firstqfy2012.htm

UNITED STATES

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2011


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 333-91436

ECOLOGY COATINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)


Nevada		26-0014658
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

24663 Mound Road, Warren MI 48091

(Address of principal executive offices) (Zip Code)

(586) 486-5308

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No □

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o	Accelerated Filer o
Non-accelerated filer o	Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of stock, as of the latest practicable date.

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of January 31, 2012, the number of shares of common stock of the registrant outstanding was 16,331,882 and the number of shares of convertible preferred stock outstanding was 2,122.

ECOLOGY COATINGS, INC.

FORM 10-Q INDEX

FOR THE QUARTER ENDED DECEMBER 31, 2011

		Page

PART I — FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)	5

	Unaudited Consolidated Balance Sheets at December 31, 2011 and September 30, 2011	5

	Unaudited Consolidated Statements of Operations for the Three Months Ended December 31, 2011 and 2010	7

	Unaudited Consolidated Statements of Cash Flows for the Three Months Ended December 31, 2011 and 2010	8

	Notes to Unaudited Consolidated Financial Statements	10

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	20

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	23

ITEM 4.	CONTROLS AND PROCEDURES	23

PART II — OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	24

ITEM 1A.	RISK FACTORS	24

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	30

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	31

ITEM 6.	EXHIBITS	31

SIGNATURES		32

ECOLOGY COATINGS, INC. AND SUBSIDIARY
Unaudited Consolidated Balance Sheets
ASSETS
	December 31, 2011		September 30, 2011

Current assets
Cash	$	30,197	$	71,784
Prepaid expenses		22,515		30,137

Current Assets		52,712		102,921

Property, plant and equipment
Computer equipment		32,000		31,650
Furniture and fixtures		22,803		22,803
Test equipment		40,598		40,598
Signs		213		213
Software		6,057		6,057
Video		48,177		48,177
Property, plant and equipment		149,848		149,498
Accumulated depreciation		(93,426)		(89,837)

Property, plant and equipment, net		56,422		59,661

Other
Patents-net		210,499		198,915
Trademarks-net		9,454		8,899

Other assets		219,953		207,814

Total Assets	$	329,087	$	369,396

See the accompanying notes to the unaudited consolidated financial statements.

ECOLOGY COATINGS, INC. AND SUBSIDIARY
Unaudited Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' DEFICIT
	December 31, 2011			September 30, 2011

Current liabilities
Accounts payable	$	40,030	$		27,945
Credit card payable		4,248			-
Accrued liabilities		84,704			217,951
Interest payable		447,024			405,274
Notes payable		250,000			250,000
Notes payable - related party		843,500			900,332
Preferred dividends payable		8,402			31,566
Total current liabilities		1,677,908			1,833,068

Commitments and Contingencies (Note 5)

Stockholders' deficit
Preferred stock - 10,000,000 $.001 par value shares authorized; 2,122 and 1,938 shares issued and outstanding as of December 31, 2011 and September 30, 2011, respectively		7			7
Common stock - 90,000,000 $.001 par value shares authorized; 16,331,882 and 14,158,506 issued and outstanding as of December 31, 2011 and September 30, 2011, respectively		16,331			14,159
Additional paid-in capital		27,878,171			27,296,580
Accumulated deficit		(29,243,330)			(28,774,419)

Total stockholders' deficit		(1,348,821)			(1,463,673)

Total liabilities and stockholders'
Deficit	$	329,087		$	369,396

See the accompanying notes to the unaudited consolidated financial statements.

	ECOLOGY COATINGS, INC. AND SUBSIDIARY
	Unaudited Consolidated Statements of Operations


	For the three months ended	For the three months ended
	December 31, 2011	December 31, 2010


Revenues	$ 2,049	$ 2,470

Officer salaries and fringe benefits	158,357	129,406
Professional fees	93,642	30,168
Other general and administrative expense	209,027	211,073
Total general and administrative expenses	461,026	370,647

Operating loss	(458,977)	(368,177)

Other income (expense)
Income from forgiveness of payables and debt	228,802	-
Other non-operating income	-	763
Interest expense	(46,964)	(56,525)
Total other income (expenses) - net	(181,838)	(55,762)

Net loss	$(277,139)	$(423,939)

Preferred dividend – beneficial
conversion	(170,000)	-
Preferred dividends – stock dividends	(21,772)	(30,972)

Net loss available to common shareholders	(468,911)	(454,911)

Basic and diluted net loss per share	$(0.03)	$(0.07)

Basic and diluted weighted average
shares outstanding	16,138,232	6,914,987

See the accompanying notes to the unaudited consolidated financial statements.

ECOLOGY COATINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
	For the	For the
	three months ended	three months ended
	December 31, 2011	December 31, 2010
OPERATING ACTIVITIES
Net loss	$(277,139)	$(423,939)
Adjustments to reconcile net loss
to net cash used in operating activities:
Income from forgiveness of payables and debt	(228,802)	-
Depreciation and amortization	8,364	9,970
Option expense	87,631	163,743
Issuance of stock for payables, services	11,195	-
Loss from patent abandonment	-	-
Changes in Asset and Liabilities
Prepaid expenses	7,621	3,769

Accounts payable	12,084	16,001
Accrued liabilities	44,704	24,019
Credit card payable	4,248	(26)
Interest payable	(36,536)	53,100
Net Cash Used In Operating Activities	(293,558)	(153,363)
INVESTING ACTIVITIES
Purchase of fixed assets	(350)	-
Purchase of patents and trademarks	(17,680)	(1,230)
Net Cash Used in Investing Activities	(18,030)	(1,230)
FINANCING ACTIVITIES

Proceeds from issuance of debt	-	172,000
Proceeds from issuance of convertible preferred stock	270,000	-
Net Cash Provided By Financing Activities	270,000	172,000

Net Change in Cash	(41,587)	17,407

CASH AT BEGINNING
BEGINNING OF PERIOD	71,784	2,814
CASH AT END
OF PERIOD	$30,197	$ 20,221

See the accompanying notes to the unaudited consolidated financial statements.

ECOLOGY COATINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
	For the	For the
	three months ended	three months ended
	December 31, 2011	December 31, 2010
Debt converted into preferred shares	$243,747	-

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Interest paid	$ -	$ -
Income taxes	$ -	$ -

See the accompanying notes to the unaudited consolidated financial statements.

ECOLOGY COATINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2011 AND SEPTEMBER 30, 2010

Note 1 — Summary of Significant Accounting Policies

Description of the Company. We were originally incorporated on March 12, 1990 in California (“Ecology-CA”). Our current entity was incorporated in Nevada on February 6, 2002 as OCIS Corp. (“OCIS”). OCIS completed a merger with Ecology-CA on July 26, 2007 (the “Merger”). In the Merger, OCIS changed its name from OCIS Corporation to Ecology Coatings, Inc. We develop ultra-violet curable coatings that are designed to drive efficiencies and clean processes in manufacturing. We create proprietary coatings with unique performance and environmental attributes by leveraging our platform of integrated nano-material technologies that reduce overall energy consumption and offer a marked decrease in drying time. Ecology’s target markets consist of electronics, automotive and trucking, paper products and original equipment manufacturers (“OEMs”).

Interim Reporting. While the information presented in the accompanying interim consolidated financial statements is unaudited, it includes all normal recurring adjustments, which are, in the opinion of management, necessary to present fairly the financial position, results of operations and cash flows for the interim periods presented in accordance with accounting principles generally accepted in the United States of America. These interim consolidated financial statements follow the same accounting policies and methods of their application as the September 30, 2010 audited annual consolidated financial statements of Ecology Coatings, Inc. (“we”, “us”, the “Company” or “Ecology”). It is suggested that these interim consolidated financial statements be read in conjunction with our September 30, 2011 annual consolidated financial statements included in the Form 10-K we filed with the Securities and Exchange Commission on December 28, 2011.

Our operating results for the three months ended December 31, 2011 are not necessarily indicative of the results that can be expected for the year ending September 30, 2012 or for any other period.

Reclassifications have been made to prior period financial statements to conform with the current quarter presentation.

Basis of Presentation. On February 7, 2011, our shareholders approved a 1-for-5 reverse stock split. In accordance with U.S. Generally Accepted Accounting Principles, we have restated all per share related information to conform to this reverse split for all periods presented. This includes information related to stock options, warrants, and convertible preferred shares. See Note 6.

Principles of Consolidation. The consolidated financial statements include all of our accounts and the accounts of our wholly owned subsidiary Ecology-CA. All significant intercompany transactions have been eliminated in consolidation.

Use of Estimates. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts of assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition. Revenues from licensing contracts are recorded ratably over the life of the contract. Contingency earnings such as royalty fees are recorded when the amount can reasonably be determined and collection is likely.

Income from forgiveness of payables and debt. Income from the forgiveness of payables and/or debt is recognized when all of the conditions associated with the forgiveness have been met. During the three months ended December 31, 2011, we recognized $228,802 in income from forgiveness of payables and debt.

