SECURITIES AND EXCHANGE COMMISSION
                      WASHINGTON, DC 20549

                          FORM 10-QSB

     [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934

         For the quarterly period ended August 31, 2006

     [ ] TRANSITION REPORT UNDER 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 Small Business Issuer as Specified in its Charter)

New Jersey                                               22-2547226
(State or Other Jurisdiction                       (I.R.S. Employer
of Incorporation or                                  Identification
Organization)                                               Number)

                      358-364 Adams Street
                    Newark, New Jersey 07105
            (Address of Principal Executive Offices)

                         (973) 465-9495
        (Issuer's Telephone Number, Including Area Code)

Check  whether  the Issuer (1) filed all reports required  to  be
filed by Section 13 or 15(d) of the Exchange Act during the  past
12  months  (or  for such shorter period that the Registrant  was
required to file such reports), and (2) has been subject to  such
filing requirements for the past 90 days.

                  Yes   [  X   ] No   [      ]

Indicate by check mark whether the Issuer is a shell company  (as
defined by Rule 12b-2 of the Exchange Act).

                 Yes    [      ] No   [  X   ]

State  the  number of shares outstanding of each of  the  Issuers
classes of common equity, as of the latest practicable date:
Common, no par value per share: 11,966,355 outstanding as of
October 1, 2006

<PAGE>


                          EPOLIN, INC.

                        TABLE OF CONTENTS

                                                            Page
PART I - FINANCIAL INFORMATION

Item  1.   Financial Statements.                              3
Item  2.   Management's Discussion and Analysis or Plan
           of Operation.                                      3
Item  3.   Controls and Procedures.                           8

PART II - OTHER INFORMATION

Item  1.   Legal Proceedings.                                 9
Item  2.   Unregistered Sales of Equity Securities
           and Use of Proceeds.                               9
Item  3.   Default   upon   Senior   Securities.              9
Item  4.   Submission of Matters to a Vote of Security
           Holders.                                           9
Item  5.   Other Information.                                 9
Item  6.   Exhibits.                                          9

SIGNATURES                                                    10

<PAGE>



                 PART I - FINANCIAL INFORMATION


Item 1.   Financial Statements.

      See  the Consolidated Financial Statements annexed to  this
report.


Item  2.    Management's  Discussion  and  Analysis  or  Plan  of
Operation.

     The  following discussion should be read in conjunction with
the Financial Statements included in this report and is qualified
in its entirety by the foregoing.

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 under the caption "Uncertainties  and
Risk Factors" in Part I, Item 1 "Description of Business" of  the
Company's Form 10-KSB for the year ended February 28, 2006.   The
Company   does   not  intend  to  update  these   forward-looking
statements.

Executive Overview

     Epolin,  Inc.  (the  "Company") is  a  specialized  chemical
company   primarily  engaged  in  the  manufacturing,  marketing,
research  and development of infrared dyes, laser absorbing  dyes
and  infrared 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.   We  also
manufacture    specialty   chemicals   for    certain    chemical
manufacturers.

      We have succeeded in growing over the last decade based  on
the  development,  application and manufacture of  near  infrared
dyes.  Although we do not rely upon patents for protection of our
dye  business, no competitors, to our knowledge, actively  market
the  large  variety and volume of infrared dyes as  sold  by  us.
Furthermore, we have embarked on an aggressive campaign  to  make
our  dyes  easier  to  use.  In this regard, we  offer  technical
service  support for extrusion and injection molding of our  dyes
with a variety of resin substrates.  Our dyes can now be uniquely
formulated to each customer's specifications and manufactured  in
our own facility.  In addition, we hold a broad range of dyes  in
inventory for immediate sale.

      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.   As  the  service economy  continues  to  dwarf  the
manufacturing sector in the United States, we anticipate that our
products  will  be  increasingly used  by  manufacturers  located
abroad.    During  the  six  months  ended  August    31,   2006,
approximately  40.8%  of sales were to four  customers.   Two  of
these  customers, located in the Eastern United States, accounted
for 26.9% of sales.  During the six months ended August 31, 2005,
approximately  46.3%  of sales were to four  customers.   Two  of
these  customers, located in the Eastern United States, accounted
for  35.1% of sales.  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 August 31, 2006 and 2005 and six months ended August
31, 2006 and 2005.

<PAGE>




                         Three Months Ended August 31,

                               2006        2005           % change

Sales                          $ 950,911   $ 859,572       10.6%

Gross profit                     517,784     523,768       -1.1%

Gross profit percentage             54.5%       60.9%       6.4%

Selling, general
& administrative                 352,379     337,507        4.4%
                                 -------     -------

Operating income                 165,405     186,261      -11.2%
Other Income                      29,424      13,756      113.9%
                                 -------     -------

Income before taxes              194,829     200,017       -2.6%

Income taxes                      73,780      81,145       -9.1%

Net income (after taxes)       $ 121,049   $ 118,872        1.8%
                               =========   =========


                         Six Months Ended August 31,

                               2006         2005           % change

Sales                         $2,044,981  $ 1,665,871        22.8%

Gross profit                   1,172,936      980,516        19.6%

Gross profit percentage             57.4%        58.9%       -1.5%

Selling, general
& administrative                 648,495      588,564        10.2%

                                 -------      -------
Operating income                 524,441      391,952        33.8%
Other Income                      39,466       20,825        89.5%
                                 -------      -------

Income before taxes              563,907      412,777        36.6%

Income taxes                     216,959      155,753        39.3%

Net income (after taxes)      $  346,948    $ 257,024        35.0%
                              ==========    =========

Sales

      For  the  three  months ended August 31, 2006,  sales  were
$951,000  as  compared  to $860,000 for the  three  months  ended
August  31,  2005,  an  increase  of  $91,000  or  10.6%.   Sales
increased to $2,045,000 for the six months ended August 31,  2006
from  $1,666,000  for the six months ended August  31,  2005,  an
increase   of  $379,000  or  22.8%.   During  fiscal  2006,   and
continuing  through  the  second  quarter  of  fiscal  2007,   we
experienced strong increases in sales in our newer product areas,
such  as  our  newer security inks and codings  products.   While
sales  overseas remained relatively stagnant for the  six  months
ended August 31, 2006 compared to the six months ended August 31,
2005,  sales in the United States for the six months ended August
31,  2006  increased $363,000 compared to the prior year  period.
Sales  in Asia increased $37,000 for the six months ended  August
31, 2006 compared to the prior year period, while sales decreased
$28,000  in  Europe  for  the six months ended  August  31,  2006
compared to the same period of the prior year.

<PAGE>

     Beginning in fiscal 2006, we began to place greater emphasis
on  technical  service as mentioned above which has  resulted  in
sales to customers who have not used our products before, as well
as  new uses of such dye products by regular customers.  We  have
also  increased  our  sales in dyes for the newer  security  inks
products which is an area we expect to achieve strong growth.

Gross Profit

      Gross  profit,  defined as sales less cost  of  sales,  was
$518,000 or 54.5% of sales for the three months ended August  31,
2006  compared  to $524,000 or 60.9% for the three  months  ended
August 31, 2005.  For the six months ended August 31, 2006, gross
profit  was $1,173,000 or 57.4% of sales compared to $981,000  or
58.9%  of  sales for the six months ended August  31,  2005.   In
terms of absolute dollars, gross profit decreased $6,000 for  the
three  months  ended August 31, 2006 compared to the  prior  year
period,  and  increased $192,000 for the six months ended  August
31,  2006 compared to the prior year period.  As a percentage  of
sales,  gross  profit decreased 5.4% and 1.5%, respectively,  for
the  three and six months ended August 31, 2006 compared  to  the
prior  year  periods  due primarily to an  increase  in  cost  of
materials  and  factory  overhead and lower  margins  on  certain
products.

