##### Table of Contents



UNITED STATES
Securities and Exchange Commission
 Washington, D.C. 20549
 Form 10-KSB
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended September 30, 2007
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from  to
 Commission file number: 333-91436
 ECOLOGY COATINGS, INC.
  Nevada
    
    26-0014658(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 35980 Woodward Avenue, Suite 200, Bloomfield Hills, MI 48304   (248) 723-2223
   Common Stock, $0.001 par value
    
    OTCBB(Title of class)
    
    (Name of exchange on which registered)
 o þ
 þ o
 þ
 o þ
     o þ




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##### 



FORM 10-KSB
ECOLOGY COATINGS, INC.
SEPTEMBER 30, 2007
 TABLE OF CONTENTS
 Page
  PART IITEM 1. Description of Business

1ITEM 2. Description of Properties

14ITEM 3. Legal Proceedings

14ITEM 4. Submission of Matters to a Vote of Securities Holders

14PART IIITEM 5. Market for Common Equity, Related Stockholder Matters and Small
Business Issuer Purchases of Equity Securities.

15ITEM 6. Managements Discussion and Analysis or Plan of Operation

17ITEM 7. Financial Statements

21ITEM 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure

22ITEM 8a. Controls and Procedures

22PART IIIITEM 9. Directors, Executive Officers, Promoters, and Control Persons;
Compliance with Section 16(a) of the Exchange Act

23ITEM 10. Executive Compensation

27ITEM 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters

35ITEM 12. Certain Relationships and Related Transactions

36ITEM 13. Exhibits and Reports on Form 8-K

37ITEM 14. Principal Accountant Fees and Services

41Signature Page




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PART I
    
 ITEM 1.   DESCRIPTION OF BUSINESS
  Company Overview
  1




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Business in General
     
    
    Cure faster, usually in less than a minute;
    
    Use less floor space;
    
    Use less energy;
    
    Reduce Environmental Protection Agency compliance burden because they
contain fewer toxic chemicals;
    
    Provide improved coating performance; and
    
    Help boost productivity by increasing manufacturing throughput.
 Liquid Nanotechnology
   2




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Our Solution
   Product Offerings
 Plastics
 Metals
 Glass
 Paper
 Electronics
 Medical
 3




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License Arrangements
 DuPont
 Red Spot Paint & Varnish
  Medical Device Company.
 Marketing Strategy
  
    
    Attendance 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. The sales
people will be backed by passive sales systems, including inside sales and e-commerce;
    
    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 and 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.
 4




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Sales Strategy
    Fiscal 2008 Goals
  
    
    Organize and execute one or more investor road shows where we will present the Company
to potential investors throughout the country;
    
    Secure a suitable facility and build an enhanced research laboratory and prototype
coatings line;
    
    Expand current research initiatives and intellectual property protection;
    
    Implement an aggressive investor relations and public market relations program to
generate liquidity in the Companys OTC Bulletin Board listed shares of common stock;
    
    Expand the companys in-house sales and sales channel business development team in the
domestic and foreign markets;
    
    Add more technical development employees;
    
    Locate and secure a new corporate headquarters facility; and
    
    Pursue independent, third party review of our technology through independent testing and
evaluation.
 Competition
  5




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Intellectual Property
    Research and Development
  Manufacturing
  Employees
  6




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CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
    Risks Related to the Company
 We are largely an inception stage company and have a history of operating losses
  We have entered the emerging business of nanotechnology, which carries significant developmental
and commercial risk
  7




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We
expect to continue to generate operating losses and experience negative cash flow and it is
uncertain whether we will achieve future profitability
  Our auditors have expressed a going concern opinion
  The Company will need additional financing
  We are dependent on key personnel
  8




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Risks Related to our Business
 We are operating in both mature and developing markets, and there is uncertainty as to acceptance
of our technology and products in these markets
    Long Sales Cycle
  Our target markets are characterized by new products and rapid technological change
  9




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There is a significant amount of competition in our market
  We have limited marketing capability
  We have limited manufacturing capacity
  We are dependent on manufacturers and suppliers
  10




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We are uncertain of our ability to protect technology through patents
     We are uncertain of our ability to protect our proprietary technology and information
  Risks related to our license arrangements
  11




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We have not completed our trademark registrations
  There are economic and general risks relating to business
  Risk Related to our Common Stock
 Our stock prices have 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 will make our price more
volatile. This may make it difficult for you to sell our common stock for a positive return on your
investment.
  Control by key stockholders
  12




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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
    We have never paid dividends and have no plans to do so in the future
  The issuance of options and warrants may dilute the interest of stockholders
  We have additional securities available for issuance, which, if issued, could adversely affect the
rights of the holders of our common stock
  13




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Indemnification of officers and directors
   
 ITEM 2. DESCRIPTION OF PROPERTIES
   
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
  14




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PART II
 
 ITEM 5.
    
    MARKET FOR THE COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 Market Prices
 http://finance.google.com.
 High Bid
    
    Low BidFiscal Year Ended September 30, 20071st Quarter
    
    
    3.50
    
    
    
    2.502nd Quarter
    
    
    3.40
    
    
    
    3.403rd Quarter
    
    
    5.00
    
    
    
    1.904th Quarter
    
    
    5.00
    
    
    
    2.35Fiscal Year Ended September 30, 20061st Quarter
    
    
    1.51
    
    
    
    1.512nd Quarter
    
    
    1.20
    
    
    
    1.203rd Quarter
    
    
    1.25
    
    
    
    1.254th Quarter
    
    
    1.25
    
    
    
    1.25
  Dividends
  15




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Securities Authorized for Issuance Under Equity Compensation Plans
  No. of securities tobe issuedupon exercise of
    
    Weighted average
    
    No. of securitiesoutstanding
    
    exercise price of
    
    remaining availableoptions,
    
    outstanding
    
    for future issuancewarrants
    
    options, warrants
    
    under equityPlan category
    
    and rights
    
    and rights
    
    compensation plansEquity compensation plans approved by stockholders
    
    
    4,500,000
    
    
    $
    2.03
    
    
    
    1,473,883Equity compensation plans not approved by stockholders
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-Total
    
    
    4,500,000
    
    
    $
    2.03
    
    
    
    1,473,883
 Recent Issuances of Unregistered Securities
   
    
    On December 18, 2006, the Company issued 500,000 warrants to a third party in
conjunction with the signing of a convertible note with that party.
  
    
    From October 1, 2006 through September 30, 2007, the Company issued approximately
3,026,117 options to employees and consultants under its Stock Option and Restricted Stock
Plan. The options have varying exercise prices and restriction
periods and will expire 10 years from the date of issuance.
    
