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EX-10.54 - DMG ADVISORS CONSULTING & SETTLEMENT AGREEMENTS - American BriVision (Holding) Corpdmgadvisors.htm
EX-10.62 - OFFICE SUBLEASE - American BriVision (Holding) Corpofficesublease.htm
EX-10.55 - CHRIS MARQUEZ PROMISSORY NOTE - American BriVision (Holding) Corpmarquezpromnote.htm
EX-10.59 - JULIANO CONSULTING AGREEMENT - American BriVision (Holding) Corpjulianoconsulting.htm
EX-10.57 - FIRST ALLONGE MARQUEZ NOTE - American BriVision (Holding) Corpmarquezfirstallonge.htm
EX-10.45 - CONVERTIBLE PREFERRED SECURITIES AGREMENT - American BriVision (Holding) Corpconvertibleagreement.htm
EX-10.58 - SECOND ALLONGE MARQUEZ NOTE - American BriVision (Holding) Corpmarquezsecondallonge.htm
EX-10.63 - REYNOLDS COLLABORATION AGREEMENT - American BriVision (Holding) Corpreynoldscollaboration.htm
EX-10.60 - FIRST AMENDMENT SALLY RAMSEY - American BriVision (Holding) Corpramseyfirstamend.htm

 
1

 

UNITED STATES
Securities and Exchange Commission
Washington, D.C. 20549

Amendment No. 2 to
Form S-1
Registration Statement Under The Securities Act of 1933

Commission file number: 333-91436
ECOLOGY COATINGS, INC.
(Exact name of registrant as specified in its charter)

Nevada
(State or other jurisdiction of incorporation or organization)

3479
(Primary Standard Industrial Classification Code Number)

26-0014658
(I.R.S. Employer Identification Number)

2701 Cambridge Court, Suite 100, Auburn Hills, MI  48326

248-370-9900
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Daniel V. Iannotti, Vice President, General Counsel & Secretary
Ecology Coatings, Inc.
2701 Cambridge Court, Suite 100
Auburn Hills, MI  48326
248-370-9900
(Name, address and telephone number of agent for service)

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.

If any securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: x



If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. 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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller reporting company x

 

 
2

 

 

 
CALCULATION OF REGISTRATION FEE
 
Title of Each Class of Security To be Registered
 
Amount to be Registered (1)
Proposed Maximum Offering Price per Share (2)
Proposed Maximum Aggregate Offering Price (3)
Amount of Registration Fee
Common Stock, $.001 par value per share
4,340,000
$1.05
$4,557,000
$254.28(4)
 
(1)  
Represents only shares offered by the selling shareholder.  Includes 4,340,000 shares of common stock issuable upon conversion of certain of the 5% convertible preferred shares held by the selling shareholder and does not include shares held by any other shareholder.
 
 
(2)  
Represents the closing price of our common stock on the OTC Bulletin Board association on August 27, 2009.
 
 
(3)  
Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(e) under the Securities Act of 1933.
 
 
(4)  
Amount was previously paid.
 
 
____________________________
 
 
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the SEC, acting pursuant to said Section 8(a), may determine.
 

 


 
3

 

 
Subject to Completion
 
 
Preliminary Prospectus Dated October 19, 2009
 
 
4,340,000 Common Shares
 
 

 
 
Ecology Coatings, Inc.
 
 
_______________________________
 
 
This prospectus relates to the offer and sale of up to 4,340,000 shares of our common stock held by Equity 11, Ltd. (the “selling shareholder” identified in this prospectus). The selling shareholder intends to sell the shares of our common stock held by it from time to time at a time that is determined based on its assessment of market conditions.  JB Smith, a member of our Board of Directors, is the managing partner of Equity 11.  This prospectus only relates to shares held by the selling shareholder.  We will not receive any of the proceeds from the sale of these shares by the selling shareholder. Subject to any agreement that we may in the future reach in connection with the offer and sale of shares pursuant to this prospectus, we will bear all expenses of this offering, except that the selling shareholder will pay all transfer taxes and any brokerage discounts or commissions or similar expenses applicable to the sale of its shares.
 
 
We are registering the offer and sale of these shares pursuant to an agreement with the selling shareholder. The shares offered under this prospectus are being registered to permit the selling shareholder to sell the shares in the public market at a time that it determines based on its assessment of market conditions. The selling shareholder may sell the shares through any means described in the section titled "Plan of Distribution."
 
 
Our common stock is not presently traded on any national securities exchange but is quoted and traded on the Over-The-Counter Bulletin Board.  The last reported sale price of our common stock on October 15, 2009, was $0.40 per share.
 
 
Investing in our common stock involves risks. See "Risk Factors" below.
 
 
__________________________
 
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
 
 
The date of this prospectus is October 19, 2009
 
 
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
 

 
4

 

 
TABLE OF CONTENTS
 
 
Page
Item 1:  Forepart of the Registration Statement and Outside Front Cover Page of Prospectus
1
Item 2:  Inside Front and Outside Back Cover Pages of Prospectus
2
Item 3:  Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges
6
Item 4:  Use of Proceeds
7
Item 5:  Determination of Offering Price
7
Item 6:  Dilution
7
Item 7:  Selling Shareholder
7
Item 8:  Plan of Distribution
8
Item 9:  Description of Stock to be Registered
8
Item 10:  Interests of Named Experts and Counsel
8
Item 11:  Information With Respect to the Registrant and Financial Information Schedules
8
Item 11A:  Material Changes
27
Item 12:  Incorporation of Certain Information by Reference
27
Item 12A:  Disclosure of Commission Position On Indemnification For Securities Act Liabilities
27
Item 13:  Other Expenses of Issuance and Distribution
28
Item 14:  Indemnification of Directors and Officers
28
Item 15:  Recent Sales of Unregistered Securities
28
Item 16:  Exhibits
28
Item 17:  Undertakings
29
 
ABOUT THIS PROSPECTUS
 
 
You should rely only on the information contained in this prospectus. We and the selling shareholder have not authorized anyone to provide you with information different from that contained in this prospectus. This prospectus may only be used where it is legal to sell these securities. You should assume that the information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
 

 
5

 

 
ITEM 3:  SUMMARY INFORMATION, RISK FACTORS AND RATIO OF EARNINGS TO FIXED CHARGES
 
 

 
 
This summary highlights information contained elsewhere in this prospectus. This summary sets forth the material terms of the offering, but does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully before making an investment decision, especially the risks of investing in our common stock described under "Risk Factors." Unless the context otherwise requires, the terms "we," "us," "our," and "Ecology" refer to Ecology Coatings, Inc. and its predecessors, direct and indirect subsidiaries and affiliates.
 
 
ECOLOGY COATINGS, INC.
 
 
Our Company
 
 
Ecology Coatings, Inc. (“Ecology-CA”) was originally incorporated in California on March 12, 1990.  OCIS Corp. (“OCIS”) was incorporated in Nevada on February 6, 2002.  OCIS completed a merger with Ecology-CA on July 27, 2007 (the “Merger”).  In the Merger, OCIS issued approximately 30,530,684 shares of common stock to the Ecology-CA stockholders.  In this transaction, OCIS changed its name from OCIS Corporation to Ecology Coatings, Inc. and our ticker symbol on the OTC Bulletin Board association changed to “ECOC.”  As a result of the merger, we became a Nevada corporation and Ecology-CA became a wholly owned subsidiary.
 
We develop “cleantech”, nanotechnology-enabled, ultraviolet (“UV”) curable coatings that are designed to drive efficiencies, reduce energy consumption and virtually eliminate pollutants in the manufacturing sector.  We create proprietary coatings with unique performance and environmental attributes by leveraging our platform of integrated clean technology products that reduce overall energy consumption and offer a marked decrease in drying time.
 
Our patent and intellectual property activities to date include:
 
 
·
seven patents covering elements of our technology from the United States Patent and Trademark Office(“USPTO”)
 
 
·
two European patents allowed and sixteen pending patent applications in foreign countries
 
 
·
three ICT international patent applications
 
 
·
three trademarks issued by the USPTO – “EZ Recoat™”, “Ecology Coatings™”, “EcoQuik™” and “Liquid Nanotechnology™”.
 
We continue to work independently on developing our clean technology products further.  In addition, we are developing proprietary coatings for a variety of metal, paper and plastic-based applications.  Our target markets include the electronics, steel, construction, automotive and trucking, paper products and original equipment manufacturers (“OEMs”). Our business model contemplates both licensing and direct sales strategies.  We intend to license our technology to industry leaders in our target markets, through which products will be sold to end users.  We plan to use direct sales teams and third party agents in certain target markets, such as OEMs, and third party distributors in broad product markets, such as paper products, to develop our product sales.
 
Our website address is www.ecologycoatings.com.  Our website and the information contained on our website are not incorporated into this prospectus or the registration statement of which it forms a part.  Our principal executive offices are located at 350 Fifth Avenue, Suite 100, Auburn Hills, MI  49326.  Our telephone number is 248-370-9900.
 
 
The Offering
 
Common Stock Offered by the Selling Shareholder hereby
4,340,000 shares issuable upon the conversion of outstanding shares of preferred stock – such 4,340,000 shares will be converted from 2,170 preferred shares acquired under the August 28, 2008 Securities Purchase Agreement at an aggregate purchase price of $2,170,000 and at a conversion price of $.50 per share.  No shares of any other shareholder are included in this registration.
Common Stock Outstanding Before and After this Offering
32,835,684 common shares issued and outstanding as of September 30, 2009 and 37,175,684 common shares issued and outstanding after this offering which includes 4,340,000 common shares converted from convertible preferred stock by the selling shareholder. (1)
Use of Proceeds
We will not receive any proceeds from the shares sold by the selling shareholder.
Plan of Distribution
The selling shareholder plans to sell up to all of the shares being offered in this offering from time to time at a time determined by its assessment of market conditions. See “Plan of Distribution” for additional information.
Risk Factors
You should carefully read and consider the information set forth under the heading titled “Risk Factors” and all other information set forth in this prospectus before deciding to invest in shares of our common stock.
Over-The-Counter Bulletin Symbol
“ECOC”
(1)  
Based on shares outstanding on September 30, 2009.  This figure does not include shares which may be issued upon exercise or conversion of stock options, warrants or shares which may be issuable under outstanding promissory notes.  Although four of our outstanding promissory notes were initially convertible into our common stock, the right to convert was extinguished because we did not complete an underwritten public or private stock offering in which we netted $1,000,000 or more by the maturity dates of the notes.  However, we are in negotiations with these note holders and we may allow some or all of these notes to convert into our common stock as a method to conserve our cash.  If these notes are converted into common stock, our number of shares outstanding will increase.  See Item 9 for further information regarding the conversion of such notes.  As of September 30, 2009, we had 51,099,955shares of common stock beneficially outstanding, including 32,835,684 common shares issued and outstanding, 2,436 shares of convertible preferred stock which can be converted into 4,872,000 common shares, 566 shares of convertible preferred stock, Series B which can be converted into 5,799,252 common shares, warrants to acquire 4,532,900 common shares and stock options vested or that will vest within sixty days of September 30, 2009 to acquire 3,060,119 common shares.  Of the 51,099,955common shares beneficially outstanding as of September 30, 2009, 32,168,677 were held by affiliates and 18,960,003were held by non-affiliates.  For purposes of the foregoing, we have treated all shares held by executive officers, directors and Equity 11 as “affiliate” shares.

 
Unless otherwise noted, all information in this prospectus assumes the conversion of 2,170 5% convertible preferred shares with an aggregate purchase price of $2,170,000 into 4,340,000 shares of common stock.
 

 
6

 

 
Risk Factors
 
 
Prospective and existing investors should carefully consider the following risk factors in evaluating our business.  The factors listed below represent the known material risks that we believe could cause our business results to differ from the statements contained herein.  It should be recognized that other unknown risks may be significant, presently or in the future, and the risks set forth below may affect us to a greater extent than indicated.
 
RISKS RELATED TO OUR COMPANY AND OUR BUSINESS
 
We have generated minimal revenue and have a history of significant operating losses
 
We are a company that has failed to generate significant revenue as yet and had an accumulated deficit of $21,043,440 as of June 30, 2009.  We have a limited operating history upon which investors may rely to evaluate our prospects.  Such prospects must be considered in light of the problems, expenses, delays and complications associated with a business that seeks to generate more significant revenue.  We have generated nominal revenue to date and have incurred significant operating losses.  Our operating losses have resulted principally from costs incurred in connection with our capital raising efforts and becoming a public company through a merger, promotion of our products, and from salaries and general and administrative costs.  We have maintained minimal cash reserves since October 2008 and have relied solely on additional investment from Equity 11.  Equity 11 is not committed to make any additional investments.  We will need to raise additional capital from Equity 11 or other investors in fiscal year 2010 in order to continue to fund our operations.
 
We have entered the emerging business of nanotechnology, which carries significant developmental and commercial risk
 
We have expended in excess of $1,000,000 to develop our nanotechnology-enabled and other products.  We expect to continue expending significant sums in pursuit of further development of our technology. Such research and development involves a high degree of risk as to whether a commercially viable product will result.

We expect to continue to generate operating losses and experience negative cash flow and it is uncertain whether we will achieve future profitability
 
We expect to continue to incur operating losses.  Our ability to commence revenue generating operations and achieve profitability will depend on our products functioning as intended, the market acceptance of our liquid nano-technology™ products and our capacity to develop, introduce and bring additional products to market.  We cannot be certain that we will ever generate significant sales or achieve profitability.  The extent of future losses and the time required to achieve profitability, if ever, cannot be predicted at this point.
 
Our auditors have expressed a going concern opinion
 
We have incurred losses, primarily as a result of our inception stage, general and administrative, and pre-production expenses and our limited amount of revenue.  Accordingly, we have received a report from our independent auditors that includes an explanatory paragraph describing their substantial doubt about our ability to continue as a going concern.
 
We will need additional financing in 2009
 
Our cash requirements may vary materially from those now planned depending on numerous factors, including the status of our marketing efforts, our business development activities, and the results of future research and development and competition.  Our past capital raising activities have not been sufficient to fund our working and other capital requirements and we will need to raise additional funds through private or public financings in fiscal year 2010. Such financing could include equity financing, which may be dilutive to stockholders, or debt financing, which would likely restrict our ability to make acquisitions and borrow from other sources.  In addition, such securities may contain rights, preferences or privileges senior to those of the rights of our current shareholder.  During our last fiscal year ended September 30, 2008, we relied on short term debt financing, most of which carried a 25% interest rate, to fund our operations.  As of September 30, 2009, we were in default on approximately $739,483.61 in short term debt, including accrued interest, and raised only $763,716 from the issuance of notes and the sale of convertible preferred shares during the twelve months ended September 30, 2009.  On May 15, 2009, we entered into a Convertible Preferred Securities Agreement with Equity 11 under which Equity 11 may purchase additional shares of our preferred stock, it does not have any commitments for additional financing from Equity 11.  On September 30, 2009, we entered into a Securities Purchase Agreement with Stromback Acquisition Corporation but it does not commit Stromback Acquisition Corporation to provide any additional financing beyond the initial investment which netted us $120,000.  We have maintained minimal cash reserves since October 2008 and have relied solely on additional investment from Equity 11.  Equity 11 is not committed to make any additional investments.  We will need to raise additional capital from Equity 11, Stromback Acquisition Corporation or other investors in fiscal year 2010 in order to continue to fund our operations.  We cannot be certain that additional funds will be available on terms attractive to us or at all.  If adequate funds are not available, we may be required to curtail our pre-production, sales and research and development activities and/or otherwise materially reduce our operations.  Our inability to raise adequate funds will have a material adverse effect on our business, results of operations and financial condition and may force us to seek protection under the bankruptcy laws.
 
We are dependent on key personnel
Our success will be largely dependent upon the efforts of our executive officers.  The loss of the services of our executive officers could have a material adverse effect on our business and prospects.  We cannot be certain that we will be able to retain the services of such individuals in the future.  Our research and development efforts are dependent upon a single executive, Sally Ramsey, with whom we have entered into an employment agreement which expires on December 31, 2012.  Our success will be dependent upon our ability to hire and retain qualified technical, research, management, sales, marketing, operations, and financial personnel.  We will compete with other companies with greater financial and other resources for such personnel.  Although we have not to date experienced difficulty in attracting qualified personnel, we cannot be certain that we will be able to retain our present personnel or acquire additional qualified personnel as and when needed.  On September 21, 2009, we entered into new employment agreements with our Chief Executive Officer, Chief Operating Officer, and General Counsel and entered into an amendment to Ms. Ramsey’s employment agreement.  We do not have an employment agreement with our Chief Financial Officer.