Loss Per Share. Basic loss per share is computed by dividing the net loss available to common shareholders by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed by dividing the net loss available to common shareholders by the weighted average number of shares of common stock and potentially dilutive securities outstanding during the period. Potentially dilutive shares consist of the incremental common shares issuable upon the exercise of stock options and warrants and the conversion of convertible debt and convertible preferred stock. Potentially dilutive shares are excluded from the weighted average number of shares if their effect is anti-dilutive. None of the stock options or warrants outstanding or stock associated with the convertible debt or with the convertible preferred shares during each of the periods presented was included in the computation of diluted loss per share as they were anti-dilutive. As of December 31, 2011 and September 30, 2011, there were 37,494,972 and 34,795,261 potentially dilutive shares outstanding, respectively.

Property and Equipment. Property and equipment is stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the following useful lives:


Computer equipment		3-10 years
Furniture and fixtures		3-7 years
Test equipment		5-7 years
Signs		7 years
Software		3 years
Marketing and Promotional Video		3 years

Repairs and maintenance costs are charged to operations as incurred. Betterments or renewals are capitalized as incurred.

Patents. It is our policy to capitalize costs associated with securing a patent. Costs consist of legal and filing fees. Once a patent is issued, it will be amortized on a straight-line basis over its estimated useful life. Seven patents were issued as of December 31, 2011 and are being amortized over 8 years.

Long-Lived Assets. We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Stock-Based Compensation. Employee and director stock-based compensation expense is measured utilizing the fair-value method with expense charged to earnings over the vesting period on a straight-line basis.

We account for stock options granted to non-employees under the fair-value method with stock-based compensation expense being charged to earnings on the earlier of the date services are performed or a performance commitment exists.

Expense Categories. Salaries and Fringe Benefits of $158,357 and $129,406 for the three months ended December 31, 2011 and 2010, respectively, include wages paid to and insurance benefits for our officers. Professional fees of $93,642 and $30,168 for the years ended December 31, 2011 and 2010, respectively, include amounts paid to attorneys, accountants, and consultants, as well as any stock based compensation expense for those services.

Recent Accounting Pronouncements

We have reviewed all Accounting Standards Updates issued by the Financial Accounting Standards Board since we last issued financial statements as part of our Form 10-K filed on December 28, 2011 and have determined none of them would have a material effect on our consolidated financial statements upon adoption.

Note 2 — Concentrations

For the three months ended December 31, 2011 and 2010, we had revenues of $2,049 and $2,470, respectively. Three customers accounted for all of our revenues for the three months ended December 31, 2011 and one customer accounted for all of our revenues for the three months ended December 31, 2010. As of December 31, 2011 and 2010, no amounts were due from our customers.

Note 3 — Related Party Transactions

We have borrowed funds for our operations from certain major stockholders, directors and officers as disclosed below.

We have an unsecured note payable due to Deanna Stromback, a principal shareholder and former director and sister of our former Chairman, Rich Stromback, which bears interest at 4% per annum with principal and interest due on December 31, 2009. As of December 31, 2011 and September 30, 2011, the note had an outstanding balance of $110,500. The accrued interest on the note was $24,842 and $23,491 as of December 31, 2011 and September 30, 2011, respectively. The note is currently in default and carries conversion rights that allow the holder to convert all or part of the outstanding balance into shares of our common stock upon mutually agreeable terms and conversion price.

We have an unsecured note payable due to Doug Stromback, a principal shareholder and former director and brother of our former Chairman, Rich Stromback, which bears interest at 4% per annum with principal and interest due on December 31, 2009. As of December 31, 2011 and September 30, 2011, the note had an outstanding balance of $133,000. The accrued interest on the note was $29,907 and $28,281 as of December 31, 2011 and September 30, 2011, respectively. The note is currently in default and carries conversion rights that allow the holder to convert all or part of the outstanding balance into shares of our common stock upon mutually agreeable terms and conversion price.

We have a secured note payable to John Salpietra, a member of our Board of Directors. This note bears interest at 4.75% per annum, is secured by a lien on our intellectual property, and is convertible into shares of our common stock at $.06 per share. On December 15, 2011, the parties agreed to extend the due date to December 4, 2012. As of December 31, 2011 and September 30, 2011, the note had an outstanding balance of $600,000. Accrued interest of $43,985 and $36,366 was outstanding as of December 31, 2011 and September 30, 2011, respectively.

On September 2, 2010, we entered into a lease with Omega Development Corporation for office space for our headquarters located in Warren, Michigan. Omega Development Corporation is owned by the Chairman of our Board of Directors, James Juliano, who is also a member of Fairmount Five, LLC who is our largest shareholder. Effective May 1, 2011, we entered into a lease with J.M. Land Co. for the same office space. J.M. Land Co. is owned by James Juliano. We pay monthly rent of $1,000, and the gas and electric utilities which has historically averaged approximately $1,000 per month. See also Note 5—Commitments and Contingencies—Lease Agreements.

We paid $12,000 in director fees to our Chairman James Juliano for the three months ended December 31, 2011. We did not pay any director fees to Mr. Juliano for the three months ended December 31, 2010.

Note 4 — Notes Payable

We have the following notes:

	December 31, 2011	September 30, 2011


Mitchell Shaheen Note: Subordinated note payable, 25% per annum, unsecured, principal and interest was due July 18, 2008. Additionally, the Company issued a warrant to purchase 20,000 shares of the Company’s common stock at a price equal to $3.75 per share (the “Warrant”). The Warrant is exercisable immediately and carries a ten (10) year term. If applicable, the Company has agreed to include the Conversion Shares in its first registration statement filed with the Securities and Exchange Commission. . Accrued interest of $205,296 and $183,776 was outstanding as of December 31, 2011 and September 30, 2011, respectively. Mr. Shaheen has filed suit for repayment and a judgment in his favor was entered for this note and the note discussed below on December 30, 2011 in the amount of $604,330.	150,000		150,000

Mitchell Shaheen Note: Subordinated note payable, 25% per annum, unsecured, principal and interest was due August 10, 2008. Additionally, the Company issued a warrant to purchase 20,000 shares of the Company’s common stock at a price equal to $2.50 per share (the “Warrant”). The Warrant is exercisable immediately and carries a ten (10) year term. If applicable, the Company has agreed to include the Conversion Shares in its first registration statement filed with the Securities and Exchange Commission. Accrued interest of $140,409 and $125,850 was outstanding as of December 31, 2011 and September 30, 2011, respectively. Mr. Shaheen has filed suit for repayment and a judgment in his favor was entered for this note and the note discussed above on December 30, 2011 in the amount of $604,330.	100,000		100,000

	$250,000		$250,000

Both of the notes payable in the foregoing table were in default as of September 30, 2011. A judgment of $604,330 was entered against us on December 30, 2011 in a lawsuit brought by Mr. Shaheen which had the effect of converting the notes into the judgment. See Contingencies in Note 5 herein.

Note 5 — Commitments and Contingencies

Employment Agreements.

We entered into a new employment agreement with Sally J.W. Ramsey, our Vice President – New Product Development effective January 1, 2012. Ms. Ramsey is the founder of our company. The agreement will expire on December 31, 2014. Ms. Ramsey will receive an annual base salary of $100,000. The Compensation Committee of the Board of Directors may review Ms. Ramsey’s salary to determine what, if any, increases shall be made thereto. The agreement may be terminated prior to the end of the term by us for cause. If Ms. Ramsey’s employment is terminated without cause or for “good reason,” as defined in the agreement, she is entitled to 50% of salary that would have been paid over the balance of the term of the agreement. A termination within one year after a change in control shall be deemed to be a termination without cause.

Our employment agreement with Robert G. Crockett, our CEO. expires on September 21, 2012. Mr. Crockett’s annual base salary during the three months ended December 31, 2011 was $200,000. Effective January 1, 2012, Mr. Crockett’s salary was reduced to $140,000. On April 22, 2011, Mr. Crockett received options to purchase 1.8 million shares of our common stock at a price of $.20 per share. The agreement may be terminated prior to the end of the term for cause. If Mr. Crockett’s employment is terminated without cause or for “good reason,” as defined in the agreement, he is entitled to 50% of the salary that would have been paid over the balance of the term of the agreement. Further, a termination within one year after a change in control shall be deemed to be a termination without cause. As of December 31, 2011, Mr. Crockett had deferred $40,000 of his salary since May 2010.

Our employment agreement with Daniel V. Iannotti, our Vice President, General Counsel & Secretary, expires on September 17, 2012. Mr. Iannotti receives an annual base salary of $100,000. On April 22, 2011, Mr. Iannotti forfeited previously issued stock options and received options to purchase 300,000 shares of our common stock at a price of $.20 per share. The agreement may be terminated prior to the end of the term for cause. If Mr. Iannotti’s employment is terminated without cause or for “good reason,” as defined in the agreement, he is entitled to 50% of the salary that would have been paid over the balance of the term of the agreement. Further, a termination within one year after a change in control shall be deemed to be a termination without cause.

