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November 17, 2010

Dear Ecology Coatings Shareholders:

This letter updates my October 21, 2010 letter regarding the status of our
company and the company’s need for new investment to
continue operating.  Ecology Coatings’ (“EC”) situation is dire – it requires
new investment immediately.  Without it, EC’s shareholders will lose their
entire investment.

Here’s where we currently stand:

·  
EC has exhausted all of its remaining cash.

·  
EC has $3.1 million in debt.

· There are five pending lawsuits against EC for non-payment of debt.

· The $2.4 million term sheets expire November 30, 2010.

·  
The $600,000 loan from Mr. Salpietra is due and payable on December 4,
2010.  Without new investment, EC has no funds with which to repay the loan.

·  
Mr. Salpietra informed us in writing that if his loan is not repaid by December
4, 2010, (which date was extended as long as possible) he intends to foreclose
on his collateral – all of EC’s intellectual property – and to offer full
satisfaction of the debt in exchange for surrender of the collateral under
Michigan’s Uniform Commercial Code.

 
Fund Raising Activity
 
Over the past 18 months, we have met several times with stakeholders - Rich
Stromback, PPM investors and the bridge note holders – in an effort to raise new
investment funds.  We encouraged these groups to provide EC with an investment
term sheet of their own, but we received none.  During this time, we also met
with dozens of institutional groups.  The feedback from serious investors is
consistent - they are intrigued by EC’s technology and interested in its target
markets, but they view the large debt burden ($3.1M) as a significant barrier to
investment.  In summary, no investors have made any offers to invest, other than
the term sheet investors, discussed below.

Term Sheet Conditions

EC has one potential investment source - a group of individual investors who
have agreed to invest $2.4 million if EC can meet the conditions set forth in
their term sheets.  The term sheets include various conditions to their
investment, most importantly the following:

(a) EC must compromise and settle its $3.1M in debt obligations to creditors by
payment of not more than $750,000; and

(b) EC must reduce dilution of its outstanding common stock by acquiring 8
million shares from EC’s largest shareholders.  We have approached Rich, Doug
and Deanna Stromback (“Strombacks”) to satisfy this condition.  I will explain
why below.

Debt Resolution

Regarding the first condition of the proposed term sheet investors, we have made
substantial progress towards reaching settlements with the bulk of our accounts
payable creditors.  However, we cannot meet the investment conditions without
settling with EC’s largest creditors, the Strombacks and one other key note
holder.  The details are as follows:

· EC Debt to the Strombacks: The Strombacks themselves are owed a significant
piece of the company’s debt, specifically $245,000 in loans from Doug and Deanna
Stromback and $194,000 from Rich Stromback’s consulting contract.  To date, we
do not have a commitment from the Strombacks to compromise and settle these
debts.

· Key Note Holder: We have offered one key note holder the option to convert his
promissory notes into equity and we have forwarded to him an agreement to do
so.  To encourage the note holder to make that conversion, Mr. John Salpietra
has offered to convert his $600,000 promissory note into equity if the key note
holder does the same (and provided of course that all term sheet investor
conditions are met and those investors proceed with their investment).  To date,
we do not have a commitment from the key note holder to convert.

Share Acquisition

Regarding the second term sheet condition, the term sheet investors will not
invest unless 8 million EC shares are reacquired.  Our entire management team,
including EC founder Sally Ramsey, has agreed to give up shares and stock
options if the Strombacks agree to our offer to acquire 8 million of their
shares for their original price (approx. $0.01/share).  EC’s offer to acquire 8
million shares from the Strombacks is part of a plan to minimize dilution and
increase the number of shares available to EC – to approximately 16 million.
These reacquired shares will be used by EC to resolve debt, for potential future
investment(s) and to support sales efforts.  We approached the Strombacks with
the offer to purchase their shares for the following reasons:

· The price paid per share by the Strombacks to acquire their stock is the
lowest of any Ecology shareholders, which makes the Stromback shares the most
economical for EC to buy back, with the least financial impact to the
shareholders themselves. EC offered the Strombacks $80,000 for 8 million of
their shares.
 
● With EC's purchase of 8 million shares from the Strombacks, and assuming the
Strombacks forgive EC's debt to them, the cost basis of their remaining shares
will be much closer to the $.10/share offered by the term sheet investors.

Strombacks’ Status:  We have made multiple attempts to initiate a discussion
with all of the Strombacks through emails, letters, phone calls and third
parties.  To date, they have refused to meet with us to discuss a
solution.  This is ironic since during his tenure as Chairman and CEO of EC, Mr.
Stromback caused EC to incur $2.9 million of EC’s current $3.1 million debt
burden, including EC’s debts to the note holders which bear interest at 25% per
annum.  Without the Strombacks’ cooperation, EC will go out of business and all
the stakeholders will lose.

The Harsh Reality

I, the current EC board and EC’s employees have tried everything possible to
secure alternate means of financing while we continue to develop our coatings
and cultivate interest from potential customers.  Our innovative technology has
allowed EC to secure modest orders from a substantial customer - but the simple
truth is our shaky financial situation prevents any customer from placing a
large order with EC.

EC’s Board will try to continue to explore options to save the company, but
those options are increasingly limited and will likely be exhausted on December
4th (the Salpietra secured loan due date).  Without new financial support or an
ability to meet the conditions of the proposed term sheets, EC will default on
the Salpietra loan, the EC Board will need to consider Mr. Salpietra’s
anticipated offer to take possession of and retain the collateral in full
satisfaction of the debt, EC will likely lose its intellectual property, cease
operations, be unable to file SEC reports, and consequently, all shareholder
stock will be delisted.  Ultimately, EC will liquidate and likely file
bankruptcy.

The EC board has done everything in its power to sustain the business, but EC no
longer has any financial means to carry on without outside investment help.

Please contact me or Dan Iannotti at 586-486-5308 if you have any questions,

Respectfully,

                         /s/ Robert G. Crockett

Robert G. Crockett

24663 Mound Road, Warren MI  48091
586-486-5308  Fax:  586-486-5283
www.EcologyCoatings.com

 
 

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