We Rely on Computer Systems for Financial Reporting and other Operations and any Disruptions in Our Systems Would Adversely Affect Us

We rely on computer systems to support our financial reporting capabilities and other operations. As with any computer systems, unforeseen issues may arise that could affect our ability to receive adequate, accurate and timely financial information, which in turn could inhibit effective and timely decisions. Furthermore, it is possible that our information systems could experience a complete or partial shutdown. If such a shutdown occurred, it could impact our ability to report our financial results in a timely manner or to otherwise operate our business.  In this regard, our financial data in our accounting software (QuickBooks) became corrupted and unusable in late June 2009 and the backup system for our computer systems failed to backup the data. This resulted in a delay in our ability to complete our financial statements for the June 30, 2009 quarter and to file our Form 10-Q with the SEC for such period. 

Risks Related to our Business
 
We are operating in both mature and developing markets, and there is a risk that we may not achieve acceptance of our technology and products in these markets
 
We researched the markets for our products using our own personnel rather than third parties.  We have conducted limited test marketing and, thus, have relatively little information on which to estimate our levels of sales, the amount of revenue our planned operations will generate and our operating and other expenses.  We cannot be certain that we will be successful in our efforts to market our products or to develop our markets in the manner we contemplate.
 
Certain markets, such as electronics and specialty packaging, are developing and rapidly evolving and are characterized by an increasing number of market entrants who have developed or are developing a wide variety of products and technologies, a number of which offer certain of the features that our products offer.  Because of these factors, demand and market acceptance for new products may be difficult.  In mature markets, such as automotive or general industrial, we may encounter resistance by our potential customers in changing to our technology because of the capital investments they have made in their present production or manufacturing facilities.  Thus, we cannot be certain that our technology and products will become widely accepted. We do not know our future growth rate, if any, and size of these markets. If a substantial market fails to develop, develops more slowly than expected, becomes saturated with competitors or if our products do not achieve market acceptance, our business, operating results and financial condition will be materially adversely affected.
 
Our technology is also intended to be marketed and licensed to component or device manufacturers for inclusion in the products they market and sell as an embedded solution.  As with other new products and technologies designed to enhance or replace existing products or technologies or change product designs, these potential partners may be reluctant to adopt our coating solution into their production or manufacturing facilities unless our technology and products are proven to be both reliable and available at a competitive price and the cost-benefit analysis is favorable to the particular industry.  Even assuming acceptance of our technology, our potential customers may be required to redesign their production or manufacturing facilities to effectively use our Liquid Nanotechnology™ coatings.  The time and costs necessary for such redesign could delay or prevent market acceptance of our technology and products.  A lack of, or delay in, market acceptance of our Liquid Nanotechnology™ products would adversely affect our operations.  We do not know if we will be able to market our technology and products successfully or that any of our technology or products will be accepted in the marketplace.
 
We expect that our products will have a long sales cycle
 
One of our target markets is the original equipment manufacturer (OEM) market. OEMs traditionally have substantial capital investments in their plant and equipment, including the coating portion of the production process.  In this market, the sale of our coating technology will be subject to budget constraints and resistance to change with respect to long-established production techniques and processes, which could result in a significant reduction or delay in our anticipated revenues.  We cannot assure investors that such customers will have the necessary funds to purchase our technology and products even though they may want to do so.  Further, even if such customers have the necessary funds, we may experience delays and relatively long sales cycles due to their internal-decision making policies and procedures and reticence to change.
 
Our target markets are characterized by new products and rapid technological change
 
The target markets for our products are characterized by rapidly changing technology and frequent new product introductions.  Our success will depend on our ability to enhance our planned technologies and products and to introduce new products and technologies to meet changing customer requirements.  We intend to devote significant resources toward the development of our Liquid Nanotechnology™ solutions.  We are not certain that we will successfully complete the development of these technologies and related products in a timely fashion or that our current or future products will satisfy the needs of the coatings market.   We do not know if technologies developed by others will adversely affect our competitive position or render our products or technologies non-competitive or obsolete.
 
There is a significant amount of competition in our market
 
The industrial coatings market is extremely competitive.  Competitive factors our products face include ease of use, quality, portability, versatility, reliability, accuracy, cost, switching costs and other factors.  Our primary competitors include companies with substantially greater financial, technological, marketing, personnel and research and development resources than we currently have.  There are direct competitors who have competitive technology and products for many of our products.  New companies will likely enter our markets in the future.  Although we believe that our products are distinguishable from those of our competitors on the basis of their technological features and functionality at an attractive value proposition, we may not be able to penetrate any of our anticipated competitors’ portions of the market.  Many of our anticipated competitors have existing relationships with manufacturers that may impede our ability to market our technology to potential customers and build market share.  We do not know that we will be able to compete successfully against currently anticipated or future competitors or that competitive pressures will not have a material adverse effect on our business, operating results and financial condition.
 
We have limited marketing capability
 
We have limited marketing capabilities and resources.  In order to achieve market penetration, we will have to undertake significant efforts and expenditures to create awareness of, and demand for, our technology and products.  Our ability to penetrate the market and build our customer base will be substantially dependent on our marketing efforts, including our ability to establish strategic marketing arrangements with OEMs and suppliers.  We cannot be certain that we will be able to enter into any such arrangements or if entered into that they will be successful.  Our failure to successfully develop our marketing capabilities, both internally and through third-party alliances, would have a material adverse effect on our business, operating results and financial condition.  Even if developed, such marketing capabilities may not lead to sales of our technologies and products.
 
We have limited manufacturing capacity
 
We have limited manufacturing capacity for our products.  In order to execute our contemplated direct sales strategy, we will need to either: (i) acquire existing manufacturing capacity; (ii) develop a manufacturing capacity “in-house”; or (iii) identify suitable third parties with whom we can contract for the manufacture of our products.  To either acquire existing manufacturing capacity or to develop such capacity, significant capital or outsourcing will be required.   We may not be able to  raise the necessary capital to acquire existing manufacturing capacity or to develop such capacity.  Moreover, we have not identified potential third parties with whom we could contract for the manufacture of our coatings.  We cannot be certain that such arrangements, if consummated, would be suitable to meet our needs.
 
We are dependent on manufacturers and suppliers
 
We purchase, and intend to continue to purchase, all of the raw materials for our products from a limited number of manufacturers and suppliers.
 
We do not intend to directly manufacture any of the chemicals or other raw materials used in our products.  Our reliance on outside manufacturers and suppliers is expected to continue and involves several risks, including limited control over the availability of raw materials, delivery schedules, pricing and product quality.  We may experience delays, additional expenses and lost sales if we are required to locate and qualify alternative manufacturers and suppliers.
 
A few of the raw materials for our products are produced by a very small number of specialized manufacturers.  While we believe that there are alternative sources of supply, if, for any reason, we are precluded from obtaining such materials from such manufacturers, we may experience long delays in product delivery due to the difficulty and complexity involved in producing the required materials and we may also be required to pay higher costs for our materials.
 
We are uncertain of our ability to protect our technology through patents
 
Our ability to compete effectively will depend on our success in protecting our proprietary Liquid Nanotechnology™, both in the United States and abroad.  We have filed for patent protection in the United States and certain other countries to cover a number of aspects of our Liquid Nanotechnology™.  The U.S. Patent Office (“USPTO”) has issued seven patents to us.  We have five applications still pending before the USPTO and twenty-two patent applications pending in other countries, plus three pending ICT international patent applications.
 
We do not know if  any additional patents relating to our existing technology will be issued from the United States or any foreign patent offices, that we will receive any additional patents in the future based on our continued development of our technology, or that our patent protection within and/or outside of the United States will be sufficient to deter others, legally or otherwise, from developing or marketing competitive products utilizing our technologies.
 
We do not know if any of our current or future patents will be enforceable to prevent others from developing and marketing competitive products or methods.  If we bring an infringement action relating to any of our patents, it may require the diversion of substantial funds from our operations and may require management to expend efforts that might otherwise be devoted to our operations.  Furthermore, we may not be successful in enforcing our patent rights.
 
Further, patent infringement claims in the United States or in other countries will likely be asserted against us by competitors or others, and if asserted, we may not be successful in defending against such claims.  If one of our products is adjudged to infringe patents of others with the likely consequence of a damage award, we may be enjoined from using and selling such product or be required to obtain a royalty-bearing license, if available on acceptable terms.  Alternatively, in the event a license is not offered, we might be required, if possible, to redesign those aspects of the product held to infringe so as to avoid infringement liability.  Any redesign efforts undertaken by us might be expensive, could delay the introduction or the re-introduction of our products into certain markets, or may be so significant as to be impractical.
 
We are uncertain of our ability to protect our proprietary technology and information
 
In addition to seeking patent protection, we rely on trade secrets, know-how and continuing technological advancement in special formulations to achieve and thereafter maintain a competitive advantage.  Although we have entered into confidentiality and employment agreements with some of our employees, consultants, certain potential customers and advisors, we cannot be certain that such agreements will be honored or that we will be able to effectively protect our rights to our unpatented trade secrets and know-how.  Moreover, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how.
 
Risks related to our license arrangements
 
We have licensing agreements with DuPont and Red Spot Paint & Varnish regarding their use of our technology for specific formulations for designated applications.  The DuPont license provides multiple formulas for use on metal parts in the North American automotive market.  To date, this license has not generated any ongoing royalty payments.  We also have a licensing agreement with Red Spot that provides formulations for specific tank coatings. Such licenses are renewable provided the parties are in compliance with the agreements.  Although these licenses provide for royalties based upon net sales of our UV-cured coating formulations, it is unlikely that Red Spot or DuPont will aggressively market products with our coatings and thus entitle us to receive royalties at any level.
 
We have not completed our trademark registrations
 
We have received approval of “EZ Recoat™”, “Liquid Nanotechnology™”, “Ecology Coatings™” as trademarks in connection with our proposed business and marketing activities.  Although we intend to pursue the registration of our marks in the United States and other countries, prior registrations and/or uses of one or more of such marks, or a confusingly similar mark, may exist in one or more of such countries, in which case we might be precluded from registering and/or using such mark in certain countries.
 
There are economic and general risks relating to our business
 
The success of our activities is subject to risks inherent in business generally, including demand for products and services; general economic conditions; changes in taxes and tax laws; and changes in governmental regulations and policies.  For example, difficulties in obtaining credit and financing and the recent slowdown in the U.S. automotive industry have made it more difficult to market our technology to that industry.
 
Risks Related to our Common Stock
 
Our stock price has been volatile and the future market price for our common stock is likely to continue to be volatile. Further, the limited market for our shares may make it difficult for our investors to sell our common stock for a positive return on investment
 
The public market for our common stock has historically been very volatile. During fiscal year 2009, our low and high market prices of our stock were $0.25 per share (March 24, 2009) and $2.00 per share (August 17, 2009).  Any future market prices for our shares are likely to continue to be very volatile. This price volatility may make it more difficult for our shareholder to sell our shares when desired.  We do not know of any one particular factor that has caused volatility in our stock price.  However, the stock market in general has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of listed companies.  Broad market factors and the investing public’s negative perception of our business may reduce our stock price, regardless of our operating performance. Further, the volume of our traded shares and the market for our common stock is very limited.  During the past fiscal year, there have been several days where no shares of our stock have traded.  A larger market for our shares may never develop or be maintained. Market fluctuations and volatility, as well as general economic, market and political conditions, could reduce our market price.  As a result, this may make it very difficult for our shareholder to sell our common stock.
 
Control by key stockholders
 
As of September 30, 2009, Richard D. Stromback, Douglas Stromback, Deanna Stromback, who are the brother and sister of Richard D. Stromback, respectively, Sally J.W. Ramsey, and Equity 11 held shares representing approximately 75.3% of the voting power of our outstanding capital stock prior to any sales of any common stock by Equity 11 in this offering and 66.8% of the voting power assuming the sale of all of the 4,340,000 shares which may be sold in this offering .  In addition, pursuant to the Securities Purchase Agreement we entered into with Equity 11 in August 2008, Equity 11 has the right to effectively control our Board of Directors with the right to appoint three of the five members of our Board of Directors.  Additionally, Equity 11 has the right to appoint our Chief Executive Officer.  The stock ownership and governance rights of such parties constitute effective voting control over all matters requiring stockholder approval.  These voting and other control rights mean that our other stockholders will have only limited rights to participate in our management.  The rights of our controlling stockholders may also have the effect of delaying or preventing a change in our control and may otherwise decrease the value of the shares and voting securities owned by other stockholders.

Our common stock is considered a “penny stock,” any investment in our shares is considered to be a high-risk investment and is subject to restrictions on marketability
 
Our common stock is considered a “penny stock” because it is traded on the OTC Bulletin Board and it trades for less than $5.00 per share. The OTC Bulletin Board is generally regarded as a less efficient trading market than the NASDAQ Capital or Global Markets or the New York Stock Exchange.
 
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.”  The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market.  The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and any salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account.  In addition, the penny stock rules require that, prior to effecting a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.  These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock.
 
Since our common stock will be subject to the regulations applicable to penny stocks, the market liquidity for our common stock could be adversely affected because the regulations on penny stocks could limit the ability of broker-dealers to sell our common stock and thus the ability of our shareholder to sell our common stock in the secondary market in the future.
 
We have never paid dividends and have no plans to do so in the future
 
To date, we have paid no cash dividends on our shares of common stock and we do not expect to pay cash dividends on our common stock in the foreseeable future.  We intend to retain future earnings, if any, to provide funds for the operation of our business.  Our Securities Purchase Agreement with Equity 11 prevents the payment of any dividends to our common stockholders without the prior approval of Equity 11.  Dividends for the preferred shares held by Equity 11 have not been paid in cash.  Thus far, the dividends have been paid through the issuance of additional preferred shares.
 
The issuance and exercise of additional options, warrants, and convertible securities may dilute the ownership interest of our stockholders
 
As of September 30, 2009, we had granted options to purchase 5,131,119 shares of our common stock under our 2007 Stock Option and Restricted Stock Plan (the “2007 Plan).  Under the Securities Purchase Agreement, Equity 11 purchased $2,357,000 in convertible preferred shares, potentially convertible into 4,714,000 shares of our common stock.  On December 1, 2008, we issued a dividend in lieu of cash to Equity 11 of 24 convertible preferred shares which are convertible into 48,000 shares of common stock.  On June 1, 2009, we issued additional shares of preferred stock as a dividend in lieu of cash to Equity 11 of 55 convertible preferred shares which are convertible into 110,000 shares of our common stock.  The total potential number of common shares to be issued under the Securities Purchase Agreement assuming issuance and conversion of all of the convertible preferred shares issued under the Securities Purchase Agreement is 4,872,000.  The Securities Purchase Agreement provides for the issuance of 500 warrants for each convertible preferred share issued and entitles Equity 11 to purchase one share of our common stock at $.75 per common share for each warrant.  As of September 30, 2009, we had issued warrants to purchase 4,532,900 shares of our common stock which includes 1,178,500 warrants issued to Equity 11.  On May 15, 2009, we entered into a new Convertible Preferred Securities Agreement with Equity 11.  Shares purchased under this Agreement are convertible into our common shares at a price equal to twenty percent (20%) of the average closing price of our common stock for the five trading days immediately prior to purchase.  As of September 30, 2009, 566 of these preferred shares had been sold under this Agreement which are convertible into 5,799,252 of our common shares.  As of September 30, 2009, there was $739,483.61 outstanding in principal and accrued interest on notes held by Investment Hunter, LLC, George Resta and Mitchell Shaheen.  These notes are no longer convertible but we may grant conversion rights to these holders to reduce our need for cash.  To the extent that our outstanding stock options and warrants are exercised, Convertible Preferred Shares are converted to common stock and/or promissory notes are converted into common stock, dilution to the ownership interests of our stockholders will occur.
 
We have additional securities available for issuance, which, if issued, could adversely affect the rights of the holders of our common stock
 
Our Articles of Incorporation authorize the issuance of 90,000,000 shares of common stock and 10,000,000 shares of preferred stock.  The common stock and preferred stock can be issued by our Board of Directors without stockholder approval.  Any future issuances of our common stock or preferred stock could further dilute the percentage ownership of our existing stockholders.

 
Indemnification of officers and directors

Our Articles of Incorporation and Bylaws contain broad indemnification and liability limiting provisions regarding our officers, directors and employees, including the limitation of liability for certain violations of fiduciary duties.  In addition, we maintain Directors and Officers liability insurance.  Our shareholder will have only limited recourse against such directors and officers.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of our company under Nevada law or otherwise, we have been advised that the opinion of the Securities and Exchange Commission is that such indemnification is against public policy as expressed in the Securities Act and may, therefore, be unenforceable.
Sales of our stock by the Selling Stockholder may drive the price of our stock down
Our common stock is “thinly” traded as it has very low daily trading volume.  On some trading days, no shares of our stock are sold.  In addition, we may file additional registration statements for shares held by Equity 11 as the SEC rules may permit.  Once registered, these shares may be sold on the OTC Bulletin Board.  Future sales of a substantial number of shares by the Selling Stockholder will likely put a downward pressure on the price of our stock.

