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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

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

                 For the quarterly period ended August 31, 2010

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

             For the transition period from __________ to __________

                        Commission file number 000-17741

                                  EPOLIN, INC.
             (Exact name of Registrant as Specified in its Charter)

New Jersey                                                            22-2547226
(State or other jurisdiction                                    (I.R.S. Employer
of incorporation or                                          Identification No.)
organization)

358-364 Adams Street
Newark, New Jersey                                                         07105
(Address of principal                                                 (Zip Code)
executive offices)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                 Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted  electronically  and
posted on its corporate Web site, if any, every  Interactive  Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter)  during the  preceding 12 months (or for such shorter  period that
the registrant was required to submit and post such files).

                                 Yes [ ] No [ ]

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated filer, a non-accelerated  filer, or a smaller reporting company. See
the definition of "large accelerated  filer",  "accelerated  filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

    Large accelerated filer   [ ]         Accelerated filer         [ ]
    Non-accelerated filer     [ ]         Smaller reporting company [X]

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

                                 Yes [ ] No [X]

State the number of shares outstanding of each of the Issuer's classes of common
stock,  as of the latest  practicable  date: no par value per share:  12,266,355
outstanding as of October 12, 2010.

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<PAGE>

                                  EPOLIN, INC.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                    Page

PART I - FINANCIAL INFORMATION
<S>     <C>         <C>                                                             <C>
         Item 1.    Financial Statements.                                              3
         Item 2.    Management's  Discussion and Analysis of Financial Condition       3
                    and Results of Operations.
         Item 3.    Quantitative and Qualitative Disclosures About Market Risk.       10
         Item 4T.   Controls and Procedures.                                          10

PART II - OTHER INFORMATION

         Item 1.    Legal Proceedings.                                                11
         Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.      11
         Item 3.    Default upon Senior Securities.                                   11
         Item 4.    Submission of Matters to a Vote of Security Holders.              11
         Item 5.    Other Information.                                                11
         Item 6.    Exhibits.                                                         11

SIGNATURES                                                                            12
</TABLE>

                                        2

<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 of Financial Condition and Results
         of Operations.

      The following  discussion  should be read in conjunction  with the audited
consolidated  financial  statements and the notes thereto appearing elsewhere in
this report and is qualified in its entirety by the foregoing.

Forward-Looking Statements

      This report contains  certain  forward-looking  statements and information
relating to the Company  that are based on the beliefs and  assumptions  made by
the  Company's  management  as well as  information  currently  available to the
management.  When  used in this  document,  the words  "anticipate",  "believe",
"estimate",  and  "expect"  and similar  expressions,  are  intended to identify
forward-looking  statements.  Such  statements  reflect the current views of the
Company  with  respect  to future  events  and are  subject  to  certain  risks,
uncertainties   and   assumptions.   Should  one  or  more  of  these  risks  or
uncertainties  materialize,  or should  underlying  assumptions prove incorrect,
actual results may vary materially  from those described  herein as anticipated,
believed,  estimated or expected.  Certain of these risks and  uncertainties are
discussed in Part I, Item 1A "Risk  Factors" of the Company's  Form 10-K for the
year ended  February  28,  2010.  The  Company  does not intend to update  these
forward-looking statements.

Executive Overview

      Epolin, Inc. (the "Company",  "we", "us" and "our") which was incorporated
in the State of New  Jersey  in May  1984,  is a  specialized  chemical  company
primarily engaged in the manufacturing,  marketing,  research and development of
dyes  and dye  formulations.  Our  business  is  heavily  weighted  towards  the
development,  manufacture and sale of near infrared dyes. Applications for these
dyes cover several markets that include laser protection,  welding,  sunglasses,
optical filters, glazing and imaging and security inks and tagants.  Paralleling
the growth of the dye business,  we maintain a level of production  and sales of
specialty products made on a custom basis. These include additives for plastics,
thermochromic  materials for use in paints as well as other specialty  chemicals
made in low  volume to sell at prices  that  reflect  the value of the  product.
However,  unlike  the dye  business,  we do not expect  our  specialty  chemical
business to grow.

      We sell our products to  manufacturers of  plastics/resins,  credit cards,
electronics,  glass and other basic materials.  Our customers are located in all
regions of the world,  although a material  portion of our business is dependent
on certain domestic customers, the loss of which could have a material effect on
operations.  During the six months ended August 31, 2010, approximately 30.4% of
sales were to three  customers.  During the six months  ended  August 31,  2009,
approximately  41.0% of sales were to three  customers.  The loss of one or more
key customers could have a material adverse effect on the Company.

                                        3

<PAGE>

Results of Operations

      The  following  tables  set  forth  operations  data for the three and six
months ended August 31, 2010 and 2009.

                          Three Months Ended August 31,
                          -----------------------------

                                            2010           2009       % change
                                          --------       --------     --------

    Sales                                 $670,489       $708,578         -5.5%

    Gross profit                           321,624        358,040        -10.2%

    Gross profit percentage                   48.0%          50.5%        -2.5%

    Selling, general & administrative      259,854        293,191        -11.4%
                                          --------       --------

    Operating income                        61,770         64,849         -4.7%
    Other Income                             2,343          6,757        -65.3%
                                          --------       --------

    Income before taxes                     64,113         71,606        -10.5%

    Income taxes                            16,404         24,126        -32.0%

    Net income (after taxes)              $ 47,709       $ 47,480          0.5%
                                          ========       ========

                           Six Months Ended August 31,
                           ---------------------------

                                           2010           2009        % change
                                        ----------     ----------     --------

    Sales                               $1,481,503     $1,434,747          3.3%

    Gross profit                           734,321        828,554        -11.4%

    Gross profit percentage                   49.6%          57.8%        -8.2%

    Selling, general & administrative      623,755        552,256         12.9%
                                        ----------     ----------

    Operating income                       110,566        276,298        -60.0%
    Other Income                             5,694         19,124        -70.2%
                                        ----------     ----------

    Income before taxes                    116,260        295,422        -60.6%

    Income taxes                            37,171        108,076        -65.6%

    Net income (after taxes)            $   79,089     $  187,346        -57.8%
                                        ==========     ==========

Sales

      For the three  months  ended  August  31,  2010,  sales were  $670,000  as
compared to $709,000  for the three  months ended August 31, 2009, a decrease of
$39,000 or 5.5%.  Sales  increased to $1,482,000 for the six months ended August
31, 2010 from  $1,435,000  for the six months ended August 31, 2009, an increase
of $47,000 or 3.3%.

      Such  decrease  in sales for the three  months  ended  August 31,  2010 is
primarily  due to  decreased  sales  in the ink and  coating  market  and  light
management  market which sales  decreased by $84,000 and $38,000,  respectively,
compared  to the  prior  year  period,  offset  by  increased  sales  in the eye
protection  market which sales  increased by $73,000  compared to the prior year
period.  The  increase  in sales for the six months  ended  August  31,  2010 is
primarily  due to  increased  sales  in the  eye  protection  market  and  light
management  market which sales increased by $60,000 and $129,000,  respectively,
offset by decreased sales in the ink and coating market which sales decreased by
$129,000  compared  to the prior year  period.  In both the three and six months
ended August 31, 2010 and August 31, 2009, the eye protection market represented
our largest market with sales in the eye protection representing 54.9% and 53.1%
of sales in the three and six months  ended August 31,  2010,  and  representing
41.6% and 50.7% of sales in the three and six  months  ended  August  31,  2009.
Sales in the eye protection  market were $368,000 and $786,000 for the three and
six months ended August 3, 2010  compared to $295,000 and $727,000 for the three
and six months ended August 31, 2009.  For the light  management  market,  sales
were  $167,000  and  $464,000 for the three and six months ended August 31, 2010
compared to $205,000  and $335,000 for the three and six months ended August 31,
2009.  With  regard to the ink and  coating  market,  sales  were  $112,000  and
$166,000 for the three and six months ended August 31, 2010 compared to $205,000
and $335,000  for the three and six months ended August 31, 2009.  For the three
and six months ended August 31,  2010,  sales in the custom  market were $23,000
and $63,000  compared to $11,000 and $42,000 for the three and six months  ended
August 31, 2009.

                                        4

<PAGE>

      Categorized by geographic  area,  sales in the United States decreased for
the six months  ended  August 31, 2010 while sales  increased in Asia and Europe
compared  to the prior year  period.  For the six months  ended  August 31, 2010
compared  to the prior year  period,  sales  decreased  in the United  States to
$1,094,000  from  $1,224,000,  while in Asia sales  increased  to $199,000  from
$88,000, and in Europe sales increased to $185,000 from $120,000.

