ABVC BIOPHARMA, INC. - Annual Report: 2012 (Form 10-K)

UNITED STATES

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-K

For the fiscal year ended September 30, 2012

For the transition period from                      to                     

Commission file number: 333-91436

ECOLOGY COATINGS, INC.

(Exact name of registrant as specified in its charter)

8605 Santa Monica Blvd. Suite 41336, Los Angeles, CA  90069-4109

(Address of principal executive offices) (Zip Code)

(310) 598-7872

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Exchange Act: None.

Securities registered pursuant to Section 12(g) of the Exchange Act:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes □  No x

Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.

Yes o No x

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o No x

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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K.  □

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company.

Large accelerated filer  □                       Accelerated filer  □

Non-accelerated filer  □                         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

As of December 31 2014, approximately 54,593,032 shares of our common stock, par value $0.001 per share, were held by non-affiliates, which had a market value of approximately $545,930 based on the available OTCQB closing price of $0.01 per share on December 31, 2014.

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of December 31, 2014, the number of shares of common stock of the registrant outstanding was 54,593,032 and the number of shares of convertible preferred stock outstanding was 271.

 
FORM 10-K

ECOLOGY COATINGS, INC.

SEPTEMBER 30, 2012

TABLE OF CONTENTS

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PART I

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.

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Company Overview

The Company filed for Chapter 7 bankruptcy protection on May 15, 2013 and subsequently the corporate shell emerged as its only unencumbered asset on September 19, 2014 with all liabilities settled net of any remaining assets. The September 19, 2014 date will be 'fresh start" date used to reset the financial statements in subsequent filings. Any business description below is of the operating results reported in this filing which no longer apply to our Company.

Prior to our bankruptcy we had developed “clean tech”, EcoBloc™ enabled, ultra-violet (“UV”) curable coatings that are designed to drive efficiencies, reduce energy consumption, create new performance characteristics and virtually eliminate pollutants in the manufacturing sector.  We had created proprietary coatings with unique performance and environmental attributes by leveraging our platform of integrated clean technology products that reduce overall energy consumption.

Cleantech Products

Paper & Film – Our paper, film and packaging coatings provide:

Metals - Our metal coatings provide:

Plastics - Our coatings have improved hardness and abrasion resistance over conventional carrier-based coatings.  The coatings are also noteworthy for their ability to achieve either optical clarity or accept pigments.  Based on laboratory tests, we believe our formulations offer excellent adhesion to many common plastics, such as polycarbonate.

Glass - Our UV curable glass coatings product has achieved solid optical clarity in both high and low viscosity formulations that have significant thermal conductivity.  The product also offers adhesion between separate glass products that is less breakable than a single layer product.  Potential applications for this technology include electronics and visible light consumer products.

Electronics - Our coatings do not contain water or organic solvents that may damage delicate electronic components.  Moreover, these coatings are also UV curable and may be applied and cured without thermal shock to the substrate. We believe this technology also offers potential for various electronics applications, including RFIDs

Medical - We have successfully developed a flexible, urethane based coating used to bond metal and plastic parts for use on a cardiovascular device.

License Arrangements

The Company was not successful in generating substantial licensing or sales revenue and our coatings have been incorporated into only a few manufacturers’ products.  Many of our potential customers require extensive performance tests of our technology which can take several years to complete.   In addition, some potential customers are concerned about our long-term financial viability.  Licenses signed with DuPont in 2004 and Red Spot in 2005 have not generated any royalties.  We signed a non-exclusive license with BASF Coatings GmbH in November 2011 for the use of four of our patents worldwide. BASF Coatings GmbH has the right to sub-license its rights in these patents.  

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Intellectual Property

Assets included in these financial statements liquidated during the bankruptcy include:

Employees

As of September 30, 2012, we had five full-time employees and one part-time employee.  As of that date, we had employment agreements with four of our employees.

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.

The Company has filed for chapter 7 bankruptcy with the United States Bankruptcy Court

On May 15, 2012 the Company filed for chapter 7 bankruptcy protection. The Company emerged from bankruptcy protection on September 19, 2014 with its only asset the corporate shell trading on OTC market. There is no guarantee that the company can use its fresh start to successfully launch a new business plan and continue to raise enough capital to continue meeting its filing requirements.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable to us since we are not an accelerated filer, a large accelerated filer or a well-known seasoned issuer under SEC rules.

ITEM 2. PROPERTIES

During 2012 and 2011 our executive office consists of approximately 800 square feet and is located at 24663 Mound Road, Warren, MI  48091.  The lease commenced on June 17, 2010 and continued through December 17, 2010 at an average rate of $1,000 per month.  We entered a new lease on these premises in May 2011 that continues through 2012 that calls for monthly rent payments of $1,000 as well as payment of the entire building’s utilities. The lessor, J.M. Land Company, is wholly owned by James Juliano, the Chairman of our Board of Directors.  We believe this space is adequate for our current needs and that suitable additional space is available on reasonable terms if required.

We also lease approximately 3,600 square feet of laboratory space at 1238 Brittain Road, Akron, Ohio 44310.  We use this facility for manufacturing, storing and testing of our products.  We are currently leasing this property on a month-to-month basis and the monthly rent is $1,200.

