
sales were to three customers. During the years ended February 28, 2009,
approximately 31.0% of sales were to three customers.
NOTE F - RENTAL INCOME UNDER SUBLEASE:
------
The Company entered into an agreement with a non-related party effective
September 1, 2005 for a term ending October 31, 2007, and continuing on a
month-to-month basis thereafter through May 31, 2009. Under the terms of the
agreement, the tenant is to pay a base rent of $18,000 per year. On May 31,
2009, the tenant abandoned the property.
NOTE G - RESEARCH AND DEVELOPMENT:
------
The Company has developed substantial research and development capability.
The Company's efforts are devoted to (i) developing new products to satisfy
defined market needs, (ii) providing quality technical services to assure the
continued success of its products for its customers' applications, (iii)
providing technology for improvements to its products, processes and
applications, and (iv) providing support to its manufacturing plant for cost
reduction, productivity and quality improvement programs. Expenditures for
Company sponsored product research and product development of $373,948 and
$460,682 were included in cost of sales for the years ended February 28, 2010
and 2009, respectively. Expenditures for the fiscal year ended 2011 are
projected to remain at approximately the same level as in fiscal 2010.
NOTE H - EMPLOYEE BENEFITS:
------
SIMPLIFIED EMPLOYEE PENSION PLAN - Effective June 1, 1994, the Company provides
a SAR/SEP plan to its employees as a retirement and income tax reduction
facility. Full time employees are eligible to participate immediately. Employees
may make pre-tax and after-tax contributions subject to Internal Revenue Service
limitations. Company contributions range from three to five percent. Employer
contributions totaled $47,503 and $42,915 for the years ended February 28, 2010
and 2009, respectively.
14
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H - EMPLOYEE BENEFITS (CONTINUED):
------
STOCK OPTION PLAN - 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.
On September 15, 2001, the Board of Directors increased the reserve to
1,500,000. Options granted expire five or ten years after the date granted and
are subject to various vesting periods as follows: (1) none exercisable prior to
the first anniversary of the date of grant, and (2) certain options become
exercisable as to 50% of the shares underlying the option on each of the first
and second anniversaries of the date granted (3) certain options become
exercisable as to 50% of the shares underlying the option on each of the second
and fourth anniversaries of the date granted. From inception through February
28, 2010, options granted totaled 1,242,000, options exercised totaled 686,000;
options cancelled or expired for all years totaled 311,000.
A summary of the status of the Company's 1998 stock option plan as of
February 28, 2010, and the changes during the years ended February 28, 2010 and
2009 is presented below:
WEIGHTED-AVERAGE
FIXED OPTIONS: SHARES EXERCISE PRICE
-------------- ------- ----------------
Balance - February 28, 2009 316,000 $.50
=======
Balance - February 28, 2010 245,000 $.49
=======
Exercisable at February 28, 2010 245,000 $.49
=======
STOCK OPTION PLANS - The following table summarizes information about fixed
stock options outstanding at February 28, 2010:
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
--------------------------------------------- -----------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
RANGE OF OUTSTANDING REMAINING EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICE AT 02/28/10 CONTRACTUAL LIFE AT 02/28/10 EXERCISE PRICE
-------------- ----------- ---------------- ----------- ----------------
$.41 95,000 4.0 95,000 .32
.54 150,000 0.3 150,000 .68
15
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H - EMPLOYEE BENEFITS (CONTINUED):
------
STOCK OPTION AND STOCK-BASED COMPENSATION PLAN - On June 18, 2008, the Company's
Board of Directors approved and adopted the Epolin, Inc. 2008 Stock Incentive
Plan (the "2008 Plan"), and authorized us to issue up to 1,500,000 shares of our
Common Stock under the 2008 Plan (subject to adjustment to take account of stock
dividends, stock splits, recapitalizations and similar corporate events). Under
the 2008 Plan, the Company will have the right to issue stock options, stock
appreciation rights, restricted stock, Common Stock or convertible securities
that may or may not be subject to restrictions or forfeiture, restricted stock
units, performance shares and performance units. With the adoption of the new
2008 Plan, the 1998 Plan terminated, and the Company will no longer be able to
grant options under it. However, options that have already been granted under
the 1998 Plan will continue to be outstanding. As of February 28, 2010, 200,000
shares of Common Stock have been granted and 1,300,000 shares remain to be
granted.
The purpose of the Plan is to provide officers, other employees and
directors of, and consultants to, the Company, an incentive to (a) enter into
and remain in the Company's service or to provide services to the Company, (b)
enhance the Company's long-term performance, (c) acquire a proprietary interest
in the Company.
The Compensation Committee or another committee of our Board of Directors
(or if there is no committee, the Board of Directors itself) will administer the
Plan. It will determine the persons to whom awards will be made, the types of
awards that will be made to particular persons, the numbers of shares to which
awards will relate, the dates when awards will vest in whole or in part and the
other terms of awards, including the payments, if any, that participants will
have to make to benefit from awards.
