SECURITIES AND EXCHANGE COMMISSION
                      WASHINGTON, DC 20549

                          FORM 10-QSB

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

          For the quarterly period ended May 31, 2005

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

    For the transition period from            to


                 Commission file number 0-17741


                          EPOLIN, INC.
(Exact name of Small Business Issuer as Specified in its Charter)


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

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

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

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

                  Yes   [  X   ] No   [     ]

State  the  number of shares outstanding of each of  the  Issuers
classes of common equity, as of the latest practicable date:

          Common, no par value per share: 11,815,355
                 outstanding as of June 15, 2005

<PAGE>


                PART I - FINANCIAL INFORMATION


Item 1.   Financial Statements.

      See  the Consolidated Financial Statements annexed to  this
report.


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

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

Forward-Looking Statements

      This report contains certain forward-looking statements and
information relating to the Company that are based on the beliefs
and  assumptions  made  by the Company's management  as  well  as
information currently available to the management.  When used  in
this document, the words "anticipate", "believe", "estimate", and
"expect"  and  similar  expressions,  are  intended  to  identify
forward-looking statements.  Such statements reflect the  current
views  of  the  Company  with respect to future  events  and  are
subject to certain risks, uncertainties and assumptions.   Should
one  or  more  of  these risks or uncertainties  materialize,  or
should underlying assumptions prove incorrect, actual results may
vary  materially  from  those described  herein  as  anticipated,
believed,  estimated or expected.  Certain  of  these  risks  and
uncertainties  are  discussed in this report  under  the  caption
"Uncertainties  and Risk Factors" in Part I, Item 1  "Description
of  Business"  of the Company's Form 10-KSB for  the  year  ended
February  28, 2005.  The Company does not intend to update  these
forward-looking statements.

Executive Overview

     Epolin,  Inc.  (the  "Company") is  a  specialized  chemical
company   primarily  engaged  in  the  manufacturing,  marketing,
research  and  development  of dyes and  dye  formulations.   The
Company's  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.   The  Company  also  manufactures
specialty   chemicals   for  certain   United   States   chemical
manufacturers.

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

       The  Company  sells  its  products  to  manufacturers   of
plastics/resins, credit cards, electronics, glass and other basic
materials.  The Company's customers are located in all regions of
the  world, although a material portion of the Company's business
is  dependent  on certain domestic customers, the loss  of  which
could  have  a  material effect on operations.   As  the  service
economy continues to dwarf the manufacturing sector in the United
States,  the  Company  anticipates  that  its  products  will  be
increasingly  used by manufacturers located abroad.   During  the
three  months  ended May 31, 2005, approximately 44.1%  of  sales
were  to four customers. Two of these customers, located  in  the
eastern United States, accounted for 28.3% of sales.  During  the
three


<PAGE>

months  ended May 31, 2004, approximately 51.6%  of  sales
were  to four customers.  Two of these customers, located in  the
eastern  United States, accounted for 39.0% of sales.   The  loss
of one or more key customers could have a material adverse effect
on the Company.

Results of Operations

      The following table sets forth operations data expressed as
a percentage of sales.


                                          Three Months Ended

                                        May 31,        May 31,
                                        2005           2004

Sales                                   100%           100%
Cost of sales                           43.4           44.0

Gross Profit                            56.6           56.0
Selling, general and administrative     31.1           39.2

Operating Income                        25.5           16.8

Income before taxes                     26.4           19.1

Net income (after taxes)                17.1           10.5


Sales

     Sales  increased to $806,000 for the three months ended  May
31,  2005 from $464,000 for the three months ended May 31,  2004,
an  increase  of  $342,000  or 73.7%.   The  Company  experienced
increased  orders  from  many of its  regular  customers  of  its
traditional  products  during the first quarter  of  the  current
fiscal year compared to the first quarter of fiscal 2005 in which
the   Company  experienced  reduced  orders  from  many  of  such
customers.  In addition, the Company has recently begun providing
greater  technical  service to customers which  has  allowed  the
Company to sell many of its traditional dye products to customers
who may not have known how to best use the Company's products  in
the  past.  These efforts have resulted in increased sales of the
Company's   dye   products  which  was  demonstrated   with   the
significant increase in sales for the three months ended May  31,
2005.   The  Company  also  has  increased  its  sales  overseas,
especially in Japan, Korea and Taiwan for its products,  and  the
Company  has experienced increased orders for its newer  security
inks and coatings products.

      While  management  believes that the Company  has  remained
strong  in the sale of dyes in its traditional markets of welding
and  eye  protection, sales did  remain relatively stagnant  from
fiscal 2002 through fiscal 2005.  In order to increase the  level
of  sales of its traditional dyes products, the Company has begun
to place greater emphasis on technical service as mentioned above
which  has resulted in sales to customers who have not  used  the
Company's  products  before  as well as  new  uses  of  such  dye
products  by  regular customers.  The Company also has  increased
its  sales in dyes for the newer security inks products which  is
an  area  the Company expects to achieve strong growth.   All  of
these  efforts resulted in the strong increase in sales  for  the
quarter  ended  May 31, 2005 as described above compared  to  the
quarter ended May 31, 2004.

Gross Profit

      Gross  profit,  defined as sales less cost  of  sales,  was
$457,000  or  56.6% of sales for the three months

<PAGE>

ended  May  31,
2005  compared to $260,000 or 56.0% of sales for the three months
ended  May 31, 2004.  In  terns of absolute dollars, Gross profit
increased  $197,000  due primarily to higher sales  and  slightly
higher margins.