Short Selling may drive the price of our stock down

Short selling is the practice of selling securities that have been borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale and the repurchase, as he will pay less to buy the securities than he received on selling them. Conversely, the short seller will make a loss if the price of the security rises.  The ability of the Selling Shareholder to sell a substantial number of shares and the downward pressure on the price of our common stock that may result may encourage short selling of our common stock by third parties.  Such short selling will cause additional downward pressure on the price of our stock.
 FORWARD LOOKING STATEMENTS
 
 
Except for statements of historical fact, the information presented herein constitutes forward-looking statements. These forward-looking statements generally can be identified by phrases such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “foresees,” “intends,” “plans,” or other words of similar import.  Similarly, statements herein that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements.  Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  Such factors include, but are not limited to, our ability to: successfully commercialize our technology; generate revenues and achieve profitability in an intensely competitive industry; compete in products and prices with substantially larger  and better capitalized competitors; secure, maintain and enforce a strong intellectual property portfolio; attract immediate additional capital sufficient to finance our working capital requirements, as well as any investment of plant, property and equipment; develop a sales and marketing infrastructure; identify and maintain relationships with third party suppliers who can provide us a reliable source of raw materials; acquire, develop, or identify for our own use, a manufacturing capability; attract and retain talented individuals; continue operations during periods of adverse changes in general economic or market conditions, and; other events, factors and risks previously and from time to time disclosed in our filings with the Securities and Exchange Commission, including, specifically, the “Risk Factors” enumerated herein.
 
 
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements may differ from the past.  You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report.  Except as required by law, we do not undertake to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
 
 
In this prospectus, “Ecology”, “we”, “us”, or “our” refer to Ecology Coatings, Inc. and its wholly-owned subsidiary, Ecology Coatings, Inc., a California corporation.
 
ITEMS 4 and 5:  USE OF PROCEEDS, DETERMINATION OF OFFERING PRICE
 
We will not receive any of the proceeds resulting from the sale of the shares held by Equity 11, the selling shareholder.
 
Our common stock, par value $.001 per share (the “Common Stock”), is currently quoted on the OTC Bulletin Board under the symbol “ECOC”.  The high/low market prices of our common stock were as follows for the periods below, as reported on http://finance.google.com.  The quotations below reflect prices without retail markup, markdown, or commission and may not represent actual transactions.  Additionally, our Merger with OCIS was consummated on July 27, 2007.  Therefore, the quotations below for the fiscal year ended September 30, 2007 reflect quotations prior to the completion of the reverse merger.
                 
   
High Close
 
Low Close
Fiscal Year 2009
               
1st Quarter
   
1.04
     
.65
 
2nd Quarter
   
.95
     
.25
 
3rd Quarter
   
.89
     
.31
 
4th Quarter (through September 30, 2009)
   
2.00
     
.40
 
                 
Fiscal Year Ended September 30, 2008
               
1st Quarter
   
3.15
     
1.01
 
2nd Quarter
   
3.65
     
1.01
 
3rd Quarter
   
2.05
     
.52
 
4th Quarter
   
2.50
     
.51
 
 
Fiscal Year Ended September 30, 2007
               
1st Quarter
   
3.18
     
.76
 
2nd Quarter
   
2.22
     
1.46
 
3rd Quarter
   
4.85
     
1.59
 
4th Quarter
   
4.90
     
2.95
 
                 
 
On September 30, 2009 the last reported sale price of our common stock on the Over-The-Counter Bulletin Board was $0.55 per share.
 
Holders of Record

As of September 30, 2009, there were approximately 242 holders of record of our common stock.  Equity 11 will hold 18,080,752 shares of our common stock if it converts all of its preferred shares into common shares.  We have agreed to register certain of Equity 11’s converted common shares under the registration statement of which this prospectus is a part,  pursuant to our Securities Purchase Agreement and Convertible Preferred Securities Agreement with Equity 11.  The sale of the 4,340,000 shares held by Equity 11 could have a material negative effect on the price of our common stock.

Dividends

To date, we have paid no cash dividends on our shares of common stock and we do not expect to pay cash dividends on our common stock in the foreseeable future.  We intend to retain future earnings, if any, to provide funds for the operation of our business.  Our Securities Purchase Agreement with Equity 11 prevents the payment of any dividends to our common stockholders without the prior approval of Equity 11.  We have paid dividends due Equity 11 for its preferred shares by issuing additional preferred shares in lieu of cash.

SEC Reports

We are an SEC reporting company and are current in filing our quarterly, annual and other reports with the SEC.  On January 30, 2009, we voluntarily sent all shareholders our FY 2008 10-KSB filed with the SEC on December 23, 2008 as our FY 2008 annual report.  A cover letter from our CEO accompanied the 10-KSB and was filed with the SEC on January 30, 2009.  The public may read and copy materials we have filed with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC maintains an Internet site that contains reports, proxy and information statements, and other information we have filed electronically with the SEC and these may be accessed at http://www.sec.gov.  These filings may also be accessed at our website:  www.EcologyCoatings.com.

Equity Compensation Plans

The following table sets forth certain information as of September 30, 2009, concerning outstanding options and rights to purchase common stock granted to participants in all of our equity compensation plans and the number of shares of common stock remaining available for issuance under such equity compensation plans.
             
Number of Securities
             
Remaining Available for
   
Number of Securities to be
       
Future Issuance Under Equity
   
Issued Upon Exercise of
   
Weighted-Average Exercise
 
Compensation Plans
   
Outstanding
 
Options, Warrants
   
Price of Outstanding Options,
 
(Excluding
 
Securities
   
and Rights 
   
Warrants and Rights
 
Reflected in Column (a))
Plan Category
 
(a)
   
(b)
 
(c)
Equity compensation plans approved by security holders
 
5,131,119
   
$1.13 
 
1,217,881 
               
Equity compensation plans not approved by security holders
 
-
   
-
 
-
               
Total
 
5,131,119
   
$1.13
 
1,217,881
 

 
ITEM 6:  DILUTION
 
Not applicable.
 
 
ITEM 7:  SELLING SECURITY HOLDER
 
The table below sets forth information concerning beneficial ownership of our common stock as of September 30, 2009, and as adjusted to reflect the shares of common stock to be issued and sold in this offering by:
 
·  
each person known by us to be the beneficial owner of more than 5% of our common stock;
 
·  
each of our directors;
 
·  
each of our named executive officers; and
 
·  
all of executive officers and directors as a group.
 
The selling stockholder acquired our securities pursuant to private placements of our shares.
 
Beneficial ownership in this table is determined in accordance with the rules of the SEC and does necessarily indicate beneficial ownership for any other purpose.  Under these rules, the number of shares of common stock deemed outstanding includes shares issuable upon exercise of options, warrants or convertible securities held by the respective person or group that may be exercised within 60 days after September 30, 2009.

As of September 30, 2009, we had 51,099,955shares of common stock beneficially outstanding, including 32,835,684 common shares issued and outstanding, 2,436 shares of convertible preferred stock which can be converted into 4,872,000 common shares, 566 shares of convertible preferred stock, Series B which can be converted into 5,799,252 common shares, warrants to acquire 4,532,900 common shares and stock options vested or that will vest within sixty days of September 30, 2009 to acquire 3,060,119 common shares.  The percentage of beneficial ownership is based on 51,099,955shares of common stock beneficially outstanding as of September 30, 2009 and 51,099,955shares of common stock outstanding after completion of this offering.  Of the 51,099,955common shares beneficially outstanding as of September 30, 2009, 32,168,677 were held by affiliates and 18,960,003 were held by non-affiliates.  For purposes of the foregoing, we have treated all shares held by executive officers, directors and Equity 11 as “affiliate” shares.
 
Unless otherwise indicated and subject to applicable community property laws, to our knowledge, each stockholder named in the following table possesses sole voting and investment power over the shares listed, except for those jointly owned with that person’s spouse.  Unless otherwise noted below, the address of each person listed on the table is c/o Ecology Coatings, Inc., 2701 Cambridge Court , Suite 100, Auburn Hills, MI  48326.  Beneficial ownership representing less than 1% is denoted with an asterisk (*).

Equity 11 and our Directors and Officers currently hold the following number of our common shares and warrants:

Name and Address of Beneficial Owner
Shares Beneficially Owned Prior to the Offering
Number of Shares Offered
Shares Beneficially Owned After the Offering
Shares
Percentage
Shares
Percentage
10 % Stockholders:
         
Equity 11, Ltd. (1)
18,180,752
35.5%
4,340,000
13,840,752
27%
Richard Stromback (4)
11,295,828
22.1%
11,295,828
22.1%
           
Named Executive Officers and Directors:
         
Richard Stromback (4)
11,295,828
22.1%
11,295,828
22.1%
Sally Ramsey
3,000,000
5.9
3,000,000
5.9%
Rocco DelMonaco (5)
100,000
*
Joseph Nirta (6)
100,000
*
Robert Crockett
110,000
*
110,000
*
Thomas Krotine (7)
341,217
*
341,217
*
Daniel Iannotti
110,000
*
110,000
*
Kevin Stolz (10)
80,000
*
*
80,000
*
J.B. Smith (8)
18,180,752
35%
4,340,000
13,840,752
27%
Others:
         
Trimax, LLC (9)
3,050,000
 
3,050,000
 
           
All executive officers and directors as a group (nine people)
33,117,797
64.8%
4,340,000
28,977,797
56.7%

(1) Includes warrants to acquire 1,178,500 shares, 945,000 shares issuable upon the exercise of options exercisable within 60 days of September 30, 2009, and 9,299,778 shares issuable upon conversion of 5% preferred stock convertible within 60 days of September 30, 2009.  These amounts include stock options to purchase 531,000 shares held by Sales Attack LC and stock options to purchase 100,000 shares held by JB Smith.  Mr. J.B. Smith is the Managing Partner of Equity 11, Ltd. and may be deemed to share voting and dispositive power over the shares held by Equity 11, Ltd and options held by Sales Attack LC.  Mr. Smith disclaims beneficial ownership of shares held by Equity 11, Ltd., except to the extent of any pecuniary interest therein.  Mr. Smith is the managing partner of Sales Attack LC.  Sales Attack LC provides marketing services to us pursuant to a Consulting Agreement entered into on September 17, 2008.  The selling shareholder and Mr. Smith are not broker-dealers nor affiliates of broker-dealers.
(2) Douglas Stromback is the brother of Richard D. Stromback.
(3) Deanna Stromback is the sister of Richard D. Stromback.
(4) Includes 62,500 shares owned beneficially and of record by his wife, Jill Stromback, but does not include 4,340,000 shares held by Mr. Stromback’s brother and sister, Doug and Deanna Stromback.  Includes 10,000 shares issuable upon the exercise of options exercisable within 60 days of September 30, 2009 and also includes 571,428 common shares convertible from 240 convertible preferred shares purchased by Stromback Acquisition Corporation and warrants to purchase 14,400 common shares issued in connection with that purchase.
(5)  Mr. DelMonaco’s address is: 737 3rd Street Northeast, Washington, D.C. 20002.
(6) Mr. Nirta’s address is: 5600 Orion Road, Rochester, MI 48306.
(7) Includes 331,217 shares issuable upon the exercise of options exercisable within 60 days of September 30, 2009.
(8) Includes 100,000 shares issuable upon the exercise of options exercisable within 60 days of September 30, 2009.  Mr. Smith is the Managing Partner of Equity 11, Ltd. and may be deemed to share voting and dispositive power over the shares held by Equity 11, Ltd. and options held by Sales Attack LC.  Mr. Smith disclaims beneficial ownership of shares held by Equity 11, Ltd., except to the extent of any pecuniary interest therein.
(9) Represents shares issuable upon the exercise of vested and unvested Trimax LLC stock options and warrants.  As of September 30, 2009, 3,050,00 of these options and warrants (100%) were vested.
(10) Includes 50,000 shares issuable upon the exercise of options exercisable within 60 days of September 30, 2009.


INFORMATION REGARDING SHARES ISSUED TO EQUITY 11

The following table identifies the investment amounts, number of preferred shares purchased , number of common shares to be issued if the preferred shares are converted and the weighted average cost per share of the shares held by the selling shareholder, and purchased under the August 28, 2008 Securities Purchase Agreement and the May 15, 2009 Convertible Preferred Securities Purchase Agreement:

Sales Under Securities Purchase Agreement Date August 28, 2008:
           
Preferred Shares Selling Date
Amount Sold
No. of Preferred Shares
Conversion Price - Cost Per Share
No. of Common Shares When Converted
Market Price Per Share on Date of Sale
August 28, 2008
$1,260,000
1,260
$.50
2,520,000
$.62
September 26, 2008
$750,000
750
$.50
1,500,000
$1.10
December 1, 2008 Dividend
 
24
$.50
48,000
 
January 23, 2009
$94,000
94
$.50
188,000 (1)
$.901
February 11, 2009
$30,000
30
$.50
60,000
$.65
February 18, 2009
$25,000
25
$.50
50,000
$.48
February 26, 2009
$40,000
40
$.50
80,000 (2)
$.552
March 10, 2009
$23,000
23
$.50
46,000
$.88
March 26, 2009
$80,000
80
$.50
160,000
$.603
April 14, 2009
$21,000
21
$.50
42,000
$.65
April 29, 2009
$34,000
34
$.50
68,000
$.35
June 1, 2009 Dividend
 
55
 
110,000
$.45
           
Sales Under Securities Purchase Agreement Date May 15, 2009:
 
           
May 15, 2009
$276,000
276
$.08
3,450,000
$.40
May 27, 2009
$40,000
40
$.09
444,444
$.50
June 10, 2009
$20,000
20
$.09
222,222
$.45
June 26, 2009
$28,000
28
$.09
311,111
$.55
July 24, 2009
$75,000
75
$.10
750,000
$.64
August 12, 2009
$52,000
52
$.16
325,000
$.70
August 19, 2009
$25,000
25
$.24
104,167
$1.30
August 31, 2009
$50,000
50
$.26
192,308
$.96
TOTAL:
$2,923,000
3,002
 
10,671,252
 
(1)  
No shares were traded on January 23, 2009.  The closest previous day that the shares were traded was on January 15, 2009 and the closing price on that date was $.90 per share.
(2)  
No shares were traded on February 26, 2009.  The closest previous day that the shares were traded was on February 19, 2009 and the closing price on that date was $.55 per share.
(3)  
No shares were traded on March 26, 2009.  The closest previous day that the shares were traded was on March 25, 2009 and the closing price on that date was $.60 per share.

The following table identifies the dollar value of the selling shareholder’s investment in the shares of preferred stock to be converted into common shares which are being registered under this registration statement and the market value of those shares of common stock on the date of each investment:

Preferred Shares Selling Date
Selling Shareholder’s Investment
No. of Preferred Shares
Conversion Price Per Share
No. of Common Shares When Converted
Market Price Per Share on Date of Investment
Market Value of Investment
August 28, 2008
$1,260,000
1,260
$.50
2,520,000
$.62
$1,562,400
September 26, 2008
$750,000
750
$.50
1,500,000
$1.10
$1,650,000
December 1, 2008 Dividend
 
24
$.50
48,000
$.75
$36,000
January 23, 2009
$94,000
94
$.50
188,000
$.90 (1)
$169,200
February 11, 2009
$30,000
30
$.50
60,000
$.65
$39,000
February 18, 2009
$12,000
12
$.50
24,000
$.48
$11,520
             
TOTAL:
$2,146,000
2,170
$.50.
4,340,000
 
$3,468,120
(1)  
No shares were traded on January 23, 2009.  The closest previous day that shares were traded was January 15, 2009 and the closing price on that date was $.90 per share.
(2)  
No shares were traded on February 26, 2009.  The closest previous day that shares were traded was February 19, 2009 and the closing price on that date was $.55 per share.
(3)  
No shares were traded on March 26, 2009.  The closest previous day that shares were traded was January 15, 2009 and the closing price on that date was $.60 per share.

We will not receive any of the proceeds from sales by selling shareholder of the common shares under this registration statement.  The only payments we anticipate making to the selling shareholder within one year of the sales of such stock by the selling shareholder are noted on pages 60-62  in Item 11.  However, if Equity 11 and its affiliates exercise all of its outstanding warrants and stock options, we will receive $1,546,425.

