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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2012

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

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 No.)
 
358-364 Adams Street
Newark, New Jersey
   07105
(Address of principal executive offices)
  (Zip Code)
 
(973) 465-9495
(Registrant’s Telephone Number, Including Area Code)

Not applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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   o

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 (§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   x                      No   o

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  o Accelerated filer  o
Non-accelerated filer  o Smaller reporting company  x
 
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
Yes   o                       No   x

State the number of shares outstanding of each of the Issuer’s classes of common stock, as of the latest practicable date: no par value per share: 12,366,355 outstanding as of July 13, 2012.
 


 
 

 
EPOLIN, INC.

TABLE OF CONTENTS
 
      Page  
PART I - FINANCIAL INFORMATION      
         
Item 1.
Financial Statements.
    3  
Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations.
    3  
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
    10  
Item 4.
Controls and Procedures.
    10  

PART II - OTHER INFORMATION
 
Item 1.
Legal Proceedings.
    11  
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
    11  
Item 3.
Default upon Senior Securities.
    11  
Item 4.
Mine Safety Disclosures.
    11  
Item 5.
Other Information.
    11  
Item 6.
Exhibits.
    11  

SIGNATURES
    12  

 
2

 
 
PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements.

See the Consolidated Financial Statements annexed to this report.
 
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
The following discussion should be read in conjunction with the consolidated financial statements and the notes thereto appearing elsewhere in this report and is qualified in its entirety by the foregoing.

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 Part I, Item 1A “Risk Factors” of the Company’s Form 10-K for the year ended February 29, 2012.  The Company does not intend to update these forward-looking statements.

Executive Overview

Epolin, Inc. (the “Company”, “Epolin”, “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.
 
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 three months ended May 31, 2012, approximately 37.9% of sales were to three customers.  During the three months ended May 31, 2011, 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 three months ended May 31, 2012 and 2011.

 
3

 
 
Three Months Ended May 31,

   
2012
   
2011
   
% change
 
Sales
  $ 909,187     $ 991,085       -8.3 %
Gross profit
    384,328       570,386       -32.6 %
                         
Gross profit percentage
    42.3 %     57.6 %     -15.3 %
Selling, general & administrative
    405,608       267,644       51.5 %
Operating income (loss)
    (21,280 )     302,742       -107.0 %
Other Income
    2,633       1,768       49.0 %
Income (loss) before taxes
    (18,647 )     304,510       -106.1 %
Income taxes
    1,780       125,141       -98.6 %
Net income (loss) (after taxes)
  $ (20,427 )   $ 179,369       -111.4 %

Sales

For the three months ended May 31, 2012, sales were $909,000 as compared to $991,000 for the three months ended May 31, 2011, a decrease of $82,000 or 8.3%.

Such decrease in sales for the three months ended May 31, 2012 versus the prior year period is primarily due to decreased sales in the ink and coating market, light management market and custom market, offset by  increased sales in the eye protection market.

The eye protection market represents our largest market.  Sales in the eye protection representing approximately 66% and 54% of sales in the three months ended May 31, 2012 and 2011, respectively.  Sales in the eye protection market increased by approximately $70,000 for the three months ended May 31, 2012 compared to the prior year period. This increase versus the prior year is due to growth in the laser and welding eye protection segments.

For the light management market, which is our next largest market, sales decreased by approximately $32,000 for the three months ended May 31, 2012 compared to the three months ended May 31, 2011.  Such sales represented approximately 25% of sales for the three months ended May 31, 2012 compared to approximately 26% of sales for the prior year period.  This decrease is primarily due to weakness in the aerospace and automotive segments.

With regard to the ink and coating market, sales decreased by approximately $83,000 for the three months ended May 31, 2012 compared to the three months ended May 31, 2011.  Such sales represented approximately 5% of our sales for the three months ended May 31, 2012 compared to approximately 13% of sales for the prior year period.  This decrease was primarily due to the continued general weakening of the credit card market since 2007.

For the custom market, sales decreased by approximately $42, 000 for the three months ended May 31, 2012 compared to the three months ended May 31, 2011.  Such sales represented approximately 1% of our sales for the three months ended May 31, 2012 compared to approximately 5% of sales for the prior year period.  This decrease was primarily due to continued product obsolescence at the end users.

Categorized by geographic area, sales in the United States decreased for the three months ended May 31, 2012 while sales in Europe and Asia increased compared to the prior year period.  For the three months ended May 31, 2012 compared to the prior year period, sales decreased in the United States to $499,000 from $707,000 primarily due to weakness in the aerospace and automotive segments, while sales in Europe increased to $266,000 from $201,000 primarily due to growth in the laser filter segment, and sales in Asia increased to $116,000 from $62,000 primarily due to higher demand for eye protection products.   Sales in other nations increased to $28,000 for the three months ended May 31, 2012 from $20,000 in the prior year period.
 
 
4

 

Gross Profit

Gross profit, defined as sales less cost of sales, was $384,000 or 42.3% of sales for the three months ended May 31, 2012 compared to $570,000 or 57.6% of sales for the three months ended May 31, 2011, a decrease of 15.3%.   Such percentage decrease was primarily due to an increase in cost of materials and total factory overhead coupled with reduced sales.  In terms of absolute dollars, gross profit decreased $186,000 in the three months ended May 31, 2012 compared to the prior year period.

Cost of sales was $525,000 for the three months ended May 31, 2012 which represented 57.7% of sales compared to $421,000 for the three months ended May 31, 2011 which represented 42.4% of sales.  In terms of absolute dollars, cost of sales increased $104,000 for the three months ended May 31, 2012 compared to the three months ended May 31, 2011.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $406,000 for the three months ended May 31, 2012 or 44.7% of sales compared to $268,000 or 27.0% of sales for the three months ended May 31, 2011, an increase of $138,000.  Such increase in absolute dollars in the three month period was primarily due to an increase in professional fees for the quarter as well as a smaller increase in commission and consulting fees.  The increase in professional fees was primarily due to non-recurring services in connection with the strategic alternatives being pursued by the Company as previously disclosed and described below which resulted in the signing of the Merger Agreement with Polymathes Holdings I LLC and Polymathes Acquisition I Inc. and subsequent tender offer (see “Operations Outlook – Recent Developments” below).  

Operating Income

We had an operating loss of $21,000 for the three months ended May 31, 2012 compared to operating income of $303,000 for the three months ended May 31, 2011.  Such operating loss for the recent quarter was primarily due to a decrease in sales of $82,000 coupled with a percentage increase in cost of sales and increases in selling, general and administrative expenses of $138,000.