    On November 8, 2006, the Company issued 600,000 shares of common stock related to a
consulting agreement with a third party.
    
    From March 21, 2007 through July 25, 2007, the Company raised $4,232,970 by offering
restricted shares of common stock through a private placement to investors at $2.00 per
share (the Capital Raise). This amount consisted of sales of shares for cash of
$2,483,500 and the conversion of debt and accrued interest of $1,749,470.
    
    On April 2, 2007, the Company issued 6,250 shares of common stock related to the Milken
Institute.
    
    On July 6, 2007, the Company issued 180,000 shares of common stock related to a
consulting agreements with two third parties.
    
    On August 9, 2007, the Company issued 20,000 shares of common stock related to a
consulting agreement with a third party
 16




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ITEM 6.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
  Overview
  Operating Results
 Years Ended September 30, 2007 and 2006
 Results From Operations
 Revenues
 Salaries and Fringe Benefits
 Professional Fees
 17




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Other General and Administrative Expenses
 Operating Losses
 Interest Income
 Interest Expense
 Income Tax Provision
 Net Loss
 Basic and Diluted Loss per Share
 18




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Operating Results
 Years Ended September 30, 2007 and September 30, 2006
 Results From Operations (contd.)
 Liquidity and Capital Resources
 Liquidity and Capital Resources
 Current and Expected Liquidity
       19




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Capital Commitments
 ContractualObligations
    
    Total
    
    
    Less Than 1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    After 5 YearsNotes Payable
    
    $
    429,602
    
    
    $
    429,602
    
    
    $
    
    
    
    $
    
    
    
    $
    Interest on notes
payable
    
    
    15,851
    
    
    
    15,851
    
    
    
    
    
    
    
    
    
    
    
    Contractual Service
Agreements
    
    
    747,782
    
    
    
    609,449
    
    
    
    138,333
    
    
    
    
    
    
    
    Equipment Leases
    
    
    4,579
    
    
    
    2,218
    
    
    
    2,361
    
    
    
    
    
    
    
    Total Contractual
Obligations
    
    $
    1,197,814
    
    
    $
    1,057,120
    
    
    $
    140,694
    
    
    $
    
    
    
    $
    
 Off-Balance Sheet Arrangements
  Critical Accounting Policies and Estimates
  Revenue Recognition.
 Income Taxes and Deferred Income Taxes.
 Property and Equipment.
 Computer equipment
    
    3-5 yearsFurniture and fixtures
    
    3-7 yearsTest equipment
    
    5-7 yearsSoftware
    
    3 years
   20




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Patents.
 Stock-Based Compensation.
 Recent Accounting Pronouncements
    
 ITEM 7.
    
    FINANCIAL STATEMENTS
  21




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ITEM 8.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 8A.
    
    CONTROLS AND PROCEDURES
    
 ITEM 8B.
    
    OTHER INFORMATION
  22




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ITEM 9.
    
    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(A) OF THE EXCHANGE ACT
  Name
    
    Age
    
    PositionRichard D. Stromback
    
    
    38
    
    
    Chairman and Chief Executive OfficerF. Thomas Krotine
    
    
    66
    
    
    Director, President and Chief Operating OfficerDavid W. Morgan
    
    
    48
    
    
    Vice President, Chief Financial Officer and TreasurerAdam S. Tracy
    
    
    30
    
    
    Vice President, General Counsel and SecretaryKevin Stolz
    
    
    44
    
    
    Controller and Chief Accounting OfficerSally J.W. Ramsey
    
    
    54
    
    
    Vice President  New Product DevelopmentTimothy Tanner
    
    
    42
    
    
    Vice President  New Business DevelopmentRobert W. Liebig
    
    
    57
    
    
    DirectorDonald Campion
    
    
    59
    
    
    Director
   Richard D. Stromback.
 F. Thomas Krotine.
 23




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David W. Morgan.
 Adam S. Tracy.
 Kevin Stolz.
 Sally Judith Weine Ramsey.
 Timothy J. Tanner
 24




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##### Table of Contents



Robert W. Liebig.
 Donald
Campion.
  Committees of the Board of Directors
 Audit Committee
    Compensation Committee
   25




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##### Table of Contents



Advisory Board
  Dr. William F. Coyro, Jr .
 Compliance with Section 16(a) of the Securities Act of 1934
   Code of Ethics
  26




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ITEM 10. EXECUTIVE COMPENSATION
  Summary Compensation Table
 Change inPensionValue andNon-Equity
    
    NonqualifiedIncentive
    
    DeferredStock
    
    Option
    
    Plan
    
    Compensation
    
    All OtherYear
    
    Salary
    
    Bonus
    
    Awards
    
    Awards
    
    Compensation
    
    Earnings
    
    Compensation
    
    TotalName (a)
    
    (b)
    
    ($) (c)
    
    ($) (d)
    
    ($) (e)
    
    ($) (f)
    
    ($) (g)
    
    ($) (h)
    
    ($) (i)
    
    ($) (j)Richard D. Stromback,
    
    
    2007
    
    
    $
    348,333
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    15,399
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    363,732Chairman & CEO (1)
    
    
    2006
    
    
    $
    100,000
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    100,000Sally J.W. Ramsey,
    
    
    2007
    
    
    $
    157,146
    
    
    $
    6,667
    
    
    $
    -0-
    
    
    $
    335,442
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    10,081
    (3)
    
    $
    509,336Vice
President  -  New
    
    
    2006
    
    
    $
    47,112
    
    
    $
    15,000
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    12,350
    (3)
    
    $
    74,462Product Development (2)F. Thomas Krotine
    
    
    2007
    
    
    $
    155,248
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    16,545
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    10,341
    (3)(7)
    
    $
    182,134President and COO, Director (4)
    
    
    2006
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-David W. Morgan (5)
    
    
    2007
    
    
    $
    60,000
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    469,786
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    6,189
    (3)(7)
    
    $
    535,975Vice President, CFO and Treasurer
    
    
    2006
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-Adam S. Tracy (6)
    
    
    2007
    
    
    $
    109,333
    
    
    $
    12,500
    
    
    $
    -0-
    
    
    $
    115,075
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    14,778
    (3)(8)
    
    $
    251,686Vice President,
    
    
    2006
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-General Counsel and Secretary
 
 (1)
    
    Mr. Strombacks salary commencing January 1, 2007 is $320,000.(2)
    
    Ms. Ramsey and the Company entered into an employment agreement on January 1, 2007.
Pursuant to such employment contract, she will receive a salary of $180,000 for the
calendar year 2007, a salary of $200,000 for the calendar years 2008 through 2011, and a
salary of $220,000 for calendar year 2012. Ms. Ramsey was awarded options to purchase
450,000 shares of common stock that vest over five years.(3)
    