     Cost of sales was $433,000 for the three months ended August
31,  2006  which represented 45.5% of sales compared to  $336,000
for  the  three  months ended August 31, 2005  which  represented
39.1%  of sales.  For the six months ended August 31, 2006,  cost
of  sales was $872,000 which represented 42.6% of sales, compared
to  $685,000  for  the  six months ended August  31,  2005  which
represented  41.1%  of sales.  Total cost of materials  increased
$127,000 in the six months ended August 31, 2006 compared to  the
prior year period.  Total factory overhead also increased $60,000
in  the  six months ended August 31, 2006 compared to  the  prior
year   period   primarily  due  to  increases  in  research   and
development salaries, and increases in applied factory overhead.

Selling, General and Administrative Expenses

      Selling,  general and administrative expenses increased  to
$352,000 or 37.1% of sales, for the three months ended August 31,
2006 from $338,000, or 39.3% of sales, for the three months ended
August  31, 2005, an increase of $14,000.   Selling, general  and
administrative expenses increased to $648,000 or 31.7% of  sales,
for  the six months ended August 31, 2006 from $589,000 or  35.3%
of sales for the six months ended August 31, 2005, an increase of
$59,000.   Such increase in absolute dollars in selling,  general
and  administrative expenses for the six months ended August  31,
2006  compared  to  the prior year period was  primarily  due  to
increases  in  salaries and employee benefits.   During  the  six
months  ended  August 31, 2006 we had a substantial  increase  in
health  insurance premiums.  However, as a percentage  of  sales,
selling,  general and administrative expenses decreased 2.2%  and
3.6%, respectively, for the three and six months ended August 31,
2006 compared to the prior year periods.

Operating Income

      Operating income in terms of absolute dollars, decreased to
$165,000 for the three months ended August 31, 2006 from $186,000
for  the  prior  year  period, a decrease  of  $21,000,  although
operating  income  for  the  six months  ended  August  31,  2006
increased to $524,000 from $392,000 for the prior year period, an
increase  of $132,000.  This increase was due to increased  sales
for  the periods, offset by lesser increases in cost of sales and
selling,  general and administrative expenses.   As a  percentage
of  sales, operating income decreased to 17.4% of sales  for  the
three  months ended August 31, 2006 from 21.6% of sales  for  the
three  months  ended August 31, 2005.  For the six  months  ended
August  31,  2006, operating income increased as a percentage  of
sales  to  25.7% from 23.6% for the six months ended  August  31,
2005.

Other Income

      Total  other income for the three months ended  August  31,
2006  was  $29,000  as compared to $14,000 for the  three  months
ended  August  31, 2005.  Total other income for the  six  months
ended August 31, 2006 was $39,000 as compared to $21,000 for  the
six  months ended August 31, 2006.  We realized rental income  of
$8,000 and $12,000 for the three and six months ended August  31,
2006  compared  to rental income of $9,000 and  $12,000  for  the
comparable  periods  of 2005.  Our interest income  increased  to
$22,000 and $27,000 for the three and six months ended August 31,
2006 from $5,000 and $9,000 for the prior year periods.

<PAGE>

Net Income

      During  the three months ended August 31, 2006, we reported
income  before  taxes of $195,000 as compared  to  income  before
taxes  of  $200,000 for the three months ended August  31,  2005.
During  the six months ended August 31, 2006, we reported  income
before  taxes of $564,000 as compared to income before  taxes  of
$413,000 for the six months ended August 31, 2005.  Income  taxes
were  $74,000  and  $217,000 for the three and six  months  ended
August  31, 2006 compared to income taxes of $81,000 and $156,000
for the three and six months ended August 31, 2005.  The increase
in  income taxes was generally attributed to changes from  period
to  period  in  sales and expenses.  Net income after  taxes  was
$121,000 or $0.01 per share for the three months ended August 31,
2006  as compared to net income after taxes of $119,000 or  $0.01
per  share for the three months ended August 31, 2005.   For  the
six  months  ended August 31, 2006, net income  after  taxes  was
$347,000 or $0.03 per share as compared to net income after taxes
of  $257,000  or $0.02 per share for the six months ended  August
31,  2005.   The increase in net income after taxes was primarily
due  to  greater  increases achieved in  sales  compared  to  the
increases   in   cost   of  sales,  and  selling,   general   and
administrative expenses.

      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.

Operations Outlook

      Since  fiscal 2005, we have been going through a period  of
reassessing  our  direction in order to increase  value  for  our
shareholders.  Our business, though reasonably healthy,  did  not
grow  to  the  degree management anticipated from 2002  to  2005.
While  the  sales level of $2,880,000 reached during fiscal  2005
was  at  the  time an all time high for the Company, it  was  not
significantly  more  than the sales level  we  achieved  in  2004
($2,734,000), 2003 ($2,690,000) or 2002 ($2,550,000). The plateau
of  sales  during that four years was in contrast to the  greater
sales  growth the Company experienced in certain years  prior  to
2002.   Based  upon these observations, we tried  to  learn  what
could  be  done to stimulate growth and recapture the promise  of
our  early years.  As a result, we assembled a business plan  and
began to make changes consistent with such plan.  The plan showed
us  that developments coming out of our R&D were not reaching the
marketplace and therefore, not commanding their proper attention.
Through this teamwork of R&D with marketing, we revamped our  web
site,  streamlined our pricing structure and reached out  to  our
key customers and agents. We believe the business plan made clear
the  necessity of hiring a Sales/Marketing executive  along  with
back   up  technical  service  help,  both  of  which  have  been
accomplished.   In  order to cover the cost of  these  additional
personnel  and  place a greater emphasis on  company  growth,  we
suspended in fiscal 2005 the cash dividends program which we  had
been in place during fiscal 2002, 2003 and 2004 in order to place
greater  emphasis on business growth.  With the increase that  we
achieved in sales in fiscal 2006 of $3,701,000 which was $821,000
or  28.5% greater than the prior year, and the increase in  sales
in  the  first  six months of fiscal 2007 which was  $379,000  or
22.8%  greater than the prior year period, we are confident  that
we will be able to successfully accomplish our long term goals.

      Another factor that was considered in the business plan was
management  succession.  Murray S. Cohen, the Company's  Chairman
of   the   Board  and  our  long-time  Chief  Executive  Officer,
previously  announced  his  intention  to  step  down  as   Chief
Executive Officer, while continuing to remain as Chairman of  the
Board  and  Chief Scientist for the Company.  As of  January  10,
2006,  Dr.  Cohen did step down as CEO, and Greg Amato,  who  has
been our Vice President of Sales and Marketing, was appointed  to
fill  this position.  Mr. Amato has been employed by the  Company
since  November  2004 and had been Vice President  of  Sales  and
Marketing since January 2005.

Liquidity and Capital Resources

      Our primary source of funds is cash flow from operations in
the  normal course of selling products.  On August 31,  2006,  we
had working capital of $2,717,000, a debt to equity ratio of 0.14
to  1,  and stockholders equity of $3,616,000 compared to working
capital  of $2,269,000 a debt to equity ratio of 0.15 to  1,  and
stockholders equity of $3,119,000 on August 31, 2005.  On  August
31,  2006, we had $1,667,000 in cash and cash equivalents,  total
assets  of $4,131,000 and total liabilities of $514,000, compared
to  $1,275,000  in  cash and cash equivalents,  total  assets  of

<PAGE>

$3,588,000 and total liabilities of $469,000 on August 31, 2005.

     Net cash provided by operating activities for the six months
ended August 31, 2006 was $441,000 which was primarily the result
of  net income of $347,000, plus decreases in accounts receivable
of  $58,000,  inventories  of $27,000  and  prepaid  expenses  of
$44,000,  offset by a decrease in accrued expenses  of  $151,000.
Net  cash  provided by operating activities for  the  six  months
ended August 31, 2005 was $407,000 which was primarily the result
of  net income of $257,000, plus decreases in accounts receivable
of  $118,000,  inventories of $52,000  and  prepaid  expenses  of
$33,000,  offset  by a decrease in accrued expenses  of  $95,000.
Net  cash  used by investing activities for the six months  ended
August  31,  2006 was $55,000 compared to $128,000  for  the  six
months ended August 31, 2005 which change was primarily due to  a
decrease in equipment purchases.  For the six months ended August
31,  2006, net cash used by financing activities was $235,000 and
was  $236,000 for the six months ended August 31, 2005 which  was
due  to the payment of dividends which occurred in both the first
six months of 2007 and the first six months of 2006.