Other Income

Total other income was $2,600 for the three months ended May 31, 2012 compared to $1,800 for the three months ended May 31, 2011.  During the three months ended May 31, 2012, we had miscellaneous income of $2,000 due to proceeds from an insurance claim for which there was no comparable item in the prior year period.  Interest income decreased to $600 in the three months ended May 31, 2012 compared to $1,800 in the prior year period.  In May 2009, our then subtenant abandoned the premises which it had been subleasing since September 2005.
 
Net Income

During the three months ended May 31, 2012, we reported a loss before taxes of $19,000 as compared to net income before taxes of $305,000 for the three months ended May 31, 2011, a decrease of $324,000.  Income taxes were $2,000 for the three months ended May 31, 2012 compared to $125,000 for the three months ended May 31, 2011.   Changes in income taxes are generally attributed to changes from period to period in taxable income.  We reported a net loss after taxes of $20,000 or $0.00 per share for the three months ended May 31, 2012 as compared to net income after taxes of $179,000 or $0.01 per share for the three months ended May 31, 2011, a decrease of $199,000.

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.  However, from fiscal 2007 through fiscal 2010, we had four consecutive years of decreased sales compared to sales in the immediate prior year.  A positive sign, however, is that sales increased, though modestly, in fiscal 2011 compared to fiscal 2010 by $121,000 and sales continued to increase in fiscal 2012 by $345,000 compared to fiscal 2011, although in the first quarter of fiscal 2012, sales decreased by $82,000.

 
5

 
 
Operations Outlook

Following a period of readjustment in our business priorities, we were able to achieve $3,701,000 in sales for fiscal 2006 which was an all time high for the Company.  Nevertheless, we have not since then been able to achieve comparable sales levels as achieved in fiscal 2006.  Beginning in fiscal 2007 and through fiscal 2010, sales decreased from year to year with fiscal 2009 being the year with the most dramatic change in sales compared to the immediate prior year.  In fiscal 2011, however, sales increased modestly compared to the prior year which we find to be an encouraging sign.  Sales were $3,065,000 in fiscal 2011 compared to sales $2,945,000 achieved in fiscal 2010. This increase continued into fiscal 2012 with sales increasing to $3,411,000 in fiscal 2012.  However, sales decreased in the first three months of 2013 compared to the same period of fiscal 2012.  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.

Recent Developments

As previously disclosed, Millburn Capital Group was retained in February 2009 as the Company’s financial advisor in connection with the Board’s decision to explore strategic alternatives for the Company, including the potential sale of the Company.  On March 14, 2012, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Polymathes Holdings I LLC, a New Jersey limited liability company (the “Parent”), and Polymathes Acquisition I Inc., a New Jersey corporation and wholly owned subsidiary of the Parent (the “Purchaser”).  Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, Parent agreed to cause the Purchaser to commence a tender offer (the “Offer”) to purchase all of the outstanding shares of common stock, no par value per share, of the Company (the “Shares”), at a price of $0.22 per Share (the “Offer Price”), paid to the seller in cash, without interest thereon and subject to applicable withholding taxes.  Following the completion of the Offer, Parent intends, subject to applicable legal requirements, to become the owner of 100% of the equity interests of Epolin by completing a merger of Purchaser and Epolin by means of a long-form merger pursuant to which each Share that is not tendered and accepted in the Offer would be cancelled and converted into the right to receive cash in an amount equal to the Offer Price (the “Merger”).

 The Offer expired at 5:00 PM, New York City time, on June 12, 2012 (the “Expiration Date”).  The Offer was made pursuant to a Tender Offer Statement (including an Offer to Purchase, Letter of Transmittal, and related tender offer documents), as amended, which documents were filed by the Parent and Purchaser with the SEC and mailed to all Company shareholders of record.  In addition, Epolin filed a Solicitation/Recommendation Statement on Schedule 14D-9 with the SEC related to the tender offer which also was mailed to all Company shareholders of record.  Based upon the final information provided by the depositary for the Offer, as of the Expiration Date, 10,239,351 Shares have been tendered and not withdrawn prior to the expiration of the Offer (which includes 14,500 shares tendered pursuant to notices of guaranteed delivery) which represents approximately 82.2% of all outstanding Shares on a fully diluted basis.  Purchaser has accepted for payment in accordance with the terms of the Offer all Shares that were validly tendered and not withdrawn in the Offer.  On June 13, 2012, Epolin issued a press release announcing the results and expiration of the Offer.

The Merger Agreement provides that after the acceptance of and payment for the Shares tendered in the Offer (the “Acceptance Time”), the Parent shall be entitled to designate up to such number of directors, rounded up to the next whole number, on the Company Board as is equal to the product of (i) the total number of directors on the Company Board (giving effect to the election or appointment of any additional directors pursuant to this provision) and (ii) the percentage that the number of Shares beneficially owned by the Parent and/or the Purchaser (including Shares accepted for payment in the Offer and the purchased Top-Up Option Shares, if any) bears to the total number of Shares outstanding, and Company shall, upon request by the Purchaser, promptly increase the size of the Company Board or use its reasonable best efforts to secure the resignations of such number of directors as is necessary to provide the Purchaser with such level of representation and shall cause the Purchaser’s designees to be so elected or appointed.
 
 
6

 

Following the election or appointment of the Parent’s designees to Company’s Board pursuant to the above and until the Effective Time of the Merger, Company’s Board shall at all times include, and Company, the Parent and the Purchaser shall use their reasonable best efforts to cause Company’s Board to at all times include, at least two Continuing Directors and each committee of the Company Board and the board of directors (or similar body) of each Subsidiary of Company shall at all times include, and Company, the Parent and the Purchaser shall use their reasonable best efforts to cause each committee of the Company Board and the board of directors (or similar body) of each Subsidiary of Company to at all times include, at least one Continuing Director.  A “Continuing Director” shall mean a person who is a member of the Company as of the date of the Merger Agreement or a person selected by the Continuing Directors then in office; provided, however that if the number of Continuing Directors is reduced to less than two prior to the Effective Time of the Merger, any remaining Continuing Directors (or Continuing Director, if there shall be only one remaining) shall be entitled to designate a person who is not an officer, director, stockholder or designee of Parent or any of its Affiliates to fill such vacancy, and such person shall be deemed to be a Continuing Director for all purposes of the Merger Agreement, or, if no Continuing Directors then remain, the other directors shall designate three persons who are not officers, directors, stockholders or designees of Parent or any of its Affiliates to fill such vacancies, and such persons shall be deemed to be Continuing Directors for all purposes of the Merger Agreement.

