U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended September 30, 2002
or
[ ] 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 000-25727
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THE CHROMALINE CORPORATION
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(Exact name of small business issuer as specified in its charter)
Minnesota 41-0730027
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
4832 Grand Avenue
Duluth, Minnesota 55807
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(218) 628-2217
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Issuer's telephone number
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act 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 [ ]
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practical date: Common Stock, $.10
par value -- 1,248,127 shares outstanding as of November 12, 2002.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
THE CHROMALINE CORPORATION
QUARTERLY REPORT ON FORM 10-QSB
PART I. FINANCIAL INFORMATION PAGE NO.
--------------------- --------
Item 1. Financial Statements:
Balance Sheets
as of September 30, 2002 (unaudited) and December 31, 2001 3
Statements of Operations
for the Three Months and Nine Months Ended September 30, 2002
and 2001 (unaudited) 4
Statements of Cash Flows
for the Nine Months Ended September 30, 2002 and 2001 (unaudited) 5
Notes to Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
Item 3. Controls and Procedures 12
PART II. OTHER INFORMATION 13
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SIGNATURES 14
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2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE CHROMALINE CORPORATION
BALANCE SHEETS
- --------------------------------------------------------------------------------
SEPTEMBER 30 DECEMBER 31
2002 2001
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 436,714 $ 543,679
Marketable securities 246,591 237,154
Trade receivables, less allowance for doubtful accounts of
$100,000 2,020,330 1,472,982
Inventories 1,661,734 1,605,670
Prepaid expenses and other assets 169,112 118,178
Income tax refund receivable 133,030
Deferred taxes 68,000 68,000
------------ -----------
Total current assets 4,602,481 4,178,693
PROPERTY, PLANT, AND EQUIPMENT, at cost:
Land and building 1,355,588 1,355,588
Machinery and equipment 2,213,588 2,189,159
Office equipment 1,136,024 1,036,077
Vehicles 136,094 223,265
------------ -----------
4,841,294 4,804,089
Less accumulated depreciation 3,651,808 3,501,330
------------ -----------
1,189,486 1,302,759
PATENT, net of amortization of $39,547 and $32,788 respectively 69,731 76,490
NONCOMPETE AGREEMENT, net of amortization of $15,000 and $10,000
respectively 85,000 90,000
LICENSE AGREEMENTS, net of amortization of $1,302 48,698
OTHER 187,500 187,500
DEFERRED TAXES 213,000 213,000
------------ -----------
$ 6,395,896 $ 6,048,442
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 391,592 $ 297,556
Accrued compensation 224,439 143,338
Income tax payable 7,059
Other accrued expenses 24,127 27,508
------------ -----------
Total current liabilities 647,217 468,402
CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.10 per share; authorized 250,000
shares; issued none Common stock, par value $.10 per share;
authorized 4,750,000 shares; issued and outstanding 1,248,127
shares and 1,271,627 124,813 127,163
Additional paid-in capital 1,269,489 1,293,460
Retained earnings 4,364,175 4,170,246
Accumulated other comprehensive income (loss) (9,798) (10,829)
------------ -----------
Total stockholders' equity 5,748,679 5,580,040
------------ -----------
$ 6,395,896 $ 6,048,442
============ ===========
See notes to financial statements.
3
THE CHROMALINE CORPORATION
STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------------------ -------------------------------
2002 2001 2002 2001
SALES $2,970,798 $ 2,519,461 $ 8,917,425 $ 8,068,707
COSTS AND EXPENSES:
Cost of goods sold 1,758,869 1,505,750 5,153,867 4,557,270
Selling, general, and administrative 900,750 938,540 2,866,607 2,975,168
Research and development 194,088 198,278 560,673 599,221
---------- ----------- ------------ ------------
2,853,707 2,642,568 8,581,147 8,131,659
---------- ----------- ------------ ------------
INCOME(LOSS) FROM OPERATIONS 117,091 (123,107) 336,278 (62,952)
INTEREST EXPENSE 333 503
INTEREST INCOME 9,668 11,344 28,014 39,001
---------- ----------- ------------ ------------
INCOME(LOSS) BEFORE INCOME TAXES 126,426 (111,763) 363,789 (23,951)
FEDERAL AND STATE INCOME
TAX EXPENSE(BENEFIT) 40,614 (37,700) 123,689 (9,100)
---------- ----------- ------------ ------------
NET INCOME(LOSS) $ 85,812 $ (74,063) $ 240,100 $ (14,851)
========== =========== ============ ============
EARNINGS(LOSS) PER SHARE:
Basic $ 0.07 $ (0.06) $ 0.19 $ (0.01)
========== =========== ============ ============
Diluted $ 0.07 $ (0.06) $ 0.19 $ (0.01)
========== =========== ============ ============
WEIGHTED AVERAGE COMMON SHARES
ASSUMED OUTSTANDING:
Basic 1,248,127 1,271,627 1,253,390 1,271,627
========== ========== ========== ==========
Diluted 1,248,963 1,271,627 1,253,390 1,271,627
========== ========== ========== ==========
See notes to financial statements.