The total possible profit the selling shareholder could realize as a result of the conversion discount for the common shares that are included under this registration statement is shown below:

Preferred Shares Selling Date
Selling Shareholder’s Investment
No. of Preferred Shares
Conversion Price Per Share
Total Conversion Price
No. of Common Shares When Converted
Market Price Per Share on Date of Sale
Market Price of Investment
Potential Profit/Discount to Market Price
August 28, 2008
$1,260,000
1,260
$.50
$1,260,000
2,520,000
$.62
$1,562,400
$302,400
September 26, 2008
$750,000
750
$.50
$750,000
1,500,000
$1.10
$1,650,000
$900,000
December 1, 2008 Dividend
 
24
$.50
$0
48,000
$.75
$36,000
$36,000
January 23, 2009
$94,000
94
$.50
$94,000
188,000
$.90 (1)
$169,200
$75,200
February 11, 2009
$30,000
30
$.50
$30,000
60,000
$.65
$39,000
$9,000
February 18, 2009
$12,000
12
$.50
$12,000
24,000
$.48
$11,520
($480)
                 
TOTAL:
$2,146,000
2,170
$.50
 
4,340,000
 
$3,468,120
$1,322,120
(1)  
No shares were traded on January 23, 2009.  The closest previous day that shares were traded was January 15, 2009 and the closing price on that date was $.90 per share.
(2)  
No shares were traded on February 26, 2009.  The closest previous day that shares were traded was February 19, 2009 and the closing price on that date was $.55 per share.
(3)  
No shares were traded on March 26, 2009.  The closest previous day that shares were traded was January 15, 2009 and the closing price on that date was $.60 per share.

The total possible profit the selling shareholder could realize as a result of the warrants issued to the selling shareholder under the August 28, 2008 Securities Purchase Agreement is shown below:

Warrant Issue Date
Selling Shareholder’s Investment
No. of Shares
Purchase Price Per Share
Total Purchase Price  of Warrant
Market Price Per Share on Warrant Issue Date
Market Value of Warrant
Potential Profit/Discount to Market Price
August 28, 2008
$0 (1)
630,000
$.75
$472,500
$.62
$390,600
($81,900)
September 26, 2008
$0 (1)
375,000
$.75
$281,250
$1.10
$412,500
$131,250
January 23, 2009
$0 (1)
47,000
$.75
$35,250
$.90 (2)
$42,300
$7,050
February 11, 2009
$0 (1)
15,000
$.75
$11,250
$.65
$9,750
($1,500)
February 18, 2009
$0 (1)
12,500
$.75
$9,375
$.48
$6,000
($3,375)
February 26, 2009
$0 (1)
20,000
$.75
$15,000
$.55 (3)
$11,000
($4,000)
March 10, 2009
$0 (1)
11,500
$.75
$8,625
$.88
$10,120
$1,495
March 26, 2009
$0 (1)
40,000
$.75
$30,000
$.60 (4)
$24,000
($6,000)
April 14, 2009
$0 (1)
10,750
$.75
$8,062
$.65
$6,987
($1,075)
April 29, 2009
$0 (1)
16,750
$.75
$12,563
$.35
$5,863
($6,700)
               
TOTAL:
 
1,178,500
 
$883,875
 
$919,120
$35,245
(1)  
These warrants were issued with each investment by Equity 11 in shares of preferred stock under the Securities Purchase Agreement dated August 28, 2008.
(2)  
No shares were traded on January 23, 2009.  The closest previous day that the shares were traded was on January 15, 2009 and the closing price on that date was $.90 per share.
(3)  
No shares were traded on February 26, 2009.  The closest previous day that the shares were traded was on February 19, 2009 and the closing price on that date was $.55 per share.
(4)  
No shares were traded on March 26, 2009.  The closest previous day that the shares were traded was on March 25, 2009 and the closing price on that date was $.60 per share.

The following table identifies the total payments to the selling shareholder and the total discount to the market price of the common shares and warrants to be issued to the selling shareholder as a percentage of the net proceeds to us:

Gross Proceeds from Sale of Preferred Stock
Payments Previously Made to Selling Shareholder(1)
Remaining Required Payments   to be made to Selling Shareholder (1)
Net Proceeds to Issuer
Total Discount to Market By Selling Shareholder for common stock and warrants
Total Payments to Selling Shareholder as a Percentage of Gross Proceeds
Total Discount to Market Price as a Percentage of Gross Proceeds
             
$2,146,000
$299,603.72
$452,382.82
$1,394,013.50
$1,357,365
35%
63%
(1)  
See page 10 of Item 11 for the calculation of these figures.

The following table identifies the total combined possible profit to be realized by the selling shareholder as a result of any conversion discounts regarding the common shares underlying the preferred stock and any other warrants, options, notes, or other securities held by selling shareholder and its affiliates:

Total Combined Profit Common Shares
Total Combined Profit Warrants
Total Combined Profit Options
Total Combined Profit Notes
Total Combined Profit
         
$1,322,120
$35,245
$0 (1)
$1,093 (2)
$1,358,458
(1)  
531,000 stock options were issued to Sales Attack, LLC, an affiliate of the selling shareholder,  on September 17, 2008 to purchase our common stock at $1.05 per share.  The closing price of our common stock on the OTC Bulletin Board on that date was $1.05 per share.  The selling shareholder acquired stock options to purchase 500,000 shares of our common stock at $.90 per share on January 23, 2009.  No shares of our stock traded on January 23, 2009 and next closest trading date was January 15, 2009 on which the closing price of our common stock was $.90 per share.
(2)  
This amount reflects interest paid or accrued for promissory notes held by affiliates of the selling shareholder (Seven Industries, JB Smith LC, and Sky Blue Ventures).

The following table identifies the total of all possible payments by us to the selling shareholder, the total possible discount to the market price of the shares underlying the preferred stock and the total possible discount to the market price of the warrants issued to the selling shareholder as a percentage of the net proceeds to use from the sale of preferred stock to selling shareholder:

Total of Possible Payments to Selling Shareholder
Total Possible Payments As a % of Net Proceeds
Total Possible Discount Common Shares
Total Possible Discount Common Shares As a % of Net Proceeds
Total Possible Discount Warrants
Total Possible Discount Warrants As a % of Net Proceeds
Total of Payments & Discounts
Total As a % of Net Proceeds
               
$751,986.54 (1)
60%
$1,322,120
95%
$35,245
2.5%
$2,109,351.50
151%
(1)  
Represents $299,603.72 in payments previously made and $452,382.82 in payments remaining to be paid.  See page 10 of Item 11 for the calculation of these figures.  This includes prior payments to the selling shareholder or its affiliates and all future payments to be made to the selling shareholder.

The following identifies the number of shares outstanding prior to the selling shareholder’s initial investment in us and information regarding the registration of such shares:

# of shares outstanding prior to Selling Shareholder’s initial investment
# of shares registered for resale by selling shareholder in prior registration statements
# of shares registered for resale by selling shareholder that continue to held by Selling Shareholder
# of shares sold in registered resale transactions by Selling Shareholder
# of shares registered for resale on behalf of Selling Shareholder
32,810,684
0
4,340,000
0
4,340,000




 
7

 


ITEM 8:  PLAN OF DISTRIBUTION

Equity 11, as the selling shareholder of the common stock hereunder and any of its pledgees, assignees and successors-in-interest may, from time to time, sell any or all of the shares of common stock subject to the prospectus on the Over-The-Counter Bulletin Board, market or trading facility on which the shares are traded or in private transactions.  These sales may be at fixed or negotiated prices.  The selling shareholder may use one or more of the following methods when selling shares:
 
·
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
 
·
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
 
·
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
 
·
privately negotiated transactions;
 
·
broker-dealers may agree with the selling shareholder to sell a specified number of such shares at a stipulated price per share; or
 
·
any other method permitted pursuant to applicable law.
 
The selling shareholder may also sell shares under Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”), if available, rather than under this prospectus.  So long as the selling shareholder is an affiliate of Ecology Coatings, as defined under applicable SEC rules, under Rule 144, the selling shareholder may not sell in any three month period a number of shares which exceeds the greater of:  i) one percent of the outstanding shares shown in our most recent SEC report or statement, or ii) the average weekly reported volume of trading in our common stock as reported by the Over-The-Counter Bulletin Board association during the four calendar weeks preceding prior to the notice of the Rule 144 sale.  The selling shareholder is currently an affiliate of Ecology Coatings, Inc. within the meaning of federal securities laws.  In the event that the selling shareholder is not deemed to have been an "affiliate" at any time during the 90 days preceding a sale and has beneficially owned the shares proposed to be sold for at least six months, the selling shareholder would be entitled to sell those shares under Rule 144 subject to compliance with the current public information requirements of Rule 144.  If such selling shareholder has beneficially owned the shares proposed to be sold for at least one year, then the selling shareholder is entitled to sell those shares without complying with any of the requirements of Rule 144 so long as we are current in our public information requirements under Rule 144 (c).

Broker-dealers engaged by the selling shareholder may arrange for other broker-dealers to participate in sales.  Broker-dealers may receive commissions or discounts from the selling shareholder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with applicable FINRA rules.
 
Although there are no contractual or other arrangements that prohibit the selling shareholder from engaging in short selling, the selling shareholder has informed us that it has not held a short position in our common stock, does not currently hold a short position in our common stock and that does not intend to engage in any short selling in our shares.  Short selling is the practice of selling securities that have been borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale and the repurchase, as he will pay less to buy the securities than he received on selling them. Conversely, the short seller will make a loss if the price of the security rises.  The ability of the Selling Shareholder to sell a substantial number of shares and the downward pressure on the price of our common stock that may result may encourage short selling of our common stock by third parties.  Such short selling will cause additional downward pressure on the price of our stock.
We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the selling shareholder without registration and without regard to any volume limitations by reason of Rule 144 under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect.  The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
 
Under applicable rules and regulations under the Securities Exchange Act of 1934, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution.  In addition, the selling shareholder will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the selling shareholder or any other person.  We will make copies of this prospectus available to the selling shareholder and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
Important Information on Penny Stocks

Our stock is a “penny stock”.  The SEC requires your broker to give the following statement to you, and to obtain your signature to show that you have received it, before your first trade in a penny stock. This statement contains important information — and you should read it carefully before you sign it, and before you decide to purchase or sell a penny stock.
In addition to obtaining your signature, the SEC requires your broker to wait at least two business days after sending you this statement before executing your first trade to give you time to carefully consider your trade.

Penny stocks can be very risky.

Penny stocks are low-priced shares of small companies. Penny stocks may trade infrequently – which means that it may be difficult to sell penny stock shares once you have them. Because it may also be difficult to find quotations for penny stocks, they may be impossible to accurately price. Investors in penny stock should be prepared for the possibility that they may lose their whole investment.

While penny stocks generally trade over-the-counter, they may also trade on U.S. securities exchanges, facilities of U.S. exchanges, or foreign exchanges. You should learn about the market in which the penny stock trades to determine how much demand there is for this stock and how difficult it will be to sell. Be especially careful if your broker is offering to sell you newly issued penny stock that has no established trading market.

The securities you are considering have not been approved or disapproved by the SEC. Moreover, the SEC has not passed upon the fairness or the merits of this transaction nor upon the accuracy or adequacy of the information contained in any prospectus or any other information provided by an issuer or a broker or dealer.

Information you should get.

In addition to this statement, your broker is required to give you a statement of your financial situation and investment goals explaining why his or her firm has determined that penny stocks are a suitable investment for you. In addition, your broker is required to obtain your agreement to the proposed penny stock transaction.

Before you buy penny stock, federal law requires your salesperson to tell you the “offer” and the “bid” on the stock, and the “compensation” the salesperson and the firm receive for the trade. The firm also must send a confirmation of these prices to you after the trade. You will need this price information to determine what profit or loss, if any, you will have when you sell your stock.

The offer price is the wholesale price at which the dealer is willing to sell stock to other dealers. The bid price is the wholesale price at which the dealer is willing to buy the stock from other dealers. In its trade with you, the dealer may add a retail charge to these wholesale prices as compensation (called a “markup” or “markdown”).

The difference between the bid and the offer price is the dealer’s “spread.” A spread that is large compared with the purchase price can make a resale of a stock very costly. To be profitable when you sell, the bid price of your stock must rise above the amount of this spread and the compensation charged by both your selling and purchasing dealers. Remember that if the dealer has no bid price, you may not be able to sell the stock after you buy it, and may lose your whole investment.

After you buy penny stock, your brokerage firm must send you a monthly account statement that gives an estimate of the value of each penny stock in your account, if there is enough information to make an estimate. If the firm has not bought or sold any penny stocks for your account for six months, it can provide these statements every three months.

Additional information about low-priced securities – including penny stocks – is available on the SEC’s Web site at http://www.sec.gov/investor/pubs/microcapstock.htm. In addition, your broker will send you a copy of this information upon request. The SEC encourages you to learn all you can before making this investment.

Brokers’ duties and customer’s rights and remedies.

Remember that your salesperson is not an impartial advisor – he or she is being paid to sell you stock. Do not rely only on the salesperson, but seek outside advice before you buy any stock. You can get the disciplinary history of a salesperson or firm from FINRA at 1-800-289-9999 or contact FINRA via the Internet at www.finra.org. You can also get additional information from your state securities official. The North American Securities Administrators Association, Inc. can give you contact information for your state. You can reach NASAA at (202) 737-0900 or via the Internet at www.nasaa.org.

If you have problems with a salesperson, contact the firm’s compliance officer. You can also contact the securities regulators listed above. Finally, if you are a victim of fraud, you may have rights and remedies under state and federal law. In addition to the regulators listed above, you also may contact the SEC with complaints at (800) SEC-0330 or via the Internet at help@sec.gov.

ITEM 9:  DESCRIPTION OF SECURITIES TO BE REGISTERED

Our authorized capital stock consists of 90,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share.

Number of Shares of Common Outstanding After This Offering

Holders of our common stock are entitled to one vote for each share of common stock held of record for the election of directors and on all matters submitted to a vote of stockholders. Holders of our common stock are entitled to receive ratably any dividends that are declared by our board of directors out of legally available funds, subject to any preferential dividend rights of any preferred stock then outstanding. Upon our dissolution, liquidation or winding up, holders of our common stock are entitled to share ratably in our net assets legally available after the payment of all our debts and other liabilities, subject to the preferential rights of any preferred stock then outstanding. Holders of our common stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

   As of September 30, 2009, we had 51,099,955 shares of common stock beneficially outstanding, including 32,835,684 common shares issued and outstanding, 2,436 shares of convertible preferred stock which can be converted into 4,872,000 common shares, 566 shares of convertible preferred stock, Series B which can be converted into 5,799,252 common shares, warrants to acquire 4,532,900 common shares and stock options vested or that will vest within sixty days of September 30, 2009 to acquire 3,060,119 common shares.  Of the 51,099,955shares beneficially outstanding, 32,168,677 were held by affiliates and 18,960,003were held by non-affiliates.  For purposes of the foregoing, we have treated all shares held by executive officers, directors and Equity 11 as “affiliate” shares.

As of September 30, 2009, 32,835,684 shares of our common stock were issued and outstanding.  The number of shares of common stock outstanding after this offering will be 37,175,684, including common shares that are converted from certain preferred shares held by the selling shareholder.  The number of issuable shares of common stock issuable upon the exercise of options and warrants that are not vested and will not vest by December 1, 2009 is 2,071,000.

We have four notes which are currently due identified in the table below which initially had the potential to convert to common stock.  Because we did not engage in a publicly underwritten new offering of our common stock that raised $1,000,000 or more by the maturity dates of these notes, these notes no longer have the ability to convert to our common stock:

Note Holder
Amounts Owing on September 30, 2009
Investment Hunter, LLC
$358,207
Mitch Shaheen I
$198,787.06
Mitch Shaheen II
$134,513.33
George Resta
$47,976.22

In addition, we have the following outstanding promissory notes which are not currently due:

Note Holder
Amounts Owing on September 30, 2009
Richard Stromback
$2,584 (1)
Doug Stromback
$148,936.45
Deanna Stromback
$123,735.38
JB Smith LC
$7,812.59
Sky Blue Ventures
$6,518
(1)  
This note is no longer outstanding.  This amount represents interest previously due but that has not yet been paid.

We are in negotiations with these note holders for the notes that are currently due concerning repayment.  It is possible that we may grant such note holders the right to convert the notes into our common stock since the conversion would reduce our need for cash.  If we grant these holders the right to convert, additional common shares will be issued in exchange for such notes.

For information regarding the dividend rights and dividend payment history of our common stock, see Item 7 of this prospectus.