Gross Profit

      Gross profit,  defined as sales less cost of sales,  was $322,000 or 48.0%
of sales for the three  months  ended  August 31,  2010  compared to $358,000 or
50.5% of sales for the three months  ended  August 31, 2009.  For the six months
ended August 31, 2010,  gross profit was $734,000 or 49.6% of sales  compared to
$829,000 or 57.8% of sales for the six months ended August 31, 2009. In terms of
absolute  dollars,  gross  profit  decreased  $36,000 for the three months ended
August 31, 2010 compared to the prior year period, and decreased $94,000 for the
six months ended  August 31,  20010  compared to the six months ended August 31,
2009.

      Cost of sales was  $349,000  for the three  months  ended  August 31, 2010
which represented 52.0% of sales compared to $351,000 for the three months ended
August  31,  2009 which  represented  49.5% of sales.  For the six months  ended
August 31, 2010,  cost of sales was $747,000  which  represented  50.4% of sales
compared to $606,000 which  represented  42.2% of sales for the six months ended
August 31, 2009.

Selling, General and Administrative Expenses

      Selling, general and administrative expenses decreased to $260,000 for the
three  months  ended  August 31, 2010  compared to $293,000 for the three months
ended  August 31,  2009,  a decrease  of  $33,000,  while  selling,  general and
administrative  expenses  increased  to $624,000 for the six months ended August
31, 2010 from  $552,000 for the six months ended August 31, 2009, an increase of
$72,000.  For the six months  ended  August 31, 2010  compared to the prior year
period,  in terms of absolute  dollars,  the  increase  was  primarily  due to a
substantial  increase  in  professional  fees,  primarily  due to  services  not
regularly  incurred  principally  due to actions  taken in  connection  with the
strategic  alternatives being pursued by the Company as previously disclosed and
described below. As a percentage of sales,  selling,  general and administrative
expenses were 38.8% of sales for the three months ended August 31, 2010 compared
to 41.4% of sales for the three months ended August 31, 2009,  while for the six
months ended August 31, 2010, selling,  general and administrative expenses were
42.1% of sales  compared to 38.5% of sales for the six months  ended  August 31,
2009.

Operating Income

      Operating income,  in terms of absolute dollars,  decreased to $62,000 for
the three  months  ended August 31, 2010 from $65,000 for the three months ended
August 31,  2009,  a decrease of $3,000,  while  operating  income  decreased to
$111,000  for the six months  ended  August 31, 2010 from  $276,000  for the six
months ended August 31, 2009, a decrease of $165,000.  While sales  increased by
$47,000  in the six months  ended  August 31,  2010  compared  to the prior year
period,  such increase was offset by a greater  increase in cost of sales and in
selling,  general and administrative expenses compared to the prior year period.
As a  percentage  of  sales,  operating  income  was 9.2% of sales for the three
months ended August 31, 2010 and the three months ended August 31, 2009. For the
six months  ended August 31, 2010  compared to the prior year period,  operating
income decreased as a percentage of sales to 7.5% from 19.3%.

                                        5

<PAGE>

Other Income

      Total  other  income  was $2,000 and  $6,000  for the three and six months
ended  August 31,  2010  compared  to $7,000 and  $19,000  for the three and six
months  ended  August 31,  2009.  We had no rental  income for the three and six
months  ended  August 31,  2010  compared to $0 and $4,500 for the three and six
months ended August 31, 2009. In May 2009, our subtenant  abandoned the premises
which it had been  subleasing  since  September  2005.  Our interest  income was
$2,000 and $6,000 for the three and six months ended August 31, 2010 compared to
$7,000 and $15,000 for the prior year periods.

Net Income

      During the three months ended August 31, 2010,  we reported  income before
taxes of $64,000 as  compared  to income  before  taxes of $72,000 for the three
months ended August 31, 2009, a decrease of $8,000.  During the six months ended
August 31,  2010,  we reported  income  before  taxes of $116,000 as compared to
income  before  taxes of $295,000  for the six months  ended  August 31, 2009, a
decrease of  $179,000.  Income  taxes were $16,000 and $37,000 for the three and
six months  ended  August 31, 2010 while  income taxes were $24,000 and $108,000
for the comparable  periods of 2009. Net income after taxes was $48,000 or $0.00
per share for the three  months  ended August 31, 2010 as compared to net income
after taxes of $47,000 or $0.00 per share for the three  months ended August 31,
2009.  For the six months  ended  August 31,  2010,  net income  after taxes was
$79,000 or $0.01 per share as compared to net income  after taxes of $187,000 or
$0.02 per share for the six months  ended August 31,  2009.  As a percentage  of
sales,  net  income  after  taxes was 7.2% of sales for the three  months  ended
August 31, 2010  compared to 6.7% of sales for the three months ended August 31,
2009, while for the six months ended August 31, 2010, net income after taxes was
5.3% of sales  compared  to 13.1% of sales for the six months  ended  August 31,
2009.

      Net income in the future  will be  dependent  upon our ability to maintain
revenues  in excess of our cost of sales  and  other  expenses.  Prior to fiscal
2007,  sales  had  grown  for a number of  consecutive  years.  In fiscal  2007,
however, sales decreased by $91,000 compared to fiscal 2006 and, in fiscal 2008,
sales  decreased by $17,000  compared to fiscal 2007.  The largest  reduction in
sales in recent years occurred in fiscal 2009 with sales  decreasing by $501,000
compared  to fiscal  2008.  While  sales  continued  to  decrease in fiscal 2010
compared to fiscal 2009,  such  decrease was not nearly as dramatic as the prior
year with sales  decreasing  by $147,000 in fiscal 2010 compared to fiscal 2009.
Nevertheless,  we did have four consecutive years of decreased sales compared to
sales in the  immediate  prior year.  One positive  sign,  however,  is that net
income did improve by $142,000 in fiscal 2010  compared to the prior year.  This
favorably compares to net income in fiscal 2009 compared to fiscal 2008 in which
net income  decreased  by $396,000.  However,  in the first six months of fiscal
2011,  while sales increased by $47,000  compared to the prior year period,  net
income  decreased by $108,000 in the first six months of fiscal 2011 compared to
the first six months of fiscal 2010.

Operations Outlook

      Following a period of  readjustment  in our business  priorities,  we were
able to achieved $3,701,000 in sales for fiscal 2006 which was $821,000 or 28.5%
greater than the prior fiscal year. In fiscal 2007, however,  sales decreased to
$3,610,000,  a decrease of 2.5% from the prior year,  and in fiscal 2008,  sales
decreased to  $3,593,000,  a decrease of 0.5% from fiscal 2007.  This  continued
into fiscal 2009 in which sales  decreased at a much greater rate to  $3,092,000
or 14.0%  compared to fiscal 2008.  While sales  continued to decrease in fiscal
2010  compared to fiscal 2009,  such  decrease was not nearly as dramatic as the
change  between fiscal 2008 and 2009.  During fiscal 2010 sales were  $2,945,000
compared to sales of $3,092,000 for fiscal 2009, a decrease of $147,000.  During
these periods of reduced sales, we had a major decline in sales of security inks
for the credit card market  which had been a key area of our growth from 2005 to
2007.  While this market remains a source of business for us, we will likely not
be able to achieve the same level of sales in the future which we achieved  from
2005 to 2007 in the security inks market.  Nevertheless,  we are confident  that
with  our core  group  of  products,  we will be able to  maintain  sales in our
principal  markets,  such as the eye protection  market and the light management
market, while always seeking new areas for the use of our dyes.

      As previously  disclosed,  Millburn Capital Group was retained in February
2009 as the Company's  financial advisor in connection with the Board's decision
to explore strategic alternatives for the Company,  including the potential sale
of the Company.  The Company  continues to pursue such  strategic  alternatives.
There can be no assurance  that any such  transaction  can or will be completed.
The  Company  does  not  currently  intend  to  publicly   disclose   additional
information  about the  status of this  process  but will  publicly  report  all
required information on a timely basis.

                                        6

<PAGE>

      In order to facilitate the environmental approvals which will be necessary
in  conjunction  with any potential  sale or similar  transaction  involving the
Company,  the Company has engaged a licensed site  remediation  professional and
special environmental counsel in the State of New Jersey.  Certain environmental
testing has been done to date and other testing and other  related  actions will
continue.  Such  efforts are  expected to be costly and may require  funds to be
placed in  escrow or  alternative  arrangements  to be made in order to  satisfy
State of New Jersey requirements.

