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 ~~November~~May 3031, ~~2011~~2012

o 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 of incorporation or Identification No.)		(I.R.S. Employer organization)
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

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

(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 o~~

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 (§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 x No o

Yes x No o

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	o	Accelerated filer	o
Non-accelerated filer	o	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 o 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: 12,366,355 outstanding as of January 13, 2012.~~Yes o 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: 12,366,355 outstanding as of July 13, 2012.

EPOLIN, INC.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION		Page
			Page
Item 1.	Financial Statements.	3
PART I - FINANCIAL INFORMATION
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	3
Item 1.	Financial Statements.			3
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.			3
Item 4.	Controls and Procedures.	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.			10
Item 4.	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.	[Removed and Reserved.]	11
Item 5.	Other Information.	11
Item 6.	Exhibits.	11
Signatures		12

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.	Mine Safety Disclosures.	11
Item 5.	Other Information.	11
Item 6.	Exhibits.	11

SIGNATURES

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 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 2829, ~~2011~~2012. The Company does not intend to update these forward-looking statements.

Executive Overview

Epolin, Inc. (the “Company”, “Epolin”, “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.

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 ~~nine~~three months ended ~~November~~May 3031, ~~2011~~2012, approximately 2837.9% of sales were to three customers. During the ~~nine~~three months ended ~~November~~May 3031, ~~2010~~2011, approximately 2731.90% of sales were to three customers. The loss of one or more key customers could have a material adverse effect on the Company.

Results of Operations

The following tables set forth operations data for the three ~~and nine~~ months ended ~~November~~May 3031, ~~2011~~2012 and ~~2010~~2011.

Three Months Ended ~~November~~May 3031,

	2011			2010			% change
	2012			2011			% change
Sales	$	~~900~~909,~~520~~187		$	~~802~~991,~~397~~085			12-8.23	%
Gross profit		~~458~~384,~~946~~328			~~372~~570,~~262~~386			23-32.36	%
Gross profit percentage		5142.03	%		4657.46	%		4-15.63	%
Selling, general & administrative		~~341~~405,~~534~~608			~~432~~267,~~792~~644			~~-21~~51.15	%
Operating income (loss)		~~117~~(21,~~412~~280	)		~~(60~~302,~~530~~742	)		~~294~~-107.0	%
Other Income		~~397~~2,633			21,~~283~~768			~~-82~~49.60	%
Income (loss) before taxes		~~117~~(18,~~809~~647	)		~~(58~~304,~~247~~510	)		~~302~~-106.31	%
Income taxes		571,~~580~~780			~~(19~~125,~~130~~141	)		~~401~~-98.06	%
Net income (loss) (after taxes)	$	60(20,~~229~~427	)	$	~~(39~~179,~~117~~369	)		~~254~~-111.04	%

Nine Months Ended November 30,

	2011			2010			% change
Sales	$	2,581,669		$	2,283,900			13.0	%
Gross profit		1,281,864			1,106,583			15.8	%
Gross profit percentage		50.0	%		48.5	%		1.5	%
Selling, general & administrative		902,050			1,056,547			-14.6	%
Operating income		379,814			50,036			659.1	%
Other Income		2,636			7,977			-67.0	%
Income before taxes		382,450			58,013			559.2	%
Income taxes		163,844			18,041			808.2	%
Net income (after taxes)	$	218,606		$	39,972			447.0	%

Sales

For the three months ended ~~November~~May 3031, ~~2011~~2012, sales were $~~901~~909,000 as compared to $~~802~~991,000 for the three months ended ~~November~~May 3031, ~~2010, an increase of $99,000 or 12.2%. Sales increased to $2,582,000 for the nine months ended November 30,~~ 2011 ~~from $2~~,~~284,000~~ ~~for~~a ~~the~~decrease ~~nine months ended November 30, 2010, an increase~~ of $~~298~~82,000 or 138.03%.

Such ~~increase~~decrease in sales for the three ~~and nine~~ months ended ~~November~~May 3031, ~~2011~~2012 versus the prior year ~~periods~~period ~~are~~is primarily due to ~~increased~~decreased sales in the ~~eye~~ink ~~protection~~and coating market, ~~offset by a decrease in sales in the~~ light management market. ~~We also had an increase in sales in the ink~~ and ~~coating market as well as the~~ custom market, ~~although~~offset ~~these~~by increased ~~markets~~sales ~~represent~~in athe ~~small~~eye ~~percentage~~protection ~~of our overall sales~~market.

The eye protection market ~~represented~~represents our largest market. Sales ~~with sales~~ in the eye protection ~~market~~ representing approximately 5566% and 5854% of sales in the three ~~and nine~~ months ended ~~November~~May 3031, ~~2011~~2012 and ~~approximately~~ ~~47% and 49% of sales in the three and nine months ended November 30~~2011, ~~2010~~respectively. Sales in the eye protection market increased by approximately $~~130~~70,000 ~~and $380,000~~ for the three ~~and nine~~ months ended ~~November~~May 3031, ~~2011~~2012 compared to the prior year ~~periods~~period. This increase versus the prior year ~~periods~~ is due to growth in ~~both~~ the ~~welding~~laser and ~~laser~~welding eye protection segments.

For the light management market, which is our next largest market, sales decreased by approximately $32,000 for the three months ended May 31, 2012 compared to the three months ended May 31, 2011. Such sales represented approximately 25% of sales for the three months ended May 31, 2012 compared to approximately 26% of sales for the prior year period. This decrease is primarily due to weakness in the aerospace and automotive segments.

With regard to the ink and coating market, sales decreased by approximately $83,000 for the three months ended May 31, 2012 compared to the three months ended May 31, 2011. Such sales represented approximately 5% of our sales for the three months ended May 31, 2012 compared to approximately 13% of sales for the prior year period. This decrease was primarily due to the continued general weakening of the credit card market since 2007.

For the custom market, sales decreased by approximately $42, 000 for the three months ended May 31, 2012 compared to the three months ended May 31, 2011. Such sales represented approximately 1% of our sales for the three months ended May 31, 2012 compared to approximately 5% of sales for the prior year period. This decrease was primarily due to continued product obsolescence at the end users.

Categorized by geographic area, sales in the United States decreased for the three months ended May 31, 2012 while sales in Europe and Asia increased compared to the prior year period. For the three months ended May 31, 2012 compared to the prior year period, sales decreased in the United States to $499,000 from $707,000 primarily due to weakness in the aerospace and automotive segments, while sales in Europe increased to $266,000 from $201,000 primarily due to growth in the laser filter segment, and sales in Asia increased to $116,000 from $62,000 primarily due to higher demand for eye protection products. Sales in other nations increased to $28,000 for the three months ended May 31, 2012 from $20,000 in the prior year period.

For the light management market, which is our next largest market, sales decreased by approximately $40,000 and $150,000 for the three and nine months ended November 30, 2011 compared to the three and nine months ended November 30, 2010. Such sales represented approximately 29% and 25% of our sales for the three and nine months ended November 30, 2011 compared to approximately 40% and 36% for the prior year periods. The decrease versus the prior year periods is primarily due to weakness in the aerospace and automotive segments.

With regard to the ink and coating market, sales increased by approximately $10,000 and $25,000 for the three and nine months ended November 30, 2011 compared to the three and nine months ended November 30, 2010. Such sales represented approximately 8% of our sales for the three and nine months ended November 30, 2011 compared to approximately 10% of our sales for the prior year periods. This increase versus the prior year periods is primarily due to a small resurgence in the credit card market.

For the custom market, sales increased by approximately $30,000 and $60,000 for the three and nine months ended November 30, 2011 compared to the three and nine months ended November 30, 2010. Such sales represented approximately 7% and 6% of our sales for the three and nine months ended November 30, 2011 compared to approximately 6% and 4% of our sales for the prior year periods. This increase was primarily due to a credit for sending spent catalyst to a vendor for recycling.

Categorized by geographic area, sales in the United States and Europe increased for the nine months ended November 30, 2011 while sales in Asia remained relatively the same compared to the prior year period. For the nine months ended November 30, 2011 compared to the prior year period, sales increased in the United States to $1,786,000 from $1,600,000 primarily due to strong demand for industrial and military eye protection, and sales in Europe increased to $442,000 from $346,000 primarily due to growth in the laser filter, security ink and digital electronic segments, while sales in Asia remained relatively the same and were $333,000 for the nine months ended November 30, 2011 compared to $334,000 for the nine months ended November 30, 2010. Sales in other nations increased to $20,000 for the nine months ended November 30, 2011 from $4,000 in the prior year period.