      We  anticipate,  based  on  currently  proposed  plans  and
assumptions relating to our operations, that our current cash and
cash   equivalents  together  with  projected  cash  flows   from
operations  and projected revenues will be sufficient to  satisfy
its  contemplated  cash requirements for more than  the  next  12
months.   Our contemplated cash requirements for fiscal 2007  and
beyond will depend primarily upon level of sales of our products,
inventory   levels,  product  development,  sales  and  marketing
expenditures  and  capital expenditures.  While  we  believe  the
Company  has  remained  strong  in  the  sale  of  dyes  in   our
traditional markets of welding and eye protection, such sales did
not increase in volume in the past few complete fiscal years.  As
a  result,  we have begun to place a greater emphasis  on  sales,
marketing and technical support in order to grow our dye business
and  our  newer business in security inks and coatings  which  we
expect to contribute meaningful growth to the Company.

     Inflation has not significantly impacted our operations.

Significant Accounting Policies

      Our  discussion  and  analysis of the  Company's  financial
condition   and  results  of  operations  are  based   upon   our
consolidated  financial statements which have  been  prepared  in
conformity  with  U.S. generally accepted accounting  principles.
Our  significant accounting policies are described in Note  B  to
the  consolidated financial statements included elsewhere herein.
The   application   of  our  critical  accounting   policies   is
particularly important to the portrayal of our financial position
and  results  of operations.  These critical accounting  policies
require  us  to  make  estimates and judgments  that  affect  the
reported  amounts of assets, liabilities, revenues and  expenses,
and related disclosure of contingent assets and liabilities.   We
believe  the  following critical accounting policies reflect  the
more  significant judgments and estimates used in the preparation
of the consolidated financial statements.

      Inventories  -  Our inventories consist of raw  materials,
work  in process, finished goods and supplies which we value  at
the  lower  of  cost  or  market under the  first-in,  first-out
method.

      Plant,  Property and Equipment - Our plant,  property  and
equipment  are  stated  at  cost.  We  compute  provisions   for
depreciation  on  the  straight-line  methods,  based  upon  the
estimated  useful  lives  of  the  various  assets.    We   also
capitalize the costs of major renewals and betterments.  Repairs
and  maintenance  are charged to operations  as  incurred.  Upon
disposition,  the cost and related accumulated depreciation  are
removed and any related gain or loss is reflected in earnings.

      Income taxes - We account for income taxes under Statement
of  Financial  Accounting  Standards No.  109,  "Accounting  for
Income  Taxes", in which the asset and liability method is  used
in accounting for income taxes.  We recognize deferred taxes for
temporary   differences  between  the  basis   of   assets   and
liabilities for financial statement and for income tax purposes.
Temporary  differences relate primarily to different  accounting
methods  used for depreciation and amortization of property  and
equipment and deferred compensation.

      Revenue Recognition - We recognize revenue consistent  with
the provisions of SEC Staff Accounting Bulletin No. 104, "Revenue
Recognition",  which  sets  forth guidelines  in  the  timing  of
revenue recognition based upon factors such as passage of  title,
payments  and customer acceptance. Any amounts received prior  to
satisfying  our revenue recognition criteria will be recorded  as
deferred  revenue in the accompanying balance sheet. We recognize
revenue from product sales when there is persuasive evidence that
an  arrangement exists, when title has passed, the price is fixed
or  determinable, and we are reasonably assured of collecting the
resulting  receivable. Our policy is to replace certain

<PAGE>


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 have adopted disclosure-only
provisions   of   SFAS  No.  123  "Accounting   for   Stock-Based
Compensation,"  and  SFAS  No. 148, "Accounting  for  Stock-Based
Compensation - Transition and Disclosure - an Amendment  of  FASB
Statement No. 123."  Compensation cost for stock options, if any,
is measured as the excess of the quoted market price of the stock
at  the  date  of grant over the amount an employee must  pay  to
acquire the stock.

      In  December  2004, the FASB issued Statement of  Financial
Accounting Standards ("SFAS") No. 123(R), "Share-Based  Payment".
SFAS  123R revises SFAS No. 123 and supersedes APB 25 to  require
companies  to  measure and recognize in operations  the  cost  of
employee  services received in exchange for an  award  of  equity
instruments based on the grant-date fair value.  That  cost  will
be recognized over the vesting period during which an employee is
required  to  provide  service in exchange  for  the  award.   On
April  14, 2005, the Securities and Exchange Commission issued  a
ruling  that  amended  the effective date for  SFAS  123R.  As  a
result, we adopted SFAS 123R on March 1, 2006.

Other Information

           As  mentioned above, we did not pay any cash dividends
during  the  fiscal year ended February 28, 2005 but did  declare
and  pay a $0.02 cash dividend in August 2005.  Subsequent to the
end  of  fiscal  2006, the Company approved  the  adoption  of  a
dividend  policy  under which the Company will  issue  a  regular
annual  cash dividend on shares of its Common Stock.  The  amount
of  the dividend, record date and payment date will be subject to
approval  every  year by the Board of Directors.   In  accordance
with  the  new  dividend  policy, in April  2006,  the  Board  of
Directors declared and the Company paid the first regular  annual
cash  dividend of $0.02 per share in May 2006.  Subject to future
analyses  of  our  cash resources and projected cash  needs,  the
Board  of  Directors  may declare the issuance  of  special  cash
dividends  from  time to time in addition to the payment  of  the
regular  annual  dividend.  In this regard, and in  view  of  our
current cash position, we anticipate that we will issue a special
cash  dividend in the fourth quarter of fiscal 2007  (the  period
from December 1, 2006 to February 28, 2007).

Off-Balance Sheet Arrangements

     The Company has no off-balance sheet arrangements as defined
in Item 303(c) of Regulation S-B.


Item 3.   Controls and Procedures.

      Management  has  evaluated, with the participation  of  our
Principal Executive Officer and Principal Financial Officer,  the
effectiveness  of  our  disclosure controls  and  procedures  (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) as of  the
end  of  the  period  covered by this report.   Based  upon  this
evaluation,   our  Principal  Executive  Officer  and   Principal
Financial  Officer concluded that, as of the end  of  the  period
covered  by  this report, our disclosure controls and  procedures
were  effective  to  ensure  that  information  required  to   be
disclosed  by  us  in  the reports we file or  submit  under  the
Exchange  Act  is  recorded, processed, summarized  and  reported
within  the time periods specified in the Commission's rules  and
forms.   There  have been no significant changes in our  internal
controls 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.

      There  have been no significant 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.

<PAGE>

                   PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

     There are no material pending legal proceedings to which the
Company is a party or to which any of its property is subject.


Item 2.  Unregistered  Sales of Equity Securities  and  Use  of
         Proceeds.

      During  the  three months ended May 31, 2006,  the  Company
issued  31,000 shares of Common Stock upon exercise of previously
granted  stock options at an aggregate exercise price of  $8,710.
All  of the foregoing securities were issued in reliance upon the
exemption  from  registration pursuant to  Section  4(2)  of  the
Securities  Act  of  1933, as amended, for "transactions  by  the
issuer  not  involving  any  public offering".   Other  than  the
foregoing, no additional unregistered shares of equity securities
were issued by the Company during the six months ended August 31,
2006.

      There were no repurchases made by the Company of shares  of
its  Common Stock during the quarter ended August 31, 2006.    In
August  2001, the Board of Directors of the Company authorized  a
500,000  share  stock  repurchase  program.   Pursuant   to   the
repurchase program, the Company may purchase up to 500,000 shares
of its common stock in the open market or in privately negotiated
transactions  from  time to time, based on  market  prices.   The
Company indicated that the timing of the buyback of the Company's
shares   will  be  dictated  by  overall  financial  and   market
conditions  and  other corporate considerations.  The  repurchase
program  may  be suspended without further notice.   Although  no
repurchases  were made by the Company under this  program  during
the  quarter ended August 31, 2006, during the three months ended
May  31,  2006,  a  total of 5,000 shares were repurchased  at  a
cumulative cost of $4,550.  Since August 2001, a total of 306,500
shares  have  been repurchased under the program at a  cumulative
cost of $174,766.