Contingencies.

On October 26, 2010, Mitchell Shaheen, one of our note holders, filed suit in the United States District Court for the Eastern District of Michigan seeking repayment of principal, 25% interest and attorneys’ fees for amounts under promissory notes we issued to him in the original principal amount of $250,000. Our position is that a settlement was reached by the parties. We have filed an answer and have been engaged in discussions to resolve his suit. A judgment of $604,330 was entered against us on December 30, 2011 in a lawsuit brought by Mr. Shaheen which had the effect of converting the notes into the judgment.

Lease Commitments.


	a.		We lease office and lab facilities in Akron, OH on a month-to-month basis for $1,200 per month. Rent expense for the three months ended June 30, 2011 and 2010 was $18,600 and $21,000, respectively. Rent expense for the six months ended June 30, 2011 and 2010 was $9,000 and $10,800, respectively.

	b.		Effective May 1, 2011, we entered into a lease with J.M. Land Company for office space for our headquarters located in Warren, Michigan. The lease was effective May 1, 2011 and expires on April 30, 2012. This lease replaces the earlier lease agreement on the same premises. Monthly rent is $1,000 and we pay the gas and electric utilities for our headquarters building which has historically averaged approximately $1,000 per month. Rent and utilities expenses for the year ended September 30, 2011 totaled $13,121.

Note 6 — Equity

Warrants. On December 16, 2006, we issued warrants to Trimax, LLC to purchase 100,000 shares of our stock at $10.00 per share. On November 11, 2008, the exercise price of the warrants was changed to $4.50 per share. The warrants vested on December 17, 2007. As of December 31, 2011, the remaining life of the warrants is 4.9 years.

On February 6, 2008, we issued warrants to Hayden Capital to purchase 52,500 shares of our common stock at the lower of $10.00 per share or at the average price per share at which we sell our debt and/or equity in our next private or public offering. The warrants vested upon issuance. As of December 31, 2011, the remaining life of the warrants is 5.9 years.

On March 1, 2008, we issued warrants to George Resta to purchase 2,500 shares of our common stock at the lower of $10.00 per share or at the average price per share at which we sell our debt and/or equity in our next private or public offering. The warrants vested upon issuance. As of December 31, 2011, the remaining life of the warrants is 5.9 years.

On March 1, 2008, we issued warrants to Investment Hunter, LLC to purchase 25,000 shares of our common stock at the lower of $10.00 per share or at the average price per share at which we sell our debt and/or equity in our next private or public offering. The warrants vested upon issuance. As of December 31, 2011, the remaining life of the warrants is 5.9 years.

On June 9, 2008, we issued warrants to Hayden Capital to purchase 42,000 shares of our common stock at the lower of $10.00 per share or at the average price per share at which we sell our debt and/or equity in our next private or public offering. The warrants vested upon issuance. As of December 31, 2011, the remaining life of the warrants is 6.2 years.

On June 21, 2008, we issued warrants to Mitchell Shaheen to purchase 20,000 shares of our common stock at $3.75 per share. The warrants vested upon issuance. As of December 31, 2011, the remaining life of the warrants is 6.2 years.

On July 14, 2008, we issued warrants to Mitchell Shaheen to purchase 20,000 shares of our common stock at $2.50 per share. The warrants vested upon issuance. As of December 31, 2011, the remaining life of the warrants is 6.2 years.

On July 14, 2008, we issued warrants to George Resta to purchase 3,000 shares of our common stock at $8.75 per share. The warrants vested upon issuance. As of December 31, 2011, the remaining life of the warrants is 6.2 years.

On July 14, 2008, we issued warrants to Investment Hunter, LLC to purchase 3,000 shares of our common stock at $8.75 per share. The warrants vested upon issuance. As of December 31, 2011, the remaining life of the warrants is 6.2 years.

We issued the following immediately vested warrants to Equity 11 in conjunction with Equity 11’s purchases of our convertible preferred stock:

	Strike	Date	Expiration
Number	Price	Issued	Date
20,000	$3.75	July 28, 2008	July 28, 2018
1,000	$3.75	August 20, 2008	August 20, 2018
5,000	$3.75	August 27, 2008	August 27, 2018
100,000	$3.75	August 29, 2008	August 29, 2018
75,000	$3.75	September 26, 2008	September 26, 2018
9,400	$3.75	January 23, 2009	January 23, 2014
3,000	$3.75	February 10, 2009	February 10, 2014
2,500	$3.75	February 18, 2009	February 18, 2014
4,000	$3.75	February 26, 2009	February 26, 2014
2,300	$3.75	March 10, 2009	March 10, 2014
8,000	$3.75	March 26, 2009	March 26, 2014
2,150	$3.75	April 14, 2009	April 14, 2014
3,350	$3.75	April 29, 2009	April 29, 2014

On November 11, 2008, we issued warrants to purchase 400,000 shares of our common stock at $2.50 per share to Trimax. The warrants vested upon issuance. The remaining life of the warrants is 6.9 years.

Shares.

On August 28, 2008, we entered into an agreement with Equity 11 to issue up to $5,000,000 in convertible preferred securities. The securities accrue cumulative dividends at 5% per annum and the entire amount then outstanding is convertible at the option of the investor into shares of our common stock at $2.50 per share. The preferred securities carry “as converted” voting rights. As of December 1, 2010, we had issued 2,623 of these convertible preferred shares. The shares were converted into 1,049,200 common shares on December 22, 2010. Each convertible preferred security sold under this agreement had warrants (100 warrants for each $1,000 convertible preferred share sold) attached to it. The warrants are immediately exercisable, expire in five years, and entitle the investor to purchase one share of our common stock at $3.75 per share for each warrant issued. The table above identifies warrants issued in conjunction with Equity 11’s additional purchases of our 5% convertible preferred stock through December 31, 2010. On December 1, 2010, we issued 62 shares of convertible preferred stock in lieu of dividends. These shares were converted into 24,800 shares of common stock on December 22, 2010.

On May 15, 2009, we entered into an agreement with Equity 11 to issue convertible preferred securities at $1,000 per share. The securities accrue cumulative dividends at 5% per annum and the entire amount then outstanding is convertible at the option of the investor into shares of our common stock at a price equal to 20% of the average closing price of our common shares for the five trading days immediately preceding the date of issuance. The preferred securities carry “as converted” voting rights. As of December 31, 2010, we had issued 872 of these convertible preferred securities. These shares were converted into 2,352,115 common shares on December 22, 2010. Included in this converted shares figure were 200,000 common shares resulting from the issuance of 20 shares of convertible preferred stock on December 1, 2010 in lieu of cash dividends. On June 1, 2011, we issued 10 shares of convertible preferred stock, Series B, in settlement of a partial dividend owing to Equity 11. These shares are convertible into 482,786 shares of our common stock.

On September 30, 2009, Ecology Coatings, Inc. and Stromback Acquisition Corporation (SAC), entered into a Securities Purchase Agreement for the issuance and sale of our 5.0% Cumulative Convertible Preferred Shares, Series B at a purchase price of $1,000 per share. SAC is owned by Richard Stromback, a former member of our Board of Directors. Until April 1, 2010, SAC had the right to purchase up to 3,000 Convertible Preferred Shares. The Convertible Preferred Shares have a liquidation preference of $1,000 per share. SAC may convert the Convertible Preferred Shares into our common stock at a conversion price that is seventy seven percent (77%) of the average closing price of our common stock on the OTCQB marketplace for the five trading days prior to each investment. The Convertible Preferred Shares will pay cumulative cash dividends at a rate of 5% per annum, subject to declaration by our Board of Directors, on December 1 and June 1 of each year. We have agreed to provide piggyback registration rights for common stock converted by SAC under a Registration Rights Agreement. One investment of $240,000 was made under this agreement, on October 1, 2009. Per the terms of the agreement and at Mr. Stromback’s direction, we paid $120,000 to him on that date in settlement of past payables owed to him directly or to RJS Ventures, LLC, a company controlled by him. As of December 31, 2011, we had issued 258 of these Preferred Series B shares. These shares are convertible into 223,353 of our common shares.

In the event of a voluntary or involuntary dissolution, liquidation or winding up, Equity 11 and SAC will be entitled to be paid a liquidation preference equal to the stated value of the convertible preferred shares ($1,000 per share), plus accrued and unpaid dividends and any other payments that may be due on such shares, before any distribution of assets may be made to holders of our common stock.

On March 1, 2011, we issued 25,000 shares of our common stock to Quarles and Brady, a law firm to whom we owed approximately $143,000. These shares, along with a cash payment, were accepted in full settlement of the amounts then owing.

On March 1, 2011, we issued 650,000 shares of our common stock to Wilson Sonsini Goodrich & Rosati P.C., a law firm to whom we owed approximately $340,000. The firm accepted these shares, along with a cash payment, in full settlement of the amount owing.