    This reflects health insurance for all shown.(4)
    
    Mr. Krotines salary is $160,000 annually.(5)
    
    Mr. Morgans salary is currently $210,000 annually. For the fiscal year ended September
30, 2007, his annual salary was $160,000(6)
    
    Mr. Tracys salary is $140,000 annually. Additionally, he earned a bonus of $12,500
during the fiscal year ended September 30, 2007, though that bonus had not been paid as of
that date.(7)
    
    Reflects automobile allowances paid to Messrs. Krotine and Morgan.(8)
    
    Reflects consulting fees paid to Mr. Tracy prior to his employment by the Company and
reimbursement of subcontract employee expenses that his company, Tracy Consulting, incurred
on behalf of the Company. 27




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Compensation Policy
  Compensation Components
 Base Salary
  Stock Option
 Bonuses
 Other
   28




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29




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Outstanding Equity Awards at Fiscal Year-End
 Option Awards
    
    Stock AwardsEquity
    
    EquityIncentive
    
    IncentiveEquity
    
    
    
    
    
    
    
    
    
    Number
    
    
    
    
    
    Plan
    
    PlanIncentive
    
    
    
    
    
    
    
    
    
    of
    
    Market
    
    Awards:
    
    Awards:Plan
    
    
    
    
    
    
    
    
    
    Shares
    
    Value of
    
    Number of
    
    Market orNumber of
    
    Number of
    
    Awards:
    
    
    
    
    
    
    
    
    
    or Units
    
    Shares or
    
    Unearned
    
    Payout ValueSecurities
    
    Securities
    
    Number of
    
    
    
    
    
    
    
    
    
    of
    
    Units of
    
    Shares,
    
    of UnearnedUnderlying
    
    Underlying
    
    Securities
    
    
    
    
    
    
    
    
    
    Stock
    
    Stock
    
    Units or
    
    Shares, UnitsUnexercised
    
    Unexercised
    
    Underlying
    
    
    
    
    
    
    
    
    
    That
    
    That
    
    Other
    
    or OtherOptions
    
    Options
    
    Unexercised
    
    Option
    
    Option
    
    Have
    
    Have
    
    Rights That
    
    Rights That(#)
    
    (#)
    
    Unearned
    
    Exercise
    
    Expiration
    
    Not
    
    Not
    
    Have Not
    
    Have NotExercisable
    
    Unexercisable
    
    Options (#)
    
    Price
    
    Date
    
    Vested
    
    Vested
    
    Vested
    
    VestedName (a)
    
    (b)
    
    (c)
    
    (d)
    
    ($) (e)
    
    (f)
    
    (#) (g)
    
    ($) (h)
    
    (#) (i)
    
    ($) (j)Richard D. Stromback
    
    
    0
    
    
    
    10,000
    
    
    
    
    
    
    
    2.00
    
    
    
    3/01/2017Sally J.W. Ramsey
    
    
    0
    
    
    
    450,000
    
    
    
    
    
    
    
    2.00
    
    
    
    1/01/2017F. Thomas Krotine
    
    
    0
    
    
    
    321,217
    
    
    
    
    
    
    
    2.00
    
    
    
    11/01/20160
    
    
    
    10,000
    
    
    
    
    
    
    
    2.00
    
    
    
    3/01/2017David W. Morgan
    
    
    0
    
    
    
    300,000
    
    
    
    
    
    
    
    2.00
    
    
    
    5/21/2017Adam S. Tracy
    
    
    25,000
    
    
    
    62,000
    
    
    
    
    
    
    
    2.00
    
    
    
    7/01/20170
    
    
    
    150,000
    
    
    
    
    
    
    
    2.00
    
    
    
    11/01/2016Robert W. Liebig
    
    
    0
    
    
    
    100,000
    
    
    
    
    
    
    
    2.00
    
    
    
    3/01/2017Donald Campion
    
    
    25,000
    
    
    
    75,000
    
    
    
    
    
    
    
    2.00
    
    
    
    8/28/2017
     30




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Stock Option Plans
     31




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Compensation of Directors
  32




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Director Compensation
 Change inPension ValueandFees
    
    
    
    
    
    
    
    
    
    
    
    
    
    NonqualifiedEarned
    
    
    
    
    
    
    
    
    
    Non-Equity
    
    DeferredOr Paid
    
    Stock
    
    Option
    
    Incentive Plan
    
    Compensation
    
    All Otherin Cash
    
    Awards
    
    Awards
    
    Compensation
    
    Earnings
    
    Compensation
    
    TotalName (a)
    
    ($)(b)
    
    ($)(c)
    
    ($)(d)
    
    ($)(e)
    
    ($)(f)
    
    ($)(g)
    
    ($)(h)Richard D. Stromback
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    15,399
    (1)
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    15,399F. Thomas Krotine
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    16,545
    (2)
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    16,545Robert W. Liebig
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    153,775
    (3)
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    153,775Donald Campion
    
    $
    20,000
    
    
    $
    -0-
    
    
    $
    154,961
    (4)
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    174,961
 
 (1)
    
    Mr. Stromback has 10,000 outstanding option awards at fiscal year end 2007.(2)
    
    Mr. Krotine has 10,000 outstanding option awards at fiscal year end 2007.(3)
    
    Mr. Liebig has 100,000 outstanding option awards at fiscal year end 2007.(4)
    
    Mr. Campion has 100,000 outstanding option awards at fiscal year end 2007      33




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Employment Contracts; Termination of Employment and Change-in-Control Arrangements
       34




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##### Table of Contents



ITEM 11.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  Amount ofCommonStock andWarrants and
    
    Percent ofNature of
    
    Class ofBeneficial
    
    CommonName and Address of Beneficial Owner Group(1)(2)
    
    Ownership
    
    StockRichard D. Stromback (3)
    
    
    16,200,000
    
    
    
    50.38F. Thomas Krotine(4)
    
    
    90,237
    
    
    
    *Robert Liebig
    
    
    -0-
    
    
    
    0.00Donald Campion(5)
    
    
    25,000
    
    
    
    0.00Adam S. Tracy(6)
    
    
    25,000
    
    
    
    *Sally J.W. Ramsey
    
    
    3,000,000
    
    
    
    9.33David W. Morgan
    
    
    -0-
    
    
    
    0.00All officers and directors as a group (seven persons)
    
    
    19,340,237
    
    
    
    60.15Deanna Stromback(7)
    
    
    3,000,000
    
    
    
    9.33Douglas Stromback(7)
    
    
    3,000,000
    
    
    
    9.33
 
 *
    
    Less than one percent (1.00%).(1)
    
    The address of these persons is c/o 35980 Woodward Avenue, Suite 200, Bloomfield Hills,
Michigan 48304.(2)
    
    The foregoing beneficial owners hold investment and voting power in their shares.(3)
    
    Richard D. Strombacks total shares include 62,500 shares owned beneficially and of record by
his wife, Jill Stromback.(4)
    
    Includes options to purchase 80,237 shares of common stock exercisable within 60 days.(5)
    
    Includes options to purchase 25,000 shares of common stock exercisable within 60 days.(6)
    
    Includes options to purchase 25,000 shares of common stock exercisable within 60 days.(7)
    
    Deanna Stromback and Douglas Stromback are the sister and brother, respectively, of Richard
D. Stromback. 35




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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
        36




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ITEM 13. EXHIBITS AND REPORTS ON FORM 10-KSB.