      Cost  of sales was $350,000 for the three months ended  May
31,  2005  which represented 43.4% of sales compared to  $204,000
for  the three months ended May 31, 2004 which represented  44.0%
of  sales.   The  small  decrease  in  operating  expenses  as  a
percentage of sales reflects the Company's operating leverage  on
increased  sales.  The increase in absolute dollars of  operating
expenses  during the quarter ended May 31, 2005 was due primarily
to  the  increased  variable  costs associated  with  the  higher
revenue level achieved.

Selling, General and Administrative Expenses

      Selling,  general and administrative expenses increased  to
$251,000, or 31.1% of sales, for the three months ended  May  31,
2005 from $182,000, or 39.2% of sales, for the three months ended
May  31, 2004, an increase of $69,000. As a percentage of  sales,
however,  selling, general and administrative expenses  decreased
8.1%  for  the  three months ended May 31, 2005 compared  to  the
three  months  ended May 31, 2004.    Such increase  in  absolute
dollars  in selling, general and administrative expenses for  the
quarter  ended May 31, 2005 compared to the comparable period  of
the prior year was primarily due to increases in officer salaries
and  employee  benefits,  together with increases  in  commission
expenses (resulting from increased sales), offset by decreases in
professional  fees, advertising and marketing, and  officer  life
insurance costs.

Operating Income

      Operating  income for the three months ended May  31,  2005
increased to $206,000, or 25.5% of sales, from $78,000, or  16.8%
of  sales, for the comparable period of fiscal 2005, an  increase
of  $128,000  or  8.7%.   This change  was  primarily  due  to  a
substantial  increase  in  sales for the  period,  together  with
decreases  achieved,  in  terms of  a  percentage  of  sales,  in
operating   expenses  and  selling,  general  and  administrative
expenses as described above.

Other Income

      Total other income for the three months ended May 31,  2005
was  $7,000 as compared to $10,000 for the three months ended May
31,  2004.  The Company realized $3,000 in rental income for  the
first  quarter of fiscal 2006 compared to rental income of $9,000
for  the  first  quarter of fiscal 2005.  Effective  November  1,
2002,  the  Company began to sublease approximately 2,500  square
feet  of  its office space to a non-related party to  operate  an
optics and security inks laboratory at an annual rent of $36,000.
During the quarter ended May 31, 2005, such tenant was behind  in
its  rental payments which late payments were made subsequent  to
May  31, 2005.  The Company's interest income increased to $4,000
for the three months ended May 31, 2005 from $1,000 for the three
months ended May 31, 2004.

Net Income

      During  the  three months ended May 31, 2005,  the  Company
reported  income before taxes of $213,000 as compared  to  income
before taxes of $88,000 for the three months ended May 31,  2004.
Income taxes were $75,000 for the three months ended May 31, 2005
compared to $40,000 for the three months ended May 31, 2004.  The
increase  in  income taxes was generally attributed  to  ordinary
changes from period to period in sales and expenses.  Net  income
after  taxes was $138,000 or $0.01 per share for the three months
ended  May  31,  2005 as compared to net income  after  taxes  of
$49,000  or  $0.00 per share for the three months ended  May  31,
2004.   The  increase in net income after taxes for  the  quarter
ended  May 31, 2005 compared to the prior year was primarily  due
to  increases in sales together with decreases achieved, in terms
of  a  percentage  of sales, in operating expenses  and  selling,
general and administrative expenses.

<PAGE>

      Net income in the future will be dependent upon our ability
to increase revenues faster than we increase our selling, general
and  administrative  expenses, research and development  expenses
and  other expenses Although there were modest increases in sales
in the entire 2005 fiscal year compared to the entire 2004 fiscal
year,  we  did attain a dramatic increase in sales for the  first
quarter  of  fiscal 2006.  We also did incur in absolute  dollars
greater  selling,  general and administrative  expenses  for  the
first quarter of fiscal 2006 compared to the comparable period of
last  year.   Certain  of these expenses are  due  to  a  greater
emphasis  being  placed  on marketing  our  traditional  and  new
product  lines  and  hiring  of  additional  employees.   We  are
encouraged  with  the increases in sales achieved  in  the  first
quarter  of  fiscal 2006 which we believe is a direct  result  of
these efforts.

Operations Outlook

      We  are currently going through a period of reassessing our
direction  in order to increase value for our shareholders.   Our
business,  though reasonably healthy, has not recently  grown  to
the  degree management anticipated.  For example, the sales level
of $2,880,000 reached during fiscal 2005 was an all time high for
the  Company.  Yet, this was not significantly more than in  2004
($2,734,000), 2003 ($2,690,000) or 2002 ($2,550,000). The plateau
of  sales over the last four years was in contrast to the greater
sales  growth the Company experienced prior to 2002 and beginning
in  1991.  Based upon these observations, we tried to learn  what
could be done to stimulate growth and recapture the promise of  a
true  growth  company. Our first task was to draw up  a  business
plan.   We  believe this highlighted our one major  weakness  and
that  was  in sales and marketing.  For years we felt  it  to  be
unnecessary to go out and reach our customers.  We believed  that
our   web  site  was  sufficiently  explicit  to  attract  anyone
interested  in  near  infrared light management  to  come  to  us
because we were the "only game in town".  We now realize that the
customer has alternatives which do not include the use of  Epolin
dyes.  We  believe the business plan made clear the necessity  of
hiring  a Sales/Marketing executive (which has been accomplished)
along  with back up technical service help (which has  also  been
accomplished).   In order to cover the cost of  these  additional
personnel  and  place a greater emphasis on  company  growth,  we
suspended in fiscal 2005 the cash dividends program which we  had
been  in  place during fiscal 2002, 2003 and 2004.   We  believed
that  it  was  in the long term best interest of the shareholders
for  us to reinvest profits for future growth.  However, with the
results achieved in the first three months of fiscal 2006 and due
to  our current cash position, we will be declaring and paying  a
$0.02 cash dividend in the current fiscal quarter.