Pursuant thereto, and on June 15, 2012, James R. Torpey, Jr. and Herve A. Meillat (two of the Company’s then four directors) resigned as directors of the Company effective as of the Acceptance Time.  Until the Effective Time of the Merger, Murray S. Cohen and James Ivchenko (the other two remaining directors) have agreed to remain on the Board.

Effective as of June 15, 2012, the following persons were designated by the Parent and appointed as directors of the Company: William J. Golden, John F. Wachter and William S. Walsh so that the Board currently consists of five members.  In addition, effective as of June 15, 2012, Murray S. Cohen resigned as Chairman, Chief Scientist and Secretary of the Company and James Ivchenko resigned as President of the Company.  Mr. Wachter has been appointed Chairman and President of the Company effective as of June 15, 2012.  Greg Amato remains as Chief Executive Officer.

Biographical and other information with respect to Messrs. Golden, Wachter and Walsh has been previously disclosed in the Information Statement pursuant to Rule 14f-1 attached as Annex A to the Company’s Solicitation/Recommendation Statement on Schedule 14D-9 originally filed with the SEC on May 11, 2012, as subsequently amended, and such information is incorporated herein by reference.
 
As mentioned above, following the completion of the Offer, Parent intends, subject to applicable legal requirements, to become the owner of 100% of the equity interests of Epolin by completing the Merger as described above.  On July 3, 2012, Epolin filed a Preliminary Information Statement on Schedule 14C with the SEC relating to completion of the Merger.  These documents have not yet been mailed to all Company shareholders of record.  Such documents, as they may be amended or supplemented from time to time, will contain important information about the Merger and the Company’s shareholders are urged to read them carefully.  The discussion herein has been prepared prior to the completion of the Merger, and the Company cannot assure that the Merger will be completed.

Other Matters

The New Jersey Industrial Site Recovery Act, N.J.S.A. 13:1k-6 et seq.  (“ISRA”) requires an environmental investigation and remediation of properties prior to the sale of most manufacturing businesses or properties.  In anticipation of a potential sale or similar transaction involving the Company, we engaged a Licensed Site Remediation Professional (“LSRP”) and special environmental counsel in the State of New Jersey.   Pursuant to ISRA, LSRPs will be responsible for the oversight of the environmental investigation and remediation on a site subject to ISRA compliance.  In anticipation of triggering ISRA, we have conducted certain testing to date, including but not limited to obtaining soil and groundwater samples, and further testing and other related actions are expected to be done as part of this ongoing process.  Future remediation costs estimated for the year ended February 28, 2013 approximate $70,000.  Our 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.  Due to the execution of the Merger Agreement, we became subject to ISRA which requires that our facility be remediated or that we submit a Remediation Certification to the New Jersey Department of Environmental Protection pursuant to N.J.A.C. 7:26B prior to the transfer of ownership.  Accruals for estimated losses from environmental remediation and to obtain the necessary approvals in conjunction with the potential sale of our company in the amount of $74,111 were charged to selling, general and administrative expenses as of February 29, 2012.

The Company maintained a Simplified Employee Pension Plan which was adopted in 1994 for its employees as a retirement and income tax reduction facility.  The plan has not met the Internal Revenue Service requirements of Section 416 and Section 408(k)(6) regarding contribution limits and employee deferral amounts. We have tested all years of the plan to insure our compliance with Internal Revenue Service regulations. In accordance with the results, we have accrued a contribution to the plan in the amount of $284,955. As of February 29, 2012, we have paid all accrued amounts to the plan through the date of testing. In addition, as a result of contributions paid to the plan subsequent to the testing date, additional interest was accrued to the plan in the amount of $41,952 which was paid May 1, 2012.  In August 2010, the Company adopted a 401(k) Plan to replace the Simplified Employee Pension Plan.
 
 
7

 

Liquidity and Capital Resources

Our primary source of funds is cash flow from operations in the normal course of selling products.  On May 31, 2012, we had working capital of $1,795,000, a debt to equity ratio of $0.15 to 1, and stockholders’ equity of $2,574,000 compared to working capital of $1,801,000, a debt to equity ratio of 0.14 to 1, and stockholders’ equity of $2,595,000 on February 29, 2012.   On May 31, 2012, we had $766,000 in cash and cash equivalents, total assets of $2,957,000 and total liabilities of $383,000, compared to $749,000 in cash and cash equivalents, total assets of $2,970,000 and total liabilities of $375,000 on February 29, 2012.

Net cash provided by operating activities for the three months ended May 31, 2012 was $18,000 which was primarily the result of a decrease in accounts receivable of $101,000 and prepaid expenses of $20,000, along with an increase in accounts payable of $65,000, offset by an increase in prepaid taxes of $93,000 and inventories of $12,000 and a decrease in accrued expenses of $58,000, coupled with a net loss for the period of $20,000.   Net cash provided by operating activities for the three months ended May 31, 2011 was $106,000 which was primarily the result of net income of $179,000 plus a decrease in prepaid expenses of $56,000 and prepaid taxes of $107,000, and an increase in accounts payable of $31,000, offset by an increase in accounts receivable of $90,000 and inventories of $142,000, and a decrease in accrued expenses of $60,000.

There was no net cash provided by or used in investing activities for the three months ended May 31, 2012.   Net cash used in investing activities for the three months ended May 31, 2011 was $2,000 due to payments for plant, property and equipment of $2,000.

There was no net cash provided by or used in financing activities for the three months ended May 31, 2012.  Net cash used in financing activities for the three months ended May 31, 2011 was $1,472,000 due to a $0.12 cash dividend paid to stockholders during the three months ended May 31, 2011.

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 the balance of fiscal 2013 and beyond will depend primarily upon level of sales of our products, inventory levels, product development, sales and marketing expenditures and capital expenditures.

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 2 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.
 
 
8

 

Income taxes - We provide for income taxes under ASC Topic 740-10. ASC Topic 740-10 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Temporary differences relate primarily to different accounting methods used for depreciation and amortization of property and equipment and deferred compensation.   ASC Topic 740-10 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.  ASC Topic 740-10 clarifies the accounting for uncertainty in income tax positions, as defined. It requires, among other matters, that we recognize in our 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. We analyze the filing positions in all of the federal and state jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions.