Preferred Stock

On August 28, 2008, we entered into a Securities Purchase Agreement (“Securities Purchase Agreement”) with Equity 11, Ltd. (“Equity 11”) to issue up to $5,000,000 in convertible preferred securities.  The securities accrue cumulative dividends at 5% per annum and the entire amount then outstanding is convertible at the option of the investor into shares of our common stock at fixed price of $.50 per share.  The preferred securities carry “as converted” voting rights. As of June 30, 2009, we had issued 2,436 of these convertible preferred shares and warrants to acquire 1,178,500 common shares at $.75 per share.  When we sold additional convertible preferred securities under the Securities Purchase Agreement, we issued attached warrants (500 warrants for each $1,000 convertible preferred share sold).  The warrants are immediately exercisable, expire in five years, and entitle the investor to purchase one share of our common stock at $.75 per share for each warrant issued. Equity 11 will convert all of its 2,436 shares of convertible preferred securities into an aggregate of 4,872,000 shares of our common stock in connection with this offering.  If all of the convertible preferred shares are converted into common stock and all warrants are exercised under the Securities Purchase Agreement, Equity 11 will have acquired a total of 6,050,500 common shares pursuant to this Agreement.  Under Section 5.8 of the Securities Purchase Agreement with Equity 11, we have agreed to file a registration statement with the SEC (of which the prospectus is a part) with respect to our shares of common stock held by Equity 11.  Until August 28, 2011, the Securities Purchase Agreement allows Equity 11 to elect three of the five members of our Board of Directors for a period of three years.  In addition, so long as Equity 11 retains at least 1,260 convertible preferred shares issued under the Securities Purchase Agreement, Equity 11 will have the right to appoint our Chief Executive Officer.   We were unable to pay the cash dividends due on December 1, 2008 and June 1, 2009 for preferred shares purchased under the Securities Purchase Agreement and, as is permitted under the Agreement, we issued additional preferred shares in lieu of cash.  Our ability to pay future dividends on preferred shares held by Equity 11 is dependent on our ability to generate revenue and/or raise additional capital from Equity 11 or others.

On May 15, 2009, we entered into a Convertible Preferred Securities Agreement (the “Preferred Securities Agreement”) with Equity 11 for the issuance and sale of 5.0% Cumulative Convertible Preferred Shares, Series B of the Company at a purchase price of $1,000 per share.   Equity 11 may convert the Convertible Preferred Shares into shares of our common stock at a fixed conversion price that is twenty percent (20%) of the average of the closing price of our common stock on the Over-The-Counter Bulletin Board  for the five trading days prior to each investment.  Under Section 5.8 of the Preferred Securities Agreement, we have agreed to file a registration statement with the SEC (of which the prospectus is a part) with respect to the shares of our common stock held by Equity 11.  Until May 15, 2012, the Preferred Securities Agreement allows Equity 11 to elect three of the five members of our Board of Directors.  In addition, so long as Equity 11 retains at least 1,501 convertible preferred shares issued under the Preferred Securities Agreement, Equity 11 will have the right to appoint our Chief Executive Officer.  We were unable to pay the cash dividend due on June 1, 2009 for preferred shares purchased under the Preferred Securities Agreement and  issued additional preferred shares in lieu of cash.  Our ability to pay future dividends is dependent on our ability to generate revenue and/or raise additional capital.

The Preferred Securities Agreement did not replace or terminate the terms of the Securities Purchase Agreement.  That is, the terms of the Securities Purchase Agreement will continue to apply to preferred stock and warrants issued under the Securities Purchase Agreement.  Similarly, the terms of the Preferred Securities Agreement will apply to preferred stock issued under the Preferred Securities Agreement.

On September 30, 2009, we and Stromback Acquisition Corporation, an Illinois corporation (the “Purchaser”), entered into a Securities Purchase Agreement (the “Preferred Securities Agreement”) for the issuance and sale of our 5.0% Cumulative Convertible Preferred Shares, Series B (the “Convertible Preferred Shares”) at a purchase price of $1,000 per share.  Stromback Acquisition Corporation is owned by Richard Stromback a former member of our Board of Directors.  Until April 1, 2010, Purchaser has the right to purchase up to 3,000 Convertible Preferred Shares.  The Convertible Preferred Shares have a liquidation preference of $1,000 per share.  Purchaser may convert the Convertible Preferred Shares into shares of our common stock at a conversion price that is seventy seven percent (77%) of the average closing price of our common stock on the Over-The-Counter Bulletin Board for the five trading days prior to each investment.  The Convertible Preferred Shares will pay cumulative cash dividends at a rate of 5% per annum, subject to declaration by our Board of Directors, on December 1 and June 1 of each year.  We have agreed to provide piggyback registration rights for common stock converted by Purchaser under a Registration Rights Agreement.  Fifty percent (50%) of each investment, up to a maximum of $500,000, will be placed in a fund and disbursed as directed by Purchaser to satisfy our outstanding debts, accounts payable and/or investor relations programs (“Discretionary Fund”).

Our board of directors is authorized, without further vote or action by the stockholders, to issue from time to time up to an aggregate of 10,000,000 shares of preferred stock in one or more series and to fix or alter the designations, rights, preferences and powers and any qualifications, limitations or restrictions of the shares of each such series of preferred stock, including the dividend rights, dividend rates, conversion rights, voting rights, terms of redemption including sinking fund provisions, redemption price or prices, liquidation preferences and the number of shares constituting any series or designations of that series, any or all of which may be greater than the rights of common stock.  The issuance of preferred stock could adversely affect the voting power of holders of our common stock and the likelihood that holders of our common stock will receive dividend payments and payments upon liquidation and could have the effect of delaying, deferring or preventing a change in control.  Other than pursuant to the Preferred Securities Agreement, we have no present plans to issue any shares of preferred stock.

Warrants
On August 28, 2008, we entered into the Agreement with Equity 11 to issue up to $5,000,000 in convertible preferred securities.  For each share of convertible preferred securities sold under this agreement, we will issue attached warrants (500 warrants for each $1,000 convertible preferred share sold).  The warrants are immediately exercisable, expire in five years, and entitle Equity 11 to purchase one share of our common stock at $.75 per share for each warrant issued.  As of September 30, 2009, Equity 11 held warrants to acquire our common stock as follows:

   
Exercise
 
Date
 
Expiration
Number of Warrants
 
Price
 
Issued
 
Date
100,000
 
$0.75
 
July 28, 2008
 
July 28, 2013
5,000
 
$0.75
 
August 20, 2008
 
August 20, 2013
25,000
 
$0.75
 
August 27, 2008
 
August 27, 2013
500,000
 
$0.75
 
August 29, 2008
 
August 29, 2013
375,000
 
$0.75
 
September 26, 2008
 
September 26, 2013
47,000
 
$0.75
 
January 23, 2009
 
January 23, 2014
15,000
 
$0.75
 
February 12, 2009
 
February 12, 2014
12,500
 
$0.75
 
February 18, 2009
 
February 18, 2014
20,000
 
$0.75
 
February 26, 2009
 
February 26, 2014
11,500
 
$0.75
 
March 10, 2009
 
March 10, 2014
40,000
 
$0.75
 
March 26, 2009
 
March 26, 2014
10,750
 
$0.75
 
April 14, 2009
 
April 14, 2014
16,750
 
$.075
 
April 29, 2009
 
April 29, 2014
             
             
Total:   1,178,500
           

As of September 30, 2009, we had the following additional warrants outstanding:

Number of Warrants
Issue Date
Expiration Date
Acquisition Price per Share
Held By
500,000
December 18, 2006
December 18, 2016
$.90
Trimax, LLC
2,000,000
November 11, 2008
November 11, 2018
$.50
Trimax LLC
12,500
March 1, 2008
March 1, 2018
$1.75
George Resta
262,500
February 5, 2008
February 5, 2018
$2.00
Hayden Capital USA, LLC
125,000
March 1, 2008
March 1, 2018
$1.75
Investment Hunter. LLC
210,000
June 9, 2008
June 9, 2018
$2.00
Hayden Capital USA, LLC
100,000
June 21, 2008
June 21, 2018
$.75
Mitchell Shaheen
100,000
July 14, 2008
July 14, 2018
$.50
Mitchell Shaheen
15,000
July 14, 2008
July 14, 2018
$1.75
George Resta
15,000
July 14, 2008
July 14, 2018
$1.75
Investment Hunter, LLC
14,400
October 1, 2009
October 1, 2019
$.42
Stromback Acquisition Corporation
         
Total:  3,354,400
       

Stock Options

Stock Option Plan.  On May 9, 2007, we adopted a stock option plan and reserved 4,500,000 shares for issuance thereunder.  On December 2, 2008, our Board of Directors authorized the addition of 1,000,000 shares of our common stock to the 2007 Plan.  All prior grants of options were included under this plan.  The plan provides for incentive stock options, nonqualified stock options, rights to restricted stock and stock appreciation rights.  Eligible recipients are employees, directors, and consultants. Only employees are eligible for incentive stock options.  The vesting terms are set by the Board of Directors.  All options expire 10 years after issuance.
 
The Company granted non-statutory options as follows during the twelve months ended September 30, 2009:

 
Weighted Average Exercise Price Per Share
Number of Options
Weighted Average (Remaining) Contractual Term
Aggregate Fair Value
Outstanding as of September 30, 2008
$1.83
4,642,119
9.2
$5,011,500
Granted
$.61
439,000
9.8
$634,491
Exercised
.50
50,000
---
$76,447
Forfeited
$2.13
850,000
7.8
$1,000,479
Outstanding as of September 30, 2009
 
$1.13
 
5,131,119
 
8.5
 
$4,569,005
Exercisable
$1.06
2,925,119
6.7
$3,249,831
 
 
2,925,119 of the options were exercisable as of September 30, 2009.  The options are subject to various vesting periods between June 26, 2007 and January 1, 2012.   The options expire on various dates between June 1, 2016 and January 1, 2022. Additionally, the options had no intrinsic value as of June 30, 2009, as our stock price as of such date was greater than the exercise price of such options.
 
Our stock option plans are subject to the provisions of Statement of Financial Accounting Standards (“SFAS”) Number 123(R), Accounting for Stock-Based Compensation.  Under the provisions of SFAS Number 123(R), employee and director stock-based compensation expense is measured utilizing the fair-value method.
We account for stock options granted to non-employees under SFAS Number 123(R) using EITF 96-18 requiring the measurement and recognition of stock-based compensation to consultants under the fair-value method with stock-based compensation expense being charged to earnings on the earlier of the date services are performed or a performance commitment exists.
In calculating the compensation related to employee/consultants and directors stock option grants, the fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model.  See Note 7 of our Financial Statements included herein for additional information regarding our stock option plan.

Registration Rights

As of September 30, 2009, we have issued stock options to purchase 5,131,119shares.  We have filed a Form S-8 registration with the SEC to register the shares issuable upon exercise of the stock options held by employees and individual consultants.  The Form S-8 was filed with the SEC on April 9, 2009.

On July 21, 2007, we completed a private placement of 2,000,000 common shares and granted “piggyback” registration rights for those shares.  As of December 27, 2007, the non-affiliated holders of those shares were able to resell those shares pursuant to SEC Rule 144.

 
Piggyback Registration Rights

In connection with our reverse merger with OCIS, we granted piggyback registration rights to certain OCIS shareholders in a Registration Rights Agreement dated April 30, 2007.  The piggyback registration rights are in effect for two years from the close of the reverse merger (July 21, 2007).  The parties to this Agreement – Kirk Blosch, Jeff Holmes and Brent Schlesinger – have notified us that they do not want their shares to be included in this registration.  This registration statement does not include shares issued to these shareholders – only shares held by the selling shareholder are included in this registration.

Shareholders who purchased shares of our common stock pursuant to our 2007 Private Placement had certain registration rights.  Those rights have lapsed as of the date such stockholders were able to remove their restrictive stock legends from their shares pursuant to Rule 144.
 
The holders of certain promissory notes issued by us have piggyback registration rights if we complete an underwritten “new offering” which would result in proceeds of $1,000,000 or more.  We did not undertake such an offering by any of the maturity dates of these notes.  If we had undertaken such an offering, we would have paid all registration expenses, other than underwriting discounts and commissions and any transfer taxes related to any such piggyback registration. With respect to demand registrations, these expenses include all reasonable expenses that any stockholder incurs in connection with the registration of its securities, subject to certain limitations.

Our Certificate of Incorporation and Bylaws
 
Our amended and restated certificate of incorporation and our amended and restated bylaws do not contain certain provisions that could have the effect of delaying, deferring or discouraging another party from acquiring control of us.
 
Undesignated Preferred Stock
 
As discussed above, our board of directors has the ability to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us. These and other provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of our company.
 
Limits on Ability of Stockholders to Act by Written Consent
 
Our amended and restated certificate of incorporation and bylaws do not prevent our stockholders from acting by written consent.
 
Requirements for Advance Notification of Stockholder Nominations and Proposals
 
Our amended and restated bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of our board of directors or a committee of our board of directors. These provisions may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.
 
Election and Removal of Directors
 
Our amended and restated certificate of incorporation and amended and bylaws contain provisions that establish specific procedures for appointing and removing members of our board of directors.
 
Cumulative Voting
 
Our amended and restated certificate of incorporation and bylaws permit cumulative voting in the election of directors. Cumulative voting allows a stockholder to vote a portion or all of its shares for one or more candidates for seats on our board of directors.
 
Transfer Agent and Registrar
 
Our transfer agent and registrar for our common stock is Colonial Stock Transfer Co, Inc.. Its address is 66 Exchange Place, Suite 100, Salt Lake City, UT 84111, and its telephone number is (801) 355-5740.
 
Listing
 
Our common stock has been authorized for listing on the Over-The-Counter Bulletin Board under the symbol “ECOC.”

ITEM 10:  INTERESTS OF NAMED EXPERTS AND COUNSEL

Legal Matters
 
The validity of our common stock offered hereby will be passed upon by our General Counsel, Daniel Iannotti, Auburn Hills, Michigan.
 
Experts

Our consolidated financial statements as of and for the years ended September 30, 2008 and 2007, appearing in this prospectus have been so included in reliance on the report of  UHY LLP an independent registered public accounting firm, given on the authority of the firm as experts in auditing and accounting.

ITEM 11:  INFORMATION WITH RESPECT TO THE REGISTRANT
 
DESCRIPTION OF BUSINESS
 
Ecology Coatings, Inc. (“Ecology-CA”) was originally incorporated in California on March 12, 1990.  OCIS Corp. (“OCIS”) was incorporated in Nevada on February 6, 2002.  OCIS completed a merger with Ecology-CA on July 27, 2007 (the “Merger”).  In the Merger, OCIS issued approximately 30,530,684 shares of common stock to the Ecology-CA stockholders.  In this transaction, OCIS changed its name from OCIS Corporation to Ecology Coatings, Inc. and our ticker symbol on the OTC Bulletin Board association changed to “ECOC.”  As a result of the merger, we became a Nevada corporation and Ecology-CA became a wholly owned subsidiary.
 
Company Overview
 
We develop “clean tech”, nanotechnology-enabled, ultra-violet (“UV”) curable coatings that are designed to drive efficiencies, reduce energy consumption and virtually eliminate pollutants in the manufacturing sector.  We create proprietary coatings with unique performance and environmental attributes by leveraging our platform of integrated clean technology products that reduce overall energy consumption and offer a marked decrease in drying time.
 
Our patent and intellectual property activities to date include:
 
 
·
seven patents covering elements of our technology from the United States Patent and Trademark Office(“USPTO”)
 
 
·
two European patents allowed and sixteen pending patent applications in foreign countries
 
 
·
three ICT international patent applications
 
 
·
three trademarks issued by the USPTO – “EZ Recoat™”, “Ecology Coatings™” and “Liquid Nanotechnology™”.
 
We continue to work independently on developing our clean technology products further. Our target markets include the electronics, steel, construction, automotive and trucking, paper products and original equipment manufacturers (“OEMs”).  Our business model contemplates both licensing and direct sales strategies.  We intend to license our technology to industry leaders in our target markets, through which products will be sold to end users.  We plan to use direct sales teams and third party agents in certain target markets, such as OEMs, and third party distributors in broad product markets, such as paper products, to develop our product sales.

Business in General
 
We have focused on developing products that support inexpensive mass production utilization of protective coatings that leverage nano-particle clean technology and are cured under ultra-violet (“UV”) light.  We believe that the use of our “Liquid Nanotechnology™” coatings represent a paradigm shift in coatings technology.  While our competitors have focused their efforts on improving the industry-standard, thermal-cured powder-coat, water-borne and solvent-based coatings, we have strived for technological breakthroughs.  We have developed over 200 individual coating formulations that address the limitations of traditional coatings.  The USPTO has issued six patents and have allowed a seventh covering many of these formulations as well as their application.  Additionally, the formulations that are not currently patent protected are protected as trade secrets.
 
Nearly every manufactured product has a protective coating on it, whether metal, plastic, glass or an electronic product.  These coatings are important for providing protection, such as scratch and abrasion resistance, as well as for enabling added durability and maintenance of the overall aesthetic appearance of the product.  Coatings that use water or organic carriers remain the standard in the large OEM coatings market.  However, the use of traditional, carrier-based coatings continues to burden manufacturers with cost, performance, and environmental health and safety disadvantages.
 
Our Liquid Nanotechnology™ coatings are 100% solids and UV curable.  They contain almost no volatile carriers and are generally comprised of polymers that react to UV light, all of which becomes part of the final coating bound to the substrate.  Traditional coatings, such as paint, are composed of a solid resin and a carrier, such as an organic solvent or water, that are used to adjust the viscosity to allow application.  Thus, during the curing process the carrier evaporates either by application of heat or air-drying, both of which require time to complete the process.  Moreover, the evaporation of the carrier can generate environmentally harmful airborne emissions.
 