Item 3.  Defaults Upon Senior Securities.

     None.


Item 4.  Submission of Matters to a Vote of Security-Holders.

     On July 27, 2006,  an  annual  meeting   of stockholders was
held to elect five Directors  to  serve as the Board of Directors
of  the Company until the next Annual   Meeting  of  Stockholders
and    until    their  successors  shall  be  elected  and  shall
qualify.   At  such  meeting, Murray S. Cohen,  James   Ivchenko,
Morris  Dunkel, James R.  Torpey, Jr. and Herve A. Meillat,  each
an  incumbent  director, were duly elected as  directors  of  the
Company.   Each  of  Murray S. Cohen and James Ivchenko  received
10,174,185  affirmative votes and 15,000 negative  votes,  Morris
Dunkel  received 10,179,185 affirmative votes and 10,000 negative
votes,  and  each of James  R. Torpey, Jr.  and Herve A.  Meillat
received 10,188,185affirmative votes and 1,000 negative votes.


Item 5.  Other Information.

          None.


Item 6.  Exhibits.

          31.1   Certification  of  Principal  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)

                           SIGNATURES

     In accordance with the requirements of the Exchange Act, the
Registrant caused this Report to be signed on its behalf  by  the
undersigned thereunto duly authorized.


                                   EPOLIN, INC.
                                   (Registrant)



Dated: October 13, 2006           By:  /s/ Murray  S. Cohen
                                  Murray S. Cohen,
                                  Chairman of the Board



Dated: October 13, 2006           By:  /s/ James Ivchenko
                                  James Ivchenko,
                                  President
                                  (Principal Financial Officer)





                           EPOLIN, INC. AND SUBSIDIARY

                              FINANCIAL STATEMENTS

                    SIX MONTHS ENDED AUGUST 31, 2006 AND 2005

<PAGE>

                                    CONTENTS






Page

----

Accountant's Review Report                                                  1

Consolidated Financial Statements:

    Consolidated Balance Sheets                                           2 - 3

    Consolidated Statements of Income                                     4 - 5

    Consolidated Statements of Stockholders' Equity                         6

    Consolidated Statements of Cash Flows                                   7

Notes to Consolidated Financial Statements                                8 - 22

<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To the Board of Directors and Stockholders
EPOLIN INC. AND SUBSIDIARY
Newark, NJ

     We have reviewed the accompanying Consolidated Balance Sheets of Epolin
Inc. and Subsidiary as of August 31, 2006 and 2005 and the related Consolidated
Statements of Income, Stockholders' Equity, and Cash Flows for the six-month
periods then ended. These interim financial statements are the responsibility of
the Company's management.

     We conducted our review in accordance with the standards of the Public
Company Accounting Oversight Board (United States). A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting matters. It
is substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.

     Based on our review, we are not aware of any material modifications that
should be made to the accompanying interim financial statements for them to be
in conformity with U.S. generally accepted accounting principles.








/s/ WEISMANN ASSOCIATES LLC
---------------------------
Weismann Associates LLC
Livingston, NJ 07039


October 4, 2006

                                        1
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

                                                             August 31,
                                                     ---------------------------
Current assets:                                          2006           2005
                                                     ------------   ------------
  Cash and cash equivalents                          $  1,666,834      1,275,041
  Accounts receivable                                     637,607        434,625
  Inventories                                             621,112        698,282
  Prepaid expenses                                         19,037         16,898
  Prepaid taxes                                                --          7,299
  Deferred tax assets-current portion                       6,358          5,891
                                                     ------------   ------------

      Total current assets                              2,950,948      2,438,036
                                                     ------------   ------------

Plant, property and equipment - at cost:
  Land                                                     81,000         81,000
  Building and improvements                               707,561        662,288
  Laboratory equipment                                    266,263        194,135
  Office equipment                                        117,491        107,020
  Leasehold improvements                                  449,190        449,190
                                                     ------------   ------------

      Total                                             1,621,505      1,493,633

  Less:  Accumulated depreciation and amortization        822,945        766,002
                                                     ------------   ------------

      Net plant, property and equipment                   798,560        727,631
                                                     ------------   ------------

Other assets:
  Deferred tax assets-non current portion                 159,479        189,683
  Cash value - life insurance policy                      221,557        232,492
                                                     ------------   ------------

      Total other assets                                  381,036        422,175
                                                     ------------   ------------

      Total                                          $  4,130,544      3,587,842
                                                     ============   ============

        The accompanying notes are an integral part of these statements.

                                        2
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                             August 31,
                                                                    ---------------------------
                                                                        2006           2005
                                                                    ------------   ------------
<S>                                                                 <C>                  <C>
Current liabilities:
  Accounts payable                                                  $     30,767         17,565
  Accrued expenses                                                       156,460        148,090
  Taxes payable:
    Payroll                                                                1,653          1,653
    Income                                                                45,130          1,331
                                                                    ------------   ------------

    Total current liabilities                                            234,010        168,639
                                                                    ------------   ------------


Other liabilities - Deferred compensation                                280,178        300,129
                                                                    ------------   ------------


       Total liabilities                                                 514,188        468,768
                                                                    ------------   ------------

Commitments and Contingencies

Stockholders' equity:
  Preferred stock, $15.513 par value; 940,000 shares authorized;
    none issued
  Preferred stock, series A convertible non-cumulative,
    $2.50 par value; redemption price and liquidation preference;
    60,000 shares authorized; 5,478 shares issued and redeemed
  Common stock, no par value; 20,000,000 shares authorized;
    12,890,000 and 12,729,000 shares issued, 11,966,355 and
    11,815,355 shares outstanding at 2006 and 2005, respectively       2,357,193      2,340,183
    Paid-in capital                                                       49,913          6,486
    Retained earnings                                                  1,539,332      1,094,337
                                                                    ------------   ------------

       Total                                                           3,946,438      3,441,006
    Less: Treasury stock-at cost                                         330,082        321,932
                                                                    ------------   ------------

      Total stockholders' equity                                       3,616,356      3,119,074
                                                                    ------------   ------------

      Total                                                         $  4,130,544      3,587,842
                                                                    ============   ============
</TABLE>

        The accompanying notes are an integral part of these statements.

                                        3
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                        CONSOLIDATED STATEMENTS OF INCOME
                    SIX MONTHS ENDED AUGUST 31, 2006 AND 2005

<TABLE>
<CAPTION>
                                                             2006           2005
                                                         ------------   ------------
<S>                                                      <C>               <C>
Sales                                                    $  2,044,981      1,665,871
                                                         ------------   ------------

Cost of sales and expenses:
  Cost of sales                                               872,045        685,355
  Selling, general and administrative                         648,495        588,564
                                                         ------------   ------------

     Total                                                  1,520,540      1,273,919
                                                         ------------   ------------

Operating income                                              524,441        391,952
                                                         ------------   ------------

Other income:
  Rental income                                                12,000         12,000
  Interest                                                     27,466          8,825
                                                         ------------   ------------

     Total other income                                        39,466         20,825
                                                         ------------   ------------

Income before taxes                                           563,907        412,777

Income taxes                                                  216,959        155,753
                                                         ------------   ------------

Net income                                               $    346,948        257,024
                                                         ============   ============

Per share data:
  Basic earnings per common share                        $       0.03           0.02
                                                         ============   ============

  Fully diluted earnings per common share                        0.03           0.02
                                                         ============   ============

  Weighted average number of common shares outstanding     11,966,355     11,815,355
                                                         ============   ============
</TABLE>

        The accompanying notes are an integral part of these statements.