The 2008 Plan provides that each year, commencing September 1, 2008, each
person who serves as a Director during the current year shall automatically
receive a stock award of 25,000 shares of Common Stock. The dollar value of the
shares of Common Stock granted each year is calculated based upon the fair
market value of our Common Stock at the date of grant. Stock-based compensation
in the amount of $20,000 and $28,000 was charged to selling, general and
administrative expenses were for the years ended February 28, 2010 and 2009,
respectively.
16
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I - SEGMENT REPORTING:
------
The Company currently operates in a single operating segment. In addition,
financial results are prepared and reviewed by management as a single operating
segment. The Company continually evaluates its operating activities and the
method utilized by management to evaluate such activities and will report on a
segment basis if and when appropriate to do so.
Sales by geographic area are as follows:
YEARS ENDED
FEBRUARY 28,
-------------------------
2010 2009
----------- -----------
United States $ 2,402,128 2,114,706
Asia 290,358 578,060
Europe 246,731 398,173
Other nations 5,411 600
----------- -----------
Total $ 2,944,628 3,091,539
=========== ===========
One customer, located in the United States, accounted for more than 10% of
revenues from continuing operations. This customer accounted for 14.0% of sales
of infrared dies.
Long-lived assets include net plant, property and equipment. The Company
had long-lived assets of $859,714 and $900,125 located in the United States at
February 28, 2010 and February 28, 2009, respectively.
17
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J - ACCRUED EXPENSES:
------
Accrued expenses consisted of the following as of February 28, 2010 and
2009, respectively:
FEBRUARY 28,
---------------------
2010 2009
--------- ---------
Purchases $ 3,455 10,980
Commissions 10,545 8,444
Rent 8,145 -
Employment agreement - 240,000
Professional fees 25,000 25,000
--------- ---------
Total accrued expenses $ 47,145 284,424
========= =========
NOTE K - INVENTORIES:
------
FEBRUARY 28,
---------------------
2010 2009
--------- ---------
Raw materials and supplies $ 160,387 138,730
Work in process 92,421 117,314
Finished goods 431,187 411,140
--------- ---------
Total $ 683,995 667,184
========= =========
18
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L - EARNINGS PER SHARE:
------
Basic earnings per share are computed on the basis of the weighted average
number of shares of common stock outstanding during the period. Diluted earnings
per share is computed on the basis of the weighted average number of shares of
common stock plus the effect of dilutive potential common shares outstanding
during the period using the treasury stock method. Dilutive potential common
shares include outstanding stock options. The components of basic and diluted
earnings per share are as follows:
YEARS ENDED
FEBRUARY 28,
-----------------------
2010 2009
---------- ----------
BASIC EARNINGS PER COMMON SHARE:
Net income 469,070 327,569
========== ==========
Average common shares outstanding 12,101,972 12,015,944
---------- ----------
Basic earnings per common share 0.04 0.03
---------- ----------
DILUTED EARNINGS PER COMMON SHARE:
Net income 469,070 327,569
---------- ----------
Average common shares outstanding 12,101,972 12,015,944
Common shares issuable with respect to
options issued to employees with a
dilutive effect 2,900 40,436
---------- ----------
Total diluted common shares outstanding 12,104,872 12,056,380
---------- ----------
Diluted earnings per common share
0.04 0.03
========== ==========
19
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M - COMMITMENTS AND CONTINGENCIES:
------
Losses for contingencies such as litigation and environmental matters are
recognized in income when they are probable and can be reasonably estimated.
Gain contingencies are not recognized in income.
LEASE OBLIGATIONS - The Company leases its real estate under an operating lease
with a related party. The lease effective November 1, 1996 was for a term of
five (5) years with three (3) five (5) year options at annual rentals of
$97,740. The Cost of Living Index adjustment effective with the second year has
been waived by the subsidiary. Rent includes reimbursed insurance costs.
Generally, management expects that the lease will be renewed in the normal
course of business.
Rental expense charged to operations, eliminated in consolidation, amounted to
$97,740 for the years ended February 28, 2010 and 2009, respectively.
Future minimum payments for the current option period:
FISCAL YEARS ENDING FEBRUARY:
-----------------------------
2011 $65,160
DEFERRED COMPENSATION - On December 29, 1995, the Company entered into a
deferred compensation agreement with James Ivchenko, President, whose additional
annual compensation of $19,645 plus interest is deferred until he reaches age 65
or is terminated. The obligation is funded by the cash value in a life insurance
policy. Commencing on December 2005, annual payments will be made to the officer
in the amount of $32,000 for ten consecutive years. Subsequent to the year ended
February 28, 2010, as of May 14, 2010, the Board of Directors agreed to
surrender the life insurance policy and pay the remaining balance due in a lump
sum payment during the current year.
In connection with this agreement, deferred compensation in the amount of
$5,694 and $6,706 was charged to selling, general and administrative expenses
for the years ended February 28, 2010 and 2009, respectively.