      The  Company  maintained  a  Simplified  Employee  Pension  Plan which was
adopted in 1994 for its  employees  as a  retirement  and  income tax  reduction
facility.  We have  recently  tested all years of the Plan to insure  compliance
with Internal  Revenue Service  regulations and, during the quarter ended August
31,  2010,  we  received  the test  results  for all years it was in effect.  In
accordance  with the results,  we have accrued a contribution to the Plan in the
amount of $273,851 which is reflected in the financial  statements included with
this  report.  Subsequent  to the quarter  ended  August 31,  2010,  the Company
terminated its Simplified Employee Pension Plan and adopted a 401(k) Plan in its
place.

Liquidity and Capital Resources

      Our  primary  source of funds is cash flow from  operations  in the normal
course of  selling  products.  On August 31,  2010,  we had  working  capital of
$2,960,000,  a debt to equity  ratio of 0.09 to 1, and  stockholders'  equity of
$3,833,000 compared to working capital of $3,099,000,  a debt to equity ratio of
0.06 to 1, and  stockholders'  equity of  $4,038,000  on February 28,  2010.  On
August 31, 2010, we had $2,239,000 in cash and cash equivalents, total assets of
$4,190,000 and total liabilities of $357,000, compared to $1,909,000 in cash and
cash  equivalents,  total assets of $4,299,000 and total liabilities of $261,000
on February 28, 2010.

      Net cash provided by operating  activities for the six months ended August
31, 2010 was $146,000  which was  primarily the result of net income of $79,000,
plus  decreases  in accounts  receivable  of $121,000,  inventories  of $30,000,
prepaid  expenses of $41,000,  increases  in  accounts  payable of $31,000,  and
accrued  expenses  of $259,000  (principally  due to a pension  contribution  of
$273,851 described above), offset by an increase in prepaid taxes of $13,000 and
a prior period adjustment for pension contribution of $262,000 and an adjustment
of $195,000 due to  obligations  under  deferred  compensation  agreements.  The
adjustment of $262,000  represents the liability we have incurred to correct the
Simplified  Employee Pension Plan as described above. The adjustment of $195,000
represents  the aggregate of the amount paid to the Company's  President for the
remaining  balance  due to him under a deferred  compensation  agreement  and an
amount  paid to the  Company's  Chairman  for a  deferred  compensation  accrual
remaining  due to him,  each of which was paid in the  second  quarter of fiscal
2011. Net cash provided by operating  activities for the six months ended August
31, 2009 was $123,000  which was primarily the result of net income of $187,000,
plus  decreases  in  inventories  of  $19,000,  prepaid  expenses of $40,000 and
prepaid taxes of $168,000, and increases in accounts payable of $16,000,  offset
by increases in accounts receivable of $95,000 and accrued expenses of $261,000.

      Net cash provided by investing  activities for the six months ended August
31, 2010 was $185,000 due to a decrease in cash value of a life insurance policy
of $189,000 (resulting from the surrender of a life insurance policy for its net
surrender  value  maintained  in  connection  with  the  deferred   compensation
agreement with the Company's  President)  offset by payments of plant,  property
and equipment of $4,000.  Net cash provided in investing  activities for the six
months  ended  August 31,  2009 was $10,000 due to a decrease in cash value of a
life  insurance  policy of $38,000 offset by payments for property and equipment
of $28,000.

      For the six months ended  August 31,  2010,  there was no net cash from or
used by financing activities.

      We anticipate,  based on currently proposed plans and assumptions relating
to our  operations,  that our current cash and cash  equivalents  together  with
projected cash flows from  operations and projected  revenues will be sufficient
to satisfy its contemplated  cash requirements for more than the next 12 months.
Our  contemplated  cash  requirements  for the balance of fiscal 2011 and beyond
will depend  primarily  upon level of sales of our products,  inventory  levels,
product development, sales and marketing expenditures and capital expenditures.

      Inflation has not significantly impacted our operations.

Significant Accounting Policies

      Our  discussion  and analysis of the  Company's  financial  condition  and
results of operations are based upon our consolidated financial statements which
have been  prepared  in  conformity  with  U.S.  generally  accepted  accounting
principles.  Our significant  accounting policies are described in Note 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.

                                        7

<PAGE>

      Accounts  Receivable  -  Accounts  receivable  are  stated  at the  amount
management expects to collect from outstanding balances. Management provides for
probable  uncollectible  amounts  though a charge to earnings  and a credit to a
valuation  allowance  based  on its  assessment  of  the  status  of  individual
accounts.  This allowance is an amount estimated by management to be adequate to
absorb possible losses. Balances that are still outstanding after management has
used  reasonable  collection  efforts  are  written  off through a charge to the
valuation allowance and a credit to accounts receivable.

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

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

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

      Revenue  Recognition - We recognize revenue consistent with the provisions
of SEC Staff  Accounting  Bulletin No. 104,  "Revenue  Recognition",  which sets
forth guidelines in the timing of revenue recognition based upon factors such as
passage of title,  payments and customer acceptance.  Any amounts received prior
to  satisfying  our revenue  recognition  criteria  will be recorded as deferred
revenue in the  accompanying  balance sheet.  We recognize  revenue from product
sales when there is persuasive  evidence that an arrangement  exists, when title
has passed, the price is fixed or determinable, and we are reasonably assured of
collecting the resulting  receivable.  Our policy is to replace certain products
that do not conform to customer specifications, however replacements are made at
our discretion  subject to in house product lab analysis.  There are no terms or
conditions  set forth  within  our sales  contracts  that  provide  for  product
replacements. We expense replacement costs as incurred.

      Stock-based  Compensation  -  Effective  March 1,  2006,  we have  adopted
Statement of Financial  Accounting  Standards ("SFAS") No. 123(R),  "Share-Based
Payment".  SFAS 123R  requires  companies to measure and recognize in operations
the cost of  employee  services  received  in  exchange  for an award of  equity
instruments  based  on  the  grant-date  fair  value.  In  accordance  with  the
provisions of the Securities and Exchange  Commission Staff Accounting  Bulletin
No.  107, we have  adapted the  modified-prospective  transition  method.  Prior
periods were not restated to reflect the impact of adopting the new standard. We
determine the fair value of  stock-based  compensation  using the  Black-Scholes
option-pricing  model,  which requires us to make  assumptions  regarding future
dividends,  expected  volatility  of our stock,  and the  expected  lives of the
options.  Under  SFAS  123R we also make  assumptions  regarding  the  number of
options and the number of shares of restricted stock and performance shares that
will  ultimately  vest.  As a result of the  adoption  of FAS 123R,  stock-based
compensation   expense  recognized   includes   compensation   expense  for  all
share-based  payments  granted on or prior to, but not yet vested as of March 1,
2006,  based on the grant  date fair  value  estimated  in  accordance  with the
original  provisions  of FAS 123,  and  compensation  cost  for all  share-based
payments granted on or subsequent to March 1, 2006, based on the grant date fair
value estimated in accordance with the provisions of FAS 123R.

Recently Adopted Accounting Standards

      On March 1, 2008, we adopted  Statement of Financial  Accounting  Standard
("SFAS") No. 157, "Fair Value Measurements" ("FAS 157") for financial assets and
liabilities,  which clarifies the meaning of fair value, establishes a framework
for measuring fair value and expands  disclosures about fair value measurements.
Fair value is defined under FAS 157 as the exchange price that would be received
for an  asset  or  paid  to  transfer  a  liability  in the  principal  or  most
advantageous  market for the  assets or  liabilities  in an orderly  transaction
between market participants on the measurement date.  Subsequent changes in fair
value of these  financial  assets and  liabilities are recognized in earnings or
other comprehensive income when they occur. The effective date of the provisions
of FAS 157 for non-financial assets and liabilities, except for items recognized
at fair  value on a  recurring  basis,  was  deferred  by  Financial  Accounting
Standards  Board  ("FASB")  Staff  Position  FAS 157-2 ("FSP FAS 157-2") and are
effective for the fiscal year  beginning  March 1, 2009. The adoption of FAS 157
for financial  assets and liabilities did not have an impact on our consolidated
financial position or results of operations.

                                        8

<PAGE>

      Also,  effective  March 1, 2008,  we adopted  SFAS No. 159 "The Fair Value
Option for Financial Assets and Financial  Liabilities" ("FAS 159") which allows
an entity  the  irrevocable  option to elect  fair  value  for the  initial  and
subsequent  measurement  for  certain  financial  assets  and  liabilities  on a
contract-by-contract  basis.  As of February 28,  2010,  we have not elected the
fair value option for any additional  financial  assets and  liabilities  beyond
those  already  prescribed by accounting  principles  generally  accepted in the
United States.