                                        4
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF INCOME
                   THREE MONTHS ENDED AUGUST 31, 2006 AND 2005


<TABLE>
<CAPTION>
                                                             2006           2005
                                                         ------------   ------------
<S>                                                      <C>                 <C>
Sales                                                    $    950,911        859,572
                                                         ------------   ------------

Cost of sales and expenses:
  Cost of sales                                               433,127        335,804
  Selling, general and administrative                         352,379        337,507
                                                         ------------   ------------

     Total                                                    785,506        673,311
                                                         ------------   ------------

Operating income                                              165,405        186,261
                                                         ------------   ------------

Other income:
  Rental income                                                 7,500          9,000
  Interest                                                     21,924          4,756
                                                         ------------   ------------

     Total other income                                        29,424         13,756
                                                         ------------   ------------

Income before taxes                                           194,829        200,017

Income taxes                                                   73,780         81,145
                                                         ------------   ------------

Net income                                               $    121,049        118,872
                                                         ============   ============

Per share data:
  Basic earnings per common share                        $       0.01           0.01
                                                         ============   ============

  Fully diluted earnings per common share                $       0.01           0.01
                                                         ============   ============

  Weighted average number of common shares outstanding     11,966,355     11,815,355
                                                         ============   ============
</TABLE>

        The accompanying notes are an integral part of these statements.

                                        5
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                    SIX MONTHS ENDED AUGUST 31, 2006 AND 2005


<TABLE>
<CAPTION>
                            Number of                     Additional
                           Outstanding       Common        Paid-in-       Retained        Treasury       Treasury      Stockholders'
                              Shares         Stock         Capital        Earnings         Shares          Costs          Equity
                           ------------   ------------   ------------   ------------    ------------   ------------    ------------

<S>                          <C>          <C>                   <C>        <C>               <C>           <C>            <C>
Balance - March 1, 2005      12,729,000   $  2,340,183          6,486      1,073,620         913,645       (321,932)      3,098,357

Dividends paid                       --             --             --       (236,307)             --             --        (236,307)

Net income                           --             --             --        257,024              --             --         257,024
                           ------------   ------------   ------------   ------------    ------------   ------------    ------------

Balance - August 31, 2005    12,729,000   $  2,340,183          6,486      1,094,337         913,645       (321,932)      3,119,074
                           ============   ============   ============   ============    ============   ============    ============



Balance - March 1, 2006      12,859,000   $  2,348,483          6,486      1,431,711         918,645       (325,532)      3,461,148

Dividends paid                       --             --             --       (239,327)             --             --        (239,327)

Common stock issued for
  stock option                   31,000          8,710         43,427             --              --             --          52,137

Treasury stock purchased             --             --             --             --           5,000         (4,550)         (4,550)

Net income                           --             --             --        346,948              --             --         346,948
                           ------------   ------------   ------------   ------------    ------------   ------------    ------------

Balance - August 31, 2006    12,890,000   $  2,357,193         49,913      1,539,332         923,645       (330,082)      3,616,356
                           ============   ============   ============   ============    ============   ============    ============
</TABLE>

        The accompanying notes are an integral part of these statements.

                                        6
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                    SIX MONTHS ENDED AUGUST 31, 2006 AND 2005


<TABLE>
<CAPTION>
                                                                    2006            2005
                                                                ------------    ------------
<S>                                                             <C>                  <C>
Cash flows from operating activities:
  Net income                                                    $    346,948         257,024
  Adjustments to reconcile net income to net cash provided by
  operating activities:
    Depreciation and amortization                                     28,798          18,815
    Deferred tax expense                                              10,485           2,799
    Stock based compensation                                          43,427              --
    Obligation under deferred compensation agreement                 (26,314)         12,039
  (Increase) decrease in:
    Accounts receivable                                               58,044         118,386
    Inventories                                                       26,761          52,134
    Prepaid expenses                                                  44,035          32,976
    Prepaid taxes                                                      1,599          (6,699)
  Increase (decrease) in:
    Accounts payable                                                  18,956          17,565
    Accrued expenses                                                (150,595)        (95,324)
    Taxes payable                                                     39,276          (2,608)
                                                                ------------    ------------

      Net cash provided by operating activities                      441,420         407,107
                                                                ------------    ------------

Cash flows from investing activities:
  Increase in cash value - life insurance policy                      (6,646)        (26,322)
  Payments for equipment                                             (48,152)       (102,103)
                                                                ------------    ------------

      Net cash used by investing activities                          (54,798)       (128,425)
                                                                ------------    ------------

Cash used from financing activities:
  Issuance of common stock                                             8,710              --
  Treasury stock purchased                                            (4,550)             --
  Dividends paid                                                    (239,327)       (236,307)
                                                                ------------    ------------

      Net cash used by financing activities                         (235,167)       (236,307)
                                                                ------------    ------------

Increase in cash                                                     151,455          42,375

Cash and cash equivalents:
  Beginning                                                        1,515,379       1,232,666
                                                                ------------    ------------

  Ending                                                        $  1,666,834       1,275,041
                                                                ============    ============

Supplemental information:
  Income taxes paid                                             $    166,955         156,470
                                                                ============    ============
</TABLE>

        The accompanying notes are an integral part of these statements.

                                        7
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2006 AND 2005

Note A - Organization:

     The Company is engaged in the development, production and sale of near
infrared dyes to the optical industry for laser protection and welding
applications and other dyes and specialty chemical products that serve as
intermediates and additives used in the adhesive, plastic, aerospace, credit
card security and protective documents industries to customers located in the
United States and throughout the world.

     The Company's wholly owned Subsidiary, Epolin Holding, Corp., was
incorporated in New Jersey as a real estate holding company whose assets consist
of land and a building. On January 29, 1998, the Company acquired 100% of the
stock in Epolin Holding Corporation. Prior to acquisition, two
officers/stockholders of the Company controlled it.

Note B - Summary of Significant Accounting Policies:

Basis of Presentation - The interim Consolidated Financial Statements presented
herein are unaudited and should be read in conjunction with the Consolidated
Financial Statements presented in the Company's Annual Report on Form 10-KSB for
the fiscal year ended February 28, 2006. Such interim Consolidated Financial
Statements reflect all normal and recurring adjustments that, in the opinion of
management, are necessary for a fair presentation of the financial position,
results of operations and cash flows of the Company for the periods presented.
All significant intercompany accounts and transactions have been eliminated.

The results of operations for the six-month interim period ended August 31, 2006
are not necessarily indicative of the results of operations for the fiscal year
ending February 28, 2007.

Cash and Cash Equivalents - Includes cash in bank and money market accounts for
purposes of preparing the Statement of Cash Flows.

Concentrations of Credit Risks - The Company and its Subsidiary at various times
of the year had cash deposits in financial institutions and a brokerage house in
excess of the amount insured by the agencies of the federal government. In
evaluating this credit risk, the Company periodically evaluates the stability of
the financial institution and brokerage house.

     Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of accounts receivable.
Generally, the Company does not require collateral or other securities to
support its accounts receivable. Three customers represented 50.5% of the
Company's trade receivables at August 31, 2006.

Source of Raw Materials - The Company purchases chemicals from several large
chemical manufacturers, further processing them into its saleable products.
Although the Company limits itself to a relatively small number of suppliers, it
is not restricted to such suppliers, and availability of such raw materials is
widespread.