      Management  has  recognized that the Company's  traditional
markets   -   serving   welding  and  eye   protection   plastics
manufacturers - have gone through certain changes over  the  last
few  years  in  that  certain customers have consolidated  and/or
moved manufacturing operations to low-cost countries, usually  in
the Far East.  In some of these countries, eye protection may not
be  as  highly valued by the citizenry.  Management expects  that
this  market  will  remain important as a  continuing  source  of
revenue.   The  Company  also  now offers  fully  formulated  dye
packages  which  can be used by the lens manufacturer  simply  by
adding  the  package to polycarbonate and injection  molding  the
final product.  This has allowed the Company to maintain a strong
position  in  this market.   Greater emphasis has  recently  been
placed  on  sales,  marketing and technical support in  order  to
grow  the Company's business.  The new products that are now  the
firm  underpinnings  for future growth are based  upon   security
inks,  new  visible and infrared dyes and the forward integration
of  the  Company's dyes into formulated pellets.  For  the  three
months  ended  May  31, 2005, sales in these  new  product  areas
increased approximately $40,000 from the comparable period of the
prior  year.   Nevertheless,  due  the  increased  sales  in  the
Company's traditional product line which was experienced  in  the
three months ended May 31, 2005, sales in these new product areas
represented  approximately 23% of all Company sales  compared  to
the  three months ended May 31, 2004 for which sales in these new
product areas represented approximately 33% of all Company sales.
As  mentioned above, the Company did experience reduced sales  in
its traditional products during the quarter ended May 31, 2004.

      Another factor that was considered in the business plan was
management  succession.  Murray S. Cohen, the Company's  Chairman
of  the  Board  and  Chief Executive Officer, has  announced  his
intention  to

<PAGE>

step  down  as  Chief  Executive  Officer  at   an
undetermined future date, while continuing to remain as  Chairman
of  the  Board  and  Chief Scientist for the Company.   With  the
hiring of a Sales/Marketing executive, such will add to our  pool
of  personnel  who  can be considered at a  later  date  for  the
position of CEO.

Liquidity and Capital Resources

      The  Company's  primary source of funds is cash  flow  from
operations in the normal course of selling products.  On May  31,
2005,  the Company had working capital (consisting current assets
less  current liabilities) of $2,412,000, a debt to equity  ratio
of 0.14 to 1, and stockholders' equity of $3,237,000, compared to
working capital of $1,949,000, a debt to equity ratio of 0.18  to
1,  and  stockholders' equity of $2,668,000 on May 31, 2004.   On
May  31,  2005,  the  Company had $1,370,000  in  cash  and  cash
equivalents, total assets of $3,696,000 and total liabilities  of
$459,000,  compared  to  $817,000 in cash and  cash  equivalents,
total  assets of $3,151,000 and total liabilities of $484,000  on
May 31, 2004.

      Net  cash  provided by operating activities for  the  three
months  ended May 31, 2005 was $224,000 compared to $280,000  for
the  three months ended May 31, 2004.  Net cash used by investing
activities  for the three months ended May 31, 2005  was  $86,000
compared to $11,000 for the three months ended May 31, 2004 which
change was primarily due to an increase in equipment purchases.

      The  Company anticipates, based on currently proposed plans
and assumptions relating to its operations, that its 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.  The Company's contemplated cash requirements for  fiscal
2006 and beyond will depend primarily upon level of sales of  its
products,  inventory  levels,  product  development,  sales   and
marketing   expenditures   and   capital   expenditures.    While
Management believes the Company has remained strong in  the  sale
of dyes in its traditional markets of welding and eye protection,
such  sales  did not increase in volume in the past few  complete
fiscal  years.   As a result, we have begun to  place  a  greater
emphasis  on sales, marketing and technical support in  order  to
grow our dye business and our newer business in security inks and
coatings which we expect to contribute meaningful growth  to  the
Company.

      Inflation  has  not  significantly impacted  the  Company's
operations.

Significant Accounting Policies

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

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

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

<PAGE>



      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 - As permitted by  SFAS  No.  123
"Accounting for Stock-Based Compensation," we continue  to  apply
intrinsic   value   accounting  for  our  stock   option   plans.
Compensation cost for stock options, if any, is measured  as  the
excess  of  the quoted market price of the stock at the  date  of
grant  over the amount an employee must pay to acquire the stock.
We  have  adopted disclosure-only provisions of SFAS No. 123  and
SFAS   No.  148,  "Accounting  for  Stock-Based  Compensation   -
Transition  and Disclosure - an Amendment of FASB  Statement  No.
123."