4
THE CHROMALINE CORPORATION
STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
NINE MONTHS
ENDED SEPTEMBER 30
------------------------------
2002 2001
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 240,100 $ (14,851)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 244,550 295,552
Gain on disposed assets (19,632)
Changes in working capital components:
Decrease (increase) in:
Trade receivables (547,348) 69,971
Prepaid expenses and other assets (50,934) (68,943)
Inventories (56,064) (213,330)
(Decrease) increase in:
Accounts payable 94,036 34,754
Accrued expenses 77,720 21,649
Income taxes payable 140,089 50,805
------------ -------------
Net cash provided by operating
activities 122,517 175,607
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and equipment (98,582) (158,695)
Payment for license agreement (50,000)
Net activity in marketable securities (8,408) 444,521
Note receivable (75,000)
------------ -------------
Net cash (used in)/provided by (156,990) 210,826
investing activities
CASH FLOWS FRON FINANCING
ACTIVITIES:
Proceeds from revolving credit agreement 150,000
Payments for revolving credit agreement (150,000)
Re-purchase of company stock (72,492)
------------ -------------
Net cash provided by (72,492)
financing activities
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (106,965) 386,433
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 543,679 71,493
------------ -------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 436,714 $ 457,926
============ =============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Income taxes paid (refunded) $ (16,400) $ (59,905)
============= ==============
NON-CASH:
Loan receivable converted to stock $ $ 75,000
============ =============
See notes to financial statements.
5
THE CHROMALINE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Notes to Financial Statements
The balance sheet of The Chromaline Corporation (the "Company") as of
September 30, 2002, and the related statements of operations for the
three and nine months ended September 30, 2002 and 2001, and cash flows
for the nine months ended September 30, 2001 and 2000, have been
prepared without being audited.
In the opinion of management, these statements reflect all adjustments
(consisting of only normal recurring adjustments) necessary to present
fairly the financial position of The Chromaline Corporation as of
September 30, 2002, and the results of operations and cash flows for
all periods presented.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America, have been condensed
or omitted. Therefore, these statements should be read in conjunction
with the financial statements and notes thereto included in the
Company's December 31, 2001 Form 10-KSB.
The results of operations for interim periods are not necessarily
indicative of results that will be realized for the full fiscal year.
2. Inventory
The major components of inventory at September 30, 2002 and December
31, 2001 are as follows:
Sept 30, 2002 Dec 31, 2001
------------- ------------
Raw materials $ 620,157 $ 638,424
Work-in-progress 282,665 236,493
Finished goods 992,960 942,301
Reduction to LIFO cost (234,048) (211,548)
----------- ----------
Total Inventory $ 1,661,734 $1,605,670
=========== ==========
3. Stockholders' Equity
Nine Months Ended
Sept 30, 2002
-----------------
Total Stockholders' Equity-December 31, 2001 $ 5,580,040
Net income $240,100
Unrealized gain on available-
for-sale investments 1,031
--------
Comprehensive income 241,131
Stock repurchase (72,492)
------------
Total Stockholders' Equity-September 30, 2002 $ 5,748,679
============
6
4. Net Income per Common Share
Basic and diluted earnings per share are presented in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
per Share". The difference between average common shares and average
common and common equivalent shares is the result of outstanding stock
options.