                                        8
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2006 AND 2005


Note B - Summary of Significant Accounting Policies (continued):

Principles of Consolidation - The accompanying Consolidated Financial Statements
include the accounts of the Company and Subsidiary. Inter-company transactions
and balances have been eliminated in consolidation. Condensed consolidating
financial statements as of August 31, 2006 and for the six month period then
ended are:

                      CONDENSED CONSOLIDATING BALANCE SHEET

<TABLE>
<CAPTION>
                                    Epolin            Epolin
                                      Inc.         Holding, Corp.    Eliminations      Consolidated
                                 --------------    --------------   --------------    --------------
<S>                              <C>                      <C>             <C>              <C>
Current assets                   $    2,701,796           249,152               --         2,950,948
Non-current assets                    1,428,568           662,082         (911,054)        1,179,596
                                 --------------    --------------   --------------    --------------
        Total                    $    4,130,364           911,234         (911,054)        4,130,544
                                 ==============    ==============   ==============    ==============

      Total liabilities                 514,008           136,868         (136,688)          514,188
                                 --------------    --------------   --------------    --------------

Stockholders' equity:
  Common stock                        2,357,193                --               --         2,357,193
  Additional paid-in capital             49,913                --               --            49,913
  Retained earnings                   1,539,332           774,366         (774,366)        1,539,332
  Treasury stock                       (330,082)               --               --          (330,082)
                                 --------------    --------------   --------------    --------------

    Total stockholders' equity        3,616,356           774,366         (774,366)        3,616,356
                                 --------------    --------------   --------------    --------------

      Total                      $    4,130,364           911,234         (911,054)        4,130,544
                                 ==============    ==============   ==============    ==============


                   CONDENSED CONSOLIDATING STATEMENT OF INCOME

<CAPTION>
                                         Epolin           Epolin
                                           Inc.        Holding, Corp.    Eliminations      Consolidated
                                      --------------   --------------   --------------    --------------
<S>                                   <C>                      <C>             <C>             <C>
Sales                                 $    2,044,981               --               --         2,044,981
Other revenue                                     --           60,870          (48,870)           12,000
                                      --------------   --------------   --------------    --------------
   Total                                   2,044,981           60,870          (48,870)        2,056,981
                                      --------------   --------------   --------------    --------------

Cost of sales                                872,045               --               --           872,045
Selling, general and administrative          684,408           12,957          (48,870)          648,495
                                      --------------   --------------   --------------    --------------

   Total                                   1,556,453           12,957          (48,870)        1,520,540
                                      --------------   --------------   --------------    --------------

Operating income                             488,528           47,913               --           536,441

Other income - interest                       22,303            5,163               --            27,466
                                      --------------   --------------   --------------    --------------

Income before taxes                          510,831           53,076               --           563,907

Income taxes                                 212,060            4,899               --           216,959
                                      --------------   --------------   --------------    --------------

Net income                            $      298,771           48,177               --           346,948
                                      ==============   ==============   ==============    ==============
</TABLE>

                                        9
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2006 AND 2005



Note B - Summary of Significant Accounting Policies (continued):

Accounts receivable - Accounts receivable are stated at the amount management
expects to collect from outstanding balances. Management provides for probable
uncollectible amounts though a charge to earnings and a credit to a valuation
allowance based on its assessment of the current 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 - 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.


Fair Value of Financial Instruments - The carrying amount of all reported assets
and liabilities, which represent financial instruments, approximate the fair
values of such amounts due to the nature of their relatively short maturity.

Plant, Property and Equipment - Stated at cost. Provisions for depreciation are
computed on the straight-line methods, based upon the estimated useful lives of
the various assets.

A summary of the major categories of the Company's plant property and equipment
are as follows:

Building and improvements    Straight Line 39 Years
Machinery and equipment      Straight Line 5 - 7 Years
Furniture and Fixtures       Straight Line 7 Years
Leasehold Improvements       Straight Line 10 - 39 Years

     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 $28,798 and $18,815 for the
six months ended August 31, 2006 and 2005, respectively.

Income taxes - The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", wherein
the asset and liability method is used in accounting for income taxes. Deferred
taxes are recognized for temporary differences between the basis of assets and
liabilities for financial statement and for income tax purposes. Temporary
differences relate primarily to different accounting methods used for
depreciation and amortization of property and equipment and deferred
compensation.

                                       10
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2006 AND 2005


Note B - Summary of Significant Accounting Policies (continued):

Use of Estimates - The preparation of the Company's financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates, judgments and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amount of
expenses during the reporting period. The Company bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.

Revenue Recognition - The Company recognizes revenue consistent with the
provisions of SEC Staff Accounting Bulletin No. 104, "Revenue Recognition",
which sets forth guidelines in the timing of revenue recognition based upon
factors such as passage of title, payments, and customer acceptance. Any amounts
received prior to satisfying our revenue recognition criteria will be recorded
as deferred revenue in the accompanying balance sheet. The Company recognizes
revenue from product sales when there is persuasive evidence that an arrangement
exists, when title has passed, the price is fixed or determinable, and the
Company is reasonably assured of collecting the resulting receivable. The
Company's policy is to replace certain products that are in nonconformity with
customer specifications; however, replacements are made at the discretion of the
Company subject to in house product lab analysis. There are no terms or
conditions set forth within the Company's sales contracts that provide for
product replacements. Replacement costs are expensed as incurred.


Regulations - The Company expended approximately $12,700 through August 31, 2006
and $12,524 through August 31, 2005, to maintain compliance with certain Federal
and State and City government regulations relative to the production of near
infrared dyes and specialty chemicals.


Net Income Per Share - Basic net income per share is calculated on the basis of
the weighted average number of shares outstanding during the period, excluding
dilution. Diluted net income per share is computed on the basis of the weighted
average number of shares plus potentially dilutive common shares arising from
the assumed exercise of stock options.


Advertising Costs - Advertising costs, included in operating expenses, are
expensed as incurred. Advertising expenses amounted to $7,006 and $12,304 for
the six months ended August 31, 2006 and 2005, respectively.

                                       11
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2006 AND 2005


Note B - Summary of Significant Accounting Policies (continued):

Stock-based Compensation - Prior to March 1, 2006 the Company accounted for
stock based compensation under Statement of Financial Accounting Standards No.
123 Accounting for Stock-Based Compensation (FAS 123). As permitted under this
standard, compensation cost was recognized using the intrinsic value method
described in Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25). Effective March 1, 2006, the Company has adopted
Statement of Financial Accounting Standards ("SFAS") No. 123(R), "Share-Based
Payment". SFAS 123R revises SFAS No. 123 and supersedes APB 25 to require
companies to measure and recognize in operations the cost of employee services
received in exchange for an award of equity instruments based on the grant-date
fair value. In accordance with the provisions of the Securities and Exchange
Commission Staff Accounting Bulletin No. 107, the Company has adapted the
modified-prospective transition method. Prior periods were not restated to
reflect the impact of adopting the new standard. As a result of the adoption of
FAS 123R, stock-based compensation expense recognized during the quarter ended
August 31, 2006 includes compensation expense for all share-based payments
granted on or prior to, but not yet vested as of March 1, 2006, based on the
grant date fair value estimated in accordance with the original provisions of
FAS 123, and compensation cost for all share-based payments granted on or
subsequent to March 1, 2006, based on the grant date fair value estimated in
accordance with the provisions of FAS 123R.

     During the quarter ended August 31, 2006, the Company recognized
stock-based compensation expenses of $10,427 related to outstanding stock
options according to the provisions of FAS 123R, using the modified-prospective
transition method.

     During the six and three months ended August 31, 2006, the Company
recognized stock-based compensation expenses of $10,427 and $5,213
respectively, related to outstanding stock options according to the provisions
of FAS 123R, using the modified-prospective transition method.

     Prior to the adoption of FAS 123R and for the year ended February 28, 2006,
no tax benefits from the exercise of stock options have been recognized. Any
future excess tax benefits derived from the exercise of stock options will be
recorded prospectively and reported as cash flows from financing activities in
accordance with FAS 123R.

     Deferred charges for options granted to non-employees are determined in
accordance with FAS No. 123 and EITF 96-18 "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services" as the fair value of the consideration or the fair
value of the equity instruments issued, whichever is more reliably measured.

     The weighted average Black-Scholes value of options granted under the stock
plans during the six months ended August 31, 2006 and 2005 was $.18 and $.10,
respectively. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants:

Six Months Ended August 31,                               2006          2005
                                                         ------        ------

 Weighted average expected life in years                      3             4
 Dividends per share                                       0.02          0.04
 Volatility                                                 6.0%          6.0%
 Risk-free interest rate                                    4.5%          3.9%

                                       12
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2006 AND 2005


Note B - Summary of Significant Accounting Policies (continued)

Stock-based Compensation - The Company's pro forma net earnings and pro forma
earnings per share based upon the fair value at the grant dates for awards under
Epolin's plans are disclosed below.