Since emerging from bankruptcy on September 19, 2014 the Company is not maintaining any properties.

ITEM 3.  LEGAL PROCEEDINGS

On October 26, 2010, Mitch Shaheen, one of our note holders, filed suit in the United States District Court for the Eastern District of Michigan seeking repayment of principal, interest and attorney fees for amounts under promissory notes we issued to him in the original principal amount of $250,000 with 25% interest.  As of September 30, 2011, Mr. Shaheen claims he is owed approximately $590,000.  This resulted in a judgment claim against the Company for $604,330.

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ITEM 4. [Removed and Reserved]

PART II

Market Prices

Our common stock, par value $.001 per share (the “Common Stock”), is currently quoted on the OTCQB under the symbol “ECOC”. The high/low market prices of our common stock were as follows for the periods below, as reported on www.OTCQB.com. The quotations below reflect inter-dealer bid prices without retail markup, markdown, or commission and may not represent actual transactions.

As of September 30, 2012, we had approximately 400 shareholders of record of our common stock.  

Dividends

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

Securities Authorized For Issuance Under Equity Compensation Plans

Our shareholders approved the 2007 Stock Option Plan and authorized 4,500,000 common shares to be reserved for options exercised under the plan.  In fiscal year 2008, our Board of Directors authorized an additional 1,000,000 common shares to be reserved for exercises under the plan. On February 7, 2011, our shareholders ratified and approved 5,500,000 common shares to be reserved for exercises under the plan. There were no stock options exercised from September 30, 2012 until we filed for bankruptcy on May 15, 2013. As part of our bankruptcy agreement all common conversion rights of any kind including the equity compensation plan without limitation , warrants, options and convertible notes are cancelled and extinguished.

Recent Issuances of Unregistered Securities

Set forth below is a description of all of our sales of unregistered securities during the fiscal year ended September 30, 2012.  All sales were made to “accredited investors” as such term is defined in Regulation D promulgated under the Securities Act of 1933, as amended (the “Act”). All such sales were exempt from registration under Section 4(2) of the Act, as transactions not involving a public offering. We did not pay any commissions to third parties in connection with the sales.

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ITEM 6  SELECTED FINANCIAL DATA

ITEM 7  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 immediate additional capital sufficient to finance our working capital requirements, as well as any investment of plant, property and equipment; develop a sales and marketing infrastructure; identify and maintain relationships with third party suppliers who can provide us a reliable source of raw materials; acquire, develop, or identify for our own use, a manufacturing capability; attract and retain talented individuals; continue operations during periods of 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. 

Overview

The Company filed for Chapter 7 bankruptcy protection on May 15, 2013 and subsequently emerged on September 19, 2014 with all liabilities settled and the corporate shell as its only asset. The September 19, 2014 date will be 'fresh start" date used to reset the financial statements in subsequent filings. Any business description below is of the operating results reported in this filing which no longer apply to our Company.

Prior to our bankruptcy we had developed “clean tech”, EcoBloc™ enabled, ultra-violet (“UV”) curable coatings that are designed to drive efficiencies, reduce energy consumption, create new performance characteristics and virtually eliminate pollutants in the manufacturing sector.  We had created proprietary coatings with unique performance and environmental attributes by leveraging our platform of integrated clean technology products that reduce overall energy consumption.

Operating Results

Years Ended September 30, 2012 and 2011

Results From Operations

Revenues. Product sales generated revenues of $5,714 for the fiscal year ended September 30, 2012. We had $3,190 in revenue for the fiscal year ended September 30, 2011.  

Operating Expenses.   The decrease of approximately $742,000 in such expenses for the year ended September 30, 2012 compared to the year ended September 30, 2011. Professional fees decreased by approximately $75,000 and the majority of the decreases were in wage and compensation expense.

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  Income from Forgiveness of Accounts Payable. The income in this category resulted from the settlement of amounts owed to several vendors and note holders at a discount of approximately 75%. The figure for fiscal year ended September 30, 2012 represents a decrease of approximately $644,000 over the fiscal year ended September 30, 2011.

Interest Expense. The decrease of approximately $118,000 for the fiscal year ended September 30, 2012 compared to the fiscal year ended September 30, 2011 is the result of a reduction in average debt outstanding for fiscal year 2012 through repayment and settlements.

Income Tax Provision .  No provision for income tax benefit from net operating losses has been made for the years ended September 30, 2012 and 2011 as we have fully reserved the asset associated with operating loss carry forwards until realization is more likely than not.

Net Loss.   The decrease in the Net Loss of approximately $682,000 for the fiscal year ended September 30, 2011 compared to the fiscal year ended September 30, 2010 is explained in the foregoing discussions of the various expense and income categories.

Basic and Diluted Loss per Share. The change in basic and diluted net loss per share for the fiscal year ended September 30, 2012 reflects the decreased Net Loss discussed above as well as the increase in average shares outstanding of approximately 19,211,000 for fiscal year 2012.