Other Information

     In  August  2001,  the  Board of Directors  of  the  Company
authorized a 500,000 share stock repurchase program.  Pursuant to
the  repurchase program, the Company may purchase up  to  500,000
shares  of  its common stock in the open market or  in  privately
negotiated  transactions  from time  to  time,  based  on  market
prices.  The Company indicated that the timing of the buyback  of
the  Company's  shares will be dictated by overall financial  and
market  conditions  and  other  corporate  considerations.    The
repurchase  program  may  be suspended  without  further  notice.
During  the  three months ended May 31, 2005, no  repurchases  of
shares  were made by the Company.  During the fiscal  year  ended
February  28,  2005,  a  total of 50,000 were  repurchased  at  a
cumulative  cost  of  $29,750.   During  the  fiscal  year  ended
February 29, 2004, a total of 184,000 shares were repurchased  at
a  cumulative  cost  of $103,405.  During the fiscal  year  ended
February 28, 2003, a total of 32,500 shares were repurchased at a
cumulative  cost  of $18,624 while during the fiscal  year  ended
February 28, 2002, a total of 30,000 shares were repurchased at a
cumulative cost of $14,837.

      As  mentioned  above,  the Company did  not  pay  any  cash
dividends during the fiscal year ended February 28, 2005 but will
be  declaring  and paying a $0.02 cash dividend  in  the  current
fiscal  quarter.  During fiscal 2004, the Company paid  two  cash
dividends, the first being $.02 per share in August 2003 and  the
second being $.02 per shares in February 2004.  During the fiscal
year  ended  February 28, 2003, the Company also  paid  two  cash
dividends,  the first being $.04 per share in July 2002  and  the
second being $.03 per share in January 2003.  Prior thereto,  and
during the fiscal year ended February 28, 2002, the Company  also
paid  two cash dividends, the first being $.03 per share in  June
2001  (which represented the first time that a cash dividend  was
paid  by  the  Company) and the second being $.04  per  share  in
February 2002.

Off-Balance Sheet Arrangements

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

<PAGE>

Item 3.   Controls and Procedures.

     The   Company's   Chief  Executive  Officer  and   Principal
Financial Officer have reviewed the Company's disclosure controls
and  procedures  as  of  the end of the period  covered  by  this
report.   Based upon this review, such officers believe that  the
Company's  disclosure controls and procedures  are  effective  in
timely  alerting  them  to material information  required  to  be
included in this report.  There have been no significant  changes
in internal control over financial reporting that occurred during
the  fiscal  quarter covered by this report that have  materially
affected,  or  are  reasonably likely to materially  affect,  the
Company's internal control over financial reporting.


                   PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

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


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

     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)

<PAGE>



                           SIGNATURES

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


                                   EPOLIN, INC.
                                   (Registrant)



Dated:  July 5, 2005              By: /s/ Murray S. Cohen
                                      Murray S. Cohen,
                                     Chairman of the Board
                                   and Chief Executive Officer


Dated:  July 5, 2005              By: /s/ James Ivchenko
                                     James Ivchenko,
                                     President (Principal Financial
                                     Officer)

<PAGE>


                           EPOLIN, INC. AND SUBSIDIARY

                              FINANCIAL STATEMENTS

                    THREE MONTHS ENDED MAY 31, 2005 AND 2004


<PAGE>

                                    CONTENTS

                                                                       Page
                                                                      ------

Accountant's Review Report                                               1

Consolidated Financial Statements:

    Consolidated Balance Sheets                                        2 - 3

    Consolidated Statements of Income                                    4

    Consolidated Statements of Stockholders' Equity                      5

    Consolidated Statements of Cash Flows                                6

Notes to Consolidated Financial Statements                             7 - 21

<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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


         We have reviewed the accompanying Consolidated Balance Sheets of Epolin
Inc. and Subsidiary as of May 31, 2005 and 2004 and the related Consolidated
Statements of Income, Stockholders' Equity and Cash Flows for the three-month
periods then ended. These interim financial statements are the responsibility of
the Company's management.

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

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


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


June 16, 2005

                                       1
<PAGE>
<TABLE>
<CAPTION>

                           EPOLIN, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

                                                                     May 31,
                                                           ---------------------------
Current assets:                                                2005           2004
                                                           ------------   ------------
<S>                                                        <C>                 <C>
Cash and cash equivalents                                  $  1,370,083        816,692
Accounts receivable                                             449,787        448,406
Inventories                                                     716,238        817,965
Prepaid expenses                                                 35,042         41,291
Prepaid taxes                                                        --         36,590
Deferred tax assets-current portion                               5,891          1,376
                                                           ------------   ------------

   Total current assets                                       2,577,041      2,162,320
                                                           ------------   ------------

Plant, property and equipment - at cost:
Land                                                             81,000         81,000
Building and improvements                                       642,838        520,489
Laboratory equipment                                            194,135        193,335
Office equipment                                                102,837         72,915
Leasehold improvements                                          449,190        449,190
                                                           ------------   ------------

   Total                                                      1,470,000      1,316,929

Less: Accumulated depreciation and amortization                 756,179        724,100
                                                           ------------   ------------

Net plant, property and equipment                               713,821        592,829
                                                           ------------   ------------
Other assets:
Deferred tax assets-non current portion                         191,076        229,065
Cash value - life insurance policy                              214,050        166,772
                                                           ------------   ------------

   Total other assets                                           405,126        395,837
                                                           ------------   ------------

   Total                                                   $  3,695,988      3,150,986
                                                           ============   ============
</TABLE>

        The accompanying notes are an integral part of these statements.

