Pink Sheets

Epolin released their Q2 results today. Overall: top line is up 10%, bottom line is the same.

10-Q:
Period ending Aug 31, 2006.
12 million shares on Oct 1, 2006. 421K options outstanding (40 cent strike).

27% of sales were to 2 customers
40% of sales were to 4 customers.

Quarter vs prior year:
Reveues up 10.6% (due to increase in newer product areas)
Gross profit down 1.1%
Gross margin down to 54.5% from 60.9% (material cost increase of $127 for 6 months, factory overhead increase of $60K for 6 months, lower mix)
SG&A up 4.4% (salaries and benefits, health insurance)
Operating income down 2.6%
Tax down 9.1%
Net income up 1.8%

Net income in the future will be dependent upon our ability to increase revenues faster than increases, if any, in our selling, general and administrative expenses, research and development expenses and other expenses. Although we achieved an increase of $821,000 in sales for fiscal 2006 compared to fiscal 2005, and an increase of $379,000 in sales for the six months of fiscal 2007 compared to the six months of fiscal 2006, we have also incurred, in dollars, greater cost of sales and selling, general and administrative expenses in these periods. Certain of these expenses are due to costs and expenses related to a greater emphasis being placed on marketing, sales and technical service. This meant hiring new staff, consultants, continuing efforts to upgrade our facility and developing a new web site. We are encouraged, however, by the growth in our overall sales in fiscal 2006 which growth has continued into fiscal 2007.

31K shares issued from stock options.

Accounting review by Weismann Associates.

Net cash of $1.2 million (10 cents per share). This is up from around $800K last year.
AR is up somewhat, inventories are down somewhat.
Additions to building/improvements and lab equipment.

Quarter net income: $121K (vs $118K last year)
6 month net income: $346K (vs $257K last year)

Cash flow from ops for 6 months: $441K
Capex for 6 months: $48K (vs depreciation of $29K).
Nothing really in financing except the dividends of $235K

$12.7K regulatory costs for 6 months (about the same as last year).
Advertising costs of $7K (vs $12K last year).
5K shares repurchased.
421K stock options outstanding (none granted in 2006). Most have 4-7 year period remaining.

Revenue in Europe is down somewhat.

CONCLUSION:
Not terrible, but I expected better. I figure the business is worth around $1.00, but probably more than that. I expect them to scale well with the global economy growth.