      In  October  2008,   the  FASB  issued  Staff   Position  No.  FAS  157-3,
"Determining  the Fair Value of a Financial Asset in a Market That Is Not Active
("FSP FAS 157-3")."  FSP FAS 157-3  clarifies  the  application  of FAS 157 in a
market that is not active and defines additional key criteria in determining the
fair value of a financial  asset when the market for that financial asset is not
active. FSP FAS 157-3 applies to financial assets within the scope of accounting
pronouncements that require or permit fair value measurements in accordance with
FAS 157. FSP FAS 157-3 was effective  upon issuance and the  application  of FSP
FAS  157-3  did  not  have  a  material  impact  on our  consolidated  financial
statements.

Other Information

      Subsequent to the end of fiscal 2006, the Board of Directors  approved the
adoption of a dividend  policy  under which we will issue a regular  annual cash
dividend on shares of our Common Stock. The amount of the dividend,  record date
and  payment  date  will be  subject  to  approval  every  year by the  Board of
Directors.  In accordance  with the new dividend  policy,  a regular annual cash
dividend of $0.02 per share was paid in each of May 2006, May 2007 and May 2008.
In  addition,  since of the  adoption of the  dividend  policy in fiscal 2007, a
special  cash  dividend of $0.02 per share was paid in each of January  2007 and
January 2008,  and a  supplemental  special cash dividend of $0.04 per share was
paid in August  2008.  No further  dividends  have been paid since  August  2008
primarily  due to the Company's  decision to seek  strategic  alternatives.  The
Board determined to postpone any action regarding the declaration of the regular
annual cash dividend for 2009 and beyond pending the outcome of this process.

      In August 2001, the Board of Directors of the Company authorized a 500,000
share stock repurchase program.  Pursuant to the repurchase program, the Company
may  purchase up to 500,000  shares of its common stock in the open market or in
privately  negotiated  transactions  from time to time,  based on market prices.
There have been no repurchases made by the Company under the repurchase  program
since the fiscal year ended February 28, 2007. Since the adoption of the program
and through the fiscal year ended  February 28, 2007, a total of 331,500  shares
were repurchased at a cumulative cost of $195,766.

Off-Balance Sheet Arrangements

      We do not have any off  balance  sheet  arrangements  that are  reasonably
likely to have a current or future effect on our financial condition,  revenues,
and results of operations, liquidity or capital expenditures.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

      We are a  smaller  reporting  company  as  defined  by Rule  12b-2  of the
Securities  Exchange Act of 1934 and are not required to provide the information
under this item.

                                        9

<PAGE>

Item 4T. Controls and Procedures.

      Under  the  supervision  and with  the  participation  of our  management,
including the Principal  Executive Officer and Principal  Financial Officer,  we
have evaluated the  effectiveness of our disclosure  controls and procedures (as
defined in Rule  13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end
of the period covered by this report.  Based on that  evaluation,  the Principal
Executive  Officer and Principal  Financial  Officer have concluded  that, as of
August 31, 2010,  these  disclosure  controls and  procedures  were effective to
ensure that all  information  required to be disclosed by us in the reports that
we file or submit under the Exchange Act is: (i) recorded, processed, summarized
and reported,  within the time periods  specified in the  Commission's  rule and
forms; and (ii)  accumulated and  communicated to our management,  including our
Principal  Executive Officer and Principal  Financial Officer, as appropriate to
allow timely decisions regarding required disclosure.

      There have been no material  changes in internal  control  over  financial
reporting that occurred  during the fiscal  quarter  covered by this report that
have  materially  affected,  or are reasonably  likely to materially  affect our
internal control over financial reporting.

                                       10

<PAGE>

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

      There are no material pending legal proceedings to which we are a party or
to which any of our property is subject.

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

         None.

Item 3.  Defaults Upon Senior Securities.

         None.

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

         None.

Item 5.  Other Information.

         None.

Item 6.  Exhibits.

         31.1   Certification of Chief Executive Officer pursuant to Section 302
                of the  Sarbanes-Oxley  Act of 2002 (Rules  13a-14 and 15d-14 of
                the Exchange Act)

         31.2   Certification of Principal Financial Officer pursuant to Section
                302 of the  Sarbanes-Oxley  Act of 2002 (Rules 13a-14 and 15d-14
                of the Exchange Act)

         32.1   Certification  pursuant to Section 906 of the Sarbanes-Oxley Act
                of 2002 (18 U.S.C. 1350)

                                       11

<PAGE>

                                   SIGNATURES

      Pursuant to the  requirements of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  Report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                              EPOLIN, INC.
                                              (Registrant)

Dated: October 15, 2010                  By: /s/ Murray S. Cohen
       ----------------                      -------------------
                                             Murray S. Cohen,
                                             Chairman of the Board

Dated: October 15, 2010                  By: /s/ James Ivchenko
       ----------------                      ------------------
                                             James Ivchenko,
                                             President
                                             (Principal Financial Officer)

                                       12

<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY

                  CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

                                SIX MONTHS ENDED

                            AUGUST 31, 2010 AND 2009

<PAGE>

                                    CONTENTS

                                                                     Page
                                                                    ------
Consolidated Financial Statements:

   Consolidated Balance Sheets (Unaudited)                           2 - 3

   Consolidated Statements of Income Six Months Ended
      (Unaudited)                                                        4

   Consolidated Statements of Income Three Months Ended
      (Unaudited)                                                        5

   Consolidated Statements of Stockholders' Equity (Unaudited)           6

   Consolidated Statements of Cash Flows (Unaudited)                     7

Notes to Consolidated Financial Statements (Unaudited)              8 - 23

                                        1

<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

                                                       August 31,
                                                          2010      February 28,
                                                      (Unaudited)       2010
                                                      -----------   ------------
Current assets:
   Cash and cash equivalents                          $ 2,239,062      1,908,752
   Accounts receivable                                    348,220        469,035
   Inventories                                            653,992        683,995
   Prepaid expenses                                        13,970         55,094
   Prepaid taxes                                           47,330         33,870
   Deferred tax assets-current portion                     14,398         14,698
                                                      -----------   ------------

      Total current assets                              3,316,972      3,165,444
                                                      -----------   ------------

 Plant, property and equipment - at cost:
   Land                                                    81,000         81,000
   Building and improvements                              774,550        770,537
   Laboratory equipment                                   210,555        210,555
   Furniture and office equipment                         273,863        273,863
   Leasehold improvements                                 532,129        532,131
                                                      -----------   ------------

      Total                                             1,872,097      1,868,086

   Less: Accumulated depreciation and amortization      1,050,655      1,008,372
                                                      -----------   ------------

      Net plant, property and equipment                   821,442        859,714
                                                      -----------   ------------

 Other assets:
   Deferred tax assets-non current portion                 51,560         85,460
   Cash value - life insurance policy                          --        188,641
                                                      -----------   ------------

      Total other assets                                   51,560        274,101
                                                      -----------   ------------

         Total                                        $ 4,189,974      4,299,259
                                                      ===========   ============

   The accompanying notes are an integral part of these consolidated financial
                                   statements.

                                        2

<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                      August 31,
                                                                         2010       February 28,
                                                                      (Unaudited)       2010
                                                                      -----------   ------------
<S>                                                                   <C>           <C>
Current liabilities:
   Accounts payable                                                   $    48,088         16,777
   Accrued expenses                                                       306,483         47,145
   Taxes payable:
      Payroll                                                               2,208          2,208
                                                                      -----------   ------------

         Total current liabilities                                        356,779         66,130
                                                                      -----------   ------------

Other liabilities - Deferred compensation                                      --        195,082
                                                                      -----------   ------------

         Total liabilities                                                356,779        261,212
                                                                      -----------   ------------

Commitments and Contingencies

Stockholders' equity:
   Preferred stock, $2.50 par value; 940,000 shares authorized;
      none issued
      Preferred stock, series A convertible non-cumulative, $2.50
      par value; redemption price and liquidation preference;
      60,000 shares authorized; 5,478 shares issued and redeemed
   Common stock, no par value; 20,000,000 shares authorized;
      13,115,000 shares issued, and 12,166,355 shares shares
      outstanding at August 31, 2010 and February 28, 2010,
      repectively                                                       2,364,693      2,364,693
      Additional paid-in capital                                          103,125        124,820
      Retained earnings                                                 1,716,459      1,899,616
                                                                      -----------   ------------

         Total                                                          4,184,277      4,389,129
      Less: Treasury stock - at cost                                      351,082        351,082
                                                                      -----------   ------------

      Total stockholders' equity                                        3,833,195      4,038,047
                                                                      -----------   ------------

         Total                                                        $ 4,189,974      4,299,259
                                                                      ===========   ============
</TABLE>

   The accompanying notes are an integral part of these consolidated financial
                                   statements.