On March 9, 2011 and March 11, 2011, respectively, we entered into agreements with Fairmount Five, LLC and John Bonner to sell a minimum of an aggregate of 2,520 of our 5.0% Cumulative Convertible Preferred Shares, Series C at a purchase price of $1,000 per share. The securities accrue cumulative dividends at 5% per annum and the entire amount then outstanding is convertible at the option of the investors into shares of our common stock at $.06 per share. The preferred securities carry “as converted” voting rights. In the event of a voluntary or involuntary dissolution, liquidation or winding up, the holders of these shares will be entitled to be paid a liquidation preference equal to the stated value of the convertible preferred shares ($1,000 per share), plus accrued and unpaid dividends and any other payments that may be due on such shares, before any distribution of assets may be made to holders of our common stock. The initial closing of the sale of our Convertible Preferred Shares occurred on March 9, 2011. Fairmount Five acquired 1,045 Convertible Preferred Shares at an aggregate purchase price of $1,045,000.

On March 9, 2011, we issued James Juliano 100 of our 5.0% Cumulative Convertible Preferred Shares, Series C, in settlement of a note for $100,000 and the accrued interest thereon that we had previously issued on December 22, 2010.

On March 9, 2011, we issued John Salpietra 120 of our 5.0% Cumulative Convertible Preferred Shares, Series C, in settlement of a note for $120,000 and the accrued interest thereon that we had previously issued on February 14, 2011. These shares are convertible into 2,000,000 of our common shares.

On April 12, 2011, we sold 100 of our convertible preferred shares, Series C, to Fairmount Five for $100,000. These shares are convertible into 1,666,667 of our common shares.

On May 9, 2011, we sold 100 of our Convertible Preferred Shares, Series C, to Fairmount Five for $100,000. These shares are convertible into 1,666,667 of our common shares.

On May 31, 2011, we sold 100 of our Convertible Preferred Shares, Series C, to Fairmount Five for $100,000. These shares are convertible into 1,666,667 of our common shares.

On June 1, 2011, we issued 15 shares of our convertible preferred shares, Series C, to Fairmount Five as a dividend in lieu of cash. These shares are convertible into 250,000 of our common shares.

On June 29, 2011, we sold 100 of our Convertible Preferred Shares, Series C, to Fairmount Five for $100,000. These shares are convertible into 1,666,667 of our common shares.

On July 26, 2011, we sold 100 of our Convertible Preferred Shares, Series C, to Fairmount Five for $100,000. These shares are convertible into 1,666,667 of our common shares.

On August 26, 2011, we sold 100 of our Convertible Preferred Shares, Series C, to Fairmount Five for $100,000. These shares are convertible into 1,666,667 of our common shares.

On September 14, 2011, Fairmount Five converted 180 of our Convertible Preferred Shares, Series C, into 3,000,000 shares of our common stock.

On September 23, 2011, we sold 100 of our Convertible Preferred Shares, Series C, to Fairmount Five for $100,000. These shares are convertible into 1,666,667 of our common shares.

On September 28, 2011, Fairmount Five converted 30 of our Convertible Preferred Shares, Series C, into 500,000 shares of our common stock.

On October 6, 2011, John Bonner converted all of his shares of his Convertible Preferred Shares, Series C, into 2,024,284 shares of our common stock.

On October 24, 2011, we issued 100 Convertible Preferred Shares, Series C, to Fairmount Five for $100,000. These shares are convertible into 1,666,667 shares of our common stock.

On November 3, 2011, we reached an agreement with Equity 11 and Nirta Enterprises to convert the outstanding principal and accrued interest of all notes owing to them into shares of our common stock at $.50 per share. The principal totaled $56,832 and the accrued interest totaled $5,214.

On November 30, 2011, we sold 70 Convertible Preferred Shares, Series C, to Fairmount 5 for $70,000. These shares are convertible into 1,166,667 shares of our common stock.

On December 2, 2011, we issued 25,000 of our common shares to Wilson Sonsini Goodrich & Rosati P.C. in exchange for the elimination of payments to this firm of royalties we might receive under our BASF license agreement and a reduction in certain patent fees in the future.

On December 14, 2011, we sold 40 Convertible Preferred Shares, Series C, to Fairmount 5 for $40,000. These shares are convertible into 666,667 shares of our common stock.

On December 22, 2011, we sold 60 Convertible Preferred Shares, Series C, to Fairmount 5 for $60,000. These shares are convertible into 1,000,000 shares of our common stock.

Note 7 — Stock Options

Stock Option Plan. On May 9, 2007, we adopted a stock option plan and reserved 900,000 shares for the issuance of stock options or for awards of restricted stock. On December 2, 2008, our Board of Directors authorized the addition of 200,000 shares of our common stock to the 2007 Plan. On February 7, 2011, our shareholders voted to add 4,400,000 shares of our common stock to the stock option plan. All prior grants of options were included under this plan. The plan provides for incentive stock options, nonqualified stock options, rights to restricted stock and stock appreciation rights. Eligible recipients are employees, directors, and consultants. Only employees are eligible for incentive stock options.

The vesting terms are set by the Board of Directors. All options expire 10 years after issuance.

Below is a table with shows information about outstanding options as of December 31, 2011:

	Weighted Average Exercise Price Per Share	Number of Options	Weighted Average (Remaining) Contractual Term
Outstanding as of September 30, 2011	$.79	5,351,180	9.3
Exercisable	$1.40	2,588,180	9.0
Granted	$-	-
Exercised	$-	-
Forfeited	$-	-
Outstanding as of December 31, 2011	$.79	5,351,180	9.0
Exercisable	$1.40	2,588,180	8.7

Outstanding options are subject to various vesting periods between June 26, 2007 and April 22, 2014. The options expire on various dates between March 1, 2017 and April 22, 2021. Additionally, the options had no intrinsic value as of December 31, 2011 and September 30, 2011. Intrinsic value arises when the exercise price is lower than the trading price on the date of grant.

In calculating the compensation related to employee/consultants and directors stock option grants, the fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model and the following assumptions for 2012 and 2011:

	2012	2011
Dividend	NA	None
Expected volatility	NA	260%
Risk free interest rate	NA	1.03%
Expected life	NA	3 years

For options issued prior to June 2010, the expected volatility was derived utilizing the price history of another publicly traded nanotechnology company. This company was selected as it is widely traded and is in the same equity sector as us. Beginning with options granted after June 2010, we began to use our stock to calculate the expected volatility. We made this change because we believe that the options granted in September 2010 will be exercised within three years, thus our trading history should be used.

The risk free interest rate figures shown above contain the range of such figures used in the Black-Scholes calculation. The specific rate used was dependent upon the date of the option grant.

Based upon the above assumptions and the weighted average $0.79 exercise price, the options outstanding at December 31, 2011 had a total unrecognized compensation cost of $307,462 which will be recognized over the remaining weighted average vesting period of 2.1 years. Option costs of $87,631 were recorded as an expense for the three months ended December 31, 2011, all of which was recorded as compensation expense.

Note 8 – Going Concern

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. For the three months ended December 31, 2011 and 2010, we incurred net losses of $232,435 and $423,940, respectively. As of December 31, 2011 and September 30, 2011, we had accumulated deficits of $1,348,821 and $1,463,672, respectively, and negative cash flows. These factors, and negative cash flows, raise substantial doubt about the Company's ability to continue as a going concern.

Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis, to obtain additional financing or refinancing as may be required, to develop commercially viable products and processes, and ultimately to establish profitable operations. We have financed operations primarily through the issuance of equity securities and debt and through some limited operating revenues. Until we are able to generate positive operating cash flows, additional funds will be required to support our operations. We will need to acquire additional funding in fiscal year 2012 to continue our operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Note 9 — Subsequent Events

We evaluated subsequent events for potential recognition and/or disclosure subsequent to the date of the balance sheet. The following was noted for disclosure:

On January 2, 2012, we entered into a Sale and Leaseback Agreement with J.M. Land Co. where we raised cash by selling and leasing back our laboratory and computer equipment. J.M. Land Co. is an entity owned by James Juliano, our Chairman.

On January 11, 2012, we issued 30 Convertible Preferred Shares, Series C, to Fairmount 5 in exchange for $30,000. These shares can be converted into 500,000 of our common shares.

On January 27, 2012, we issued 50 Convertible Preferred Shares, Series C, to Fairmount 5 in exchange for $50,000. These shares can be converted into 833,333 of our common shares.

On February 1, 2012, James Orchard resigned from our Board of Directors.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Although we believe the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on our forward-looking statements, which speak only as of the date of this report. Except as required by law, we do not undertake to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

“Ecology”, “we”, “us”, or “our” refer to Ecology Coatings, Inc. and its wholly-owned subsidiary, Ecology Coatings, Inc., a California corporation.