Gross Profit

Gross profit, defined as sales less cost of sales, was $~~459~~384,000 or 5142.03% of sales for the three months ended ~~November~~May 3031, ~~2011~~2012 compared to $~~372~~570,000 or 4657.46% of sales for the three months ended ~~November~~May 3031, ~~2010~~2011, ana ~~increase~~decrease of 415.63%. Such percentage ~~increase~~decrease was primarily due to aan ~~decrease~~increase in ~~factory~~cost ~~overhead. In terms~~ of ~~absolute~~materials ~~dollars,~~and ~~gross~~total ~~profit~~factory ~~increased~~overhead ~~$87,000~~coupled inwith ~~the~~reduced ~~three months ended November 30, 2011 compared to the prior year period. For the nine months ended November 30, 2011, gross profit was $1,282,000 or 50.0% of~~ sales ~~compared to $1,107,000 or 48~~.~~5% of sales for the nine months ended November 30, 2010, an increase of 1.5%.~~ In terms of absolute dollars, gross profit ~~increased~~decreased $~~175~~186,000 in the ~~nine~~three months ended ~~November~~May 3031, ~~2011~~2012 compared to the prior year period. ~~Such percentage increase was also primarily due to lower factory overhead.~~

Cost of sales was $~~442~~525,000 for the three months ended ~~November~~May 3031, ~~2011~~2012 which represented 4957.07% of sales compared to $~~430~~421,000 for the three months ended ~~November~~May 3031, ~~2010~~2011 which represented 5342.64% of sales. ~~For~~In ~~the~~terms ~~nine~~of ~~months~~absolute ~~ended November 30~~dollars, ~~2011,~~ cost of sales ~~was~~increased $1104,~~300,~~000 ~~which~~for ~~represented~~the ~~50.0%~~three ofmonths ~~sales~~ended ~~compared~~May ~~to $1~~31,~~177,000~~ ~~which~~2012 ~~represented~~compared ~~51.5%~~to ~~of sales for~~ the three months ended ~~November~~May 3031, ~~2010~~2011.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ~~decreased~~increased to $~~342~~406,000 for the three months ended ~~November~~May 3031, ~~2011~~2012 or 44.7% of sales compared to $~~433~~268,000 or 27.0% of sales for the three months ended ~~November~~May 3031, ~~2010~~2011, aan ~~decrease~~increase of $91138,000,. Such ~~while~~increase ~~selling,~~in ~~general~~absolute ~~and~~dollars ~~administrative~~in ~~expenses~~the ~~decreased~~three month period was primarily due to ~~$902,000~~an increase in professional fees for the ~~nine~~quarter ~~months~~as ~~ended~~well ~~November~~as ~~30,~~a ~~2011~~smaller ~~from~~increase ~~$1,057,000~~in ~~for~~commission and consulting fees. The increase in professional fees was primarily due to non-recurring services in connection with the ~~nine~~strategic ~~months~~alternatives ~~ended~~being ~~November~~pursued ~~30,~~by ~~2010,~~the aCompany ~~decrease~~as previously disclosed and described below which resulted in the signing of ~~$155,000~~the Merger Agreement with Polymathes Holdings I LLC and Polymathes Acquisition I Inc. and subsequent tender offer (see “Operations Outlook – Recent Developments” below).

Such decrease in absolute dollars in the three month period was primarily due to a decrease in professional fees for the quarter as well as a smaller decrease in commission and consulting fees. The decrease in absolute dollars in the nine month period was primarily due to an overall substantial decrease in professional fees which were incurred in the nine months ended November 30, 2010 for non-recurring services in connection with the strategic alternatives being pursued by the Company as previously disclosed and described below. In addition, for the nine months ended November 30, 2011, there were decreases in SEP employer contributions and environmental expenses offset by increases in lab and factory salaries compared to the nine months ended November 30, 2010.

As a percentage of sales, selling, general and administrative expenses were 37.9% of sales for the three months ended November 30, 2011 compared to 54.0% of sales for the three months ended November 30, 2010, while for the nine months ended November 30, 2011, selling, general and administrative expenses were 34.9% of sales compared to 46.3% of sales for the nine months ended November 30, 2010.

Operating Income

~~The~~We ~~Company~~ had ~~operating income of $117,000 for the three months ended November 30, 2011 compared to~~ an operating loss of $~~(61~~21,000) for the three months ended ~~November~~May 3031, ~~2010. For~~2012 ~~the nine months ended November 30, 2011, operating income was $380,000~~ compared to operating income of $50303,000 for the ~~nine~~three months ended ~~November~~May 3031, ~~2010~~2011. Such operating ~~income~~loss for the recent quarter was primarily due to ~~increased sales of $99,000 combined with~~ a decrease in ~~selling,~~sales ~~general and administrative expenses~~ of $9182,000~~. For~~ ~~the~~coupled ~~nine~~with ~~month~~a ~~period,~~percentage ~~the~~ increase in ~~operating~~cost ~~income~~of ~~was primarily due to increased~~ sales ofand ~~$298,000~~increases ~~as well as a decrease~~ in selling, general and administrative expenses of $~~155~~138,000 ~~offset by an increase in cost of sales of $123,000~~. ~~As a percentage of sales, operating income was 14.7% of sales for the nine months ended November 30, 2011 compared to 2.2% of sales for the nine months ended November 30, 2010.~~

Other Income

Total other income was $~~400 and $~~2,600 for the three ~~and nine~~ months ended ~~November~~May 3031, ~~2011~~2012 compared to $21,~~300~~800 ~~and $8,000~~ for the three ~~and~~months ~~nine~~ended May 31, 2011. During the three months ended ~~November~~May 3031, ~~2010~~2012, ~~consisting~~we ~~solely~~had miscellaneous income of ~~interest~~$2,000 ~~income~~due to proceeds from an insurance claim for which there was no comparable item in ~~each~~the prior year period. Interest Weincome ~~have~~decreased ~~not~~to ~~had~~$600 ~~any~~in ~~rental~~the ~~income~~three ~~since~~months ~~fiscal~~ended ~~2010~~May 31, 2012 compared to $1,800 in the prior year period. In May 2009, our then subtenant abandoned the premises which it had been subleasing since September 2005. ~~The Company has since used this space as a productive R&D facility for the development of new markets.~~

Net Income

During the three months ended ~~November~~May 3031, ~~2011~~2012, we reported ~~income before taxes of $118,000 as compared to~~ a loss before taxes of $~~(58~~19,000) ~~for the three months ended November 30, 2010, an increase of $176,000. During the nine months ended November 30, 2011, we reported income before taxes of $382,000~~ as compared to net income before taxes of $58305,000 for the ~~nine~~three months ended ~~November~~May 3031, ~~2010~~2011, ana ~~increase~~decrease of $324,000. Income taxes were $582,000 ~~and $164,000~~ for the three ~~and nine~~ months ended ~~November~~May 3031, ~~2011~~2012 compared to $~~(19~~125,000) ~~and $18,000~~ for the three ~~and nine~~ months ended ~~November~~May 3031, ~~2010~~2011. Changes in income taxes are generally attributed to changes from period to period in taxable income. ~~Net~~We ~~income~~reported ~~after taxes was $60,000 or $0.00 per share for the three months ended November 30, 2011 as compared to~~ a net loss after taxes of $~~(39~~20,000) or $0.00 per share for the three months ended ~~November~~May 3031, ~~2010. For~~2012 ~~the nine months ended November 30, 2011, net income after taxes was $219,000 or $0.02 per share~~ as compared to net income after taxes of $40179,000 or $0.0001 per share for the ~~nine~~three months ended ~~November~~May 3031, ~~2010. As~~2011, a ~~percentage~~decrease of ~~sales~~$199, ~~net income after taxes was 8~~000.~~5% of sales for the nine months ended November 30, 2011 compared to 1.8% of sales for the nine months ended November 30, 2010.~~

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. However, from fiscal 2007 through fiscal 2010, we had four consecutive years of decreased sales compared to sales in the immediate prior year. A positive sign, however, is that sales increased, though modestly, in fiscal 2011 compared to fiscal 2010 by $121,000 and sales continued to increase in ~~the first nine months of~~ fiscal 2012 by $~~298~~345,000 compared to ~~the first nine months of~~ fiscal 2011~~. In addition~~, ~~net~~although ~~income increased~~ in the first ~~nine~~quarter ~~months~~ of fiscal 2012, sales decreased by $~~179~~82,000 ~~compared to the prior year period~~.

Operations Outlook

Following a period of readjustment in our business priorities, we were able to achieve $3,701,000 in sales for fiscal 2006 which was an all time high for the Company. Nevertheless, we have not since then been able to achieve comparable sales levels as achieved in fiscal 2006. Beginning in fiscal 2007 and through fiscal 2010, sales decreased from year to year with fiscal 2009 being the year with the most dramatic change in sales compared to the immediate prior year. In fiscal 2011, however, sales increased modestly compared to the prior year which we find to be an encouraging sign. Sales were $3,065,000 in fiscal 2011 compared to sales $2,945,000 achieved in fiscal 2010. This increase ~~has~~ continued into fiscal 2012 with sales increasing to $23,~~582~~411,000 in fiscal 2012. However, sales decreased in the first ~~nine~~three months of ~~fiscal~~2013 ~~2012~~ compared to ~~sales~~the ofsame ~~$2,284,000~~period ~~achieved~~of infiscal ~~the prior year period~~2012. 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.