                                        2
<PAGE>
<TABLE>
<CAPTION>

                           EPOLIN, INC. AND SUBSIDIARY

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                               May 31,
                                                                     ---------------------------
                                                                         2005           2004
                                                                     ------------   ------------
<S>                                                                  <C>                   <C>
Current liabilities:
  Accounts payable                                                   $     15,307          6,141
  Accrued expenses                                                         73,910        199,430
  Taxes payable:
    Payroll                                                                 2,322          1,719
    Income                                                                 73,831          6,489
                                                                     ------------   ------------

    Total current liabilities                                             165,370        213,779
                                                                     ------------   ------------

Other liabilities - Deferred compensation                                 294,109        270,030
                                                                     ------------   ------------

     Total liabilities                                                    459,479        483,809
                                                                     ------------   ------------

Commitments and Contingencies

Stockholders' equity:
  Preferred stock, $15.513 par value; 940,000 shares authorized;
   none issued
  Preferred stock, series A convertible non-cumulative,
   $2.50 par value; redemption price and liquidation preference;
   60,000 shares authorized; 5,478 shares issued and redeemed
  Common stock, no par value; 20,000,000 shares authorized;
   12,729,000 and 12,704,000 shares issued, 11,815,355 and
   11,840,355 shares outstanding at 2005 and 2004, respectively         2,340,183      2,333,933
   Paid-in capital                                                          6,486          6,486
   Retained earnings                                                    1,211,772        618,940
                                                                     ------------   ------------

    Total                                                               3,558,441      2,959,359
Less: Treasury stock-at cost                                              321,932        292,182
                                                                     ------------   ------------

  Total stockholders' equity                                            3,236,509      2,667,177
                                                                     ------------   ------------

  Total                                                              $  3,695,988      3,150,986
                                                                     ============   ============
</TABLE>

        The accompanying notes are an integral part of these statements.

                                        3
<PAGE>
<TABLE>
<CAPTION>

                           EPOLIN, INC. AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF INCOME
                    THREE MONTHS ENDED MAY 31, 2005 AND 2004

                                                               2005           2004
                                                           ------------   ------------
<S>                                                        <C>                 <C>

Sales                                                      $    806,299        463,723
                                                           ------------   ------------

Cost of sales and expenses:
  Cost of sales                                                 349,551        204,111
  Selling, general and administrative                           251,057        181,550
                                                           ------------   ------------

    Total                                                       600,608        385,661
                                                           ------------   ------------

Operating income                                                205,691         78,062
                                                           ------------   ------------
Other income:
  Rental income                                                   3,000          9,000
  Interest                                                        4,069          1,284
                                                           ------------   ------------

    Total other income                                            7,069         10,284
                                                           ------------   ------------

Income before taxes                                             212,760         88,346

Income taxes                                                     74,608         39,526
                                                           ------------   ------------

Net income                                                 $    138,152         48,820
                                                           ============   ============
Per share data:
  Basic earnings per common share                          $       0.01             --
                                                           ============   ============

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

  Weighted average number of common shares outstanding       11,815,355     11,840,355
                                                           ============   ============
</TABLE>

        The accompanying notes are an integral part of these statements.

                                        4
<PAGE>
<TABLE>
<CAPTION>

                           EPOLIN, INC. AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                    THREE MONTHS ENDED MAY 31, 2005 AND 2004


                           Number of                Additional
                          Outstanding    Common       Paid-in-    Retained     Treasury     Treasury    Stockholders'
                            Shares       Stock        Capital     Earnings      Shares        Costs        Equity
                          ----------   ----------   ----------   ----------   ----------   ----------    ----------
<S>                       <C>          <C>               <C>        <C>          <C>         <C>          <C>
Balance - March 1, 2004   12,704,000   $2,333,933        6,486      570,120      863,645     (292,182)    2,618,357

Net income                        --           --           --       48,820           --           --        48,820
                          ----------   ----------   ----------   ----------   ----------   ----------    ----------
Balance - May 31, 2004    12,704,000   $2,333,933        6,486      618,940      863,645     (292,182)    2,667,177
                          ==========   ==========   ==========   ==========   ==========   ==========    ==========


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

Net income                        --           --           --      138,152           --           --       138,152
                          ----------   ----------   ----------   ----------   ----------   ----------    ----------
Balance - May 31, 2005    12,729,000   $2,340,183        6,486    1,211,772      913,645     (321,932)    3,236,509
                          ==========   ==========   ==========   ==========   ==========   ==========    ==========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                        5
<PAGE>
<TABLE>
<CAPTION>

                           EPOLIN, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                    THREE MONTHS ENDED MAY 31, 2005 AND 2004

                                                                    2005           2004
                                                                ------------   ------------
<S>                                                             <C>                  <C>
Cash flows from operating activities:
  Net income                                                    $    138,152         48,820
  Adjustments to reconcile net income to net cash provided by
   operating activities:
     Depreciation and amortization                                     8,992          8,019
     Deferred tax expense                                              1,406          2,686
     Obligation under deferred compensation agreement                  6,019          6,019
  (Increase) decrease in:
     Accounts receivable                                             103,224        195,175
     Inventories                                                      34,178        (60,198)
     Prepaid expenses                                                 14,832         50,154
     Prepaid taxes                                                       600             --
  Increase (decrease) in:
     Accounts payable                                                 15,307          4,882
     Accrued expenses                                               (169,504)        21,340
     Taxes payable                                                    70,561          2,781
                                                                ------------   ------------

        Net cash provided by operating activities                    223,767        279,678
                                                                ------------   ------------
Cash flows from investing activities:
 Increase in cash value - life insurance policy                       (7,880)            --
 Payments for equipment                                              (78,470)       (10,916)
                                                                ------------   ------------

        Net cash used by investing activities                        (86,350)       (10,916)
                                                                ------------   ------------

Increase in cash                                                     137,417        268,762

Cash and cash equivalents:
 Beginning                                                         1,232,666        547,930
                                                                ------------   ------------

 Ending                                                         $  1,370,083        816,692
                                                                ============   ============
Supplemental information:
 Income taxes paid                                              $      2,427         70,600
                                                                ============   ============
</TABLE>

        The accompanying notes are an integral part of these statements.