Liquidity and Capital Resources

Current and Expected Liquidity

Cash as of September 30, 2012 and September 30, 2011 totaled $13,386 and $71,784, respectively.  Subsequent to the period end of these statements and before the issuance of this report the company filed bankruptcy under chapter 7 of the United States Bankruptcy Code. Our liabilities exceeded our assets by approximately $1,900,000 and our corporate shell which trades on the OTC market was sold unencumbered. New management has arranged for the filing of our 10K and 10Q reports through small working capital loans until a new direction can be determined for the company.

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 the most critical estimates that we must make when preparing our financial statements.

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

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.

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.

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:

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 undiscounted 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.

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

Stock-Based Compensation.   We have a stock incentive plan that provides for the issuance of stock options, restricted stock and other awards to employees and service providers. We calculate compensation expense in accordance with GAAP using a Black-Scholes option pricing model. In so doing, we estimate certain key assumptions used in the model. We believe the estimates we use, which are presented in Note 7 of Notes to the Consolidated Financial Statements, are appropriate and reasonable.

Recent Accounting Pronouncements

We evaluate all accounting pronouncements issued by the Financial Accounting Standards Board during each reporting period to assess their impact on and applicability to our accounting practices and our financial reporting and disclosures.

We have reviewed all accounting pronouncements issued by the Financial Accounting Standards Board since we last issued financial statements and have determined that none of them have a material effect on the consolidated financial statements.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our financial statements are included following the signature page to this Form 10-K commencing on page 40.

ITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A  CONTROLS AND PROCEDURES

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.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) or Rule 15d-15(f). Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was not effective as of September 30, 2012 because we lack effective monitoring of financial controls and lack segregation of duties in financial reporting due to the small size of our financial staff (1 person).

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

Changes in Internal Control over Financial Reporting

During the year ended September 30, 2012, 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.

ITEM 9B  OTHER INFORMATION

None.  

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PART III

ITEM 10  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following table sets forth as of September 30, 2012, the name, age, and position of each executive officer and director and the term of office of each such person. 

Set forth below is certain biographical information regarding each of our directors and officers as of September 30, 2012.

James Juliano.   Mr. Juliano joined our Board of Directors on June 29, 2010 as one of the Board appointments made by Equity 11.  Mr. Juliano is a Fairmount Five and  Equity 11 shareholder and, since 1981, the President and Founder of Michigan-based Omega Development Corporation, a full service general contracting services company with clients such as Best Buy, Discount Tire, Babies R Us, CVS Drugs and the University of Michigan. Mr. Juliano has extensive experience in creating and evaluating investment proposals, including acting as the lead investor for investment groups. His ability to attract investment is a valuable and important skill to us.

Joseph Nirta.   On October 20, 2008, Joseph Nirta joined our Board of Directors as one of the Board appointments made by Equity 11.  Mr. Nirta was the co-founder of BondExchange LLC and BondDesk Group LLC. The electronic bond trading platform created by Mr. Nirta revolutionized the online bond trading market. Nirta served as Bond Desk Group’s chief information officer and a board member since 1999. He has a Bachelor of Mathematics in Computer Science from the University of Waterloo, Waterloo, Ontario, and is a Certified Oracle DBA.  Mr. Nirta’s prior experience in the operation and sale of a startup company is especially valuable to us.

Sally Ramsey. Ms. Ramsey   founded our company in 1990 and serves as VP - New Product Development.  She was elected to our Board on September 13, 2010.   She was nominated to serve on our Board of Directors since she is the creator of substantially all of the Company’s intellectual property. From 1990 to the present, Ms. Ramsey served as Vice President of Ecology-California and from 1990 to November 2006 served as Secretary.  As of July 27, 2007, Ms. Ramsey was elected our Vice President of New Product Development.  Ms. Ramsey is a graduate of the Bronx School of Science and holds a B.S. in Chemistry with honors from Hiram College. Ms. Ramsey is

John M. (“Pete”) Salpietra.   Mr. Salpietra was elected to our Board of Directors on March 24, 2011.  He was nominated to serve on our Board of Directors due to financial and operational expertise.  Mr. Salpietra co-founded Val-Tec Plastics, a manufacturer of plastic injection molds, in 2005 and is a shareholder.  In addition, since 2005, Mr. Salpietra has been the majority owner and managing partner of Moose Ridge Golf Course in South Lyon, MI.  Mr. Salpietra retired from C.H. Robinson Company in 2005 as its National Vice President.  Mr. Salpietra attended Youngstown State University (1972-1976).  Mr. Salpietra founded the Salpietra Family Charitable Foundation in 2007 and has funded an endowed scholarship at Youngstown State University. 

F. Thomas Krotine.   Since October 30, 2006, Mr. Krotine has served as our President and from October 30, 2006 until August 15, 2007, he served as our Chief Executive Officer.  From August 15, 2007 to April 2011, he also served as the Chief Operating Officer.  From April 2011, he served as our Vice President – Business Development.  Mr. Krotine is an industry veteran with extensive coatings industry and materials-based experience.  From 2001 to 2006, Mr. Krotine was a Principal of TBD Associates, a technology and business development consulting company.   From 1996 to 2001, he served as Chairman of CV Materials, a privately-held a supplier of porcelain enamel materials and coatings.  Prior to his role at CV Materials, from 1992 to 1996 he was the Manager of TK Holdings, a private company which he formed to acquire equity holdings in small-to-medium-sized manufacturing companies.  From 1990 to 1992, he served as a Vice President at Valspar, a publicly-held coatings company, where he managed Valspar’s North American powder coating business.  From 1980 to 1990, he served as Senior Vice President at Sherwin-Williams Company, a publicly-held paint and coatings concern, where he was responsible for technology management and corporate environmental and health compliance.  Mr. Krotine holds a B.A., an M.S. and a Ph.D. in Metallurgy and Materials Science from Case Western Reserve University in Cleveland, Ohio.