7
THE CHROMALINE CORPORATION
The information presented below in Management's Discussion and Analysis
of Financial Condition and Results of Operations contains forward-looking
statements within the meaning of the safe harbor provisions of Section 21E of
the Securities Exchange Act of 1934, as amended. Such statements are subject to
risks and uncertainties, including those discussed under "Factors that May
Affect Future Results" below, that could cause actual results to differ
materially from those projected. Because actual results may differ, readers are
cautioned not to place undue reliance on these forward-looking statements.
Certain forward-looking statements are indicated by italics.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following management's discussion and analysis focuses on those
factors that had a material effect on the Company's financial results of
operations during the third quarter of 2002, the nine months ended September 30,
2002 and the same periods of 2001. It should be read in connection with the
Company's unaudited financial statements and notes thereto included in this Form
10-QSB.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Certain statements made in this Quarterly Report on Form 10-QSB, which
are summarized below, are forward-looking statements that involve risks and
uncertainties, and actual results may be materially different. Factors that
could cause actual results to differ include, but are not limited to, those
identified as follows:
o The Company's belief that its bad debt allowance is adequate to
cover potential credit risks--This belief may be impacted by
domestic economic conditions, by economic, political, regulatory
or social conditions in foreign markets, by failures in the
Company' s collection procedures or by financial difficulties
affecting a significant number of the Company's customers.
o The Company's belief that the quality of its receivables is high
and that strong internal controls are in place to maintain proper
collections--This belief may be impacted by domestic economic
conditions, by economic, political, regulatory or social
conditions in foreign markets, or by the failure of the Company
to properly implement or maintain internal controls.
o The belief that the Company's current financial resources, cash
generated from operations and the Company's capacity for debt
and/or equity financing will be sufficient to fund current and
anticipated business operations and capital expenditures. The
belief that the Company' s low debt levels and available line of
credit make it unlikely that a decrease in product demand would
impair the Company's ability to fund operations--Changes in
anticipated operating results, credit availability, equity market
conditions or the Company's debt levels may further enhance or
inhibit the Company's ability to maintain or raise appropriate
levels of cash.
o The Company's expectation that total capital expenditures in 2002
will be less than in 2001 and will be funded with cash generated
from operating activities--This expectation may be affected by
changes in the Company's anticipated capital expenditure
requirements resulting from unforeseen required maintenance or
repairs. The funding of these expenditures may be affected by
changes in anticipated operating results resulting from decreased
sales or increased operating expenses.
o The Company's belief that its vulnerability to foreign currency
fluctuations and general economic conditions in foreign countries
is not significant--This belief may be impacted by economic,
political and social conditions in foreign markets and changes in
regulatory and competitive conditions or a change in the amount
or geographic focus of the Company's international sales.
8
o The Company's plans to continue to invest in research and
development efforts, expedite internal product development and
invest in technological alliances, as well as the expected focus
and results of such investments--These plans and expectations may
be impacted by general market conditions, unanticipated changes
in expenses or sales, delays in the development of new products,
technological advances, the ability to find suitable and willing
technology partners or other changes in competitive or market
conditions.
o The Company's efforts to grow its international business--These
efforts may be impacted by economic, political and social
conditions in current and anticipated foreign markets, regulatory
conditions in such markets, unanticipated changes in expenses or
sales, changes in competitive conditions or other barriers to
entry or expansion.
CRITICAL ACCOUNTING POLICIES
The Company prepares the financial statements in conformity with
accounting principles generally accepted in the United States of America.
Therefore, the Company is required to make certain estimates, judgments and
assumptions that the Company believes are reasonable based upon the information
available. These estimates and assumptions affect the reported amounts of assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the periods presented. The accounting policies,
which Chromaline believes are the most critical to aid in fully understanding
and evaluating its reported financial results, include the following:
Accounts Receivable. The Company performs ongoing credit evaluations of
its customers and adjusts credit limits based upon payment history and the
customer's current credit worthiness, as determined by review of the current
credit information. The Company continuously monitors collections and payments
from its customers and maintains a provision for estimated credit losses based
upon historical experience and any specific customer collection issues that have
been identified. While such credit losses have historically been within
expectations and the provisions established, the Company cannot guarantee that
it will continue to experience the same collection history that has occurred in
the past.