AsRecent 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.Developments

InAs ~~order~~previously todisclosed, ~~facilitate~~Millburn ~~the~~Capital ~~environmental~~Group ~~approvals~~was ~~which~~retained ~~will be necessary~~ in ~~conjunction~~February ~~with~~2009 ~~any~~as ~~potential sale or similar transaction involving~~ the Company,’s wefinancial ~~have~~advisor ~~engaged~~in aconnection ~~licensed~~with ~~site~~the ~~remediation~~Board’s ~~professional~~decision ~~and~~to ~~special~~explore ~~environmental~~strategic ~~counsel~~alternatives infor the ~~State~~Company, ofincluding ~~New Jersey. Under~~ the ~~New~~potential ~~Jersey~~sale ~~Site~~of ~~Recovery Act (ISRA),~~ the Company. On ~~will~~March ~~be responsible for certain environmental investigations and remediation~~14, ~~if any~~2012, ~~which~~the ~~requirements~~Company toentered ~~comply~~into ~~are~~an ~~triggered~~Agreement byand ~~certain~~Plan ~~transaction~~of ~~including~~Merger (the ~~sale~~“Merger ofAgreement”) ~~property~~with orPolymathes ~~the~~Holdings ~~sale~~I ofLLC, a ~~business. Pursuant to the~~ New Jersey ~~Site~~limited ~~Remediation~~liability ~~Reform~~company ~~Act~~(the ~~enacted in 2009~~“Parent”), ~~licensed~~and ~~site~~Polymathes ~~remediation~~Acquisition ~~professionals~~I ~~will~~Inc., bea ~~responsible~~New ~~for~~Jersey ~~the~~corporation ~~oversight of the environmental investigation~~ and ~~remediation~~wholly onowned asubsidiary ~~site~~of ~~subject~~the toParent ~~ISRA~~(the ~~compliance~~“Purchaser”). InPursuant ~~anticipation~~to ofthe ~~triggering~~Merger ~~ISRA~~Agreement, weand ~~have~~upon ~~conducted~~the ~~certain~~terms ~~testing~~and subject to ~~date,~~the ~~including~~conditions ~~but~~thereof, ~~not~~Parent ~~limited~~agreed to ~~obtaining~~cause ~~soil~~the ~~and~~Purchaser ~~groundwater~~to ~~samples,~~commence ~~and~~a ~~further~~tender ~~testing~~offer ~~and~~(the ~~other~~“Offer”) ~~related actions are expected~~ to bepurchase ~~done~~all ~~as part~~ of ~~this~~the ~~ongoing~~outstanding ~~process. Our~~shares ~~policy~~of iscommon tostock, ~~accrue~~no ~~environmental~~par ~~and~~value ~~related~~per ~~costs~~share, of athe ~~non-capital~~Company ~~nature~~(the ~~when~~“Shares”), itat ~~is both probable that~~ a ~~liability~~price ~~has~~of ~~been~~$0.22 ~~incurred~~per ~~and~~Share ~~that~~ (the ~~amount~~“Offer ~~can~~Price”), bepaid ~~reasonably~~to ~~estimated.~~the Noseller ~~such~~in ~~amounts~~cash, ~~have~~without ~~been~~interest ~~accrued~~thereon inand ~~the~~subject ~~financial~~to ~~statements~~applicable ~~included~~withholding ~~with this report~~taxes. ~~During~~Following the ~~year~~completion ~~ended~~of ~~February~~the 28Offer, ~~2011~~Parent ~~and 2010~~intends, wesubject ~~incurred~~to ~~costs~~applicable oflegal ~~approximately $66~~requirements,~~000~~ ~~and $17,000 related~~ to ~~these~~become ~~activities. Although~~ the ~~Company~~owner ~~cannot~~of ~~estimate~~100% ~~with~~of ~~certainty~~the ~~future~~equity ~~costs~~interests of ~~environmental~~Epolin ~~compliance~~by ~~with~~completing ~~ISRA,~~a wemerger doof ~~not~~Purchaser ~~presently~~and ~~anticipate~~Epolin ~~such~~by ~~costs~~means ~~will~~of ~~have~~ a ~~material~~long-form ~~effect~~merger onpursuant ~~our~~to ~~liquidity,~~which ~~results~~each ~~from~~Share ~~operations~~that oris ~~our~~not ~~financial~~tendered ~~condition~~and accepted in ~~future periods. In this regard, we have estimated future remediation costs for~~ the ~~year~~Offer ~~ended~~would ~~February 29, 2012 to~~ be ~~approximately~~cancelled ~~$69,000. Should such facts~~ and ~~circumstances~~converted ~~change,~~into ~~however,~~the ~~based~~right ~~upon~~to ~~results~~receive ofcash ~~future~~in ~~testing,~~an weamount ~~may~~equal ~~have~~ to ~~revise~~the ~~our~~Offer ~~outlook~~Price (the “Merger”).

The ~~Company~~Offer ~~maintained~~expired aat ~~Simplified~~5:00 ~~Employee~~PM, ~~Pension~~New ~~Plan~~York ~~which~~City ~~was~~time, ~~adopted~~on inJune ~~1994~~12, ~~for~~2012 ~~its~~(the ~~employees~~“Expiration asDate”). The aOffer ~~retirement~~was ~~and~~made ~~income~~pursuant ~~tax~~to ~~reduction~~a ~~facility. We~~Tender ~~have~~Offer ~~recently~~Statement ~~tested~~(including ~~all~~an ~~years~~Offer ofto ~~the~~Purchase, ~~Plan~~Letter toof ~~insure~~Transmittal, ~~compliance~~and ~~with~~related ~~Internal~~tender ~~Revenue~~offer ~~Service~~documents), ~~regulations~~as ~~and~~amended, ~~during~~which ~~the~~documents ~~quarter~~were ~~ended~~filed ~~November~~by ~~30,~~the ~~2010,~~Parent weand ~~received~~Purchaser with the ~~test~~SEC ~~results~~and ~~for~~mailed to all ~~years~~Company itshareholders ~~was~~of ~~in effect~~record. In ~~accordance~~addition, Epolin filed a Solicitation/Recommendation Statement on Schedule 14D-9 with the ~~results,~~SEC werelated ~~have~~to ~~accrued~~the atender ~~contribution~~offer which also was mailed to all Company shareholders of record. Based upon the ~~Plan~~final ininformation provided by the ~~amount~~depositary offor ~~$284~~the Offer,~~955. As~~ as of ~~November~~the 30Expiration Date, ~~2011~~10,239,351 weShares have ~~paid~~been ~~all~~tendered ~~accrued~~and ~~amounts~~not withdrawn prior to the ~~Plan~~expiration ~~through~~of the ~~date~~Offer of(which ~~testing. In~~includes ~~addition~~14,500 asshares atendered ~~result~~pursuant ofto ~~contributions~~notices ~~paid~~of toguaranteed ~~the~~delivery) ~~Plan~~which ~~subsequent~~represents toapproximately ~~the~~82.2% ~~testing~~of ~~date,~~all ~~additional~~outstanding ~~interest~~Shares ~~will~~on bea ~~paid~~fully todiluted ~~plan participants~~basis. ~~Our~~Purchaser ~~plan~~has ~~actuary~~accepted isfor payment in accordance with the ~~process~~terms of ~~calculating~~the ~~these~~Offer ~~amounts,~~all ~~the~~Shares ~~results~~that ofwere ~~which~~validly ~~will~~tendered beand ~~disclosed~~not aswithdrawn ~~they~~in ~~become~~the ~~available~~Offer. InOn ~~August~~June ~~2010~~13, ~~the~~2012, ~~Company~~Epolin ~~adopted~~issued a ~~401(k)~~press ~~Plan~~release toannouncing ~~replace~~ the ~~Simplified~~results ~~Employee~~and ~~Pension~~expiration ~~Plan~~of the Offer.

~~Liquidity~~The Merger Agreement provides that after the acceptance of and ~~Capital~~payment ~~Resources~~for the Shares tendered in the Offer (the “Acceptance Time”), the Parent shall be entitled to designate up to such number of directors, rounded up to the next whole number, on the Company Board as is equal to the product of (i) the total number of directors on the Company Board (giving effect to the election or appointment of any additional directors pursuant to this provision) and (ii) the percentage that the number of Shares beneficially owned by the Parent and/or the Purchaser (including Shares accepted for payment in the Offer and the purchased Top-Up Option Shares, if any) bears to the total number of Shares outstanding, and Company shall, upon request by the Purchaser, promptly increase the size of the Company Board or use its reasonable best efforts to secure the resignations of such number of directors as is necessary to provide the Purchaser with such level of representation and shall cause the Purchaser’s designees to be so elected or appointed.

Our primary source of funds is cash flow from operations in the normal course of selling products. On November 30, 2011, we had working capital of $1,831,000, a debt to equity ratio of $0.05 to 1, and stockholders’ equity of $2,637,000 compared to working capital of $3,025,000, a debt to equity ratio of 0.07 to 1, and stockholders’ equity of $3,876,000 on February 28, 2011. On November 30, 2011, we had $676,000 in cash and cash equivalents, total assets of $2,772,000 and total liabilities of $135,000, compared to $1,881,000 in cash and cash equivalents, total assets of $4,145,000 and total liabilities of $270,000 on February 28, 2011.6

Following the election or appointment of the Parent’s designees to Company’s Board pursuant to the above and until the Effective Time of the Merger, Company’s Board shall at all times include, and Company, the Parent and the Purchaser shall use their reasonable best efforts to cause Company’s Board to at all times include, at least two Continuing Directors and each committee of the Company Board and the board of directors (or similar body) of each Subsidiary of Company shall at all times include, and Company, the Parent and the Purchaser shall use their reasonable best efforts to cause each committee of the Company Board and the board of directors (or similar body) of each Subsidiary of Company to at all times include, at least one Continuing Director. A “Continuing Director” shall mean a person who is a member of the Company as of the date of the Merger Agreement or a person selected by the Continuing Directors then in office; provided, however that if the number of Continuing Directors is reduced to less than two prior to the Effective Time of the Merger, any remaining Continuing Directors (or Continuing Director, if there shall be only one remaining) shall be entitled to designate a person who is not an officer, director, stockholder or designee of Parent or any of its Affiliates to fill such vacancy, and such person shall be deemed to be a Continuing Director for all purposes of the Merger Agreement, or, if no Continuing Directors then remain, the other directors shall designate three persons who are not officers, directors, stockholders or designees of Parent or any of its Affiliates to fill such vacancies, and such persons shall be deemed to be Continuing Directors for all purposes of the Merger Agreement.

Pursuant thereto, and on June 15, 2012, James R. Torpey, Jr. and Herve A. Meillat (two of the Company’s then four directors) resigned as directors of the Company effective as of the Acceptance Time. Until the Effective Time of the Merger, Murray S. Cohen and James Ivchenko (the other two remaining directors) have agreed to remain on the Board.