Our Liquid Nanotechnology™ coatings offer a number of performance and user benefits over traditional coatings.  We believe that our 100% solids, UV-cured industrial products represent the coatings industry’s cutting edge in overall performance, offering bottom line value and environmental advantages to users because they:
 

 
 
Cure faster, usually in seconds, not minutes;
       
 
 
Use less floor space, thereby improving operating efficiency;
       
 
 
Use dramatically less energy;
       
 
 
Reduce production compliance burdens with the Environmental Protection Agency because they contain fewer toxic chemicals;
       
 
 
Provide improved coating performance; and
       
 
 
Boost manufacturing productivity by increasing process throughput.
 
Conventional Low-Tech Coatings
 
Many conventional, low-tech coatings used today require 20 or more minutes of drying time (either air dried or forced thermal drying).  In the case of air drying, a process bottleneck can occur, causing reduced production rates. In the case of thermally induced drying, protective coats can only be applied to materials able to withstand certain levels of heat.  This requires the disassembly of many manufactured parts before they can be coated and further increases the time needed for the coating process to be completed. In either case, the manufacturing process is characterized by inefficiency, slower production rates, higher energy costs, increased product costs, and greater floor space requirements.
 
There are other disadvantages with conventional coatings.  In some cases, much of the applied coating evaporates into the air (solvent based carrier), while only a fraction of the coating actually remains as a dry coating film.  In addition, overspray coatings are difficult to reuse or reclaim, and water-borne systems tend to promote corrosion and flash-rusting.  Not only is this an inefficient use of the coating, it is also responsible for the emission of many harmful airborne toxins.
 
Our Solution - Clean Technology
 
Liquid Nanotechnology™, our 100% solids UV-cured industrial coatings clean technology, addresses all of the issues noted above and provides unique performance combinations.  We have developed over 200 specific individual coating formulations that address the limitations of traditional carrier-based coatings.  Many of these patent and/or trade-secret protected. Our coatings cure in less than a minute after application without the use of heat.  This changes the manufacturing dynamic in four ways.  First, UV curing eliminates the bottleneck effect and makes product disassembly unnecessary, increasing the speed with which coated products are produced.  Second, the use of UV curing eliminates the need for thermal heating equipment and/or drying space, allowing manufacturers to use less floor space.  Third, the elimination of thermal heating from the manufacturing process produces dramatic energy cost savings.  Finally, the use of 100% solids results in fewer harmful airborne emissions being released during production or application.
 
Our clean technology coatings have other advantages.  Indeed, a crucial advantage of our products is that they are more cost effective than conventional coatings.  Our 100% solid coatings offer increased efficiency and result in minimal wasted product: if a manufacturer needs one mil of dry film thickness, it need only apply and cure one mil of our coating.
 
Cleantech Offerings
 
Plastics -  Our Liquid Nanotechnology™ coatings have improved hardness and abrasion resistance over conventional carrier-based coatings.  The coatings are also noteworthy for their ability to achieve either optical clarity or accept pigments.  Based on laboratory tests, we believe our formulations offer excellent adhesion to many common plastics, such as polycarbonate.
 
Metals -  Our coatings adhere well to most metal surfaces. Moreover, our coatings are able to accept pigmentation with a UV curable solution.  Applications include automotive parts and products that incorporate metal along with seals or other rubber parts.  Because our coatings are UV curable, metals paired with rubber parts will not require disassembly prior to finishing.
 
Glass -  Our UV curable glass coatings product has achieved solid optical clarity in both high and low viscosity formulations that have significant thermal conductivity.  The product also offers adhesion between separate glass products that is less breakable than a single layer product.  Potential applications for this technology include electronics and visible light consumer products.
 
Paper -  Our paper product coating provides a water barrier rather than a repellant to water, allowing the paper to be waterproof while still being writable and printable.  It does not deform under heat. Potential applications of this coating include packaging, labels and cigarettes.  Our coatings do not contain either water or organic solvents that may damage delicate electronic components.  Moreover, these coatings are also UV curable and may be applied and cured without thermal shock to the substrate. We believe this technology also offers potential for various electronics applications.
 
Medical -  We have successfully developed a flexible, urethane based coating used to bond metal and plastic parts for use on a cardiovascular device.

License Arrangements
 
We have not yet been successful in generating substantial licensing revenue and our coatings have yet to be incorporated into manufacturers’ products.  Many of our potential customers require extensive performance tests of our technology which can take several years to complete.  In addition, some potential customers are concerned about our long-term financial viability.  We are unable to make predictions regarding the timing and size of any future royalty payments.  With respect to these licenses, we believe that any royalties depend on the licensee’s ability to market, produce and sell products incorporating our proprietary technology.  We cannot predict when we will receive any royalty revenue from these licenses, if ever.
 
DuPont.  On November 8, 2004, we licensed our platform automotive technology to DuPont.  This non-exclusive license covers all of DuPont’s automotive metal coating activities in North America.  The license is for a term of fifteen (15) years, terminating on November 8, 2019.  The license provides for royalty payments at a stated percentage of net sales.  To date, we have not received any royalty payments pursuant to this license as our coatings have yet to be incorporated into products by DuPont and we cannot predict when we will, if ever.  Royalty payments are entirely dependent on DuPont’s marketing efforts which are beyond our control.
 
Red Spot Paint & Varnish.  On May 6, 2005, we granted Red Spot Paint & Varnish an exclusive license to manufacture and sell one of our proprietary products for use on 22 gallon metal propane tanks.  The duration of this license is fifteen years, terminating on May 6, 2020.  Upon consummation of the license, Red Spot made a one-time payment of $125,000 to us.  All of our revenue in 2007 and 2008 was from this one customer.  The license also provides for royalty payments at a stated percentage of net sales.  To date, we have not received any royalty payments pursuant to this license as our coatings have yet to be incorporated into Red Spot’s products and we cannot predict when we will, if ever.  Royalty payments are entirely dependent on Red Spot’s marketing efforts which are beyond our control.
 
Medical Device Company.  On February 3, 2001, we granted a medical device company a license to use one of our proprietary products on a cardiovascular application.  All terms of this license are subject to a confidentiality agreement.  The duration of this agreement is unlimited except upon breach of the agreement by either party.  The medical device company paid us a one time licensing fee of $70,000 and thereafter we will not receive future revenues under this agreement.

Prior to reaching a license agreement with a potential customer, we typically work with the potential customer on a development phase to better understand its needs and desired performance levels.  A good example of our development phase is our recently executed (August 21, 2009) Collaboration Agreement with Reynolds Innovations Inc. for the development of a fire standards compliant (“FSC”) cigarette.  Although we have previously developed a unique coating to meet this customer’s needs and have already passed some initial testing, this Agreement provides for a series of additional tests that must be satisfactorily passed before our coating is used in the production of cigarettes.  This development process with Reynolds could take up to two years to complete.  The Agreement has a framework of successive testing milestones and payments totaling $700,000 if we successfully pass every milestone.  If chemistry, sensory and FSC standards tests are passed, we will begin negotiations on a royalty agreement for the production and sale of FSC cigarettes.  The parties have outlined in the Agreement the anticipated range of royalty payments from $1,200,000 to $18,000,000 annually.  Reynolds has limited exclusivity for use of our technology for tobacco products until the later to occur of December 1, 2011 or the entry into a royalty agreement.

Marketing Strategy

Our target markets include the electronics, automotive and trucking, paper and packaging products and original equipment manufacturers.  Our business model contemplates both a licensing strategy and direct sales strategy.  We intend to license our technology to industry leaders in the electronics, steel, construction, automotive and medical applications markets, through which our product will be sold to end users.  We plan to use direct sales teams in certain target markets, such as OEMs, and third party distributors in broad product markets, such as paper products, to develop our product sales. Thus, our key promotional activities may include:

 
 
Attendance and technical presentations at industry trade shows and conventions;
       
 
 
Direct sales, with a force of industry-specific sales people who will identify, call upon and build ongoing relationships with key purchasers and targeted industries;
       
 
 
Fostering joint development agreements and other research arrangements with industry leaders and third party consortiums;
       
 
 
Print advertising in journals with specialized industry focus;
       
 
 
Web advertising, including supportive search engines and Web site registration with appropriate sourcing entities;
       
 
 
Public relations, industry-specific venues, as well as general media, to create awareness of us and our products. This will include membership in appropriate trade organizations; and
       
 
 
Brand identification through trade names associated with us and our products.
 
Sales Strategy
 
To date, we have conducted all of our business development and sales efforts through our senior management team who are active in other roles.  We intend to build dedicated sales, marketing, and business development teams to sell our products.  Our initial focus will be either the direct sales of our products to end users and/or the formation of joint venture arrangements with established market participants through which our products will be sold.  We also intend to engage in strategic licensing activities targeted at key markets.
 
Our sales cycle is often longer than one year and we did not generate sales revenues in fiscal year 2009.  The sales process begins with the identification of potential customers in selected markets. If the customer is interested, the customer will generally send application samples to us for initial analysis and testing.  We then coat the application samples using our product. Provided we are able to demonstrate the efficacy of our product on the application sample to the customer, the customer will then perform extended durability tests.  In most cases, we are unable to exert any control or influence over the durability test. Upon conclusion of the durability test, we plan to work with the customer while it decides whether to purchase our product.
 
In many cases, the potential customer will have to modify its coating production line to add UV curing to replace its thermal curing equipment.  We plan to work with the customer to assist in the transition of its traditional coating operations to our technology.  We expect that the customer’s resistance to change, costs, access to capital, and payback on investment will be factors in its decision to adopt our technology.
 
FY 2010 Goals
 
     Our FY2010 goals, given sufficient capital, are to:
       
 
 
Secure a suitable facility and build an enhanced research laboratory and prototype coatings line;
       
 
 
Expand current research initiatives and intellectual property protection;
       
 
 
Expand our in-house sales and sales channel business development team;
       
 
 
Pursue independent, third party review of our technology through independent testing and evaluation;
       
 
 
Secure new sources of revenue.
 
Competition
 
The industrial coatings industry is extremely competitive.  There are several hundred sources in the United States of conventional paints and coatings for general metal use, including major sources such as Akzo Nobel, PPG, Sherwin-Williams and Valspar, who also offer UV coatings primarily for flooring, graphics, paper and container lithography applications.  Direct competition comes from a variety of UV-cure producers such as Allied Photochemical, Rad-Cure (Altana Chemie), Red Spot (Fujikura), R&D Coatings, Northwest (Ashland), DSM Desotech, Prime and other small sources.  Although certain of these competitors offer 100% solids products, our product technology is unique as demonstrated by our patents.
 
Competitive factors in this industry include ease of use, quality, versatility, reliability, and cost.  Our primary competitors include companies with substantially greater financial, technological, marketing, personnel and research and development resources than we currently have.  We  might not be able to compete successfully in this market.  Further, existing and new companies may enter the industrial coatings markets in the future.
 
Intellectual Property
 
Our ability to compete effectively will depend on our success in protecting our proprietary technology, both in the United States and abroad.  Our patent and intellectual property activities to date include:
 
 
·
seven patents covering elements of our technology from the United States Patent and Trademark Office(“USPTO”)
 
 
·
twenty-two pending patent applications in foreign countries. One patent has been allowed in China.
 
 
·
three ICT international patent applications
 
 
·
three trademarks issued by the USPTO – “EZ Recoat™”, “Ecology Coatings™” and “Liquid Nanotechnology™”.
 
The USPTO has issued all patents to Sally J.W. Ramsey, our founder and Vice President for New Product Development, which she irrevocably assigned to us.
 
In addition, we have developed over 200 individual coating formulations.  We have taken actions to protect these formulations under trade secret laws.

It is possible that no additional patents relating to our existing technology will be issued from the United States or any foreign patent offices, or that we will not receive any patents in the future based on our continued development of our technology, or that our patent protection within and/or outside of the United States will be sufficient to deter others, legally or otherwise, from developing or marketing competitive products utilizing our technologies.  With the exception of the patent allowed in China, action with respect to our foreign patents has been limited to translation of the patent applications.  In addition to seeking patent protection, we will rely on trade secrets, know-how and continuing technological advancement to seek to achieve and thereafter maintain a competitive advantage.  Although we have entered into or intend to enter into confidentiality agreements with our employees, consultants, advisors, and other third parties that we are engaged with, we cannot be certain that such agreements will be honored or that we will be able to effectively protect our rights to our unpatented trade secrets and know-how.  Others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how.

Research and Development

Until 2007, most of our efforts focused on inventive research to discover new ways to coat substrates using UV curing.  Those efforts resulted in a variety of new UV cured coatings and patents and patent applications to protect those inventions.  Since 2007, most of our research and development efforts are related to the application of our prior inventions to develop coatings for specific substrates and for specific customer applications.  By working closely with potential customers, we believe we position ourselves to better understand their needs which increases the likelihood they will use our technology and speed the adoption of our technology in the marketplace.  During this process, our initial customers and we are each responsible for costs incurred in the development process.  A good example of how we have shifted our focus and the length of time needed to reach production agreements is our recently executed (August 21, 2009) Collaboration Agreement with Reynolds Innovations Inc. for the development of fire standards compliant cigarettes.  Although we have previously developed a unique coating to meet this customer’s needs and have already passed some initial testing, this Agreement provides for a series of additional tests that must be satisfactorily passed before our coating is used in the production of cigarettes.  This development process with Reynolds could take up to two years to complete.

For fiscal years 2008 and 2009, we spent approximately $275,000 and $175,000 on research and development, respectively.  This includes contracted research, salary expenses of Sally Ramsey, our Vice President of New Product Development, laboratory expenses and raw materials.

Manufacturing

We presently have a limited manufacturing capacity. We currently have no contracts in place for the manufacturing of our products.   The raw materials used in our coatings are solids and we do not believe such materials have any negative environmental impact.  Our business is subject to  many different federal, state, local and foreign governmental regulations related to the use, storage, discharge and disposal of hazardous substances.  We must conduct our business in compliance with these regulations.  Any changes in such regulations or any change in our business that requires us to use hazardous materials, could force us to acquire costly equipment or to incur other significant expenses to comply with environmental regulations.  Increasing public attention has been focused on the environmental impact of manufacturing operations.  While we have not experienced any adverse effects on our operations from environmental regulations, and our products are designed to have no adverse impact on the environment, our business and results of operations could suffer if for any reason we are unable to comply with present or future environmental regulations.
 
The table below identifies our principal raw materials suppliers:
 

Supplier
Raw Material
Nanoresins AG
Nano dispersion material
Cytec Industries, Inc.
Monomers & Oligomers
Sartomer Company, Inc.
Monomers & Oligomers
Rahn USA Corp.
Photoinitiators
Rockwood Specialties Group, Inc.
Pigments

Employees

As of September 30, 2009, we had five full-time employees.  As of that date, we had employment agreements with four of our employees.

DESCRIPTION OF PROPERTY
 
Our executive office consists of approximately 1,600 square feet and is located at 2701 Cambridge Court, Suite 100, Auburn Hills, MI  48326.  The lease commenced on September 1, 2008 and continues through September 30, 2010 at an average rate of $2,997 per month.  The lessor, Seven Industries, Inc., is wholly owned by J.B. Smith, a Director of the Company and the managing partner of Equity 11, Ltd.
 
We also lease approximately 3,600 square feet of laboratory space at 1238 Brittain Road, Akron, Ohio 44310.  We use this facility for manufacturing, storing and testing of our products.  We are currently leasing this property on a month-to-month basis and the monthly rent is $1,800.
 
Management believes that our existing facilities are adequate for our current needs and that suitable additional space will be available on reasonable terms if required.  Management also believes that our facilities are adequately insured.
 

LEGAL PROCEEDINGS

None.

DIVIDENDS AND OWNERSHIP INFORMATION

For information regarding the market price of and dividends on our common stock and related stockholder matters, see Items 4 and 5 of this prospectus.

For information regarding the effect of this offering on the amount and percentage of holdings of our common stock beneficially owned by certain persons, see the table  in Item 7 of this prospectus.



 
8

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Except for statements of historical fact, the information presented herein constitutes forward-looking statements. These forward-looking statements generally can be identified by phrases such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “foresees,” “intends,” “plans,” or other words of similar import.  Similarly, statements herein that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements.  Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  Such factors include, but are not limited to, our ability to: successfully commercialize our technology; generate revenues and achieve profitability in an intensely competitive industry; compete in products and prices with substantially larger  and better capitalized competitors; secure, maintain and enforce a strong intellectual property portfolio; attract immediate additional capital sufficient to finance our working capital requirements, as well as any investment of plant, property and equipment; develop a sales and marketing infrastructure; identify and maintain relationships with third party suppliers who can provide us a reliable source of raw materials; acquire, develop, or identify for our own use, a manufacturing capability; attract and retain talented individuals; continue operations during periods of adverse changes in general economic or market conditions, and; other events, factors and risks previously and from time to time disclosed in our filings with the Securities and Exchange Commission, including, specifically, the “Risk Factors” enumerated herein.