<TABLE>
<CAPTION>



                                                 Three Months Ended           Six Months Ended
                                                  August 31, 2005              August 31, 2005
                                                  ---------------              ---------------
  <S>                                              <C>                          <C>

  Net earnings as reported                         $      118,872               $      257,024

  Deduct total additional stock-based employee
  compensation cost, net of tax that would
  have been included in net earnings under
  fair value method                                         3,750                       28,550
                                                   ---------------              ---------------

  Proforma net earnings                            $      115,122               $      228,474
                                                   ===============              ===============

  Basic earnings per share:
    As reported                                              0.01                         0.02
                                                   ===============              ===============
    Proforma                                                 0.01                         0.02
                                                   ===============              ===============

  Average common shares outstanding                    11,815,355                    11,815,355
                                                   ===============              ===============

  Diluted earnings per share:
    As reported                                              0.01                          0.02
                                                   ===============              ===============
    Proforma                                                 0.01                          0.02
                                                   ===============              ===============

  Total diluted common shares outstanding              11,966,537                    11,966,537
                                                   ===============              ===============

</TABLE>


Note C - Inventories:
                                                  August 31,
                                         ---------------------------
                                             2006           2005
                                         ------------   ------------
            Raw materials and supplies   $     60,192         45,032
            Work in process                   172,615        241,747
            Finished goods                    388,305        411,503
                                         ------------   ------------

              Total                      $    621,112        698,282
                                         ============   ============

                                       13
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2006 AND 2005


Note D - Income Taxes:

1. Federal and State deferred tax assets include:

                                                         2006           2005
                                                     ------------   ------------
         Temporary differences:
              Accelerated amortization               $     40,747         66,518
              Deferred compensation                       120,477        129,056
                  Stock based compensation                  4,613             --
                                                     ------------   ------------
                  Total                                   165,837        195,574

         Current portion                                    6,358          5,891
                                                     ------------   ------------

         Non-current portion                         $    159,479        189,683
                                                     ============   ============


2. Income tax expense:
                                                         2006           2005
                                                     ------------   ------------
         Current:
              Federal                                $    163,110        118,431
              State                                        43,364         34,523
                                                     ------------   ------------

                  Total current                           206,474        152,954
                                                     ------------   ------------

         Deferred:
              Federal                                      10,315          2,213
              State                                           170            586
                                                     ------------   ------------

                  Total deferred                           10,485          2,799
                                                     ------------   ------------

                      Total                          $    216,959        155,753
                                                     ============   ============

                                       14
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2006 AND 2005


Note E - Treasury Stock:

     Consists of 923,645 shares as of August 31, 2006 at a net cost of $330,082
and 913,645 shares as of August 31, 2005 at a net cost of $321,932,
respectively.

     The Company purchased 5,000 shares during the six months ended August 31,
2006.


Note F - Economic Dependency:

     A material portion of the Company's business is dependent on certain
domestic customers, the loss of which could have a material effect on
operations. During the six months ended August 31, 2006, approximately 40.8% of
sales were to four customers. Two of these customers, located in the Eastern
United States, accounted for 26.9% of sales. During the six months ended August
31, 2005, approximately 46.3% of sales were to four customers, two of these
customers, located in the Eastern United States, accounted for 35.1% of sales.


Note G - Rental Income Under Sublease:

     The Company entered into a sublease agreement with a non-related party
effective November 1, 2002 through August 31, 2005. Under the terms of the
lease, the tenant is to pay a base rent of $36,000 per year. The Company entered
into a new agreement with another non-related party effective September 1, 2005
for a term ending October 31, 2007. Under the terms of the new agreement, the
tenant is to pay a base rent of $18,000 per year.


Note H - Employee Benefits:

Simplified Employee Pension Plan - Effective June 1, 1994, the Company provides
a SAR/SEP plan to its employees as a retirement and income tax reduction
facility. Full time employees are eligible to participate immediately. Employees
may make pre-tax and after-tax contributions subject to Internal Revenue Service
limitations. Company contributions range from three to five percent after
completion of one year of service. Employer contributions totaled $24,507 and
$25,386 for the six months ended August 31, 2006 and 2005, respectively.

                                       15
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2006 AND 2005


Note H - Employee Benefits (continued):


Stock Option Plan - The Company previously adopted The 1986 Stock Option Plan.
As of April 1996, under the terms of the Plan, options may no longer be granted.
On December 1, 1995, options to acquire up to 490,000 shares of the Company's
common stock were granted. Options exercised for all prior years totaled
455,000. Options cancelled for all prior years totaled 35,000. There were no
outstanding options as of August 31, 2006.

     The Company adopted the 1998 Stock Option Plan on December 1, 1998. Under
the terms of the plan, the Company reserved 750,000 shares of common stock for
issuance pursuant to the exercise of options to be granted under the Plan, which
do not meet the requirements of Section 422 of the Code. On September 15, 2001,
the Board of Directors increased the reserve to 1,500,000. Options granted
expire five or ten years after the date granted and are subject to various
vesting periods as follows: (1) none exercisable prior to the first anniversary
of the date of grant, and (2) certain options will 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 will become exercisable as
to 50% of the shares underlying the option on each of the second and fourth
anniversaries of the date granted. Options exercised through August 31, 2006
totaled 661,000. Options cancelled for all years totaled 160,000. All cancelled
options are available for future grants.

     A summary of the status of the Company's 1998 stock option plan as of
August 31, 2006, and the changes during the six months ended August 31, 2006 is
presented below:

                                                                Weighted-Average
Fixed Options:                                        Shares     Exercise Price
--------------                                    ------------    ------------
Balance - March 1, 2005                                322,000       $   .30
     Granted                                           200,000           .54
     Cancelled                                         (35,000)          .25
     Exercised                                         (30,000)          .28
                                                  ------------

Balance - February 28, 2006                            457,000           .42
     Granted                                                --            --
     Cancelled                                          (5,000)          .25
     Exercised                                         (31,000)          .28
                                                  ------------

Balance - August 31, 2006                              421,000       $   .40
                                                  ============


Exercisable at August 31, 2006                         260,000

                                       16
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2006 AND 2005


Note H - Employee Benefits (continued):

Stock Option and Stock-Based Employee Compensation - On November 1, 2004, the
Company entered into an "Option Agreement and Investment Agreement" with an
employee, the terms of which are as follows:

     1. Stock Option - An option to purchase 100,000 shares of common stock at
     an exercise price equal to the fair market value of the Company's common
     stock at the date of grant. The option is exercisable only after the
     completion of the second year of employment.

     2. Stock-based Employee Compensation - A grant of 100,000 shares of
     restricted common stock one year from the date of the agreement, provided
     the employee is then employed by the Company. In connection with this
     agreement, compensation in the amount of $33,000 was charged to selling,
     general and administrative expenses for the six months ended August 31,
     2006.


Stock Option Plans - The following table summarizes information about fixed
stock options outstanding at August 31, 2006:

<TABLE>
<CAPTION>
              Outstanding Options                               Exercisable Options
---------------------------------------------------       ------------------------------
                    Number         Weighted-average         Number
  Range of       Outstanding         Remaining           Exercisable    Weighted-average
Exercise Price    at 8/31/06       Contractual Life       at 8/31/06      Exercise Price
--------------    ----------       ----------------       ----------      --------------
<S>                  <C>              <C>                    <C>               <C>
     $.25             80,000          0.1 years               80,000           $ .25
      .30             25,000          1.3                     25,000             .30
      .41            116,000          7.4                     55,000             .41
      .51            100,000          3.2                          0             .51
      .54            200,000          3.8                    100,000             .54
</TABLE>

There are 418,000 options attributable to future grants.



Note I - Segment Reporting:

     The Company currently operates in a single operating segment. In addition,
financial results are prepared and reviewed by management as a single operating
segment. The Company continually evaluates its operating activities and the
method utilized by management to evaluate such activities and will report on a
segment basis if and when appropriate to do so.

                                       17
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2006 AND 2005


Note I - Segment Reporting (continued):

Sales by geographic area are as follows:


                                  Six Months Ended August 31,
                                  ---------------------------
                                      2006           2005
                                  ------------   ------------
                  United States   $  1,548,251      1,172,396
                  Asia                 352,009        315,323
                  Europe               138,881        166,833
                  Other nations          5,840         11,319
                                  ------------   ------------

                      Total       $  2,044,981      1,665,871
                                  ============   ============


     One customer, located in the Southeastern United States, accounted for more
than 10% of revenues from continuing operations. This customer accounted for
18.6% of sales of which 5.8% was near infrared dyes and 12.8% was security inks.