Daniel V. Iannotti.   Mr. Iannotti served as our General Counsel and Secretary from August 11, 2008 to March 23, 2010 and rejoined us on May 17, 2010.  From 2004 to 2008, Mr. Iannotti served as a Principal of TheGeneralCounsel.com.  From 2003 to 2004, he served as the General Counsel and Secretary of Origen Financial, LLC.  During his career, Mr. Iannotti previously

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served as general counsel for three publically held companies including Prodigy Communications, Hoover’s, Inc. and Origen Financial.  He also spent several years as a staff attorney for Ameritech, now AT&T.  Mr. Iannotti holds a BA and MBA from Michigan State University. He received his Juris Doctor degree, cum laude , from the Wayne State University Law School, where he was an editor of the Wayne Law Review .  Iannotti is licensed to practice law in Michigan and Illinois.

Kevin Stolz.   Mr. Stolz became our Controller and Chief Accounting Officer on February 1, 2007 and our Chief Financial Officer on March 26, 2009.  From 1999 until 2007, Mr. Stolz was the principal of Kevin Stolz and Associates, Ltd., a Troy, Michigan-based management consulting firm specializing in providing financial and operations consulting services.  From 1985 to 1987, Mr. Stolz worked as an auditor at Coopers & Lybrand, a public accounting firm, and from 1988 to 1992 he worked in commercial lending at JP Morgan/Chase.  From 1997 to 1999, he was the Vice President of Manufacturing of Unique Fabricating, Inc. a privately held Detroit automotive supplier; from 1996 to 1997, a Controller at Broner Glove and Safety, Inc. a privately held wholesale distributor, and; from 1992 to 1995 the Director of Operations for Virtual Services, Inc., a privately held computer services firm.  Mr. Stolz has an M.B.A. from the University of Notre Dame and a B.B.A. in Accounting from the University of Portland.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

   Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers and persons holding more than 10% of a registered class of the equity securities of the Company to file with the SEC and to provide us with initial reports of ownership, reports of changes in ownership and annual reports of ownership of common stock and other equity securities of the Company. Based solely on a review of the reports furnished to us, or written representations from reporting persons that all reportable transaction were reported, we believe that during the fiscal year ended 2011, our officers, directors and greater than ten percent owners timely filed all reports they were required to file under Section 16(a).

Code of Ethics

We have adopted a Code of Ethics that applies to all directors and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.  Our Code of Ethics is posted on our website at:   http://www.ecologycoatings.com/profiles/investor/Governance.asp?BzID=1672 . We intend to disclose future amendments to certain provisions of the Code of Ethics, or waiver of such provisions granted to executive officers and directors, on our website within four business days following the date of such amendment or waiver.

ITEM 11. EXECUTIVE COMPENSATION

We seek to have compensation programs for our Named Executive Officers that achieve a variety of goals, including to:

The Board’s Compensation Committee is comprised of Messrs. DeMiro, Salpietra and Orchard.  In determining executive compensation for fiscal 2011, the Compensation Committee continued its process to focus more on pay-for-performance objectives, to attempt to better link pay and performance, and to assure that its compensation practices are competitive with those in the industry and consistent with our ability to pay such compensation. The Chief Executive Officer, as he did for fiscal 2009 and fiscal 2010, assisted the Board of Directors in determining compensation for the other Named Executive Officers.

Overview.   Total compensation paid to our executive officers is divided among two principal components, salaries and stock option awards.

Base Salary.   We pay our executives a base salary, which we review and adjust consistent with our level of working capital. We believe that a competitive base salary is a necessary element of any compensation program. Base salaries are established based on the individual position, responsibility, experience, skills, historic salary levels and the executive’s performance during the prior year. We are also seeking over a period of years to align base compensation levels comparable to our competitors and other companies similarly situated. We do not view base salaries as primarily serving our objective of paying for performance.

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Equity Compensation.   We believe that restricted stock awards and stock options are an important long-term incentive for our executive officers and employees and align officer interests with those of our stockholders. We review our equity compensation plan annually.

We do not have any formal plan or obligation that requires us to grant equity compensation to any executive officer on specified dates. The authority to make equity grants to our executive officers rests with our Board of Directors. The Board of Directors considers the input of our chief executive officer in setting the compensation of our other executive officers, including in the determination of appropriate levels of equity grants.

Severance and Change-in-Control Benefits.   Three of our executives have employment agreements – Messrs. Crockett, and Iannotti and Ms. Ramsey as described below.