                                        3

<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                  CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
                    SIX MONTHS ENDED AUGUST 31, 2010 AND 2009

<TABLE>
<CAPTION>
                                                              2010         2009
                                                          -----------   -----------
<S>                                                       <C>           <C>
Sales                                                     $ 1,481,503     1,434,747
                                                          -----------   -----------

Cost of sales and expenses:
   Cost of sales                                              747,182       606,193
   Selling, general and administrative                        623,755       552,256
                                                          -----------   -----------

      Total                                                 1,370,937     1,158,449
                                                          -----------   -----------

Operating income                                              110,566       276,298
                                                          -----------   -----------

Other income:
   Rental income                                                   --         4,500
   Interest                                                     5,694        14,624
                                                          -----------   -----------

      Total                                                     5,694        19,124
                                                          -----------   -----------

Income before taxes                                           116,260       295,422

Income taxes                                                   37,171       108,076
                                                          -----------   -----------

Net income                                                $    79,089       187,346
                                                          ===========   ===========
Per share data:
   Basic earnings per common share                        $      0.01          0.02
                                                          ===========   ===========

   Fully diluted earnings per common share                $      0.01          0.02
                                                          ===========   ===========

   Weighted average number of common shares outstanding    12,144,428    12,066,355
                                                          ===========   ===========

   Fully diluted number of common shares outstanding       12,161,528    12,069,235
                                                          ===========   ===========
</TABLE>

   The accompanying notes are an integral part of these consolidated financial
                                   statements.

                                        4

<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                  CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
                   THREE MONTHS ENDED AUGUST 31, 2010 AND 2009

<TABLE>
<CAPTION>
                                                              2010          2009
                                                          -----------   -----------
<S>                                                       <C>           <C>
Sales                                                     $   670,489       708,578
                                                          -----------   -----------

Cost of sales and expenses:
   Cost of sales                                              348,865       350,538
   Selling, general and administrative                        259,854       293,191
                                                          -----------   -----------

      Total                                                   608,719       643,729
                                                          -----------   -----------

Operating income                                               61,770        64,849
                                                          -----------   -----------

Other income:
   Interest                                                     2,343         6,757
                                                          -----------   -----------

      Total                                                     2,343         6,757
                                                          -----------   -----------

Income before taxes                                            64,113        71,606

Income taxes                                                   16,404        24,126
                                                          -----------   -----------

Net income                                                $    47,709        47,480
                                                          ===========   ===========

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

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

   Weighted average number of common shares outstanding    12,152,225    12,066,355
                                                          ===========   ===========

   Fully diluted number of common shares outstanding       12,169,325    12,069,235
                                                          ===========   ===========
</TABLE>

   The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                        5

<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
                    SIX MONTHS ENDED AUGUST 31, 2010 AND 2009

<TABLE>
<CAPTION>
                                                         Additional
                              Number of       Common      Paid-in-     Retained     Treasury   Treasury   Stockholders'
                            Shares Issued     Stock       Capital      Earnings      Shares      Stock        Equity
                            -------------   ----------   ----------   -----------   --------   --------   -------------
<S>                         <C>             <C>          <C>          <C>           <C>        <C>        <C>
Balance - March 1, 2009        13,015,000   $2,364,693      104,820     1,430,546    948,645   (351,082)      3,548,977

Net income                             --           --           --       187,346         --         --         187,346
                            -------------   ----------   ----------   -----------   --------   --------   -------------

Balance - August 31, 2009      13,015,000   $2,364,693      104,820     1,617,892    948,645   (351,082)      3,736,323
                            =============   ==========   ==========   ===========   ========   ========   =============

Balance - March 1, 2010        13,115,000   $2,364,693      124,820     1,899,616    948,645   (351,082)      4,038,047

Prior period adjustment -
pension contribution                   --           --           --      (262,246)        --         --        (262,246)

Stock-based compensation               --           --      (21,695)           --         --         --         (21,695)

Net income                             --           --           --        79,089         --         --          79,089
                            -------------   ----------   ----------   -----------   --------   --------   -------------

Balance - August 31, 2010      13,115,000   $2,364,693      103,125     1,716,459    948,645   (351,082)      3,833,195
                            =============   ==========   ==========   ===========   ========   ========   =============
</TABLE>

   The accompanying notes are an integral part of these consolidated financial
                                   statements.

                                        6

<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                    SIX MONTHS ENDED AUGUST 31, 2010 AND 2009

<TABLE>
<CAPTION>
                                                                    2010         2009
                                                                 -----------   ---------
<S>                                                              <C>           <C>
Cash flows from operating activities:
   Net income                                                    $    79,089     187,346
   Adjustments to reconcile net income to net cash provided by
   operating activities:
      Depreciation and amortization                                   42,283      50,600
      Prior period adjustment pension contribution                  (262,246)         --
      Stock based compensation                                       (21,695)         --
      Deferred tax expense                                            34,200      (5,324)
      Obligation under deferred compensation agreement              (195,082)      2,847
   (Increase) decrease in:
      Accounts receivable                                            120,815     (94,785)
      Inventories                                                     30,003      19,024
      Prepaid expenses                                                41,124      40,446
      Prepaid taxes                                                  (13,460)    167,737
   Increase (decrease) in:
      Accounts payable                                                31,311      16,258
      Accrued expenses                                               259,338    (260,844)
                                                                 -----------   ---------

         Net cash provided by operating activities                   145,680     123,305
                                                                 -----------   ---------

Cash flows from investing activities:
   (Increase) decrease in cash value - life insurance policy         188,641      37,909
   Payments for plant, property and equipment                         (4,011)    (27,575)
                                                                 -----------   ---------

         Net cash provided (used) in investing activities            184,630      10,334
                                                                 -----------   ---------

Increase (decrease) in cash                                          330,310     133,639

Cash and cash equivalents:
   Beginning                                                       1,908,752   1,544,966
                                                                 -----------   ---------

   Ending                                                        $ 2,239,062   1,678,605
                                                                 ===========   =========

Supplemental disclosures of cash flows:
   Income taxes paid                                             $    50,100     129,700
                                                                 ===========   =========
</TABLE>

   The accompanying notes are an integral part of these consolidated financial
                                   statements.

                                        7

<PAGE>

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

NOTE A - Organization:

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

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

NOTE 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 our Annual Report on Form 10-K for the fiscal
year ended February 28, 2010.  Such interim  Consolidated  Financial  Statements
reflect all normal and recurring adjustments that, in the opinion of management,
are necessary for a fair  presentation  of our  financial  position,  results of
operations  and  cash  flows  for  the  periods   presented.   All   significant
intercompany accounts and transactions have been eliminated.

      The results of operations  for the six-month  interim  period ended August
31, 2010 and 2009 are not  necessarily  indicative  of the results of operations
for the fiscal year ending February 28, 2011.

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

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

      Financial  instruments,  which potentially subject us to concentrations of
credit risk, consist principally of accounts  receivable.  Generally,  we do not
require collateral or other securities to support its accounts receivable. Three
customers represented 35.2% of our trade receivables at August 31, 2010.