Exhibit Description


ExhibitNumber
    
    Description2.1
    
    Agreement and Plan of Merger entered into effective as of
April 30, 2007, by and among OCIS Corp., a Nevada corporation,
OCIS-EC, INC., a Nevada corporation and a wholly-owned subsidiary
of OCIS, Jeff W. Holmes, R. Kirk Blosch and Brent W. Schlesinger
and ECOLOGY COATINGS, INC., a California corporation, and Richard
D. Stromback, Deanna Stromback and Douglas
Stromback. (2)3.1
    
    Articles of Incorporation of OCIS Corp. (1)3.2
    
    Amended and Restated Articles of Incorporation of Ecology
Coatings, Inc., a Nevada corporation (2)3.3
    
    By-laws of OCIS Corp. (1)4.1
    
    Specimen Stock Certificate of OCIS (1)4.2
    
    Form of Common Stock Certificate of the Company (2)10.1
    
    Promissory Note between Ecology Coatings, Inc., a California
corporation, and Richard D. Stromback, dated November 13, 2003.
(2)10.2
    
    Promissory Note between Ecology Coatings, Inc., a California
corporation, and Deanna Stromback, dated December 15, 2003. (2)10.3
    
    Promissory Note between Ecology Coatings, Inc., a California
corporation, and Douglas Stromback, dated August 10, 2004. (2)10.4
    
    Lock-Up Agreement by and between Ecology Coatings, Inc., a
California corporation, and the principal shareholders of OCIS,
Corp., a Nevada corporation, dated as of April 30, 2007. (2)10.5
    
    Registration Rights Agreement by and between Ecology Coatings,
Inc., a Nevada corporation, and the shareholders of OCIS, Corp., a
Nevada corporation, dated as of April 30, 2007. (2)10.6
    
    Consulting Agreement among Ecology Coatings, Inc., a Nevada
corporation, and DMG Advisors, LLC, a Nevada limited liability
company dated July 27, 2007. (2)10.7
    
    Employment Agreement between Ecology Coatings, Inc., a California
corporation and F. Thomas Krotine dated October 30, 2006 (2)10.8
    
    Employment Agreement between Ecology Coatings, Inc., a California
corporation and Adam S. Tracy dated November 1, 2006. (2)10.9
    
    Employment Agreement between Ecology Coatings, Inc., a California
corporation and Kevin Stolz dated February 1, 2007. (2)


37



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##### Table of Contents





ExhibitNumber
    
    Description10.10
    
    Employment Agreement between Ecology Coatings, Inc., a California corporation and David W.
Morgan dated May 21, 2007. (2)10.11
    
    Employment Agreement between Ecology Coatings, Inc., a California corporation and Timothy J.
Tanner dated June 1, 2007. (2)10.12
    
    First Amendment to the Employment Agreement between Ecology Coatings, Inc., a California
corporation and Adam S. Tracy dated July 1, 2007. (2)10.13
    
    Employment Agreement between Ecology Coatings, Inc., a California corporation and Sally J.W.
Ramsey dated January 1, 2007. (2)10.14
    
    License Agreement with E.I. Du Pont De Nemours and Ecology Coatings, Inc., a California
corporation, dated November 8, 2004. (2)10.15
    
    License Agreement between Ecology Coatings, Inc., a California corporation and Red Spot
Paint & Varnish Co., Inc., dated May 6, 2005. (2)10.16
    
    Lease for office space located at 35980 Woodward Avenue, Suite 200, Bloomfield Hills,
Michigan 48304. (2)10.17
    
    Lease for laboratory space located at 1238 Brittain Road, Akron, Ohio 44310. (2)10.18
    
    2007 Stock Option and Restricted Stock Plan. (2)10.19
    
    Form of Stock Option Agreement. (2)10.20
    
    Form of Subscription Agreement between Ecology Coatings, Inc., a California corporation and
the Investor to be identified therein. (2)10.21
    
    Consulting Agreement by and between Ecology Coatings, Inc., a California corporation, and
MDL Consulting Group, LLC, a Michigan limited liability company dated April 10, 2006. (2)10.22
    
    Consulting Agreement by and between Ecology Coatings, Inc. , a California corporation, and
MDL Consulting Group, LLC, a Michigan limited liability company dated July 1, 2006. (2)10.23
    
    Antenna Group Client Services Agreement by and between Ecology Coatings, Inc., a California
corporation and Antenna Group, Inc. dated March 1, 2004, as amended effective as of July 6,
2007. (2)10.24
    
    Consulting Agreement by and between Ecology Coatings, Inc., a California corporation and
Kissinger McLarty Associates, dated July 15, 2006, as amended. (2)10.25
    
    Business Advisory Board Agreement by and between Ecology Coatings, Inc., a California
corporation, and The Rationale Group, LLC, a Michigan limited liability corporation, dated
June 1, 2007. (2)10.26
    
    Consulting Agreement by and between Ecology Coatings, Inc., a California corporation, and
Trimax, LLC, a Michigan limited liability company dated June 26, 2007. (2)


38



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##### Table of Contents





ExhibitNumber
    
    Description14.1
    
    Charter of Audit Committee*14.2
    
    Charter of Compensation Committee*16.1
    
    Letter from Child, Sullivan & Company dated January 4, 2006 regarding change in certifying
accountants. (1)16.2
    
    Letter from Child, Van Wagoner & Bradshaw, PLLC, addressed to the Securities and Exchange
Commission. (3)21.1
    
    List of subsidiaries of the Company (2)23.1
    
    Consent of Semple, Marchal & Cooper L.L.P. (5)24.1
    
    Power of Attorney *31.1
    
    Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*31.2
    
    Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*32.1
    
    Certification of the Companys Chief Executive Officer Certification, pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*32.2
    
    Certification of the Companys Chief Financial Officer Certification, pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*99.1
    