Overview

We develop nano-enabled, ultra-violet curable coatings that are designed to drive efficiencies and clean processes in manufacturing.  We create proprietary coatings with unique performance attributes by leveraging our platform of integrated nano-material technologies.  We develop high-value, high-performance coatings for applications in the specialty paper, automotive, general industrial, electronic and medical areas.  Our target markets include the electronics, steel, construction, automotive and trucking, paper products and OEMs.  We plan to use direct sales teams in certain target markets, such as OEMs, and third party distributors in broad product markets, such as paper products, to develop our product sales.
 
Operating Results
 
Years Ended September 30, 2008 and 2007
 
Results From Operations
 
Revenues for the years ended September 30, 2008 and 2007, were $25,092 and $41,668, respectively. Substantially all of our revenues for the year ended September 30, 2008 and all of our revenues for the year ended September 30, 2007 derived from our licensing agreement with Red Spot. These revenues stem from the amortization of the initial payment of $125,000 by Red Spot to the Company in May 2005 and not from any subsequent transactions.
 
Salaries and Fringe Benefits for the years ended September 30, 2008 and 2007 were $2,006,776 and $1,409,840, respectively. The increase in such expenses for the year ended September 30, 2008 is the result of higher headcount as we had seven employees for most of 2008, five of which were hired at various times throughout 2007 and were therefore not being paid for all of 2007.  As a result, salaries increased by approximately $280,000 in 2008. Additionally, all of the employees were awarded initial or additional option grants in late 2007 or early in 2008. The value of these option grants is amortized over the vesting period associated with the options. The amortized amount in 2008 was approximately $228,000 higher than in 2007. Finally, benefit costs increased by approximately $44,000 over 2007 as a result of the increase in the number of employees and the start of benefit programs for all of the additional employees.
 
Professional Fees for the years ended September 30, 2008 and 2007 were $2,735,360 and $2,583,927, respectively. An increase our options expense associated with a full year of amortization of option grants made to consultants of approximately $330,000, an increase in investor relations services of approximately $120,000, an increase in lobbying expense of approximately $92,000, and a $35,000 fee for a patent valuation were offset by reductions in legal, accounting, and public relations expenses totaling approximately $425,000. The reduction in legal, accounting, and public relations expenses is a result of our  relatively heavy use of these services in 2007 while we were preparing for a private placement of our stock and a reverse merger.
 
Other General and Administrative Expenses for the years ended September 30, 2008 and 2007 were $637,668 and $463,199, respectively. The increase in such expenses for the year ended September 30, 2008 is due to increases in liability and medical insurance costs, as well as increases in depreciation and amortization expense.
 
Operating Losses for the years ended September 30, 2008 and 2007 were ($5,354,712) and ($4,415,298), respectively. The increased loss between the periods is explained by the increases in the expense categories discussed above.
 
Interest Income for the years ended September 30, 2008 and 2007 was $5,784 and $20,940, respectively. The decrease resulted from a reduction in our average investable cash balances between and 2007 and 2008.
 
Interest Expense for the years ended September 30, 2008 and 2007 was $1,421,394 and $256,512, respectively. These amounts reflect interest accrued on notes payable to third parties as well as notes payable to related parties. We borrowed $1,300,000 on notes payable in varying increments between February 1, 2008 and July 11, 2008. These notes bear interest at 25% per annum and had warrants attached. The value of the warrants of approximately $1,200,000 was amortized over the life of the notes into interest expense.
 
Income Tax Provision.  No provision for income tax benefit from net operating losses has been made for the years ended September 30, 2008 and 2007 as we have fully reserved the asset until realization is more reasonably assured.
 
Net Loss for the years ended September 30, 2008 and 2007 was ($6,770,322) and ($4,650,870), respectively. The increase in the loss results primarily from the increase in Salaries and Fringe Benefits, Professional Fees, General and Administrative Expenses and Interest Expense discussed above.

Basic and Diluted Loss per Share for the years ended September 30, 2008 and 2007 was ($.21) and ($.16), respectively. This change reflects the increased Net Loss discussed above partially offset by the increase in weighted average shares outstanding during the year ended September 30, 2008.

Nine months ended June 30, 2009 and 2008

Revenues.  Our revenues for the nine months ended June 30, 2008 were $24,884 and derived from our licensing agreement with Red Spot.  These revenues stem from the amortization of the initial payment of $125,000 by Red Spot to us in May 2005 and not from any subsequent transactions.  We generated no revenues for the nine months ended June 30, 2009.
 
Salaries and Fringe Benefits.  The decrease of approximately $414,000 in such expenses for the nine months ended June 30, 2009 compared to the nine months ended June 30, 2008 is the result of the elimination of two salaried employees prior to October 1, 2008, the elimination of a third employee in March 2009, the reduction of the salary of one employee effective October 1, 2008, and the reduction of  the salaries of three employees in December 2008.  These reductions were partially offset by the expense associated with options issued to two employees in September 2008 and December 2008 as well as the addition of a new employee in September 2008.
 
Professional Fees.  The increase of approximately $560,000 in these expenses for the nine months ended June 30, 2009 compared to the nine months ended June 30, 2008 is the result of the issuance of 2,000,000 options to Trimax in November 2008.  These options vested upon issuance, so the entire charge of $1,368,000 was recognized in that month. This expense was offset by a reduction of approximately $808,000 in fees and options paid or awarded to consultants for a variety of services. Three such consultants are no longer under agreement with us and two others have reduced their ongoing fees to us.
 
Other General and Administrative.  The decrease of approximately $317,000 in these expenses for the nine months ended June 30, 2009 compared to the nine months ended June 30, 2008 reflects reductions in legal fees relating to SEC filings, in-sourcing the work of preparing SEC filings, the elimination of debt extension fees, and the reduction of travel and travel-related expenses.
 
Operating Losses.  The increased loss between the reporting periods is explained by the increases in the expense categories discussed above and the decrease in revenue over the periods.
 
Interest Expense. The decrease of approximately $1,039,000 for the nine months ended June 30, 2009 compared to the nine months ended June 30, 2008 is the result of the expensing of the value of detachable warrants issued with bridge notes in the earlier period partially offset by the revaluing of previously issued detachable warrants and an increase of approximately $700,000 in average outstanding debt for the 2008 period.
 
Income Tax Provision.  No provision for income tax benefit from net operating losses has been made for the nine months ended June 30, 2009 and 2008 as we have fully reserved the asset until realization is more reasonably assured.

Net Loss.  The decrease in the Net Loss of approximately $1,179,000 for the nine months ended June 30, 2009 compared to the nine months ended June 30, 2008, while more fully explained in the foregoing discussions of the various expense categories, is due primarily to reductions of approximately $1,039,000 in Interest Expense, $808,000 in certain professional fees, $317,000 in Other General and Administrative expenses, and $414,000 in Salaries and Fringe Benefits, partially offset by the expensing of a grant of 2,000,000 options awarded to a consultant in November 2008 and the fact that we recognized no revenue in the 2009 period.

Basic and Diluted Loss per Share. The change in basic and diluted net loss per share for the nine months ended June 30, 2009 compared with the nine months ended June 30, 2008 reflects the decreased Net Loss discussed above.

Liquidity and Capital Resources

Current and Expected Liquidity

Cash and cash equivalents as of June 30, 2009 and September 30, 2008 totaled $4,257 and $974,276, respectively. The decrease reflects cash used in operations of $1,321,329, cash used to purchase fixed and intangible assets of $47,889, and cash used to pay down debt of $372,801.  This decrease was partially offset by borrowings of $61,000 and the issuance of $711,000 in convertible preferred stock.

We are a company that has failed to generate significant revenues as yet and have incurred an accumulated deficit of ($21,043,440).  We have incurred losses primarily as a result of general and administrative expenses, salaries and benefits, professional fees, and interest expense.  Since our inception, we have generated very little revenue.  We have received a report from our independent auditors that includes an explanatory paragraph describing their substantial doubt about our ability to continue as a going concern.

We expect to continue using substantial amounts of cash to: (i) develop and protect our intellectual property; (ii) further develop and commercialize our products; (iii) fund ongoing salaries, professional fees, and general administrative expenses.  Our cash requirements may vary materially from those now planned depending on numerous factors, including the status of our marketing efforts, our business development activities, the results of future research and development, competition and our ability to generate revenue.

Historically, we have financed operations primarily through the issuance of debt and the sale of equity securities.  In the near future, as additional capital is needed, we expect to rely primarily on the sale of convertible preferred securities.

As of June 30, 2009, we had notes payable to three separate parties on which we owed approximately $695,648 in principal and accrued interest.  These notes do not contain any restrictive covenants with respect to the issuance of additional debt or equity securities by the Company.  Notes and the accrued interest totaling $695,648 owing to three note holders were due prior to September 30, 2008 and their holders demanded payment.  We have paid $320,000 in principal and accrued interest against the remaining principal and interest balance on two of these notes.  We have not made any payment to the third note holder to whom we owed approximately $313,000 in principal and accrued interest as of June 30, 2009.  Additionally, we have notes owing to shareholders totaling approximately $289,586.42 including accrued interest as of September 30, 2009.  These notes are due and payable on December 31, 2009. None of the debt is subject to restrictive covenants.  All of the debt is unsecured.

As of September 30, 2009, the selling shareholder had purchased 3,002 convertible preferred shares.  In addition, we entered into a Securities Purchase Agreement with Stromback Acquisition Corporation on September 30, 2009 and have raised $120,000 under such agreement.  We will need to raise immediate additional funds in  fiscal year 20010 to continue our operations. At present, we do not have any binding commitments for additional financing.  If we are unable to obtain additional financing, we would seek to negotiate with other parties for debt or equity financing, pursue additional bridge financing, and negotiate with creditors for a reduction and/or extension of debt and other obligations through the issuance of stock.  At this point, we cannot assess the likelihood of achieving these objectives.  If we are unable to achieve these objectives, we would be forced to cease our business, sell all or part of our assets, and/or seek protection under applicable bankruptcy laws.

On June 30, 2009, we had 32, 835,684 common shares issued and outstanding and 3,242 in convertible preferred shares issued and outstanding.  These preferred shares and accumulated and unpaid dividends can be converted into a total of 11,242,680 shares of our common stock.  As of September 30, 2009, options and warrants to purchase up to 9,649,919 shares of common stock had been granted.  Additionally, some of our outstanding notes and accrued interest may be converted intoshares of common stock.           

Our financing agreements with the selling shareholder allow the selling shareholder the opportunity to match any other offers of financing that we receive.  To date, this provision has not inhibited our ability to seek alternative financing arrangements.  The selling shareholder chose not to match the financing offer that we recently received from Stromback Acquisition Corporation that resulted in a Securities Purchase Agreement dated September 30, 2009.

Our financing agreements with the selling shareholder also require that the selling shareholder approve any capital expenditure greater than $10,000.  To date, the selling shareholder has not prevented us from making any capital expenditure that we believe are critical to our business.

Capital Commitments

                                         
Contractual
                             
Obligations
 
Total
   
Less Than 1 Year
   
1-3 Years
   
4-5 Years
   
After 5 Years
 
Notes Payable
 
$
1,137,604
   
$
1,137,604
   
$
   
$
   
$
 
                                         
Interest on notes payable
   
133,332
     
133,332
     
     
     
 
Contractual Service Agreements
   
1,675,139
     
1,162,389
     
512,750
     
     
 
Office Leases
   
71,933
     
34,699
     
37,234
                 
Equipment Leases
   
21,332
     
7,890
     
13,442
     
     
 
                               
Total Contractual Obligations
 
$
3,039,340
   
$
2,475,914
   
$
563,426
   
$
   
$
 
                               

Off-Balance Sheet Arrangements

Our off-balance sheet arrangements include contractual service agreements, office leases and equipment leases.  A summary of our off-balance sheet arrangements is below:

 
Less Than 1 Year
1-3 Years
4-5 Years
After 5 Years
Total
 
             
Contractual Service Agreements
$715,835
$969,750
---
---
$1,685,585
 
             
Office Leases
$28,024
---
   
$28,024
 
             
Equipment Leases
$7,044
$5,260
---
---
$12,304
 
             
             
Total Off-Balance Sheet Obligations
$750,903
$975,010
---
---
$1,725,913
 

Our off-balance sheet contractual service agreements include services provided by vendors and services by our employees under employment agreements.  Vendor services include IP/PR services, legal services and business and revenue generation consulting services.  The following table summarizes of our off-balance contractual service agreements:

Contract Service Provider
Purpose
Monthly Amount
Expiration
Less Than 1 Year
1-3 Years
4-5 Years
After 5 Years
Total
 
                   
McCloud Communications
IR/PR Services
$5,000
12/31/2009
$30,000
     
$30,000
 
                   
Wilson, Sonsini, Goodrich & Rosati
SEC Legal Services
$1,667
12/31/2009
$10,002
     
$10,002
 
                   
RJS Consulting LLC
Business Consulting
$16,000
9/17/2011
$192,000
$176,000
   
$368,000
 
                   
                   
Robert Crockett
CEO
$16,667
9/21/2012
$200,000
$400,000
   
$600,000
 
                   
Daniel Iannotti
General Counsel & Secretary
$12,500
9/21/2012
$137,500
$300,000
   
$437,500
 
                   
F. Thomas Krotine
COO & President
$5,417
9/21/2012
$59,583
     
$59,583
 
                   
Sally Ramsey
Chief Chemist
$6,250
1/1/2012
$68,750
$93,750
   
$162,500
 
                   
Total Contractual Service  Obligations
 
$63,501
 
$697,835
$969,750
   
$1,667,585
 

We have a lease for our headquarters in Auburn Hills, MI.  The space for our laboratory in Akron, OH is not currently subject to a written lease – we use that space on a month to month basis.  A summary of our Auburn Hills, MI office lease is summarized in the table below:

Contract Service Provider
Purpose
Monthly Amount
Expiration
Less Than 1 Year
1-3 Years
4-5 Years
After 5 Years
Total
                 
Seven Industries, Ltd.
Auburn Hills, MI Headquarters
$2,952
11/30/2009
$5,904
     
$5,904
   
$3,110
5/31/2010
$18,966
     
$18,966
   
$3,154
9/30/2010
$12,617
     
$12,617

We lease computer equipment and our office printer/copier for our Auburn Hills, MI headquarters.  A summary of our off-balance sheet leases for computer equipment and the printer/copier is shown in the table below:
Contract Service Provider
Purpose
Monthly Amount
Expiration
Less Than 1 Year
1-3 Years
4-5 Years
After 5 Years
Total
                 
Dell Financial Services
Computer Equipment
$42
6/17/2010
$336
     
$336
                 
Dell Financial Services
Computer Equipment
$44
7/17/2010
$396
     
$396
                 
Ricoh America
Printer/Copier
$526
9/22/2011
$6,312
$5,260
   
$11,572

See also Notes to the Consolidated Financial Statements in this prospectus. The details of such arrangements are found in Note 5 – Commitments and Contingencies and Note 9 – Subsequent Events.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles. Preparation of the statements in accordance with these principles requires that we make estimates, using available data and our judgment, for such things as valuing assets, accruing liabilities and estimating expenses. The following is a discussion of what we feel are the most critical estimates that we must make when preparing our financial statements.
 
Revenue Recognition.  Revenues from licensing contracts are recorded ratably over the life of the contract. Contingency earnings such as royalty fees are recorded when the amount can reasonably be determined and collection is likely.
 
Income Taxes and Deferred Income Taxes.  We use the asset and liability approach for financial accounting and reporting for income taxes. Deferred income taxes are provided for temporary differences in the bases of assets and liabilities as reported for financial statement purposes and income tax purposes and for the future use of net operating losses. We have recorded a valuation allowance against our net deferred income tax asset. The valuation allowance reduces deferred income tax assets to an amount that represents management’s best estimate of the amount of such deferred income tax assets that more likely than not will be realized.
 
Property and Equipment.  Property and equipment is stated at cost, less accumulated depreciation. Depreciation is recorded using the straight-line method over the following useful lives:
     
Computer equipment
 
3-10 years
Furniture and fixtures
 
3-7 years
Test equipment
 
5-7 years
Software
 
3 years
 
Repairs and maintenance costs are charged to operations as incurred. Betterments or renewals are capitalized as incurred.
 
We review long lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset with future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.
 
Patents.  It is our policy to capitalize costs associated with securing a patent. Costs consist of legal and filing fees. Once a patent is issued, it is amortized on a straight-line basis over its estimated useful life. For purposes of the preparation of the audited, consolidated financial statements found elsewhere in this prospectus, we have recorded amortization expense associated with the patents based on an eight year useful life.
 
Stock-Based Compensation.  We have a stock incentive plan that provides for the issuance of stock options, restricted stock and other awards to employees and service providers. We calculate compensation expense under SFAS 123(R) using a Black-Scholes option pricing model. In so doing, we estimate certain key assumptions used in the model. We believe the estimates we use, which are presented in Note 7 of Notes to the Consolidated Financial Statements, are appropriate and reasonable.
 
