U. S. SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

_____________________________________________



FORM 10-QSB

(Mark One)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2002



[  ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ________ to _________



Commission File Number 0-12914

_________________________________________________



INNOVATIVE COATINGS CORPORATION

(Exact name of small business issuer as specified in its charter)



|Georgia                                                        | 58-2337027                       
|-------------------------------------------------------------- | ---------------------------------
|(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.)



1650 Airport Drive, Suite 110, Kennesaw, Georgia 30144

(Address of Principal Executive Offices)



(770) 919-0100

(Issuer's telephone number)



Not Applicable

(Former name, former address and former fiscal year, if changed since last report)



Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ___; No

APPLICABLE ONLY TO CORPORATE ISSUERS



State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 8,291,887 shares of its Common Stock, no par value, as of September 30, 2002.



Innovative Coatings Corporation

FORM 10-QSB REPORT INDEX

|                                                                                             | Page No.
|-------------------------------------------------------------------------------------------- | --------
|PART I. FINANCIAL INFORMATION                                                                | 3       
|Item 1. Financial Statements (Unaudited)                                                     | 3       
|Balance Sheets as of September 30, 2002 and December 31, 2001                                | 3       
|Statements of Operations for the Three months Ended September 30, 2002 and 2001              | 5       
|Statements of Operations for the Nine months Ended September 30, 2002 and 2001               | 6       
|Statements of Cash Flows for the Nine months Ended September 30, 2002 and 2001               | 7       
|Notes to Financial Statements for the Nine months Ended September 30, 2002                   | 9       
|Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation | 13      
|PART II. OTHER INFORMATION                                                                   | 16      
|Item 1. Legal Proceedings                                                                    | 16      
|Item 2. Changes in Securities                                                                | 16      
|Item 3. Defaults on Senior Securities                                                        | 17      
|Item 4. Submission of Matters to a Vote of Security Holders                                  | 17      
|Item 5. Other Information                                                                    | 17      
|Item 6. Exhibits and Reports on Form 8-K                                                     | 17      
|Signatures                                                                                   | 17      

This Form 10-QSB has not been reviewed completely the Company's independent auditors.  An amended Form 10-QSB will be filed once the review is complete.  Management does not believe that any adjustments to the financial statements contained in the final Form 10-QSB will be material.



PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

INNOVATIVE COATINGS CORPORATION

BALANCE SHEET

|ASSETS                                               | September 30  | December 31  
|---------------------------------------------------- | ------------- | -------------
|                                                     | 2002          | 2001         
|                                                     | (Unaudited)   | (Audited)    
|                                                     |               |              
|CURRENT ASSETS                                       |               |              
|Cash and short-term investments                      | $       7,870 | $       3,272
|Trade accounts receivable, less allowance of $10,000 | 18,232        | 30,015       
|Inventories                                          | 52,140        | 48,595       
|Deposits                                             | 30,838        | 30,838       
|Other Current Assets                                 | 6,238         | 6,238        
|Employee Advances                                    | 18,692        | 10,718       
|Employee Loans                                       | 77,441        | 60,441       
|Total Current Assets                                 | 211,451       | 190,117      
|                                                     |               |              
|PROPERTY AND EQUIPMENT                               |               |              
|Furniture and Fixtures                               | 16,068        | 19,043       
|Equipment                                            | 101,066       | 98,141       
|Less accumulated depreciation                        | (59,333)      | (43,579)     
|Net property and equipment                           | 57,801        | 73,605       
|                                                     |               |              
|TOTAL ASSETS                                         | $     269,252 | $     263,722