Inventory. Inventories are valued at the lower rate of cost or market
value. The Company monitors its inventory for obsolescence and records
reductions in cost when required.
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 2002 COMPARED TO QUARTER ENDED SEPTEMBER 30, 2001
Sales. The Company experienced strong sales during the third quarter of
2002 of $2.97 million, which were 17.9% higher than the $2.52 million in sales
during the same period in 2001. Sales were strong across most geographical
markets and product lines.
Cost of Goods Sold. Cost of goods sold during the third quarter of 2002
was $1.76 million, or 59.2% of sales, compared to $1.51 million, or 59.8% of
sales, during the same period in 2001. Quarter over quarter margins were
essentially unchanged, ending the decrease the Company had experienced in this
area through the first quarter of 2002.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $900,750, or 30.3% of sales, in the third
quarter of 2002, from $938,540, or 37.3% of sales, for the same period in 2001.
Expenses were lower in the third quarter of 2002 due to decreased headcount,
travel, legal fees and automobile expenses. These lower expenses were partially
offset by higher trade show costs as the Company has increased its presence at
industry events in 2002. The third quarter of 2001 included a $15,000 increase
in the Company's bad debt allowance related to an increased presence in Asia.
The Company believes its bad debt allowance is adequate to cover potential
credit risks.
9
Research and Development Expenses. Research and development expenses
during the third quarter of 2002 were $194,000, or 6.5% of sales, versus
$198,000, or 7.9% of sales, for the same period in 2001. The reduction was due
to lower costs for production trials, lab supplies and consulting fees.
Interest Expense. The Company incurred minimal interest expense on a
$150,000 loan drawn from its revolving credit facility on June 20, 2002. This
draw funded a $125,000 royalty payment to Aicello, which was the second of two
royalty payments required under the license agreement made in January 2001. This
loan draw was completely repaid in July 2002.
Interest Income. Interest income for the third quarter of 2002 was
$10,000 compared to $11,000 for the same period in 2001. Interest is earned
primarily from government obligation revenue bonds of various municipalities and
school districts in the State of Minnesota.
Income Taxes. Income taxes increased to $41,000, or an effective rate
of 32%, during the third quarter of 2002, versus an income tax benefit of
$38,000, or an effective rate of 34%, for the third quarter of 2001.
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 2001
Sales. The Company's sales during the first nine months of 2002
increased to $8.92 million, or 10.5%, from $8.07 million in sales during the
same period in 2001. Sales were strong across most geographical markets and
product lines.
Cost of Goods Sold. Cost of goods sold during the first nine months of
2002 was $5.15 million, or 57.8% of sales, compared to $4.56 million, or 56.5%
of sales, during the same period in 2001. Changes in these costs as a percentage
of sales are driven primarily by a shift in product mix.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $2.87 million, or 32.2% of sales, in the
first nine months of 2002, from $2.98 million, or 36.9% of sales, for the same
period in 2001. The Company is seeking to control overhead costs in several
areas, including headcount, legal fees, travel, supplies and automobile
expenses. The first nine months of 2001 included a $60,000 increase in the
Company's bad debt allowance reflecting the risk associated with an increased
presence in Europe and India. It also included legal fees of $104,000 related to
negotiation of the license agreement with Aicello.
Research and Development Expenses. Research and development expenses
during the first nine months of 2002 were $561,000, or 6.3% of sales, versus
$599,000, or 7.4% of sales, for the same period in 2001. The reduction was due
to lower costs for production trials, lab supplies and consulting fees.
Interest Expense. The Company incurred minimal interest expense on a
$150,000 loan drawn from its revolving credit facility on June 20, 2002. This
draw funded a $125,000 royalty payment to Aicello, which was the second of two
royalty payments required under the license agreement made in January 2001. This
loan draw was completely repaid in July 2002.
Interest Income. Interest income decreased to $28,000 for the first
nine months of 2002 compared to $39,000 for the same period in 2001. The
decrease was due to the utilization of invested cash resources for the
repurchase of 23,500 shares of the Company's Common Stock in the first quarter
of 2002.