    Press Release dated July 30, 2007 (2)99.2
    
    Audited Financial Statements of Ecology Coatings, Inc. as of September 30, 2005 and 2006. (2)99.3
    
    Unaudited Financial Statements of Ecology Coatings, Inc. as of March 31, 2007 and 2006. (2)99.4
    
    Press Release dated August 15,
2007.*





|    |  |                                                                                                                            
|--- |  | ---------------------------------------------------------------------------------------------------------------------------
|*   |  | Filed herewith.                                                                                                            
|   
|(1) |  | Incorporated by reference from OCIS registration statement on Form SB-2 filed with the Commission, SEC file
no. 333-91436.
|   
|(2) |  | Incorporated by reference from our Form 8-K filed with the Commission on July 30, 2007, SEC file no. 333-91436.            
|   
|(3) |  | Incorporated by reference from our Form 8-K/A filed with the Commission on August 9, 2007, SEC file
no. 333-91436.         
|   
|(4) |  | Incorporated by reference from our Form 8-K No. filed with the Commission on August 15, 2007, SEC file
no. 333-91436.      
|   
|(5) |  | Incorporated by reference from our Form 8-K/A filed with the Commission on September 17, 2007, SEC file
no. 333-91436.     

39




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40




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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  For the Year Ended September 30,2007
    
    
    2006Audit Fees
    
    $
    79,490
    *
    
    $Audit Related Fees
    
    
    43,192
    
    
    
    Tax Fees
    
    
    
    
    
    
    All Other Fees
    
    
    
    
    
    
    Total Fees
    
    $
    122,682
    
    
    $
    
        41




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##### Table of Contents



SIGNATURES
  ECOLOGY COATINGS, INC.,
a Nevada corporationBy:

/s/ David W. MorganDavid W. MorganVice President, Chief Financial Officer, and Treasurer
(Principal Financial Officer)By:

/s/ Kevin P. StolzKevin P. StolzController and Chief Accounting Officer
(Principal Accounting Officer)   Signatures
    
    Title
    
    Date/s/ Richard D. Stromback
Richard D. Stromback
    
    Chairman and Chief Executive Officer
    
    December 19, 2007/s/ F. Thomas Krotine

F. Thomas Krotine,
    
    Director, President and Chief
Operations Officer
    
    December 19, 2007/s/ Robert W. Liebig

Robert W. Liebig
    
    Director
    
    December 19, 2007/s/ Donald Campion

Donald Campion
    
    Director
    
    December 19, 2007/s/ Adam S. Tracy

Adam S. Tracy
    
    Vice President, Secretary and General
Counsel
    
    December 19, 2007/s/ Kevin P. Stolz

Kevin P. Stolz
    
    Controller and Chief Accounting Officer
(Principal Accounting Officer)
    
    December 19, 2007
 42




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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Page (s)Reports
of Independent Registered Public Accounting Firms
    
    F-1 - F-2Financial Statements:Consolidated Balance Sheets as of September 30, 2007 and 2006
    
    F-3Consolidated Statements of Operations for the Years Ended
September 30, 2007 and 2006
    
    F-5Consolidated Statements of Stockholders Equity (Deficit)
for the Years Ended September 30, 2007 and 2006
    
    F-6Consolidated Statements of Cash Flows for the Years Ended
September 30, 2007 and 2006
    
    F-7Notes to Consolidated Financial Statements
    
    F-9 to F-28




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
       
 F-2




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##### Table of Contents



ECOLOGY COATINGS, INC. AND SUBSIDIARY
 
 Consolidated Balance Sheets
  September 30, 2007
    
    September 30, 2006CurrentCash and cash equivalents
    
    $
    808,163
    
    
    $
    736,379Miscellaneous receivable
    
    
    1,118
    
    
    
    Prepaid expenses
    
    
    70,888
    
    
    
    31,357Total Current Assets
    
    
    880,169
    
    
    
    767,736Property and EquipmentComputer equipment
    
    
    11,285
    
    
    
    1,733Furniture and fixtures
    
    
    1,565
    
    
    
    1,062Test equipment
    
    
    7,313
    
    
    
    6,862Signs
    
    
    213
    
    
    
    Software
    
    
    1,332
    
    
    
    Total property and equipment
    
    
    21,708
    
    
    
    9,657Less: Accumulated depreciation
    
    
    (3,794
    )
    
    
    (1,489
    )Property and Equipment, net
    
    
    17,914
    
    
    
    8,168OtherPatents-net
    
    
    302,575
    
    
    
    230,978Trademarks-net
    
    
    3,465
    
    
    
    Total Other Assets
    
    
    306,040
    
    
    
    230,978Total Assets
    
    $
    1,204,123
    
    
    $
    1,006,882
  F-3




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##### Table of Contents



ECOLOGY COATINGS, INC. AND SUBSIDIARY
Consolidated Balance Sheets
 September 30, 2007
    
    September 30, 2006CurrentAccounts payable
    
    $
    429,790
    
    
    $
    285,666Credit card payable
    
    
    14,772
    
    
    
    Deferred revenue
    
    
    24,884
    
    
    
    41,667Accrued payroll taxes
    
    
    1,459
    
    
    
    8,577Accrued wages
    
    
    12,500
    
    
    
    33,812Franchise tax payable
    
    
    800
    
    
    
    800Interest payable
    
    
    15,851
    
    
    
    78,744Convertible notes payable, net of discount
    
    
    170,280
    
    
    
    Notes
payable - related party
    
    
    243,500
    
    
    
    Total Current Liabilities
    
    
    913,836
    
    
    
    449,266Deferred
revenue - long term portion
    
    
    
    
    
    
    24,885Convertible notes payable
    
    
    
    
    
    
    1,350,000Notes
payable - related party
    
    
    
    
    
    
    297,030Total Liabilities
    
    
    913,836
    
    
    
    2,121,181Commitments and Contingencies (Note 5)Stockholders Equity (Deficit)Preferred Stock - 10,000,000 $.001 par value and 10,000,000
no par value authorized; no shares issued or outstanding as of
September 30, 2007 and 2006, respectively
    
    
    
    
    
    
    Common Stock - 90,000,000 $.001 par value and 50,000,000
no par value authorized; 32,150,684 and 28,200,000
outstanding as of September 30, 2007 and
2006, respectively
    
    
    32,174
    
    
    
    142,000Additional paid in capital
    
    
    6,165,282
    
    
    
    Accumulated Deficit
    
    
    (5,907,169
    )
    
    
    (1,256,299
    )Total Stockholders Equity (Deficit)
    
    
    290,287
    
    
    
    (1,114,299
    )Total Liabilities and Stockholders
Equity (Deficit)
    
    $
    1,204,123
    
    
    $
    1,006,882
  F-4




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ECOLOGY COATINGS, INC. AND SUBSIDIARY
 