On January 1, 1996, the Company entered into a deferred compensation agreement
with Dr. Murray S. Cohen, PhD, Chairman of the Board, wherein $25,000 per year
was accrued. This agreement, with unfunded accruals of $79,041, terminated on
June 25, 1998. Subsequent to the year ended February 28, 2010, as of May 14,
2010, the Board of Directors agreed to pay the balance due during the current
year.
20
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE M - COMMITMENTS AND CONTINGENCIES (CONTINUED):
------
EMPLOYMENT AGREEMENTS - Effective March 1, 1999, the Company entered into
ten-year employment agreements with officers/directors:
Murray S. Cohen, PhD, Chairman of the Board - To be paid an annual salary
of not less than the greater of his annual base salary in effect immediately
prior to the effective date of the agreement or any subsequently established
annual base salary. Dr. Cohen is to receive 2.00% on gross annual sales of no
more than $3,000,000, effective with the year ended February 28, 2000,
increasing by 0.25% a year during the term of the agreement. In the event of
partial retirement, (50% employment), Dr. Cohen will receive fifty percent
salary and 100% additional compensation. In the event of substantial retirement,
(25% employment), Dr. Cohen will receive 25% percent salary and 100% additional
compensation. In the event of full retirement, Dr. Cohen will receive 50%
additional compensation. In the event of death or disability, while fully
employed during the fiscal year, Dr. Cohen or his estate will receive 100% of
his annual salary plus additional compensation as described above, and 50% of
his annual salary plus additional compensation each subsequent year for the
remainder of the ten-year term. If at the time of death or disability Dr. Cohen
was retired, then other percentage rates are provided for based upon his
retirement status.
James Ivchenko, President - To be paid an annual salary of not less than
the greater of his annual base salary in effect immediately prior to the
effective date of the agreement or any subsequently established annual base
salary. He is to receive 1.5% on gross annual sales of no more than $3,000,000,
effective with the year ended February 28, 2000, increasing by 0.25% a year
during the term of the agreement. In the event of death or disability during the
fiscal year, Mr. Ivchenko or his estate will receive 100% of his annual salary
plus additional compensation as described above, and 50% of his annual salary
plus additional compensation each subsequent year for the remainder of the
ten-year term.
Accrued compensation included in selling, general and administrative as of
February 28, 2009 was $240,000.
21
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE N - FAIR VALUE MEASUREMENTS:
------
Effective March 1, 2008, the Company adopted FAS 157, which defines fair
value as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants at the measurement date. FAS 157 establishes a three-level fair
value hierarchy that prioritizes the inputs used to measure fair value. This
hierarchy requires entities to maximize the use of observable inputs and
minimize the use of unobservable inputs. The three levels of inputs used to
measure fair value are as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than quoted prices included in Level 1, such
as quoted prices for similar assets and liabilities in active markets;
quoted prices for identical or similar assets and liabilities in
markets that are not active; or other inputs that are observable or
can be corroborated by observable market data.
Level 3 - Unobservable inputs that are supported by little or no market activity
and that are significant to the fair value of the assets or
liabilities. This includes certain pricing models, discounted cash
flow methodologies and similar techniques that use significant
unobservable inputs.
All financial assets that are measured at fair value on a recurring basis (at
least annually) have been segregated into the most appropriate level within the
fair value hierarchy based on the inputs used to determine the fair value at the
measurement date. These assets measured at fair value on a recurring basis are
summarized below:
FEBRUARY 28, 2010 FEBRUARY 28, 2009
----------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- --------- --------- ---------
ASSETS:
-------
Cash and cash equivalents $ 1,908,752 1,908,752 1,544,966 1,544,966
Other assets:
Cash value - life insurance 188,641 188,641 213,452 213,452
----------- --------- --------- ---------
Total assets at fair value $ 2,097,393 2,097,393 1,758,418 1,758,418
=========== ========= ========= =========
LIABILITIES:
------------
Deferred compensation $ 195,082 195,082 221,388 221,388
=========== ========= ========= =========
22
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE N - DIVIDENDS:
------
In July 2008, the Company's Board of Directors declared a cash dividend of
$0.04 per share on all common shares outstanding. The dividend, in the amount of
$478,654 was paid on August 7, 2008 to shareholders of record at the close of
business on July 24, 2008.
In April 2008, the Company's Board of Directors declared a cash dividend
of $0.02 per share on all common shares outstanding. The dividend, in the amount
of $239,327 was paid on May 14, 2008 to shareholders of record at the close of
business on April 30, 2008.
NOTE O - ENVIRONMENTAL MATTERS
------
The Company's past and present daily operations include activities, which
are subject to extensive federal, and state environmental and safety
regulations. Compliance with these regulations has not had, nor does the Company
expect such compliance to have, any material effect upon expected capital
expenditures, net income, financial condition, or competitive position of the
Company. The Company believes that its current practices and procedures comply
with applicable regulations. The Company's policy is to accrue environmental and
related costs of a non-capital nature when it is both probable that a liability
has been incurred and that the amount can be reasonably estimated. No such
amounts have been accrued in these statements.
2