Revenue Recognition – We recognize revenue 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 – We rely on the guidance provided by ASC 718, (“Share Based Payments”).   ASC 718 requires companies to expense the value of employee stock options and similar awards and applies to all outstanding and vested stock-based awards.  In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest.   In estimating our forfeiture rate, we analyze our historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If our actual forfeiture rate is materially different from our estimate, or if we reevaluate the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current period.   The fair value concepts were not changed significantly in ASC 718; however, in adopting this Standard, companies were given the option to choose among alternative valuation models and amortization assumptions. We elected to continue to use the Black-Scholes option pricing model and expense the options as compensation over the requisite service period of the grant. We will reconsider use of the Black-Scholes model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model.  Deferred charges for options granted to non-employees are determined as the fair value of the consideration or the fair value of the equity instruments issued, whichever is more reliably measured.

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 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 were paid in fiscal 2009.  In addition, no dividends were paid in fiscal 2010 and fiscal 2011 primarily due to the Company’s decision to seek strategic alternatives.
 
Subsequent to the end of fiscal 2011 and in May 2011, the Board of Directors declared a special cash dividend of $0.12 per share which was paid on May 12, 2011 to shareholders of record at the close of business on April 28, 2011.  The aggregate amount of payment made in connection with this special cash dividend was approximately $1,472,000.

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.  There have been no repurchases made by the Company under the repurchase program since the fiscal year ended February 28, 2007.  Since the adoption of the program and through the fiscal year ended February 28, 2007, a total of 331,500 shares were repurchased at a cumulative cost of $195,766.
 
 
9

 

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.
 
Item 3.   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 4.   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 has concluded that, as of May 31, 2012, 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 fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
 
 
10

 

PART II - OTHER INFORMATION

Item 1.   Legal Proceedings.

There are no material pending legal proceedings to which we are a party or to which any of our property is subject.
 
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.

None.
 
Item 3.   Defaults Upon Senior Securities.

None.
 
Item 4.   Mine Safety Disclosures.

Not applicable.
 
Item 5.   Other Information.

None.
 
Item 6.  Exhibits.

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)
 
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)
101*
The following financial information from our Quarterly Report on Form 10-Q for the quarter ended May 31, 2012 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Stockholder’s Equity, (iv) the Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements
_____________________

*
In accordance with Rule 406T of Regulation S-T, the XBRL information in Exhibit 101 to this quarterly report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.
 
 
11

 
 
SIGNATURES

Pursuant to the requirements 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)  
       
Dated: July 13, 2012   
By:
/s/ Greg Amato  
    Greg Amato,  
    Chief Executive Officer  
       
Dated: July 13, 2012 By:   /s/ Greg Amato  
    Greg Amato,  
    Principal Financial Officer  
 
 
12

 
 
 
 
 

 
EPOLIN, INC. AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

THREE MONTHS ENDED

 MAY 31, 2012 AND 2011


 
 
 


 
 
F-1

 

CONTENTS
 
   
Page
 
       
Consolidated Financial Statements:
     
       
Consolidated Balance Sheets (Unaudited)
    F-3 - F-4  
         
Consolidated Statements of Income Three Months Ended (Unaudited)
    F-5  
         
Consolidated Statements of Stockholder’s Equity (Unaudited)
    F-6  
         
Consolidated Statements of Cash Flows (Unaudited)
    F-7  
         
Notes to Consolidated Financial Statements
    F-8 - F-24  
 
 
F-2

 
 
EPOLIN, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (Unaudited)
             
ASSETS
             
   
May 31,
   
February 29,
 
   
2012
   
2012
 
Current Assets:
           
Cash and cash equivalents
  $ 766,236       748,583  
Accounts receivable
    525,715       626,317  
Inventories
    755,356       743,445  
Prepaid expenses
    31,060       51,020  
Prepaid taxes
    93,045       421  
Deferred tax assets-current portion
    6,389       5,829  
                 
Total current assets
    2,177,801       2,175,615  
                 
Plant, Property and Equipment - at cost:
               
Land
    81,000       81,000  
Building and improvements
    793,448       793,448  
Laboratory equipment
    230,639       230,639  
Furniture and office equipment
    284,189       284,189  
Leasehold improvements
    532,129       532,129  
                 
Total
    1,921,405       1,921,405  
                 
Less:  Accumulated depreciation and amortization
    1,178,588       1,163,249  
                 
Net plant, property and equipment
    742,817       758,156  
                 
Other Assets - Deferred tax assets - non current portion
    36,695       35,795  
                 
Total
  $ 2,957,313       2,969,566  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-3

 
 
EPOLIN, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED) (Unaudited)
             
LIABILITIES AND STOCKHOLDERS' EQUITY
             
   
May 31,
   
February 29,
 
   
2012
   
2012
 
Current Liabilities:
           
  Accounts payable
  $ 71,814       6,731  
  Accrued expenses
    224,465       282,144  
  Taxes payable:
               
Income
    85,033       84,263  
Payroll
    1,570       1,570  
                 
Total current liabilities
    382,882       374,708  
                 
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;
               
13,315,000 and 13,215,000 shares issued, and 12,366,355 and
               
12,266,355 shares outstanding at May 31, 2012 and
               
February 29, 2012, respectively.
    2,364,693       2,364,693  
Additional paid-in capital
    138,125       138,125  
Retained earnings
    422,695       443,122  
                 
Total
    2,925,513       2,945,940  
Less: Treasury stock - at cost
    351,082       351,082  
                 
Total stockholders' equity
    2,574,431       2,594,858  
                 
Total
  $ 2,957,313       2,969,566  
 
The accompanying notes are an integral part of these consolidated financial statements.

 
F-4

 

EPOLIN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
THREE MONTHS ENDED MAY 31, 2012 AND 2011
             
   
2012
   
2011
 
             
Sales
  $ 909,187       991,085  
                 
Cost of sales and expenses:
               
  Cost of sales
    524,859       420,699  
  Selling, general and administrative
    405,608       267,644  
                 
Total
    930,467       688,343  
                 
Operating income (loss)
    (21,280 )     302,742  
                 
Other income:
               
Interest
    587       1,768  
Miscellaneous income
    2,046       -  
                 
Total
    2,633       1,768  
                 
Income (loss) before taxes
    (18,647 )     304,510  
                 
Income taxes
    1,780       125,141  
                 
Net income (loss)
  $ (20,427 )     179,369  
                 
Per share data:
               
Basic earnings per common share
  $ -       0.01  
                 
Fully diluted earnings per common share
  $ -       0.01  
                 
Weighted average number of common shares outstanding
    12,332,476       12,259,663  
 
               
Fully diluted number of common shares outstanding
    12,332,476       12,259,663  
 
The accompanying notes are an integral part of these consolidated financial statements.