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



INNOVATIVE COATINGS CORPORATION

BALANCE SHEET

|LIABILITIES AND SHAREHOLDERS' DEFICIT                                                                                                                         | September 30     | December 31    
|------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------- | ---------------
|                                                                                                                                                              | 2002             | 2001           
|                                                                                                                                                              | (Unaudited)      | (Audited)      
|                                                                                                                                                              |                  |                
|CURRENT LIABILITIES                                                                                                                                           |                  |                
|Accrued Expenses                                                                                                                                              | $          2,494 | $        82,898
|Accounts Payable                                                                                                                                              | 336,220          | 264,885        
|Payroll Taxes Payable                                                                                                                                         | 348,833          | 143,663        
|Notes Payable                                                                                                                                                 | 320,811          | 50,000         
|Other Current Liabilities                                                                                                                                     | 4,816            | 0              
|Capital Lease, Current Portion                                                                                                                                | 2,271            | 3,668          
|Interest Payable                                                                                                                                              | 2,803            | 4,976          
|Total Current Liabilities                                                                                                                                     | 1,018,248        | 550,290        
|                                                                                                                                                              |                  |                
|Long Term Note Payable                                                                                                                                        | 160,000          | 0              
|Long Term Portion of Capital Lease                                                                                                                            | 12,286           | 10,993         
|Total Long-term Liabilities                                                                                                                                   | 172,286          | 10,993         
|                                                                                                                                                              |                  |                
|                                                                                                                                                              |                  |                
|TOTAL LIABILITIES                                                                                                                                             | 1,190,534        | 561,283        
|                                                                                                                                                              |                  |                
|SHAREHOLDERS' DEFICIT                                                                                                                                         |                  |                
|                                                                                                                                                              |                  |                
|Preferred Stock, 5,000,000 shares authorized, 1,247,483 shares outstanding, no par value                                                                      | 0                | 0              
|Common Stock, 15,000,000 shares authorized, no par value 8,291,887 and 7,884,637 shares outstanding at September 30, 2002 and December 31, 2001, respectively | 0                | 0              
|Paid-In-Capital                                                                                                                                               | 5,593,789        | 5,742,783,     
|Retained Earnings (Loss)                                                                                                                                      | (6,885,071)      | (6,040,344)    
|                                                                                                                                                              |                  |                
|Total Shareholders' Equity                                                                                                                                    | (921,282)        | (297,561))     
|                                                                                                                                                              |                  |                
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                    | $     269,252    | $     263,722  

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



INNOVATIVE COATINGS CORPORATION

STATEMENT OF OPERATIONS

Three months ended September 30, 2002 and 2001 (Unaudited)

|                                             | 2002          | 2001          
|-------------------------------------------- | ------------- | --------------
|                                             |               |               
|Sales net of sales discounts                 | $126,932      | $      287,224
|Cost of Materials                            | 80,534        | 169,677       
|                                             |               |               
|Gross Profit                                 | 46,398        | 117,547       
|                                             |               |               
|Selling, general and administrative expenses | 313,509       | 287,271       
|                                             |               |               
|Loss From Operations                         | (267,111)     | (169,724)     
|                                             |               |               
|Other Income (Expense)                       |               |               
|Expense Related to Issuance of Warrants      | --            | (4,000)       
|Interest Expense                             | (3,832)       | (189)         
|Net Other Income (Expense)                   | (3,832)       | (4,189)       
|                                             |               |               
|Net Loss                                     | ($   270,943) | ($  173,914)  
|                                             |               |               
|Net loss per common share                    |               |               
|Basic                                        | $ (0.03)      | $     (0.02.) 
|Weighted average shares outstanding          | 8,109,380     | 7,980,599     

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



INNOVATIVE COATINGS CORPORATION

STATEMENT OF OPERATIONS

Nine months ended September 30, 2001 and 2000 (Unaudited)