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

                                        8

<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Principles of Consolidation - The accompanying Consolidated Financial Statements
include the accounts of the Company and Subsidiary.  Inter-company  transactions
and balances have been  eliminated  in  consolidation.  Condensed  Consolidating
Financial  Statements  as of August 31,  2010 and for the six months  then ended
are:

                      CONDENSED CONSOLIDATING BALANCE SHEET

<TABLE>
<CAPTION>
                                        Epolin         Epolin
                                         Inc.      Holding, Corp.   Eliminations   Consolidated
                                      ----------   --------------   ------------   ------------
<S>                                   <C>          <C>              <C>            <C>
Current assets                        $2,822,690          494,282             --      3,316,972
Non-current assets                     1,367,284          633,733     (1,128,015)       873,002
                                      ----------   --------------   ------------   ------------
         Total                        $4,189,974        1,128,015     (1,128,015)     4,189,974
                                      ==========   ==============   ============   ============

   Total liabilities                  $  356,779           24,435        (24,435)       356,779
                                      ----------   --------------   ------------   ------------

Stockholders' equity:
   Common stock                        2,364,693               --             --      2,364,693
   Additional paid-in capital            103,125               --             --        103,125
   Retained earnings                   1,716,459        1,103,580     (1,103,580)     1,716,459
   Treasury stock                       (351,082)              --             --       (351,082)
                                      ----------   --------------   ------------   ------------

   Total stockholders' equity          3,833,195        1,103,580     (1,103,580)     3,833,195
                                      ----------   --------------   ------------   ------------

      Total                           $4,189,974        1,128,015     (1,128,015)     4,189,974
                                      ==========   ==============   ============   ============
</TABLE>

                   CONDENSED CONSOLIDATING STATEMENT OF INCOME

<TABLE>
<CAPTION>
                                        Epolin         Epolin
                                         Inc.      Holding, Corp.   Eliminations   Consolidated
                                      ----------   --------------   ------------   ------------
<S>                                   <C>          <C>              <C>            <C>
Sales                                 $1,481,503               --             --      1,481,503
Rental income                                 --           48,870        (48,870)            --
                                      ----------   --------------   ------------   ------------
      Total                            1,481,503           48,870        (48,870)     1,481,503
                                      ----------   --------------   ------------   ------------

Cost of sales                            747,182               --             --        747,182
Selling, general and administrative      656,557           16,068        (48,870)       623,755
                                      ----------   --------------   ------------   ------------

      Total                            1,403,739           16,068        (48,870)     1,370,937
                                      ----------   --------------   ------------   ------------

Operating income                          77,764           32,802             --        110,566

Other income - interest                    4,622            1,072             --          5,694
                                      ----------   --------------   ------------   ------------

Income before taxes                       82,386           33,874             --        116,260

Income taxes                              34,259            2,912             --         37,171
                                      ----------   --------------   ------------   ------------

Net income                            $   48,127           30,962             --         79,089
                                      ==========   ==============   ============   ============
</TABLE>

                                        9

<PAGE>

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

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

Accounts  Receivable - Accounts  receivable are stated at the amount  management
expects to collect from outstanding  balances.  Management provides for probable
uncollectible  amounts  though a charge to earnings  and a credit to a valuation
allowance  based on its  assessment of the status of individual  accounts.  This
allowance is an amount estimated by management to be adequate to absorb possible
losses. Balances that are still outstanding after management has used reasonable
collection  efforts are written off through a charge to the valuation  allowance
and a credit to accounts receivable.

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

A summary of the major  categories  of our plant,  property and equipment are as
follows:

                                                          Estimated Years
                                                          ---------------
Building and improvements             Straight Line               39
Laboratory equipment                  Straight Line            5 - 7
Furniture and office equipment        Straight Line            5 - 7
Leasehold Improvements                Straight Line          10 - 39

      The costs of major renewals and betterments are  capitalized.  Repairs and
maintenance are charged to operations as incurred.  Upon  disposition,  the cost
and related accumulated depreciation are removed and any related gain or loss is
reflected in earnings.

      Depreciation and amortization  expense totaled $42,283 and $50,600 for the
six months ended August 31, 2010 and 2009, respectively.

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

      FASB  Interpretation No. 48, Accounting for Uncertainty in Income Taxes --
an interpretation  of FASB Statement No. 109 (FIN 48),  clarifies the accounting
for  uncertainty in income tax  positions,  as defined.  FIN 48 requires,  among
other matters,  that we recognize in our financial  statements,  the impact of a
tax  position,  if that  position is more likely than not of being  sustained on
audit,  based on the technical merits of the position.  We became subject to the
provisions  of FIN 48 as of March 1, 2007,  the  beginning  of fiscal year ended
2008,  and  analyzed  the  filing  positions  in all of the  federal  and  state
jurisdictions  where it is required to file income tax  returns,  as well as all
open tax years in these  jurisdictions.  The adoption of FIN 48 had no impact on
our financial  statements  for fiscal year ended 2010. As of August 31, 2010 and
2009, we did not record any  unrecognized  tax benefits.  Our policy,  if it had
unrecognized benefits, is to recognize accrued interest and penalties related to
unrecognized tax benefits as interest expense and other expense, respectively.

                                       10

<PAGE>

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

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

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

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

Regulations - We have expended  approximately $45,471 and $19,456 through August
31, 2010 and 2009,  respectively,  to maintain  compliance with certain Federal,
State  and  City  government  regulations  relative  to the  production  of near
infrared dyes and specialty chemicals.

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

Inventories - Consists of raw  materials,  work in process,  finished  goods and
supplies  valued at the lower of cost or market  under the  first-in,  first-out
method.

Advertising  Costs -  Advertising  costs,  included in operating  expenses,  are
expensed as incurred.  Advertising  expenses  amounted to $11,930 and $8,925 for
the six months ended August 31, 2010 and 2009, respectively.

                                       11

<PAGE>

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

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

Stock-Based Compensation - Effective March 1, 2006, we have adopted Statement of
Financial Accounting Standards ("SFAS") No. 123(R),  "Share-Based Payment". SFAS
123R  requires  companies  to measure and  recognize in  operations  the cost of
employee services received in exchange for an award of equity  instruments based
on  the  grant-date  fair  value.  In  accordance  with  the  provisions  of the
Securities and Exchange  Commission Staff  Accounting  Bulletin No. 107, we have
adapted the  modified-prospective  transition  method.  Prior  periods  were not
restated to reflect the impact of adopting the new  standard.  We determine  the
fair value of stock-based  compensation  using the Black-Scholes  option-pricing
model,  which  requires  us to  make  assumptions  regarding  future  dividends,
expected  volatility of its stock, and the expected lives of the options.  Under
SFAS 123R we also make  assumptions  regarding  the  number of  options  and the
number of shares of restricted stock and performance shares that will ultimately
vest. As a result of the adoption of FAS 123R, stock-based  compensation expense
recognized includes compensation expense for all share-based payments granted on
or prior to,  but not yet  vested as of March 1,  2006,  based on the grant date
fair value estimated in accordance with the original  provisions of FAS 123, and
compensation cost for all share-based payments granted on or subsequent to March
1, 2006,  based on the grant date fair value  estimated in  accordance  with the
provisions of FAS 123R.

      Prior to the  adoption  of FAS 123R and for the year  ended  February  28,
2007, no tax benefits  from the exercise of stock options have been  recognized.
Any future  excess tax benefits  derived from the exercise of stock options will
be recorded  prospectively and reported as cash flows from financing  activities
in accordance with FAS 123R.

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

      The weighted  average  Black-Scholes  value of options  granted  under the
stock plans  during the six months  ended  August 31, 2010 and 2009 was $.32 and
$.49, 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:

                                                             August 31,
                                                       ---------------------
                                                          2010        2009
                                                       ---------   ---------
      Weighted average expected life in years                  3           2
      Volatility                                             7.0%        7.0%
      Risk-free interest rate                                3.2%        2.8%

                                       12

<PAGE>

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

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

Recently Adopted  Accounting  Standards - On March 1, 2008, we adopted Statement
of Financial  Accounting  Standard  ("SFAS") No. 157, "Fair Value  Measurements"
("FAS 157") for financial assets and liabilities, which clarifies the meaning of
fair  value,  establishes  a  framework  for  measuring  fair value and  expands
disclosures about fair value  measurements. Fair value is defined under  FAS 157
as the exchange  price that would be received for an asset or paid to transfer a
liability  in the  principal  or most  advantageous  market  for the  assets  or
liabilities  in an  orderly  transaction  between  market  participants  on  the
measurement date. Subsequent changes in fair value of these financial assets and
liabilities are recognized in earnings or other  comprehensive  income when they
occur. The effective date of the provisions of FAS 157 for non-financial  assets
and liabilities, except for items recognized at fair value on a recurring basis,
was deferred by Financial Accounting Standards Board ("FASB") Staff Position FAS
157-2 ("FSP FAS 157-2") and are effective for the fiscal year beginning March 1,
2009. The adoption of FAS 157 for financial  assets and liabilities did not have
an impact on our consolidated  financial position or results of operations.  For
additional  information on the fair value of financial  assets and  liabilities,
see Note N - Fair Value Measurements.