ITEM 1. DESCRIPTION OF BUSINESS

Ecology Coatings, Inc. (“Ecology-CA”) was originally incorporated in California on March 12, 1990. OCIS Corp. (“OCIS”) was incorporated in Nevada on February 6, 2002. OCIS completed a merger with Ecology-CA on July 27, 2007 (the “Merger”). In the Merger, OCIS issued approximately 6,106,137 shares of common stock to the Ecology-CA stockholders. In this transaction, OCIS changed its name from OCIS Corporation to Ecology Coatings, Inc. and our ticker symbol on the OTC Bulletin Board association changed to “ECOC.” As a result of the merger, we became a Nevada corporation and Ecology-CA became a wholly owned subsidiary.

Operating Results

Three Months Ended December 31, 2011 and 2010

Revenues. We generated $2,049 and $2,470 in revenues from product sales for the three months ended December 31, 2011 and December 31, 2010, respectively. Revenues for the 2011 period came from three customers and revenues for the 2010 period came from one customer

Officer Salaries and Fringe Benefits. The increase of approximately $29,000 in such expenses for the three months ended December 31, 2011 compared to the three months ended December 31, 2010 is the result of the increase in the salary of two officers effective May 15, 2011, and an increase in health care expense due to the addition of three new employees.

Professional Fees. The increase of approximately $63,000 in these expenses for the three months ended December 31, 2011 compared to the three months ended December 31, 2010 is due to $18,500 in audit fees associated with the filing of our 10-K for the fiscal year ended September 30, 2011. For fiscal year 2010, the filing did not take place until January 12, 2011. Because of this, a portion of the audit billings were not received and recorded until after December 31, 2010.

Other General and Administrative. These expenses declined by approximately $2,000 for the three months ended December 31, 2011 compared to the three months ended December 31, 2010. Payroll and related expenses related to the hiring of three new employees in May 2011 and one additional employee in October 2011 of approximately $70,000 and $12,000 in fees paid to our chairman in the 2011 period were offset by a reduction in options expense for the same period.

Operating Losses. The increased operating loss of approximately $90,000 between the reporting periods is explained in the discussion above.

Income From Forgiveness of Payables and Debt. This income for the three months ended December 31, 2011 came from the conclusion of a settlement with one of our law firms with whom we have an ongoing working relationship as well as the settlement of a number of notes owed to related parties. The latter amounts were settled through the issuance of shares equal at a price equal to $.50 per share. Our stock was trading at $.06 per share at the time the shares were issued.

Interest Expense. The decrease of approximately $10,000 for the three months ended December 31, 2011 compared to the three months ended December 31, 2010 results from a decrease in average outstanding debt in the current period. This decrease in average outstanding debt occurred as a result of those settlements which occurred in early March 2011.

Income Tax Provision. No provision for income tax benefit from net operating losses has been made for the three months ended December 31, 2011 and 2010 as we have fully reserved the asset until realization is more likely than not.

Net Loss. The change from a net loss of $423,939 for the three months ended December 31, 2010 compared to net loss of $277,139 for the three months ended December 31, 2011 is explained in the foregoing discussions of the various expense categories as well as in the discussion of Income From Forgiveness of Payables and Debt.

Basic and Diluted Loss per Share. The change in basic and diluted net loss per share for the three months ended December 31, 2011 reflects the change in net loss position discussed above as well as by the increase in weighted average shares outstanding during the three months ended December 31, 2011. The net loss was further increased by preferred dividend – beneficial conversion. This is because our newly issued convertible preferred shares can be converted to common shares at $0.06 per share. On December 31, 2011, our common shares were trading at $0.12 per share.

Liquidity and Capital Resources

Cash as of December 31, 2011 and September 30, 2011 totaled $30,197 and $71,784, respectively. The decrease reflects cash used in operations of $293,558 and cash used to purchase fixed and intangible assets of $18,030. This usage was offset by the issuance of $270,000 in convertible preferred stock.

We are a company that has failed to generate significant revenues as yet and have incurred an accumulated deficit of $29,243,330. $17,990,695 of this amount is due to non-cash items, including options expense, the issuance of warrants, preferred stock dividends paid with preferred stock, beneficial conversion provisions associated with issuances of preferred stock and certain debt, and stock issued to pay for services, payables, and debt extensions. We have incurred losses primarily as a result of general and administrative expenses, salaries and benefits, professional fees, and interest expense. Since our inception, we have generated very little revenue. We have received an unqualified audit report from our independent auditors that includes an explanatory paragraph describing their substantial doubt about our ability to continue as a going concern.

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

Historically, we have financed operations primarily through the issuance of debt and the sale of equity securities. On February 28, 2011, we entered into agreements with Fairmount Five ($2,400,000) and John Bonner ($120,000) to sell them our Convertible Preferred Shares, Series C. Since that date, we have sold $2,135,000 of such Series C shares leaving an additional $385,000 to sell to Fairmount Five in fiscal year 2012.

As of December 31, 2011, we were in default on approximately $243,500 in principal of short term debt, plus $54,750 in accrued interest. On December 30, 2011, Mr. Shaheen’s motion for summary judgment was granted and a judgment in the amount of $604,330 was entered against us in the Shaheen v. Ecology Coatings, Inc. litigation. Our past capital raising activities have not been sufficient to fund our working capital, operational and debt requirements and we will need to raise additional funds in the spring of 2012 through private or public financings to continue our operations. Such financing could include equity financing, which may be dilutive to stockholders, or debt financing, which would likely restrict our ability to make acquisitions and borrow from other sources.

During our last fiscal year ended September 30, 2011, we relied on the sale of convertible preferred securities and the issuance of debt to fund our operations. We raised $270,000 from the sale of Convertible Preferred Series C shares during the quarter ended December 31, 2011. After December 31, 2011, we had only $385,000 in additional funds available to us under our investment agreement with Fairmount Five. At our current rate of cash use, such funds will last only until April 2012. If we are unable to raise additional capital by April 2012, we may be forced to curtail our operations or seek bankruptcy protection.

Off-Balance Sheet Arrangements

See Note 5 – Commitments and Contingencies - to the Consolidated Financial Statements in this Form 10-Q.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles. Preparation of the statements in accordance with these principles requires that we make estimates, using available data and our judgment, for such things as valuing assets, accruing liabilities and estimating expenses. The following is a discussion of what we feel are the most critical estimates that we must make when preparing our financial statements.

Revenue Recognition. Revenues from product sales are recognized on the date that the product is shipped. Revenues from licensing contracts are recorded ratably over the life of the contract. Contingency earnings such as royalty fees are recorded when the amount can reasonably be determined and collection is likely.

Income from forgiveness of payables and debt. Income from the forgiveness of payables and debt is recognized when all of the conditions associated with the forgiveness have been met.

Income Taxes and Deferred Income Taxes. We use the asset and liability approach for financial accounting and reporting for income taxes. Deferred income taxes are provided for temporary differences in the bases of assets and liabilities as reported for financial statement purposes and income tax purposes and for the future use of net operating losses. We have recorded a valuation allowance against our net deferred income tax asset. The valuation allowance reduces deferred income tax assets to an amount that represents management’s best estimate of the amount of such deferred income tax assets that more likely than not will be realized.

Property and Equipment. Property and equipment is stated at cost, less accumulated depreciation. Depreciation is recorded using the straight-line method over the following useful lives:

Computer equipment	3-10 years
Furniture and fixtures	3-7 years
Test equipment	5-7 years
Signs	7 years
Software	3 years
Marketing and Promotional Video	3 years

Repairs and maintenance costs are charged to operations as incurred. Betterments or renewals are capitalized as incurred.

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset with future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Patents. It is our policy to capitalize costs associated with securing a patent. Costs consist of legal and filing fees. Once a patent is issued, it is amortized on a straight-line basis over its estimated useful life. For purposes of the preparation of the audited, consolidated financial statements, we have recorded amortization expense associated with the patents based on an eight-year useful life.

Stock-Based Compensation. We have a stock incentive plan that provides for the issuance of stock options, restricted stock and other awards to employees and service providers. Employee and director stock-based compensation expense is measured utilizing the fair-value method with stock-based compensation expense being charged to earnings on the earlier of the date services are performed or a performance commitment exists. Our valuation method uses a Black-Scholes option pricing model. In so doing, we estimate certain key assumptions used in the model.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable since we are a smaller reporting company under applicable SEC rules.

Item4. Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) or Rule 15d-15(e) promulgated under the Exchange Act as of the end of the period covered by this report.

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report to provide reasonable assurance that material information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Our Chief Executive Officer and Chief Financial Officer have reached this conclusion due to the lack of segregation of duties in financial reporting as a result of the small size of our financial staff.

Changes in Internal Control Over Financial Reporting

During the three months ended December 31, 2011, we did not make any changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 of the Exchange Act that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On September 2, 2010, Mitchell Shaheen filed suit against us in the U.S. District Court for the Eastern District of Michigan for amounts owed under promissory notes issued to him in the principal amount of $250,000 and interest at the rate of 25%. On December 30, 2011, Mr. Shaheen’s motion for summary judgment was granted and a judgment in the amount of $604,330. We have not appealed the judgment and are engaging in discussions with Mr. Shaheen to satisfy the judgment.