|                                             | 2002          | 2001          
|-------------------------------------------- | ------------- | --------------
|                                             |               |               
|Sales net of sales discounts                 | $498,644      | $      805,127
|Cost of Materials                            | 331,896       | 498,707       
|                                             |               |               
|Gross Profit                                 | 166,748       | 306,419       
|                                             |               |               
|Selling, general and administrative expenses | 978,379       | 1,081,025     
|                                             |               |               
|Loss From Operations                         | (811,631)     | (774,606)     
|                                             |               |               
|Other Income (Expense)                       |               |               
|Expense Related to Issuance of Warrants      | (300)         | (56,660)      
|Interest Expense                             | (32,796)      | 3,814         
|Net Other Income (Expense)                   | (33,096)      | (52,846)      
|                                             |               |               
|Income tax expense (benefit)                 | 0             | 0             
|                                             |               |               
|Net Loss                                     | ($   844,727) | ($  827,452)  
|                                             |               |               
|Net loss per common share                    |               |               
|Basic                                        | $ (0.10)      | $     (0.10)  
|Weighted average shares outstanding          | 8,109,232     | 7,980,599     



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



INNOVATIVE COATINGS CORPORATION

STATEMENTS OF CASH FLOWS

For the Period Ended September 30, 2002

|                                                                                          | Nine months Ended September 30, 2002 | Nine months Ended September 30, 2001
|----------------------------------------------------------------------------------------- | ------------------------------------ | ------------------------------------
|                                                                                          | (Unaudited)                          | (Unaudited)                         
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                     |                                      |                                     
|Net loss                                                                                  | $   (844,727)                        | $   (827,452)                       
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |                                      |                                     
|Depreciation and amortization                                                             | 15,754                               | 15,754                              
|Warrants issued for consulting services and employees                                     | 33,964                               | 56,660                              
|Interest expense due to beneficial conversion feature of debt                             | 13,067                               | 0                                   
|Shares issued for services rendered                                                       | 92,350                               | 269,025                             
|Changes in:                                                                               |                                      |                                     
|Accounts receivable                                                                       | 11,783                               | (59,412)                            
|Inventories                                                                               | (3,545)                              | 22,663                              
|Trade accounts payable                                                                    | 71,335                               | (31,847)                            
|Accrued expenses                                                                          | (80,404)                             | (8,588)                             
|Payroll taxes payable                                                                     | 205,170                              | (6,856)                             
|Interest payable                                                                          | (2,173)                              | (4,995)                             
|Deposits                                                                                  | 0                                    | (1,025)                             
|Notes Payable                                                                             | 0                                    | 22,663                              
|Other assets                                                                              | 0                                    | (59,412)                            
|Other current liabilities                                                                 | 4,816                                | 0                                   
|Total Adjustments                                                                         | 312,117                              | 184,829                             
|Net cash (used in) provided by operating activities                                       | (482,610)                            | (642,623)                           
|                                                                                          |                                      |                                     
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                     |                                      |                                     
|Purchase of property, equipment                                                           | 50                                   | 0                                   
|Employee advances and loans                                                               | (24,974)                             | 10,263                              
|Net cash used by investing activities                                                     | (24,924)                             | 10,263                              
|                                                                                          |                                      |                                     
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                     |                                      |                                     
|Payments on capital lease                                                                 | (303)                                | --                                  
|Proceeds from issuance of notes, net of repayments                                        | 430,811                              | 75,000                              
|Proceeds from exercise of warrants                                                        | 0                                    | 207,858                             
|Repurchase Of Common Stock                                                                | 0                                    | (24,000)                            
|Proceeds from sale of common stock                                                        | 81,625                               | 350,000                             
|Net cash provided by financing activities                                                 | 512,133                              | 608,858                             
|                                                                                          |                                      |                                     
|Net (decrease) increase in cash and short-term investments                                | $     4,598                          | (23,502)                            
|                                                                                          |                                      |                                     
|Cash and short-term investments at beginning of period                                    | $     3,272                          | 31,476                              
|                                                                                          |                                      |                                     
|Cash and short-term investments at end of period                                          | $     7,870                          | $ 7,974                             

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

SUPPLEMENTARY DISCLOSURE OF NONCASH TRANSACTIONS

|                                                      | 2002       | 2001        
|----------------------------------------------------- | ---------- | ------------
|Common stock issued for services rendered             | $   92,350 | $   269,025 
|Warrants issued for services rendered                 | $   33,964 | $     56,660
|Interest expense due to beneficial conversion of debt | $   13,067 | 0           
|Common stock issued upon conversion of debt           | 0          | $     75,000