      Also,  effective  March 1, 2008,  we adopted  SFAS No. 159 "The Fair Value
Option for Financial Assets and Financial  Liabilities" ("FAS 159") which allows
an entity  the  irrevocable  option to elect  fair  value  for the  initial  and
subsequent  measurement  for  certain  financial  assets  and  liabilities  on a
contract-by-contract basis. As of August 31, 2010,  we have not elected the fair
value option for any additional  financial  assets and liabilities  beyond those
already  prescribed by accounting  principles  generally  accepted in the United
States.

      In  October  2008,   the  FASB  issued  Staff   Position  No.  FAS  157-3,
"Determining  the Fair Value of a Financial Asset in a Market That Is Not Active
("FSP FAS 157-3")."  FSP FAS 157-3  clarifies  the  application  of FAS 157 in a
market that is not active and defines additional key criteria in determining the
fair value of a financial  asset when the market for that financial asset is not
active. FSP FAS 157-3 applies to financial assets within the scope of accounting
pronouncements that require or permit fair value measurements in accordance with
FAS 157. FSP FAS 157-3 was effective  upon issuance and the  application  of FSP
FAS  157-3  did  not  have  a  material  impact  on our  consolidated  financial
statements.

                                       13

<PAGE>

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

NOTE C - Income Taxes:

1. Federal and State deferred tax assets include:

                                                          August 31,
                                                   ------------------------
                                                       2010         2009
                                                   -----------   ----------
         Temporary differences:
            Accelerated amortization               $     7,925        6,730
            Deferred compensation                       41,979       96,421
            Stock-based compensation                    16,054       16,054
                                                   -----------   ----------
               Total                                    65,958      119,205

         Less: Current portion                          14,398       11,804
                                                   -----------   ----------

         Non-current portion                       $    51,560      107,401
                                                   ===========   ==========

2. Income tax:

                                                          August 31,
                                                   ------------------------
                                                       2010         2009
                                                   -----------   ----------
         Current:
            Federal                                $       (17)      88,300
            State                                        2,988       25,100
                                                   -----------   ----------

               Total current                             2,971      113,400
                                                   -----------   ----------

         Deferred:
            Federal                                     29,400        5,737
            State                                        4,800          413
                                                   -----------   ----------

               Total deferred                           34,200        5,324
                                                   -----------   ----------

                  Total                            $    37,171      108,076
                                                   ===========   ==========

                                       14

<PAGE>

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

NOTE D - Treasury Stock:

      Consists of 948,645 shares at a net cost of $351,082 as of August 31, 2010
and February 28, 2010, respectively.  There were no purchases of treasury shares
made during the six months ended August 31, 2010 and 2009, respectively.

NOTE E - Economic Dependency:

      A material  portion  of our  business  is  dependent  on certain  domestic
customers, the loss of which could have a material effect on operations.  During
the six months ended August 31, 2010, approximately 30.4% of sales were to three
customers.  During the six months ended August 31, 2009,  approximately 41.0% of
sales were to three customers.

NOTE F - Rental Income Under Sublease:

      We entered into an agreement with a non-related party effective  September
1, 2005 for a term ending October 31, 2007,  and continuing on a  month-to-month
basis  thereafter  through May 31, 2009.  Under the terms of the agreement,  the
tenant is to pay a base rent of $18,000 per year.  On May 31,  2009,  the tenant
abandoned the property.

NOTE G - Research and Development:

      We have developed  substantial  research and development  capability.  Our
efforts are devoted to (i)  developing  new products to satisfy  defined  market
needs, (ii) providing quality technical services to assure the continued success
of its products for its customers' applications,  (iii) providing technology for
improvements  to its products,  processes and  applications,  and (iv) providing
support to its manufacturing plant for cost reduction,  productivity and quality
improvement  programs.  Expenditures  for our  sponsored  product  research  and
product  development of $203,127 and $197,460 were included in cost of sales for
the six months ended August 31, 2010 and 2009,  respectively.  Expenditures  for
the fiscal year ended 2011 are  projected  to remain at  approximately  the same
level as in fiscal 2010.

NOTE H - Employee Benefits:

Simplified  Employee Pension Plan - Effective June 1, 1994, we provide 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.  We make contributions ranging from three to five percent. Employer
contributions  totaled  $35,975 and $23,881 for the six months  ended August 31,
2010 and 2009,  respectively.  The plan has not met the  requirements of Section
416 and Section 408(k) (6) regarding  contribution  limits and employee deferral
amounts.  We have  tested  all years of the plan to insure our  compliance  with
Internal Revenue Service  regulations.  In accordance with the results,  we have
accrued a contribution to the plan in the amount of $273,851. See Note P - Prior
Period Adjustment.

                                       15

<PAGE>

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

NOTE H - Employee Benefits (continued):

Stock  Option Plan - We adopted the 1998 Stock  Option Plan on December 1, 1998.
Under the terms of the plan, we have reserved 750,000 shares of common stock for
issuance pursuant to the exercise of options to be granted under the Plan, which
do not meet the  requirements of Section 422 of the Code. On September 15, 2001,
the Board of  Directors  increased  the reserve to  1,500,000.  Options  granted
expire  five or ten years  after the date  granted  and are  subject  to various
vesting periods as follows:  (1) none exercisable prior to the first anniversary
of the date of grant,  and (2) certain  options become  exercisable as to 50% of
the shares  underlying the option on each of the first and second  anniversaries
of the date  granted (3) certain  options  become  exercisable  as to 50% of the
shares  underlying the option on each of the second and fourth  anniversaries of
the date  granted.  From  inception  through  August 31, 2010,  options  granted
totaled  1,242,000,  options  exercised  totaled 686,000;  options  cancelled or
expired for all years totaled 461,000.

      A summary  of the status of our 1998  stock  option  plan as of August 31,
2010,  and the changes  during the six months  ended August 31, 2010 and 2009 is
presented below:

                                             Weighted-Average
Fixed Options:                     Shares     Exercise Price
--------------                    --------   ----------------
Balance - February 28, 2010        245,000   $            .49
                                  ========

Options cancelled                  150,000
                                  ========

Balance - August 31, 2010           95,000   $            .32
                                  ========

Exercisable at August 31, 2010       95,000  $            .32
                                  ========

Stock Option Plans - The  following  table  summarizes  information  about fixed
stock options outstanding at August 31, 2010:

              Outstanding Options                       Exercisable Options
-----------------------------------------------   ------------------------------
                    Number     Weighted-Average      Number
   Range of      Outstanding       Remaining      Exercisable   Weighted-Average
Exercise Price   at 08/31/10   Contractual Life   at 08/31/10    Exercise Price
--------------   -----------   ----------------   -----------   ----------------
$          .41      95,000            3.4            95,000            .32

                                       16

<PAGE>

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

NOTE H - Employee Benefits (continued):

Stock Option and Stock-Based  Compensation Plan - On June 18, 2008, our Board of
Directors  approved and adopted the Epolin,  Inc. 2008 Stock Incentive Plan (the
"2008 Plan"),  and  authorized us to issue up to 1,500,000  shares of our Common
Stock  under the 2008 Plan  (subject  to  adjustment  to take  account  of stock
dividends, stock splits,  recapitalizations and similar corporate events). Under
the 2008 Plan, we will have the right to issue stock options, stock appreciation
rights, restricted stock, Common Stock or convertible securities that may or may
not  be  subject  to  restrictions  or  forfeiture,   restricted   stock  units,
performance  shares and  performance  units.  With the  adoption of the new 2008
Plan, the 1998 Plan  terminated,  and we will no longer be able to grant options
under it.  However,  options that have already been granted  under the 1998 Plan
will continue to be outstanding. As of August 31, 2010, 200,000 shares of Common
Stock have been granted and 1,300,000 shares remain to be granted.

      The  purpose  of the Plan is to  provide  officers,  other  employees  and
directors of, and  consultants  to us, an incentive to (a) enter into and remain
in our  service or to provide  services  to us, (b)  enhance  the our  long-term
performance, (c) acquire a proprietary interest in us.

      The Compensation  Committee or another committee of our Board of Directors
(or if there is no committee, the Board of Directors itself) will administer the
Plan. It will  determine  the persons to whom awards will be made,  the types of
awards that will be made to particular  persons,  the numbers of shares to which
awards will relate,  the dates when awards will vest in whole or in part and the
other terms of awards,  including the payments,  if any, that  participants will
have to make to benefit from awards.

      The 2008 Plan provides that each year,  commencing September 1, 2008, each
person who serves as a Director  during  the  current  year shall  automatically
receive a stock award of 25,000 shares of Common Stock.  The dollar value of the
shares of Common  Stock  granted  each year is  calculated  based  upon the fair
market value of our Common Stock at the date of grant.