Effective as of June 15, 2012, the following persons were designated by the Parent and appointed as directors of the Company: William J. Golden, John F. Wachter and William S. Walsh so that the Board currently consists of five members. In addition, effective as of June 15, 2012, Murray S. Cohen resigned as Chairman, Chief Scientist and Secretary of the Company and James Ivchenko resigned as President of the Company. Mr. Wachter has been appointed Chairman and President of the Company effective as of June 15, 2012. Greg Amato remains as Chief Executive Officer.

Biographical and other information with respect to Messrs. Golden, Wachter and Walsh has been previously disclosed in the Information Statement pursuant to Rule 14f-1 attached as Annex A to the Company’s Solicitation/Recommendation Statement on Schedule 14D-9 originally filed with the SEC on May 11, 2012, as subsequently amended, and such information is incorporated herein by reference.

As mentioned above, following the completion of the Offer, Parent intends, subject to applicable legal requirements, to become the owner of 100% of the equity interests of Epolin by completing the Merger as described above. On July 3, 2012, Epolin filed a Preliminary Information Statement on Schedule 14C with the SEC relating to completion of the Merger. These documents have not yet been mailed to all Company shareholders of record. Such documents, as they may be amended or supplemented from time to time, will contain important information about the Merger and the Company’s shareholders are urged to read them carefully. The discussion herein has been prepared prior to the completion of the Merger, and the Company cannot assure that the Merger will be completed.

Other Matters

The New Jersey Industrial Site Recovery Act, N.J.S.A. 13:1k-6 et seq. (“ISRA”) requires an environmental investigation and remediation of properties prior to the sale of most manufacturing businesses or properties. In anticipation of a potential sale or similar transaction involving the Company, we engaged a Licensed Site Remediation Professional (“LSRP”) and special environmental counsel in the State of New Jersey. Pursuant to ISRA, LSRPs will be responsible for the oversight of the environmental investigation and remediation on a site subject to ISRA compliance. In anticipation of triggering ISRA, we have conducted certain testing to date, including but not limited to obtaining soil and groundwater samples, and further testing and other related actions are expected to be done as part of this ongoing process. Future remediation costs estimated for the year ended February 28, 2013 approximate $70,000. 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. Due to the execution of the Merger Agreement, we became subject to ISRA which requires that our facility be remediated or that we submit a Remediation Certification to the New Jersey Department of Environmental Protection pursuant to N.J.A.C. 7:26B prior to the transfer of ownership. Accruals for estimated losses from environmental remediation and to obtain the necessary approvals in conjunction with the potential sale of our company in the amount of $74,111 were charged to selling, general and administrative expenses as of February 29, 2012.

The Company maintained a Simplified Employee Pension Plan which was adopted in 1994 for its employees as a retirement and income tax reduction facility. The plan has not met the Internal Revenue Service 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 $284,955. As of February 29, 2012, we have paid all accrued amounts to the plan through the date of testing. In addition, as a result of contributions paid to the plan subsequent to the testing date, additional interest was accrued to the plan in the amount of $41,952 which was paid May 1, 2012. In August 2010, the Company adopted a 401(k) Plan to replace the Simplified Employee Pension Plan.

~~Net~~Liquidity cash provided by operating activities for the nine months ended November 30, 2011 was $295,000 which was primarily the result of net income of $218,000 plus a decrease in accounts receivable of $49,000, prepaid expenses of $48,000 and ~~prepaid~~Capital taxes of $128,000, due to the carryback of tax benefits arising from operating losses we incurred during the year ended February 28, 2011, offset by an increase in inventories of $112,000, primarily due to increased purchases and production during the third quarter and a decrease in accrued expenses of $131,000, primarily the result of contributions paid to the Simplified Employee Pension Plan. Net cash used by operating activities for the nine months ended November 30, 2010 was $44,000 which was primarily the result of net income of $40,000, plus decreases in inventories of $18,000, increases in accounts payable of $23,000 and accrued expenses of $354,000, offset by an increase in accounts receivable of $49,000 and prepaid taxes of $35,000 and a prior period adjustment for pension contribution of $263,000 and an adjustment of $195,000 due to obligations under deferred compensation agreements. The adjustment of $263,000 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.Resources

~~Net~~Our ~~cash~~primary ~~used~~source inof ~~investing~~funds ~~activities~~is ~~for~~cash ~~the~~flow ~~nine~~from ~~months~~operations ~~ended~~in ~~November~~the ~~30,~~normal ~~2011~~course ~~was~~of ~~$28,000~~selling ~~due~~products. On toMay ~~payments~~31, ~~for plant~~2012, ~~property~~we ~~and~~had ~~equipment~~working ~~compared~~capital toof ~~net~~$1,795,000, ~~cash~~a ~~provided~~debt byto ~~investing~~equity ~~activities~~ratio ~~for~~of ~~the~~$0.15 ~~nine~~to ~~months~~1, ~~ended~~and ~~November~~stockholders’ ~~30,~~equity ~~2010~~ of $~~165~~2,574,000 ~~due~~compared to working capital of $1,801,000, a ~~decrease~~debt into ~~cash~~equity ~~value~~ratio of a0.14 ~~life~~to ~~insurance~~1, ~~policy~~and stockholders’ equity of $~~189~~2,595,000 ~~(resulting~~on ~~from~~February ~~the~~29, ~~surrender~~2012. On ofMay a31, ~~life~~2012, ~~insurance~~we ~~policy~~had ~~for~~$766,000 ~~its~~in ~~net~~cash ~~surrender~~and ~~value~~cash ~~maintained~~equivalents, intotal ~~connection~~assets ~~with~~of ~~the~~$2,957,000 ~~deferred~~and ~~compensation~~total ~~agreement~~liabilities ~~with~~of ~~the~~$383,000, ~~Company’s~~compared ~~President)~~to ~~offset~~$749,000 byin ~~payments~~cash ofand ~~plant~~cash equivalents, ~~property~~total assets of $2,970,000 and ~~equipment~~total liabilities of $23375,000 on February 29, 2012.

Net cash ~~used~~provided inby ~~financing~~operating activities for the ~~nine~~three months ended ~~November~~May 3031, ~~2011~~2012 was $118,~~472,~~000 ~~due~~which towas primarily the result of a decrease in accounts receivable of $~~0.12~~101,000 ~~cash~~and ~~dividend~~prepaid ~~paid~~expenses toof ~~stockholders~~$20,000, ~~during~~along ~~the~~with ~~first~~an ~~quarter~~increase in accounts payable of ~~fiscal~~$65,000, ~~2012~~offset ~~compared~~by toan noincrease ~~cash~~in ~~provided~~prepaid bytaxes orof ~~used~~$93,000 and inventories of $12,000 and a decrease in ~~financing~~accrued expenses of $58,000, coupled with a net loss for the period of $20,000. Net cash provided by operating activities for the ~~nine~~three months ended ~~November~~May 3031, ~~2010~~2011 was $106,000 which was primarily the result of net income of $179,000 plus a decrease in prepaid expenses of $56,000 and prepaid taxes of $107,000, and an increase in accounts payable of $31,000, offset by an increase in accounts receivable of $90,000 and inventories of $142,000, and a decrease in accrued expenses of $60,000.

WeThere ~~anticipate,~~was ~~based~~no onnet ~~currently proposed plans and assumptions relating to our operations, that our current~~ cash ~~and~~provided ~~cash~~by ~~equivalents~~or ~~together~~used ~~with~~in ~~projected~~investing ~~cash~~activities ~~flows from operations and projected revenues will be sufficient to satisfy its contemplated cash requirements~~ for ~~more than~~ the ~~next~~three 12 months~~. Our~~ ~~contemplated~~ended ~~cash~~May ~~requirements~~31, ~~for the balance of fiscal~~ 2012. Net ~~and~~cash ~~beyond~~used ~~will~~in ~~depend~~investing ~~primarily~~activities ~~upon~~for ~~level~~the ofthree ~~sales~~months ofended ~~our~~May ~~products~~31, ~~inventory~~2011 ~~levels~~was $2,000 ~~product~~due ~~development,~~to ~~sales~~payments ~~and~~for ~~marketing~~plant, ~~expenditures~~property and ~~capital~~equipment ~~expenditures~~of $2,000.

There was no net cash provided by or used in financing activities for the three months ended May 31, 2012. Net cash used in financing activities for the three months ended May 31, 2011 was $1,472,000 due to a $0.12 cash dividend paid to stockholders during the three months ended May 31, 2011.

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 2013 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 2 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.

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 provide for income taxes under ASC Topic 740-10. ASC Topic 740-10 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Temporary differences relate primarily to different accounting methods used for depreciation and amortization of property and equipment and deferred compensation. ASC Topic 740-10 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. ASC Topic 740-10 clarifies the accounting for uncertainty in income tax positions, as defined. It 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 analyze the filing positions in all of the federal and state jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions.

Revenue Recognition – We recognize revenue 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 – We rely on the guidance provided by ASC 718, (“Share Based Payments”). ASC 718 requires companies to expense the value of employee stock options and similar awards and applies to all outstanding and vested stock-based awards. In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating our forfeiture rate, we analyze our historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If our actual forfeiture rate is materially different from our estimate, or if we reevaluate the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current period. The fair value concepts were not changed significantly in ASC 718; however, in adopting this Standard, companies were given the option to choose among alternative valuation models and amortization assumptions. We elected to continue to use the Black-Scholes option pricing model and expense the options as compensation over the requisite service period of the grant. We will reconsider use of the Black-Scholes model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model. Deferred charges for options granted to non-employees are determined as the fair value of the consideration or the fair value of the equity instruments issued, whichever is more reliably measured.

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 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 were paid in fiscal 2009. In addition, no dividends were paid in fiscal 2010 and fiscal 2011 primarily due to the Company’s decision to seek strategic alternatives.