INNOVATIVE COATINGS CORPORATION

NOTES TO FINANCIAL STATEMENTS

Unaudited

Nine months Ending September 30, 2002

NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS

Innovative Coatings Corporation (the "Company") was incorporated in Georgia in August 1997 and commenced operations on September 1, 1997. The Company manufactures and distributes InstaChem, a polyurea elastomeric coating used for protection and strengthening on various substrates including extruded foams, wood, metal, and concrete. The Company's principal business office is located at 1650 Airport Rd., Suite 110, Kennesaw, Georgia 30144, and its telephone number is (770) 919-0100.

The financial statements as of September 30, 2002 have been prepared by the Company without audit. These statements reflect all adjustments that are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. All such adjustments are of a normal recurring nature. The Company believes that the financial statements and disclosures are adequate to make the information not misleading.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows:

1. Use of Estimates

In preparing financial statements in conformity with generally accepted accounting principles ("GAAP"), management is required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.

2. Revenue Recognition

Revenue is recognized when persuasive evidence of an agreement exists, shipment of the product has occurred, the price to the buyer is fixed and determinable and collection is probable. The Company does not refund the purchase price of products accepted for return, but gives the customer a credit against future purchases. The Company does not reserve any amount at the time of sale for uncollectible accounts or anticipated credits for returns and warranty claims based on its experience that such claims are minimal.

3. Cash and Short-Term Investments

For purposes of reporting cash flows, cash and short-term investments include cash on hand, cash in banks and short-term investments with original maturities of less than 90 days.

4. Inventories

Inventories are stated at the lower of cost (first-in, first-out basis). Inventories consist primarily of raw material chemicals.

5. Furniture, Equipment, and Depreciation

Furniture and equipment are recorded at historical cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives on utilizing the straight-line method. Depreciation expense related to furniture and equipment charged to operations was $15,754 for the nine months ended September 30, 2002 and 2001, respectively. Estimated services life of property and equipment is generally 5 to 7 years.

6. Income Taxes

The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

7. Loss Per Share

Basic net loss per common share is based upon the weighted average number of common shares outstanding during the period. Diluted net loss per common share is based upon the weighted average number of common shares outstanding plus dilutive potential common shares, including convertible preferred shares and options and warrants outstanding during the period.

8. Fair Value of Financial Instruments

The Company's financial instruments include cash and cash equivalents and long-term debt. The carrying value of cash and cash equivalents approximates fair value due to the relatively short period to maturity of the instruments. The carrying amount of the Company's long-term debt approximates fair value based on borrowing rates currently available to the Company for borrowings with comparable terms and conditions.

NOTE C - REALIZATION OF ASSETS

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has sustained a net loss of ($844,727) for the nine months ending September 30, 2002 and ($1,313,539) for the year ending December 31, 2001, respectively. In addition, at December 31, 2001, the Company's current liabilities exceeded its current assets by $360,173, and at September 30, 2002, the Company's current liabilities exceeded current assets by $806,797. The Company has used, rather than provided, cash in its operations for both the nine-month period ending September 30, 2002, and the year ended December 31, 2001.

In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to meet its financing requirements on a continuing basis, to maintain present financing, and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

In response to the matters described in the preceding paragraphs, the Company has sold 152,250 shares of common stock for proceeds of $81,625 to sophisticated or accredited investors during the nine months ending September 30, 2002.  In addition, the Company raised capital through the following borrowings:

- On January 3, 2002, the Company executed a note payable to a customer.  Under the note, the Company is to receive $32,000 per month for nine months beginning on the date of the note.  At September 30, 2002, the note's principal balance was $160,000. The note bears interest at 6% and the entire balance of $192,000 of principal and related accrued interest was due on September 30, 2003.  The note is convertible into the Company's common stock at a price of $1.00 per share.
- In April 2002 the Company signed a note payable with its former landlord for $57,811, representing nine months of unpaid rent in 2001 and its unpaid rent to the date of the note in 2002.  The note bears interest at 8% and is payable in 12 monthly installments of principal and interest.  The unpaid rent related to 2001 is included in accounts payable in the Company's balance sheet at December 31, 2001.
- In the three months ending September 30, 2002, the Company borrowed $263,000 from six shareholders which debt is convertible into shares the Company's common stock at $0.25 per share at the Company's option prior to February 15, 2003, provided that the Company has first registered the stock issuable on conversion of the notes for resale under the Securities Act of 1933.  The notes bear no interest if converted prior to the due date.
- The retired a note in the amount of $50,000 that had matured.

Management is continuing its efforts to increase sales, decrease expenses, and raise additional capital in order to cover the Company's negative cash flow.

NOTE D - PAYROLL TAXES

The Company has not made certain required federal payroll tax payments in 2002 and has not made any of the required state payroll tax payments since its inception.  The unpaid balance of all payroll taxes as of September 30, 2002 was $348,833, including interest and penalties of $122,881.

NOTE E - COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leases space and office equipment under a non-cancelable lease that expires November 30, 2004. In 2002 the Company signed a note payable with its landlord for $57,811, representing nine months of unpaid rent in 2001 and its unpaid rent to the date of the note in 2002.  The note bears interest at 8% and is payable in 12 monthly installments of principal and interest.  The unpaid rent related to 2001 is included in accounts payable in the Company's balance sheet at December 31, 2001.  From December 1, 2001 to November 30, 2002 the monthly rent is $9,193.25, plus the Company's pro rata share of certain building expenses. From December 1, 2002 to the November 30, 2003, the monthly rent is $9,193.25 per monthly, plus the Company's pro rata share of certain building expenses. From December 1, 2003 to the expiration of the lease on November 30, 2004 the monthly rent is $8,427.08 per monthly, plus the Company's pro rata share of certain building expenses.

The Company leased a forklift during 2000 under a capital lease and payments are $4,563 per year through 2004 and a final payment of $2,662 in 2005.

Litigation

On December 12, 2001, a lawsuit styled Innovative Coatings Corporation v. Coating Solutions Unlimited, LLC, David Brown, and Parties X, Y, and Z, Civil Action No. 1:01-CV-3383-BBM, was filed in the Northern District of Georgia, seeking damages and injunctive relief for violations of the Company's trade secrets and confidential and proprietary information, infringement of the Company's patented floatation device, deceptive trade practices, unfair competition, misappropriation of trade secrets, infringement of common law copyright, conversion, tortious interference with contractual and business relations, breach of contract and breach of fiduciary duty.  The case was brought in federal court because of its exclusive jurisdiction over patent claims; the remaining claims were based on violations of Georgia statutory or common law.  On December 19, 2001, a preliminary injunction was entered against the defendants.  On April 4, 2002, the Court found the patent claim insufficient and, therefore, dismissed the remaining state law claims for lack of subject matter jurisdiction.  In May 2002, the Company refiled the case in the Superior Court of Cobb County, State of Georgia.  The case is currently in the discovery phase.

NOTE F - NOTES PAYABLE

On November 1, 2001, the Company executed a note payable to a shareholder in the amount of $50,000 due on February 1, 2002 at 10% per annum.  The note was subsequently paid off in August 2002.

On January 3, 2002, the Company executed a note payable to a customer.  Under the note, the Company is to receive $32,000 per month for nine months beginning on the date of the note.  The note bears interest at 6% and the entire balance of $192,000 of principal and related accrued interest is due on September 30, 2003.  The note is convertible into one share of the Company's common stock per dollar due under the note.  On September 30, 2002, the unpaid principal balance was $160,000.