 
F-5

 

EPOLIN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MAY 31, 2012 AND 2011
                                           
               
Additional
                         
   
Number of
   
Common
   
Paid-in-
   
Retained
   
Treasury
   
Treasury
   
Stockholders'
 
   
Shares Issued
   
Stock
   
Capital
   
Earnings
   
Shares
   
Stock
   
Equity
 
                                           
Balance - March 1, 2011
    13,115,000     $ 2,364,693       123,125       1,738,925       948,645       (351,082 )     3,875,661  
                                                         
Dividends paid
    -       -       -       (1,471,963 )     -       -       (1,471,963 )
                                                         
Net income
    -       -       -       179,369       -       -       179,369  
                                                         
Balance - May 31, 2011
    13,115,000     $ 2,364,693       123,125       446,331       948,645       (351,082 )     2,583,067  
                                                         
Balance - March 1, 2012
    13,215,000     $ 2,364,693       138,125       443,122       948,645       (351,082 )     2,594,858  
                                                         
Net income (loss)
    -       -       -       (20,427 )     -       -       (20,427 )
                                                         
Balance - May 31, 2012
    13,215,000     $ 2,364,693       138,125       422,695       948,645       (351,082 )     2,574,431  
 
The accompanying notes are an integral part of these consolidated financial statements.

 
F-6

 

EPOLIN, INC. AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
THREE MONTHS ENDED MAY 31, 2012 AND 2011
 
             
   
2012
   
2011
 
Cash flows from operating activities:
           
  Net income (loss)
  $ (20,427 )     179,369  
  Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    15,339       7,334  
Deferred tax expense
    (1,460 )     17,891  
(Increase) decrease in:
               
Accounts receivable
    100,602       (90,188 )
Inventories
    (11,911 )     (141,889 )
Prepaid expenses
    19,960       55,779  
Prepaid taxes
    (92,624 )     106,562  
Increase (decrease) in:
               
Accounts payable
    65,083       30,850  
Accrued expenses
    (57,679 )     (60,461 )
Taxes payable
    770       588  
                 
        Net cash provided by operating activities
    17,653       105,835  
 
               
Cash flows used by investing activities:
               
Payments for plant, property and equipment
    -       (2,158 )
                 
Cash flows used by financing activities -  Dividends paid
    -       (1,471,963 )
                 
Increase (decrease) in cash
    17,653       (1,368,286 )
                 
Cash and cash equivalents:
               
  Beginning
    748,583       1,881,219  
                 
  Ending
  $ 766,236       512,933  
                 
Supplemental disclosures of cash flows:
               
  Income taxes paid
  $ 10,920       2,000  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-7

 
 
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


NOTE 1 – Organization:

We are 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.

Our 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, we acquired 100% of the stock in Epolin Holding Corporation. Prior to acquisition, two officers/stockholders controlled it.

NOTE 2 – Summary of Significant Accounting Policies:

Basis of Presentation – The interim Consolidated Financial Statements presented herein are unaudited and should be read in conjunction with the Consolidated Financial Statements presented in our Annual Report on Form 10-K for the fiscal year ended February 29, 2012. Such interim Consolidated Financial Statements reflect all normal and recurring adjustments that, in the opinion of management, are necessary for a fair presentation of our financial position, results of operations and cash flows for the periods presented. All significant intercompany accounts and transactions have been eliminated.

The results of operations for the three-month interim periods ended May 31, 2012 and 2011 are not necessarily indicative of the results of operations for the fiscal year ending February 28, 2013.

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 – We have 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, we periodically evaluate the stability of the financial institution and brokerage house.

Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of accounts receivable. Generally, we do not require collateral or other securities to support its accounts receivable. Three customers represented 41.4% of our trade receivables at May 31, 2012.

Source of Raw MaterialsWe purchase chemicals from several large chemical manufacturers, further processing them into its saleable products. Although we limit ourselves to a relatively small number of suppliers, it is not restricted to such suppliers, and availability of such raw materials is widespread.

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.
 
 
F-8

 
 
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
NOTE 2 - 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 May 31, 2012 and for the three months then ended are:
 
CONDENSED CONSOLIDATING BALANCE SHEET
 
   
Epolin
   
Epolin
             
   
Inc.
   
Holding, Corp.
   
Eliminations
   
Consolidated
 
 Current assets
  $ 1,946,280       231,521       -       2,177,801  
 Non-current assets
    1,010,263       601,235       (831,986 )     779,512  
 Total
  $ 2,956,543       832,756       (831,986 )     2,957,313  
                                 
 Total liabilities
  $ 382,112       25,205       (24,435 )     382,882  
                                 
 Stockholders' equity:
                               
 Common stock
    2,364,693       -       -       2,364,693  
 Additional paid-in capital
    138,125       -       -       138,125  
 Retained earnings
    422,695       807,551       (807,551 )     422,695  
 Treasury stock
    (351,082 )     -       -       (351,082 )
                                 
 Total stockholders' equity
    2,574,431       807,551       (807,551 )     2,574,431  
                                 
       Total
  $ 2,956,543       832,756       (831,986 )     2,957,313  
 
CONDENSED CONSOLIDATING STATEMENT OF INCOME
 
   
Epolin
   
Epolin
             
   
Inc.
   
Holding, Corp.
   
Eliminations
   
Consolidated
 
 Sales
  $ 909,187       -       -       909,187  
 Rental income
    -       24,435       (24,435 )     -  
 Total
    909,187       24,435       (24,435 )     909,187  
                                 
 Cost of sales
    524,859       -       -       524,859  
 Selling, general and administrative
    421,858       8,185       (24,435 )     405,608  
                                 
 Total
    946,717       8,185       (24,435 )     930,467  
                                 
 Operating income (loss)
    (37,530 )     16,250       -       (21,280 )
                                 
 Other income
    2,366       267       -       2,633  
                                 
 Income (loss) before taxes
    (35,164 )     16,517       -       (18,647 )
                                 
 Income taxes
    540       1,240       -       1,780  
                                 
 Net income (loss)
  $ (35,704 )     15,277       -       (20,427 )
 
 
F-9

 
 
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 2 – Summary of Significant Accounting Policies (continued):

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 our 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 $15,339 and $7,334 for the three months ended May 31, 2012 and 2011, respectively.

Income Taxes - The Company provides for income taxes under ASC Topic 740-10. ASC Topic 740-10 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Temporary differences relate primarily to different accounting methods used for depreciation and amortization of property and equipment and deferred compensation.
 