Income Taxes. Income taxes increased to $124,000, or an effective rate
of 34%, during the first nine months of 2002 from an income tax benefit of
$9,000, or an effective rate of 38%, for the same period in 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations principally with funds
generated from operations. These funds have been sufficient to cover the
Company's normal operating expenditures, annual capital requirements, and
research and development expenditures.
10
Cash and cash equivalents were $437,000 and $458,000 at September 30,
2002 and September 30, 2001, respectively. The Company generated $123,000 in
cash from operating activities during the nine months ended September 30, 2002
and generated $176,000 in cash from operating activities during the same period
in 2001. Cash provided by operating activities is primarily the result of
adjusting net income for non-cash depreciation and certain changes in working
capital requirements.
During the first nine months of 2002, trade receivables increased by
$547,000. The increase in receivables was driven primarily by substantially
higher sales over previous periods, as the second and third quarters of 2002
provided record sales for the Company. The Company believes that the quality of
its receivables is high and that strong internal controls are in place to
maintain proper collections. Inventory levels increased $56,000, mainly in
finished goods. Prepaid expenses increased $51,000, primarily due to a $125,000
prepaid royalty payment to Aicello. Accounts payable increased $94,000,
reflecting timing of payments for inventory to suppliers. Accrued expenses
increased $78,000, reflecting primarily the timing of compensation payments.
During the first nine months of 2001, trade receivables decreased by
$70,000 reflecting limited sales growth and an increased effort to reduce days
sales outstanding (DSO). Prepaid expenses increased $69,000 reflecting a
$150,000 prepaid royalty to Aicello in February 2001. Inventories increased
$213,000 due to an increase in raw materials and finished goods for several new
product launches. Accounts payable increased $35,000 and accrued expenses
increased $22,000.
The Company used $157,000 and provided $211,000, in cash for investing
activities during the nine months ended September 30, 2002 and September 30,
2001, respectively. During the first nine months of 2002, the Company purchased
$99,000 in capital equipment and business software. Also during this period, the
Company purchased, for $50,000, a license for technology applicable to its
abrasive etching business. During the first nine months of 2001, the Company
purchased $159,000 in capital equipment. During this same period, the Company
sold a portion of its investment holdings in general revenue obligation bonds.
These proceeds were used to participate in a $50,000 bridge loan to Apprise
Technologies of Duluth, Minnesota that converted into stock and warrants on July
1, 2001. These proceeds also funded the $150,000 prepaid royalty payment made to
Aicello as part of the license agreement and funded the $73,000 in prepaid
production costs to Apprise for a radiometer project.
During the first quarter of 2002, the Company repurchased 23,500 shares
of its outstanding Common Stock for $72,000. This is an ongoing program in which
the Company may repurchase up to 50,000 shares of its Common Stock on the open
market.
A bank line of credit exists providing for borrowings of up to
$1,250,000. Outstanding debt under this line of credit is collateralized by
accounts receivable and inventory and bears interest at 2.25 percentage points
over the 30-day LIBOR rate. The Company made a $150,000 draw on this line of
credit on June 20, 2002, primarily to cover a royalty payment to Aicello. The
Company repaid this draw during the month of July 2002.
The Company believes that current financial resources, its line of
credit, cash generated from operations and the Company's capacity for debt
and/or equity financing will be sufficient to fund current and anticipated
business operations. The Company also believes that its low debt levels and
available line of credit make it unlikely that a decrease in demand for the
Company's products would impair the Company's ability to fund operations. Future
activities undertaken to expand the Company's business may include acquisitions,
building expansion and additions, equipment additions, new product development
or pursuit of marketing opportunities.
CAPITAL EXPENDITURES
Through September 30, 2002, the Company spent $98,582 on capital
expenditures in 2002. This spending included plant equipment upgrades to improve
efficiency and reduce operating costs, additions to the Company's new business
software implemented in January 2002, the purchase of a new vehicle under the
Company's rotating replacement policy for outside salespeople and improvements
to the Company's trade show booths.
Commitments for additional capital expenditures of $25,000 include
ongoing manufacturing equipment upgrades, development equipment to modernize the
capabilities and processes of the Company's research and
11
development laboratory to improve measurement and quality control processes.