Recent Accounting Pronouncements
 
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133”. This statement changes the disclosure requirements for derivative instruments and hedging activities. SFAS 161 will become effective for us beginning in the three months ending March 31, 2009. The adoption of this pronouncement would have had no impact on our results or financial position as of September 30, 2008.
 
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). SFAS 162 will not have an impact on our financial statements.

In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts, an interpretation of FASB Statement No. 60.” The scope of SFAS 163 is limited to financial guarantee insurance (and reinsurance) contracts, as described in this Statement, issued by enterprises included within the scope of Statement 60. Accordingly, SFAS 163 does not apply to financial guarantee contracts issued by enterprises excluded from the scope of Statement 60 or to some insurance contracts that seem similar to financial guarantee insurance contracts issued by insurance enterprises (such as mortgage guaranty insurance or credit insurance on trade receivables). SFAS 163 also does not apply to financial guarantee insurance contracts that are derivative instruments included within the scope of FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS 163 will not have an impact on our financial statements.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE .
 
None.
 
DIRECTORS, EXECUTIVE OFFICERS, PROMOTER, AND CONTROL PERSONS
 
The following table sets forth as of March 31, 2009, the name, age, and position of each Executive Officer and Director and the term of office of each Director and significant employees.
 

Name
Age
Position
J.B. Smith
36
Director
Rocco DelMonaco, Jr.
55
Director
Joseph Nirta
45
Director
Robert G. Crockett
51
Chief Executive Officer
F. Thomas Krotine
68
President and Chief Operating Officer
Daniel V. Iannotti
54
Vice President, General Counsel & Secretary
Kevin Stolz
46
Chief Financial Officer, Controller and Chief Accounting Officer
Sally J.W. Ramsey
56
Vice President – New Product Development
 
Under Section 5.1 of the Securities Purchase Agreement and Section 5.1 of the Preferred Securities Agreement, Equity 11 has the right to elect three of the five directors to our Board of Directors.  Mr. Smith is one of the Directors appointed by Equity 11 and Joseph Nirta is other Equity 11 elected Director.  Equity 11 has the ability to appoint a third director at any time but has not done so as of the date of this prospectus.  Each other Director serves for a term of one year and until his successor is duly elected and qualified. Each officer serves at the pleasure of the Board of Directors subject to any applicable employment agreements.
 
Set forth below is certain biographical information regarding each of our current executive officers, directors and significant employees as of September 30, 2009.
 
J.B. Smith.  Mr. Smith currently is the Managing Partner for Equity 11, Ltd. Equity 11’s portfolio companies employ the largest collection of former federal law enforcement agents in the private sector.  Smith is also currently serving as Chairman of Isekurity, the nation’s leader in identity theft solutions and holds a bachelor’s degree in Administration of Justice from The Pennsylvania State University.  Smith has served as a member of Stealth Investigations LLC since 2003, and has been a partner in Sky Blue Ventures since 2004.  Also known as the creator of the “Philanthropic InvestmentSM,” Smith is a partner in WM Reign, Ltd., an investment model solely dedicated to helping finance churches and Christian causes by utilizing Smith’s “Philanthropic InvestmentSM concept.
 
Rocco DelMonaco, Jr.  Mr. DelMonaco became a Director on September 15, 2008, and is our only independent Director.  Mr. DelMonaco has been the Vice President of Security for Georgetown University since 2007.  From 2005 to 2007, Mr. DelMonaco was an Assistant Executive Director of ManTech Security and Mission Assurance Corporation.  From 2004 to 2005, Mr. DelMonaco was the Acting Director with the Department of Homeland Security, Incident Management Division.  From 2002 to 2004, Mr. DelMonaco was a Special Agent in Charge- Liaison Division with the Department of Homeland Security, Federal Air Marshall Service.  From 1980 to 2002, Mr. DelMonaco was a Supervisory Special Agent with the United States Secret Service.  Mr. DelMonaco received his BA from the University of Miami and his Masters of Public Administration from Pepperdine University.

Joseph Nirta.  On October 20, 2008, Joseph Nirta was elected as a Director.  Mr. Nirta was the co-founder of BondExchange LLC and BondDesk Group LLC. The electronic bond trading platform created by Mr. Nirta revolutionized the online bond trading market. Nirta served as Bond Desk Group’s chief information officer and a board member since 1999. He has a Bachelor of Mathematics in Computer Science from the University of Waterloo, Waterloo, Ontario, and is a Certified Oracle DBA.
 
Robert G. Crockett.  Mr. Crockett joined us as our Chief Executive Officer on September 15, 2008.  From 2007 to September, 2008, Mr. Crockett served in Advanced Sales Development for JCIM L.L.C., a an automotive plastics supplier and joint venture between Johnson Controls Inc. and private equity.  In 2007, Mr. Crockett served as President – Exterior Painted Products for Plastech, a privately held plastic component supplier.  From 2004 to 2006 he also served as Vice President of Plastech as part of the executive team acquired from LDM Technologies Inc.  From 1997 through 2004, Mr. Crockett served as Director for LDM Technologies Inc., a privately held automotive exterior and interior supplier.  From 1996 to 1997, he was a Vice President at the Becker Group, a privately held automotive interior supplier.  Mr. Crockett holds a B.S. in Business from Central Michigan University.
 
F. Thomas Krotine.  Since October 30, 2006, Mr. Krotine has served as our President and from October 30, 2006 until August 15, 2007, he served as our Chief Executive Officer.  From August 15, 2007 to the present, he has also served as the Chief Operating Officer.  Mr. Krotine is an industry veteran with extensive coatings industry and materials-based experience.  From 2001 to 2006, Mr. Krotine was a Principal of TBD Associates, a technology and business development consulting company.   From 1996 to 2001, he served as Chairman of CV Materials, a privately-held a supplier of porcelain enamel materials and coatings.  Prior to his role at CV Materials, from 1992 to 1996 he was the Manager of TK Holdings, a private company which he formed to acquire equity holdings in small-to-medium-sized manufacturing companies.  From 1990 to 1992, he served as a Vice President at Valspar, a publicly-held coatings company, where he managed Valspar’s North American powder coating business.  From 1980 to 1990, he served as Senior Vice President at Sherwin-Williams Company, a publicly-held paint and coatings concern, where he was responsible for technology management and corporate environmental and health compliance.  Mr. Krotine holds a B.A., an M.S. and a Ph.D. in Metallurgy and Materials Science from Case Western Reserve University in Cleveland, Ohio.
 
Daniel V. Iannotti.  Mr. Iannotti became our General Counsel and Secretary on August 11, 2008.  From 2004 to 2008, Mr. Iannotti served as a Principal of TheGeneralCounsel.com.  From 2003 to 2004, he served as the General Counsel and Secretary of Origen Financial, LLC.  During his career, Mr. Iannotti previously served as general counsel for three publically held companies including Prodigy Communications, Hoover’s, and Origen Financial.  He also spent several years as a staff attorney for Ameritech, now AT&T.  Mr. Iannotti holds a BA and MBA from Michigan State University. He received his Juris Doctor degree, cum laude, from the Wayne State University Law School, where he was an editor of the Wayne Law Review.  Iannotti is licensed to practice law in Michigan and Illinois.
 
Kevin Stolz.  Mr. Stolz became our Controller and Chief Accounting Officer on February 1, 2007 and our Chief Financial Officer on March 26, 2008.  From 1999 until 2007, Mr. Stolz was the principal of Kevin Stolz and Associates, Ltd., a Troy, Michigan-based management consulting firm specializing in providing financial and operations consulting services.  From 1985 to 1987, Mr. Stolz worked as an auditor at Coopers & Lybrand, a public accounting firm, and from 1988 to 1992 he worked in commercial lending at JP Morgan/Chase.  From 1997 to 1999, he was the Vice President of Manufacturing of Unique Fabricating, Inc. a privately held Detroit automotive supplier; from 1996 to 1997, a Controller at Broner Glove and Safety, Inc. a privately held wholesale distributor, and; from 1992 to 1995 the Director of Operations for Virtual Services, Inc., a privately held computer services firm.  Mr. Stolz has an M.B.A. from the University of Notre Dame and a B.B.A. in Accounting from the University of Portland.
 
Sally Judith Weine Ramsey.  Ms. Ramsey is our founder. From 1990 to the present, Ms. Ramsey served as Vice President of Ecology-CA and from 1990 to November 2006 served as Secretary.  From 1990 to November 2003, she served as a director of Ecology-CA. As of July 27, 2007, Ms. Ramsey was elected our Vice President of New Product Development.  Ms. Ramsey is a graduate of the Bronx School of Science and holds a B.S. in Chemistry with honors from Hiram College.
 
Committees of the Board of Directors
 
Audit Committee
 
Our Audit Committee appoints our independent auditors, reviews audit reports and plans, accounting policies, financial statements, internal controls, audit fees, and certain other expenses and oversees our accounting and financial reporting process.  Specific responsibilities include selecting, hiring and terminating our independent auditors; evaluating the qualifications, independence and performance of our independent auditors; approving the audit and non-audit services to be performed by our auditors; reviewing the design, implementation, adequacy and effectiveness of our internal controls and critical accounting policies; overseeing and monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters; reviewing any earnings announcements and other public announcements regarding our results of operations, in conjunction with management and our public auditors; and preparing the report that the Securities and Exchange Commission will require in our annual proxy statement.  On October 18, 2007, the Audit Committee adopted a written charter.
 
Until July 13, 2008, the Audit Committee was comprised of two Directors, Mr. Campion and Mr. Liebig, each of whom was independent, as defined by the rules and regulations of NASDAQ.  Mr. Campion was the Chairman of the Committee and the Board of Directors determined that Mr. Campion qualified as an “audit committee financial expert,” as defined under the rules and regulations of the Securities and Exchange Commission, and is independent as noted above.

From July 13, 2008 until July 24, 2008, the Audit Committee was comprised solely of Mr. Liebig. Since July 24, 2008, we have not had an elected Audit Committee.  Since that date, the entire Board has acted on any matter requiring Audit Committee approval.

Director Independence

Mr. DelMonaco is our only independent Director.  Both our Audit Committee and Compensation Committee Charters set forth the following to determine whether a Director is independent:  (1) the independence requirements of the NASDAQ Stock Market,  (2)  a “non-employee director” within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and (3) be an “outside director” under the regulations promulgated under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).  Mr. Smith and Nirta not considered to be independent Directors.
 
Compensation Committee
 
Our Compensation Committee assists our Board of Directors in determining the development plans and compensation of our officers, directors and employees.  Specific responsibilities include approving the compensation and benefits of our executive officers; reviewing the performance objectives and actual performance of our officers; administering our stock option and other equity compensation plans; and reviewing and discussing with management the compensation discussion and analysis that the Securities and Exchange Commission regulations will require in our future Form 10-Ks and proxy statements.  On October 18, 2007 the Board of Directors adopted a written charter.
 
Until July 13, 2008, our Compensation Committee was comprised of two Directors, Mr. Campion and Mr. Liebig, whom the Board considered to be independent under the rules of NASDAQ.  Mr. Liebig was the Chairman of the Committee.  From July 13, 2008 until July 24, 2008, Mr. Liebig was the sole member of the Compensation Committee.  Since that date, our sole independent Board member, Rocco DelMonaco, Jr., has approved all compensation matters involving our executives.
 
Compensation Committee Interlocks and Insider Participation
 
Mr. DelMonaco is the sole member of our Compensation Committee since his appointment on September 15, 2008.  Mr. DelMonaco has not at any time been an officer or employee of the company.  We have not entered into any contracts or other transactions with Mr. DelMonaco.  None of our executive officers serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers who serve on our board of directors or compensation committee.
 
Advisory Board
On May 1, 2007, we formed an Advisory Board of experts in the industries we serve.  The Advisory Board is currently made up of one person, Dr. William F. Coyro, Jr.

Dr. William F. Coyro, Jr . Dr. Coyro serves as chairman of Ecology Coatings’ Business Advisory Board.  He is a 1969 graduate of the University of Detroit with a Doctorate degree in Dental Surgery (DDS).  He attended the University of Michigan where he earned a B.S. in Chemistry.  After graduation, he was a Lieutenant and dentist in the U.S. Navy from 1970 until 1972.  After leaving the Navy in 1972, he was a dentist in private practice, an investor, and a financier.  Dr. Coyro founded TechTeam Global, Inc., in 1979.  Dr. Coyro was the President and CEO of TechTeam Global until 2006, and also served as Chairman of the Board of Directors until 1997.

Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Act of 1934, as amended, requires our Directors and Executive Officers, and persons who own more than ten percent (10%) of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Officers, Directors and greater than ten percent (10%) shareholder are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.

To our knowledge, based solely on a review of such materials as are required by the SEC, no officer, director or beneficial holder of more than ten percent of our issued and outstanding shares of Common Stock failed to file in a timely manner with the SEC any form or report required to be so filed pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, during the fiscal year ended September 30, 2008.

Code of Ethics

We have adopted a Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of our Code of Ethics may be obtained without charge by sending a written request to us at 2701 Cambridge Court, Suite 100, Auburn Hills, MI 48326, Attn: Investor Relations.

Executive Compensation

The table below sets forth all cash compensation paid or proposed to be paid by us to our chief executive officer and the most highly compensated executive officers, and key employees for services rendered in all capacities to us during fiscal years ended September 30, 2008 and 2007.

The table below sets forth all cash compensation paid or proposed to be paid by us to our chief executive officer and the most highly compensated executive officers, and key employees for services rendered in all capacities to us during fiscal years ended September 30, 2008 and 2007.

 
9

 


 
Summary Compensation Table
                                                                         
                                                   
Change in
       
                                                   
Pension
       
                                                   
Value and
       
                                           
Non-Equity
 
Nonqualified
       
                                           
Incentive
 
Deferred
       
                           
Stock
 
Option
 
Plan
 
Compensation
 
All Other
   
   
Year
 
Salary
 
Bonus
 
Awards
 
Awards
 
Compensation
 
Earnings
 
Compensation
 
Total
Name (a)
 
(b)
 
($) (c)
 
($) (d)
 
($) (e)
 
($) (f)  (1)
 
($) (g)
 
($) (h)
 
($) (i)
 
($) (j)
                                                                         
Richard D. Stromback,
   
2008
   
$
305,789
   
$
-0-
   
$
-0-
   
$
-0-
   
$
-0-
   
$
-0-
   
$
-0-
   
$
305,789
 
Chairman & CEO (2)
   
2007
   
$
348,333
   
$
-0-
   
$
-0-
   
$
15,399
   
$
-0-
   
$
-0-
   
$
-0-
   
$
363,732
 
                                                                         
Robert G. Crockett, CEO (3)
   
2008
   
$
8,333
   
$
-0-
   
$
-0-
   
$
254,701
   
$
-0-
   
$
-0-
   
$
1,297
(5)
 
$
263,034
 
     
2007
   
$
-0-
   
$
-0-
   
$
-0-
   
$
-0-
   
$
-0-
   
$
-0-
   
$
-0-
   
$
-0-
 
9 Months Ending
   
6/30/09
   
$
150,000
                                           
$
15,946
(5)
       
                                                                         
Sally J.W. Ramsey,
   
2008
   
$
195,833
   
$
-0-
   
$
-0-
   
$
-0-
   
$
-0-
   
$
-0-
   
$
12,564
(5)
 
$
208,397
 
Vice President – New
   
2007
   
$
157,146
   
$
6,667
   
$
-0-
   
$
335,442
   
$
-0-
   
$
-0-
   
$
10,081
(5)
 
$
509,336
 
Product Development (4)
                                                                       
9 Months Ending
   
6/30/09
   
$
74,167
                                           
$
12,949
(5)
       
                                                                         
F. Thomas Krotine
   
2008
   
$
160,000
   
$
-0-
   
$
-0-
   
$
-0-
   
$
-0-
 
 
$
  -0-    
$
7,342
(5)
 
$
167,342
 
President and COO, Director
   
2007
   
$
155,248
   
$
-0-
   
$
-0-
   
$
16,545
   
$
-0-
 
 
$
  -0-    
$
-10,341
(5)(7)
 
$
182,134
 
9 Months Ending
   
6/30/09
   
$
40,667
                                           
$
5,008
(5)
       
                                                                         
David W. Morgan
   
2008
   
$
210,000
   
$
-0-
   
$
-0-
   
$
180,367
(6)
 
$
-0-
   
$
-0-
   
$
27,687
(5)(7)
 
$
418,054
 
Vice President, CFO and Treasurer  (6)
   
2007
   
$
60,000
   
$
-0-
   
$
-0-
   
$
469,786
   
$
-0-
   
$
-0-
   
$
6,189
(5)(7)
 
$
535,975
 
9 Months Ending
   
6/30/09
   
$
54,375
                                           
$
15,946
(5)