In 2002 the Company signed a note payable with its landlord for $57,811, representing nine months of unpaid rent in 2001 and its unpaid rent to the date of the note in 2002.  The note bears interest at 8% and is payable in 12 monthly installments of principal and interest beginning in May 2002.  The unpaid rent related to 2001 is included in accounts payable in the Company's balance sheet at December 31, 2001.

In the three months ending September 30, 2002, the Company borrowed $263,000 from six shareholders which debt is convertible into common shares at $0.25 per share at the Company's option prior to February 15, 2003, provided that the Company has first registered the stock issuable on conversion of the notes for resale under the Securities Act of 1933.  The notes bear no interest if converted prior to the due date.

NOTE G - ISSUANCE OF COMMON STOCK AND WARRANTS IN PRIVATE TRANSACTIONS

During the nine months ended September 30, 2002, the Company sold 152,250 shares of common stock for $81,625 to ten sophisticated or accredited investors.

In April 2002, the Company used the residence of a shareholder for demonstration purposes and issued 15,000 warrants to the shareholder as compensation.  Each warrant is exercisable at $.60 per share for a period of one year and the warrants are callable after thirty (30) days if the Common Stock bid price closes for ten (10) consecutive days or more at or over $1.20 per share. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model with the following weighted average assumptions used for this grant: no dividend yield for each year; expected volatility of 60%; weighted-average risk-free interest rates of 3.60%, and weighted-average expected option lives of one year.  The Company recorded an expense of $300.00 associated with the issuance of these warrants.

In August 2002, the Company issued 50,000 warrants and 25,000 shares of Common Stock to an employee as compensation, and 40,000 warrants and 10,000 shares of Common Stock to another employee as compensation. On August 7, 2002, the Company issued 25,000 shares of Common Stock to an advisor for services rendered.  Each warrant is exercisable at $.21 per share for a period of one year and the warrants are callable after thirty (30) days if the Common Stock bid price closes for ten (10) consecutive days or more at or over $1.20 per share. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model with the following weighted average assumptions used for this grant: no dividend yield for each year; expected volatility of 60%; weighted-average risk-free interest rates of 3.60%, and weighted-average expected option lives of one year. The Company recorded a total non-cash expense of $22,014 associated with the issuance of these warrants.

On June 24, 2002, the Company filed a registration statement on Form S-8 to register the issuance of up to 750,000 shares under its 2002 Employee, Consultant and Advisor Stock Compensation Plan, and up to 750,000 options under its 2002 Stock Option Plan.  On August 7, 2002, the Company issued 125,000 shares of its common stock to a consultant for marketing and other services under an agreement executed in July 2002. The agreement was mutually terminated on October 2, 2002, and the Company recorded a non-cash expense of $26,250 associated with the contract.

NOTE H- SUBSEQUENT EVENTS

The Company defaulted on the note payable to its landlord in the principal amount of $57,811.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Certain statements in this General Form For Registration Of Securities Of Small Business Issuer on Form 10-SB, particularly under this Item 2, may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements, expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed herein. The words "believe," "expect", "anticipate", "seek" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date the statement was made.

Until the Company is subject to the reporting requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, the Company cannot avail itself of the safe harbor protections of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934 with respect to any forward-looking statements contained herein.

Results of Operations for the Period ending September 30, 2002

Revenues

For the nine months ending September 30, 2002, the Company had net sales of $498,644, as compared to net sales in the nine months ending September 30, 2001 of $805,127 a decrease of $306,483, or 38.0%.  Revenues decreased as a result of reduced orders received from customers affected by events on September 11, 2001, primarily due to a significant drop in sales to the shapes segment.  The shapes segment is heavily dependent on sales to amusement parks (such as Disney), which decreased capital and maintenance expenditures following a drop in customer traffic resulting from the terrorist attacks in September 2001.  In addition, revenues also decreased as a result of the reduced orders from a contractor coating railway communications buildings due to reduce capital expenditure budgets by the contractor's customer base.  In 2001, the Company generated revenues of approximately $165,000 from that contractor, but has generated less than $12,000 in revenues in 2002.  The contractor has notified the Company that its customer expects to begin coating additional buildings in the second quarter of 2003.  The Company projects that sales in its fourth quarter will return to normal levels due to a resumption of normal buying patterns in the shapes segment and the initiation of sales into the roofing, manufactured housing, and marine markets.