On January 1, 2007, we entered into an employment agreement with Sally J.W. Ramsey, Vice President New Product Development, which expires on January 1, 2012. We are currently working on an extension of Ms. Ramsey’s employment agreement.  The agreement may be terminated prior to the end of the term 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 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.  Upon expiration, the agreement calls for automatic one-year renewals until terminated by either party with thirty days written notice.   On December 15, 2008, we amended the agreement to reduce Ms. Ramsey’s annual base salary to $60,000 and on May 18, 2011, we increased her annual base salary to $100,000.   On September 21, 2009, we entered into a second amendment to the employment agreement with Ms. Ramsey that amended her employment agreement to provide for an annual salary of $75,000 effective November 1, 2009.  Additionally, on April 22, 2011, she forfeited all previously issued stock options and received options to purchase 2.1 million shares of our common stock at a price of $0.20 per share. The options vested upon issuance and expire on April 22, 2021.

On September 21, 2009, we entered into an employment agreement with Robert G. Crockett, our CEO. Mr. Crockett has served as our CEO since September 15, 2008. 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. The agreement expires on September 21, 2012. Mr. Crockett will receive an annual base salary of $200,000. The Board of Directors may review Mr. Crockett’s salary to determine what, if any, increases should be made thereto. In addition, the vesting for Mr. Crockett’s previously awarded stock options was adjusted so that 22,000 stock options were to vest 12 months, 18 months and 24 months, respectively, from Mr.

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Crockett’s initial date of employment (September 15, 2008).  Mr. Crockett was also granted stock options to purchase 670,000 shares of our common stock, one-quarter of which were to vest at 30, 36, 42 and 48 months from Mr. Crockett’s initial date of employment with us (September 15, 2008) with an exercise price of $2.55 per share. On April 22, 2011, Mr. Crockett forfeited previously issued stock options and he received options to purchase 1.8 million shares of our common stock at a price of $.20 per share. The options vest in 600,000 share tranches on each of the first three anniversaries of the date of issuance.  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. Robert Crockett resigned on May 29,2012.

On September 21, 2009, we entered into an employment agreement with Daniel V. Iannotti, our Vice President, General Counsel & Secretary.  On March 23, 2010, Mr. Iannotti resigned his position and the original employment agreement was terminated. On May 17, 2010, we re-hired Daniel Iannotti as our Vice President, General Counsel & Secretary and on that date we entered into a new employment agreement with Mr. Iannotti. 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. Under his new employment agreement, Mr. Iannotti will receive an annual base salary of $100,000. The Compensation Committee of the Board of Directors may review Mr. Iannotti’s salary to determine what, if any, increases should be made thereto.  In addition, the vesting for Mr. Iannotti’s previously awarded stock options was adjusted so that 22,000 stock options were to vest 12 months, 18 months and 24 months, respectively, from Mr. Iannotti’s initial date of employment (August 11, 2008).  Mr. Iannotti was also granted stock options to purchase 14,000 shares of our common stock, one-quarter of which shall vest at 30, 36, 42 and 48 months from Mr. Iannotti’s initial date of employment with us (August 11, 2008) with an exercise price of $2.55 per share. 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 options vest in 100,000 share tranches on each of the first three anniversaries of the date of issuance. 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.

Non-Compete and Confidentiality Restrictions.   Each of the employment agreements of Ms. Ramsey and Messrs. Crockett and Iannotti has a provision that restricts each employee from using our confidential information for two years after severance or termination and restricts use of our trade secrets for as long as they qualify as trade secrets under applicable law.  Ms. Ramsey’s employment agreement has a two year restriction upon her severance or termination that prevents her from working, directly or indirectly, for any of our competitors, soliciting business from our customers or soliciting employment of our employees.  The employment agreements for Messrs. Crockett and Iannotti have a one year restriction upon their severance or termination that prevents each of them from working, directly or indirectly, for any of our competitors soliciting business from our customers or soliciting employment of our employees.

Share Retention

We do not have a share retention policy or share ownership guidelines for executive officers.

Regulatory Considerations

We account for the equity compensation expense for our employees under the rules of FASB Accounting Standard Codification 718, “Compensation — Stock Compensation,” or ASC 718.

SUMMARY COMPENSATION TABLE

The following table contains information about compensation earned (bonus) or received (all other categories of compensation) by the named executive officers for the last three fiscal years.

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GRANTS OF PLAN BASED AWARDS

The following Named Executive Officers received stock options or restricted stock awards during fiscal year 2011 as follows:

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

There were no stock options exercised from September 30, 2012 until we filed for bankruptcy on May 15, 2013. As part of our bankruptcy agreement approved on September 19, 2014 all common conversion rights of any kind including the equity compensation plan without limitation , warrants, options and convertible notes were cancelled and extinguished including those listed in the two tables below.

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STOCK OPTION EXERCISES AND VESTING OF RESTRICTED STOCK AWARDS

The following table provides information on stock option exercises and vesting of restricted stock awards of Named Executive Officers during the fiscal year ended September 30, 2012:

ITEM 12  SECURITY OWENERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Beneficial Owners

At September 30, 2012, 37,685,333 shares of our common stock, $.001 par value per share, were issued and beneficially outstanding. The following table sets forth information as of September 30, 2012 with respect to beneficial ownership of our common stock by (i) each director and executive officer acting in the capacity as such on September 30, 2012 including any person holding the position of CEO or CFO at any time during the fiscal year of 2012, (ii) each person known by us to own beneficially more than five percent of our outstanding common stock, and (iii) all directors and executive officers as a group. This table has been prepared based on 37,685,333 shares of common stock beneficially outstanding on September 30, 2012. Unless otherwise indicated, the address of each such person is c/o Ecology Coatings, Inc., 24663 Mound Road, Warren, MI  48091. All persons listed have sole voting and investment power with respect to their shares unless otherwise indicated.