Total 2002 commitments are expected to be less than 2001 capital expenditures
and are expected to be funded with cash generated from operating activities.
INTERNATIONAL ACTIVITY
The Company markets its products to over 50 countries in North America,
Europe, Latin America, Asia and other parts of the world. Foreign sales were
approximately 30% of total sales for the three months ended September 30, 2002.
This compares with foreign sales of 29% of total sales during the same period in
2001. Sales to foreign markets for the nine months ended September 30, 2002 and
2001 were both 32% of total sales. The fluctuation of certain foreign currencies
has not significantly impacted the Company's operations because the Company's
foreign sales are not concentrated in any one region of the world. The Company
believes its vulnerability to uncertainties due to foreign currency fluctuations
and general economic conditions in foreign countries is not significant.
Substantially all of the Company's foreign transactions are negotiated,
invoiced and paid in U.S. dollars. A portion of the Company's foreign sales are
invoiced and paid in Euros. Chromaline has not implemented a hedging strategy to
reduce the risk of foreign currency translation exposures, which management does
not believe to be significant based on the scope and geographic diversity of the
Company's foreign operations as of September 30, 2002.
FUTURE OUTLOOK
Chromaline has invested over 6% of its sales dollars in research and
development over the past several years. The Company plans to maintain its
efforts in this area and expedite internal product development as well as form
technological alliances with outside experts to ensure commercialization of new
product opportunities.
In addition to its traditional emphasis on domestic markets, the
Company will continue efforts to grow its business internationally by attempting
to develop new markets and expanding market share where it has already
established a presence.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. The Company's
Chief Executive Officer and its Chief Financial Officer, after evaluating the
effectiveness of the Company's disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14(c) and 15d-14(c)) on a date within 90 days before the
filing date of this quarterly report, have concluded that, as of such date, the
Company's disclosure controls and procedures were adequate and effective to
ensure that material information relating to the Company would be made known to
them by others within the Company.
(b) Changes in internal controls. There were no significant changes in
the Company's internal controls or in other factors that could significantly
affect the Company's internal controls subsequent to the date of their
evaluation, nor were there any significant deficiencies or material weaknesses
in the Company's internal controls. As a result, no corrective actions were
required or undertaken.
12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following exhibits are filed as part of this Quarterly Report on
Form 10-QSB for the quarterly period ended September 30, 2002:
Exhibit Description
- ------- -----------
3.1 Restated Articles of Incorporation of Company, as amended.1
3.2 By-Laws of the Company, as amended.1
11 Computation of Net Earnings per Common Share
99 Certification under Section 906 of the Sarbanes-Oxley Act.
Copies of Exhibits will be furnished upon request and payment of the
Company's reasonable expenses in furnishing the Exhibits.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the registrant during the
quarterly period ended September 30, 2002.
- --------
1 Incorporated by reference to the like numbered Exhibit to the Company's
Registration Statement on Form 10-SB (File No. 000-25727).
13
THE CHROMALINE CORPORATION
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE CHROMALINE CORPORATION
DATE: November 13, 2002 By: /s/ Jeffery A. Laabs
--------------------------------
Jeffery A. Laabs,
Chief Financial Officer,
Treasurer and Secretary
(Duly authorized officer and
Principal Financial Officer)
14
CERTIFICATIONS PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, William C. Ulland, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of The Chromaline
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 13, 2002
/s/ William C. Ulland
-------------------------------------
William C. Ulland
Chairman, Chief Executive Officer
and President
15
CERTIFICATIONS PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Jeffery A. Laabs, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of The Chromaline
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 13, 2002
/s/ Jeffery A. Laabs
-------------------------------------
Jeffery A. Laabs
Chief Financial Officer, Treasurer
and Secretary
16
INDEX TO EXHIBITS
Exhibit Description Page
- ------- ----------- ----
3.1 Restated Articles of Incorporation of Company, as amended...................... Incorporated by Reference
3.2 By-Laws of the Company, as amended............................................. Incorporated by Reference
11 Computation of Net Earnings per Common Share................................... Filed Electronically
99 Certification Under Section 906 of the Sarbanes-Oxley Act...................... Filed Electronically
17