On September 4, 2002, the Company signed an exclusive, two-year distribution and marketing agreement with Universal Forest Products Eastern Division of Universal Forest Products, Inc. to market and distribute the Company's products to the manufactured housing industry.  The Company began to receive sales from this agreement in October 2002 in the manufactured housing market.  However, the Company's sales to other markets were adversely affected by the devotion of its executive and marketing staff to the development of the manufactured housing market.  While short-term revenues have suffered as a result of the Company's work on developing the manufactured housing market, the Company believes that the efforts are justified given the considerable size of the market.

Cost of Goods Sold

For the nine months ending September 30, 2002, cost of goods sold were $331,896, as compared to cost of goods sold in the nine months ending September 30, 2001 of $498,707, a decrease of $166,811, or 33.4%.  As a percentage of net sales, cost of goods sold increased from 61.9% to 66.6% from 2001 to 2002.  Cost of goods sold increased as a percentage of net sales as the result of less favorable pricing due to fewer volume purchases of raw materials.

Gross Profit

Gross profit for the nine months ending September 30, 2002 decreased to $166,748 from $306,419 in the nine months ending September 30, 2001. As a percentage of sales, gross profit decreased to 33.4% in 2002 from 38.0% in 2001. The decrease in gross profit in 2002 was primarily attributable to lower gross revenues, as well as less favorable pricing on raw materials due to fewer volume purchases of raw materials as described above.

General and Administrative Expenses

For the nine months ending September 30, 2002, general and administrative expenses were $978,379 as compared to $1,081,025 in the nine months ending September 30, 2001, a decrease of $102,646, or 10.5%. As a percentage of net sales, general and administrative expenses increased from 134.3% to 196.2% from 2001 to 2002. The increase in general and administrative expenses as a percentage of sales was primarily due to the drop in sales during the current period.  The overall decrease in general and administrative expenses was primarily due to lower expenses associated with the issuance of shares for consulting services than in the prior year's period.

Other Income (Expense)

For the nine months ending September 30, 2002, the Company recorded interest expense of $32,796, as compared to interest income of $3,814 in nine months ending September 30, 2001, a decrease of $36,610. Cash interest income/expense decreased in 2002 as compared to 2001 primarily as the result of increased levels of borrowing by the Company during the current period.  In addition, the Company recorded interest income of $3,814 in September 30, 2001 resulting from the reversal of accrued interest in that amount relating to interest that the Company was not required to pay in connection with the conversion of a note.

Income Taxes

In the nine months ending September 30, 2002 and September 30, 2001, the Company did not incur any income tax expense as the result of operating losses in both years.

Net Income (Loss)

In the nine months ending September 30, 2002, the Company had a net loss of ($844,727) compared to a net loss of ($827,452) in the nine months ending September 30, 2001, an increase of $17,275 or .2.1%. The Company's higher net loss was the result of increased operating losses in 2002, offset by reduced other expenses.

Liquidity and Capital Resources

As of September 30, 2002, the Company had net working capital deficit of ($806,797), as compared to a net working capital deficit of ($360,173) at December 31, 2001. The Company's increased working capital deficit was the result of continued operating losses incurred in the nine-month period, which were funded by short-term borrowings, increased levels of accounts payable, and increased levels of accrued expenses, such as payroll taxes.

The Company's operations to date have been concentrated on the development of its coatings and initial marketing expenses, as well as costs associated with the refinement of its business plan. Through September 30, 2002, the Company funded its short-term working capital needs primarily through the issuance of convertible notes and common stock in private placements.