*Less than 1%

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(1) Any shares of common stock that any person named above has the right to acquire within 60 days of November 30, 2011, are deemed to be outstanding for purposes of calculating the ownership percentage of such person, but are not deemed to be outstanding for purposes of calculating the beneficial ownership percentage of any other person not named in the table above.  Both Mr. Juliano and Mr. Nirta are shareholders of Equity 11 and Fairmount Five.

ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, DIRECTOR INDEPENDENCE

We anticipate that transactions with officers, directors and affiliates will be approved by a majority of the Board of Directors, including a majority of the disinterested members of the Board of Directors, and will be made on terms no less favorable to the Company than could be obtained from unaffiliated third parties.

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 September 30, 2012 and September 30, 2011, the note had an outstanding balance of $600,000 and $600,000, respectively. Accrued interest of $75,944 and $36,366 was outstanding as of September 30, 2012 and September 30, 2011, respectively.

Effective May 1, 2011, we entered into a lease with J.M. Land Co. for the office space in Warren, Michigan. J.M. Land Co. is owned by James Juliano. We pay monthly rent of $1,000, and the gas and electric utilities which historically averaged approximately $1,000 per month.   See also Note 5 - Commitments and Contingencies - Lease Agreements.

  ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

During fiscal 2012 and 2011, UHY LLP provided various audit, audit related and non-audit services to us and resigned on February 3, 2012. Silberstein, Unger, PLLC was out auditor from that date until their resignation on January 4, 2013. Our fees were as follows :

Audit Fees.   Audit Fees consists of fees for professional services rendered by our principal accountants for the contemporaneous audit of our annual financial statements and the review of quarterly financial statements or services that are normally provided by our principal accountants in connection with statutory and regulatory filings or engagements.

Audit Related Fees.   Audit Related Fees consists of fees for assurance and related services by our principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.”

 Tax Fees and All Other Fees.   Tax Fees and All Other Fees Consists of fees for products and services provided by our principal accountants, other than the services reported under “Audit Fees,” “Audit-Related Fees” and “Tax Fees” above.

ITEM 15.  EXHIBITS

CONSOLIDATED BALANCE SHEETS - ASSETS

CONSOLIDATED BALANCE SHEETS – LIABILITIES AND STOCKHOLDERS’   DEFICIT

CONSOLIDATED STATEMENTS OF OPERATIONS

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CONSOLIDATED   STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

CONSOLIDATED STATEMENTS OF CASH FLOWS

*            Filed herewith.

(1) Incorporated by reference from our Form 8-K filed with the SEC on November 1, 2011.

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

(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 December 16, 2011.

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

(6) Incorporated by reference from our Form 8-K filed with the SEC on January 3, 2012.

(7) Incorporated by reference from our Form 8-K filed with the SEC on January 18, 2012.

(8) Incorporated by reference from our Form 8-K filed with the SEC on February 6, 2012.

(9) Incorporated by reference from our Form 8-K filed with the SEC on February 14, 2012.

(10) Incorporated by reference from our Form 8-K filed with the SEC on February 28, 2012.

(11) Incorporated by reference from our Form 8-K filed with the SEC on March 29, 2012.

(12) Incorporation by reference from our Form 8-K filed with the SEC on April 17, 2012.

(13) Incorporation by reference from our Form 8-K filed with the SEC on May 1, 2012.

(14) Incorporation by reference from our Form 8-K filed with the SEC on May 21, 2012.

(15) Incorporation by reference from our Form 8-K filed with the SEC on June 4, 2012.

(16) Incorporation by reference from our Form 8-K filed with the SEC on June 7, 2012.

(17) Incorporation by reference from our Form 8-K filed with the SEC on June 16, 2012.

(18) Incorporation by reference from our Form 8-K filed with the SEC on July 2, 2012

(19) Incorporation by reference from our Form 8-K filed with the SEC on July 2, 2012.

(20) Incorporation by reference from our Form 8-K filed with the SEC on August 16, 2012.

(21) Incorporation by reference from our Form 8-K filed with the SEC on August 23, 2012.

(22) Incorporation by reference from our Form 8-K filed with the SEC on September 28, 2012.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, this 16th day of February 15, 2015.

     Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by following persons on behalf of the Registrant and in the capacities and on the dates indicated.