ASC Topic 740-10 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
 
ASC Topic 740-10 clarifies the accounting for uncertainty in income tax positions, as defined. It requires, among other matters, that we recognize in our 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. We analyze the filing positions in all of the federal and state jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions. The adoption of ASC Topic 740-10 had no impact on our financial statements for fiscal year ended 2012. As of May 31, 2012 and 2011, we did not record any unrecognized tax benefits. Our policy, if we had unrecognized benefits, is to recognize accrued interest and penalties related to unrecognized tax benefits as interest expense and other expense, respectively.

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.
 
 
F-10

 
 
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
NOTE 2 – Summary of Significant Accounting Policies (continued):

Use of Estimates – The preparation of our 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. We base our 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 – We recognize revenue 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 are in nonconformity with 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. Replacement costs are expensed as incurred.

Regulations – We have expended approximately $9,611 and $11,268 through May 31, 2012 and 2011, respectively, to maintain compliance with certain Federal, State and City government regulations relative to the production of near infrared dyes and specialty chemicals.

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 $13,901 and $10,656 for the three months ended May 31, 2012 and 2011, respectively.
 
 
F-11

 
 
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 2 – Summary of Significant Accounting Policies (continued):

Stock-Based Compensation  - We rely on the guidance provided by ASC 718, (“Share Based Payments”). ASC 718 requires companies to expense the value of employee stock options and similar awards and applies to all outstanding and vested stock-based awards.

In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating our forfeiture rate, we analyze our historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If our actual forfeiture rate is materially different from our estimate, or if we reevaluate the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current period.

The fair value concepts were not changed significantly in ASC 718; however, in adopting this Standard, companies were given the option to choose among alternative valuation models and amortization assumptions. We elected to continue to use the Black-Scholes option pricing model and expense the options as compensation over the requisite service period of the grant. We will reconsider use of the Black-Scholes model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model.

Deferred charges for options granted to non-employees are determined as the fair value of the consideration or the fair value of the equity instruments issued, whichever is more reliably measured.
 
The weighted average fair value per option at the date of grant for the three months ended May 31, 2012 and 2011 using the Black-Scholes Option-Pricing Model were not applicable as no new stock options were granted during those periods.
 
 
F-12

 

EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
NOTE 2 – Summary of Significant Accounting Policies (continued):
 
Fair Value Measurements  -  We follow the provisions of ASC 820, Fair Value Measurements and Disclosures, for financial assets and liabilities that are measured and reported at fair value on a recurring basis. ASC 820 establishes a hierarchy for inputs used in measuring fair value. Disclosures of the fair value of certain financial instruments are required, whether or not recognized in the Consolidated Balance Sheets. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. There is a three-level valuation hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The statement requires that each asset and liability carried at fair value be classified into one of the following categories:
 
Level 1:
 
Quoted market prices in active markets for identical assets or liabilities
   
Level 2:
 
Observable market based inputs or unobservable inputs that are corroborated by market data
   
Level 3:
 
Unobservable inputs that are not corroborated by market data
 
Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability.
 
 
F-13

 
 
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
NOTE 3 – Income Taxes:

 1.  Federal and State deferred tax assets include:
 
   
May 31,
2012
   
February 29,
2012
 
Temporary differences:
           
Accelerated amortization
  $ 12,392       10,926  
Net operating loss carryforward
    23,973       23,973  
Stock-based compensation
    6,725       6,725  
Total
    43,084       41,624  
                 
Less: Current portion
    6,389       5,829  
                 
Non-current portion
  $ 36,695       35,795  
 
2.   Income tax:
 
   
May 31,
   
May 31,
 
 
  2012     2011  
Current:
           
Federal
  $ -       104,000  
State
    3,240       3,250  
Total current
    3,240       107,250  
                 
Deferred:
               
Federal
    (1,290 )     (1,500 )
State
    (170 )     19,391  
                 
Total deferred
    (1,460 )     17,891  
Total
  $ 1,780       125,141  
 
We had at May 31, 2012 state net operating losses of $266,360.  The state net operating loss carryover is available to offset future taxable income which expires beginning in 2022.
 
 
F-14

 
 
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
NOTE 4 – Treasury Stock:

Consists of 948,645 shares at a net cost of $351,082 as of May 31, 2012 and February 29, 2012, respectively. There were no purchases of treasury shares made during the three months ended May 31, 2012 and 2011, respectively.

NOTE 5 – Economic Dependency:

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 three months ended May 31, 2012, approximately 37.9% of sales were to three customers. During the three months ended May 31, 2011, approximately 31.0% of sales were to three customers.

NOTE 6 – Research and Development:

We have developed substantial research and development capability. Our 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 our sponsored product research and product development of $92,645 and $84,240 were included in cost of sales for the three months ended May 31, 2012 and 2011, respectively. Expenditures for the fiscal year ended 2013 are projected to remain at approximately the same level as in fiscal 2012.

NOTE 7 – Employee Benefits:

Simplified Employee Pension Plan – Effective June 1, 1994, we maintained a SAR/SEP plan to our employees as a retirement and income tax reduction facility. Full time employees were eligible to participate immediately. Employees were able make pre-tax and after-tax contributions subject to Internal Revenue Service limitations. We made contributions ranging from three to five percent. The plan has not met the Internal Revenue Service requirements of Section 416 and Section 408(k)(6) regarding contribution limits and employee deferral amounts. We have tested all years of the plan to insure our compliance with Internal Revenue Service regulations. In accordance with the results, we have accrued a contribution to the plan in the amount of $284,955. As of May 31, 2012, we have paid all accrued amounts to the plan. See Note 15 - Prior Period Adjustment. On August 20, 2010, we adopted a 401K plan to replace our SAR/SEP plan.
 
 
F-15

 

EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 7 – Employee Benefits ( continued):

401K Plan – Effective August 20, 2010, we provide a 401K plan to our employees as a retirement and income tax reduction facility. Full time employees are eligible to participate after completing one year of eligibility service. Employees may make pre-tax and after-tax contributions subject to Internal Revenue Service limitations. We make contributions ranging from three to five percent. Employer contributions totaled $13,122 and $7,301 for the three months ended May 31, 2012 and 2011 respectively.

Stock Option Plan We adopted the 1998 Stock Option Plan on December 1, 1998. Under the terms of the plan, we have 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 May 31, 2012, options granted totaled 1,242,000, options exercised totaled 686,000; options cancelled or expired for all years totaled 461,000.