Subsequent to the end of fiscal 2011 and in May 2011, the Board of Directors declared a special cash dividend of $0.12 per share which was paid on May 12, 2011 to shareholders of record at the close of business on April 28, 2011. The aggregate amount of payment made in connection with this special cash dividend was approximately $1,472,000.

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.

Item 4. 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~~has concluded that, as of ~~November~~May 3031, ~~2011~~2012, 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.

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.

~~Pursuant to the Epolin, Inc~~None. 2008 Stock Incentive Plan, each director shall receive a stock award annually of 25,000 shares of Common Stock. On October 24, 2011, a total of 100,000 shares of Common Stock were granted to the Company’s four directors. All of such securities were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended, for “transactions by the issuer not involving any public offering”.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. ~~[Removed~~ Mine ~~and~~Safety ~~Reserved~~Disclosures.]

Not applicable.

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)
101*		The following financial information from our Quarterly Report on Form 10-Q for the quarter ended November 30, 2011 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Stockholder’s Equity, (iv) the Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements

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)

101*

The following financial information from our Quarterly Report on Form 10-Q for the quarter ended May 31, 2012 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Stockholder’s Equity, (iv) the Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements

_____________________

In accordance with Rule 406T of Regulation S-T, the XBRL information in Exhibit 101 to this quarterly report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

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)
	EPOLIN, INC.
Dated: January 16, 2012	By:	/s/ Murray S. Cohen
	(Registrant)
		Murray S. Cohen,
Dated: July 13, 2012	By:	/s/ Greg Amato
		Chairman of the Board
		Greg Amato,
		Chief Executive Officer
Dated: July 13, 2012	By:	/s/ Greg Amato
		Greg Amato,
		Principal Financial Officer

Dated: January 16, 2012	By:	/s/ James Ivchenko
		James Ivchenko,
		President
		(Principal Financial Officer)

EPOLIN, INC. AND SUBSIDIARY

CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

~~NINE~~THREE MONTHS ENDED

~~NOVEMBER~~MAY 3031, ~~2011~~2012 AND ~~2010~~ 2011

CONTENTS

	PAGE
Consolidated Financial Statements:
Consolidated Balance Sheets (Unaudited)		F-1
Consolidated Statements of Income Nine Months Ended (Unaudited)		F-3
Consolidated Statements of Income Three Months Ended (Unaudited)		F-4
Consolidated Statements of Stockholder’s Equity (Unaudited)		F-5
Consolidated Statements of Cash Flows (Unaudited)		F-6
Notes to Consolidated Financial Statements		F-7

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

ASSETS

	November 30,		February 28,
	2011		2011
Current assets:
Cash and cash equivalents	$	676,164		1,881,219
Accounts receivable		453,646		502,475
Inventories		723,363		611,061
Prepaid expenses		48,793		96,446
Prepaid taxes		61,100		188,962
Deferred tax assets-current portion		2,593		14,433
Total current assets		1,965,659		3,294,596
Plant, property and equipment - at cost:
Land		81,000		81,000
Building and improvements		793,448		791,242
Laboratory equipment		233,040		213,242
Furniture and office equipment		282,038		275,856
Leasehold improvements		532,129		532,129
Total		1,921,655		1,893,469
Less: Accumulated depreciation and amortization		1,145,995		1,094,240
Net plant, property and equipment		775,660		799,229
Other assets - Deferred tax assets - non current portion		30,793		51,527
Total	$	2,772,112		4,145,352

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

F-1

~~CONSOLIDATED BALANCE SHEETS (CONTINUED) (Unaudited)~~CONTENTS

LIABILITIES AND STOCKHOLDERS' EQUITY

	Page

Consolidated Financial Statements:

Consolidated Balance Sheets (Unaudited)		F-3 - F-4

Consolidated Statements of Income Three Months Ended (Unaudited)		F-5

Consolidated Statements of Stockholder’s Equity (Unaudited)		F-6

Consolidated Statements of Cash Flows (Unaudited)		F-7

Notes to Consolidated Financial Statements		F-8 - F-24

	November 30,		February 28,
	2011		2011
Current liabilities:
Accounts payable	$	21,911		25,596
Accrued expenses		111,154		242,525
Taxes payable:
Income		173		-
Payroll		1,570		1,570
Total current liabilities		134,808		269,691
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;
13,315,000 and 13,215,000 shares issued, and 12,366,355 and
12,266,355 shares outstanding at November 30, 2011 and
February 28, 2011 respectively.		2,364,693		2,364,693
Additional paid-in capital		138,125		123,125
Retained earnings		485,568		1,738,925
Total		2,988,386		4,226,743
Less: Treasury stock - at cost		351,082		351,082
Total stockholders' equity		2,637,304		3,875,661
Total	$	2,772,112		4,145,352

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

F-2

NINE MONTHS ENDED NOVEMBER 30, 2011 AND 2010

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

ASSETS

	May 31,		February 29,
	2012		2012
Current Assets:
Cash and cash equivalents	$	766,236		748,583
Accounts receivable		525,715		626,317
Inventories		755,356		743,445
Prepaid expenses		31,060		51,020
Prepaid taxes		93,045		421
Deferred tax assets-current portion		6,389		5,829

Total current assets		2,177,801		2,175,615

Plant, Property and Equipment - at cost:
Land		81,000		81,000
Building and improvements		793,448		793,448
Laboratory equipment		230,639		230,639
Furniture and office equipment		284,189		284,189
Leasehold improvements		532,129		532,129

Total		1,921,405		1,921,405

Less: Accumulated depreciation and amortization		1,178,588		1,163,249

Net plant, property and equipment		742,817		758,156

Other Assets - Deferred tax assets - non current portion		36,695		35,795

Total	$	2,957,313		2,969,566

	2011		2010
Sales	$	2,581,669		2,283,900
Cost of sales and expenses:
Cost of sales		1,299,805		1,177,317
Selling, general and administrative		902,050		1,056,547
Total		2,201,855		2,233,864
Operating income		379,814		50,036
Other income - interest		2,636		7,977
Income before taxes		382,450		58,013
Income taxes		163,844		18,041
Net income	$	218,606		39,972
Per share data:
Basic earnings per common share	$	0.02		-
Fully diluted earnings per common share	$	0.02		-
Weighted average number of common shares outstanding		12,316,219		12,185,992
Fully diluted number of common shares outstanding		12,316,219		12,203,092

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

F-3

THREE MONTHS ENDED NOVEMBER 30, 2011 AND 2010

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

LIABILITIES AND STOCKHOLDERS' EQUITY

	May 31,		February 29,
	2012		2012
Current Liabilities:
Accounts payable	$	71,814		6,731
Accrued expenses		224,465		282,144
Taxes payable:
Income		85,033		84,263
Payroll		1,570		1,570

Total current liabilities		382,882		374,708

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;
13,315,000 and 13,215,000 shares issued, and 12,366,355 and
12,266,355 shares outstanding at May 31, 2012 and
February 29, 2012, respectively.		2,364,693		2,364,693
Additional paid-in capital		138,125		138,125
Retained earnings		422,695		443,122

Total		2,925,513		2,945,940
Less: Treasury stock - at cost		351,082		351,082

Total stockholders' equity		2,574,431		2,594,858

Total	$	2,957,313		2,969,566

	2011		2010
Sales	$	900,520		802,397
Cost of sales and expenses:
Cost of sales		441,574		430,135
Selling, general and administrative		341,534		432,792
Total		783,108		862,927
Operating income (loss)		117,412		(60,530	)
Other income:
Interest		397		2,283
Total		397		2,283
Income (loss) before taxes		117,809		(58,247	)
Income taxes		57,580		(19,130	)
Net income (loss)	$	60,229		(39,117	)
Per share data:
Basic earnings per common share	$	-		-
Fully diluted earnings per common share	$	-		-
Weighted average number of common shares outstanding		12,314,682		12,239,589
Fully diluted number of common shares outstanding		12,314,682		12,239,589

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

F-4

EPOLIN, INC. AND SUBSIDIARY

EPOLIN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
THREE MONTHS ENDED MAY 31, 2012 AND 2011

	2012			2011

Sales	$	909,187			991,085

Cost of sales and expenses:
Cost of sales		524,859			420,699
Selling, general and administrative		405,608			267,644

Total		930,467			688,343

Operating income (loss)		(21,280	)		302,742

Other income:
Interest		587			1,768
Miscellaneous income		2,046			-

Total		2,633			1,768

Income (loss) before taxes		(18,647	)		304,510

Income taxes		1,780			125,141

Net income (loss)	$	(20,427	)		179,369

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		12,332,476			12,259,663

Fully diluted number of common shares outstanding		12,332,476			12,259,663

NINE MONTHS ENDED NOVEMBER 30, 2011 AND 2010

					Additional
	Number of		Common		Paid-in-			Retained			Treasury		Treasury			Stockholders'
	Shares Issued		Stock		Capital			Earnings			Shares		Stock			Equity
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		-		-		-			(263,067	)		-		-			(263,067	)
Stock-based compensation		100,000		-		(1,695	)		-			-		-			(1,695	)
Net income		-		-		-			39,972			-		-			39,972
Balance - November 30, 2010		13,215,000	$	2,364,693		123,125			1,676,521			948,645		(351,082	)		3,813,257
Balance - March 1, 2011		13,215,000	$	2,364,693		123,125			1,738,925			948,645		(351,082	)		3,875,661
Dividends paid		-		-		-			(1,471,963	)		-		-			(1,471,963	)
Stock-based compensation		100,000		-		15,000			-			-		-			15,000
Net income		-		-		-			218,606			-		-			218,606
Balance - November 30, 2011		13,315,000	$	2,364,693		138,125			485,568			948,645		(351,082	)		2,637,304