ITEM 1A. RISK FACTORS

Prospective and existing investors should carefully consider the following risk factors in evaluating our business. The factors listed below represent the known material risks that we believe could cause our business results to differ from the statements contained herein.

We have generated minimal revenue and have a history of significant operating losses

We are a company that has failed to generate significant revenue. We had an accumulated deficit of $29,243,330 as of December 31, 2011. $17,990,695 of this amount was due to non-cash items, including options expense, the issuance of warrants, beneficial conversion provisions associated with issuance of preferred stock and certain debt, preferred stock dividends, and stock issued to pay for services, payables, and debt extensions. We have a limited operating history upon which investors may rely to evaluate our prospects. Such prospects must be considered in light of the problems, expenses, delays and complications associated with a business that seeks to generate more significant revenue. We have generated nominal revenue to date and have incurred significant operating losses. Our operating losses have resulted principally from costs incurred in connection with our capital raising efforts and becoming a public company through a merger, promotion of our products, and from salaries and general and administrative costs. We have maintained minimal cash reserves since October 2008 and have relied primarily on additional investment from Fairmount Five, LLC (“Fairmount Five”), Equity 11, Ltd. (“Equity 11”), Stromback Acquisition Corporation (“SAC”) and John Bonner as well as small amounts of debt. The Equity 11 and SAC investment agreements are no longer effective. We have an agreement in place with Fairmount Five, LLC (“Fairmount Five”) for investment of $2,400,000. As of December 31, 2011, we had used $2,015,000 of this amount. We will need to raise additional capital in the spring of 2012 in order to continue to fund our operations. If we are unable to raise additional capital by April 2012, we may need to curtail our operations or seek bankruptcy protection.

We have entered the emerging business of cleantech coatings, which carries significant developmental and commercial risk

We have expended in excess of $1,500,000 to develop our EcoBloc™ enabled and other products. We expect to continue expending significant sums in pursuit of further development of our technology. Such research and development involves a high degree of risk as to whether a commercially viable product will result.

We expect to continue to generate operating losses and experience negative cash flow and it is uncertain whether we will achieve future profitability

We expect to continue to incur operating losses. Our ability to commence revenue generating operations and achieve profitability will depend on our products functioning as intended, the market acceptance of our liquid nano-technology™ products and our capacity to develop, introduce and bring additional products to market. We cannot be certain that we will ever generate significant sales or achieve profitability. The extent of future losses and the time required to achieve profitability, if ever, cannot be predicted at this point.

Our auditors have expressed a going concern opinion

We have incurred losses, primarily as a result of our inception stage, general and administrative, and pre-production expenses and our limited amount of revenue. Accordingly, we have received a report from our independent auditors included in our annual report that includes an explanatory paragraph describing their substantial doubt about our ability to continue as a going concern.

We need additional financing in the spring of 2012 to continue our operations.

As of December 31, 2011, we were in default on approximately $243,500 in principal of short term debt, plus $54,750 in accrued interest. On December 30, 2011, plaintiff’s motion for summary judgment was granted and a judgment in the amount of $604,330 was entered against us in the Shaheen v. Ecology Coatings, Inc. litigation. Our past capital raising activities have not been sufficient to fund our working capital, operational and debt requirements and we will need to raise additional funds in the spring of year 2012 through private or public financings to continue our operations. Such financing could include equity financing, which may be dilutive to stockholders, or debt financing, which would likely restrict our ability to make acquisitions and borrow from other sources.

We are dependent on key personnel

Our success will be largely dependent upon the efforts of our executive officers. The loss of the services of our executive officers could have a material adverse effect on our business and prospects. We cannot be certain that we will be able to retain the services of such individuals in the future. Our research and development efforts are dependent upon a single executive, Sally Ramsey, with whom we have entered into an employment agreement which will expire on December 31, 2014. Our success will be dependent upon our ability to hire and retain qualified technical, research, management, sales, marketing, operations, and financial personnel. We will compete with other companies with greater financial and other resources for such personnel. Although we have not to date experienced difficulty in attracting qualified personnel, we cannot be certain that we will be able to retain our present personnel or acquire additional qualified personnel as and when needed.

We rely on computer systems for financial reporting and other operations and any disruptions in our systems would adversely affect us

We rely on computer systems to support our financial reporting capabilities and other operations. As with any computer systems, unforeseen issues may arise that could affect our ability to receive adequate, accurate and timely financial information, which in turn could inhibit effective and timely decisions. Furthermore, it is possible that our information systems could experience a complete or partial shutdown. If such a shutdown occurred, it could impact our ability to report our financial results in a timely manner or to otherwise operate our business.

We are operating in both mature and developing markets and there is a risk that we may not achieve acceptance of our technology and products in these markets

We researched the markets for our products using our own personnel rather than third parties. We have conducted limited test marketing and, thus, have relatively little information on which to estimate our levels of sales, the amount of revenue our planned operations will generate and our operating and other expenses. We cannot be certain that we will be successful in our efforts to market our products or to develop our markets in the manner we contemplate.

Certain markets, such as electronics and specialty packaging, are developing and rapidly evolving and are characterized by an increasing number of market entrants who have developed or are developing a wide variety of products and technologies, a number of which offer certain of the features that our products offer. Because of these factors, demand and market acceptance for new products may be difficult. In mature markets, such as automotive or general industrial, we may encounter resistance by our potential customers in changing to our technology because of the capital investments they have made in their present production or manufacturing facilities. Thus, we cannot be certain that our technology and products will become widely accepted. We do not know our future growth rate, if any, and size of these markets. If a substantial market fails to develop, develops more slowly than expected, becomes saturated with competitors or if our products do not achieve market acceptance, our business, operating results and financial condition will be materially adversely affected.

Our technology is also intended to be marketed and licensed to component or device manufacturers for inclusion in the products they market and sell as an embedded solution. As with other new products and technologies designed to enhance or replace existing products or technologies or change product designs, these potential partners may be reluctant to adopt our coating solution into their production or manufacturing facilities unless our technology and products are proven to be both reliable and available at a competitive price and the cost-benefit analysis is favorable to the particular industry. Even assuming acceptance of our technology, our potential customers may be required to redesign their production or manufacturing facilities to effectively use our coatings. The time and costs necessary for such redesign could delay or prevent market acceptance of our technology and products. A lack of, or delay in, market acceptance of our products would adversely affect our operations. We do not know if we will be able to market our technology and products successfully or that any of our technology or products will be accepted in the marketplace.

We expect that our products will have a long sales cycle

The sale of our coatings and the license of our technology will be subject to budget constraints and resistance to change with respect to long-established production techniques and processes, which could result in a significant reduction or delay in our anticipated revenues. We cannot assure investors that such customers will have the necessary funds to purchase our technology and products even though they may want to do so. Further, even if such customers have the necessary funds, we may experience delays and relatively long sales cycles due to their internal-decision making policies and procedures and resistance to change.

Our target markets are characterized by new products and rapid technological change

The target markets for our products are characterized by rapidly changing technology and frequent new product introductions. Our success will depend on our ability to enhance our planned technologies and products and to introduce new products and technologies to meet changing customer requirements. We intend to devote significant resources toward the development of our solutions. We are not certain that we will successfully complete the development of these technologies and related products in a timely fashion or that our current or future products will satisfy the needs of the coatings market. We do not know if technologies developed by others will adversely affect our competitive position or render our products or technologies non-competitive or obsolete.

There is a significant amount of competition in our market

The industrial coatings market is extremely competitive. Our competitors include Akzo Nobel, PPG, Sherwin-Williams and Valspar, BASF, Allied Photochemical, Rad-Cure (Altana Chemie), Red Spot (Fujikura), R&D Coatings, Northwest (Ashland), DSM Desotech, Prime. Competitive factors our products face include ease of use, quality, portability, versatility, reliability, accuracy, cost, switching costs and other factors. Our primary competitors include companies with substantially greater financial, technological, marketing, personnel and research and development resources than we currently have. There are direct competitors who have competitive technology and products for many of our products. New companies will likely enter our markets in the future. Although we believe that our products are distinguishable from those of our competitors on the basis of their technological features and functionality at an attractive value proposition, we may not be able to penetrate any of our anticipated competitors’ portions of the market. Many of our anticipated competitors have existing relationships with manufacturers that may impede our ability to market our technology to potential customers and build market share. We do not know that we will be able to compete successfully against currently anticipated or future competitors or that competitive pressures will not have a material adverse effect on our business, operating results and financial condition.

We have limited marketing capability

We have limited marketing capabilities and resources. We will have to undertake significant efforts and expenditures to create awareness of, and demand for, our technology and products. Our ability to penetrate the market and build our customer base will be substantially dependent on our marketing efforts, including our ability to establish strategic marketing arrangements with OEMs and suppliers. We cannot be certain that we will be able to enter into any such arrangements or if entered into that they will be successful. Our failure to successfully develop our marketing capabilities, both internally and through third-party alliances, would have a material adverse effect on our business, operating results and financial condition. Even if developed, such marketing capabilities may not lead to sales of our technologies and products.