A summary of the status of our 1998 stock option plan as of May 31, 2012, and the changes during the three months ended May 31, 2012 and 2011 is presented below:

Fixed Options:
 
Shares
   
Weighted-Average
Exercise Price
 
             
Balance – May 31, 2012 and 2011
    95,000     $ 0.41  
                 
Exercisable at May 31, 2012
    95,000     $ 0.41  
 
 
F-16

 
 
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 7 – Employee Benefits (continued):

Stock Option Plans - The following table summarizes information about fixed stock options outstanding at May 31, 2012:

Outstanding Options    
Exercisable Options
     
Number
   
Weighted-Average
   
Number
       
Range of
   
Outstanding
   
Remaining
   
Exercisable
   
Weighted-Average
Exercise Price
   
at 5/31/12
   
Contractual Life
   
at 5/31/12
   
Exercise Price
$ .41       95,000       1.6       95,000       .41  

Stock Option and Stock-Based Compensation 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).  Under the 2008 Plan, we 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 we 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 May 31, 2012, 400,000 shares of Common Stock have been granted and 1,100,000 shares remain to be granted.

The purpose of the 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 to provide services to us, (b) enhance the our long-term performance, (c) acquire a proprietary interest in us.

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.
 
 
F-17

 
 
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 8 – Segment Reporting:

We currently operate in a single operating segment. In addition, financial results are prepared and reviewed by management as a single operating segment. We continually evaluate our 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:

   
May 31,
 
   
2012
   
2011
 
United States
  $ 498,979       707,487  
Asia
    115,569       62,459  
Europe
    266,313       200,858  
Other nations
    28,326       20,281  
Total
  $ 909,187       991,085  
 
Long-lived assets include net plant, property and equipment. We had long-lived assets of $742,817 and $758,156 located in the United States at May 31, 2012 and February 29, 2012, respectively.

NOTE 9 – Environmental Matters:

Our 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 do we expect such compliance to have, any material effect upon expected capital expenditures, net income, financial condition, or competitive position. We believe that our current practices and procedures comply with applicable regulations. We have engaged a licensed site remediation professional and special environmental counsel in order to facilitate the environmental approvals which will be necessary in conjunction with any potential sale or similar transaction of our company. Future remediation costs estimated for the year ended February 28, 2013 approximate $70,000. Our 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. Due to the execution of the Merger Agreement (See Note 17), we became subject to the Industrial Site Recovery Act (ISRA) which requires that our facilities be remediated or that we submit a Remediation Certificate to the New Jersey Department of Environmental Protection pursuant to NJAC 7:26B prior to transfer of ownership. We have undergone soil and water sample collection and monitoring. Evaluation of current data indicates the likely course of action will include implementing institutional and engineering controls. Accruals for estimated losses from environmental remediation and to obtain the necessary approvals in conjunction with the potential sale of our company in the amount of $74,111 are included in accrued expenses on the balance sheet as of May 31, 2012.
 
 
F-18

 
 
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 10 - Accrued Expenses:

Accrued expenses consisted of the following as of May 31, 2012 and February 29, 2012, respectively.
 
   
May 31,
2012
   
February 29,
2012
 
Salaries and wages
  $ 10,476       12,203  
Purchases
    3,420       20,097  
Pension contribution
    21,536       50,366  
Environmental fees
    76,876       76,876  
Commissions
    -       18,352  
Rent
    8,145       8,145  
Professional fees
    104,012       96,105  
Total accrued expenses
  $ 224,465       282,144  
 
NOTE 11 - Inventories:
 
   
May 31,
2012
   
February 29,
2012
 
Raw materials and supplies
  $ 304,108       178,460  
Work in process
    66,271       227,981  
Finished goods
    384,977       337,004  
Total
  $ 755,356       743,445  
 
 
F-19

 
 
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 12 - 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:
 
   
Three Months Ended
 
   
May 31,
 
   
2012
   
2011
 
Basic Earnings Per Common Share:
           
Net income (loss)
    (20,427 )     179,369  
Average common shares
               
outstanding
    12,332,476       12,259,663  
Basic earnings per
               
common share
    -       0.01  
Diluted Earnings Per Common Share:
               
Net income (loss)
    (20,427 )     179,369  
Total diluted common shares
               
outstanding
    12,332,476       12,259,663  
Diluted earnings per
               
common share
    -       0.01  
 
Stock options totaling 95,000 for the three months ended May 31, 2012 and 2011, were not included in the net income per common share calculation because the exercise price of these options was greater than the average market price of common stock during the period.
 
 
F-20

 

EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 13 – 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.

Simplified Employee Pension Plan – Our SAR/SEP plan has failed to meet certain tests as required by Internal Revenue Service codes regarding contribution limits and employee deferral amounts. We have tested all years of the plan to insure our compliance with Internal Revenue Service regulations. In accordance with the results, we have accrued a contribution to the plan in the amount of $284,955. As of May 31, 2012, we have paid all accrued amounts to the plan.  See Note 15 - Prior Period Adjustment.

Lease Obligations - We lease our real estate under an operating lease with a related party. The lease effective November 1, 1996 was for a term of five years with three five 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 $24,435 for the three months ended May 31, 2012 and 2011, respectively.

Future minimum payments for the current option period:

Fiscal Years Ending February:
     
2013
    73,305  
2014
    97,740  
2015
    97,740  
2016
    73,305  
 
Deferred Compensation – On December 29, 1995, we 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.  On May 14, 2010, the Board of Directors agreed to surrender the life insurance policy. The remaining balance of $128,000 was paid during the quarter ended November 30, 2010.

On January 1, 1996, we 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. On May 14, 2010, the Board of Directors agreed to pay the balance due during the current year. This balance was paid during the quarter ended November 30, 2010.
 
 
F-21

 
 
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
NOTE 14 - Fair Value Measurements:

In September 2006, the FASB issued ASC Topic 820 Fair Value Measurements and Disclosures (formerly Statement of Financial Accounting Standard No. 157 Fair Value Measurements). ASC Topic 820 provides enhanced guidance for using fair value to measure assets and liabilities. Under the standard, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between participants in the market in which the reporting entity transacts its business. ASC Topic 820 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, ASC Topic 820 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. The adoption of ASC Topic 820 did not have a material effect on our results of operations, financial position or liquidity.
 