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

F-5

NINE MONTHS ENDED NOVEMBER 30, 2011 AND 2010

EPOLIN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MAY 31, 2012 AND 2011

					Additional
	Number of		Common		Paid-in-		Retained			Treasury		Treasury			Stockholders'
	Shares Issued		Stock		Capital		Earnings			Shares		Stock			Equity

Balance - March 1, 2011		13,115,000	$	2,364,693		123,125		1,738,925			948,645		(351,082	)		3,875,661

Dividends paid		-		-		-		(1,471,963	)		-		-			(1,471,963	)

Net income		-		-		-		179,369			-		-			179,369

Balance - May 31, 2011		13,115,000	$	2,364,693		123,125		446,331			948,645		(351,082	)		2,583,067

Balance - March 1, 2012		13,215,000	$	2,364,693		138,125		443,122			948,645		(351,082	)		2,594,858

Net income (loss)		-		-		-		(20,427	)		-		-			(20,427	)

Balance - May 31, 2012		13,215,000	$	2,364,693		138,125		422,695			948,645		(351,082	)		2,574,431

	2011			2010
Cash flows from operating activities:
Net income	$	218,606			39,972
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		51,755			49,892
Prior period adjustment - pension contribution		-			(263,067	)
Stock-based compensation		15,000			(1,695	)
Deferred tax expense		32,574			11,500
Obligation under deferred compensation agreement		-			(195,082	)
(Increase) decrease in:
Accounts receivable		48,829			(49,261	)
Inventories		(112,302	)		18,411
Prepaid expenses		47,653			2,872
Prepaid taxes		127,862			(34,940	)
Increase (decrease) in:
Accounts payable		(3,685	)		23,019
Accrued expenses		(131,371	)		354,454
Taxes payable		173			-
Net cash provided by operating activities		295,094			(43,925	)
Cash flows from investing activities:
Decrease in cash value - life insurance policy		-			188,641
Payments for plant, property and equipment		(28,186	)		(23,390	)
Net cash provided by (used in) investing activities		(28,186	)		165,251
Cash used from financing activities - Dividends paid		(1,471,963	)		-
Increase (decrease) in cash		(1,205,055	)		121,326
Cash and cash equivalents:
Beginning		1,881,219			1,908,752
Ending	$	676,164			2,030,078
Supplemental disclosures of cash flows:
Income taxes paid	$	6,050			70,500

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

F-6

EPOLIN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MAY 31, 2012 AND 2011

	2012			2011
Cash flows from operating activities:
Net income (loss)	$	(20,427	)		179,369
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		15,339			7,334
Deferred tax expense		(1,460	)		17,891
(Increase) decrease in:
Accounts receivable		100,602			(90,188	)
Inventories		(11,911	)		(141,889	)
Prepaid expenses		19,960			55,779
Prepaid taxes		(92,624	)		106,562
Increase (decrease) in:
Accounts payable		65,083			30,850
Accrued expenses		(57,679	)		(60,461	)
Taxes payable		770			588

Net cash provided by operating activities		17,653			105,835

Cash flows used by investing activities:
Payments for plant, property and equipment		-			(2,158	)

Cash flows used by financing activities - Dividends paid		-			(1,471,963	)

Increase (decrease) in cash		17,653			(1,368,286	)

Cash and cash equivalents:
Beginning		748,583			1,881,219

Ending	$	766,236			512,933

Supplemental disclosures of cash flows:
Income taxes paid	$	10,920			2,000

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

F-7

EPOLIN, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1 – 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 2 – 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 2829, ~~2011~~2012. 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 ~~nine~~three-month interim periods ended ~~November~~May 3031, ~~2011~~2012 and ~~2010~~2011 are not necessarily indicative of the results of operations for the fiscal year ending February 28, ~~2012~~2013.

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 41.84% of our trade receivables at ~~November~~May 3031, ~~2011~~2012.

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.

F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 2 – 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 November 30, 2011 and for the nine months then ended are:

CONDENSED CONSOLIDATING BALANCE SHEET
	Epolin			Epolin
	Inc.			Holding, Corp.		Eliminations			Consolidated
Current assets	$	1,780,356			185,303		-			1,965,659
Non-current assets		991,583			615,826		(800,956	)		806,453
Total	$	2,771,939			801,129		(800,956	)		2,772,112
Total liabilities	$	134,635			24,608		(24,435	)		134,808
Stockholders' equity:
Common stock		2,364,693			-		-			2,364,693
Additional paid-in capital		138,125			-		-			138,125
Retained earnings		485,568			776,521		(776,521	)		485,568
Treasury stock		(351,082	)		-		-			(351,082	)
Total stockholders' equity		2,637,304			776,521		(776,521	)		2,637,304
Total	$	2,771,939			801,129		(800,956	)		2,772,112

CONDENSED CONSOLIDATING STATEMENT OF INCOME
	Epolin		Epolin
	Inc.		Holding, Corp.		Eliminations			Consolidated
Sales	$	2,581,669		-		-			2,581,669
Rental income		-		73,305		(73,305	)		-
Total		2,581,669		73,305		(73,305	)		2,581,669
Cost of sales		1,299,805		-		-			1,299,805
Selling, general and administrative		950,382		24,973		(73,305	)		902,050
Total		2,250,187		24,973		(73,305	)		2,201,855
Operating income		331,482		48,332		-			379,814
Other income - interest		1,895		741		-			2,636
Income before taxes		333,377		49,073		-			382,450
Income taxes		159,874		3,970		-			163,844
Net income	$	173,503		45,103		-			218,606

F-8

EPOLIN, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 2 - 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 May 31, 2012 and for the three months then ended are:

CONDENSED CONSOLIDATING BALANCE SHEET

	Epolin			Epolin
	Inc.			Holding, Corp.		Eliminations			Consolidated
Current assets	$	1,946,280			231,521		-			2,177,801
Non-current assets		1,010,263			601,235		(831,986	)		779,512
Total	$	2,956,543			832,756		(831,986	)		2,957,313

Total liabilities	$	382,112			25,205		(24,435	)		382,882

Stockholders' equity:
Common stock		2,364,693			-		-			2,364,693
Additional paid-in capital		138,125			-		-			138,125
Retained earnings		422,695			807,551		(807,551	)		422,695
Treasury stock		(351,082	)		-		-			(351,082	)

Total stockholders' equity		2,574,431			807,551		(807,551	)		2,574,431

Total	$	2,956,543			832,756		(831,986	)		2,957,313

CONDENSED CONSOLIDATING STATEMENT OF INCOME

	Epolin			Epolin
	Inc.			Holding, Corp.		Eliminations			Consolidated
Sales	$	909,187			-		-			909,187
Rental income		-			24,435		(24,435	)		-
Total		909,187			24,435		(24,435	)		909,187

Cost of sales		524,859			-		-			524,859
Selling, general and administrative		421,858			8,185		(24,435	)		405,608

Total		946,717			8,185		(24,435	)		930,467

Operating income (loss)		(37,530	)		16,250		-			(21,280	)

Other income		2,366			267		-			2,633

Income (loss) before taxes		(35,164	)		16,517		-			(18,647	)

Income taxes		540			1,240		-			1,780

Net income (loss)	$	(35,704	)		15,277		-			(20,427	)

F-9

EPOLIN, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 2 – 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 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 $5115,~~755~~339 and $497,~~892~~334 for the ~~nine~~three months ended ~~November~~May 3031, ~~2011~~2012 and ~~2010~~2011, respectively.

Income Taxes - The Company provides for income taxes under ASC Topic 740-10. ASC Topic 740-10 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse. Temporary differences relate primarily to different accounting methods used for depreciation and amortization of property and equipment and deferred compensation.

ASC Topic 740-10 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

ASC Topic 740-10 clarifies the accounting for uncertainty in income tax positions, as defined. It 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 analyze the filing positions in all of the federal and state jurisdictions where we are required to file income tax returns, as well as all open tax years in these jurisdictions. The adoption of ASC Topic 740-10 had no impact on our financial statements for fiscal year ended ~~2011~~2012. As of ~~November~~May 3031, ~~2011~~2012 and ~~2010~~2011, we did not record any unrecognized tax benefits. Our policy, if we had unrecognized benefits, is to recognize accrued interest and penalties related to unrecognized tax benefits as interest expense and other expense, respectively.

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.

F-910

EPOLIN, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 2 – 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 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 $319,~~676~~611 and $5711,~~412~~268 through ~~November~~May 3031, ~~2011~~2012 and ~~2010~~2011, respectively, to maintain compliance with certain Federal, State and City government regulations relative to the production of near infrared dyes and specialty chemicals.

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 $2213,~~962~~901 and $2210,~~180~~656 for the ~~nine~~three months ended ~~November~~May 3031, ~~2011~~2012 and ~~2010~~2011, respectively.

F-1011

EPOLIN, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 2 – Summary of Significant Accounting Policies (continued):

Stock-Based Compensation - We rely on the guidance provided by ASC 718, (“Share Based Payments”). ASC 718 requires companies to expense the value of employee stock options and similar awards and applies to all outstanding and vested stock-based awards.

In computing the impact, the fair value of each option is estimated on the date of grant based on the Black-Scholes options-pricing model utilizing certain assumptions for a risk free interest rate; volatility; and expected remaining lives of the awards. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. In estimating our forfeiture rate, we analyze our historical forfeiture rate, the remaining lives of unvested options, and the amount of vested options as a percentage of total options outstanding. If our actual forfeiture rate is materially different from our estimate, or if we reevaluate the forfeiture rate in the future, the stock-based compensation expense could be significantly different from what we have recorded in the current period.