As a part of its growth strategy, however, the Company requires greater working capital to fund the costs of product approvals and marketing expenses. If certain marketing initiatives in the manufactured housing industry result in orders, the Company projects that it will become profitable in the last quarter of fiscal 2002.  The Company is currently exploring other avenues for additional financing in order to enable the Company to expedite the implementation of its business plan and achieve profitability.  In particular, the Company has retained an investment banker to arrange an equity investment from venture capital funds.  In addition, the Company has been in active negotiations concerning an equity investment from certain of its customers or distributors.  However, there is no assurance that any such equity investment will be made, and whether any such investment will be on terms that are attractive to existing stockholders of the Company.

Going Concern Qualification

The Company's independent auditors have included an explanatory paragraph in their report on the December 31, 2001 financial statements discussing issues which raise substantial doubt about the Company's ability to continue as a "going concern." The going concern qualification is attributable to the Company's historical operating losses, the Company's lack of cash reserves and capital, and the amount of capital which the Company projects it needs to achieve profitable operations. For the year ended December 31, 2001 and during the first quarter of fiscal 2002, the Company continued to experience a negative cash flow from operations, and projects that it will need additional capital to enable it to continue operations at its current level past September 30, 2002.

Once the Company's brand and product is established, the Company expects to become profitable in a short time due to the Company's low operating costs. However, the Company's business historically takes substantial working capital to fund research and development into specific chemical formulations, the cost of obtaining health and safety approvals for a given application, and sales and marketing costs to generate sales within a new industry. The Company is looking at various options to raise additional capital from large private investors or strategic investors.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

On December 12, 2001, a lawsuit styled Innovative Coatings Corporation v. Coating Solutions Unlimited, LLC, David Brown, and Parties X, Y, and Z, Civil Action No. 1:01-CV-3383-BBM, was filed in the Northern District of Georgia, seeking damages and injunctive relief for violations of the Company's trade secrets and confidential and proprietary information, infringement of the Company's patented floatation device, deceptive trade practices, unfair competition, misappropriation of trade secrets, infringement of common law copyright, conversion, tortious interference with contractual and business relations, breach of contract and breach of fiduciary duty.  The case was brought in federal court because of its exclusive jurisdiction over patent claims; the remaining claims were based on violations of Georgia statutory or common law.  On December 19, 2001, a preliminary injunction was entered against the defendants.  On April 4, 2002, the Court found the patent claim insufficient and, therefore, dismissed the remaining state law claims for lack of subject matter jurisdiction.  In May 2002, the Company refiled the case in the Superior Court of Cobb County, State of Georgia.  The case is currently in the discovery phase.

Item 2. Changes in Securities.

Shares Issued under Section 4(2)

On August 20, 2002, the Company sold 47,500 shares of common stock to an accredited investor for $11,875.  The Company issued the shares in a transaction exempt from registration under Section 4(2).  The Company believed the person was accredited based on prior investments made by the person in the Company, representations made to the Company, or other information available to the Company about the person's business affairs. The Company also provided the person with information comparable to what is required for a private placement under Regulation D, Rules 505 or 506.

|Name of   |              |               | Amount   | Accredited (A) or
|--------- | ------------ | ------------- | -------- | -----------------
|Purchaser | Date of Sale | No. of Shares | Invested | Sophisticated (S)
|G. Mentor | 08/20/2002   | 47,500        | $11,875  | A                

Item 3. Defaults Upon Senior Securities.

The Company is in default on a note to its landlord in the principal amount of $57,811.

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

Not Applicable.

Item 5. Other Information.

Not Applicable

Item 6. Exhibits and Reports on Form 8-K.

Not Applicable.

SIGNATURES

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

|                        | INNOVATIVE COATINGS CORPORATION               
|----------------------- | ----------------------------------------------
|Date: November 19, 2002 | /s/ Jerry S. Phillips                         
|                        | By: Jerry S. Phillips, Chief Executive Officer