                                        6
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2005 AND 2004

Note A - Organization:

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

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

Note B - Summary of Significant Accounting Policies:

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

Concentrations of Credit Risks - The Company and its Subsidiary had cash
deposits in a financial institution and brokerage house in excess of the amount
insured by agencies of the federal government in amounts of $1,003,000 and
$738,200 at May 31, 2005 and 2004, respectively. In evaluating this credit risk,
the Company periodically evaluates the stability of the financial institution
and brokerage house.

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

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

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

                                        7
<PAGE>
<TABLE>
<CAPTION>

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

                      CONDENSED CONSOLIDATING BALANCE SHEET

                                                        Epolin
                                          Epolin        Holding      Eliminations   Consolidated
                                       ------------   ------------   ------------   ------------
<S>                                    <C>                 <C>                         <C>
Current assets                         $  2,381,906        195,135             --      2,577,041
Non-current assets                        1,312,382        625,818       (819,253)     1,118,947
                                       ------------   ------------   ------------   ------------
    Total                              $  3,694,288        820,953       (819,253)     3,695,988
                                       ============   ============   ============      =========

   Total liabilities                        457,779        166,720       (165,020)       459,479
                                       ------------   ------------   ------------   ------------

Stockholders' equity:
  Common stock                            2,340,183             --             --      2,340,183
  Additional paid-in capital                  6,486             --             --          6,486
  Retained earnings                       1,211,772        654,233       (654,233)     1,211,772
  Treasury stock                           (321,932)            --             --       (321,932)
                                       ------------   ------------   ------------   ------------

   Total stockholders' equity             3,236,509        654,233       (654,233)     3,236,509
                                       ------------   ------------   ------------   ------------

    Total                              $  3,694,288        820,953       (819,253)     3,695,988
                                       ============   ============   ============   ============
</TABLE>
<TABLE>
<CAPTION>

                   CONDENSED CONSOLIDATING STATEMENT OF INCOME

                                                        Epolin
                                          Epolin        Holding      Eliminations   Consolidated
                                       ------------   ------------   ------------   ------------
<S>                                    <C>                 <C>                         <C>
Sales                                  $    806,299             --             --        806,299
Other revenue                                    --         27,435        (24,435)         3,000
                                       ------------   ------------   ------------   ------------
    Total                                   806,299         27,435        (24,435)       809,299
                                       ------------   ------------   ------------   ------------

Cost of sales                               349,551             --             --        349,551
Selling, general and administrative         270,700          4,792        (24,435)       251,057
                                       ------------   ------------   ------------   ------------

    Total                                   620,251          4,792        (24,435)       600,608

Operating income                            186,048         22,643             --        208,691

Other income - interest                       3,568            501             --          4,069
                                       ------------   ------------   ------------   ------------

Income before taxes                         189,616         23,144             --        212,760

Income taxes                                 72,307          2,301             --         74,608
                                       ------------   ------------   ------------   ------------

Net income                             $    117,309         20,843             --        138,152
                                       ============   ============   ============   ============
</TABLE>

                                       8
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2005 AND 2004

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

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

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

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

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

         Depreciation and amortization expense totaled $8,992 and $8,019 for the
three months ended May 31, 2005 and 2004, respectively.

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

Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the amounts of sales and expenses during the reporting period.
Actual results could differ from those estimates.

                                       9
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2005 AND 2004

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

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

Regulations - The Company expended approximately $7,228 to maintain compliance
with certain Federal and State and City government regulations relative to the
production of near infrared dyes and specialty chemicals.

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

Advertising Costs - Advertising costs, included in operating expenses, are
expensed as incurred. Advertising expenses amounted to $5,718 and $13,490 for
the three months ended May 31, 2005 and 2004, respectively.

                                       10
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2005 AND 2004

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

Stock-based Compensation - As permitted by SFAS No. 123 "Accounting for
Stock-Based Compensation," The Company continues to apply intrinsic value
accounting for its stock option plans. Compensation cost for stock options, if
any, is measured as the excess of the quoted market price of the stock at the
date of grant over the amount an employee must pay to acquire the stock. The
Company has adopted disclosure-only provisions of SFAS No. 123 and SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure - an
Amendment of FASB Statement No. 123."

         Deferred charges for options granted to non-employees are determined in
accordance with FAS No. 123 and EITF 96-18 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 three months ended May 31, 2005 and 2004 was $.10 and
$.11, 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:


Three Months Ended May 31,                         2005           2004
                                                 --------       --------
        Weighted average expected life in years         5             5
        Dividends per share                          0.04          0.03
        Volatility                                    6.0%          6.0%
        Risk-free interest rate                       3.9%          4.1%

                                       11
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2005 AND 2004

Note B - Summary of Significant Accounting Policies (continued)

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

                                                  Three Months Ended May 31,
                                                 ---------------------------
                                                     2005           2004
                                                 ------------   ------------

Net earnings as reported                         $    138,152         48,820

Deduct total additional stock-based employee
compensation cost, net of tax that
would have been included in net earnings under
fair value method                                      32,300         34,050
                                                 ============   ============

Proforma net earnings                            $    105,852         14,770
                                                 ============   ============
Basic earnings per share:
  As reported                                    $       0.01           0.00
                                                 ============   ============
  Proforma                                       $       0.01           0.00
                                                 ============   ============