 Consolidated Statements of Operations
 For the Year Ended
    
    For the Year EndedSeptember 30, 2007
    
    September 30, 2006Revenues
    
    $
    41,668
    
    
    $
    41,838Salaries and fringe benefits
    
    
    1,409,840
    
    
    
    168,963Professional fees
    
    
    2,583,927
    
    
    
    326,663Other general and administrative costs
    
    
    463,199
    
    
    
    140,604Total general and administrative expenses
    
    
    4,456,966
    
    
    
    636,230Operating Loss
    
    
    (4,415,298
    )
    
    
    (594,392
    )Other Income (Expenses)Interest income
    
    
    20,940
    
    
    
    Interest expense
    
    
    (256,512
    )
    
    
    (65,234
    )Total Other Income (Expenses)
    
    
    (235,572
    )
    
    
    (65,234
    )Net Loss
    
    $
    (4,650,870
    )
    
    $
    (659,626
    )Basic and diluted net loss per share
    
    $
    (0.16
    )
    
    $
    (0.03
    )Basic and diluted weighted average
common shares outstanding
    
    
    29,178,144
    
    
    
    24,662,466
  F-5




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##### Table of Contents



ECOLOGY COATINGS, INC. AND SUBSIDIARY
 
 Statement of Changes in Shareholders Equity (Deficit) for the Years Ended September 30, 2007 and 2006
 TotalAdditional
    
    
    
    
    
    StockholdersCommon Stock
    
    Paid In
    
    Accumulated
    
    EquityShares
    
    Amount
    
    Capital
    
    (Deficit)
    
    (Deficit)Balance at October 1, 2005
    
    
    18,000,000
    
    
    $
    56,000
    
    
    $
    
    
    
    $
    (596,673
    )
    
    $
    (540,673
    )Conversion of debt into common stock
    
    
    7,200,000
    
    
    
    66,000
    
    
    
    
    
    
    
    
    
    
    
    66,000Issuance of common stock
    
    
    3,000,000
    
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    
    20,000Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (659,626
    )
    
    
    (659,626
    )Balance at September 30, 2006
    
    
    28,200,000
    
    
    $
    142,000
    
    
    
    
    
    
    $
    (1,256,299
    )
    
    $
    (1,114,299
    )Beneficial conversion feature
on convertible debt
    
    
    
    
    
    
    
    
    
    
    116,819
    
    
    
    
    
    
    
    116,819Stock option expense
    
    
    
    
    
    
    
    
    
    
    1,288,670
    
    
    
    
    
    
    
    1,288,670Warrants issued with debt
    
    
    
    
    
    
    
    
    
    
    4,497
    
    
    
    
    
    
    
    4,497Issuance of stock, net of issuance costs of $10,789
    
    
    3,950,684
    
    
    
    4,645,470
    
    
    
    
    
    
    
    
    
    
    
    4,645,470Creation of par value stock
    
    
    
    
    
    
    (4,755,296
    )
    
    
    4,755,296
    
    
    
    
    
    
    
    Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,650,870
    )
    
    
    (4,650,870
    )Balance at September 30, 2007
    
    
    32,150,684
    
    
    $
    32,174
    
    
    $
    6,165,282
    
    
    $
    (5,907,169
    )
    
    $
    290,287
  F-6




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##### Table of Contents



ECOLOGY COATINGS, INC. AND SUBSIDIARY
 
 Consolidated Statements of Cash Flows
 For the Year
    
    For the YearEnded
    
    EndedSeptember 30, 2007
    
    September 30, 2006CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (4,650,870
    )
    
    $
    (659,626
    )Adjustments to reconcile net loss
to net cash (used in) operating activities:Depreciation and amortization
    
    
    12,757
    
    
    
    921Option expense
    
    
    1,288,670
    
    
    
    Interest paid through conversion to stock
    
    
    137,391
    
    
    
    Beneficial conversion expense
    
    
    116,819
    
    
    
    Issuance of stock for services
    
    
    412,500
    
    
    
    20,000Warrants issued with debt
    
    
    4,497Changes in Asset and LiabilitiesAccounts receivable
    
    
    
    
    
    
    303Miscellaneous receivable
    
    
    (1,118
    )
    
    
    Prepaid expenses
    
    
    (39,531
    )
    
    
    (31,357
    )Accounts payable
    
    
    144,122
    
    
    
    60,969Accrued payroll taxes and wages
    
    
    (28,428
    )
    
    
    105,811Credit card payable
    
    
    14,772
    
    
    
    Interest payable
    
    
    (62,893
    )
    
    
    Franchise tax payable
    
    
    
    
    
    
    (392
    )Deferred revenue
    
    
    (41,668
    )
    
    
    (41,667
    )Net Cash Used in Operating Activities
    
    
    (2,692,280
    )
    
    
    (545,038
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchase of fixed assets
    
    
    (12,050
    )
    
    
    (6,686
    )Purchase of intangibles
    
    
    (85,514
    )
    
    
    (122,062
    )Net Cash Used by Investing Activities
    
    
    (97,564
    )
    
    
    (128,748
    )CASH FLOWS FROM FINANCING ACTIVITIESIncrease/(Reduction) of notes payable - related parties
    
    
    (53,530
    )
    
    
    Increase/(Reduction) of notes payable
    
    
    (67,642
    )
    
    
    Proceeds from debt
    
    
    500,000
    
    
    
    1,400,000Issuance of stock
    
    
    2,483,500
    
    
    
    Net Cash Provided by Financing Activities
    
    
    2,862,328
    
    
    
    1,400,000Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    71,784
    
    
    
    726,214CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD
    
    
    736,379
    
    
    
    10,165CASH AND CASH EQUIVALENTS AT END
OF PERIOD
    
    $
    808,163
    
    
    $
    736,379
  F-7




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##### Table of Contents



ECOLOGY COATINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
 For the Year
    
    For the YearEnded
    
    EndedSeptember 30, 2007
    
    September 30, 2006SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATIONInterest paid
    
    $
    114,253
    
    
    $
    Income taxes paid
    
    $
    
    
    
    $
    SUPPLEMENTAL DISCLOSURE OF NON-CASH
FINANCING ACTIVITIESConversion of notes and interest for common stock
    
    $
    1,749,470
    
    
    $
    66,000Issuance of common stock for services
    
    $
    412,500
    
    
    $
    20,000
  F-8




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##### Table of Contents



ECOLOGY COATINGS, INC. AND SUBSIDAIRY
 
 NOTES TO CONSOLDIATED FINANCIAL STATEMENTS
 Note
1 - Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates
 Description of the Company.
 Principles of Consolidation.
 Use of Estimates.
 Cash and Cash Equivalents.
 Revenue Recognition.
 F-9