                                       17

<PAGE>

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

NOTE I - Segment Reporting:

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

Sales by geographic area are as follows:

                                  Six Months Ended
                                     August 31,
                             -------------------------
                                 2010          2009
                             -----------   -----------
      United States          $ 1,094,321     1,223,858
      Asia                       198,721        88,470
      Europe                     184,564       119,539
      Other nations                3,897         2,880
                             -----------   -----------

         Total               $ 1,481,503     1,434,747
                             ===========   ===========

      Two customers,  located in the United States,  accounted for more than 10%
of revenues from continuing  operations.  These customers accounted for 23.2% of
sales of infrared dies.

      Long-lived  assets  include  net plant,  property  and  equipment.  We had
long-lived  assets of  $821,442  and  $859,714  located in the United  States at
August 31, 2010 and February 28, 2010, respectively.

                                       18

<PAGE>

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

NOTE J - Accrued Expenses:

      Accrued  expenses  consisted  of the  following  as of August 31, 2010 and
February 8, 2010, respectively:

                                  August 31,   February 28,
                                     2010          2010
                                  ----------   ------------
Salaries and wages                $    7,534             --
   Purchases                           3,149          3,455
   Pension contribution              273,851             --
   Commissions                         7,804         10,545
   Rent                                8,145          8,145
   Professional fees                   6,000         25,000
                                  ----------   ------------

      Total accrued expenses      $  306,483         47,145
                                  ==========   ============

NOTE K - Inventories:

                                  August 31,   February 28,
                                     2010          2010
                                  ----------   ------------
   Raw materials and supplies     $  175,771        160,387
   Work in process                    96,832         92,421
   Finished goods                    381,389        431,187
                                  ----------   ------------

      Total                       $  653,992        683,995
                                  ==========   ============

                                       19

<PAGE>

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

NOTE L - Earnings Per Share:

      Basic earnings per share are computed on the basis of the weighted average
number of shares of common stock outstanding during the period. Diluted earnings
per share is computed on the basis of the weighted  average  number of shares of
common stock plus the effect of dilutive  potential  common  shares  outstanding
during the period using the treasury  stock method.  Dilutive  potential  common
shares include  outstanding  stock options.  The components of basic and diluted
earnings per share are as follows:

<TABLE>
<CAPTION>
                                           Three Months Ended           Six Months Ended
                                               August 31,                  August 31,
                                       -------------------------   -------------------------
                                           2010          2009          2010          2009
                                       -----------   -----------   -----------   -----------
<S>                                    <C>           <C>           <C>           <C>
Basic Earnings Per Common Share:

Net income                                  47,709        47,480        79,089       187,346
                                       ===========   ===========   ===========   ===========

Average common shares outstanding       12,152,225    12,066,355    12,144,428    12,066,355
                                       ===========   ===========   ===========   ===========

Basic earnings per common share                 --            --          0.01          0.02
                                       ===========   ===========   ===========   ===========

Diluted Earnings Per Common Share:

Net income                                  47,709        47,480        79,089       187,346
                                       ===========   ===========   ===========   ===========

Average common shares outstanding       12,152,225    12,066,355    12,144,428    12,066,355

Common shares issuable with respect
   to options issued to employees
   with a dilutive effect                   17,100         2,880        17,100         2,880
                                       -----------   -----------   -----------   -----------

Total diluted common shares
   outstanding                          12,169,325    12,069,235    12,161,528    12,069,235
                                       ===========   ===========   ===========   ===========

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

                                       20

<PAGE>

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

NOTE M - Commitments and Contingencies:

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

Simplified  Employee  Pension Plan - Our SAR/SEP plan has failed to meet certain
tests as required by  Internal  Revenue  Service  codes  regarding  contribution
limits and employee  deferral  amounts.  We have tested all years of the plan to
insure our compliance with Internal Revenue Service  regulations.  In accordance
with the results,  we have accrued a  contribution  to the plan in the amount of
$273,851. See Note P - Prior Period Adjustment.

Lease  Obligations  - We lease our real estate under an  operating  lease with a
related party.  The lease effective  November 1, 1996 was for a term of five (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, 2010 and 2009, respectively.

Future minimum payments for the current option period:

      Fiscal Years Ending February:
      -----------------------------
                   2011                     $16,290

Deferred  Compensation  - On  December  29,  1995,  we  entered  into a deferred
compensation agreement with James Ivchenko,  President,  whose additional annual
compensation  of $19,645 plus interest is deferred until he reaches age 65 or is
terminated.  The  obligation  is  funded by the cash  value in a life  insurance
policy. Commencing on December 2005, annual payments will be made to the officer
in the amount of $32,000 for ten  consecutive  years. On May 14, 2010, the Board
of Directors  agreed to  surrender  the life  insurance  policy.  The  remaining
balance of $128,000 was paid during the current quarter ended August 31, 2010.

      On January 1, 1996, we entered into a deferred compensation agreement with
Dr. Murray S. Cohen,  PhD,  Chairman of the Board,  wherein $25,000 per year was
accrued. This agreement,  with unfunded accruals of $79,041,  terminated on June
25, 1998. On May 14, 2010, the Board of Directors  agreed to pay the balance due
during the current year.  This balance was paid during the current quarter ended
August 31, 2010.

                                       21

<PAGE>

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

NOTE N - Fair Value Measurements:

      Effective  March 1, 2008, we adopted FAS 157,  which defines fair value as
the  exchange  price that would be  received  for an asset or paid to transfer a
liability (an exit price) in the principal or most  advantageous  market for the
asset or liability in an orderly  transaction between market participants at the
measurement  date. FAS 157  establishes a three-level  fair value hierarchy that
prioritizes  the inputs used to measure  fair  value.  This  hierarchy  requires
entities  to  maximize  the use of  observable  inputs and  minimize  the use of
unobservable  inputs.  The three levels of inputs used to measure fair value are
as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable  inputs other than quoted prices  included in Level 1, such
as quoted prices for similar assets and  liabilities in active  markets;  quoted
prices for identical or similar  assets and  liabilities in markets that are not
active; or other inputs that are observable or can be corroborated by observable
market data.

Level 3 - Unobservable inputs that are supported by little or no market activity
and that are  significant to the fair value of the assets or  liabilities.  This
includes certain pricing models,  discounted cash flow methodologies and similar
techniques that use significant unobservable inputs.

All  financial  assets that are measured at fair value on a recurring  basis (at
least annually) have been segregated into the most appropriate  level within the
fair value hierarchy based on the inputs used to determine the fair value at the
measurement  date.  These assets measured at fair value on a recurring basis are
summarized below:

<TABLE>
<CAPTION>
                                      August 31, 2010          February 28, 2010
                                  -----------------------   -----------------------
                                   Carrying       Fair       Carrying       Fair
                                    Amount        Value       Amount        Value
                                  ----------   ----------   ----------   ----------
<S>                               <C>          <C>          <C>          <C>
Assets:
Cash and cash equivalents         $2,239,062    2,239,062    1,908,752    1,908,752
Other assets:
   Cash value - life insurance            --           --      188,641      188,641
                                  ----------   ----------   ----------   ----------

Total assets at fair value        $2,239,062    2,239,062    2,097,393    2,097,393
                                  ==========   ==========   ==========   ==========

Liabilities:

Deferred compensation             $       --           --      195,082      195,082
                                  ==========   ==========   ==========   ==========
</TABLE>

                                       22

<PAGE>

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

NOTE O - Environmental Matters

      Our past and  present  daily  operations  include  activities,  which  are
subject to extensive federal,  and state  environmental and safety  regulations.
Compliance with these  regulations has not had, nor do we expect such compliance
to have, any material  effect upon expected  capital  expenditures,  net income,
financial condition,  or competitive  position.  We have engaged a licensed site
remediation   professional  and  special   environmental  counsel  in  order  to
facilitate the  environmental  approvals  which will be necessary in conjunction
with any potential sale or similar  transaction of our company.  We believe that
our current  practices and procedures  comply with applicable  regulations.  Our
policy is to accrue environmental and related costs of a non-capital nature when
it is both  probable  that a liability has been incurred and that the amount can
be reasonably estimated. No such amounts have been accrued in these statements.

NOTE P - Prior Period Adjustment

      During the quarter  ended August 31, 2010, we received the test results of
our  Simplified  Employee  Pension  Plan  for all  years it was in  effect.  The
liability  we have  incurred  to correct  the plan in the amount of  $262,246 is
presented in the financial  statements as an increase in accrued  expenses and a
corresponding reduction to retained earnings.

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