The fair value concepts were not changed significantly in ASC 718; however, in adopting this Standard, companies were given the option to choose among alternative valuation models and amortization assumptions. We elected to continue to use the Black-Scholes option pricing model and expense the options as compensation over the requisite service period of the grant. We will reconsider use of the Black-Scholes model if additional information becomes available in the future that indicates another model would be more appropriate, or if grants issued in future periods have characteristics that cannot be reasonably estimated using this model.

Deferred charges for options granted to non-employees are determined as the fair value of the consideration or the fair value of the equity instruments issued, whichever is more reliably measured.

The weighted average fair value per option at the date of grant for the ~~nine~~three months ended ~~November~~May 3031, ~~2011~~2012 and ~~2010~~2011 using the Black-Scholes Option-Pricing Model were not applicable as no new stock options were granted during those periods.

F-1112

EPOLIN, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 2 – Summary of Significant Accounting Policies (continued):

Fair Value Measurements - We follow the provisions of ASC 820, Fair Value Measurements and Disclosures, for financial assets and liabilities that are measured and reported at fair value on a recurring basis. ASC 820 establishes a hierarchy for inputs used in measuring fair value. Disclosures of the fair value of certain financial instruments are required, whether or not recognized in the Consolidated Balance Sheets. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. There is a three-level valuation hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The statement requires that each asset and liability carried at fair value be classified into one of the following categories:

Level 1:		Quoted market prices in active markets for identical assets or liabilities

Level 2:		Observable market based inputs or unobservable inputs that are corroborated by market data

Level 3:		Unobservable inputs that are not corroborated by market data

Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of us. Unobservable inputs are inputs that reflect our assumptions about the factors market participants would use in valuing the asset or liability.

F-1213

EPOLIN, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 3 – Income Taxes:

1. Federal and State deferred tax assets include:

	November 30,		February 28,
	May 31, 2012		February 29, 2012
	2011		2011
Temporary differences:
Accelerated amortization	$	1112,~~581~~392		1310,~~526~~926
Net operating loss carryforward		1523,~~080~~973		4523,~~709~~973
Stock-based compensation		6,725		6,725
Total		3343,~~386~~084		6541,~~960~~624
Less: Current portion		26,~~593~~389		145,~~433~~829
Non-current portion	$	3036,~~793~~695		5135,~~527~~795

2. Income tax:

	November 30,
	May 31,			May 31,
	2011			2010
	2012			2011
Current:
Federal	$	~~125,300~~-			-104,000
State		53,~~970~~240			63,~~541~~250
Total current		~~131~~3,~~270~~240			6107,~~541~~250
Deferred:
Federal		~~965~~(1,290	)		8(1,~~900~~500	)
State		~~31,609~~(170	)		219,~~600~~391
Total deferred		32(1,~~574~~460	)		1117,~~500~~891
Total	$	~~163~~1,~~844~~780			18125,~~041~~141

We had at ~~November~~May 3031, ~~2011~~2012 state net operating losses of $~~185~~266,~~548~~360. The state net operating loss carryover is available to offset future taxable income which expires beginning in 2022.

F-1314

EPOLIN, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 4 – Treasury Stock:

Consists of 948,645 shares at a net cost of $351,082 as of ~~November~~May 3031, ~~2011~~2012 and February 2829, ~~2011~~2012, respectively. There were no purchases of treasury shares made during the ~~nine~~three months ended ~~November~~May 3031, ~~2011~~2012 and ~~2010~~2011, respectively.

NOTE 5 – 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 ~~nine~~three months ended ~~November~~May 3031, ~~2011~~2012, approximately 2837.9% of sales were to three customers. During the ~~nine~~three months ended ~~November~~May 3031, ~~2010~~2011, approximately 2731.90% of sales were to three customers.

NOTE 6 – 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 $~~255~~92,~~810~~645 and $~~289~~84,~~785~~240 were included in cost of sales for the ~~nine~~three months ended ~~November~~May 3031, ~~2011~~2012 and ~~2010~~2011, respectively. Expenditures for the fiscal year ended ~~2012~~2013 are projected to remain at approximately the same level as in fiscal ~~2011~~2012.

NOTE 7 – Employee Benefits:

Simplified Employee Pension Plan – Effective June 1, 1994, we ~~provide~~maintained a SAR/SEP plan to our employees as a retirement and income tax reduction facility. Full time employees ~~are~~were eligible to participate immediately. Employees ~~may~~were able make pre-tax and after-tax contributions subject to Internal Revenue Service limitations. We ~~make~~made contributions ranging from three to five percent. ~~Employer contributions totaled $53,573 for the nine months ended November 30, 2010.~~ The plan has not met the Internal Revenue Service 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 $284,955. As of ~~November~~May 3031, ~~2011~~2012, we have paid all accrued amounts to the plan ~~through the date of testing~~. InSee ~~addition,~~Note as15 a- ~~result~~Prior ofPeriod ~~contributions~~Adjustment. ~~paid~~On toAugust ~~the~~20, ~~plan subsequent to the testing date~~2010, ~~additional~~we ~~interest~~adopted ~~will~~a be401K ~~paid~~plan to ~~plan~~replace ~~participants.~~our ~~Our~~SAR/SEP plan ~~actuary is in the process of calculating these amounts, the results of which will be disclosed as they become available~~. ~~See Note 15 - Prior Period Adjustment.~~

F-1415

EPOLIN, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 7 – Employee Benefits ( continued):

401K Plan – Effective August 20, ~~2011~~2010, we provide a 401K plan to our employees as a retirement and income tax reduction facility. Full time employees are eligible to participate after completing one year of eligibility service. 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 $2113,~~282~~122 and $7,~~314~~301 for the ~~nine~~three months ended ~~November~~May 3031, ~~2011~~2012 and ~~2010~~2011 respectively.

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 ~~November~~May 3031, ~~2011~~2012, 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 ~~November~~May 3031, ~~2011~~2012, and the changes during the ~~nine~~three months ended ~~November~~May 3031, ~~2011~~2012 and ~~2010~~2011 is presented below.:

			Weighted- Average
Fixed Options:	Shares		Weighted-Average Exercise Price
Fixed Options:	Shares		Exercise Price
Balance – May 31, 2012 and 2011		95,000	$	0.41
Balance – March 1, 2010		245,000	$	.49
Exercisable at May 31, 2012		95,000	$	0.41
Options cancelled		150,000
Balance – November 30, 2010 and 2011		95,000	$	.41
Exercisable at November 30, 2011		95,000	$	.41

F-1516

EPOLIN, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 7 – Employee Benefits (continued):

Stock Option Plans - The following table summarizes information about fixed stock options outstanding at ~~November~~May 3031, ~~2011~~2012:

Outstanding Options

Exercisable Options

Number

Weighted-Average

Number

Range of

Outstanding

Remaining

Exercisable

Weighted-Average

Exercise Price

at 115/3031/1112

Contractual Life

at 115/3031/1112

Exercise Price

.41

95,000

21.26

95,000

.41

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 ~~November~~May 3031, ~~2011~~2012, 400,000 shares of Common Stock have been granted and 1,100,000 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. ~~Stock-based compensation in the amount of $15,000 and $20,000 was charged to selling, general and administrative expenses for the nine months ended November 30, 2011 and 2010 respectively.~~

F-1617

EPOLIN, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 8 – 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:

	November 30,
	May 31,
	2011		2010
	2012		2011
United States	$	1498,~~785,904~~979		1707,~~600,489~~487
Asia		~~333~~115,~~425~~569		~~333~~62,~~549~~459
Europe		~~442~~266,~~419~~313		~~345~~200,~~714~~858
Other nations		1928,~~921~~326		420,~~148~~281
Total	$	2909,~~581,669~~187		2991,~~283,900~~085

Long-lived assets include net plant, property and equipment. We had long-lived assets of $~~775~~742,~~660~~817 and $~~799~~758,~~229~~156 located in the United States at ~~November~~May 3031, ~~2011~~2012 and February 2829, ~~2011~~2012, respectively.

NOTE 9 – 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 believe that our current practices and procedures comply with applicable regulations. 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. Future remediation costs estimated for the year ended February 2928, ~~2012~~2013 approximate $6970,000. ~~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. NoDue ~~such~~to ~~amounts~~the execution of the Merger Agreement (See Note 17), we became subject to the Industrial Site Recovery Act (ISRA) which requires that our facilities be remediated or that we submit a Remediation Certificate to the New Jersey Department of Environmental Protection pursuant to NJAC 7:26B prior to transfer of ownership. We have ~~been~~undergone ~~accrued~~soil and water sample collection and monitoring. Evaluation of current data indicates the likely course of action will include implementing institutional and engineering controls. Accruals for estimated losses from environmental remediation and to obtain the necessary approvals in ~~these~~conjunction ~~statements~~with the potential sale of our company in the amount of $74,111 are included in accrued expenses on the balance sheet as of May 31, 2012.

F-1718

EPOLIN, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 10 - Accrued Expenses:

Accrued expenses consisted of the following as of ~~November~~May 3031, ~~2011~~2012 and February 2829, ~~2011~~2012, respectively:.