     Long-lived assets include net property and equipment. The Company had
long-lived assets of $798,560 and $727,631 located in the United States at
August 31, 2006 and 2005, respectively.


Note J - Accrued Expenses:

Accrued expenses consisted of the following as of August 31, 2006 and 2005,
respectively:

                                             2006           2005
                                         ------------   ------------
            Salaries and wages                     --         29,838
            Employment agreement              143,149        108,282
            Professional fees                   6,000          5,900
            Pension contribution                3,173             --
            Property taxes                      4,138          4,070
                                         ------------   ------------

                Total accrued expenses   $    156,460        148,090
                                         ============   ============

                                       18
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2006 AND 2005


Note K - 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:

<TABLE>
<CAPTION>


                                   Three Months Ended August 31,     Six Months Ended August 31,
                                         2006          2005              2006          2005

 <S>                               <C>             <C>              <C>            <C>
 Basic Earnings Per Common Share:

 Net income                        $    121,049         118,872     $    346,948        257,024

 Average common shares
  outstanding                        11,966,355      11,815,355       11,966,355     11,815,355
                                   ============    ============     ============   ============

 Basic earnings per
  common share                     $       0.01            0.01     $       0.03           0.02

                                   ============    ============     ============   ============
 Diluted Earnings Per Common Share:

 Net income                        $    121,049         118,872     $    346,948        257,024
                                   ============    ============     ============   ============

 Average common shares
  outstanding                        11,966,355      11,815,355       11,966,355     11,815,355

 Common shares issuable with respect
 to options issued to employees
 with a dilutive effect                  95,436         151,182           95,436        151,182
                                    ------------    ------------    ------------   ------------

 Total diluted common shares
  outstanding                        12,061,791      11,966,537       12,061,791     11,966,537
                                   ============    ============     ============   ============

 Diluted earnings per
  common share                     $       0.01            0.01     $       0.03           0.02
                                   ============    ============     ============   ============
</TABLE>

                                       19
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2006 AND 2005


Note L - Commitments and Contingencies:

     Losses for contingencies such as litigation and environmental matters are
recognized in income when they are probable and can be reasonably estimated.
Gain contingencies are not recognized in income.

Lease Obligations - The Company leases its real estate under an operating lease
with a related party. The lease effective November 1, 1996 was for a term of
five (5) years with three (3) five (5) year options at annual rentals of
$97,740. The Cost of Living Index adjustment effective with the second year has
been waived by the subsidiary. Rent includes reimbursed insurance costs.
Generally, management expects that the lease will be renewed in the normal
course of business.

     Rental expense charged to operations, eliminated in consolidation, amounted
to $48,870 for the six months ended August 31, 2006 and 2005, respectively.

Future minimum payments for the current option period:

       Fiscal years ending February:
       -----------------------------
                   2007                                 $48,870
                   2008                                  97,740
                   2009                                  65,160


Deferred Compensation - On December 29, 1995, the Company entered into a
deferred compensation agreement with James Ivchenko, President, whose additional
annual compensation of $19,645 plus interest is deferred until he reaches age 65
or is terminated. The obligation is funded by the cash value in a life insurance
policy. Commencing on December 2005, annual payments will be made to the officer
in the amount of $32,000 for ten consecutive years.

     In connection with this agreement, deferred compensation in the amount of
$12,040 was charged to selling, general and administrative expenses for the six
months ended August 31, 2005.

     On January 1, 1996, the Company entered into a deferred compensation
agreement with Dr. Murray S. Cohen, PhD, Chairman of the Board, wherein $25,000
per year was accrued. This agreement, with unfunded accruals of $79,041,
terminated on June 25, 1998, and will be paid upon retirement in either equal
consecutive monthly payments for a period not exceeding sixty (60) months or a
single payment equal to the then present value of the account, said selection to
be at the discretion of the Company.

                                       20
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2006 AND 2005


Note L - Commitments and Contingencies (continued):

Employment Agreements - Effective March 1, 1999, the Company entered into
ten-year employment agreements with officers/directors:

     Murray S. Cohen, PhD, Chairman of the Board - To be paid an annual salary
of not less than the greater of his annual base salary in effect immediately
prior to the effective date of the agreement or any subsequently established
annual base salary. Dr. Cohen is to receive 2.00% on gross annual sales of no
more than $3,000,000, effective with the year ended February 28, 2000,
increasing by 0.25% a year during the term of the agreement. In the event of
partial retirement, (50% employment), Dr. Cohen will receive fifty percent
salary and 100% additional compensation. In the event of substantial retirement,
(25% employment), Dr. Cohen will receive 25% percent salary and 100% additional
compensation. In the event of full retirement, Dr. Cohen will receive 50%
additional compensation. In the event of death or disability, while fully
employed during the fiscal year, Dr. Cohen or his estate will receive 100% of
his annual salary plus additional compensation as described above, and 50% of
his annual salary plus additional compensation each subsequent year for the
remainder of the ten-year term. If at the time of death or disability Dr. Cohen
was retired, then other percentage rates are provided for based upon his
retirement status.

     James Ivchenko, President - To be paid an annual salary of not less than
the greater of his annual base salary in effect immediately prior to the
effective date of the agreement or any subsequently established annual base
salary. He is to receive 1.5% on gross annual sales of no more than $3,000,000,
effective with the year ended February 28, 2000, increasing by 0.25% a year
during the term of the agreement. In the event of death or disability during the
fiscal year, Mr. Ivchenko or his estate will receive 100% of his annual salary
plus additional compensation as described above, and 50% of his annual salary
plus additional compensation each subsequent year for the remainder of the
ten-year term.

     Accrued compensation included in selling, general and administrative as of
August 31, 2006 and 2005 was $143,149 and $108,282, respectively.


Bonus Agreement - Effective for the year ending February 28, 2006, the company
shall pay Gregory Amato, CEO, bonus compensation in an amount equal to ten
percent of the increase, if any, in the Company's current year consolidated net
income as compared to the consolidated net income for the fiscal year ending
February 28, 2005. The term net income shall mean consolidated net income after
taxes but before any extraordinary items. For subsequent fiscal years, the
employee shall be eligible for cash bonuses in such amounts as determined by the
Board of Directors.

                                       21
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            AUGUST 31, 2006 AND 2005


Note M - Dividends:

     In April 2006, the Company's Board of Directors declared a cash dividend of
two cents per share on all common shares outstanding. The dividend, in the
amount of $239,327 was paid on May 1, 2006 to shareholders of record on April
20, 2006.

     In June 2005, the Company's Board of Directors declared a cash dividend of
two cents per share on all common shares outstanding. The dividend, in the
amount of $236,307 was paid on August 3, 2005 to shareholders of record on July
27, 2005.


Note N - Research and Development:

     The Company has developed substantial research and development capability.
The Company's efforts are devoted to (i) developing new products to satisfy
defined market needs, (ii) providing quality technical services to assure the
continued success of its products for its customers' applications, (iii)
providing technology for improvements to its products, processes and
applications, and (iv) providing support to its manufacturing plant for cost
reduction, productivity and quality improvement programs. Expenditures for
Company sponsored product research and product development of $239,194 and
$213,953 were included in cost of sales for the six months ended August 31, 2006
and 2005, respectively. Expenditures for fiscal year 2007 are projected to
remain at approximately the same level as in fiscal 2006.

Note O - Environmental Matters

     The Company's past and present daily operations include activities, which
are subject to extensive federal, and state environmental and safety
regulations. Compliance with these regulations has not had, nor does the Company
expect such compliance to have, any material effect upon expected capital
expenditures, net income, financial condition, or competitive position of the
Company. The Company believes that its current practices and procedures comply
with applicable regulations. The Company's policy is to accrue environmental and
related costs of a non-capital nature when it is both probable that a liability
has been incurred and that the amount can be reasonably estimated. No such
amounts have been accrued in these statements.

                                       22