Average common shares outstanding                  11,815,355     11,840,355

Diluted earnings per share:
  As reported                                    $       0.01           0.00
                                                 ------------   ------------
  Proforma                                       $       0.01           0.00
                                                 ------------   ------------

Total diluted common shares outstanding            11,983,455     12,028,051
                                                 ============   ============


Note C - Inventories:

                                                           May 31,
                                                 ---------------------------
                                                     2005           2004
                                                 ------------   ------------
Raw materials and supplies                       $     66,032         42,669
Work in process                                       240,354        277,634
Finished goods                                        409,852        497,662
                                                 ------------   ------------

Total                                            $    716,238        817,965
                                                 ============   ============

                                       12
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2005 AND 2004

Note D - Income Taxes:

1. Federal and State deferred tax assets include:
                                                     2005           2004
                                                 ------------   ------------
Temporary differences:
   Accelerated amortization                      $     70,908         86,346
   Deferred compensation                              126,059        144,095
                                                 ------------   ------------
        Total                                         196,967        230,441

      Current portion                                   5,891          1,376
                                                 ------------   ------------

Non-current portion                              $    191,076        229,065
                                                 ============   ============


2. Income tax expense:
                                                     2005           2004
                                                 ------------   ------------
   Current:
      Federal                                    $     58,500         28,500
      State                                            14,702          8,340
                                                 ------------   ------------

        Total current                                  73,202         36,840
                                                 ------------   ------------

   Deferred:
      Federal                                           1,112          2,124
      State                                               294            562
                                                 ------------   ------------

        Total deferred                                  1,406          2,686
                                                 ------------   ------------

          Total                                  $     74,608         39,526
                                                 ============   ============


Note E - Treasury Stock:

         Consists of 913,645 shares as of May 31, 2005 at a net cost of $321,932
and 863,645 shares at a net cost of $292,182 as of May 31, 2004.

There were no treasury share purchases made by the Company during the three
months ended May 31, 2005 and 2004, respectively.

                                       13
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2005 AND 2004

Note F - Economic Dependency:

         A material portion of the Company's business is dependent on certain
domestic customers, the loss of which could have a material effect on
operations. During the three months ended May 31, 2005, approximately 44.1% of
sales were to four customers. Two of these customers, located in the Eastern
United States, accounted for 28.3% of sales. During the three months ended May
31, 2004, approximately 51.6% of sales were to four customers, two of these
customers, located in the Eastern United States, accounted for 39.0% of sales.

Note G - Rental Income Under Sublease:

         The Company entered into a sublease agreement with a non-related party
effective November 1, 2002 for a five-year term ending October 31, 2007. Under
the terms of the lease, the tenant is to pay a base rent of $36,000 per year. In
addition, the tenant is to reimburse the Company for all costs and expenses
incurred by the Company for improvements to such leased property in excess of
$75,000. The excess amount was recorded on the balance sheet as a note
receivable. Payments on the note were $2,500 a month including interest of 6% a
year. The note was paid in full as of August 31, 2003.

Note H - Employee Benefits:

Simplified Employee Pension Plan - Effective June 1, 1994, the Company provides
a SAR/SEP plan to its employees as a retirement and income tax reduction
facility. Full time employees are eligible to participate immediately. Employees
may make pre-tax and after-tax contributions subject to Internal Revenue Service
limitations. Company contributions range from three to 5 percent after
completion of one year of service. Employer contributions totaled $13,714 and
$10,453 for the three months ended May 31, 2005 and 2004, respectively.

                                       14
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2005 AND 2004

Note H - Employee Benefits (continued):

Stock Option Plan - The Company previously adopted The 1986 Stock Option Plan.
As of April 1996, under the terms of the Plan, options may no longer be granted.
On December 1, 1995, options to acquire up to 490,000 shares of the Company's
common stock were granted. Options exercised for all prior years totaled
455,000. Options cancelled for all prior years totaled 35,000. There were no
outstanding options as of May 31, 2005.

         The Company adopted the 1998 Stock Option Plan on December 1, 1998.
Under the terms of the plan, the Company reserved 750,000 shares of common stock
for issuance pursuant to the exercise of options to be granted under the Plan,
which do not meet the requirements of Section 422 of the Code. On September 15,
2001, the Board of Directors increased the reserve to 1,500,000. Options granted
expire five or ten years after the date granted and are subject to various
vesting periods as follows: (1) none exercisable prior to the first anniversary
of the date of grant, and (2) certain options will become exercisable as to 50%
of the shares underlying the option on each of the first and second
anniversaries of the date granted (3) certain options will become exercisable as
to 50% of the shares underlying the option on each of the second and fourth
anniversaries of the date granted. Options exercised through May 31, 2005
totaled 600,000. Options cancelled for all years totaled 120,000.

     A summary of the status of the Company's 1998 stock option plan as of May
31, 2005, and the changes during the three months ended May 31, 2005 is
presented below:

                                                              Weighted-Average
                                                                  Exercise
Fixed Options:                                      Shares          Price
--------------                                   ------------   -------------
Balance - March 1, 2004                               392,000   $        .29
     Granted                                               --             --
     Cancelled                                        (45,000)           .30
     Exercised                                        (25,000)           .25
                                                 ------------

Balance - February 28, 2005                           322,000            .30
     Granted                                               --             --
     Exercised                                             --             --
                                                 ------------

Balance - May 31, 2005                                322,000   $        .30
                                                 ============

Exercisable at May 31, 2005                           180,000

                                       15
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2005 AND 2004

Note H - Employee Benefits (continued):

Stock Option Plan - The following table summarizes information about fixed stock
options outstanding at May 31, 2005:


                 Outstanding Options                    Exercisable Options
-----------------------------------------------   ---------------------------
                                     Weighted-
                                      average                      Weighted-
                       Number        Remaining       Number         average
Range of             Outstanding    Contractual    Exercisable      Exercise
Exercise Price       at 5/31/05        Life        at 5/31/05        Price
--------------   ---------------   ------------   ------------   ------------
     $ .25               155,000     1.3 years         155,000       $.25
       .30                25,000     2.5                25,000        .30
       .35               142,000     8.7                    --        .35


There are 458,000 options attributable to future grants.