We have limited manufacturing capacity

We have limited manufacturing capacity for our products. In order to execute our contemplated direct sales strategy, we will need to either: (i) acquire existing manufacturing capacity; (ii) develop a manufacturing capacity “in-house”; and/or (iii) identify suitable third parties with whom we can contract for the manufacture of our products. To either acquire existing manufacturing capacity or to develop such capacity, significant capital or outsourcing will be required. We may not be able to raise the necessary capital to acquire existing manufacturing capacity or to develop such capacity. We cannot be certain that such arrangements, if consummated, would be suitable to meet our needs.

We are dependent on manufacturers and suppliers

We purchase, and intend to continue to purchase, all of the raw materials for our products from a limited number of manufacturers and suppliers.

We do not intend to directly manufacture any of the chemicals or other raw materials used in our products. Our reliance on outside manufacturers and suppliers is expected to continue and involves several risks, including limited control over the availability of raw materials, delivery schedules, pricing and product quality. We may experience delays, additional expenses and lost sales if we are required to locate and qualify alternative manufacturers and suppliers.

A few of the raw materials for our products are produced by a small number of specialized manufacturers. While we believe that there are alternative sources of supply, if, for any reason, we are precluded from obtaining such materials from such manufacturers, we may experience long delays in product delivery due to the difficulty and complexity involved in producing the required materials and we may also be required to pay higher costs for our materials.

We are uncertain of our ability to protect our technology through patents

Our ability to compete effectively will depend on our success in protecting our proprietary coatings, both in the United States and abroad. We have filed for patent protection in the United States and certain other countries to cover a number of aspects of our coatings. The U.S. Patent Office (“USPTO”) has issued seven patents to us.

We do not know if any additional patents relating to our existing technology will be issued from the United States or any foreign patent offices, that we will receive any additional patents in the future based on our continued development of our technology, or that our patent protection within and/or outside of the United States will be sufficient to deter others, legally or otherwise, from developing or marketing competitive products utilizing our technologies.

We do not know if any of our current or future patents will be enforceable to prevent others from developing and marketing competitive products or methods. If we bring an infringement action relating to any of our patents, it may require the diversion of substantial funds from our operations and may require management to expend efforts that might otherwise be devoted to our operations. Furthermore, we may not be successful in enforcing our patent rights.

Further, patent infringement claims in the United States or in other countries will likely be asserted against us by competitors or others, and if asserted, we may not be successful in defending against such claims. If one of our products is adjudged to infringe patents of others with the likely consequence of a damage award, we may be enjoined from using and selling such product or be required to obtain a royalty-bearing license, if available on acceptable terms. Alternatively, in the event a license is not offered, we might be required, if possible, to redesign those aspects of the product held to infringe so as to avoid infringement liability. Any redesign efforts undertaken by us might be expensive, could delay the introduction or the re-introduction of our products into certain markets, or may be so significant as to be impractical.

We are uncertain of our ability to protect our proprietary technology and information

In addition to seeking patent protection, we rely on trade secrets, know-how and continuing technological advancement in special formulations to achieve and thereafter maintain a competitive advantage. Although we have entered into confidentiality and employment agreements with employees, consultants, certain potential customers and advisors, we cannot be certain that such agreements will be honored or that we will be able to effectively protect our rights to our unpatented trade secrets and know-how. Moreover, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets and know-how.

Risks related to our license arrangements

We have licensing agreements with three competitors - BASF, DuPont and Red Spot - regarding their use of our technology for specific formulations for designated applications. The DuPont license, signed in 2004, and the Red Spot license, signed in 2005, have not generated any ongoing royalty payments thus far and are unlikely to do so in the future. The BASF license, signed in 2011, is dependent on BASF marketing products with our coatings and has not yet generated any royalties.

We may be precluded from registering our trademark registrations in other countries

We have received approval of “EcoQuick”, “EZ Recoat™”, “Liquid Nanotechnology™”, “Ecology Coatings™” as trademarks in connection with our proposed business and marketing activities in the United States. Although we intend to pursue the registration of our marks in the United States and other countries, prior registrations and/or uses of one or more of such marks, or a confusingly similar mark, may exist in one or more of such countries, in which case we might be precluded from registering and/or using such mark in certain countries.

There are economic and general risks relating to our business

The success of our activities is subject to risks inherent in business generally, including demand for products and services; general economic conditions; changes in taxes and tax laws; and changes in governmental regulations and policies. For example, difficulties in obtaining credit and financing and the slowdown in the U.S. automotive industry have made it more difficult to market our technology to that industry.

Our stock price has been volatile and the future market price for our common stock is likely to continue to be volatile. Further, the limited market for our shares may make it difficult for our investors to sell our common stock for a positive return on investment

The public market for our common stock has historically been very volatile. During the quarter ended December 31, 2011, our low and high market prices of our stock were $0.0522 per share (October 13, 2011) and $.15 per share (December 1, 2011). Any future market prices for our shares are likely to continue to be very volatile. This price volatility may make it more difficult for our shareholders to sell our shares when desired. We do not know of any one particular factor that has caused volatility in our stock price. However, the stock market in general has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of listed companies. Broad market factors and the investing public’s negative perception of our business may reduce our stock price, regardless of our operating performance. Further, the volume of our traded shares and the market for our common stock is very limited. During the past year, there have been several days where no shares of our stock have traded. A larger market for our shares may never develop or be maintained. Market fluctuations and volatility, as well as general economic, market and political conditions, could reduce our market price. As a result, this may make it very difficult for our shareholder to sell our common stock.

Control by key stockholders

As of December 31, 2011, Fairmount Five, Richard D. Stromback, Douglas Stromback, Deanna Stromback, Sally J.W. Ramsey, and Equity 11 held shares representing approximately 85% of our outstanding shares. In addition, pursuant to the investment agreement we entered into with Fairmount Five, Fairmount Five has the right to appoint two of the seven members of our Board of Directors. Additionally, Fairmount Five has the right to appoint our Chief Executive Officer. The stock ownership and governance rights of such parties constitute effective voting control over all matters requiring stockholder approval. These voting and other control rights mean that our other stockholders will have only limited rights to participate in our management. The rights of our controlling stockholders may also have the effect of delaying or preventing a change in our control and may otherwise decrease the value of the shares and voting securities owned by other stockholders.

Our common stock is considered a “penny stock,” any investment in our shares is considered to be a high-risk investment and is subject to restrictions on marketability

Our common stock is considered a “penny stock” because it is traded on the OTCQB and it trades for less than $5.00 per share. The OTCQB is generally regarded as a less efficient trading market than the NASDAQ Capital or Global Markets or the New York Stock Exchange.

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.” The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and any salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to effecting a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock.

Since our common stock will be subject to the regulations applicable to penny stocks, the market liquidity for our common stock could be adversely affected because the regulations on penny stocks could limit the ability of broker-dealers to sell our common stock and thus the ability of our shareholders to sell our common stock in the secondary market in the future.

We have never paid cash dividends and have no plans to do so in the future

To date, we have paid no cash dividends on our shares of common stock and we do not expect to pay cash dividends on our common stock in the foreseeable future. We intend to retain future earnings, if any, to provide funds for the operation of our business. Our investment agreement with Fairmount Five prevents the payment of any dividends to our common stockholders without the prior approval of Fairmount Five. Dividends for the Preferred Series A, Preferred Series B and Preferred Series C shares held by Equity 11, SAC, Fairmount Five and John Bonner have not been paid in cash. Thus far, the dividends have been paid through the issuance of additional preferred shares.

The issuance and exercise of additional options, warrants, and convertible securities and/or certain investments may dilute the ownership interest of our stockholders

As of December 31, 2011, we had outstanding options to purchase 5,351,180 shares of our common stock under our 2007 Stock Option and Restricted Stock Plan (the “2007 Plan). As of December 31, 2011, we had outstanding warrants to purchase 906,580 shares of our common stock. As of December 31, 2011, Fairmount Five, Equity 11, John Bonner and SAC purchased Preferred Series C, Preferred Series A, and Preferred Series B shares and have been issued additional Preferred Series B and C as dividends that are convertible into 31,237,212 common shares.

In addition, at our 2011 annual shareholder meeting, our shareholders approved a 1-for-5 reverse stock split which reduced by a factor of five the number of shares held by each of our shareholders. The reverse stock split was a condition of our obtaining additional investment from Fairmount Five. Any future investment we obtain will likely dilute the ownership interests of our existing shareholders.

To the extent that our outstanding stock options and warrants are exercised, Preferred Series A, Preferred Series B and Preferred Series C shares and promissory notes are converted to common stock and/or we secure additional future investment, dilution to the ownership interests of our stockholders will occur.

We have additional securities available for issuance, which, if issued, could adversely affect the rights of the holders of our common stock

Our Articles of Incorporation authorize the issuance of 90,000,000 shares of common stock and 10,000,000 shares of preferred stock. The issuance of common stock and preferred stock can be authorized by our Board of Directors without stockholder approval which will dilute the ownership interests of our stockholders. Such dilution is likely since we need to secure additional funds in the spring of year 2012 to continue operations.