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##### Table of Contents



ECOLOGY COATINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 Note
1 - Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates
(continued)
 Loss Per Share.
 Income Taxes and Deferred Income Taxes.
 F-10




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##### Table of Contents



ECOLOGY COATINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 Note
1 - Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates
(continued)
 Property and Equipment.
 Computer equipment
    
    3-5 yearsFurniture and fixtures
    
    3-7 yearsTest equipment
    
    5-7 yearsSoftware
    
    3 years
   Patents.
 Stock-Based Compensation. Share-Based Payment
  F-11




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##### Table of Contents



ECOLOGY COATINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 Note
1 - Summary of Significant Accounting Policies, Nature of Operations and Use of Estimates
(continued)
 Expense Categories.
 Recent Accounting Pronouncements .
   F-12




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##### Table of Contents



ECOLOGY COATINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 Note 2 Concentrations
   F-13




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##### Table of Contents



ECOLOGY COATINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 Note 3Related Party Transactions
  
    
    The Company has an unsecured note payable due to a shareholder and former director that
bears interest at 4% per annum with principal and interest due on December 31, 2007. As of
September 30, 2007 and 2006, the note had an outstanding balance of $110,500 and $135,530,
respectively. The accrued interest on the note is $3,836 and $7,690 as of September 30,
2007 and 2006, respectively.
    
    The Company has an unsecured note payable due to a shareholder and former director that
bears interest at 4% per annum with principal and interest due on December 31, 2007. As of
September 30, 2007 and 2006, the note had an outstanding balance of $133,000 and $161,500,
respectively. The accrued interest on the note is $4,617 and $10,460 as of September 30,
2007 and 2006, respectively.
    
    The Company had an unsecured note payable due to a majority shareholder, officer and
director that bore interest at 4% per annum with principal and interest due on December 31,
2007. As of September 30, 2007 and 2006, the note has an outstanding balance of $0. The
unpaid accrued interest on the note is $2,584 as of September 30, 2007 and 2006,
respectively.
  Year Ending September 30,2008
    
    $
    243,500
   F-14




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##### Table of Contents



ECOLOGY COATINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 Note 4Notes Payable
  September 30,2007
    
    
    September 30, 2006Convertible note payable, 20% per annum
interest rate, principal and interest payment
due December 31, 2007; unsecured, accrued
interest of $130 outstanding at September 30,
2007, convertible at holders option into
common shares of the Company. Conversion price
is $1.60 per share. This note is stated net of
an unamortized discount of $2,400 at September
30, 2007.
    
    $
    708
    
    
    $
    50,000Convertible note payable, 15% per annum
interest rate, principal and interest payment
due December 31, 2007; unsecured, convertible
at holders option into common shares of the
Company at $1.60 per share. Accrued interest
of $4,268 is outstanding as of September 30,
2007. This note is stated net of an
unamortized discount of $13,422 at September
30, 2007.
    
    
    145,873
    
    
    
    300,000Convertible subordinated note payable, 7.5%
per annum interest rate. Principal and
interest payment due December 31, 2007;
unsecured, convertible at holders option into
common shares of the Company at a price per
share of $2.00. Accrued interest of $415 is
outstanding as of September 30, 2007.
    
    
    26,461
    
    
    
    1,000,000Total convertible notes payable
    
    $
    173,042
    
    
    $
    1,350,000
  Year Ending September 30,2008
    
    $
    173,042
  F-15




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##### Table of Contents



ECOLOGY COATINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 Note 5 - Commitments and Contingencies
 Consulting Agreements.
    F-16




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##### Table of Contents



ECOLOGY COATINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 Note 5 - Commitments and Contingencies (continued)
 Consulting Agreements (continued)
   F-17




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##### Table of Contents



ECOLOGY COATINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 Note 5 - Commitments and Contingencies (continued)
 Employment Agreements.
     F-18




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##### Table of Contents



ECOLOGY COATINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 Note 5 - Commitments and Contingencies (continued)
 Employment Agreements (continued).
 Contingencies.
 Lease Commitments.
 a.
    
    On August 1, 2005, the Company leased its office facilities in Akron, Ohio for
a rent of $1,800 per month. The lease expired July 1, 2006 and was renewed under the
same terms through August 31, 2007. The Company now leases that property on a
month-to-month basis for the same rent. Rent expense for the years ended September 30,
2007 and 2006 was $21,600 and $19,800, respectively.b.
    
    On September 1, 2006, the Company leased its office space in Bloomfield Hills,
Michigan with monthly payments of $1,800. A new lease was executed on April 1, 2007
with monthly payments of $3,200. The lease is on a month-to-month basis until
terminated by tenant or landlord upon 30 days notice. The monthly lease amount was
reduced to $2,400 on September 1, 2007. Rent expense for the year ended September 30,
2007 and September 30, 2006 was $28,850 and $1,800, respectively.c.
    
    On January 5, 2004, the Company leased computer equipment with 48 monthly
payments of $81. The Company recognized expense of $972 for the years ended September
30, 2007 and 2006, respectively, related to this lease.d.
    
    On January 9, 2006, the Company leased computer equipment with 24 monthly
payments of $147. The Company recognized expense of $1,764 and $1,323 for the years
ended September 30, 2007 and 2006, respectively, related to this lease.e.
    
    On April 17, 2006, the Company leased computer equipment with 36 monthly
payments of $75. The Company recognized expense of $901 and $375, respectively, for
the years ended September 30, 2007 and September 30, 2006 related to this lease.f.
    
    On June 17, 2007, the Company leased computer equipment with 36 monthly
payments of $42. The Company recognized expense of $126 for the year ended September
30, 2007 related to this lease.
 F-19




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##### Table of Contents



ECOLOGY COATINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 Note 5
- Commitments and Contingencies (continued)
 Lease Commitments. (continued)
 g.
    