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

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

         2. Stock-based Employee Compensation - A grant of 100,000 shares of
         restricted common stock one year from the date of the agreement,
         provided the employee is then employed by the Company.

Note I - Segment Reporting:

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

                                       16
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2005 AND 2004

Note I - Segment Reporting (continued):

Sales by geographic area are as follows:

                                             Three Months Ended May 31,
                                            ---------------------------
                                                2005           2004
                                            ------------   ------------
         United States                      $    479,116        376,784
         Asia                                    235,195         78,380
         Europe                                   80,670          8,559
         Other nations                            11,319             --
                                            ------------   ------------

         Total                              $    806,300        463,723
                                            ============   ============


Two customers, located in the Eastern United States, accounted for more than 10%
of revenues from continuing operations. One customer accounted for 16.4% of
sales of which 11.8% was near infrared dyes and 4.6% was security inks. The
other customer accounted for 11.9% of sales of near infrared dyes.

Long-lived assets include net property and equipment. The Company had long-lived
assets of $713,821 and $592,829 located in the United States at May 31, 2005 and
2004, respectively.

Note J - Accrued Expenses:

Accrued expenses consisted of the following as of May 31, 2005 and 2004,
respectively:

                                                2005           2004
                                            ------------   ------------
         Salaries and wages                 $      8,358          3,102
         Employment agreement                     52,410        178,187
         Professional fees                         5,000         10,000
         Property taxes                            8,142          8,141
                                            ============   ============

         Total accrued expenses             $     73,910        199,430
                                            ============   ============

                                       17
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2005 AND 2004

Note K - Earnings per Share:

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

                                            Three Months Ended May 31,
                                            ---------------------------
                                                2005           2004
                                            ------------   ------------

Basic Earnings Per Common Share:

Net income                                  $    138,152         48,820

Average common shares
 outstanding                                  11,815,355     11,840,355
                                            ============   ============

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

Diluted Earnings Per Common Share:

Net income                                  $    138,152         48,820
                                            ============   ============
Average common shares
 outstanding                                  11,835,910     11,845,960

Common shares issuable with respect
 to options issued to employees
 with a dilutive effect                          147,545        182,091
                                            ------------   ------------
Total diluted common shares
 outstanding                                  11,983,455     12,028,051
                                            ============   ============
Diluted earnings per
 common share                               $       0.01             --
                                            ============   ============

                                       18
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2005 AND 2004

Note L - Commitments and Contingencies:

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

Lease Obligations:

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

         Rental expense charged to operations, eliminated in consolidation,
amounted to $24,435 for the three months ended May 31, 2005 and 2004,
respectively.

Future minimum payments for the current option period:

       Fiscal years ending February:
       -----------------------------
                       2006                                     $73,305
                       2007                                      97,740
                       2008                                      97,740
                       2009                                      65,160

Deferred Compensation - On December 29, 1995, the Company entered into a
deferred compensation agreement with an officer whose additional annual
compensation of $19,645 plus interest is deferred until he reaches age 65 or is
terminated. The obligation is funded by a life insurance policy. Annual payments
to the officer of $32,000 for ten consecutive years shall commence the first day
of the month following his 65th birthday or termination.

         In connection with this agreement, deferred compensation of $6,020 was
charged to selling, general and administrative expenses for the three months
ended May 31, 2005 and 2004, respectively.

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

                                       19
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2005 AND 2004

Note L - Commitments and Contingencies (continued):

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

         Murray S. Cohen, PhD, Chairman of the Board and Chief Executive Officer
- To be paid an annual salary of not less than the greater of his annual base
salary in effect immediately prior to the effective date of the agreement or any
subsequently established annual base salary. He is to receive 2.00% on gross
annual sales of no more than $3,000,000, effective with the year ended February
28, 2001, increasing by 0.25% a year during the term of the agreement.

         James Ivchenko, President - To be paid an annual salary of not less
than the greater of his annual base salary in effect immediately prior to the
effective date of the agreement or any subsequently established annual base
salary. He is to receive 1.5% on gross annual sales of no more than $3,000,000,
effective with the year ended February 28, 2001, increasing by 0.25% a year
during the term of the agreement.

         Accrued compensation included in selling, general and administrative as
of May 31, 2005 and 2004 was $52,410 and $27,823, respectively.

Note M - Research and Development:

         The Company has developed substantial research and development
capability. The Company's efforts are devoted to (i) developing new products to
satisfy defined market needs, (ii) providing quality technical services to
assure the continued success of its products for its customers' applications,
(iii) providing technology for improvements to its products, processes and
applications, and (iv) providing support to its manufacturing plant for cost
reduction, productivity and quality improvement programs. Expenditures for
Company sponsored product research and product development of $116,675 and
$99,010 were included in cost of sales for the three months ended May 31, 2005
and 2004, respectively. Expenditures in 2006 are projected to remain at
approximately the same level as in 2005.

                                       20
<PAGE>

                           EPOLIN, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              MAY 31, 2005 AND 2004

Note N - Environmental Matters

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