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:

   
Carrying
             
May 31, 2012
 
Amount
   
Level 1
   
Level 2
 
Assets:
                 
Cash and cash equivalents
  $ 766,236       766,236       -  
Total assets at fair value
  $ 766,236       766,236       -  
                         
February 28, 2012
 
Amount
   
Level 1
   
Level 2
 
Assets:
                       
Cash and cash equivalents
  $ 748,583       748,583       -  
Total assets at fair value
  $ 748,583       748,583       -  
 
In accordance with ASC Topic 820, we measure our cash and cash equivalents at fair value, and they are classified within Level 1 since there is an active, readily tradable market value based on quoted prices. We base our estimates on such prices (Level 1 pricing) as of May 31, 2012 and February 29, 2012, or the measurement date. Active markets are those in which transactions occur in significant frequency and volume to provide pricing information on an on-going basis. Since valuations are based on quoted prices that are readily and regularly available in an active market, the valuation of these items does not entail a significant degree of judgment.  
 
 
F-22

 
 
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
NOTE 15 – Prior Period Adjustment:

During the quarter ended August 31, 2010, we received the test results of our Simplified Employee Pension Plan for all years it was in effect. The liability we have incurred to correct the plan in the amount of $263,067 net of income taxes was recorded in our February 28, 2011 year-end financial statements as an increase in accrued expenses and a corresponding reduction to retained earnings net of income taxes.

  NOTE 16 – Dividends:

On April 14, 2011, our Board of Directors declared a cash dividend of $0.12 per share on all common shares outstanding. The dividend, in the amount of $1,471,963 was paid on May 12, 2011 to shareholders of record at the close of business on April 28, 2011.

  NOTE 17 – Merger Agreement:

On March 14, 2012, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Polymathes Holdings I LLC, a New Jersey limited liability company (the “Parent”), and Polymathes Acquisition I Inc., a New Jersey corporation and wholly owned subsidiary of the Parent (the “Purchaser”).  Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, Parent has agreed to cause the Purchaser to commence a tender offer (the “Offer”) to purchase all of the outstanding shares of common stock, no par value per share, of the Company (the “Shares”), at a price of $0.22 per Share (the “Offer Price”), paid to the seller in cash, without interest thereon and subject to applicable withholding taxes.
 
The Merger Agreement provides that the Offer will commence as promptly as practicable (and in any event within 45 days) after the date of the Merger Agreement, and will remain open for at least 20 business days (including the day on which the Offer is commenced). Pursuant to the Merger Agreement, after the consummation of the Offer, and subject to certain conditions set forth in the Merger Agreement, the Parent shall cause the Purchaser to be merged with and into the Company (the “Merger”), with the Company continuing as the surviving corporation and as a wholly owned subsidiary of Parent. Upon completion of the Merger, each Share that is not tendered and accepted pursuant to the Offer (excluding those Shares that are owned by the Company as treasury stock, any Shares owned by the Parent or Purchaser and Shares held by any shareholders who perfect their statutory dissenters rights under New Jersey law) will be canceled and converted into the right to receive the Offer Price in cash (without interest and subject to applicable withholding taxes). If the Purchaser holds 90% or more of the outstanding Shares immediately prior to the Merger, it may effect the Merger as a short-form merger pursuant to the New Jersey Business Corporation Act. Otherwise, the Company may hold a special shareholders’ meeting to obtain shareholder approval of the Merger.
 
 
F-23

 
 
EPOLIN, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 17 – Merger Agreement (continued):
 
Subject to the terms and conditions of the Merger Agreement, the Company has granted the Purchaser an irrevocable one-time option (the “Top-Up Option”) which provides that if the Purchaser acquires at least 51% of the outstanding Shares in the Offer after the Purchaser’s acceptance of and payment for Shares pursuant to the Offer, the Purchaser will have the option, subject to certain limitations, to purchase from the Company at a price per Share equal to the Offer Price up to the number of additional shares sufficient to cause the Purchaser to own one share more than 90% of the Shares then outstanding on a fully diluted basis, subject to applicable regulatory requirements and there being sufficient authorized Shares available for issuance, to enable the Purchaser to effect a short-form merger under New Jersey law (the “Top-Up Option Shares”), provided that the aggregate purchase price payable for the Top-Up Option Shares shall be paid by the Parent or the Purchaser as follows: (a) the portion of the aggregate purchase price equal to the par value of the Top-Up Option Shares shall be paid in cash and (b) the balance of the remaining aggregate purchase price may be paid in cash or by executing and delivering to the Company a promissory note having a principal amount equal to the balance of the aggregate purchase price for the Top-Up Option Shares, or some combination thereof.  The Top-Up Option is exercisable only after the Shares have been accepted for payment pursuant to the Offer.
 
Completion of the Offer is subject to there being validly tendered in the Offer and not properly withdrawn that number of Shares which, together with the number of Shares, if any, then owned of record by the Parent or the Purchaser or with respect to which the Parent or the Purchaser has, directly or indirectly, voting power, representing at least 51% of all outstanding Shares (determined on a fully diluted basis).  In addition, the Offer is subject to other conditions set forth in the Merger Agreement including, but not limited to, the Company having certain minimum amounts of “Adjusted Cash” and “Adjusted Net Working Capital” (as such terms are defined in the Merger Agreement) as of the time the Shares are accepted for payment.

The Offer expired at 5:00 PM, New York City time, on June 12, 2012 (the “Expiration Date”).  Based upon the final information provided by the depositary for the Offer, as of the Expiration Date, 10,239,351 Shares have been tendered and not withdrawn prior to the expiration of the Offer (which includes 14,500 shares tendered pursuant to notices of guaranteed delivery) which represents approximately 82.2% of all outstanding Shares on a fully diluted basis.  Purchaser has accepted for payment in accordance with the terms of the Offer all Shares that were validly tendered and not withdrawn in the Offer.  On June 13, 2012, Epolin issued a press release announcing the results and expiration of the Offer.

Effective as of June 15, 2012, the following persons were designated by the Parent and appointed as directors of the Company: William J. Golden, John F. Wachter and William S. Walsh so that the Board currently consists of five members.  In addition, effective as of June 15, 2012, Murray S. Cohen resigned as Chairman, Chief Scientist and Secretary of the Company and James Ivchenko resigned as President of the Company.  Mr. Wachter has been appointed Chairman and President of the Company effective as of June 15, 2012.  Greg Amato remains as Chief Executive Officer.

James R. Torpey, Jr. and Herve A. Meillat (two of the Company’s then four directors) resigned as directors of the Company effective as of the Acceptance Time.  Until the Effective Time of the Merger, Murray S. Cohen and James Ivchenko (the other two remaining directors) have agreed to remain on the Board.
 
 
F-24