    On July 17, 2007, the Company leased computer equipment with 36 monthly
payments of $44. The Company recognized expense of $88 for the year ended September
30, 2007 related to this lease.
  Year Ending September 30,2008
    
    $
    2,2172009
    
    
    1,5492010
    
    
    811$
    4,577
 Note 6  Equity
 Reverse Merger.
 Stock Split.
 Warrants.
 F-20




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##### Table of Contents



ECOLOGY COATINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 Note 6  Equity (continued)
 Equity Offering.
 Equity Issuance.
 Stock Issuance.
 Stock Issuance.
 Note 7  Stock Options
 Stock
Option Plan.
  WeightedWeighted
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    (Remaining)Exercise Price
    
    
    Number of
    
    
    Contractual
    
    
    Aggregateper Share
    
    
    Options
    
    
    Term
    
    
    Fair ValueOutstanding as of
September 30, 2006
    
    $
    2.00
    
    
    
    150,000
    
    
    
    9.6
    
    
    $
    Granted
    
    $
    2.04
    
    
    
    3,026,117
    
    
    
    9.5
    
    
    $
    3,488,422Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding as of
September 30, 2007
    
    $
    2.03
    
    
    
    3,176,117
    
    
    
    9.5
    
    
    $
    3,488,422Exercisable
    
    $
    2.00
    
    
    
    375,800
    
    
    
    9.8
    
    
    $
    552,540
 F-21




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##### Table of Contents



ECOLOGY COATINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 Note 7  Stock Options (continued)
 Stock Option Plan (continued)
 Accounting for Stock-Based Compensation
   Dividend
    
    NoneExpected volatility
    
    94.29%-101.73%Risk free interest rate
    
    4.25%-5.11%Expected life
    
    5.9 years
    F-22




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##### Table of Contents



ECOLOGY COATINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 NOTE 8  INCOME TAXES
 th th
    2007
    
    
    2006Assets:Federal loss carry forwards
    
    $
    1,481,936
    
    
    $
    261,359Cash basis accounting differences
    
    
    89,925
    
    
    
    133,119Depreciation timing differences
    
    
    939Liability:Depreciation timing differences
    
    
    
    
    
    
    (124
    )Deferred tax asset
    
    
    1,572,800
    
    
    
    394,354Valuation allowance
    
    
    (1,572,800
    )
    
    
    (394,354
    )Net deferred tax asset
    
    $
    
    
    
    $
    
  F-23




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##### Table of Contents



ECOLOGY COATINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 Note 8  Income Taxes (continued)
  Tax Rate Reconciliation
    
    2007
    
    
    2006Income tax expense (benefit) at the statutory tax rate
    
    $
    (1,581,296
    )
    
    $
    (224,273
    )Compensation and BCF expense
    
    
    431,266
    
    
    
    Other permanent differences, net
    
    
    (28,416
    )
    
    
    593Valuation Allowance
    
    
    1,178,446
    
    
    
    223,680$
    
    
    
    $
    
   Note 9  Going Concern
   F-24




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##### Table of Contents



ECOLOGY COATINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 Note 10  Subsequent Events
   Note 11  Unaudited Condensed Pro Forma Financial Statements
    F-25




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##### Table of Contents



ECOLOGY COATINGS, INC.
UNAUDITED CONDENSED PRO FORMA INCOME STATEMENT
 Pro Forma
    
    
    
    
    
    
    Pro FormaECI
    
    
    OCIS
    
    
    Adjustments
    
    
    
    
    
    
    ConsolidatedRevenues
    
    $
    41,668
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    41,668General and administrative costs
    
    
    4,456,966
    
    
    
    35,912
    
    
    
    
    
    
    
    
    
    
    
    4,492,878Operating Loss
    
    
    (4,415,298
    )
    
    
    (35,912
    )
    
    
    
    
    
    
    
    
    
    $
    (4,451,210
    )Other Income (Expenses)
    
    
    
    
    
    
    2,195
    
    
    
    
    
    
    
    
    
    
    $
    2,195Interest income
    
    
    20,940
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    20,940Interest expense
    
    
    (256,512
    )
    
    
    1
    
    
    $
    110,020
    
    
    
    A
    
    
    
    (146,491
    )Total Other Income (Expenses)
    
    
    (235,572
    )
    
    
    2,194
    
    
    $
    110,020
    
    
    
    
    
    
    
    (123,358
    )Net Loss from Continuing Operations
    
    
    (4,650,870
    )
    
    
    (33,718
    )
    
    $
    110,020
    
    
    
    
    
    
    
    (4,574,568
    )Net Loss
    
    $
    (4,650,870
    )
    
    $
    (33,718
    )
    
    $
    110,020
    
    
    
    
    
    
    
    (4,574,568
    )Basic and diluted net loss per share:Total basic and diluted net loss per share:
    
    
    (0.18
    )
    
    
    (0.02
    )
    
    
    
    
    
    
    
    
    
    
    (0.16
    )Basic and diluted weighted average of
common shares outstanding
    
    
    27,548,144
    
    
    
    1,600,000
    
    
    
    
    
    
    
    
    
    
    
    29,178,144
 
    F-26




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##### Table of Contents



ECOLOGY COATINGS, INC.
UNAUDITED CONDENSED PRO FORMA INCOME STATEMENT
 Pro Forma
    
    
    
    
    
    
    Pro FormaECI
    
    
    OCIS
    
    
    Adjustments
    
    
    
    
    
    
    ConsolidatedRevenues
    
    $
    41,838
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    41,838General and administrative costs
    
    
    636,230
    
    
    
    16,679
    
    
    
    
    
    
    
    
    
    
    
    652,909Operating Loss
    
    
    (594,392
    )
    
    
    (16,679
    )
    
    
    
    
    
    
    
    
    
    
    (611,071
    )Interest income
    
    
    
    
    
    
    1,318
    
    
    
    
    
    
    
    
    
    
    
    1,31838,640
    
    
    
    AInterest expense
    
    
    (65,234
    )
    
    
    
    
    
    
    (27,305
    )
    
    
    B
    
    
    
    (53,899
    )Total Other Income (Expenses)
    
    
    (65,234
    )
    
    
    1,318
    
    
    
    
    
    
    
    
    
    
    
    (52,581
    )Net Loss from Continuing Operations
    
    
    (659,626
    )
    
    
    (15,361
    )
    
    
    
    
    
    
    
    
    
    
    (663,652
    )Net Profit from Discontinued Operations
    
    
    
    
    
    
    8,485
    
    
    
    
    
    
    
    
    
    
    
    8,845Net Loss
    
    $
    (659,626
    )
    
    $
    (6,876
    )
    
    
    
    
    
    
    
    
    
    $
    (654,807
    )Basic and diluted net loss per share:Continuing operations
    
    
    (0.03
    )
    
    
    (0.00
    )
    
    
    
    
    
    
    
    
    
    
    (0.02
    )Discontinued operations
    
    
    
    
    
    
    0.01
    
    
    
    
    
    
    
    
    
    
    
    Total basic and diluted net loss per share:
    
    
    (0.03
    )
    
    
    (0.01
    )
    
    
    
    
    
    
    
    
    
    
    (0.02
    )Basic and diluted weighted average of
common shares outstanding
    
    
    24,662,466
    
    
    
    1,600,000
    
    
    
    
    
    
    
    
    
    
    
    32,130,684
 
     F-27