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John Scrudato CPA

CERTIFIED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Ecology Coatings, Inc

We have audited the accompanying balance sheet of Ecology Coatings, Inc. as of September 30, 2012 and 2011 and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ecology Coatings, Inc. as of September 30, 2012 and 2011, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that Ecology Coatings, Inc. will continue as a going concern. As more fully described in Note 9, the Company had an accumulated deficit at September 30, 2012, a net loss and net cash used in operating activities for the fiscal year then ended. These conditions raise substantial doubt about the ability of the Company to continue as a going concern. Management’s plans in regards to these matters are also described in Note 9. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

/s/ John Scrudato CPA

Califon, New Jersey
February 8, 2015

7 Valley View Drive Califon, New Jersey 07830 (908)534-0008

Registered Public Company Accounting Oversight Board Firm

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ECOLOGY COATINGS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2012 AND SEPTEMBER 30, 2011

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.  The Company filed for Chapter 7 bankruptcy protection on May 15, 2013 and subsequently emerged on September 19, 2014 with all liabilities settled and the corporate shell as its only unencumbered asset. The September 19, 2014 date will be 'fresh start" date used to reset the financial statements in subsequent filings. Any business description below is of the operating results reported in this filing which no longer apply to our Company.

Reclassifications.   Reclassifications have been made to the prior year financial statements to conform with the current year 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 share and 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 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 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 ratable 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.

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 September 30, 2012 and September 30, 2011, there were 375,048 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:

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 September 30, 2012 and are being amortized over 8 years.

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        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.

Recent Accounting Pronouncements

We have reviewed all Accounting Standards Updates issued by the Financial Accounting Standards Board since we last issued financial statements and have determined none of them would have a material effect on the consolidated financial statements upon adoption.

Note 2 — Concentrations

For the year ended September 30, 2012 and 2011, we had revenues of $5,714 and $3,190, respectively. One customer accounted for all of our revenues for the years ended September 30, 2012 and 2011.  

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 September 30, 2012 and September 30, 2011, the note had an outstanding balance of $110,500.  The accrued interest on the note was $28,917 and $27,555 as of September 30, 2012 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 September 30, 2012 and September 30, 2011, the note had an outstanding balance of $133,000.  The accrued interest on the note was $34,812 and $28,281 as of September 30, 2012 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 September 30, 2012 and September 30, 2011, the note had an outstanding balance of $600,000.  On June 26, 2012, we issued a note for $40,000 to Mr. Salpietra. The note bears interest at 5% per annum, is unsecured, and matures on September, 26, 2012.Additionally, on June 28, 2012, we issued a note for $100,000 to Mr. Salpietra. The note bears interest at 5% per annum, is unsecured, and matures on September, 28, 2012. Accrued interest on all notes was $75,944 and $36,648 as of September 30, 2012 and September 30, 2011, respectively.  

Effective May 1, 2012, we entered into a lease with J.M. Land Co. for office space for our headquarters. J.M. Land Co. is an entity owned by James Juliano, our Chairman. We pay monthly rent of $1,000, and the gas and electric utilities which have historically averaged approximately $1,000 per month.   See also Note 5—Commitments and Contingencies—Lease Agreements.

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.  Our balance sheet reflected a liability of $6,592 as of June 30, 2012.

On June 12, 2012, we issued a note for $30,000 to Omega Development Corporation, an entity owned by James Juliano. The note bears interest at 5% per annum, is unsecured, and matures on September, 12, 2012. Accrued interest of $371 was owed as of June 30, 2012.

We paid $27,000 in director fees to our Chairman James Juliano for the year ended September 30, 2012.  

On August 15, 2012, we issued a promissory note to Joe Nirta in the principal amount of $100,000 bearing interest at 5% per annum. The note is due in full on November 16, 2012. The note is convertible into shares of our common stock on terms mutually agreed upon by the parties.

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Note 4 — Notes Payable

We have the following notes:

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. The judgment included amounts for principal, interest and attorney’s fees. Because the notes were converted into a judgment, they are no longer in default and the amount of the judgment is reflected as of June 30, 2012 balance sheet as “Judgment Payable”.  Accrued interest of $3,027 was owing on the judgment as of June 20, 2012. See Contingencies in Note 5 herein.

 Note 5 — Commitments and Contingencies

Consulting Agreements.

  On September 17, 2008, we entered into an agreement with DAS Ventures LLC (“DAS”) under which DAS would act as a consultant to us.  DAS Ventures, LLC is wholly owned by Doug Stromback, a principal shareholder and former director and brother of Rich Stromback.   Under this agreement, DAS was to provide business development services for which it would receive commissions on licensing revenues equal to 15% of revenues and commissions on product sales equal to 3% of said sales and reimbursement for information technology expenses incurred by the consultant in the performance of duties relating to the Company. This agreement expired on September 17, 2011.  We did not record any expense for this agreement during either fiscal year 2011 or 2010.

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.

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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.

Employment Agreements.

On January 1, 2007, we entered into an employment agreement with Sally J.W. Ramsey who is our founder and serves as VP of New Product Development. The agreement expires on January 1, 2012.   She was paid an annual base salary of $180,000 in 2007.  From January 1, 2008 through December 15, 2008, she received an annual base salary of $200,000. On December 15, 2008, we amended the agreement to reduce Ms. Ramsey’s annual base salary to $60,000 and on September 21, 2009 her annual salary was increased to $75,000.  On May 18, 2011, we increased her annual base salary to $100,000. Additionally, on April 22, 2011, she forfeited previously issued stock options and received options to purchase 2.1 million shares of our common stock at a price of $0.20 per share. The options vested upon issuance and expire on April 22, 2021.