	November 30,		February 28,
	May 31, 2012		February 29, 2012
	2011		2011
Salaries and wages	$	10,476		12,203
Salaries and wages	$	32,032		3,821
Purchases		3,420		20,097
Purchases		20,365		4,933
Pension contribution		21,536		50,366
Pension contribution		28,673		146,629
Environmental fees		76,876		76,876
Commissions		-		18,352
Rent		8,145		8,145
Professional fees		21104,~~939~~012		7896,~~997~~105
Total accrued expenses	$	~~111~~224,~~154~~465		~~242~~282,~~525~~144

NOTE 11 - Inventories:

	November 30,		February 28,
	May 31, 2012		February 29, 2012
	2011		2011
Raw materials and supplies	$	304,108		178,460
Raw materials and supplies	$	225,320		179,800
Work in process		66,271		227,981
Work in process		106,648		74,684
Finished goods		384,977		337,004
Finished goods		391,395		356,577
Total	$	755,356		743,445
Total	$	723,363		611,061

F-1819

EPOLIN, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 12 - 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 ~~earniPngs~~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

~~Nine Months Ended~~

November 30,

May 31,

2011

2010

2011

2010

2012

2011

Basic Earnings Per Common Share:

Net income (loss)

60(20,~~229~~427

)

~~(39~~179,~~117~~369

)

~~218,606~~

~~39,972~~

Average common shares

outstanding

12,~~314~~332,~~682~~476

12,~~239~~259,~~589~~663

~~12,316,219~~

~~12,185,992~~

Basic earnings per

common share

-0.01

~~0.02~~

Diluted Earnings Per Common Share:

Net income (loss)

60(20,~~229~~427

)

~~(39~~179,~~117~~369

)

~~218,606~~

~~39,972~~

Average common shares

Total diluted common shares

outstanding

12,~~314~~332,~~682~~476

12,~~239~~259,~~589~~663

~~12,316,219~~

~~12,185,992~~

Common shares issuable with respect

Diluted earnings per

to options issued to employees

common share

0.01

with a dilutive effect

17,100

Total diluted common shares

outstanding

12,314,682

12,239,589

12,316,219

12,203,092

Diluted earnings per

common share

0.02

Stock options totaling 95,000 for the ~~nine~~three months ended ~~November~~May 3031, 2012 and 2011, were not included in the net income per common share calculation because the exercise price of these options was greater than the average market price of common stock during the period.

F-1920

EPOLIN, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 13 – 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 $284,955. As of ~~November~~May 3031, ~~2011~~2012, we have paid all accrued amounts to the plan ~~through the date of testing~~. In addition, as a result of contributions paid to the plan subsequent to the testing date, additional interest will be paid to plan participants. Our plan actuary is in the process of calculating these amounts, the results of which will be disclosed as they become available. See Note 15 - 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 years with three five 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 $7324,~~305~~435 for the ~~nine~~three months ended ~~November~~May 3031, ~~2011~~2012 and ~~2010~~2011, respectively.

Future minimum payments for the current option period:

Fiscal Years Ending February:
2012	$	24,435
2013		73,305
2013		97,740
2014		97,740
2015		97,740
2016		73,305

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 quarter ended November 30, 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 quarter ended November 30, 2010.

F-2021

EPOLIN, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 14 - Fair Value Measurements:

In September 2006, the FASB issued ASC Topic 820 Fair Value Measurements and Disclosures (formerly Statement of Financial Accounting Standard No. 157 Fair Value Measurements). ASC Topic 820 provides enhanced guidance for using fair value to measure assets and liabilities. Under the standard, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between participants in the market in which the reporting entity transacts its business. ASC Topic 820 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, ASC Topic 820 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. The adoption of ASC Topic 820 did not have a material effect on our results of operations, financial position or liquidity.

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:

Carrying

November 30, 2011

Amount

Level 1

Level 2

May 31, 2012

Amount

Level 1

Level 2

Assets:

Cash and cash equivalents

~~676~~766,~~164~~236

Total assets at fair value

~~676~~766,~~164~~236

February 28, 2012

Amount

Level 1

Level 2

Assets:

Cash and cash equivalents

748,583

Total assets at fair value

748,583

February 28, 2011	Amount		Level 1		Level 2
Assets:
Cash and cash equivalents	$	1,881,219		1,881,219		-
Total assets at fair value	$	1,881,219		1,881,219		-

In accordance with ASC Topic 820, we measure our cash and cash equivalents at fair value, and they are classified within Level 1 since there is an active, readily tradable market value based on quoted prices. We base our estimates on such prices (Level 1 pricing) as of May 31, 2012 and February 29, 2012, or the measurement date. Active markets are those in which transactions occur in significant frequency and volume to provide pricing information on an on-going basis. Since valuations are based on quoted prices that are readily and regularly available in an active market, the valuation of these items does not entail a significant degree of judgment.

In accordance with ASC Topic 820, we measure our cash and cash equivalents at fair value, and they are classified within Level 1 since there is an active, readily tradable market value based on quoted prices. We base our estimates on such prices (Level 1 pricing) as of November 30, 2011 and February 28, 2011, or the measurement date. Active markets are those in which transactions occur in significant frequency and volume to provide pricing information on an onF-~~going basis. Since valuations are based on quoted prices that are readily and regularly available in an active market, the valuation of these items does not entail a significant degree of judgment.~~22

F-21

EPOLIN, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 15 – 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 $263,067 net of income taxes was recorded in our February 28, 2011 year-end financial statements as an increase in accrued expenses and a corresponding reduction to retained earnings net of income taxes.

NOTE 16 – Dividends:

On April 14, 2011, our Board of Directors declared a cash dividend of $0.12 per share on all common shares outstanding. The dividend, in the amount of $1,471,963 was paid on May 12, 2011 to shareholders of record at the close of business on April 28, 2011.

~~F-22~~ NOTE 17 – Merger Agreement:

On March 14, 2012, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Polymathes Holdings I LLC, a New Jersey limited liability company (the “Parent”), and Polymathes Acquisition I Inc., a New Jersey corporation and wholly owned subsidiary of the Parent (the “Purchaser”). Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, Parent has agreed to cause the Purchaser to commence a tender offer (the “Offer”) to purchase all of the outstanding shares of common stock, no par value per share, of the Company (the “Shares”), at a price of $0.22 per Share (the “Offer Price”), paid to the seller in cash, without interest thereon and subject to applicable withholding taxes.

The Merger Agreement provides that the Offer will commence as promptly as practicable (and in any event within 45 days) after the date of the Merger Agreement, and will remain open for at least 20 business days (including the day on which the Offer is commenced). Pursuant to the Merger Agreement, after the consummation of the Offer, and subject to certain conditions set forth in the Merger Agreement, the Parent shall cause the Purchaser to be merged with and into the Company (the “Merger”), with the Company continuing as the surviving corporation and as a wholly owned subsidiary of Parent. Upon completion of the Merger, each Share that is not tendered and accepted pursuant to the Offer (excluding those Shares that are owned by the Company as treasury stock, any Shares owned by the Parent or Purchaser and Shares held by any shareholders who perfect their statutory dissenters rights under New Jersey law) will be canceled and converted into the right to receive the Offer Price in cash (without interest and subject to applicable withholding taxes). If the Purchaser holds 90% or more of the outstanding Shares immediately prior to the Merger, it may effect the Merger as a short-form merger pursuant to the New Jersey Business Corporation Act. Otherwise, the Company may hold a special shareholders’ meeting to obtain shareholder approval of the Merger.

F-23

EPOLIN, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 17 – Merger Agreement (continued):

Subject to the terms and conditions of the Merger Agreement, the Company has granted the Purchaser an irrevocable one-time option (the “Top-Up Option”) which provides that if the Purchaser acquires at least 51% of the outstanding Shares in the Offer after the Purchaser’s acceptance of and payment for Shares pursuant to the Offer, the Purchaser will have the option, subject to certain limitations, to purchase from the Company at a price per Share equal to the Offer Price up to the number of additional shares sufficient to cause the Purchaser to own one share more than 90% of the Shares then outstanding on a fully diluted basis, subject to applicable regulatory requirements and there being sufficient authorized Shares available for issuance, to enable the Purchaser to effect a short-form merger under New Jersey law (the “Top-Up Option Shares”), provided that the aggregate purchase price payable for the Top-Up Option Shares shall be paid by the Parent or the Purchaser as follows: (a) the portion of the aggregate purchase price equal to the par value of the Top-Up Option Shares shall be paid in cash and (b) the balance of the remaining aggregate purchase price may be paid in cash or by executing and delivering to the Company a promissory note having a principal amount equal to the balance of the aggregate purchase price for the Top-Up Option Shares, or some combination thereof. The Top-Up Option is exercisable only after the Shares have been accepted for payment pursuant to the Offer.

Completion of the Offer is subject to there being validly tendered in the Offer and not properly withdrawn that number of Shares which, together with the number of Shares, if any, then owned of record by the Parent or the Purchaser or with respect to which the Parent or the Purchaser has, directly or indirectly, voting power, representing at least 51% of all outstanding Shares (determined on a fully diluted basis). In addition, the Offer is subject to other conditions set forth in the Merger Agreement including, but not limited to, the Company having certain minimum amounts of “Adjusted Cash” and “Adjusted Net Working Capital” (as such terms are defined in the Merger Agreement) as of the time the Shares are accepted for payment.

The Offer expired at 5:00 PM, New York City time, on June 12, 2012 (the “Expiration Date”). Based upon the final information provided by the depositary for the Offer, as of the Expiration Date, 10,239,351 Shares have been tendered and not withdrawn prior to the expiration of the Offer (which includes 14,500 shares tendered pursuant to notices of guaranteed delivery) which represents approximately 82.2% of all outstanding Shares on a fully diluted basis. Purchaser has accepted for payment in accordance with the terms of the Offer all Shares that were validly tendered and not withdrawn in the Offer. On June 13, 2012, Epolin issued a press release announcing the results and expiration of the Offer.

James R. Torpey, Jr. and Herve A. Meillat (two of the Company’s then four directors) resigned as directors of the Company effective as of the Acceptance Time. Until the Effective Time of the Merger, Murray S. Cohen and James Ivchenko (the other two remaining directors) have agreed to remain on the Board.

F-24

Filing Compare · EPOLIN INC /NJ/