Indemnification of officers and directors

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

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of our company under Nevada law or otherwise, we have been advised that the opinion of the Securities and Exchange Commission is that such indemnification is against public policy as expressed in the Securities Act and may, therefore, be unenforceable.

Short Selling may drive the price of our stock down

Our common stock is “thinly” traded as it has very low daily trading volume. Although our average daily trading volume increased during the quarter ended December 31, 2011, on some trading days, no shares of our stock are sold. Short selling is the practice of selling securities that have been borrowed from a third party with the intention of buying identical securities back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the securities between the sale and the repurchase, as the short seller will pay less to buy the securities than the short seller received on selling them. Conversely, the short seller will make a loss if the price of the security rises. Such short selling may cause additional downward pressure on the price of our stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

We did not have any sales of unregistered securities and we did not repurchase any of our securities during the three months ended December 31, 2011. Sales of unregistered securities have been previously reported on Form 8-Ks filed with the Commission. See also Note 6 – Equity – to our financial statements for a discussion of unregistered securities sold to Fairmount Five.

Item 3. Defaults Upon Senior Securities

As of December 31, 2011, we were in default in the payment of principal and interest on the following promissory notes:

Note Holder	Issue Date(s)	Amount Owing on December 31, 2011

Richard Stromback	December 31, 2003	$2,584

Douglas Stromback	August 10, 2004	$162,907

Deanna Stromback	December 15, 2003	$135,342

Mitchell Shaheen	July 11, 2008	$595,706

Item 4. (Removed and Reserved)

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit Number	Description
2.1	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	Amended and Restated Articles of Incorporation of Ecology Coatings, Inc., a Nevada corporation.(2)

3.2	By-laws. (1)

4.1	Form of Common Stock Certificate. (2)

10.1	Extension of Salpietra Promissory Note dated December 4, 2011(3)

10.2	BASF License Agreement.(4)

10.3**	Employment Agreement with Sally J.W. Ramsey dated December 22, 2011.(5)

10.4*	Judgment Entered by the U.S. District Court in the Shaheen v. Ecology Coatings, Inc. litigation

101*	The following financial information from the Ecology Coatings, Inc. Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2011, formatted in XBRL (eXtensible Business Reporting Language) and furnished electronically herewith: (i) CONSOLIDATED BALANCE SHEETS – ASSETS; (ii) CONSOLIDATED BALANCE SHEETS – LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT); (iii) CONSOLIDATED STATEMENTS OF OPERATIONS; (iv) STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT); (v) CONSOLIDATED STATEMENTS OF CASH FLOWS; and (vi) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

* Filed herewith.

** Management contract or compensatory plan or arrangement.

(1) Incorporated by reference from OCIS’ registration statement on Form SB-2 originally filed with the SEC on September 28, 2002 and amended on September 20, 2002, November 7, 2002 and March 27, 2003.

(2) Incorporated by reference from our Form 8-K filed with the SEC on July 30, 2007.

(3) Incorporated by reference from our Form 8-K filed with the SEC on December 15, 2011.

(4) Incorporated by reference from our Form 8-K filed with the SEC on November 29, 2011.

(5) Incorporated by reference from our Form 8-K filed with the SEC on December 22, 2011.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date:	February 20, 2012	ECOLOGY COATINGS, INC.
		(Registrant)

		By: /s/ Robert G. Crockett
		Robert G. Crockett
		Its: Chief Executive Officer
		(Authorized Officer)

		By: /s/ Kevin Stolz
		Kevin Stolz
		Its: Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

Related Party Transactions

3 Months Ended

Dec. 31, 2011

Related Party Transactions

Related Party Transactions

Note 3 — Related Party Transactions

We have borrowed funds for our operations from certain major stockholders, directors and officers as disclosed below.

Consolidated Balance Sheets (Unaudited) (USD $)

Dec. 31, 2011

Sep. 30, 2011

Current assets

Cash

$ 30,197

$ 71,784

Prepaid expenses

22,515

30,137

Current Assets

52,712

102,921

Property, plant and equipment

Computer equipment

32,000

31,650

Furniture and fixtures

22,803

40,598

213

6,057

48,177

Property, plant and equipment

149,848

149,498

Accumulated depreciation

(93,426)

(89,837)

Property, plant and equipment, net

56,422

59,661

Other

Patents-net

210,499

198,915

Trademarks-net

9,454

8,899

Other assets

219,953

207,814

Total Assets

329,087

369,396

Current liabilities

Accounts payable

40,030

27,945

Credit card payable

4,248

Accrued liabilities

84,704

217,951

Interest payable

447,024

405,274

Notes payable

250,000

Notes payable - related party

843,500

900,332

Preferred dividends payable

8,402

31,566

Total current liabilities

1,677,908

1,833,068

Stockholders' deficit

Preferred stock - 10,000,000 $.001 par value shares authorized; 2,122 and 1,938 shares issued and outstanding as of December 31, 2011 and September 30, 2011, respectively

Common stock - 90,000,000 $.001 par value shares authorized; 16,331,882 and 14,158,506 issued and outstanding as of December 31, 2011 and September 30, 2011, respectively

16,331

14,159

Additional paid-in capital

27,878,171

27,296,580

Accumulated deficit

(29,243,330)

(28,774,419)

Total stockholders' deficit

(1,348,821)

(1,463,673)

Total Liabilities and Stockholders' Deficit

$ 329,087

$ 369,396

Concentrations

3 Months Ended

Dec. 31, 2011

Concentrations

Concentrations

Note 2 — Concentrations

For the three months ended December 31, 2011 and 2010, we had revenues of $2,049 and $2,470, respectively. Four customers accounted for all of our revenues for the three months ended December 31, 2011 and one customer accounted for all of our revenues for the three months ended December 31, 2010. As of December 31, 2011 and 2010, no amounts were due from our customers.

Consolidated Balance Sheets (Parenthetical) (USD $)

Dec. 31, 2011

Sep. 30, 2011

Common Stock, par or stated value

$ 0.001

Common Stock, shares authorized

90,000,000

Common Stock, shares issued

16,331,882

14,158,506

Common Stock, shares outstanding

16,331,882

14,158,506

Preferred Stock, par or stated value

$ 0.001

Preferred Stock, shares authorized

10,000,000

Preferred Stock, shares issued

2,122

1,938

Preferred Stock, shares outstanding

2,122

1,938

Document and Entity Information (USD $)

3 Months Ended

Dec. 31, 2011

Jan. 31, 2012

Document and Entity Information

Entity Registrant Name

ECOLOGY COATINGS, INC.

Document Type

10-Q

Document Period End Date

Dec. 31, 2011

Amendment Flag

false

Entity Central Index Key

0001173313

Current Fiscal Year End Date

--09-30

Entity Common Stock, Shares Outstanding

16,331,882

Entity Filer Category

Smaller Reporting Company

Entity Current Reporting Status

Yes

Entity Voluntary Filers

Entity Well-known Seasoned Issuer

Document Fiscal Year Focus

2012

Document Fiscal Period Focus

Entity Public Float

$ 1,175,895

Consolidated Statements of Operations (Unaudited) (USD $)

3 Months Ended

Dec. 31, 2011

Dec. 31, 2010

Revenues

$ 2,049

$ 2,470

Officer salaries and fringe benefits

158,357

129,406

Professional fees

93,642

30,168

Other general and administrative expense

209,027

211,073

Total general and administrative expenses

461,026

370,647

Operating loss

(458,977)

(368,177)

Other income (expense)

Income from forgiveness of payables and debt

228,802

Other non-operating income

763

Interest expense

(46,964)

(56,525)

Total other income (expenses),net

(181,838)

(55,762)

Net Loss

(277,139)

(423,939)

Preferred dividend - beneficial conversion

(170,000)

Preferred dividends - stock dividends

(21,772)

(30,972)

Net loss available to common shareholders

$ (468,911)

$ (454,911)

Basic and diluted net loss per share

$ (0.03)

$ (0.07)

Basic and diluted weighted average shares outstanding

16,138,232

6,914,987

Going Concern

3 Months Ended

Dec. 31, 2011

Going Concern

Going Concern

Note 8 – Going Concern

Subsequent Events

3 Months Ended

Dec. 31, 2011

Subsequent Events

Subsequent Events

Note 9 — Subsequent Events

We evaluated subsequent events for potential recognition and/or disclosure subsequent to the date of the balance sheet. The following was noted for disclosure:

On January 11, 2012, we issued 30 Convertible Preferred Shares, Series C, to Fairmount 5 in exchange for $30,000. These shares can be converted into 500,000 of our common shares.

On January 27, 2012, we issued 50 Convertible Preferred Shares, Series C, to Fairmount 5 in exchange for $50,000. These shares can be converted into 833,333 of our common shares.

On February 1, 2012, James Orchard resigned from our Board of Directors.