On September 21, 2009, we entered into an employment agreement with Robert G. Crockett, our CEO. Mr. Crockett has served as our CEO since September 15, 2008. The agreement expires on September 21, 2012. Mr. Crockett receives an annual base salary of $200,000.  On April 22, 2011, Mr. Crockett forfeited previously issued stock options and  he 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 September 30, 2011, Mr. Crockett had deferred $40,000 of his salary since May 2010.  

On September 21, 2009, we entered into an employment agreement with Daniel V. Iannotti, our Vice President, General Counsel & Secretary. Mr. Iannotti served as our Vice President, General Counsel from August 11, 2008 until March 23, 2010 and rejoined us on May 17, 2010. His employment agreement 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 November 18, 2009, Investment Hunter, LLC, one of our note holders, filed suit in the Supreme Court of New York for repayment of $360,920 plus 25% interest, attorneys’ fees and costs.  We have previously made payments totaling $300,000 to Investment Hunter.  On March 15, 2010, the Court found in favor of Investment Hunter, LLC and awarded it $367,000 plus interest from the date of the lawsuit. A judgment against us in the amount of $367,000 plus interest was entered on August 4, 2010.  We had accrued $440,267 including interest relating to this note, as of December 31, 2010. We settled this lawsuit on March 4, 2011 for less than the amount we had accrued.

On December 15, 2009, McLarty Associates LLC, one of our prior consultants, filed suit in the Superior Court in Washington, D.C. against us seeking an additional $150,000 from us under our consulting agreement.  We had previously paid McLarty Associates $210,000 and issued 18,000 shares of common stock. On August 5, 2010, the court granted McLarty’s motion for summary judgment and on August 6, 2010 the court entered a judgment against us in the amount of $150,000. The amount was included in accounts payable on our balance sheet as of September 30, 2010.  We settled this lawsuit on February 28, 2011 for less than the amount we had accrued.

 On September 12, 2010, Thomson Reuter (Markets), LLC filed suit in the 37th   Judicial District Court in Warren, Michigan for nonpayment of services provided in the amount of $20,297 plus interest.  We settled this lawsuit on February 28, 2011.  We settled this lawsuit on March 23, 2011 for less than the amount we had accrued.

On October 26, 2010, Mitch 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. We have recorded a liability of $559,626 on our balance sheet including interest relating to this note as of September 30, 2011.

On October 26, 2010, Semple, Marchal & Cooper, LLP, our former auditor, filed suit in the Superior Court of the County of Maricopa Arizona for nonpayment of professional fees in the amount of $37,882 plus interest.  We had accrued $61,845 in our accounts payable as of December 31, 2010 for this vendor. We settled this lawsuit on February 28, 2011.  We settled this lawsuit on January 15, 2011 for less than the amount we had accrued.

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A judgment of $604,330 was entered against us on December 30, 2011 in a lawsuit brought by Mr. Shaheen, one of our note holders, which had the effect of converting the notes into a judgment. As of September 30, 2012, our balance sheet includes $3,027 in Interest Payable accruing from the date of this judgment.

Lease Commitments.

Minimum future rental payments under the above operating leases as of September 30, 2012 are as follows:

Note 6 — Equity

 Shares.  

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. They accepted these shares, along with a cash payment, in full settlement of the amounts then owing subject to the conditions discussed in Note 1 (“ Summary of Accounting Policies”) above.

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.

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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 1,666,667 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.

On January 11, 2012, we sold 30 Convertible Preferred Shares, Series C, to Fairmount 5 for $30,000. These shares are convertible into 500,000 shares of our common stock.

On January 27, 2012, we sold 50 Convertible Preferred Shares, Series C, to Fairmount 5 for $50,000. These shares are convertible into 833,334 shares of our common stock.

On February7, 2012, we sold 10 Convertible Preferred Shares, Series C, to Fairmount 5 for $10,000. These shares are convertible into 166,667 shares of our common stock.

On February 13, 2012, 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 February 24, 2012, 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.

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On March 16, 2012, we sold 25 Convertible Preferred Shares, Series C, to Fairmount 5 for $25,000. These shares are convertible into 416,667 shares of our common stock.

On March 21, 2012, we sold 30 Convertible Preferred Shares, Series C, to Fairmount 5 for $30,000. These shares are convertible into 500,000 shares of our common stock.

On March 28, 2012, we sold 20 Convertible Preferred Shares, Series C, to Fairmount 5 for $20,000. These shares are convertible into 333,334 shares of our common stock.

On April 10, 2012, we sold 30 Convertible Preferred Shares, Series C, to Fairmount 5 for $30,000. These shares are convertible into 500,000 shares of our common stock.

On April 26, 2012, 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.

On May 4, 2012, we sold 30 Convertible Preferred Shares, Series C, to Fairmount 5 for $30,000. These shares are convertible into 500,000 shares of our common stock.

On May 29, 2012, we sold 20 Convertible Preferred Shares, Series C, to Fairmount 5 for $20,000. These shares are convertible into 333,334 shares of our common stock.

On June 1, 2012, Fairmount Five converted the balance of its Convertible Preferred Shares, Series C, into 38,207,932 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 June 30, 2012: